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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________
FORM 10-K
X Annual Report Pursuant to Section 13 or 15(d) of the Securities
- -----
Exchange Act of 1934
For the fiscal year ended January 1, 2000
_____ 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) (I.R.S. Employer
Identification No.)
4111 Mint Way, Dallas, Texas 75237
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (214) 333-3225
________________
Securities Registered Pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
------------------- -------------------
Common Stock, $0.01 par value New York Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Act:
None
________________
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant as of March 20, 2000 was $36,194,929.
As of March 20, 2000, Registrant had 14,232,269 shares of Common Stock
outstanding.
__________________
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for its 2000 Annual Meeting of
Shareholders are incorporated by reference in Part III hereof.
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Unless the context otherwise requires, references to the "Pillowtex" or the
"Company" include Pillowtex Corporation and its subsidiaries.
CAUTIONARY STATEMENT REGARDING
FORWARD-LOOKING STATEMENTS
This report and other reports and statements, including those incorporated by
reference herein, filed by Pillowtex from time to time with the Securities and
Exchange Commission contain or may contain certain forward-looking statements.
Such statements are based upon the beliefs and assumptions of, and on
information available to, Pillowtex's management. Any statements preceded by,
followed by, or that include the words "anticipates," "believes" "expects,"
"estimates," "intends," or similar expressions contained in Pillowtex's SEC
filings, as well as any other statements contained in Pillowtex's SEC filings
regarding matters that are not historical facts, are or may constitute forward-
looking statements within the meaning of the Private Securities Litigation
Reform Act of 1995.
Because such forward-looking statements are subject to various risks and
uncertainties, results and values may differ materially from those expressed in
or implied by such statements. Many of the factors that will determine these
results and values are beyond Pillowtex's ability to control or predict.
Pillowtex's shareholders are cautioned not to place undue reliance on such
statements, which speak only as of the date of the document in which they are
contained.
Pillowtex's shareholders should understand that the following important
factors, in addition to those discussed elsewhere in Pillowtex's SEC filings,
could affect Pillowtex's future results and could cause results and values to
differ materially from those expressed in or implied by such forward-looking
statements: (i) Pillowtex's significant leverage and debt service obligations;
(ii) the restrictive covenants contained in the instruments governing
Pillowtex's indebtedness; (iii) Pillowtex's ability to address the matters
giving rise to the adverse changes to results of operations experienced by
Pillowtex in 1999; (iv) the price and availability of raw materials used by
Pillowtex; (v) general retail industry conditions; (vi) Pillowtex's ability to
renew key trademark licenses; (vii) the goodwill associated with the brand names
owned by Pillowtex and Pillowtex's ability to protect its proprietary rights in
such brand names; (viii) Pillowtex's ability to retain key customers; (ix)
Pillowtex's relationships with both union and non-union employees; (x) the
influence of significant shareholders of Pillowtex; (xi) Pillowtex's dependence
on key management personnel; and (xii) the seasonality of Pillowtex's business.
The foregoing factors are discussed herein in greater detail under the caption
"Risk Factors" beginning on page 10 hereof.
PART I
ITEM 1. BUSINESS
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General
Founded in 1954, Pillowtex is one of the largest North American designers,
manufacturers, and marketers of home textile products. Pillowtex's extensive
product offerings include a full line of utility and fashion bedding and
complementary bedroom textile products, as well as a full line of bathroom and
kitchen textile products. As a leading supplier across all distribution
channels, Pillowtex sells its products to most major mass merchants, department
stores, and specialty retailers. It provides its customers with a centralized
"one-stop" source for their home textile merchandise. Pillowtex also markets
its products to wholesale clubs, catalog merchants, institutional distributors,
and international customers and on the Internet.
Pillowtex, through its operating subsidiaries, manufactures and markets its
products utilizing established and well-recognized Pillowtex-owned brand names.
In addition, through licensing agreements, Pillowtex currently has rights to
manufacture and, in some instances, market bedding products under other well-
known brand names. Pillowtex also manufactures products for customers under
their own brand names.
Pillowtex's diverse portfolio of top brand names allows it to differentiate
Pillowtex's products from those of its competitors. Pillowtex also provides
distinct brand names for different channels of retail distribution and for
different price points.
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Competitive Strengths
Pillowtex is one of the largest firms in the home textile industry and has
significant competitive strengths. Pillowtex has:
. one of the largest market shares in North America in bath towel, bed
pillow, blanket, and down comforter products; and
. a significant market share in each of the sheet, pillowcase, mattress pad,
fashion bedding, bath rug, and kitchen textile products.
Pillowtex's management team believes the following competitive strengths
enhance Pillowtex's position in the marketplace:
. Pillowtex Owns Industry Leading Brands. Pillowtex owns some of the most
recognizable brand names in the industry, including Royal Velvet(R), Cannon(R),
Fieldcrest(R), Royal Family(R), Charisma(R), St. Mary's(R), Touch of Class(R),
Royal Velvet Big & Soft(R), and Beacon(R). Furthermore, through licensing
agreements, Pillowtex currently has rights to manufacture and, in some
instances, market certain bedding products under such well-known brand names as
Ralph Lauren and Comforel(R). This diverse portfolio of top brand names enables
Pillowtex to assist its customers in coordinating their product offerings and
differentiating such offerings from those of their competitors.
. Pillowtex Has Established Strong Customer Relationships. Pillowtex has
established relationships with substantially all of the 50 top home textile
retailers in North America. These strong relationships create a stable base
from which Pillowtex can pursue future business and new product introductions.
. Pillowtex Has Developed Creative Merchandising Strategies. Through
partnerships with its customers, Pillowtex has developed extensive merchandising
programs. These partnerships have resulted in the creation of successful new
products, product mix strategies, point-of-sale concepts, and advertising
campaigns. Retail customers are increasingly demanding exclusive or specially
designed product lines to differentiate their product offerings from those of
other retailers and to implement price tiering in order to achieve higher
margins. Pillowtex will continue to collaborate with its retail customers to
design products and marketing programs responsive to individual customer's
needs.
. Pillowtex Has Maintained Low Cost Operating Capabilities. Despite the
operational inefficiencies experienced in 1999, Pillowtex believes that it is
one of the lowest cost producers of bath towels, bath rugs, sheets and other
decorative bedding products, bed pillows, blankets, down comforters, and
mattress pads in the home textile industry. Pillowtex has achieved this status
as a result of its continued emphasis on cost-containment and capital
expenditures to obtain greater plant efficiencies. Pillowtex has efficient, low
cost towel and bath rug production capabilities, including a new, state-of-the-
art towel production facility. This strategy has given Pillowtex a competitive
advantage allowing it to operate with percentages of selling, general, and
administrative expenses relative to sales that are among the lowest in the
industry.
Business Strategy
Pillowtex's strategic objectives include the following:
. Pillowtex Will Continue To Capitalize On Its Industry Leading Position.
Pillowtex will continue to leverage its market leadership by implementing sales
and marketing programs designed to facilitate a customer- driven "pull"
strategy. In addition, Pillowtex will continue to enhance product value and
facilitate greater product differentiation by cross-marketing both bed and bath
products using Pillowtex's strong brand names.
. Pillowtex Will Continue To Develop The Top "One-Stop Shop" For Home
Textiles. Pillowtex will continue to expand its broad product assortments
across diverse product lines in order to offer its retail customers a
centralized "one-stop" purchasing source for their home textile merchandise,
giving it a significant competitive advantage. Pillowtex will continue to
broaden its product assortment through the expansion of the products offered
under its existing brand names, new product development, and licensing
agreements. Pillowtex's extensive assortment of home textile products includes
fashion and utility bedding and complementary bedroom textile products, as well
as a full line of bathroom textile products.
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. Pillowtex Will Continue To Strengthen Customer Relationships. Pillowtex
has a long history of strong customer relationships with the top retailers in
the United States and Canada. Pillowtex will continue to develop these
relationships by providing value-added services, such as innovative marketing
and cross-merchandising opportunities. Pillowtex has significantly increased
the value of its services to retailers by expanding its traditional product
lines. Aside from its traditional bed pillow, blanket, down comforter, and
mattress pad product lines, Pillowtex has now added towel, bath rug, sheet,
fashion bedding, and kitchen textile product lines. With this expansion,
Pillowtex has created a centralized purchasing source. As a result, Pillowtex
has successfully used established and well-recognized Pillowtex-owned brand
names across all such product lines. Pillowtex continues to increase the use of
marketing and cross-merchandising services to create opportunities for added
sales. At the same time, Pillowtex provides retailers with more opportunities
to differentiate their product offerings from those of their competitors.
. Pillowtex Will Continue To Enhance Operational Efficiencies. Pillowtex
will continue to focus on reducing its manufacturing cost structure. Pillowtex
continually reviews its current operations and investments in automation,
equipment modernization, process improvements, and system controls throughout
all aspects of its business. Significant opportunities exist to improve
production efficiency through capital investment, improved operational
logistics, selective outsourcing, and increased utilization of information
systems. Pillowtex will complete during fiscal year 2000, a three-year program
of capital expenditures in excess of $275.0 million. As of March 4, 2000,
approximately $233.5 million had been spent under this program. Pillowtex has
used these capital expenditures principally to modernize certain acquired sheet
and towel manufacturing facilities through the addition of new machinery and
equipment. Pillowtex anticipates that approximately $50 million in capital
expenditures will be made in fiscal year 2000.
Products
General
Pillowtex has expanded beyond its traditional pillow operations largely
through strategic acquisitions, including the 1997 acquisition of Fieldcrest
Cannon and the 1998 acquisition of Leshner. As a result of all these
acquisitions, Pillowtex's extensive product offerings now include a full line of
utility and fashion bedding and complementary bedroom textile products, as well
as a full line of bathroom and kitchen textile products.
Bedding and Other Bedroom Textile Products
Bed Pillows. Pillowtex is a leading manufacturer and marketer of bed pillows
in North America. Pillowtex produces and markets a broad line of traditional
bed pillows, as well as specially designed bed pillows such as body pillows.
Pillowtex offers products at various levels of quality and price. Pillowtex's
products range from synthetic pillows sold at relatively low retail prices to
fine white goose down pillows sold at much higher price points.
Pillowtex is a leading feather and down pillow manufacturer in North America.
These products contain quality goose and duck down, or blends of feather and
down, in a range of grades. These materials, known as "natural fill," have
gained popularity for their loft and resiliency.
Pillowtex also manufactures and markets a full line of bed pillows featuring
staple (cut and crimped), tow (continuous filament), and cluster (individual
ball) synthetic fiber fills. Pillowtex is a leading supplier of premium
synthetic and latex bed pillows in North America.
Blankets. Pillowtex is a leading producer of adult blankets in North America.
It manufactures woven and non-woven conventional and thermal weave blankets and
throws in a wide assortment of fibers, including cotton, wool blend, acrylic,
and polyester. Pillowtex is the exclusive North American supplier of blankets
to Ralph Lauren. Pillowtex also markets infant blankets with products ranging
from non-woven receiving blankets to the finest Supima(R) cotton crib blankets.
Down Comforters. Pillowtex was a pioneer in marketing down comforters in the
United States, and is now a leading manufacturer and marketer of down comforters
in North America. Down comforters have become increasingly popular for both
their insulation and fashion qualities, selling well in both warm and cool
climates. They are sold at department stores, specialty stores, and mass
merchants at a variety of prices. Increasingly popular higher-end comforters
typically offer more down fill, have higher thread count shells, and feature
more appealing "surface interest", such as damask dots, stripes, and checks.
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Mattress Pads. Pillowtex is a leading manufacturer and marketer of mattress
pads in North America. It produces and markets a complete line of mattress
pads, including sizes for adults and children, natural and synthetic filled,
flat, fitted, and stretch-to-fit mattress pads (adjustable fit mattress pads
made with Lycra(R), a multidirectional stretch material produced by DuPont).
Pillowtex's stretch-to-fit mattress pads correctly fit a broad range of mattress
thicknesses, including pillow top mattresses.
Sheets and Other Fashion Bedding. Pillowtex produces a wide variety of
sheets, ranging from muslin to the finest 360-thread count 100% pima cotton
sheets. Its principal brand names for this product line include Cannon(R),
Fieldcrest(R), Royal Velvet(R), and Charisma(R). Pillowtex's sheeting strengths
include solid color sheets with coordinating decorative bedding accessories. In
addition to sheets, Pillowtex's fashion bedding products consist of matching
synthetic fill comforters, comforter covers, and pillow shams along with
coordinated ruffled or pleated bed skirts. Retail prices of Pillowtex's sheets
vary widely based on size, thread count, and fabric type.
Other Bedroom Textiles. Pillowtex also offers a variety of other
complementary bedroom textile products, including featherbeds, pillow
protectors, decorative pillows, and window treatments. These products represent
a source of additional profitability as "add-on" sales for retailers.
Bathroom Textile Products
Towels. Pillowtex's bathroom textile products include bath, hand, and
fingertip towels, washcloths, and bath mats. Royal Velvet(R), Fieldcrest(R),
Cannon(R), Charisma(R), Royal Velvet Big & Soft(R), and St. Mary's(R) are well-
known, high quality towel brand names. These brand names provide Pillowtex with
a strong market position in substantially all key sectors of the North American
market. Pillowtex is also recognized as the color leader in the towel industry
as it markets 40 colors in its Royal Velvet(R) franchise. In the marketplace,
Pillowtex differentiates its towels by using fine ring spun cotton yarns to
produce Royal Velvet(R) towels and pima cotton yarns for Charisma(R) towels.
The towel line includes solid colors, woven stripes, and fancy jacquards, as
well as printed towels. Retail prices of Pillowtex's towels range widely based
on, among other things, size, weight, and yarn type.
Bath Rugs. Pillowtex also markets a variety of bath and accent rugs in
conjunction with its towel offerings. These products come in a variety of sizes
and are marketed under the Royal Velvet(R), Cannon(R), Fieldcrest(R), Royal
Family(R), and Charisma(R) brands, as well as under private labels.
Kitchen Textile Products
Pillowtex is a leading manufacturer and marketer of kitchen textile products
in North America. Pillowtex's kitchen products include terry towels, terry dish
cloths, waffle weave and flat woven dish cloths, bar mops, utility cloths, pot
holders, and oven mitts. A variety of constructions include yarn-dye checks,
stripes, and plaids coordinating with piece-dye solids as well as printed
fashion motifs. Fabricated pot holders, oven mitts, and other coordinating
accessories accompany most of Pillowtex's kitchen ensembles.
Marketing And Sales
Pillowtex markets its products to major mass merchants, department stores, and
specialty retail stores, as well as to wholesale clubs, catalog merchants,
institutional distributors, and international customers.
Pillowtex's top ten customers accounted for approximately 49.5% of its total
net sales in 1999. Wal-Mart (including Sam's Club Stores) accounted for
approximately 20.5% of Pillowtex's total net sales in 1999. No other customer
accounted for more than 10% of Pillowtex's total net sales in 1999. Consistent
with industry practice, Pillowtex generally does not operate under long-term
written supply contracts with its customers.
Pillowtex segments its Fieldcrest portfolio of brand names by distribution
channel in order to solidify the perceived value of such brands and maintain
their integrity. Royal Velvet(R), Charisma(R), Fieldcrest(R), and Royal
Family(R) brand name bed and bath products are distributed primarily through
leading department stores, specialty home furnishing stores, and catalog
merchants. St. Mary's(R) and Cannon(R) brand name bed and bath products are
distributed through mass merchants. Pillowtex's Royal Velvet(R), Charisma(R),
and Cannon(R) brand names receive national consumer advertising. Pillowtex
sells private brands primarily through large chain stores. It also sells a
smaller amount of unbranded products to institutional and government customers.
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Pillowtex's current international business is concentrated in Canada.
However, Pillowtex also sells its products in other foreign markets, including
Asia, Australia, Europe, Mexico, and South America. Sales outside the United
States accounted for approximately 6.0% of total sales in 1999, 7.8% in 1998 and
6.4% in 1997. During the last three years less than 5% of the Pillowtex's
assets have been located outside the United States.
In order to maximize product exposure and increase sales, Pillowtex works
closely with its major customers to assist them in merchandising and promoting
Pillowtex's products to the consumer. In addition to frequent personal
consultation with the employees of such customers, Pillowtex meets periodically
with the senior management of these customers. Pillowtex assists them in
developing joint merchandising programs, new products, product mix strategies,
point-of-sale concepts, and advertising campaigns specifically tailored to that
customer's needs. Pillowtex also provides its customers merchandising
assistance with store layouts, fixture designs, point-of-sale displays, and
advertising materials.
Pillowtex's electronic data interchange system allows customers to place, and
Pillowtex to fill, track, and bill, orders by computer. This system enables
Pillowtex to ship products on a "quick response" basis.
Pillowtex's experienced sales people generally sell Pillowtex's products.
However, the Ralph Lauren sales force sells some of the Ralph Lauren products
manufactured by Pillowtex.
Trademarks And License Agreements
Pillowtex manufactures products:
. under its proprietary Pillowtex-owned trademarks and trade names;
. under some licensed trademarks and trade names; and
. under customer-owned private labels.
Pillowtex regards its trademarks and trade names as valuable assets and
vigorously protects them against infringement. Pillowtex uses trademarks, trade
names, and private labels as merchandising tools to assist its customers in
coordinating their product offerings and differentiating their products from
those of their competitors.
Pillowtex holds the exclusive license for the highly regarded Ralph Lauren
trademark for pillows, blankets, down comforters, mattress pads, and bath rugs
in the United States and Canada. In addition, Pillowtex holds a non-exclusive
license to manufacture, and in certain cases sell, a variety of fashion bedding
products under the Ralph Lauren trademark in the United States, Canada, and
Mexico. Pillowtex's licenses with Polo/Ralph Lauren Corporation expire on June
30, 2001. Upon their expiration, there can be no assurance that Pillowtex will
be able to renew the licenses on acceptable terms.
Pillowtex manufactures products for some customers under the customer's
private labels. Products manufactured under customer-owned private labels are
marketed by the customer. Pillowtex currently manufactures products for Kmart
under the MARTHA STEWART EVERYDAY(R) brand name.
Pillowtex occasionally identifies product lines for which it is more
advantageous for Pillowtex to license third parties to use its brand names for
use in the manufacture and sale of these products. These license agreements
require third parties to pay royalties to Pillowtex based upon product sales and
generally require payments of minimum annual royalties. In January 1998,
Pillowtex entered into a license agreement with Ex-Cell Home Fashions, Inc.
whereby Pillowtex granted Ex-Cell an exclusive license to manufacture, sell, and
distribute shower curtains and bath accessories under some of Pillowtex's
trademarks and trade names. In January 1999, Pillowtex entered into a license
agreement with Bardwil Industries, Inc. under which Pillowtex granted Bardwil
an exclusive license to manufacture, sell, and distribute tablecloths and other
table-top accessories under some of Pillowtex's trademarks and trade names.
See "Risk Factors - Pillowtex Is Dependent On Specific Brand Names" and "-
Pillowtex Is Dependent On Specific Key Licenses."
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Product Development
Pillowtex's product development staff creates and develops products with new
or superior performance characteristics in cooperation with various outside
sources, including its suppliers and customers. Pillowtex's ability to develop
products responsive to individual customers' needs is an important competitive
advantage. As a result, Pillowtex commits time and resources to identifying new
materials, designs, and products from a variety of domestic and international
vendors.
Manufacturing And Distribution
General
Pillowtex operates an extensive network of facilities in Texas, Alabama,
California, Georgia, Illinois, Mississippi, New York, North Carolina,
Pennsylvania, South Carolina, Virginia, and Toronto, Canada in connection with
the manufacture and distribution of Pillowtex's product lines. This nationwide
manufacturing and distribution network enables Pillowtex to ship its products
cost effectively to all major cities in North America.
In addition, Pillowtex operates 45 retail outlet stores that sell certain of
Pillowtex's products directly to customers. These stores sell both first
quality merchandise and seconds or "off-goods" at competitive retail prices.
Pillowtex believes that its retail outlet stores provide an effective channel
for the distribution of second quality merchandise.
Bedding and Other Bedroom Textile Products
Bed Pillows. The hub of the network for bed pillows is located in Dallas,
Texas, where Pillowtex operates one of the largest feather and down processing
facilities in North America. State-of-the-art computerized washing and sorting
equipment process feather and down. Pillowtex later sorts these products into a
variety of mixtures and grades used in manufacturing natural fill pillows and
comforters. Pillowtex ships raw materials, along with imported products, to its
regional facilities for final assembly and distribution to customers. Pillowtex
also operates an automated sewing facility in Dallas, Texas, where high speed
computerized machines cut and sew fabric into pillow shells.
Many of Pillowtex's regional manufacturing facilities produce natural fill and
synthetic fill pillows. Pillowtex assembles natural fill pillows by blowing
processed feather and down into the pillow shell and sewing the open seam
closed. Pillowtex produces synthetic fill pillows on machines known as garnets.
Garnets pull, comb, and expand compressed polyester fibers. Once expanded,
Pillowtex inserts the fibers into a pillow shell and sews the open seam shut.
Blankets. Pillowtex spins yarn and produces blankets at manufacturing
facilities in North Carolina and South Carolina. These plants provide full
vertical production capability, including spinning, weaving, dyeing, and
finishing.
Down Comforters. Pillowtex manufactures its line of natural fill comforters
at its California, Illinois, Mississippi, Pennsylvania, and Toronto, Canada
locations using processed down from the Dallas facility.
Mattress Pads. Pillowtex manufactures mattress pads at the California,
Mississippi, Pennsylvania, and Toronto, Canada facilities by two automated
methods. The traditional quilt sewing method uses high speed equipment that
sews the top, bottom, and fill material together. The sonic method fuses the
top, bottom, and fill material together.
Sheets and Other Fashion Bedding. Pillowtex produces bed sheet products at
its facilities in Kannapolis and Concord, North Carolina, and Union City, South
Carolina. These facilities provide a full range of Pillowtex's sheet products
for substantially all channels of distribution. Pillowtex spins cotton and
synthetic fibers into yarn and weaves the yarn into greige cloth for finishing,
dyeing, cutting, and sewing. Pillowtex produces synthetic fill comforters and
other decorative bedding products, such as pillow shams and decorative pillows,
at its Eden, North Carolina and Rocky Mount, North Carolina facilities. The
product is later packaged for shipment to retail customers.
Other Bedroom Textiles. Pillowtex manufactures other complementary bedroom
textile products, such as featherbeds, pillow protectors, decorative pillows,
and window treatments, at one or more of the facilities described above.
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Bathroom Textile Products
Towels. Pillowtex produces bath towels at its facilities in Alabama, Georgia,
North Carolina, and Virginia. Cotton and synthetic fibers are spun into yarns,
and then woven into fabric or greige cloth. The fabric is then finished, dyed,
cut, and sewn into finished towel products. Pillowtex's Fieldale, Virginia
facility generally produces the higher quality products for department and
specialty stores. The Columbus, Georgia, Phenix City, Alabama, and
Hawkinsville, Georgia facilities generally support Pillowtex's mass merchant
business channel. The Kannapolis, North Carolina facility produces both types
of products and, as a result, supports both distribution channels.
Bath Rugs. Pillowtex produces bath rugs in its Scottsboro, Alabama facility.
Pillowtex punches tufted yarn into fabric and cuts it to a uniform height.
Pillowtex then applies a latex coating to the underside of the fabric to hold
the fibers. Finally, the product is dyed, cut, and finished.
Kitchen Textile Products
Pillowtex manufactures its kitchen textile products at its facilities in
Phenix City, Alabama, Hawkinsville, Georgia, and Kannapolis, North Carolina.
Quality Control Programs
Pillowtex has quality control programs in place to ensure that its products
meet quality standards established both internally and by its customers.
Pillowtex devotes significant resources to support its quality improvement
efforts. Each manufacturing facility has a quality control team that identifies
and resolves quality issues. Pillowtex attempts to maintain close contact with
customer quality control or other appropriate personnel to ensure that Pillowtex
understands the customers' requirements. Pillowtex also has programs with its
major suppliers to ensure the consistency of purchased raw materials by imposing
strict standards and materials inspection, and by requiring rapid response to
Pillowtex's complaints.
Raw Materials And Imports
General
The principal raw materials that Pillowtex uses in manufacturing its various
product lines are:
. cotton;
. feather and down;
. synthetic (polyester and acrylic) fibers; and
. cotton and polyester-cotton blend fabrics.
A wide variety of sources offer these materials and Pillowtex currently expects
no significant shortage of these materials. Management believes that its
relationships with its suppliers are generally good. See "Risk Factors-
Pillowtex Is Dependent On Specific Raw Materials."
Cotton
Domestic cotton merchants are Pillowtex's primary source of cotton.
Pillowtex uses significant quantities of cotton. To reduce the effect of
potential price fluctuations in cotton prices, Pillowtex makes commitments for a
portion of its anticipated future purchases of cotton.
Feathers and Down
Pillowtex imports feather and down from several sources outside the United
States. Pillowtex purchases a majority of these products from China, where
feather and down are by-products of ducks and geese raised for food. Pillowtex
generally purchases feather and down from its suppliers in China on open credit
terms without letters of credit. Pillowtex also purchases some feather and down
from suppliers in Europe.
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Synthetic Fibers
Domestic fiber producers are Pillowtex's primary source of synthetic
fibers. Pillowtex purchases synthetic fiber from, among others, E.I. DuPont de
Nemours & Co., Wellman, Inc., Solutia, Cytec Industries Inc., Kosa, and
Kanematsu U.S.A. Inc. To reduce the effect of potential price fluctuations,
Pillowtex makes commitments for a portion of its anticipated future purchases of
synthetic fibers.
Fabric
Pillowtex uses fabric purchased from third parties in the production of
pillow shells, comforter covers, and various other products. Although the
Company believes that fabric is a commodity-type product, it currently purchases
large quantities of pillow ticking fabric from a single supplier, Santee Print
Works, to control costs and assure quality. Consistent with industry practice,
Pillowtex and Santee Print Works have not entered into a long-term supply
contract. However, to reduce the effect of potential price fluctuations, the
Company occasionally makes commitments for future purchases from Santee Print
Works. In addition, Pillowtex imports the majority of its down comforter shells
from China and India.
Other
Some of Pillowtex's stretch-to-fit mattress pads use Lycra(R) skirting.
Because of DuPont's patent on Lycra(R), it is the exclusive supplier of this
material. Management believes that the risk that DuPont will cease to
manufacture and sell Lycra(R) is minimal.
Competition
Pillowtex participates in a highly competitive industry. It competes with a
number of established manufacturers, importers, and distributors of home textile
furnishings, some of which have greater financial, distribution, and marketing
resources than does the Company. Pillowtex competes on the basis of price,
quality, brand names, and service. See "-Competitive Strengths" and "-Business
Strategy" above.
Government Regulation
Pillowtex must comply with various federal, state, and local environmental
laws and regulations governing the discharge, storage, handling, and disposal of
various substances. The Company must also comply with federal and state laws
and regulations that require certain of its products to bear product content
labels containing specified information, including their place of origin and
fiber content. In addition, a variety of federal, state, local, and foreign
laws and regulations relating to worker safety and health, advertising,
importing and exporting, and other general business matters, govern Pillowtex's
operations. Laws and regulations may change, and Pillowtex cannot predict what
effect, if any, changes in various laws and regulations might have on its
business.
Backlog
A number of factors affect the amount of Pillowtex's backlog orders at any
particular time. These factors include seasonality and scheduling of the
manufacturing and shipment of products. In addition, in 1999, Pillowtex
experienced disruptive operational difficulties in connection with the
installation of new production and warehousing computer systems and new
production equipment that affected the level of backlog orders. See "-Risk
Factors - Pillowtex Experienced Adverse Changes In Its Results of Operations For
Its 1999 Fiscal Year." In general however, Pillowtex's electronic data
interchange and "quick response" capabilities have resulted in shortened lead
times between submission of purchase orders and delivery and have lowered the
level of backlog orders. Consequently, Pillowtex believes that the amount of
its backlog is not an appropriate indicator of levels of future production.
9
<PAGE>
Employees
As of March 24, 2000, Pillowtex had approximately 14,000 employees.
As of March 24, 2000, Pillowtex and/or its subsidiaries had entered into the
following collective bargaining agreements:
<TABLE>
<CAPTION>
Approximate
Number of
Bargaining Unit
Union Location Covered Expiration Employees
------ -------------------------------- ----------- ---------------
<S> <C> <C> <C>
Union of Needletrades, Industrial and Textile Workers Phenix City, Alabama; 02/01/03 7,915
Columbus, Georgia;
Concord, North Carolina;
Eden, North Carolina;
Kannapolis, North Carolina;
Salisbury, North Carolina;
and Fieldale, Virginia
Union of Needletrades, Industrial and Textile Workers Phenix City, Alabama; 10/01/01 426
Hawkinsville, Georgia; and
Macon, Georgia
Union of Needletrades, Industrial and Textile Workers Toronto, Ontario, Canada 03/31/00* 194
United Auto Workers Tunica, Mississippi 07/31/03 333
Warehouse, Mail Order, Office, Technical Chicago, Illinois 01/31/03 168
and Professional Employees (Teamsters)
*This agreement is currently being re-negotiated and is
operating under a month to month letter of extension.
</TABLE>
As of March 24, 2000, approximately 39% of Pillowtex's employees had chosen to
have union dues deducted from their pay checks.
Since 1991, the Union of Needletrades, Industrial and Textile Workers (UNITE)
had campaigned to organize hourly workers at Pillowtex plants in Concord, North
Carolina, Kannapolis, North Carolina and Salisbury, North Carolina. In June
1999, UNITE was elected as a bargaining representative for hourly workers at
those plants. In February 2000, Pillowtex and UNITE entered into a contract
covering employees at those plants, as well as the employees represented by
UNITE at Pillowtex's plants in Eden, North Carolina; Phenix City, Alabama;
Columbus, Georgia; and Fieldale, Virginia.
Pillowtex believes that it has good relationships with both its union and non-
union employees generally.
Risk Factors
Pillowtex and its businesses are subject to a number of risks including those
enumerated below. Any or all of such risks could have a material adverse effect
on the business, financial condition, results of operations or prospects of
Pillowtex or on the market price of Pillowtex's Common Stock. See also
"Cautionary Statement Regarding Forward-Looking Statements" above.
Pillowtex Has Significant Leverage And Liquidity Concerns
Leverage. Pillowtex is highly leveraged. At January 1, 2000, Pillowtex had
total outstanding long-term debt (including the current portion of long-term
debt) of $1,051.1 million and total shareholders' equity of $207.4 million as
compared to total outstanding long-term debt (including the current portion of
long-term debt) of $956.9 million and total shareholders' equity of $237.9
million at January 2, 1999. This increase in indebtedness is primarily due to :
. increased accounts receivables due to slower collections resulting in part
from the conversion to new production and warehousing computer systems and
increased customer deductions;
. capital expenditure projects; and
. net losses experienced in the third and fourth quarters (see "-Pillowtex
Has Experienced Adverse Changes In Its Results of Operations For Its 1999
Fiscal Year").
10
<PAGE>
The level of Pillowtex's debt could have important consequences to its business
activities, including:
. substantially all of Pillowtex's cash flow from operations must be
dedicated to scheduled debt service and capital expenditures and
accordingly, will not be available for other purposes;
. Pillowtex's level of debt could make it difficult to obtain additional debt
financing in the future, even if needed for working capital or capital
expenditures; and
. Pillowtex's level of debt could limit its flexibility in reacting to
changes in its industry or general economic conditions.
Liquidity. Pillowtex's ability to service its debt and other obligations will
depend upon its future operating performance. Prevailing economic conditions
and financial, business, and other factors will affect Pillowtex's future
operating performance. See "-Pillowtex Experienced Adverse Changes In Its
Results of Operations For Its 1999 Fiscal Year." Because a significant portion
of Pillowtex's debt bears interest at a floating rate, Pillowtex's ability to
service its debt and other obligations will also depend on prevailing interest
rates and general financial conditions.
The availability of borrowings under Pillowtex's senior secured revolving
credit facility will also affect Pillowtex's future operating performance and
its ability to service debt and other obligations. The revolving credit facility
includes $55.0 million of availability for letters of credit. At March 24, 2000,
$37.4 million of letters of credit were outstanding. At March 24, 2000,
Pillowtex had $43.2 million available for borrowing under the senior secured
revolving credit facility.
As a result of Pillowtex's acquisition of Fieldcrest Cannon, the outstanding
6% Convertible Subordinated Debentures due 2012 of Fieldcrest Cannon are
convertible, at the option of the holders, into a combination of cash and
Pillowtex's Common Stock. During the fourth quarter of 1999, Pillowtex notified
the holders of the 6% Convertible Debentures that it was not practicable or
prudent for the Company to make payments in respect of the conversion of the 6%
Convertible Debentures. The Company advised holders that had given notice of
conversion and surrendered their 6% Convertible Debentures that they could
rescind their notice of conversion. As of March 24, 2000, the cash component
due in respect of the 6% Convertible Debentures that had been surrendered
without subsequent rescission was $9.1 million. In addition, as of March 24,
2000, $96.5 million aggregate principal amount of the 6% Convertible Debentures
remained outstanding. If all such outstanding 6% Convertible Debentures were
converted at such date, the resulting cash component to be paid to the holders
of the 6% Convertible Debentures would have been approximately $61.0 million.
Pillowtex is currently prohibited under the terms of its senior subordinated
debt from making payments in respect of the 6% Convertible Debentures except for
interest and at maturity or pursuant to sinking fund obligations. Pillowtex has
initiated discussions with certain holders of its 6% Convertible Debentures
regarding a potential restructuring of the 6% Convertible Debentures. Any
comprehensive restructuring of the 6% Convertible Debentures involving cash
payments (other than pursuant to sinking fund obligations) would likely require
the consent of the holders of Pillowtex's senior subordinated debt. The Company
cannot guarantee that it will be able to restructure the 6% Convertible
Debentures nor can it predict the terms of any potential restructuring of that
debt. See "Risk Factors - Pillowtex Faces Restrictions Imposed By Terms Of Its
Debt."
In any event, Pillowtex will require substantial amounts of cash to fund-
scheduled payments of principal and interest on its outstanding debt, future
capital expenditures, and any increased working capital requirements. If the
Company is unable to meet its cash requirements out of cash flow from operations
and available borrowings, it cannot be certain that it will be able to obtain
alternative financing. In the absence of such financing, the Company could be
limited in its ability to:
. respond to changing business and economic conditions generally;
. absorb adverse operating results; or
. fund capital expenditures, if any.
Effective as of March 31, 2000, the maturity date of Pillowtex's senior
secured debt was shortened to January 31, 2002. Pillowtex cannot guarantee that
it will be able to extend such maturity date or refinance such debt on
acceptable terms on or prior to January 31, 2002.
11
<PAGE>
Pillowtex Faces Restrictions Imposed By Terms Of Its Debt
Instruments governing Pillowtex's debt restricts, among other things, the
Company's ability, and the ability of its subsidiaries, to:
. incur additional debt;
. pay dividends or make other restricted payments (including payment on
subordinated debt);
. incur liens to secure equal or subordinated debt;
. make investments, loans or advances;
. make capital expenditures;
. sell stock of subsidiaries;
. make asset sales and utilize net proceeds from permitted asset sales;
. merge or consolidate with any other person;
. sell, assign, transfer, lease, convey, or otherwise dispose of
substantially all of its assets;
. enter into transactions with affiliates; and
. incur debt that is subordinate in right of payment to any debt and senior
in right of payment to its senior subordinated debt.
At the end of its 1999 fiscal year, Pillowtex was not in compliance with
certain financial covenants under its senior secured credit facilities. The
Company obtained a series of temporary waivers of this non-compliance and, on
March 31, 2000, obtained a permanent waiver of this non-compliance and an
amendment that eliminated or modified the financial covenants in its senior
secured credit facilities effective for the January 1, 2000 measurement date, as
well as all future measurement dates. The Company believes that it will be able
to comply with the amended financial covenants in the future; however, there can
be no assurance of such compliance. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations Liquidity and Capital Resources."
A breach of any of the covenants contained in the senior secured credit
facilities could result in a default or event of default under the terms of
these facilities. Upon the occurrence of an event of default: the senior lenders
would not be obligated to make additional advances under the revolving credit
facility; the senior lenders would be entitled to declare all amounts
outstanding under the senior secured credit facilities, including accrued
interest or other obligations, to be immediately due and payable; the senior
lenders would have the rights to block payment on substantially all of
Pillowtex's other long-term debt; and the senior lenders would be entitled to
proceed against the collateral granted to them to secure the senior debt. In
these circumstances, cross defaults could occur making substantially all of
Pillowtex's other long-term debt due. If any senior debt were to be accelerated,
the Company cannot be certain that its assets would be sufficient to repay in
full that debt and its other debt.
Pillowtex Experienced Adverse Changes In Its Results Of Operations For Its
1999 Fiscal Year
Pillowtex had a net loss applicable to common shareholders of $31.8 million
for its 1999 fiscal year, as compared to net earnings available to common
shareholders of $40.8 million in its 1998 fiscal year. The net loss for 1999
was attributable primarily to :
. Plant disruptions and operating inefficiencies related to the installation
of new production and warehousing computer systems and equipment;
. Non-cash charges associated with the payment of a special catch-up dividend
to the holders of Pillowtex's preferred stock as a result of the Company's
failure to meet specified earnings levels for the 1999 fiscal year;
. Higher interest expense due to higher level of debt and waiver fees;
. Higher than planned costs associated with marketing initiatives;
12
<PAGE>
. Inventory write-downs, primarily relating to blanket inventory;
. Unabsorbed overhead costs attributable to the idling of selected operations
as part of an inventory reduction initiative and installation of new
computer systems and equipment; and
. Lower average selling prices and therefore, margins attributable to a
change in sales mix as part of the inventory reduction initiative.
While Pillowtex completed the installation of its new computer systems in late
1999, the installation of major pieces of new equipment under the Company's
ongoing three-year capital improvement program will continue in 2000. Pillowtex
believes that its plants are now running more efficiently and that the accuracy
and timeliness of its shipments and its billing and collection procedures have
improved. However, the Company cannot be certain that it will not encounter
during the 2000 fiscal year or subsequent periods further disruptions or
inefficiencies or that it will not experience an adverse impact on its results
of operations as a result thereof.
Pillowtex Is Unlikely To Pay Dividends On Its Common Stock For The Foreseeable
Future
Under the terms of its senior secured credit agreements and senior
subordinated debt and its Series A Redeemable Convertible Preferred Stock,
Pillowtex currently is prohibited from paying dividends to or making other
distributions to holders of its Common Stock. Accordingly, Pillowtex's Board of
Directors has suspended its policy of paying quarterly dividends on its Common
Stock commencing with the fourth quarter of 1999. It is uncertain whether, or
when, the Company will recommence payment of dividends on its Common Stock in
the future or, if dividends are paid on the Common Stock in the future, as to
the amount thereof.
Pillowtex Is Dependent On Specific Raw Materials
Cotton is the primary raw material used in Pillowtex's business. Cotton is an
agricultural product and, as a result, its availability is subject to weather
conditions and other factors affecting agricultural markets. Historically,
there have been periods of rapid and significant movement in the price of cotton
both upward and downward.
Other raw materials on which Pillowtex is dependent include the raw feathers
and down that it uses to produce natural fill pillows and down comforters.
China is currently Pillowtex's primary source of raw feather and down. In
fiscal year 1999, approximately 95%, based on cost, of the raw feathers and down
that Pillowtex used to produce natural fill pillows and down comforters was
imported from China.
Pillowtex's relationships with its suppliers in China could be disrupted or
adversely affected due to a number of factors, including governmental
regulation, fluctuation in exchange rates, and changes in economic and political
conditions in China. If Pillowtex's supply sources in China were disrupted for
any reason, Pillowtex believes, based on existing market conditions, that it
could establish alternative supply relationships. However, because establishing
these relationships involves numerous uncertainties relating to delivery
requirements, price, payment terms, quality control, and other matters, the
Company is unable to predict whether such relationships would be on satisfactory
terms. Pillowtex's relationship with its suppliers in China are also subject to
risks associated with changes in United States legislation and regulations
relating to imports, including quotas, duties, and taxes, and other charges or
restrictions on imports.
Products that Pillowtex imports from China currently receive normal,
nondiscriminatory tariff treatment accorded goods from countries granted "normal
trade" status. Under the Trade Act of 1974, the President of the United States
is authorized, upon making specified findings, to waive certain restrictions
that would otherwise render China ineligible for normal trade relations
treatment. The President has waived these provisions each year since 1979.
Normal trade status was accordingly renewed in June 1999. Congress will continue
to monitor these activities and may encourage the President to reconsider the
renewal of normal trade status for China in the future. Pillowtex cannot be
certain that China will continue to enjoy this status in the future. Raw
materials and finished products entering the United States from China without
the benefit of normal trade relations would be subject to significantly higher
tariffs.
13
<PAGE>
The raw materials used by Pillowtex are generally available from a number of
sources. No significant shortage of these materials is currently anticipated.
However, Pillowtex uses significant quantities of these raw materials, which are
subject to price fluctuations. The Company cannot be certain that shortages of
these materials will not occur in the future, which could increase the cost or
delay the shipment of its products. Moreover, the Company cannot be certain
that it will be able to pass on any increase in the price of raw materials to
its customers.
Pillowtex May Be Affected By Adverse Retail Industry Conditions
Pillowtex sells its products to a number of department stores and other major
retailers who have experienced financial difficulties during past years. Some
of these retailers have previously sought the protection of federal bankruptcy
laws. In addition, some of Pillowtex's current retail customers may seek
protection under the federal bankruptcy laws or state insolvency laws in the
future. As a result of these financial difficulties and bankruptcy and
insolvency proceedings, Pillowtex may be unable to collect some or all amounts
owed by these retail customers.
In addition, all or part of the operations of a retail customer that seeks
bankruptcy or other debtor protection may be discontinued or sales of
Pillowtex's products to the customer may be curtailed or terminated as a result
of bankruptcy or insolvency proceedings.
Pillowtex Is Dependent On Specific Brand Names
In fiscal year 1999, sales of products bearing Pillowtex's principal
proprietary brand names of Royal Velvet(R), Cannon(R), Charisma(R), Royal Velvet
Big & Soft(R), Fieldcrest(R), Royal Family(R), Caldwell(R), and St. Mary's(R)
made up a substantial portion of its net sales. Accordingly, Pillowtex's future
success may depend in part upon the goodwill associated with these brand names.
Pillowtex's principal brand names are registered in the United States and
certain foreign countries. However, the Company cannot be certain that the
steps taken by it to protect its proprietary rights in such brand names will be
adequate to prevent their misappropriation in the United States or abroad. In
addition, the laws of some foreign countries do not protect proprietary rights
in brand names to the same extent as do the laws of the United States.
Pillowtex Is Dependent On Specific Key Licenses
Pillowtex holds licenses with organizations such as Polo/Ralph Lauren
Corporation, E.I. DuPont de Nemours & Co., and others. These organizations own
such well-known trademarks and trade names as Ralph Lauren and Comforel(R).
These licenses generally require the payment of royalties based on net sales,
including the payment of minimum annual royalties. They expire at various dates
through June 2001. The Company cannot be certain that it will be able to renew
these licenses on acceptable terms upon their expiration or that it will be able
to acquire new licenses to use other popular trademarks.
Pillowtex Faces Risks Of Loss Of Material Customer
In fiscal year 1999, net sales to Wal-Mart Stores, Inc. (including Sam's Club
Stores) accounted for approximately 20.5% of Pillowtex's total net sales. No
other single customer accounted for more than 10% of total net sales during this
period. Consistent with industry practice, Pillowtex does not operate under a
long-term written supply contract with Wal-Mart or any of its other customers.
The loss of Wal-Mart as a customer could materially affect Pillowtex's business,
assets, financial condition, results of operations, and prospects.
Pillowtex Faces Risks Related To Organized Labor
As of March 17, 2000, Pillowtex had approximately 14,000 employees. As of
that date, approximately 65% of Pillowtex's employees were in bargaining units
covered by collective bargaining agreements and approximately 39% of Pillowtex's
employees had chosen to have union dues deducted from their pay checks. See
"Business-Employees."
14
<PAGE>
Since 1991, the Union of Needletrades, Industrial and Textile Workers (UNITE)
had campaigned to organize hourly workers of Pillowtex plants in Concord, North
Carolina, Kannapolis, North Carolina, and Salisbury, North Carolina. In June
1999, UNITE was elected as a bargaining representative for hourly workers at
those plants. In February 2000, Pillowtex and UNITE entered into a contract
covering employees at those plants, as well as the employees represented by
UNITE at Pillowtex's plants in Eden, North Carolina; Phenix City, Alabama;
Columbus, Georgia; and Fieldale, Virginia.
The Company cannot be certain that it will not face similar campaigns at other
plants in the future or as to the effect that any such campaign would have on
the productivity of its workforce or labor costs.
Pillowtex Faces Risks Associated With Acquisitions
Pillowtex has grown largely through strategic acquisitions of companies with
complementary products, most notably Fieldcrest Cannon in 1997 and Leshner in
1998. Pillowtex continues to strive to achieve synergies, including cost
savings, with respect to these acquisitions; however, the Company cannot be
certain that it will be able to achieve these synergies or to otherwise
successfully integrate the operations of these acquired companies with its
previously existing operations in an efficient or profitable manner.
Pillowtex's Business Is Seasonal
Pillowtex's business is subject to a pattern of seasonal fluctuation. Sales
and earnings from operations generated during the second half of a given fiscal
year generally are expected to be higher than sales and earnings from operations
generated during the first half of the year. Accordingly, the Company's needs
for working capital generally are expected to increase in the second half of the
year. As a result, total debt levels generally tend to peak in the third and
fourth quarters, falling off again in the first quarter of the following year.
The amount of Pillowtex's sales generated during the second half of the year
generally will depend upon a number of factors, including the level of retail
sales for home textile furnishings during the fall and winter, weather
conditions affecting the sales of down comforters and blankets, general economic
conditions, and other factors beyond the Company's control.
Certain Of Pillowtex's Shareholders Exert Significant Control
As of March 20, 2000, Charles M. Hansen, Jr., Pillowtex's Chief Executive
Officer and Chairman of the Board, Mary R. Silverthorne, the John H.
Silverthorne Marital Trust B, and the John H. Silverthorne Family Trust A (for
both of which trusts Ms. Silverthorne acts as trustee) owned, in the aggregate,
approximately 37% of the outstanding shares of Pillowtex's Common Stock. These
shareholders exert significant influence over Pillowtex's direction and
management.
Pillowtex Is Dependent On Its Key Managers
Pillowtex believes that its success is largely dependent on the skills,
experience, and performance of key members of its management, including Charles
M. Hansen, Jr., the Chairman of the Board and Chief Executive Officer.
Pillowtex believes that its future success will be highly dependent upon its
ability to attract and retain skilled managers and other personnel, including
Mr. Hansen.
Market Risk With Respect to Common Stock
Pillowtex Common Stock is listed for trading on the New York Stock Exchange.
The prices at which the Company's shares of Common Stock trade are subject to
fluctuations based on many factors, including general economic and industry
conditions and the Company's actual and expected sales and earnings performance.
The Company cannot be certain that any holder of its Common Stock will be able
to sell those shares at any particular price.
Certain Provisions of Pillowtex's Articles of Incorporation, Bylaws, and Other
Agreements
Pillowtex's Restated Articles of Incorporation, Pillowtex's Bylaws, and
some agreements to which Pillowtex is a party contain provisions that may have
the effect of delaying, deferring, or preventing a change in control of
Pillowtex. In addition, the Restated Articles authorize the issuance of up to
55,000,000 shares of Common Stock and 20,000,000 shares of Preferred Stock.
Pillowtex's Board of Directors will have the power to determine the price and
terms under which any additional capital stock may be issued and, subject to the
terms of any issued and outstanding Preferred Stock (including the Series A
Redeemable Convertible Preferred Stock), to fix the terms of that Preferred
Stock. Existing shareholders have no preemptive rights.
15
<PAGE>
ITEM 2. PROPERTIES
----------
The following table summarizes certain information concerning certain of
the facilities used by Pillowtex in connection with the manufacture and
distribution of its product lines:
<TABLE>
<CAPTION>
Approx. Owned/
Location Principal Use Square Feet Leased
-------- ------------- ----------- ------
<S> <C> <C> <C>
Dallas, Texas Headquarters and feather and down processing 104,000 Owned
Dallas, Texas Manufacturing, distribution and offices 150,000 Owned
Phenix City, Alabama Manufacturing and warehouse 777,681 Owned
Phenix City, Alabama Manufacturing 220,000 Owned
Scottsboro, Alabama Manufacturing and warehouse 272,800 Owned
Los Angeles, California Manufacturing and distribution 320,000 Leased
Columbus, Georgia Manufacturing and warehouse 727,246 Owned
Hawkinsville, Georgia Manufacturing and warehouse 260,000 Owned
Macon, Georgia Warehouse 220,000 Owned
Chicago, Illinois Manufacturing and distribution 121,000 Owned
Tunica, Mississippi Manufacturing and distribution 288,000 Owned
New York, New York Sales office and showroom 64,490 Leased
Asheville, North Carolina Warehouse 117,000 Leased
Asheville, North Carolina Warehouse 254,000 Leased
Concord, North Carolina Manufacturing 696,963 Owned
Eden, North Carolina Manufacturing and warehouse 529,273 Owned
Eden, North Carolina Warehouse 411,531 Owned
Eden, North Carolina Warehouse 27,241 Owned
Kannapolis, North Carolina Manufacturing 682,407 Owned
Kannapolis, North Carolina Manufacturing, warehouse and offices 5,863,041 Owned
Newton, North Carolina Manufacturing and distribution 297,000 Leased
Rockwell, North Carolina Manufacturing 98,240 Owned
Rocky Mount, North Carolina Manufacturing and distribution 139,000 Owned
Rocky Mount, North Carolina Manufacturing and distribution 78,000 Leased
Salisbury, North Carolina Manufacturing 229,361 Owned
China Grove, North Carolina Manufacturing and warehouse 567,000 Owned
Swannanoa, North Carolina Manufacturing, distribution, warehouse and office 1,425,000 Owned
Tarboro, North Carolina Manufacturing and warehouse 370,000 Owned
Hanover, Pennsylvania Manufacturing and distribution 291,000 Owned
Mauldin, South Carolina Warehouse and distribution 746,600 Owned
Union City, South Carolina Manufacturing 95,700 Owned
Westminster, South Carolina Manufacturing, distribution, warehouse and office 652,000 Owned
Westminster, South Carolina Warehouse 29,000 Leased
Fieldale, Virginia Manufacturing and warehouse 973,253 Owned
Martinsville, Virginia Warehouse 100,000 Leased
Toronto, Ontario, Canada Manufacturing and distribution 99,000 Leased
Toronto, Ontario, Canada Manufacturing and distribution 60,000 Leased
Toronto, Ontario, Canada Warehouse 106,000 Leased
</TABLE>
In addition to the locations listed above, Pillowtex maintains warehousing and
distribution centers in the states where its manufacturing facilities are
located. It also maintains approximately 45 retail outlets and small sales and
marketing offices in other states. Pillowtex also owns various other
properties, both developed and undeveloped, which are unrelated to its
manufacturing operations. Fieldcrest Cannon acquired these properties
throughout the years for investment or as part of specific acquisitions.
Pillowtex holds some of these properties for investment, has listed some for
sale, and has leased others to third parties.
Pillowtex believes that its facilities are generally well maintained, in good
operating condition, and adequate for its current needs. Subject to the
availability of working capital, Pillowtex will continue to make improvements at
these plants, upgrading the physical plant and purchasing additional and newer
machinery and equipment.
ITEM 3. LEGAL PROCEEDINGS
-----------------
Pillowtex is involved in various claims and lawsuits incidental to its
business; however, the outcome of such suits is not expected to have a material
adverse effect on Pillowtex's financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
None.
16
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
-------------------------------------------------------------
MATTERS
-------
Pillowtex's Common Stock, par value $0.01 per share, is traded on the New York
Stock Exchange under the symbol "PTX." The following table sets forth for the
period indicated the high and low sales prices of the Common Stock:
<TABLE>
<CAPTION>
High Low
--------------- ---------------
<S> <C> <C>
Fiscal Year:
1999
Fourth Quarter....................... $ 7 1/4 $ 2 3/4
Third Quarter........................ 17 5/8 6 3/4
Second Quarter....................... 19 7/16 11 9/16
First Quarter........................ 28 3/8 11 3/8
1998
Fourth Quarter....................... $ 34 1/4 $ 23 9/16
Third Quarter........................ 45 5/8 23 7/8
Second Quarter....................... 50 7/8 37 13/16
First Quarter........................ 49 5/16 30 1/2
</TABLE>
At March 20, 2000, Pillowtex had approximately 1,053 holders of record of
Common Stock.
Pillowtex paid quarterly dividends of $0.06 per share in each quarter of
fiscal year 1998 and the first three quarters of fiscal year 1999. Under the
terms of its senior secured credit agreements and senior subordinated debt and
its Series A Redeemable Convertible Preferred Stock, Pillowtex currently is
prohibited from paying dividends to or making other distributions to holders of
its Common Stock. Accordingly, Pillowtex's Board of Directors has suspended its
policy of paying quarterly dividends on its Common Stock commencing with the
fourth quarter of 1999. It is uncertain whether, or when, the Company will
recommence payment of dividends on its Common Stock in the future or, if
dividends are paid on the Common Stock in the future, as to the amount thereof.
17
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
-----------------------
SELECTED FINANCIAL DATA
(In thousands, except per share data)
The selected financial data presented below are derived from Pillowtex's
consolidated financial statements for the five years ended January 1, 2000. The
data should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the consolidated financial
statements and related notes included elsewhere in this Annual Report.
<TABLE>
<CAPTION>
Year Ended
12/30/95 12/28/96 01/03/98/(1)/ 01/02/99/(2)/ 01/01/00
-------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Statements of Earnings Data:
Net sales......................................... $ 474,899 $ 490,655 $ 579,999 $ 1,509,841 $1,552,068
Cost of goods sold................................ 395,922 411,048 485,679 1,237,085 1,358,966
--------- --------- ----------- ----------- ----------
Gross profit...................................... 78,977 79,607 94,320 272,756 193,102
Selling, general and administrative expenses...... 42,508 41,445 52,090 128,685 131,256
Provisions for assets............................. -- -- 5,986 1,539 2,000
--------- --------- ----------- ----------- ----------
Earnings from operations.......................... 36,469 38,162 36,244 142,532 59,846
Interest expense.................................. 17,491 13,971 22,470 72,288 87,279
--------- --------- ----------- ----------- ----------
Earnings(loss) before income taxes and
extraordinary items.......................... 18,978 24,191 13,774 70,244 (27,433)
Income taxes...................................... 7,509 9,459 5,538 27,389 (7,901)
--------- --------- ----------- ----------- ----------
Earnings(loss) before extraordinary items......... 11,469 14,732 8,236 42,855 (19,532)
Extraordinary items, net.......................... -- ( 609) (919) -- --
--------- --------- ----------- ----------- ----------
Net earnings(loss)................................ 11,469 14,123 7,317 42,855 (19,532)
Preferred dividends and accretion................. -- -- 85 2,097 12,294
--------- --------- ----------- ----------- ----------
Earnings(loss) available for common shareholders.. $ 11,469 $ 14,123 $ 7,232 $ 40,758 $ (31,826)
========= ========= =========== =========== ==========
Basic earnings(loss) per common share:
Before extraordinary items........................ $ 1.08 $ 1.39 $ .75 $2.89 $(2.25)
Extraordinary items............................... -- (.06) (.08) -- --
--------- --------- ----------- ----------- ----------
Basic earnings(loss) per common share............. $ 1.08 $ 1.33 $ .67 $2.89 $(2.25)
========= ========= =========== =========== ==========
Weighted average common shares
outstanding - basic............................ 10,618 10,618 10,837 14,082 14,154
========= ========= =========== =========== ==========
Diluted earnings(loss) per common share:
Before extraordinary items........................ $ 1.08 $ 1.39 $ .74 $2.52 $(2.25)
Extraordinary items............................... -- (.06) (.08) -- --
--------- --------- ----------- ----------- ----------
Diluted earnings(loss) per common share........... $ 1.08 $ 1.33 $ .66 $2.52 $(2.25)
========= ========= =========== =========== ==========
Weighted average common shares
outstanding - diluted.......................... 10,620 10,634 11,086 17,653 14,154
========= ========= =========== =========== ==========
Operating Data:
Depreciation and amortization..................... $ 11,994 $ 12,775 $ 16,064 $ 54,021 $ 60,074
Capital expenditures.............................. 12,448 21,040 20,567 133,620 89,737
Preferred Stock cash dividends.................... -- -- -- 2,019 1,456
Common Stock cash dividends....................... 531 2,124 2,569 3,383 2,555
Balance Sheet Data:
Working capital................................... $ 110,128 $ 150,506 $ 394,496 $ 447,933 $ 404,732
Property, plant and equipment, net................ 84,567 94,267 488,841 629,205 644,821
Total assets...................................... 324,710 375,714 1,410,186 1,654,154 1,683,389
Long-term debt, net of current portion............ 153,472 194,851 785,383 944,493 965,323
Redeemable convertible preferred stock............ -- -- 62,882 63,057 73,898
Shareholders' equity.............................. 87,990 100,004 196,707 237,933 207,389
</TABLE>
(1) Amounts set forth in 1997 reflect the results of operations for a 53-week
period, and the inclusion of Fieldcrest Cannon, Inc. from December 19,
1997.
(2) Amounts set forth in 1998 reflect the inclusion of The Leshner Corporation
from July 28, 1998.
18
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
Overview
Pillowtex manufactures and markets home textile furnishings for the bedroom,
bathroom, and kitchen. Pillowtex operates a network of manufacturing,
purchasing, and distribution facilities in the U.S. and Canada with
approximately 14,000 employees.
Mergers and Acquisitions
On July 28, 1998, Pillowtex acquired the stock of The Leshner Corporation, a
91 year-old manufacturer of towels and terry-related products, for a purchase
price of $41.8 million in cash (including acquisition costs). In connection
with the acquisition, Pillowtex retired $32.5 million of outstanding Leshner
debt. The acquisition was accounted for using the purchase method of accounting
for business combinations. As such, the operating results of Leshner for the
period from the acquisition date through January 2, 1999 have been included in
fiscal year 1998 results.
On December 19, 1997, Pillowtex acquired Fieldcrest Cannon, Inc. for a
combination of cash and stock valued at approximately $409.0 million.
Additionally, Pillowtex retired approximately $199.0 million of existing
Fieldcrest Cannon long-term debt. This merger was accounted for using the
purchase accounting method. Accordingly, the operating results of Fieldcrest
Cannon for the period from December 19, 1997 through January 3, 1998 have been
included in fiscal year 1997 results.
Results of Operations
The following table presents certain historical statements of operations data as
a percentage of net sales for the periods indicated.
<TABLE>
<CAPTION>
Year Ended
------------------------------------
January 3, January 2, January 1,
1998 1999 2000
----- ----- -----
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of goods sold................... 83.7 81.9 87.6
----- ----- -----
Gross profit......................... 16.3 18.1 12.4
Selling, general and
administrative expenses.......... 9.0 8.6 8.6
Restructuring charge................. 1.0 0.1 -
----- ----- -----
Earnings from operations............. 6.3 9.4 3.8
Interest expense..................... 3.9 4.8 5.6
----- ----- -----
Earnings (loss) before income taxes
and extraordinary items.......... 2.4% 4.6% (1.8)%
===== ===== =====
</TABLE>
Fiscal Year 1999 Compared to Fiscal Year 1998
Net sales. Sales lagged behind the prior year in the first half of fiscal
1999 because of shipping delays caused by the installation of new production and
warehousing computer systems. For fiscal 1999, net sales were $1.55 billion, an
increase of $42.2 million, or 2.8%, compared to $1.51 billion in fiscal 1998.
However, approximately $56.0 million of this increase is attributable to the
inclusion of a full year of Leshner, which was acquired on July 28, 1998.
Excluding Leshner sales, the resulting $13.8 million decrease in 1999 from 1998
is primarily the result of lower blanket sales caused by an unusually warm
winter in North America and increased deductions from gross sales for
promotional sales programs.
19
<PAGE>
Gross profit. Gross profit margins dropped to 12.4% in fiscal 1999 from
18.1% in fiscal 1998. This decrease was primarily the result of higher cost of
goods sold generated from unabsorbed overhead expenses related to the
installation of new computer systems and equipment, Inventory write-downs, the
idling of certain manufacturing equipment, and a change in the sales mix
generated by Pillowtex's inventory reduction program, which reduced product
margins.
Pillowtex is reviewing all areas of its operations and taking aggressive
action to improve operating results. Tighter management controls have been
imposed on sales and marketing programs that adversely affected gross profit
margins in 1999 and the Company is continuing to focus on reducing inventory and
accounts receivable, as well as on controlling operating costs.
Selling, general, and administrative. SG&A increased slightly to $131.3
million in fiscal year 1999, compared to $128.7 million in fiscal year 1998, but
remained unchanged from last year as a percent of sales at approximately 8.6%.
Impairment. During the third quarter of 1999, Pillowtex recorded a $2.0
million non-cash pre-tax charge to adjust the carrying value of the Opelika
facility, which was closed in the first quarter of 1999, to its estimated fair
value.
Restructuring charge. There were no restructuring charges recorded in
1999. The $1.5 million recorded in 1998 related to the severance and other
employee-related cost associated with the consolidation of blanket production
into the Company's facilities in Swannanoa, North Carolina and Westminster,
South Carolina.
Interest expense. Interest expense increased by $15.0 million to $87.3
million in fiscal 1999, compared to $72.3 million in fiscal 1998. The increase
is primarily the result of additional debt incurred in connection with the
Leshner acquisition, capital expenditures for plant upgrades, higher working
capital requirements, and the payment of waiver and amendment fees to
Pillowtex's senior lenders. Pillowtex's average interest rate for the year was
down slightly from 8.4% in 1998 to approximately 8.2% in 1999. Interest expense
is expected to increase for fiscal year 2000, since amounts outstanding under
the revolving credit facility and the Tranche A Term Loan will bear interest at
a rate based upon the London Interbank Offered Rate plus 3.50% and the Tranche B
Term Loan will bear interest on a similar basis to the Tranche A Term Loan, plus
an additional margin of .50%.
Preferred dividends. Under the terms of the Company's Series A Redeemable
Convertible Preferred Stock, beginning January 1, 2000, the rate at which
dividends will accrue increased to 10% as a result of the Company's earnings per
share for the 1999 fiscal year falling below predetermined targets. The Company
is also required to pay a one-time cumulative dividend in Series A Preferred
Stock, from the issue date through December 31, 1999, equal to the difference
between the dividends calculated at the 3% rate and dividends calculated at the
10% rate. Charges in the aggregate amount of $10.1 million were recorded in the
third and fourth quarters of 1999.
Fiscal Year 1998 Compared to Fiscal Year 1997
The discussion below makes reference to pro forma fiscal 1997 results. Pro
forma amounts include historical results of operations for Fieldcrest Cannon
from January 1, 1997 and Leshner from August 1, 1997. Lines of business exited
or sold since the acquisitions are not included in the pro forma fiscal 1997
results of operations. Fiscal 1997 results include a 53-week period as compared
to a 52-week period for fiscal 1998.
Net sales. Net sales were $1.51 billion in fiscal 1998, representing an
increase of $929.8 million, or 160.3%, as compared to $580.0 million in fiscal
1997. The $929.8 million increase in net sales is primarily due to the
inclusion of a full year of operations for Fieldcrest Cannon and the inclusion
of $34.6 million in Leshner net sales since its acquisition date. Net sales
decreased $84.1 million, or 5.3%, as compared to 1997 pro forma results.
Approximately $32.0 million of this decline is attributable to the 52-week
period in fiscal year 1998 versus the 53-week period in fiscal year 1997. Other
factors contributing to the decrease were lower sales of pillows and mattress
pads and bath towels. Pillows and pads sales declined primarily due to lower
volume in jacquard blankets and to decreases in Disney blanket sales due to the
termination of the Disney license. Bath towel sales were down due to several
customers adjusting inventory levels, thereby delaying orders. Additionally,
two large customers delayed promotional events and new product rollouts until
1999 which were originally scheduled for 1998. These declines were offset by
increases in fashion bedding sales, primarily the Royal Velvet sheet
reintroduction program and initial rollouts of bed-in-a-bag programs.
20
<PAGE>
Gross profit. Gross profit margins increased to 18.1% in fiscal year 1998,
compared to 16.3% in fiscal year 1997. Increases in gross profit margins
resulted from lower raw material costs and the realization of significant
operating improvements, due in part to capital investment programs within the
bath and decorative bedding businesses. Gross profit for fiscal year 1998 was
$272.8 million, or 18.1% of net sales, up from pro forma results for the same
period in fiscal year 1997 of $246.8 million, or 15.5% of net sales. The
increase is attributable to an improving mix of business in bath towels and the
lower material costs and operating efficiencies discussed above.
Selling, general, and administrative. SG&A increased $76.6 million to
$128.7 million in fiscal year 1998, compared to $52.1 million in fiscal year
1997, and as a percentage of net sales, decreased to 8.6% in fiscal year 1998
from 9.0% in fiscal year 1997. The increase in total SG&A expenses is primarily
due to a full year of expenses for Fieldcrest Cannon and the inclusion of
Leshner SG&A expenses since the acquisition date. SG&A expenses of $128.7
million in fiscal year 1998 decreased $33.2 million compared to fiscal year 1997
pro forma amounts. This decline is primarily attributable to the reductions in
personnel at Fieldcrest Cannon and other cost control programs begun in December
1997.
Restructuring charge. The $1.5 million restructuring charge was related to
severance and other employee-related costs associated with the consolidation of
blanket production into the Company's facilities in Swannanoa, North Carolina
and Westminster, South Carolina.
Interest expense. Interest expense increased by $49.8 million to $72.3
million in fiscal year 1998, compared to $22.5 million in fiscal year 1997. The
increase was primarily due to the additional debt incurred as a result of the
Fieldcrest Cannon merger and the purchase of Leshner. Average interest rates
for fiscal year 1998 declined slightly from fiscal year 1997.
Liquidity and Capital Resources
Senior Debt Facilities. In December 1997, in connection with the
Fieldcrest Cannon acquisition, Pillowtex entered into new senior secured
revolving credit and term loan facilities with a group of financial and
institutional investors for which Bank of America acts as the agent. These
facilities consisted of a $350.0 million revolving credit facility and a $250.0
million term loan facility. The term loan facility consisted of a $125.0
million Tranche A Term Loan and a $125.0 million Tranche B Term Loan. Effective
July 28, 1998, Pillowtex amended these facilities by increasing the Tranche B
Term Loan to $225.0 million. The increase occurred in conjunction with the
acquisition of Leshner, allowing Pillowtex to fund the transaction and reduce
borrowings under the revolving credit facility. Effective March 12, 1999, the
revolving credit facility was amended to permit Pillowtex to use for working
capital one-half of a $61.0 million portion of the facility held as contingency
reserve for cash payments required upon conversion of the Fieldcrest Cannon 6%
Convertible Subordinated Debentures due 2012, thereby increasing availability
under that facility. Effective October 1, 1999, the revolving credit facility
was further amended to permit Pillowtex to use the other half of the contingency
reserve for working capital, thereby increasing availability under that
facility. At the end of the third and fourth quarters of its 1999 fiscal year,
Pillowtex was not in compliance with certain financial covenants under its
senior debt facilities. The Company obtained a series of temporary waivers of
this non-compliance. Effective as of December 7, 1999, the Company agreed to
certain amendments to the senior debt facilities, principally related to cash
management, adjustments to restrictive covenants, and borrowings under, and uses
of proceeds from, the revolving credit facility. Effective as of March 31,
2000, the Company obtained a permanent waiver of its prior non-compliance with
financial covenants and the senior debt facilities were further amended to
shorten terms to maturity to eliminate the contingency reserve requirement
referred to above, to increase the applicable interest rate margins (subject to
reduction if the Company's earnings before interest, taxes, depreciation and
amortization (EBITDA) exceeds a specified level for the 2000 fiscal year), to
add a covenant requiring that EBITDA must exceed specified levels for future
fiscal periods and to eliminate all other financial covenants, to modify certain
restrictive covenants, to limit borrowings under the revolving credit facility
based on a formula tied to 45% of eligible inventory plus 80% of eligible
accounts receivable, and to provide for a series of reductions in the commitment
under the revolving credit facility. As of March 24, 2000, amounts outstanding
under the revolver, as amended on March 31, 2000, would have been $306.8 million
and would not have been limited under the borrowing base calculation.
The revolving credit facility includes $55.0 million of availability for
letters of credit. At January 1, 2000, $35.2 million of letters of credit were
outstanding.
21
<PAGE>
As amended, amounts outstanding under the revolving credit facility and the
Tranche A Term Loan currently bear interest at a rate based upon the London
Interbank Offered Rate plus 3.50% (9.63% at March 24, 2000). The Tranche B Term
Loan bears interest on a similar basis to the Tranche A Term Loan, plus an
additional margin of .50%. The weighted average annual interest rate on
outstanding borrowings under the various senior credit facilities for 1999 was
7.7%. The senior debt facilities now expire on January 31, 2002.
The senior debt facilities are guaranteed by each of the domestic
subsidiaries of Pillowtex, and are secured by first priority liens on all of the
capital stock of each domestic subsidiary of Pillowtex and by 65% of the capital
stock of Pillowtex's foreign subsidiaries. Pillowtex has also granted a first
priority security interest in all of its presently unencumbered and future
domestic assets and properties, and all presently unencumbered and future
domestic assets and properties of each of its subsidiaries. The term loan
facility is subject to mandatory prepayment from all net cash proceeds of asset
sales and debt issuances of Pillowtex (except as specifically provided), 50% of
the net cash proceeds of equity issuances by Pillowtex or any of its
subsidiaries, and 75% of Excess Cash Flow (as defined). All mandatory
prepayments will be applied pro rata between the Tranche A Term Loan and the
Tranche B Term Loan to reduce the remaining installments of principal.
The senior debt facilities contain a number of negative covenants, which
covenants restrict, among other things, Pillowtex's ability to incur additional
debt, pay dividends or make other restricted payments, sell stock of
subsidiaries, grant liens, make capital expenditures, engage in transactions
with affiliates, make loans, advances and investments, dispose of assets, effect
mergers, consolidations and dissolutions, and make certain changes in its
business. See "Risk Factors - Pillowtex Faces Restrictions Imposed By Terms Of
Its Debt" included in Item 1 above.
A breach of any of the covenants contained in the senior debt facilities
could result in a default under the terms of the facilities. Upon the occurrence
of an event of default: the senior lenders would not be obligated to make
additional advances under the revolving credit facility; the senior lenders
would be entitled to declare all amounts outstanding under the senior debt
facilities, including accrued interest or other obligations, to be immediately
due and payable; the senior lenders would have the rights to block payment on
substantially all of Pillowtex's other long-term debt; and the senior lenders
would be entitled to proceed against the collateral granted to them to secure
the senior debt. In these circumstances, cross defaults could occur making
substantially all of Pillowtex's other long-term debt due. If any senior debt
were to be accelerated, the Company cannot be certain that its assets would be
sufficient to repay in full that debt and its other debt. See "Risk Factors -
Pillowtex Faces Restrictions Imposed By Terms Of Its Debt" included in Item 1
above.
As a result of the covenants described above, Pillowtex's ability to respond
to changing business and economic conditions and to secure additional financing,
if needed, is significantly restricted. See "Risk Factors - Pillowtex Has
Significant Leverage And Liquidity Concerns" included in Item 1 above.
Overline Facility. In May 1999, Pillowtex entered into a $20.0 million
senior unsecured revolving credit facility (overline facility) in order to
obtain additional working capital availability. On July 27, 1999, this facility
was amended to increase the amount of funds available to $35.0 million. At the
end of the third and fourth quarters of its 1999 fiscal year, Pillowtex was not
in compliance with certain financial covenants under this facility, the
covenants of which are established by reference to the senior debt facilities
described above. The Company obtained a series of temporary waivers of this
non-compliance and extensions of the maturity date. Effective as of December 7,
1999, the Company agreed to certain amendments to this facility, resulting in
the facility being secured by the assets securing the senior debt facilities
described above. Effective as of March 31, 2000, the Company obtained a
permanent waiver of its prior non-compliance and the facility was amended to
lengthen its term to maturity, to impose an amortization schedule for the
repayment of principal, and to increase the applicable interest rate margins
(subject to reduction if the Company's EBITDA exceeds a specified level for the
2000 fiscal year).
This facility is guaranteed on a senior basis by Pillowtex's domestic
subsidiaries. Pillowtex is currently required to pay interest on any amounts
borrowed under the facility at a rate which is based upon the London Interbank
Offered Rate plus 4.5% or the base rate plus 3.0%, at Pillowtex's option. This
facility matures upon termination by Pillowtex at any time or otherwise at the
earliest of: a) any increase in the commitment under the senior debt facilities
described above, the issuance of any capital stock by Pillowtex or its domestic
subsidiaries, or other specified events; or b) January 31, 2002.
Senior Subordinated Debt. In connection with the Fieldcrest Cannon merger,
Pillowtex issued $185.0 million of 9% Senior Subordinated Notes due 2007 in a
private offering. In March 1998, Pillowtex completed an offer to exchange the
unregistered 9% Notes previously sold in the private offering for an equal
aggregate principal amount of registered 9% Notes. The 9% Notes are due
December 15, 2007, with interest payable semiannually commencing June 15, 1998.
Pillowtex may at its option redeem the 9% Notes, in whole or in part, on or
after December 15, 2002 at a redemption price of 104.5%, which declines 1.5%
annually through December 15, 2005 to 100%. The 9% Notes are general unsecured
obligations of Pillowtex, are subordinated in right of payment to all existing
and future senior indebtedness, and rank pari passu to the 10% Notes described
below.
22
<PAGE>
On November 12, 1996, Pillowtex issued the 10% Senior Subordinated Notes
due 2006 in a private offering. In March 1997, Pillowtex completed an offer to
exchange the unregistered 10% Notes previously sold in the private offering for
an equal aggregate principal amount of registered 10% Notes. The 10% Notes are
due November 15, 2006, with interest payable semiannually commencing May 15,
1997. Pillowtex used the proceeds from such offering to retire the outstanding
indebtedness under Pillowtex's previously existing term loan, to finance the
acquisition of certain assets of Fieldcrest Cannon's blanket operations, to
temporarily reduce indebtedness under the previous revolving credit facility,
and to acquire a warehouse facility. Pillowtex may, at its option, redeem the
10% Notes, in whole or in part, on or after November 15, 2001 at a redemption
price of 105.0%, which declines 1.667% annually through November 15, 2004 to
100%. The 10% Notes are general unsecured obligations of Pillowtex, and are
subordinated in right of payment to all existing and future senior indebtedness.
The 9% Notes and the 10% Notes are unconditionally guaranteed on a senior
subordinated basis by each of the existing and future domestic subsidiaries of
Pillowtex and each other subsidiary of Pillowtex that guarantees Pillowtex's
obligations under the senior debt facilities described above. The guarantees
are subordinated in right of payment to all existing and future senior
indebtedness of the relevant guarantor. Upon a change in control, Pillowtex will
be required to make an offer to repurchase all outstanding 9% Notes and 10%
Notes at 101% of the principal amount thereof, plus accrued and unpaid interest
thereon, if any, to the date of repurchase.
Fieldcrest Cannon Convertible Debentures. As a result of Pillowtex's
acquisition of Fieldcrest Cannon, the outstanding 6% Convertible Subordinated
Debentures due 2012 of Fieldcrest Cannon are convertible, at the option of the
holders, into a combination of cash and Pillowtex's Common Stock. During the
fourth quarter of 1999, Pillowtex notified the holders of the 6% Convertible
Debentures that it was not practicable or prudent for payments to be made in
respect of the conversion of the 6% Convertible Debentures and advised holders
that had given notice of conversion and surrendered their 6% Convertible
Debentures that they could rescind their notice of conversion, return to
Pillowtex any Pillowtex Common Stock that had been issued to them and have their
6% Convertible Debentures reinstated. As of March 24, 2000, the cash component
due in respect of the 6% Convertible Debentures that had been surrendered
without subsequent rescission was $9.1 million. In addition, as of March 24,
2000, $96.5 million aggregate principal amount of the 6% Convertible Debentures
remained outstanding. If all such outstanding 6% Convertible Debentures were
converted at such date, the resulting cash component to be paid to the holders
of the 6% Convertible Debentures would have been approximately $61.0 million
(classified as a current liability at January 1, 2000). Pillowtex is currently
prohibited under the terms of its senior subordinated debt from making payments
in respect of the 6% Convertible Debentures except for interest and at maturity
or pursuant to sinking fund obligations. Pillowtex has initiated discussions
with certain holders of its 6% Convertible Debentures regarding a potential
restructuring of the 6% Convertible Debentures. Currently any comprehensive
restructuring of the 6% Convertible Debentures involving cash payments (other
than pursuant to sinking fund obligations) would likely require the consent of
the holders of Pillowtex's senior subordinated debt. The Company cannot
guarantee that it will be able to restructure the 6% Convertible Debentures nor
can it predict the terms of any potential restructuring of that debt. See "Risk
Factors - Pillowtex Faces Restrictions Imposed By Terms Of Its Debt."
Swap Agreements. Pillowtex enters into interest rate swap agreements to
modify the interest characteristics of portions of its outstanding debt. These
agreements entitle the Company's to receive or pay to the counterparty (a major
bank), on a quarterly basis, the amounts, if any, by which the Company's
interest payments covered by swap agreements differ from those of the
counterparty. These amounts are recorded as adjustments to interest expense.
The fair value of the swap agreements and changes in fair value as a result of
changes in market interest rates are not recognized in the consolidated
financial statements. As of January 2, 1999, Pillowtex had approximately $345.0
million of notional amounts covered under interest rate swap agreements whereby
Pillowtex exchanged floating rates for fixed rates. The weighted average fixed
and floating rates were 4.70% and 5.26%, respectively. As of January 1, 2000,
Pillowtex had approximately $345.0 million of notional amounts covered under
interest rate swap agreements whereby Pillowtex exchanged floating rates for
fixed rates. The weighted average fixed and floating rates were 4.70% and
5.96%, respectively. The fair values of the swaps at January 2, 1999 and
January 1, 2000 were $2.1 million and $4.0 million, respectively in favor of
Pillowtex.
23
<PAGE>
Adequacy of Capital Resources. Cash flow from operations for fiscal year
1999 decreased approximately $44 million from the prior year due primarily to
the comparative lower earnings of the Company. Based upon current and
anticipated levels of operations, and aggressive efforts to reduce inventories
and accounts receivable, Pillowtex anticipates that its cash flow from
operations, together with amounts available under its revolving credit facility,
will be adequate to meet its anticipated cash requirements in the foreseeable
future (assuming no significant cash payments are required to be made in respect
of the 6% Convertible Debentures other than scheduled interest payments and
payments related to satisfaction of the sinking fund obligations). In the event
that cash flows and available borrowings under the revolving credit facility are
not sufficient to meet future cash requirements, Pillowtex may be required to
reduce planned capital expenditures or seek additional financing. Pillowtex can
provide no assurances that reductions in planned capital expenditures would be
sufficient to cover shortfalls in available cash or that additional financing
would be available or, if available, offered on terms acceptable to the Company.
New Accounting Standard
In June 1998, Statement of Financial Accounting Standards ("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. The provisions of SFAS No. 133, as
amended by SFAS 137, are effective for fiscal years beginning after June 15,
2000, although early adoption is allowed. Pillowtex 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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------
Pillowtex is exposed to market risk from changes in interest rates on debt
and foreign currency exchange rates. See additional disclosures about interest
rate swap agreements in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" above. The Company's market risk sensitive
instruments are not entered into for trading purposes.
Pillowtex's exposure to interest rate risk consists of floating rate debt
based on the London Interbank Offered Rate plus an adjustable margin. To lower
or limit overall borrowing costs, the Company enters into interest rate swap
agreements to modify the interest characteristics of portions of its outstanding
debt. The interest rate swap agreements generally have one to two year terms.
The agreements entitle the Company to receive or pay to the counterparty (a
major bank), on a quarterly basis, the amounts, if any, by which Pillowtex's
interest payments covered by swap agreements differ from those of the
counterparty. These amounts are recorded as adjustments to interest expense.
The fair value of the swap agreements and changes in fair value resulting from
changes in market interest rates are not recognized in the consolidated
financial statements. The annual impact on the Company's results of operations
of a 100 basis point interest rate change on the January 1, 2000 outstanding
balance of the variable rate debt would be approximately $6.4 million
irrespective of any swaps associated with this debt. This same calculation for
fiscal year 1998 was $5.3 million.
Pillowtex's exposure to fluctuations in foreign currency exchange rates is
due primarily to a foreign subsidiary domiciled in Canada. Pillowtex's Canadian
subsidiary uses the Canadian dollar as its functional currency. Pillowtex
generally does not use financial derivative instruments to hedge foreign
currency exchange rate risks. The Canadian subsidiary is not material to
Pillowtex's consolidated results of operations; therefore, the impact of a 10%
change in the exchange rate at January 1, 2000 would not have a significant
impact on the Company's results of operations or financial position.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
The financial statements are set forth herein commencing on page F-1.
Schedule II to the financial statements is set forth herein on page S-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
---------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------
Not applicable.
24
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
----------------------------------------------
The information required by this Item 10 is set forth at pages 5 through 7
of Pillowtex's Proxy Statement for its 2000 Annual Meeting of Shareholders (the
"2000 Proxy Statement") under the captions "Board of Directors - Election of
Directors" and "Stock Ownership of Management and Certain Beneficial Owners --
Section 16(a) Beneficial Ownership Reporting Compliance" and at page 9 of the
2000 Proxy Statement under the caption "Executive Officers," and incorporated
herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
----------------------
The information required by this Item 11 is set forth at page 8 and pages
10 through 21 of the 2000 Proxy Statement under the captions "Information
Concerning the Board of Directors --Compensation of Directors" and "Executive
Compensation" (excluding the information set forth at pages 10 through 13 under
the caption "Executive Compensation --Board Compensation Committee Report on
Executive Compensation") and incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------
The information required by this Item 12 is set forth at pages 3 through 5
of the 2000 Proxy Statement under the caption "Stock Ownership of Management and
Certain Beneficial Owners" and incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
The information required by this Item 13 is set forth at pages 19 through
21 of the 2000 Proxy Statement under the captions "Executive Compensation --
Employment Agreements" and incorporated herein by reference.
25
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
----------------------------------------------------------------
(a) The following documents are filed as part of this Report:
<TABLE>
<CAPTION>
Page
1. Consolidated Financial Statements:
---------------------------------
<S> <C>
Independent Auditors' Report......................................... F-2
Consolidated Balance Sheets as of January 2, 1999 and
January 1, 2000...................................................... F-3
Consolidated Statements of Operations for the years ended
January 3, 1998, January 2, 1999 and January 1, 2000................. F-4
Consolidated Statements of Shareholders' Equity for the
years ended January 3, 1998, January 2, 1999 and January 1, 2000..... F-5
Consolidated Statements of Cash Flows for the years ended
January 3, 1998, January 2, 1999 and January 1, 2000................. F-6
Notes to Consolidated Financial Statements........................... F-7
2. Financial Statement Schedule. The following financial statement
----------------------------
schedule of Pillowtex for the fiscal years ended January 3, 1998,
January 2, 1999 and January 1, 2000 is filed as part of this Report
and should be read in conjunction with the Consolidated Financial
Statements of Pillowtex:
Schedule II - Valuation and Qualifying Accounts.................... S-1
3. Index to Exhibits
-----------------
</TABLE>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
2.1 Agreement and Plan of Merger, dated as of September 10, 1997, by and
among Pillowtex Corporation, Pegasus Merger Sub, Inc., and Fieldcrest
Cannon, Inc. (incorporated by reference to Appendix A to the Joint
Proxy Statement/Prospectus forming a part of Pillowtex Corporation's
Registration Statement on Form S-4 (No. 333-36663))
2.2 Amendment to Agreement and Plan of Merger, dated as of September 23,
1997, by and among Pillowtex Corporation, Pegasus Merger Sub, Inc.,
and Fieldcrest Cannon, Inc. (incorporated by reference to Appendix A
to the Joint Proxy Statement/Prospectus forming a part of Pillowtex
Corporation's Registration Statement on Form S-4 (No. 333-36663))
3.1 Restated Articles of Incorporation of Pillowtex Corporation, as
amended (incorporated by reference to Exhibit 3.1 to Pillowtex
Corporation's Quarterly Report on Form 10-Q for the quarter ended July
3, 1999)
3.2 Amended and Restated Bylaws of Pillowtex Corporation, as amended
(incorporated by reference to Exhibit 3.2 to Pillowtex Corporation's
Annual Report on Form 10-K for the fiscal year ended December 31,
1994)
4.1 Specimen of Certificate evidencing Common Stock (incorporated by
reference to Exhibit 4.2 to Pillowtex Corporation's Annual Report on
Form 10-K for the fiscal year ended December 28, 1996)
26
<PAGE>
4.2 Specimen of Certificate evidencing Series A Redeemable Convertible
Preferred Stock (incorporated by reference to Exhibit 4.2 to Pillowtex
Corporation's Annual Report on Form 10-K for the fiscal year ended
January 3, 1998)
4.3 Indenture, dated November 12, 1996, among Pillowtex Corporation, the
guarantors listed on the signature page thereto, and Bank One,
Columbus, N.A., as Trustee (incorporated by reference to Exhibit 4.1
to Pillowtex Corporation's Registration Statement on Form S-4 (No.
333-17731))
4.4 Supplemental Indenture, dated as of December 19, 1997, among Pillowtex
Corporation, the guarantors listed on the signature page thereto, and
Bank One, N.A. (formerly known as Bank One, Columbus, N.A.), as
Trustee
4.5 Second Supplemental Indenture, dated as of July 28, 1998, among
Pillowtex Corporation, the guarantors listed on the signature page
thereto, and Bank One, N.A. (formerly known as Bank One, Columbus,
N.A.), as Trustee
4.6 Resignation, Appointment and Acceptance Agreement, dated as of January
19, 2000, by and among Bank One, N.A. (formerly known as Bank One,
Columbus, N.A.), as prior Trustee, U.S. Bank National Association, as
successor Trustee, and Pillowtex Corporation, as Issuer
4.7 Indenture, dated as of December 18, 1997, among Pillowtex Corporation,
the guarantors listed on the signature page thereto, and Norwest Bank
Minnesota, National Association, as Trustee (incorporated by reference
to Exhibit 4.1 to Pillowtex Corporation's Current Report on Form 8-K
dated December 19, 1997, as amended by a Form 8-K/A (Amendment No. 1))
4.8 Supplemental Indenture, dated as of December 19, 1997, among Pillowtex
Corporation, the guarantors listed on the signature page thereto, and
Norwest Bank Minnesota, National Association, as Trustee (incorporated
by reference to Exhibit 4.2 to Pillowtex Corporation's Current Report
on Form 8-K dated December 19, 1997, as amended by a Form 8-K/A
(Amendment No. 1))
4.9 Second Supplemental Indenture, dated as of July 28, 1998, among
Pillowtex Corporation, the guarantors listed on the signature page
thereto, and Norwest Bank Minnesota, National Association, as Trustee
(incorporated by reference to Exhibit 4.1 to Pillowtex Corporation's
Quarterly Report on Form 10-Q for the quarter ended July 4, 1998)
10.1 Amended and Restated Credit Agreement, dated as of December 19, 1997,
among Pillowtex Corporation, certain Lenders named therein, and
NationsBank of Texas, N.A., as Administrative Agent (incorporated by
reference to Exhibit 10.1 to Pillowtex Corporation's Current Report on
Form 8-K dated December 19, 1997, as amended by a Form 8-K/A
(Amendment No. 1))
10.2 First Amendment to Amended and Restated Credit Agreement, dated as of
June 19, 1998, among Pillowtex Corporation, certain Lenders named
therein, and NationsBank of Texas, N.A., as Administrative Agent
(incorporated by reference to Exhibit 10.3 to Pillowtex Corporation's
Quarterly Report on Form 10-Q for the quarter ended July 4, 1998)
10.3 Second Amendment to Amended and Restated Credit Agreement, dated as of
July 28, 1998, among Pillowtex Corporation, certain Lenders named
therein, and NationsBank of Texas, N.A., as Administrative Agent
(incorporated by reference to Exhibit 10.4 to Pillowtex Corporation's
Quarterly Report on Form 10-Q for the quarter ended July 4, 1998)
10.4 Third Amendment to Amended and Restated Credit Agreement, dated as of
March 12, 1999, among Pillowtex Corporation, certain Lenders named
therein, and NationsBank of Texas, N.A., as Administrative Agent
(incorporated by reference to Exhibit 10.4 to Pillowtex Corporation's
Annual Report on Form 10-K for the fiscal year ended January 2, 1999)
10.5 Fourth Amendment to Amended and Restated Credit Agreement, dated as of
October 8, 1999, among Pillowtex Corporation, certain Lenders named
therein, and Bank of America N.A. (formerly NationsBank, N.A.), as
Administrative Agent (incorporated by reference to Exhibit 10.3 to
Pillowtex Corporation's Quarterly Report on Form 10-Q for the
Quarterly period ended October 2, 1999)
27
<PAGE>
10.6 Waiver and Fifth Amendment to Amended and Restated Credit Agreement,
dated as of December 9, 1999, to be effective as of December 7, 1999,
among Pillowtex Corporation, certain Lenders named therein, and Bank
of America N.A. (formerly NationsBank, N.A.), as Administrative Agent
(incorporated by reference to Exhibit 10.2 to Pillowtex Corporation's
Current Report on Form 8-K dated December 7, 1999)
10.7 Sixth Amendment and Waiver to Amended and Restated Credit Agreement,
dated as of February 15, 2000, among Pillowtex Corporation, certain
Lenders named therein, and Bank of America N.A. (formerly NationsBank,
N.A.), as Administrative Agent
10.8 Waiver and Seventh Amendment to Amended and Restated Credit Agreement,
dated as of March 31, 2000, among Pillowtex Corporation, certain
Lenders named therein, and Bank of America N.A. (formerly NationsBank,
N.A.), as Administrative Agent
10.9 Term Credit Agreement, dated as of December 19, 1997, among Pillowtex
Corporation, certain Lenders named herein, and NationsBank of Texas,
N.A., as Administrative Agent (incorporated by reference to Exhibit
10.2 to Pillowtex Corporation's Current Report on Form 8-K dated
December 19, 1997, as amended by a Form 8-K/A (Amendment No. 1))
10.10 First Amendment to Term Credit Agreement, dated as of June 19, 1998,
among Pillowtex Corporation, certain Lenders named therein, and
NationsBank of Texas, N.A., as Administrative Agent (incorporated by
reference to Exhibit 10.5 to Pillowtex Corporation's Quarterly Report
on Form 10-Q for the quarter ended July 4, 1998)
10.11 Second Amendment to Term Credit Agreement, dated as of July 28, 1998,
among Pillowtex Corporation, certain Lenders named therein, and
NationsBank of Texas, N.A., as Administrative Agent (incorporated by
reference to Exhibit 10.6 to Pillowtex Corporation's Quarterly Report
on Form 10-Q for the quarter ended July 4, 1998)
10.12 Third Amendment to Term Credit Agreement, dated as of May 5, 1999,
among Pillowtex Corporation, certain Lenders named therein, and Bank
of America N.A. (formerly NationsBank, N.A.), as Administrative Agent
(incorporated by reference to Exhibit 10.1 to Pillowtex Corporation's
Quarterly Report on Form 10-Q for the Quarterly period ended October
2, 1999)
10.13 Fourth Amendment to Term Credit Agreement, dated as of October 8,
1999, among Pillowtex Corporation, certain Lenders named therein, and
Bank of America N.A. (formerly NationsBank, N.A.), as Administrative
Agent (incorporated by reference to Exhibit 10.2 to Pillowtex
Corporation's Quarterly Report on Form 10-Q for the Quarterly period
ended October 2, 1999)
10.14 Waiver and Fifth Amendment to Term Credit Agreement, dated as of
December 9, 1999, to be effective as of December 7, 1999, among
Pillowtex Corporation, certain Lenders named therein, and Bank of
America N.A. (formerly NationsBank, N.A.), as Administrative Agent
(incorporated by reference to Exhibit 10.1 to Pillowtex Corporation's
Current Report on Form 8-K dated December 7, 1999)
10.15 Sixth Amendment and Waiver to Term Credit Agreement, dated as of
February 15, 2000 among Pillowtex Corporation, certain Lenders named
therein, and Bank of America N.A. (formerly NationsBank, N.A.), as
Administrative Agent
10.16 Waiver and Seventh Amendment to Term Credit Agreement, dated as of
March 31, 2000 among Pillowtex Corporation, certain Lenders named
therein, and Bank of America N.A. (formerly NationsBank, N.A.), as
Administrative Agent
10.17 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 (incorporated by reference to Exhibit 10.1 to Pillowtex
Corporation's Quarterly Report on Form 10-Q for the Quarterly period
ended July 3, 1999)
28
<PAGE>
10.18 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 (incorporated
by reference to Exhibit 10.2 to Pillowtex Corporation's Quarterly
Report on Form 10-Q for the Quarterly period ended July 3, 1999)
10.19 Third Amendment, dated as of December 7, 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
(incorporated by reference to Exhibit 10.3 to Pillowtex Corporation's
Current Report on Form 8-K dated December 7, 1999)
10.20 Fourth Amendment, dated as of February 15, 2000, 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
10.21 Fifth amendment dated as of March 31, 2000 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
10.22 Consent dated as of December 7, 1999, by and between Bank of America
N.A. (formerly NationsBank, N.A.), as Lender, and Pillowtex
Corporation, as Borrower (incorporated by reference to Exhibit 10.4 to
Pillowtex Corporation's Current Report on Form 8-K dated December 7,
1999)
10.23 Consent dated as of February 15, 2000, by and between Bank of America
N.A. (formerly NationsBank, N.A.), as Lender, and Pillowtex
Corporation, as Borrower
10.24 Consent dated as of March 31, 2000, by and between Bank of America
N.A. (formerly NationsBank, N.A.), as Lender, and Pillowtex
Corporation, as Borrower
10.25 Preferred Stock Purchase Agreement, dated as of September 10, 1997, by
and among Pillowtex Corporation, Apollo Investment Fund III, L.P.,
Apollo Overseas Partners III, L.P., and Apollo (UK) Partners III, L.P.
(incorporated by reference to Exhibit 10.2 to Pillowtex Corporation's
Current Report on Form 8-K dated September 10, 1997, as amended by a
Form 8-K/A (Amendment No. 1))
10.26 Amendment No. 1 to the Preferred Stock Purchase Agreement, dated as of
November 21, 1997, by and among Pillowtex Corporation, Apollo
Investment Fund III, L.P., Apollo Overseas Partners III, L.P., and
Apollo (UK) Partners III, L.P. (incorporated by reference to Exhibit
10.1 to Pillowtex Corporation's Current Report on Form 8-K dated
November 21, 1997)
10.27 Purchase Agreement, dated December 15, 1997, among Pillowtex
Corporation, the guarantors listed on the signature page thereto, and
NationsBanc Montgomery Securities, Inc. and Bear, Stearns & Co. Inc.
(incorporated by reference to Exhibit 10.5 to Pillowtex Corporation's
Current Report on Form 8-K dated December 19, 1997, as amended by a
Form 8-K/A (Amendment No. 1))
10.28 Purchase Agreement Supplement, dated December 19, 1997, among
Pillowtex Corporation, the guarantors listed on the signature page
thereto, and NationsBank Montgomery Securities, Inc. and Bear, Stearns
& Co. Inc. (incorporated by reference to Exhibit 10.6 to Pillowtex
Corporation's Current Report on Form 8-K dated December 19, 1997, as
amended by a Form 8-K/A (Amendment No. 1))
10.29 Registration Rights Agreement, dated as of December 18, 1997, among
Pillowtex Corporation, the guarantors listed on the signature page
thereto, and NationsBanc Montgomery Securities, Inc. and Bear, Stearns
& Co. Inc. (incorporated by reference to Exhibit 10.7 to Pillowtex
Corporation's Current Report on Form 8-K dated December 19, 1997, as
amended by a Form 8-K/A (Amendment No. 1))
29
<PAGE>
10.30 Registration Rights Agreement Supplement, dated as of December 19,
1997, among Pillowtex Corporation, the guarantors listed on the
signature page thereto, and NationsBank Montgomery Securities, Inc.
and Bear, Stearns & Co. Inc. (incorporated by reference to Exhibit
10.8 to Pillowtex Corporation's Current Report on Form 8-K dated
December 19, 1997, as amended by a Form 8-K/A (Amendment No. 1))
10.31 Registration Rights Agreement, dated as of November 12, 1996, by and
among Pillowtex Corporation, each domestic subsidiary of Pillowtex
Corporation, and NationsBanc Capital Markets, Inc. and Merrill Lynch,
Pierce, Fenner & Smith, Incorporated (incorporated by reference to
Exhibit 10.59 to Pillowtex Corporation's Registration Statement on
Form S-4 (No. 333-17731))
10.32 Sublicense Agreement, dated as of July 1, 1998, between Pillowtex
Corporation and the Ralph Lauren Home Collection (incorporated by
reference to Exhibit 10.1 to Pillowtex Corporation's Quarterly Report
on Form 10-Q for the quarter ended July 4, 1998)
10.33 Lease Agreement, dated as of September 18, 1995, between Pillowtex
Corporation and Sanwa Business Credit Corp. (incorporated by reference
to Exhibit 10.4 to Pillowtex Corporation's Quarterly Report on Form
10-Q, as amended, for the quarter ended September 30, 1995)
10.34 Lease, dated as of November 26, 1996, by and among Torfeaco Industries
Limited and Standa Investment Limited (incorporated by reference to
Exhibit 10.14 to Pillowtex Corporation's Annual Report on Form 10-K
for the fiscal year ended January 3, 1998)
10.35 Indemnity Agreement, dated as of November 26, 1996, between Torfeaco
Industries Limited and Standa Investment Limited (incorporated by
reference to Exhibit 10.15 to Pillowtex Corporation's Annual Report on
Form 10-K for the fiscal year ended January 3, 1998)
10.36 Industrial Lease, dated as of November 23, 1992, between Angel and
Jean Echevarria and Pillowtex Corporation (incorporated by reference
to Exhibit 10.21 to Pillowtex Corporation's Registration Statement on
Form S-1 (No. 33-57314))
10.37 Second Amendment to Lease entered into in September 1997 between Angel
and Jean Echevarria and Pillowtex Corporation (incorporated by
reference to Exhibit 10.17 to Pillowtex Corporation's Annual Report on
Form 10-K for the fiscal year ended January 3, 1998)
10.38 Form of Lease, dated as of October 12, 1988, between Jimmie D. Smith,
Jr. and Pillowtex Corporation (incorporated by reference to Exhibit
10.23 to Pillowtex Corporation's Registration Statement on Form S-1
(No. 33-57314))
10.39 Agreement for Modification and Extension of Lease between Jimmie D.
Smith, Jr. and Pillowtex Corporation (incorporated by reference to
Exhibit 10.19 to Pillowtex Corporation's Annual Report on Form 10-K
for the fiscal year ended January 3, 1998)
10.40 Form of Equipment Leasing Agreement between BTM Financial & Leasing
Corporation B-4 and Beacon Manufacturing Company, Manetta Home
Fashions, Inc., and Tennessee Woolen Mills, Inc., dated as of June 14,
1996 (incorporated by reference to Exhibit 10 to Pillowtex
Corporation's Quarterly Report on Form 10-Q for the quarter ended June
30, 1996)
10.41* Employment Agreement dated as of January 1, 1993, between Pillowtex
Corporation and Charles M. Hansen, Jr. (incorporated by reference to
Exhibit 10.2 to Pillowtex Corporation's Registration Statement on Form
S-1 (No. 33-57314))
10.42* Amendment to Employment Agreement, dated as of July 26, 1993, between
Pillowtex Corporation and Charles M. Hansen, Jr. (incorporated by
reference to Exhibit 10.26 to Pillowtex Corporation's Annual Report on
Form 10-K for the fiscal year ended December 31, 1993)
10.43* Amendment to Employment Agreement, dated as of January 20, 1998,
between Pillowtex Corporation and Charles M. Hansen, Jr. (incorporated
by reference to Exhibit 10.23 to Pillowtex Corporation's Annual Report
on Form 10-K for the fiscal year ended January 3, 1998)
30
<PAGE>
10.44* Form of Confidentiality and Noncompetition Agreement (incorporated by
reference to Exhibit 10.27 to Pillowtex Corporation's Registration
Statement on Form-S-1 (No. 33-57314))
10.45* Form of Director Indemnification Agreement (incorporated by reference
to Exhibit 10.36 to Pillowtex Corporation's Registration Statement on
Form S-1 (No. 33-57314))
10.46* Split Dollar Life Insurance Agreement between Pillowtex Corporation
and Charles M. Hansen, Jr. dated July 26, 1993 (incorporated by
reference to Exhibit 10.32 to Pillowtex Corporation's Annual Report on
Form 10-K for the fiscal year ended December 31, 1993)
10.47* Pillowtex Corporation 1993 Stock Option Plan (incorporated by
reference to Appendix A to Pillowtex Corporation's Proxy Statement for
its Annual Meeting of Shareholders held on May 8, 1997)
10.48* Form of Employment Agreement entered into between Pillowtex Management
Services Company and Scott E. Shimizu (incorporated by reference to
Exhibit 10.28 to Pillowtex Corporation's Annual Report on Form 10-K
for the fiscal year ended January 3, 1998)
10.49* Form of Employment Agreement entered into between Fieldcrest Cannon,
Inc. and A. Allen Oakley, dated October 9, 1998 (incorporated by
reference to Exhibit 10.34 to Pillowtex Corporation's Annual Report on
Form 10-K for the fiscal year ended January 2, 1999)
10.50* Form of Employment Agreement dated as of January 1, 1998, between
Pillowtex Management Services Company and Kevin M. Finlay
(incorporated by reference to Exhibit 10.29 to Pillowtex Corporation's
Annual Report on Form 10-K for the fiscal year ended January 3, 1998)
10.51* Form of Employment Agreement entered into between Fieldcrest Cannon,
Inc. and Richard A Grissinger
10.52* Pillowtex Corporation Supplemental Executive Retirement Plan,
effective as of January 1, 1997 (incorporated by reference to Exhibit
10.1.44 to Pillowtex Corporation's Registration Statement on Form S-4
(No. 33-36663) filed on September 29, 1997)
10.53* Pillowtex Corporation Management Incentive Plan (incorporated by
reference to Appendix B to Pillowtex Corporation's Proxy Statement for
its Annual Meeting of Shareholders held on May 8, 1997)
10.54* Pillowtex Corporation Deferred Compensation Plan, effective as of
February 9, 1998 (incorporated by reference to Exhibit 10.32 to
Pillowtex Corporation's Annual Report on Form 10-K for the fiscal year
ended January 3, 1998)
10.55* Pillowtex Corporation Executive Medical Expense Reimbursement Plan,
effective as of January 1, 1998 (incorporated by reference to Exhibit
10.2 to Pillowtex Corporation's Quarterly Report on Form 10-Q for the
quarter ended July 4, 1998)
10.56 Indenture, dated as of March 15, 1987, relating to the 6% Convertible
Subordinated Debentures Due 2012 (incorporated by reference to Exhibit
4.9 to Fieldcrest Cannon, Inc.'s Registration Statement on Form S-3
(No. 33-12436))
10.57 Yarn Purchase Agreement between Parkdale Mills, Incorporated and
Fieldcrest Cannon, Inc. (incorporated by reference to Exhibit 10 to
Fieldcrest Cannon, Inc.'s Quarterly Report on Form 10-Q for the
quarter ended March 31, 1996)
21.1 List of Pillowtex Corporation's Principal Operating Subsidiaries
23.1 Consent of KPMG LLP
27 Financial Data Schedule
_______________
* Management contract or compensatory plan or arrangement required to be filed
as an exhibit hereto.
31
<PAGE>
(b) Reports On Form 8-K.
-------------------
During the quarter ended January 1, 2000, Pillowtex filed a Current Report
on Form 8-K, dated December 7, 1999 and filed on December 14, 1999, reporting
information under "Item 5. Other Events" regarding certain waivers and
amendments with respect to Pillowtex's senior secured credit agreements.
32
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on March 31, 2000.
PILLOWTEX CORPORATION
By /s/ Charles M. Hansen, Jr.
---------------------------
Charles M. Hansen, Jr.
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on March 31, 2000.
Signatures Title
---------- -----
/s/ Charles M. Hansen, Jr. Chairman of the Board and Chief Executive
- ------------------------------- Officer; Director (Principal Executive
Charles M. Hansen, Jr. Officer)
/s/ John A. Macaulay Senior Vice President - Finance
- ------------------------------- (Principal Accounting Officer)
John A. Macaulay
/s/ Scott E. Shimizu Director
- -------------------------------
Scott E. Shimizu
/s/ Mary R. Silverthorne Director
- -------------------------------
Mary R. Silverthorne
/s/ William B. Madden Director
- -------------------------------
William B. Madden
/s/ M. Joseph McHugh Director
- -------------------------------
M. Joseph McHugh
/s/ Paul G. Gillease Director
- -------------------------------
Paul G. Gillease
/s/ Ralph W. La Rovere Director
- -------------------------------
Ralph W. La Rovere
/s/ Mark A. Petricoff Director
- -------------------------------
Mark A. Petricoff
33
<PAGE>
PILLOWTEX CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
<S> <C>
Independent Auditors' Report.................................................. F-2
Consolidated Financial Statements:
- ---------------------------------
Consolidated Balance Sheets as of January 2, 1999 and January 1, 2000... F-3
Consolidated Statements of Operations for the fiscal years ended
January 3, 1998, January 2, 1999 and January 1, 2000..................... F-4
Consolidated Statements of Shareholders' Equity for the fiscal
years ended January 3, 1998, January 2, 1999 and January 1, 2000......... F-5
Consolidated Statements of Cash Flows for the fiscal years ended
January 3, 1998, January 2, 1999 and January 1, 2000..................... F-6
Notes to Consolidated Financial Statements............................... F-7
Financial Statement Schedule for the fiscal years ended
January 3, 1998, January 2, 1999 and January 1, 2000
Schedule II - Valuation and Qualifying
Accounts................................................................. S-1
</TABLE>
<PAGE>
PILLOWTEX CORPORATION AND SUBSIDIARIES
Independent Auditors' Report
The Board of Directors and Shareholders
Pillowtex Corporation:
We have audited the consolidated financial statements of Pillowtex Corporation
and subsidiaries as listed in the accompanying index. In connection with our
audits of the consolidated financial statements, we also have audited the
financial statement schedule as listed in the accompanying index. These
consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Pillowtex
Corporation and subsidiaries as of January 2, 1999 and January 1, 2000, and the
results of their operations and their cash flows for each of the years in the
three-year period ended January 1, 2000, in conformity with generally accepted
accounting principles. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
KPMG LLP
Dallas, Texas
February 15, 2000, except for Note 11, as
to which the date is March 31, 2000
F-2
<PAGE>
PILLOWTEX CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
January 2, 1999 and January 1, 2000
(Dollars in thousands, except for par value)
<TABLE>
<CAPTION>
1998 1999
---------------- ----------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 5,561 4,854
Receivables (note 11):
Trade, less allowances of $21,117 in 1998 and $33,351 in 1999 246,348 268,499
Other 13,124 17,923
Inventories (notes 6 and 11) 434,281 423,052
Assets held for sale 4,058 1,595
Prepaid expenses 3,785 5,502
----------------- ----------------
Total current assets 707,157 721,425
Property, plant and equipment, net (notes 7 and 11) 629,205 644,821
Intangible assets, at cost less accumulated amortization of
$15,577 in 1998 and $26,355 in 1999 289,829 288,856
Other assets 27,963 28,287
----------------- ----------------
Total assets $ 1,654,154 1,683,389
================= ================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable (note 8) $ 127,575 119,848
Accrued expenses (note 8) 96,250 73,238
Deferred income taxes (note 12) 22,978 37,848
Current portion of long-term debt (note 11) 12,421 85,759
----------------- ----------------
Total current liabilities 259,224 316,693
Long-term debt, net of current portion (note 11) 944,493 965,323
Deferred income taxes (note 12) 96,013 67,720
Noncurrent liabilities (note 10) 53,434 52,366
----------------- ----------------
Total liabilities 1,353,164 1,402,102
Series A redeemable convertible preferred stock, $.01 par value;
65,475 shares issued and outstanding (note 13) 63,057 73,898
Shareholders' equity (notes 11 and 14)
Preferred stock, $.01 par value; authorized 20,000,000 shares;
Only Series A issued -- --
Common stock, $.01 par value; authorized 55,000,000 shares;
14,126,595 and 14,261,856 shares issued and outstanding in
1998 and 1999, respectively 141 142
Additional paid-in capital 155,811 160,515
Retained earnings 83,650 49,269
Currency translation adjustment (1,669) (1,730)
Deferred compensation -- (807)
----------------- ----------------
Total shareholders' equity 237,933 207,389
Commitments and contingencies (notes 9, 10, and 15) ----------------- ----------------
Total liabilities and shareholders' equity $ 1,654,154 1,683,389
================= ================
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
PILLOWTEX CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended January 3, 1998, January 2, 1999 and January 1, 2000
(Amounts in thousands, except for per share data)
<TABLE>
<CAPTION>
1997 1998 1999
---------------- ---------------- ----------------
<S> <C> <C> <C>
Net sales $ 579,999 $ 1,509,841 $ 1,552,068
Cost of goods sold 485,679 1,237,085 1,358,966
---------------- ---------------- ----------------
Gross profit 94,320 272,756 193,102
Selling, general and administrative expenses 52,090 128,685 131,256
Provision for asset impairment (note 7) -- -- 2,000
Restructuring charge (note 3) 5,986 1,539 --
---------------- ---------------- ----------------
Earnings from operations 36,244 142,532 59,846
Interest expense 22,470 72,288 87,279
---------------- ---------------- ----------------
Earnings (loss) before income taxes
and extraordinary items 13,774 70,244 (27,433)
Income taxes (benefits) (note 12) 5,538 27,389 (7,901)
---------------- ---------------- ----------------
Earnings (loss) before extraordinary items 8,236 42,855 (19,532)
Extraordinary items, net of income tax benefit of $613
(note 11) 919 -- --
---------------- ---------------- ----------------
Net earnings (loss) 7,317 42,855 (19,532)
Preferred dividends and accretion (note 13) 85 2,097 12,294
---------------- ---------------- ----------------
Earnings (loss) available for common shareholders $ 7,232 $ 40,758 $ (31,826)
================ ================ ================
Basic earnings (loss) per common share (note 4):
Before extraordinary items $ 0.75 $ 2.89 $ (2.25)
Extraordinary items (0.08) -- --
---------------- ---------------- ----------------
Basic earnings (loss) per common share $ 0.67 $ 2.89 $ (2.25)
================ ================ ================
Weighted average common shares outstanding - basic 10,837 14,082 14,154
Diluted earnings (loss) per common share (note 4):
Before extraordinary items $ 0.74 $ 2.52 $ (2.25)
Extraordinary items (0.08) -- --
---------------- ---------------- ----------------
Diluted earnings (loss) per common share $ 0.66 $ 2.52 $ (2.25)
================ ================ ================
Weighted average common shares outstanding - diluted 11,086 17,653 14,154
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
PILLOWTEX CORPORATION AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity
Years ended January 3, 1998, January 2, 1999 and January 1, 2000
(in thousands of dollars, except for per share data)
<TABLE>
<CAPTION>
Common Stock
---------------------- Additional Currency Total
Number Par paid-in Retained Deferred translation shareholders'
of shares value capital earnings compensation adjustment equity
----------- ------- ------------ ---------- -------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at December 28, 1996 10,617,722 $ 106 $ 58,427 $ 41,665 $ -- $ (194) $ 100,004
Comprehensive income:
Net earnings 7,317 7,317
Currency translation
adjustments (662) (662)
-----------
Total comprehensive
income 6,655
-----------
Issuance of common stock -
acquisitions (note 5) 3,175,181 32 89,676 89,708
Exercise of stock options,
including tax benefits
of $517 (note 14) 174,812 2 2,992 2,994
Preferred stock dividends
(note 13) (85) (85)
Common stock dividends
declared ($.24 per share) (2,569) (2,569)
------------ ------- ---------- ---------- ------------ ----------- -----------
Balance at January 3, 1998 13,967,715 $ 140 $ 151,095 $ 46,328 $ -- $ (856) $ 196,707
Comprehensive income:
Net earnings 42,855 42,855
Currency translation
adjustments (813) (813)
-----------
Total comprehensive income 42,042
-----------
Exercise of stock options,
including tax benefits
of $1,637 (note 14) 154,458 1 4,545 4,546
Issuance of common stock -
convertible debentures 4,422 171 171
Accretion of Series A
Preferred Stock (note 13) (216) (216)
Preferred stock dividends
(note 13) (1,934) (1,934)
Common stock dividends
declared ($.24 per share) (3,383) (3,383)
------------ ------- ---------- ---------- ------------ ----------- -----------
Balance at January 2, 1999 14,126,595 $ 141 $ 155,811 $ 83,650 $ -- $ (1,669) $ 237,933
Comprehensive loss:
Net loss (19,532) (19,532)
Currency translation
adjustments (61) (61)
-----------
Total comprehensive loss (19,593)
-----------
Exercise of stock options,
Including tax benefits
of $6 (note 14) 3,375 49 49
Issuance of restricted stock- 46,398 1,190 (807) 383
Issuance of common stock -
convertible debentures 85,518 1 3,465 3,466
Accretion of Series A
Preferred Stock (note 13) (216) (216)
Preferred stock dividends
(note 13) (12,078) (12,078)
Common stock dividends
declared ($.18 per share) (2,555) (2,555)
------------ ------- ---------- ---------- ------------ ----------- -----------
Balance at January 1, 2000 14,261,886 $ 142 $ 160,515 $ 49,269 $ (807) $ (1,730) $ 207,389
============ ======= ========== ========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
PILLOWTEX CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended January 3, 1998, January 2, 1999 and January 1, 2000
(Dollars in thousands)
<TABLE>
<CAPTION>
Cash flows from operating activities: 1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Net earnings (loss) $ 7,317 $ 42,855 $ (19,532)
Adjustments to reconcile net earnings (loss) to net cash
provided by operating activities:
Depreciation and amortization 16,064 54,021 60,074
Extraordinary items 919 -- --
Restructuring and asset impairment 5,986 1,539 2,000
Deferred income taxes (2,320) 22,058 (8,356)
Loss (gain) on disposal of property, plant and equipment (1,052) 166 65
Changes in assets and liabilities
excluding effects of businesses acquired:
Trade receivables (8,173) (16,914) (23,240)
Inventories (3,900) (56,372) 10,632
Accounts payable and accrued expenses (6,236) 12,438 (12,641)
Other assets and liabilities 8,781 (5,181) 532
---------- ---------- ----------
Net cash provided by operating activities 17,386 54,610 9,534
---------- ---------- ----------
Cash flows from investing activities:
Proceeds from sale of property, plant and equipment 4,926 12,308 472
Purchases of property, plant and equipment (20,567) (133,620) (89,737)
Proceeds from disposal of assets held for sale -- 25,935 5,679
Payments for businesses purchased (535,222) (106,746) --
---------- ---------- ----------
Net cash used in investing activities (550,863) (202,123) (83,586)
---------- ---------- ----------
Cash flows from financing activities:
Increase (decrease) in checks not yet presented for payment 6,583 (247) (18,592)
Borrowings on revolving credit loans 200,600 470,400 383,028
Repayments of revolving credit loans (146,600) (402,600) (271,028)
Proceeds from the issuance of other long-term debt 435,000 100,000 --
Retirement of long-term debt (2,727) (14,127) (16,095)
Payments of debt and equity issuance costs (19,703) (1,849) --
Proceeds from issuance of redeemable convertible preferred 65,000 -- --
stock
Dividends paid (2,569) (5,402) (4,011)
Proceeds from exercise of stock options 2,477 2,295 43
---------- ---------- ----------
Net cash provided by financing activities 538,061 148,470 73,345
---------- ---------- ----------
Net change in cash and cash equivalents 4,584 957 (707)
Cash and cash equivalents at beginning of period 20 4,604 5,561
---------- ---------- ----------
Cash and cash equivalents at end of period $ 4,604 $ 5,561 $ 4,854
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
PILLOWTEX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
January 2, 1999 and January 1, 2000
(Tables in thousands of dollars, except for per share data)
(1) General
Pillowtex Corporation (the "Parent") and its subsidiaries
(collectively, with Parent, the "Company"), is a North American designer,
manufacturer and marketer of home textile products, offering a full line of
bed pillows, blankets, sheets, pillow cases, mattress pads, down
comforters, towels, bath rugs, kitchen textiles and other home textile
products. As a supplier across all distribution channels, the Company sells
its products to most major mass merchants, wholesale clubs, department
stores, specialty retailers, catalogs, institutions and international
customers.
(2) Summary of Significant Accounting Policies
(a) Principles of Consolidation
The consolidated financial statements include the financial statements
of Pillowtex Corporation and its subsidiaries. All significant
intercompany balances and transactions have been eliminated in
consolidation.
(b) Fiscal Year
The Company's fiscal year ends on the Saturday closest to December 31.
Fiscal year 1997 ended January 3, 1998, fiscal year 1998 ended January
2, 1999 and fiscal year 1999 ended January 1, 2000. Such years include
the results of operations for 53, 52 and 52 weeks, respectively.
(c) Statements of Cash Flows
For purposes of reporting cash flows, the Company considers all short-
term investments with original maturities of three months or less to
be cash equivalents.
Supplemental disclosures of cash flow information for fiscal years
1997, 1998 and 1999 follow:
<TABLE>
<CAPTION>
1997 1998 1999
--------------- --------------- ---------------
<S> <C> <C> <C>
Interest paid $ 19,207 73,223 87,906
=============== =============== ===============
Income taxes paid (refunded) $ 7,533 (5,042) 769
=============== =============== ===============
</TABLE>
(d) Inventories
Inventories are valued at the lower of cost or market. Cost is
determined using the first-in, first-out (FIFO) and last-in, first-out
(LIFO) methods (see note 6).
(e) Derivative Financial Instruments
The Company enters into interest rate swap agreements to modify the
interest characteristics of portions of its outstanding debt. The
agreements entitle the Company to receive or pay to the counterparty
(a major bank), on a quarterly basis, the amounts, if any, by which
the Company's interest payments covered by swap agreements differ from
those of the counterparty. These amounts are recorded as adjustments
to interest expense. The fair value of the swap agreements and changes
in fair value as a result of changes in market interest rates are not
recognized in the consolidated financial statements.
(Continued)
F 7
<PAGE>
PILLOWTEX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
January 2, 1999 and January 1, 2000
(Tables in thousands of dollars, except for per share data)
(f) Property, Plant and Equipment
Depreciation is provided generally using the straight-line method in
amounts sufficient to amortize the cost of the assets over their
estimated useful lives as follows:
Buildings and improvements 10-39 years
Machinery and equipment 5-15 years
Data processing equipment 5 years
Furniture and fixtures 5-8 years
Leasehold improvements are amortized over the lesser of the estimated
useful lives of the assets or the remaining term of the lease using
the straight-line method. Renewals and betterments are capitalized and
depreciated over the remaining life of the specific property unit.
(g) Intangibles
Intangible assets consist primarily of goodwill ($252.0 million and
$261.9 million net of accumulated amortization of $10.9 million and
$17.5 million as of January 2, 1999 and January 1, 2000, respectively)
recorded in connection with the Company's acquisitions (see note 5).
Goodwill represents the excess of purchase price over the fair value
of net assets acquired. Amortization is provided using the straight-
line method principally over an estimated useful life of 40 years.
Other intangible assets consist principally of trademarks and deferred
debt issuance costs. Trademarks are amortized using the straight-line
method over their useful lives which range from 5 to 40 years. Debt
issuance costs are amortized using the effective interest method over
the terms of the related debt which range from 6 to 12 years.
The Company assesses the recoverability of goodwill by determining
whether the amortization of the asset balance over its remaining life
can be recovered through undiscounted future operating cash flows of
the acquired operation. The amount of impairment, if any, is measured
based on projected discounted future operating cash flows. The
discount rate used will be based on the Company's cost of capital. The
Company believes no impairment of goodwill has occurred and that no
reduction of the estimated useful lives is warranted.
(h) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed
Of
The Company reviews long-lived assets and certain identifiable
intangible assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured
by a comparison of the carrying amount of an asset to future net cash
flows expected to be generated by the asset. If such assets are
considered to be impaired, the impairment to be recognized is measured
by the amount by which the carrying amount of the assets exceeds the
fair value of the assets. Assets to be disposed of are reported at the
lower of the carrying amount or fair value less costs to sell.
(i) Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents, receivables and
accounts payable approximate fair value (see note 11 regarding the
fair value of debt and interest rate swaps).
(j) Income Taxes
Deferred income taxes are recognized for the future tax consequences
attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled.
The effect on deffered taxes of a change in tax rates is recognized
income in the period that includes the enactment date.
(Continued)
F 8
<PAGE>
PILLOWTEX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
January 2, 1999 and January 1, 2000
(Tables in thousands of dollars, except for per share data)
(k) Stock Option Plan
In accordance with Statement of Financial Accounting Standards
("SFAS") No. 123, Accounting for Stock-Based Compensation, the Company
applies the accounting provisions of Accounting Principles Board
("APB") Opinion No. 25, Accounting for Stock Issued to Employees, and
related interpretations and provides pro forma net income and earnings
per share disclosures for employee stock option grants as if the fair-
value based method defined in SFAS No. 123 had been applied.
Compensation expense is recorded only if the current market price of
the underlying stock exceeds the exercise price on the date of grant.
(l) Revenue Recognition
Revenue is recognized upon shipment of products. Reserves for sales
returns and allowances are recorded in the same accounting period as
the related revenues.
(m) Advertising Expenses
The Company expenses advertising costs as incurred. Advertising
expense was approximately $3.8 million, $19.9 million and $24.9
million during fiscal years 1997, 1998 and 1999, respectively.
(n) Earnings Per Share
Basic earnings per share is computed by dividing earnings available
for common shareholders by the weighted average number of shares
outstanding during the period. Diluted earnings per share is computed
by dividing (i) earnings available for common shareholders as adjusted
to add back (if dilutive) convertible preferred dividends and
accretion and the after-tax interest recognized in the period
associated with convertible debt by (ii) the weighted average number
of shares outstanding plus the number of dilutive additional shares
that would have been outstanding if potentially dilutive securities
had been issued.
(o) Foreign Currency Translation and Transactions
The Company's foreign subsidiaries use the local currency as the
functional currency and translate their assets and liabilities into
U.S. dollars using current exchange rates. Revenues and expenses are
translated at average monthly exchange rates. The resulting
translation adjustments are recorded as a separate component of
shareholders' equity. Foreign currency transaction gains and losses
are included in the consolidated statements of operations and were not
material in any of the years presented.
(p) Use of Estimates
The preparation of the consolidated financial statements in conformity
with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the consolidated financial statements, and
the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
(q) Comprehensive Income
Comprehensive income consists of net earnings and foreign currency
translation adjustments and is presented in the consolidated
statements of shareholders' equity.
3) Restructuring Charge
During the fourth quarter of 1997, the Company committed to a plan to
consolidate its blanket production into its facilities in Swannanoa, North
Carolina and Westminster, South Carolina. The aggregate cost of this
restructuring was estimated to be approximately $7.5 million, of which
approximately $6.0 million (associated with the write-down of certain assets and
other expenses) was accrued in fiscal year 1997, and the remaining $1.5 million
(associated with employee severance) was expensed in the first quarter of fiscal
year 1998. Expenditures related to the restructuring were substantially complete
as of the end of fiscal year 1998.
(Continued)
F 9
<PAGE>
PILLOWTEX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
January 2, 1999 and January 1, 2000
(Tables in thousands of dollars, except for per share data)
(4) Earnings Per Share
The following table reconciles the numerators and denominators of
basic and diluted earnings per share for fiscal years 1997, 1998, and 1999.
In 1997 and 1998 options to purchase 0 and 500,000 shares respectively were
not included in the computation of diluted earnings because including them
would have been anti-dilutive. All potentially dilutive securities in 1999
were considered anti-dilutive, therefore basic and diluted loss per share
are the same.
<TABLE>
<CAPTION>
1997 1998 1999
------------------- -------------------- --------------------
Earnings
Earnings Shares Earnings Shares (loss) Shares
------------------- -------------------- ---------------------
<S> <C> <C> <C>
Basic - earnings (loss) available for
common shareholders $ 7,232 10,837 $ 40,758 14,082 $ (31,826) 14,154
Effect of dilutive securities:
Stock options - 132 - 207 - -
Convertible debentures - - 1,577 656 - -
Convertible preferred stock 85 117 2,097 2,708 - -
------------------- -------------------- ---------------------
Diluted - earnings (loss) available
for common shareholders plus
assumed conversions $ 7,317 11,086 $ 44,432 17,653 $ (31,826) 14,154
=================== ==================== =====================
</TABLE>
(5) Acquisitions
On July 28, 1998, the Company acquired the net assets of The Leshner
Corporation ("Leshner"), a 91 year-old manufacturer of towels and terry-
related products, for a purchase price of $41.8 million in cash (including
acquisition costs). In connection with the acquisition, the Company retired
$32.5 million of outstanding Leshner debt. The acquisition and related debt
retirement were financed through the term loan under the senior credit
facilities (see note 11). The purchase price exceeded the fair value of net
assets acquired by approximately $27.8 million, which is being amortized on
a straight line basis over 40 years. The pro forma effects of such
transaction, as if it had occurred at the beginning of fiscal year 1997,
are not significant.
On December 19, 1997, the Company acquired all of the outstanding
common and preferred stock of Fieldcrest Cannon Inc. ("Fieldcrest Cannon")
in exchange for cash of $335.9 million (including acquisition costs) and
approximately 3.2 million shares of common stock of the Company ("the
Merger"). In connection with the Merger, the Company retired $199.0 million
and assumed $107.9 million of outstanding Fieldcrest Cannon debt. The
purchase price exceeded the fair value of net assets acquired by
approximately $184.8 million, which is being amortized on a straight line
basis over 40 years.
The acquisitions have been accounted for under the purchase method of
accounting and, accordingly, results of operations of Fieldcrest Cannon and
Leshner have been included in the consolidated statements of operations
since their respective acquisition dates.
(Continued)
F 10
<PAGE>
PILLOWTEX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
January 2, 1999 and January 1, 2000
(Tables in thousands of dollars, except for per share data)
(6) Inventories
Inventories consist of the following at January 2, 1999 and January 1,
2000:
<TABLE>
<CAPTION>
1998 1999
---- ----
<S> <C> <C>
Finished goods $ 218,439 218,381
Work-in-process 134,428 136,924
Raw materials 58,306 44,424
Supplies 23,108 23,323
---------- ---------
$ 434,281 423,052
========== =========
</TABLE>
At January 2, 1999 and January 1, 2000, 51% and 57%, respectively, of
inventories were valued at LIFO which approximates current replacement
cost. The remaining inventories are valued at FIFO. Inventories are net of
related reserves of approximately $15.3 million and $17.2 million at
January 2, 1999 and January 1, 2000, respectively.
(7) Property, Plant and Equipment
Property, plant and equipment are stated at cost and consist of the
following at January 2, 1999 and January 1, 2000:
<TABLE>
<CAPTION>
1998 1999
---- ----
<S> <C> <C>
Land $ 28,812 29,912
Buildings and improvements 182,414 196,048
Machinery and equipment 370,581 405,495
Data processing equipment 29,325 95,866
Furniture and fixtures 6,346 6,673
Leasehold improvements 4,020 4,090
Projects in progress 106,444 57,120
---------- ---------
727,942 795,204
Less accumulated depreciation and amortization (98,737) (150,383)
---------- ---------
$ 629,205 644,821
========== =========
</TABLE>
Interest costs of $4.7 million and $5.6 million, incurred during
fiscal years 1998 and 1999, respectively, for the purchase and construction
of qualifying fixed assets, were capitalized and are being amortized over
the related assets' estimated useful lives. During 1999 a $2.0 million
impairment was recorded to reduce the carrying value of the Opelika
facility, which was closed in the first quarter of 1999, to its estimated
fair value.
(Continued)
F 11
<PAGE>
PILLOWTEX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
January 2, 1999 and January 1, 2000
(Tables in thousands of dollars, except for per share data)
(8) Accounts Payable and Accrued Expenses
Accounts payable includes $39.1 million and $20.5 million at January
2, 1999 and January 1, 2000, respectively, of checks not yet presented for
payment on zero balance disbursement accounts.
Accrued expenses consist of the following at January 2, 1999 and January 1,
2000:
<TABLE>
<CAPTION>
1998 1999
------------------ ------------------
<S> <C> <C>
Employee-related compensation and benefits $ 24,974 18,313
Insurance and worker's compensation 24,794 15,812
Customer rebates 14,490 14,162
Interest and commitment fees 7,036 6,972
Advertising 4,435 795
Royalties and commissions 4,276 4,115
Other accrued expenses 16,245 13,069
------------------ ------------------
$ 96,250 73,238
================== ==================
</TABLE>
(9) Pension Plans
The Company has defined benefit pension plans covering substantially
all of its employees except certain union employees who are not covered
under these plans. The plans provide pension benefits based on the
employees' compensation and years of service. The Company's funding policy
provides for annual contributions of an amount between the minimum required
and maximum amount that can be deducted for federal income tax purposes.
Pension plan assets consist of investments in publicly traded corporate
common stocks and bonds, as well as U.S. government obligations. Summarized
information for the plans follows:
<TABLE>
<CAPTION>
1998 1999
-------------------- --------------------
<S> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year $ 306,950 337,939
Acquisitions 7,240 -
Service cost 7,730 7,615
Plan amendments - 773
Interest cost 21,070 21,892
Actuarial (gain) loss 13,869 (48,420)
Benefits paid (18,920) (22,910)
--------------------- --------------------
Benefit obligation at end of year $ 337,939 296,889
===================== ====================
Change in plan assets:
Fair value of plan assets at beginning of year $ 307,772 336,642
Acquisitions 8,903 -
Actual return on plan assets 35,085 57,108
Employer contributions 3,802 -
Benefits paid (18,920) (22,910)
--------------------- --------------------
Fair value of plan assets at end of year $ 336,642 370,840
===================== ====================
Funded status:
Benefit obligation $ (337,939) (296,889)
Fair value of plan assets 336,642 370,840
Unrecognized transition asset (43) (35)
Unrecognized prior service cost 172 909
Unrecognized net actuarial (gain) loss 7,102 (64,044)
--------------------- --------------------
Prepaid benefit cost $ 5,934 10,781
===================== ====================
</TABLE>
F 12 (continued)
<PAGE>
PILLOWTEX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
January 2, 1999 and January 1, 2000
(Tables in thousands of dollars, except for per share data)
<TABLE>
<CAPTION>
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
Weighted average assumptions as of January 3, 1998,
January 2, 1999 and January 1, 2000:
Discount rate 7.00% 6.75% 8.00%
Expected return 9.00-9.50% 9.00-9.50% 9.00-10.50%
Compensation increase rate 4.00-4.50% 4.00% 4.00%
Components of net periodic pension cost:
Service cost $ 1,058 7,730 7,615
Interest cost 1,414 21,070 21,892
Expected return on plan assets (1,622) (28,503) (34,379)
Recognized net actuarial (gain) loss - - (2)
Amortization of transition asset (8) (8) (8)
Amortization of prior service cost 35 35 35
------------ ------------ ------------
Net periodic pension cost $ 877 324 (4,847)
============ ============ ============
</TABLE>
The Company also sponsors employee savings plans which cover
substantially all employees. The Company's matching provisions under these
plans vary, with some matches being discretionary. The matching formulas of
certain plans can be changed annually. In fiscal years 1997, 1998 and 1999,
the Company incurred costs of $0.1 million, $3.5 million and $3.2 million
respectively, to provide matching contributions for plans with matching
provisions.
(10) Postretirement Benefits Other Than Pensions
The Company provides medical insurance premium assistance and life
insurance benefits to retired employees of Fieldcrest Cannon. The medical
and life insurance benefits provided under the plan are fixed amounts
determined at the time of retirement and, thus, are unaffected by medical
trend rates. Employees become eligible for these benefits when they reach
retirement age while working for the Company. The plans are funded as
benefits are paid.
<TABLE>
<CAPTION>
1998 1999
-------------------- --------------------
<S> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year $ 39,348 38,090
Service cost 709 582
Interest cost 2,466 2,430
Actuarial (gain) loss (538) (3,947)
Benefits paid (3,895) (2,737)
-------------------- --------------------
Benefit obligation at end of year $ 38,090 34,418
==================== ====================
Change in plan assets:
Fair value of plan assets at beginning of year $ -- --
Employer contributions 3,895 2,737
Benefits paid (3,895) (2,737)
-------------------- --------------------
Fair value of plan assets at end of year $ -- --
==================== ====================
Funded status:
Benefit obligation $ (38,090) (34,418)
Unrecognized net actuarial (gain) loss (357) (4,275)
-------------------- --------------------
Accrued postretirement benefit cost included in
noncurrent liabilities $ (38,447) (38,693)
==================== ====================
</TABLE>
F 13 (continued)
<PAGE>
PILLOWTEX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
January 2, 1999 and January 1, 2000
(Tables in thousands of dollars, except for per share data)
<TABLE>
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Weighted average assumptions as of January 3 1998, January 2, 1999
and January 1, 2000:
Discount rate 7.00% 6.75% 8.00%
Compensation increase rate 4.00% 4.00% 4.00%
Components of net periodic postretirement cost:
Service cost $ 35 709 582
Interest cost 114 2,465 2,430
Amortization of actuarial gain -- (181) (28)
-----------------------------------
Net periodic postretirement benefit cost $ 149 2,993 2,984
===================================
</TABLE>
(11) Long-term Debt and Liquidity
Long-term debt consists of the following at January 2, 1999 and
January 1, 2000:
<TABLE>
<CAPTION>
1998 1999
----------------- -----------------
<S> <C> <C>
Revolver $ 182,800 259,800
Overline Credit Facility -- 35,000
Term loans 348,750 341,500
9% Senior Subordinated Notes due 2007 185,000 185,000
10% Senior Subordinated Notes due 2006 125,000 125,000
6% convertible subordinated sinking fund debentures due in 2012
(effective rate of 8.72%, net of $15.6 million and $14.3 million
in unamortized discount at January 2, 1999 and January 1, 2000,
respectively) 88,594 82,205
Industrial revenue bonds with interest rates from 3.60% to 7.85% and
maturities through July 1, 2021; generally collateralized by land and
buildings 19,528 16,814
Other debt 7,242 5,763
----------------- -----------------
956,914 1,051,082
Less:
Current portion 12,421 85,759
----------------- -----------------
Total long-term debt $ 944,493 965,323
================= =================
</TABLE>
In December 1997, in connection with the Fieldcrest Cannon acquisition,
Pillowtex entered into new senior secured revolving credit and term loan
facilities with a group of financial and institutional investors for which Bank
of America acts as the agent. These facilities consisted of a $350.0 million
revolving credit facility and a $250.0 million term loan facility. The term
loan facility consisted of a $125.0 million Tranche A Term Loan and a $125.0
million Tranche B Term Loan. Effective July 28, 1998, Pillowtex amended these
facilities by increasing the Tranche B Term Loan to $225.0 million. The
increase occurred in conjunction with the acquisition of Leshner, allowing
Pillowtex to fund the transaction and reduce borrowings under the revolving
credit facility. Effective March 12, 1999, the revolving credit facility was
amended to permit Pillowtex to use for working capital one-half of a $61.0
million portion of the facility held as contingency reserve for cash payments
required upon conversion of the Fieldcrest Cannon 6% Convertible Subordinated
Debentures due 2012, thereby increasing availability under that facility.
Effective October 1, 1999, the revolving credit facility was further amended to
permit Pillowtex to use the other half of the contingency reserve for working
capital, thereby increasing availability under that facility. At the end of the
third and fourth quarters of its 1999 fiscal year, Pillowtex was not in
compliance with certain financial covenants under its senior debt facilities.
The Company obtained a series of temporary waivers of this non-compliance.
Effective as of December 7, 1999, the Company agreed to certain amendments to
the senior debt facilities, principally related to cash management, adjustments
to restrictive covenants, and borrowings under, and uses of proceeds from, the
revolving credit facility. Effective as of March 31, 2000, the Company obtained
a permanent waiver of its prior non-compliance with financial covenants and the
senior debt
F 14 (continued)
<PAGE>
PILLOWTEX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
January 2, 1999 and January 1, 2000
(Tables in thousands of dollars, except for per share data)
facilities were further amended to shorten their terms to maturity and
accelerate the related amortization schedules for the repayment of principal, to
increase the applicable interest rate margins (subject to reduction if the
Company's earnings before interest, taxes, depreciation and amortization
(EBITDA) exceeds a specified level for the 2000 fiscal year), to add a covenant
requiring that EBITDA must exceed specified levels for future fiscal periods and
to eliminate all other financial covenants, to modify certain restrictive
covenants, to limit borrowings under the revolving credit facility based on a
formula tied to 45% of eligible inventory plus 80% of eligible accounts
receivable, and to provide for a series of reductions in the commitment under
the revolving credit facility. The Company believes that it will be able to
comply with the amended financial covenants in the future; however, there can be
no assurance of such compliance.
The revolving credit facility includes $55.0 million of availability for
letters of credit. At January 1, 2000, $35.2 million of letters of credit were
outstanding.
As amended, amounts outstanding under the revolving credit facility and the
Tranche A Term Loan currently bear interest at a rate based upon the London
Interbank Offered Rate plus 3.50% (9.63% at March 24, 2000). The Tranche B Term
Loan bears interest on a similar basis to the Tranche A Term Loan, plus an
additional margin of .50%. The weighted average annual interest rate on
outstanding borrowings under the various senior credit facilities for 1999 was
7.7%. The senior debt facilities now expire on January 31, 2002.
The senior debt facilities are guaranteed by each of the domestic
subsidiaries of Pillowtex, and are secured by first priority liens on all of the
capital stock of each domestic subsidiary of Pillowtex and by 65% of the capital
stock of Pillowtex's foreign subsidiaries. Pillowtex has also granted a first
priority security interest in all of its presently unencumbered and future
domestic assets and properties, and all presently unencumbered and future
domestic assets and properties of each of its subsidiaries. The term loan
facility is subject to mandatory prepayment from all net cash proceeds of asset
sales and debt issuances of Pillowtex (except as specifically provided), 50% of
the net cash proceeds of equity issuances by Pillowtex or any of its
subsidiaries, and 75% of Excess Cash Flow (as defined). All mandatory
prepayments will be applied pro rata between the Tranche A Term Loan and the
Tranche B Term Loan to reduce the remaining installments of principal.
The senior debt facilities contain a number of negative covenants, which
covenants restrict, among other things, Pillowtex's ability to incur additional
debt, pay dividends or make other restricted payments, sell stock of
subsidiaries, grant liens, make capital expenditures, engage in transactions
with affiliates, make loans, advances and investments, dispose of assets, effect
mergers, consolidations and dissolutions, and make certain changes in its
business.
A breach of any of the covenants contained in the senior debt facilities
could result in a default under the terms of the facilities. Upon the occurrence
of an event of default: the senior lenders would not be obligated to make
additional advances under the revolving credit facility; the senior lenders
would be entitled to declare all amounts outstanding under the senior debt
facilities, including accrued interest or other obligations, to be immediately
due and payable; the senior lenders would have the rights to block payment on
substantially all of Pillowtex's other long-term debt; and the senior lenders
would be entitled to proceed against the collateral granted to them to secure
the senior debt. In these circumstances, cross defaults could occur making
substantially all of Pillowtex's other long-term debt due. If any senior debt
were to be accelerated, the Company cannot be certain that its assets would be
sufficient to repay in full that debt and its other debt.
As a result of the covenants described above, Pillowtex's ability to
respond to changing business and economic conditions and to secure additional
financing, if needed, is significantly restricted.
In May 1999, Pillowtex entered into a $20.0 million senior unsecured
revolving credit facility (overline facility) in order to obtain additional
working capital availability. On July 27, 1999, this facility was amended to
increase the amount of funds available to $35.0 million. At the end of the
third and fourth quarters of its 1999 fiscal year, Pillowtex was not in
compliance with certain financial covenants under this facility, the covenants
of which are established by reference to the senior debt facilities described
above. The Company obtained a series of temporary waivers of this non-
compliance and extensions of the maturity date. Effective as of December 7,
1999, the
F 15 (continued)
<PAGE>
PILLOWTEX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
January 2, 1999 and January 1, 2000
(Tables in thousands of dollars, except for per share data)
Company agreed to certain amendments to this facility, resulting in the facility
being secured by the assets securing the senior debt facilities described above.
Effective as of March 31, 2000, the Company obtained a permanent waiver of its
prior non-compliance and the facility was amended to lengthen its term to
maturity, to impose an amortization schedule for the repayment of principal, and
to increase the applicable interest rate margins (subject to reduction if the
Company's EBITDA exceeds a specified level for the 2000 fiscal year).
This facility is guaranteed on a senior basis by Pillowtex's domestic
subsidiaries. Pillowtex is currently required to pay interest on any amounts
borrowed under the facility at a rate which is based upon the London Interbank
Offered Rate plus 4.5% or the base rate plus 3.0%, at Pillowtex's option. This
facility matures upon termination by Pillowtex at any time or otherwise at the
earliest of: a) any increase in the commitment under the senior debt facilities
described above, the issuance of any capital stock by Pillowtex or its domestic
subsidiaries, or other specified events; or b) January 31, 2002.
In connection with the Fieldcrest Cannon merger, Pillowtex issued $185.0
million of 9% Senior Subordinated Notes due 2007 in a private offering. In
March 1998, Pillowtex completed an offer to exchange the unregistered 9% Notes
previously sold in the private offering for an equal aggregate principal amount
of registered 9% Notes. The 9% Notes are due December 15, 2007, with interest
payable semiannually commencing June 15, 1998. Pillowtex may at its option
redeem the 9% Notes, in whole or in part, on or after December 15, 2002 at a
redemption price of 104.5%, which declines 1.5% annually through December 15,
2005 to 100%. The 9% Notes are general unsecured obligations of Pillowtex, are
subordinated in right of payment to all existing and future senior indebtedness,
and rank pari passu to the 10% Notes described below.
On November 12, 1996, Pillowtex issued the 10% Senior Subordinated Notes
due 2006 in a private offering. In March 1997, Pillowtex completed an offer to
exchange the unregistered 10% Notes previously sold in the private offering for
an equal aggregate principal amount of registered 10% Notes. The 10% Notes are
due November 15, 2006, with interest payable semiannually commencing May 15,
1997. Pillowtex used the proceeds from such offering to retire the outstanding
indebtedness under Pillowtex's previously existing term loan, to finance the
acquisition of certain assets of Fieldcrest Cannon's blanket operations, to
temporarily reduce indebtedness under the previous revolving credit facility,
and to acquire a warehouse facility. Pillowtex may, at its option, redeem the
10% Notes, in whole or in part, on or after November 15, 2001 at a redemption
price of 105.0%, which declines 1.667% annually through November 15, 2004 to
100%. The 10% Notes are general unsecured obligations of Pillowtex, and are
subordinated in right of payment to all existing and future senior indebtedness.
The 9% Notes and the 10% Notes are unconditionally guaranteed on a senior
subordinated basis by each of the existing and future domestic subsidiaries of
Pillowtex and each other subsidiary of Pillowtex that guarantees Pillowtex's
obligations under the senior debt facilities described above. The guarantees
are subordinated in right of payment to all existing and future senior
indebtedness of the relevant guarantor. Upon a change in control, Pillowtex will
be required to make an offer to repurchase all outstanding 9% Notes and 10%
Notes at 101% of the principal amount thereof, plus accrued and unpaid interest
thereon, if any, to the date of repurchase.
As a result of Pillowtex's acquisition of Fieldcrest Cannon, the
outstanding 6% Convertible Subordinated Debentures due 2012 of Fieldcrest Cannon
are convertible, at the option of the holders, into a combination of cash and
Pillowtex's Common Stock. During the fourth quarter of 1999, Pillowtex notified
the holders of 6% Convertible Debentures that it was not practicable or prudent
for payments to be made in respect of the conversion of 6% Convertible
Debentures and advised holders that had surrendered 6% Convertible Debentures
that, with limited exceptions, they could rescind their notice of conversion,
return to Pillowtex any Pillowtex Common Stock that had been issued to them and
regain possession of their 6% Convertible Debentures. As of March 24, 2000, the
cash component due in respect of 6% Convertible Debentures that had been
surrendered without subsequent rescission of that surrender was $9.1 million. In
addition, as of March 24, 2000, $96.5 million aggregate principal amount of 6%
Convertible Debentures remained outstanding. If all such outstanding 6%
Convertible Debentures were converted at such date, the resulting cash component
to be paid to the holders of 6% Convertible Debentures would have been
approximately $61.0 million (classified as current portion of long-term debt
at January 1, 2000). Pillowtex is currently prohibited under the terms of its
senior subordinated debt from making payments in respect of the 6% Convertible
Debentures except for interest and at maturity or pursuant to sinking fund
obligations. Pillowtex has initiated discussions with certain holders of its 6%
Convertible Debentures regarding a potential restructuring of the 6% Convertible
Debentures. Currently, it is anticipated that any comprehensive restructuring of
the 6% Convertible Debentures involving cash payments (other than pursuant to
sinking
F 16 (continued)
<PAGE>
PILLOWTEX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
January 2, 1999 and January 1, 2000
(Tables in thousands of dollars, except for per share data)
fund obligations) would likely require the consent of the holders of Pillowtex's
senior subordinated debt.
As of January 2, 1999, Pillowtex had approximately $345.0 million of
notional amounts covered under interest rate swap agreements whereby Pillowtex
exchanged floating rates for fixed rates. The weighted average fixed and
floating rates were 4.70% and 5.26%, respectively. As of January 1, 2000,
Pillowtex had approximately $345.0 million of notional amounts covered under
interest rate swap agreements whereby Pillowtex exchanged floating rates for
fixed rates. The weighted average fixed and floating rates were 4.70% and
6.05%, respectively. The fair values of the swaps at January 2, 1999 and
January 1, 2000 were $2.1 million and $4.0 million, respectively in favor of
Pillowtex.
Under the terms of its senior secured credit agreements and senior
subordinated debt and its Series A Redeemable Convertible Preferred Stock,
Pillowtex currently is prohibited from paying cash dividends or making other
distributions to Holders of its Common Stock.
Based upon current and anticipated levels of operations, and aggressive
efforts to reduce inventories and accounts receivable, Pillowtex anticipates
that its cash flow from operations, together with amounts available under its
revolving credit facility, will be adequate to meet its anticipated cash
requirements in the foreseeable future (assuming no significant cash payments
are required to be made in respect of the 6% Convertible Debentures other than
scheduled interest payments and payments related to satisfaction of the sinking
fund obligations). In the event that cash flows and available borrowings under
the revolving credit facility are not sufficient to meet future cash
requirements, Pillowtex may be required to reduce planned capital expenditures
or seek additional financing. Pillowtex can provide no assurances that
reductions in planned capital expenditures would be sufficient to cover
shortfalls in available cash or that additional financing would be available or,
if available, offered on terms acceptable to the Company.
The interest rates on indebtedness other than the senior credit facilities
differ from current market rates. The carrying and fair values of these
financial instruments, estimated by discounting the future cash flows using
rates currently available or obtaining market prices as of January 2, 1999 and
January 1, 2000, are shown below. The senior credit facilities are at current
market rates; therefore, their carrying values approximate fair value.
<TABLE>
<CAPTION>
1998 1999
---------------------------------------- -----------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
----------------- ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Revolver $ 182,800 182,800 259,800 259,800
Overline Credit Facility -- -- 35,000 35,000
Term loans 348,750 348,750 341,500 341,500
9% Senior Subordinated
Notes due 2007 185,000 189,625 185,000 64,750
10% Senior Subordinated
Notes due 2006 125,000 132,500 125,000 45,000
6% convertible
subordinated sinking
fund debentures due
2012 88,594 85,962 82,205 28,785
Industrial revenue bonds and other debt 26,770 24,120 22,577 20,064
</TABLE>
F 17
<PAGE>
PILLOWTEX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
January 2, 1999 and January 1, 2000
(Tables in thousands of dollars, except for per share data)
Aggregate maturities of long-term debt for each of the five years following
January 1, 2000 and thereafter, assuming the unpaid principal balance at
January 1, 2000 under the revolving credit facility remains unchanged and
reflecting the revised terms of the senior debt facilities described above,
are as follows:
<TABLE>
<CAPTION>
Fiscal year Amount
-------------
<S> <C>
2000 $ * 24,755
2001 37,683
2002 600,451
2003 8,978
2004 6,710
Thereafter 375,953
</TABLE>
* The amount for 2000 excludes the current portion of long-term debt
related to the 6% Convertible Debentures of approximately $61.0 million.
This amount is included in the Thereafter amount.
(12) Income Taxes
The components of income tax expense (benefit), excluding the income tax
benefit related to extraordinary items, are as follows:
<TABLE>
<CAPTION>
1997 1998 1999
---------------- ---------------- -----------------
<S> <C> <C> <C>
U.S. federal - current $ 6,385 3,916 (600)
U.S. federal - deferred (1,478) 17,881 (6,362)
State and foreign taxes - current 1,473 1,415 200
State and foreign taxes - deferred (842) 4,177 (1,139)
---------------- ---------------- -----------------
$ 5,538 27,389 (7,901)
================ ================ =================
</TABLE>
A reconciliation of income tax expense (benefit) computed using the U.S.
federal statutory income tax rate of 35% of earnings/(loss) before income
taxes and extraordinary items to the actual provision for income taxes
follows:
<TABLE>
<CAPTION>
1997 1998 1999
---------------- ---------------- -----------------
<S> <C> <C> <C>
Expected tax at U.S. statutory rate $ 4,821 24,585 (9,602)
Amortization of goodwill 188 1,695 2,308
State and foreign taxes, net of federal effect 477 933 (610)
Other 52 176 3
---------------- ---------------- -----------------
$ 5,538 27,389 (7,901)
================ ================ =================
</TABLE>
F 18
<PAGE>
PILLOWTEX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
January 2, 1999 and January 1, 2000
(Tables in thousands of dollars, except for per share data)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities as of January 2, 1999
and January 1, 2000 are presented below:
<TABLE>
<CAPTION>
1998 1999
-------------------- --------------------
<S> <C> <C>
Deferred tax assets:
Package design costs $ 614 1,114
Accrued employee benefits 4,423 390
State deferred income taxes 1,132 899
Accruals and allowances 23,527 21,006
Operating losses and credit carryforwards 16,524 26,293
Other 1,668 10,182
-------------------- --------------------
Deferred tax assets 47,888 59,884
-------------------- --------------------
Deferred tax liabilities:
Inventory costs and reserves (49,242) (45,870)
Depreciable assets (97,505) (97,787)
State deferred income taxes (8,901) (9,333)
Trademarks (10,500) (12,128)
Goodwill (731) (334)
-------------------- --------------------
Deferred tax liabilities (166,879) (165,452)
-------------------- --------------------
Net deferred tax liabilities $ (118,991) (105,568)
==================== ====================
</TABLE>
At January 1, 2000, the Company has a $49.4 million federal net operating
loss carryforward expiring 2006 through 2019, $1.8 million general business
tax credit carryforwards expiring 2005 through 2019 and $6.7 million unused
alternative minimum tax credit carryforwards that do not expire.
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred
tax assets will not be realized. Management considers the scheduled
reversal of deferred tax liabilities, projected future taxable income, and
tax planning strategies in making this assessment. The Company expects the
deferred tax assets at January 1, 2000 to be realized as a result of the
reversal of existing taxable temporary differences.
(13) Redeemable Convertible Preferred Stock
On December 19, 1997, the Company issued 65,000 shares of Series A
Redeemable Convertible Preferred Stock ("Series A Preferred Stock") for
$65.0 million less $2.1 million of issue costs. Accretion is being
recognized to increase the recorded amount to the redemption amount over
the period to the redemption date. Dividends accrue from the issue date
through December 31, 1999 at a 3% annual rate. Beginning January 1, 2000,
the rate at which dividends will accrue increases to 10% as a result of the
Company's earnings per share for 1999 falling below predetermined targets.
The Company is also required to pay a one-time cumulative dividend on the
Series A Preferred Stock, from the issue date through December 31, 1999,
equal to the difference between the dividends calculated at the 3% rate and
dividends calculated at the 10% rate, or 10,135 shares of Series A
Preferred Stock , which were accrued in the third and fourth quarter of
1999 and which will be issued in fiscal year 2000. Dividends can be paid in
cash or additional shares of preferred stock until December 2002, at which
time they must be paid in cash. The Company's ability to pay dividends on
the common stock and preferred stock is restricted under the terms of its
senior credit facilities, senior subordinated debt and, in the case of
common stock dividends, under the terms of the preferred stock.
The Series A Preferred Stock is convertible, at any time at the option of
the holder, into common stock at a rate calculated by dividing $1,000 plus
unpaid dividends per share by $24.00 per share. Each share of Series A
Preferred Stock is subject to mandatory redemption in ten and one-half
years after the issue date at a redemption price of $1,000 plus accrued and
unpaid dividends. The Company has the right after the fourth anniversary of
the issue date to call all or a portion of the Series A Preferred Stock at
$1,000 per share plus accrued and unpaid dividends times a premium equal to
the dividend rate after the fourth anniversary date and declining ratably
to the mandatory redemption date. Holders of the Series A Preferred Stock
are entitled to limited voting rights only under certain conditions.
F 19
<PAGE>
PILLOWTEX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
January 2, 1999 and January 1, 2000
(Tables in thousands of dollars, except for per share data)
(14) Stock Options
In 1993, the Company established a stock option plan under which
options may be granted to eligible employees and non-employee directors of
the Company. Under the stock option plan, the Board of Directors may grant
either nonqualified stock options or incentive stock options.
At January 1, 2000, there were 698 thousand shares available for grant
under the stock option plan. The per share weighted-average fair value of
stock options granted during fiscal years 1997, 1998 and 1999 was $7.86,
$12.81 and $6.46 respectively, on the date of grant using the Black Scholes
option-pricing model with the following weighted-average assumptions:
<TABLE>
<CAPTION>
1997 1998 1999
----------- ----------- ---------
<S> <C> <C> <C>
Expected dividend yield 1.41% 1.06% 0.0%
Stock price volatility 38.94 36.87 46.53
Risk-free interest rate 6.15 5.48 5.35
Expected option term 5 years 5 years 5 years
</TABLE>
The Company applies APB Opinion No. 25 and related interpretations in
accounting for its stock option plan and, accordingly, no compensation cost
has been recognized for its stock options in the consolidated financial
statements. Had the Company determined compensation cost based on the fair
value at the grant date for its stock options under SFAS No. 123, the
Company's net earnings and earnings per share would have been reduced to
the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1997 1998 1999
------------ ----------- -----------
<S> <C> <C> <C>
Earnings (loss) available for common shareholders:
As reported $ 7,232 40,758 (31,826)
Pro forma 6,720 39,280 (33,410)
Earnings (loss) per share:
As reported - basic $ .67 2.89 (2.25)
As reported - diluted .66 2.52 (2.25)
Pro forma - basic .62 2.79 (2.36)
Pro forma - diluted .61 2.43 (2.36)
</TABLE>
All options are granted at an exercise price not less than the fair market
value of the common stock at the date of grant. The option period may not
be more than ten years from the date the option is granted, and options
generally vest over a four-year period.
F 20
<PAGE>
PILLOWTEX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
January 2, 1999 and January 1, 2000
(Tables in Thousands of dollars, except for per share data)
A summary of option activity during fiscal years 1997, 1998 and 1998
follows:
<TABLE>
<CAPTION>
Weighted average
Shares exercise price
---------------- -------------------------
<S> <C> <C>
Outstanding at December 31, 1997
(176 shares exercisable) 511 $13.71
Granted 537 16.98
Exercised (175) 14.17
Canceled (131) 14.85
----------------
Outstanding at January 3, 1998
(289 shares exercisable) 742 15.76
Granted 562 34.26
Exercised (154) 14.86
Canceled (251) 23.14
----------------
Outstanding at January 2, 1999
(142 shares exercisable) 899 25.36
Granted 418 14.32
Exercised (3) 12.72
Canceled (272) 22.00
----------------
Outstanding at January 1, 2000
(296 shares exercisable) 1,042 20.80
================
</TABLE>
Approximately 296 thousand shares that are exercisable at January 1,
2000 have a weighted average exercise price of $20.72. The table below
provides weighted average exercise prices and weighted average remaining
contractual life of options outstanding at January 1, 2000, segregated
based upon ranges of exercise prices.
<TABLE>
<CAPTION>
Weighted average
Weighted Weighted remaining
Number Number average average contractual
of options of options exercise price exercise price life
outstanding exercisable (outstanding) (exercisable) (outstanding)
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 4.31 - $14.69 300 89 $ 8.19 $12.87 6.81
$14.88 - $24.44 390 116 19.11 16.89 7.43
$27.50 - $33.50 327 85 32.58 32.42 8.19
$44.38 25 6 44.38 44.38 8.32
</TABLE>
(15) Commitments and Contingent Liabilities
Manufacturing facilities at certain locations, showrooms, sales
offices and warehouse space are leased under non-cancelable operating lease
agreements. These leases generally require the Company to pay all executory
costs such as maintenance and taxes. Rental expense for operating leases
was approximately $7.6 million, $24.7 million and $36.4 million during
fiscal years 1997, 1998 and 1999, respectively.
F 21 (continued)
<PAGE>
PILLOWTEX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
January 2, 1999 and January 1, 2000
(Tables in Thousands of dollars, except for per share data)
Future minimum lease payments under non-cancelable operating leases (with
initial or remaining lease terms in excess of one year), which expire at
various dates through 2009, are as follows:
<TABLE>
<CAPTION>
Fiscal year Amount
-----------
<S> <C>
2000 $28,097
2001 25,254
2002 23,494
2003 22,580
2004 21,959
Thereafter 54,362
</TABLE>
From time to time, the Company is a party to various legal proceedings
arising in the ordinary course of business. While any proceeding or
litigation has an element of uncertainty, management believes that the
final outcome of all matters currently pending will not have a materially
adverse effect on the Company's financial position, results of operations
or liquidity.
(16) Concentration of Credit Risk
The Company's customers are primarily retailers located throughout the
United States and Canada. Although the Company closely monitors the
creditworthiness of its customers, adjusting credit policies and limits as
needed, a customer's ability to pay is largely dependent upon the retail
industry's economic environment.
The Company establishes an allowance for doubtful accounts based upon
factors surrounding the credit risk of specific customers, historical
trends and other information. The Company has trade receivables which are
due from certain customers who are experiencing financial difficulties.
However, in the opinion of management of the Company, the allowance for
doubtful accounts is adequate, and trade receivables are presented at net
realizable value.
Sales to the Company's two individual major customers, including their
affiliated entities, accounted for approximately 13.5% and 12.6% each of
net sales in fiscal 1997 and approximately 23.6% and 6.9% each of net sales
in fiscal 1998. These two customers accounted for approximately 20.5% and
9.6% each of net sales in fiscal year 1999.
(17) Segment Information
The Company is organized by functional responsibilities and operates
as a single segment. Net sales from bed and bath products were $554.0
million and $26.0 million respectively in 1997 and $870.1 million and
$639.7 million, respectively, in fiscal year 1998, and $856.0 million and
$696.1 million, respectively, in fiscal year 1999
Net sales to customers domiciled in foreign countries were $37.2
million, $118.8 million and $93.3 million in fiscal years 1997, 1998 and
1999, respectively. At January 3, 1998, January 2, 1999 and January 1,
2000, the Company had long-lived assets domiciled in foreign countries of
$4.7 million, $3.8 million and $3.8 million, respectively. The Company's
domestic long-lived assets (including intangibles) at January 3, 1998,
January 2, 1999 and January 1, 2000 were $764.5 million, $943.2 million and
$929.2 million, respectively.
F 22 (continued)
<PAGE>
PILLOWTEX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
January 2, 1999 and January 1, 2000
(Tables in Thousands of dollars, except for per share data)
(18) Selected Quarterly Financial Data (Unaudited)
The following tables present unaudited financial data of the Company
for each quarter of fiscal years 1998 and 1999.
<TABLE>
<CAPTION>
1998 quarter ended
------------------------------------------------------------------------------------
April 4 July 4 October 3 January 2
----------------- ---------------- ----------------------- --------------------
<S> <C> <C> <C> <C>
Net sales $ 366,375 332,046 419,799 391,621
Gross profit 63,920 58,583 79,866 79,009
Net earnings 5,635 7,092 15,022 15,106
Earnings per common
share - basic .37 .47 1.03 1.03
Earnings per common
share - diluted .33 .42 .87 .89
<CAPTION>
1999 quarter ended
------------------------------------------------------------------------------------
April 3 July 3 October 2 January 1
----------------- ---------------- ----------------------- --------------------
<S> <C> <C> <C> <C>
Net sales $ 368,508 362,468 415,806 405,286
Gross profit 56,214 61,560 39,351 35,977
Net earnings (loss) 5,253 6,773 (11,079) (20,479)
Earnings (loss) per common
share - basic .33 .44 (1.45) (1.57)
Earnings (loss) per common
share - diluted .31 .40 (1.45) (1.57)
</TABLE>
The gross profit for the quarter ended January 1, 2000 includes
charges for unabsorbed overhead resulting from idling plants and lower
average selling prices, both of which were related to initiatives to reduce
inventories. The net loss includes the effects of the items previously
described and higher interest costs and bank fees associated with the
amendments and waivers to the senior credit facility.
F 23 (continued)
<PAGE>
PILLOWTEX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
January 2, 1999 and January 1, 2000
(Tables in thousands of dollars, except for per share data)
Supplemental Condensed Consolidating Financial Information
The following is summarized condensed consolidating financial information for
Pillowtex, segregating the Parent and guarantor subsidiaries from non-guarantor
subsidiaries. The Guarantor subsidiaries are wholly owned subsidiaries of
Pillowtex and 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 to users of the financial statements.
<TABLE>
<CAPTION>
January 2, 1999
---------------------------------------------------------------------------------
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Elimination 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 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 - 233,825
Payable 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' 1,149,064 1,604,908 19,514 (1,119,332) 1,654,154
Equity
=========== =========== =========== =========== ============
<CAPTION>
January 1, 2000
-------------------------------------------------------------------------------------
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Elimination Consolidated
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assets:
Trade receivables - 260,870 7,629 - 268,499
Receivable from Affiliates 747,324 - - (747,324) -
Inventories - 406,801 16,251 - 423,052
Other current assets - 29,769 105 - 29,874
----------- ---------- --------- ----------- -----------
Total current assets 747,324 697,440 23,985 (747,324) 721,425
Property, plant and equipment, net 467 642,833 1,521 - 644,821
Intangibles 16,831 269,710 2,315 - 288,856
Other assets 493,579 18,930 - (484,222) 28,287
----------- ---------- --------- ----------- -----------
Total assets 1,258,201 1,628,913 27,821 (1,231,546) 1,683,389
=========== ========== ========= =========== ===========
Liabilities and shareholders' equity:
Accounts payable and accrued liabilities 6,482 182,218 4,386 - 193,086
Payable to affiliates - 736,720 10,604 (747,324) -
Other current liabilities 85,579 37,951 77 - 123,607
----------- ---------- --------- ----------- -----------
Total current liabilities 92,061 956,889 15,067 (747,324) 316,693
Noncurrent liabilities 884,852 200,446 110 - 1,085,409
----------- ---------- --------- ----------- -----------
Total liabilities 976,914 1,157,335 15,177 (747,324) 1,402,102
Redeemable convertible preferred stock 73,898 - - - 73,898
Shareholders' equity 207,389 471,578 12,644 (484,222) 207,389
----------- ---------- --------- ----------- -----------
Total Liabilities and Shareholders'
Equity 1,258,201 1,628,913 27,821 (1,231,546) 1,683,389
=========== ========== ========= =========== ===========
</TABLE>
(Continued)
F 24
<PAGE>
PILLOWTEX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
January 3, 1998, January 2, 1999 and January 1, 2000
(Tables in thousands of dollars, except for per share data)
<TABLE>
<CAPTION>
January 3, 1998
--------------------------------------------------------------
Guarantor Non-
Subsidi- Guarantor Elimin- Consoli-
Results of operations Parent aries Subsidiaries ations dated
- ------------------------------- --------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales 18,759 537,536 29,268 (5,564) 579,999
Cost of goods sold 11,523 453,149 26,571 (5,564) 485,679
-------------------------------------------------------------
Gross Profit 7,236 84,387 2,697 - 94,320
Selling, general and
administrative expenses 3,990 46,624 1,476 - 52,090
Restructuring Charges - 5,986 - - 5,986
Impairments - - - - -
-------------------------------------------------------------
Earnings from operations 3,246 31,777 1,221 - 36,244
Equity in earnings(loss)
of subsidiaries 5,951 - - (5,951) -
Interest expense (income) (764) 23,239 (5) - 22,470
-------------------------------------------------------------
Earnings(loss) before income
tax and extraordinary items 9,961 8,538 1,226 (5,951) 13,774
Income taxes 1,725 3,687 126 - 5,538
-------------------------------------------------------------
Earnings(loss) before
extraordinary items 8,236 4,851 1,100 (5,951) 8,236
Extraordinary loss (919) - - - (919)
-------------------------------------------------------------
Net earnings(loss) 7,317 4,851 1,100 (5,951) 7,317
Preferred dividends and accretion 85 - - - 85
-------------------------------------------------------------
Earnings(loss) available for
common shareholders 7,232 4,851 1,100 (5,951) 7,232
=============================================================
<CAPTION>
January 2, 1999
----------------------------------------------------------------
Guarantor Non-
Subsidi- Guarantor Elimin- Consoli-
Results of operations Parent aries Subsidiaries ations dated
- ------------------------------------ ----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales - 1,487,685 27,650 (5,494) 1,509,841
Cost of goods sold - 1,208,888 25,069 (5,494) 1,228,463
----------------------------------------------------------------
Gross Profit - 278,797 2,581 - 281,378
Selling, general and administrative
expenses (5,035) 140,800 1,542 - 137,307
Restructuring Charges - 1,539 - - 1,539
Impairments - - - - -
----------------------------------------------------------------
Earnings from operations 5,035 136,458 1,039 - 142,532
Equity in earnings(loss)
of subsidiaries 39,838 - - (39,838) -
Interest expense (income) 394 71,912 (18) - 72,288
----------------------------------------------------------------
Earnings(loss) before income tax 44,479 64,546 1,057 (39,838) 70,244
and extraordinary items
Income taxes 1,624 25,673 92 - 27,389
----------------------------------------------------------------
Earnings(loss) before
extraordinary items 42,855 38,873 965 (39,838) 42,855
Extraordinary loss - - - - -
----------------------------------------------------------------
Net earnings(loss) 42,855 38,873 965 (39,838) 42,855
Preferred dividends and accretion 2,097 - - - 2,097
----------------------------------------------------------------
Earnings(loss) available for
common shareholders 40,758 38,873 965 (39,838) 40,758
===============================================================
(Continued)
<CAPTION>
January 1, 2000
---------------------------------------------------------------
Guarantor Non-
Subsidi- Guarantor Elimin- Consoli-
Results of operations Parent aries Subsidiaries ations dated
- ----------------------------------- ---------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales - 1,534,272 25,902 (8,106) 1,552,068
Cost of goods sold - 1,342,163 24,909 (8,106) 1,358,966
---------------------------------------------------------------
Gross Profit - 192,109 993 - 193,102
Selling, general and administrative
expenses (5,477) 135,877 856 - 131,256
Restructuring Charges - - - - -
Impairments - 2,000 - - 2,000
---------------------------------------------------------------
Earnings from operations 5,477 54,232 137 - 59,846
Equity in earnings(loss)
of subsidiaries (21,793) - - 21,793 -
Interest expense (income) 1,998 85,301 (20) - 87,279
---------------------------------------------------------------
Earnings(loss) before income
tax and extraordinary items (18,314) (31,069) 157 21,793 (27,433)
Income taxes 1,218 (9,042) (77) - (7,901)
---------------------------------------------------------------
Earnings(loss) before
extraordinary items (19,532) (22,027) 234 21,793 (19,532)
Extraordinary loss - - - - -
---------------------------------------------------------------
Net earnings(loss) (19,532) (22,027) 234 21,793 (19,532)
Preferred dividends and accretion 12,294 - - - 12,294
---------------------------------------------------------------
Earnings(loss) available for
common shareholders (31,826) (22,027) 234 21,793 (31,826)
===============================================================
(Continued)
</TABLE>
F 25
<PAGE>
PILLOWTEX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
January 3, 1998, January 2, 1999 and January 1, 2000
(Tables in thousands of dollars, except for per share data)
<TABLE>
<CAPTION> Years ended
------------------------------------------------------------------------------------------------------
January 3, 1998 January 2, 1999
------------------------------------------------- ---------------------------------------------------
Cash Flows Non- Non-
Guarantor Guarantor Guarantor Guarantor
Subsidi- Subsidi- Elimin- Consoli- Subsidi- Subsidi- Elimin- Consoli
Parent aries aries ations date Parent aries aries ations -dated
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net cash Provided by
(used in) operating
activities 1,383 12,330 3,673 -- 17,386 15,090 40,532 (1,012) -- 54,610
Net cash used
in investing
activities (157,858) (392,940) (65) -- (550,863) (93,964) (108,069) (90) -- (202,123)
Net cash Provided by
(used in) financing
activities 156,475 385,188 (3,602) -- 538,061 78,874 68,501 1,095 -- 148,470
----------------------------------------------- -------------------------------------------------
Net change in cash
and cash equivalents -- 4,578 6 -- 4,584 -- 964 (7) -- 957
Cash and
cash equivalents
at beginning of period -- 12 8 -- 20 -- 4,590 14 -- 4,604
----------------------------------------------- -------------------------------------------------
Cash and cash
equivalents
end of period -- 4,590 14 -- 4,604 -- 5,554 7 -- 5,561
=============================================== =================================================
<CAPTION>
---------------------------------------------------
January 1, 2000
---------------------------------------------------
Cash Flows Non-
Guarantor Guarantor
Subsidi- Subsidi- Elimin- Consoli
Parent aries aries ations -dated
---------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net cash Provided by
(used in) operating
activities (32,752) 50,172 (7,886) -- 9,534
Net cash used in investing
activities 98 (83,569) (115) -- (83,586)
Net cash Provided by
(used in) financing
activities 32,654 32,697 7,994 -- 73,345
--------------------------------------------------
Net change in cash
and cash equivalents -- (700) (7) -- (707)
Cash and
cash equivalents
at beginning of period -- 5,554 7 -- 5,561
--------------------------------------------------
Cash and
cash equivalents
end of period -- 4,854 -- -- 4,854
==================================================
</TABLE>
F 26
<PAGE>
Schedule II
PILLOWTEX CORPORATION
Valuation and Qualifying Accounts
Years ended January 3, 1998, January 2, 1999 and January 1, 2000
(Dollars in Thousands)
<TABLE>
<CAPTION>
Additions Deductions
-------------------------------------- ---------------
Balance at beginning Charged to Other Write-offs/ Balance at end
of period Charged to Expense Accounts Recoveries of period
------------------------ -------------------- ----------------- --------------- --------------------
<S> <C> <C> <C> <C> <C>
Allowance for:
Returns & Allowances
and Doubtful Accounts
Year ended 1997 2,475 13,789 11,268 (2) 12,762 (1) 14,770
============ =========== =========== ============ ================
Year ended 1998 14,770 26,764 6,570 (2) 26,987 (1) 21,117
============ =========== =========== ============ ================
Year ended 1999 21,117 22,748 - 10,514 (1) 33,351
============ =========== =========== ============ ================
Inventory reserves:
Year ended 1997 3,285 4,337 3,168 (2) 1,378 9,412
============ =========== =========== ============ ================
Year ended 1998 9,412 11,034 2,908 (2) 8,039 15,315
============ =========== =========== ============ ================
Year ended 1999 15,315 14,302 - 12,410 17,207
============ =========== =========== ============ ================
</TABLE>
(1) Accounts written off, less recoveries
(2) Includes reserves for acquired companies as of the date of acquisition
During the third quarter of 1999, the Company recorded a $4.9 million pre-tax
non-cash charge to reduce certain blanket inventory to net realizable value.
S 1
<PAGE>
EXHIBIT 4.4
Supplemental Indenture
----------------------
This Supplemental Indenture, dated as of December 19, 1997 (this
"Supplemental Indenture"), among Pillowtex Corporation, a Texas corporation (the
"Company"), the corporations listed on Exhibit A hereto (individually, a "New
Guarantor" and collectively, the "New Guarantors"), and Bank One, N.A. (formerly
known as Bank One, Columbus, N.A.), as Trustee (the "Trustee"), supplements the
Indenture, dated as of November 12, 1996 (the "Indenture"), between the Company
and the Trustee under which the Company's 10% Senior Subordinated Notes due 2006
(the "Notes") were issued and are outstanding.
RECITALS
A. In connection with the merger (the "Merger") of Pegasus Merger Sub,
Inc., a Delaware corporation and a wholly owned subsidiary ("Newco") of the
Company, with and into Fieldcrest Cannon, Inc., a Delaware corporation
("Fieldcrest"), pursuant to an Agreement and Plan of Merger, dated as of
September 10, 1997, among the Company, Fieldcrest, and Newco on the date hereof,
the New Guarantors are becoming Subsidiaries of the Company and are
guaranteeing, and are granting a security interest in all of their presently
unencumbered assets to secure, the payment of certain Senior Indebtedness (as
such term is defined in the Indenture) of the Company.
B. Section 4.13 of the Indenture does not permit any Subsidiary of the
Company that is not a Guarantor to guarantee or secure through the granting of
liens the payment of any Senior Indebtedness unless such Subsidiary, the Company
and the Trustee execute and deliver a supplemental indenture to the Indenture
evidencing such Subsidiary's guarantee, on a senior subordinated basis, of the
Notes.
C. This Supplemental Indenture is being entered into to comply with the
provisions of Section 4.13 of the Indenture.
D. In consideration of the premises and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, and
to comply with Section 4.13 of the Indenture, the Company, the Guarantors and
the Trustee hereby agree as follows:
Section 1. Defined Terms. Capitalized terms used and not otherwise
-------------
defined herein have the respective meanings assigned to such terms in the
Indenture.
Section 2. Subsidiary Guarantees. For value received, each of the New
---------------------
Guarantors hereby jointly and severally, together with all of the Guarantors,
unconditionally guaranty, to the extent set forth in the Indenture and subject
to the provisions in the Indenture, (a) the due and punctual payment of the
principal of, and premium, if any, and interest on, the Notes, whether at
maturity, by acceleration, redemption or otherwise, the due and punctual payment
of interest on overdue principal and premium, if any, and, to the extent
permitted by law, interest, and the due and punctual performance of all other
obligations of the Company to the Holders or the Trustee
<PAGE>
all in accordance with the terms of the Indenture and (b) in case of any
extension of time of payment or renewal of any Notes or any of such other
obligations, that the same will be promptly paid in full when due or performed
in accordance with the terms of the extension or renewal, whether at stated
maturity, by acceleration, redemption or otherwise. The obligations of the
Guarantors to the Holders of Notes and to the Trustee pursuant to the Subsidiary
Guarantee and the Indenture are expressly set forth in Article 11 of the
Indenture and reference is hereby made to the Indenture for the precise terms of
the Subsidiary Guarantee. The Indebtedness evidenced by this guarantee is, to
the extent and in the manner provided in the Indenture, subordinate and subject
in right of payment to the prior payment in full of all Guarantor Senior
Indebtedness as defined in the Indenture, and this guarantee is issued subject
to such provisions. Each of the New Guarantors, by execution and delivery of
this Supplemental Indenture, agrees to and shall be bound by the terms of the
Indenture applicable to the Guarantors, including without limitation, Article 11
thereof.
Section 3. Ratification. The Indenture as hereby supplemented is in all
------------
respects ratified and confirmed by each of the Company, the New Guarantors and
the Trustee, and all of the rights and powers created thereby or thereunder
shall be and remain in full force and effect.
Section 4. Governing Law. This Supplemental Indenture and the Securities
-------------
shall be governed by and construed in accordance with the laws of the State of
New York.
Section 5. Successors. All agreements of the Company and the New
----------
Guarantors in this Supplemental Indenture shall bind its successors. All
agreements of the Trustee in this Supplemental Indenture shall bind its
successors.
Section 6. Multiple Counterparts. The parties may sign multiple
---------------------
counterparts of this Supplemental Indenture. Each signed counterpart shall be
deemed an original, but all of them together represent the same agreement.
<PAGE>
IN WITNESS WHEREOF, the undersigned have caused this Supplemental Indenture
to be executed by its duly authorized officer as of the date first above
written.
PILLOWTEX CORPORATION
Attest: By: Jeffrey D. Cordes
Brenda Sanders Title:
FIELDCREST CANNON, INC.
Attest: By: Jeffrey D. Cordes
Brenda Sanders Title:
CRESTFIELD COTTON COMPANY
Attest: By: Jeffrey D. Cordes
Brenda Sanders Title:
ENCEE, INC.
Attest: By: Jeffrey D. Cordes
Brenda Sanders Title:
FCC CANADA, INC.
Attest: By: Jeffrey D. Cordes
Brenda Sanders Title:
FIELDCREST CANNON FINANCING, INC.
Attest: By: Jeffrey D. Cordes
Brenda Sanders Title:
FIELDCREST CANNON LICENSING, INC.
Attest: By: Jeffrey D. Cordes
Brenda Sanders Title:
FIELDCREST CANNON INTERNATIONAL, INC.
Attest: By: Jeffrey D. Cordes
Brenda Sanders Title:
FIELDCREST CANNON SURE FIT, INC.
<PAGE>
Attest: By: Jeffrey D. Cordes
Brenda Sanders Title:
FIELDCREST CANNON TRANSPORTATION, INC.
Attest: By: Jeffrey D. Cordes
Brenda Sanders Title:
ST. MARYS, INC.
Attest: By: Jeffrey D. Cordes
Brenda Sanders Title:
AMOSKEAG COMPANY
Attest: By: Jeffrey D. Cordes
Brenda Sanders Title:
AMOSKEAG MANAGEMENT CORPORATION
Attest: By: Jeffrey D. Cordes
Brenda Sanders Title:
DOWNEAST SECURITIES CORPORATION
Attest: By: Jeffrey D. Cordes
Brenda Sanders Title:
BANGOR INVESTMENT COMPANY
Attest: By: Jeffrey D. Cordes
Brenda Sanders Title:
MOORE'S FALLS CORPORATION
Attest: By: Jeffrey D. Cordes
Brenda Sanders Title:
BANK ONE, N.A., Trustee
By: Victoria Paulick
Title: Authorized Signatory
<PAGE>
Exhibit 4.5
SECOND SUPPLEMENTAL INDENTURE
-----------------------------
This Second Supplemental Indenture, dated as of July 28, 1998 (this "Second
Supplemental Indenture"), among Pillowtex Corporation, a Texas corporation (the
"Company"), the corporations listed on Exhibit A hereto (individually, a "New
Guarantor" and collectively, the "New Guarantors"), and Bank One, N.A. (formerly
known as Bank One, Columbus, N.A.), as Trustee (the "Trustee"), supplements the
Indenture, dated as of November 12, 1996, as previously supplemented by that
certain Supplemental Indenture dated as of December 19, 1997 (the "Indenture"),
between the Company and the Trustee under which the Company's 10% Senior
Subordinated Notes due 2006 (the "Notes") were issued and are outstanding.
RECITALS
A. In connection with the merger (the "Merger") of PTI Acquisition Corp.,
a Delaware corporation and a wholly owned subsidiary ("PTI") of the Company,
with and into The Leshner Corporation, an Ohio corporation ("Leshner"), who has
two wholly owned Subsidiaries, Opelika Industries, Inc., an Alabama corporation,
and Leshner of California, a California corporation, pursuant to an Agreement
and Plan of Merger, dated as of June 5, 1998, among the Company, Leshner, and
PTI, the New Guarantors are becoming Subsidiaries of the Company and are
guaranteeing, and are granting a security interest in all of their presently
unencumbered assets to secure, the payment of certain Senior Indebtedness (as
such term is defined in the Indenture) of the Company.
B. Section 4.13 of the Indenture does not permit any Subsidiary of the
Company that is not a Guarantor to guarantee or secure through the granting of
liens the payment of any Senior Indebtedness unless such Subsidiary, the Company
and the Trustee execute and deliver a Second Supplemental Indenture to the
Indenture evidencing such Subsidiary's guarantee, on a senior subordinated
basis, of the Notes.
C. This Second Supplemental Indenture is being entered into to comply with
the provisions of Section 4.13 of the Indenture.
D. In consideration of the premises and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, and
to comply with Section 4.13 of the Indenture, the Company, the Guarantors and
the Trustee hereby agree as follows:
Section 1. Defined Terms. Capitalized terms used and not otherwise
-------------
defined herein have the respective meanings assigned to such terms in the
Indenture.
Section 2. Subsidiary Guarantees. For value received, each of the New
---------------------
Guarantors hereby jointly and severally, together with all of the Guarantors,
unconditionally guaranty, to the extent set forth in the Indenture and subject
to the provisions in the Indenture, (a) the due and punctual payment of the
principal of, and premium, if any, and interest on, the Notes, whether at
maturity, by acceleration, redemption or otherwise, the due and punctual payment
of interest on overdue principal and premium, if any, and, to the extent
permitted by law, interest, and the due and punctual performance of all other
obligations of the Company to the Holders or the Trustee all in
<PAGE>
accordance with the terms of the Indenture and (b) in case of any extension of
time of payment or renewal of any Notes or any of such other obligations, that
the same will be promptly paid in full when due or performed in accordance with
the terms of the extension or renewal, whether at stated maturity, by
acceleration, redemption or otherwise. The obligations of the Guarantors to the
Holders of Notes and to the Trustee pursuant to the Subsidiary Guarantee and the
Indenture are expressly set forth in Article 11 of the Indenture and reference
is hereby made to the Indenture for the precise terms of the Subsidiary
Guarantee. The Indebtedness evidenced by this guarantee is, to the extent and in
the manner provided in the Indenture, subordinate and subject in right of
payment to the prior payment in full of all Guarantor Senior Indebtedness as
defined in the Indenture, and this guarantee is issued subject to such
provisions. Each of the New Guarantors, by execution and delivery of this Second
Supplemental Indenture, agrees to and shall be bound by the terms of the
Indenture applicable to the Guarantors, including without limitation, Article 11
thereof.
Section 3. Ratification. The Indenture as hereby supplemented is in all
------------
respects ratified and confirmed by each of the Company, the New Guarantors and
the Trustee, and all of the rights and powers created thereby or thereunder
shall be and remain in full force and effect.
Section 4. Governing Law. This Second Supplemental Indenture and the
-------------
Securities shall be governed by and construed in accordance with the laws of the
State of New York.
Section 5. Successors. All agreements of the Company and the New
----------
Guarantors in this Second Supplemental Indenture shall bind its successors. All
agreements of the Trustee in this Second Supplemental Indenture shall bind its
successors.
Section 6. Multiple Counterparts. The parties may sign multiple
---------------------
counterparts of this Second Supplemental Indenture. Each signed counterpart
shall be deemed an original, but all of them together represent the same
agreement.
[Remainder of page intentionally left blank. Signature pages follow.]
<PAGE>
IN WITNESS WHEREOF, the undersigned have caused this Second Supplemental
Indenture to be executed by its duly authorized officer on May __, 1999 to be
effective as of July 28, 1998.
PILLOWTEX CORPORATION
Attest: By: Ronald M. Wehtje
John Sterling Name: Ronald M. Wehtje
Title: Sr. VP & CFO
THE LESHNER CORPORATION
Attest: By: Ronald M. Wehtje
John Sterling Name: Ronald M. Wehtje
Title: Sr. VP & CFO
OPELIKA INDUSTRIES, INC.
Attest: By: Ronald M. Wehtje
John Sterling Name: Ronald M. Wehtje
Title: Sr. VP & CFO
LESHNER OF CALIFORNIA
Attest: By: Ronald M. Wehtje
John Sterling Name: Ronald M. Wehtje
Title: Sr. VP & CFO
BANK ONE, N.A., Trustee
By:
--------------------------------
Name:
Title:
<PAGE>
Exhibit A
Guarantors
----------
The Leshner Corporation, an Ohio corporation
Opelika Industries, Inc., an Alabama corporation
Leshner of California, Inc., a California corporation
<PAGE>
Exhibit 4.6
RESIGNATION, APPOINTMENT AND ACCEPTANCE AGREEMENT
THIS AGREEMENT OF RESIGNATION, APPOINTMENT AND ACCEPTANCE (this "Agreement")
dated as of January 19, 2000, by and among Bank One, N.A., fka Bank One,
Columbus, N.A., (the "Prior Trustee"), U.S. Bank National Association, a
national banking association duly organized under the laws of the United States
of America (the "Successor"), and Pillowtex Corporation (the "Issuer"). This
instrument shall be governed by and construed in accordance with the laws of the
State of New York.
WHEREAS, the Issuer issued its $125,000,000 10% Senior Subordinated Notes due
2006 of which $125,000,000 are outstanding (the "Notes"), under an Indenture
dated as of November 12, 1996, as supplemented by a Supplemental Indenture dated
as of December 19, 1997 and a Second Supplemental Indenture dated as of July 28,
1998 (collectively, the "Indenture"), between the Issuer and the Prior Trustee;
and
WHEREAS, the Successor following the execution and delivery of this
instrument, will cause the notice required pursuant to the Indenture, a form of
which is annexed hereto marked as Exhibit A, to be mailed to the registered
Holders of the Notes as required by the Indenture; and
WHEREAS, the Indenture further provides that, if the Trustee shall resign, the
Issuer shall promptly appoint a successor Trustee; and
WHEREAS, the Prior Trustee desires to resign as Trustee and the Issuer desires
to appoint Successor as successor Trustee under the Indenture, and Successor
desires to serve as successor Trustee subject to the terms and conditions of the
Indenture and this Agreement; and
NOW THEREFORE, in consideration of the mutual covenants and agreement herein
contained and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto agree as follows:
ARTICLE I
RESIGNATION
Section 10 1 Resignation of Prior Trustee. Prior Trustee hereby resigns as
Trustee under the Indenture and related legal documents; such resignation to
become effective immediately prior to the opening of business on the Effective
Date (as hereinafter defined). Notwithstanding the resignation of the Prior
Trustee as Trustee under the Indenture, the Issuer shall remain obligated to
indemnify the Trustee in accordance with Section 7.07 of the Indenture.
Section 1.02 Notice of Resignation to Issuer. The Prior Trustee has given
written notice of its desire to resign to the Issuer pursuant to the Indenture,
attached as Exhibit B.
- 1 -
<PAGE>
ARTICLE II
APPOINTMENT OF SUCCESSOR TRUSTEE
Section 2.01 Appointment. The Issuer hereby appoints Successor to serve as
successor Trustee, Registrar and Paying Agent with all the authority, rights and
powers which are vested in, and all duties and obligations which are binding on,
the Trustee under the Indenture and related documents, effective at the opening
of business on the first Business Day following the date upon which Prior
Trustee receives a fully executed counterpart of this Agreement (the "Effective
Date"). As used herein, Business Day means a day on which banks in the city
where the principal corporate trust office of the Successor is located, are not
required or authorized to remain closed and on which the New York Stock Exchange
is not closed.
Section 2.02 Acceptance. Successor is qualified to serve as successor
Trustee and hereby accepts the appointment by the Issuer and agrees to serve as
successor Trustee under the Indenture and to perform the duties and obligations
of the Trustee under the Indenture, effective at the opening of business on the
Effective Date.
Section 2.03 Vesting of Rights, Powers and Duties. In accordance with the
provisions of the Indenture, all rights, powers and duties of the Trustee under
the Indenture shall be vested in and undertaken by Successor, effective at the
opening of business on the Effective Date.
Section 2.04 Notice to Holders. Successor agrees to notify all registered
Holders of its appointment as successor Trustee in accordance with the terms of
Section 7.08 of the Indenture and in substantially the same form and content as
Exhibit A.
Section 2.O5 Assignment of Powers and Property. Prior Trustee hereby
confirms, assigns, transfers and sets over to Successor, its successors and
assigns in trust under the Indenture, all property, rights, powers, duties,
trusts, immunities and obligations of Prior Trustee as Trustee.
Section 2.06 Further Assurances. Prior Trustee hereby agrees, upon
reasonable request of Successor, to execute, acknowledge and deliver such
further instruments of transfer and further assurances and to do such other
things as may reasonably be required for more fully and certainly vesting and
confirming in Successor all the property, rights, powers, duties, trusts,
immunities and obligations of Prior Trustee as Trustee under the Indenture arid
related documents.
Section 2.07 Conversion. Prior Trustee shall transfer the following items to
Successor on or prior to the Effective Date:
a. Original executed copies of the Indenture, and closing transcripts;
b. Registered holder lists (including name, address, tax
- 2 -
<PAGE>
identification number and detailed holdings for each holder) certified to be
accurate by the Prior Trustee;
c. Note debt service and loan payment records;
d. Trust account statements for a one-year period preceding the Effective
Date;
e. All securities and moneys held by Prior Trustee pursuant to the Indenture;
f. All Notices sent to Holders and Issuer regarding any current or continuing
defaults;
g. All unissued Note inventory or DTC FAST held global certificates; and
h. Such other documentation as Successor may reasonably require in order to
transfer the appointment to it.
ARTICLE III
MISCELLANEOUS
Section 3.01 Definitions. Terms not otherwise defined in this Agreement
shall have the meanings given thereto in the Indenture.
Section 3.02 Compensation. The Issuer agrees to pay to Successor reasonable
compensation for the services it provides as successor Trustee and in such other
capacities as to which it may be appointed with respect to the Notes. The
Issuer and Successor may from time to time enter into agreements specifying the
amount, or containing provisions for determining the amount, of compensation
payable to Successor.
Section 3.03 Counterparts. This Agreement may be executed in a number of
counterparts, each of which shall constitute and original, but such counterparts
shall together constitute but one and the same instrument.
Section 3.04 Preservation of Rights. Except as expressly provided herein,
nothing contained in this Agreement shall in any way affect the obligations or
rights of the Issuer, the Trustee, or any Holder under the Indenture and related
documents.
Section 3.05 Severability. In the event any provision of this Agreement
shall be held invalid or unenforceable by any court of competent jurisdiction,
such holding shall not invalidate or render unenforceable any other provision
hereof.
Section 3.06 Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of Prior Trustee, Successor and their respective
successors and assigns.
- 3 -
<PAGE>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Section 4.01 Representations and Warranties of the Prior Trnstee.
a. Prior Trustee is a national banking association duly organized and
existing under the laws of the United States, is authorized to conduct a general
banking business with trust powers and is subject to the supervision of the
Comptroller of the Currency of the United States as provided in the National
Bank Act.
b. Prior Trustee has the corporate power and authority to enter into this
Agreement. Upon execution and delivery, this Agreement shall constitute a valid
and binding obligation of Prior Trustee.
c. Prior Trustee is a duly appointed, authorized and acting trustee and/or
paying agent for the Notes. To the best of its knowledge, such appointment has
been administered by Prior Trustee consistent with the authority granted to it
by the governing instrument and by applicable law.
d. Prior Trustee represents and states that to the best of its knowledge,
there is not an Event of Default under the Indenture in existence as of the
Effective Date,
e. Prior Trustee retains continued responsibility for its actions or
omissions during its term as Trustee under the Indenture.
Section 4.03 Representations and Warranties of Successor.
a. Successor is a national banking association duly organized and existing of
the United States with trust powers and is subject to the the Comptroller of the
Currency of the United States as National Banking Act,
b. Successor has the corporate power and authority to enter into this
Agreement. Upon execution and delivery, this Agreement will constitute a valid
and binding obligation of Successor.
c. Successor is qualified and eligible to serve as Trustee, in accordance
with provisions 0(Pounds) the Indenture, including but not limited to, Section
7.10 of the Indenture.
ARTICLE V
NOTICES
Section 5.0l Notices. All notices, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
delivered in person or by first class United States mail, as follows:
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<PAGE>
a. If to Prior Trustee;
Bank One, N.A.
100 East Broad Street, 8th Floor
Columbus, OH 43271-0181
Attention: Joseph C Ludes
b. If to Successor;
U.S. Bank National Association
180 East Fifth Street
St. Paul, MN 55101
Attention: Corporate Trust Administration
c. If to Issuer;
Pillowtex Corporation
4111 Mint Way
Dallas, TX 75237
Intending to be legally bound, the parties hereto have executed this
Agreement by their duly authorized corporate officers as of the dates provided
below.
BANK ONE, N.A.,
as Prior Trustee
By: Jospeh C. Ludes
Title: Vice President
Date:
U.S. BANK NATIONAL ASSOCIATION,
as Successor Trustee
By: Lou-Anne Rosenberg
Title: Assistant Vice President
Date:
PILLOWTEX CORPORATION,
as Issuer
By: Jaime Vasquez
Title: Vice President and Treasurer
Date: 1/19/00
Intending to be legally bound, the parties hereto have executed this
Agreement by their duly authorized corporate officers as of the
- 5 -
<PAGE>
dates provided below.
BANK ONE, N-A.,
as Prior Trustee
By: Joseph C. Ludes
Title: Vice President
Date:
U.S BANK NATIONAL ASSOCIATION,
as Successor Trustee
By: Lori-Anne Rosenberg
Title: Assistant Vice President
Date:
PILLOWTEX CORPORATION,
as Issuer
By:
Title:
Date:
- 6 -
<PAGE>
EXHIBIT A
Notice to Holders of
PILLOWTEX CORPORATION
$125,000,000 10% Senior Subordinated Notes due 2006
CUSIP 721501 AB O
U.S. Bank National Association hereby notifies you of the resignation of Bank
One, as Trustee under the Indenture, dated as of November 12, 1996, pursuant to
which your Notes were issued and are outstanding.
Pillowtex Corporation has appointed U.S. Bank National Association, whose
Corporate Trust Office is located at 180 East Fifth Street, St. Paul, Minnesota
55101, as Successor Trustee under the Indenture, which appointment has been
accepted and became effective as of January 19, 2000.
Dated as of this date January 19, 2000
By: U.S. Bank National Association,
as Successor Trustee
- 7 -
<PAGE>
EXHIBIT B
Attention: Secretary
Gentlemen:
NOTICE IS HEREBY GIVEN THAT, pursuant to Section 7.08 of the Indenture dated as
of November 12, 1996 (the "Indenture") between Pillowtex Corporation (the
"Company") and Bank One, N.A ("BANK ONE") as Trustee, BANK ONE hereby resigns as
Trustee under the Indenture, such resignation to be effective upon the
appointment, pursuant to Section 7.08 of the Indenture, of a successor Trustee,
and the acceptance of such appointment by such successor Trustee, pursuant to
Section 7.O8 of the Indenture.
Would yon please acknowledge receipt of this notice by signing two copies and
returning them to us.
Very truly yours,
By
Vice President
- 8 -
<PAGE>
Exhibit 10.7
SIXTH AMENDMENT AND WAIVER TO
AMENDED AND RESTATED CREDIT AGREEMENT
THIS SIXTH AMENDMENT AND WAIVER TO AMENDED AND RESTATED CREDIT AGREEMENT
(this "Waiver"), dated as of February 15, 2000, is entered into among PILLOWTEX
CORPORATION, a Texas corporation (the "Borrower"), the institutions listed on
the signature pages hereof that are parties to the Credit Agreement defined
below (collectively, the "Lenders"), and BANK OF AMERICA, N.A. (formerly known
as NationsBank, N.A., successor by merger to NationsBank of Texas, N.A.), as
Administrative Agent for itself and the Lenders (in said capacity, the
"Administrative Agent").
BACKGROUND
----------
A. The Borrower, the Lenders and the Administrative Agent are parties to
that certain Amended and Restated Credit Agreement, dated as of December 19,
1997 (as amended through the date hereof, the "Credit Agreement"). Terms
defined in the Credit Agreement and not otherwise defined herein shall be used
herein as defined in the Credit Agreement.
B. The Borrower has requested a waiver of certain Events of Default under
the Credit Agreement.
NOW, THEREFORE, in consideration of the covenants, conditions and
agreements hereinafter set forth, and for other good and valuable consideration,
the receipt and adequacy of which are all hereby acknowledged, the Borrower, the
Lenders and the Administrative Agent covenant and agree as follows:
1. WAIVER. Subject to the satisfaction of the conditions of effectiveness
------
set forth in Section 10 of this Waiver and the other conditions contained
-----------
herein, the Lenders hereby waive (a) the Event of Default with respect to
Section 7.11 of the Credit Agreement which occurred as a result of the failure
- ------------
of the Borrower to comply with the required Leverage Ratio at the end of the
Fiscal Quarter ended October 2, 1999, (b) the Event of Default which occurred as
a result of the failure of the Borrower to cause a lien to be granted to the
Administrative Agent, for the benefit of the Lenders, on certain leasehold
property in Phenix City, Alabama, on or before January 15, 2000, and (c) any
Events of Default with respect to Sections 7.11, 7.12, and 7.13 of the Credit
------------- ---- ----
Agreement which may occur as a result of the failure of the Borrower to comply
with the required Leverage Ratio, Fixed Charge Coverage Ratio, and Net Worth at
the end of the Fiscal Quarter ended January 1, 2000 (the "Existing Events of
------------------
Default"). The waiver provided in this Section 1 shall not be and shall not be
- ------- ---------
deemed to be a waiver of any Events of Default under the Credit Agreement other
than the Existing Events of Default.
2. TERMINATION. The Waiver described in Section 1 above shall terminate
----------- ---------
automatically without any action by the Administrative Agent, the Lenders or any
other Person and be of no further force or effect upon termination of the Waiver
Period. For purposes hereof, the
<PAGE>
"Waiver Period" shall mean the period commencing on the effective date of this
-------------
Waiver and terminating upon the earliest to occur of (a) March 31, 2000, (b) the
declaration or payment by the Borrower of any cash dividends in respect of any
Capital Stock of the Borrower, or (c) the occurrence of any Event of Default
other than the Existing Events of Default.
3. AMENDMENTS TO CREDIT AGREEMENT. The Credit Agreement is hereby amended
------------------------------
as follows:
(a) Section 1.1 is amended by entirely amending the following
-----------
definition:
"Fieldcrest Cannon Subordinated Debenture Reserve" means (a) for the
------------------------------------------------
period from and including October 8, 1999 through and including March 31,
2000, zero, and (b) for the period from and including April 1, 2000 and
thereafter, an amount equal to 50% of the aggregate amount of cash
consideration that may be requested, at any time of determination, by the
holders of Fieldcrest Cannon Subordinated Debentures in respect of a
conversion thereof.
(b) Section 10.1(f) is hereby amended by inserting the text, ",
---------------
financial advisors," immediately following the word, "attorneys" in the
first sentence thereof.
4. BORROWING BASE. Notwithstanding anything in the Credit Agreement or
--------------
any other Loan Document, commencing on the date of this Waiver and continuing at
all times thereafter the Borrower shall not permit the sum of (a) the
outstanding principal amount of all Revolving Credit Advances, Facility A Term
Loan Advances and Facility B Term Loan Advances and (b) without duplication, the
Reimbursement Obligations, to exceed (i) the book value of the Liquid Assets of
the Borrower and each other Obligor, provided that an Event of Default shall
-------- ----
arise from Borrower's failure to comply with this clause (i) only if such
----------
failure continues for seven days after a Responsible Officer of Borrower knows
or reasonably should know of such failure, or (ii) 102.50% of the book value of
the Liquid Assets of the Borrower and each other Obligor. For purposes hereof,
"Liquid Assets" shall mean net accounts receivable, net inventory and cash
balances.
5. CAPITAL EXPENDITURES. Notwithstanding anything in the Credit Agreement
--------------------
or any other Loan Document, during the Waiver Period the Borrower shall not, and
shall not permit any of its Subsidiaries to, make any Capital Expenditures in an
aggregate amount that exceeds $8,000,000.
6. WAIVER FEE. Borrower shall pay to the Administrative Agent, for the
----------
pro rata benefit of the Lenders that execute and deliver this Waiver to the
Administrative Agent (or its counsel) not later than 5:00 p.m., Dallas time,
February 15, 2000, a waiver fee in an amount equal to the product of (a) 0.15%
multiplied by (b) an amount equal to such Lender's portion of the Commitment.
Such waiver fee shall be paid in immediately available funds and shall be
payable only if the conditions set forth in Section 10 of this Waiver have been
----------
satisfied and shall be due and payable to each Lender eligible for payment
pursuant to the preceding sentence no later than two
-2-
<PAGE>
Business Days after the conditions set forth in Section 10 of this Waiver have
----------
been satisfied. The Borrower agrees that the failure to pay the waiver fee
provided in this Section 6 shall, after the expiration of any applicable grace
---------
period, be an Event of Default under Section 8.1(b)(ii) of the Credit Agreement.
------------------
7. OVERLINE FACILITY. During the Waiver Period, the Borrower shall not
-----------------
make any payments or prepayments of principal owing under the Overline Facility.
8. RELEASE.
-------
(a) The Borrower and each Guarantor hereby unconditionally and
irrevocably remises, acquits, and fully and forever releases and discharges
the Administrative Agent and the Lenders and all respective affiliates and
subsidiaries of the Administrative Agent and the Lenders, their respective
officers, servants, employees, agents, attorneys, principals, directors and
shareholders, and their respective heirs, legal representatives, successors
and assigns (collectively, the "Released Lender Parties") from any and all
-----------------------
claims, demands, causes of action, obligations, remedies, suits, damages
and liabilities (collectively, the "Borrower Claims") of any nature
---------------
whatsoever, whether now known, suspected or claimed, whether arising under
common law, in equity or under statute, which the Borrower or any Guarantor
ever had or now has against the Released Lender Parties which may have
arisen at any time on or prior to the date of this Waiver and which were in
any manner related to any of the Loan Documents or the enforcement or
attempted enforcement by the Administrative Agent or the Lenders of rights,
remedies or recourses related thereto.
(b) The Borrower and each Guarantor covenants and agrees never to
commence, voluntarily aid in any way, prosecute or cause to be commenced or
prosecuted against any of the Released Lender Parties any action or other
proceeding based upon any of the Borrower Claims which may have arisen at
any time on or prior to the date of this Waiver and were in any manner
related to any of the Loan Documents.
(c) The agreements of the Borrower and each Guarantor set forth in
this Section 8 shall survive termination of this Waiver and the other Loan
---------
Documents.
9. REPRESENTATIONS AND WARRANTIES. By its execution and delivery hereof,
------------------------------
the Borrower represents and warrants to the Lenders that, as of the date hereof:
(a) after giving effect to the waiver set forth in Section 1 of this
---------
Waiver, the representations and warranties contained in the Credit
Agreement and the other Loan Documents are true and correct on and as of
the date hereof as if made on and as of such date;
(b) after giving effect to the waiver set forth in Section 1 of this
---------
Waiver, no event has occurred and is continuing which constitutes an Event
of Default;
-3-
<PAGE>
(c) the Borrower has full power and authority to execute and deliver
this Waiver, and this Waiver constitutes the legal, valid and binding
obligation of the Borrower, enforceable in accordance with its terms,
except as enforceability may be limited by applicable Debtor Relief Laws
and by general principles of equity (regardless of whether enforcement is
sought in a proceeding in equity or at law) and except as rights to
indemnity may be limited by federal or state securities laws;
(d) neither the execution, delivery and performance of this Waiver
nor the consummation of any transactions contemplated herein will conflict
with any Law, the articles of incorporation, bylaws or other governance
document of the Borrower or any of its Subsidiaries, or any indenture,
agreement or other instrument to which the Borrower or any of its
Subsidiaries or any of their respective property is subject; and
(e) no authorization, approval, consent, or other action by, notice
to, or filing with, any governmental authority or other Person (including
the Board of Directors of the Borrower or any Guarantor), is required for
the execution, delivery or performance by the Borrower of this Waiver or
the acknowledgment of this Waiver by any Guarantor.
10. CONDITIONS OF EFFECTIVENESS. This Waiver shall be effective as of
---------------------------
February 15, 2000, so long as each of the following conditions precedent shall
have been satisfied:
(a) the Administrative Agent shall receive counterparts of (i) this Waiver
and (ii) the Sixth Amendment and Waiver to Term Credit Agreement, each executed
by the Required Lenders (as defined in the Intercreditor Agreement) and the
Borrower and acknowledged by each Guarantor;
(b) the Administrative Agent shall receive counterparts of the Fourth
Amendment to Promissory Note, executed by the Borrower and Bank of America,
N.A., extending the maturity of the Overline Facility to the end of the Waiver
Period;
(c) the representations and warranties set forth in Section 9 of this
---------
Waiver shall be true and correct;
(d) all reasonable out-of-pocket fees and expenses in connection with the
Loan Documents, including this Waiver, including legal and other professional
fees and expenses incurred on or prior to the date of this Waiver by
Administrative Agent or any Lender, including, without limitation, the
reasonable fees and expenses of Winstead Sechrest & Minick P.C. and
PricewaterhouseCoopers, shall have been paid; and
(e) the Administrative Agent shall receive, in form and substance
satisfactory to the Administrative Agent and its counsel, such other documents,
certificates and instruments as the Administrative Agent shall reasonably
require.
-4-
<PAGE>
11. GUARANTOR ACKNOWLEDGMENT. By signing below, each of the Guarantors
------------------------
(i) acknowledges, consents and agrees to the execution and delivery of this
Waiver, (ii) acknowledges and agrees that its obligations in respect of its
Subsidiary Guaranty are not released, diminished, waived, modified, impaired or
affected in any manner by this Waiver or any of the provisions contemplated
herein, (iii) ratifies and confirms its obligations under its Subsidiary
Guaranty, and (iv) acknowledges and agrees that it has no claims or offsets
against, or defenses or counterclaims to, its Subsidiary Guaranty as a result of
this Waiver.
12. BANK OF AMERICA CONSENT. Bank of America, N.A., in its capacity as
-----------------------
provider of the Overline Facility, hereby (i) agrees to this Waiver and
acknowledges that the waivers provided herein shall also be effective with
respect to the Overline Facility, (ii) agrees that it will not accept any
payment of principal under the Overline Facility during the Waiver Period, and
(iii) acknowledges that the maturity date of the Overline Facility has been
extended to the termination of the Waiver Period.
13. REFERENCE TO CREDIT AGREEMENT. Upon the effectiveness of this Waiver,
-----------------------------
each reference in the Credit Agreement to "this Agreement," "hereunder," or
words of like import shall mean and be a reference to the Credit Agreement, as
affected and amended by this Waiver.
14. COUNTERPARTS; EXECUTION VIA FACSIMILE. This Waiver may be executed in
-------------------------------------
one or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument. This Waiver may be
validly executed and delivered by facsimile or other electronic transmission.
15. GOVERNING LAW: BINDING EFFECT. This Waiver shall be governed by and
-----------------------------
construed in accordance with the laws of the State of Texas and shall be binding
upon the Borrower, the Administrative Agent, each Lender and their respective
successors and assigns.
16. HEADINGS. Section headings in this Waiver are included herein for
--------
convenience of reference only and shall not constitute a part of this Waiver for
any other purpose.
17. LOAN DOCUMENT. This Waiver is a Loan Document and is subject to all
-------------
provisions of the Credit Agreement applicable to Loan Documents, all of which
are incorporated in this Waiver by reference the same as if set forth in this
Waiver verbatim.
18. NO ORAL AGREEMENTS. THIS WRITTEN AGREEMENT AND THE OTHER LOAN
------------------
DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.
===============================================================================
REMAINDER OF PAGE LEFT INTENTIONALLY BLANK
===============================================================================
-5-
<PAGE>
PILLOWTEX CORPORATION
By: Jaime Vasquez
Title: Vice President/Treasurer
BANK OF AMERICA, N.A. (formerly
known as NationsBank, N.A., successor by
merger to NationsBank of Texas, N.A.), as
Administrative Agent and as a Lender, Swing
Line Bank and Issuing Bank
By: William E. Livingstone, IV
Title: Managing Director
THE BANK OF NOVA SCOTIA
ATLANTA AGENCY
By: Peiter J. Van Schaick
Title: Relationship Manager
THE FIRST NATIONAL BANK
OF CHICAGO
By: Randall B. Durant
Title: First Vice President
WELLS FARGO BANK (TEXAS),
NATIONAL ASSOCIATION
By: Roger Fruenat
Title: Vice President
COMERICA BANK
By: Mark B. Grover
Title: Vice President
-6-
<PAGE>
CREDIT LYONNAIS - NEW YORK BRANCH
By: John-Charles Van Essche
Title: Vice President
THE BANK OF TOKYO-MITSUBISHI, LTD.
By: John W. McGhee
Title: Vice President & Manager
BANK ONE, TEXAS, N.A.
By: Randall B. Durant
Title: First Vice President
BHF (USA) CAPITAL CORPORATION
By: Dan Dobrjanskyj
Title: Assistant Vice President
By: Chris Yu
Title: Associate
FIRST UNION NATIONAL BANK
By: Ron R. Ferguson
Title: Senior Vice President
COOPERATIEVE CENTRALE RAIFFEISEN-
BOERENLEENBANK B.A., "RABOBANK
NEDERLAND", NEW YORK BRANCH
By: Ian Reece
Title: Senior Credit Officer
By: Richard Matthews
Title: Vice President
THE BANK OF NEW YORK
By: Albert R. Taylor
-7-
<PAGE>
Title: Vice President
CREDIT INDUSTRIEL ET COMMERCIAL
By: Anthony Rock
Title: Vice President
By: Marcus Edward
Title: Vice President
BANK AUSTRIA CREDITANSTALT
CORPORATE FINANCE, INC.
By: Richard W. Varalla
Title: Senior Associate
By: Stephen W. Hipp
Title: Senior Associate
THE FUJI BANK, LTD.
By: John D. Doyle
Title: Vice President & Manager
NATIONAL BANK OF CANADA
By: Bill Handley
Title: Vice President
By: (signature illegible)
Title: Vice President & Manager
NATIONAL CITY BANK OF KENTUCKY
By: Jeffrey C. Geeding
Title: Senior Vice President
THE PRUDENTIAL INSURANCE
COMPANY OF AMERICA
By: B. Ross Smead
Title: Vice President
-8-
<PAGE>
BANK POLSKA KASA OPIEKI, S.A.,
NEW YORK BRANCH
By: Hussein B. El-Tawil
Title: Vice President
GUARANTY FEDERAL BANK, F.S.B.
By: Robert S. Hays
Title: Senior Vice President
GENERAL ELECTRIC
CAPITAL CORPORATION
By: Thomas E. Johnstone
Title:
SOCIETE GENERALE, SOUTHWEST
AGENCY
By: Robert Petersen
Title: Director
CONSENTED TO BY:
KZH WATERSIDE LLC
By: Susan Lee
Title: Authorized Agent
SENIOR DEBT PORTFOLIO
By: Boston Management and Research
as Investment Advisor
By: Scott H. Page
Title: Vice President
AERIES FINANCE-II LTD.
By: INVESCO Senior Secured Management, Inc.
as Sub-Managing Agent
-9-
<PAGE>
By: (signature illegible)
Title: Vice President
CYPRESSTREE INVESTMENT PARTNERS I, LTD.,
By: CypressTree Investment Management
Company, Inc., as Portfolio Manager
By: Jeffrey W. Hener
Title: Principal
NORTH AMERICAN SENIOR FLOATING RATE FUND
By: Cypress Tree Investment Management Company,
Inc., as Portfolio Manager
By: Jeffrey Hener
Title: Principal
CYPRESSTREE INVESTMENT MANAGEMENT COMPANY, INC.
As: Attorney-in-Fact and on behalf of First Allmerica
Financial Life Insurance Company as Portfolio Manager
By: Jeffrey W. Hener
Title: Principal
VAN KAMPEN CLO I, LIMITED
By: VAN KAMPEN MANAGEMENT, INC.,
as Collateral Manager
By: Darvin D. Pierce
Title: Vice President
INDOSUEZ CAPITAL FUNDING IIA, LIMITED
By: INDOSUEZ CAPITAL as Portfolio Manager
By: Melissa Marano
Title: Vice President
VAN KAMPEN SENIOR INCOME TRUST
By: Van Kampen Investment Advisory Corp.
-10-
<PAGE>
By: Darwin D. Pierce
Title: Vice President
INDOSUEZ CAPITAL FUNDING IV, L.P.
By: Indosuez Capital as Portfolio Manager
By: Melissa Marano
Title: Vice President
CYPRESSTREE INSTITUTIONAL FUND, LLC
By: CypressTree Investment Management
Company, Inc., its Managing Member
By: Jeffrey W. Hener
Title: Principal
CYPRESSTREE INVESTMENT FUND, LLC
By: CypressTree Investment Management
Company, Inc., its Managing Member
By: Jeffrey W. Hener
Title: Principal
KZH-CYPRESSTREE-1 LLC
By: Susan Lee
Title: Authorized Agent
OXFORD STRATEGIC INCOME FUND
By: Eaton Vance Management, as
Investment Advisor
By: Scott H. Page
Title: Vice President
EATON VANCE INSTITUTIONAL SENIOR LOAN FUND
By: Eaton Vance Management, as
Investment Advisor
By: Scott H. Page
Title: Vice President
-11-
<PAGE>
VAN KAMPEN CLO II, LIMITED
By: Van Kampen Management, Inc.,
as Collateral Manager
By: Darvin D. Pierce
Title: Vice President
FINOVA CAPITAL CORPORATION
By: (signature illegible)
Title: Authorized Signer
THE DAI-ICHI KANGYO BANK
LIMITED, NEW YORK BRANCH
By: Ronald Wolinsky
Title: Vice President & Group Leader
MOUNTAIN CAPITAL CLO I LTD.
By: Darren P. Riley
Title: Director
MARINER LDC
By: Charles R. Howe, II
Title: Director
LEHMAN COMMERCIAL PAPER, INC.
By: Steven Pomerantz
Title:
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.
-12-
<PAGE>
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.
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.
By: Jaime Vasquez
Title: Vice President
-13-
<PAGE>
SIXTH AMENDMENT AND WAIVER TO
TERM CREDIT AGREEMENT
THIS SIXTH AMENDMENT AND WAIVER TO TERM CREDIT AGREEMENT (this "Waiver"),
dated as of February 15, 2000, is entered into among PILLOWTEX CORPORATION, a
Texas corporation (the "Borrower"), the institutions listed on the signature
pages hereof that are parties to the Credit Agreement defined below
(collectively, the "Lenders"), and BANK OF AMERICA, N.A. (formerly known as
NationsBank, N.A., successor by merger to NationsBank of Texas, N.A.), as
Administrative Agent for itself and the Lenders (in said capacity, the
"Administrative Agent").
BACKGROUND
----------
A. The Borrower, the Lenders and the Administrative Agent are parties to
that certain Term Credit Agreement, dated as of December 19, 1997 (as amended
through the date hereof, the "Credit Agreement"). Terms defined in the Credit
Agreement and not otherwise defined herein shall be used herein as defined in
the Credit Agreement.
B. The Borrower has requested a waiver of certain Events of Default under
the Credit Agreement.
NOW, THEREFORE, in consideration of the covenants, conditions and
agreements hereinafter set forth, and for other good and valuable consideration,
the receipt and adequacy of which are all hereby acknowledged, the Borrower, the
Lenders and the Administrative Agent covenant and agree as follows:
1. WAIVER. Subject to the satisfaction of the conditions of effectiveness
-------
set forth in Section 10 of this Waiver and the other conditions contained
----------
herein, the Lenders hereby waive (a) the Event of Default with respect to
Section 7.11 of the Credit Agreement which occurred as a result of the failure
- ------------
of the Borrower to comply with the required Leverage Ratio at the end of the
Fiscal Quarter ended October 2, 1999, (b) the Event of Default which occurred as
a result of the failure of the Borrower to cause a lien to be granted to the
Administrative Agent, for the benefit of the Lenders, on certain leasehold
property in Phenix City, Alabama, on or before January 15, 2000, and (c) any
Events of Default with respect to Sections 7.11, 7.12, and 7.13 of the Credit
------------- ---- ----
Agreement which may occur as a result of the failure of the Borrower to comply
with the required Leverage Ratio, Fixed Charge Coverage Ratio, and Net Worth at
the end of the Fiscal Quarter ended January 1, 2000 (the "Existing Events of
------------------
Default"). The waiver provided in this Section 1 shall not be and shall not be
- ------- ---------
deemed to be a waiver of any Events of Default under the Credit Agreement other
than the Existing Events of Default.
2. TERMINATION. The Waiver described in Section 1 above shall terminate
----------- ---------
automatically without any action by the Administrative Agent, the Lenders or any
other Person and be of no further force or effect upon termination of the Waiver
Period. For purposes hereof, the
<PAGE>
"Waiver Period" shall mean the period commencing on the effective date of this
-------------
Waiver and terminating upon the earliest to occur of (a) March 31, 2000, (b) the
declaration or payment by the Borrower of any cash dividends in respect of any
Capital Stock of the Borrower, or (c) the occurrence of any Event of Default
other than the Existing Events of Default.
3. AMENDMENTS TO CREDIT AGREEMENT. The Credit Agreement is hereby amended
------------------------------
as follows:
(a) Section 1.1 is amended by entirely amending the following
-----------
definition:
"Fieldcrest Cannon Subordinated Debenture Reserve" means (a) for the
------------------------------------------------
period from and including October 8, 1999 through and including March 31,
2000, zero, and (b) for the period from and including April 1, 2000 and
thereafter, an amount equal to 50% of the aggregate amount of cash
consideration that may be requested, at any time of determination, by the
holders of Fieldcrest Cannon Subordinated Debentures in respect of a
conversion thereof.
(b) Section 10.1(f) is hereby amended by inserting the text, ",
---------------
financial advisors," immediately following the word, "attorneys" in the
first sentence thereof.
4. BORROWING BASE. Notwithstanding anything in the Credit Agreement or
--------------
any other Loan Document, commencing on the date of this Waiver and continuing at
all times thereafter the Borrower shall not permit the sum of (a) the
outstanding principal amount of all Revolving Credit Advances, Facility A Term
Loan Advances and Facility B Term Loan Advances and (b) without duplication, the
Reimbursement Obligations, to exceed (i) the book value of the Liquid Assets of
the Borrower and each other Obligor, provided that an Event of Default shall
-------- ----
arise from Borrower's failure to comply with this clause (i) only if such
----------
failure continues for seven days after a Responsible Officer of Borrower knows
or reasonably should know of such failure, or (ii) 102.50% of the book value of
the Liquid Assets of the Borrower and each other Obligor. For purposes hereof,
"Liquid Assets" shall mean net accounts receivable, net inventory and cash
balances.
5. CAPITAL EXPENDITURES. Notwithstanding anything in the Credit Agreement
--------------------
or any other Loan Document, during the Waiver Period the Borrower shall not, and
shall not permit any of its Subsidiaries to, make any Capital Expenditures in an
aggregate amount that exceeds $8,000,000.
6. WAIVER FEE. Borrower shall pay to the Administrative Agent, for the
----------
pro rata benefit of the Lenders that execute and deliver this Waiver to the
Administrative Agent (or its counsel) not later than 5:00 p.m., Dallas time,
February 15, 2000, a waiver fee in an amount equal to the product of (a) 0.15%
multiplied by (b) an amount equal to such Lender's portion of the Commitment.
Such waiver fee shall be paid in immediately available funds and shall be
payable only if the conditions set forth in Section 10 of this Waiver have been
----------
satisfied and shall be due and payable to each Lender eligible for payment
pursuant to the preceding sentence no later than two
-2-
<PAGE>
Business Days after the conditions set forth in Section 10 of this Waiver have
----------
been satisfied. The Borrower agrees that the failure to pay the waiver fee
provided in this Section 6 shall, after the expiration of any applicable grace
---------
period, be an Event of Default under Section 8.1(b)(ii) of the Credit Agreement.
------------------
7. OVERLINE FACILITY. During the Waiver Period, the Borrower shall not
-----------------
make any payments or prepayments of principal owing under the Overline Facility.
8. RELEASE.
-------
(a) The Borrower and each Guarantor hereby unconditionally and
irrevocably remises, acquits, and fully and forever releases and discharges
the Administrative Agent and the Lenders and all respective affiliates and
subsidiaries of the Administrative Agent and the Lenders, their respective
officers, servants, employees, agents, attorneys, principals, directors and
shareholders, and their respective heirs, legal representatives, successors
and assigns (collectively, the "Released Lender Parties") from any and all
-----------------------
claims, demands, causes of action, obligations, remedies, suits, damages
and liabilities (collectively, the "Borrower Claims") of any nature
---------------
whatsoever, whether now known, suspected or claimed, whether arising under
common law, in equity or under statute, which the Borrower or any Guarantor
ever had or now has against the Released Lender Parties which may have
arisen at any time on or prior to the date of this Waiver and which were in
any manner related to any of the Loan Documents or the enforcement or
attempted enforcement by the Administrative Agent or the Lenders of rights,
remedies or recourses related thereto.
(b) The Borrower and each Guarantor covenants and agrees never to
commence, voluntarily aid in any way, prosecute or cause to be commenced or
prosecuted against any of the Released Lender Parties any action or other
proceeding based upon any of the Borrower Claims which may have arisen at
any time on or prior to the date of this Waiver and were in any manner
related to any of the Loan Documents.
(c) The agreements of the Borrower and each Guarantor set forth in
this Section 8 shall survive termination of this Waiver and the other Loan
---------
Documents.
9. REPRESENTATIONS AND WARRANTIES. By its execution and delivery hereof,
------------------------------
the Borrower represents and warrants to the Lenders that, as of the date hereof:
(a) after giving effect to the waiver set forth in Section 1 of this
---------
Waiver, the representations and warranties contained in the Credit
Agreement and the other Loan Documents are true and correct on and as of
the date hereof as if made on and as of such date;
(b) after giving effect to the waiver set forth in Section 1 of this
---------
Waiver, no event has occurred and is continuing which constitutes an Event
of Default;
-3-
<PAGE>
(c) the Borrower has full power and authority to execute and deliver
this Waiver, and this Waiver constitutes the legal, valid and binding
obligation of the Borrower, enforceable in accordance with its terms,
except as enforceability may be limited by applicable Debtor Relief Laws
and by general principles of equity (regardless of whether enforcement is
sought in a proceeding in equity or at law) and except as rights to
indemnity may be limited by federal or state securities laws;
(d) neither the execution, delivery and performance of this Waiver
nor the consummation of any transactions contemplated herein will conflict
with any Law, the articles of incorporation, bylaws or other governance
document of the Borrower or any of its Subsidiaries, or any indenture,
agreement or other instrument to which the Borrower or any of its
Subsidiaries or any of their respective property is subject; and
(e) no authorization, approval, consent, or other action by, notice
to, or filing with, any governmental authority or other Person (including
the Board of Directors of the Borrower or any Guarantor), is required for
the execution, delivery or performance by the Borrower of this Waiver or
the acknowledgment of this Waiver by any Guarantor.
10. CONDITIONS OF EFFECTIVENESS. This Waiver shall be effective as of
---------------------------
February 15, 2000, so long as each of the following conditions precedent shall
have been satisfied:
(a) the Administrative Agent shall receive counterparts of (i) this Waiver
and (ii) the Sixth Amendment and Waiver to Amended and Restated Credit
Agreement, each executed by the Required Lenders (as defined in the
Intercreditor Agreement) and the Borrower and acknowledged by each Guarantor;
(b) the Administrative Agent shall receive counterparts of the Fourth
Amendment to Promissory Note, executed by the Borrower and Bank of America,
N.A., extending the maturity of the Overline Facility to the end of the Waiver
Period;
(c) the representations and warranties set forth in Section 9 of this
---------
Waiver shall be true and correct;
(d) all reasonable out-of-pocket fees and expenses in connection with the
Loan Documents, including this Waiver, including legal and other professional
fees and expenses incurred on or prior to the date of this Waiver by
Administrative Agent or any Lender, including, without limitation, the
reasonable fees and expenses of Winstead Sechrest & Minick P.C. and
PricewaterhouseCoopers, shall have been paid; and
(e) the Administrative Agent shall receive, in form and substance
satisfactory to the Administrative Agent and its counsel, such other documents,
certificates and instruments as the Administrative Agent shall reasonably
require.
-4-
<PAGE>
11. GUARANTOR ACKNOWLEDGMENT. By signing below, each of the Guarantors
------------------------
(i) acknowledges, consents and agrees to the execution and delivery of this
Waiver, (ii) acknowledges and agrees that its obligations in respect of its
Subsidiary Guaranty are not released, diminished, waived, modified, impaired or
affected in any manner by this Waiver or any of the provisions contemplated
herein, (iii) ratifies and confirms its obligations under its Subsidiary
Guaranty, and (iv) acknowledges and agrees that it has no claims or offsets
against, or defenses or counterclaims to, its Subsidiary Guaranty as a result of
this Waiver.
12. BANK OF AMERICA CONSENT. Bank of America, N.A., in its capacity as
-----------------------
provider of the Overline Facility, hereby (i) agrees to this Waiver and
acknowledges that the waivers provided herein shall also be effective with
respect to the Overline Facility, (ii) agrees that it will not accept any
payment of principal under the Overline Facility during the Waiver Period, and
(iii) acknowledges that the maturity date of the Overline Facility has been
extended to the termination of the Waiver Period.
13. REFERENCE TO CREDIT AGREEMENT. Upon the effectiveness of this Waiver,
-----------------------------
each reference in the Credit Agreement to "this Agreement," "hereunder," or
words of like import shall mean and be a reference to the Credit Agreement, as
affected and amended by this Waiver.
14. COUNTERPARTS; EXECUTION VIA FACSIMILE. This Waiver may be executed in
-------------------------------------
one or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument. This Waiver may be
validly executed and delivered by facsimile or other electronic transmission.
15. GOVERNING LAW: BINDING EFFECT. This Waiver shall be governed by and
-----------------------------
construed in accordance with the laws of the State of Texas and shall be binding
upon the Borrower, the Administrative Agent, each Lender and their respective
successors and assigns.
16. HEADINGS. Section headings in this Waiver are included herein for
--------
convenience of reference only and shall not constitute a part of this Waiver for
any other purpose.
17. LOAN DOCUMENT. This Waiver is a Loan Document and is subject to all
-------------
provisions of the Credit Agreement applicable to Loan Documents, all of which
are incorporated in this Waiver by reference the same as if set forth in this
Waiver verbatim.
18. NO ORAL AGREEMENTS. THIS WRITTEN AGREEMENT AND THE OTHER LOAN
------------------
DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.
================================================================================
REMAINDER OF PAGE LEFT INTENTIONALLY BLANK
================================================================================
-5-
<PAGE>
PILLOWTEX CORPORATION
By: Jaime Vasquez
Title: Vice President/Treasurer
BANK OF AMERICA, N.A. (formerly
known as NationsBank, N.A., successor by
merger to NationsBank of Texas, N.A.), as
Administrative Agent and as a Lender, Swing
Line Bank and Issuing Bank
By: William E. Livingstone, IV
Title: Managing Director
THE BANK OF NOVA SCOTIA
ATLANTA AGENCY
By: Peiter J. Van Schaick
Title: Relationship Manager
THE FIRST NATIONAL BANK
OF CHICAGO
By: Randall B. Durant
Title: First Vice President
WELLS FARGO BANK (TEXAS),
NATIONAL ASSOCIATION
By: Roger Fruenat
Title: Vice President
COMERICA BANK
By: Mark B. Grover
Title: Vice President
CREDIT LYONNAIS - NEW YORK BRANCH
By: John-Charles Van Essche
Title: Vice President
-6-
<PAGE>
THE BANK OF TOKYO-MITSUBISHI, LTD.
By: John W. McGhee
Title: Vice President & Manager
BANK ONE, TEXAS, N.A.
By: Randall B. Durant
Title: First Vice President
BHF (USA) CAPITAL CORPORATION
By: Dan Dobrjanskyj
Title: Assistant Vice President
By: Chris Yu
Title: Associate
FIRST UNION NATIONAL BANK
By: Ron R. Ferguson
Title: Senior Vice President
COOPERATIEVE CENTRALE RAIFFEISEN-
BOERENLEENBANK B.A., "RABOBANK
NEDERLAND", NEW YORK BRANCH
By: Ian Reece
Title: Senior Credit Officer
By: Richard Matthews
Title: Vice President
THE BANK OF NEW YORK
By: Albert R. Taylor
Title: Vice President
CREDIT INDUSTRIEL ET COMMERCIAL
By: Anthony Rock
Title: Vice President
-7-
<PAGE>
By: Marcus Edward
Title: Vice President
BANK AUSTRIA CREDITANSTALT
CORPORATE FINANCE, INC.
By: Richard W. Varalla
Title: Senior Associate
By: Stephen W. Hipp
Title: Senior Associate
THE FUJI BANK, LTD.
By: John D. Doyle
Title: Vice President & Manager
NATIONAL BANK OF CANADA
By: Bill Handley
Title: Vice President
By: (signature illegible)
Title: Vice President & Manager
NATIONAL CITY BANK OF KENTUCKY
By: Jeffrey C. Geeding
Title: Senior Vice President
THE PRUDENTIAL INSURANCE
COMPANY OF AMERICA
By: B. Ross Smead
Title: Vice President
BANK POLSKA KASA OPIEKI, S.A.,
NEW YORK BRANCH
By: Hussein B. El-Tawil
Title: Vice President
-8-
<PAGE>
GUARANTY FEDERAL BANK, F.S.B.
By: Robert S. Hays
Title: Senior Vice President
GENERAL ELECTRIC
CAPITAL CORPORATION
By: Thomas E. Johnstone
Title:
SOCIETE GENERALE, SOUTHWEST
AGENCY
By: Robert Petersen
Title: Director
CONSENTED TO BY:
KZH WATERSIDE LLC
By: Susan Lee
Title: Authorized Agent
SENIOR DEBT PORTFOLIO
By: Boston Management and Research
as Investment Advisor
By: Scott H. Page
Title: Vice President
AERIES FINANCE-II LTD.
By: INVESCO Senior Secured Management, Inc.
as Sub-Managing Agent
By: (signature illegible)
Title: Vice President
CYPRESSTREE INVESTMENT PARTNERS I, LTD.,
By: CypressTree Investment Management
-9-
<PAGE>
Company, Inc., as Portfolio Manager
By: Jeffrey W. Hener
Title: Principal
NORTH AMERICAN SENIOR FLOATING RATE FUND
By: Cypress Tree Investment Management Company,
Inc., as Portfolio Manager
By: Jeffrey Hener
Title: Principal
CYPRESSTREE INVESTMENT MANAGEMENT COMPANY, INC.
As: Attorney-in-Fact and on behalf of First Allmerica
Financial Life Insurance Company as Portfolio Manager
By: Jeffrey W. Hener
Title: Principal
VAN KAMPEN CLO I, LIMITED
By: VAN KAMPEN MANAGEMENT, INC.,
as Collateral Manager
By: Darvin D. Pierce
Title: Vice President
BALANCED HIGH-YIELD FUND I LTD.
By: BHF (USA) CAPITAL CORPORATION, acting as
attorney-in-fact
By: Dan Dobrjanskyj
Title: Assistant Vice President
By: Chris Yu
Title: Associate
INDOSUEZ CAPITAL FUNDING IIA, LIMITED
By: INDOSUEZ CAPITAL as Portfolio Manager
By: Melissa Marano
Title: Vice President
-10-
<PAGE>
VAN KAMPEN SENIOR INCOME TRUST
By: Van Kampen Investment Advisory Corp.
By: Darvin D. Pierce
Title: Vice President
INDOSUEZ CAPITAL FUNDING IV, L.P.
By: Indosuez Capital as Portfolio Manager
By: Melissa Marano
Title: Vice President
CYPRESSTREE INSTITUTIONAL FUND, LLC
By: CypressTree Investment Management
Company, Inc., its Managing Member
By: Jeffrey W. Hener
Title: Principal
CYPRESSTREE INVESTMENT FUND, LLC
By: CypressTree Investment Management
Company, Inc., its Managing Member
By: Jeffrey W. Hener
Title: Principal
KZH-CYPRESSTREE-1 LLC
By: Susan Lee
Title: Authorized Agent
OXFORD STRATEGIC INCOME FUND
By: Eaton Vance Management, as
Investment Advisor
By: Scott H. Page
Title: Vice President
EATON VANCE INSTITUTIONAL SENIOR LOAN FUND
By: Eaton Vance Management, as
Investment Advisor
By: Scott H. Page
-11-
<PAGE>
Title: Vice President
VAN KAMPEN CLO II, LIMITED
By: Van Kampen Management, Inc.,
as Collateral Manager
By: Darvin D. Pierce
Title: Vice President
CAPTIVA FINANCE, LTD.
By: David Byer
Title: Director
BALANCED HIGH-YIELD FUND II LTD.
By: BHF (USA) CAPITAL CORPORATION
acting as attorney-in-fact
By: Dan Dobrjanskyj
Title: Assistant Vice President
By: Chris Yu
Title: Associate
FINOVA CAPITAL CORPORATION
By: (signature illegible)
Title: Authorized Signer
THE DAI-ICHI KANGYO BANK
LIMITED, NEW YORK BRANCH
By: Ronald Wolinsky
Title: Vice President & Group Leader
MOUNTAIN CAPITAL CLO I LTD.
By: Darren P. Riley
Title: Director
MARINER LDC
By: Charles R. Howe, II
-12-
<PAGE>
Title: Director
LEHMAN COMMERCIAL PAPER, INC.
By: Steven Pomerantz
Title:
PRESIDENT & FELLOWS OF HARVARD
COLLEGE
By: Regiment Capital Management, LLC
as its Investment Advisor
By: Regiment Capital Advisors, LLC
its Manager and pursuant to delegated
authority
By: Timothy Peterson
Title: President
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.
AMOSKEAG COMPANY
AMOSKEAG MANAGEMENT CORPORATION
DOWNEAST SECURITIES CORPORATION
BANGOR INVESTMENT COMPANY
MOORE'S FALLS CORPORATION
-13-
<PAGE>
THE LESHNER CORPORATION
LESHNER OF CALIFORNIA, INC.
OPELIKA INDUSTRIES, INC.
By: Jaime Vasquez
Title: Vice President
-14-
<PAGE>
EXHIBIT 10.8
WAIVER AND SEVENTH AMENDMENT TO
AMENDED AND RESTATED CREDIT AGREEMENT
THIS WAIVER AND SEVENTH AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
(this "Amendment"), dated as of March 31, 2000, is entered into among PILLOWTEX
CORPORATION, a Texas corporation (the "Borrower"), the institutions listed on
the signature pages hereof that are parties to the Credit Agreement defined
below (collectively, the "Lenders"), and BANK OF AMERICA, N.A. (formerly known
as NationsBank, N.A., successor by merger to NationsBank of Texas, N.A.), as
Administrative Agent for itself and the Lenders (in said capacity, the
"Administrative Agent").
BACKGROUND
----------
A. The Borrower, the Lenders and the Administrative Agent are parties to
that certain Amended and Restated Credit Agreement, dated as of December 19,
1997 (as amended through the date hereof, the "Credit Agreement"). Terms
defined in the Credit Agreement and not otherwise defined herein shall be used
herein as defined in the Credit Agreement.
B. The Borrower, the Lenders and the Administrative Agent desire to make
certain amendments to the Credit Agreement and certain other loan documents.
C. The Borrower has requested a waiver of existing Events of Default under
the Credit Agreement.
NOW, THEREFORE, in consideration of the covenants, conditions and
agreements hereinafter set forth, and for other good and valuable consideration,
the receipt and adequacy of which are all hereby acknowledged, the Borrower, the
Lenders and the Administrative Agent covenant and agree as follows:
1. WAIVER. Subject to the satisfaction of the conditions of effectiveness
------
set forth in Section 8 of this Amendment and the other conditions contained
---------
herein, the Lenders hereby waive (a) the Events of Default with respect to
Section 7.11 of the Credit Agreement which occurred as a result of the failure
- ------------
of the Borrower to comply with the required Leverage Ratio at the end of the
Fiscal Quarters ended October 2, 1999 and January 1, 2000, and (b) the Events of
Default with respect to Sections 7.12 and 7.13 of the Credit Agreement which
------------- ----
occurred as a result of the failure of the Borrower to comply with the required
Fixed Charge Coverage Ratio and Net Worth at the end of the Fiscal Quarter
ended January 1, 2000 (the "Existing Events of Default"). The waiver provided
--------------------------
in this Section 1 shall not be and shall not be deemed to be a waiver of any
---------
Events of Default under the Credit Agreement other than the Existing Events of
Default. Each of the prior Events of Default that have been waived in prior
waivers or amendments to the Credit Agreement that have subsequently been cured
shall not constitute an Event of Default hereunder due to its mere occurrence so
long as it has been cured.
<PAGE>
2. AMENDMENTS TO CREDIT AGREEMENT. The Credit Agreement is hereby amended
------------------------------
as follows:
(a) Section 1.1 is amended by adding or entirely amending the
-----------
following definitions:
"Applicable Base Rate Margin" means 2.000%, provided that the
--------------------------- -------------
Applicable Base Rate Margin shall be decreased to 1.500% as of the first
day of the calendar month following the date the Borrower delivers its
annual financial statements for Fiscal Year 2000 to the Administrative
Agent in accordance with Section 6.2 hereof, if such financial statements
-----------
show EBITDA (plus all fees and expenses incurred in connection with the
restructuring of any Indebtedness of the Borrower and its Subsidiaries
which have been deducted in calculating EBITDA) of greater than
$173,000,000 for such Fiscal Year.
"Applicable LIBOR Rate Margin" means 3.500%, provided that the
---------------------------- -------------
Applicable LIBOR Rate Margin shall be decreased to 3.000% as of the first
day of the calendar month following the date the Borrower delivers its
annual financial statements for Fiscal Year 2000 to the Administrative
Agent in accordance with Section 6.2 hereof, if such financial statements
-----------
show EBITDA (plus all fees and expenses incurred in connection with the
restructuring of any Indebtedness of the Borrower and its Subsidiaries
which have been deducted in calculating EBITDA) of greater than
$173,000,000 for such Fiscal Year.
"Borrowing Base" shall mean, at any time, the sum of (a) 80% of
--------------
Eligible Accounts, plus (b) 45% of Eligible Inventory, each as shown on the
most recent certificate or report delivered to Administrative Agent under
Section 6.10 hereof.
------------
"Borrowing Base Certificate" means a certificate substantially in the
--------------------------
form of Exhibit M-1 hereto.
-----------
"Borrowing Base Estimate" means a report substantially in the form of
-----------------------
Exhibit M-2 hereto.
-----------
"Commitment" means the commitment of the Lenders, subject to the terms
----------
and conditions hereof, to make Advances or to issue or participate in
Letters of Credit up to an aggregate principal amount of (a) $350,000,000
prior to December 31, 2000, (b) $335,000,000 commencing on December 31,
2000 and continuing through and including September 29, 2001, (c)
$320,000,000 commencing on September 30, 2001 and continuing through and
including December 30, 2001, and (d) $310,000,000, commencing on December
31, 2001, and at all times thereafter, as such amount may be reduced
pursuant to Section 2.6 hereof.
-----------
-2-
<PAGE>
"EBITDA" means, for any period, determined in accordance with GAAP on
------
a consolidated basis for the Borrower and its Subsidiaries, the sum of (a)
Earnings from Operations plus (b) depreciation, amortization and other non
cash charges (excluding any such non-cash charge to the extent it
represents an accrual of or reserve for cash charges in any future period
or amortization of a prepaid cash expense that was paid in a prior period)
to the extent included in determining Earnings From Operations.
"Eligible Accounts" means all outstanding accounts of each Obligor
-----------------
that are subject to perfected Liens in favor of Administrative Agent and
excluding in all events the portion of any account not paid within 90 days
after the original invoice date.
"Eligible Inventory" means all inventory of each Obligor that is
------------------
subject to perfected Liens in favor of Administrative Agent and excluding
in all events such Obligor's reserves against inventory.
"Fieldcrest Cannon Subordinated Debenture Reserve" means zero.
------------------------------------------------
"Maturity Date" means January 31, 2002, or the earlier date of
-------------
termination in whole of the Commitment pursuant to Section 2.6 or 8.2
----------- ---
hereof.
"Revolver Availability" means an amount equal to the result of (a) the
---------------------
lesser of (i) the Borrowing Base or (ii) the Commitment, minus (b) the sum
of (i) the outstanding Revolving Credit Advances, plus (ii) the outstanding
Reimbursement Obligations.
(b) The last sentence of Section 2.1(a) is entirely amended, as
--------------
follows:
Notwithstanding any provision of any Loan Document to the contrary, in
no event shall (a) the sum of the principal amount of all outstanding
(i) Revolving Credit Advances and (ii) Reimbursement Obligations
exceed the lesser of (A) the Borrowing Base or (B) the Commitment.
(c) A new sentence is added to Section 2.5(b) immediately following
--------------
the last sentence thereof, as follows:
To the extent that the sum of (i) the outstanding Revolving Credit
Advances plus (ii) the outstanding Reimbursement Obligations ever
exceed the lesser of (A) the Borrowing Base or (B) the Commitment, the
Borrower shall repay any such excess amount and all accrued interest
attributable to such excess within five Business Days after the
Borrower either knows of such excess or receives notice thereof from
the Administrative Agent, whichever first occurs.
(d) Clause (ii) in the first sentence of Section 2.15(a) is entirely
----------- ---------------
amended, as follows:
-3-
<PAGE>
(ii) an amount equal to (A) the lesser of the Borrowing Base or the
Commitment minus (B) the aggregate principal amount of Revolving
-----
Credit Advances then outstanding.
(e) Section 3.2(d) is entirely amended, as follows:
--------------
(d) The sum of the principal amount of all outstanding (i)
Revolving Credit Advances and (ii) Reimbursement Obligations, after
giving effect to such proposed Advance or Letter of Credit, shall not
exceed the lesser of (A) the Borrowing Base or (B) the Commitment.
(f) Section 6.8(c) is entirely amended, as follows:
--------------
(c) As soon as available, but in any event no later than Friday
of each week, a good faith estimate of Eligible Accounts and Eligible
Inventory as of the previous Friday.
(g) New Sections 6.9 and 6.10 are hereby added immediately following
------------ ----
Section 6.8, as follows:
-----------
Section 6.9 Monthly Financial Statements. As soon as available,
----------------------------
but in any event within 20 Business Days after the end of each Fiscal
Month other than December, and within 45 Business Days after the end
of the Fiscal Month of December, the consolidated balance sheets of
the Borrower and its Subsidiaries as at the end of such Fiscal Month
and the related consolidated statements of earnings for such Fiscal
Month and for the elapsed portion of the year ended with the last day
of such Fiscal Month, and consolidated statements of cash flow for the
elapsed portion of the year ended with the last day of such Fiscal
Month, all of which shall be certified by a Responsible Officer, to,
in his or her opinion acting solely in his or her capacity as an
officer of the Borrower, present fairly in all material respects, in
accordance with GAAP (except for the absence of footnotes), the
financial position and results of operations of the Borrower and its
Subsidiaries as at the end of and for such Fiscal Month, and for the
elapsed portion of the year ended with the last day of such Fiscal
Month, subject only to normal year-end adjustments.
Section 6.10 Borrowing Base Reports.
----------------------
(a) As soon as available, but in any event no later than 14
days after the end of each Fiscal Month, a Borrowing Base
Estimate containing a good faith preliminary estimate of the
Borrowing Base as of the end of the previous Fiscal Month.
-4-
<PAGE>
(b) As soon as available, but in any event within 20
Business Days after the end of each Fiscal Month, a Borrowing
Base Certificate certifying as to the Borrowing Base as of the
end of the previous Fiscal Month.
(c) As soon as available, but in any event no later than the
last day of each Fiscal Month, a Borrowing Base Estimate
containing a good faith estimate of the Borrowing Base as of the
end of the second week of such Fiscal Month.
(h) Section 7.7 is entirely amended, as follows:
-----------
Section 7.7 Capital Expenditures. The Borrower shall not, and
--------------------
shall not permit any of its Subsidiaries to, make or commit to make
any Capital Expenditures in an aggregate amount that exceeds (a) from
January 2, 2000 through and including December 30, 2000, $50,000,000,
provided, however, that no more than $25,000,000 of such permitted
-------- ------- ----
amount may be expended in any single Fiscal Quarter of the Borrower,
and (b) from December 31, 2000, through and including the Maturity
Date, $30,000,000 plus the amount by which $50,000,000 exceeds actual
Capital Expenditures made from January 2, 2000 through and including
December 30, 2000, provided, however, that no more than $15,000,000 of
-------- ------- ----
such permitted amount may be expended in any single Fiscal Quarter of
the Borrower.
(i) Clause (c) of Section 7.8 is entirely amended, as follows:
---------- -----------
(c) non-equity consideration paid to any Person in connection with the
redemption, contractual sinking fund payments or restructuring of the
Fieldcrest Cannon Subordinated Debentures (including fees and
expenses); provided, however, the Borrower shall not pay or make any
Restricted Payments permitted by this Section 7.8 unless there shall
-----------
exist no Default or Event of Default prior to or after giving effect
to any such proposed Restricted Payment.
(j) Section 8.1(c) is entirely amended, as follows:
--------------
(c) (i) The Borrower or any Subsidiary shall default in the
performance or observance of any agreement or covenant
contained in Article 7 hereof; or
---------
(ii) The Borrower or any Subsidiary shall default in the
performance or observance of any agreement or covenant
contained in Section 6.10 hereof and such default shall not
------------
be cured within two days after the earlier of notice from
the Administrative Agent thereof or actual notice thereof by
a Responsible Officer of the Borrower;
-5-
<PAGE>
(k) New Exhibits M-1 and M-2 are added in the form of, and all
------------ ---
references in the Credit Agreement to Exhibits M-1 and M-2 are hereby
------------ ---
deemed to be references to, the attached Exhibits M-1 and M-2.
------------ ---
(l) Exhibits D and G are amended and restated in the form of, and all
---------- -
references in the Credit Agreement to Exhibits D and G are hereby deemed to
---------- -
be references to, the attached Exhibits D and G.
---------- -
3. FINANCIAL COVENANTS. Notwithstanding anything contained in the Credit
-------------------
Agreement or any other Loan Document, the Borrower shall not be obligated to
comply, and the Lenders hereby waive compliance by the Borrower, with the
covenants set forth in Sections 7.11, 7.12 and 7.13 of the Credit Agreement with
respect to any relevant period ending on or after January 1, 2000; provided,
--------
however, that, in lieu of such covenants, the Borrower will not permit EBITDA
- -------
(plus all fees and expenses incurred in connection with the restructuring of any
Indebtedness of the Borrower and its Subsidiaries which have been deducted in
calculating EBITDA) for the periods set forth below to be less than the amount
set forth opposite each such period:
Period Amount
------ ------
3 months ended 4/1/00 $ 26,000,000
6 months ended 7/1/00 $ 59,000,000
9 months ended 9/30/00 $105,000,000
12 months ended 12/30/00 $147,000,000
12 months ended 3/31/01 $147,000,000
12 months ended 6/30/01 $160,000,000
12 months ended 9/29/01 $170,000,000
12 months ended 12/29/01 $180,000,000
4. AMENDMENT FEE. Borrower shall pay to the Administrative Agent, for the
-------------
pro rata benefit of the Lenders that execute and deliver this Amendment to the
Administrative Agent (or its counsel) not later than 5:00 p.m., Dallas time,
March 30, 2000, an amendment fee in an amount equal to the product of (a) 0.25%
multiplied by (b) an amount equal to such Lender's portion of the Commitment.
Such amendment fee shall be paid in immediately available funds and shall be
payable only if the conditions set forth in Section 8 of this Amendment have
---------
been satisfied and shall be due and payable to each Lender eligible for payment
pursuant to the preceding sentence no later than two Business Days after the
conditions set forth in Section 8 of this Amendment have been satisfied. The
---------
Borrower agrees that the failure to pay the amendment fee provided in this
Section 4 shall, after the expiration of any applicable grace period, be an
- ---------
Event of Default under Section 8.1(b)(ii) of the Credit Agreement.
------------------
5. COLLATERAL REDUCTION FEE. Within 30 Business Days after the Payment
------------------------
Date (as defined below) with respect to any cash consideration in excess of
$10,000,000, in the aggregate, paid or to be paid on or before January 31, 2002
to any Person in connection with the restructuring of the Fieldcrest Cannon
Subordinated Debentures (including fees and expenses),
-6-
<PAGE>
Borrower shall pay to the Administrative Agent, for the benefit of the Revolving
Lenders (as defined in the Intercreditor Agreement) and the Term Lenders (as
defined in the Intercreditor Agreement), each of whom shall receive their Pro
Rata (as defined in the Intercreditor Agreement) share thereof, a fee equal to
20% of such excess amount multiplied by a fraction, the numerator of which is
the number of days from the Payment Date through and including January 31, 2002,
and the denominator of which is 360. For purposes hereof, "Payment Date" shall
------------
mean the earlier of (a) the date upon which actual cash payment is made or (b)
the date upon which the Borrower or any of its Subsidiaries becomes obligated to
make such payment. So long as no Event of Default has occurred and is
continuing, the Borrower and its Subsidiaries shall be permitted to make all
scheduled payments of principal and interest provided for under the documents
evidencing the Subordinated Debt.
6. RELEASE.
-------
(a) The Borrower and each Guarantor hereby unconditionally and
irrevocably remises, acquits, and fully and forever releases and discharges
the Administrative Agent and the Lenders and all respective affiliates and
subsidiaries of the Administrative Agent and the Lenders, their respective
officers, servants, employees, agents, attorneys, financial advisors,
principals, directors and shareholders, and their respective heirs, legal
representatives, successors and assigns (collectively, the "Released Lender
---------------
Parties") from any and all claims, demands, causes of action, obligations,
-------
remedies, suits, damages and liabilities (collectively, the "Borrower
--------
Claims") of any nature whatsoever, whether now known, suspected or claimed,
------
whether arising under common law, in equity or under statute, which the
Borrower or any Guarantor ever had or now has against the Released Lender
Parties which may have arisen at any time on or prior to the date of this
Amendment and which were in any manner related to any of the Loan Documents
or the enforcement or attempted enforcement by the Administrative Agent or
the Lenders of rights, remedies or recourses related thereto.
(b) The Borrower and each Guarantor covenants and agrees never to
commence, voluntarily aid in any way, prosecute or cause to be commenced or
prosecuted against any of the Released Lender Parties any action or other
proceeding based upon any of the Borrower Claims which may have arisen at
any time on or prior to the date of this Amendment and were in any manner
related to any of the Loan Documents.
(c) The agreements of the Borrower and each Guarantor set forth in
this Section 6 shall survive termination of this Amendment and the other
---------
Loan Documents.
7. REPRESENTATIONS AND WARRANTIES. By its execution and delivery hereof,
------------------------------
the Borrower represents and warrants to the Lenders that, as of the date hereof:
(a) after giving effect to the waiver set forth in Section 1 of this
---------
Amendment, the representations and warranties contained in the Credit
Agreement and the other Loan
-7-
<PAGE>
Documents are true and correct on and as of the date hereof as if made on
and as of such date;
(b) after giving effect to the waiver set forth in Section 1 of this
---------
Amendment, no event has occurred and is continuing which constitutes an
Event of Default;
(c) the Borrower has full power and authority to execute and deliver
this Amendment, and this Amendment constitutes the legal, valid and binding
obligation of the Borrower, enforceable in accordance with its terms,
except as enforceability may be limited by applicable Debtor Relief Laws
and by general principles of equity (regardless of whether enforcement is
sought in a proceeding in equity or at law) and except as rights to
indemnity may be limited by federal or state securities laws;
(d) neither the execution, delivery and performance of this Amendment
nor the consummation of any transactions contemplated herein will conflict
with any Law, the articles of incorporation, bylaws or other governance
document of the Borrower or any of its Subsidiaries, or any indenture,
agreement or other instrument to which the Borrower or any of its
Subsidiaries or any of their respective property is subject; and
(e) no authorization, approval, consent, or other action by, notice
to, or filing with, any governmental authority or other Person (including
the Board of Directors of the Borrower or any Guarantor), is required for
the execution, delivery or performance by the Borrower of this Amendment or
the acknowledgment of this Amendment by any Guarantor.
8. CONDITIONS OF EFFECTIVENESS. This Amendment shall be effective as of
---------------------------
March 31, 2000, so long as each of the following conditions precedent shall have
been satisfied:
(a) the Administrative Agent shall receive counterparts of (i) this
Amendment and (ii) the Waiver and Seventh Amendment to Term Credit Agreement,
each executed by the Required Lenders (as defined in the Intercreditor
Agreement) and the Borrower and acknowledged by each Guarantor;
(b) the Administrative Agent shall receive counterparts of the Fifth
Amendment to Promissory Note, executed by the Borrower and Bank of America,
N.A., extending the maturity of the Overline Facility to the Maturity Date;
(c) the representations and warranties set forth in Section 7 of this
---------
Amendment shall be true and correct;
(d) all reasonable out-of-pocket fees and expenses in connection with the
Loan Documents, including this Amendment, including legal and other professional
fees and expenses incurred on or prior to the date of this Amendment by
Administrative Agent or any Lender,
-8-
<PAGE>
including, without limitation, the reasonable fees and expenses of Winstead
Sechrest & Minick P.C., Donohoe Jameson & Carroll and PricewaterhouseCoopers,
shall have been paid; and
(e) the Administrative Agent shall receive, in form and substance
satisfactory to the Administrative Agent and its counsel, such other documents,
certificates and instruments as the Administrative Agent shall reasonably
require.
9. GUARANTOR ACKNOWLEDGMENT. By signing below, each of the Guarantors (i)
------------------------
acknowledges, consents and agrees to the execution and delivery of this
Amendment, (ii) acknowledges and agrees that its obligations in respect of its
Subsidiary Guaranty are not released, diminished, waived, modified, impaired or
affected in any manner by this Amendment or any of the provisions contemplated
herein, (iii) ratifies and confirms its obligations under its Subsidiary
Guaranty, and (iv) acknowledges and agrees that it has no claims or offsets
against, or defenses or counterclaims to, its Subsidiary Guaranty as a result of
this Amendment.
10. BANK OF AMERICA CONSENT. Bank of America, N.A., in its capacity as
-----------------------
provider of the Overline Facility, hereby (i) agrees to this Amendment and
acknowledges that the waivers provided herein shall also be effective with
respect to the Overline Facility, and (ii) acknowledges that the maturity date
of the Overline Facility has been extended to the Maturity Date.
11. REFERENCE TO CREDIT AGREEMENT. Upon the effectiveness of this
-----------------------------
Amendment, each reference in the Credit Agreement to "this Agreement,"
"hereunder," or words of like import shall mean and be a reference to the Credit
Agreement, as affected and amended by this Amendment.
12. COUNTERPARTS; EXECUTION VIA FACSIMILE. This Amendment may be executed
-------------------------------------
in one or more counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument. This Amendment
may be validly executed and delivered by facsimile or other electronic
transmission.
13. GOVERNING LAW: BINDING EFFECT. This Amendment shall be governed by
-----------------------------
and construed in accordance with the laws of the State of Texas and shall be
binding upon the Borrower, the Administrative Agent, each Lender and their
respective successors and assigns.
14. HEADINGS. Section headings in this Amendment are included herein for
--------
convenience of reference only and shall not constitute a part of this Amendment
for any other purpose.
15. LOAN DOCUMENT. This Amendment is a Loan Document and is subject to
-------------
all provisions of the Credit Agreement applicable to Loan Documents, all of
which are incorporated in this Amendment by reference the same as if set forth
in this Amendment verbatim.
-9-
<PAGE>
16. NO ORAL AGREEMENTS. THIS WRITTEN AGREEMENT AND THE OTHER LOAN
------------------
DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.
================================================================================
REMAINDER OF PAGE LEFT INTENTIONALLY BLANK
================================================================================
-10-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as the
date first above written.
PILLOWTEX CORPORATION
Jaime Vasquez
Vice President and Treasurer
BANK OF AMERICA, N.A. (formerly known as
NationsBank, N.A., successor by merger to
NationsBank of Texas, N.A.), as Administrative
Agent and as a Lender, Swing Line Bank and Issuing
Bank
THE BANK OF NOVA SCOTIA
ATLANTA AGENCY
THE FIRST NATIONAL BANK OF CHICAGO
WELLS FARGO BANK (TEXAS), NATIONAL
ASSOCIATION
BANKBOSTON, N.A.
COMERICA BANK
CREDIT LYONNAIS - NEW YORK BRANCH
THE BANK OF TOKYO-MITSUBISHI, LTD.
BANK ONE, TEXAS, N.A.
BHF (USA) CAPITAL CORPORATION
FIRST UNION NATIONAL BANK
COOPERATIEVE CENTRALE RAIFFEISEN-
BOERENLEENBANK B.A., "RABOBANK
NEDERLAND", NEW YORK BRANCH
THE BANK OF NEW YORK
CREDIT INDUSTRIEL ET COMMERCIAL
Waiver and Seventh Amendment to Amended and Restated Credit Agreement
Signature Page
<PAGE>
BANK AUSTRIA CREDITANSTALT
CORPORATE FINANCE, INC.
FLEET BANK, N.A.
THE FUJI BANK, LTD.
NATIONAL BANK OF CANADA
NATIONAL CITY BANK OF KENTUCKY
THE PRUDENTIAL INSURANCE COMPANY OF
AMERICA
BANK POLSKA KASA OPIEKI, S.A., NEW YORK
BRANCH
GUARANTY FEDERAL BANK, F.S.B.
GENERAL ELECTRIC CAPITAL CORPORATION
SOCIETE GENERALE, SOUTHWEST AGENCY
CONSENTED TO BY:
KZH WATERSIDE LLC
SENIOR DEBT PORTFOLIO
By: Boston Management and Research
as Investment Advisor
AERIES FINANCE-II LTD.
BY: INVESCO Senior Secured Management, Inc.
as Sub-Managing Agent
CYPRESSTREE INVESTMENT PARTNERS I, LTD.
By: CypressTree Investment Management Company,
Inc., as Portfolio Manager
NORTH AMERICAN SENIOR FLOATING RATE FUND
By: CypressTree Investment Management Company,
Inc., as Portfolio Manager
Waiver and Seventh Amendment to Amended and Restated Credit Agreement
Signature Page
<PAGE>
CYPRESSTREE INVESTMENT MANAGEMENT COMPANY, INC.
As: Attorney-in-Fact and on behalf of First Allmerica
Financial Life Insurance Company as Portfolio Manager
VAN KAMPEN CLO I, LIMITED
By: VAN KAMPEN MANAGEMENT, INC.,
as Collateral Manager
BALANCED HIGH-YIELD FUND I LTD.
By: BHF (USA) CAPITAL CORPORATION, acting as
attorney-in-fact
INDOSUEZ CAPITAL FUNDING IIA, LIMITED
By: INDOSUEZ CAPITAL as Portfolio Advisor
VAN KAMPEN SENIOR INCOME TRUST
By:
---------------------------
INDOSUEZ CAPITAL FUNDING IV, L.P.
By: Indosuez Capital as Portfolio Advisor
CYPRESSTREE INSTITUTIONAL FUND, LLC
By: CypressTree Investment Management
Company, Inc., its Managing Member
CYPRESSTREE INVESTMENT FUND, LLC
By: CypressTree Investment Management
Company, Inc., its Managing Member
KZH CYPRESSTREE-1 LLC
OXFORD STRATEGIC INCOME FUND
By: Eaton Vance Management, as
Investment Advisor
EATON VANCE INSTITUTIONAL SENIOR LOAN FUND
By: Eaton Vance Management, as
Investment Advisor
VAN KAMPEN CLO II, LIMITED
By: Van Kampen Management, Inc.,
as Collateral Manager
CAPTIVA FINANCE, LTD.
Waiver and Seventh Amendment to Amended and Restated Credit Agreement
Signature Page
<PAGE>
BALANCED HIGH-YIELD FUND II LTD.
By: BHF (USA) CAPITAL CORPORATION,
acting as attorney-in-fact
FINOVA CAPITAL CORPORATION
THE DAI-ICHI KANGYO BANK
LIMITED, NEW YORK BRANCH
Waiver and Seventh Amendment to Amended and Restated Credit Agreement
Signature Page
<PAGE>
MOUNTAIN CAPITAL CLO I LTD.
MARINER LDC
LEHMAN COMMERCIAL PAPER, INC.
PRESIDENT & FELLOWS OF HARVARD COLLEGE
By: Regiment Capital Management, LLC,
as its Investment Advisor
By: Regiment Capital Advisors, LLC,
its Manager and pursuant to delegated authority
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.
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.
Jaime Vasquez
Vice President and Treasurer
Waiver and Seventh Amendment to Amended and Restated Credit Agreement
Signature Page
<PAGE>
EXHIBIT D
COMPLIANCE CERTIFICATE
----------------------
To: Bank of America, N.A., as Administrative Agent
From: Pillowtex Corporation
Date: , .
---------------------- ---------
Re: Amended and Restated Credit Agreement, dated as of December 19, 1997 (as
amended, the "Credit Agreement"), among Pillowtex Corporation ( the
"Borrower"), certain Lenders, and Bank of America, N.A., as Administrative
Agent
This Compliance Certificate is delivered pursuant to Section 6.3 of the
Credit Agreement. All capitalized terms used herein and defined in the Credit
Agreement shall be used as so defined. For purposes hereof, section references
herein related to sections of the Credit Agreement and bracketed amounts or
ratios refer to the maximum or minimum amounts or ratios required under the
relevant sections of the Credit Agreement.
I. EBITDA Covenant Calculation
---------------------------
EBITDA, calculated for the ____________________ /1/ period
ending on the date of calculation
1. Earnings from Operations $
-------------
2. Depreciation $
-------------
3. Amortization $
-------------
4. Other non-cash charges (excluding
any such non-cash charge to the extent
it represents an accrual of or reserve for
cash charges in any future period or
amortization of a prepaid cash expense
that was paid in a prior period) to the
extent included in determining Earnings
from Operations $
-------------
5. EBITDA [(1) + (2) + (3) + (4)] $
-------------
6. Fees and expenses incurred
in connection with the restructuring of
- -----------------------
/1/ See Table 1
<PAGE>
Indebtedness $
------------
7. Adjusted EBITDA [(5) + (6)] $
------------
8. Minimum Required $ 1
------------
II. Certain Other Covenant Calculations. Demonstration of compliance with
certain covenants contained in Article 7 of the Credit Agreement for the
period ended .
------------------------------------------------------------
(a) Section 7.1(c). Indebtedness of the Borrower and $
--------------- ------------
its Domestic Subsidiaries, including in respect of
Capitalized Lease Obligations, incurred to purchase,
or to finance the purchase of, assets which
constitute property, plant and equipment
1. Maximum in aggregate principal amount $35,515,000
outstanding, when aggregated with
Section 7.1(o)
--------------
2. Actual $
------------
3. Difference [(1) - (2)] $
------------
(b) Section 7.1(o) Other Indebtedness of the Borrower and
--------------
its Domestic Subsidiaries
1. Maximum in aggregate principal amount $35,515,000
Outstanding, when aggregated with
Section 7.1(c)
--------------
2. Actual $
------------
3. Difference [(1) - (2)] $
------------
(c) Section 7.5(c) Net Cash Proceeds from the disposition of
--------------
assets (to the extent not applied pursuant to Section
-------
2.5(b)) outstanding and pending reinvestment pursuant to
-------
Section 7.5(c)
--------------
1. Maximum at any Time $1,000,000
2. Actual $
------------
3. Difference [(1) - (2)] $
------------
(d) Section 7.7 Capital Expenditures
-----------
1. Actual amount expended previous quarter $
------------
<PAGE>
/2/
2. Maximum Allowed $
------------
3. Difference [(1) - (2)] $
------------
4. Actual amount expended since January 2, 2000
or December 31, 2000, whichever is most
recent relativeto end of previous quarter $
------------
/3/
5. Maximum Allowed $
------------
6. Difference [(4) - (5)] $
------------
III. Tables.
-------
Table 1
-------
Period Minimum Required
------ ----------------
3 months ended 4/1/00 $ 26,000,000
6 months ended 7/1/00 $ 59,000,000
9 months ended 9/30/00 $105,000,000
12 months ended 12/30/00 $147,000,000
12 months ended 3/31/01 $147,000,000
12 months ended 6/30/01 $160,000,000
12 months ended 9/29/01 $170,000,000
12 months ended 12/29/01 $180,000,000
Table 2
-------
For Quarters Ending Maximum Allowed
- -------------------- ---------------
4/1/00, 7/1/00, 9/30/00,
and 12/30/00 $ 25,000,000
3/31/01, 6/30/01, 9/29/01,
and 12/29/01 $ 15,000,000
Table 3
-------
Period Maximum Allowed
- ------- ---------------
1/2/00 through 12/30/00 $ 50,000,000
12/31/00 through 1/31/02 $30,000,000 plus the amount by
which $50,000,000 exceeds actual
- -------------------
/2/ See Table 2
/3/ See Table 3
<PAGE>
expenditures made from 1/2/00
through 12/30/00
IV. Compliance Certificate. The undersigned hereby certifies to you as
----------------------
follows:
(a) I am the duly elected qualified and acting chief financial officer [or
chief accounting officer] of the Borrower.
(b) I have reviewed the provisions of the Credit Agreement and the other
Loan Documents, and a review of the activities of Borrower during the
period from _______________________, ______ to ______________________,
_______ (the "Reporting Period") has been made under my supervision
with a view toward determining whether, during the Reporting Period,
the Borrower has kept, observed, performed and fulfilled all its
obligations under the Credit Agreement and such other Loan Documents.
(c) The representations and warranties made in the Loan Documents are true
and correct in all material respects as of the date hereof as though
made at and as of the date hereof, except for such representations and
warranties which relate to a particular date or which fail to be true
and correct as a result of events or occurrences permitted under the
Loan Documents, and no Default or Event of Default has occurred or is
continuing.
This Compliance Certificate is executed and delivered on the ________ day
of ________________, _______.
PILLOWTEX CORPORATION
By:
------------------------------------
Name:
------------------------------
Title:
------------------------------
<PAGE>
EXHIBIT G
NOTICE OF BORROWING
-------------------
Bank of America, N.A., as
the Administrative Agent
901 Main Street
Dallas, Texas 75202
Attention: Molly Oxford
Re: Pillowtex Corporation
---------------------
Ladies and Gentlemen:
The undersigned, an Authorized Signatory of Pillowtex Corporation, pursuant
to the Amended and Restated Credit Agreement, dated as of December 19, 1997,
among the undersigned, the financial institutions party thereto and Bank of
America, N.A., as the Administrative Agent (said Agreement, as it may be
amended, supplemented or otherwise modified from time to time, being the "Credit
Agreement" and capitalized terms not defined herein but defined therein being
used herein as therein defined), hereby gives you notice, irrevocably, pursuant
to Section 2.2 of the Credit Agreement, that the undersigned hereby requests a
Revolving Credit Advance under the Credit Agreement, and in that connection sets
forth below the information relating to such borrowing (the "Proposed
Borrowing") as required by Section 2.2 of the Credit Agreement:
(i) The Business Day of the Proposed Borrowing is ____________________,
_______.
(ii) The aggregate amount of the Revolving Credit Advances constituting the
Proposed Borrowing is $______________, of which amount
$________________ consists of Base Rate Advances,
$_____________________ consists of LIBOR Rate Advances having an
initial Interest Period of ___________ 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 of the Borrower contained in Article
4 of the Credit Agreement and in each of the other Loan Documents to which
it is a party (other than those representations and warranties that
specifically relate to an earlier date) are true and correct as though made
on and as of such date, except as otherwise expressly provided in Section
4.2 of the Credit Agreement;
<PAGE>
(B) the sum of the principal amount of all outstanding (i) Revolving Credit
Advances and (ii) Reimbursement Obligations does not exceed the lesser of
(a) the Borrowing Base or (b) the Commitment; and
(C) no Default or Event of Default is continuing, or will result from the
Proposed Borrowing.
Very truly yours,
PILLOWTEX CORPORATION
By:
------------------------------------
Name:
------------------------------
Title:
------------------------------
<PAGE>
EXHIBIT M-1
-----------
BORROWING BASE CERTIFICATE
--------------------------
ADMINISTRATIVE AGENT: Bank of America, N.A. Date:_______________
BORROWER: Pillowtex Corporation
This Borrowing Base Certificate, prepared as of ___________, is executed
and delivered by Borrower pursuant to that certain Amended and Restated Credit
Agreement dated as of December 19, 1997 among the Borrower, each of the banks or
other lending institutions which is or may from time to time become a signatory
thereto and any successors or permitted assigns thereof ("Lenders") and
-------
Administrative Agent (as amended, supplemented or modified from time to time,
the "Credit Agreement"). All terms used herein shall have the meanings assigned
----------------
to them in the Credit Agreement.
Borrower represents and warrants to Administrative Agent that all
information contained herein is true, correct, and complete, and that the total
Eligible Accounts and total Eligible Inventory referred to below represent the
Eligible Accounts and Eligible Inventory that qualify for purposes of
determining the Borrowing Base under the Credit Agreement.
ELIGIBLE ACCOUNTS OF THE OBLIGORS:
1. Accounts (ending balance for period ended ____________, 20__) $_________
2. Less: Accounts or any portion of any account not paid
within 90 days after original date of invoice................ $_________
3. Total Eligible Accounts (Line 1 minus Line 2) ............... $_________
ELIGIBLE INVENTORY OF THE OBLIGORS:
4. All inventory................................................ $_________
5. Less: Reserves against inventory............................. $_________
6. Total Eligible Inventory (Line 4 minus Line 5)............... $_________
BORROWING BASE:
7. Total Eligible Accounts (Line 3)............................. $_________
8. Total Eligible Inventory (Line 6)............................ $_________
9. 80% of Line 7................................................ $_________
10. 45% of Line 8................................................ $_________
11. Borrowing Base: Sum of Lines 9 and 10........................ $_________
12. Commitment as of the date of this certificate................ $_________
13. Lesser of Line 11 or Line 12................................. $_________
14. Outstanding Revolving Credit Advances........................ $_________
15. Outstanding Reimbursement Obligations........................ $_________
16. Revolving Availability or amount to be paid if negative
<PAGE>
[(Line 13 minus Line 14 minus Line 15].................... $_________
Date: _______________ PILLOWTEX CORPORATION
By:
------------------------------------
Name:
------------------------------
Title:
------------------------------
____________________________
/4/
Must be a Responsible Officer of the Borrower
<PAGE>
EXHIBIT M-2
-----------
BORROWING BASE ESTIMATE
-----------------------
ADMINISTRATIVE AGENT: Bank of America, N.A. Date:_______________
BORROWER: Pillowtex Corporation
This Borrowing Base Estimate, prepared as of ___________, is executed and
delivered by Borrower pursuant to that certain Amended and Restated Credit
Agreement dated as of December 19, 1997 among the Borrower, each of the banks or
other lending institutions which is or may from time to time become a signatory
thereto and any successors or permitted assigns thereof ("Lenders") and
-------
Administrative Agent (as amended, supplemented or modified from time to time,
the "Credit Agreement"). All terms used herein shall have the meanings assigned
----------------
to them in the Credit Agreement.
Borrower represents and warrants to Administrative Agent that the total
Eligible Accounts and total Eligible Inventory referred to below represent the
Borrower's good faith estimate of the Eligible Accounts and Eligible Inventory
that qualify for purposes of determining the Borrowing Base under the Credit
Agreement. Such estimates have been prepared based on all information available
to the Borrower at the time of preparation of this report and, to the best of
the Borrower's knowledge based on such information, are true, correct, and
complete.
ELIGIBLE ACCOUNTS OF THE OBLIGORS:
1. Accounts (ending balance for period ended ____________, 20__) $_________
2. Less: Accounts or any portion of any account not paid
within 90 days after original date of invoice................ $_________
3. Total Eligible Accounts (Line 1 minus Line 2) ............... $_________
ELIGIBLE INVENTORY OF THE OBLIGORS:
4. All inventory................................................ $_________
5. Less: Reserves against inventory............................. $_________
6. Total Eligible Inventory (Line 4 minus Line 5)............... $_________
BORROWING BASE:
7. Total Eligible Accounts (Line 3)............................. $_________
8. Total Eligible Inventory (Line 6)............................ $_________
9. 80% of Line 7................................................ $_________
10. 45% of Line 8................................................ $_________
11. Borrowing Base: Sum of Lines 9 and 10........................ $_________
12. Commitment as of the date of this estimate................... $_________
13. Lesser of Line 11 or Line 12................................. $_________
14. Outstanding Revolving Credit Advances........................ $_________
<PAGE>
15. Outstanding Reimbursement Obligations........................ $_________
16. Revolving Availability or amount to be paid if negative
[(Line 13 minus Line 14 minus Line 15]....................... $_________
Date: _______________ PILLOWTEX CORPORATION
By:
---------------------------------
Name:
------------------------------
Title:
------------------------------
____________________________
/5/
Must be a Responsible Officer of the Borrower
<PAGE>
EXHIBIT 10.15
SIXTH AMENDMENT AND WAIVER TO
TERM CREDIT AGREEMENT
THIS SIXTH AMENDMENT AND WAIVER TO TERM CREDIT AGREEMENT (this "Waiver"),
dated as of February 15, 2000, is entered into among PILLOWTEX CORPORATION, a
Texas corporation (the "Borrower"), the institutions listed on the signature
pages hereof that are parties to the Credit Agreement defined below
(collectively, the "Lenders"), and BANK OF AMERICA, N.A. (formerly known as
NationsBank, N.A., successor by merger to NationsBank of Texas, N.A.), as
Administrative Agent for itself and the Lenders (in said capacity, the
"Administrative Agent").
BACKGROUND
----------
A. The Borrower, the Lenders and the Administrative Agent are parties to
that certain Term Credit Agreement, dated as of December 19, 1997 (as amended
through the date hereof, the "Credit Agreement"). Terms defined in the Credit
Agreement and not otherwise defined herein shall be used herein as defined in
the Credit Agreement.
B. The Borrower has requested a waiver of certain Events of Default under
the Credit Agreement.
NOW, THEREFORE, in consideration of the covenants, conditions and
agreements hereinafter set forth, and for other good and valuable consideration,
the receipt and adequacy of which are all hereby acknowledged, the Borrower, the
Lenders and the Administrative Agent covenant and agree as follows:
1. WAIVER. Subject to the satisfaction of the conditions of effectiveness
-------
set forth in Section 10 of this Waiver and the other conditions contained
----------
herein, the Lenders hereby waive (a) the Event of Default with respect to
Section 7.11 of the Credit Agreement which occurred as a result of the failure
- ------------
of the Borrower to comply with the required Leverage Ratio at the end of the
Fiscal Quarter ended October 2, 1999, (b) the Event of Default which occurred as
a result of the failure of the Borrower to cause a lien to be granted to the
Administrative Agent, for the benefit of the Lenders, on certain leasehold
property in Phenix City, Alabama, on or before January 15, 2000, and (c) any
Events of Default with respect to Sections 7.11, 7.12, and 7.13 of the Credit
------------- ---- ----
Agreement which may occur as a result of the failure of the Borrower to comply
with the required Leverage Ratio, Fixed Charge Coverage Ratio, and Net Worth at
the end of the Fiscal Quarter ended January 1, 2000 (the "Existing Events of
------------------
Default"). The waiver provided in this Section 1 shall not be and shall not be
- ------- ---------
deemed to be a waiver of any Events of Default under the Credit Agreement other
than the Existing Events of Default.
2. TERMINATION. The Waiver described in Section 1 above shall terminate
----------- ---------
automatically without any action by the Administrative Agent, the Lenders or any
other Person and be of no further force or effect upon termination of the Waiver
Period. For purposes hereof, the
<PAGE>
"Waiver Period" shall mean the period commencing on the effective date of this
-------------
Waiver and terminating upon the earliest to occur of (a) March 31, 2000, (b) the
declaration or payment by the Borrower of any cash dividends in respect of any
Capital Stock of the Borrower, or (c) the occurrence of any Event of Default
other than the Existing Events of Default.
3. AMENDMENTS TO CREDIT AGREEMENT. The Credit Agreement is hereby amended
------------------------------
as follows:
(a) Section 1.1 is amended by entirely amending the following
-----------
definition:
"Fieldcrest Cannon Subordinated Debenture Reserve" means (a) for the
------------------------------------------------
period from and including October 8, 1999 through and including March 31,
2000, zero, and (b) for the period from and including April 1, 2000 and
thereafter, an amount equal to 50% of the aggregate amount of cash
consideration that may be requested, at any time of determination, by the
holders of Fieldcrest Cannon Subordinated Debentures in respect of a
conversion thereof.
(b) Section 10.1(f) is hereby amended by inserting the text, ",
---------------
financial advisors," immediately following the word, "attorneys" in the
first sentence thereof.
4. BORROWING BASE. Notwithstanding anything in the Credit Agreement or
--------------
any other Loan Document, commencing on the date of this Waiver and continuing at
all times thereafter the Borrower shall not permit the sum of (a) the
outstanding principal amount of all Revolving Credit Advances, Facility A Term
Loan Advances and Facility B Term Loan Advances and (b) without duplication, the
Reimbursement Obligations, to exceed (i) the book value of the Liquid Assets of
the Borrower and each other Obligor, provided that an Event of Default shall
-------- ----
arise from Borrower's failure to comply with this clause (i) only if such
----------
failure continues for seven days after a Responsible Officer of Borrower knows
or reasonably should know of such failure, or (ii) 102.50% of the book value of
the Liquid Assets of the Borrower and each other Obligor. For purposes hereof,
"Liquid Assets" shall mean net accounts receivable, net inventory and cash
balances.
5. CAPITAL EXPENDITURES. Notwithstanding anything in the Credit Agreement
--------------------
or any other Loan Document, during the Waiver Period the Borrower shall not, and
shall not permit any of its Subsidiaries to, make any Capital Expenditures in an
aggregate amount that exceeds $8,000,000.
6. WAIVER FEE. Borrower shall pay to the Administrative Agent, for the
----------
pro rata benefit of the Lenders that execute and deliver this Waiver to the
Administrative Agent (or its counsel) not later than 5:00 p.m., Dallas time,
February 15, 2000, a waiver fee in an amount equal to the product of (a) 0.15%
multiplied by (b) an amount equal to such Lender's portion of the Commitment.
Such waiver fee shall be paid in immediately available funds and shall be
payable only if the conditions set forth in Section 10 of this Waiver have been
----------
satisfied and shall be due and payable to each Lender eligible for payment
pursuant to the preceding sentence no later than two
-2-
<PAGE>
Business Days after the conditions set forth in Section 10 of this Waiver have
----------
been satisfied. The Borrower agrees that the failure to pay the waiver fee
provided in this Section 6 shall, after the expiration of any applicable grace
---------
period, be an Event of Default under Section 8.1(b)(ii) of the Credit Agreement.
------------------
7. OVERLINE FACILITY. During the Waiver Period, the Borrower shall not
-----------------
make any payments or prepayments of principal owing under the Overline Facility.
8. RELEASE.
-------
(a) The Borrower and each Guarantor hereby unconditionally and
irrevocably remises, acquits, and fully and forever releases and discharges
the Administrative Agent and the Lenders and all respective affiliates and
subsidiaries of the Administrative Agent and the Lenders, their respective
officers, servants, employees, agents, attorneys, principals, directors and
shareholders, and their respective heirs, legal representatives, successors
and assigns (collectively, the "Released Lender Parties") from any and all
-----------------------
claims, demands, causes of action, obligations, remedies, suits, damages
and liabilities (collectively, the "Borrower Claims") of any nature
---------------
whatsoever, whether now known, suspected or claimed, whether arising under
common law, in equity or under statute, which the Borrower or any Guarantor
ever had or now has against the Released Lender Parties which may have
arisen at any time on or prior to the date of this Waiver and which were in
any manner related to any of the Loan Documents or the enforcement or
attempted enforcement by the Administrative Agent or the Lenders of rights,
remedies or recourses related thereto.
(b) The Borrower and each Guarantor covenants and agrees never to
commence, voluntarily aid in any way, prosecute or cause to be commenced or
prosecuted against any of the Released Lender Parties any action or other
proceeding based upon any of the Borrower Claims which may have arisen at
any time on or prior to the date of this Waiver and were in any manner
related to any of the Loan Documents.
(c) The agreements of the Borrower and each Guarantor set forth in
this Section 8 shall survive termination of this Waiver and the other Loan
---------
Documents.
9. REPRESENTATIONS AND WARRANTIES. By its execution and delivery hereof,
------------------------------
the Borrower represents and warrants to the Lenders that, as of the date hereof:
(a) after giving effect to the waiver set forth in Section 1 of this
---------
Waiver, the representations and warranties contained in the Credit
Agreement and the other Loan Documents are true and correct on and as of
the date hereof as if made on and as of such date;
(b) after giving effect to the waiver set forth in Section 1 of this
---------
Waiver, no event has occurred and is continuing which constitutes an Event
of Default;
-3-
<PAGE>
(c) the Borrower has full power and authority to execute and deliver
this Waiver, and this Waiver constitutes the legal, valid and binding
obligation of the Borrower, enforceable in accordance with its terms,
except as enforceability may be limited by applicable Debtor Relief Laws
and by general principles of equity (regardless of whether enforcement is
sought in a proceeding in equity or at law) and except as rights to
indemnity may be limited by federal or state securities laws;
(d) neither the execution, delivery and performance of this Waiver
nor the consummation of any transactions contemplated herein will conflict
with any Law, the articles of incorporation, bylaws or other governance
document of the Borrower or any of its Subsidiaries, or any indenture,
agreement or other instrument to which the Borrower or any of its
Subsidiaries or any of their respective property is subject; and
(e) no authorization, approval, consent, or other action by, notice
to, or filing with, any governmental authority or other Person (including
the Board of Directors of the Borrower or any Guarantor), is required for
the execution, delivery or performance by the Borrower of this Waiver or
the acknowledgment of this Waiver by any Guarantor.
10. CONDITIONS OF EFFECTIVENESS. This Waiver shall be effective as of
---------------------------
February 15, 2000, so long as each of the following conditions precedent shall
have been satisfied:
(a) the Administrative Agent shall receive counterparts of (i) this Waiver
and (ii) the Sixth Amendment and Waiver to Amended and Restated Credit
Agreement, each executed by the Required Lenders (as defined in the
Intercreditor Agreement) and the Borrower and acknowledged by each Guarantor;
(b) the Administrative Agent shall receive counterparts of the Fourth
Amendment to Promissory Note, executed by the Borrower and Bank of America,
N.A., extending the maturity of the Overline Facility to the end of the Waiver
Period;
(c) the representations and warranties set forth in Section 9 of this
---------
Waiver shall be true and correct;
(d) all reasonable out-of-pocket fees and expenses in connection with the
Loan Documents, including this Waiver, including legal and other professional
fees and expenses incurred on or prior to the date of this Waiver by
Administrative Agent or any Lender, including, without limitation, the
reasonable fees and expenses of Winstead Sechrest & Minick P.C. and
PricewaterhouseCoopers, shall have been paid; and
(e) the Administrative Agent shall receive, in form and substance
satisfactory to the Administrative Agent and its counsel, such other documents,
certificates and instruments as the Administrative Agent shall reasonably
require.
-4-
<PAGE>
11. GUARANTOR ACKNOWLEDGMENT. By signing below, each of the Guarantors
------------------------
(i) acknowledges, consents and agrees to the execution and delivery of this
Waiver, (ii) acknowledges and agrees that its obligations in respect of its
Subsidiary Guaranty are not released, diminished, waived, modified, impaired or
affected in any manner by this Waiver or any of the provisions contemplated
herein, (iii) ratifies and confirms its obligations under its Subsidiary
Guaranty, and (iv) acknowledges and agrees that it has no claims or offsets
against, or defenses or counterclaims to, its Subsidiary Guaranty as a result of
this Waiver.
12. BANK OF AMERICA CONSENT. Bank of America, N.A., in its capacity as
-----------------------
provider of the Overline Facility, hereby (i) agrees to this Waiver and
acknowledges that the waivers provided herein shall also be effective with
respect to the Overline Facility, (ii) agrees that it will not accept any
payment of principal under the Overline Facility during the Waiver Period, and
(iii) acknowledges that the maturity date of the Overline Facility has been
extended to the termination of the Waiver Period.
13. REFERENCE TO CREDIT AGREEMENT. Upon the effectiveness of this Waiver,
-----------------------------
each reference in the Credit Agreement to "this Agreement," "hereunder," or
words of like import shall mean and be a reference to the Credit Agreement, as
affected and amended by this Waiver.
14. COUNTERPARTS; EXECUTION VIA FACSIMILE. This Waiver may be executed in
-------------------------------------
one or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument. This Waiver may be
validly executed and delivered by facsimile or other electronic transmission.
15. GOVERNING LAW: BINDING EFFECT. This Waiver shall be governed by and
-----------------------------
construed in accordance with the laws of the State of Texas and shall be binding
upon the Borrower, the Administrative Agent, each Lender and their respective
successors and assigns.
16. HEADINGS. Section headings in this Waiver are included herein for
--------
convenience of reference only and shall not constitute a part of this Waiver for
any other purpose.
17. LOAN DOCUMENT. This Waiver is a Loan Document and is subject to all
-------------
provisions of the Credit Agreement applicable to Loan Documents, all of which
are incorporated in this Waiver by reference the same as if set forth in this
Waiver verbatim.
18. NO ORAL AGREEMENTS. THIS WRITTEN AGREEMENT AND THE OTHER LOAN
------------------
DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.
================================================================================
REMAINDER OF PAGE LEFT INTENTIONALLY BLANK
================================================================================
-5-
<PAGE>
PILLOWTEX CORPORATION
By: Jaime Vasquez
Title: Vice President/Treasurer
BANK OF AMERICA, N.A. (formerly
known as NationsBank, N.A., successor by
merger to NationsBank of Texas, N.A.), as
Administrative Agent and as a Lender, Swing
Line Bank and Issuing Bank
By: William E. Livingstone, IV
Title: Managing Director
THE BANK OF NOVA SCOTIA
ATLANTA AGENCY
By: Peiter J. Van Schaick
Title: Relationship Manager
THE FIRST NATIONAL BANK
OF CHICAGO
By: Randall B. Durant
Title: First Vice President
WELLS FARGO BANK (TEXAS),
NATIONAL ASSOCIATION
By: Roger Fruenat
Title: Vice President
COMERICA BANK
By: Mark B. Grover
Title: Vice President
CREDIT LYONNAIS - NEW YORK BRANCH
By: John-Charles Van Essche
Title: Vice President
-6-
<PAGE>
THE BANK OF TOKYO-MITSUBISHI, LTD.
By: John W. McGhee
Title: Vice President & Manager
BANK ONE, TEXAS, N.A.
By: Randall B. Durant
Title: First Vice President
BHF (USA) CAPITAL CORPORATION
By: Dan Dobrjanskyj
Title: Assistant Vice President
By: Chris Yu
Title: Associate
FIRST UNION NATIONAL BANK
By: Ron R. Ferguson
Title: Senior Vice President
COOPERATIEVE CENTRALE RAIFFEISEN-
BOERENLEENBANK B.A., "RABOBANK
NEDERLAND", NEW YORK BRANCH
By: Ian Reece
Title: Senior Credit Officer
By: Richard Matthews
Title: Vice President
THE BANK OF NEW YORK
By: Albert R. Taylor
Title: Vice President
CREDIT INDUSTRIEL ET COMMERCIAL
By: Anthony Rock
Title: Vice President
-7-
<PAGE>
By: Marcus Edward
Title: Vice President
BANK AUSTRIA CREDITANSTALT
CORPORATE FINANCE, INC.
By: Richard W. Varalla
Title: Senior Associate
By: Stephen W. Hipp
Title: Senior Associate
THE FUJI BANK, LTD.
By: John D. Doyle
Title: Vice President & Manager
NATIONAL BANK OF CANADA
By: Bill Handley
Title: Vice President
By: (signature illegible)
Title: Vice President & Manager
NATIONAL CITY BANK OF KENTUCKY
By: Jeffrey C. Geeding
Title: Senior Vice President
THE PRUDENTIAL INSURANCE
COMPANY OF AMERICA
By: B. Ross Smead
Title: Vice President
BANK POLSKA KASA OPIEKI, S.A.,
NEW YORK BRANCH
By: Hussein B. El-Tawil
Title: Vice President
-8-
<PAGE>
GUARANTY FEDERAL BANK, F.S.B.
By: Robert S. Hays
Title: Senior Vice President
GENERAL ELECTRIC
CAPITAL CORPORATION
By: Thomas E. Johnstone
Title:
SOCIETE GENERALE, SOUTHWEST
AGENCY
By: Robert Petersen
Title: Director
CONSENTED TO BY:
KZH WATERSIDE LLC
By: Susan Lee
Title: Authorized Agent
SENIOR DEBT PORTFOLIO
By: Boston Management and Research
as Investment Advisor
By: Scott H. Page
Title: Vice President
AERIES FINANCE-II LTD.
By: INVESCO Senior Secured Management, Inc.
as Sub-Managing Agent
By: (signature illegible)
Title: Vice President
CYPRESSTREE INVESTMENT PARTNERS I, LTD.,
By: CypressTree Investment Management
-9-
<PAGE>
Company, Inc., as Portfolio Manager
By: Jeffrey W. Hener
Title: Principal
NORTH AMERICAN SENIOR FLOATING RATE FUND
By: Cypress Tree Investment Management Company,
Inc., as Portfolio Manager
By: Jeffrey Hener
Title: Principal
CYPRESSTREE INVESTMENT MANAGEMENT COMPANY, INC.
As: Attorney-in-Fact and on behalf of First Allmerica
Financial Life Insurance Company as Portfolio Manager
By: Jeffrey W. Hener
Title: Principal
VAN KAMPEN CLO I, LIMITED
By: VAN KAMPEN MANAGEMENT, INC.,
as Collateral Manager
By: Darvin D. Pierce
Title: Vice President
BALANCED HIGH-YIELD FUND I LTD.
By: BHF (USA) CAPITAL CORPORATION, acting as
attorney-in-fact
By: Dan Dobrjanskyj
Title: Assistant Vice President
By: Chris Yu
Title: Associate
INDOSUEZ CAPITAL FUNDING IIA, LIMITED
By: INDOSUEZ CAPITAL as Portfolio Manager
By: Melissa Marano
Title: Vice President
-10-
<PAGE>
VAN KAMPEN SENIOR INCOME TRUST
By: Van Kampen Investment Advisory Corp.
By: Darvin D. Pierce
Title: Vice President
INDOSUEZ CAPITAL FUNDING IV, L.P.
By: Indosuez Capital as Portfolio Manager
By: Melissa Marano
Title: Vice President
CYPRESSTREE INSTITUTIONAL FUND, LLC
By: CypressTree Investment Management
Company, Inc., its Managing Member
By: Jeffrey W. Hener
Title: Principal
CYPRESSTREE INVESTMENT FUND, LLC
By: CypressTree Investment Management
Company, Inc., its Managing Member
By: Jeffrey W. Hener
Title: Principal
KZH-CYPRESSTREE-1 LLC
By: Susan Lee
Title: Authorized Agent
OXFORD STRATEGIC INCOME FUND
By: Eaton Vance Management, as
Investment Advisor
By: Scott H. Page
Title: Vice President
EATON VANCE INSTITUTIONAL SENIOR LOAN FUND
By: Eaton Vance Management, as
Investment Advisor
By: Scott H. Page
-11-
<PAGE>
Title: Vice President
VAN KAMPEN CLO II, LIMITED
By: Van Kampen Management, Inc.,
as Collateral Manager
By: Darvin D. Pierce
Title: Vice President
CAPTIVA FINANCE, LTD.
By: David Byer
Title: Director
BALANCED HIGH-YIELD FUND II LTD.
By: BHF (USA) CAPITAL CORPORATION
acting as attorney-in-fact
By: Dan Dobrjanskyj
Title: Assistant Vice President
By: Chris Yu
Title: Associate
FINOVA CAPITAL CORPORATION
By: (signature illegible)
Title: Authorized Signer
THE DAI-ICHI KANGYO BANK
LIMITED, NEW YORK BRANCH
By: Ronald Wolinsky
Title: Vice President & Group Leader
MOUNTAIN CAPITAL CLO I LTD.
By: Darren P. Riley
Title: Director
MARINER LDC
By: Charles R. Howe, II
-12-
<PAGE>
Title: Director
LEHMAN COMMERCIAL PAPER, INC.
By: Steven Pomerantz
Title:
PRESIDENT & FELLOWS OF HARVARD
COLLEGE
By: Regiment Capital Management, LLC
as its Investment Advisor
By: Regiment Capital Advisors, LLC
its Manager and pursuant to delegated
authority
By: Timothy Peterson
Title: President
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.
AMOSKEAG COMPANY
AMOSKEAG MANAGEMENT CORPORATION
DOWNEAST SECURITIES CORPORATION
BANGOR INVESTMENT COMPANY
MOORE'S FALLS CORPORATION
-13-
<PAGE>
THE LESHNER CORPORATION
LESHNER OF CALIFORNIA, INC.
OPELIKA INDUSTRIES, INC.
By: Jaime Vasquez
Title: Vice President
-14-
<PAGE>
EXHIBIT 10.16
WAIVER AND SEVENTH AMENDMENT TO
TERM CREDIT AGREEMENT
THIS WAIVER AND SEVENTH AMENDMENT TO TERM CREDIT AGREEMENT (this
"Amendment"), dated as of March 31, 2000, is entered into among PILLOWTEX
CORPORATION, a Texas corporation (the "Borrower"), the institutions listed on
the signature pages hereof that are parties to the Credit Agreement defined
below (collectively, the "Lenders"), and BANK OF AMERICA, N.A. (formerly known
as NationsBank, N.A., successor by merger to NationsBank of Texas, N.A.), as
Administrative Agent for itself and the Lenders (in said capacity, the
"Administrative Agent").
BACKGROUND
----------
A. The Borrower, the Lenders and the Administrative Agent are parties to
that certain Term Credit Agreement, dated as of December 19, 1997 (as amended
through the date hereof, the "Credit Agreement"). Terms defined in the Credit
Agreement and not otherwise defined herein shall be used herein as defined in
the Credit Agreement.
B. The Borrower, the Lenders and the Administrative Agent desire to make
certain amendments to the Credit Agreement and certain other loan documents.
C. The Borrower has requested a waiver of existing Events of Default under
the Credit Agreement.
NOW, THEREFORE, in consideration of the covenants, conditions and
agreements hereinafter set forth, and for other good and valuable consideration,
the receipt and adequacy of which are all hereby acknowledged, the Borrower, the
Lenders and the Administrative Agent covenant and agree as follows:
1. WAIVER. Subject to the satisfaction of the conditions of effectiveness
------
set forth in Section 8 of this Amendment and the other conditions contained
----------
herein, the Lenders hereby waive (a) the Events of Default with respect to
Section 7.11 of the Credit Agreement which occurred as a result of the failure
- ------------
of the Borrower to comply with the required Leverage Ratio at the end of the
Fiscal Quarters ended October 2, 1999 and January 1, 2000, and (b) the Events of
Default with respect to Sections 7.12 and 7.13 of the Credit Agreement which
------------- ----
occurred as a result of the failure of the Borrower to comply with the required
Fixed Charge Coverage Ratio and Net Worth at the end of the Fiscal Quarter
ended January 1, 2000 (the "Existing Events of Default"). The waiver provided
--------------------------
in this Section 1 shall not be and shall not be deemed to be a waiver of any
---------
Events of Default under the Credit Agreement other than the Existing Events of
Default. Each of the prior Events of Default that have been waived in prior
waivers or amendments to the Credit Agreement that have subsequently been cured
shall not constitute an Event of Default hereunder due to its mere occurrence so
long as it has been cured.
<PAGE>
2. AMENDMENTS TO CREDIT AGREEMENT. The Credit Agreement is hereby amended
------------------------------
as follows:
(a) Section 1.1 is amended by adding or entirely amending the
-----------
following definitions:
"Applicable Base Rate Margin" means (a) 2.000% with respect to
---------------------------
Facility A Term Loan Advances and (b) 2.500% with respect to Facility B
Term Loan Advances, provided that the Applicable Base Rate Margin shall be
-------------
decreased by 0.500% as of the first day of the calendar month following the
date the Borrower delivers its annual financial statements for Fiscal Year
2000 to the Administrative Agent in accordance with Section 6.2 hereof, if
-----------
such financial statements show EBITDA (plus all fees and expenses incurred
in connection with the restructuring of any Indebtedness of the Borrower
and its Subsidiaries which have been deducted in calculating EBITDA) of
greater than $173,000,000 for such Fiscal Year.
"Applicable LIBOR Rate Margin" means (a) 3.500% with respect to
----------------------------
Facility A Term Loan Advances and (b) 4.000% with respect to Facility B
Term Loan Advances; provided that the Applicable LIBOR Rate Margin shall be
-------------
decreased by 0.500% as of the first day of the calendar month following the
date the Borrower delivers its annual financial statements for Fiscal Year
2000 to the Administrative Agent in accordance with Section 6.2 hereof, if
-----------
such financial statements show EBITDA (plus all fees and expenses incurred
in connection with the restructuring of any Indebtedness of the Borrower
and its Subsidiaries which have been deducted in calculating EBITDA) of
greater than $173,000,000 for such Fiscal Year.
"EBITDA" means, for any period, determined in accordance with GAAP on
------
a consolidated basis for the Borrower and its Subsidiaries, the sum of (a)
Earnings from Operations plus (b) depreciation, amortization and other non
cash charges (excluding any such non-cash charge to the extent it
represents an accrual of or reserve for cash charges in any future period
or amortization of a prepaid cash expense that was paid in a prior period)
to the extent included in determining Earnings From Operations.
"Facility A Term Loan Maturity Date" means January 31, 2002, or the
----------------------------------
earlier date of acceleration of the Facility A Term Loan Advances pursuant
to Section 8.2 hereof.
-----------
"Facility B Term Loan Maturity Date" means January 31, 2002, or the
----------------------------------
earlier date of acceleration of the Facility B Term Loan Advances pursuant
to Section 8.2 hereof.
-----------
(b) Section 2.7(a) is entirely amended, as follows:
--------------
(a) Facility A Term Loan Advances. To the extent not otherwise
-----------------------------
required to be paid earlier as provided herein, beginning on March 31,
2000, the principal amount of the Facility A Term Loan Advances shall
be repaid on each Quarterly Date
-2-
<PAGE>
and on the Facility A Term Loan Maturity Date in such amounts as set
forth next to each such date below:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
Amount of Reduction of Facility A Term
Quarterly Date Loans Advances as of each Date
-------------- ------------------------------
- ----------------------------------------------------------------------------------------------
<S> <C>
March 31, 2000 $ 3,750,000
- ----------------------------------------------------------------------------------------------
June 30, 2000 $ 3,750,000
- ----------------------------------------------------------------------------------------------
September 30, 2000 $ 3,750,000
- ----------------------------------------------------------------------------------------------
December 31, 2000 $ 3,750,000
- ----------------------------------------------------------------------------------------------
March 31, 2001 $ 6,250,000
- ----------------------------------------------------------------------------------------------
June 30, 2001 $ 6,250,000
- ----------------------------------------------------------------------------------------------
September 30, 2001 $ 6,250,000
- ----------------------------------------------------------------------------------------------
December 31, 2001 $ 6,250,000
- ----------------------------------------------------------------------------------------------
January 31, 2002 $79,017,000
or such other amount of Facility A Term Loan
Advances then outstanding
- ----------------------------------------------------------------------------------------------
</TABLE>
(c) Section 2.7(b) is entirely amended, as follows:
--------------
(b) Facility B Term Loan Advances. To the extent not otherwise
-----------------------------
required to be paid earlier as provided herein, beginning on March 31,
2000, the principal amount of the Facility B Term Loan Advances shall
be repaid on each Quarterly Date and on the Facility B Term Loan
Maturity Date in such amounts as set forth next to each such date
below:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
Amount of Reduction of Facility B Term Loan
Quarterly Date Advances as of each Date
-------------- ------------------------
- ----------------------------------------------------------------------------------------------
<S> <C>
March 31, 2000 $ 562,500
- ----------------------------------------------------------------------------------------------
June 30, 2000 $ 562,500
- ----------------------------------------------------------------------------------------------
September 30, 2000 $ 562,500
- ----------------------------------------------------------------------------------------------
December 31, 2000 $ 562,500
- ----------------------------------------------------------------------------------------------
March 31, 2001 $ 562,500
- ----------------------------------------------------------------------------------------------
</TABLE>
-3-
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
<S> <C>
June 30, 2001 $ 562,500
- ----------------------------------------------------------------------------------------------
September 30, 2001 $ 562,500
- ----------------------------------------------------------------------------------------------
December 31, 2001 $ 562,500
- ----------------------------------------------------------------------------------------------
January 31, 2002 $215,199,000
or such other amount of Facility B Term Loan
Advances then outstanding
- ----------------------------------------------------------------------------------------------
</TABLE>
(d) Section 6.8(c) is entirely amended, as follows:
--------------
(c) As soon as available, but in any event no later than Friday
of each week, a good faith estimate of Eligible Accounts (as defined
in the Amended and Restated Credit Agreement) and Eligible Inventory
(as defined in the Amended and Restated Credit Agreement) as of the
previous Friday.
(e) New Section 6.9 is hereby added immediately following Section 6.8,
----------- -----------
as follows:
Section 6.9 Monthly Financial Statements. As soon as available,
----------------------------
but in any event within 20 Business Days after the end of each Fiscal
Month other than December, and within 45 Business Days after the end
of the Fiscal Month of December, the consolidated balance sheets of
the Borrower and its Subsidiaries as at the end of such Fiscal Month
and the related consolidated statements of earnings for such Fiscal
Month and for the elapsed portion of the year ended with the last day
of such Fiscal Month, and consolidated statements of cash flow for the
elapsed portion of the year ended with the last day of such Fiscal
Month, all of which shall be certified by a Responsible Officer, to,
in his or her opinion acting solely in his or her capacity as an
officer of the Borrower, present fairly in all material respects, in
accordance with GAAP (except for the absence of footnotes), the
financial position and results of operations of the Borrower and its
Subsidiaries as at the end of and for such Fiscal Month, and for the
elapsed portion of the year ended with the last day of such Fiscal
Month, subject only to normal year-end adjustments.
(f) Section 7.7 is entirely amended, as follows:
-----------
Section 7.7 Capital Expenditures. The Borrower shall not, and
--------------------
shall not permit any of its Subsidiaries to, make or commit to make
any Capital Expenditures in an aggregate amount that exceeds (a) from
January 2, 2000 through and including December 30, 2000, $50,000,000,
provided, however, that no more than $25,000,000 of such permitted
-------- ------- ----
amount may be expended in any single Fiscal Quarter of the Borrower,
and (b) from December 31, 2000, through and including the Maturity
Date, $30,000,000 plus the amount by which $50,000,000 exceeds actual
-4-
<PAGE>
Capital Expenditures made from January 2, 2000 through and including
December 30, 2000, provided, however, that no more than $15,000,000 of
-------- ------- ----
such permitted amount may be expended in any single Fiscal Quarter of
the Borrower.
(g) Clause (c) of Section 7.8 is entirely amended, as follows:
---------- -----------
(c) non-equity consideration paid to any Person in connection with the
redemption, contractual sinking fund payments or restructuring of the
Fieldcrest Cannon Subordinated Debentures (including fees and
expenses); provided, however, the Borrower shall not pay or make any
Restricted Payments permitted by this Section 7.8 unless there shall
-----------
exist no Default or Event of Default prior to or after giving effect
to any such proposed Restricted Payment.
(h) Exhibit E is amended and restated in the form of, and all
---------
references in the Credit Agreement to Exhibit E are hereby deemed to be
---------
references to, the attached Exhibit E.
---------
3. FINANCIAL COVENANTS. Notwithstanding anything contained in the Credit
-------------------
Agreement or any other Loan Document, the Borrower shall not be obligated to
comply, and the Lenders hereby waive compliance by the Borrower, with the
covenants set forth in Sections 7.11, 7.12 and 7.13 of the Credit Agreement with
respect to any relevant period ending on or after January 1, 2000; provided,
--------
however, that, in lieu of such covenants, the Borrower will not permit EBITDA
- -------
(plus all fees and expenses incurred in connection with the restructuring of any
Indebtedness of the Borrower and its Subsidiaries which have been deducted in
calculating EBITDA) for the periods set forth below to be less than the amount
set forth opposite each such period:
<TABLE>
<CAPTION>
Period Amount
- ------------------------------- ------------
<S> <C>
3 months ended 4/1/00 $ 26,000,000
6 months ended 7/1/00 $ 59,000,000
9 months ended 9/30/00 $105,000,000
12 months ended 12/30/00 $147,000,000
12 months ended 3/31/01 $147,000,000
12 months ended 6/30/01 $160,000,000
12 months ended 9/29/01 $170,000,000
12 months ended 12/29/01 $180,000,000
</TABLE>
4. AMENDMENT FEE. Borrower shall pay to the Administrative Agent, for the
-------------
pro rata benefit of the Lenders that execute and deliver this Amendment to the
Administrative Agent (or its counsel) not later than 5:00 p.m., Dallas time,
March 30, 2000, an amendment fee in an amount equal to the product of (a) 0.25%
multiplied by (b) with respect to each Lender which is owed Facility A Term Loan
Advances or Facility B Term Loan Advances, the aggregate amount of Facility A
Term Loan Advances and Facility B Term Loan Advances owed to such Lender. Such
amendment fee shall be paid in immediately available funds and shall be payable
only if the conditions set forth in Section 8 of this Amendment have been
---------
satisfied and shall be due and payable
-5-
<PAGE>
to each Lender eligible for payment pursuant to the preceding sentence no later
than two Business Days after the conditions set forth in Section 8 of this
---------
Amendment have been satisfied. The Borrower agrees that the failure to pay the
amendment fee provided in this Section 4 shall, after the expiration of any
---------
applicable grace period, be an Event of Default under Section 8.1(b)(ii) of the
------------------
Credit Agreement.
5. COLLATERAL REDUCTION FEE. Within 30 Business Days after the Payment
------------------------
Date (as defined below) with respect to any cash consideration in excess of
$10,000,000, in the aggregate, paid or to be paid on or before January 31, 2002
to any Person in connection with the restructuring of the Fieldcrest Cannon
Subordinated Debentures (including fees and expenses), Borrower shall pay to the
Administrative Agent, for the benefit of the Revolving Lenders (as defined in
the Intercreditor Agreement) and the Term Lenders (as defined in the
Intercreditor Agreement), each of whom shall receive their Pro Rata (as defined
in the Intercreditor Agreement) share thereof, a fee equal to 20% of such excess
amount multiplied by a fraction, the numerator of which is the number of days
from the Payment Date through and including January 31, 2002, and the
denominator of which is 360. For purposes hereof, "Payment Date" shall mean the
------------
earlier of (a) the date upon which actual cash payment is made or (b) the date
upon which the Borrower or any of its Subsidiaries becomes obligated to make
such payment. So long as no Event of Default has occurred and is continuing,
the Borrower and its Subsidiaries shall be permitted to make all scheduled
payments of principal and interest provided for under the documents evidencing
the Subordinated Debt.
6. RELEASE.
-------
(a) The Borrower and each Guarantor hereby unconditionally and
irrevocably remises, acquits, and fully and forever releases and discharges
the Administrative Agent and the Lenders and all respective affiliates and
subsidiaries of the Administrative Agent and the Lenders, their respective
officers, servants, employees, agents, attorneys, financial advisors,
principals, directors and shareholders, and their respective heirs, legal
representatives, successors and assigns (collectively, the "Released Lender
---------------
Parties") from any and all claims, demands, causes of action, obligations,
-------
remedies, suits, damages and liabilities (collectively, the "Borrower
--------
Claims") of any nature whatsoever, whether now known, suspected or claimed,
------
whether arising under common law, in equity or under statute, which the
Borrower or any Guarantor ever had or now has against the Released Lender
Parties which may have arisen at any time on or prior to the date of this
Amendment and which were in any manner related to any of the Loan Documents
or the enforcement or attempted enforcement by the Administrative Agent or
the Lenders of rights, remedies or recourses related thereto.
(b) The Borrower and each Guarantor covenants and agrees never to
commence, voluntarily aid in any way, prosecute or cause to be commenced or
prosecuted against any of the Released Lender Parties any action or other
proceeding based upon any of the Borrower Claims which may have arisen at
any time on or prior to the date of this Amendment and were in any manner
related to any of the Loan Documents.
-6-
<PAGE>
(c) The agreements of the Borrower and each Guarantor set forth in
this Section 6 shall survive termination of this Amendment and the other
---------
Loan Documents.
7. REPRESENTATIONS AND WARRANTIES. By its execution and delivery hereof,
------------------------------
the Borrower represents and warrants to the Lenders that, as of the date hereof:
(a) after giving effect to the waiver set forth in Section 1 of this
---------
Amendment, the representations and warranties contained in the Credit
Agreement and the other Loan Documents are true and correct on and as of
the date hereof as if made on and as of such date;
(b) after giving effect to the waiver set forth in Section 1 of this
---------
Amendment, no event has occurred and is continuing which constitutes an
Event of Default;
(c) the Borrower has full power and authority to execute and deliver
this Amendment, and this Amendment constitutes the legal, valid and binding
obligation of the Borrower, enforceable in accordance with its terms,
except as enforceability may be limited by applicable Debtor Relief Laws
and by general principles of equity (regardless of whether enforcement is
sought in a proceeding in equity or at law) and except as rights to
indemnity may be limited by federal or state securities laws;
(d) neither the execution, delivery and performance of this Amendment
nor the consummation of any transactions contemplated herein will conflict
with any Law, the articles of incorporation, bylaws or other governance
document of the Borrower or any of its Subsidiaries, or any indenture,
agreement or other instrument to which the Borrower or any of its
Subsidiaries or any of their respective property is subject; and
(e) no authorization, approval, consent, or other action by, notice
to, or filing with, any governmental authority or other Person (including
the Board of Directors of the Borrower or any Guarantor), is required for
the execution, delivery or performance by the Borrower of this Amendment or
the acknowledgment of this Amendment by any Guarantor.
8. CONDITIONS OF EFFECTIVENESS. This Amendment shall be effective as of
---------------------------
March 31, 2000, so long as each of the following conditions precedent shall have
been satisfied:
(a) the Administrative Agent shall receive counterparts of (i) this
Amendment and (ii) the Waiver and Seventh Amendment to Amended and Restated
Credit Agreement, each executed by the Required Lenders (as defined in the
Intercreditor Agreement) and the Borrower and acknowledged by each Guarantor;
-7-
<PAGE>
(b) the Administrative Agent shall receive counterparts of the Fifth
Amendment to Promissory Note, executed by the Borrower and Bank of America,
N.A., extending the maturity of the Overline Facility to the Maturity Date;
(c) the representations and warranties set forth in Section 7 of this
---------
Amendment shall be true and correct;
(d) all reasonable out-of-pocket fees and expenses in connection with the
Loan Documents, including this Amendment, including legal and other professional
fees and expenses incurred on or prior to the date of this Amendment by
Administrative Agent or any Lender, including, without limitation, the
reasonable fees and expenses of Winstead Sechrest & Minick P.C., Donohoe Jameson
& Carroll and PricewaterhouseCoopers, shall have been paid; and
(e) the Administrative Agent shall receive, in form and substance
satisfactory to the Administrative Agent and its counsel, such other documents,
certificates and instruments as the Administrative Agent shall reasonably
require.
9. GUARANTOR ACKNOWLEDGMENT. By signing below, each of the Guarantors (i)
------------------------
acknowledges, consents and agrees to the execution and delivery of this
Amendment, (ii) acknowledges and agrees that its obligations in respect of its
Subsidiary Guaranty are not released, diminished, waived, modified, impaired or
affected in any manner by this Amendment or any of the provisions contemplated
herein, (iii) ratifies and confirms its obligations under its Subsidiary
Guaranty, and (iv) acknowledges and agrees that it has no claims or offsets
against, or defenses or counterclaims to, its Subsidiary Guaranty as a result of
this Amendment.
10. BANK OF AMERICA CONSENT. Bank of America, N.A., in its capacity as
-----------------------
provider of the Overline Facility, hereby (i) agrees to this Amendment and
acknowledges that the waivers provided herein shall also be effective with
respect to the Overline Facility, and (ii) acknowledges that the maturity date
of the Overline Facility has been extended to the Maturity Date.
11. REFERENCE TO CREDIT AGREEMENT. Upon the effectiveness of this
-----------------------------
Amendment, each reference in the Credit Agreement to "this Agreement,"
"hereunder," or words of like import shall mean and be a reference to the Credit
Agreement, as affected and amended by this Amendment.
12. COUNTERPARTS; EXECUTION VIA FACSIMILE. This Amendment may be executed
-------------------------------------
in one or more counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument. This Amendment
may be validly executed and delivered by facsimile or other electronic
transmission.
-8-
<PAGE>
13. GOVERNING LAW: BINDING EFFECT. This Amendment shall be governed by
-----------------------------
and construed in accordance with the laws of the State of Texas and shall be
binding upon the Borrower, the Administrative Agent, each Lender and their
respective successors and assigns.
14. HEADINGS. Section headings in this Amendment are included herein for
--------
convenience of reference only and shall not constitute a part of this Amendment
for any other purpose.
15. LOAN DOCUMENT. This Amendment is a Loan Document and is subject to
-------------
all provisions of the Credit Agreement applicable to Loan Documents, all of
which are incorporated in this Amendment by reference the same as if set forth
in this Amendment verbatim.
16. NO ORAL AGREEMENTS. THIS WRITTEN AGREEMENT AND THE OTHER LOAN
------------------
DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.
================================================================================
REMAINDER OF PAGE LEFT INTENTIONALLY BLANK
================================================================================
-9-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as the
date first above written.
PILLOWTEX CORPORATION
By: Jaime Vasquez
Vice President and Treasurer
BANK OF AMERICA, N.A. (formerly known as
NationsBank, N.A., successor by merger to
NationsBank of Texas, N.A.), as Administrative
Agent and as a Lender, Swing Line Bank and Issuing
Bank
THE BANK OF NOVA SCOTIA
ATLANTA AGENCY
THE FIRST NATIONAL BANK OF CHICAGO
WELLS FARGO BANK (TEXAS), NATIONAL
ASSOCIATION
BANKBOSTON, N.A.
COMERICA BANK
CREDIT LYONNAIS - NEW YORK BRANCH
THE BANK OF TOKYO-MITSUBISHI, LTD.
BANK ONE, TEXAS, N.A.
BHF (USA) CAPITAL CORPORATION
FIRST UNION NATIONAL BANK
Seventh Amendment to Term Credit Agreement
Signature Page
<PAGE>
COOPERATIEVE CENTRALE RAIFFEISEN-
BOERENLEENBANK B.A., "RABOBANK
NEDERLAND", NEW YORK BRANCH
THE BANK OF NEW YORK
CREDIT INDUSTRIEL ET COMMERCIAL
BANK AUSTRIA CREDITANSTALT
CORPORATE FINANCE, INC.
FLEET BANK, N.A.
THE FUJI BANK, LTD.
NATIONAL BANK OF CANADA
NATIONAL CITY BANK OF KENTUCKY
THE PRUDENTIAL INSURANCE COMPANY OF
AMERICA
BANK POLSKA KASA OPIEKI, S.A., NEW YORK
BRANCH
GUARANTY FEDERAL BANK, F.S.B.
GENERAL ELECTRIC CAPITAL CORPORATION
SOCIETE GENERALE, SOUTHWEST AGENCY
CONSENTED TO BY:
KZH WATERSIDE LLC
SENIOR DEBT PORTFOLIO
By: Boston Management and Research
as Investment Advisor
AERIES FINANCE-II LTD.
BY: INVESCO Senior Secured Management, Inc.
as Sub-Managing Agent
Seventh Amendment to Term Credit Agreement
Signature Page
<PAGE>
CYPRESSTREE INVESTMENT PARTNERS I, LTD.
By: CypressTree Investment Management Company,
Inc., as Portfolio Manager
NORTH AMERICAN SENIOR FLOATING RATE FUND
By: CypressTree Investment Management Company,
Inc., as Portfolio Manager
CYPRESSTREE INVESTMENT MANAGEMENT COMPANY, INC.
As: Attorney-in-Fact and on behalf of First Allmerica
Financial Life Insurance Company as Portfolio Manager
VAN KAMPEN CLO I, LIMITED
By: VAN KAMPEN MANAGEMENT, INC.,
as Collateral Manager
BALANCED HIGH-YIELD FUND I LTD.
By: BHF (USA) CAPITAL CORPORATION, acting as
attorney-in-fact
INDOSUEZ CAPITAL FUNDING IIA, LIMITED
By: INDOSUEZ CAPITAL as Portfolio Advisor
VAN KAMPEN SENIOR INCOME TRUST
INDOSUEZ CAPITAL FUNDING IV, L.P.
By: Indosuez Capital as Portfolio Advisor
CYPRESSTREE INSTITUTIONAL FUND, LLC
By: CypressTree Investment Management
Company, Inc., its Managing Member
CYPRESSTREE INVESTMENT FUND, LLC
By: CypressTree Investment Management
Company, Inc., its Managing Member
KZH CYPRESSTREE-1 LLC
OXFORD STRATEGIC INCOME FUND
By: Eaton Vance Management, as
Investment Advisor
EATON VANCE INSTITUTIONAL SENIOR LOAN FUND
By: Eaton Vance Management, as
Seventh Amendment to Term Credit Agreement
Signature Page
<PAGE>
Investment Advisor
VAN KAMPEN CLO II, LIMITED
By: Van Kampen Management, Inc.,
as Collateral Manager
CAPTIVA FINANCE, LTD.
BALANCED HIGH-YIELD FUND II LTD.
By: BHF (USA) CAPITAL CORPORATION,
acting as attorney-in-fact
FINOVA CAPITAL CORPORATION
THE DAI-ICHI KANGYO BANK
LIMITED, NEW YORK BRANCH
MOUNTAIN CAPITAL CLO I LTD.
MARINER LDC
LEHMAN COMMERCIAL PAPER, INC.
PRESIDENT & FELLOWS OF HARVARD COLLEGE
By: Regiment Capital Management, LLC,
as its Investment Advisor
By: Regiment Capital Advisors, LLC,
its Manager and pursuant to delegated authority
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.
Seventh Amendment to Term Credit Agreement
Signature Page
<PAGE>
FIELDCREST CANNON INTERNATIONAL, INC.
FIELDCREST CANNON SF, INC. (formerly known as Fieldcrest Cannon Sure Fit, Inc.)
FIELDCREST CANNON TRANSPORTATION, INC.
ST. MARYS, INC.
AMOSKEAG COMPANY
AMOSKEAG MANAGEMENT CORPORATION
DOWNEAST SECURITIES CORPORATION
BANGOR INVESTMENT COMPANY
MOORE'S FALLS CORPORATION
THE LESHNER CORPORATION
LESHNER OF CALIFORNIA, INC.
OPELIKA INDUSTRIES, INC.
Jaime Vasquez
Vice President and Treasurer
Seventh Amendment to Term Credit Agreement
Signature Page
<PAGE>
EXHIBIT E
COMPLIANCE CERTIFICATE
----------------------
To: Bank of America, N.A., as Administrative Agent
From: Pillowtex Corporation
Date: , .
------------------- -----
Re: Term Credit Agreement, dated as of December 19, 1997 (as amended, the
"Credit Agreement"), among Pillowtex Corporation ( the "Borrower"), certain
Lenders, and Bank of America, N.A., as Administrative Agent
This Compliance Certificate is delivered pursuant to Section 6.3 of the
Credit Agreement. All capitalized terms used herein and defined in the Credit
Agreement shall be used as so defined. For purposes hereof, section references
herein related to sections of the Credit Agreement and bracketed amounts or
ratios refer to the maximum or minimum amounts or ratios required under the
relevant sections of the Credit Agreement.
I. EBITDA Covenant Calculation
---------------------------
EBITDA, calculated for the ____________________ /1/ period
ending on the date of calculation
1. Earnings from Operations $
-------------
2. Depreciation $
-------------
3. Amortization $
-------------
4. Other non-cash charges (excluding
any such non-cash charge to the extent
it represents an accrual of or reserve
for cash charges in any future period or
amortization of a prepaid cash expense
that was paid in a prior period) to the
extent included in determining Earnings
from Operations $
-------------
5. EBITDA [(1) + (2) + (3) + (4)] $
-----------
6. Fees and expenses incurred
- -------------------
/1/ See Table 1
<PAGE>
in connection with the restructuring of
Indebtedness $
-------------
7. Adjusted EBITDA [(5) + (6)] $
--------------------
8. Minimum Required $ /1/
-------------
II. Certain Other Covenant Calculations. Demonstration of compliance with
-----------------------------------
certain covenants contained in Article 7 of the Credit Agreement for the
period ended .
------------- ----------------
(a) Section 7.1(c). Indebtedness of the Borrower and its $
Domestic Subsidiaries, including in respect of Capitalized ----------
Lease Obligations, incurred to purchase, or to finance the
purchase of, assets which constitute property, plant and
equipment
1. Maximum in aggregate principal amount $35,515,000
outstanding, when aggregated with Section 7.1(o)
--------------
2. Actual $
----------
3. Difference [(1) - (2)] $
----------
(b) Section 7.1(o) Other Indebtedness of the Borrower and
--------------
its Domestic Subsidiaries
1. Maximum in aggregate principal amount $35,515,000
Outstanding, when aggregated with Section 7.1(c)
2. Actual $
----------
3. Difference [(1) - (2)] $
----------
(c) Section 7.5(c) Net Cash Proceeds from the disposition of
--------------
assets (to the extent not applied pursuant to Section
2.5(b)) outstanding and pending reinvestment pursuant to
--------------------------------------------------------
Section 7.5(c)
--------------
1. Maximum at any Time $1,000,000
2. Actual $
----------
3. Difference [(1) - (2)] $
----------
(d) Section 7.7 Capital Expenditures
-----------
<PAGE>
1. Actual amount expended previous quarter $
----------
2. Maximum Allowed $ /2/
----------
3. Difference [(1) - (2)] $
----------
4. Actual amount expended since January 2, 2000
or December 31, 2000, whichever is most
recent relative to end of previous quarter $
----------
5. Maximum Allowed $ /3/
----------
6. Difference [(4) - (5)] $
----------
III. Tables.
-------
Table 1
-------
Period Minimum Required
------ ----------------
3 months ended 4/1/00 $ 26,000,000
6 months ended 7/1/00 $ 59,000,000
9 months ended 9/30/00 $105,000,000
12 months ended 12/30/00 $147,000,000
12 months ended 3/31/01 $147,000,000
12 months ended 6/30/01 $160,000,000
12 months ended 9/29/01 $170,000,000
12 months ended 12/29/01 $180,000,000
Table 2
-------
For Quarters Ending Maximum Allowed
------------------- ---------------
4/1/00, 7/1/00, 9/30/00,
and 12/30/00 $ 25,000,000
3/31/01, 6/30/01, 9/29/01,
and 12/29/01 $ 15,000,000
Table 3
-------
Period Maximum Allowed
------ ---------------
1/2/00 through 12/30/00 $50,000,000
12/31/00 through 1/31/02 $30,000,000 plus the amount
which $50,000,000 exceeds actual
- -------------------------
/2/ See Table 2
/3/ See Table 3
<PAGE>
expenditures made from 1/2/00
through 12/30/00
IV. Compliance Certificate. The undersigned hereby certifies to you as
----------------------
follows:
(a) I am the duly elected qualified and acting chief financial officer [or
chief accounting officer] of the Borrower.
(b) I have reviewed the provisions of the Credit Agreement and the other
Loan Documents, and a review of the activities of Borrower during the
period from _______________________, ______ to ______________________,
_______ (the "Reporting Period") has been made under my supervision
with a view toward determining whether, during the Reporting Period,
the Borrower has kept, observed, performed and fulfilled all its
obligations under the Credit Agreement and such other Loan Documents.
(c) The representations and warranties made in the Loan Documents are true
and correct in all material respects as of the date hereof as though
made at and as of the date hereof, except for such representations and
warranties which relate to a particular date or which fail to be true
and correct as a result of events or occurrences permitted under the
Loan Documents, and no Default or Event of Default has occurred or is
continuing.
This Compliance Certificate is executed and delivered on the ________ day
of ________________, _______.
PILLOWTEX CORPORATION
<PAGE>
EXHIBIT 10.20
FOURTH AMENDMENT TO PROMISSORY NOTE
THIS FOURTH AMENDMENT TO PROMISSORY NOTE (this "Amendment"), dated as of
---------
February 15, 2000, 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, as
amended and increased to $35,000,000 by that certain First Amendment to
Promissory Note, dated as of July 27, 1999 (said Promissory Note, as amended,
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:
1. AMENDMENT TO PROMISSORY NOTE. The Promissory Note is hereby amended by
----------------------------
amending the definition of "Maturity Date" set forth in Article III thereof to
read as follows:
"Maturity Date" means the earliest of (a) the occurrence of a
-------------
Prepayment Event, (b) March 31, 2000, (c) the date of termination in whole
of the Commitment hereunder or (d) the date of termination of the Waiver
Period, as defined in that certain Sixth Amendment and Waiver to Amended
and Restated Credit Agreement, dated to be effective as of December 7,
1999, executed and delivered in connection with the Credit Agreement.
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 and the Sixth Amendment and Waiver to Amended and Restated Credit
Agreement referred to therein:
(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;
(b) no event has occurred and is continuing which constitutes an Event of
Default;
(c) Borrower has full power and authority to execute and deliver this
Amendment, and this 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
<PAGE>
(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 Amendment or the
acknowledgment of this Amendment by any Person that executed a Guaranty
Agreement (each such Person being a "Guarantor").
---------
3. CONDITIONS OF EFFECTIVENESS. This Amendment shall be effective as of
---------------------------
February 15, 2000, subject to the following:
(a) Lender shall have received counterparts of this Amendment executed by
Borrower and acknowledged by each Guarantor; and
(b) the conditions precedent (other than the effectiveness of this
Amendment) to the effectiveness of that certain Sixth Amendment and Waiver to
Amended and Restated Credit Agreement, dated to be effective as of February 15,
2000, by and among the Borrower, the Guarantors, the lenders party thereto and
Bank of America, N.A., as administrative agent, shall have been satisfied.
4. GUARANTOR ACKNOWLEDGMENT. By signing below, each Guarantor (i)
------------------------
acknowledges, consents and agrees to the execution, delivery and performance by
Borrower of this 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 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 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
Amendment.
(b) The Promissory Note, as amended by this Amendment, shall remain in full
force and effect and are hereby ratified and confirmed.
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 this Amendment and the other instruments and documents
to be delivered hereunder (including the reasonable fees and out-of-pocket
expenses of counsel and financial consultants for Lender).
7. COUNTERPARTS; EXECUTION VIA FACSIMILE. This Amendment may be executed
-------------------------------------
in any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed and delivered shall be deemed to be
an original and all of which when
-2-
<PAGE>
taken together shall constitute but one and the same instrument. This Amendment
may be validly executed and delivered by facsimile or other electronic
transmission.
8. GOVERNING LAW; BINDING EFFECT. This 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 Amendment are included herein for
--------
convenience of reference only and shall not constitute a part of this Amendment
for any other purpose.
10. ENTIRE AGREEMENT. THE PROMISSORY NOTE, AS AMENDED BY THIS 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>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date first above written.
PILLOWTEX CORPORATION
By: Jaime Vasquez
Title: Vice President/Treasurer
BANK OF AMERICA, N.A.
Fourth Amendment to Promissory Note
Signature Page
<PAGE>
ACKNOWLEDGED AND AGREED:
PILLOWTEX, INC.
PTEX HOLDING COMPANY
PILLOWTEX MANAGEMENT SERVICES COMPANY
BEACON MANUFACTURING COMPANY
MANETTA HOME FASHIONS, INC.
TENNESSEE WOOLEN MILLS
FIELDCREST CANNON, INC.
CRESTFIELD COTTON COMPANY
ENCEE, INC.
FCC CANADA, INC.
FIELDCREST CANNON FINANCING, INC.
FIELDCREST CANNON LICENSING, INC.
FIELDCREST CANNON INTERNATIONAL, INC.
FIELDCREST CANNON SF, INC. (formerly
know as Fieldcrest Cannon Sure Fit, Inc.)
FIELDCREST CANNON TRANSPORTATION, INC,
ST. MARYS, INC.
AMOSKEAG COMPANY
AMOSKEAG MANAGEMENT CORPORATION
DOWNEAST SECURITIES CORPORATION
BANGOR INVESTMENT COMPANY
MOORE'S FALLS CORPORATION
THE LESHNER CORPORATION
LESHNER OF CALIFORNIA, INC.
OPELIKA INDUSTRIES, INC.
By: Jaime Vasquez
Title: Vice President/Treasurer
Fourth Amendment to Promissory Note
Signature Page
<PAGE>
EXHIBIT 10.21
FIFTH AMENDMENT TO PROMISSORY NOTE
THIS FIFTH AMENDMENT TO PROMISSORY NOTE (this "Amendment"), dated as of
---------
March 31, 2000, 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, as
amended and increased to $35,000,000 by that certain First Amendment to
Promissory Note, dated as of July 27, 1999 (said Promissory Note, as amended,
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:
1. AMENDMENTS TO PROMISSORY NOTE. The Promissory Note is hereby amended,
-----------------------------
as follows:
(a) Section 1.8(c) is entirely amended, as follows:
The principal amount of all Advances outstanding hereunder shall
be due and payable in equal quarterly installments of $87,500,
together with accrued and unpaid interest thereon, on the last day of
each March, June, September and December, commencing March 31, 2000,
with a final payment of all outstanding principal, accrued interest
and fees thereon, due and payable on the Maturity Date.
Notwithstanding anything herein to the contrary, each installment
payment hereunder shall constitute a permanent reduction to the
Commitment in the amount of such payment.
(b) The following definitions set forth in Article III of the
Promissory Note are hereby amended to read as follows:
"Base Rate" means an interest rate per annum for each day equal to the
---------
sum of (a) the Base Rate Margin 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.
"Eurodollar Rate" means an interest rate per annum equal to the sum of
---------------
(i) the Eurodollar Rate Margin plus (ii) a rate per annum determined
pursuant to the following formula:
London Interbank Rate
-----------------------------------------
100% - Eurodollar Reserve Percentage
<PAGE>
"Maturity Date" means the earliest of (a) the occurrence of a
-------------
Prepayment Event, (b) January 31, 2002, or (c) the date of termination in
whole of the Commitment hereunder.
(c) The following definitions are added to Article III of the
Promissory Note and inserted in appropriate alphabetical order therein as
follows:
"Base Rate Margin" means 3.000%, provided that the Base Rate Margin
---------------- -------------
shall be decreased to 2.500% as of the first day of the calendar month
following the date the Borrower delivers its annual financial statements
for Fiscal Year 2000 to the Lender, if such financial statements show
EBITDA (plus all fees and expenses incurred in connection with the
restructuring of any Indebtedness of the Borrower and its Subsidiaries
which have been deducted in calculating EBITDA) of greater than
$173,000,000 for such Fiscal Year.
"Eurodollar Rate Margin" means 4.500%, provided that the Eurodollar
---------------------- -------------
Rate Margin shall be decreased to 4.000% as of the first day of the
calendar month following the date the Borrower delivers its annual
financial statements for Fiscal Year 2000 to the Lender, if such financial
statements show EBITDA (plus all fees and expenses incurred in connection
with the restructuring of any Indebtedness of the Borrower and its
Subsidiaires which have been deducted in calculating EBITDA) of greater
than $173,000,000 for such Fiscal Year.
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 and the Waiver and Seventh Amendment to Amended and Restated Credit
Agreement referred to therein:
(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;
(b) no event has occurred and is continuing which constitutes an Event of
Default;
(c) Borrower has full power and authority to execute and deliver this
Amendment, and this 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 Amendment or the
acknowledgment of this Amendment by any Person that executed a Guaranty
Agreement (each such Person being a "Guarantor").
---------
3. CONDITIONS OF EFFECTIVENESS. This Amendment shall be effective as of
---------------------------
March 31, 2000, subject to the following:
-2-
<PAGE>
(a) Lender shall have received counterparts of this Amendment executed by
Borrower and acknowledged by each Guarantor;
(b) Lender shall have received an amendment fee from Borrower in
consideration for this Amendment in the amount of $87,500 (which fee shall be
fully-earned when paid, and nonrefundable for any reason); and
(c) the conditions precedent (other than the effectiveness of this
Amendment) to the effectiveness of that certain Waiver and Seventh Amendment to
Amended and Restated Credit Agreement, dated to be effective as of March 31,
2000, by and among the Borrower, the Guarantors, the lenders party thereto and
Bank of America, N.A., as administrative agent, shall have been satisfied.
4. GUARANTOR ACKNOWLEDGMENT. By signing below, each Guarantor (i)
------------------------
acknowledges, consents and agrees to the execution, delivery and performance by
Borrower of this 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 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 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
Amendment.
(b) The Promissory Note, as amended by this Amendment, shall remain in full
force and effect and are hereby ratified and confirmed.
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 this Amendment and the other instruments and documents
to be delivered hereunder (including the reasonable fees and out-of-pocket
expenses of counsel and financial consultants for Lender).
7. COUNTERPARTS; EXECUTION VIA FACSIMILE. This Amendment may be executed
-------------------------------------
in any number of counterparts and by different parties hereto in separate
counterparts, each of 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. This Amendment may be validly executed and delivered by
facsimile or other electronic transmission.
-3-
<PAGE>
8. GOVERNING LAW; BINDING EFFECT. This 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 Amendment are included herein for
--------
convenience of reference only and shall not constitute a part of this Amendment
for any other purpose.
10. ENTIRE AGREEMENT. THE PROMISSORY NOTE, AS AMENDED BY THIS 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
================================================================================
-4-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date first above written.
PILLOWTEX CORPORATION
By: Jaime Vasquez
Vice President and Treasurer
BANK OF AMERICA, N.A.
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
know as Fieldcrest Cannon Sure Fit, Inc.)
FIELDCREST CANNON TRANSPORTATION, INC,
ST. MARYS, INC.
AMOSKEAG COMPANY
AMOSKEAG MANAGEMENT CORPORATION
DOWNEAST SECURITIES CORPORATION
BANGOR INVESTMENT COMPANY
Fifth Amendment to Promissory Note
Signature Page
<PAGE>
MOORE'S FALLS CORPORATION
THE LESHNER CORPORATION
LESHNER OF CALIFORNIA, INC.
OPELIKA INDUSTRIES, INC.
By: Jaime Vasquez
Vice President and Treasurer
Fifth Amendment to Promissory Note
Signature Page
<PAGE>
Exhibit 10.23
CONSENT
THIS CONSENT (this "Consent"), dated as of the 15th day of February, 2000,
-------
between PILLOWTEX CORPORATION, a Texas corporation (the "Borrower"), and BANK OF
--------
AMERICA, N.A. (formerly known as NationsBank, N.A.) ("Lender").
------
BACKGROUND
----------
A. The Borrower executed that certain Promissory Note, dated May 4,1999,
in the original principal amount of $20,000,000 and increased by amendment to
$35,000,000 (said Promissory Note, as amended, the "Promissory Note"; terms
---------------
defined in the Promissory Note and not otherwise defined herein shall be used
herein as defined in the Promissory Note).
B. Article IV of the Promissory Note incorporates by reference Articles 5
(except for Section 5.8), 6 and 7 of the Credit Agreement and all definitions
thereto, and provides that no waiver with respect to such Articles of the Credit
Agreement after May 4, 1999 shall be effective without the written consent of
the Lender.
C. The Borrower is entering into a Sixth Amendment and Waiver to Amended
and Restated Credit Agreement, dated to be effective as of February 15, 2000,
with the lenders party thereto and Bank of America, N.A., as administrative
agent (the "Sixth Amendment"), which Sixth Amendment, among other things,
---------------
temporarily waives certain provisions of Article 7 of the Credit Agreement.
D. The Borrower has requested that the Lender execute this Consent.
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, the parties
hereto covenant and agree as follows:
1. CONSENT. The Lender hereby consents to the Sixth Amendment.
-------
2. REPRESENTATIONS AND WARRANTIES TRUE; NO EVENT OF DEFAULT. By its
--------------------------------------------------------
execution and delivery hereof, the Borrower represents and warrants that, as of
the date hereof and after giving effect to the Consent set forth 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 made on and as of such date;
and
(b) no event has occurred and is continuing which constitutes an Event of
Default.
3. CONDITIONS OF EFFECTIVENESS. This Consent shall be effective as of
---------------------------
February 15, 2000, subject to the following:
<PAGE>
(a) the representations and warranties set forth in Section 2 of this
Consent shall be true and correct;
(b) the Lender shall have received counterparts of this Consent executed by
the Borrower and acknowledged by each Guarantor; and
(c) the Lender shall have received in form and substance satisfactory to
the Lender, such other documents, certificates and instruments as the Lender
shall require.
4. GUARANTOR'S ACKNOWLEDGMENT. By signing below, each Guarantor (i)
--------------------------
acknowledges, consents and agrees to the execution, delivery and performance by
the Borrower of this Consent, (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 Consent, or any of the
provisions contemplated herein, (iii) ratifies and confirms its obligations
under its Guaranty Agreement, and (iv) acknowledges and agrees that it has no
claim or offsets against, or defenses or counterclaims to, its Guaranty
Agreement as a result of this Consent.
5. REFERENCE TO THE PROMISSORY NOTE.
--------------------------------
(a) Upon the effectiveness of this Consent, 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 by this Consent.
(b) The Promissory Note, as affected by this Consent, shall remain in full
force and effect and is hereby ratified and confirmed.
6. COSTS, EXPENSES AND TAXES. The Borrower shall be obligated to pay the
-------------------------
costs and expenses of the Lender in connection with the preparation,
reproduction, execution and delivery of this Consent and the other instruments
and documents to be delivered hereunder.
7. COUNTERPARTS; EXECUTION VIA FACSIMILE. This Consent may be executed in
-------------------------------------
any number of counterparts and by different parties hereto in separate
counterparts, each of 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. This Consent may be validly executed and delivered by
facsimile or other electronic transmission.
8. GOVERNING LAW; BINDING EFFECT. This Consent shall be governed by and
-----------------------------
construed in accordance with the laws of the State of Texas, and shall be
binding upon the Borrower and each Lender and their respective successors and
assigns.
9. HEADINGS. Section headings in this Consent are included herein for
--------
convenience of reference only and shall not constitute a part of this Consent
for any other purpose.
2
<PAGE>
10. ENTIRE AGREEMENT. THE PROMISSORY NOTE, AS AMENDED BY THIS CONSENT,
----------------
REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AS TO THE SUBJECT MATTER
THEREIN AND 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>
IN WITNESS WHEREOF, the parties hereto have executed this Consent as of the
date first above written.
PILLOWTEX CORPORATION
By: Jaime Vasquez
Title: Vice President/Treasurer
BANK OF AMERICA, N.A. (formerly known as
NationsBank, N.A.)
By:
-------------------------------------
Name:
------------------------------
Title:
------------------------------
Consent
Signature Page
<PAGE>
ACKNOWLEDGED AND AGREED:
PILLOWTEX, INC.
PTEX HOLDING COMPANY
PILLOWTEX MANAGEMENT SERVICES COMPANY
BEACON MANUFACTURING COMPANY
MANETTA HOME FASHIONS, INC.
TENNESSEE WOOLEN MILLS
FIELDCREST CANNON, INC.
CRESTFIELD COTTON COMPANY
ENCEE, INC.
FCC CANADA, INC.
FIELDCREST CANNON FINANCING, INC.
FIELDCREST CANNON LICENSING, INC.
FIELDCREST CANNON INTERNATIONAL, INC.
FIELDCREST CANNON SF, INC. (formerly know as Fieldcrest Cannon Sure Fit, Inc.)
FIELDCREST CANNON TRANSPORTATION, INC,
ST. MARYS, INC.
AMOSKEAG COMPANY
AMOSKEAG MANAGEMENT CORPORATION
DOWNEAST SECURITIES CORPORATION
BANGOR INVESTMENT COMPANY
MOORE'S FALLS CORPORATION
THE LESHNER CORPORATION
LESHNER OF CALIFORNIA, INC.
OPELIKA INDUSTRIES, INC.
By: Jaime Vasquez
Title: Vice President/Treasurer
Consent
Signature Page
<PAGE>
EXHIBIT 10.24
CONSENT
THIS CONSENT (this "Consent"), dated as of the 31st day of March, 2000,
-------
between PILLOWTEX CORPORATION, a Texas corporation (the "Borrower"), and BANK OF
--------
AMERICA, N.A. (formerly known as NationsBank, N.A.) ("Lender").
------
BACKGROUND
----------
A. The Borrower executed that certain Promissory Note, dated May 4,1999,
in the original principal amount of $20,000,000 and increased by amendment to
$35,000,000 (said Promissory Note, as amended, the "Promissory Note"; terms
---------------
defined in the Promissory Note and not otherwise defined herein shall be used
herein as defined in the Promissory Note).
B. Article IV of the Promissory Note incorporates by reference Articles 5
(except for Section 5.8), 6 and 7 of the Credit Agreement and all definitions
thereto, and provides that no amendment of the Credit Agreement after May 4,
1999 shall be effective with respect to such Articles as they are incorporated
into the Promissory Note without the written consent of the Lender.
C. The Borrower is entering into a Waiver and Seventh Amendment to Amended
and Restated Credit Agreement, dated to be effective as of March 31, 2000, with
the lenders party thereto and Bank of America, N.A., as administrative agent
(the "Seventh Amendment"), which, among other things, amends certain provisions
-----------------
of Articles 6 and 7 of the Credit Agreement.
D. The Borrower has requested that the Lender execute this Consent.
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, the parties
hereto covenant and agree as follows:
1. CONSENT. The Lender hereby (a) consents to the Seventh Amendment and
-------
(b) agrees that the amendment of certain provisions of Articles 6 and 7 of the
Credit Agreement as provided in the Seventh Amendment shall be effective as of
March 31, 2000 with respect to the Promissory Note such that those provisions of
the Credit Agreement, as amended by the Seventh Amendment, are incorporated into
the Promissory Note.
2. REPRESENTATIONS AND WARRANTIES TRUE; NO EVENT OF DEFAULT. By its
--------------------------------------------------------
execution and delivery hereof, the borrower represents and warrants that, as of
the date hereof and after giving effect to the Consent set forth 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 made on and as of such date;
and
<PAGE>
(b) no event has occurred and is continuing which constitutes an Event of
Default.
3. CONDITIONS OF EFFECTIVENESS. This Consent shall be effective as of
---------------------------
March 31, 2000, subject to the following:
(a) the representations and warranties set forth in Section 2 of this
Consent shall be true and correct;
(b) the Lender shall have received counterparts of this Consent executed by
the Borrower and acknowledged by each Guarantor; and
(c) the Lender shall have received in form and substance satisfactory to
the Lender, such other documents, certificates and instruments as the Lender
shall require.
4. GUARANTOR'S ACKNOWLEDGMENT. By signing below, each Guarantor (i)
--------------------------
acknowledges, consents and agrees to the execution, delivery and performance by
the Borrower of this Consent, (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 Consent, or any of the
provisions contemplated herein, (iii) ratifies and confirms its obligations
under its Guaranty Agreement, and (iv) acknowledges and agrees that it has no
claim or offsets against, or defenses or counterclaims to, its Guaranty
Agreement as a result of this Consent.
5. REFERENCE TO THE PROMISSORY NOTE.
--------------------------------
(a) Upon the effectiveness of this Consent, 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 by this Consent.
(b) The Promissory Note, as affected by this Consent, shall remain in full
force and effect and is hereby ratified and confirmed.
6. COSTS, EXPENSES AND TAXES. The Borrower shall be obligated to pay the
-------------------------
costs and expenses of the Lender in connection with the preparation,
reproduction, execution and delivery of this Consent and the other instruments
and documents to be delivered hereunder.
7. EXECUTION IN COUNTERPARTS; EXECUTION VIA FACSIMILE. This Consent may
--------------------------------------------------
be executed in any number of counterparts and by different parties hereto in
separate counterparts, each of 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. This Consent may be validly executed and
delivered by facsimile or other electronic transmission.
-2-
<PAGE>
8. GOVERNING LAW; BINDING EFFECT. This Consent shall be governed by and
-----------------------------
construed in accordance with the laws of the State of Texas, and shall be
binding upon the Borrower and each Lender and their respective successors and
assigns.
9. HEADINGS. Section headings in this Consent are included herein for
--------
convenience of reference only and shall not constitute a part of this Consent
for any other purpose.
10. ENTIRE AGREEMENT. THE PROMISSORY NOTE, AS AMENDED BY THIS CONSENT,
----------------
REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AS TO THE SUBJECT MATTER
THEREIN AND 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
===============================================================================
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Consent as of the
date first above written.
PILLOWTEX CORPORATION
Jaime Vasquez
Vice President and Treasurer
-4-
<PAGE>
BANK OF AMERICA, N.A. (formerly known as NationsBank, N.A.)
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 know as Fieldcrest Cannon Sure Fit, Inc.)
FIELDCREST CANNON TRANSPORTATION, INC,
ST. MARYS, INC.
AMOSKEAG COMPANY
AMOSKEAG MANAGEMENT CORPORATION
DOWNEAST SECURITIES CORPORATION
BANGOR INVESTMENT COMPANY
MOORE'S FALLS CORPORATION
THE LESHNER CORPORATION
LESHNER OF CALIFORNIA, INC.
OPELIKA INDUSTRIES, INC.
Jaime Vasquez
Vice President and Treasurer
-5-
<PAGE>
EXHIBIT 10.51
EMPLOYMENT AGREEMENT
THIS AGREEMENT, dated as of December 15, 1999, is by and between Fieldcrest
Cannon, Inc., a Delaware corporation ("Employer"), and Richard A. Grissinger
("Employee").
WITNESSETH:
WHEREAS, Employee desires to enter into the employment of Employer and
Employer desires to employ Employee in the capacity and on the terms set forth
below.
NOW, THEREFORE, in consideration of the foregoing recital and of the mutual
agreements contained herein, and for other valuable consideration, receipt of
which is hereby acknowledged, the parties hereto agree as follows:
1. Employment and Scope.
--------------------
(a) Commencing as of December 15, 1999 (the "Commencement Date") and
continuing throughout the Term of this Agreement, Employer agrees to employ
Employee and Employee agrees to serve as the employee of Employer with the title
and capacity of Senior Vice President - Bed and Bath Marketing. As such,
Employee's duties shall include responsibility for the marketing of all sheets,
top of the bed products and bed and bath products, as well as such other
responsibilities as may be assigned from time to time by the Chairman of the
Board, the Chief Executive Officer, the President, the Chief Operating Officer
or the President of Sales and Marketing of Employer. Employee shall report to
the President of Sales and Marketing of Employer.
(b) Employee's performance of services under this Agreement shall
occur primarily at Employer's executive offices at One Lake Circle Drive,
Kannapolis, North Carolina
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28081, subject to such travel as is consistent with the office of Senior Vice
President - Bed and Bath Marketing.
(c) During the Term of Employee's employment, Employee shall devote
Employee's full business time (at least 40 hours per week) exclusively to the
performance of Employee's duties as stated in this Agreement and to the
furtherance of Employer's business.
2. Term.
----
(a) The term of this Agreement (the "Term") shall begin on the
Commencement Date and shall continue through the second anniversary thereof,
subject to automatic extension as provided below and unless terminated earlier
in accordance with Section 4.
(b) The Term of this Agreement will be automatically extended for an
additional one year at the end of the initial or any extended Term hereof unless
either Employer or Employee shall give the other at least six (6) months written
notice of termination, prior to the end of the initial Term or any extension of
the Term hereof.
3. Compensation. During the Term of this Agreement, Employer shall
------------
compensate Employee as set forth below:
(a) Employer shall pay to Employee a base salary of $275,000, payable
in accordance with Employer's payroll policies in effect from time to time for
executive officers generally, subject to all appropriate withholdings.
(b) Employee shall be eligible to participate in Employer's incentive
bonus plans as they may be amended from time to time to the same extent as
similarly situated executive officers generally.
(c) Employee shall be entitled to the amount of vacation to which
Employee would be entitled under Employer's vacation policy as it may be amended
from time to time.
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(d) Employee shall be entitled to participate in Employer's health,
benefit and welfare plans offered by Employer as they may be amended from time
to time to the same extent as similarly situated executive officers of Employer
generally.
(e) Employer will pay Employee a car allowance of $750 per month plus
an additional amount equal to all federal and state income taxes arising with
respect to any portion of the allowance taxable as income to Employee.
4. Termination During Term. Notwithstanding anything to the contrary in
-----------------------
Section 2 of this Agreement, Employee's employment under this Agreement may be
terminated during the Term as set forth below:
(a) Employer may terminate Employee's employment for Cause, in which
case the parties' rights and obligations shall be as set forth in Section 5(a)
below.
(b) Employer may terminate Employee's employment in the absence of
Cause and other than upon Employee's Retirement or Permanent Disability, in
which case the parties' rights and obligations shall be as set forth in either
Section 5(b) or (e) below, as applicable.
(c) Employee's employment shall be terminated upon Employee's
Permanent Disability, in which case the parties' rights and obligations shall be
as set forth in Section 5(c) below.
(d) Employee's employment shall be terminated upon Employee's
Retirement, in which case the parties' rights and obligations shall be as set
forth in Section 5(d) below.
(e) In the event of a Change in Control of Pillowtex or Employer,
Employee may terminate Employee's employment (i) for any reason, for up to six
months after the Change in Control of Pillowtex or Employer, or (ii) for Good
Reason, in which case the parties' rights and obligations shall be as set forth
in Section 5(e) below.
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(f) Employee may terminate Employee's employment at any time for any
reason not heretofore enumerated, in which case the parties' rights and
obligations shall be as set forth in Section 5(f) below.
(g) The following definitions shall apply for purposes of the early
termination of the Term of this Agreement:
(i) "Cause" shall mean the occurrence of any of the following:
(A) Employee's engagement in any personal misconduct involving willful
dishonesty, illegality, or moral turpitude that is demonstrably and materially
detrimental or injurious to the business interests, reputation or goodwill of
Employer or its affiliates; (B) Employee's engagement in any act involving
willful dishonesty, disloyalty, or infidelity against Employer or its
affiliates; (C) Employee's willful and continued breach of or failure
substantially to perform under any of the material terms and covenants of this
Agreement; and (D) Employee's willful and continued breach of or failure
substantially to perform under any material policy established by the Company
with respect to the operation of the Company's business and affairs, or the
conduct of the Company's employees. For purposes of this Section 4(g)(i), no
act, or failure to act, on Employee's part shall be considered "willful" unless
done, or omitted to be done, by Employee in bad faith and without reasonable
belief that Employee's action or omission was in the best interest of Employer.
Prior to asserting any action or failure to act as Cause for Employee's
termination as set forth above, Employer shall provide Employee a written notice
referencing this Section 4(g)(i), setting out with specificity the conduct
asserted to constitute Cause. Any disputes arising as to whether Cause existed
for Employee's termination shall be resolved through binding arbitration in
accordance with Section 9 of this Agreement.
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<PAGE>
(ii) "Change in Control of Pillowtex or Employer" means the
occurrence during the Term of any of the following events:
(A) Pillowtex Corporation, a Texas corporation
("Pillowtex"), or Employer is merged, consolidated or reorganized into or with
another corporation or other legal person, and as a result of such merger,
consolidation or reorganization less than a majority of the combined voting
power of the then-outstanding securities entitled to vote generally in the
election of directors ("Voting Stock") of such corporation or person immediately
after such transaction are held in the aggregate by the holders of Voting Stock
of Pillowtex or Employer, as the case may be, immediately prior to such
transaction;
(B) Pillowtex or Employer sells or otherwise transfers
all or substantially all of its assets to another corporation or other legal
person, and as a result of such sale or transfer less than a majority of the
combined voting power of the then-outstanding Voting Stock of such corporation
or person immediately after such sale or transfer is held in the aggregate by
the holders of Voting Stock of Pillowtex or Employer, as the case may be,
immediately prior to such sale or transfer;
(C) There is a report filed on Schedule 13D or Schedule
14D-1 (or any successor schedule, form or report), each as promulgated pursuant
to the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
disclosing that any person (as the term "person" is used in Section 13(d)(3) or
Section 14(d)(2) of the Exchange Act) other than an "Excluded Person" as defined
below has become the beneficial owner (as the term "beneficial owner" is defined
under Rule 13d-3 or any successor rule or regulation promulgated under the
Exchange Act) of securities representing 35% or more of the combined voting
power of the then-outstanding Voting Stock of Pillowtex; or
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(D) If, during any period of 24 consecutive months,
individuals who at the beginning of any such period constitute the Directors of
Pillowtex cease for any reason to constitute at least a majority thereof;
provided, however, that for purposes of this clause (D) each Director who is
first elected, or first nominated for election by Pillowtex's stockholders, by a
vote of at least two-thirds of the Directors of Pillowtex (or a committee
thereof) then still in office who were Directors of Pillowtex at the beginning
of any such period will be deemed to have been a Director of Pillowtex at the
beginning of such period.
(iii) "Excluded Person" shall mean any of (A) Charles M. Hansen,
Jr., Mary R. Silverthorne or the John H. Silverthorne Estate or any person for
which any of Charles M. Hansen, Jr., Mary R. Silverthorne or the John H.
Silverthorne Estate are deemed to hold beneficial ownership of securities of
Pillowtex registered in the name of such person; (B) Pillowtex; (C) any entity
in which Pillowtex directly or indirectly owns 50% or more of the outstanding
Voting Stock (a "Subsidiary"); or (D) any employee benefit plan sponsored by
Pillowtex or any Subsidiary.
(iv) "Good Reason" shall mean termination of Employee's
employment by Employee after a Change in Control of Pillowtex or Employer upon
the occurrence of any of the following:
(A) the assignment to Employee of any duties inconsistent
with Employee's position, duties and status with Employer as existing
immediately prior to a Change in Control of Pillowtex or Employer; a substantial
alteration in the nature or status of Employee's responsibilities from those in
effect immediately prior to a Change in Control of Pillowtex or Employer; the
failure to provide Employee with substantially the same perquisites which
Employee had immediately prior to a Change in Control of Pillowtex or Employer,
including but not limited to an office and appropriate support services; or a
change in Employee's titles or offices as in effect
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immediately prior to a Change in Control of Pillowtex or Employer, or any
removal of Employee from or failure to re-elect Employee to any such positions;
(B) a reduction by Employer in Employee's base salary in
effect immediately prior to a Change in Control of or Pillowtex or Employer;
(C) the requirement by Employer that Employee be based
anywhere other than the metropolitan area in which Employee's office is located
immediately prior to a Change in Control of Pillowtex or Employer, except for
required travel on Employee's business to an extent substantially consistent
with Employee's business travel obligations immediately prior to a Change in
Control of Pillowtex or Employer; or
(D) the taking of any action by Employer which would (1)
materially and adversely affect Employee's participation in or materially reduce
Employee's benefits under any employee benefit or compensation plan in which
Employee participates immediately prior to a Change in Control of Pillowtex or
Employer, or (2) deprive Employee of any material fringe benefit enjoyed by
Employee, or to which Employee is entitled, as existing immediately prior to a
Change in Control of Pillowtex or Employer
(v) "Permanent Disability" shall mean any physical or mental
impairment rendering Employee unable to perform the essential functions of
Employee's job (as determined by Employer), with or without reasonable
accommodation that does not constitute undue hardship to Employer, and such
impairment is permanent or is likely to continue for a period exceeding six
consecutive months. If Employee fails to notify Employer of Employee's need for
accommodation, Employer is not required to accommodate Employee and may hold
Employee to the same standards as persons without a disability. The
determination of whether Employee has a Permanent Disability shall be made as
set forth below. During any period in which the existence of a Permanent
Disability
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<PAGE>
is being determined, Employee shall continue to receive Employee's full base
salary at the rate then in effect and all compensation and benefits paid during
such period until a Permanent Disability is conclusively determined and this
Agreement is terminated in accordance with Section 8 hereof, provided Employee
(and Employee's personal and legal representatives) act in good faith and with
reasonable diligence in pursuing a determination. This definition is not
intended to either expand or limit any rights and protections granted to
Employee by law. Employer may require Employee to be examined by a physician, at
Employee's own expense, in order to determine whether Employee has a Permanent
Disability. If Employer disagrees with the written opinion of this physician
("First Physician"), it may engage, at its own expense, another physician
("Second Physician") to examine Employee. If the First and Second Physicians
agree in writing that Employee has not suffered a Permanent Disability, their
written opinion shall, except as otherwise set forth in this Section 4(g)(v), be
conclusive on the issue of Permanent Disability. If the First and Second
Physicians disagree on whether Employee has suffered a Permanent Disability,
they shall choose a third consulting physician (whose expense shall be shared
equally by Employer and Employee) and the written opinion of a majority of these
three physicians shall be conclusive as to the issue of Permanent Disability. In
connection with a Permanent Disability determination, Employee hereby consents
to any required medical examination and agrees to furnish any medical
information requested by any examining physician and to waive any applicable
physician-patient privilege that may arise because of such examination. All
physicians must be board certified in the specialty most closely related to the
nature of the Permanent Disability alleged to exist.
(vi) "Retirement" shall mean termination by Employer or
Employee in accordance with Employer's retirement policy (including early
retirement, if included in such policy and elected by Employee in writing)
generally applicable to its senior executive employees, or in
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accordance with any other retirement agreement entered into by and between
Employee and Employer.
5. Compensation Upon Termination. If Employee's employment is terminated
-----------------------------
during the Term of this Agreement, Employee shall be entitled to compensation as
set forth below:
(a) If Employer terminates Employee's employment for Cause, Employer
shall pay Employee's undiscounted base salary through the date of Employee's
termination at the rate then in effect and all amounts to which Employee is
entitled upon termination of employment under Employer's employee benefit plans.
(b) If Employer terminates Employee's employment without Cause, then
Employer shall pay Employee, not later than the fifth day following the date of
termination, a severance payment equal to the sum of (i) Employee's undiscounted
base salary through the date of Employee's termination at the rate then in
effect and all amounts to which Employee is entitled upon termination of
employment under Employer's employee benefit plans; and (ii) Employee's
undiscounted base salary through the remaining duration of the Term or, if
greater, for a period of 24 months, at the highest rate in effect during the 12
months immediately preceding the date of Employee's termination. The severance
payment provided for in clause (ii) of the first sentence of this Section 5(b)
shall be paid, at the option of the Employer, either in a lump sum or in equal
installments during the severance period in accordance with Employer's customary
pay practices. Notwithstanding the foregoing, the provisions of this Section
5(b) shall not apply if Employer terminates Employee's employment without Cause
subsequent to a Change in Control of Employer.
(c) If Employee's employment is terminated upon Employee's Permanent
Disability, Employer shall pay Employee's undiscounted base salary through the
date of Employee's termination at the rate then in effect and all amounts to
which Employee is entitled upon termination
9
<PAGE>
of employment under Employer's employee benefit plans. Employee's additional
compensation and benefits, if any, shall be determined in accordance with
Employer's employee benefit plans or other insurance programs then in effect.
(d) If Employee's employment is terminated upon Employee's
Retirement, Employer shall pay Employee's undiscounted base salary through the
date of Employee's termination at the rate then in effect and all amounts to
which Employee is entitled upon termination of employment under Employer's
employee benefit plans. Employee's additional compensation and benefits shall be
determined in accordance with Employer's retirement policy applicable to
similarly situated executive employees or in accordance with any other
retirement agreement entered into by and between Employee and Employer.
(e) If, at any time within two (2) years after the effective date of
a Change in Control of Pillowtex or Employer, Employee's employment (x) is
terminated by Employee for any reason during a period of six months beginning on
the date of the Change in Control of Pillowtex or Employer, or if less, during
the remaining duration of the Term; (y) is terminated by Employee for Good
Reason; or (z) is terminated by Employer without Cause (and not by reason of
Employee's Permanent Disability Retirement, or death), Employee shall be
entitled to the compensation and benefits provided below:
(i) Employer shall pay Employee's undiscounted base salary
through the date of Employee's termination at the rate then in effect;
(ii) Employer shall pay all amounts to which Employee is
entitled upon termination of employment under Employer's employee benefit plans;
(iii) Employer shall pay as severance pay to Employee, not later
than the fifth day following Employee's termination, a lump sum severance
payment (together with the
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payments described in Sections 5(e)(iv) and (v), the "Severance Payments") equal
to the product obtained by multiplying Employee's undiscounted annual base
salary at the highest rate in effect during the 12 months immediately preceding
Employee's termination by two;
(iv) in lieu of shares of common stock, $0.01 par value, of
Pillowtex (the "Shares") issuable upon the exercise of options ("Options"), if
any, granted to Employee under any stock option plan of Pillowtex (which Options
shall be canceled upon the making of the payment referred to below), Employer
shall pay Employee in one sum in cash, not later than the fifth day following
the date of Employee's termination, an aggregate amount equal to the product of
(A) the difference (to the extent that such differences are a positive number)
obtained by subtracting the per Share exercise price of each Option held by
Employee, whether or not then fully exercisable, from the higher of (1) the
closing price of the Shares, as reported on the New York Stock Exchange on the
Date of Termination (or the last trading date prior thereto) or (2) the highest
price per Share actually paid in connection with any Change in Control of
Pillowtex or Employer, and (B) the number of shares covered by each such Option;
(v) Employer shall pay Employee the retirement benefits to
which Employee is entitled under Employee's retirement policy or other
retirement agreement;
(vi) Employer shall reimburse Employee for all legal fees and
expenses incurred by Employee as a result of such termination (including all
such fees and expenses, if any, incurred in successfully contesting or disputing
any such termination or seeking to obtain or enforce any right or benefit
provided by this Agreement); and
(vii) if Severance Payments become subject to the excise tax
(the "Excise Tax") imposed under section 4999 of the Internal Revenue Code of
1986, as amended (the "Code"), Employer shall pay to Employee an additional
amount (the "Gross-Up Payment") such that the net
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amount retained by Employee, after deduction of any Excise Tax on the Severance
Payments (and any federal, state and local income tax and Excise Tax upon the
payment provided for in this Section 5(e)(vii)), shall be equal to the Severance
Payments. For purposes of determining whether any of the Severance Payments will
be subject to the Excise Tax and the amount of such Excise Tax, (A) any other
payment or benefit received or to be received by Employee in connection with a
Change in Control of Employer and Employee's subsequent termination of
employment (whether pursuant to the terms of this Agreement or any other plan,
arrangement or agreement with Employer, any person whose actions resulted in the
Change in Control of Employer or any person affiliated with Employer or such
person) shall be treated as a "parachute payment" within the meaning of section
280G(b)(2) of the Code, and all "excess parachute payments" within the meaning
of section 280G(b)(1) of the Code shall be treated as subject to the Excise Tax,
unless in the opinion of tax counsel selected by Employer's independent auditors
and reasonably acceptable to Employee such other payments or benefits (in whole
or in part) do not constitute parachute payments, (B) the amount of the
Severance Payments which shall be treated as subject to the Excise Tax shall be
equal to the lesser of (1) the total amount of the Severance Payments and (2)
the amount of excess parachute payments within the meaning of section
280(G)(b)(1) of the Code (after applying clause (A) above), and (C) the value of
any non-cash benefit, deferred payment or other benefit shall be determined by
Employer's independent auditors in accordance with the principles of sections
280(G)(d)(3) and (4) of the Code and the applicable Treasury Regulations. For
purposes of determining the amount of the Gross-Up Payment, Employee shall be
deemed to pay federal income taxes at the highest marginal rate of federal
income taxation in the calendar year in which the Gross-Up Payment is to be made
and state and local income taxes at the highest marginal rate of taxation in the
state and locality of Employee's residence on the date of Employee's
termination, net of the maximum reduction in
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federal income taxes which could be obtained from deduction of such state and
local taxes. If the Excise Tax is subsequently determined to be less than the
amount taken into account hereunder at the time of Employee's termination of
employment, Employee shall repay to Employer, at the time that the amount of
such reduction in Excise Tax is finally determined, the portion of the Gross-Up
Payment attributable to such reduction (plus that portion of the Gross-Up
Payment attributable to the Excise Tax and federal, state and local income tax
imposed on the Gross-Up Payment being repaid by Employee to the extent that such
repayment results in a reduction in Excise Tax and/or a federal, state or local
income tax deduction) plus interest on the amount of such repayment at the rate
provided in section 1274(b)(2)(B) of the Code. If the Excise Tax is determined
to exceed the amount taken into account hereunder at the time of the termination
of Employee's employment (including by reason of any payment the existence or
amount of which cannot be determined at the time of the Gross-Up Payment),
Employer shall make an additional Gross-Up Payment in respect of such excess
(plus any interest, penalties or additions payable by Employee with respect to
such excess) at the time that the amount of such excess is finally determined.
Employee and Employer shall each reasonably cooperate with the other in
connection with any administrative or judicial proceedings concerning the
existence or amount of liability for Excise Tax with respect to the Severance
Payments.
(f) If Employee terminates Employee's employment under circumstances
in which Section 5(e) does not apply, or if Employee's employment is terminated
by reason of his death, Employer shall pay Employee's full base salary through
the date of Employee's termination at the rate then in effect and all amounts to
which Employee is entitled upon termination of employment under Employer's
employee benefit plans.
6. Insurance. If Employee's employment is terminated under the provisions
---------
of Section 4(e) of this Agreement, Employee shall participate, for a period of
two years from the date
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of Employee's termination, in all employee benefit plans providing health and
dental benefits in which Employee participated or was entitled to participate
immediately prior to Employee's termination, provided that such participation is
permitted under the general terms and provisions of such plans and under
applicable law. If Employee's participation in any such plan is not permitted
for any reason, Employer shall arrange to provide Employee, at Employer's sole
cost and expense, with benefits substantially similar to those which Employee is
entitled to receive under such plans. At the end of such two year period,
Employee will be entitled to take advantage of any conversion privileges
applicable to the benefits available under any such plans.
7. Future Employment. Employee shall not be required to mitigate the
-----------------
amount of any payment provided for in Section 5 hereof by seeking other
employment or otherwise, nor shall the amount of any payment provided for in
Section 5 hereof be reduced by any compensation earned by Employee as a result
of employment by another employer after the date of Employee's termination, or
otherwise.
8. Notice of Termination.
---------------------
(a) Any purported termination by Employer or by Employee shall be
communicated by a written "Notice of Termination" to the other party. A Notice
of Termination shall mean a notice indicating the specific termination provision
in this Agreement relied upon and setting forth in reasonable detail the facts
and circumstances claimed to provide a basis for termination of Employee's
employment under the provision so indicated.
(b) The "date of Employee's termination" shall be: (i) if Employee's
employment is terminated by reason of Employee's Permanent Disability, the date
that is 30 days after the determination of Permanent Disability pursuant to
Section 4(g)(v) of this Agreement, (ii) if Employee's employment is terminated
for Cause, the date specified in the Notice of Termination, or
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(iii) if Employee's employment is terminated for any other reason, the date
specified in the Notice of Termination, provided such date is not more than 30
days from the date such Notice of Termination is given.
9. Arbitration. All disputes or claims arising under this Agreement or in
-----------
connection with Employee's employment with Employer (including any claims under
any federal, state, or local law or ordinance), except for any dispute or claim
arising under Sections 10, 11, 12, 13, and 16 of this Agreement, shall be
subject to binding arbitration pursuant to the Commercial Arbitration Rules of
the American Arbitration Association, the cost of which shall be borne by the
party against whom an arbitration award is entered.
10. Nondisclosure Agreement. Employer, during the term of Employee's
-----------------------
employment under this Agreement, shall provide Employee access to, and Employee
shall have access to and become familiar with, various trade secrets and
proprietary and confidential information consisting of, but not limited to,
financial statements, processes, computer programs, compilations of information,
records, sales procedures, customer requirements, pricing techniques, customer
lists, methods of doing business and other confidential information
(collectively referred to herein as the "Trade Secrets"), which are owned by
Employer and its affiliates and are regularly used in the operation of their
businesses, but in connection with which Employer and its affiliates take
precautions to prevent dissemination to persons other than certain directors,
officers and employees. Employee acknowledges and agrees that the Trade Secrets
(a) are secret and not known in Employer's industry; (b) are entrusted to
Employee after being informed of their confidential and secret status by
Employer or its affiliates and because of the fiduciary position occupied by
Employee with Employer; (c) have been developed by Employer and its affiliates
for and on behalf of Employer and its affiliates through substantial
expenditures of time, effort and money and are used in their
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businesses; (d) give Employer and its affiliates an advantage over competitors
who do not know or use the Trade Secrets; (e) are of such value and nature as to
make it reasonable and necessary to protect and preserve the confidentiality and
secrecy of the Trade Secrets; and (f) are valuable, special and unique assets of
Employer and its affiliates, the disclosure of which could cause substantial
injury and loss of profits and goodwill to Employer and its affiliates. Employee
shall not use in any way or disclose any of the Trade Secrets, directly or
indirectly, either during the Term of this Agreement or at any time thereafter,
except as required in the course of Employee's employment under this Agreement.
All files, records, documents, information, data and similar items relating to
the business of Employer and its affiliates, whether prepared by Employee or
otherwise coming into Employee's possession, shall remain the exclusive property
of Employer and its affiliates and shall not be removed from the premises of
Employer and its affiliates under any circumstances without the prior written
consent of the Board of Directors of Employer (except in the ordinary course of
business during Employee's period of active employment under this Agreement),
and in any event shall be promptly delivered to Employer upon termination of
this Agreement. Employee agrees that upon Employee's receipt of any subpoena,
process or other request to produce or divulge, directly or indirectly, any
Trade Secrets to any entity, agency, tribunal or person, Employee shall timely
notify and promptly hand deliver a copy of the subpoena, process or other
request to the Chief Executive Officer of Pillowtex. For this purpose, Employee
irrevocably nominates and appoints Employer (including any attorney retained by
Employer), as Employee's true and lawful attorney-in-fact, to act in Employee's
name, place and stead to perform any act that Employee might perform to defend
and protect against any disclosure of any Trade Secrets.
16
<PAGE>
As used in this Agreement, "affiliates" shall mean persons or entities that
directly, or indirectly through one or more intermediaries, control or are
controlled by, or are under common control with, Employer.
11. Intentionally Omitted.
12. Nonemployment Agreement. During the period of employment with
-----------------------
Employer and for a period of two years thereafter, Employee shall not, on
Employee's own behalf or on behalf of any other person, partnership,
association, corporation or other entity, hire or solicit or in any manner
attempt to influence or induce any employee of Employer or its affiliates to
leave the employment of Employer or its affiliates, nor shall Employee use or
disclose to any person, partnership, association, corporation or other entity
any information obtained while an employee of Employer concerning the names and
addresses of the employees of Employer or its affiliates.
13. Nondisparagement Agreement. Employee shall not, either during the
--------------------------
Term of this Agreement or at any time thereafter, make statements, whether
orally or in writing, concerning Employer, any of its directors, officers,
employees or affiliates or any of its business strategies, policies or
practices, that shall be in any way disparaging, derogatory or critical, or in
any way harmful to the reputation of Employer, any such persons or entities or
business strategies, policies or practices.
14. Successors; Binding Agreement.
-----------------------------
(a) Employer will require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially all of
the business and/or assets of Employer, by agreement in form and substance
satisfactory to Employee, to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that Employer would be
required to perform it if no such succession had taken place. Failure of
Employer to obtain such
17
<PAGE>
agreement prior to the effectiveness of any succession shall be a breach of this
Agreement and shall entitle Employee to compensation from Employer in the same
amount and on the same terms as Employee would be entitled hereunder if Employee
terminated Employee's employment for Good Reason, except that for purposes of
implementing the foregoing, the date on which any such succession becomes
effective shall be deemed the date of Employee's termination. As used in this
Agreement, "Employer" shall mean Employer as hereinbefore defined and any
successor to its business and/or assets as aforesaid which executes and delivers
the agreement provided for in this Section 14 or which otherwise becomes bound
by all the terms and provisions of this Agreement by operation of law or
otherwise.
(b) This Agreement shall inure to the benefit of and be enforceable
by Employee's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. In the event of
Employee's death, any amounts owed to Employer under this Agreement shall be
paid to Employee's surviving spouse, if any, and if none, to Employee's estate.
15. Severability. The parties hereto intend all provisions of Sections
------------
10, 11, 12, 13 and 16 hereof to be enforced to the fullest extent permitted by
law. Accordingly, should a court of competent jurisdiction determine that the
scope of any provision of Sections 10, 11, 12, 13 and 16 hereof is too broad to
be enforced as written, the parties intend that the court reform the provision
to such narrower scope as it determines to be reasonable and enforceable. In
addition, however, Employee agrees that the provisions of each of the foregoing
sections constitute separate agreements independently supported by good and
adequate consideration and shall be severable from the other provisions of, and
shall survive, this Agreement. The existence of any claim or cause of action of
Employee against Employer, whether predicated on this Agreement or otherwise,
shall not constitute a defense to the enforcement by Employer of the covenants
and agreements of Employee contained
18
<PAGE>
in the non-competition, nondisclosure, nonemployment or nondisparagement
agreements. If any provision of this Agreement is held to be illegal, invalid or
unenforceable under present or future laws effective during the term hereof,
such provision shall be fully severable and this Agreement shall be construed
and enforced as if such illegal, invalid or unenforceable provision never
comprised a part of this Agreement; and the remaining provisions of this
Agreement shall remain in full force and effect and shall not be affected by the
illegal, invalid or unenforceable provision or by its severance therefrom.
Furthermore, in lieu of such illegal, invalid or unenforceable provision, there
shall be added automatically as part of this Agreement, a provision as similar
in its terms to such illegal, invalid or unenforceable provision as may be
possible and be legal, valid and enforceable.
16. Inventions. Employee shall promptly disclose, grant and assign to
----------
Employer for its sole use and benefit any and all inventions, improvements,
technical information and suggestions relating in any way to the products of
Employer or any of its affiliates or capable of beneficial use by Employer or
any of its affiliates, which Employee has in the past conceived, developed or
acquired, or may conceive, develop or acquire during the term hereof (whether or
not during usual working hours), together with all patent applications, letters
patent, copyrights and reissues thereof that may at any time be granted upon any
such invention, improvement or technical information. In connection therewith,
Employee shall promptly at all times during and after the term hereof:
(a) execute and deliver such applications, assignments, descriptions
and other instruments as may be necessary or proper in the opinion of Employer
to vest title to such inventions, improvements, technical information, patent
applications and patents or reissues thereof in Employer and to enable it to
obtain and maintain the entire right and title thereto throughout the world; and
(b) render to Employer, at its expense, all such assistance as it may
require in the prosecution of applications for said patents or reissues thereof,
in the prosecution or defense of
19
<PAGE>
interferences which may be declared involving any said application or patents
and in any litigation in which Employer or its affiliates may be involved
relating to any such patents, inventions, improvements or technical information.
17. Affiliates. Employee will use Employee's best efforts to ensure that
----------
no relative of his or corporation of which Employee is an officer, director or
shareholder, or other affiliate of his, shall take any action that Employee
could not take without violating any provision of this Agreement.
18. Remedies. Employee recognizes and acknowledges that the ascertainment
--------
of damages in the event of his breach of any provision of this Agreement would
be difficult, and Employee agrees that Employer, in addition to all other
remedies it may have, shall have the right to injunctive relief if there is such
a breach.
19. Notices. Any notices, consents, demands, requests, approvals and
-------
other communications to be given under this Agreement by either party to the
other shall be in writing and shall be either (i) delivered in person, (ii)
mailed by registered or certified mail, return receipt requested, postage
prepaid, (iii) delivered by overnight express delivery service or same-day local
courier service or (iv) delivered by facsimile transmission, to the addresses
set forth below.
If to Employer: Fieldcrest Cannon, Inc.
4111 Mint Way
Dallas, Texas 75237
Attention: President and Chief Operating Officer
Facsimile No. (214) 339-8565
If to Employee: Richard A. Grissinger
18703 Headsail Court
Cornelius, North Carolina 28031
Notices delivered personally, by overnight express delivery, local courier or
facsimile shall be deemed communicated as of actual receipt; mailed notices
shall be deemed communicated as of three days after mailing.
20
<PAGE>
20. Entire Agreement. This Agreement supersedes any and all other
----------------
agreements, either oral or written, between the parties hereto with respect to
the subject matter hereof, including, without limitation, that certain Employee
Retention Agreement between Employee and Employer, and contains all of the
covenants and agreements between the parties with respect thereto.
21. Modification. No change or modification of this Agreement shall be
------------
valid or binding upon the parties hereto, nor shall any waiver of any term or
condition in the future be so binding, unless such change or modification or
waiver shall be in writing and signed by the parties hereto.
22. GOVERNING LAW AND VENUE. THE PARTIES ACKNOWLEDGE AND AGREE THAT THIS
-----------------------
AGREEMENT AND THE OBLIGATIONS AND UNDERTAKINGS OF THE PARTIES HEREUNDER WILL BE
PERFORMABLE IN KANNAPOLIS, NORTH CAROLINA. THIS AGREEMENT SHALL BE GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NORTH CAROLINA. IF
ANY ACTION IS BROUGHT TO ENFORCE OR INTERPRET THIS AGREEMENT, VENUE FOR SUCH
ACTION SHALL BE IN CARRABUS COUNTY, NORTH CAROLINA. EACH OF THE PARTIES HERETO
HEREBY AGREES IRREVOCABLY AND UNCONDITIONALLY TO CONSENT TO SUBMIT TO THE
EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NORTH CAROLINA AND OF THE
UNITED STATES OF AMERICA LOCATED IN CHAROLETTE, NORTH CAROLINA FOR ANY ACTIONS,
SUITS OR PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT AND FURTHER
AGREES THAT SERVICE OF PROCESS, SUMMONS OR NOTICE BY U.S. REGISTERED MAIL TO THE
APPLICABLE ADDRESSES SET FORTH IN SECTION 19 HEREIN SHALL BE EFFECTIVE SERVICE
OF PROCESS OF ANY ACTION, SUIT OR PROCEEDING BROUGHT AGAINST SUCH PARTY IN ANY
SUCH COURT.
21
<PAGE>
23. Counterparts. This Agreement may be executed in counterparts, each of
------------
which shall constitute an original, but all of which shall constitute one
document.
24. Costs. If any action or law or in equity is necessary to enforce or
-----
interpret the terms of this Agreement, the prevailing party shall be
entitled to reasonable attorneys' fees, costs and necessary disbursements
in addition to any other relief to which Employee or it may be entitled.
25. Assignment. Employer shall have the right to assign this Agreement to
----------
its successors or assigns. The terms "successors" and "assigns" shall include
any person, corporation, partnership or other entity that buys all or
substantially all of Employer's assets or all of its stock, or with which
Employer merges or consolidates. The rights, duties and benefits to Employee
hereunder are personal to Employee, and no such right or benefit may be assigned
by Employee.
26. Binding Effect. This Agreement shall be binding upon the parties
--------------
hereto, together with their respective executors, administrators, successors,
personal representatives, heirs and assigns.
27. No Waiver. The failure by Employer to enforce at any time any of the
---------
provisions of this Agreement or to require at any time performance by Employee
of any of the provisions hereof shall in no way be construed to be a waiver of
such provisions or to affect the validity of this Agreement, or any part hereof,
or the right of Employer thereafter to enforce each and every such provision in
accordance with the terms of this Agreement.
22
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
FIELDCREST CANNON, INC.
By: Charles M. Hansen, Jr.
Chairman and Chief Executive Officer
EMPLOYEE
Richard A. Grissinger
23
<PAGE>
EXHIBIT 21.1
PRINCIPAL OPERATING SUBSIDIARIES
State of Incorporation
----------------------
Beacon Manufacturing Company North Carolina
Pillowtex Canada Inc. Ontario, Canada
Fieldcrest Cannon, Inc. Delaware
Encee, Inc. Delaware
The Leshner Corporation Ohio
Opelika Industries, Inc. Alabama
Pillowtex, Inc. Delaware
Pillowtex Management Services Company Delaware
<PAGE>
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Pillowtex Corporation:
We consent to the incorporation by reference in Registration Statements (nos.
33-65408, 33-84624, 33-81478, 333-39191 and 333-57727) on Form S-8 of Pillowtex
Corporation of our report dated February 15, 2000, except for Note 11, as to
which the date is March 31, 2000, relating to the consolidated balance sheets of
Pillowtex Corporation and subsidiaries as of January 2, 1999 and January 1,
2000, and the related consolidated statements of operations, shareholders'
equity, and cash flows for each of the years in the three-year period ended
January 1, 2000, and related schedule, which report is included in the January
1, 2000 annual report on Form 10-K of Pillowtex Corporation.
KPMG LLP
Dallas, Texas
March 31, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> JAN-02-1999 JAN-01-2000
<PERIOD-START> JAN-04-1998 JAN-03-1999
<PERIOD-END> JAN-02-1999 JAN-01-2000
<CASH> 5,561 4,854
<SECURITIES> 0 0
<RECEIVABLES> 267,465 301,850
<ALLOWANCES> 21,117 33,351
<INVENTORY> 434,281 423,052
<CURRENT-ASSETS> 707,157 721,425
<PP&E> 629,205 644,821
<DEPRECIATION> 43,555 49,296
<TOTAL-ASSETS> 1,654,154 1,683,389
<CURRENT-LIABILITIES> 259,224 316,693
<BONDS> 944,493 965,323
63,057 73,898
0 0
<COMMON> 141 142
<OTHER-SE> 237,792 207,247
<TOTAL-LIABILITY-AND-EQUITY> 1,654,154 1,683,389
<SALES> 1,509,841 1,552,068
<TOTAL-REVENUES> 0 0
<CGS> 1,237,085 1,358,966
<TOTAL-COSTS> 1,237,085 1,358,966
<OTHER-EXPENSES> 122,338 119,022
<LOSS-PROVISION> 6,347 12,234
<INTEREST-EXPENSE> 72,288 87,279
<INCOME-PRETAX> 70,244 (27,433)
<INCOME-TAX> 27,389 (7,901)
<INCOME-CONTINUING> 42,855 (19,532)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 40,758 (31,826)
<EPS-BASIC> 2.89 (2.25)
<EPS-DILUTED> 2.52 (2.25)
</TABLE>
