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EXHIBIT 10.2
________________________________________________________________________
PREFERRED STOCK PURCHASE AGREEMENT
dated as of September 10, 1997
between
PILLOWTEX CORPORATION
and
THE PURCHASERS SET FORTH HEREIN
________________________________________________________________________
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TABLE OF CONTENTS
Page
ARTICLE 1 DEFINITIONS: CERTAIN REFERENCES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE 2 CLOSING AND PAYMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 2.1 Time and Place of the Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 2.2 Transactions at the Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE 3 REPRESENTATIONS AND WARRANTIES
OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 3.1 Organization, Power, Authority, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 3.2 Due Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 3.3 Validity, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 3.4 Capitalization of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 3.5 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 3.6 SEC Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 3.7 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 3.8 Contingent Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 3.9 Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 3.10 No Existing Violation, Default, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 3.11 Licenses, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 3.12 Title to Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 3.13 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 3.14 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 3.15 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 3.16 Labor Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 3.17 Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 3.18 Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 3.19 Finder's Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 3.20 Employee Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 3.21 Absence of Certain Developments; No Material Adverse Change . . . . . . . . . . . . . . . . . . . . 17
Section 3.22 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 3.23 Securities Law Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 3.24 Accuracy of Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 3.25 Intellectual Property Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 3.26 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 3.27 Certain Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE 4 REPRESENTATIONS AND WARRANTIES
OF THE PURCHASERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 4.1 Organization, Good Standing, Power, Authority, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 4.2 No Conflicts; No Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
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Section 4.3 Acquisition for Own Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 4.4 Ownership of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 4.5 Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 4.6 Investor Suitability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 4.7 Disclosure of Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 4.8 Investment Experience . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 4.9 Restricted Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 4.10 Finder's Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
ARTICLE 5 COVENANTS OF THE PARTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 5.1 Legends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 5.2 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 5.3 Pre-Closing Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 5.4 No Inconsistent Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 5.5 Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 5.6 ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 5.7 Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 5.8 Publicity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 5.9 Reservation of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 5.10 Licenses; Other Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 5.11 Material Changes and Other Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 5.12 Compliance with Applicable Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 5.13 Disclosure Schedule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 5.14 Operational Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
ARTICLE 6 SURVIVAL AND INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 6.1 Survival Periods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 6.2 Indemnification by the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 6.3 Notification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 6.4 Registration Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
ARTICLE 7 REGISTRATION RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 7.1 Demand Registrations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 7.2 Piggyback Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 7.3 Indemnification by the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 7.4 Indemnification by the Purchasers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 7.5 Notices of Claims, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 7.6 Other Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 7.7 Contribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 7.8 Registration Covenants of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 7.9 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 7.10 Assignment of Registration Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 7.11 Other Registration Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 7.12 Rule 144; Rule 144A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 7.13 Limitation on Requirement to File or Amend Registration Statement . . . . . . . . . . . . . . . . . 38
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ARTICLE 8 TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 8.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 8.2 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
ARTICLE 9 CONDITIONS PRECEDENT TO THE OBLIGATIONS
OF THE PURCHASERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 9.1 Compliance by the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 9.2 No Injunction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 9.3 Regulatory Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 9.4 Legal Opinions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 9.5 Lauren Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 9.6 Articles of Incorporation and By-laws; Ownership Structure . . . . . . . . . . . . . . . . . . . . . 40
Section 9.7 Closing Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 9.8 Company Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 9.9 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 9.10 Condition and Status of the Company and the Target . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 9.11 Merger Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 9.12 No Shareholders or Voting Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 9.13 Financial Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 9.14 Certain Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
ARTICLE 10 CONDITIONS PRECEDENT TO THE OBLIGATIONS
OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 10.1 Purchaser Representation and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 10.2 Target Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 10.3 No Legal Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
ARTICLE 11 MISCELLAENOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 11.1 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 11.2 Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 11.3 Amendment; Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 11.4 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 11.5 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 11.6 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 11.7 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 11.8 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 11.9 Third-Party Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 11.10 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 11.11 Submission to Jurisdiction; Waiver of Jury Trial . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 11.12 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
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PREFERRED STOCK PURCHASE AGREEMENT dated as of September 10, 1997,
between PILLOWTEX CORPORATION, a Texas corporation (the "Company"), and the
purchasers set forth on Exhibit A hereto (each, including their respective
successors and permitted assigns, a "Purchaser" and, collectively, the
"Purchasers").
WHEREAS, as of September 5, 1997, the Company has issued and
outstanding 10,751,497 shares of common stock, par value $0.01 per share (the
"Common Stock"), being 100% of the outstanding Common Stock of the Company as
of such date and 20,000,000 shares of authorized preferred stock, par value
$0.01 per share (the "Preferred Stock"), being 100% of the authorized Preferred
Stock of the Company (none of which has been designated or is outstanding); and
WHEREAS, subject to the terms and conditions set forth herein, the
Purchasers will pay an aggregate of $65,000,000 as the purchase price (the
"Purchase Price") for 65,000 shares of Preferred Stock to be designated Series
A Redeemable Convertible Preferred Stock having the rights and preferences set
forth in Exhibit B hereto.
NOW, THEREFORE, in consideration of the premises and of the respective
representations, warranties, covenants, agreements and conditions contained
herein and in the other Investment Agreements, the Company and the Purchaser
agrees as follows:
ARTICLE 1
DEFINITIONS: CERTAIN REFERENCES
Section 1.1 Definitions. The terms defined in this Article 1,
whenever used in this Agreement, shall have the following meanings for all
purposes of this Agreement:
"Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder, as the same may be amended from
time to time.
"Affiliate" of any specified Person means:
(a) any other Person which, directly or indirectly, is in
control of, is controlled by or is under common control with
such specified Person; or
(b) any other Person which beneficially owns or holds ten
percent or more of any class of the share capital normally
entitled to vote in the election of directors of such
specified Person; or
(c) any other Person of which ten percent or more of the
share capital normally entitled to vote in the election of
directors of such Person is
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beneficially owned or held by such specified Person or a
subsidiary of such specified Person; or
(d) any other Person who is a director or officer (i) of
such specified Person; (ii) of any Subsidiary of such
specified Person or (iii) of any Person described in paragraph
(a) above; and
for purposes of this definition, "control" of a Person means the power, direct
or indirect, to direct or cause the direction of the management and policies of
such Person whether by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Agreement" means this Preferred Stock Purchase Agreement,
including all exhibits and schedules attached hereto.
"Annual Report" means the Company's Annual Report on Form 10-K
for the 1996 Fiscal Year, as filed with the SEC.
"Apollo Purchasers" shall mean each of Apollo Investment Fund
III, L.P., Apollo Overseas Partners III, L.P. and Apollo (UK) Partners III,
L.P.
"Approval" means each and every authorization, approval,
consent, license, filing and registration by, with or from any nation or state
or other political subdivision thereof or by or with any regulatory or
governmental authority of any nation or state or other political subdivision
thereof, self-regulatory organization or stock exchange, necessary to authorize
or permit the execution, delivery or performance of this Agreement or any other
Transaction Document or for the validity, enforceability or admissibility into
evidence hereof or thereof.
"Articles of Incorporation" shall mean the Restated Articles
of Incorporation of the Company dated January 18, 1993, as amended by articles
of amendment dated March 12, 1993, in effect as of the date hereof, and as
amended, supplemented or restated from time to time.
A "Bankruptcy Event" shall be deemed to have occurred with
respect to a Person if such Person shall:
(i) generally fail to pay, or admit in writing
its inability to pay, its debts as they become due;
(ii) apply for, consent to or acquiesce in, the
appointment of a liquidator, trustee, receiver,
sequestrator or other custodian for itself or any of
its Material Subsidiaries or any property of any
thereof, or make a general assignment for the benefit
of creditors;
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(iii) in the absence of such application, consent
or acquiescence, permit or suffer to exist the
appointment of a liquidator, trustee, receiver,
sequestrator or other custodian for itself or any of
its Material Subsidiaries or for a substantial part
of the property of any thereof and such appointment
shall not be discharged within 30 days;
(iv) commence, or permit or suffer to exist the
commencement of, any bankruptcy, reorganization, debt
arrangement, or other case or proceeding under any
bankruptcy or insolvency law, or any dissolution,
winding up or liquidation proceeding, in respect of
such Person or any of its Material Subsidiaries, and,
if such case or proceeding is not commenced by such
Person or any such Subsidiaries, such case or
proceeding shall be consented to or acquiesced in by
such Person or any of its Material Subsidiaries or
shall result in the entry of any order for relief or
shall remain for 30 days undismissed; or
(v) take any action to authorize any of the
foregoing.
"Bankruptcy Law" means ▇▇▇▇▇ ▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇ Code, or any
similar federal, state or foreign law for the relief of debtors.
"Benefits Plan" shall have the meaning set forth in Section
3.20.
"Business Day" means any day which is neither a Saturday or
Sunday nor a legal holiday on which banks are authorized or required to be
closed in New York, New York.
"By-laws" shall mean the By-laws of the Company as in effect
on the date hereof and as amended, supplemented or restated from time to time.
A "Change of Control" shall have the meaning set forth in the
Convertible Preferred Stock Statement of Resolution.
"Closing" shall have the meaning assigned to it in Section 2.1.
"Closing Date" shall have the meaning assigned to it in
Section 2.1.
"Code" means the United States Internal Revenue Code of 1986,
as amended, and any successor statute of similar import, together with the
regulations thereunder, in each case as in effect from time to time. References
to sections of the Code also refer to any successor sections.
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"Convertible Preferred Stock Statement of Resolution" means
the provisions setting forth the designations of the Preferred Shares as set
forth in Exhibit B hereto.
"Conversion Shares" means the shares of Common Stock issuable
or issued upon conversion of the Preferred Shares pursuant to the terms of the
Convertible Preferred Stock Statement of Resolution.
"Custodian" means any receiver, trustee, assignee, liquidator,
custodian or similar official under any Bankruptcy Law.
"Disclosure Schedule" means, prior to the date of delivery of
the Final Disclosure Schedule as described in Section 5.13, the Disclosure
Schedule attached hereto as Schedule I and, from and after such date, the Final
Disclosure Schedule provided pursuant to Section 5.13, as it may be amended,
supplemented or otherwise modified from time to time by the Company with the
written consent of the Purchaser.
"Dollars" and the sign "$" mean lawful money of the United
States.
"Environmental Laws" shall have the meaning set forth in
Section 3.13.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended, and any successor statute of similar import, together with
the regulations thereunder, in each case as in effect from time to time.
References to sections of ERISA also refer to any successor sections.
"Event of Noncompliance" shall have the meaning assigned to it
in the Convertible Preferred Stock Statement of Resolution.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
"Fiscal Quarter" means any quarter of a Fiscal Year.
"Fiscal Year" means any period of 12 consecutive calendar
months ending on the Saturday closest to December 31; references to a Fiscal
Year with a number corresponding to any calendar year (e.g. the "1991 Fiscal
Year") refer to the Fiscal Year ending on the Saturday closest to December 31
occurring during such calendar year (or the preceding fiscal year in the event
that the Saturday closest to December 31 of such Fiscal Year is in January).
"GAAP" means generally accepted accounting principles
consistently applied in the United States, unless any other jurisdiction is
specified, in which case it shall be the equivalent set of accounting
principles for such jurisdiction.
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"Group" means two or more persons acting in concert or as a
partnership, limited partnership, syndicate or other group for the purpose of
acquiring, holding, voting or disposing of securities of an issuer.
"Indebtedness" shall mean (i) any obligation of the Company or
any Subsidiary, contingent or otherwise, which under GAAP is required to be
shown on the balance sheet of the Company or such Subsidiary as a liability and
(ii) any guaranty or similar obligation by the Company or any Subsidiary of the
indebtedness of any Person. Any obligation secured by a Lien on, or payable out
of the proceeds of or production from, property of the Company or any
Subsidiary shall be deemed to be indebtedness even though such obligation is
not assumed by the Company or Subsidiary.
"Indebtedness for Borrowed Money" shall mean (a) all
Indebtedness in respect of money borrowed including, without limitation,
Indebtedness which represents the unpaid amount of the purchase price of any
property and is incurred in lieu of borrowing money or using available funds to
pay such amounts and not constituting an account payable or expense accrual
incurred or assumed in the ordinary course of business of the Company or any
Subsidiary, (b) all Indebtedness evidenced by a promissory note, bond or
similar written obligation to pay money, and (c) all such Indebtedness
guaranteed by the Company or any Subsidiary or for which the Company or any
Subsidiary is otherwise contingently liable by contract.
"Indenture" means the Indenture dated as of November 12, 1996,
between the Company, certain guarantors described therein and Bank One,
Columbus, N.A., as trustee, relating to the Series A and Series B 10% Senior
Subordinated Notes due 2006 of the Company as in effect on the Closing Date.
"Instrument" means any contract, agreement, indenture,
mortgage, security, document or writing under which any obligation is
evidenced, assumed or undertaken, or any Security Interest is granted or
perfected.
"Intellectual Property Rights" shall have the meaning set
forth in Section 3.25.
"Investment Agreements" means this Agreement and each
Instrument to be executed or delivered pursuant hereto including, without
limitation, the Convertible Preferred Stock Statement of Resolution, and the
letter agreement dated August 19, 1997 relating to transaction expenses between
the Company and Apollo Management, L.P.
"Lauren Agreement" shall have the meaning assigned to it in
Section 3.25.
"Licenses" shall have the meaning set forth in Section 3.11.
"Lien" shall mean any mortgage, pledge, security interest,
encumbrance, lien or charge of any kind, including, without limitation, any
conditional sale or other title
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retention agreement, any lease in the nature thereof and the filing of or
agreement to give any financing statement under the Uniform Commercial Code of
any jurisdiction and including any lien or charge arising by statute or other
law.
"Loan Documents" means, collectively, (i) those certain letter
agreements dated September 10, 1997 between NationsBank of Texas, N.A.,
NationsBank Capital Markets, Inc. and the Company relating to the provision to
the Company of a senior revolving credit facility in the aggregate amount up to
$350,000,000 and a senior term loan facility in an aggregate principal amount
of $250,000,000 and the payment by the Company of related fees; (ii) that
certain letter agreement, dated September 10, 1997, between NationsBridge,
L.L.C. and the Company relating to the provision to the Company of standby
credit facilities in an aggregate principal amount of up to $150,000,000 and
the payment by the Company of related fees (the "Bridge Facility"); and (iii)
that certain letter agreement dated September 10, 1997 between NationsBank
Capital Markets, Inc. and the Company relating to the engagement by the Company
of NationsBank Capital Markets, Inc. to act as lead placement agent or
underwriter in connection with the proposed issuance and sale of senior
subordinated debt securities in an aggregate principal amount of approximately
$150,000,000.
"Material Adverse Effect" means a material adverse effect on
the assets, results of operations, business, prospects or condition (financial
or otherwise) of the specified entity and its Subsidiaries, if any, taken as a
whole.
"Material Subsidiaries" means those Subsidiaries of the
specified entity that are material to such entity's results of operations,
business prospects or condition (financial or otherwise).
"Merger Agreement" means the Merger Agreement dated September
10, 1997 among the Company, the Target and Merger Sub set forth in Exhibit C
hereto.
"Merger Sub" means Pegasus Merger Sub, Inc., a Delaware
corporation.
"Person" means any natural person, corporation, firm,
association, government, governmental agency or any other entity, whether
acting in an individual, fiduciary or other capacity.
"Preferred Shares" means shares of Series A Redeemable
Convertible Preferred Stock.
"Purchase Price" means the cash amount of $65,000,000 payable
by the Purchaser to the Company at Closing for the purchase of the Preferred
Shares.
"Quarterly Reports" means the Company's Quarterly Reports for
the Fiscal Quarters ended on the Saturday closest to March 31, 1997 and June
30, 1997 each as filed with the SEC under cover of Form 10-Q, and any
amendments thereto.
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"Representatives" shall have the meaning set forth in Section
5.7.
"Sale-Leaseback Transaction" means an arrangement relating to
property now owned or hereafter acquired whereby the Company or a Subsidiary of
the Company transfers such property to a person and leases it back from such
person in a transaction accounted for as a capital lease under GAAP.
"SEC" means the U.S. Securities and Exchange Commission.
"SEC Documents" means all documents filed by the Company with
the SEC since January 1, 1994.
"Security Interest" means any mortgage, pledge, hypothecation,
assignment, deposit arrangement, encumbrance, lien (statutory or other) or
preference, priority or other security agreement or preferential arrangement of
any kind or nature whatsoever (including any conditional sale or other title
retention agreement), or any financing lease involving substantially the same
economic effect as any of the foregoing.
"Subsidiary" means, as to any Person, (a) any corporation 51%
or more of the outstanding shares of capital stock of which having ordinary
voting power for the election of directors is owned directly or indirectly by
such Person and (b) any partnership, association, joint venture or other entity
in which such Person and/or one or more Subsidiaries of such Person has 51% or
more of an equity interest at the time. The Target shall not be deemed a
Subsidiary of the Company prior to the closing of the transactions contemplated
by the Merger Agreement.
"Target" shall mean Fieldcrest ▇▇▇▇▇▇ Inc., a Delaware
corporation.
"Target Acquisition" means the Company's proposed acquisition
of the Target pursuant to the terms of the Merger Agreement.
"Transaction Documents" means the Investment Agreements, the
Merger Agreement and the Loan Documents.
"Transaction Expenses" means the reasonable out of pocket
expenses of the Purchasers or any of their respective Affiliates (whether or
not incurred prior to the date hereof), including without limitation, the fees,
disbursements and other reasonable expenses of lawyers, accountants, actuaries,
appraisers, consultants and any other advisors thereto, arising out of or
relating to the discussion, evaluation, negotiation, documentation and closing
or potential closing of the transactions contemplated by the Investment
Agreements, without regard to whether or not such transactions are consummated.
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"United States" or "U.S." means the United States of America,
its 50 states and the District of Columbia.
Section 1.2 Terms Generally. The definitions in Section 1.1 shall
apply equally to both the singular and plural forms of the terms defined.
Whenever the context may require, any pronoun shall include the corresponding
masculine, feminine and neuter forms. The words "include", "includes" and
"including" shall be deemed to be followed by the phrase "without limitation".
All references herein to Articles, Sections, Exhibits and Schedules shall be
deemed references to Articles and Sections of, and Exhibits and Schedules to,
this Agreement unless the context shall otherwise require. Except as otherwise
expressly provided herein, all terms of an accounting or financial nature shall
be construed in accordance with GAAP.
ARTICLE 2
CLOSING AND PAYMENT
Section 2.1 Time and Place of the Closing. The closing for the
transactions contemplated to occur herein (the "Closing") shall take place at
the office of Akin, Gump, Strauss, ▇▇▇▇▇ & ▇▇▇▇, L.L.P., ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, on the date, and simultaneously with the time of
closing, contemplated by the Merger Agreement (provided that solely for
purposes of determining the temporal order of the Closing and the closing
contemplated by the Merger Agreement the Closing shall be deemed to have
occurred immediately prior to the closing contemplated by the Merger
Agreement), or on such other date and/or at such other place as the parties
shall mutually agree (the "Closing Date").
Section 2.2 Transactions at the Closing. At the Closing, subject to
the terms and conditions of this Agreement, the Company shall issue and sell to
the Purchasers, and the Purchasers shall purchase from the Company, an
aggregate of 65,000 Preferred Shares in the amounts set forth beside their
respective names on Exhibit A hereto. The aggregate Purchase Price for all the
Preferred Shares shall be $65,000,000, payable by wire transfer of immediately
available funds to an account or accounts previously designated in writing by
the Company at least two Business Days prior to the Closing Date. At the
Closing, the Company shall deliver to the Purchasers certificates representing
an aggregate of 65,000 Preferred Shares, each registered in the name of the
respective Purchaser or its nominee against payment to the Company of the
portion of the Purchase Price with respect thereto payable by such Purchaser.
The obligations of the Apollo Purchasers contained in this Section 2.2 shall be
joint and several.
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ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to the Purchasers
that:
Section 3.1 Organization, Power, Authority, Etc. The Company is a
company validly organized and existing and in good standing under the laws of
Texas; each Subsidiary of the Company is validly organized and existing and in
good standing under the laws of its jurisdiction of incorporation; each of the
Company and each Subsidiary of the Company is duly qualified to do business and
is in good standing as a foreign corporation in each jurisdiction where the
nature of its business makes such qualification necessary except for such
failures to be so qualified as would not individually or in the aggregate have
a Material Adverse Effect on the Company; and the Company and each of its
Subsidiaries has full power and authority to own and hold under lease its
property and to conduct its business substantially as presently conducted by it
except for such failures to have power and authority as would not individually
or in the aggregate have a Material Adverse Effect on the Company. The Company
has full power and authority to enter into and perform its obligations under
this Agreement and each other Transaction Document executed or to be executed
by it.
Section 3.2 Due Authorization. Except as set forth in Item 3.2 of
the Disclosure Schedule, the execution and delivery by the Company of this
Agreement, each other Transaction Document and each other certificate or
document executed or to be executed by it, the performance by the Company of
its obligations hereunder and thereunder and the issuance of the Preferred
Shares, including the issuance of Common Stock upon the conversion thereof, by
the Company have been duly authorized by all necessary corporate proceedings on
the part of the Company (and no other corporate proceedings or actions on the
part of the Company or its board of directors or stockholders are necessary
therefor except for the approval in accordance with applicable law by holders
of a majority of the Company's Common Stock present at a meeting at which a
quorum is present and entitled to vote of the issuance of the Common Stock and
Preferred Shares to be issued in connection with the Target Acquisition, this
Agreement and the Convertible Preferred Stock Statement of Resolution), do not
require any Approval which has not been obtained and will not be obtained prior
to the Closing Date, do not and will not conflict with, result in any violation
of, or constitute any default under, any provision of the Articles of
Incorporation or By-laws of the Company, conflict with any provision of any
material Instrument of the Company or any Subsidiary or any present law or
governmental regulation applicable to the Company, any Subsidiary or any of its
or their assets, properties or operations or any court decree or order
applicable to the Company, any Subsidiary of the Company or its or their
assets, properties or operations and will not result in or require the creation
or imposition of any Security Interest on any of the properties of the Company
or any Subsidiary of the Company pursuant to any material Instrument or result
in the acceleration of any Indebtedness of the Company or any of its
Subsidiaries, other than pursuant to any Transaction Document.
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Section 3.3 Validity, Etc. This Agreement constitutes, and each
other Transaction Document executed by the Company will, on the due execution
and delivery thereof, constitute, the legal, valid and binding obligations of
the Company enforceable in accordance with their respective terms.
Section 3.4 Capitalization of the Company. The authorized capital
stock of the Company will at the Closing consist of: (A) 30,000,000 shares of
Common Stock (subject to increase to 40,000,000 shares, subject to shareholder
approval), 10,752,492 of which shares are outstanding on the date hereof and
613,390 of which shares are reserved for issuance pursuant to outstanding
options to purchase shares of Common Stock granted under the Company's stock
option plans, and (B) 20,000,000 shares of Preferred Stock, of which 200,000
will be designated Preferred Shares, 65,000 of which Preferred Shares will be
issued and outstanding and owned by the Purchasers, at the Closing. No other
capital stock of the Company is, or at the Closing will be, authorized and no
other capital stock is, or at the Closing will be, issued. At the Closing, all
of the Preferred Shares will be duly authorized and, when issued in accordance
with this Agreement, will be validly issued, fully paid and nonassessable and
entitled to the benefits of, and have the terms and conditions set forth in,
the Articles of Incorporation. Except as set forth in Item 3.4 of the
Disclosure Schedule and except as contemplated by this Agreement, there are no
outstanding (A) securities or obligations of the Company convertible into or
exchangeable for any capital stock of the Company, (B) warrants, rights or
options to subscribe for or purchase from the Company any capital stock or any
such convertible or exchangeable securities or obligations or (C) obligations
of the Company to issue such shares, any such convertible or exchangeable
securities or obligations, or any such warrants, rights or options. No person
has preemptive or similar rights with respect to the securities of the Company.
Except as set forth in Item 3.4 of the Disclosure Schedule, the consummation of
the transactions contemplated by the Merger Agreement will not permit any
holders of Indebtedness of the Company or the Target to convert such
Indebtedness to capital stock of the Company or the Target.
Section 3.5 Financial Statements. The audited consolidated financial
statements and related schedules and notes included in the SEC Documents comply
in all material respects with the requirements of the Exchange Act and the Act,
were prepared in accordance with GAAP consistently applied throughout the
periods involved (except as may be indicated in the notes thereto) and fairly
present, in all material respects, the consolidated financial condition,
results of operations, cash flows and changes in stockholders' equity of the
Company and its consolidated Subsidiaries at the dates and for the periods
presented. The unaudited quarterly consolidated financial statements and the
related notes included in the SEC Documents fairly present, in all material
respects, the consolidated financial condition, results of operations, cash
flows and changes in stockholders' equity of the Company and its Subsidiaries
at the dates and for the periods to which they relate, subject to year-end
audit adjustments (consisting only of normal recurring accruals), have been
prepared in accordance with GAAP applied on a consistent basis except as
otherwise stated therein and have been prepared on a basis consistent with
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that of the audited financial statements referred to above except as otherwise
stated therein.
Section 3.6 SEC Documents.
(a) The Company has delivered or made available to the
Purchasers true and complete copies of: (i) the Annual
Report, (ii) its Quarterly Reports and any other reports filed
under cover of Form 8-K filed with the SEC since December 31,
1996, and (iii) all other SEC Documents.
(b) As of its filing date, each SEC Document (including
all exhibits and schedules thereto and documents incorporated
by reference therein) referred to in (a) above, and each SEC
Document (including all exhibits and schedules thereto and
documents incorporated by reference therein) that will be
filed by the Company prior to the Closing Date, as amended or
supplemented, if applicable, pursuant to the Exchange Act (i)
complied or will comply in all material respects with the
applicable requirements of the Exchange Act and (ii) did not
or will not contain any untrue statement of a material fact or
omit to state any material fact necessary in order to make the
statements made therein, in the light of the circumstances
under which they were made, not misleading.
(c) Each registration statement (including all exhibits
and schedules thereto and documents incorporated by reference
therein) referred to in clause (a)(iii) filed, and any
registration statement (including all exhibits and schedules
thereto and documents incorporated by reference therein) that
will be filed by the Company prior to the Closing Date
(including, without limitation, the Joint Proxy
Statement/Prospectus contemplated by the Merger Agreement), as
amended or supplemented, if applicable, pursuant to the Act,
as of the date such statement or amendment became or will
become effective (i) complied or will comply in all material
respects with the applicable requirements of the Act and (ii)
did not or will not contain any untrue statement of a material
fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not
misleading (in the case of any prospectus, in light of the
circumstances under which they were made).
(d) The Company has delivered or made available to the
Purchasers true and complete copies of all correspondence
between the SEC and the Company or its legal counsel,
accountants or other advisors since January 1, 1996. The
Company is not aware of any issues raised by the SEC with
respect to any of the SEC Documents, other than those
disclosed to the Purchaser pursuant to this Section 3.6(d).
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Section 3.7 Subsidiaries. Exhibit 21 to the Annual Report is a true,
accurate and correct statement of all of the information required to be set
forth therein by the rules and regulations of the SEC. Except as set forth in
Item 3.7 of the Disclosure Schedule, all of the outstanding capital stock of
each Material Subsidiary has been duly authorized and validly issued, is fully
paid and nonassessable and is owned by the Company, directly or through other
Subsidiaries of the Company, free and clear of any Security Interest,
restrictions upon voting or transfer, claim or encumbrance of any kind (other
than such transfer restrictions as may exist under federal and state securities
laws or any encumbrances between or among the Company and/or any Subsidiary of
the Company), and there are no rights granted to or in favor of any third
party, other than the Company or any Subsidiary of the Company, to acquire any
such capital stock, any additional capital stock or any other securities of any
such Subsidiary. Except as set forth in Item 3.7 of the Disclosure Schedule,
there exists no restriction on the payment of cash dividends by any Subsidiary
of the Company.
Section 3.8 Contingent Liabilities. Except as set forth in Item 3.8
of the Disclosure Schedule or as fully reflected or reserved against in the
financial statements included in the Annual Report or the Company's report for
the Fiscal Year ended December 28, 1996, filed under cover of Form 10-K, or
disclosed in the footnotes contained in such financial statements, the Company
and its Subsidiaries have no liabilities (including tax liabilities), absolute
or contingent, having or which either individually or in the aggregate are
reasonably likely to have a Material Adverse Effect on the Company.
Section 3.9 Approvals. Except as set forth on Item 3.9 of the
Disclosure Schedule, no Approval is required to be obtained by the Company or
any Subsidiary of the Company for the consummation of the transactions
contemplated by this Agreement or by any of the Transaction Documents.
Section 3.10 No Existing Violation, Default, Etc. None of the
Company or any of the Company's Subsidiaries is in violation of (A) its
Articles of Incorporation, By-laws or other organization documents or (B)
except as set forth in Item 3.10 of the Disclosure Schedule, any applicable
law, ordinance, administrative, governmental or stock exchange rule or
regulation, which violation has or could reasonably be expected to have a
Material Adverse Effect on the Company, or (C) except as set forth in Item 3.10
of the Disclosure Schedule, any order, decree or judgment of any court or
governmental agency or body having jurisdiction over the Company or any such
Subsidiary, which violation has or could reasonably be expected to have a
Material Adverse Effect on the Company. Except as disclosed in Item 3.10 of the
Disclosure Schedule, no event of default or event that, but for the giving of
notice or the lapse of time or both, would constitute an event of default
exists or, upon the consummation by the Company of the transactions
contemplated by this Agreement or any of the Transaction Documents, will exist
under any Instrument to which the Company or any of the Company's Subsidiaries
is a party or by which the Company or any such Subsidiary is bound or to which
any of the properties, assets or operations of the Company or any such
Subsidiary is subject, which event of default, or
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event that, but for the giving of notice or the lapse of time or both, would
constitute an event of default, has or could reasonably be expected to have a
Material Adverse Effect on the Company. The Preferred Shares will not be
deemed Disqualified Stock as such term is defined in the Indenture.
Section 3.11 Licenses, Etc. The Company and its Subsidiaries hold,
own or possess all such governmental, regulatory and other filings, licenses,
approvals, registrations, consents, franchises, concessions, patents, patent
licenses or rights, trademarks, trade names, service marks, permits and
copyrights (collectively, "Licenses") as are necessary for the ownership of the
property and conduct of the business of the Company and its Subsidiaries, as
now conducted without, individually or in the aggregate, any infringement upon
rights of other Persons, any violation of law or regulation or any breach of a
contractual obligation, except to the extent that the failure to hold, own or
possess such Licenses would not have a Material Adverse Effect on the Company.
To the best of the Company's knowledge, none of such Licenses has been
challenged or revoked and no statement of intention to challenge, revoke or
fail to renew any such License has been received by the Company or any
Subsidiary. To the best of the Company's knowledge, after due inquiry, the
Company and its Subsidiaries are in compliance with their respective
obligations under such Licenses, with such exceptions as individually or in the
aggregate do not have, and are not reasonably expected to have, a Material
Adverse Effect on the Company, and no event has occurred that allows, or after
notice or lapse of time would allow, revocation, suspension, limitation or
termination of such Licenses, except such events as would not have, or could
not reasonably be expected to have, a Material Adverse Effect on the Company.
Section 3.12 Title to Properties. The Company and its Subsidiaries
have good and marketable title to all material properties (real and personal)
owned by the Company and any such Subsidiary that are necessary for the conduct
of the business of the Company and such Subsidiaries as currently conducted,
free and clear of any Security Interest that may materially interfere with the
conduct of the business of the Company and such Subsidiaries, taken as a whole,
and all material properties held under lease by the Company or the Subsidiaries
are held under valid, subsisting and enforceable leases.
Section 3.13 Environmental Matters. To the best of its knowledge,
none of the Company or any of its Subsidiaries is the subject of any current
federal, state or local investigation under Environmental Laws (as defined
below). None of the Company or any of its Subsidiaries has received any notice
or claim (or is aware of any facts that would form a reasonable basis for a
claim), nor entered into any negotiations or agreements with any third party,
relating to any liability or remedial action or potential material liability or
remedial action under Environmental Laws, nor are there any pending or, to the
best knowledge of the Company, threatened actions, suits or proceedings against
or materially affecting the Company, any of its Subsidiaries or their
properties, assets or operations in connection with any such Environmental
Laws. The properties, assets and operations of the Company and its
Subsidiaries are in compliance in all material respects with all applicable
federal, state and local laws, rules and regulations,
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and such orders, decrees, judgments, permits and licenses to which the Company
is a party or pursuant to which the Company is bound relating to public and
worker health and safety and to the protection and clean-up of the natural
environment and the generation, handling, disposal, transportation or release
of hazardous materials (collectively, "Environmental Laws"). The term
"hazardous materials" shall mean those substances that are regulated by or form
the basis for liability under any applicable Environmental Laws. With respect
to the properties, assets and operations, including any previously owned,
leased or operated properties of the Company and its Subsidiaries, assets or
operations, except as disclosed in Item 3.13 and except as would not have a
Material Adverse Effect on the Company to the best knowledge of the Company,
there are no past or present events, conditions, circumstances, activities,
practices, incidents, actions or plans of the Company or any of its
Subsidiaries that may substantially interfere with or prevent compliance or
continued compliance in all material respects with applicable Environmental
Laws. Except as set forth in Item 3.13 of the Disclosure Schedule, the
consummation of any or all of the transactions contemplated by the Transaction
Documents will not require any application for issuance, renewal, transfer or
extension of, or any other administrative action regarding, any permit or
license required under any Environmental Law. Except as disclosed in Item 3.13
and except as would not have a Material Adverse Effect on the Company (i) there
are no consent decrees, judgments, judicial or administrative orders or
agreements with, or Security Interests by, any governmental authority or
quasi-governmental entity relating to any Environmental Law which regulates,
obligates or binds the Company, any Subsidiary of the Company or any of their
respective assets and (ii) there is no present or past release or threatened
release of any hazardous substance as a result of which the Company has or
reasonably may become liable to any Person.
True, complete and correct copies of the written reports, of
all environmental audits or assessments which have been conducted at any
facility currently owned or leased by the Company or any facility owned or
leased by the Company within the past five years, have been made available to
the Purchasers and a list of all such reports, audits and assessments is
included in Item 3.13 of the Disclosure Schedule.
Section 3.14 Taxes. The Company and all of its Subsidiaries have
each timely filed all tax returns and reports required by law to have been
filed by it and paid all taxes and governmental charges thereby shown to be
owing, except any such taxes or charges which are being diligently contested in
good faith by appropriate proceedings and for which adequate reserves in
accordance with GAAP shall have been set aside on its books. Each tax return
filed by the Company or any Subsidiary of the Company correctly and accurately
reflects the amount of its liability for taxes thereunder in all material
respects and makes all material disclosures required by applicable provisions
of law. The Company has no knowledge of any material adverse change in the
rate or basis of assessment of any Tax. Neither the Company nor any Subsidiary
has received any written notification from any taxing authority asserting any
material unassessed liability for any tax. The Company and each of its
Subsidiaries has taken all reasonable and customary steps to ensure that it has
complied with all applicable tax laws and tax regulations of
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foreign, U.S. federal, state and local governments and all agencies thereof
which affect the operation, properties, financial condition, operating results
or business prospects of the Company or such Subsidiary to which the Company or
such subsidiary may otherwise be subject.
Section 3.15 Litigation. Except as set forth in Item 3.15 of the
Disclosure Schedule, there is no pending action, suit, proceeding, arbitration
or investigation against or affecting the Company or any of its Subsidiaries or
any of their respective properties, assets or operations, or with respect to
which the Company or any such Subsidiaries is responsible by way of indemnity
or otherwise, (A) that is required under the Exchange Act to be described in
the SEC Documents and was not so described, (B) that questions the validity of
this Agreement or any of the other Transaction Documents or any action to be
taken pursuant to this Agreement or any of the other Transaction Documents, or
(C) that would individually, or in the aggregate with all such other actions,
suits, investigations or proceedings, reasonably be expected to have, a
Material Adverse Effect on the Company or a material adverse effect on the
ability of the Company to perform its obligations under this Agreement or any
of the Transaction Documents; and, to the best knowledge of the Company, except
as set forth in Item 3.15 of the Disclosure Schedule, no such actions, suits,
proceedings or investigations are threatened or contemplated.
Section 3.16 Labor Matters. No labor organization or group of
employees of the Company has made a pending demand for recognition or
certification, and there are no representation or certification proceedings or
petitions seeking a representation proceeding presently pending or threatened
to be brought or filed, with the National Labor Relations Board or any other
U.S. or foreign labor relations tribunal or authority. There are no strikes,
work stoppages, slowdowns, lockouts, material arbitrations or material
grievances, or other material labor disputes or, to the knowledge of the
Company, organizing activities pending or threatened against or involving the
Company.
Section 3.17 Indebtedness. Item 3.17 of the Disclosure Schedule
contains a true and complete list, including the names of the parties thereto,
of all debt instruments, loan agreements, indentures, guaranties or other
obligations, whether written or oral, relating to (i) Indebtedness for Borrowed
Money in excess of $100,000 or (ii) money loaned to others by the Company or
its Subsidiaries in excess of $100,000. All of the aforesaid items were
entered into in the ordinary course of business, are valid and binding, in full
force and effect and are enforceable in accordance with their respective terms
and there exists no breach or default, or any event which with notice or lapse
of time or both, would constitute a breach or default by any party thereto.
All of the Company's and each Subsidiary's Indebtedness for Borrowed Money is
disclosed on the balance sheet contained in the Company's most recent Quarterly
Report.
Section 3.18 Contracts. All of the material contracts of the Company
or any of its Subsidiaries that are required to be described in the SEC
Documents or to be filed as exhibits thereto are described in the SEC Documents
or filed as exhibits thereto and are in full force and effect. True and
complete copies of all such material contracts have been
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made available by the Company to the Purchaser. Neither the Company nor any of
its Subsidiaries is in breach of or in default under any such contract, nor, to
the best knowledge of the Company, is any other party in material breach of or
in default under any such contract. Except as disclosed in the SEC Documents
or in Item 3.18 of the Disclosure Schedule, the Company is not a party to, nor
are any assets, properties or operations of the Company bound by, any (i)
employment, consulting or severance agreement, (ii) lease of real property, or
lease of personal property with an annual base rental obligation of more than
$100,000 or a total remaining rental obligation of more than $250,000, (iii)
joint venture or partnership agreement, (iv) agreement which is over one year
in length of obligation and not terminable without penalty or damages within
one year and involves an obligation of the Company of more than $100,000, (v)
agreement containing covenants limiting the ability of the Company or any of
its Subsidiaries to compete in any line of business with any Person in any area
or territory, (vi) contract, agreement or arrangement between the Company and
any Affiliate of the Company in excess of $60,000, or (vii) agreement relating
to any acquisition or disposition of securities or material amounts of assets
(other than in the ordinary course of business) and, in any event, containing
any indemnification obligations of the Company or any of its Subsidiaries. No
party to a material contract with the Company or any Subsidiary has terminated
or failed to renew, or demanded security or assurances of performance under, or
stated in writing its intention to terminate, to fail to renew on terms
substantially similar to those currently in effect or to demand such security
or assurances under such contract or agreement.
Section 3.19 Finder's Fees. Other than as set forth in Item 3.19 of
the Disclosure Schedule, no broker, finder or other party is entitled to
receive from the Company, any of its Subsidiaries or any other person any
brokerage or finder's fee or any other fee, commission or payment as a result
of the transactions contemplated by this Agreement for which the Purchaser
could have any liability or responsibility.
Section 3.20 Employee Benefits. Except for the plans set forth in
Item 3.20 of the Disclosure Schedule (the "Benefits Plan"), there are no
employee benefit plans or arrangements of any type (including, without
limitation, plans described in Section 3(3) of ERISA), under which the Company
or any of its Subsidiaries has or in the future could have directly, or
indirectly through a Commonly Controlled Entity (within the meaning of Sections
414(b), (c), (m) and (o) of the Code), any liability with respect to any
current or former employee of the Company, any of its Subsidiaries, or any
Commonly Controlled Entity. Except as set forth in Item 3.20 of the Disclosure
Schedule, no Benefit Plan is subject to Title IV or Section 302 of ERISA or
Section 412 or 4971 of the Code or any corresponding provision of applicable
law. No Benefit Plan is a "multiemployer plan" within the meaning of Section
4001(a)(3) of ERISA (a "Multi-Employer Plan") or a plan that has two or more
contributing sponsors at least two of whom are not under common control, within
the meaning of Section 4063 of ERISA (a "Multiple Employer Plan"), nor has the
Company or any ERISA Affiliate of the Company, at any time since January 1,
1993, contributed to or been obligated to contribute to any Multiemployer Plan
or Multiple Employer Plan. With respect to each Benefit Plan the Company has
made
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available to the Purchaser complete and accurate copies of (A) all plan texts
and agreements, (B) all material employee communications (including summary
plan descriptions), (C) the most recent annual report, (D) the most recent
annual and periodic accounting of plan assets, (E) the most recent
determination letter received from the Internal Revenue Service and (F) the
most recent actuarial valuation. With respect to each Benefit Plan: (i) such
Benefit Plan has been maintained and administered at all times in material
compliance with its terms and applicable law and regulation; (ii) no event has
occurred and there exists no circumstance under which the Company or any of its
Subsidiaries could directly, or indirectly through a Commonly Controlled
Entity, incur any material liability under ERISA, the Code or otherwise (other
than routine claims for benefits and other liabilities arising in the ordinary
course pursuant to the normal operation of such Benefit Plan); (iii) there are
no actions, suits or claims (other than routine claims for benefits) pending
or, to the knowledge of the Company, threatened, with respect to any Benefit
Plan or against the assets of any Benefit Plan; (iv) all contributions and
premiums due and owing have been made or paid on a timely basis; and (v) all
contributions made under any Benefit Plan have met the requirements for
deductibility under the Code, and all contributions that have not been made
have been properly recorded on the books of the Company or a Commonly
Controlled Entity thereof in accordance with GAAP. The Company has no liability
for life, health, medical or other welfare benefits to former employees or
beneficiaries or dependents thereof, except for health continuation coverage as
required by Section 4980B of the Code or Part 6 of Title I of ERISA and at no
expense to the Company.
Section 3.21 Absence of Certain Developments; No Material Adverse
Change. Since the end of the 1996 Fiscal Year, except as contemplated by this
Agreement: (A) the Company and its Subsidiaries have not incurred any material
liability, guarantee or obligation (indirect, direct or contingent), or entered
into any material oral or written agreement or other transaction, that is not
in the ordinary course of business (other than the Transaction Documents) or
that could reasonably be expected to result in a Material Adverse Effect on the
Company; (B) the Company and its Subsidiaries have not sustained any loss or
interference with its business or properties from fire, flood, windstorm,
accident or other calamity (whether or not covered by insurance) that has had
or that could reasonably be expected to have a Material Adverse Effect on the
Company; (C) there has been no material change in the indebtedness of the
Company and its Subsidiaries (except for changes relating to intercompany
indebtedness of the Company and/or its Subsidiaries and changes contemplated by
the Loan Documents), no change in the stock of the Company, and no dividend or
distribution of any kind declared, paid or made by the Company or any of its
Subsidiaries (other than dividends or distributions declared, paid or made by a
wholly owned Subsidiary of the Company on any class of its stock); (D) neither
the Company nor any of its Subsidiaries has made (nor does it propose to make)
(i) any material change in its accounting methods or practices or (ii) any
material change in the depreciation or amortization policies or rates adopted
by it, in either case, except as may be required by law or applicable
accounting standards; and (E) there has been no event causing a Material
Adverse Effect on the Company, nor any
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developments that could, singly or in the aggregate, reasonably be expected to
result in a Material Adverse Effect on the Company.
Section 3.22 Insurance. All of the Company's and each Subsidiary's
currently effective policies of fire, liability, product liability, workmen's
compensation, health and other forms of insurance are valid, outstanding and
enforceable policies and provide insurance coverage for the properties, assets
and operations of the Company and each Subsidiary of the kinds, in the amounts
and against the risks required to comply with laws. No notice of cancellation
or termination has been received with respect to any such policy in the last
year. The activities and operations of the Company and each Subsidiary have
been conducted in a manner so as to conform in all material respects to all
applicable provisions of such insurance policies.
Section 3.23 Securities Law Matters. Neither the Company nor any
person acting on its behalf has, in connection with the sale of the Preferred
Shares, engaged in (A) any form of general solicitation or general advertising
(as those terms are used within the meaning of Rule 502(c) under the Act), (B)
(assuming the accuracy of the Purchaser's representations in Section 4.3) any
action involving a public offering within the meaning of Section 4(2) of the
Act, or (C) (assuming the accuracy of the Purchaser's representations in
Section 4.3) any action that would require the registration under the Act of
the offering and sale of the Preferred Shares pursuant to this Agreement, or
that would violate applicable state securities or "blue sky" laws. The Company
has not made and will not make, directly or indirectly, any offer or sale of
Preferred Shares or of securities of the same or a similar class as the
Preferred Shares if as a result the offer and sale of the Preferred Shares
contemplated hereby could fail to be entitled to exemption from the
registration requirements of the Act. As used herein, the terms "offer" and
"sale" have the meanings specified in Section 2(3) of the Act.
Section 3.24 Accuracy of Information. The financial projections
provided by the Company to the Purchasers were prepared in good faith using the
best information reasonably available to management of the Company and
represent said management's best estimates of the future performance of the
Company for the periods referred to therein provided that the Company does not
warrant that such projections will in fact be met.
Section 3.25 Intellectual Property Rights. Item 3.25 of the
Disclosure Schedule lists all material patents, patent registrations and
applications therefor, all material trademarks, trademark registrations and
applications therefor and all trade names and service marks owned or licensed
by the Company or any Subsidiary (the "Intellectual Property Rights"). All of
the Intellectual Property Rights are vested in or validly granted to the
Company or a Subsidiary and are not restricted in any material way. No act has
been done by the Company or any Subsidiary or omission permitted by the Company
or a Subsidiary whereby any of the Intellectual Property Rights has ceased, or
could reasonably be expected to cease, to be valid and enforceable. Neither
the Company nor any Subsidiary has granted nor is obligated to grant any
license, sub-license or
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assignment in respect of any of the Intellectual Property Rights (other than
intercompany licenses). Neither the Company nor any Subsidiary is in breach of
any license, sub-license or assignment granted to it in respect of any
Intellectual Property Rights. To the best of the Company's knowledge, the
operation of the Company's and each Subsidiary's business does not infringe
upon the intellectual property rights of any other person. The consummation of
the Target Acquisition will not result in the termination of, or give rise to a
right of termination on the part of any party to, any of the Company's or any
of its Subsidiaries' material licenses or Intellectual Property Rights
(including the Sublicense Agreement (the "Lauren Agreement") made as of July 1,
1995 between The ▇▇▇▇▇ ▇▇▇▇▇▇ Home Collection and the Company).
Section 3.26 Disclosure. No representation or warranty contained in
this Agreement or information appearing in any writing furnished by the Company
to the Purchasers or their representatives pursuant hereto or in connection
herewith (including, without limitation, information with respect to the
Target) contains any untrue statement of a material fact or omits to state a
material fact necessary to make the statements herein or therein not
misleading. To the best of the Company's knowledge, there is no fact which the
Company has not disclosed to the Purchasers in writing which is reasonably
likely to have a Material Adverse Effect or is reasonably likely to materially
and adversely affect the ability of the Company to perform this Agreement or
observe the terms of the Convertible Preferred Stock Statement of Resolution.
Section 3.27 Certain Agreements. The Company has, prior to the date
of this Agreement, provided the Purchasers with true and correct copies of all
written agreements and understandings (or a written summary of all unwritten
agreements and understandings) with any lenders, advisors, or financing sources
relating to the transactions contemplated by the Transaction Documents.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
Each Purchaser hereby represents and warrants to the Company that:
Section 4.1 Organization, Good Standing, Power, Authority, Etc. Each
Purchaser is validly organized and existing and in good standing under the laws
of its jurisdiction of organization and has the full power and authority to
execute and deliver this Agreement and each of the other Transaction Documents
and to perform its obligations under this Agreement. Each Purchaser has taken
all action required by law, its organizational documents or otherwise required
to be taken by it to authorize the execution and delivery of this Agreement and
the other Investment Agreements to which it is a party and the consummation of
the transactions contemplated to be performed by it hereby and thereby. This
Agreement is a valid and binding agreement of each Purchaser, enforceable
against each Purchaser in accordance with its terms.
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Section 4.2 No Conflicts; No Consents. Neither the execution and
delivery of this Agreement nor the consummation by each Purchaser of the
purchase contemplated hereby will (A) conflict with, or result in any violation
of, or constitute any default under, any provision of its organizational
documents, (B) violate any statute or law or any judgment, order, writ,
injunction, decree, rule or regulation applicable to such Purchaser or (C)
violate, conflict with, or result in a breach of any material Instrument of
such Purchaser.
Section 4.3 Acquisition for Own Account. The Preferred Shares are
being acquired by each Purchaser for its own account and not with a view to or
for sale or other disposition in connection with, any distribution of all of
the Preferred Shares, or any part thereof in any transaction that would be in
violation of the Act or the securities laws of any state, without prejudice,
however, to the rights of each Purchaser at all times to sell or otherwise
dispose of all or any part of the Preferred Shares under an effective
registration statement under the Act or under an exemption from such
registration available under the Act, or to pledge all or any part of the
Preferred Shares to secure any obligation of such Purchaser.
Section 4.4 Ownership of Securities. As of the date hereof, no
Purchaser owns any debt or equity securities issued by the Company or the
Target.
Section 4.5 Approvals. Except as set forth on Item 4.5 of the
Disclosure Schedule, no Approval is required to be obtained by any Purchaser or
any Subsidiary of any Purchaser as a result of the identity or nature of such
Purchaser for the consummation of the transactions contemplated by this
Agreement or by any of the Transaction Documents.
Section 4.6 Investor Suitability. Each Purchaser is an "accredited
investor" as such term is defined in Rule 501 under the Act.
Section 4.7 Disclosure of Information. Each Purchaser acknowledges
that it or its representatives have been furnished with all information
regarding the Company and its business, assets, results of operations and
financial condition that such Purchaser has requested. Each Purchaser further
represents that it has had an opportunity to ask questions of and receive
answers from the Company regarding the Company and its business, assets,
results of operations, and financial condition and the terms and conditions of
the issuance of the Preferred Shares; however, no representations or warranties
have been made by the Company except as are set forth in this Agreement.
Nothing contained in this Section 4.7 and no investigation by Purchasers shall
in any way affect the Purchasers' right to rely upon the Company's
representations and covenants contained in this Agreement.
Section 4.8 Investment Experience. Purchasers each represent that
they have such knowledge, experience and skill in evaluating and investing in
common and
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preferred stocks and other securities, based on actual participation in
financial, investment and business matters, so that they are each capable of
evaluating the merits and risks of an investment in the Preferred Shares and
have such knowledge, experience and skill in financial and business matters
that they are each capable of evaluating the merits and risks of the investment
in the Company and the suitability of the Preferred Shares as an investment and
can bear the economic risk of an investment in the Preferred Shares. No
guarantees have been made or can be made with respect to the future value, if
any, of the Preferred Shares, or the profitability or success of the business
of the Company.
Section 4.9 Restricted Securities. Purchasers understand that the
Preferred Shares will not have been registered pursuant to the Act or any
applicable state securities laws, that the Preferred Shares will be
characterized as "restricted securities" under federal securities laws, and
that under such laws and applicable regulations the Preferred Shares cannot be
sold or otherwise disposed of without registration under the Act or an
exemption therefrom. In this connection, Purchasers each represent that they
are familiar with Rules 144 and 144A promulgated under the Act, as currently in
effect, and understand the resale limitations imposed thereby and by the Act.
Stop transfer instructions may be issued to the transfer agent for securities
of the Company (or a notation may be made in the appropriate records of the
Company) in connection with the Preferred Shares, but only to the extent
customary for securities which are "restricted securities." The Company shall
also be entitled to request an opinion of counsel to the Purchaser, reasonably
acceptable in form and substance to the Company, that a transfer of Preferred
Shares other than pursuant to an effective registration statement does not
require registration under the Act.
Section 4.10 Finder's Fees. No broker, finder or other party is
entitled to receive from any Purchaser, any brokerage or finder's fee or any
other fee, commission or payment as a result of the transactions contemplated
by this Agreement for which the Company could have any liability or
responsibility.
ARTICLE 5
COVENANTS OF THE PARTIES
Section 5.1 Legends. (a) So long as the Conversion Shares are
Registrable Securities and unless they shall have been previously issued
pursuant to an effective registration statement under the Act, the certificates
for the Preferred Shares shall bear the following legend by which each holder
thereof shall be bound:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE AND
ANY SECURITIES ISSUABLE UPON CONVERSION OR EXCHANGE HEREOF MAY NOT BE OFFERED
OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF
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1933, AS AMENDED, AND UNDER ANY APPLICABLE STATE SECURITIES OR "BLUE SKY" LAWS
OR AN APPLICABLE EXEMPTION FROM REGISTRATION THEREUNDER.
THE COMPANY WILL FURNISH THE HOLDER OF THIS
CERTIFICATE INFORMATION CONCERNING THE DESIGNATIONS, RELATIVE RIGHTS,
PREFERENCES AND LIMITATIONS APPLICABLE TO EACH CLASS OF SHARES INCLUDING THE
LIQUIDATION AND DIVIDEND PREFERENCES AND THE VOTING AND CONVERSION RIGHTS OF
THE REDEEMABLE CONVERTIBLE PREFERRED STOCK, ON REQUEST IN WRITING AND WITHOUT
CHARGE.
(b) After termination of the requirement that a legend be
placed upon a certificate representing Preferred Shares, the Company shall,
upon receipt by the Company of evidence reasonably satisfactory to it that such
requirement has terminated and upon the written request of any holder of
Preferred Shares, issue certificates for such Preferred Shares that do not bear
such legend.
Section 5.2 Use of Proceeds. The Purchase Price will be used by the
Company to pay a portion of the cost of the Target Acquisition.
Section 5.3 Pre-Closing Activities. From and after the date of this
Agreement until the Closing, each of the Company and each Purchaser shall act
with good faith towards, and shall use its reasonable efforts to consummate,
the transactions contemplated by this Agreement, and neither the Company nor
any Purchaser will take any action (other than as permitted under Section 8.1)
that would prohibit or impair its ability to consummate the transactions
contemplated by this Agreement. From the date hereof until the Closing, the
Company shall conduct the business of its and its Subsidiaries, in the ordinary
course consistent with past practice and shall use all reasonable efforts to
preserve intact their respective business organizations and relationships with
third parties and, except as otherwise provided herein, to keep available the
services of the present directors, officers and key employees. Furthermore,
the Company agrees to perform its obligations, and enforce the obligations of
the Target and its Affiliates, under the Merger Agreement. Without limiting
the generality of the foregoing, from the date hereof until the Closing, except
as contemplated by this Agreement and except in the ordinary course of business
and consistent with past practice, without Purchasers' prior written consent
granted pursuant to Section 11.3 the Company shall not, and shall ensure that
each of its Subsidiaries does not:
(1) adopt or propose (or agree to commit to) any
change in its articles of incorporation or by-laws,
except as contemplated hereby or by the Merger
Agreement or as required to effect the transactions
hereunder or to increase the authorized Common Stock
to 40,000,000 shares;
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(2) take any action that would make any
representation or warranty of the Company hereunder
required to be true at and as of the Closing as a
condition to the Purchasers' obligations to
consummate the transactions contemplated hereby
inaccurate at the Closing;
(3) issue any additional capital stock or other
securities, except pursuant to options outstanding on
the date hereof, which are described in Item 3.4 of
the Disclosure Schedule;
(4) make any material change in its accounting
methods, principles or practices except as may be
required by law or applicable accounting standards;
(5) (i) grant to any employee any material
increase in salary or other remuneration or any
increase in severance or termination pay; (ii) grant
or approve any general increase in salaries of all or
any class of, or a substantial portion of, its
employees; (iii) pay or award any material bonus,
incentive, compensation, service award or other like
benefit for or to the credit of any employee except
in accordance with written policy; (iv) enter into
any material employment contract or severance
arrangement with any employee or adopt or amend in
any material respect any of its employee benefit
plans; or (v) change in any material respect the
compensation (whether in respect of terms or method)
of its agents;
(6) except for the Target Acquisition, make,
incur or assume any investment in any other Person;
(7) declare, pay or make any dividend or
distribution (in cash, property or obligations) on
any shares of any class of its capital stock (now or
hereafter outstanding) other than regularly scheduled
cash dividends, or apply any of its funds, property
or assets to the purchase, redemption, sinking fund
or other retirement of any shares of any class of its
capital stock (now or hereafter outstanding);
(8) except for the Target Acquisition, liquidate
or dissolve, consolidate with or merge into or with
any other corporation, purchase or otherwise acquire
all or substantially all of the assets of any Person
(or of any division thereof);
(9) enter into, or cause, suffer or permit to
exist any transaction, arrangement or contract with
any of its Affiliates
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(other than a wholly-owned Subsidiary of the
Company), involving an amount in excess of $100,000;
(10) materially change or alter the nature of its
business as conducted as of the date of this
Agreement;
(11) agree or commit to do any of the foregoing.
Section 5.4 No Inconsistent Agreements. Except for agreements to be
entered into as contemplated by the Loan Documents, which shall not contain
restrictions on the Company's activities that are more restrictive than the
corresponding Instruments to which the Company currently is a party, neither
the Company nor any of its Subsidiaries shall enter into any Instrument, or
enter into any amendment or other modification to any currently existing
Instrument, (i) that by its terms restricts or prohibits the ability of the
Company to issue Conversion Shares upon the conversion of the Preferred Shares
or pursuant to which the Company's ability to make any distributions with
respect to, or to redeem or repurchase any of, the Preferred Shares is
prohibited or (ii) restricting the Company's ability to perform any of its
obligations under this Agreement or any of the Investment Agreements, including
its obligations relating to registration rights.
Section 5.5 Information.
(a) So long as any of the Preferred Shares are
outstanding, the Company shall file with the SEC and with any U.S. or foreign
stock exchange on which any securities of the Company are listed the annual
reports and quarterly reports and the information, documents and other reports
that are required to be filed with the SEC pursuant to Sections 13 and 15 of
the Exchange Act, whether or not the Company has or is required to have a class
of securities registered under the Exchange Act and whether or not the Company
is then subject to the reporting requirements of the Exchange Act, at the time
the Company is or would be required to file the same with the SEC and, promptly
after the Company is or would be required to file such reports, information or
documents with the SEC, to mail copies of such reports, information and
documents (including any registration statements filed with the SEC (without
exhibits)) to the holders of the Preferred Shares at their addresses set froth
in the register maintained by the transfer agent of the Company therefor.
(b) Upon request of any holder of at least 20% of the
then outstanding Preferred Shares (or an equivalent amount of Conversion
Shares) (a "20% Holder"), the Company shall furnish to such 20% Holder, as soon
as practicable and in any event within 30 days after the end of each calendar
month, a monthly report of the Company consisting of an unaudited balance sheet
as of the end of such month and the related unaudited statements of operations
and cash flows for such month and for the Fiscal Year to date, setting forth in
each case in comparative form the corresponding figures for the budget for the
current Fiscal Year. All such reports shall be certified by the chief
financial officer of the Company to fairly present, in all material respects,
the financial
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condition of the Company as of the dates shown and the results of its
operations for the periods then ended and to have been prepared in conformity
with GAAP except for normal, recurring, year-end audit adjustments and the
absence of footnotes.
(c) The Company shall furnish to each 20% Holder, as soon
as practicable and in any event not less than 20 Business Days prior to the
commencement of each Fiscal Year of the Company, (i) an annual operating budget
for the Company, approved by the Board of Directors of the Company, for the
succeeding Fiscal Year, containing projections of profit and loss, cash flow
and ending balance sheets for each month of such Fiscal Year and (ii) a
business plan for the Company relating to the succeeding Fiscal Year setting
forth in reasonable detail a development plan, financial plan and marketing
plan, budgeted and projected figures and other detailed information. Promptly
upon preparation thereof, the Company shall furnish to such 20% Holder any
other operating budgets or business plans that the Company may prepare and any
revisions of such previously furnished budgets or business plans.
(d) The Company shall furnish promptly to each 20% Holder copies
of any financial statements or financial or other material reports prepared by
the Company for or otherwise furnished to or filed with its shareholders or any
lender to the Company subject to restrictions imposed by the attorney-client
privilege and the attorney work product privilege. Without limiting the
generality of the foregoing, the Company will furnish to each 20% Holder copies
of any material filings to be made with governmental authorities in connection
with transactions contemplated by the Transaction Documents and shall give
Representatives (defined below) of Apollo Capital Management II, Inc. a
reasonable opportunity to comment on such filings prior to the time that such
filings are made. For purposes of this Section 5.5, the Purchasers shall be
deemed a 20% Holder prior to Closing.
Section 5.6 ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇. To the extent that, before or after
the Closing, any Purchaser is required to make a filing under the
▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), with respect to the acquisition, disposition or conversion of the
Preferred Shares, the Company agrees to cooperate with such Purchaser in
connection with such filing and to provide all information and to make any
filings that are reasonably required in connection therewith and shall use
reasonable efforts to obtain the early termination of the waiting period under
the HSR Act.
Section 5.7 Access. Upon reasonable notice both prior to the Closing
and after the Closing, the Company shall (and shall cause each of its
Subsidiaries to) afford the officers, employees, counsel, accountants and other
authorized representatives (collectively, "Representatives") of each 20% Holder
or any of their Affiliates reasonable access during normal business hours to
its properties, books, contracts and records and personnel and advisors (who
will be instructed by the Company to cooperate) and the Company shall (and
shall cause each of the Subsidiaries to) furnish promptly to any 20% Holder all
information concerning its business, properties, tax matters and personnel as
such 20% Holder may reasonably request, provided that (i) any review will be
conducted
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in a way that will not interfere unreasonably with the conduct of the Company's
business, (ii) no review pursuant to this Section 5.7 shall affect or be deemed
to modify, any representation or warranty made by the Company and (iii) after
the Closing, in-person visits by Representatives of the 20% Holder will be
limited to four per year in the aggregate, such in-person visits must be
requested by holders of at least a majority of the then outstanding Preferred
Shares (and/or an equivalent number of Conversion Shares), only Representatives
of 20% Holder may participate in such in-person visits and the Purchasers will
use reasonable efforts to coordinate such visits so as to minimize interference
with the Company's business. Each Purchaser will keep, and will cause their
respective Representatives to keep, all information and documents obtained
pursuant to Section 5.5(b) and (c) and this Section 5.7 confidential except to
the extent otherwise publicly disclosed by the Company. Each Purchaser will
promptly inform the Company in the event, in the course of its due diligence
investigation of the Company or the Target, it learns of any representation or
warranty or covenant of the Company under this Agreement that is incorrect in
any material respect; provided that the failure by a Purchaser to comply with
such obligation shall not affect any rights or obligations of any party hereto.
Prior to consummation of the Target Acquisition, the Purchasers will be
entitled to the benefits of the access rights of the Company to the personnel
and properties of the Target and its Subsidiaries contained in the Merger
Agreement and the Company agrees to assist any Purchaser that wishes to
exercise such access rights. For purposes of this Section 5.7, the Purchasers
shall be deemed a 20% Holder prior to Closing.
Section 5.8 Publicity. Prior to Closing, each Purchaser, on the one
hand, and the Company, on the other hand, will consult with each other before
issuing, and provide each other the opportunity to review and comment upon, any
press release or other public statements with respect to the transactions
contemplated by the Transaction Documents and the Target Acquisition and shall
not issue any such press release or make any such public statement prior to
such consultation, except as may be required by applicable law.
Section 5.9 Reservation of Shares. The Company shall at all times
reserve and keep available, free from preemptive rights, out of its authorized
and unissued stock, solely for the purpose of effecting the conversion of the
Preferred Shares, such number of shares of Common Stock as shall be sufficient
to effect the conversion of all of the Preferred Shares.
Section 5.10 Licenses; Other Property. The Company shall, through
the Closing Date, preserve, renew and keep in full force and effect all rights,
licenses, permits, patents, copyrights, trademarks, service marks, trade names
and other authorizations, from governmental authorities or any other person,
utilized by the Company or any of its Subsidiaries, which shall be necessary in
any material respect to the conduct of its business. The Company shall,
through the Closing Date, maintain and preserve all property material to the
conduct of its business and the businesses of its Subsidiaries consistent with
past practice and keep such property in good repair, working order and
condition consistent with past practice and from time to time make, and cause
to be made,
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all needful and proper repairs, renewals, additions, improvements and
replacements thereto consistent with past practice and necessary in order that
the business carried on in connection therewith may be properly conducted at
all times.
Section 5.11 Material Changes and Other Notices. The Company shall,
through the Closing Date, promptly notify the Purchaser of (a) any Material
Adverse Effect on the Company or the Target and (b) any lawsuit, claims,
proceeding or investigation pending or, to the best knowledge of the Company,
threatened, or any judgment, order or decree involving the Company or any other
development, which could reasonably be expected to have a Material Adverse
Effect on the Company or Target.
Section 5.12 Compliance with Applicable Laws. The Company shall, and
the Company shall cause its Subsidiaries to, through the Closing Date, comply
in all material respects with all applicable statutes, laws, ordinances, rules
and regulations of any governmental authority (whether now in effect or
hereinafter enacted) and any filing requirements relating thereto. The Company
shall do, and shall cause its Subsidiaries to do, all things necessary to
preserve, renew and keep in full force and effect and in good standing its
corporate existence and authority necessary to continue its business.
Section 5.13 Disclosure Schedule. No less that five nor more than
ten days prior to the Closing Date the Company shall provide to the Purchasers
the final Disclosure Schedule (the "Final Disclosure Schedule"). All matters
disclosed in the Final Disclosure Schedule shall be appropriately responsive to
the representation or warranty corresponding thereto in this Agreement. The
representations and warranties made herein shall be true and correct on the
date hereof and shall be true and correct in all material respects (without
duplication of any materiality standard contained therein) as of the Closing
Date and the information contained in the Final Disclosure Schedule shall not
cure any inaccuracies in such representations and warranties.
Section 5.14 Operational Changes. No later than 30 days after the
Closing Date, the Company will put into effect the operational and other
changes upon which the Company based its assumptions in the pro forma
financials prepared in connection with the Target Acquisition indicating that
cost savings of approximately $21,600,000 could be realized by the Company
after Closing; provided, however, that nothing contained in this Section shall
require the Company to violate any law or breach any contractual obligation.
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ARTICLE 6
SURVIVAL AND INDEMNIFICATION
Section 6.1 Survival Periods. All representations and warranties
contained in this Agreement shall survive until the third anniversary of the
Closing Date. The covenants and agreements contained in this Agreement, other
than those which by their terms only apply until the Closing Date, shall
survive the Closing Date without limit, except the obligations set forth in
Sections 5.5 and 5.7 and the second sentence of Section 11.12 shall survive the
Closing Date until both (x) no more than 50% of the initially issued Preferred
Stock shall remain outstanding and (y) the Company's registration obligations
terminate pursuant to Section 7.8(f). The representations and warranties and
the survival periods set forth above shall apply regardless of any
investigation made by or on behalf of any Person.
Section 6.2 Indemnification by the Company. In addition to all other
sums due hereunder or provided for in this Agreement, the Company agrees to
indemnify and hold harmless each Purchaser and its Affiliates and their
respective officers, directors, agents, employees, subsidiaries, partners and
controlling persons (each, an "indemnified party") to the fullest extent
permitted by law from and against any and all losses, claims, damages, expenses
(including reasonable fees and disbursements of counsel) or other liabilities
("Liabilities") resulting from any breach of any covenant, agreement,
representation or warranty of the Company in this Agreement or any legal,
administrative or other actions brought by any person or entity, proceedings or
investigations (whether formal or informal), or written threats thereof, based
upon, relating to or arising out of such Purchaser entering into this Agreement
or any Transaction Document; provided, however, that the Company shall not be
liable under this Section 6.2; (i) for any amount paid in settlement of claims
without its consent (which consent shall not be unreasonably withheld), or (ii)
to the extent that it is finally judicially determined that such Liabilities
resulted primarily from a breach by such Purchaser of any representation,
warranty, covenant or agreement of such Purchaser contained in this Agreement
or the gross negligence or willful misconduct of such Purchaser; provided,
further, that, if and to the extent that such indemnification is unenforceable
for any reason, the Company shall make the maximum contribution to the payment
and satisfaction of such indemnified liability that shall be permissible under
applicable laws. In connection with the obligations of the Company to indemnify
for Liabilities as set forth above, the Company further agrees to reimburse
each indemnified party for all such expenses (including reasonable fees,
disbursements and other charges of counsel) as they are incurred by such
indemnified party.
Section 6.3 Notification. Each indemnified party under this Article
6 will, promptly after the receipt of notice of the commencement of any action
or other proceeding against such indemnified party in respect of which
indemnity may be sought from the Company under this Article 6, notify the
Company in writing of the
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commencement thereof. The omission of any indemnified party so to notify the
Company of any such action shall not relieve the Company from any liability
that it may have to such indemnified party except to the extent that the
Company is actually and materially prejudiced by such failure to give notice.
In case any such action or other proceeding shall be brought against any
indemnified party and it shall notify the Company of the commencement thereof,
the Company shall be entitled to participate therein and, to the extent that
either may wish, to assume the defense thereof, with counsel reasonably
satisfactory to such indemnified party; provided, however, that any indemnified
party may, at its own expense, retain separate counsel to participate in such
defense. Notwithstanding the foregoing, in any action or proceeding in which
the Company and an indemnified party are, or are reasonably likely to become, a
party, such indemnified party shall have the right to employ separate counsel
at the expense of the Company and to control its own defense of such action or
proceeding if, in the reasonable opinion of counsel to such indemnified party,
(i) there are or may be legal defenses available to such indemnified party or
to other indemnified parties that are different from or additional to those
available to the Company or (ii) any conflict or potential conflict of interest
exists between the Company and such indemnified party that would make such
separate representation advisable in the view of the indemnified party;
provided, however, that (1) any such separate counsel employed by the
indemnified party at the expense of the Company shall be reasonably
satisfactory to the Company, (2) the indemnified party will not, without the
prior written consent of the Company settle, compromise or consent to the entry
of any judgment in such action or proceeding unless such settlement, compromise
or consent includes an unconditional release of the Company from all liability
arising or that may arise out of such action or proceeding relating to any
matter subject to indemnification hereunder and (3) in no event shall the
Company be required to pay fees and expenses under this Article 6 for more than
one firm of attorneys representing the indemnified parties in any jurisdiction
in any one legal action or group of related legal actions. The Company agrees
that it will not, without the prior written consent of the Purchasers, and the
Purchasers agree that they will not, without the prior written consent of the
Company, settle, compromise or consent to the entry of any judgment in any
pending or threatened claim, action or proceeding relating to any matter
subject to indemnification hereunder unless such settlement, compromise or
consent includes an unconditional release of the Purchasers or the Company, as
the case may be, and each other indemnified party from all liability arising or
that may arise out of such claims, action or proceeding. The rights accorded to
indemnified parties hereunder shall be in addition to any rights that any
indemnified party may have at common law, by separate agreement or otherwise.
Section 6.4 Registration Statements. Notwithstanding anything to the
contrary in this Article 6, the indemnification and contribution provisions of
Article 7 shall govern any claim made with respect to registration statements
filed pursuant thereto or sales made thereunder.
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ARTICLE 7
REGISTRATION RIGHTS
Section 7.1 Demand Registrations. (a) At any time and from time to
time after the expiration of 270 days from the Closing, the Company shall upon
the written demand (the "Registration Demand") of the Purchasers (and persons
or entities to whom rights under this Article 7 have been transferred as
contemplated by Section 7.10) holding directly or beneficially an aggregate of
at least 20% of the Preferred Shares (or an equivalent amount of Conversion
Shares), use its reasonable best efforts to effect the registration (a "Demand
Registration") under the Act (by means of a "shelf" registration statement
pursuant to Rule 415 under the Act, if so requested by the Purchasers and if
the Company is eligible therefor at such time) of such number of Registrable
Securities (as defined below) as shall be indicated in the Registration Demand
(which Registrable Securities may include distributions to be made in the
future on Preferred Shares and Conversion Shares thereon). Such Registration
Demand shall specify the intended method or methods of disposition of such
Registrable Securities (subject to modification as otherwise contemplated by
this Article 7). Upon receipt of a Registration Demand, the Company will
promptly, but in any event within 5 Business Days of receipt, provide notice of
the Registration Demand to each Purchaser of which it has knowledge at such
Purchaser's record address or other address on file with the Company, and such
Purchaser shall, upon giving written notice to the Company within 15 business
days of receipt of such notice, be permitted to participate as a selling holder
in the Demand Registration.
(b) If a Demand Registration is initiated, and the
Company then wishes to offer any of its securities in connection with the
registration, no such securities may be offered by the Company without the
consent of Purchasers participating in the Demand Registration holding a
majority of the securities of the Purchasers to be covered by such Demand
Registration (a "Majority of Participating Purchasers") (such consent not to be
unreasonably withheld).
(c) Upon receipt of the Registration Demand, the Company
shall expeditiously effect the registration under the Act of the Registrable
Securities and use its reasonable best efforts to have such registration become
and remain effective as provided in Section 7.8.
(d) A Majority of Participating Purchasers shall have the
right to select the underwriters for any underwritten offering pursuant to this
Section 7.1 as long as such underwriters are reasonably acceptable to the
Company and any demand registration pursuant to this Section 7.1 may, at the
election of a Majority of Participating Purchasers, be in the form of a "firm
commitment" underwritten offering; provided, however, that no such offering may
be in the form of "best efforts" or similar type offering. In this regard, if
the Company has established a "shelf" registration statement pursuant to
Section 7.1(a), upon the request of a Majority of Participating Purchasers, the
Company shall amend the shelf registration to provide for an underwritten
offering otherwise consistent with the
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provisions of Article 7, the provisions of such underwritten offering to be in
effect for at least 120 days (or such lesser time as such Majority of
Participating Purchasers shall request) whereupon, at the request of such
Majority of Participating Purchasers or the election of the Company, such
"shelf" registration shall be amended to no longer reference an underwritten
offering; provided, that the Purchasers shall not be entitled to request such
an underwritten "shelf" offering (or any other underwritten offering) more than
once every 365 days.
(e) As used in this Agreement, "Registrable Securities"
shall mean (i) any Preferred Shares, (ii) any Conversion Shares, (iii) any
securities issued or issuable with respect to any Preferred Shares or
Conversion Shares by way of stock dividend or stock split or in connection with
a combination of shares, recapitalization, merger, consolidation or other
reorganization or otherwise (including distributions on Preferred Shares), and
(iv) any other Preferred Shares or shares of Common Stock acquired by the
Purchasers.
Section 7.2 Piggyback Registration. (a) If the Company proposes to
register any of its securities under the Act for sale pursuant to an
underwritten public offering for cash (otherwise than in connection with the
registration of securities issuable pursuant to an employee stock option, stock
purchase or similar plan or pursuant to a merger, exchange offer or a
transaction of the type specified in Rule 145(a) under the Act and other than
the Company's first proposed registration after the Closing, but only to the
extent prepared and filed with the SEC within 270 days thereafter), the Company
shall give each Purchaser notice of such proposed registration at least 30 days
prior to the filing of a registration statement. At the written request of any
of the Purchasers within 15 Business Days after the receipt of the notice from
the Company, any such request stating the number of Registrable Securities that
the Purchasers wish to sell or distribute publicly under the registration
statement proposed to be filed by the Company, the Company shall use its
reasonable best efforts to register under the Securities Act the sale of such
Registrable Securities, and to cause such registration (a "Piggyback
Registration") to become and remain effective as provided in Section 7.8. The
Company may at any time withdraw or cease proceeding with the Piggyback
Registration if it shall at the same time withdraw or cease proceeding with the
registration of all the securities originally proposed to be registered.
Notwithstanding anything to the contrary set forth in this Agreement, no
Purchaser may participate in a Piggyback Registration under this Section 7.2
unless, at the time thereof, such Purchaser owns at least 5% of the then-
outstanding Preferred Shares (or an equivalent number of Conversion Shares).
(b) If a Piggyback Registration is an underwritten
primary registration on behalf of the Company, and the managing underwriters
thereof advise the Company and the Purchasers in writing that in their opinion
the number of securities requested to be included in the registration exceeds
the number which can be sold in the offering without adversely affecting the
offering, the Company shall include in the registration (i) first, the
securities that the Company proposes to sell for its own account and (ii)
second, the
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Registrable Securities that the Purchasers propose to sell in proportion to the
number of shares each proposes to sell pursuant to this clause (ii).
Section 7.3 Indemnification by the Company. In the event of any
registration of any Registrable Securities under the Act, the Company shall and
hereby does, indemnify and hold harmless each Purchaser, each of its directors,
officers, each other Person who participates as an underwriter in the offering
or sale of such Registrable Securities and each other Person, if any, who
controls such Purchaser or any such underwriter within the meaning of Section
15 and Section 20 of the Act against any losses, claims, damages or
liabilities, joint or several, to which the Purchaser or any such director or
officer or underwriter or controlling Person may become subject under the Act
or otherwise, insofar as such losses, claims, damages or liabilities (or
actions or proceedings, whether commenced or threatened, in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in any registration statement under which the
Registrable Securities were registered under the Act, any preliminary
prospectus, final prospectus or summary prospectus contained therein, or any
amendment or supplement thereto, or any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein in light of the circumstances in which they were made not
misleading, and the Company shall reimburse such Purchaser, and each such
director, officer, underwriter and controlling Person for any legal or any
other expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, liability, action or proceeding; provided,
however, that the Company shall not be liable in any such case to the extent
that any such loss, claim, damage, liability (or action or proceeding in
respect thereof) or expense arises out of or is based upon an untrue statement
or alleged untrue statement or omission or alleged omission made in such
registration statement, preliminary prospectus, final prospectus, summary
prospectus, amendment or supplement in reliance upon and in conformity with
written information furnished to the Company through an instrument duly
executed by or on behalf of such Purchaser, as the case may be, specifically
stating that it is for use in the preparation thereof. Such indemnity shall
remain in full force and effect regardless of any investigation made by or on
behalf of a Purchaser or any such director, officer or controlling Person and
shall survive the transfer of the Registrable Securities by a Purchaser.
Section 7.4 Indemnification by the Purchasers. The Company may
require, as a condition to including any Registrable Securities in any
registration statement filed pursuant to Section 7.1 or 7.2, that the Company
shall have received an undertaking satisfactory to it from a Purchaser to
indemnify and hold harmless (in the same manner and to the same extent as set
forth in Section 7.3) the Company, each director of the Company, each officer
of the Company signing such registration statement, each other Person who
participates as an underwriter in the offering or sale of such Registrable
Securities and each other Person, if any, who controls the Company within the
meaning of Section 15 and Section 20 of the Act with respect to any untrue
statement or alleged untrue statement in or omission or alleged omission from
such registration statement, any preliminary prospectus, final prospectus or
summary prospectus contained therein or any
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amendment or supplement thereto, if such untrue statement or alleged untrue
statement or omission or alleged omission was made in reliance upon and in
conformity with written information furnished to the Company through an
instrument duly executed by such Purchaser, specifically stating that it is for
use in the preparation of such registration statement, preliminary prospectus,
final prospectus, summary prospectus, amendment or supplement. Such indemnity
shall remain in full force and effect, regardless of any investigation made by
or on behalf of the Company or any such director, officer or controlling Person
and shall survive the transfer by the seller of the securities of the Company
being registered.
Section 7.5 Notices of Claims, Etc. Promptly after receipt by an
indemnified party of notice of the commencement of any action or proceeding
involving a claim referred to in Section 7.3 or 7.4, such indemnified party
will, if a claim in respect thereof is to be made against an indemnifying
party, give notice to the latter of the commencement of such action; provided,
however, that the failure of any indemnified party to give notice as provided
herein shall not relieve the indemnifying party of its obligations under
Section 7.3 or 7.4, except to the extent that the indemnifying party is
actually prejudiced by such failure to give notice. In case any such action is
brought against an indemnified party, unless in such indemnified party's
reasonable judgment a conflict of interest between such indemnified and
indemnifying parties may exist that would make such separate representation
advisable or the indemnified party may have defenses not available to the
indemnifying party in respect of such claim, the indemnifying party shall be
entitled to participate in and to assume the defense thereof, with counsel
reasonably satisfactory to such indemnified party, and after notice from the
indemnifying party to such indemnified party of its election so to assume the
defense thereof, the indemnifying party shall not be liable to such indemnified
party for any legal or other expenses subsequently incurred by the latter in
connection with the defense thereof other than reasonable costs of
investigation. No indemnifying party shall be liable for any settlement of any
action or proceeding effected without its written consent. No indemnifying
party shall, without the consent of the indemnified party, consent to entry of
any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability in respect to such claim or
litigation. The indemnification required by this Article 7 shall be made by
periodic payments of the amount thereof during the course of the investigation
or defense, as and when bills are received or expense, loss, damage or
liability is incurred.
Section 7.6 Other Indemnification. Indemnification similar to that
specified in this Article 7 (with appropriate modifications) shall be given by
the Company and the Purchasers with respect to any required registration or
other qualification of Registrable Securities under any federal or state law or
regulation of any governmental authority other than the Act.
Section 7.7 Contribution. In order to provide for just and equitable
contribution in circumstances in which the indemnity agreement provided for in
this Article 7 is for
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any reason held to be unenforceable by the indemnified parties although
applicable in accordance with its terms in respect of any losses, claims,
damages or liabilities suffered by an indemnified party referred to therein,
each applicable indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages or liabilities, in such proportion
as is appropriate to reflect the relative fault of the Company on the one hand
and of the liable selling shareholders on the other in connection with the
statements or omissions which resulted in such losses, claims, damages or
liabilities, as well as any other relevant equitable considerations. The
relative fault of the Company on the one hand and of the liable selling
shareholders (including, in each case, that of their respective officers,
directors, employees, agents and controlling Persons) on the other shall he
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact relates to information supplied by the
Company, on the one hand, or by or on behalf of the selling shareholders, on
the other, and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission.
Section 7.8 Registration Covenants of the Company. In the event that
any Registrable Securities of a Purchaser are to be registered pursuant to
Section 7.1 or 7.2, the Company covenants and agrees that it shall use its
reasonable best efforts to effect the registration and cooperate in the sale of
the Registrable Securities to be registered and shall as expeditiously as
possible:
(a) (i) prepare and file with the SEC a registration
statement with respect to the Registrable Securities (as well as any necessary
amendments or supplements thereto) (a "Registration Statement") and (ii) use
its reasonable best efforts to cause the Registration Statement to become
effective as promptly as practicable and in any event within 90 days of receipt
of the Registration Demand (subject, however, to the provisions of Section
7.13);
(b) prior to the filing described above in Section
7.8(a), furnish to such Purchaser copies of the Registration Statement and any
amendments or supplements thereto and any prospectus forming a part thereof
with respect to which (i) the Purchasers shall be afforded a reasonable
opportunity to review and comment thereon prior to filing and (ii) the Company
will not unreasonably decline to make such changes thereto required by the Act;
(c) notify such Purchaser, promptly after the Company
shall receive notice thereof, of the time when the Registration Statement
becomes effective or when any amendment or supplement or any prospectus forming
a part of the Registration Statement has been filed;
(d) notify such Purchaser promptly of any request by the
SEC for the amending or supplementing of the Registration Statement or
prospectus or for additional
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information and promptly deliver to the Purchaser copies of any comments
received from the SEC;
(e) (i) advise such Purchaser after the Company shall
receive notice or otherwise obtain knowledge of the issuance of any order by
the SEC suspending the effectiveness of the Registration Statement or any
amendment thereto or of the initiation or threatening of any proceeding for
that purpose and (ii) promptly use its best efforts to prevent the issuance of
any stop order or to obtain its withdrawal promptly if a stop order should be
issued;
(f) (i) subject to Section 7.13 prepare and file with the
SEC such amendments and supplements to the Registration Statement and each
prospectus forming a part thereof as may be necessary to keep the Registration
Statement continuously effective for the period of time necessary to permit the
Purchaser to dispose of all its Registrable Securities; provided, however, that
the Company shall not be required to keep the Registration Statement effective
if all of the Registrable Securities held by the Purchasers could be sold
without restriction pursuant to the provision of Rule 144(k) under the Act and
(ii) comply with the provisions of the Act with respect to the disposition of
all Registrable Securities covered by the Registration Statement during such
period in accordance with the intended methods of disposition by such Purchaser
set forth in the Registration Statement;
(g) furnish to such Purchaser such number of copies of
the Registration Statement, each amendment and supplement thereto, the
prospectus included in the Registration Statement (including each preliminary
prospectus) and such other documents as such Purchaser may reasonably request
in order to facilitate the disposition of the Registrable Securities owned by
such Purchaser;
(h) use its reasonable best efforts to register or
qualify such Registrable Securities under such other securities or blue sky
laws of such jurisdictions as determined by the underwriters after consultation
with the Company and such Purchaser and do any and all other acts and things
which may be reasonably necessary or advisable to enable such Purchaser to
consummate the disposition in such jurisdictions of the Registrable Securities
(provided that the Company shall not be required to (i) qualify generally to do
business in any jurisdiction in which it would not otherwise be required to
qualify but for this Section 7.8 (h), (ii) subject itself to taxation in any
such jurisdiction, or (iii) consent to general service of process in any such
jurisdiction);
(i) notify such Purchaser, at any time when a prospectus
relating thereto is required to be delivered under the Act, of the happening of
any event as a result of which the Registration Statement would contain an
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not
misleading;
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(j) if the Common Stock is not then listed on a
securities exchange, use its reasonable best efforts, consistent with the
then-current corporate structure of the Company, to facilitate the listing of
the Common Stock on the New York Stock Exchange;
(k) provide a transfer agent and registrar, which may be
a single entity, for all the Registrable Securities not later than the
effective date of the Registration Statement; it being hereby agreed that the
Purchasers shall furnish to the Company such information regarding the
Purchasers and the plan and method of distribution of Registrable Securities
intended by the Purchasers as the Company may from time to time reasonably
request in writing and as shall be required by law or by the SEC in connection
therewith;
(l) with respect to a firm commitment underwritten
offering, enter into such customary agreements (including, as appropriate, an
underwriting agreement in customary form) and take all such other action, if
any, as the Purchaser or the underwriters shall reasonably request in order to
expedite or facilitate the disposition of the Registrable Securities pursuant
to this Article 7;
(m) (i) make available for inspection by such Purchaser,
any underwriter participating in any disposition pursuant to the Registration
Statement and any attorney, accountant or other agent retained by such
Purchaser or any such underwriter all relevant financial and other records,
pertinent corporate documents and properties of the Company and (ii) cause the
Company's officers, directors and employees to supply all relevant information
reasonably requested by such Purchaser or any such underwriter, attorney,
accountant or agent in connection with the Registration Statement;
(n) use its reasonable best efforts to cause the
Registrable Securities covered by the Registration Statement to be registered
with or approved by such other governmental authorities as may be necessary to
enable such Purchaser to consummate the disposition of such Registrable
Securities;
(o) cause the Company's independent public accountants to
provide to the underwriters, if any, and the selling holders, if permissible, a
comfort letter in customary form and covering such matters of the type
customarily covered by comfort letters;
(p) cooperate and assist in any filings required to be
made with the NASD and in the performance of any due diligence investigation by
any underwriter in an underwritten offering; and
(q) use all reasonable efforts to facilitate the
distribution and sale of any Registrable Securities to be offered pursuant to
this Agreement, including without limitation by making road show presentations,
holding meetings with potential investors
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and taking such other actions as shall be appropriate or as shall be requested
by the lead managing underwriter of an underwritten offering; provided, that
the Company shall not be required to make a road show presentation unless
requested by a Majority of Participating Purchasers, which request may only be
made once every 365 days.
Section 7.9 Expenses. In connection with any Demand Registration
pursuant to Section 7.1 or any Piggyback Registration pursuant to Section 7.2,
the Company shall pay all registration, filing and NASD fees, all fees and
expenses of complying with securities or "blue sky" laws and any commissions,
fees and disbursements of underwriters customarily paid by sellers of
securities (based upon offering proceeds to be received by it). In any Demand
Registration or Piggyback Registration, the Company shall be responsible for
the fees and disbursements of counsel for the Company and of its independent
public accountants and premiums and other costs of policies of insurance, if
any, against liabilities arising out of the public offering of the Registrable
Securities; provided, that the Company shall not be required to obtain such
insurance. The Purchasers shall pay for underwriting discounts and commissions
customarily paid by sellers of securities (based upon offering proceeds to be
received by each such Purchaser).
Section 7.10 Assignment of Registration Rights. A Purchaser or any
Subsequent Purchaser (as defined) may assign its rights under this Article 7 to
anyone (a "Subsequent Purchaser") to whom the Purchaser or any Subsequent
Purchaser sells, transfers or assigns any of the Registrable Securities (other
than in sales pursuant to Rule 144 under the Act, a Demand Registration or a
Piggyback Registration effected pursuant to this Article 7), in which case such
Person shall, for purposes of this Article 7, be considered a Purchaser;
provided that such Person shall not be considered a Purchaser under this
Article 7 until such time as written notice is provided by the assigning
Purchaser or Subsequent Purchaser to the Company of such assignment.
Notwithstanding the above, only Subsequent Purchasers holding at least 10% of
the Preferred Shares (or an equivalent amount of Conversion Shares) shall be
entitled to the rights of a Purchaser under Section 7.8 (m) and (o).
Section 7.11 Other Registration Rights. Notwithstanding any other
provision of this Agreement, if the Company at any time grants registration
rights to any other Person on terms which any Purchaser considers preferential
to the terms in this Article 7, then the Purchasers shall be entitled to
registration rights with such preferential terms; provided that such provision
shall not apply with respect to any registration rights granted to register the
debt securities to be issued by the company under the Bridge Facility or any
debt securities issued in lieu thereof or for the refinancing thereof. The
Company shall not grant any right of registration under the Act relating to any
of its securities to any Person other than the Purchasers unless the Purchasers
shall be entitled to have included in any Piggyback Registration effected a
number of Registrable Securities requested by the Purchaser to be so included
representing at least 25% of such offering prior to the inclusion of any
securities requested to be registered by the Persons entitled to any such other
registration rights.
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Section 7.12 Rule 144; Rule 144A. So long as the Company is subject
to the reporting requirements of Section 13 or 15(d) of the Exchange Act, the
Company shall take all actions reasonably necessary to enable the Purchasers to
sell the Registrable Securities without registration under the Act within the
limitation of the exemptions provided by Rule 144 and Rule 144A under the Act,
as such Rules may be amended from time to time, or any similar rule or
regulation hereafter adopted by the SEC, including filing on a timely basis all
reports required to be filed by the Exchange Act.
Section 7.13 Limitation on Requirement to File or Amend Registration
Statement. Anything in this Agreement to the contrary notwithstanding, it is
understood and agreed that the Company shall not be required to file a
Registration Statement, amendment or post-effective amendment thereto or
prospectus supplement or to supplement or amend any Registration Statement if
the Company is then involved in discussions concerning, or otherwise engaged
in, an acquisition, disposition, financing or other material transaction and
the Company determines in good faith that the making of such a filing,
supplement or amendment at such time would materially adversely affect or
interfere with such transaction so long as the Company shall, as soon as
practicable thereafter, make such filing, supplement or amendment, to the
extent then practicable; provided, however, that in no event shall any delay in
filing pursuant to this Section 7.13 be for a period in excess of 60 days or be
exercised by the Company more than twice during any 365 day period (and, at
least 70 days must pass after the end of any such delay period prior to the
date the Company may exercise its second delay period in any 365 day period)
without a waiver as permitted by Section 11.3. The Company shall promptly give
each Purchaser written notice of any such postponement, containing a general
statement of the reasons for such postponement and an approximation of the
anticipated delay; provided, however, that nothing herein shall require the
Company to disclose any terms of any such transaction or the identity of any
party thereto. Upon receipt by a Purchaser of notice of an event of the kind
described in this Section 7.13, such Purchaser shall forthwith discontinue any
disposition of Registrable Securities until receipt of notice from the Company
that such disposition may continue and of any supplemented or amended
prospectus indicated in such notice.
ARTICLE 8
TERMINATION
Section 8.1 Termination. This Agreement may be terminated at any
time prior to the Closing:
(a) by mutual written consent of the Company and the
Purchasers;
(b) by the Purchasers, if the Closing shall not have
occurred on or before December 31, 1997; provided, however, that the right to
terminate this Agreement
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under this clause (b) shall not be available to any Purchaser whose failure to
fulfill any obligation under this Agreement has been the cause of, or resulted
in, the failure of the Closing to occur on or before such date and the Apollo
Purchasers shall be deemed to be one Purchaser for purposes of this proviso;
(c) by the Purchasers or the Company, if any judgment,
injunction, order or decree enjoining the Purchasers, or the Company from
consummating this Agreement is entered and such judgment, injunction, order or
decree shall become final and non-appealable; provided, however, that the
Purchasers and the Company shall have used all reasonable efforts to remove
such judgment, injunction, order or decree; or
(d) by the Company, in the event the Merger Agreement has
been terminated in accordance with its terms and a period of at least six
months has elapsed since such termination of the Merger Agreement, and at least
six months has elapsed since the Purchaser and the Target engaged in
substantive discussions regarding a merger, consolidation, business
combination, stock or asset acquisition, joint venture or other similar
investment by the Company in the Target.
Section 8.2 Effect of Termination. If this Agreement is terminated
pursuant to Section 8.1, this Agreement shall become void and of no effect with
no liability on the part of any party hereto, except (A) to the extent such
termination results from the breach by a party hereto of any of its
representations, warranties, covenants or agreements set forth in this
Agreement and (B) that the representation contained in Sections 3.18 (Finder's
Fee), 4.7 (Finder's Fee) and the covenants and agreements contained in Section
5.8 (Publicity), Article 6 (Survival and Indemnification), Section 11.1
(Notices), Section 11.2 (Fees and Expenses) and Section 11.11 (Submission to
Jurisdiction; Waiver of Jury Trial) shall survive the termination hereof.
ARTICLE 9
CONDITIONS PRECEDENT TO THE
OBLIGATIONS OF THE PURCHASERS
The obligations of the Purchasers to be discharged under this
Agreement at the Closing are subject to satisfaction of the following
conditions at or prior to the Closing (unless expressly waived in writing by
the Purchasers at or prior to the Closing):
Section 9.1 Compliance by the Company. Each of the terms, covenants
and conditions of this Agreement to be complied with and performed by the
Company at or prior to the Closing shall have been complied with and performed
by it in all material respects, and the representations and warranties made by
the Company in this Agreement shall be true and correct (i) as of the date
hereof and (ii) as of the Closing except to the extent that the circumstances
or events resulting in the failure of such representations and warranties to be
true and correct as of the Closing would not have a Material Adverse
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Effect (without duplication of any materiality standard contained therein) on
the Company after giving effect to the Target Acquisition.
Section 9.2 No Injunction. At the Closing Date, there shall be no
injunction, restraining order or decree of any nature of any court or
government authority of competent jurisdiction that is in effect that restrains
or prohibits the consummation of the transactions contemplated hereby or the
Target Acquisition.
Section 9.3 Regulatory Matters. There shall have been received, and
shall be in full force and effect, all requisite Approvals with respect to the
purchase and holding by the Purchasers of the Preferred Shares. The purchase
of and payment for the Preferred Shares on the Closing Date on the terms and
conditions herein provided shall not violate any applicable law or governmental
regulation and shall not subject the Purchasers to any material tax, penalty or
liability, or require the Purchasers to register or qualify under or pursuant
to any applicable law or governmental regulation. In the reasonable opinion of
the Purchasers, there shall not have occurred, and there shall not be pending
or threatened, any change in law or regulation that has or could reasonably be
expected to have a Material Adverse Effect on the Company after giving effect
to the Target Acquisition.
Section 9.4 Legal Opinions. The Company shall have furnished to the
Purchasers on the Closing Date the opinion of ▇▇▇▇▇, Day, ▇▇▇▇▇▇ & ▇▇▇▇▇,
counsel to the Company, dated the Closing Date, in customary form and substance
for transactions of this nature and in form and substance reasonably
satisfactory to the Purchasers and the Company.
Section 9.5 Lauren Agreement. The change of control provisions
contained in the Lauren Agreement shall have been modified in a manner
reasonably acceptable to the Purchasers.
Section 9.6 Articles of Incorporation and By-laws; Ownership
Structure. The Articles of Incorporation and By- laws shall not have been
amended, modified or supplemented in any respect, and no material change shall
have occurred in the ownership structure of the Company, except as contemplated
hereby or by the Merger Agreement.
Section 9.7 Closing Documents. The Company shall have delivered to
the Purchasers the following:
(a) a certificate of the chief executive officer and the
chief financial officer of the Company, dated the Closing Date, to the effect
that the conditions specified in Section 9.1 have been satisfied and that the
Target Acquisition has been consummated;
(b) incumbency certificates dated the Closing Date for
the officers of the Company executing this Agreement or any of the other
Transaction Documents and
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45
any certificates or documents delivered in connection with this Agreement, the
other Transaction Documents or the Closing;
(c) a certificate of the Secretary or an Assistant
Secretary of the Company, dated the Closing Date, certifying attached copies of
the By-laws of the Company and the resolutions adopted by the Board of
Directors of the Company authorizing the execution and delivery by the Company
of this Agreement and the other Transaction Documents and the consummation by
the Company of the transactions contemplated hereby and thereby;
(d) a copy of the Articles of Incorporation as filed with
and certified by the Secretary of the Sate of Texas;
(e) a certificate of the Secretary of the State of Texas,
dated a recent date, certifying that the Company is in good standing in Texas
and that all reports, if any, have been filed as required and that all fees in
connection therewith and all franchise taxes have been paid; and
(f) such other certificates or documents as the Purchaser
or its counsel may reasonably request relating to the transactions contemplated
hereby.
Section 9.8 Company Indebtedness. The Purchasers shall be satisfied
that, after giving effect to the transactions contemplated hereby and by the
other Transaction Documents, at the Closing (a) the Company will have not less
than $40 million of availability under its revolving credit facility (based
upon the pro forma consolidated 9/30/97 balance sheet) immediately after the
initial funding of the Company's senior credit facilities (such amount to be
increased by 61.02% of the principal amount of any 6% Convertible Subordinated
Debentures due 2012 ("6% Notes") of the Target outstanding immediately prior to
the merger contemplated by the Merger Agreement, (b) the Company shall have
entered into the senior credit facilities on the explicit terms set forth in
the commitment letter attached hereto, with such additional terms (including
but not limited to detailed provisions contemplated by such explicit terms)
satisfactory to the Purchasers with not less than $600 million of availability
and all conditions to the initial funding thereunder shall have been satisfied;
(c) the Company shall have issued subordinated debt on the explicit terms set
forth in the commitment letter attached hereto, with such additional terms
(including but not limited to detailed provisions contemplated by such explicit
terms) satisfactory to the Purchasers in an amount not less than $135 million;
and (d) the Company and the Target shall have no other outstanding (i)
Indebtedness for Borrowed Money or preferred stock other than (w) approximately
$22 million of Company's and the Target's industrial revenue bonds, (x)
approximately $125 million of the Company's 10% Senior Subordinated Notes due
2006 under the Indenture, (y) approximately $117.8 million principal amount of
the Target's 6% Notes (to the extent such 6% Notes have not theretofore been
converted in accordance with their terms) and (z) other Indebtedness for
Borrowed Money not exceeding $1 million. The terms of
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46
any of the above outstanding Indebtedness shall not have been amended without
the Purchasers' consent.
Section 9.9 Expenses. The Company shall have paid or reimbursed all
Transaction Expenses theretofore incurred by the Purchasers in connection with
the Transaction Documents (or made provision satisfactory to the Purchasers for
payment or reimbursement of such expenses in the case of expenses incurred but
not yet billed to Purchasers) in accordance with the letter agreement dated
August 19, 1997 between the Company and Apollo Management, L.P.
Section 9.10 Condition and Status of the Company and the Target.
Since December 31, 1996 and after giving effect to the transactions
contemplated by the Transaction Documents, there shall have been no Bankruptcy
Event, no Change of Control, no default or event of default under any material
Instrument to which the Company or any Subsidiary of the Company is a party and
no event or events causing a Material Adverse Effect on the Company after
giving effect to the Target Acquisition, nor any developments that could,
individually or in the aggregate, in the reasonable opinion of the Purchasers,
be expected to result in a Material Adverse Effect on the Company after giving
effect to the Target Acquisition. No information relating to (i) events or
conditions not disclosed to the Purchasers prior to the date hereof or (ii) new
information or additional developments concerning conditions or events
previously disclosed to the Purchasers, shall have come to the attention of the
Purchasers as a result of their continuing review of the Company and the Target
that the Purchasers reasonably believe is likely to have a Material Adverse
Effect on the Company after giving effect to the Target Acquisition.
Section 9.11 Merger Agreement. The Merger Agreement in the form
attached hereto shall not have been altered, amended or otherwise changed or
supplemented or any condition therein waived, without the prior written consent
of the Purchasers. The transactions contemplated by the Merger Agreement
(including the issuance of shares of Company Common Stock as contemplated by
Section 2.1(e)(i)(B) thereof, without the application of Section 2.4 thereof)
shall be closed simultaneously with the Closing, and the Company's shareholders
shall have approved, by the required vote, the issuance of Common Stock and
Preferred Stock as contemplated hereby and by the Merger Agreement.
Section 9.12 No Shareholders or Voting Agreements. No shareholders
or voting agreements relating to the Company shall be in effect except as may
be approved in writing by the Purchasers.
Section 9.13 Financial Markets. There shall not have occurred after
the date hereof a material adverse change in the market for equity financings
or a material disruption of, or a material adverse change in, financial,
banking or capital market conditions, in each case as determined by the
Purchasers in their reasonable discretion.
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Section 9.14 Certain Agreements. The Company shall have provided to
the Purchasers true and correct copies of all written agreements and
understandings (or a written summary of all unwritten agreements and
understandings) with any lenders, advisors, or financing sources relating to
the transactions contemplated by the Transaction Documents.
ARTICLE 10
CONDITIONS PRECEDENT TO THE
OBLIGATIONS OF THE COMPANY
The obligations of the Company to be discharged under this Agreement
at the Closing are subject to satisfaction of the following conditions at or
prior to the Closing (unless waived by the Company at or prior to the Closing):
Section 10.1 Purchaser Representation and Warranties. The
representations and warranties made by the Purchasers in this Agreement shall
be true and correct as of the Closing except to the extent that the
circumstances or events resulting in the failure of such representations and
warranties to be true and correct as of the Closing would not have a Material
Adverse Effect on the Company, the Target and their respective Subsidiaries,
taken as a whole, after giving effect to the Target Acquisition.
Section 10.2 Target Investment. Simultaneously with the Closing
either (i) the Target Acquisition, (ii) a merger, consolidation or other
business combination between the Company and the Target or an investment in, or
acquisition of the stock or assets of, the Target by the Company, shall have
been consummated.
Section 10.3 No Legal Action. At the Closing Date, there shall be no
injunction, restraining order or decree of any nature of any court or
government authority of competent jurisdiction that is in effect that restrains
or prohibits the consummation of the transactions contemplated hereby.
ARTICLE 11
MISCELLANEOUS
Section 11.1 Notices. All notices or other communications given or
made hereunder shall be validly given or made if in writing and delivered by
facsimile transmission or in person at, mailed by registered or certified mail,
return receipt requested, postage prepaid, or sent by a reputable overnight
courier to, the following addresses (and shall be deemed effective at the time
of receipt thereof).
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If to the Company:
Pillowtex Corporation
▇▇▇▇ ▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇▇, Esquire, Vice President and
General Counsel
with copies to:
▇▇▇▇▇, Day, ▇▇▇▇▇▇ & ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇, Esquire
If to the Purchasers:
At their respective addresses set forth
on Exhibit A hereto
with a copy to:
Apollo Management, L.P.
▇▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, Esquire
Akin, Gump, Strauss, ▇▇▇▇▇ & ▇▇▇▇, L.L.P.
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esquire and ▇▇▇▇▇ ▇▇▇▇▇▇▇▇,
Esquire
or to such other address as the party to whom notice is to be given may have
previously furnished notice in writing to the other in the manner set forth
above.
Section 11.2 Fees and Expenses. The Company agrees to pay to the
Purchasers the Transaction Expenses in accordance with the letter agreement
dated August 19, 1997 between the Company and Apollo Management L.P.
Furthermore, upon termination of this Agreement, the Company shall promptly pay
to the Purchasers or an Affiliate of the Purchasers any unpaid Transaction
Expenses up to and including the date of such termination. The Company further
agrees that if the Target Acquisition is not completed for any reason
whatsoever and the Company or any Affiliates, directly or indirectly, receives
any advisory, topping, break-up, commitment, funding or similar fee (the "Fee")
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49
as a result thereof, the Company hereby covenants to pay the Purchasers,
promptly following receipt thereof by the Company or such Affiliates, in the
aggregate, the lesser of (i) $2.4 million and (ii) 20% of the amount of the net
Fee remaining after payment by the Company of actual out-of-pocket expenses,
provided that such expenses shall not include any Fees payable to any advisers
or financing sources (but shall include amounts paid by the Company in respect
of any expense reimbursement obligations for out-of-pocket expenses payable to
any of such parties). The Company hereby warrants that it does not, as of the
date hereof, directly or indirectly own any stock or other security of the
Target.
Section 11.3 Amendment; Waiver. The provisions of this Agreement may
be modified or amended, and waivers and consents to the performance and
observance of the terms hereof may be given, only by written instrument
executed and delivered by the Company and holders of a majority of the
Preferred Shares. The failure at any time to require performance of any
provision hereof shall in no way affect the full right to require such
performance at any time thereafter. The waiver by any party to this Agreement
of a breach of any provision hereof shall not be taken or held to be a waiver
of any succeeding breach of such provision or any other provision or as a
waiver of the provision itself.
Section 11.4 Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to
be invalid, void or unenforceable, the validity, legality and enforceability of
the remaining provisions contained herein shall not in any way be affected or
impaired thereby. The parties shall endeavor in good-faith negotiations to
replace the invalid illegal or unenforceable provisions with valid provisions
the economic effect of which comes as close as possible to that of the
provision held to be invalid, illegal or unenforceable.
Section 11.5 Headings. The index and article and section headings
herein are for convenience only and shall not affect the construction hereof.
Section 11.6 Entire Agreement. This Agreement and the other
Investment Agreements embody the entire agreement between the parties relating
to the subject matter hereof and any and all prior oral or written agreements,
representations or warranties, contracts, understandings, correspondence,
conversations, and memoranda, whether written or oral, between the Company and
the Purchasers, or between or among any of their agents, representatives,
parents, Subsidiaries, Affiliates, predecessors in interest or successors in
interest, with respect to the subject matter hereof are of no further force and
effect.
Section 11.7 Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed to be an original and both of which
together shall be deemed to be one and the same instrument.
Section 11.8 Assignment. All covenants and agreements contained in
this Agreement by or on behalf of the parties hereto shall bind, and inure to
the benefit of, the
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respective successors and assigns of the parties hereto. Subject to Section
7.10, the rights and obligations of either party hereto may not be assigned
without the prior written consent of the other parties; provided, however that
prior to the Closing, each Purchaser may assign all or any portion of its
rights hereunder (along with the corresponding obligations), provided that such
Purchaser shall continue to be bound hereby.
Section 11.9 Third-Party Beneficiaries. Except for Article 6 and
Sections 7.3, 7.4, 7.6 and 7.7, 11.2 and 11.11, this Agreement is for the sole
benefit of the parties hereto and their permitted assigns and nothing herein
expressed or implied shall give or be construed to give to any Person, other
than the parties hereto and such assigns, any legal or equitable rights
hereunder.
Section 11.10 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
AGREEMENTS MADE AND PERFORMED ENTIRELY WITHIN SUCH STATE.
Section 11.11 Submission to Jurisdiction; Waiver of Jury Trial. Each
of the Company and the Purchasers hereby submits to the exclusive jurisdiction
of the United States District Court for the Southern District of New York and
of any New York State Court sitting in the City of New York for purposes of all
legal proceedings which may arise hereunder or under any other Transaction
Documents. The Company irrevocably waives, to the fullest extent permitted by
law, any objection which it may have or hereafter have to the laying of the
venue of any such proceeding brought in such a court and any claim that any
such proceeding brought in such a court has been brought in an inconvenient
forum. The Company hereby consents to process being served in any such
proceeding by the mailing of a copy thereof by registered certified mail,
postage prepaid, to its address specified in Section 11.1 or in any other
manner permitted by law. THE COMPANY AND THE PURCHASERS (AND ANY PERSON
CLAIMING THROUGH THEM OR PURSUANT TO THIS AGREEMENT) HEREBY KNOWINGLY,
VOLUNTARILY, AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY
JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN
CONNECTION WITH, THIS AGREEMENT OR ANY OTHER TRANSACTION DOCUMENT OR ANY COURSE
OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN), OF THE
PURCHASER OR THE COMPANY. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE
PURCHASER'S ENTERING INTO THIS AGREEMENT. The Company hereby irrevocably
designates CT Corporation, ▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇, as the designee,
appointee and agent of the Company to receive, for and on behalf of the
Company, service of process in such jurisdiction in any legal action or
proceeding with respect to this Agreement or any other Investment Agreement. It
is expected that a copy of such process served on such agent will be promptly
forwarded by mail to the Company at its address set forth in Section 11.1, but
the failure of the Company to receive such copy shall not affect in any way the
service of such process. The Company further irrevocably consents to the
service of process of any
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of the aforementioned courts in any such action or proceeding by the mailing of
copies thereof by registered certified mail, postage prepaid, to the Company at
such address. Nothing herein shall affect the right of the Purchasers to serve
process in any other manner permitted by law or to commence legal proceedings
or otherwise proceed against the Company in any other jurisdiction.
Section 11.12 Further Assurances. The parties agree to use their reasonable
efforts to take, or cause to be taken, all further actions as shall be
necessary to make effective and consummate the transactions contemplated by
this Agreement and the Transaction Documents. The Company shall, on the last
day of each month prior to the Closing Date, and on the last day of each Fiscal
Quarter after the Closing Date furnish to the Purchasers a certificate signed
by an authorized executive officer as to the compliance with its obligations
under this Agreement and the other Investment Agreements. At any time that any
party hereto is in breach of any representation, warranty, covenant or
agreement in this Agreement or any of the other Transaction Documents, such
party shall inform the other parties of such breach, and shall take all actions
necessary to mitigate the adverse effects of such breach; provided that in no
event will disclosure of a breach relieve the breaching party from any of its
obligations or affect the rights of any other party hereto.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement.
PILLOWTEX CORPORATION
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
--------------------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: President & COO
APOLLO INVESTMENT FUND III, L.P.
By: Apollo Advisors II, L.P.,
Its General Partner
By: Apollo Capital Management II, Inc.,
Its General Partner
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇
--------------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇
Title: Vice President
APOLLO OVERSEAS PARTNERS III, L.P.
By: Apollo Advisors II, L.P.,
Its Managing Partner
By: Apollo Capital Management II, Inc.,
Its General Partner
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇
--------------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇
Title: Vice President
APOLLO (UK) PARTNERS III, L.P.
By: Apollo Advisors II, L.P.,
Its Managing Partner
By: Apollo Capital Management II, Inc.,
Its General Partner
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇
--------------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇
Title: Vice President
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EXHIBIT A
PURCHASERS
Name and address Shares of Preferred Purchase Price for
of Purchaser Stock to be Acquired Preferred Stock Acquired
------------ -------------------- ------------------------
Apollo Investment Fund III, L.P. 59,268 $59,268,000
c/o Apollo Capital Management II, Inc.
▇▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Apollo Overseas Partners III, L.P. 3,542 $3,542,000
c/o Apollo Capital Management II, Inc.
▇▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Apollo (UK) Partners III, L.P. 2,190 $2,190,000
c/o Apollo Capital Management II, Inc.
▇▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
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EXHIBIT B
STATEMENT OF RESOLUTION
FOR
SERIES A REDEEMABLE CONVERTIBLE
PREFERRED STOCK
OF
PILLOWTEX CORPORATION
PURSUANT TO ARTICLE 2.13 OF THE TEXAS
BUSINESS CORPORATION ACT
I, _______________, ___________ of Pillowtex Corporation, a
corporation organized and existing under the Texas Business Corporation Act
(the "Company"), DO HEREBY CERTIFY that at a meeting of the Board of Directors
on ___________, 1997, at which meeting a quorum was present, the following
resolution was adopted:
RESOLVED, that pursuant to the authority vested in the Board of
Directors of the Company in accordance with the provisions of Article V of the
Company's Restated Articles of Incorporation, as amended, a series of Preferred
Stock, par value $0.01 per share, of the Company be, and hereby is, created,
and the designations, preferences, and relative rights of the shares of such
series, and the qualifications, limitations or restrictions thereof, be, and
hereby are, as follows:
Section 1. Designation and Amount. The shares of such series shall
be designated as "Series A Redeemable Convertible Preferred Stock" (the
"Preferred Stock") and the number of shares constituting such series initially
shall be 200,000.
Section 2. Definitions. For purposes of this Statement of
Resolution, the following definitions shall apply:
"1999 EPS" shall mean EPS for the twelve month fiscal year
ending December 25, 1999 and shall be calculated on a pro forma basis, assuming
the dividend rate on the Preferred Stock for calendar 1997 (if applicable) and
calendar 1998 was the Adjusted 1998 Dividend Rate (as defined below) and the
dividend rate on the Preferred Stock for calendar 1999 was the Applicable
Dividend Rate, and assuming any additional dividends included in such pro forma
calculation were paid in additional shares of Preferred Stock (including the
effect of all dividends earned on unpaid dividends).
"Adjusted 1998 Dividend Rate" shall mean (i) if 1999 EPS is
equal to, or greater than, $2.35 (as adjusted pursuant to Section 3), 3% per
annum, or (ii) if 1999 EPS is less than $2.35 (as adjusted pursuant to Section
3), 10% per annum.
"Affiliate" of any specified Person shall mean:
(a) any other Person which, directly or
indirectly, is in control of, is controlled by or is under
common control with such specified Person; or
55
(b) any other Person which beneficially owns or
holds ten percent or more of any class of the share capital
normally entitled to vote in the election of directors of such
specified Person; or
(c) any other Person of which ten percent or more
of the share capital normally entitled to vote in the election
of directors of such Person is beneficially owned or held by
such specified Person or a subsidiary of such specified
Person; or
(d) any other Person who is a director or officer
(i) of such specified Person; (ii) of any Subsidiary of such
specified Person or (iii) of any Person described in paragraph
(a) above; and
for purposes of this definition, "control" of a Person means the power, direct
or indirect, to direct or cause the direction of the management and policies of
such Person whether by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Applicable Dividend Rate" shall have the meaning assigned to
it in Section 3.
"Asset Sales" shall mean the sale or conveyance of assets in
one or a series of related transactions (other than inventory sold in the
ordinary course of business) having a fair market value in excess of
$1,000,000.
A "Bankruptcy Event" shall be deemed to have occurred with
respect to a Person if such Person shall:
(i) generally fail to pay, or admit in writing its
inability to pay, its debts as they become due;
(ii) apply for, consent to or acquiesce in, the
appointment of a liquidator, trustee, receiver,
sequestrator or other custodian for itself or any of
its material Subsidiaries or any property of any
thereof, or make a general assignment for the benefit
of creditors;
(iii) in the absence of such application, consent or
acquiescence, permit or suffer to exist the
appointment of a liquidator, trustee, receiver,
sequestrator or other custodian for itself or any of
its material Subsidiaries or for a substantial part
of the property of any thereof and such appointment
shall not be discharged within 30 days;
(iv) commence, or permit or suffer to exist the
commencement of, any bankruptcy, reorganization, debt
arrangement, or other case or proceeding under any
bankruptcy or insolvency law, or any dissolution,
winding up or liquidation proceeding, in respect of
such Person or any of its material Subsidiaries, and,
if such case or proceeding is not commenced by such
Person or any such Subsidiaries, such case or
proceeding shall be consented to or acquiesced in by
such Person or any of its material Subsidiaries or
shall result in the entry of any order for relief or
shall remain for 30 days undismissed; or
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(v) take any action to authorize any of the foregoing.
"Board" shall mean the Board of Directors of the Company.
"Business Day" means any day which is neither a Saturday or
Sunday nor a legal holiday on which banks are authorized or required to be
closed in New York, New York.
"Capital Stock" shall mean any class or series of capital
stock of the Company.
"Catch Up Dividend" shall have the meaning set forth in
Section 3.
"Catch Up Dividend Amount" shall mean an amount of additional
shares of Preferred Stock, such that, following the Catch Up Dividend, the
holders of the Preferred Stock will have received the aggregate amount of
dividends which should have been paid on the Preferred Stock from the Issue
Date through and including the last Dividend Payment Date prior to the Final
Determination Date, assuming (i) the dividend rate for calendar 1997 (if
applicable) and calendar 1998 was the Adjusted 1998 Dividend Rate, (ii) the
dividend rate for calendar 1999 was the Applicable Dividend Rate, and (iii) all
such additional dividends were paid in additional shares of Preferred Stock
when due (including the effect of all dividends earned on unpaid dividends).
"Change of Control" shall have the meaning assigned to it in
the Indenture except that any transaction or series of transactions in which
the Apollo Purchasers (as defined in the Purchase Agreement) or their
Affiliates or any transferees of any of the foregoing (either individually or
as part of a "group" as defined in Section 13(d)(3) of the Securities Exchange
Act of 1934, as amended) acquire 50% or more of the Company's capital stock
shall not be deemed a Change of Control.
"Company" shall mean Pillowtex Corporation, a Texas
corporation.
"Common Stock" shall mean the Common Stock, par value $0.01,
of the Company.
"Common Stock's Fair Market Value" shall mean (i) if the
Common Stock is listed on a national securities exchange, the closing sale
price per share on the principal exchange on which the Common Stock is listed
as reported by such exchange, (ii) if the Common Stock is quoted in the
National Market System, the closing sale price per share as reported by NASDAQ
or (iii) if the Common Stock is traded in the over-the-counter market but not
quoted in the National Market System, the average of the closing bid and asked
quotations per share as reported by NASDAQ, or any other nationally accepted
reporting medium if NASDAQ quotations shall be unavailable.
"Control Notice" shall have the meaning assigned to it in
Section 6(c)(ii).
"Conversion Date" shall have the meaning assigned to it in
Section 7(c).
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57
"Conversion Price" shall mean $24.00 per share; provided that
if the Determination Price is less than $23.00 then the Conversion Price shall
equal the Determination Price plus $1.00; provided further, that the Conversion
Price shall, in any event, be subject to adjustment from time to time as
provided in Section 7.
"Determination Price" shall mean the average of the closing
sales prices of the Company's Common Stock as reported on the New York Stock
Exchange Composite Transactions List for each of the 20 consecutive trading
days immediately preceding the fifth trading day prior to the Closing Date (as
defined in the Agreement and Plan of Merger dated September 10, 1997 among the
Company, a Company Subsidiary and the Target).
"Dividend Increase" shall have the meaning assigned to it in
Section 3.
"Dividend Payment Date" means each of March 31, June 30,
September 30 and December 31 upon which quarterly dividend payments are due.
"EPS" for any fiscal year shall mean the Company's diluted
earnings per share (as calculated based on Financial Accounting Standard Board
Statement No. 128) as included in the Company's audited financial statements
for such fiscal year, as adjusted to exclude the following items set forth,
included or reflected in such audited statements (a) the after-tax effect of
any changes in GAAP from September 5, 1997, other than the effects of Financial
Accounting Standards Board Statement No. 128, (b) the after-tax effect of any
extraordinary gains or losses, and (c) the after-tax effect of gains on Asset
Sales.
"Event of Noncompliance" shall have the meaning assigned to it
in Section 10.
"Final Determination Date" shall have the meaning assigned to
it in Section 3.
"GAAP" shall mean generally acceptable accounting principles
consistently applied in the United States, unless any other jurisdiction is
specified, in which case it shall be the equivalent set of accounting
principles for such jurisdiction.
"Indenture" means the Indenture dated as of November 12, 1996,
between the Company, certain guarantors described therein and Bank One,
Columbus, N.A., as trustee, relating to the Series A and Series B 10% Senior
Subordinated Notes of the Company.
"Issue Date" shall mean the date of original issuance of the
Preferred Stock.
"Junior Securities" shall mean Capital Stock of the Company
that, with respect to dividend distributions and distributions upon the
liquidation, winding up or dissolution of the Company, rank junior to the
Preferred Stock.
"Liquidation Preference" shall have the meaning assigned to it
in Section 4.
"Majority of the Preferred Stock" shall mean more than 50% of
the outstanding shares of Preferred Stock.
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58
"Mandatory Redemption Date" shall have the meaning assigned to
it in Section 5(b).
"Mandatory Redemption Price" shall have the meaning assigned
to it in Section 5(b).
"Optional Redemption Date" shall have the meaning assigned to
it in Section 5(a)(i).
"Optional Redemption Price" shall have the meaning assigned to
it in Section 5(a)(i).
"Parity Securities" shall mean Capital Stock of the Company
that, with respect to dividend distributions and distributions upon the
liquidation, winding-up or dissolution of the Company, ranks on a parity with
the Preferred Stock and has a mandatory redemption date on or after the
Mandatory Redemption Date.
"Participating Holder" shall have the meaning assigned to it
in Section 6(c)(ii).
"Permitted Indebtedness" shall mean (i) term loans issued
pursuant to the Company's senior credit facilities contemplated in Section
9.8(b) of the Purchase Agreement, (ii) the subordinated debt contemplated in
Section 9.8(c) of the Purchase Agreement, (iii) $22 million of the Company's
and the Target's industrial revenue bonds, (iv) approximately $125 of the
Company's 10% Senior Subordinated Notes due 2006 under the Indenture and (v)
approximately $117.8 million principal amount of the Target's 6% Convertible
Subordinated Debentures due 2012 ("6% Notes") (reduced to the extent such 6%
Notes have theretofore been converted in accordance with their terms).
"Person" shall include all natural persons, corporations,
business trusts, associations, companies, partnerships, joint ventures and
other entities and governments and agencies and political subdivisions.
"Preferred Stock" shall mean the Series A Redeemable
Convertible Preferred Stock of the Company.
"Purchase Agreement" shall mean the Purchase Agreement dated
as of September 10, 1997 among the Company and the purchasers named therein
pursuant to which 65,000 shares of Preferred Stock are to be issued, including
all schedules and exhibits thereto, as such Purchase Agreement may be from time
to time amended, modified or supplemented.
"Reclassification" shall mean any capital reorganization of
the Company, any reclassification of the Common Stock, the consolidation of the
Company with or the merger of the Company with or into any other Person, a
statutory share exchange having an effect similar to a merger or consolidation,
the sale, lease or other transfer of all or substantially all of the assets of
the Company to any other Person or any similar transaction. The subdivision or
combination of shares of Common Stock issuable upon conversion of shares of
Preferred Stock at any time outstanding into a greater or lesser number of
shares of Common Stock (whether with or without par value) shall not be deemed
to be a "Reclassification" of the Common Stock for the purposes of Section
7(d)(iv).
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"Senior Securities" shall mean Capital Stock of the Company
that, with respect to dividend distributions and distributions upon the
liquidation, winding up or dissolution of the Company, ranks senior to the
Preferred Stock or Capital Stock that, with respect to dividend distributions
and distributions upon the liquidation, winding-up or dissolution of the
Company ranks on a parity with the Preferred Stock and has a mandatory
redemption date prior to the Mandatory Redemption Date.
"Special Redemption Date" shall have the meaning assigned to
it in Section 5(a)(ii).
"Special Redemption Price" shall have the meaning assigned to
it in Section 5(a)(ii).
"Subsidiary" means, as to any Person, (a) any corporation 51%
or more of the outstanding shares of capital stock of which having ordinary
voting power for the election of directors is owned directly or indirectly by
such Person and (b) any partnership, association, joint venture or other entity
in which such Person and/or one or more Subsidiaries of such Person has 51% or
more of an equity interest at the time.
"Target" shall mean Fieldcrest ▇▇▇▇▇▇, Inc., a Delaware
corporation.
"Target Acquisition" shall have the meaning assigned to it in
the Purchase Agreement.
The foregoing definitions shall be equally applicable to both the
singular and plural forms of the defined terms.
Section 3. Dividends. The holders of the outstanding shares of
Preferred Stock shall be entitled to receive, when, as and if declared by the
Board, out of funds legally available therefor, distributions in the form of
dividends on each share of Preferred Stock as set forth below:
(a) Right to Dividends.
(i) Subject to the following provisions, beginning on the
Issue Date through and including December 31, 1999, at a rate per annum of 3%;
(ii) Beginning on January 1, 2000 through and including
the Mandatory Redemption Date, at a rate (the "Applicable Dividend Rate") per
annum based upon 1999 EPS as follows: (i) if 1999 EPS is less than $2.35, then
the dividend rate shall be 10.0% per annum; (ii) if 1999 EPS is greater than,
or equal to, $2.35 but less than $2.70, then the dividend rate shall be 7.0%
per annum; and (iii) if 1999 EPS is greater than or equal to $2.70, then the
dividend rate shall be 3.0% per annum;
in each case subject to increase as set forth herein.
Each of the $2.35 and $2.70 targets for 1999 EPS set forth
above shall be (A) appropriately adjusted for (x) subdivisions and combinations
of shares of Common Stock, (y)
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Reclassifications and (z) dividends on Common Stock payable in shares of Common
Stock subsequent to the Issue Date and (B) reduced by an amount equal to
(rounded to the nearest hundredth) (x) 0.065 multiplied by (y)(i) $23.00 minus
(ii) the Determination Price, but the provisions of this clause (B) shall only
be applicable if the Determination Price is less than $23.00.
The Company will promptly (and in any event within 5 Business Days)
after determination of the 1999 EPS (which date of determination shall be no
later than March 31, 2000), send to each record holder of Preferred Stock at its
record address a written statement of its calculation of 1999 EPS (including
each adjustment thereto for the items described in clauses (a) through (c) of
the definition of EPS in Section 2 hereof and any adjustments pursuant to the
definition of 1999 EPS in Section 2 hereof), and a negative assurance letter
from the Company's auditors to the effect that they have reviewed such 1999 EPS
calculation and that nothing has come to the auditors' attention that would
cause them to believe that 1999 EPS was not calculated as required by this
Statement of Resolution. In the event that the holders of a Majority of the
Preferred Stock disagree with the calculation of 1999 EPS ("Disagreeing
Holders"), such Disagreeing Holders (or their duly appointed representative)
shall notify the Company in writing of such disagreement within 30 days after
the applicable notice of such 1999 EPS figure has been sent by the Company.
Failure to send such notice of disagreement within such time period shall be
deemed acceptance of the Company's 1999 EPS figure absent fraud. Upon receipt
of such notice of disagreement, the Company shall provide to the Disagreeing
Holders and their representatives (including accountants) access to the books
and records of the Company used to calculate such 1999 EPS figure during
reasonable business hours, as well as the auditors that reviewed such
calculation and the work papers relating to the audit of the Company's financial
statements and the review of the 1999 EPS calculation. If, within 30 days of
the Company's receipt of such notice of disagreement, agreement as to the proper
1999 EPS calculation cannot be reached, the calculation of such 1999 EPS figure
shall be promptly determined by a "big-six" accounting firm, which does not
audit the Company and which is mutually acceptable to holders of a majority of
the shares held by the Disagreeing Holders and the Company. The Company and such
Disagreeing Holders shall promptly (and in any event within 30 days after the
expiration of the 30-day period described in the preceding sentence) appoint
such accounting firm, and such accounting firm shall use its reasonable best
efforts to calculate such 1999 EPS figure within 30 days after its appointment
and produce such calculation in writing. The scope of such accounting firm's
review of the 1999 EPS calculation shall be limited to the items included in
clauses (a) through (c) of the definition of EPS in Section 2 hereof and any
adjustments pursuant to the definition of 1999 EPS in Section 2 hereof. Absent
fraud, such accounting firm's calculation of the 1999 EPS figure shall be
binding on the Company and all holders of Preferred Stock for all purposes of
this Statement of Resolution. If such accounting firm's calculation of the 1999
EPS figure is lower than that calculated by the Company, the Company shall bear
the fees and expenses of such accounting firm. If such accounting firm's
calculation of the 1999 EPS figure is equal to or higher than that calculated by
the Company, the Disagreeing Holders shall bear the fees and expenses of such
accounting firm.
If 1999 EPS is less than $2.70 (as adjusted pursuant to this Section
3), then following the date on which the final determination of the 1999 EPS is
made ("Final Determination Date"), as contemplated by the preceding paragraph,
the Company will, no later than 5 days thereafter, pay to the holders of
Preferred Stock the number of additional shares of Preferred Stock (the "Catch
Up Dividend") equal to the Catch Up Dividend Amount. In determining dividends
payable on
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the next succeeding Dividend Payment Date following the Final Determination
Date, the Company shall assume that the shares of Preferred Stock outstanding
on the prior Dividend Payment Date included all additional shares issued in the
Catch Up Dividend.
All dividends shall be cumulative, whether or not declared, on a daily
basis from the Issue Date and shall be payable quarterly, in arrears, on each
Dividend Payment Date commencing ____________, 199_.* Dividends (in the form
of additional dividends due) will compound quarterly on all unpaid dividends
from the Dividend Payment Date with respect thereto until the date of payment
at the applicable Annual Dividend Rate (as adjusted in accordance with this
Section 3).
From the Issue Date through the fifth anniversary of the Issue Date,
dividends declared may be paid, at the Company's option, either in cash or in
additional shares of Preferred Stock (other than the Catch Up Dividend, which
shall be paid in additional shares of Preferred Stock). Fractional shares of
Preferred Stock shall not be issued in certificated form, but shall be deemed
outstanding on the books of the Company and held of record by the appropriate
stockholder for all purposes, including the payment of dividends.
Uncertificated fractional shares held of record by a stockholder, when
aggregating a whole share, shall be issued in whole share increments. After
the fifth anniversary of the Issue Date, dividends are payable only in cash.
In the event that after the fifth anniversary of the Issue Date, the
Company shall fail to pay dividends in cash on the Dividend Payment Date when
due, the Applicable Dividend Rate applicable to any period in which any such
dividends remain unpaid shall be increased by 0.5% per quarter for each quarter
in which any such dividends remain unpaid (such rate increase, the "Dividend
Increase"). The Applicable Dividend Rate plus the Dividend Increase applicable
to any period shall not exceed the lesser of (i) 18.0% per annum and (ii) the
maximum rate permitted by applicable law. After a Dividend Increase, when the
Company pays all accrued and unpaid dividends, and upon the payment of
dividends on the next Dividend Payment Date at the rate in effect prior to
giving effect to any Dividend Increase, the annual dividend rate shall be
decreased to the otherwise Applicable Dividend Rate.
All dividends shall be paid pro rata to the holders entitled thereto.
Section 4. Liquidation Rights of Preferred. In the event of any
liquidation, dissolution or winding up of the Company, whether voluntary or
involuntary, the holders of the Preferred Stock then outstanding shall be
entitled to be paid out of the assets of the Company available for distribution
to its shareholders, whether such assets are capital, surplus, or earnings,
before any payment or declaration and setting apart for payment of any amount
shall be made in respect of any other class of Capital Stock of the Company
(other than Parity Securities) whether currently authorized or hereafter
created, an amount equal to $1,000 per share plus an amount equal to all
accrued and unpaid dividends thereon, whether or not earnings are available in
respect of such dividends or such dividends have been declared, to and
including the date full payment shall be tendered to the holders of the
Preferred Stock with respect to such liquidation, dissolution or winding up,
and no more (the "Liquidation Preference"). If upon any liquidation,
dissolution, or winding up of the Company, whether voluntary or involuntary,
the assets to be distributed to the holders of the Preferred Stock, along with
the holders of Parity Securities, if any, shall be
__________________________________
* The first Dividend Payment Date after the Issue Date.
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insufficient to permit the payment to such shareholders of the full
preferential amounts aforesaid, then all of the assets of the Company shall be
distributed ratably to the holders of the Preferred Stock and such Parity
Securities on the basis of the amount due on such liquidation if there were
sufficient assets held by each such shareholder. Neither a consolidation or
merger of the Company with or into any other company nor a merger of any other
company with or into the Company, nor a sale or transfer of all or any part of
the Company's assets for cash, securities or other property, will be considered
a liquidation, dissolution or winding up of the Company.
Section 5. Redemptions.
(a) Optional Redemption.
(i) The Company may, at the option of the Board of
Directors, redeem, to the extent of funds legally available therefor,
at any time on or after the fourth anniversary of the Issue Date, in whole or in
part, in the manner provided for in Section 5(c) hereof, any or all of the
shares of the Preferred Stock, at a redemption price per share equal to (x) the
Liquidation Preference plus (y) (A) the Redemption Premium (as defined below)
multiplied by (B) the Liquidation Preference (minus any accrued and unpaid
dividends from the Dividend Payment Date prior to the Optional Redemption Date).
The "Redemption Premium" shall equal the Applicable Dividend Rate on the
Preferred Stock on the fourth anniversary of the Issue Date and shall decline
ratably (pursuant to the table attached hereto as Annex I) from the fourth
anniversary of the Issue Date to the Mandatory Redemption Date so that at the
Mandatory Redemption Date the Redemption Premium of the Preferred Stock under
this Section 5(a)(i) (y) shall be equal to zero. The redemption price per share
determined under this Section 5(a)(i) is referred to herein as the "Optional
Redemption Price" and the date fixed for redemption in accordance with Section
5(c) below is the "Optional Redemption Date." In the event of a redemption
pursuant to this Section 5(a)(i) of only a portion of the then outstanding
shares of the Preferred Stock, the Company shall effect such redemption on a pro
rata basis according to the number of shares held by each record holder of the
Preferred Stock, except that the Company may redeem such shares held by holders
of fewer than 10 shares (or shares held by holders who would hold less than 10
shares as a result of such pro rata redemption), without regard to the pro rata
requirements of this sentence.
(ii) To the extent a Change of Control has occurred and
the Company has received a Control Notice from Participating Holders, the
Company may, at the option of the Board, redeem, to the extent of funds legally
available therefor all, but not less than all, of the Preferred Stock held by
such Participating Holders on a date fixed by the Company, which date shall be
no less than 20 days nor more than 90 days after receipt of the Control Notice
or if the Control Notice is received more than 20 days prior to the date of the
Change of Control no later than the date of the Change of Control (the "Special
Redemption Date") in the manner provided for in Section 5(c) below at a
redemption price per share equal to 101% of the Liquidation Preference
(including, without limitation, an amount equal to a prorated dividend for the
period from the Dividend Payment Date immediately prior to the Special
Redemption Date to the Special Redemption Date) (the "Special Redemption
Price").
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(b) Mandatory Redemption. On ________, 200_* (the "Mandatory
Redemption Date") the Company shall redeem, to the extent of funds legally
available therefor, in the manner provided for in Section 5(c) hereof, all of
the shares of the Preferred Stock then outstanding at a redemption price per
share equal to the Liquidation Preference (including, without limitation, an
amount equal to a prorated dividend for the period from the dividend payment
date immediately prior to the Mandatory Redemption Date to the Mandatory
Redemption Date) (the "Mandatory Redemption Price").
(c) Procedures for Redemption.
(i) At least thirty (30) days and not more than sixty
(60) days prior to the date fixed for any redemption of the Preferred Stock in
accordance with Section 5(a)(i) or Section 5(b) and at least five days prior to
the Special Redemption Date for any redemption of the Preferred Stock in
accordance with Section 5(a)(ii), written notice (the "Redemption Notice")
shall be given by first class mail, postage prepaid, to each holder of record
on the mailing date of such notice at such holder's address as it appears on
the stock books of the Company (and by facsimile, if a record holder has
provided a facsimile contact); provided that no failure to give such notice nor
any deficiency therein shall affect the validity of the procedure for the
redemption of any shares of Preferred Stock to be redeemed except as to the
holder or holders to whom the Company has failed to give said notice or to whom
such notice was defective. Any holder of Preferred Stock may exercise its
conversion rights under Section 7(a) at any time up until 5:00 p.m. New York
City time on the Business Day prior to the date fixed for redemption in
accordance with this Section 5 (the "Redemption Date") and if not exercised
prior to such time, such redemption right shall expire unless the Company
defaults in making the payment due on redemption. The Redemption Notice shall
state:
(A) whether the redemption is pursuant to Section
5(a)(i), 5(a)(ii) or 5(b) hereof;
(B) the Optional Redemption Price, the Special
Redemption Price or Mandatory Redemption Price, as the case may be;
(C) whether all or less than all the outstanding
shares of the Preferred Stock are to be redeemed and the total number of shares
of the Preferred Stock being redeemed;
(D) the Redemption Date;
(E) that the holder is to surrender to the
Company or its transfer agent, in the manner, at the place or places and at the
price designated, his certificate or certificates representing the shares of
Preferred Stock to be redeemed; and
(F) that dividends on the shares of the Preferred
Stock to be redeemed shall cease to accumulate on such Redemption Date unless
the Company defaults in the payment of the Optional Redemption Price, the
Special Redemption Price or the Mandatory Redemption Price, as the case may be.
__________________________________
* Date is 10# years after the Issue Date.
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(ii) Each holder of Preferred Stock shall surrender the
certificate or certificates representing such shares of Preferred Stock to the
Company, duly endorsed (or otherwise in proper form for transfer, as determined
by the Company), in the manner and at the place designated in the Redemption
Notice, and on the Redemption Date the full Optional Redemption Price, Special
Redemption Price or Mandatory Redemption Price, as the case may be, for such
shares shall be payable in cash to the Person whose name appears on such
certificate or certificates as the owner thereof, and each surrendered
certificate shall be canceled and retired. In the event that less than all of
the shares represented by any such certificate are redeemed, a new certificate
shall be issued representing the unredeemed shares.
(iii) On and after the Redemption Date, unless the Company
defaults in the payment of the applicable redemption price, dividends on the
Preferred Stock called for redemption shall cease to accumulate on the
Redemption Date, and all rights of the holders of redeemed shares shall
terminate with respect thereto on the Redemption Date, other than the right to
receive the Optional Redemption Price, Special Redemption Price or the
Mandatory Redemption Price, as the case may be, without interest.
Section 6. Voting Rights.
(a) General. The holders of Preferred Stock, except as otherwise
required under Texas law or as set forth in Sections 6(b) and 6(c) below, shall
not be entitled or permitted to vote on any matter required or permitted to be
voted upon by the shareholders of the Company.
(b) Amendments to Articles of Incorporation; Mergers and Similar
Transactions. So long as any shares of the Preferred Stock are outstanding,
the Company shall not (i) amend its Restated Articles of Incorporation
(including this Statement of Resolution) so as to: (A) affect adversely the
specified rights, preferences, privileges or voting rights of holders of shares
of Preferred Stock or (B) authorize the issuance of additional shares of any
class of Senior Securities (or amend the provisions of any existing class of
Capital Stock to make such class of Capital Stock Senior Securities) or (ii)
merge, consolidate or enter into any other Reclassification that would (A)
materially affect adversely the special or relative rights, preferences,
privileges or voting rights of the Preferred Stock, or (B) result in a breach
of any of the Company's obligations under this Statement of Resolution,
without, in any such case, the affirmative vote or consent of holders of at
least a Majority of the Preferred Stock, voting or consenting, as the case may
be, as one class, given in person or by proxy, either in writing (to the extent
permitted under the Company's Restated Articles of Incorporation) or by
resolution adopted at an annual or special meeting of shareholders.
Notwithstanding the foregoing, any amendment to the Restated Articles of
Incorporation (including this Statement of Resolution) that would alter in any
material respect the dividend rates, liquidation preference, redemption rights
or conversion rights of the Preferred Stock shall require the affirmative vote
or consent of each holder of Preferred Stock.
(c) Election of Directors.
(i) The foregoing notwithstanding, in the event of the
Company's failure to pay dividends in accordance with Section 3, or the
occurrence of one or more Events of Noncompliance, within 10 Business Days of
such failure or such event, as the case may be, the Company shall notify each
holder of Preferred Stock thereof in writing, and the number of directors
constituting the Board shall thereupon be automatically increased so that the
number of new
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directorships of the Board so created will constitute at least 25.0% (rounded
up to the nearest whole number) of the entire Board, after giving effect to
such increase, and the holders of the Preferred Stock shall have, in addition
to the other voting rights provided herein, the exclusive and special right,
voting separately as a class, to elect directors to fill such newly created
directorships (and to fill any vacancy in such directorships until such time as
the special voting rights provided by this Section 6(c)(i) shall terminate as
set forth below). If the event giving rise to the special voting rights was a
failure to pay dividends or an Event of Noncompliance described in Section
10(a)(iii), the special voting rights will continue until all accrued and
unpaid dividends have been paid in full or all Events of Noncompliance have
been cured, as the case may be, subject to revesting in the event of any future
failure to pay dividends in accordance with the terms hereof or a subsequent
Event of Noncompliance. Except as provided in the prior sentence, the special
voting rights provided by this Section 6(c)(i) shall continue as long as any
Preferred Stock is outstanding. If the special voting rights provided by this
Section 6(c)(i) terminate, the terms of the additional directors elected by the
holders of Preferred Stock pursuant to this Section 6(c)(i) shall terminate and
the number of directors constituting the Board shall then be decreased to such
number as constituted the whole Board immediately prior to the occurrence of
the event giving rise to such special voting rights. The special voting rights
provided in this Section 6(c)(i) shall not preclude or affect the exercise of
any other rights or remedies provided hereby or by agreement, by law or
otherwise upon the occurrence of any event giving rise to such special rights.
(ii) The foregoing notwithstanding, the Company will give
notice to each holder of Preferred Stock within five days after the Company
becomes aware of any Change of Control that has occurred or is reasonably
likely to occur and, if a Change of Control occurs, the holders of a Majority
of the Preferred Stock shall, by written notice to the Company and the other
holders of Preferred Stock delivered before or 15 days after the Change of
Control (a "Control Notice") have the right to elect a majority of the Board in
accordance with this Section 6(c)(ii), unless the Company has theretofore
redeemed shares of any holder of Preferred Stock participating in a Control
Notice (each, a "Participating Holder") in accordance with Section 5(a)(ii).
Any holder of Preferred Stock may, at any time within ten days after receipt of
the Control Notice, elect to become a Participating Holder by delivery of
written notice of such election to the Company and the other Participating
Holders. If a Control Notice is received by the Company and the Company has
not redeemed the shares of Preferred Stock held by all Participating Holders,
upon the later to occur of (i) the occurrence of such Change of Control and
(ii) the date that the Company's redemption rights under Section 5(a)(ii) shall
have expired, the number of directors constituting the Board shall thereupon be
automatically increased by such number as will be necessary to constitute a
majority of the total number of the members, after giving effect to such
increase, of such Board, and the holders of the Preferred Stock shall have, in
addition to the other voting rights provided herein, the exclusive, special and
continuing right, voting separately as a class, to elect directors to fill such
newly created directorships (and to fill any vacancy in such directorships) and
to continually elect at least a majority of the Board as long as any Preferred
Stock is outstanding.
(iii) The directors to be elected (or if such directors
have been previously elected and any vacancy shall exist, such vacancy to be
filled) by the holders of Preferred Stock (voting as a class) shall be elected
(or filled) at (i) annual meetings of the shareholders of the Company, or (ii)
a special meeting of the holders of Preferred Stock for the purpose of electing
such directors (or filling any such vacancy), to be called by the Secretary of
the Company upon the written request of the holders of record of 10% or more of
the number of shares of Preferred Stock then outstanding; provided, however,
that if the Secretary of the Company shall fail to call any such meeting within
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10 days after any such request, such meeting may be called by any holder of
Preferred Stock designated for that purpose by the holders of record of 10% or
more of the number of shares of Preferred Stock then outstanding. At any
meeting or at any adjournment thereof held for the purpose of electing
directors at which the holders of shares of Preferred Stock shall have the
special voting right provided by this Section 6(c), the presence, in person or
by proxy, of the holders of the equivalent of a Majority of the Preferred Stock
shall be required to constitute a quorum for the election of any director by
the holders of the Preferred Stock exercising such special right. The special
right of holders of shares of Preferred Stock under this Section 6(c) may be
exercised by the written consent of the holders of shares of Preferred Stock
then outstanding in accordance with the law of the Company's jurisdiction of
incorporation at such time to the extent permitted by the Company's Restated
Articles of Incorporation.
(i) The foregoing notwithstanding, in the case of any
vacancy in the office of a director occurring among the directors elected by the
holders of the Preferred Stock pursuant to Section 6(c), the remaining director
or directors so elected by the holders of the Preferred Stock may, by
affirmative vote of a majority thereof (or the remaining director so elected if
there is only one such director), elect a successor or successors to hold the
office for the unexpired term of the director or directors whose place or places
shall be vacant. Any director who shall have been elected by the holders of the
Preferred Stock, or any director so elected as provided in the next preceding
sentence hereof, shall be removed during the aforesaid term of office, whether
with or without cause, only by the affirmative vote of the holders of a Majority
of the Preferred Stock.
(ii) The Company shall promptly take all necessary action
to facilitate the implementation of the rights of the holders of Preferred Stock
to appoint directors that are provided for under this Section 6.
Section 7. Conversion Rights.
The Preferred Stock shall be convertible into Common Stock as follows:
(a) Optional Conversion. Subject to and upon compliance with the
provisions of this Section 7, the holder of any shares of Preferred Stock shall
have the right at such holder's option, at any time or from time to time, to
convert any shares of Preferred Stock into the number of fully paid and
nonassessable shares of Common Stock set forth in Section 7(b).
(b) Conversion Price. Each share of Preferred Stock converted
pursuant to Section 7(a) shall be converted into such number of shares of
Common Stock as is determined by dividing (i) the sum of (A) $1,000 plus (B)
any dividends on such share of Preferred Stock which such holder is entitled to
receive, but has not yet received (including, without limitation, an amount
equal to a prorated dividend for the period from the Dividend Payment Date
immediately prior to the Conversion Date to the Conversion Date), by (ii) the
Conversion Price in effect on the Conversion Date. The Conversion Price shall
be subject to adjustment as set forth in Section 7(d).
(c) Mechanics of Conversion. The holder of any shares of Preferred
Stock may exercise the conversion right specified in Section 7(a) as to any
part thereof by surrendering to the Company or any transfer agent of the
Company the certificate or certificates for the shares to be converted,
accompanied by written notice stating that the holder elects to convert all or
a
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specified portion of the shares represented thereby. Conversion shall be
considered to have been effected on the date when a holder of Preferred Stock
delivers notice of an election to convert shares of Preferred Stock to the
Company accompanied by certificates representing such shares, and such date is
referred to herein as the "Conversion Date." Subject to the provisions of
Section 7(d), as promptly as practicable thereafter (and after surrender of the
certificate or certificates evidencing the shares of Preferred Stock or
delivery to the Company of an affidavit and indemnity with respect to such
certificates), the Company shall issue and deliver to or upon the written order
of such holder a certificate or certificates for the number of full shares of
Common Stock to which such holder is entitled and a check or cash with respect
to any fractional interest in a share of Common Stock as provided in Section
7(h) hereof. Subject to the provisions of Section 7(d), the Person in whose
name the certificate or certificates for Common Stock are to be issued shall be
considered to have become a holder of record of such Common Stock on the
Conversion Date. Upon conversion of only a portion of the number of shares
covered by a certificate evidencing shares of Preferred Stock surrendered for
conversion, the Company shall issue and deliver to or upon the written order of
the holder of the certificate so surrendered for conversion, at the expense of
the Company, a new certificate covering the number of shares of Preferred Stock
representing the unconverted portion of the certificate so surrendered. The
Company will use its best efforts to deliver all stock certificates required by
this Section 7(c) within three business days after the Conversion Date.
(d) Conversion Price Adjustments. The Conversion Price shall be
subject to adjustment from time to time as follows:
(i) Stock Dividends. If the number of shares of
Common Stock outstanding at any time after the date of
issuance of Preferred Stock is increased by a stock dividend
payable in shares of Common Stock or by a subdivision or
split-up of shares of Common Stock, then immediately after
the record date fixed for the determination of holders of
Common Stock entitled to receive such stock dividend or the
effective date of such subdivision or split-up, as the case
may be, the Conversion Price shall be appropriately reduced
so that the holder of any shares of Preferred Stock thereafter
converted shall be entitled to receive the number of shares
of Common Stock of the Company which he would have received
immediately following such action had such shares of Preferred
Stock been converted immediately prior thereto.
(ii) Combination of Stock. If the number of
shares of Common Stock outstanding at any time after the date
of issuance of Preferred Stock is decreased by a combination
of the outstanding shares of Common Stock, then immediately
after the effective date of such combination, the Conversion
Price shall be appropriately increased so that the holder of
any shares of Preferred Stock thereafter converted shall be
entitled to receive the number of shares of Common Stock which
he would have received immediately following such action had
such shares of Preferred Stock been converted immediately
prior thereto.
(iii) Adjustments for Other Dividends and
Distributions. In the event the Company at any time or from
time to time after the Issue Date makes or issues, or fixes a
record date for the determination of holders of Common Stock
entitled to receive, a dividend or other distribution payable
in securities or other
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rights of the Company other than a dividend or other
distribution payable solely in shares of Common Stock, then
and in each such event provision shall be made so that the
holders of Preferred Stock shall receive upon conversion
thereof, in addition to the number of shares of Common Stock
receivable thereupon, the amount of securities or other rights
of the Company which they would have received had their
Preferred Stock been converted into Common Stock on the date
of such event and had they thereafter, during the period from
the date of such event to and including the Conversion Date,
retained such securities or other rights receivable by them as
aforesaid during such period, subject to all other adjustments
called for during such period under this Section 7 with
respect to the rights of the holders of the Preferred Stock.
(iv) Reclassification, etc. In case of any
Reclassification, each share of Preferred Stock shall, after
such Reclassification, be convertible into the number of
shares of stock or other securities or property to which the
holder of the Common Stock issuable (at the time of such
Reclassification) upon conversion of such share of Preferred
Stock would have been entitled upon such Reclassification; and
in any such case, if necessary, the provisions set forth
herein with respect to the rights and interests thereafter of
the holders of the shares of Preferred Stock shall be
appropriately adjusted so as to be applicable, as nearly as
possible, to any shares of stock or other securities or
property thereafter deliverable on the conversion of the
shares of Preferred Stock. If the holders of Common Stock
have an election with respect to the stock, securities or
other property to be received upon a Reclassification, the
same election shall be afforded to the holders of Preferred
Stock.
(v) Rounding of Calculations. All calculations
under this Section 7(d) shall be made to the nearest cent or
to the nearest one hundredth (1/100th) of a share, as the case
may be.
(vi) Timing of Issuance of Additional Common Stock
Upon Certain Adjustments. In any case in which the provisions
of this Section 7(d) shall require that an adjustment shall
become effective immediately after a record date for an event,
the Company may defer until the occurrence of such event by
(A) issuing to the holder of any shares of Preferred Stock
converted after such record date and before the occurrence of
such event the additional shares of Common Stock issuable upon
such conversion by reason of the adjustment required by such
event over and above the shares of Common Stock issuable upon
such conversion before giving effect to such adjustment, and
(B) paying to such holder any amount of cash in lieu of a
fractional share of Common Stock pursuant to Section 7(h)
hereof; provided, however, that the Company upon request shall
deliver to such holder a due ▇▇▇▇ or other appropriate
instrument evidencing such holder's right to receive such
additional shares and such cash upon the occurrence of the
event requiring such adjustment.
(e) Statement Regarding Adjustments. Whenever the Conversion
Price shall be adjusted as provided in Section 7(d), the Company shall
forthwith file, at the office of any transfer agent for such Preferred Stock
and at the principal office of the Company, a statement
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showing in detail the facts requiring such adjustment and the Conversion Price
that shall be in effect after such adjustment, and the Company shall also cause
a copy of such statement to be sent by mail, first class postage prepaid, to
each holder of shares of Preferred Stock at the address appearing on the
Company's records. Each such statement shall be signed by the Company's
independent public accountants. Where appropriate, such copy may be given in
advance and may be included as part of a notice required to be mailed under the
provisions of Section 7(f).
(f) Notice to Holders. In the event the Company shall propose to
take any action of the type described in Section 7(d)(i), (ii), (iii), or (iv)
the Company shall give notice to each holder of shares of Preferred Stock
affected by such action in the manner set forth in this Section 7(f), which
notice shall specify the record date, if any, with respect to any such action
and the approximate date on which such action is to take place. Such notice
shall also set forth such facts with respect thereto as shall be reasonably
necessary to indicate the effect of such action (to the extent such effect may
be known at the date of such notice) on the Conversion Price and the number,
kind or class of shares or other securities or property which shall be
deliverable or purchasable upon the occurrence of such action or deliverable
upon conversion of shares of Preferred Stock. In the case of any action which
would require the fixing of a record date, such notice shall be given at least
ten days prior to the date so fixed, and in the case of any other action, such
notice shall be given at least 15 days prior to the taking of such proposed
action. Failure to give such notice, or any defect therein, shall not affect
the legality or validity of any such action.
(g) Costs. The Company shall pay all documentary, stamp,
transfer or other transactional taxes attributable to the issuance or delivery
of shares of Common Stock of the Company upon conversion of any shares of
Preferred Stock; provided, however, that the Company shall not be required to
pay any taxes which may be payable in respect of any transfer involved in the
issuance or delivery of any certificate for such shares in a name other than
that of the holder of the shares of Preferred Stock in respect of which such
shares are being issued.
(h) Fractional Shares. No fractional shares of Common Stock shall
be issued upon conversion of Preferred Stock. If more than one share of
Preferred Stock shall be surrendered for conversion at any one time by the same
holder, the number of full shares of Common Stock issuable upon conversion
thereof shall be computed on the basis of the aggregate number of shares of
Preferred Stock so surrendered. In lieu of any fractional share to which the
holder would otherwise be entitled, the Company shall pay cash equal to the
product of such fraction multiplied by the Common Stock's Fair Market Value on
the date of conversion.
(i) Reservation of Stock Issuable Upon Conversion. The Company
shall at all times reserve and keep available out of its authorized but
unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of the Preferred Stock, such number of its shares of
Common Stock as shall from time to time be sufficient to effect the conversion
of all outstanding shares of the Preferred Stock; and if at any time the number
of authorized but unissued shares of Common Stock shall not be sufficient to
effect the conversion of all then outstanding shares of the Preferred Stock,
the Company will take such corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized but unissued shares of Common
Stock to such number of shares as shall be sufficient for such purpose.
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(j) Notices. All notices and other communications required by the
provisions of this Section 7 shall be in writing and shall be deemed to have
been duly given if delivered personally, mailed by certified mail (return
receipt requested) or sent by overnight delivery service, cable, telegram,
facsimile transmission or telex to each holder of record at the address of such
holder appearing on the books of the Company. Notice so given shall, in the
case of notice so given by mail, be deemed to be given and received on the
fourth calendar day after posting, in the case of overnight delivery service,
on the date of actual delivery and, in the case of notice so given by cable,
telegram, facsimile transmission, telex or personal delivery, on the date of
actual transmission or, as the case may be, personal delivery.
(k) No Dilution or Impairment. The Company shall not amend its
Articles of Incorporation or participate in any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, for the purpose of avoiding or seeking to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the Company, but will at all times in good faith assist in
carrying out all such action as may be reasonably necessary or appropriate in
order to protect the conversion rights of the holders of the Preferred Stock
against dilution or other impairment.
Section 8. Restrictions and Limitations.
(a) So long as any shares of Preferred Stock remain outstanding
and except as set forth below, the Company shall not, and shall not permit any
Subsidiary to, without the vote or written consent by the holders of a Majority
of the Preferred Stock:
(i) (A) Declare or pay any dividend or make any other
payment or distribution on account of the Equity Interests of the Company
(other than in respect of the Preferred Stock) or any of its Subsidiaries
(including, without limitation, any payment in connection with any merger or
consolidation involving the Company or any of its Subsidiaries) or to the
direct or indirect holders of the Equity Interests of the Company or any of its
Subsidiaries in their capacity as such (other than dividends or distributions
payable in Equity Interests (other than Senior Securities or Parity Securities
(except that dividends payable on Parity Securities issued in accordance with
the provisions hereof solely in Parity Securities of the same class or series,
as the case may be, shall be permitted) of the Company, dividends or
distributions payable to the Company or any Subsidiary of the Company or
dividends or distributions made by a Subsidiary of the Company to all holders
of its Common Stock on a pro rata basis)); and
(B) Make any payment on or in respect of, or
purchase, redeem, defease or otherwise acquire or retire for value any Equity
Interests (other than the Preferred Stock in accordance with Section 5 or any
Equity Interests owned by the Company or any Subsidiary of the Company) except
at Stated Maturity.
All such payments and other actions set forth in clauses (A)
and (B) above shall be collectively referred to as "Restricted Payments".
Notwithstanding the foregoing, the Company shall be permitted
to make Restricted Payments if, at the time of and after giving effect to such
Restricted Payment:
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(I) No Event of Noncompliance shall have occurred and be
continuing or would occur as a consequence thereof; and
(II) The Company would, at the time of such Restricted
Payment and after giving pro forma effect thereto as if such
Restricted Payment had been made at the beginning of the applicable
four-quarter period, have been permitted to occur at least $1.00 of
additional Indebtedness pursuant to the Fixed Charge Coverage Ratio
test set forth in the first paragraph of Section 8 (a)(v); and
(III) Such Restricted Payment, together with the aggregate
of all other Restricted Payments made by the Company and its
Subsidiaries after the Issue Date (excluding Restricted Payments
permitted by clauses (v) and (w) of the next succeeding paragraph), is
less than the sum of (i) 50% of the Consolidated Net Income of the
Company for the period (taken as one accounting period) commencing on
the Issue Date to the end of the Company's most recently ended fiscal
quarter for which internal financial statements are available at the
time of such Restricted Payment (or, if such Consolidated Net Income
for such period is a deficit, less 100% of such deficit), plus (ii)
100% of the aggregate net cash proceeds received by the Company from
the issue or sale since the Issue Date of Equity Interests of the
Company or of debt securities of the Company that have been converted
into such Equity Interests (other than Equity Interests (or
convertible debt securities) sold to a Subsidiary of the Company or
conversion of the 6% Notes) subject to the provisions of Section
8(a)(vii), plus (iii) $7.5 million.
The foregoing provisions will not prohibit (u) the payment of
any dividend within 60 days after the date of declaration thereof, if at said
date of declaration such payment would have complied with the provisions of
this Section 8(a)(i); (v) the redemption, repurchase, retirement or other
acquisition of any Equity Interests of the Company in exchange for, or out of
the proceeds of, the substantially concurrent sale (other than to a Subsidiary
of the Company) of other Equity Interests of the Company (other than any Parity
Securities); provided that the amount of any such net cash proceeds that are
utilized for any such redemption, repurchase, retirement or other acquisition
shall be excluded from clause (ii) of paragraph (III) above; (w) the
defeasance, redemption or repurchase of Junior Securities or Parity Securities
with the net cash proceeds from the substantially concurrent sale (other than
to a Subsidiary of the Company) of Equity Interests of the Company (other than
Parity Securities); provided that the amount of any such net cash proceeds that
are utilized for any such redemption, repurchase, retirement or other
acquisition shall be excluded from clause (ii) of paragraph (III) above; (x)
the repurchase, redemption or other acquisition or retirement for value of any
Equity Interests of the Company or any Subsidiary of the Company held by any
member of the Company's (or any of its Subsidiaries') management pursuant to
any management equity subscription agreement or stock option agreement in
effect as of the Issue Date ; provided that (A) the aggregate price paid for
all such repurchased, redeemed, acquired or retired Equity Interests shall not
exceed $250,000 in any 12-month period plus the aggregate cash proceeds
received by the Company during such 12-month period from any reissuance of
Equity Interests by the Company to members of management of the Company and its
Subsidiaries, and (B) no Event of Noncompliance shall have occurred and be
continuing immediately after such transaction; and (y) so long as no Event of
Noncompliance shall have occurred and be continuing, ordinary dividends paid by
the Company in respect of its Common Stock in an aggregate amount not to exceed
$2.5 million since the Issue Date.
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The amount of all Restricted Payments (other than cash) shall
be the fair market value (evidenced by a resolution of the Board of Directors
or a committee of the Board of Directors having at least one Independent
director set forth in an Officers' Certificate delivered to each holder of
Preferred Stock) on the date of the Restricted Payment of the asset(s) proposed
to be transferred by the Company or such Subsidiary, as the case may be,
pursuant to the Restricted Payment. Not later than the date of making any
Restricted Payment, the Company shall deliver to each holder of Preferred Stock
an Officers' Certificate stating that such Restricted Payment is permitted and
setting forth the basis upon which the calculations required by this Section
8(a)(i) were computed, which calculations may be based upon the Company's
latest available financial statements.
For purposes of this Section 8(a)(i), capitalized terms used
and not defined herein shall have the meanings assigned to them in the
Indenture as in effect on the Issue Date.
(ii) Authorize or issue, or obligate itself to issue, any
Senior Securities;
(iii) Increase or decrease (other than by redemption or
conversion) the total number of authorized shares of Preferred Stock;
(iv) Enter any agreement, contract or understanding or
otherwise incur any obligation which by its terms would violate, be in conflict
with, restrict or burden the rights of the holders of Preferred Stock, or the
Company's ability to perform its obligations hereunder;
(v) Directly or indirectly, create, incur, issue, assume,
guarantee or otherwise become directly or indirectly liable, contingently or
otherwise, with respect to (collectively, "incur") any Indebtedness (including
Acquired Indebtedness) or issue any Parity Securities (other than as
contemplated by Section 3) unless the Fixed Charge Coverage Ratio for the
Company's most recently ended four full fiscal quarters for which internal
financial statements are available immediately preceding the date on which such
additional Indebtedness is incurred or such Parity Securities are issued would
have been at least 1.75 to 1, determined on a pro forma basis (including a pro
forma application of the net proceeds therefrom), as if the additional
Indebtedness had been incurred, or the Parity Securities had been issued, as
the case may be, at the beginning of such four-quarter period.
The foregoing provisions will not apply to:
(A) the incurrence by the Company of Indebtedness
under the Credit Agreement (and guarantees thereof by the Guarantors)
in an aggregate principal amount at any time outstanding (with letters
of credit being deemed to have a principal amount equal to the maximum
potential liability of the Company and its Subsidiaries thereunder)
not to exceed the greater of(x) $175.01 million and (y) the sum of (A)
80%* of the Eligible Accounts Receivable and (B) 65%* of Eligible
Inventory, less, in the case of each of clause (x) and clause (y), the
aggregate amount of all Net Proceeds of Asset
__________________________________
* These figures shall be adjusted at the Issue Date to the extent any less
restrictive amounts or percentages are contained in the comparable provisions
of each of the applicable Loan Documents (as defined in the Purchase
Agreement).
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Sales applied to permanently reduce the commitments with respect to
such Indebtedness pursuant to Section 4.10 of the Indenture as in
effect on the Issue Date;
(B) the incurrence by the Company of Permitted
Indebtedness;
(C) the incurrence by the Company or any of its
Subsidiaries of Indebtedness represented by Capital Lease Obligations
(whether or not incurred pursuant to sale and leaseback transactions),
mortgage financing or purchase money obligations, in each case
incurred for the purpose of financing all or any part of the purchase
price or cost of construction or improvement of property, plant or
equipment used in the business of the Company or such Subsidiary, in
an aggregate principal amount not to exceed $5.0 million at any time
outstanding;
(D) the incurrence by the Company or any of its
Subsidiaries of Indebtedness ("Refinancing Indebtedness") in exchange
for, or the net proceeds of which are used to extend, refinance,
renew, replace, defease or refund, Permitted Indebtedness or
Indebtedness that was permitted to be incurred hereunder, provided
that the principal amount (or accreted value, if applicable) of such
Refinancing Indebtedness does not exceed the principal amount (or
accreted value, if applicable) of the Indebtedness extended,
refinanced, renewed, replaced, defeased or refunded;
(E) the incurrence by the Company or any of its
Wholly Owned Subsidiaries of intercompany Indebtedness between or
among the Company and any of its Wholly Owned Subsidiaries;
(F) the incurrence by the Company of Hedging
Obligations that are incurred in the ordinary course of business for
the purpose of fixing or hedging interest rate risk;
(G) the incurrence by the Company of Hedging
Obligation under commodity hedging and currency exchange agreements;
provided that, such agreements were entered into in the ordinary
course of business for the purpose of limiting risks that arise in the
ordinary course of business;
(H) the incurrence of Indebtedness of a guarantor
represented by guarantees of Indebtedness of the Company that has been
incurred in accordance with the terms hereof; and
(I) the incurrence by the Company of Indebtedness
or the issuance by the Company of Junior Securities or Parity
Securities (in addition to Indebtedness, Junior Securities or Parity
Securities permitted by any other clause of this Section 8(a)(v) in an
aggregate principal amount (or accreted value, as applicable) at any
time outstanding not to exceed $10.0* million.
__________________________________
* These figures shall be adjusted at the Issue Date to the extent any less
restrictive amounts or percentages are contained in the comparable provisions
of each of the applicable Loan Documents (as defined in the Purchase
Agreement).
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For purposes of this Section 8(a)(v), capitalized terms used
and not defined herein shall the meanings assigned to them in the Indenture as
in effect on the Issue Date.
(vi) Make any payment to, or sell, lease, transfer or
otherwise dispose of any of its properties or assets to, or purchase any
property or assets from, or enter into or make or amend any contract,
agreement, understanding, loan, advance or guarantee with, or for the benefit
of, any Affiliate (each of the foregoing, an "Affiliate Transaction"), unless
(A) such Affiliate Transaction is on terms that are no less favorable to the
Company or the relevant Subsidiary than those that would have been obtained in
a comparable transaction by the Company or such Subsidiary with an unrelated
Person and (B) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving the aggregate consideration in excess of $2.0
million, the Company delivers to each holder of Preferred Stock a resolution of
the Board of Directors set forth in an Officers' Certificate certifying that
such Affiliate Transaction complies with clause (A) above and that such
Affiliate Transaction has been approved by a majority of the disinterested
members of the Board of Directors and (C) with respect to an Affiliate
Transaction or series of related Affiliate Transactions involving aggregate
consideration in excess of $5.0 million, the Company delivers to each holder of
Preferred Stock an opinion as to the fairness to the holders of Preferred Stock
of such Affiliate Transaction from a financial point of view issued by an
accounting, appraisal or investment banking firm of national standing; provided
that (w) any issuance of securities, or other payments, awards or grants in
cash, securities or otherwise pursuant to, or the funding of, employment
arrangements, stock options and stock ownership plans approved by the Board of
Directors or the payment of fees and indemnities to directors of the Company
and its Restricted Subsidiaries in the ordinary course of business and
consistent with the past practices of the Company or such Subsidiary, (x) loans
or advances to employees in the ordinary course of business, (y) transactions
between or among the Company and/or its Wholly Owned Subsidiaries and (z)
Restricted Payments that are permitted by the provisions of Section 8(a)(i), in
each case, shall not be deemed Affiliate Transactions.
For purposes of this Section 8(a)(vi), capitalized terms used and not
defined herein shall have the meanings assigned to them in the Indenture as in
effect on the Issue Date.
(vii) Make any Restricted Investment (as such term is
defined in the Indenture as in effect on the Issue Date) unless the Company
could borrow an additional $1.00 of Indebtedness under the Fixed Charge
Coverage Ratio in Section 8(a)(v) above; except that, notwithstanding the
foregoing, the Company shall be permitted to make a Restricted Investment if
(x) such Restricted Investment is made after the Issue Date and is sold for
cash or otherwise liquidated or repaid for cash, in an amount equal to the
lesser of (a) the cash return of capital with respect to such Restricted
Investment (less the cost of disposition) and (b) the initial amount of such
Restricted Investment or (y) such Restricted Investment is in exchange for, or
out of the proceeds of, the substantially concurrent sale (other than to a
Subsidiary of
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the Company) of Equity Interests of the Company (other than any Senior
Securities and Parity Securities); provided that the amount of any such net
cash proceeds that are utilized for any such Restricted Investment made under
(x) and (y) above shall be excluded from Section 8(a)(i)(III)(ii).
Section 9. No Reissuance of Preferred Stock.
No share or shares of Preferred Stock acquired by the Company by
reason of redemption, purchase, conversion or otherwise shall be reissued, and
all such shares shall be canceled, retired and eliminated from the shares which
the Company shall be authorized to issue.
Section 10. Events of Noncompliance.
(a) Definition. An Event of Noncompliance will be deemed to have
occurred if:
(i) the Company fails to make any redemption payment with
respect to the Preferred Stock which it is obligated to make hereunder, whether
or not such payment is legally permissible;
(ii) the Company breaches or otherwise fails to perform or
observe the provisions of Section 8;
(iii) the Company breaches or otherwise fails to perform or
observe any other covenant or agreement set forth herein or any covenant or
agreement set forth in the Purchase Agreement (other than a covenant or
agreement set forth in Section 5.14 (the breach of which Section 5.14 shall not
be considered an Event of Noncompliance under this Section 10(a)(iii)) or in
Article 7 of the Purchase Agreement) and such breach or failure to perform or
observe continues for a period of 60 days after notice thereof from any holder
of Preferred Stock; or the Company breaches or otherwise fails to perform or
observe any covenant or agreement set forth in Article 7 of the Purchase
Agreement and such breach or failure to perform or observe continues for a
period of 30 days after notice thereof from any holder of Preferred Stock; or
(iv) a Bankruptcy Event occurs with respect to the
Company or any Subsidiary.
The Company shall promptly (and in any event within five days)
after learning of (x) any failure by the Company to observe any covenant or
agreement contained herein or in the Purchase Agreement or (y) any Event of
Noncompliance, give notice thereof to each holder of Preferred Stock.
(b) Consequences of Certain Events of Noncompliance.
(i) If an Event of Noncompliance (other than the failure
to pay timely dividends, which affects the dividend rate of the Preferred Stock
as provided in Section 3) has occurred, the dividend rate on the Preferred
Stock shall increase immediately to the lesser of (A) 18% per annum and (B) the
maximum rate permitted by applicable law, and shall remain at such rate as long
as any Preferred Stock is outstanding; provided, however, that if the Event of
Noncompliance is one under Section 10(a)(iii), upon the cure of such Event of
Noncompliance, the
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dividend rate shall be that which would otherwise be applicable but for the
application of this Section 10(b)(i).
(ii) If any Event of Noncompliance has occurred, each
holder of Preferred Stock will also have (A) rights pursuant to Section
6(c)(i), (B) any other rights which such holder may have been afforded under
any contract or agreement at any time and (C) any other rights which such
holder may have pursuant to applicable law.
Section 11. Waivers. With the written consent of holders of a
Majority of the Preferred Stock (or each holder of Preferred Stock to the
extent required pursuant to the last sentence of Section 6(b)), the obligations
of the Company and the rights of the holders of the Preferred Stock under this
Statement of Resolution may be waived (either generally or in a particular
instance, either retroactively or prospectively and either for a specified
period of time or indefinitely). Upon the effectuation of each such waiver,
the Company shall promptly give written notice thereof to the holders of
Preferred Stock who have not previously consented thereto in writing.
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ANNEX I
APPLICABLE DIVIDEND RATE
--------------------------------------------------------
REDEMPTION PREMIUM APPLICABLE DURING THE 3% 7% 10%
FOLLOWING YEARS AFTER THE ISSUE DATE: -- -- ---
1 Non-Call Non-Call Non-Call
2 Non-Call Non-Call Non-Call
3 Non-Call Non-Call Non-Call
4 Non-Call Non-Call Non-Call
5 3.000% 7.000% 10.000%
6 2.400% 5.600% 8.000%
7 1.800% 4.200% 6.000%
8 1.200% 2.800% 4.000%
9 0.600% 1.400% 2.000%
10 0.000% 0.000% 0.000%
To the extent a different Applicable Dividend Rate applies, a similar ratable
decline shall apply.
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I, THE UNDERSIGNED, being the _______________ of Pillowtex
Corporation, do hereby execute this Statement of Resolution, declaring and
certifying under penalties of perjury that the facts herein stated are true,
and accordingly have hereunto set my hand this _____ day of __________, 1997.
__________________________________
__________________________________
__________________________________
ATTEST:
__________________________________
__________________________________
__________________________________
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