-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, E4Kj8JfMPZJubTDEo2g0XZjQc7lHn5k6Ab4VTgZmqFJtz7HU8y65LbTqOwpdCUWp n5rmqmWcHzdev+QvOSX2YQ== 0000930661-00-000865.txt : 20000403 0000930661-00-000865.hdr.sgml : 20000403 ACCESSION NUMBER: 0000930661-00-000865 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 16 CONFORMED PERIOD OF REPORT: 20000101 FILED AS OF DATE: 20000331 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PILLOWTEX CORP CENTRAL INDEX KEY: 0000896265 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS FABRICATED TEXTILE PRODUCTS [2390] IRS NUMBER: 752147728 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-11756 FILM NUMBER: 591744 BUSINESS ADDRESS: STREET 1: 4111 MINT WAY CITY: DALLAS STATE: TX ZIP: 75237 BUSINESS PHONE: 2143333225 MAIL ADDRESS: STREET 1: 4111 MINT WAY CITY: DALLAS STATE: TX ZIP: 75237 FORMER COMPANY: FORMER CONFORMED NAME: PILLOWTEX CORP DATE OF NAME CHANGE: 19930125 10-K405 1 FORM 10-K405 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ________________ FORM 10-K X Annual Report Pursuant to Section 13 or 15(d) of the Securities - ----- Exchange Act of 1934 For the fiscal year ended January 1, 2000 _____ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Transition Period from ____ To ______ Commission File Number 1-11756 PILLOWTEX CORPORATION (Exact name of registrant as specified in its charter) Texas 75-2147728 (State of Incorporation) (I.R.S. Employer Identification No.) 4111 Mint Way, Dallas, Texas 75237 (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code: (214) 333-3225 ________________ Securities Registered Pursuant to Section 12(b) of the Act: Name of Each Exchange Title of Each Class on Which Registered ------------------- ------------------- Common Stock, $0.01 par value New York Stock Exchange Securities Registered Pursuant to Section 12(g) of the Act: None ________________ Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No __ --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of the voting stock held by non-affiliates of the Registrant as of March 20, 2000 was $36,194,929. As of March 20, 2000, Registrant had 14,232,269 shares of Common Stock outstanding. __________________ DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant's Proxy Statement for its 2000 Annual Meeting of Shareholders are incorporated by reference in Part III hereof. Unless the context otherwise requires, references to the "Pillowtex" or the "Company" include Pillowtex Corporation and its subsidiaries. CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS This report and other reports and statements, including those incorporated by reference herein, filed by Pillowtex from time to time with the Securities and Exchange Commission contain or may contain certain forward-looking statements. Such statements are based upon the beliefs and assumptions of, and on information available to, Pillowtex's management. Any statements preceded by, followed by, or that include the words "anticipates," "believes" "expects," "estimates," "intends," or similar expressions contained in Pillowtex's SEC filings, as well as any other statements contained in Pillowtex's SEC filings regarding matters that are not historical facts, are or may constitute forward- looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Because such forward-looking statements are subject to various risks and uncertainties, results and values may differ materially from those expressed in or implied by such statements. Many of the factors that will determine these results and values are beyond Pillowtex's ability to control or predict. Pillowtex's shareholders are cautioned not to place undue reliance on such statements, which speak only as of the date of the document in which they are contained. Pillowtex's shareholders should understand that the following important factors, in addition to those discussed elsewhere in Pillowtex's SEC filings, could affect Pillowtex's future results and could cause results and values to differ materially from those expressed in or implied by such forward-looking statements: (i) Pillowtex's significant leverage and debt service obligations; (ii) the restrictive covenants contained in the instruments governing Pillowtex's indebtedness; (iii) Pillowtex's ability to address the matters giving rise to the adverse changes to results of operations experienced by Pillowtex in 1999; (iv) the price and availability of raw materials used by Pillowtex; (v) general retail industry conditions; (vi) Pillowtex's ability to renew key trademark licenses; (vii) the goodwill associated with the brand names owned by Pillowtex and Pillowtex's ability to protect its proprietary rights in such brand names; (viii) Pillowtex's ability to retain key customers; (ix) Pillowtex's relationships with both union and non-union employees; (x) the influence of significant shareholders of Pillowtex; (xi) Pillowtex's dependence on key management personnel; and (xii) the seasonality of Pillowtex's business. The foregoing factors are discussed herein in greater detail under the caption "Risk Factors" beginning on page 10 hereof. PART I ITEM 1. BUSINESS -------- General Founded in 1954, Pillowtex is one of the largest North American designers, manufacturers, and marketers of home textile products. Pillowtex's extensive product offerings include a full line of utility and fashion bedding and complementary bedroom textile products, as well as a full line of bathroom and kitchen textile products. As a leading supplier across all distribution channels, Pillowtex sells its products to most major mass merchants, department stores, and specialty retailers. It provides its customers with a centralized "one-stop" source for their home textile merchandise. Pillowtex also markets its products to wholesale clubs, catalog merchants, institutional distributors, and international customers and on the Internet. Pillowtex, through its operating subsidiaries, manufactures and markets its products utilizing established and well-recognized Pillowtex-owned brand names. In addition, through licensing agreements, Pillowtex currently has rights to manufacture and, in some instances, market bedding products under other well- known brand names. Pillowtex also manufactures products for customers under their own brand names. Pillowtex's diverse portfolio of top brand names allows it to differentiate Pillowtex's products from those of its competitors. Pillowtex also provides distinct brand names for different channels of retail distribution and for different price points. 2 Competitive Strengths Pillowtex is one of the largest firms in the home textile industry and has significant competitive strengths. Pillowtex has: . one of the largest market shares in North America in bath towel, bed pillow, blanket, and down comforter products; and . a significant market share in each of the sheet, pillowcase, mattress pad, fashion bedding, bath rug, and kitchen textile products. Pillowtex's management team believes the following competitive strengths enhance Pillowtex's position in the marketplace: . Pillowtex Owns Industry Leading Brands. Pillowtex owns some of the most recognizable brand names in the industry, including Royal Velvet(R), Cannon(R), Fieldcrest(R), Royal Family(R), Charisma(R), St. Mary's(R), Touch of Class(R), Royal Velvet Big & Soft(R), and Beacon(R). Furthermore, through licensing agreements, Pillowtex currently has rights to manufacture and, in some instances, market certain bedding products under such well-known brand names as Ralph Lauren and Comforel(R). This diverse portfolio of top brand names enables Pillowtex to assist its customers in coordinating their product offerings and differentiating such offerings from those of their competitors. . Pillowtex Has Established Strong Customer Relationships. Pillowtex has established relationships with substantially all of the 50 top home textile retailers in North America. These strong relationships create a stable base from which Pillowtex can pursue future business and new product introductions. . Pillowtex Has Developed Creative Merchandising Strategies. Through partnerships with its customers, Pillowtex has developed extensive merchandising programs. These partnerships have resulted in the creation of successful new products, product mix strategies, point-of-sale concepts, and advertising campaigns. Retail customers are increasingly demanding exclusive or specially designed product lines to differentiate their product offerings from those of other retailers and to implement price tiering in order to achieve higher margins. Pillowtex will continue to collaborate with its retail customers to design products and marketing programs responsive to individual customer's needs. . Pillowtex Has Maintained Low Cost Operating Capabilities. Despite the operational inefficiencies experienced in 1999, Pillowtex believes that it is one of the lowest cost producers of bath towels, bath rugs, sheets and other decorative bedding products, bed pillows, blankets, down comforters, and mattress pads in the home textile industry. Pillowtex has achieved this status as a result of its continued emphasis on cost-containment and capital expenditures to obtain greater plant efficiencies. Pillowtex has efficient, low cost towel and bath rug production capabilities, including a new, state-of-the- art towel production facility. This strategy has given Pillowtex a competitive advantage allowing it to operate with percentages of selling, general, and administrative expenses relative to sales that are among the lowest in the industry. Business Strategy Pillowtex's strategic objectives include the following: . Pillowtex Will Continue To Capitalize On Its Industry Leading Position. Pillowtex will continue to leverage its market leadership by implementing sales and marketing programs designed to facilitate a customer- driven "pull" strategy. In addition, Pillowtex will continue to enhance product value and facilitate greater product differentiation by cross-marketing both bed and bath products using Pillowtex's strong brand names. . Pillowtex Will Continue To Develop The Top "One-Stop Shop" For Home Textiles. Pillowtex will continue to expand its broad product assortments across diverse product lines in order to offer its retail customers a centralized "one-stop" purchasing source for their home textile merchandise, giving it a significant competitive advantage. Pillowtex will continue to broaden its product assortment through the expansion of the products offered under its existing brand names, new product development, and licensing agreements. Pillowtex's extensive assortment of home textile products includes fashion and utility bedding and complementary bedroom textile products, as well as a full line of bathroom textile products. 3 . Pillowtex Will Continue To Strengthen Customer Relationships. Pillowtex has a long history of strong customer relationships with the top retailers in the United States and Canada. Pillowtex will continue to develop these relationships by providing value-added services, such as innovative marketing and cross-merchandising opportunities. Pillowtex has significantly increased the value of its services to retailers by expanding its traditional product lines. Aside from its traditional bed pillow, blanket, down comforter, and mattress pad product lines, Pillowtex has now added towel, bath rug, sheet, fashion bedding, and kitchen textile product lines. With this expansion, Pillowtex has created a centralized purchasing source. As a result, Pillowtex has successfully used established and well-recognized Pillowtex-owned brand names across all such product lines. Pillowtex continues to increase the use of marketing and cross-merchandising services to create opportunities for added sales. At the same time, Pillowtex provides retailers with more opportunities to differentiate their product offerings from those of their competitors. . Pillowtex Will Continue To Enhance Operational Efficiencies. Pillowtex will continue to focus on reducing its manufacturing cost structure. Pillowtex continually reviews its current operations and investments in automation, equipment modernization, process improvements, and system controls throughout all aspects of its business. Significant opportunities exist to improve production efficiency through capital investment, improved operational logistics, selective outsourcing, and increased utilization of information systems. Pillowtex will complete during fiscal year 2000, a three-year program of capital expenditures in excess of $275.0 million. As of March 4, 2000, approximately $233.5 million had been spent under this program. Pillowtex has used these capital expenditures principally to modernize certain acquired sheet and towel manufacturing facilities through the addition of new machinery and equipment. Pillowtex anticipates that approximately $50 million in capital expenditures will be made in fiscal year 2000. Products General Pillowtex has expanded beyond its traditional pillow operations largely through strategic acquisitions, including the 1997 acquisition of Fieldcrest Cannon and the 1998 acquisition of Leshner. As a result of all these acquisitions, Pillowtex's extensive product offerings now include a full line of utility and fashion bedding and complementary bedroom textile products, as well as a full line of bathroom and kitchen textile products. Bedding and Other Bedroom Textile Products Bed Pillows. Pillowtex is a leading manufacturer and marketer of bed pillows in North America. Pillowtex produces and markets a broad line of traditional bed pillows, as well as specially designed bed pillows such as body pillows. Pillowtex offers products at various levels of quality and price. Pillowtex's products range from synthetic pillows sold at relatively low retail prices to fine white goose down pillows sold at much higher price points. Pillowtex is a leading feather and down pillow manufacturer in North America. These products contain quality goose and duck down, or blends of feather and down, in a range of grades. These materials, known as "natural fill," have gained popularity for their loft and resiliency. Pillowtex also manufactures and markets a full line of bed pillows featuring staple (cut and crimped), tow (continuous filament), and cluster (individual ball) synthetic fiber fills. Pillowtex is a leading supplier of premium synthetic and latex bed pillows in North America. Blankets. Pillowtex is a leading producer of adult blankets in North America. It manufactures woven and non-woven conventional and thermal weave blankets and throws in a wide assortment of fibers, including cotton, wool blend, acrylic, and polyester. Pillowtex is the exclusive North American supplier of blankets to Ralph Lauren. Pillowtex also markets infant blankets with products ranging from non-woven receiving blankets to the finest Supima(R) cotton crib blankets. Down Comforters. Pillowtex was a pioneer in marketing down comforters in the United States, and is now a leading manufacturer and marketer of down comforters in North America. Down comforters have become increasingly popular for both their insulation and fashion qualities, selling well in both warm and cool climates. They are sold at department stores, specialty stores, and mass merchants at a variety of prices. Increasingly popular higher-end comforters typically offer more down fill, have higher thread count shells, and feature more appealing "surface interest", such as damask dots, stripes, and checks. 4 Mattress Pads. Pillowtex is a leading manufacturer and marketer of mattress pads in North America. It produces and markets a complete line of mattress pads, including sizes for adults and children, natural and synthetic filled, flat, fitted, and stretch-to-fit mattress pads (adjustable fit mattress pads made with Lycra(R), a multidirectional stretch material produced by DuPont). Pillowtex's stretch-to-fit mattress pads correctly fit a broad range of mattress thicknesses, including pillow top mattresses. Sheets and Other Fashion Bedding. Pillowtex produces a wide variety of sheets, ranging from muslin to the finest 360-thread count 100% pima cotton sheets. Its principal brand names for this product line include Cannon(R), Fieldcrest(R), Royal Velvet(R), and Charisma(R). Pillowtex's sheeting strengths include solid color sheets with coordinating decorative bedding accessories. In addition to sheets, Pillowtex's fashion bedding products consist of matching synthetic fill comforters, comforter covers, and pillow shams along with coordinated ruffled or pleated bed skirts. Retail prices of Pillowtex's sheets vary widely based on size, thread count, and fabric type. Other Bedroom Textiles. Pillowtex also offers a variety of other complementary bedroom textile products, including featherbeds, pillow protectors, decorative pillows, and window treatments. These products represent a source of additional profitability as "add-on" sales for retailers. Bathroom Textile Products Towels. Pillowtex's bathroom textile products include bath, hand, and fingertip towels, washcloths, and bath mats. Royal Velvet(R), Fieldcrest(R), Cannon(R), Charisma(R), Royal Velvet Big & Soft(R), and St. Mary's(R) are well- known, high quality towel brand names. These brand names provide Pillowtex with a strong market position in substantially all key sectors of the North American market. Pillowtex is also recognized as the color leader in the towel industry as it markets 40 colors in its Royal Velvet(R) franchise. In the marketplace, Pillowtex differentiates its towels by using fine ring spun cotton yarns to produce Royal Velvet(R) towels and pima cotton yarns for Charisma(R) towels. The towel line includes solid colors, woven stripes, and fancy jacquards, as well as printed towels. Retail prices of Pillowtex's towels range widely based on, among other things, size, weight, and yarn type. Bath Rugs. Pillowtex also markets a variety of bath and accent rugs in conjunction with its towel offerings. These products come in a variety of sizes and are marketed under the Royal Velvet(R), Cannon(R), Fieldcrest(R), Royal Family(R), and Charisma(R) brands, as well as under private labels. Kitchen Textile Products Pillowtex is a leading manufacturer and marketer of kitchen textile products in North America. Pillowtex's kitchen products include terry towels, terry dish cloths, waffle weave and flat woven dish cloths, bar mops, utility cloths, pot holders, and oven mitts. A variety of constructions include yarn-dye checks, stripes, and plaids coordinating with piece-dye solids as well as printed fashion motifs. Fabricated pot holders, oven mitts, and other coordinating accessories accompany most of Pillowtex's kitchen ensembles. Marketing And Sales Pillowtex markets its products to major mass merchants, department stores, and specialty retail stores, as well as to wholesale clubs, catalog merchants, institutional distributors, and international customers. Pillowtex's top ten customers accounted for approximately 49.5% of its total net sales in 1999. Wal-Mart (including Sam's Club Stores) accounted for approximately 20.5% of Pillowtex's total net sales in 1999. No other customer accounted for more than 10% of Pillowtex's total net sales in 1999. Consistent with industry practice, Pillowtex generally does not operate under long-term written supply contracts with its customers. Pillowtex segments its Fieldcrest portfolio of brand names by distribution channel in order to solidify the perceived value of such brands and maintain their integrity. Royal Velvet(R), Charisma(R), Fieldcrest(R), and Royal Family(R) brand name bed and bath products are distributed primarily through leading department stores, specialty home furnishing stores, and catalog merchants. St. Mary's(R) and Cannon(R) brand name bed and bath products are distributed through mass merchants. Pillowtex's Royal Velvet(R), Charisma(R), and Cannon(R) brand names receive national consumer advertising. Pillowtex sells private brands primarily through large chain stores. It also sells a smaller amount of unbranded products to institutional and government customers. 5 Pillowtex's current international business is concentrated in Canada. However, Pillowtex also sells its products in other foreign markets, including Asia, Australia, Europe, Mexico, and South America. Sales outside the United States accounted for approximately 6.0% of total sales in 1999, 7.8% in 1998 and 6.4% in 1997. During the last three years less than 5% of the Pillowtex's assets have been located outside the United States. In order to maximize product exposure and increase sales, Pillowtex works closely with its major customers to assist them in merchandising and promoting Pillowtex's products to the consumer. In addition to frequent personal consultation with the employees of such customers, Pillowtex meets periodically with the senior management of these customers. Pillowtex assists them in developing joint merchandising programs, new products, product mix strategies, point-of-sale concepts, and advertising campaigns specifically tailored to that customer's needs. Pillowtex also provides its customers merchandising assistance with store layouts, fixture designs, point-of-sale displays, and advertising materials. Pillowtex's electronic data interchange system allows customers to place, and Pillowtex to fill, track, and bill, orders by computer. This system enables Pillowtex to ship products on a "quick response" basis. Pillowtex's experienced sales people generally sell Pillowtex's products. However, the Ralph Lauren sales force sells some of the Ralph Lauren products manufactured by Pillowtex. Trademarks And License Agreements Pillowtex manufactures products: . under its proprietary Pillowtex-owned trademarks and trade names; . under some licensed trademarks and trade names; and . under customer-owned private labels. Pillowtex regards its trademarks and trade names as valuable assets and vigorously protects them against infringement. Pillowtex uses trademarks, trade names, and private labels as merchandising tools to assist its customers in coordinating their product offerings and differentiating their products from those of their competitors. Pillowtex holds the exclusive license for the highly regarded Ralph Lauren trademark for pillows, blankets, down comforters, mattress pads, and bath rugs in the United States and Canada. In addition, Pillowtex holds a non-exclusive license to manufacture, and in certain cases sell, a variety of fashion bedding products under the Ralph Lauren trademark in the United States, Canada, and Mexico. Pillowtex's licenses with Polo/Ralph Lauren Corporation expire on June 30, 2001. Upon their expiration, there can be no assurance that Pillowtex will be able to renew the licenses on acceptable terms. Pillowtex manufactures products for some customers under the customer's private labels. Products manufactured under customer-owned private labels are marketed by the customer. Pillowtex currently manufactures products for Kmart under the MARTHA STEWART EVERYDAY(R) brand name. Pillowtex occasionally identifies product lines for which it is more advantageous for Pillowtex to license third parties to use its brand names for use in the manufacture and sale of these products. These license agreements require third parties to pay royalties to Pillowtex based upon product sales and generally require payments of minimum annual royalties. In January 1998, Pillowtex entered into a license agreement with Ex-Cell Home Fashions, Inc. whereby Pillowtex granted Ex-Cell an exclusive license to manufacture, sell, and distribute shower curtains and bath accessories under some of Pillowtex's trademarks and trade names. In January 1999, Pillowtex entered into a license agreement with Bardwil Industries, Inc. under which Pillowtex granted Bardwil an exclusive license to manufacture, sell, and distribute tablecloths and other table-top accessories under some of Pillowtex's trademarks and trade names. See "Risk Factors - Pillowtex Is Dependent On Specific Brand Names" and "- Pillowtex Is Dependent On Specific Key Licenses." 6 Product Development Pillowtex's product development staff creates and develops products with new or superior performance characteristics in cooperation with various outside sources, including its suppliers and customers. Pillowtex's ability to develop products responsive to individual customers' needs is an important competitive advantage. As a result, Pillowtex commits time and resources to identifying new materials, designs, and products from a variety of domestic and international vendors. Manufacturing And Distribution General Pillowtex operates an extensive network of facilities in Texas, Alabama, California, Georgia, Illinois, Mississippi, New York, North Carolina, Pennsylvania, South Carolina, Virginia, and Toronto, Canada in connection with the manufacture and distribution of Pillowtex's product lines. This nationwide manufacturing and distribution network enables Pillowtex to ship its products cost effectively to all major cities in North America. In addition, Pillowtex operates 45 retail outlet stores that sell certain of Pillowtex's products directly to customers. These stores sell both first quality merchandise and seconds or "off-goods" at competitive retail prices. Pillowtex believes that its retail outlet stores provide an effective channel for the distribution of second quality merchandise. Bedding and Other Bedroom Textile Products Bed Pillows. The hub of the network for bed pillows is located in Dallas, Texas, where Pillowtex operates one of the largest feather and down processing facilities in North America. State-of-the-art computerized washing and sorting equipment process feather and down. Pillowtex later sorts these products into a variety of mixtures and grades used in manufacturing natural fill pillows and comforters. Pillowtex ships raw materials, along with imported products, to its regional facilities for final assembly and distribution to customers. Pillowtex also operates an automated sewing facility in Dallas, Texas, where high speed computerized machines cut and sew fabric into pillow shells. Many of Pillowtex's regional manufacturing facilities produce natural fill and synthetic fill pillows. Pillowtex assembles natural fill pillows by blowing processed feather and down into the pillow shell and sewing the open seam closed. Pillowtex produces synthetic fill pillows on machines known as garnets. Garnets pull, comb, and expand compressed polyester fibers. Once expanded, Pillowtex inserts the fibers into a pillow shell and sews the open seam shut. Blankets. Pillowtex spins yarn and produces blankets at manufacturing facilities in North Carolina and South Carolina. These plants provide full vertical production capability, including spinning, weaving, dyeing, and finishing. Down Comforters. Pillowtex manufactures its line of natural fill comforters at its California, Illinois, Mississippi, Pennsylvania, and Toronto, Canada locations using processed down from the Dallas facility. Mattress Pads. Pillowtex manufactures mattress pads at the California, Mississippi, Pennsylvania, and Toronto, Canada facilities by two automated methods. The traditional quilt sewing method uses high speed equipment that sews the top, bottom, and fill material together. The sonic method fuses the top, bottom, and fill material together. Sheets and Other Fashion Bedding. Pillowtex produces bed sheet products at its facilities in Kannapolis and Concord, North Carolina, and Union City, South Carolina. These facilities provide a full range of Pillowtex's sheet products for substantially all channels of distribution. Pillowtex spins cotton and synthetic fibers into yarn and weaves the yarn into greige cloth for finishing, dyeing, cutting, and sewing. Pillowtex produces synthetic fill comforters and other decorative bedding products, such as pillow shams and decorative pillows, at its Eden, North Carolina and Rocky Mount, North Carolina facilities. The product is later packaged for shipment to retail customers. Other Bedroom Textiles. Pillowtex manufactures other complementary bedroom textile products, such as featherbeds, pillow protectors, decorative pillows, and window treatments, at one or more of the facilities described above. 7 Bathroom Textile Products Towels. Pillowtex produces bath towels at its facilities in Alabama, Georgia, North Carolina, and Virginia. Cotton and synthetic fibers are spun into yarns, and then woven into fabric or greige cloth. The fabric is then finished, dyed, cut, and sewn into finished towel products. Pillowtex's Fieldale, Virginia facility generally produces the higher quality products for department and specialty stores. The Columbus, Georgia, Phenix City, Alabama, and Hawkinsville, Georgia facilities generally support Pillowtex's mass merchant business channel. The Kannapolis, North Carolina facility produces both types of products and, as a result, supports both distribution channels. Bath Rugs. Pillowtex produces bath rugs in its Scottsboro, Alabama facility. Pillowtex punches tufted yarn into fabric and cuts it to a uniform height. Pillowtex then applies a latex coating to the underside of the fabric to hold the fibers. Finally, the product is dyed, cut, and finished. Kitchen Textile Products Pillowtex manufactures its kitchen textile products at its facilities in Phenix City, Alabama, Hawkinsville, Georgia, and Kannapolis, North Carolina. Quality Control Programs Pillowtex has quality control programs in place to ensure that its products meet quality standards established both internally and by its customers. Pillowtex devotes significant resources to support its quality improvement efforts. Each manufacturing facility has a quality control team that identifies and resolves quality issues. Pillowtex attempts to maintain close contact with customer quality control or other appropriate personnel to ensure that Pillowtex understands the customers' requirements. Pillowtex also has programs with its major suppliers to ensure the consistency of purchased raw materials by imposing strict standards and materials inspection, and by requiring rapid response to Pillowtex's complaints. Raw Materials And Imports General The principal raw materials that Pillowtex uses in manufacturing its various product lines are: . cotton; . feather and down; . synthetic (polyester and acrylic) fibers; and . cotton and polyester-cotton blend fabrics. A wide variety of sources offer these materials and Pillowtex currently expects no significant shortage of these materials. Management believes that its relationships with its suppliers are generally good. See "Risk Factors- Pillowtex Is Dependent On Specific Raw Materials." Cotton Domestic cotton merchants are Pillowtex's primary source of cotton. Pillowtex uses significant quantities of cotton. To reduce the effect of potential price fluctuations in cotton prices, Pillowtex makes commitments for a portion of its anticipated future purchases of cotton. Feathers and Down Pillowtex imports feather and down from several sources outside the United States. Pillowtex purchases a majority of these products from China, where feather and down are by-products of ducks and geese raised for food. Pillowtex generally purchases feather and down from its suppliers in China on open credit terms without letters of credit. Pillowtex also purchases some feather and down from suppliers in Europe. 8 Synthetic Fibers Domestic fiber producers are Pillowtex's primary source of synthetic fibers. Pillowtex purchases synthetic fiber from, among others, E.I. DuPont de Nemours & Co., Wellman, Inc., Solutia, Cytec Industries Inc., Kosa, and Kanematsu U.S.A. Inc. To reduce the effect of potential price fluctuations, Pillowtex makes commitments for a portion of its anticipated future purchases of synthetic fibers. Fabric Pillowtex uses fabric purchased from third parties in the production of pillow shells, comforter covers, and various other products. Although the Company believes that fabric is a commodity-type product, it currently purchases large quantities of pillow ticking fabric from a single supplier, Santee Print Works, to control costs and assure quality. Consistent with industry practice, Pillowtex and Santee Print Works have not entered into a long-term supply contract. However, to reduce the effect of potential price fluctuations, the Company occasionally makes commitments for future purchases from Santee Print Works. In addition, Pillowtex imports the majority of its down comforter shells from China and India. Other Some of Pillowtex's stretch-to-fit mattress pads use Lycra(R) skirting. Because of DuPont's patent on Lycra(R), it is the exclusive supplier of this material. Management believes that the risk that DuPont will cease to manufacture and sell Lycra(R) is minimal. Competition Pillowtex participates in a highly competitive industry. It competes with a number of established manufacturers, importers, and distributors of home textile furnishings, some of which have greater financial, distribution, and marketing resources than does the Company. Pillowtex competes on the basis of price, quality, brand names, and service. See "-Competitive Strengths" and "-Business Strategy" above. Government Regulation Pillowtex must comply with various federal, state, and local environmental laws and regulations governing the discharge, storage, handling, and disposal of various substances. The Company must also comply with federal and state laws and regulations that require certain of its products to bear product content labels containing specified information, including their place of origin and fiber content. In addition, a variety of federal, state, local, and foreign laws and regulations relating to worker safety and health, advertising, importing and exporting, and other general business matters, govern Pillowtex's operations. Laws and regulations may change, and Pillowtex cannot predict what effect, if any, changes in various laws and regulations might have on its business. Backlog A number of factors affect the amount of Pillowtex's backlog orders at any particular time. These factors include seasonality and scheduling of the manufacturing and shipment of products. In addition, in 1999, Pillowtex experienced disruptive operational difficulties in connection with the installation of new production and warehousing computer systems and new production equipment that affected the level of backlog orders. See "-Risk Factors - Pillowtex Experienced Adverse Changes In Its Results of Operations For Its 1999 Fiscal Year." In general however, Pillowtex's electronic data interchange and "quick response" capabilities have resulted in shortened lead times between submission of purchase orders and delivery and have lowered the level of backlog orders. Consequently, Pillowtex believes that the amount of its backlog is not an appropriate indicator of levels of future production. 9 Employees As of March 24, 2000, Pillowtex had approximately 14,000 employees. As of March 24, 2000, Pillowtex and/or its subsidiaries had entered into the following collective bargaining agreements:
Approximate Number of Bargaining Unit Union Location Covered Expiration Employees ------ -------------------------------- ----------- --------------- Union of Needletrades, Industrial and Textile Workers Phenix City, Alabama; 02/01/03 7,915 Columbus, Georgia; Concord, North Carolina; Eden, North Carolina; Kannapolis, North Carolina; Salisbury, North Carolina; and Fieldale, Virginia Union of Needletrades, Industrial and Textile Workers Phenix City, Alabama; 10/01/01 426 Hawkinsville, Georgia; and Macon, Georgia Union of Needletrades, Industrial and Textile Workers Toronto, Ontario, Canada 03/31/00* 194 United Auto Workers Tunica, Mississippi 07/31/03 333 Warehouse, Mail Order, Office, Technical Chicago, Illinois 01/31/03 168 and Professional Employees (Teamsters) *This agreement is currently being re-negotiated and is operating under a month to month letter of extension.
As of March 24, 2000, approximately 39% of Pillowtex's employees had chosen to have union dues deducted from their pay checks. Since 1991, the Union of Needletrades, Industrial and Textile Workers (UNITE) had campaigned to organize hourly workers at Pillowtex plants in Concord, North Carolina, Kannapolis, North Carolina and Salisbury, North Carolina. In June 1999, UNITE was elected as a bargaining representative for hourly workers at those plants. In February 2000, Pillowtex and UNITE entered into a contract covering employees at those plants, as well as the employees represented by UNITE at Pillowtex's plants in Eden, North Carolina; Phenix City, Alabama; Columbus, Georgia; and Fieldale, Virginia. Pillowtex believes that it has good relationships with both its union and non- union employees generally. Risk Factors Pillowtex and its businesses are subject to a number of risks including those enumerated below. Any or all of such risks could have a material adverse effect on the business, financial condition, results of operations or prospects of Pillowtex or on the market price of Pillowtex's Common Stock. See also "Cautionary Statement Regarding Forward-Looking Statements" above. Pillowtex Has Significant Leverage And Liquidity Concerns Leverage. Pillowtex is highly leveraged. At January 1, 2000, Pillowtex had total outstanding long-term debt (including the current portion of long-term debt) of $1,051.1 million and total shareholders' equity of $207.4 million as compared to total outstanding long-term debt (including the current portion of long-term debt) of $956.9 million and total shareholders' equity of $237.9 million at January 2, 1999. This increase in indebtedness is primarily due to : . increased accounts receivables due to slower collections resulting in part from the conversion to new production and warehousing computer systems and increased customer deductions; . capital expenditure projects; and . net losses experienced in the third and fourth quarters (see "-Pillowtex Has Experienced Adverse Changes In Its Results of Operations For Its 1999 Fiscal Year"). 10 The level of Pillowtex's debt could have important consequences to its business activities, including: . substantially all of Pillowtex's cash flow from operations must be dedicated to scheduled debt service and capital expenditures and accordingly, will not be available for other purposes; . Pillowtex's level of debt could make it difficult to obtain additional debt financing in the future, even if needed for working capital or capital expenditures; and . Pillowtex's level of debt could limit its flexibility in reacting to changes in its industry or general economic conditions. Liquidity. Pillowtex's ability to service its debt and other obligations will depend upon its future operating performance. Prevailing economic conditions and financial, business, and other factors will affect Pillowtex's future operating performance. See "-Pillowtex Experienced Adverse Changes In Its Results of Operations For Its 1999 Fiscal Year." Because a significant portion of Pillowtex's debt bears interest at a floating rate, Pillowtex's ability to service its debt and other obligations will also depend on prevailing interest rates and general financial conditions. The availability of borrowings under Pillowtex's senior secured revolving credit facility will also affect Pillowtex's future operating performance and its ability to service debt and other obligations. The revolving credit facility includes $55.0 million of availability for letters of credit. At March 24, 2000, $37.4 million of letters of credit were outstanding. At March 24, 2000, Pillowtex had $43.2 million available for borrowing under the senior secured revolving credit facility. As a result of Pillowtex's acquisition of Fieldcrest Cannon, the outstanding 6% Convertible Subordinated Debentures due 2012 of Fieldcrest Cannon are convertible, at the option of the holders, into a combination of cash and Pillowtex's Common Stock. During the fourth quarter of 1999, Pillowtex notified the holders of the 6% Convertible Debentures that it was not practicable or prudent for the Company to make payments in respect of the conversion of the 6% Convertible Debentures. The Company advised holders that had given notice of conversion and surrendered their 6% Convertible Debentures that they could rescind their notice of conversion. As of March 24, 2000, the cash component due in respect of the 6% Convertible Debentures that had been surrendered without subsequent rescission was $9.1 million. In addition, as of March 24, 2000, $96.5 million aggregate principal amount of the 6% Convertible Debentures remained outstanding. If all such outstanding 6% Convertible Debentures were converted at such date, the resulting cash component to be paid to the holders of the 6% Convertible Debentures would have been approximately $61.0 million. Pillowtex is currently prohibited under the terms of its senior subordinated debt from making payments in respect of the 6% Convertible Debentures except for interest and at maturity or pursuant to sinking fund obligations. Pillowtex has initiated discussions with certain holders of its 6% Convertible Debentures regarding a potential restructuring of the 6% Convertible Debentures. Any comprehensive restructuring of the 6% Convertible Debentures involving cash payments (other than pursuant to sinking fund obligations) would likely require the consent of the holders of Pillowtex's senior subordinated debt. The Company cannot guarantee that it will be able to restructure the 6% Convertible Debentures nor can it predict the terms of any potential restructuring of that debt. See "Risk Factors - Pillowtex Faces Restrictions Imposed By Terms Of Its Debt." In any event, Pillowtex will require substantial amounts of cash to fund- scheduled payments of principal and interest on its outstanding debt, future capital expenditures, and any increased working capital requirements. If the Company is unable to meet its cash requirements out of cash flow from operations and available borrowings, it cannot be certain that it will be able to obtain alternative financing. In the absence of such financing, the Company could be limited in its ability to: . respond to changing business and economic conditions generally; . absorb adverse operating results; or . fund capital expenditures, if any. Effective as of March 31, 2000, the maturity date of Pillowtex's senior secured debt was shortened to January 31, 2002. Pillowtex cannot guarantee that it will be able to extend such maturity date or refinance such debt on acceptable terms on or prior to January 31, 2002. 11 Pillowtex Faces Restrictions Imposed By Terms Of Its Debt Instruments governing Pillowtex's debt restricts, among other things, the Company's ability, and the ability of its subsidiaries, to: . incur additional debt; . pay dividends or make other restricted payments (including payment on subordinated debt); . incur liens to secure equal or subordinated debt; . make investments, loans or advances; . make capital expenditures; . sell stock of subsidiaries; . make asset sales and utilize net proceeds from permitted asset sales; . merge or consolidate with any other person; . sell, assign, transfer, lease, convey, or otherwise dispose of substantially all of its assets; . enter into transactions with affiliates; and . incur debt that is subordinate in right of payment to any debt and senior in right of payment to its senior subordinated debt. At the end of its 1999 fiscal year, Pillowtex was not in compliance with certain financial covenants under its senior secured credit facilities. The Company obtained a series of temporary waivers of this non-compliance and, on March 31, 2000, obtained a permanent waiver of this non-compliance and an amendment that eliminated or modified the financial covenants in its senior secured credit facilities effective for the January 1, 2000 measurement date, as well as all future measurement dates. The Company believes that it will be able to comply with the amended financial covenants in the future; however, there can be no assurance of such compliance. See "Management's Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources." A breach of any of the covenants contained in the senior secured credit facilities could result in a default or event of default under the terms of these facilities. Upon the occurrence of an event of default: the senior lenders would not be obligated to make additional advances under the revolving credit facility; the senior lenders would be entitled to declare all amounts outstanding under the senior secured credit facilities, including accrued interest or other obligations, to be immediately due and payable; the senior lenders would have the rights to block payment on substantially all of Pillowtex's other long-term debt; and the senior lenders would be entitled to proceed against the collateral granted to them to secure the senior debt. In these circumstances, cross defaults could occur making substantially all of Pillowtex's other long-term debt due. If any senior debt were to be accelerated, the Company cannot be certain that its assets would be sufficient to repay in full that debt and its other debt. Pillowtex Experienced Adverse Changes In Its Results Of Operations For Its 1999 Fiscal Year Pillowtex had a net loss applicable to common shareholders of $31.8 million for its 1999 fiscal year, as compared to net earnings available to common shareholders of $40.8 million in its 1998 fiscal year. The net loss for 1999 was attributable primarily to : . Plant disruptions and operating inefficiencies related to the installation of new production and warehousing computer systems and equipment; . Non-cash charges associated with the payment of a special catch-up dividend to the holders of Pillowtex's preferred stock as a result of the Company's failure to meet specified earnings levels for the 1999 fiscal year; . Higher interest expense due to higher level of debt and waiver fees; . Higher than planned costs associated with marketing initiatives; 12 . Inventory write-downs, primarily relating to blanket inventory; . Unabsorbed overhead costs attributable to the idling of selected operations as part of an inventory reduction initiative and installation of new computer systems and equipment; and . Lower average selling prices and therefore, margins attributable to a change in sales mix as part of the inventory reduction initiative. While Pillowtex completed the installation of its new computer systems in late 1999, the installation of major pieces of new equipment under the Company's ongoing three-year capital improvement program will continue in 2000. Pillowtex believes that its plants are now running more efficiently and that the accuracy and timeliness of its shipments and its billing and collection procedures have improved. However, the Company cannot be certain that it will not encounter during the 2000 fiscal year or subsequent periods further disruptions or inefficiencies or that it will not experience an adverse impact on its results of operations as a result thereof. Pillowtex Is Unlikely To Pay Dividends On Its Common Stock For The Foreseeable Future Under the terms of its senior secured credit agreements and senior subordinated debt and its Series A Redeemable Convertible Preferred Stock, Pillowtex currently is prohibited from paying dividends to or making other distributions to holders of its Common Stock. Accordingly, Pillowtex's Board of Directors has suspended its policy of paying quarterly dividends on its Common Stock commencing with the fourth quarter of 1999. It is uncertain whether, or when, the Company will recommence payment of dividends on its Common Stock in the future or, if dividends are paid on the Common Stock in the future, as to the amount thereof. Pillowtex Is Dependent On Specific Raw Materials Cotton is the primary raw material used in Pillowtex's business. Cotton is an agricultural product and, as a result, its availability is subject to weather conditions and other factors affecting agricultural markets. Historically, there have been periods of rapid and significant movement in the price of cotton both upward and downward. Other raw materials on which Pillowtex is dependent include the raw feathers and down that it uses to produce natural fill pillows and down comforters. China is currently Pillowtex's primary source of raw feather and down. In fiscal year 1999, approximately 95%, based on cost, of the raw feathers and down that Pillowtex used to produce natural fill pillows and down comforters was imported from China. Pillowtex's relationships with its suppliers in China could be disrupted or adversely affected due to a number of factors, including governmental regulation, fluctuation in exchange rates, and changes in economic and political conditions in China. If Pillowtex's supply sources in China were disrupted for any reason, Pillowtex believes, based on existing market conditions, that it could establish alternative supply relationships. However, because establishing these relationships involves numerous uncertainties relating to delivery requirements, price, payment terms, quality control, and other matters, the Company is unable to predict whether such relationships would be on satisfactory terms. Pillowtex's relationship with its suppliers in China are also subject to risks associated with changes in United States legislation and regulations relating to imports, including quotas, duties, and taxes, and other charges or restrictions on imports. Products that Pillowtex imports from China currently receive normal, nondiscriminatory tariff treatment accorded goods from countries granted "normal trade" status. Under the Trade Act of 1974, the President of the United States is authorized, upon making specified findings, to waive certain restrictions that would otherwise render China ineligible for normal trade relations treatment. The President has waived these provisions each year since 1979. Normal trade status was accordingly renewed in June 1999. Congress will continue to monitor these activities and may encourage the President to reconsider the renewal of normal trade status for China in the future. Pillowtex cannot be certain that China will continue to enjoy this status in the future. Raw materials and finished products entering the United States from China without the benefit of normal trade relations would be subject to significantly higher tariffs. 13 The raw materials used by Pillowtex are generally available from a number of sources. No significant shortage of these materials is currently anticipated. However, Pillowtex uses significant quantities of these raw materials, which are subject to price fluctuations. The Company cannot be certain that shortages of these materials will not occur in the future, which could increase the cost or delay the shipment of its products. Moreover, the Company cannot be certain that it will be able to pass on any increase in the price of raw materials to its customers. Pillowtex May Be Affected By Adverse Retail Industry Conditions Pillowtex sells its products to a number of department stores and other major retailers who have experienced financial difficulties during past years. Some of these retailers have previously sought the protection of federal bankruptcy laws. In addition, some of Pillowtex's current retail customers may seek protection under the federal bankruptcy laws or state insolvency laws in the future. As a result of these financial difficulties and bankruptcy and insolvency proceedings, Pillowtex may be unable to collect some or all amounts owed by these retail customers. In addition, all or part of the operations of a retail customer that seeks bankruptcy or other debtor protection may be discontinued or sales of Pillowtex's products to the customer may be curtailed or terminated as a result of bankruptcy or insolvency proceedings. Pillowtex Is Dependent On Specific Brand Names In fiscal year 1999, sales of products bearing Pillowtex's principal proprietary brand names of Royal Velvet(R), Cannon(R), Charisma(R), Royal Velvet Big & Soft(R), Fieldcrest(R), Royal Family(R), Caldwell(R), and St. Mary's(R) made up a substantial portion of its net sales. Accordingly, Pillowtex's future success may depend in part upon the goodwill associated with these brand names. Pillowtex's principal brand names are registered in the United States and certain foreign countries. However, the Company cannot be certain that the steps taken by it to protect its proprietary rights in such brand names will be adequate to prevent their misappropriation in the United States or abroad. In addition, the laws of some foreign countries do not protect proprietary rights in brand names to the same extent as do the laws of the United States. Pillowtex Is Dependent On Specific Key Licenses Pillowtex holds licenses with organizations such as Polo/Ralph Lauren Corporation, E.I. DuPont de Nemours & Co., and others. These organizations own such well-known trademarks and trade names as Ralph Lauren and Comforel(R). These licenses generally require the payment of royalties based on net sales, including the payment of minimum annual royalties. They expire at various dates through June 2001. The Company cannot be certain that it will be able to renew these licenses on acceptable terms upon their expiration or that it will be able to acquire new licenses to use other popular trademarks. Pillowtex Faces Risks Of Loss Of Material Customer In fiscal year 1999, net sales to Wal-Mart Stores, Inc. (including Sam's Club Stores) accounted for approximately 20.5% of Pillowtex's total net sales. No other single customer accounted for more than 10% of total net sales during this period. Consistent with industry practice, Pillowtex does not operate under a long-term written supply contract with Wal-Mart or any of its other customers. The loss of Wal-Mart as a customer could materially affect Pillowtex's business, assets, financial condition, results of operations, and prospects. Pillowtex Faces Risks Related To Organized Labor As of March 17, 2000, Pillowtex had approximately 14,000 employees. As of that date, approximately 65% of Pillowtex's employees were in bargaining units covered by collective bargaining agreements and approximately 39% of Pillowtex's employees had chosen to have union dues deducted from their pay checks. See "Business-Employees." 14 Since 1991, the Union of Needletrades, Industrial and Textile Workers (UNITE) had campaigned to organize hourly workers of Pillowtex plants in Concord, North Carolina, Kannapolis, North Carolina, and Salisbury, North Carolina. In June 1999, UNITE was elected as a bargaining representative for hourly workers at those plants. In February 2000, Pillowtex and UNITE entered into a contract covering employees at those plants, as well as the employees represented by UNITE at Pillowtex's plants in Eden, North Carolina; Phenix City, Alabama; Columbus, Georgia; and Fieldale, Virginia. The Company cannot be certain that it will not face similar campaigns at other plants in the future or as to the effect that any such campaign would have on the productivity of its workforce or labor costs. Pillowtex Faces Risks Associated With Acquisitions Pillowtex has grown largely through strategic acquisitions of companies with complementary products, most notably Fieldcrest Cannon in 1997 and Leshner in 1998. Pillowtex continues to strive to achieve synergies, including cost savings, with respect to these acquisitions; however, the Company cannot be certain that it will be able to achieve these synergies or to otherwise successfully integrate the operations of these acquired companies with its previously existing operations in an efficient or profitable manner. Pillowtex's Business Is Seasonal Pillowtex's business is subject to a pattern of seasonal fluctuation. Sales and earnings from operations generated during the second half of a given fiscal year generally are expected to be higher than sales and earnings from operations generated during the first half of the year. Accordingly, the Company's needs for working capital generally are expected to increase in the second half of the year. As a result, total debt levels generally tend to peak in the third and fourth quarters, falling off again in the first quarter of the following year. The amount of Pillowtex's sales generated during the second half of the year generally will depend upon a number of factors, including the level of retail sales for home textile furnishings during the fall and winter, weather conditions affecting the sales of down comforters and blankets, general economic conditions, and other factors beyond the Company's control. Certain Of Pillowtex's Shareholders Exert Significant Control As of March 20, 2000, Charles M. Hansen, Jr., Pillowtex's Chief Executive Officer and Chairman of the Board, Mary R. Silverthorne, the John H. Silverthorne Marital Trust B, and the John H. Silverthorne Family Trust A (for both of which trusts Ms. Silverthorne acts as trustee) owned, in the aggregate, approximately 37% of the outstanding shares of Pillowtex's Common Stock. These shareholders exert significant influence over Pillowtex's direction and management. Pillowtex Is Dependent On Its Key Managers Pillowtex believes that its success is largely dependent on the skills, experience, and performance of key members of its management, including Charles M. Hansen, Jr., the Chairman of the Board and Chief Executive Officer. Pillowtex believes that its future success will be highly dependent upon its ability to attract and retain skilled managers and other personnel, including Mr. Hansen. Market Risk With Respect to Common Stock Pillowtex Common Stock is listed for trading on the New York Stock Exchange. The prices at which the Company's shares of Common Stock trade are subject to fluctuations based on many factors, including general economic and industry conditions and the Company's actual and expected sales and earnings performance. The Company cannot be certain that any holder of its Common Stock will be able to sell those shares at any particular price. Certain Provisions of Pillowtex's Articles of Incorporation, Bylaws, and Other Agreements Pillowtex's Restated Articles of Incorporation, Pillowtex's Bylaws, and some agreements to which Pillowtex is a party contain provisions that may have the effect of delaying, deferring, or preventing a change in control of Pillowtex. In addition, the Restated Articles authorize the issuance of up to 55,000,000 shares of Common Stock and 20,000,000 shares of Preferred Stock. Pillowtex's Board of Directors will have the power to determine the price and terms under which any additional capital stock may be issued and, subject to the terms of any issued and outstanding Preferred Stock (including the Series A Redeemable Convertible Preferred Stock), to fix the terms of that Preferred Stock. Existing shareholders have no preemptive rights. 15 ITEM 2. PROPERTIES ---------- The following table summarizes certain information concerning certain of the facilities used by Pillowtex in connection with the manufacture and distribution of its product lines:
Approx. Owned/ Location Principal Use Square Feet Leased -------- ------------- ----------- ------ Dallas, Texas Headquarters and feather and down processing 104,000 Owned Dallas, Texas Manufacturing, distribution and offices 150,000 Owned Phenix City, Alabama Manufacturing and warehouse 777,681 Owned Phenix City, Alabama Manufacturing 220,000 Owned Scottsboro, Alabama Manufacturing and warehouse 272,800 Owned Los Angeles, California Manufacturing and distribution 320,000 Leased Columbus, Georgia Manufacturing and warehouse 727,246 Owned Hawkinsville, Georgia Manufacturing and warehouse 260,000 Owned Macon, Georgia Warehouse 220,000 Owned Chicago, Illinois Manufacturing and distribution 121,000 Owned Tunica, Mississippi Manufacturing and distribution 288,000 Owned New York, New York Sales office and showroom 64,490 Leased Asheville, North Carolina Warehouse 117,000 Leased Asheville, North Carolina Warehouse 254,000 Leased Concord, North Carolina Manufacturing 696,963 Owned Eden, North Carolina Manufacturing and warehouse 529,273 Owned Eden, North Carolina Warehouse 411,531 Owned Eden, North Carolina Warehouse 27,241 Owned Kannapolis, North Carolina Manufacturing 682,407 Owned Kannapolis, North Carolina Manufacturing, warehouse and offices 5,863,041 Owned Newton, North Carolina Manufacturing and distribution 297,000 Leased Rockwell, North Carolina Manufacturing 98,240 Owned Rocky Mount, North Carolina Manufacturing and distribution 139,000 Owned Rocky Mount, North Carolina Manufacturing and distribution 78,000 Leased Salisbury, North Carolina Manufacturing 229,361 Owned China Grove, North Carolina Manufacturing and warehouse 567,000 Owned Swannanoa, North Carolina Manufacturing, distribution, warehouse and office 1,425,000 Owned Tarboro, North Carolina Manufacturing and warehouse 370,000 Owned Hanover, Pennsylvania Manufacturing and distribution 291,000 Owned Mauldin, South Carolina Warehouse and distribution 746,600 Owned Union City, South Carolina Manufacturing 95,700 Owned Westminster, South Carolina Manufacturing, distribution, warehouse and office 652,000 Owned Westminster, South Carolina Warehouse 29,000 Leased Fieldale, Virginia Manufacturing and warehouse 973,253 Owned Martinsville, Virginia Warehouse 100,000 Leased Toronto, Ontario, Canada Manufacturing and distribution 99,000 Leased Toronto, Ontario, Canada Manufacturing and distribution 60,000 Leased Toronto, Ontario, Canada Warehouse 106,000 Leased
In addition to the locations listed above, Pillowtex maintains warehousing and distribution centers in the states where its manufacturing facilities are located. It also maintains approximately 45 retail outlets and small sales and marketing offices in other states. Pillowtex also owns various other properties, both developed and undeveloped, which are unrelated to its manufacturing operations. Fieldcrest Cannon acquired these properties throughout the years for investment or as part of specific acquisitions. Pillowtex holds some of these properties for investment, has listed some for sale, and has leased others to third parties. Pillowtex believes that its facilities are generally well maintained, in good operating condition, and adequate for its current needs. Subject to the availability of working capital, Pillowtex will continue to make improvements at these plants, upgrading the physical plant and purchasing additional and newer machinery and equipment. ITEM 3. LEGAL PROCEEDINGS ----------------- Pillowtex is involved in various claims and lawsuits incidental to its business; however, the outcome of such suits is not expected to have a material adverse effect on Pillowtex's financial position or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS --------------------------------------------------- None. 16 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER ------------------------------------------------------------- MATTERS ------- Pillowtex's Common Stock, par value $0.01 per share, is traded on the New York Stock Exchange under the symbol "PTX." The following table sets forth for the period indicated the high and low sales prices of the Common Stock:
High Low --------------- --------------- Fiscal Year: 1999 Fourth Quarter....................... $ 7 1/4 $ 2 3/4 Third Quarter........................ 17 5/8 6 3/4 Second Quarter....................... 19 7/16 11 9/16 First Quarter........................ 28 3/8 11 3/8 1998 Fourth Quarter....................... $ 34 1/4 $ 23 9/16 Third Quarter........................ 45 5/8 23 7/8 Second Quarter....................... 50 7/8 37 13/16 First Quarter........................ 49 5/16 30 1/2
At March 20, 2000, Pillowtex had approximately 1,053 holders of record of Common Stock. Pillowtex paid quarterly dividends of $0.06 per share in each quarter of fiscal year 1998 and the first three quarters of fiscal year 1999. Under the terms of its senior secured credit agreements and senior subordinated debt and its Series A Redeemable Convertible Preferred Stock, Pillowtex currently is prohibited from paying dividends to or making other distributions to holders of its Common Stock. Accordingly, Pillowtex's Board of Directors has suspended its policy of paying quarterly dividends on its Common Stock commencing with the fourth quarter of 1999. It is uncertain whether, or when, the Company will recommence payment of dividends on its Common Stock in the future or, if dividends are paid on the Common Stock in the future, as to the amount thereof. 17 ITEM 6. SELECTED FINANCIAL DATA ----------------------- SELECTED FINANCIAL DATA (In thousands, except per share data) The selected financial data presented below are derived from Pillowtex's consolidated financial statements for the five years ended January 1, 2000. The data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements and related notes included elsewhere in this Annual Report.
Year Ended 12/30/95 12/28/96 01/03/98/(1)/ 01/02/99/(2)/ 01/01/00 ------------------------------------------------------------- Statements of Earnings Data: Net sales......................................... $ 474,899 $ 490,655 $ 579,999 $ 1,509,841 $1,552,068 Cost of goods sold................................ 395,922 411,048 485,679 1,237,085 1,358,966 --------- --------- ----------- ----------- ---------- Gross profit...................................... 78,977 79,607 94,320 272,756 193,102 Selling, general and administrative expenses...... 42,508 41,445 52,090 128,685 131,256 Provisions for assets............................. -- -- 5,986 1,539 2,000 --------- --------- ----------- ----------- ---------- Earnings from operations.......................... 36,469 38,162 36,244 142,532 59,846 Interest expense.................................. 17,491 13,971 22,470 72,288 87,279 --------- --------- ----------- ----------- ---------- Earnings(loss) before income taxes and extraordinary items.......................... 18,978 24,191 13,774 70,244 (27,433) Income taxes...................................... 7,509 9,459 5,538 27,389 (7,901) --------- --------- ----------- ----------- ---------- Earnings(loss) before extraordinary items......... 11,469 14,732 8,236 42,855 (19,532) Extraordinary items, net.......................... -- ( 609) (919) -- -- --------- --------- ----------- ----------- ---------- Net earnings(loss)................................ 11,469 14,123 7,317 42,855 (19,532) Preferred dividends and accretion................. -- -- 85 2,097 12,294 --------- --------- ----------- ----------- ---------- Earnings(loss) available for common shareholders.. $ 11,469 $ 14,123 $ 7,232 $ 40,758 $ (31,826) ========= ========= =========== =========== ========== Basic earnings(loss) per common share: Before extraordinary items........................ $ 1.08 $ 1.39 $ .75 $2.89 $(2.25) Extraordinary items............................... -- (.06) (.08) -- -- --------- --------- ----------- ----------- ---------- Basic earnings(loss) per common share............. $ 1.08 $ 1.33 $ .67 $2.89 $(2.25) ========= ========= =========== =========== ========== Weighted average common shares outstanding - basic............................ 10,618 10,618 10,837 14,082 14,154 ========= ========= =========== =========== ========== Diluted earnings(loss) per common share: Before extraordinary items........................ $ 1.08 $ 1.39 $ .74 $2.52 $(2.25) Extraordinary items............................... -- (.06) (.08) -- -- --------- --------- ----------- ----------- ---------- Diluted earnings(loss) per common share........... $ 1.08 $ 1.33 $ .66 $2.52 $(2.25) ========= ========= =========== =========== ========== Weighted average common shares outstanding - diluted.......................... 10,620 10,634 11,086 17,653 14,154 ========= ========= =========== =========== ========== Operating Data: Depreciation and amortization..................... $ 11,994 $ 12,775 $ 16,064 $ 54,021 $ 60,074 Capital expenditures.............................. 12,448 21,040 20,567 133,620 89,737 Preferred Stock cash dividends.................... -- -- -- 2,019 1,456 Common Stock cash dividends....................... 531 2,124 2,569 3,383 2,555 Balance Sheet Data: Working capital................................... $ 110,128 $ 150,506 $ 394,496 $ 447,933 $ 404,732 Property, plant and equipment, net................ 84,567 94,267 488,841 629,205 644,821 Total assets...................................... 324,710 375,714 1,410,186 1,654,154 1,683,389 Long-term debt, net of current portion............ 153,472 194,851 785,383 944,493 965,323 Redeemable convertible preferred stock............ -- -- 62,882 63,057 73,898 Shareholders' equity.............................. 87,990 100,004 196,707 237,933 207,389
(1) Amounts set forth in 1997 reflect the results of operations for a 53-week period, and the inclusion of Fieldcrest Cannon, Inc. from December 19, 1997. (2) Amounts set forth in 1998 reflect the inclusion of The Leshner Corporation from July 28, 1998. 18 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND --------------------------------------------------------------- RESULTS OF OPERATIONS --------------------- Overview Pillowtex manufactures and markets home textile furnishings for the bedroom, bathroom, and kitchen. Pillowtex operates a network of manufacturing, purchasing, and distribution facilities in the U.S. and Canada with approximately 14,000 employees. Mergers and Acquisitions On July 28, 1998, Pillowtex acquired the stock of The Leshner Corporation, a 91 year-old manufacturer of towels and terry-related products, for a purchase price of $41.8 million in cash (including acquisition costs). In connection with the acquisition, Pillowtex retired $32.5 million of outstanding Leshner debt. The acquisition was accounted for using the purchase method of accounting for business combinations. As such, the operating results of Leshner for the period from the acquisition date through January 2, 1999 have been included in fiscal year 1998 results. On December 19, 1997, Pillowtex acquired Fieldcrest Cannon, Inc. for a combination of cash and stock valued at approximately $409.0 million. Additionally, Pillowtex retired approximately $199.0 million of existing Fieldcrest Cannon long-term debt. This merger was accounted for using the purchase accounting method. Accordingly, the operating results of Fieldcrest Cannon for the period from December 19, 1997 through January 3, 1998 have been included in fiscal year 1997 results. Results of Operations The following table presents certain historical statements of operations data as a percentage of net sales for the periods indicated.
Year Ended ------------------------------------ January 3, January 2, January 1, 1998 1999 2000 ----- ----- ----- Net sales 100.0% 100.0% 100.0% Cost of goods sold................... 83.7 81.9 87.6 ----- ----- ----- Gross profit......................... 16.3 18.1 12.4 Selling, general and administrative expenses.......... 9.0 8.6 8.6 Restructuring charge................. 1.0 0.1 - ----- ----- ----- Earnings from operations............. 6.3 9.4 3.8 Interest expense..................... 3.9 4.8 5.6 ----- ----- ----- Earnings (loss) before income taxes and extraordinary items.......... 2.4% 4.6% (1.8)% ===== ===== =====
Fiscal Year 1999 Compared to Fiscal Year 1998 Net sales. Sales lagged behind the prior year in the first half of fiscal 1999 because of shipping delays caused by the installation of new production and warehousing computer systems. For fiscal 1999, net sales were $1.55 billion, an increase of $42.2 million, or 2.8%, compared to $1.51 billion in fiscal 1998. However, approximately $56.0 million of this increase is attributable to the inclusion of a full year of Leshner, which was acquired on July 28, 1998. Excluding Leshner sales, the resulting $13.8 million decrease in 1999 from 1998 is primarily the result of lower blanket sales caused by an unusually warm winter in North America and increased deductions from gross sales for promotional sales programs. 19 Gross profit. Gross profit margins dropped to 12.4% in fiscal 1999 from 18.1% in fiscal 1998. This decrease was primarily the result of higher cost of goods sold generated from unabsorbed overhead expenses related to the installation of new computer systems and equipment, Inventory write-downs, the idling of certain manufacturing equipment, and a change in the sales mix generated by Pillowtex's inventory reduction program, which reduced product margins. Pillowtex is reviewing all areas of its operations and taking aggressive action to improve operating results. Tighter management controls have been imposed on sales and marketing programs that adversely affected gross profit margins in 1999 and the Company is continuing to focus on reducing inventory and accounts receivable, as well as on controlling operating costs. Selling, general, and administrative. SG&A increased slightly to $131.3 million in fiscal year 1999, compared to $128.7 million in fiscal year 1998, but remained unchanged from last year as a percent of sales at approximately 8.6%. Impairment. During the third quarter of 1999, Pillowtex recorded a $2.0 million non-cash pre-tax charge to adjust the carrying value of the Opelika facility, which was closed in the first quarter of 1999, to its estimated fair value. Restructuring charge. There were no restructuring charges recorded in 1999. The $1.5 million recorded in 1998 related to the severance and other employee-related cost associated with the consolidation of blanket production into the Company's facilities in Swannanoa, North Carolina and Westminster, South Carolina. Interest expense. Interest expense increased by $15.0 million to $87.3 million in fiscal 1999, compared to $72.3 million in fiscal 1998. The increase is primarily the result of additional debt incurred in connection with the Leshner acquisition, capital expenditures for plant upgrades, higher working capital requirements, and the payment of waiver and amendment fees to Pillowtex's senior lenders. Pillowtex's average interest rate for the year was down slightly from 8.4% in 1998 to approximately 8.2% in 1999. Interest expense is expected to increase for fiscal year 2000, since amounts outstanding under the revolving credit facility and the Tranche A Term Loan will bear interest at a rate based upon the London Interbank Offered Rate plus 3.50% and the Tranche B Term Loan will bear interest on a similar basis to the Tranche A Term Loan, plus an additional margin of .50%. Preferred dividends. Under the terms of the Company's Series A Redeemable Convertible Preferred Stock, beginning January 1, 2000, the rate at which dividends will accrue increased to 10% as a result of the Company's earnings per share for the 1999 fiscal year falling below predetermined targets. The Company is also required to pay a one-time cumulative dividend in Series A Preferred Stock, from the issue date through December 31, 1999, equal to the difference between the dividends calculated at the 3% rate and dividends calculated at the 10% rate. Charges in the aggregate amount of $10.1 million were recorded in the third and fourth quarters of 1999. Fiscal Year 1998 Compared to Fiscal Year 1997 The discussion below makes reference to pro forma fiscal 1997 results. Pro forma amounts include historical results of operations for Fieldcrest Cannon from January 1, 1997 and Leshner from August 1, 1997. Lines of business exited or sold since the acquisitions are not included in the pro forma fiscal 1997 results of operations. Fiscal 1997 results include a 53-week period as compared to a 52-week period for fiscal 1998. Net sales. Net sales were $1.51 billion in fiscal 1998, representing an increase of $929.8 million, or 160.3%, as compared to $580.0 million in fiscal 1997. The $929.8 million increase in net sales is primarily due to the inclusion of a full year of operations for Fieldcrest Cannon and the inclusion of $34.6 million in Leshner net sales since its acquisition date. Net sales decreased $84.1 million, or 5.3%, as compared to 1997 pro forma results. Approximately $32.0 million of this decline is attributable to the 52-week period in fiscal year 1998 versus the 53-week period in fiscal year 1997. Other factors contributing to the decrease were lower sales of pillows and mattress pads and bath towels. Pillows and pads sales declined primarily due to lower volume in jacquard blankets and to decreases in Disney blanket sales due to the termination of the Disney license. Bath towel sales were down due to several customers adjusting inventory levels, thereby delaying orders. Additionally, two large customers delayed promotional events and new product rollouts until 1999 which were originally scheduled for 1998. These declines were offset by increases in fashion bedding sales, primarily the Royal Velvet sheet reintroduction program and initial rollouts of bed-in-a-bag programs. 20 Gross profit. Gross profit margins increased to 18.1% in fiscal year 1998, compared to 16.3% in fiscal year 1997. Increases in gross profit margins resulted from lower raw material costs and the realization of significant operating improvements, due in part to capital investment programs within the bath and decorative bedding businesses. Gross profit for fiscal year 1998 was $272.8 million, or 18.1% of net sales, up from pro forma results for the same period in fiscal year 1997 of $246.8 million, or 15.5% of net sales. The increase is attributable to an improving mix of business in bath towels and the lower material costs and operating efficiencies discussed above. Selling, general, and administrative. SG&A increased $76.6 million to $128.7 million in fiscal year 1998, compared to $52.1 million in fiscal year 1997, and as a percentage of net sales, decreased to 8.6% in fiscal year 1998 from 9.0% in fiscal year 1997. The increase in total SG&A expenses is primarily due to a full year of expenses for Fieldcrest Cannon and the inclusion of Leshner SG&A expenses since the acquisition date. SG&A expenses of $128.7 million in fiscal year 1998 decreased $33.2 million compared to fiscal year 1997 pro forma amounts. This decline is primarily attributable to the reductions in personnel at Fieldcrest Cannon and other cost control programs begun in December 1997. Restructuring charge. The $1.5 million restructuring charge was related to severance and other employee-related costs associated with the consolidation of blanket production into the Company's facilities in Swannanoa, North Carolina and Westminster, South Carolina. Interest expense. Interest expense increased by $49.8 million to $72.3 million in fiscal year 1998, compared to $22.5 million in fiscal year 1997. The increase was primarily due to the additional debt incurred as a result of the Fieldcrest Cannon merger and the purchase of Leshner. Average interest rates for fiscal year 1998 declined slightly from fiscal year 1997. Liquidity and Capital Resources Senior Debt Facilities. In December 1997, in connection with the Fieldcrest Cannon acquisition, Pillowtex entered into new senior secured revolving credit and term loan facilities with a group of financial and institutional investors for which Bank of America acts as the agent. These facilities consisted of a $350.0 million revolving credit facility and a $250.0 million term loan facility. The term loan facility consisted of a $125.0 million Tranche A Term Loan and a $125.0 million Tranche B Term Loan. Effective July 28, 1998, Pillowtex amended these facilities by increasing the Tranche B Term Loan to $225.0 million. The increase occurred in conjunction with the acquisition of Leshner, allowing Pillowtex to fund the transaction and reduce borrowings under the revolving credit facility. Effective March 12, 1999, the revolving credit facility was amended to permit Pillowtex to use for working capital one-half of a $61.0 million portion of the facility held as contingency reserve for cash payments required upon conversion of the Fieldcrest Cannon 6% Convertible Subordinated Debentures due 2012, thereby increasing availability under that facility. Effective October 1, 1999, the revolving credit facility was further amended to permit Pillowtex to use the other half of the contingency reserve for working capital, thereby increasing availability under that facility. At the end of the third and fourth quarters of its 1999 fiscal year, Pillowtex was not in compliance with certain financial covenants under its senior debt facilities. The Company obtained a series of temporary waivers of this non-compliance. Effective as of December 7, 1999, the Company agreed to certain amendments to the senior debt facilities, principally related to cash management, adjustments to restrictive covenants, and borrowings under, and uses of proceeds from, the revolving credit facility. Effective as of March 31, 2000, the Company obtained a permanent waiver of its prior non-compliance with financial covenants and the senior debt facilities were further amended to shorten terms to maturity to eliminate the contingency reserve requirement referred to above, to increase the applicable interest rate margins (subject to reduction if the Company's earnings before interest, taxes, depreciation and amortization (EBITDA) exceeds a specified level for the 2000 fiscal year), to add a covenant requiring that EBITDA must exceed specified levels for future fiscal periods and to eliminate all other financial covenants, to modify certain restrictive covenants, to limit borrowings under the revolving credit facility based on a formula tied to 45% of eligible inventory plus 80% of eligible accounts receivable, and to provide for a series of reductions in the commitment under the revolving credit facility. As of March 24, 2000, amounts outstanding under the revolver, as amended on March 31, 2000, would have been $306.8 million and would not have been limited under the borrowing base calculation. The revolving credit facility includes $55.0 million of availability for letters of credit. At January 1, 2000, $35.2 million of letters of credit were outstanding. 21 As amended, amounts outstanding under the revolving credit facility and the Tranche A Term Loan currently bear interest at a rate based upon the London Interbank Offered Rate plus 3.50% (9.63% at March 24, 2000). The Tranche B Term Loan bears interest on a similar basis to the Tranche A Term Loan, plus an additional margin of .50%. The weighted average annual interest rate on outstanding borrowings under the various senior credit facilities for 1999 was 7.7%. The senior debt facilities now expire on January 31, 2002. The senior debt facilities are guaranteed by each of the domestic subsidiaries of Pillowtex, and are secured by first priority liens on all of the capital stock of each domestic subsidiary of Pillowtex and by 65% of the capital stock of Pillowtex's foreign subsidiaries. Pillowtex has also granted a first priority security interest in all of its presently unencumbered and future domestic assets and properties, and all presently unencumbered and future domestic assets and properties of each of its subsidiaries. The term loan facility is subject to mandatory prepayment from all net cash proceeds of asset sales and debt issuances of Pillowtex (except as specifically provided), 50% of the net cash proceeds of equity issuances by Pillowtex or any of its subsidiaries, and 75% of Excess Cash Flow (as defined). All mandatory prepayments will be applied pro rata between the Tranche A Term Loan and the Tranche B Term Loan to reduce the remaining installments of principal. The senior debt facilities contain a number of negative covenants, which covenants restrict, among other things, Pillowtex's ability to incur additional debt, pay dividends or make other restricted payments, sell stock of subsidiaries, grant liens, make capital expenditures, engage in transactions with affiliates, make loans, advances and investments, dispose of assets, effect mergers, consolidations and dissolutions, and make certain changes in its business. See "Risk Factors - Pillowtex Faces Restrictions Imposed By Terms Of Its Debt" included in Item 1 above. A breach of any of the covenants contained in the senior debt facilities could result in a default under the terms of the facilities. Upon the occurrence of an event of default: the senior lenders would not be obligated to make additional advances under the revolving credit facility; the senior lenders would be entitled to declare all amounts outstanding under the senior debt facilities, including accrued interest or other obligations, to be immediately due and payable; the senior lenders would have the rights to block payment on substantially all of Pillowtex's other long-term debt; and the senior lenders would be entitled to proceed against the collateral granted to them to secure the senior debt. In these circumstances, cross defaults could occur making substantially all of Pillowtex's other long-term debt due. If any senior debt were to be accelerated, the Company cannot be certain that its assets would be sufficient to repay in full that debt and its other debt. See "Risk Factors - Pillowtex Faces Restrictions Imposed By Terms Of Its Debt" included in Item 1 above. As a result of the covenants described above, Pillowtex's ability to respond to changing business and economic conditions and to secure additional financing, if needed, is significantly restricted. See "Risk Factors - Pillowtex Has Significant Leverage And Liquidity Concerns" included in Item 1 above. Overline Facility. In May 1999, Pillowtex entered into a $20.0 million senior unsecured revolving credit facility (overline facility) in order to obtain additional working capital availability. On July 27, 1999, this facility was amended to increase the amount of funds available to $35.0 million. At the end of the third and fourth quarters of its 1999 fiscal year, Pillowtex was not in compliance with certain financial covenants under this facility, the covenants of which are established by reference to the senior debt facilities described above. The Company obtained a series of temporary waivers of this non-compliance and extensions of the maturity date. Effective as of December 7, 1999, the Company agreed to certain amendments to this facility, resulting in the facility being secured by the assets securing the senior debt facilities described above. Effective as of March 31, 2000, the Company obtained a permanent waiver of its prior non-compliance and the facility was amended to lengthen its term to maturity, to impose an amortization schedule for the repayment of principal, and to increase the applicable interest rate margins (subject to reduction if the Company's EBITDA exceeds a specified level for the 2000 fiscal year). This facility is guaranteed on a senior basis by Pillowtex's domestic subsidiaries. Pillowtex is currently required to pay interest on any amounts borrowed under the facility at a rate which is based upon the London Interbank Offered Rate plus 4.5% or the base rate plus 3.0%, at Pillowtex's option. This facility matures upon termination by Pillowtex at any time or otherwise at the earliest of: a) any increase in the commitment under the senior debt facilities described above, the issuance of any capital stock by Pillowtex or its domestic subsidiaries, or other specified events; or b) January 31, 2002. Senior Subordinated Debt. In connection with the Fieldcrest Cannon merger, Pillowtex issued $185.0 million of 9% Senior Subordinated Notes due 2007 in a private offering. In March 1998, Pillowtex completed an offer to exchange the unregistered 9% Notes previously sold in the private offering for an equal aggregate principal amount of registered 9% Notes. The 9% Notes are due December 15, 2007, with interest payable semiannually commencing June 15, 1998. Pillowtex may at its option redeem the 9% Notes, in whole or in part, on or after December 15, 2002 at a redemption price of 104.5%, which declines 1.5% annually through December 15, 2005 to 100%. The 9% Notes are general unsecured obligations of Pillowtex, are subordinated in right of payment to all existing and future senior indebtedness, and rank pari passu to the 10% Notes described below. 22 On November 12, 1996, Pillowtex issued the 10% Senior Subordinated Notes due 2006 in a private offering. In March 1997, Pillowtex completed an offer to exchange the unregistered 10% Notes previously sold in the private offering for an equal aggregate principal amount of registered 10% Notes. The 10% Notes are due November 15, 2006, with interest payable semiannually commencing May 15, 1997. Pillowtex used the proceeds from such offering to retire the outstanding indebtedness under Pillowtex's previously existing term loan, to finance the acquisition of certain assets of Fieldcrest Cannon's blanket operations, to temporarily reduce indebtedness under the previous revolving credit facility, and to acquire a warehouse facility. Pillowtex may, at its option, redeem the 10% Notes, in whole or in part, on or after November 15, 2001 at a redemption price of 105.0%, which declines 1.667% annually through November 15, 2004 to 100%. The 10% Notes are general unsecured obligations of Pillowtex, and are subordinated in right of payment to all existing and future senior indebtedness. The 9% Notes and the 10% Notes are unconditionally guaranteed on a senior subordinated basis by each of the existing and future domestic subsidiaries of Pillowtex and each other subsidiary of Pillowtex that guarantees Pillowtex's obligations under the senior debt facilities described above. The guarantees are subordinated in right of payment to all existing and future senior indebtedness of the relevant guarantor. Upon a change in control, Pillowtex will be required to make an offer to repurchase all outstanding 9% Notes and 10% Notes at 101% of the principal amount thereof, plus accrued and unpaid interest thereon, if any, to the date of repurchase. Fieldcrest Cannon Convertible Debentures. As a result of Pillowtex's acquisition of Fieldcrest Cannon, the outstanding 6% Convertible Subordinated Debentures due 2012 of Fieldcrest Cannon are convertible, at the option of the holders, into a combination of cash and Pillowtex's Common Stock. During the fourth quarter of 1999, Pillowtex notified the holders of the 6% Convertible Debentures that it was not practicable or prudent for payments to be made in respect of the conversion of the 6% Convertible Debentures and advised holders that had given notice of conversion and surrendered their 6% Convertible Debentures that they could rescind their notice of conversion, return to Pillowtex any Pillowtex Common Stock that had been issued to them and have their 6% Convertible Debentures reinstated. As of March 24, 2000, the cash component due in respect of the 6% Convertible Debentures that had been surrendered without subsequent rescission was $9.1 million. In addition, as of March 24, 2000, $96.5 million aggregate principal amount of the 6% Convertible Debentures remained outstanding. If all such outstanding 6% Convertible Debentures were converted at such date, the resulting cash component to be paid to the holders of the 6% Convertible Debentures would have been approximately $61.0 million (classified as a current liability at January 1, 2000). Pillowtex is currently prohibited under the terms of its senior subordinated debt from making payments in respect of the 6% Convertible Debentures except for interest and at maturity or pursuant to sinking fund obligations. Pillowtex has initiated discussions with certain holders of its 6% Convertible Debentures regarding a potential restructuring of the 6% Convertible Debentures. Currently any comprehensive restructuring of the 6% Convertible Debentures involving cash payments (other than pursuant to sinking fund obligations) would likely require the consent of the holders of Pillowtex's senior subordinated debt. The Company cannot guarantee that it will be able to restructure the 6% Convertible Debentures nor can it predict the terms of any potential restructuring of that debt. See "Risk Factors - Pillowtex Faces Restrictions Imposed By Terms Of Its Debt." Swap Agreements. Pillowtex enters into interest rate swap agreements to modify the interest characteristics of portions of its outstanding debt. These agreements entitle the Company's to receive or pay to the counterparty (a major bank), on a quarterly basis, the amounts, if any, by which the Company's interest payments covered by swap agreements differ from those of the counterparty. These amounts are recorded as adjustments to interest expense. The fair value of the swap agreements and changes in fair value as a result of changes in market interest rates are not recognized in the consolidated financial statements. As of January 2, 1999, Pillowtex had approximately $345.0 million of notional amounts covered under interest rate swap agreements whereby Pillowtex exchanged floating rates for fixed rates. The weighted average fixed and floating rates were 4.70% and 5.26%, respectively. As of January 1, 2000, Pillowtex had approximately $345.0 million of notional amounts covered under interest rate swap agreements whereby Pillowtex exchanged floating rates for fixed rates. The weighted average fixed and floating rates were 4.70% and 5.96%, respectively. The fair values of the swaps at January 2, 1999 and January 1, 2000 were $2.1 million and $4.0 million, respectively in favor of Pillowtex. 23 Adequacy of Capital Resources. Cash flow from operations for fiscal year 1999 decreased approximately $44 million from the prior year due primarily to the comparative lower earnings of the Company. Based upon current and anticipated levels of operations, and aggressive efforts to reduce inventories and accounts receivable, Pillowtex anticipates that its cash flow from operations, together with amounts available under its revolving credit facility, will be adequate to meet its anticipated cash requirements in the foreseeable future (assuming no significant cash payments are required to be made in respect of the 6% Convertible Debentures other than scheduled interest payments and payments related to satisfaction of the sinking fund obligations). In the event that cash flows and available borrowings under the revolving credit facility are not sufficient to meet future cash requirements, Pillowtex may be required to reduce planned capital expenditures or seek additional financing. Pillowtex can provide no assurances that reductions in planned capital expenditures would be sufficient to cover shortfalls in available cash or that additional financing would be available or, if available, offered on terms acceptable to the Company. New Accounting Standard In June 1998, Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative Instruments and Hedging Activities, was issued. This statement establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. The provisions of SFAS No. 133, as amended by SFAS 137, are effective for fiscal years beginning after June 15, 2000, although early adoption is allowed. Pillowtex has not determined the financial impact of adopting this SFAS and has not determined if it will adopt its provisions prior to its effective date. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ---------------------------------------------------------- Pillowtex is exposed to market risk from changes in interest rates on debt and foreign currency exchange rates. See additional disclosures about interest rate swap agreements in "Management's Discussion and Analysis of Financial Condition and Results of Operations" above. The Company's market risk sensitive instruments are not entered into for trading purposes. Pillowtex's exposure to interest rate risk consists of floating rate debt based on the London Interbank Offered Rate plus an adjustable margin. To lower or limit overall borrowing costs, the Company enters into interest rate swap agreements to modify the interest characteristics of portions of its outstanding debt. The interest rate swap agreements generally have one to two year terms. The agreements entitle the Company to receive or pay to the counterparty (a major bank), on a quarterly basis, the amounts, if any, by which Pillowtex's interest payments covered by swap agreements differ from those of the counterparty. These amounts are recorded as adjustments to interest expense. The fair value of the swap agreements and changes in fair value resulting from changes in market interest rates are not recognized in the consolidated financial statements. The annual impact on the Company's results of operations of a 100 basis point interest rate change on the January 1, 2000 outstanding balance of the variable rate debt would be approximately $6.4 million irrespective of any swaps associated with this debt. This same calculation for fiscal year 1998 was $5.3 million. Pillowtex's exposure to fluctuations in foreign currency exchange rates is due primarily to a foreign subsidiary domiciled in Canada. Pillowtex's Canadian subsidiary uses the Canadian dollar as its functional currency. Pillowtex generally does not use financial derivative instruments to hedge foreign currency exchange rate risks. The Canadian subsidiary is not material to Pillowtex's consolidated results of operations; therefore, the impact of a 10% change in the exchange rate at January 1, 2000 would not have a significant impact on the Company's results of operations or financial position. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ------------------------------------------- The financial statements are set forth herein commencing on page F-1. Schedule II to the financial statements is set forth herein on page S-1. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND --------------------------------------------------------------- FINANCIAL DISCLOSURE -------------------- Not applicable. 24 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT ---------------------------------------------- The information required by this Item 10 is set forth at pages 5 through 7 of Pillowtex's Proxy Statement for its 2000 Annual Meeting of Shareholders (the "2000 Proxy Statement") under the captions "Board of Directors - Election of Directors" and "Stock Ownership of Management and Certain Beneficial Owners -- Section 16(a) Beneficial Ownership Reporting Compliance" and at page 9 of the 2000 Proxy Statement under the caption "Executive Officers," and incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION ---------------------- The information required by this Item 11 is set forth at page 8 and pages 10 through 21 of the 2000 Proxy Statement under the captions "Information Concerning the Board of Directors --Compensation of Directors" and "Executive Compensation" (excluding the information set forth at pages 10 through 13 under the caption "Executive Compensation --Board Compensation Committee Report on Executive Compensation") and incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT -------------------------------------------------------------- The information required by this Item 12 is set forth at pages 3 through 5 of the 2000 Proxy Statement under the caption "Stock Ownership of Management and Certain Beneficial Owners" and incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ---------------------------------------------- The information required by this Item 13 is set forth at pages 19 through 21 of the 2000 Proxy Statement under the captions "Executive Compensation -- Employment Agreements" and incorporated herein by reference. 25 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K ---------------------------------------------------------------- (a) The following documents are filed as part of this Report:
Page 1. Consolidated Financial Statements: --------------------------------- Independent Auditors' Report......................................... F-2 Consolidated Balance Sheets as of January 2, 1999 and January 1, 2000...................................................... F-3 Consolidated Statements of Operations for the years ended January 3, 1998, January 2, 1999 and January 1, 2000................. F-4 Consolidated Statements of Shareholders' Equity for the years ended January 3, 1998, January 2, 1999 and January 1, 2000..... F-5 Consolidated Statements of Cash Flows for the years ended January 3, 1998, January 2, 1999 and January 1, 2000................. F-6 Notes to Consolidated Financial Statements........................... F-7 2. Financial Statement Schedule. The following financial statement ---------------------------- schedule of Pillowtex for the fiscal years ended January 3, 1998, January 2, 1999 and January 1, 2000 is filed as part of this Report and should be read in conjunction with the Consolidated Financial Statements of Pillowtex: Schedule II - Valuation and Qualifying Accounts.................... S-1 3. Index to Exhibits -----------------
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - ------- ---------------------- 2.1 Agreement and Plan of Merger, dated as of September 10, 1997, by and among Pillowtex Corporation, Pegasus Merger Sub, Inc., and Fieldcrest Cannon, Inc. (incorporated by reference to Appendix A to the Joint Proxy Statement/Prospectus forming a part of Pillowtex Corporation's Registration Statement on Form S-4 (No. 333-36663)) 2.2 Amendment to Agreement and Plan of Merger, dated as of September 23, 1997, by and among Pillowtex Corporation, Pegasus Merger Sub, Inc., and Fieldcrest Cannon, Inc. (incorporated by reference to Appendix A to the Joint Proxy Statement/Prospectus forming a part of Pillowtex Corporation's Registration Statement on Form S-4 (No. 333-36663)) 3.1 Restated Articles of Incorporation of Pillowtex Corporation, as amended (incorporated by reference to Exhibit 3.1 to Pillowtex Corporation's Quarterly Report on Form 10-Q for the quarter ended July 3, 1999) 3.2 Amended and Restated Bylaws of Pillowtex Corporation, as amended (incorporated by reference to Exhibit 3.2 to Pillowtex Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1994) 4.1 Specimen of Certificate evidencing Common Stock (incorporated by reference to Exhibit 4.2 to Pillowtex Corporation's Annual Report on Form 10-K for the fiscal year ended December 28, 1996) 26 4.2 Specimen of Certificate evidencing Series A Redeemable Convertible Preferred Stock (incorporated by reference to Exhibit 4.2 to Pillowtex Corporation's Annual Report on Form 10-K for the fiscal year ended January 3, 1998) 4.3 Indenture, dated November 12, 1996, among Pillowtex Corporation, the guarantors listed on the signature page thereto, and Bank One, Columbus, N.A., as Trustee (incorporated by reference to Exhibit 4.1 to Pillowtex Corporation's Registration Statement on Form S-4 (No. 333-17731)) 4.4 Supplemental Indenture, dated as of December 19, 1997, among Pillowtex Corporation, the guarantors listed on the signature page thereto, and Bank One, N.A. (formerly known as Bank One, Columbus, N.A.), as Trustee 4.5 Second Supplemental Indenture, dated as of July 28, 1998, among Pillowtex Corporation, the guarantors listed on the signature page thereto, and Bank One, N.A. (formerly known as Bank One, Columbus, N.A.), as Trustee 4.6 Resignation, Appointment and Acceptance Agreement, dated as of January 19, 2000, by and among Bank One, N.A. (formerly known as Bank One, Columbus, N.A.), as prior Trustee, U.S. Bank National Association, as successor Trustee, and Pillowtex Corporation, as Issuer 4.7 Indenture, dated as of December 18, 1997, among Pillowtex Corporation, the guarantors listed on the signature page thereto, and Norwest Bank Minnesota, National Association, as Trustee (incorporated by reference to Exhibit 4.1 to Pillowtex Corporation's Current Report on Form 8-K dated December 19, 1997, as amended by a Form 8-K/A (Amendment No. 1)) 4.8 Supplemental Indenture, dated as of December 19, 1997, among Pillowtex Corporation, the guarantors listed on the signature page thereto, and Norwest Bank Minnesota, National Association, as Trustee (incorporated by reference to Exhibit 4.2 to Pillowtex Corporation's Current Report on Form 8-K dated December 19, 1997, as amended by a Form 8-K/A (Amendment No. 1)) 4.9 Second Supplemental Indenture, dated as of July 28, 1998, among Pillowtex Corporation, the guarantors listed on the signature page thereto, and Norwest Bank Minnesota, National Association, as Trustee (incorporated by reference to Exhibit 4.1 to Pillowtex Corporation's Quarterly Report on Form 10-Q for the quarter ended July 4, 1998) 10.1 Amended and Restated Credit Agreement, dated as of December 19, 1997, among Pillowtex Corporation, certain Lenders named therein, and NationsBank of Texas, N.A., as Administrative Agent (incorporated by reference to Exhibit 10.1 to Pillowtex Corporation's Current Report on Form 8-K dated December 19, 1997, as amended by a Form 8-K/A (Amendment No. 1)) 10.2 First Amendment to Amended and Restated Credit Agreement, dated as of June 19, 1998, among Pillowtex Corporation, certain Lenders named therein, and NationsBank of Texas, N.A., as Administrative Agent (incorporated by reference to Exhibit 10.3 to Pillowtex Corporation's Quarterly Report on Form 10-Q for the quarter ended July 4, 1998) 10.3 Second Amendment to Amended and Restated Credit Agreement, dated as of July 28, 1998, among Pillowtex Corporation, certain Lenders named therein, and NationsBank of Texas, N.A., as Administrative Agent (incorporated by reference to Exhibit 10.4 to Pillowtex Corporation's Quarterly Report on Form 10-Q for the quarter ended July 4, 1998) 10.4 Third Amendment to Amended and Restated Credit Agreement, dated as of March 12, 1999, among Pillowtex Corporation, certain Lenders named therein, and NationsBank of Texas, N.A., as Administrative Agent (incorporated by reference to Exhibit 10.4 to Pillowtex Corporation's Annual Report on Form 10-K for the fiscal year ended January 2, 1999) 10.5 Fourth Amendment to Amended and Restated Credit Agreement, dated as of October 8, 1999, among Pillowtex Corporation, certain Lenders named therein, and Bank of America N.A. (formerly NationsBank, N.A.), as Administrative Agent (incorporated by reference to Exhibit 10.3 to Pillowtex Corporation's Quarterly Report on Form 10-Q for the Quarterly period ended October 2, 1999) 27 10.6 Waiver and Fifth Amendment to Amended and Restated Credit Agreement, dated as of December 9, 1999, to be effective as of December 7, 1999, among Pillowtex Corporation, certain Lenders named therein, and Bank of America N.A. (formerly NationsBank, N.A.), as Administrative Agent (incorporated by reference to Exhibit 10.2 to Pillowtex Corporation's Current Report on Form 8-K dated December 7, 1999) 10.7 Sixth Amendment and Waiver to Amended and Restated Credit Agreement, dated as of February 15, 2000, among Pillowtex Corporation, certain Lenders named therein, and Bank of America N.A. (formerly NationsBank, N.A.), as Administrative Agent 10.8 Waiver and Seventh Amendment to Amended and Restated Credit Agreement, dated as of March 31, 2000, among Pillowtex Corporation, certain Lenders named therein, and Bank of America N.A. (formerly NationsBank, N.A.), as Administrative Agent 10.9 Term Credit Agreement, dated as of December 19, 1997, among Pillowtex Corporation, certain Lenders named herein, and NationsBank of Texas, N.A., as Administrative Agent (incorporated by reference to Exhibit 10.2 to Pillowtex Corporation's Current Report on Form 8-K dated December 19, 1997, as amended by a Form 8-K/A (Amendment No. 1)) 10.10 First Amendment to Term Credit Agreement, dated as of June 19, 1998, among Pillowtex Corporation, certain Lenders named therein, and NationsBank of Texas, N.A., as Administrative Agent (incorporated by reference to Exhibit 10.5 to Pillowtex Corporation's Quarterly Report on Form 10-Q for the quarter ended July 4, 1998) 10.11 Second Amendment to Term Credit Agreement, dated as of July 28, 1998, among Pillowtex Corporation, certain Lenders named therein, and NationsBank of Texas, N.A., as Administrative Agent (incorporated by reference to Exhibit 10.6 to Pillowtex Corporation's Quarterly Report on Form 10-Q for the quarter ended July 4, 1998) 10.12 Third Amendment to Term Credit Agreement, dated as of May 5, 1999, among Pillowtex Corporation, certain Lenders named therein, and Bank of America N.A. (formerly NationsBank, N.A.), as Administrative Agent (incorporated by reference to Exhibit 10.1 to Pillowtex Corporation's Quarterly Report on Form 10-Q for the Quarterly period ended October 2, 1999) 10.13 Fourth Amendment to Term Credit Agreement, dated as of October 8, 1999, among Pillowtex Corporation, certain Lenders named therein, and Bank of America N.A. (formerly NationsBank, N.A.), as Administrative Agent (incorporated by reference to Exhibit 10.2 to Pillowtex Corporation's Quarterly Report on Form 10-Q for the Quarterly period ended October 2, 1999) 10.14 Waiver and Fifth Amendment to Term Credit Agreement, dated as of December 9, 1999, to be effective as of December 7, 1999, among Pillowtex Corporation, certain Lenders named therein, and Bank of America N.A. (formerly NationsBank, N.A.), as Administrative Agent (incorporated by reference to Exhibit 10.1 to Pillowtex Corporation's Current Report on Form 8-K dated December 7, 1999) 10.15 Sixth Amendment and Waiver to Term Credit Agreement, dated as of February 15, 2000 among Pillowtex Corporation, certain Lenders named therein, and Bank of America N.A. (formerly NationsBank, N.A.), as Administrative Agent 10.16 Waiver and Seventh Amendment to Term Credit Agreement, dated as of March 31, 2000 among Pillowtex Corporation, certain Lenders named therein, and Bank of America N.A. (formerly NationsBank, N.A.), as Administrative Agent 10.17 Promissory Note dated May 4, 1999 by and between NationsBank, N.A., as Lender, and Pillowtex Corporation, as Borrower, in the amount of $20,000,000 (incorporated by reference to Exhibit 10.1 to Pillowtex Corporation's Quarterly Report on Form 10-Q for the Quarterly period ended July 3, 1999) 28 10.18 First Amendment, dated July 27, 1999, to the Promissory Note dated May 4, 1999 by and between Bank of America N.A. (formerly NationsBank, N.A.), as Lender, and Pillowtex Corporation, as Borrower (incorporated by reference to Exhibit 10.2 to Pillowtex Corporation's Quarterly Report on Form 10-Q for the Quarterly period ended July 3, 1999) 10.19 Third Amendment, dated as of December 7, 1999, to the Promissory Note dated May 4, 1999 by and between Bank of America N.A. (formerly NationsBank, N.A.), as Lender, and Pillowtex Corporation, as Borrower (incorporated by reference to Exhibit 10.3 to Pillowtex Corporation's Current Report on Form 8-K dated December 7, 1999) 10.20 Fourth Amendment, dated as of February 15, 2000, to the Promissory Note dated May 4, 1999 by and between Bank of America N.A. (formerly NationsBank, N.A.), as Lender, and Pillowtex Corporation, as Borrower 10.21 Fifth amendment dated as of March 31, 2000 to the Promissory Note dated May 4, 1999 by and between Bank of America N.A. (formerly NationsBank, N.A.), as Lender, and Pillowtex Corporation, as Borrower 10.22 Consent dated as of December 7, 1999, by and between Bank of America N.A. (formerly NationsBank, N.A.), as Lender, and Pillowtex Corporation, as Borrower (incorporated by reference to Exhibit 10.4 to Pillowtex Corporation's Current Report on Form 8-K dated December 7, 1999) 10.23 Consent dated as of February 15, 2000, by and between Bank of America N.A. (formerly NationsBank, N.A.), as Lender, and Pillowtex Corporation, as Borrower 10.24 Consent dated as of March 31, 2000, by and between Bank of America N.A. (formerly NationsBank, N.A.), as Lender, and Pillowtex Corporation, as Borrower 10.25 Preferred Stock Purchase Agreement, dated as of September 10, 1997, by and among Pillowtex Corporation, Apollo Investment Fund III, L.P., Apollo Overseas Partners III, L.P., and Apollo (UK) Partners III, L.P. (incorporated by reference to Exhibit 10.2 to Pillowtex Corporation's Current Report on Form 8-K dated September 10, 1997, as amended by a Form 8-K/A (Amendment No. 1)) 10.26 Amendment No. 1 to the Preferred Stock Purchase Agreement, dated as of November 21, 1997, by and among Pillowtex Corporation, Apollo Investment Fund III, L.P., Apollo Overseas Partners III, L.P., and Apollo (UK) Partners III, L.P. (incorporated by reference to Exhibit 10.1 to Pillowtex Corporation's Current Report on Form 8-K dated November 21, 1997) 10.27 Purchase Agreement, dated December 15, 1997, among Pillowtex Corporation, the guarantors listed on the signature page thereto, and NationsBanc Montgomery Securities, Inc. and Bear, Stearns & Co. Inc. (incorporated by reference to Exhibit 10.5 to Pillowtex Corporation's Current Report on Form 8-K dated December 19, 1997, as amended by a Form 8-K/A (Amendment No. 1)) 10.28 Purchase Agreement Supplement, dated December 19, 1997, among Pillowtex Corporation, the guarantors listed on the signature page thereto, and NationsBank Montgomery Securities, Inc. and Bear, Stearns & Co. Inc. (incorporated by reference to Exhibit 10.6 to Pillowtex Corporation's Current Report on Form 8-K dated December 19, 1997, as amended by a Form 8-K/A (Amendment No. 1)) 10.29 Registration Rights Agreement, dated as of December 18, 1997, among Pillowtex Corporation, the guarantors listed on the signature page thereto, and NationsBanc Montgomery Securities, Inc. and Bear, Stearns & Co. Inc. (incorporated by reference to Exhibit 10.7 to Pillowtex Corporation's Current Report on Form 8-K dated December 19, 1997, as amended by a Form 8-K/A (Amendment No. 1)) 29 10.30 Registration Rights Agreement Supplement, dated as of December 19, 1997, among Pillowtex Corporation, the guarantors listed on the signature page thereto, and NationsBank Montgomery Securities, Inc. and Bear, Stearns & Co. Inc. (incorporated by reference to Exhibit 10.8 to Pillowtex Corporation's Current Report on Form 8-K dated December 19, 1997, as amended by a Form 8-K/A (Amendment No. 1)) 10.31 Registration Rights Agreement, dated as of November 12, 1996, by and among Pillowtex Corporation, each domestic subsidiary of Pillowtex Corporation, and NationsBanc Capital Markets, Inc. and Merrill Lynch, Pierce, Fenner & Smith, Incorporated (incorporated by reference to Exhibit 10.59 to Pillowtex Corporation's Registration Statement on Form S-4 (No. 333-17731)) 10.32 Sublicense Agreement, dated as of July 1, 1998, between Pillowtex Corporation and the Ralph Lauren Home Collection (incorporated by reference to Exhibit 10.1 to Pillowtex Corporation's Quarterly Report on Form 10-Q for the quarter ended July 4, 1998) 10.33 Lease Agreement, dated as of September 18, 1995, between Pillowtex Corporation and Sanwa Business Credit Corp. (incorporated by reference to Exhibit 10.4 to Pillowtex Corporation's Quarterly Report on Form 10-Q, as amended, for the quarter ended September 30, 1995) 10.34 Lease, dated as of November 26, 1996, by and among Torfeaco Industries Limited and Standa Investment Limited (incorporated by reference to Exhibit 10.14 to Pillowtex Corporation's Annual Report on Form 10-K for the fiscal year ended January 3, 1998) 10.35 Indemnity Agreement, dated as of November 26, 1996, between Torfeaco Industries Limited and Standa Investment Limited (incorporated by reference to Exhibit 10.15 to Pillowtex Corporation's Annual Report on Form 10-K for the fiscal year ended January 3, 1998) 10.36 Industrial Lease, dated as of November 23, 1992, between Angel and Jean Echevarria and Pillowtex Corporation (incorporated by reference to Exhibit 10.21 to Pillowtex Corporation's Registration Statement on Form S-1 (No. 33-57314)) 10.37 Second Amendment to Lease entered into in September 1997 between Angel and Jean Echevarria and Pillowtex Corporation (incorporated by reference to Exhibit 10.17 to Pillowtex Corporation's Annual Report on Form 10-K for the fiscal year ended January 3, 1998) 10.38 Form of Lease, dated as of October 12, 1988, between Jimmie D. Smith, Jr. and Pillowtex Corporation (incorporated by reference to Exhibit 10.23 to Pillowtex Corporation's Registration Statement on Form S-1 (No. 33-57314)) 10.39 Agreement for Modification and Extension of Lease between Jimmie D. Smith, Jr. and Pillowtex Corporation (incorporated by reference to Exhibit 10.19 to Pillowtex Corporation's Annual Report on Form 10-K for the fiscal year ended January 3, 1998) 10.40 Form of Equipment Leasing Agreement between BTM Financial & Leasing Corporation B-4 and Beacon Manufacturing Company, Manetta Home Fashions, Inc., and Tennessee Woolen Mills, Inc., dated as of June 14, 1996 (incorporated by reference to Exhibit 10 to Pillowtex Corporation's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996) 10.41* Employment Agreement dated as of January 1, 1993, between Pillowtex Corporation and Charles M. Hansen, Jr. (incorporated by reference to Exhibit 10.2 to Pillowtex Corporation's Registration Statement on Form S-1 (No. 33-57314)) 10.42* Amendment to Employment Agreement, dated as of July 26, 1993, between Pillowtex Corporation and Charles M. Hansen, Jr. (incorporated by reference to Exhibit 10.26 to Pillowtex Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1993) 10.43* Amendment to Employment Agreement, dated as of January 20, 1998, between Pillowtex Corporation and Charles M. Hansen, Jr. (incorporated by reference to Exhibit 10.23 to Pillowtex Corporation's Annual Report on Form 10-K for the fiscal year ended January 3, 1998) 30 10.44* Form of Confidentiality and Noncompetition Agreement (incorporated by reference to Exhibit 10.27 to Pillowtex Corporation's Registration Statement on Form-S-1 (No. 33-57314)) 10.45* Form of Director Indemnification Agreement (incorporated by reference to Exhibit 10.36 to Pillowtex Corporation's Registration Statement on Form S-1 (No. 33-57314)) 10.46* Split Dollar Life Insurance Agreement between Pillowtex Corporation and Charles M. Hansen, Jr. dated July 26, 1993 (incorporated by reference to Exhibit 10.32 to Pillowtex Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1993) 10.47* Pillowtex Corporation 1993 Stock Option Plan (incorporated by reference to Appendix A to Pillowtex Corporation's Proxy Statement for its Annual Meeting of Shareholders held on May 8, 1997) 10.48* Form of Employment Agreement entered into between Pillowtex Management Services Company and Scott E. Shimizu (incorporated by reference to Exhibit 10.28 to Pillowtex Corporation's Annual Report on Form 10-K for the fiscal year ended January 3, 1998) 10.49* Form of Employment Agreement entered into between Fieldcrest Cannon, Inc. and A. Allen Oakley, dated October 9, 1998 (incorporated by reference to Exhibit 10.34 to Pillowtex Corporation's Annual Report on Form 10-K for the fiscal year ended January 2, 1999) 10.50* Form of Employment Agreement dated as of January 1, 1998, between Pillowtex Management Services Company and Kevin M. Finlay (incorporated by reference to Exhibit 10.29 to Pillowtex Corporation's Annual Report on Form 10-K for the fiscal year ended January 3, 1998) 10.51* Form of Employment Agreement entered into between Fieldcrest Cannon, Inc. and Richard A Grissinger 10.52* Pillowtex Corporation Supplemental Executive Retirement Plan, effective as of January 1, 1997 (incorporated by reference to Exhibit 10.1.44 to Pillowtex Corporation's Registration Statement on Form S-4 (No. 33-36663) filed on September 29, 1997) 10.53* Pillowtex Corporation Management Incentive Plan (incorporated by reference to Appendix B to Pillowtex Corporation's Proxy Statement for its Annual Meeting of Shareholders held on May 8, 1997) 10.54* Pillowtex Corporation Deferred Compensation Plan, effective as of February 9, 1998 (incorporated by reference to Exhibit 10.32 to Pillowtex Corporation's Annual Report on Form 10-K for the fiscal year ended January 3, 1998) 10.55* Pillowtex Corporation Executive Medical Expense Reimbursement Plan, effective as of January 1, 1998 (incorporated by reference to Exhibit 10.2 to Pillowtex Corporation's Quarterly Report on Form 10-Q for the quarter ended July 4, 1998) 10.56 Indenture, dated as of March 15, 1987, relating to the 6% Convertible Subordinated Debentures Due 2012 (incorporated by reference to Exhibit 4.9 to Fieldcrest Cannon, Inc.'s Registration Statement on Form S-3 (No. 33-12436)) 10.57 Yarn Purchase Agreement between Parkdale Mills, Incorporated and Fieldcrest Cannon, Inc. (incorporated by reference to Exhibit 10 to Fieldcrest Cannon, Inc.'s Quarterly Report on Form 10-Q for the quarter ended March 31, 1996) 21.1 List of Pillowtex Corporation's Principal Operating Subsidiaries 23.1 Consent of KPMG LLP 27 Financial Data Schedule _______________ * Management contract or compensatory plan or arrangement required to be filed as an exhibit hereto. 31 (b) Reports On Form 8-K. ------------------- During the quarter ended January 1, 2000, Pillowtex filed a Current Report on Form 8-K, dated December 7, 1999 and filed on December 14, 1999, reporting information under "Item 5. Other Events" regarding certain waivers and amendments with respect to Pillowtex's senior secured credit agreements. 32 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on March 31, 2000. PILLOWTEX CORPORATION By /s/ Charles M. Hansen, Jr. --------------------------- Charles M. Hansen, Jr. Chairman of the Board and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on March 31, 2000. Signatures Title ---------- ----- /s/ Charles M. Hansen, Jr. Chairman of the Board and Chief Executive - ------------------------------- Officer; Director (Principal Executive Charles M. Hansen, Jr. Officer) /s/ John A. Macaulay Senior Vice President - Finance - ------------------------------- (Principal Accounting Officer) John A. Macaulay /s/ Scott E. Shimizu Director - ------------------------------- Scott E. Shimizu /s/ Mary R. Silverthorne Director - ------------------------------- Mary R. Silverthorne /s/ William B. Madden Director - ------------------------------- William B. Madden /s/ M. Joseph McHugh Director - ------------------------------- M. Joseph McHugh /s/ Paul G. Gillease Director - ------------------------------- Paul G. Gillease /s/ Ralph W. La Rovere Director - ------------------------------- Ralph W. La Rovere /s/ Mark A. Petricoff Director - ------------------------------- Mark A. Petricoff 33 PILLOWTEX CORPORATION AND SUBSIDIARIES
Independent Auditors' Report.................................................. F-2 Consolidated Financial Statements: - --------------------------------- Consolidated Balance Sheets as of January 2, 1999 and January 1, 2000... F-3 Consolidated Statements of Operations for the fiscal years ended January 3, 1998, January 2, 1999 and January 1, 2000..................... F-4 Consolidated Statements of Shareholders' Equity for the fiscal years ended January 3, 1998, January 2, 1999 and January 1, 2000......... F-5 Consolidated Statements of Cash Flows for the fiscal years ended January 3, 1998, January 2, 1999 and January 1, 2000..................... F-6 Notes to Consolidated Financial Statements............................... F-7 Financial Statement Schedule for the fiscal years ended January 3, 1998, January 2, 1999 and January 1, 2000 Schedule II - Valuation and Qualifying Accounts................................................................. S-1
PILLOWTEX CORPORATION AND SUBSIDIARIES Independent Auditors' Report The Board of Directors and Shareholders Pillowtex Corporation: We have audited the consolidated financial statements of Pillowtex Corporation and subsidiaries as listed in the accompanying index. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedule as listed in the accompanying index. These consolidated financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Pillowtex Corporation and subsidiaries as of January 2, 1999 and January 1, 2000, and the results of their operations and their cash flows for each of the years in the three-year period ended January 1, 2000, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. KPMG LLP Dallas, Texas February 15, 2000, except for Note 11, as to which the date is March 31, 2000 F-2 PILLOWTEX CORPORATION AND SUBSIDIARIES Consolidated Balance Sheets January 2, 1999 and January 1, 2000 (Dollars in thousands, except for par value)
1998 1999 ---------------- ---------------- ASSETS Current assets: Cash and cash equivalents $ 5,561 4,854 Receivables (note 11): Trade, less allowances of $21,117 in 1998 and $33,351 in 1999 246,348 268,499 Other 13,124 17,923 Inventories (notes 6 and 11) 434,281 423,052 Assets held for sale 4,058 1,595 Prepaid expenses 3,785 5,502 ----------------- ---------------- Total current assets 707,157 721,425 Property, plant and equipment, net (notes 7 and 11) 629,205 644,821 Intangible assets, at cost less accumulated amortization of $15,577 in 1998 and $26,355 in 1999 289,829 288,856 Other assets 27,963 28,287 ----------------- ---------------- Total assets $ 1,654,154 1,683,389 ================= ================ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable (note 8) $ 127,575 119,848 Accrued expenses (note 8) 96,250 73,238 Deferred income taxes (note 12) 22,978 37,848 Current portion of long-term debt (note 11) 12,421 85,759 ----------------- ---------------- Total current liabilities 259,224 316,693 Long-term debt, net of current portion (note 11) 944,493 965,323 Deferred income taxes (note 12) 96,013 67,720 Noncurrent liabilities (note 10) 53,434 52,366 ----------------- ---------------- Total liabilities 1,353,164 1,402,102 Series A redeemable convertible preferred stock, $.01 par value; 65,475 shares issued and outstanding (note 13) 63,057 73,898 Shareholders' equity (notes 11 and 14) Preferred stock, $.01 par value; authorized 20,000,000 shares; Only Series A issued -- -- Common stock, $.01 par value; authorized 55,000,000 shares; 14,126,595 and 14,261,856 shares issued and outstanding in 1998 and 1999, respectively 141 142 Additional paid-in capital 155,811 160,515 Retained earnings 83,650 49,269 Currency translation adjustment (1,669) (1,730) Deferred compensation -- (807) ----------------- ---------------- Total shareholders' equity 237,933 207,389 Commitments and contingencies (notes 9, 10, and 15) ----------------- ---------------- Total liabilities and shareholders' equity $ 1,654,154 1,683,389 ================= ================
See accompanying notes to consolidated financial statements. F-3 PILLOWTEX CORPORATION AND SUBSIDIARIES Consolidated Statements of Operations Years ended January 3, 1998, January 2, 1999 and January 1, 2000 (Amounts in thousands, except for per share data)
1997 1998 1999 ---------------- ---------------- ---------------- Net sales $ 579,999 $ 1,509,841 $ 1,552,068 Cost of goods sold 485,679 1,237,085 1,358,966 ---------------- ---------------- ---------------- Gross profit 94,320 272,756 193,102 Selling, general and administrative expenses 52,090 128,685 131,256 Provision for asset impairment (note 7) -- -- 2,000 Restructuring charge (note 3) 5,986 1,539 -- ---------------- ---------------- ---------------- Earnings from operations 36,244 142,532 59,846 Interest expense 22,470 72,288 87,279 ---------------- ---------------- ---------------- Earnings (loss) before income taxes and extraordinary items 13,774 70,244 (27,433) Income taxes (benefits) (note 12) 5,538 27,389 (7,901) ---------------- ---------------- ---------------- Earnings (loss) before extraordinary items 8,236 42,855 (19,532) Extraordinary items, net of income tax benefit of $613 (note 11) 919 -- -- ---------------- ---------------- ---------------- Net earnings (loss) 7,317 42,855 (19,532) Preferred dividends and accretion (note 13) 85 2,097 12,294 ---------------- ---------------- ---------------- Earnings (loss) available for common shareholders $ 7,232 $ 40,758 $ (31,826) ================ ================ ================ Basic earnings (loss) per common share (note 4): Before extraordinary items $ 0.75 $ 2.89 $ (2.25) Extraordinary items (0.08) -- -- ---------------- ---------------- ---------------- Basic earnings (loss) per common share $ 0.67 $ 2.89 $ (2.25) ================ ================ ================ Weighted average common shares outstanding - basic 10,837 14,082 14,154 Diluted earnings (loss) per common share (note 4): Before extraordinary items $ 0.74 $ 2.52 $ (2.25) Extraordinary items (0.08) -- -- ---------------- ---------------- ---------------- Diluted earnings (loss) per common share $ 0.66 $ 2.52 $ (2.25) ================ ================ ================ Weighted average common shares outstanding - diluted 11,086 17,653 14,154
See accompanying notes to consolidated financial statements. F-4 PILLOWTEX CORPORATION AND SUBSIDIARIES Consolidated Statements of Shareholders' Equity Years ended January 3, 1998, January 2, 1999 and January 1, 2000 (in thousands of dollars, except for per share data)
Common Stock ---------------------- Additional Currency Total Number Par paid-in Retained Deferred translation shareholders' of shares value capital earnings compensation adjustment equity ----------- ------- ------------ ---------- -------------- ------------- --------------- Balances at December 28, 1996 10,617,722 $ 106 $ 58,427 $ 41,665 $ -- $ (194) $ 100,004 Comprehensive income: Net earnings 7,317 7,317 Currency translation adjustments (662) (662) ----------- Total comprehensive income 6,655 ----------- Issuance of common stock - acquisitions (note 5) 3,175,181 32 89,676 89,708 Exercise of stock options, including tax benefits of $517 (note 14) 174,812 2 2,992 2,994 Preferred stock dividends (note 13) (85) (85) Common stock dividends declared ($.24 per share) (2,569) (2,569) ------------ ------- ---------- ---------- ------------ ----------- ----------- Balance at January 3, 1998 13,967,715 $ 140 $ 151,095 $ 46,328 $ -- $ (856) $ 196,707 Comprehensive income: Net earnings 42,855 42,855 Currency translation adjustments (813) (813) ----------- Total comprehensive income 42,042 ----------- Exercise of stock options, including tax benefits of $1,637 (note 14) 154,458 1 4,545 4,546 Issuance of common stock - convertible debentures 4,422 171 171 Accretion of Series A Preferred Stock (note 13) (216) (216) Preferred stock dividends (note 13) (1,934) (1,934) Common stock dividends declared ($.24 per share) (3,383) (3,383) ------------ ------- ---------- ---------- ------------ ----------- ----------- Balance at January 2, 1999 14,126,595 $ 141 $ 155,811 $ 83,650 $ -- $ (1,669) $ 237,933 Comprehensive loss: Net loss (19,532) (19,532) Currency translation adjustments (61) (61) ----------- Total comprehensive loss (19,593) ----------- Exercise of stock options, Including tax benefits of $6 (note 14) 3,375 49 49 Issuance of restricted stock- 46,398 1,190 (807) 383 Issuance of common stock - convertible debentures 85,518 1 3,465 3,466 Accretion of Series A Preferred Stock (note 13) (216) (216) Preferred stock dividends (note 13) (12,078) (12,078) Common stock dividends declared ($.18 per share) (2,555) (2,555) ------------ ------- ---------- ---------- ------------ ----------- ----------- Balance at January 1, 2000 14,261,886 $ 142 $ 160,515 $ 49,269 $ (807) $ (1,730) $ 207,389 ============ ======= ========== ========== =========== =========== ===========
See accompanying notes to consolidated financial statements. F-5 PILLOWTEX CORPORATION AND SUBSIDIARIES Consolidated Statements of Cash Flows Years ended January 3, 1998, January 2, 1999 and January 1, 2000 (Dollars in thousands)
Cash flows from operating activities: 1997 1998 1999 ----------- ----------- ----------- Net earnings (loss) $ 7,317 $ 42,855 $ (19,532) Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: Depreciation and amortization 16,064 54,021 60,074 Extraordinary items 919 -- -- Restructuring and asset impairment 5,986 1,539 2,000 Deferred income taxes (2,320) 22,058 (8,356) Loss (gain) on disposal of property, plant and equipment (1,052) 166 65 Changes in assets and liabilities excluding effects of businesses acquired: Trade receivables (8,173) (16,914) (23,240) Inventories (3,900) (56,372) 10,632 Accounts payable and accrued expenses (6,236) 12,438 (12,641) Other assets and liabilities 8,781 (5,181) 532 ---------- ---------- ---------- Net cash provided by operating activities 17,386 54,610 9,534 ---------- ---------- ---------- Cash flows from investing activities: Proceeds from sale of property, plant and equipment 4,926 12,308 472 Purchases of property, plant and equipment (20,567) (133,620) (89,737) Proceeds from disposal of assets held for sale -- 25,935 5,679 Payments for businesses purchased (535,222) (106,746) -- ---------- ---------- ---------- Net cash used in investing activities (550,863) (202,123) (83,586) ---------- ---------- ---------- Cash flows from financing activities: Increase (decrease) in checks not yet presented for payment 6,583 (247) (18,592) Borrowings on revolving credit loans 200,600 470,400 383,028 Repayments of revolving credit loans (146,600) (402,600) (271,028) Proceeds from the issuance of other long-term debt 435,000 100,000 -- Retirement of long-term debt (2,727) (14,127) (16,095) Payments of debt and equity issuance costs (19,703) (1,849) -- Proceeds from issuance of redeemable convertible preferred 65,000 -- -- stock Dividends paid (2,569) (5,402) (4,011) Proceeds from exercise of stock options 2,477 2,295 43 ---------- ---------- ---------- Net cash provided by financing activities 538,061 148,470 73,345 ---------- ---------- ---------- Net change in cash and cash equivalents 4,584 957 (707) Cash and cash equivalents at beginning of period 20 4,604 5,561 ---------- ---------- ---------- Cash and cash equivalents at end of period $ 4,604 $ 5,561 $ 4,854 ========== ========== ==========
See accompanying notes to consolidated financial statements. F-6 PILLOWTEX CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements January 2, 1999 and January 1, 2000 (Tables in thousands of dollars, except for per share data) (1) General Pillowtex Corporation (the "Parent") and its subsidiaries (collectively, with Parent, the "Company"), is a North American designer, manufacturer and marketer of home textile products, offering a full line of bed pillows, blankets, sheets, pillow cases, mattress pads, down comforters, towels, bath rugs, kitchen textiles and other home textile products. As a supplier across all distribution channels, the Company sells its products to most major mass merchants, wholesale clubs, department stores, specialty retailers, catalogs, institutions and international customers. (2) Summary of Significant Accounting Policies (a) Principles of Consolidation The consolidated financial statements include the financial statements of Pillowtex Corporation and its subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. (b) Fiscal Year The Company's fiscal year ends on the Saturday closest to December 31. Fiscal year 1997 ended January 3, 1998, fiscal year 1998 ended January 2, 1999 and fiscal year 1999 ended January 1, 2000. Such years include the results of operations for 53, 52 and 52 weeks, respectively. (c) Statements of Cash Flows For purposes of reporting cash flows, the Company considers all short- term investments with original maturities of three months or less to be cash equivalents. Supplemental disclosures of cash flow information for fiscal years 1997, 1998 and 1999 follow:
1997 1998 1999 --------------- --------------- --------------- Interest paid $ 19,207 73,223 87,906 =============== =============== =============== Income taxes paid (refunded) $ 7,533 (5,042) 769 =============== =============== ===============
(d) Inventories Inventories are valued at the lower of cost or market. Cost is determined using the first-in, first-out (FIFO) and last-in, first-out (LIFO) methods (see note 6). (e) Derivative Financial Instruments The Company enters into interest rate swap agreements to modify the interest characteristics of portions of its outstanding debt. The agreements entitle the Company to receive or pay to the counterparty (a major bank), on a quarterly basis, the amounts, if any, by which the Company's interest payments covered by swap agreements differ from those of the counterparty. These amounts are recorded as adjustments to interest expense. The fair value of the swap agreements and changes in fair value as a result of changes in market interest rates are not recognized in the consolidated financial statements. (Continued) F 7 PILLOWTEX CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements January 2, 1999 and January 1, 2000 (Tables in thousands of dollars, except for per share data) (f) Property, Plant and Equipment Depreciation is provided generally using the straight-line method in amounts sufficient to amortize the cost of the assets over their estimated useful lives as follows: Buildings and improvements 10-39 years Machinery and equipment 5-15 years Data processing equipment 5 years Furniture and fixtures 5-8 years Leasehold improvements are amortized over the lesser of the estimated useful lives of the assets or the remaining term of the lease using the straight-line method. Renewals and betterments are capitalized and depreciated over the remaining life of the specific property unit. (g) Intangibles Intangible assets consist primarily of goodwill ($252.0 million and $261.9 million net of accumulated amortization of $10.9 million and $17.5 million as of January 2, 1999 and January 1, 2000, respectively) recorded in connection with the Company's acquisitions (see note 5). Goodwill represents the excess of purchase price over the fair value of net assets acquired. Amortization is provided using the straight- line method principally over an estimated useful life of 40 years. Other intangible assets consist principally of trademarks and deferred debt issuance costs. Trademarks are amortized using the straight-line method over their useful lives which range from 5 to 40 years. Debt issuance costs are amortized using the effective interest method over the terms of the related debt which range from 6 to 12 years. The Company assesses the recoverability of goodwill by determining whether the amortization of the asset balance over its remaining life can be recovered through undiscounted future operating cash flows of the acquired operation. The amount of impairment, if any, is measured based on projected discounted future operating cash flows. The discount rate used will be based on the Company's cost of capital. The Company believes no impairment of goodwill has occurred and that no reduction of the estimated useful lives is warranted. (h) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of The Company reviews long-lived assets and certain identifiable intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. (i) Fair Value of Financial Instruments The carrying amounts of cash and cash equivalents, receivables and accounts payable approximate fair value (see note 11 regarding the fair value of debt and interest rate swaps). (j) Income Taxes Deferred income taxes are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deffered taxes of a change in tax rates is recognized income in the period that includes the enactment date. (Continued) F 8 PILLOWTEX CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements January 2, 1999 and January 1, 2000 (Tables in thousands of dollars, except for per share data) (k) Stock Option Plan In accordance with Statement of Financial Accounting Standards ("SFAS") No. 123, Accounting for Stock-Based Compensation, the Company applies the accounting provisions of Accounting Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations and provides pro forma net income and earnings per share disclosures for employee stock option grants as if the fair- value based method defined in SFAS No. 123 had been applied. Compensation expense is recorded only if the current market price of the underlying stock exceeds the exercise price on the date of grant. (l) Revenue Recognition Revenue is recognized upon shipment of products. Reserves for sales returns and allowances are recorded in the same accounting period as the related revenues. (m) Advertising Expenses The Company expenses advertising costs as incurred. Advertising expense was approximately $3.8 million, $19.9 million and $24.9 million during fiscal years 1997, 1998 and 1999, respectively. (n) Earnings Per Share Basic earnings per share is computed by dividing earnings available for common shareholders by the weighted average number of shares outstanding during the period. Diluted earnings per share is computed by dividing (i) earnings available for common shareholders as adjusted to add back (if dilutive) convertible preferred dividends and accretion and the after-tax interest recognized in the period associated with convertible debt by (ii) the weighted average number of shares outstanding plus the number of dilutive additional shares that would have been outstanding if potentially dilutive securities had been issued. (o) Foreign Currency Translation and Transactions The Company's foreign subsidiaries use the local currency as the functional currency and translate their assets and liabilities into U.S. dollars using current exchange rates. Revenues and expenses are translated at average monthly exchange rates. The resulting translation adjustments are recorded as a separate component of shareholders' equity. Foreign currency transaction gains and losses are included in the consolidated statements of operations and were not material in any of the years presented. (p) Use of Estimates The preparation of the consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. (q) Comprehensive Income Comprehensive income consists of net earnings and foreign currency translation adjustments and is presented in the consolidated statements of shareholders' equity. 3) Restructuring Charge During the fourth quarter of 1997, the Company committed to a plan to consolidate its blanket production into its facilities in Swannanoa, North Carolina and Westminster, South Carolina. The aggregate cost of this restructuring was estimated to be approximately $7.5 million, of which approximately $6.0 million (associated with the write-down of certain assets and other expenses) was accrued in fiscal year 1997, and the remaining $1.5 million (associated with employee severance) was expensed in the first quarter of fiscal year 1998. Expenditures related to the restructuring were substantially complete as of the end of fiscal year 1998. (Continued) F 9 PILLOWTEX CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements January 2, 1999 and January 1, 2000 (Tables in thousands of dollars, except for per share data) (4) Earnings Per Share The following table reconciles the numerators and denominators of basic and diluted earnings per share for fiscal years 1997, 1998, and 1999. In 1997 and 1998 options to purchase 0 and 500,000 shares respectively were not included in the computation of diluted earnings because including them would have been anti-dilutive. All potentially dilutive securities in 1999 were considered anti-dilutive, therefore basic and diluted loss per share are the same.
1997 1998 1999 ------------------- -------------------- -------------------- Earnings Earnings Shares Earnings Shares (loss) Shares ------------------- -------------------- --------------------- Basic - earnings (loss) available for common shareholders $ 7,232 10,837 $ 40,758 14,082 $ (31,826) 14,154 Effect of dilutive securities: Stock options - 132 - 207 - - Convertible debentures - - 1,577 656 - - Convertible preferred stock 85 117 2,097 2,708 - - ------------------- -------------------- --------------------- Diluted - earnings (loss) available for common shareholders plus assumed conversions $ 7,317 11,086 $ 44,432 17,653 $ (31,826) 14,154 =================== ==================== =====================
(5) Acquisitions On July 28, 1998, the Company acquired the net assets of The Leshner Corporation ("Leshner"), a 91 year-old manufacturer of towels and terry- related products, for a purchase price of $41.8 million in cash (including acquisition costs). In connection with the acquisition, the Company retired $32.5 million of outstanding Leshner debt. The acquisition and related debt retirement were financed through the term loan under the senior credit facilities (see note 11). The purchase price exceeded the fair value of net assets acquired by approximately $27.8 million, which is being amortized on a straight line basis over 40 years. The pro forma effects of such transaction, as if it had occurred at the beginning of fiscal year 1997, are not significant. On December 19, 1997, the Company acquired all of the outstanding common and preferred stock of Fieldcrest Cannon Inc. ("Fieldcrest Cannon") in exchange for cash of $335.9 million (including acquisition costs) and approximately 3.2 million shares of common stock of the Company ("the Merger"). In connection with the Merger, the Company retired $199.0 million and assumed $107.9 million of outstanding Fieldcrest Cannon debt. The purchase price exceeded the fair value of net assets acquired by approximately $184.8 million, which is being amortized on a straight line basis over 40 years. The acquisitions have been accounted for under the purchase method of accounting and, accordingly, results of operations of Fieldcrest Cannon and Leshner have been included in the consolidated statements of operations since their respective acquisition dates. (Continued) F 10 PILLOWTEX CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements January 2, 1999 and January 1, 2000 (Tables in thousands of dollars, except for per share data) (6) Inventories Inventories consist of the following at January 2, 1999 and January 1, 2000:
1998 1999 ---- ---- Finished goods $ 218,439 218,381 Work-in-process 134,428 136,924 Raw materials 58,306 44,424 Supplies 23,108 23,323 ---------- --------- $ 434,281 423,052 ========== =========
At January 2, 1999 and January 1, 2000, 51% and 57%, respectively, of inventories were valued at LIFO which approximates current replacement cost. The remaining inventories are valued at FIFO. Inventories are net of related reserves of approximately $15.3 million and $17.2 million at January 2, 1999 and January 1, 2000, respectively. (7) Property, Plant and Equipment Property, plant and equipment are stated at cost and consist of the following at January 2, 1999 and January 1, 2000:
1998 1999 ---- ---- Land $ 28,812 29,912 Buildings and improvements 182,414 196,048 Machinery and equipment 370,581 405,495 Data processing equipment 29,325 95,866 Furniture and fixtures 6,346 6,673 Leasehold improvements 4,020 4,090 Projects in progress 106,444 57,120 ---------- --------- 727,942 795,204 Less accumulated depreciation and amortization (98,737) (150,383) ---------- --------- $ 629,205 644,821 ========== =========
Interest costs of $4.7 million and $5.6 million, incurred during fiscal years 1998 and 1999, respectively, for the purchase and construction of qualifying fixed assets, were capitalized and are being amortized over the related assets' estimated useful lives. During 1999 a $2.0 million impairment was recorded to reduce the carrying value of the Opelika facility, which was closed in the first quarter of 1999, to its estimated fair value. (Continued) F 11 PILLOWTEX CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements January 2, 1999 and January 1, 2000 (Tables in thousands of dollars, except for per share data) (8) Accounts Payable and Accrued Expenses Accounts payable includes $39.1 million and $20.5 million at January 2, 1999 and January 1, 2000, respectively, of checks not yet presented for payment on zero balance disbursement accounts. Accrued expenses consist of the following at January 2, 1999 and January 1, 2000:
1998 1999 ------------------ ------------------ Employee-related compensation and benefits $ 24,974 18,313 Insurance and worker's compensation 24,794 15,812 Customer rebates 14,490 14,162 Interest and commitment fees 7,036 6,972 Advertising 4,435 795 Royalties and commissions 4,276 4,115 Other accrued expenses 16,245 13,069 ------------------ ------------------ $ 96,250 73,238 ================== ==================
(9) Pension Plans The Company has defined benefit pension plans covering substantially all of its employees except certain union employees who are not covered under these plans. The plans provide pension benefits based on the employees' compensation and years of service. The Company's funding policy provides for annual contributions of an amount between the minimum required and maximum amount that can be deducted for federal income tax purposes. Pension plan assets consist of investments in publicly traded corporate common stocks and bonds, as well as U.S. government obligations. Summarized information for the plans follows:
1998 1999 -------------------- -------------------- Change in benefit obligation: Benefit obligation at beginning of year $ 306,950 337,939 Acquisitions 7,240 - Service cost 7,730 7,615 Plan amendments - 773 Interest cost 21,070 21,892 Actuarial (gain) loss 13,869 (48,420) Benefits paid (18,920) (22,910) --------------------- -------------------- Benefit obligation at end of year $ 337,939 296,889 ===================== ==================== Change in plan assets: Fair value of plan assets at beginning of year $ 307,772 336,642 Acquisitions 8,903 - Actual return on plan assets 35,085 57,108 Employer contributions 3,802 - Benefits paid (18,920) (22,910) --------------------- -------------------- Fair value of plan assets at end of year $ 336,642 370,840 ===================== ==================== Funded status: Benefit obligation $ (337,939) (296,889) Fair value of plan assets 336,642 370,840 Unrecognized transition asset (43) (35) Unrecognized prior service cost 172 909 Unrecognized net actuarial (gain) loss 7,102 (64,044) --------------------- -------------------- Prepaid benefit cost $ 5,934 10,781 ===================== ====================
F 12 (continued) PILLOWTEX CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements January 2, 1999 and January 1, 2000 (Tables in thousands of dollars, except for per share data)
1997 1998 1999 ------------ ------------ ------------ Weighted average assumptions as of January 3, 1998, January 2, 1999 and January 1, 2000: Discount rate 7.00% 6.75% 8.00% Expected return 9.00-9.50% 9.00-9.50% 9.00-10.50% Compensation increase rate 4.00-4.50% 4.00% 4.00% Components of net periodic pension cost: Service cost $ 1,058 7,730 7,615 Interest cost 1,414 21,070 21,892 Expected return on plan assets (1,622) (28,503) (34,379) Recognized net actuarial (gain) loss - - (2) Amortization of transition asset (8) (8) (8) Amortization of prior service cost 35 35 35 ------------ ------------ ------------ Net periodic pension cost $ 877 324 (4,847) ============ ============ ============
The Company also sponsors employee savings plans which cover substantially all employees. The Company's matching provisions under these plans vary, with some matches being discretionary. The matching formulas of certain plans can be changed annually. In fiscal years 1997, 1998 and 1999, the Company incurred costs of $0.1 million, $3.5 million and $3.2 million respectively, to provide matching contributions for plans with matching provisions. (10) Postretirement Benefits Other Than Pensions The Company provides medical insurance premium assistance and life insurance benefits to retired employees of Fieldcrest Cannon. The medical and life insurance benefits provided under the plan are fixed amounts determined at the time of retirement and, thus, are unaffected by medical trend rates. Employees become eligible for these benefits when they reach retirement age while working for the Company. The plans are funded as benefits are paid.
1998 1999 -------------------- -------------------- Change in benefit obligation: Benefit obligation at beginning of year $ 39,348 38,090 Service cost 709 582 Interest cost 2,466 2,430 Actuarial (gain) loss (538) (3,947) Benefits paid (3,895) (2,737) -------------------- -------------------- Benefit obligation at end of year $ 38,090 34,418 ==================== ==================== Change in plan assets: Fair value of plan assets at beginning of year $ -- -- Employer contributions 3,895 2,737 Benefits paid (3,895) (2,737) -------------------- -------------------- Fair value of plan assets at end of year $ -- -- ==================== ==================== Funded status: Benefit obligation $ (38,090) (34,418) Unrecognized net actuarial (gain) loss (357) (4,275) -------------------- -------------------- Accrued postretirement benefit cost included in noncurrent liabilities $ (38,447) (38,693) ==================== ====================
F 13 (continued) PILLOWTEX CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements January 2, 1999 and January 1, 2000 (Tables in thousands of dollars, except for per share data) 1997 1998 1999 ----------- ----------- ----------- Weighted average assumptions as of January 3 1998, January 2, 1999 and January 1, 2000: Discount rate 7.00% 6.75% 8.00% Compensation increase rate 4.00% 4.00% 4.00% Components of net periodic postretirement cost: Service cost $ 35 709 582 Interest cost 114 2,465 2,430 Amortization of actuarial gain -- (181) (28) ----------------------------------- Net periodic postretirement benefit cost $ 149 2,993 2,984 ===================================
(11) Long-term Debt and Liquidity Long-term debt consists of the following at January 2, 1999 and January 1, 2000:
1998 1999 ----------------- ----------------- Revolver $ 182,800 259,800 Overline Credit Facility -- 35,000 Term loans 348,750 341,500 9% Senior Subordinated Notes due 2007 185,000 185,000 10% Senior Subordinated Notes due 2006 125,000 125,000 6% convertible subordinated sinking fund debentures due in 2012 (effective rate of 8.72%, net of $15.6 million and $14.3 million in unamortized discount at January 2, 1999 and January 1, 2000, respectively) 88,594 82,205 Industrial revenue bonds with interest rates from 3.60% to 7.85% and maturities through July 1, 2021; generally collateralized by land and buildings 19,528 16,814 Other debt 7,242 5,763 ----------------- ----------------- 956,914 1,051,082 Less: Current portion 12,421 85,759 ----------------- ----------------- Total long-term debt $ 944,493 965,323 ================= =================
In December 1997, in connection with the Fieldcrest Cannon acquisition, Pillowtex entered into new senior secured revolving credit and term loan facilities with a group of financial and institutional investors for which Bank of America acts as the agent. These facilities consisted of a $350.0 million revolving credit facility and a $250.0 million term loan facility. The term loan facility consisted of a $125.0 million Tranche A Term Loan and a $125.0 million Tranche B Term Loan. Effective July 28, 1998, Pillowtex amended these facilities by increasing the Tranche B Term Loan to $225.0 million. The increase occurred in conjunction with the acquisition of Leshner, allowing Pillowtex to fund the transaction and reduce borrowings under the revolving credit facility. Effective March 12, 1999, the revolving credit facility was amended to permit Pillowtex to use for working capital one-half of a $61.0 million portion of the facility held as contingency reserve for cash payments required upon conversion of the Fieldcrest Cannon 6% Convertible Subordinated Debentures due 2012, thereby increasing availability under that facility. Effective October 1, 1999, the revolving credit facility was further amended to permit Pillowtex to use the other half of the contingency reserve for working capital, thereby increasing availability under that facility. At the end of the third and fourth quarters of its 1999 fiscal year, Pillowtex was not in compliance with certain financial covenants under its senior debt facilities. The Company obtained a series of temporary waivers of this non-compliance. Effective as of December 7, 1999, the Company agreed to certain amendments to the senior debt facilities, principally related to cash management, adjustments to restrictive covenants, and borrowings under, and uses of proceeds from, the revolving credit facility. Effective as of March 31, 2000, the Company obtained a permanent waiver of its prior non-compliance with financial covenants and the senior debt F 14 (continued) PILLOWTEX CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements January 2, 1999 and January 1, 2000 (Tables in thousands of dollars, except for per share data) facilities were further amended to shorten their terms to maturity and accelerate the related amortization schedules for the repayment of principal, to increase the applicable interest rate margins (subject to reduction if the Company's earnings before interest, taxes, depreciation and amortization (EBITDA) exceeds a specified level for the 2000 fiscal year), to add a covenant requiring that EBITDA must exceed specified levels for future fiscal periods and to eliminate all other financial covenants, to modify certain restrictive covenants, to limit borrowings under the revolving credit facility based on a formula tied to 45% of eligible inventory plus 80% of eligible accounts receivable, and to provide for a series of reductions in the commitment under the revolving credit facility. The Company believes that it will be able to comply with the amended financial covenants in the future; however, there can be no assurance of such compliance. The revolving credit facility includes $55.0 million of availability for letters of credit. At January 1, 2000, $35.2 million of letters of credit were outstanding. As amended, amounts outstanding under the revolving credit facility and the Tranche A Term Loan currently bear interest at a rate based upon the London Interbank Offered Rate plus 3.50% (9.63% at March 24, 2000). The Tranche B Term Loan bears interest on a similar basis to the Tranche A Term Loan, plus an additional margin of .50%. The weighted average annual interest rate on outstanding borrowings under the various senior credit facilities for 1999 was 7.7%. The senior debt facilities now expire on January 31, 2002. The senior debt facilities are guaranteed by each of the domestic subsidiaries of Pillowtex, and are secured by first priority liens on all of the capital stock of each domestic subsidiary of Pillowtex and by 65% of the capital stock of Pillowtex's foreign subsidiaries. Pillowtex has also granted a first priority security interest in all of its presently unencumbered and future domestic assets and properties, and all presently unencumbered and future domestic assets and properties of each of its subsidiaries. The term loan facility is subject to mandatory prepayment from all net cash proceeds of asset sales and debt issuances of Pillowtex (except as specifically provided), 50% of the net cash proceeds of equity issuances by Pillowtex or any of its subsidiaries, and 75% of Excess Cash Flow (as defined). All mandatory prepayments will be applied pro rata between the Tranche A Term Loan and the Tranche B Term Loan to reduce the remaining installments of principal. The senior debt facilities contain a number of negative covenants, which covenants restrict, among other things, Pillowtex's ability to incur additional debt, pay dividends or make other restricted payments, sell stock of subsidiaries, grant liens, make capital expenditures, engage in transactions with affiliates, make loans, advances and investments, dispose of assets, effect mergers, consolidations and dissolutions, and make certain changes in its business. A breach of any of the covenants contained in the senior debt facilities could result in a default under the terms of the facilities. Upon the occurrence of an event of default: the senior lenders would not be obligated to make additional advances under the revolving credit facility; the senior lenders would be entitled to declare all amounts outstanding under the senior debt facilities, including accrued interest or other obligations, to be immediately due and payable; the senior lenders would have the rights to block payment on substantially all of Pillowtex's other long-term debt; and the senior lenders would be entitled to proceed against the collateral granted to them to secure the senior debt. In these circumstances, cross defaults could occur making substantially all of Pillowtex's other long-term debt due. If any senior debt were to be accelerated, the Company cannot be certain that its assets would be sufficient to repay in full that debt and its other debt. As a result of the covenants described above, Pillowtex's ability to respond to changing business and economic conditions and to secure additional financing, if needed, is significantly restricted. In May 1999, Pillowtex entered into a $20.0 million senior unsecured revolving credit facility (overline facility) in order to obtain additional working capital availability. On July 27, 1999, this facility was amended to increase the amount of funds available to $35.0 million. At the end of the third and fourth quarters of its 1999 fiscal year, Pillowtex was not in compliance with certain financial covenants under this facility, the covenants of which are established by reference to the senior debt facilities described above. The Company obtained a series of temporary waivers of this non- compliance and extensions of the maturity date. Effective as of December 7, 1999, the F 15 (continued) PILLOWTEX CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements January 2, 1999 and January 1, 2000 (Tables in thousands of dollars, except for per share data) Company agreed to certain amendments to this facility, resulting in the facility being secured by the assets securing the senior debt facilities described above. Effective as of March 31, 2000, the Company obtained a permanent waiver of its prior non-compliance and the facility was amended to lengthen its term to maturity, to impose an amortization schedule for the repayment of principal, and to increase the applicable interest rate margins (subject to reduction if the Company's EBITDA exceeds a specified level for the 2000 fiscal year). This facility is guaranteed on a senior basis by Pillowtex's domestic subsidiaries. Pillowtex is currently required to pay interest on any amounts borrowed under the facility at a rate which is based upon the London Interbank Offered Rate plus 4.5% or the base rate plus 3.0%, at Pillowtex's option. This facility matures upon termination by Pillowtex at any time or otherwise at the earliest of: a) any increase in the commitment under the senior debt facilities described above, the issuance of any capital stock by Pillowtex or its domestic subsidiaries, or other specified events; or b) January 31, 2002. In connection with the Fieldcrest Cannon merger, Pillowtex issued $185.0 million of 9% Senior Subordinated Notes due 2007 in a private offering. In March 1998, Pillowtex completed an offer to exchange the unregistered 9% Notes previously sold in the private offering for an equal aggregate principal amount of registered 9% Notes. The 9% Notes are due December 15, 2007, with interest payable semiannually commencing June 15, 1998. Pillowtex may at its option redeem the 9% Notes, in whole or in part, on or after December 15, 2002 at a redemption price of 104.5%, which declines 1.5% annually through December 15, 2005 to 100%. The 9% Notes are general unsecured obligations of Pillowtex, are subordinated in right of payment to all existing and future senior indebtedness, and rank pari passu to the 10% Notes described below. On November 12, 1996, Pillowtex issued the 10% Senior Subordinated Notes due 2006 in a private offering. In March 1997, Pillowtex completed an offer to exchange the unregistered 10% Notes previously sold in the private offering for an equal aggregate principal amount of registered 10% Notes. The 10% Notes are due November 15, 2006, with interest payable semiannually commencing May 15, 1997. Pillowtex used the proceeds from such offering to retire the outstanding indebtedness under Pillowtex's previously existing term loan, to finance the acquisition of certain assets of Fieldcrest Cannon's blanket operations, to temporarily reduce indebtedness under the previous revolving credit facility, and to acquire a warehouse facility. Pillowtex may, at its option, redeem the 10% Notes, in whole or in part, on or after November 15, 2001 at a redemption price of 105.0%, which declines 1.667% annually through November 15, 2004 to 100%. The 10% Notes are general unsecured obligations of Pillowtex, and are subordinated in right of payment to all existing and future senior indebtedness. The 9% Notes and the 10% Notes are unconditionally guaranteed on a senior subordinated basis by each of the existing and future domestic subsidiaries of Pillowtex and each other subsidiary of Pillowtex that guarantees Pillowtex's obligations under the senior debt facilities described above. The guarantees are subordinated in right of payment to all existing and future senior indebtedness of the relevant guarantor. Upon a change in control, Pillowtex will be required to make an offer to repurchase all outstanding 9% Notes and 10% Notes at 101% of the principal amount thereof, plus accrued and unpaid interest thereon, if any, to the date of repurchase. As a result of Pillowtex's acquisition of Fieldcrest Cannon, the outstanding 6% Convertible Subordinated Debentures due 2012 of Fieldcrest Cannon are convertible, at the option of the holders, into a combination of cash and Pillowtex's Common Stock. During the fourth quarter of 1999, Pillowtex notified the holders of 6% Convertible Debentures that it was not practicable or prudent for payments to be made in respect of the conversion of 6% Convertible Debentures and advised holders that had surrendered 6% Convertible Debentures that, with limited exceptions, they could rescind their notice of conversion, return to Pillowtex any Pillowtex Common Stock that had been issued to them and regain possession of their 6% Convertible Debentures. As of March 24, 2000, the cash component due in respect of 6% Convertible Debentures that had been surrendered without subsequent rescission of that surrender was $9.1 million. In addition, as of March 24, 2000, $96.5 million aggregate principal amount of 6% Convertible Debentures remained outstanding. If all such outstanding 6% Convertible Debentures were converted at such date, the resulting cash component to be paid to the holders of 6% Convertible Debentures would have been approximately $61.0 million (classified as current portion of long-term debt at January 1, 2000). Pillowtex is currently prohibited under the terms of its senior subordinated debt from making payments in respect of the 6% Convertible Debentures except for interest and at maturity or pursuant to sinking fund obligations. Pillowtex has initiated discussions with certain holders of its 6% Convertible Debentures regarding a potential restructuring of the 6% Convertible Debentures. Currently, it is anticipated that any comprehensive restructuring of the 6% Convertible Debentures involving cash payments (other than pursuant to sinking F 16 (continued) PILLOWTEX CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements January 2, 1999 and January 1, 2000 (Tables in thousands of dollars, except for per share data) fund obligations) would likely require the consent of the holders of Pillowtex's senior subordinated debt. As of January 2, 1999, Pillowtex had approximately $345.0 million of notional amounts covered under interest rate swap agreements whereby Pillowtex exchanged floating rates for fixed rates. The weighted average fixed and floating rates were 4.70% and 5.26%, respectively. As of January 1, 2000, Pillowtex had approximately $345.0 million of notional amounts covered under interest rate swap agreements whereby Pillowtex exchanged floating rates for fixed rates. The weighted average fixed and floating rates were 4.70% and 6.05%, respectively. The fair values of the swaps at January 2, 1999 and January 1, 2000 were $2.1 million and $4.0 million, respectively in favor of Pillowtex. Under the terms of its senior secured credit agreements and senior subordinated debt and its Series A Redeemable Convertible Preferred Stock, Pillowtex currently is prohibited from paying cash dividends or making other distributions to Holders of its Common Stock. Based upon current and anticipated levels of operations, and aggressive efforts to reduce inventories and accounts receivable, Pillowtex anticipates that its cash flow from operations, together with amounts available under its revolving credit facility, will be adequate to meet its anticipated cash requirements in the foreseeable future (assuming no significant cash payments are required to be made in respect of the 6% Convertible Debentures other than scheduled interest payments and payments related to satisfaction of the sinking fund obligations). In the event that cash flows and available borrowings under the revolving credit facility are not sufficient to meet future cash requirements, Pillowtex may be required to reduce planned capital expenditures or seek additional financing. Pillowtex can provide no assurances that reductions in planned capital expenditures would be sufficient to cover shortfalls in available cash or that additional financing would be available or, if available, offered on terms acceptable to the Company. The interest rates on indebtedness other than the senior credit facilities differ from current market rates. The carrying and fair values of these financial instruments, estimated by discounting the future cash flows using rates currently available or obtaining market prices as of January 2, 1999 and January 1, 2000, are shown below. The senior credit facilities are at current market rates; therefore, their carrying values approximate fair value.
1998 1999 ---------------------------------------- ----------------------------------------- Carrying Fair Carrying Fair Amount Value Amount Value ----------------- ------------------ ------------------ ------------------ Revolver $ 182,800 182,800 259,800 259,800 Overline Credit Facility -- -- 35,000 35,000 Term loans 348,750 348,750 341,500 341,500 9% Senior Subordinated Notes due 2007 185,000 189,625 185,000 64,750 10% Senior Subordinated Notes due 2006 125,000 132,500 125,000 45,000 6% convertible subordinated sinking fund debentures due 2012 88,594 85,962 82,205 28,785 Industrial revenue bonds and other debt 26,770 24,120 22,577 20,064
F 17 PILLOWTEX CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements January 2, 1999 and January 1, 2000 (Tables in thousands of dollars, except for per share data) Aggregate maturities of long-term debt for each of the five years following January 1, 2000 and thereafter, assuming the unpaid principal balance at January 1, 2000 under the revolving credit facility remains unchanged and reflecting the revised terms of the senior debt facilities described above, are as follows:
Fiscal year Amount ------------- 2000 $ * 24,755 2001 37,683 2002 600,451 2003 8,978 2004 6,710 Thereafter 375,953
* The amount for 2000 excludes the current portion of long-term debt related to the 6% Convertible Debentures of approximately $61.0 million. This amount is included in the Thereafter amount. (12) Income Taxes The components of income tax expense (benefit), excluding the income tax benefit related to extraordinary items, are as follows:
1997 1998 1999 ---------------- ---------------- ----------------- U.S. federal - current $ 6,385 3,916 (600) U.S. federal - deferred (1,478) 17,881 (6,362) State and foreign taxes - current 1,473 1,415 200 State and foreign taxes - deferred (842) 4,177 (1,139) ---------------- ---------------- ----------------- $ 5,538 27,389 (7,901) ================ ================ =================
A reconciliation of income tax expense (benefit) computed using the U.S. federal statutory income tax rate of 35% of earnings/(loss) before income taxes and extraordinary items to the actual provision for income taxes follows:
1997 1998 1999 ---------------- ---------------- ----------------- Expected tax at U.S. statutory rate $ 4,821 24,585 (9,602) Amortization of goodwill 188 1,695 2,308 State and foreign taxes, net of federal effect 477 933 (610) Other 52 176 3 ---------------- ---------------- ----------------- $ 5,538 27,389 (7,901) ================ ================ =================
F 18 PILLOWTEX CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements January 2, 1999 and January 1, 2000 (Tables in thousands of dollars, except for per share data) The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities as of January 2, 1999 and January 1, 2000 are presented below:
1998 1999 -------------------- -------------------- Deferred tax assets: Package design costs $ 614 1,114 Accrued employee benefits 4,423 390 State deferred income taxes 1,132 899 Accruals and allowances 23,527 21,006 Operating losses and credit carryforwards 16,524 26,293 Other 1,668 10,182 -------------------- -------------------- Deferred tax assets 47,888 59,884 -------------------- -------------------- Deferred tax liabilities: Inventory costs and reserves (49,242) (45,870) Depreciable assets (97,505) (97,787) State deferred income taxes (8,901) (9,333) Trademarks (10,500) (12,128) Goodwill (731) (334) -------------------- -------------------- Deferred tax liabilities (166,879) (165,452) -------------------- -------------------- Net deferred tax liabilities $ (118,991) (105,568) ==================== ====================
At January 1, 2000, the Company has a $49.4 million federal net operating loss carryforward expiring 2006 through 2019, $1.8 million general business tax credit carryforwards expiring 2005 through 2019 and $6.7 million unused alternative minimum tax credit carryforwards that do not expire. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. The Company expects the deferred tax assets at January 1, 2000 to be realized as a result of the reversal of existing taxable temporary differences. (13) Redeemable Convertible Preferred Stock On December 19, 1997, the Company issued 65,000 shares of Series A Redeemable Convertible Preferred Stock ("Series A Preferred Stock") for $65.0 million less $2.1 million of issue costs. Accretion is being recognized to increase the recorded amount to the redemption amount over the period to the redemption date. Dividends accrue from the issue date through December 31, 1999 at a 3% annual rate. Beginning January 1, 2000, the rate at which dividends will accrue increases to 10% as a result of the Company's earnings per share for 1999 falling below predetermined targets. The Company is also required to pay a one-time cumulative dividend on the Series A Preferred Stock, from the issue date through December 31, 1999, equal to the difference between the dividends calculated at the 3% rate and dividends calculated at the 10% rate, or 10,135 shares of Series A Preferred Stock , which were accrued in the third and fourth quarter of 1999 and which will be issued in fiscal year 2000. Dividends can be paid in cash or additional shares of preferred stock until December 2002, at which time they must be paid in cash. The Company's ability to pay dividends on the common stock and preferred stock is restricted under the terms of its senior credit facilities, senior subordinated debt and, in the case of common stock dividends, under the terms of the preferred stock. The Series A Preferred Stock is convertible, at any time at the option of the holder, into common stock at a rate calculated by dividing $1,000 plus unpaid dividends per share by $24.00 per share. Each share of Series A Preferred Stock is subject to mandatory redemption in ten and one-half years after the issue date at a redemption price of $1,000 plus accrued and unpaid dividends. The Company has the right after the fourth anniversary of the issue date to call all or a portion of the Series A Preferred Stock at $1,000 per share plus accrued and unpaid dividends times a premium equal to the dividend rate after the fourth anniversary date and declining ratably to the mandatory redemption date. Holders of the Series A Preferred Stock are entitled to limited voting rights only under certain conditions. F 19 PILLOWTEX CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements January 2, 1999 and January 1, 2000 (Tables in thousands of dollars, except for per share data) (14) Stock Options In 1993, the Company established a stock option plan under which options may be granted to eligible employees and non-employee directors of the Company. Under the stock option plan, the Board of Directors may grant either nonqualified stock options or incentive stock options. At January 1, 2000, there were 698 thousand shares available for grant under the stock option plan. The per share weighted-average fair value of stock options granted during fiscal years 1997, 1998 and 1999 was $7.86, $12.81 and $6.46 respectively, on the date of grant using the Black Scholes option-pricing model with the following weighted-average assumptions:
1997 1998 1999 ----------- ----------- --------- Expected dividend yield 1.41% 1.06% 0.0% Stock price volatility 38.94 36.87 46.53 Risk-free interest rate 6.15 5.48 5.35 Expected option term 5 years 5 years 5 years
The Company applies APB Opinion No. 25 and related interpretations in accounting for its stock option plan and, accordingly, no compensation cost has been recognized for its stock options in the consolidated financial statements. Had the Company determined compensation cost based on the fair value at the grant date for its stock options under SFAS No. 123, the Company's net earnings and earnings per share would have been reduced to the pro forma amounts indicated below:
1997 1998 1999 ------------ ----------- ----------- Earnings (loss) available for common shareholders: As reported $ 7,232 40,758 (31,826) Pro forma 6,720 39,280 (33,410) Earnings (loss) per share: As reported - basic $ .67 2.89 (2.25) As reported - diluted .66 2.52 (2.25) Pro forma - basic .62 2.79 (2.36) Pro forma - diluted .61 2.43 (2.36)
All options are granted at an exercise price not less than the fair market value of the common stock at the date of grant. The option period may not be more than ten years from the date the option is granted, and options generally vest over a four-year period. F 20 PILLOWTEX CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements January 2, 1999 and January 1, 2000 (Tables in Thousands of dollars, except for per share data) A summary of option activity during fiscal years 1997, 1998 and 1998 follows:
Weighted average Shares exercise price ---------------- ------------------------- Outstanding at December 31, 1997 (176 shares exercisable) 511 $13.71 Granted 537 16.98 Exercised (175) 14.17 Canceled (131) 14.85 ---------------- Outstanding at January 3, 1998 (289 shares exercisable) 742 15.76 Granted 562 34.26 Exercised (154) 14.86 Canceled (251) 23.14 ---------------- Outstanding at January 2, 1999 (142 shares exercisable) 899 25.36 Granted 418 14.32 Exercised (3) 12.72 Canceled (272) 22.00 ---------------- Outstanding at January 1, 2000 (296 shares exercisable) 1,042 20.80 ================
Approximately 296 thousand shares that are exercisable at January 1, 2000 have a weighted average exercise price of $20.72. The table below provides weighted average exercise prices and weighted average remaining contractual life of options outstanding at January 1, 2000, segregated based upon ranges of exercise prices.
Weighted average Weighted Weighted remaining Number Number average average contractual of options of options exercise price exercise price life outstanding exercisable (outstanding) (exercisable) (outstanding) -------------------------------------------------------------------------------- $ 4.31 - $14.69 300 89 $ 8.19 $12.87 6.81 $14.88 - $24.44 390 116 19.11 16.89 7.43 $27.50 - $33.50 327 85 32.58 32.42 8.19 $44.38 25 6 44.38 44.38 8.32
(15) Commitments and Contingent Liabilities Manufacturing facilities at certain locations, showrooms, sales offices and warehouse space are leased under non-cancelable operating lease agreements. These leases generally require the Company to pay all executory costs such as maintenance and taxes. Rental expense for operating leases was approximately $7.6 million, $24.7 million and $36.4 million during fiscal years 1997, 1998 and 1999, respectively. F 21 (continued) PILLOWTEX CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements January 2, 1999 and January 1, 2000 (Tables in Thousands of dollars, except for per share data) Future minimum lease payments under non-cancelable operating leases (with initial or remaining lease terms in excess of one year), which expire at various dates through 2009, are as follows:
Fiscal year Amount ----------- 2000 $28,097 2001 25,254 2002 23,494 2003 22,580 2004 21,959 Thereafter 54,362
From time to time, the Company is a party to various legal proceedings arising in the ordinary course of business. While any proceeding or litigation has an element of uncertainty, management believes that the final outcome of all matters currently pending will not have a materially adverse effect on the Company's financial position, results of operations or liquidity. (16) Concentration of Credit Risk The Company's customers are primarily retailers located throughout the United States and Canada. Although the Company closely monitors the creditworthiness of its customers, adjusting credit policies and limits as needed, a customer's ability to pay is largely dependent upon the retail industry's economic environment. The Company establishes an allowance for doubtful accounts based upon factors surrounding the credit risk of specific customers, historical trends and other information. The Company has trade receivables which are due from certain customers who are experiencing financial difficulties. However, in the opinion of management of the Company, the allowance for doubtful accounts is adequate, and trade receivables are presented at net realizable value. Sales to the Company's two individual major customers, including their affiliated entities, accounted for approximately 13.5% and 12.6% each of net sales in fiscal 1997 and approximately 23.6% and 6.9% each of net sales in fiscal 1998. These two customers accounted for approximately 20.5% and 9.6% each of net sales in fiscal year 1999. (17) Segment Information The Company is organized by functional responsibilities and operates as a single segment. Net sales from bed and bath products were $554.0 million and $26.0 million respectively in 1997 and $870.1 million and $639.7 million, respectively, in fiscal year 1998, and $856.0 million and $696.1 million, respectively, in fiscal year 1999 Net sales to customers domiciled in foreign countries were $37.2 million, $118.8 million and $93.3 million in fiscal years 1997, 1998 and 1999, respectively. At January 3, 1998, January 2, 1999 and January 1, 2000, the Company had long-lived assets domiciled in foreign countries of $4.7 million, $3.8 million and $3.8 million, respectively. The Company's domestic long-lived assets (including intangibles) at January 3, 1998, January 2, 1999 and January 1, 2000 were $764.5 million, $943.2 million and $929.2 million, respectively. F 22 (continued) PILLOWTEX CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements January 2, 1999 and January 1, 2000 (Tables in Thousands of dollars, except for per share data) (18) Selected Quarterly Financial Data (Unaudited) The following tables present unaudited financial data of the Company for each quarter of fiscal years 1998 and 1999.
1998 quarter ended ------------------------------------------------------------------------------------ April 4 July 4 October 3 January 2 ----------------- ---------------- ----------------------- -------------------- Net sales $ 366,375 332,046 419,799 391,621 Gross profit 63,920 58,583 79,866 79,009 Net earnings 5,635 7,092 15,022 15,106 Earnings per common share - basic .37 .47 1.03 1.03 Earnings per common share - diluted .33 .42 .87 .89 1999 quarter ended ------------------------------------------------------------------------------------ April 3 July 3 October 2 January 1 ----------------- ---------------- ----------------------- -------------------- Net sales $ 368,508 362,468 415,806 405,286 Gross profit 56,214 61,560 39,351 35,977 Net earnings (loss) 5,253 6,773 (11,079) (20,479) Earnings (loss) per common share - basic .33 .44 (1.45) (1.57) Earnings (loss) per common share - diluted .31 .40 (1.45) (1.57)
The gross profit for the quarter ended January 1, 2000 includes charges for unabsorbed overhead resulting from idling plants and lower average selling prices, both of which were related to initiatives to reduce inventories. The net loss includes the effects of the items previously described and higher interest costs and bank fees associated with the amendments and waivers to the senior credit facility. F 23 (continued) PILLOWTEX CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements January 2, 1999 and January 1, 2000 (Tables in thousands of dollars, except for per share data) Supplemental Condensed Consolidating Financial Information The following is summarized condensed consolidating financial information for Pillowtex, segregating the Parent and guarantor subsidiaries from non-guarantor subsidiaries. The Guarantor subsidiaries are wholly owned subsidiaries of Pillowtex and guarantees are full, unconditional and joint and several. Separate financial statements of the guarantor subsidiaries are not presented because management believes that these financial statements would not provide relevant material additional information to users of the financial statements.
January 2, 1999 --------------------------------------------------------------------------------- Guarantor Non-Guarantor Parent Subsidiaries Subsidiaries Elimination Consolidated --------------------------------------------------------------------------------- Assets: Trade receivables - 240,909 5,439 - 246,348 Receivable from Affiliates 746,839 - - (746,839) - Inventories - 424,563 9,718 - 434,281 Other current assets - 25,946 582 - 26,528 ----------- ----------- ----------- ----------- ------------ Total current assets 746,839 691,418 15,739 (746,839) 707,157 Property, plant and equipment, net 565 627,114 1,526 - 629,205 Intangibles 19,102 268,478 2,249 - 289,829 Other assets 382,558 17,898 - (372,493) 27,963 ----------- ----------- ----------- ----------- ------------ Total assets 1,149,064 1,604,908 19,514 (1,119,332) 1,654,154 =========== =========== =========== =========== ============ Liabilities and shareholders' equity: Accounts payable and accrued liabilities 6,425 212,823 4,577 - 233,825 Payable to affiliates - 744,000 2,839 (746,839) - Other current liabilities 8,318 27,002 79 - 35,399 ----------- ----------- ----------- ----------- ------------ Total current liabilities 14,743 983,825 7,495 (746,839) 259,224 Noncurrent liabilities 833,331 260,082 527 - 1,093,940 ----------- ----------- ----------- ----------- ------------ Total liabilities 848,074 1,243,907 8,022 (746,839) 1,353,164 Redeemable convertible preferred stock 63,057 - - - 63,057 Shareholders' equity 237,933 361,001 11,492 (372,493) 237,933 ----------- ----------- ----------- ----------- ------------ Total Liabilities and Shareholders' 1,149,064 1,604,908 19,514 (1,119,332) 1,654,154 Equity =========== =========== =========== =========== ============ January 1, 2000 ------------------------------------------------------------------------------------- Guarantor Non-Guarantor Parent Subsidiaries Subsidiaries Elimination Consolidated ------------------------------------------------------------------------------------- Assets: Trade receivables - 260,870 7,629 - 268,499 Receivable from Affiliates 747,324 - - (747,324) - Inventories - 406,801 16,251 - 423,052 Other current assets - 29,769 105 - 29,874 ----------- ---------- --------- ----------- ----------- Total current assets 747,324 697,440 23,985 (747,324) 721,425 Property, plant and equipment, net 467 642,833 1,521 - 644,821 Intangibles 16,831 269,710 2,315 - 288,856 Other assets 493,579 18,930 - (484,222) 28,287 ----------- ---------- --------- ----------- ----------- Total assets 1,258,201 1,628,913 27,821 (1,231,546) 1,683,389 =========== ========== ========= =========== =========== Liabilities and shareholders' equity: Accounts payable and accrued liabilities 6,482 182,218 4,386 - 193,086 Payable to affiliates - 736,720 10,604 (747,324) - Other current liabilities 85,579 37,951 77 - 123,607 ----------- ---------- --------- ----------- ----------- Total current liabilities 92,061 956,889 15,067 (747,324) 316,693 Noncurrent liabilities 884,852 200,446 110 - 1,085,409 ----------- ---------- --------- ----------- ----------- Total liabilities 976,914 1,157,335 15,177 (747,324) 1,402,102 Redeemable convertible preferred stock 73,898 - - - 73,898 Shareholders' equity 207,389 471,578 12,644 (484,222) 207,389 ----------- ---------- --------- ----------- ----------- Total Liabilities and Shareholders' Equity 1,258,201 1,628,913 27,821 (1,231,546) 1,683,389 =========== ========== ========= =========== ===========
(Continued) F 24 PILLOWTEX CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements January 3, 1998, January 2, 1999 and January 1, 2000 (Tables in thousands of dollars, except for per share data)
January 3, 1998 -------------------------------------------------------------- Guarantor Non- Subsidi- Guarantor Elimin- Consoli- Results of operations Parent aries Subsidiaries ations dated - ------------------------------- -------------------------------------------------------------- Net sales 18,759 537,536 29,268 (5,564) 579,999 Cost of goods sold 11,523 453,149 26,571 (5,564) 485,679 ------------------------------------------------------------- Gross Profit 7,236 84,387 2,697 - 94,320 Selling, general and administrative expenses 3,990 46,624 1,476 - 52,090 Restructuring Charges - 5,986 - - 5,986 Impairments - - - - - ------------------------------------------------------------- Earnings from operations 3,246 31,777 1,221 - 36,244 Equity in earnings(loss) of subsidiaries 5,951 - - (5,951) - Interest expense (income) (764) 23,239 (5) - 22,470 ------------------------------------------------------------- Earnings(loss) before income tax and extraordinary items 9,961 8,538 1,226 (5,951) 13,774 Income taxes 1,725 3,687 126 - 5,538 ------------------------------------------------------------- Earnings(loss) before extraordinary items 8,236 4,851 1,100 (5,951) 8,236 Extraordinary loss (919) - - - (919) ------------------------------------------------------------- Net earnings(loss) 7,317 4,851 1,100 (5,951) 7,317 Preferred dividends and accretion 85 - - - 85 ------------------------------------------------------------- Earnings(loss) available for common shareholders 7,232 4,851 1,100 (5,951) 7,232 ============================================================= January 2, 1999 ---------------------------------------------------------------- Guarantor Non- Subsidi- Guarantor Elimin- Consoli- Results of operations Parent aries Subsidiaries ations dated - ------------------------------------ ---------------------------------------------------------------- Net sales - 1,487,685 27,650 (5,494) 1,509,841 Cost of goods sold - 1,208,888 25,069 (5,494) 1,228,463 ---------------------------------------------------------------- Gross Profit - 278,797 2,581 - 281,378 Selling, general and administrative expenses (5,035) 140,800 1,542 - 137,307 Restructuring Charges - 1,539 - - 1,539 Impairments - - - - - ---------------------------------------------------------------- Earnings from operations 5,035 136,458 1,039 - 142,532 Equity in earnings(loss) of subsidiaries 39,838 - - (39,838) - Interest expense (income) 394 71,912 (18) - 72,288 ---------------------------------------------------------------- Earnings(loss) before income tax 44,479 64,546 1,057 (39,838) 70,244 and extraordinary items Income taxes 1,624 25,673 92 - 27,389 ---------------------------------------------------------------- Earnings(loss) before extraordinary items 42,855 38,873 965 (39,838) 42,855 Extraordinary loss - - - - - ---------------------------------------------------------------- Net earnings(loss) 42,855 38,873 965 (39,838) 42,855 Preferred dividends and accretion 2,097 - - - 2,097 ---------------------------------------------------------------- Earnings(loss) available for common shareholders 40,758 38,873 965 (39,838) 40,758 =============================================================== (Continued) January 1, 2000 --------------------------------------------------------------- Guarantor Non- Subsidi- Guarantor Elimin- Consoli- Results of operations Parent aries Subsidiaries ations dated - ----------------------------------- --------------------------------------------------------------- Net sales - 1,534,272 25,902 (8,106) 1,552,068 Cost of goods sold - 1,342,163 24,909 (8,106) 1,358,966 --------------------------------------------------------------- Gross Profit - 192,109 993 - 193,102 Selling, general and administrative expenses (5,477) 135,877 856 - 131,256 Restructuring Charges - - - - - Impairments - 2,000 - - 2,000 --------------------------------------------------------------- Earnings from operations 5,477 54,232 137 - 59,846 Equity in earnings(loss) of subsidiaries (21,793) - - 21,793 - Interest expense (income) 1,998 85,301 (20) - 87,279 --------------------------------------------------------------- Earnings(loss) before income tax and extraordinary items (18,314) (31,069) 157 21,793 (27,433) Income taxes 1,218 (9,042) (77) - (7,901) --------------------------------------------------------------- Earnings(loss) before extraordinary items (19,532) (22,027) 234 21,793 (19,532) Extraordinary loss - - - - - --------------------------------------------------------------- Net earnings(loss) (19,532) (22,027) 234 21,793 (19,532) Preferred dividends and accretion 12,294 - - - 12,294 --------------------------------------------------------------- Earnings(loss) available for common shareholders (31,826) (22,027) 234 21,793 (31,826) =============================================================== (Continued)
F 25 PILLOWTEX CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements January 3, 1998, January 2, 1999 and January 1, 2000 (Tables in thousands of dollars, except for per share data)
Years ended ------------------------------------------------------------------------------------------------------ January 3, 1998 January 2, 1999 ------------------------------------------------- --------------------------------------------------- Cash Flows Non- Non- Guarantor Guarantor Guarantor Guarantor Subsidi- Subsidi- Elimin- Consoli- Subsidi- Subsidi- Elimin- Consoli Parent aries aries ations date Parent aries aries ations -dated ------------------------------------------------------------------------------------------------------ Net cash Provided by (used in) operating activities 1,383 12,330 3,673 -- 17,386 15,090 40,532 (1,012) -- 54,610 Net cash used in investing activities (157,858) (392,940) (65) -- (550,863) (93,964) (108,069) (90) -- (202,123) Net cash Provided by (used in) financing activities 156,475 385,188 (3,602) -- 538,061 78,874 68,501 1,095 -- 148,470 ----------------------------------------------- ------------------------------------------------- Net change in cash and cash equivalents -- 4,578 6 -- 4,584 -- 964 (7) -- 957 Cash and cash equivalents at beginning of period -- 12 8 -- 20 -- 4,590 14 -- 4,604 ----------------------------------------------- ------------------------------------------------- Cash and cash equivalents end of period -- 4,590 14 -- 4,604 -- 5,554 7 -- 5,561 =============================================== ================================================= --------------------------------------------------- January 1, 2000 --------------------------------------------------- Cash Flows Non- Guarantor Guarantor Subsidi- Subsidi- Elimin- Consoli Parent aries aries ations -dated --------------------------------------------------- Net cash Provided by (used in) operating activities (32,752) 50,172 (7,886) -- 9,534 Net cash used in investing activities 98 (83,569) (115) -- (83,586) Net cash Provided by (used in) financing activities 32,654 32,697 7,994 -- 73,345 -------------------------------------------------- Net change in cash and cash equivalents -- (700) (7) -- (707) Cash and cash equivalents at beginning of period -- 5,554 7 -- 5,561 -------------------------------------------------- Cash and cash equivalents end of period -- 4,854 -- -- 4,854 ==================================================
F 26 Schedule II PILLOWTEX CORPORATION Valuation and Qualifying Accounts Years ended January 3, 1998, January 2, 1999 and January 1, 2000 (Dollars in Thousands)
Additions Deductions -------------------------------------- --------------- Balance at beginning Charged to Other Write-offs/ Balance at end of period Charged to Expense Accounts Recoveries of period ------------------------ -------------------- ----------------- --------------- -------------------- Allowance for: Returns & Allowances and Doubtful Accounts Year ended 1997 2,475 13,789 11,268 (2) 12,762 (1) 14,770 ============ =========== =========== ============ ================ Year ended 1998 14,770 26,764 6,570 (2) 26,987 (1) 21,117 ============ =========== =========== ============ ================ Year ended 1999 21,117 22,748 - 10,514 (1) 33,351 ============ =========== =========== ============ ================ Inventory reserves: Year ended 1997 3,285 4,337 3,168 (2) 1,378 9,412 ============ =========== =========== ============ ================ Year ended 1998 9,412 11,034 2,908 (2) 8,039 15,315 ============ =========== =========== ============ ================ Year ended 1999 15,315 14,302 - 12,410 17,207 ============ =========== =========== ============ ================
(1) Accounts written off, less recoveries (2) Includes reserves for acquired companies as of the date of acquisition During the third quarter of 1999, the Company recorded a $4.9 million pre-tax non-cash charge to reduce certain blanket inventory to net realizable value. S 1 EX-4.4 2 SUPPLEMENTAL INDENTURE EXHIBIT 4.4 Supplemental Indenture ---------------------- This Supplemental Indenture, dated as of December 19, 1997 (this "Supplemental Indenture"), among Pillowtex Corporation, a Texas corporation (the "Company"), the corporations listed on Exhibit A hereto (individually, a "New Guarantor" and collectively, the "New Guarantors"), and Bank One, N.A. (formerly known as Bank One, Columbus, N.A.), as Trustee (the "Trustee"), supplements the Indenture, dated as of November 12, 1996 (the "Indenture"), between the Company and the Trustee under which the Company's 10% Senior Subordinated Notes due 2006 (the "Notes") were issued and are outstanding. RECITALS A. In connection with the merger (the "Merger") of Pegasus Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary ("Newco") of the Company, with and into Fieldcrest Cannon, Inc., a Delaware corporation ("Fieldcrest"), pursuant to an Agreement and Plan of Merger, dated as of September 10, 1997, among the Company, Fieldcrest, and Newco on the date hereof, the New Guarantors are becoming Subsidiaries of the Company and are guaranteeing, and are granting a security interest in all of their presently unencumbered assets to secure, the payment of certain Senior Indebtedness (as such term is defined in the Indenture) of the Company. B. Section 4.13 of the Indenture does not permit any Subsidiary of the Company that is not a Guarantor to guarantee or secure through the granting of liens the payment of any Senior Indebtedness unless such Subsidiary, the Company and the Trustee execute and deliver a supplemental indenture to the Indenture evidencing such Subsidiary's guarantee, on a senior subordinated basis, of the Notes. C. This Supplemental Indenture is being entered into to comply with the provisions of Section 4.13 of the Indenture. D. In consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and to comply with Section 4.13 of the Indenture, the Company, the Guarantors and the Trustee hereby agree as follows: Section 1. Defined Terms. Capitalized terms used and not otherwise ------------- defined herein have the respective meanings assigned to such terms in the Indenture. Section 2. Subsidiary Guarantees. For value received, each of the New --------------------- Guarantors hereby jointly and severally, together with all of the Guarantors, unconditionally guaranty, to the extent set forth in the Indenture and subject to the provisions in the Indenture, (a) the due and punctual payment of the principal of, and premium, if any, and interest on, the Notes, whether at maturity, by acceleration, redemption or otherwise, the due and punctual payment of interest on overdue principal and premium, if any, and, to the extent permitted by law, interest, and the due and punctual performance of all other obligations of the Company to the Holders or the Trustee all in accordance with the terms of the Indenture and (b) in case of any extension of time of payment or renewal of any Notes or any of such other obligations, that the same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration, redemption or otherwise. The obligations of the Guarantors to the Holders of Notes and to the Trustee pursuant to the Subsidiary Guarantee and the Indenture are expressly set forth in Article 11 of the Indenture and reference is hereby made to the Indenture for the precise terms of the Subsidiary Guarantee. The Indebtedness evidenced by this guarantee is, to the extent and in the manner provided in the Indenture, subordinate and subject in right of payment to the prior payment in full of all Guarantor Senior Indebtedness as defined in the Indenture, and this guarantee is issued subject to such provisions. Each of the New Guarantors, by execution and delivery of this Supplemental Indenture, agrees to and shall be bound by the terms of the Indenture applicable to the Guarantors, including without limitation, Article 11 thereof. Section 3. Ratification. The Indenture as hereby supplemented is in all ------------ respects ratified and confirmed by each of the Company, the New Guarantors and the Trustee, and all of the rights and powers created thereby or thereunder shall be and remain in full force and effect. Section 4. Governing Law. This Supplemental Indenture and the Securities ------------- shall be governed by and construed in accordance with the laws of the State of New York. Section 5. Successors. All agreements of the Company and the New ---------- Guarantors in this Supplemental Indenture shall bind its successors. All agreements of the Trustee in this Supplemental Indenture shall bind its successors. Section 6. Multiple Counterparts. The parties may sign multiple --------------------- counterparts of this Supplemental Indenture. Each signed counterpart shall be deemed an original, but all of them together represent the same agreement. IN WITNESS WHEREOF, the undersigned have caused this Supplemental Indenture to be executed by its duly authorized officer as of the date first above written. PILLOWTEX CORPORATION Attest: By: Jeffrey D. Cordes Brenda Sanders Title: FIELDCREST CANNON, INC. Attest: By: Jeffrey D. Cordes Brenda Sanders Title: CRESTFIELD COTTON COMPANY Attest: By: Jeffrey D. Cordes Brenda Sanders Title: ENCEE, INC. Attest: By: Jeffrey D. Cordes Brenda Sanders Title: FCC CANADA, INC. Attest: By: Jeffrey D. Cordes Brenda Sanders Title: FIELDCREST CANNON FINANCING, INC. Attest: By: Jeffrey D. Cordes Brenda Sanders Title: FIELDCREST CANNON LICENSING, INC. Attest: By: Jeffrey D. Cordes Brenda Sanders Title: FIELDCREST CANNON INTERNATIONAL, INC. Attest: By: Jeffrey D. Cordes Brenda Sanders Title: FIELDCREST CANNON SURE FIT, INC. Attest: By: Jeffrey D. Cordes Brenda Sanders Title: FIELDCREST CANNON TRANSPORTATION, INC. Attest: By: Jeffrey D. Cordes Brenda Sanders Title: ST. MARYS, INC. Attest: By: Jeffrey D. Cordes Brenda Sanders Title: AMOSKEAG COMPANY Attest: By: Jeffrey D. Cordes Brenda Sanders Title: AMOSKEAG MANAGEMENT CORPORATION Attest: By: Jeffrey D. Cordes Brenda Sanders Title: DOWNEAST SECURITIES CORPORATION Attest: By: Jeffrey D. Cordes Brenda Sanders Title: BANGOR INVESTMENT COMPANY Attest: By: Jeffrey D. Cordes Brenda Sanders Title: MOORE'S FALLS CORPORATION Attest: By: Jeffrey D. Cordes Brenda Sanders Title: BANK ONE, N.A., Trustee By: Victoria Paulick Title: Authorized Signatory EX-4.5 3 SECOND SUPPLEMENTAL INDENTURE Exhibit 4.5 SECOND SUPPLEMENTAL INDENTURE ----------------------------- This Second Supplemental Indenture, dated as of July 28, 1998 (this "Second Supplemental Indenture"), among Pillowtex Corporation, a Texas corporation (the "Company"), the corporations listed on Exhibit A hereto (individually, a "New Guarantor" and collectively, the "New Guarantors"), and Bank One, N.A. (formerly known as Bank One, Columbus, N.A.), as Trustee (the "Trustee"), supplements the Indenture, dated as of November 12, 1996, as previously supplemented by that certain Supplemental Indenture dated as of December 19, 1997 (the "Indenture"), between the Company and the Trustee under which the Company's 10% Senior Subordinated Notes due 2006 (the "Notes") were issued and are outstanding. RECITALS A. In connection with the merger (the "Merger") of PTI Acquisition Corp., a Delaware corporation and a wholly owned subsidiary ("PTI") of the Company, with and into The Leshner Corporation, an Ohio corporation ("Leshner"), who has two wholly owned Subsidiaries, Opelika Industries, Inc., an Alabama corporation, and Leshner of California, a California corporation, pursuant to an Agreement and Plan of Merger, dated as of June 5, 1998, among the Company, Leshner, and PTI, the New Guarantors are becoming Subsidiaries of the Company and are guaranteeing, and are granting a security interest in all of their presently unencumbered assets to secure, the payment of certain Senior Indebtedness (as such term is defined in the Indenture) of the Company. B. Section 4.13 of the Indenture does not permit any Subsidiary of the Company that is not a Guarantor to guarantee or secure through the granting of liens the payment of any Senior Indebtedness unless such Subsidiary, the Company and the Trustee execute and deliver a Second Supplemental Indenture to the Indenture evidencing such Subsidiary's guarantee, on a senior subordinated basis, of the Notes. C. This Second Supplemental Indenture is being entered into to comply with the provisions of Section 4.13 of the Indenture. D. In consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and to comply with Section 4.13 of the Indenture, the Company, the Guarantors and the Trustee hereby agree as follows: Section 1. Defined Terms. Capitalized terms used and not otherwise ------------- defined herein have the respective meanings assigned to such terms in the Indenture. Section 2. Subsidiary Guarantees. For value received, each of the New --------------------- Guarantors hereby jointly and severally, together with all of the Guarantors, unconditionally guaranty, to the extent set forth in the Indenture and subject to the provisions in the Indenture, (a) the due and punctual payment of the principal of, and premium, if any, and interest on, the Notes, whether at maturity, by acceleration, redemption or otherwise, the due and punctual payment of interest on overdue principal and premium, if any, and, to the extent permitted by law, interest, and the due and punctual performance of all other obligations of the Company to the Holders or the Trustee all in accordance with the terms of the Indenture and (b) in case of any extension of time of payment or renewal of any Notes or any of such other obligations, that the same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration, redemption or otherwise. The obligations of the Guarantors to the Holders of Notes and to the Trustee pursuant to the Subsidiary Guarantee and the Indenture are expressly set forth in Article 11 of the Indenture and reference is hereby made to the Indenture for the precise terms of the Subsidiary Guarantee. The Indebtedness evidenced by this guarantee is, to the extent and in the manner provided in the Indenture, subordinate and subject in right of payment to the prior payment in full of all Guarantor Senior Indebtedness as defined in the Indenture, and this guarantee is issued subject to such provisions. Each of the New Guarantors, by execution and delivery of this Second Supplemental Indenture, agrees to and shall be bound by the terms of the Indenture applicable to the Guarantors, including without limitation, Article 11 thereof. Section 3. Ratification. The Indenture as hereby supplemented is in all ------------ respects ratified and confirmed by each of the Company, the New Guarantors and the Trustee, and all of the rights and powers created thereby or thereunder shall be and remain in full force and effect. Section 4. Governing Law. This Second Supplemental Indenture and the ------------- Securities shall be governed by and construed in accordance with the laws of the State of New York. Section 5. Successors. All agreements of the Company and the New ---------- Guarantors in this Second Supplemental Indenture shall bind its successors. All agreements of the Trustee in this Second Supplemental Indenture shall bind its successors. Section 6. Multiple Counterparts. The parties may sign multiple --------------------- counterparts of this Second Supplemental Indenture. Each signed counterpart shall be deemed an original, but all of them together represent the same agreement. [Remainder of page intentionally left blank. Signature pages follow.] IN WITNESS WHEREOF, the undersigned have caused this Second Supplemental Indenture to be executed by its duly authorized officer on May __, 1999 to be effective as of July 28, 1998. PILLOWTEX CORPORATION Attest: By: Ronald M. Wehtje John Sterling Name: Ronald M. Wehtje Title: Sr. VP & CFO THE LESHNER CORPORATION Attest: By: Ronald M. Wehtje John Sterling Name: Ronald M. Wehtje Title: Sr. VP & CFO OPELIKA INDUSTRIES, INC. Attest: By: Ronald M. Wehtje John Sterling Name: Ronald M. Wehtje Title: Sr. VP & CFO LESHNER OF CALIFORNIA Attest: By: Ronald M. Wehtje John Sterling Name: Ronald M. Wehtje Title: Sr. VP & CFO BANK ONE, N.A., Trustee By: -------------------------------- Name: Title: Exhibit A Guarantors ---------- The Leshner Corporation, an Ohio corporation Opelika Industries, Inc., an Alabama corporation Leshner of California, Inc., a California corporation EX-4.6 4 REGIGNATION, APPOINTMENT AND ACCEPTANCE AGREEMENT Exhibit 4.6 RESIGNATION, APPOINTMENT AND ACCEPTANCE AGREEMENT THIS AGREEMENT OF RESIGNATION, APPOINTMENT AND ACCEPTANCE (this "Agreement") dated as of January 19, 2000, by and among Bank One, N.A., fka Bank One, Columbus, N.A., (the "Prior Trustee"), U.S. Bank National Association, a national banking association duly organized under the laws of the United States of America (the "Successor"), and Pillowtex Corporation (the "Issuer"). This instrument shall be governed by and construed in accordance with the laws of the State of New York. WHEREAS, the Issuer issued its $125,000,000 10% Senior Subordinated Notes due 2006 of which $125,000,000 are outstanding (the "Notes"), under an Indenture dated as of November 12, 1996, as supplemented by a Supplemental Indenture dated as of December 19, 1997 and a Second Supplemental Indenture dated as of July 28, 1998 (collectively, the "Indenture"), between the Issuer and the Prior Trustee; and WHEREAS, the Successor following the execution and delivery of this instrument, will cause the notice required pursuant to the Indenture, a form of which is annexed hereto marked as Exhibit A, to be mailed to the registered Holders of the Notes as required by the Indenture; and WHEREAS, the Indenture further provides that, if the Trustee shall resign, the Issuer shall promptly appoint a successor Trustee; and WHEREAS, the Prior Trustee desires to resign as Trustee and the Issuer desires to appoint Successor as successor Trustee under the Indenture, and Successor desires to serve as successor Trustee subject to the terms and conditions of the Indenture and this Agreement; and NOW THEREFORE, in consideration of the mutual covenants and agreement herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: ARTICLE I RESIGNATION Section 10 1 Resignation of Prior Trustee. Prior Trustee hereby resigns as Trustee under the Indenture and related legal documents; such resignation to become effective immediately prior to the opening of business on the Effective Date (as hereinafter defined). Notwithstanding the resignation of the Prior Trustee as Trustee under the Indenture, the Issuer shall remain obligated to indemnify the Trustee in accordance with Section 7.07 of the Indenture. Section 1.02 Notice of Resignation to Issuer. The Prior Trustee has given written notice of its desire to resign to the Issuer pursuant to the Indenture, attached as Exhibit B. - 1 - ARTICLE II APPOINTMENT OF SUCCESSOR TRUSTEE Section 2.01 Appointment. The Issuer hereby appoints Successor to serve as successor Trustee, Registrar and Paying Agent with all the authority, rights and powers which are vested in, and all duties and obligations which are binding on, the Trustee under the Indenture and related documents, effective at the opening of business on the first Business Day following the date upon which Prior Trustee receives a fully executed counterpart of this Agreement (the "Effective Date"). As used herein, Business Day means a day on which banks in the city where the principal corporate trust office of the Successor is located, are not required or authorized to remain closed and on which the New York Stock Exchange is not closed. Section 2.02 Acceptance. Successor is qualified to serve as successor Trustee and hereby accepts the appointment by the Issuer and agrees to serve as successor Trustee under the Indenture and to perform the duties and obligations of the Trustee under the Indenture, effective at the opening of business on the Effective Date. Section 2.03 Vesting of Rights, Powers and Duties. In accordance with the provisions of the Indenture, all rights, powers and duties of the Trustee under the Indenture shall be vested in and undertaken by Successor, effective at the opening of business on the Effective Date. Section 2.04 Notice to Holders. Successor agrees to notify all registered Holders of its appointment as successor Trustee in accordance with the terms of Section 7.08 of the Indenture and in substantially the same form and content as Exhibit A. Section 2.O5 Assignment of Powers and Property. Prior Trustee hereby confirms, assigns, transfers and sets over to Successor, its successors and assigns in trust under the Indenture, all property, rights, powers, duties, trusts, immunities and obligations of Prior Trustee as Trustee. Section 2.06 Further Assurances. Prior Trustee hereby agrees, upon reasonable request of Successor, to execute, acknowledge and deliver such further instruments of transfer and further assurances and to do such other things as may reasonably be required for more fully and certainly vesting and confirming in Successor all the property, rights, powers, duties, trusts, immunities and obligations of Prior Trustee as Trustee under the Indenture arid related documents. Section 2.07 Conversion. Prior Trustee shall transfer the following items to Successor on or prior to the Effective Date: a. Original executed copies of the Indenture, and closing transcripts; b. Registered holder lists (including name, address, tax - 2 - identification number and detailed holdings for each holder) certified to be accurate by the Prior Trustee; c. Note debt service and loan payment records; d. Trust account statements for a one-year period preceding the Effective Date; e. All securities and moneys held by Prior Trustee pursuant to the Indenture; f. All Notices sent to Holders and Issuer regarding any current or continuing defaults; g. All unissued Note inventory or DTC FAST held global certificates; and h. Such other documentation as Successor may reasonably require in order to transfer the appointment to it. ARTICLE III MISCELLANEOUS Section 3.01 Definitions. Terms not otherwise defined in this Agreement shall have the meanings given thereto in the Indenture. Section 3.02 Compensation. The Issuer agrees to pay to Successor reasonable compensation for the services it provides as successor Trustee and in such other capacities as to which it may be appointed with respect to the Notes. The Issuer and Successor may from time to time enter into agreements specifying the amount, or containing provisions for determining the amount, of compensation payable to Successor. Section 3.03 Counterparts. This Agreement may be executed in a number of counterparts, each of which shall constitute and original, but such counterparts shall together constitute but one and the same instrument. Section 3.04 Preservation of Rights. Except as expressly provided herein, nothing contained in this Agreement shall in any way affect the obligations or rights of the Issuer, the Trustee, or any Holder under the Indenture and related documents. Section 3.05 Severability. In the event any provision of this Agreement shall be held invalid or unenforceable by any court of competent jurisdiction, such holding shall not invalidate or render unenforceable any other provision hereof. Section 3.06 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of Prior Trustee, Successor and their respective successors and assigns. - 3 - ARTICLE IV REPRESENTATIONS AND WARRANTIES Section 4.01 Representations and Warranties of the Prior Trnstee. a. Prior Trustee is a national banking association duly organized and existing under the laws of the United States, is authorized to conduct a general banking business with trust powers and is subject to the supervision of the Comptroller of the Currency of the United States as provided in the National Bank Act. b. Prior Trustee has the corporate power and authority to enter into this Agreement. Upon execution and delivery, this Agreement shall constitute a valid and binding obligation of Prior Trustee. c. Prior Trustee is a duly appointed, authorized and acting trustee and/or paying agent for the Notes. To the best of its knowledge, such appointment has been administered by Prior Trustee consistent with the authority granted to it by the governing instrument and by applicable law. d. Prior Trustee represents and states that to the best of its knowledge, there is not an Event of Default under the Indenture in existence as of the Effective Date, e. Prior Trustee retains continued responsibility for its actions or omissions during its term as Trustee under the Indenture. Section 4.03 Representations and Warranties of Successor. a. Successor is a national banking association duly organized and existing of the United States with trust powers and is subject to the the Comptroller of the Currency of the United States as National Banking Act, b. Successor has the corporate power and authority to enter into this Agreement. Upon execution and delivery, this Agreement will constitute a valid and binding obligation of Successor. c. Successor is qualified and eligible to serve as Trustee, in accordance with provisions 0(Pounds) the Indenture, including but not limited to, Section 7.10 of the Indenture. ARTICLE V NOTICES Section 5.0l Notices. All notices, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given if delivered in person or by first class United States mail, as follows: - 4 - a. If to Prior Trustee; Bank One, N.A. 100 East Broad Street, 8th Floor Columbus, OH 43271-0181 Attention: Joseph C Ludes b. If to Successor; U.S. Bank National Association 180 East Fifth Street St. Paul, MN 55101 Attention: Corporate Trust Administration c. If to Issuer; Pillowtex Corporation 4111 Mint Way Dallas, TX 75237 Intending to be legally bound, the parties hereto have executed this Agreement by their duly authorized corporate officers as of the dates provided below. BANK ONE, N.A., as Prior Trustee By: Jospeh C. Ludes Title: Vice President Date: U.S. BANK NATIONAL ASSOCIATION, as Successor Trustee By: Lou-Anne Rosenberg Title: Assistant Vice President Date: PILLOWTEX CORPORATION, as Issuer By: Jaime Vasquez Title: Vice President and Treasurer Date: 1/19/00 Intending to be legally bound, the parties hereto have executed this Agreement by their duly authorized corporate officers as of the - 5 - dates provided below. BANK ONE, N-A., as Prior Trustee By: Joseph C. Ludes Title: Vice President Date: U.S BANK NATIONAL ASSOCIATION, as Successor Trustee By: Lori-Anne Rosenberg Title: Assistant Vice President Date: PILLOWTEX CORPORATION, as Issuer By: Title: Date: - 6 - EXHIBIT A Notice to Holders of PILLOWTEX CORPORATION $125,000,000 10% Senior Subordinated Notes due 2006 CUSIP 721501 AB O U.S. Bank National Association hereby notifies you of the resignation of Bank One, as Trustee under the Indenture, dated as of November 12, 1996, pursuant to which your Notes were issued and are outstanding. Pillowtex Corporation has appointed U.S. Bank National Association, whose Corporate Trust Office is located at 180 East Fifth Street, St. Paul, Minnesota 55101, as Successor Trustee under the Indenture, which appointment has been accepted and became effective as of January 19, 2000. Dated as of this date January 19, 2000 By: U.S. Bank National Association, as Successor Trustee - 7 - EXHIBIT B Attention: Secretary Gentlemen: NOTICE IS HEREBY GIVEN THAT, pursuant to Section 7.08 of the Indenture dated as of November 12, 1996 (the "Indenture") between Pillowtex Corporation (the "Company") and Bank One, N.A ("BANK ONE") as Trustee, BANK ONE hereby resigns as Trustee under the Indenture, such resignation to be effective upon the appointment, pursuant to Section 7.08 of the Indenture, of a successor Trustee, and the acceptance of such appointment by such successor Trustee, pursuant to Section 7.O8 of the Indenture. Would yon please acknowledge receipt of this notice by signing two copies and returning them to us. Very truly yours, By Vice President - 8 - EX-10.7 5 SIXTH AMENDMENT AND WAIVER TO CREDIT AGREEMENT Exhibit 10.7 SIXTH AMENDMENT AND WAIVER TO AMENDED AND RESTATED CREDIT AGREEMENT THIS SIXTH AMENDMENT AND WAIVER TO AMENDED AND RESTATED CREDIT AGREEMENT (this "Waiver"), dated as of February 15, 2000, is entered into among PILLOWTEX CORPORATION, a Texas corporation (the "Borrower"), the institutions listed on the signature pages hereof that are parties to the Credit Agreement defined below (collectively, the "Lenders"), and BANK OF AMERICA, N.A. (formerly known as NationsBank, N.A., successor by merger to NationsBank of Texas, N.A.), as Administrative Agent for itself and the Lenders (in said capacity, the "Administrative Agent"). BACKGROUND ---------- A. The Borrower, the Lenders and the Administrative Agent are parties to that certain Amended and Restated Credit Agreement, dated as of December 19, 1997 (as amended through the date hereof, the "Credit Agreement"). Terms defined in the Credit Agreement and not otherwise defined herein shall be used herein as defined in the Credit Agreement. B. The Borrower has requested a waiver of certain Events of Default under the Credit Agreement. NOW, THEREFORE, in consideration of the covenants, conditions and agreements hereinafter set forth, and for other good and valuable consideration, the receipt and adequacy of which are all hereby acknowledged, the Borrower, the Lenders and the Administrative Agent covenant and agree as follows: 1. WAIVER. Subject to the satisfaction of the conditions of effectiveness ------ set forth in Section 10 of this Waiver and the other conditions contained ----------- herein, the Lenders hereby waive (a) the Event of Default with respect to Section 7.11 of the Credit Agreement which occurred as a result of the failure - ------------ of the Borrower to comply with the required Leverage Ratio at the end of the Fiscal Quarter ended October 2, 1999, (b) the Event of Default which occurred as a result of the failure of the Borrower to cause a lien to be granted to the Administrative Agent, for the benefit of the Lenders, on certain leasehold property in Phenix City, Alabama, on or before January 15, 2000, and (c) any Events of Default with respect to Sections 7.11, 7.12, and 7.13 of the Credit ------------- ---- ---- Agreement which may occur as a result of the failure of the Borrower to comply with the required Leverage Ratio, Fixed Charge Coverage Ratio, and Net Worth at the end of the Fiscal Quarter ended January 1, 2000 (the "Existing Events of ------------------ Default"). The waiver provided in this Section 1 shall not be and shall not be - ------- --------- deemed to be a waiver of any Events of Default under the Credit Agreement other than the Existing Events of Default. 2. TERMINATION. The Waiver described in Section 1 above shall terminate ----------- --------- automatically without any action by the Administrative Agent, the Lenders or any other Person and be of no further force or effect upon termination of the Waiver Period. For purposes hereof, the "Waiver Period" shall mean the period commencing on the effective date of this ------------- Waiver and terminating upon the earliest to occur of (a) March 31, 2000, (b) the declaration or payment by the Borrower of any cash dividends in respect of any Capital Stock of the Borrower, or (c) the occurrence of any Event of Default other than the Existing Events of Default. 3. AMENDMENTS TO CREDIT AGREEMENT. The Credit Agreement is hereby amended ------------------------------ as follows: (a) Section 1.1 is amended by entirely amending the following ----------- definition: "Fieldcrest Cannon Subordinated Debenture Reserve" means (a) for the ------------------------------------------------ period from and including October 8, 1999 through and including March 31, 2000, zero, and (b) for the period from and including April 1, 2000 and thereafter, an amount equal to 50% of the aggregate amount of cash consideration that may be requested, at any time of determination, by the holders of Fieldcrest Cannon Subordinated Debentures in respect of a conversion thereof. (b) Section 10.1(f) is hereby amended by inserting the text, ", --------------- financial advisors," immediately following the word, "attorneys" in the first sentence thereof. 4. BORROWING BASE. Notwithstanding anything in the Credit Agreement or -------------- any other Loan Document, commencing on the date of this Waiver and continuing at all times thereafter the Borrower shall not permit the sum of (a) the outstanding principal amount of all Revolving Credit Advances, Facility A Term Loan Advances and Facility B Term Loan Advances and (b) without duplication, the Reimbursement Obligations, to exceed (i) the book value of the Liquid Assets of the Borrower and each other Obligor, provided that an Event of Default shall -------- ---- arise from Borrower's failure to comply with this clause (i) only if such ---------- failure continues for seven days after a Responsible Officer of Borrower knows or reasonably should know of such failure, or (ii) 102.50% of the book value of the Liquid Assets of the Borrower and each other Obligor. For purposes hereof, "Liquid Assets" shall mean net accounts receivable, net inventory and cash balances. 5. CAPITAL EXPENDITURES. Notwithstanding anything in the Credit Agreement -------------------- or any other Loan Document, during the Waiver Period the Borrower shall not, and shall not permit any of its Subsidiaries to, make any Capital Expenditures in an aggregate amount that exceeds $8,000,000. 6. WAIVER FEE. Borrower shall pay to the Administrative Agent, for the ---------- pro rata benefit of the Lenders that execute and deliver this Waiver to the Administrative Agent (or its counsel) not later than 5:00 p.m., Dallas time, February 15, 2000, a waiver fee in an amount equal to the product of (a) 0.15% multiplied by (b) an amount equal to such Lender's portion of the Commitment. Such waiver fee shall be paid in immediately available funds and shall be payable only if the conditions set forth in Section 10 of this Waiver have been ---------- satisfied and shall be due and payable to each Lender eligible for payment pursuant to the preceding sentence no later than two -2- Business Days after the conditions set forth in Section 10 of this Waiver have ---------- been satisfied. The Borrower agrees that the failure to pay the waiver fee provided in this Section 6 shall, after the expiration of any applicable grace --------- period, be an Event of Default under Section 8.1(b)(ii) of the Credit Agreement. ------------------ 7. OVERLINE FACILITY. During the Waiver Period, the Borrower shall not ----------------- make any payments or prepayments of principal owing under the Overline Facility. 8. RELEASE. ------- (a) The Borrower and each Guarantor hereby unconditionally and irrevocably remises, acquits, and fully and forever releases and discharges the Administrative Agent and the Lenders and all respective affiliates and subsidiaries of the Administrative Agent and the Lenders, their respective officers, servants, employees, agents, attorneys, principals, directors and shareholders, and their respective heirs, legal representatives, successors and assigns (collectively, the "Released Lender Parties") from any and all ----------------------- claims, demands, causes of action, obligations, remedies, suits, damages and liabilities (collectively, the "Borrower Claims") of any nature --------------- whatsoever, whether now known, suspected or claimed, whether arising under common law, in equity or under statute, which the Borrower or any Guarantor ever had or now has against the Released Lender Parties which may have arisen at any time on or prior to the date of this Waiver and which were in any manner related to any of the Loan Documents or the enforcement or attempted enforcement by the Administrative Agent or the Lenders of rights, remedies or recourses related thereto. (b) The Borrower and each Guarantor covenants and agrees never to commence, voluntarily aid in any way, prosecute or cause to be commenced or prosecuted against any of the Released Lender Parties any action or other proceeding based upon any of the Borrower Claims which may have arisen at any time on or prior to the date of this Waiver and were in any manner related to any of the Loan Documents. (c) The agreements of the Borrower and each Guarantor set forth in this Section 8 shall survive termination of this Waiver and the other Loan --------- Documents. 9. REPRESENTATIONS AND WARRANTIES. By its execution and delivery hereof, ------------------------------ the Borrower represents and warrants to the Lenders that, as of the date hereof: (a) after giving effect to the waiver set forth in Section 1 of this --------- Waiver, the representations and warranties contained in the Credit Agreement and the other Loan Documents are true and correct on and as of the date hereof as if made on and as of such date; (b) after giving effect to the waiver set forth in Section 1 of this --------- Waiver, no event has occurred and is continuing which constitutes an Event of Default; -3- (c) the Borrower has full power and authority to execute and deliver this Waiver, and this Waiver constitutes the legal, valid and binding obligation of the Borrower, enforceable in accordance with its terms, except as enforceability may be limited by applicable Debtor Relief Laws and by general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law) and except as rights to indemnity may be limited by federal or state securities laws; (d) neither the execution, delivery and performance of this Waiver nor the consummation of any transactions contemplated herein will conflict with any Law, the articles of incorporation, bylaws or other governance document of the Borrower or any of its Subsidiaries, or any indenture, agreement or other instrument to which the Borrower or any of its Subsidiaries or any of their respective property is subject; and (e) no authorization, approval, consent, or other action by, notice to, or filing with, any governmental authority or other Person (including the Board of Directors of the Borrower or any Guarantor), is required for the execution, delivery or performance by the Borrower of this Waiver or the acknowledgment of this Waiver by any Guarantor. 10. CONDITIONS OF EFFECTIVENESS. This Waiver shall be effective as of --------------------------- February 15, 2000, so long as each of the following conditions precedent shall have been satisfied: (a) the Administrative Agent shall receive counterparts of (i) this Waiver and (ii) the Sixth Amendment and Waiver to Term Credit Agreement, each executed by the Required Lenders (as defined in the Intercreditor Agreement) and the Borrower and acknowledged by each Guarantor; (b) the Administrative Agent shall receive counterparts of the Fourth Amendment to Promissory Note, executed by the Borrower and Bank of America, N.A., extending the maturity of the Overline Facility to the end of the Waiver Period; (c) the representations and warranties set forth in Section 9 of this --------- Waiver shall be true and correct; (d) all reasonable out-of-pocket fees and expenses in connection with the Loan Documents, including this Waiver, including legal and other professional fees and expenses incurred on or prior to the date of this Waiver by Administrative Agent or any Lender, including, without limitation, the reasonable fees and expenses of Winstead Sechrest & Minick P.C. and PricewaterhouseCoopers, shall have been paid; and (e) the Administrative Agent shall receive, in form and substance satisfactory to the Administrative Agent and its counsel, such other documents, certificates and instruments as the Administrative Agent shall reasonably require. -4- 11. GUARANTOR ACKNOWLEDGMENT. By signing below, each of the Guarantors ------------------------ (i) acknowledges, consents and agrees to the execution and delivery of this Waiver, (ii) acknowledges and agrees that its obligations in respect of its Subsidiary Guaranty are not released, diminished, waived, modified, impaired or affected in any manner by this Waiver or any of the provisions contemplated herein, (iii) ratifies and confirms its obligations under its Subsidiary Guaranty, and (iv) acknowledges and agrees that it has no claims or offsets against, or defenses or counterclaims to, its Subsidiary Guaranty as a result of this Waiver. 12. BANK OF AMERICA CONSENT. Bank of America, N.A., in its capacity as ----------------------- provider of the Overline Facility, hereby (i) agrees to this Waiver and acknowledges that the waivers provided herein shall also be effective with respect to the Overline Facility, (ii) agrees that it will not accept any payment of principal under the Overline Facility during the Waiver Period, and (iii) acknowledges that the maturity date of the Overline Facility has been extended to the termination of the Waiver Period. 13. REFERENCE TO CREDIT AGREEMENT. Upon the effectiveness of this Waiver, ----------------------------- each reference in the Credit Agreement to "this Agreement," "hereunder," or words of like import shall mean and be a reference to the Credit Agreement, as affected and amended by this Waiver. 14. COUNTERPARTS; EXECUTION VIA FACSIMILE. This Waiver may be executed in ------------------------------------- one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. This Waiver may be validly executed and delivered by facsimile or other electronic transmission. 15. GOVERNING LAW: BINDING EFFECT. This Waiver shall be governed by and ----------------------------- construed in accordance with the laws of the State of Texas and shall be binding upon the Borrower, the Administrative Agent, each Lender and their respective successors and assigns. 16. HEADINGS. Section headings in this Waiver are included herein for -------- convenience of reference only and shall not constitute a part of this Waiver for any other purpose. 17. LOAN DOCUMENT. This Waiver is a Loan Document and is subject to all ------------- provisions of the Credit Agreement applicable to Loan Documents, all of which are incorporated in this Waiver by reference the same as if set forth in this Waiver verbatim. 18. NO ORAL AGREEMENTS. THIS WRITTEN AGREEMENT AND THE OTHER LOAN ------------------ DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. =============================================================================== REMAINDER OF PAGE LEFT INTENTIONALLY BLANK =============================================================================== -5- PILLOWTEX CORPORATION By: Jaime Vasquez Title: Vice President/Treasurer BANK OF AMERICA, N.A. (formerly known as NationsBank, N.A., successor by merger to NationsBank of Texas, N.A.), as Administrative Agent and as a Lender, Swing Line Bank and Issuing Bank By: William E. Livingstone, IV Title: Managing Director THE BANK OF NOVA SCOTIA ATLANTA AGENCY By: Peiter J. Van Schaick Title: Relationship Manager THE FIRST NATIONAL BANK OF CHICAGO By: Randall B. Durant Title: First Vice President WELLS FARGO BANK (TEXAS), NATIONAL ASSOCIATION By: Roger Fruenat Title: Vice President COMERICA BANK By: Mark B. Grover Title: Vice President -6- CREDIT LYONNAIS - NEW YORK BRANCH By: John-Charles Van Essche Title: Vice President THE BANK OF TOKYO-MITSUBISHI, LTD. By: John W. McGhee Title: Vice President & Manager BANK ONE, TEXAS, N.A. By: Randall B. Durant Title: First Vice President BHF (USA) CAPITAL CORPORATION By: Dan Dobrjanskyj Title: Assistant Vice President By: Chris Yu Title: Associate FIRST UNION NATIONAL BANK By: Ron R. Ferguson Title: Senior Vice President COOPERATIEVE CENTRALE RAIFFEISEN- BOERENLEENBANK B.A., "RABOBANK NEDERLAND", NEW YORK BRANCH By: Ian Reece Title: Senior Credit Officer By: Richard Matthews Title: Vice President THE BANK OF NEW YORK By: Albert R. Taylor -7- Title: Vice President CREDIT INDUSTRIEL ET COMMERCIAL By: Anthony Rock Title: Vice President By: Marcus Edward Title: Vice President BANK AUSTRIA CREDITANSTALT CORPORATE FINANCE, INC. By: Richard W. Varalla Title: Senior Associate By: Stephen W. Hipp Title: Senior Associate THE FUJI BANK, LTD. By: John D. Doyle Title: Vice President & Manager NATIONAL BANK OF CANADA By: Bill Handley Title: Vice President By: (signature illegible) Title: Vice President & Manager NATIONAL CITY BANK OF KENTUCKY By: Jeffrey C. Geeding Title: Senior Vice President THE PRUDENTIAL INSURANCE COMPANY OF AMERICA By: B. Ross Smead Title: Vice President -8- BANK POLSKA KASA OPIEKI, S.A., NEW YORK BRANCH By: Hussein B. El-Tawil Title: Vice President GUARANTY FEDERAL BANK, F.S.B. By: Robert S. Hays Title: Senior Vice President GENERAL ELECTRIC CAPITAL CORPORATION By: Thomas E. Johnstone Title: SOCIETE GENERALE, SOUTHWEST AGENCY By: Robert Petersen Title: Director CONSENTED TO BY: KZH WATERSIDE LLC By: Susan Lee Title: Authorized Agent SENIOR DEBT PORTFOLIO By: Boston Management and Research as Investment Advisor By: Scott H. Page Title: Vice President AERIES FINANCE-II LTD. By: INVESCO Senior Secured Management, Inc. as Sub-Managing Agent -9- By: (signature illegible) Title: Vice President CYPRESSTREE INVESTMENT PARTNERS I, LTD., By: CypressTree Investment Management Company, Inc., as Portfolio Manager By: Jeffrey W. Hener Title: Principal NORTH AMERICAN SENIOR FLOATING RATE FUND By: Cypress Tree Investment Management Company, Inc., as Portfolio Manager By: Jeffrey Hener Title: Principal CYPRESSTREE INVESTMENT MANAGEMENT COMPANY, INC. As: Attorney-in-Fact and on behalf of First Allmerica Financial Life Insurance Company as Portfolio Manager By: Jeffrey W. Hener Title: Principal VAN KAMPEN CLO I, LIMITED By: VAN KAMPEN MANAGEMENT, INC., as Collateral Manager By: Darvin D. Pierce Title: Vice President INDOSUEZ CAPITAL FUNDING IIA, LIMITED By: INDOSUEZ CAPITAL as Portfolio Manager By: Melissa Marano Title: Vice President VAN KAMPEN SENIOR INCOME TRUST By: Van Kampen Investment Advisory Corp. -10- By: Darwin D. Pierce Title: Vice President INDOSUEZ CAPITAL FUNDING IV, L.P. By: Indosuez Capital as Portfolio Manager By: Melissa Marano Title: Vice President CYPRESSTREE INSTITUTIONAL FUND, LLC By: CypressTree Investment Management Company, Inc., its Managing Member By: Jeffrey W. Hener Title: Principal CYPRESSTREE INVESTMENT FUND, LLC By: CypressTree Investment Management Company, Inc., its Managing Member By: Jeffrey W. Hener Title: Principal KZH-CYPRESSTREE-1 LLC By: Susan Lee Title: Authorized Agent OXFORD STRATEGIC INCOME FUND By: Eaton Vance Management, as Investment Advisor By: Scott H. Page Title: Vice President EATON VANCE INSTITUTIONAL SENIOR LOAN FUND By: Eaton Vance Management, as Investment Advisor By: Scott H. Page Title: Vice President -11- VAN KAMPEN CLO II, LIMITED By: Van Kampen Management, Inc., as Collateral Manager By: Darvin D. Pierce Title: Vice President FINOVA CAPITAL CORPORATION By: (signature illegible) Title: Authorized Signer THE DAI-ICHI KANGYO BANK LIMITED, NEW YORK BRANCH By: Ronald Wolinsky Title: Vice President & Group Leader MOUNTAIN CAPITAL CLO I LTD. By: Darren P. Riley Title: Director MARINER LDC By: Charles R. Howe, II Title: Director LEHMAN COMMERCIAL PAPER, INC. By: Steven Pomerantz Title: ACKNOWLEDGED AND AGREED: PILLOWTEX, INC. PTEX HOLDING COMPANY PILLOWTEX MANAGEMENT SERVICES COMPANY BEACON MANUFACTURING COMPANY MANETTA HOME FASHIONS, INC. TENNESSEE WOOLEN MILLS FIELDCREST CANNON, INC. -12- CRESTFIELD COTTON COMPANY ENCEE, INC. FCC CANADA, INC. FIELDCREST CANNON FINANCING, INC. FIELDCREST CANNON LICENSING, INC. FIELDCREST CANNON INTERNATIONAL, INC. FIELDCREST CANNON SF, INC. (formerly known as Fieldcrest Cannon Sure Fit, Inc.) FIELDCREST CANNON TRANSPORTATION, INC. ST. MARYS, INC. AMOSKEAG COMPANY AMOSKEAG MANAGEMENT CORPORATION DOWNEAST SECURITIES CORPORATION BANGOR INVESTMENT COMPANY MOORE'S FALLS CORPORATION THE LESHNER CORPORATION LESHNER OF CALIFORNIA, INC. OPELIKA INDUSTRIES, INC. By: Jaime Vasquez Title: Vice President -13- SIXTH AMENDMENT AND WAIVER TO TERM CREDIT AGREEMENT THIS SIXTH AMENDMENT AND WAIVER TO TERM CREDIT AGREEMENT (this "Waiver"), dated as of February 15, 2000, is entered into among PILLOWTEX CORPORATION, a Texas corporation (the "Borrower"), the institutions listed on the signature pages hereof that are parties to the Credit Agreement defined below (collectively, the "Lenders"), and BANK OF AMERICA, N.A. (formerly known as NationsBank, N.A., successor by merger to NationsBank of Texas, N.A.), as Administrative Agent for itself and the Lenders (in said capacity, the "Administrative Agent"). BACKGROUND ---------- A. The Borrower, the Lenders and the Administrative Agent are parties to that certain Term Credit Agreement, dated as of December 19, 1997 (as amended through the date hereof, the "Credit Agreement"). Terms defined in the Credit Agreement and not otherwise defined herein shall be used herein as defined in the Credit Agreement. B. The Borrower has requested a waiver of certain Events of Default under the Credit Agreement. NOW, THEREFORE, in consideration of the covenants, conditions and agreements hereinafter set forth, and for other good and valuable consideration, the receipt and adequacy of which are all hereby acknowledged, the Borrower, the Lenders and the Administrative Agent covenant and agree as follows: 1. WAIVER. Subject to the satisfaction of the conditions of effectiveness ------- set forth in Section 10 of this Waiver and the other conditions contained ---------- herein, the Lenders hereby waive (a) the Event of Default with respect to Section 7.11 of the Credit Agreement which occurred as a result of the failure - ------------ of the Borrower to comply with the required Leverage Ratio at the end of the Fiscal Quarter ended October 2, 1999, (b) the Event of Default which occurred as a result of the failure of the Borrower to cause a lien to be granted to the Administrative Agent, for the benefit of the Lenders, on certain leasehold property in Phenix City, Alabama, on or before January 15, 2000, and (c) any Events of Default with respect to Sections 7.11, 7.12, and 7.13 of the Credit ------------- ---- ---- Agreement which may occur as a result of the failure of the Borrower to comply with the required Leverage Ratio, Fixed Charge Coverage Ratio, and Net Worth at the end of the Fiscal Quarter ended January 1, 2000 (the "Existing Events of ------------------ Default"). The waiver provided in this Section 1 shall not be and shall not be - ------- --------- deemed to be a waiver of any Events of Default under the Credit Agreement other than the Existing Events of Default. 2. TERMINATION. The Waiver described in Section 1 above shall terminate ----------- --------- automatically without any action by the Administrative Agent, the Lenders or any other Person and be of no further force or effect upon termination of the Waiver Period. For purposes hereof, the "Waiver Period" shall mean the period commencing on the effective date of this ------------- Waiver and terminating upon the earliest to occur of (a) March 31, 2000, (b) the declaration or payment by the Borrower of any cash dividends in respect of any Capital Stock of the Borrower, or (c) the occurrence of any Event of Default other than the Existing Events of Default. 3. AMENDMENTS TO CREDIT AGREEMENT. The Credit Agreement is hereby amended ------------------------------ as follows: (a) Section 1.1 is amended by entirely amending the following ----------- definition: "Fieldcrest Cannon Subordinated Debenture Reserve" means (a) for the ------------------------------------------------ period from and including October 8, 1999 through and including March 31, 2000, zero, and (b) for the period from and including April 1, 2000 and thereafter, an amount equal to 50% of the aggregate amount of cash consideration that may be requested, at any time of determination, by the holders of Fieldcrest Cannon Subordinated Debentures in respect of a conversion thereof. (b) Section 10.1(f) is hereby amended by inserting the text, ", --------------- financial advisors," immediately following the word, "attorneys" in the first sentence thereof. 4. BORROWING BASE. Notwithstanding anything in the Credit Agreement or -------------- any other Loan Document, commencing on the date of this Waiver and continuing at all times thereafter the Borrower shall not permit the sum of (a) the outstanding principal amount of all Revolving Credit Advances, Facility A Term Loan Advances and Facility B Term Loan Advances and (b) without duplication, the Reimbursement Obligations, to exceed (i) the book value of the Liquid Assets of the Borrower and each other Obligor, provided that an Event of Default shall -------- ---- arise from Borrower's failure to comply with this clause (i) only if such ---------- failure continues for seven days after a Responsible Officer of Borrower knows or reasonably should know of such failure, or (ii) 102.50% of the book value of the Liquid Assets of the Borrower and each other Obligor. For purposes hereof, "Liquid Assets" shall mean net accounts receivable, net inventory and cash balances. 5. CAPITAL EXPENDITURES. Notwithstanding anything in the Credit Agreement -------------------- or any other Loan Document, during the Waiver Period the Borrower shall not, and shall not permit any of its Subsidiaries to, make any Capital Expenditures in an aggregate amount that exceeds $8,000,000. 6. WAIVER FEE. Borrower shall pay to the Administrative Agent, for the ---------- pro rata benefit of the Lenders that execute and deliver this Waiver to the Administrative Agent (or its counsel) not later than 5:00 p.m., Dallas time, February 15, 2000, a waiver fee in an amount equal to the product of (a) 0.15% multiplied by (b) an amount equal to such Lender's portion of the Commitment. Such waiver fee shall be paid in immediately available funds and shall be payable only if the conditions set forth in Section 10 of this Waiver have been ---------- satisfied and shall be due and payable to each Lender eligible for payment pursuant to the preceding sentence no later than two -2- Business Days after the conditions set forth in Section 10 of this Waiver have ---------- been satisfied. The Borrower agrees that the failure to pay the waiver fee provided in this Section 6 shall, after the expiration of any applicable grace --------- period, be an Event of Default under Section 8.1(b)(ii) of the Credit Agreement. ------------------ 7. OVERLINE FACILITY. During the Waiver Period, the Borrower shall not ----------------- make any payments or prepayments of principal owing under the Overline Facility. 8. RELEASE. ------- (a) The Borrower and each Guarantor hereby unconditionally and irrevocably remises, acquits, and fully and forever releases and discharges the Administrative Agent and the Lenders and all respective affiliates and subsidiaries of the Administrative Agent and the Lenders, their respective officers, servants, employees, agents, attorneys, principals, directors and shareholders, and their respective heirs, legal representatives, successors and assigns (collectively, the "Released Lender Parties") from any and all ----------------------- claims, demands, causes of action, obligations, remedies, suits, damages and liabilities (collectively, the "Borrower Claims") of any nature --------------- whatsoever, whether now known, suspected or claimed, whether arising under common law, in equity or under statute, which the Borrower or any Guarantor ever had or now has against the Released Lender Parties which may have arisen at any time on or prior to the date of this Waiver and which were in any manner related to any of the Loan Documents or the enforcement or attempted enforcement by the Administrative Agent or the Lenders of rights, remedies or recourses related thereto. (b) The Borrower and each Guarantor covenants and agrees never to commence, voluntarily aid in any way, prosecute or cause to be commenced or prosecuted against any of the Released Lender Parties any action or other proceeding based upon any of the Borrower Claims which may have arisen at any time on or prior to the date of this Waiver and were in any manner related to any of the Loan Documents. (c) The agreements of the Borrower and each Guarantor set forth in this Section 8 shall survive termination of this Waiver and the other Loan --------- Documents. 9. REPRESENTATIONS AND WARRANTIES. By its execution and delivery hereof, ------------------------------ the Borrower represents and warrants to the Lenders that, as of the date hereof: (a) after giving effect to the waiver set forth in Section 1 of this --------- Waiver, the representations and warranties contained in the Credit Agreement and the other Loan Documents are true and correct on and as of the date hereof as if made on and as of such date; (b) after giving effect to the waiver set forth in Section 1 of this --------- Waiver, no event has occurred and is continuing which constitutes an Event of Default; -3- (c) the Borrower has full power and authority to execute and deliver this Waiver, and this Waiver constitutes the legal, valid and binding obligation of the Borrower, enforceable in accordance with its terms, except as enforceability may be limited by applicable Debtor Relief Laws and by general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law) and except as rights to indemnity may be limited by federal or state securities laws; (d) neither the execution, delivery and performance of this Waiver nor the consummation of any transactions contemplated herein will conflict with any Law, the articles of incorporation, bylaws or other governance document of the Borrower or any of its Subsidiaries, or any indenture, agreement or other instrument to which the Borrower or any of its Subsidiaries or any of their respective property is subject; and (e) no authorization, approval, consent, or other action by, notice to, or filing with, any governmental authority or other Person (including the Board of Directors of the Borrower or any Guarantor), is required for the execution, delivery or performance by the Borrower of this Waiver or the acknowledgment of this Waiver by any Guarantor. 10. CONDITIONS OF EFFECTIVENESS. This Waiver shall be effective as of --------------------------- February 15, 2000, so long as each of the following conditions precedent shall have been satisfied: (a) the Administrative Agent shall receive counterparts of (i) this Waiver and (ii) the Sixth Amendment and Waiver to Amended and Restated Credit Agreement, each executed by the Required Lenders (as defined in the Intercreditor Agreement) and the Borrower and acknowledged by each Guarantor; (b) the Administrative Agent shall receive counterparts of the Fourth Amendment to Promissory Note, executed by the Borrower and Bank of America, N.A., extending the maturity of the Overline Facility to the end of the Waiver Period; (c) the representations and warranties set forth in Section 9 of this --------- Waiver shall be true and correct; (d) all reasonable out-of-pocket fees and expenses in connection with the Loan Documents, including this Waiver, including legal and other professional fees and expenses incurred on or prior to the date of this Waiver by Administrative Agent or any Lender, including, without limitation, the reasonable fees and expenses of Winstead Sechrest & Minick P.C. and PricewaterhouseCoopers, shall have been paid; and (e) the Administrative Agent shall receive, in form and substance satisfactory to the Administrative Agent and its counsel, such other documents, certificates and instruments as the Administrative Agent shall reasonably require. -4- 11. GUARANTOR ACKNOWLEDGMENT. By signing below, each of the Guarantors ------------------------ (i) acknowledges, consents and agrees to the execution and delivery of this Waiver, (ii) acknowledges and agrees that its obligations in respect of its Subsidiary Guaranty are not released, diminished, waived, modified, impaired or affected in any manner by this Waiver or any of the provisions contemplated herein, (iii) ratifies and confirms its obligations under its Subsidiary Guaranty, and (iv) acknowledges and agrees that it has no claims or offsets against, or defenses or counterclaims to, its Subsidiary Guaranty as a result of this Waiver. 12. BANK OF AMERICA CONSENT. Bank of America, N.A., in its capacity as ----------------------- provider of the Overline Facility, hereby (i) agrees to this Waiver and acknowledges that the waivers provided herein shall also be effective with respect to the Overline Facility, (ii) agrees that it will not accept any payment of principal under the Overline Facility during the Waiver Period, and (iii) acknowledges that the maturity date of the Overline Facility has been extended to the termination of the Waiver Period. 13. REFERENCE TO CREDIT AGREEMENT. Upon the effectiveness of this Waiver, ----------------------------- each reference in the Credit Agreement to "this Agreement," "hereunder," or words of like import shall mean and be a reference to the Credit Agreement, as affected and amended by this Waiver. 14. COUNTERPARTS; EXECUTION VIA FACSIMILE. This Waiver may be executed in ------------------------------------- one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. This Waiver may be validly executed and delivered by facsimile or other electronic transmission. 15. GOVERNING LAW: BINDING EFFECT. This Waiver shall be governed by and ----------------------------- construed in accordance with the laws of the State of Texas and shall be binding upon the Borrower, the Administrative Agent, each Lender and their respective successors and assigns. 16. HEADINGS. Section headings in this Waiver are included herein for -------- convenience of reference only and shall not constitute a part of this Waiver for any other purpose. 17. LOAN DOCUMENT. This Waiver is a Loan Document and is subject to all ------------- provisions of the Credit Agreement applicable to Loan Documents, all of which are incorporated in this Waiver by reference the same as if set forth in this Waiver verbatim. 18. NO ORAL AGREEMENTS. THIS WRITTEN AGREEMENT AND THE OTHER LOAN ------------------ DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. ================================================================================ REMAINDER OF PAGE LEFT INTENTIONALLY BLANK ================================================================================ -5- PILLOWTEX CORPORATION By: Jaime Vasquez Title: Vice President/Treasurer BANK OF AMERICA, N.A. (formerly known as NationsBank, N.A., successor by merger to NationsBank of Texas, N.A.), as Administrative Agent and as a Lender, Swing Line Bank and Issuing Bank By: William E. Livingstone, IV Title: Managing Director THE BANK OF NOVA SCOTIA ATLANTA AGENCY By: Peiter J. Van Schaick Title: Relationship Manager THE FIRST NATIONAL BANK OF CHICAGO By: Randall B. Durant Title: First Vice President WELLS FARGO BANK (TEXAS), NATIONAL ASSOCIATION By: Roger Fruenat Title: Vice President COMERICA BANK By: Mark B. Grover Title: Vice President CREDIT LYONNAIS - NEW YORK BRANCH By: John-Charles Van Essche Title: Vice President -6- THE BANK OF TOKYO-MITSUBISHI, LTD. By: John W. McGhee Title: Vice President & Manager BANK ONE, TEXAS, N.A. By: Randall B. Durant Title: First Vice President BHF (USA) CAPITAL CORPORATION By: Dan Dobrjanskyj Title: Assistant Vice President By: Chris Yu Title: Associate FIRST UNION NATIONAL BANK By: Ron R. Ferguson Title: Senior Vice President COOPERATIEVE CENTRALE RAIFFEISEN- BOERENLEENBANK B.A., "RABOBANK NEDERLAND", NEW YORK BRANCH By: Ian Reece Title: Senior Credit Officer By: Richard Matthews Title: Vice President THE BANK OF NEW YORK By: Albert R. Taylor Title: Vice President CREDIT INDUSTRIEL ET COMMERCIAL By: Anthony Rock Title: Vice President -7- By: Marcus Edward Title: Vice President BANK AUSTRIA CREDITANSTALT CORPORATE FINANCE, INC. By: Richard W. Varalla Title: Senior Associate By: Stephen W. Hipp Title: Senior Associate THE FUJI BANK, LTD. By: John D. Doyle Title: Vice President & Manager NATIONAL BANK OF CANADA By: Bill Handley Title: Vice President By: (signature illegible) Title: Vice President & Manager NATIONAL CITY BANK OF KENTUCKY By: Jeffrey C. Geeding Title: Senior Vice President THE PRUDENTIAL INSURANCE COMPANY OF AMERICA By: B. Ross Smead Title: Vice President BANK POLSKA KASA OPIEKI, S.A., NEW YORK BRANCH By: Hussein B. El-Tawil Title: Vice President -8- GUARANTY FEDERAL BANK, F.S.B. By: Robert S. Hays Title: Senior Vice President GENERAL ELECTRIC CAPITAL CORPORATION By: Thomas E. Johnstone Title: SOCIETE GENERALE, SOUTHWEST AGENCY By: Robert Petersen Title: Director CONSENTED TO BY: KZH WATERSIDE LLC By: Susan Lee Title: Authorized Agent SENIOR DEBT PORTFOLIO By: Boston Management and Research as Investment Advisor By: Scott H. Page Title: Vice President AERIES FINANCE-II LTD. By: INVESCO Senior Secured Management, Inc. as Sub-Managing Agent By: (signature illegible) Title: Vice President CYPRESSTREE INVESTMENT PARTNERS I, LTD., By: CypressTree Investment Management -9- Company, Inc., as Portfolio Manager By: Jeffrey W. Hener Title: Principal NORTH AMERICAN SENIOR FLOATING RATE FUND By: Cypress Tree Investment Management Company, Inc., as Portfolio Manager By: Jeffrey Hener Title: Principal CYPRESSTREE INVESTMENT MANAGEMENT COMPANY, INC. As: Attorney-in-Fact and on behalf of First Allmerica Financial Life Insurance Company as Portfolio Manager By: Jeffrey W. Hener Title: Principal VAN KAMPEN CLO I, LIMITED By: VAN KAMPEN MANAGEMENT, INC., as Collateral Manager By: Darvin D. Pierce Title: Vice President BALANCED HIGH-YIELD FUND I LTD. By: BHF (USA) CAPITAL CORPORATION, acting as attorney-in-fact By: Dan Dobrjanskyj Title: Assistant Vice President By: Chris Yu Title: Associate INDOSUEZ CAPITAL FUNDING IIA, LIMITED By: INDOSUEZ CAPITAL as Portfolio Manager By: Melissa Marano Title: Vice President -10- VAN KAMPEN SENIOR INCOME TRUST By: Van Kampen Investment Advisory Corp. By: Darvin D. Pierce Title: Vice President INDOSUEZ CAPITAL FUNDING IV, L.P. By: Indosuez Capital as Portfolio Manager By: Melissa Marano Title: Vice President CYPRESSTREE INSTITUTIONAL FUND, LLC By: CypressTree Investment Management Company, Inc., its Managing Member By: Jeffrey W. Hener Title: Principal CYPRESSTREE INVESTMENT FUND, LLC By: CypressTree Investment Management Company, Inc., its Managing Member By: Jeffrey W. Hener Title: Principal KZH-CYPRESSTREE-1 LLC By: Susan Lee Title: Authorized Agent OXFORD STRATEGIC INCOME FUND By: Eaton Vance Management, as Investment Advisor By: Scott H. Page Title: Vice President EATON VANCE INSTITUTIONAL SENIOR LOAN FUND By: Eaton Vance Management, as Investment Advisor By: Scott H. Page -11- Title: Vice President VAN KAMPEN CLO II, LIMITED By: Van Kampen Management, Inc., as Collateral Manager By: Darvin D. Pierce Title: Vice President CAPTIVA FINANCE, LTD. By: David Byer Title: Director BALANCED HIGH-YIELD FUND II LTD. By: BHF (USA) CAPITAL CORPORATION acting as attorney-in-fact By: Dan Dobrjanskyj Title: Assistant Vice President By: Chris Yu Title: Associate FINOVA CAPITAL CORPORATION By: (signature illegible) Title: Authorized Signer THE DAI-ICHI KANGYO BANK LIMITED, NEW YORK BRANCH By: Ronald Wolinsky Title: Vice President & Group Leader MOUNTAIN CAPITAL CLO I LTD. By: Darren P. Riley Title: Director MARINER LDC By: Charles R. Howe, II -12- Title: Director LEHMAN COMMERCIAL PAPER, INC. By: Steven Pomerantz Title: PRESIDENT & FELLOWS OF HARVARD COLLEGE By: Regiment Capital Management, LLC as its Investment Advisor By: Regiment Capital Advisors, LLC its Manager and pursuant to delegated authority By: Timothy Peterson Title: President ACKNOWLEDGED AND AGREED: PILLOWTEX, INC. PTEX HOLDING COMPANY PILLOWTEX MANAGEMENT SERVICES COMPANY BEACON MANUFACTURING COMPANY MANETTA HOME FASHIONS, INC. TENNESSEE WOOLEN MILLS FIELDCREST CANNON, INC. CRESTFIELD COTTON COMPANY ENCEE, INC. FCC CANADA, INC. FIELDCREST CANNON FINANCING, INC. FIELDCREST CANNON LICENSING, INC. FIELDCREST CANNON INTERNATIONAL, INC. FIELDCREST CANNON SF, INC. (formerly known as Fieldcrest Cannon Sure Fit, Inc.) FIELDCREST CANNON TRANSPORTATION, INC. ST. MARYS, INC. AMOSKEAG COMPANY AMOSKEAG MANAGEMENT CORPORATION DOWNEAST SECURITIES CORPORATION BANGOR INVESTMENT COMPANY MOORE'S FALLS CORPORATION -13- THE LESHNER CORPORATION LESHNER OF CALIFORNIA, INC. OPELIKA INDUSTRIES, INC. By: Jaime Vasquez Title: Vice President -14- EX-10.8 6 WAIVER AND SEVENTH AMEND. TO CREDIT AGREEMENT EXHIBIT 10.8 WAIVER AND SEVENTH AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT THIS WAIVER AND SEVENTH AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT (this "Amendment"), dated as of March 31, 2000, is entered into among PILLOWTEX CORPORATION, a Texas corporation (the "Borrower"), the institutions listed on the signature pages hereof that are parties to the Credit Agreement defined below (collectively, the "Lenders"), and BANK OF AMERICA, N.A. (formerly known as NationsBank, N.A., successor by merger to NationsBank of Texas, N.A.), as Administrative Agent for itself and the Lenders (in said capacity, the "Administrative Agent"). BACKGROUND ---------- A. The Borrower, the Lenders and the Administrative Agent are parties to that certain Amended and Restated Credit Agreement, dated as of December 19, 1997 (as amended through the date hereof, the "Credit Agreement"). Terms defined in the Credit Agreement and not otherwise defined herein shall be used herein as defined in the Credit Agreement. B. The Borrower, the Lenders and the Administrative Agent desire to make certain amendments to the Credit Agreement and certain other loan documents. C. The Borrower has requested a waiver of existing Events of Default under the Credit Agreement. NOW, THEREFORE, in consideration of the covenants, conditions and agreements hereinafter set forth, and for other good and valuable consideration, the receipt and adequacy of which are all hereby acknowledged, the Borrower, the Lenders and the Administrative Agent covenant and agree as follows: 1. WAIVER. Subject to the satisfaction of the conditions of effectiveness ------ set forth in Section 8 of this Amendment and the other conditions contained --------- herein, the Lenders hereby waive (a) the Events of Default with respect to Section 7.11 of the Credit Agreement which occurred as a result of the failure - ------------ of the Borrower to comply with the required Leverage Ratio at the end of the Fiscal Quarters ended October 2, 1999 and January 1, 2000, and (b) the Events of Default with respect to Sections 7.12 and 7.13 of the Credit Agreement which ------------- ---- occurred as a result of the failure of the Borrower to comply with the required Fixed Charge Coverage Ratio and Net Worth at the end of the Fiscal Quarter ended January 1, 2000 (the "Existing Events of Default"). The waiver provided -------------------------- in this Section 1 shall not be and shall not be deemed to be a waiver of any --------- Events of Default under the Credit Agreement other than the Existing Events of Default. Each of the prior Events of Default that have been waived in prior waivers or amendments to the Credit Agreement that have subsequently been cured shall not constitute an Event of Default hereunder due to its mere occurrence so long as it has been cured. 2. AMENDMENTS TO CREDIT AGREEMENT. The Credit Agreement is hereby amended ------------------------------ as follows: (a) Section 1.1 is amended by adding or entirely amending the ----------- following definitions: "Applicable Base Rate Margin" means 2.000%, provided that the --------------------------- ------------- Applicable Base Rate Margin shall be decreased to 1.500% as of the first day of the calendar month following the date the Borrower delivers its annual financial statements for Fiscal Year 2000 to the Administrative Agent in accordance with Section 6.2 hereof, if such financial statements ----------- show EBITDA (plus all fees and expenses incurred in connection with the restructuring of any Indebtedness of the Borrower and its Subsidiaries which have been deducted in calculating EBITDA) of greater than $173,000,000 for such Fiscal Year. "Applicable LIBOR Rate Margin" means 3.500%, provided that the ---------------------------- ------------- Applicable LIBOR Rate Margin shall be decreased to 3.000% as of the first day of the calendar month following the date the Borrower delivers its annual financial statements for Fiscal Year 2000 to the Administrative Agent in accordance with Section 6.2 hereof, if such financial statements ----------- show EBITDA (plus all fees and expenses incurred in connection with the restructuring of any Indebtedness of the Borrower and its Subsidiaries which have been deducted in calculating EBITDA) of greater than $173,000,000 for such Fiscal Year. "Borrowing Base" shall mean, at any time, the sum of (a) 80% of -------------- Eligible Accounts, plus (b) 45% of Eligible Inventory, each as shown on the most recent certificate or report delivered to Administrative Agent under Section 6.10 hereof. ------------ "Borrowing Base Certificate" means a certificate substantially in the -------------------------- form of Exhibit M-1 hereto. ----------- "Borrowing Base Estimate" means a report substantially in the form of ----------------------- Exhibit M-2 hereto. ----------- "Commitment" means the commitment of the Lenders, subject to the terms ---------- and conditions hereof, to make Advances or to issue or participate in Letters of Credit up to an aggregate principal amount of (a) $350,000,000 prior to December 31, 2000, (b) $335,000,000 commencing on December 31, 2000 and continuing through and including September 29, 2001, (c) $320,000,000 commencing on September 30, 2001 and continuing through and including December 30, 2001, and (d) $310,000,000, commencing on December 31, 2001, and at all times thereafter, as such amount may be reduced pursuant to Section 2.6 hereof. ----------- -2- "EBITDA" means, for any period, determined in accordance with GAAP on ------ a consolidated basis for the Borrower and its Subsidiaries, the sum of (a) Earnings from Operations plus (b) depreciation, amortization and other non cash charges (excluding any such non-cash charge to the extent it represents an accrual of or reserve for cash charges in any future period or amortization of a prepaid cash expense that was paid in a prior period) to the extent included in determining Earnings From Operations. "Eligible Accounts" means all outstanding accounts of each Obligor ----------------- that are subject to perfected Liens in favor of Administrative Agent and excluding in all events the portion of any account not paid within 90 days after the original invoice date. "Eligible Inventory" means all inventory of each Obligor that is ------------------ subject to perfected Liens in favor of Administrative Agent and excluding in all events such Obligor's reserves against inventory. "Fieldcrest Cannon Subordinated Debenture Reserve" means zero. ------------------------------------------------ "Maturity Date" means January 31, 2002, or the earlier date of ------------- termination in whole of the Commitment pursuant to Section 2.6 or 8.2 ----------- --- hereof. "Revolver Availability" means an amount equal to the result of (a) the --------------------- lesser of (i) the Borrowing Base or (ii) the Commitment, minus (b) the sum of (i) the outstanding Revolving Credit Advances, plus (ii) the outstanding Reimbursement Obligations. (b) The last sentence of Section 2.1(a) is entirely amended, as -------------- follows: Notwithstanding any provision of any Loan Document to the contrary, in no event shall (a) the sum of the principal amount of all outstanding (i) Revolving Credit Advances and (ii) Reimbursement Obligations exceed the lesser of (A) the Borrowing Base or (B) the Commitment. (c) A new sentence is added to Section 2.5(b) immediately following -------------- the last sentence thereof, as follows: To the extent that the sum of (i) the outstanding Revolving Credit Advances plus (ii) the outstanding Reimbursement Obligations ever exceed the lesser of (A) the Borrowing Base or (B) the Commitment, the Borrower shall repay any such excess amount and all accrued interest attributable to such excess within five Business Days after the Borrower either knows of such excess or receives notice thereof from the Administrative Agent, whichever first occurs. (d) Clause (ii) in the first sentence of Section 2.15(a) is entirely ----------- --------------- amended, as follows: -3- (ii) an amount equal to (A) the lesser of the Borrowing Base or the Commitment minus (B) the aggregate principal amount of Revolving ----- Credit Advances then outstanding. (e) Section 3.2(d) is entirely amended, as follows: -------------- (d) The sum of the principal amount of all outstanding (i) Revolving Credit Advances and (ii) Reimbursement Obligations, after giving effect to such proposed Advance or Letter of Credit, shall not exceed the lesser of (A) the Borrowing Base or (B) the Commitment. (f) Section 6.8(c) is entirely amended, as follows: -------------- (c) As soon as available, but in any event no later than Friday of each week, a good faith estimate of Eligible Accounts and Eligible Inventory as of the previous Friday. (g) New Sections 6.9 and 6.10 are hereby added immediately following ------------ ---- Section 6.8, as follows: ----------- Section 6.9 Monthly Financial Statements. As soon as available, ---------------------------- but in any event within 20 Business Days after the end of each Fiscal Month other than December, and within 45 Business Days after the end of the Fiscal Month of December, the consolidated balance sheets of the Borrower and its Subsidiaries as at the end of such Fiscal Month and the related consolidated statements of earnings for such Fiscal Month and for the elapsed portion of the year ended with the last day of such Fiscal Month, and consolidated statements of cash flow for the elapsed portion of the year ended with the last day of such Fiscal Month, all of which shall be certified by a Responsible Officer, to, in his or her opinion acting solely in his or her capacity as an officer of the Borrower, present fairly in all material respects, in accordance with GAAP (except for the absence of footnotes), the financial position and results of operations of the Borrower and its Subsidiaries as at the end of and for such Fiscal Month, and for the elapsed portion of the year ended with the last day of such Fiscal Month, subject only to normal year-end adjustments. Section 6.10 Borrowing Base Reports. ---------------------- (a) As soon as available, but in any event no later than 14 days after the end of each Fiscal Month, a Borrowing Base Estimate containing a good faith preliminary estimate of the Borrowing Base as of the end of the previous Fiscal Month. -4- (b) As soon as available, but in any event within 20 Business Days after the end of each Fiscal Month, a Borrowing Base Certificate certifying as to the Borrowing Base as of the end of the previous Fiscal Month. (c) As soon as available, but in any event no later than the last day of each Fiscal Month, a Borrowing Base Estimate containing a good faith estimate of the Borrowing Base as of the end of the second week of such Fiscal Month. (h) Section 7.7 is entirely amended, as follows: ----------- Section 7.7 Capital Expenditures. The Borrower shall not, and -------------------- shall not permit any of its Subsidiaries to, make or commit to make any Capital Expenditures in an aggregate amount that exceeds (a) from January 2, 2000 through and including December 30, 2000, $50,000,000, provided, however, that no more than $25,000,000 of such permitted -------- ------- ---- amount may be expended in any single Fiscal Quarter of the Borrower, and (b) from December 31, 2000, through and including the Maturity Date, $30,000,000 plus the amount by which $50,000,000 exceeds actual Capital Expenditures made from January 2, 2000 through and including December 30, 2000, provided, however, that no more than $15,000,000 of -------- ------- ---- such permitted amount may be expended in any single Fiscal Quarter of the Borrower. (i) Clause (c) of Section 7.8 is entirely amended, as follows: ---------- ----------- (c) non-equity consideration paid to any Person in connection with the redemption, contractual sinking fund payments or restructuring of the Fieldcrest Cannon Subordinated Debentures (including fees and expenses); provided, however, the Borrower shall not pay or make any Restricted Payments permitted by this Section 7.8 unless there shall ----------- exist no Default or Event of Default prior to or after giving effect to any such proposed Restricted Payment. (j) Section 8.1(c) is entirely amended, as follows: -------------- (c) (i) The Borrower or any Subsidiary shall default in the performance or observance of any agreement or covenant contained in Article 7 hereof; or --------- (ii) The Borrower or any Subsidiary shall default in the performance or observance of any agreement or covenant contained in Section 6.10 hereof and such default shall not ------------ be cured within two days after the earlier of notice from the Administrative Agent thereof or actual notice thereof by a Responsible Officer of the Borrower; -5- (k) New Exhibits M-1 and M-2 are added in the form of, and all ------------ --- references in the Credit Agreement to Exhibits M-1 and M-2 are hereby ------------ --- deemed to be references to, the attached Exhibits M-1 and M-2. ------------ --- (l) Exhibits D and G are amended and restated in the form of, and all ---------- - references in the Credit Agreement to Exhibits D and G are hereby deemed to ---------- - be references to, the attached Exhibits D and G. ---------- - 3. FINANCIAL COVENANTS. Notwithstanding anything contained in the Credit ------------------- Agreement or any other Loan Document, the Borrower shall not be obligated to comply, and the Lenders hereby waive compliance by the Borrower, with the covenants set forth in Sections 7.11, 7.12 and 7.13 of the Credit Agreement with respect to any relevant period ending on or after January 1, 2000; provided, -------- however, that, in lieu of such covenants, the Borrower will not permit EBITDA - ------- (plus all fees and expenses incurred in connection with the restructuring of any Indebtedness of the Borrower and its Subsidiaries which have been deducted in calculating EBITDA) for the periods set forth below to be less than the amount set forth opposite each such period: Period Amount ------ ------ 3 months ended 4/1/00 $ 26,000,000 6 months ended 7/1/00 $ 59,000,000 9 months ended 9/30/00 $105,000,000 12 months ended 12/30/00 $147,000,000 12 months ended 3/31/01 $147,000,000 12 months ended 6/30/01 $160,000,000 12 months ended 9/29/01 $170,000,000 12 months ended 12/29/01 $180,000,000 4. AMENDMENT FEE. Borrower shall pay to the Administrative Agent, for the ------------- pro rata benefit of the Lenders that execute and deliver this Amendment to the Administrative Agent (or its counsel) not later than 5:00 p.m., Dallas time, March 30, 2000, an amendment fee in an amount equal to the product of (a) 0.25% multiplied by (b) an amount equal to such Lender's portion of the Commitment. Such amendment fee shall be paid in immediately available funds and shall be payable only if the conditions set forth in Section 8 of this Amendment have --------- been satisfied and shall be due and payable to each Lender eligible for payment pursuant to the preceding sentence no later than two Business Days after the conditions set forth in Section 8 of this Amendment have been satisfied. The --------- Borrower agrees that the failure to pay the amendment fee provided in this Section 4 shall, after the expiration of any applicable grace period, be an - --------- Event of Default under Section 8.1(b)(ii) of the Credit Agreement. ------------------ 5. COLLATERAL REDUCTION FEE. Within 30 Business Days after the Payment ------------------------ Date (as defined below) with respect to any cash consideration in excess of $10,000,000, in the aggregate, paid or to be paid on or before January 31, 2002 to any Person in connection with the restructuring of the Fieldcrest Cannon Subordinated Debentures (including fees and expenses), -6- Borrower shall pay to the Administrative Agent, for the benefit of the Revolving Lenders (as defined in the Intercreditor Agreement) and the Term Lenders (as defined in the Intercreditor Agreement), each of whom shall receive their Pro Rata (as defined in the Intercreditor Agreement) share thereof, a fee equal to 20% of such excess amount multiplied by a fraction, the numerator of which is the number of days from the Payment Date through and including January 31, 2002, and the denominator of which is 360. For purposes hereof, "Payment Date" shall ------------ mean the earlier of (a) the date upon which actual cash payment is made or (b) the date upon which the Borrower or any of its Subsidiaries becomes obligated to make such payment. So long as no Event of Default has occurred and is continuing, the Borrower and its Subsidiaries shall be permitted to make all scheduled payments of principal and interest provided for under the documents evidencing the Subordinated Debt. 6. RELEASE. ------- (a) The Borrower and each Guarantor hereby unconditionally and irrevocably remises, acquits, and fully and forever releases and discharges the Administrative Agent and the Lenders and all respective affiliates and subsidiaries of the Administrative Agent and the Lenders, their respective officers, servants, employees, agents, attorneys, financial advisors, principals, directors and shareholders, and their respective heirs, legal representatives, successors and assigns (collectively, the "Released Lender --------------- Parties") from any and all claims, demands, causes of action, obligations, ------- remedies, suits, damages and liabilities (collectively, the "Borrower -------- Claims") of any nature whatsoever, whether now known, suspected or claimed, ------ whether arising under common law, in equity or under statute, which the Borrower or any Guarantor ever had or now has against the Released Lender Parties which may have arisen at any time on or prior to the date of this Amendment and which were in any manner related to any of the Loan Documents or the enforcement or attempted enforcement by the Administrative Agent or the Lenders of rights, remedies or recourses related thereto. (b) The Borrower and each Guarantor covenants and agrees never to commence, voluntarily aid in any way, prosecute or cause to be commenced or prosecuted against any of the Released Lender Parties any action or other proceeding based upon any of the Borrower Claims which may have arisen at any time on or prior to the date of this Amendment and were in any manner related to any of the Loan Documents. (c) The agreements of the Borrower and each Guarantor set forth in this Section 6 shall survive termination of this Amendment and the other --------- Loan Documents. 7. REPRESENTATIONS AND WARRANTIES. By its execution and delivery hereof, ------------------------------ the Borrower represents and warrants to the Lenders that, as of the date hereof: (a) after giving effect to the waiver set forth in Section 1 of this --------- Amendment, the representations and warranties contained in the Credit Agreement and the other Loan -7- Documents are true and correct on and as of the date hereof as if made on and as of such date; (b) after giving effect to the waiver set forth in Section 1 of this --------- Amendment, no event has occurred and is continuing which constitutes an Event of Default; (c) the Borrower has full power and authority to execute and deliver this Amendment, and this Amendment constitutes the legal, valid and binding obligation of the Borrower, enforceable in accordance with its terms, except as enforceability may be limited by applicable Debtor Relief Laws and by general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law) and except as rights to indemnity may be limited by federal or state securities laws; (d) neither the execution, delivery and performance of this Amendment nor the consummation of any transactions contemplated herein will conflict with any Law, the articles of incorporation, bylaws or other governance document of the Borrower or any of its Subsidiaries, or any indenture, agreement or other instrument to which the Borrower or any of its Subsidiaries or any of their respective property is subject; and (e) no authorization, approval, consent, or other action by, notice to, or filing with, any governmental authority or other Person (including the Board of Directors of the Borrower or any Guarantor), is required for the execution, delivery or performance by the Borrower of this Amendment or the acknowledgment of this Amendment by any Guarantor. 8. CONDITIONS OF EFFECTIVENESS. This Amendment shall be effective as of --------------------------- March 31, 2000, so long as each of the following conditions precedent shall have been satisfied: (a) the Administrative Agent shall receive counterparts of (i) this Amendment and (ii) the Waiver and Seventh Amendment to Term Credit Agreement, each executed by the Required Lenders (as defined in the Intercreditor Agreement) and the Borrower and acknowledged by each Guarantor; (b) the Administrative Agent shall receive counterparts of the Fifth Amendment to Promissory Note, executed by the Borrower and Bank of America, N.A., extending the maturity of the Overline Facility to the Maturity Date; (c) the representations and warranties set forth in Section 7 of this --------- Amendment shall be true and correct; (d) all reasonable out-of-pocket fees and expenses in connection with the Loan Documents, including this Amendment, including legal and other professional fees and expenses incurred on or prior to the date of this Amendment by Administrative Agent or any Lender, -8- including, without limitation, the reasonable fees and expenses of Winstead Sechrest & Minick P.C., Donohoe Jameson & Carroll and PricewaterhouseCoopers, shall have been paid; and (e) the Administrative Agent shall receive, in form and substance satisfactory to the Administrative Agent and its counsel, such other documents, certificates and instruments as the Administrative Agent shall reasonably require. 9. GUARANTOR ACKNOWLEDGMENT. By signing below, each of the Guarantors (i) ------------------------ acknowledges, consents and agrees to the execution and delivery of this Amendment, (ii) acknowledges and agrees that its obligations in respect of its Subsidiary Guaranty are not released, diminished, waived, modified, impaired or affected in any manner by this Amendment or any of the provisions contemplated herein, (iii) ratifies and confirms its obligations under its Subsidiary Guaranty, and (iv) acknowledges and agrees that it has no claims or offsets against, or defenses or counterclaims to, its Subsidiary Guaranty as a result of this Amendment. 10. BANK OF AMERICA CONSENT. Bank of America, N.A., in its capacity as ----------------------- provider of the Overline Facility, hereby (i) agrees to this Amendment and acknowledges that the waivers provided herein shall also be effective with respect to the Overline Facility, and (ii) acknowledges that the maturity date of the Overline Facility has been extended to the Maturity Date. 11. REFERENCE TO CREDIT AGREEMENT. Upon the effectiveness of this ----------------------------- Amendment, each reference in the Credit Agreement to "this Agreement," "hereunder," or words of like import shall mean and be a reference to the Credit Agreement, as affected and amended by this Amendment. 12. COUNTERPARTS; EXECUTION VIA FACSIMILE. This Amendment may be executed ------------------------------------- in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. This Amendment may be validly executed and delivered by facsimile or other electronic transmission. 13. GOVERNING LAW: BINDING EFFECT. This Amendment shall be governed by ----------------------------- and construed in accordance with the laws of the State of Texas and shall be binding upon the Borrower, the Administrative Agent, each Lender and their respective successors and assigns. 14. HEADINGS. Section headings in this Amendment are included herein for -------- convenience of reference only and shall not constitute a part of this Amendment for any other purpose. 15. LOAN DOCUMENT. This Amendment is a Loan Document and is subject to ------------- all provisions of the Credit Agreement applicable to Loan Documents, all of which are incorporated in this Amendment by reference the same as if set forth in this Amendment verbatim. -9- 16. NO ORAL AGREEMENTS. THIS WRITTEN AGREEMENT AND THE OTHER LOAN ------------------ DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. ================================================================================ REMAINDER OF PAGE LEFT INTENTIONALLY BLANK ================================================================================ -10- IN WITNESS WHEREOF, the parties hereto have executed this Amendment as the date first above written. PILLOWTEX CORPORATION Jaime Vasquez Vice President and Treasurer BANK OF AMERICA, N.A. (formerly known as NationsBank, N.A., successor by merger to NationsBank of Texas, N.A.), as Administrative Agent and as a Lender, Swing Line Bank and Issuing Bank THE BANK OF NOVA SCOTIA ATLANTA AGENCY THE FIRST NATIONAL BANK OF CHICAGO WELLS FARGO BANK (TEXAS), NATIONAL ASSOCIATION BANKBOSTON, N.A. COMERICA BANK CREDIT LYONNAIS - NEW YORK BRANCH THE BANK OF TOKYO-MITSUBISHI, LTD. BANK ONE, TEXAS, N.A. BHF (USA) CAPITAL CORPORATION FIRST UNION NATIONAL BANK COOPERATIEVE CENTRALE RAIFFEISEN- BOERENLEENBANK B.A., "RABOBANK NEDERLAND", NEW YORK BRANCH THE BANK OF NEW YORK CREDIT INDUSTRIEL ET COMMERCIAL Waiver and Seventh Amendment to Amended and Restated Credit Agreement Signature Page BANK AUSTRIA CREDITANSTALT CORPORATE FINANCE, INC. FLEET BANK, N.A. THE FUJI BANK, LTD. NATIONAL BANK OF CANADA NATIONAL CITY BANK OF KENTUCKY THE PRUDENTIAL INSURANCE COMPANY OF AMERICA BANK POLSKA KASA OPIEKI, S.A., NEW YORK BRANCH GUARANTY FEDERAL BANK, F.S.B. GENERAL ELECTRIC CAPITAL CORPORATION SOCIETE GENERALE, SOUTHWEST AGENCY CONSENTED TO BY: KZH WATERSIDE LLC SENIOR DEBT PORTFOLIO By: Boston Management and Research as Investment Advisor AERIES FINANCE-II LTD. BY: INVESCO Senior Secured Management, Inc. as Sub-Managing Agent CYPRESSTREE INVESTMENT PARTNERS I, LTD. By: CypressTree Investment Management Company, Inc., as Portfolio Manager NORTH AMERICAN SENIOR FLOATING RATE FUND By: CypressTree Investment Management Company, Inc., as Portfolio Manager Waiver and Seventh Amendment to Amended and Restated Credit Agreement Signature Page CYPRESSTREE INVESTMENT MANAGEMENT COMPANY, INC. As: Attorney-in-Fact and on behalf of First Allmerica Financial Life Insurance Company as Portfolio Manager VAN KAMPEN CLO I, LIMITED By: VAN KAMPEN MANAGEMENT, INC., as Collateral Manager BALANCED HIGH-YIELD FUND I LTD. By: BHF (USA) CAPITAL CORPORATION, acting as attorney-in-fact INDOSUEZ CAPITAL FUNDING IIA, LIMITED By: INDOSUEZ CAPITAL as Portfolio Advisor VAN KAMPEN SENIOR INCOME TRUST By: --------------------------- INDOSUEZ CAPITAL FUNDING IV, L.P. By: Indosuez Capital as Portfolio Advisor CYPRESSTREE INSTITUTIONAL FUND, LLC By: CypressTree Investment Management Company, Inc., its Managing Member CYPRESSTREE INVESTMENT FUND, LLC By: CypressTree Investment Management Company, Inc., its Managing Member KZH CYPRESSTREE-1 LLC OXFORD STRATEGIC INCOME FUND By: Eaton Vance Management, as Investment Advisor EATON VANCE INSTITUTIONAL SENIOR LOAN FUND By: Eaton Vance Management, as Investment Advisor VAN KAMPEN CLO II, LIMITED By: Van Kampen Management, Inc., as Collateral Manager CAPTIVA FINANCE, LTD. Waiver and Seventh Amendment to Amended and Restated Credit Agreement Signature Page BALANCED HIGH-YIELD FUND II LTD. By: BHF (USA) CAPITAL CORPORATION, acting as attorney-in-fact FINOVA CAPITAL CORPORATION THE DAI-ICHI KANGYO BANK LIMITED, NEW YORK BRANCH Waiver and Seventh Amendment to Amended and Restated Credit Agreement Signature Page MOUNTAIN CAPITAL CLO I LTD. MARINER LDC LEHMAN COMMERCIAL PAPER, INC. PRESIDENT & FELLOWS OF HARVARD COLLEGE By: Regiment Capital Management, LLC, as its Investment Advisor By: Regiment Capital Advisors, LLC, its Manager and pursuant to delegated authority ACKNOWLEDGED AND AGREED: PILLOWTEX, INC. PTEX HOLDING COMPANY PILLOWTEX MANAGEMENT SERVICES COMPANY BEACON MANUFACTURING COMPANY MANETTA HOME FASHIONS, INC. TENNESSEE WOOLEN MILLS FIELDCREST CANNON, INC. CRESTFIELD COTTON COMPANY ENCEE, INC. FCC CANADA, INC. FIELDCREST CANNON FINANCING, INC. FIELDCREST CANNON LICENSING, INC. FIELDCREST CANNON INTERNATIONAL, INC. FIELDCREST CANNON SF, INC. (formerly known as Fieldcrest Cannon Sure Fit, Inc.) FIELDCREST CANNON TRANSPORTATION, INC. ST. MARYS, INC. AMOSKEAG COMPANY AMOSKEAG MANAGEMENT CORPORATION DOWNEAST SECURITIES CORPORATION BANGOR INVESTMENT COMPANY MOORE'S FALLS CORPORATION THE LESHNER CORPORATION LESHNER OF CALIFORNIA, INC. OPELIKA INDUSTRIES, INC. Jaime Vasquez Vice President and Treasurer Waiver and Seventh Amendment to Amended and Restated Credit Agreement Signature Page EXHIBIT D COMPLIANCE CERTIFICATE ---------------------- To: Bank of America, N.A., as Administrative Agent From: Pillowtex Corporation Date: , . ---------------------- --------- Re: Amended and Restated Credit Agreement, dated as of December 19, 1997 (as amended, the "Credit Agreement"), among Pillowtex Corporation ( the "Borrower"), certain Lenders, and Bank of America, N.A., as Administrative Agent This Compliance Certificate is delivered pursuant to Section 6.3 of the Credit Agreement. All capitalized terms used herein and defined in the Credit Agreement shall be used as so defined. For purposes hereof, section references herein related to sections of the Credit Agreement and bracketed amounts or ratios refer to the maximum or minimum amounts or ratios required under the relevant sections of the Credit Agreement. I. EBITDA Covenant Calculation --------------------------- EBITDA, calculated for the ____________________ /1/ period ending on the date of calculation 1. Earnings from Operations $ ------------- 2. Depreciation $ ------------- 3. Amortization $ ------------- 4. Other non-cash charges (excluding any such non-cash charge to the extent it represents an accrual of or reserve for cash charges in any future period or amortization of a prepaid cash expense that was paid in a prior period) to the extent included in determining Earnings from Operations $ ------------- 5. EBITDA [(1) + (2) + (3) + (4)] $ ------------- 6. Fees and expenses incurred in connection with the restructuring of - ----------------------- /1/ See Table 1 Indebtedness $ ------------ 7. Adjusted EBITDA [(5) + (6)] $ ------------ 8. Minimum Required $ 1 ------------ II. Certain Other Covenant Calculations. Demonstration of compliance with certain covenants contained in Article 7 of the Credit Agreement for the period ended . ------------------------------------------------------------ (a) Section 7.1(c). Indebtedness of the Borrower and $ --------------- ------------ its Domestic Subsidiaries, including in respect of Capitalized Lease Obligations, incurred to purchase, or to finance the purchase of, assets which constitute property, plant and equipment 1. Maximum in aggregate principal amount $35,515,000 outstanding, when aggregated with Section 7.1(o) -------------- 2. Actual $ ------------ 3. Difference [(1) - (2)] $ ------------ (b) Section 7.1(o) Other Indebtedness of the Borrower and -------------- its Domestic Subsidiaries 1. Maximum in aggregate principal amount $35,515,000 Outstanding, when aggregated with Section 7.1(c) -------------- 2. Actual $ ------------ 3. Difference [(1) - (2)] $ ------------ (c) Section 7.5(c) Net Cash Proceeds from the disposition of -------------- assets (to the extent not applied pursuant to Section ------- 2.5(b)) outstanding and pending reinvestment pursuant to ------- Section 7.5(c) -------------- 1. Maximum at any Time $1,000,000 2. Actual $ ------------ 3. Difference [(1) - (2)] $ ------------ (d) Section 7.7 Capital Expenditures ----------- 1. Actual amount expended previous quarter $ ------------ /2/ 2. Maximum Allowed $ ------------ 3. Difference [(1) - (2)] $ ------------ 4. Actual amount expended since January 2, 2000 or December 31, 2000, whichever is most recent relativeto end of previous quarter $ ------------ /3/ 5. Maximum Allowed $ ------------ 6. Difference [(4) - (5)] $ ------------ III. Tables. ------- Table 1 ------- Period Minimum Required ------ ---------------- 3 months ended 4/1/00 $ 26,000,000 6 months ended 7/1/00 $ 59,000,000 9 months ended 9/30/00 $105,000,000 12 months ended 12/30/00 $147,000,000 12 months ended 3/31/01 $147,000,000 12 months ended 6/30/01 $160,000,000 12 months ended 9/29/01 $170,000,000 12 months ended 12/29/01 $180,000,000 Table 2 ------- For Quarters Ending Maximum Allowed - -------------------- --------------- 4/1/00, 7/1/00, 9/30/00, and 12/30/00 $ 25,000,000 3/31/01, 6/30/01, 9/29/01, and 12/29/01 $ 15,000,000 Table 3 ------- Period Maximum Allowed - ------- --------------- 1/2/00 through 12/30/00 $ 50,000,000 12/31/00 through 1/31/02 $30,000,000 plus the amount by which $50,000,000 exceeds actual - ------------------- /2/ See Table 2 /3/ See Table 3 expenditures made from 1/2/00 through 12/30/00 IV. Compliance Certificate. The undersigned hereby certifies to you as ---------------------- follows: (a) I am the duly elected qualified and acting chief financial officer [or chief accounting officer] of the Borrower. (b) I have reviewed the provisions of the Credit Agreement and the other Loan Documents, and a review of the activities of Borrower during the period from _______________________, ______ to ______________________, _______ (the "Reporting Period") has been made under my supervision with a view toward determining whether, during the Reporting Period, the Borrower has kept, observed, performed and fulfilled all its obligations under the Credit Agreement and such other Loan Documents. (c) The representations and warranties made in the Loan Documents are true and correct in all material respects as of the date hereof as though made at and as of the date hereof, except for such representations and warranties which relate to a particular date or which fail to be true and correct as a result of events or occurrences permitted under the Loan Documents, and no Default or Event of Default has occurred or is continuing. This Compliance Certificate is executed and delivered on the ________ day of ________________, _______. PILLOWTEX CORPORATION By: ------------------------------------ Name: ------------------------------ Title: ------------------------------ EXHIBIT G NOTICE OF BORROWING ------------------- Bank of America, N.A., as the Administrative Agent 901 Main Street Dallas, Texas 75202 Attention: Molly Oxford Re: Pillowtex Corporation --------------------- Ladies and Gentlemen: The undersigned, an Authorized Signatory of Pillowtex Corporation, pursuant to the Amended and Restated Credit Agreement, dated as of December 19, 1997, among the undersigned, the financial institutions party thereto and Bank of America, N.A., as the Administrative Agent (said Agreement, as it may be amended, supplemented or otherwise modified from time to time, being the "Credit Agreement" and capitalized terms not defined herein but defined therein being used herein as therein defined), hereby gives you notice, irrevocably, pursuant to Section 2.2 of the Credit Agreement, that the undersigned hereby requests a Revolving Credit Advance under the Credit Agreement, and in that connection sets forth below the information relating to such borrowing (the "Proposed Borrowing") as required by Section 2.2 of the Credit Agreement: (i) The Business Day of the Proposed Borrowing is ____________________, _______. (ii) The aggregate amount of the Revolving Credit Advances constituting the Proposed Borrowing is $______________, of which amount $________________ consists of Base Rate Advances, $_____________________ consists of LIBOR Rate Advances having an initial Interest Period of ___________ months. The undersigned hereby certifies that the following statements are true on the date hereof, and will be true on the date of the Proposed Borrowing, before and after giving effect thereto and to the application of the proceeds therefrom: (A) the representations and warranties of the Borrower contained in Article 4 of the Credit Agreement and in each of the other Loan Documents to which it is a party (other than those representations and warranties that specifically relate to an earlier date) are true and correct as though made on and as of such date, except as otherwise expressly provided in Section 4.2 of the Credit Agreement; (B) the sum of the principal amount of all outstanding (i) Revolving Credit Advances and (ii) Reimbursement Obligations does not exceed the lesser of (a) the Borrowing Base or (b) the Commitment; and (C) no Default or Event of Default is continuing, or will result from the Proposed Borrowing. Very truly yours, PILLOWTEX CORPORATION By: ------------------------------------ Name: ------------------------------ Title: ------------------------------ EXHIBIT M-1 ----------- BORROWING BASE CERTIFICATE -------------------------- ADMINISTRATIVE AGENT: Bank of America, N.A. Date:_______________ BORROWER: Pillowtex Corporation This Borrowing Base Certificate, prepared as of ___________, is executed and delivered by Borrower pursuant to that certain Amended and Restated Credit Agreement dated as of December 19, 1997 among the Borrower, each of the banks or other lending institutions which is or may from time to time become a signatory thereto and any successors or permitted assigns thereof ("Lenders") and ------- Administrative Agent (as amended, supplemented or modified from time to time, the "Credit Agreement"). All terms used herein shall have the meanings assigned ---------------- to them in the Credit Agreement. Borrower represents and warrants to Administrative Agent that all information contained herein is true, correct, and complete, and that the total Eligible Accounts and total Eligible Inventory referred to below represent the Eligible Accounts and Eligible Inventory that qualify for purposes of determining the Borrowing Base under the Credit Agreement. ELIGIBLE ACCOUNTS OF THE OBLIGORS: 1. Accounts (ending balance for period ended ____________, 20__) $_________ 2. Less: Accounts or any portion of any account not paid within 90 days after original date of invoice................ $_________ 3. Total Eligible Accounts (Line 1 minus Line 2) ............... $_________ ELIGIBLE INVENTORY OF THE OBLIGORS: 4. All inventory................................................ $_________ 5. Less: Reserves against inventory............................. $_________ 6. Total Eligible Inventory (Line 4 minus Line 5)............... $_________ BORROWING BASE: 7. Total Eligible Accounts (Line 3)............................. $_________ 8. Total Eligible Inventory (Line 6)............................ $_________ 9. 80% of Line 7................................................ $_________ 10. 45% of Line 8................................................ $_________ 11. Borrowing Base: Sum of Lines 9 and 10........................ $_________ 12. Commitment as of the date of this certificate................ $_________ 13. Lesser of Line 11 or Line 12................................. $_________ 14. Outstanding Revolving Credit Advances........................ $_________ 15. Outstanding Reimbursement Obligations........................ $_________ 16. Revolving Availability or amount to be paid if negative [(Line 13 minus Line 14 minus Line 15].................... $_________ Date: _______________ PILLOWTEX CORPORATION By: ------------------------------------ Name: ------------------------------ Title: ------------------------------ ____________________________ /4/ Must be a Responsible Officer of the Borrower EXHIBIT M-2 ----------- BORROWING BASE ESTIMATE ----------------------- ADMINISTRATIVE AGENT: Bank of America, N.A. Date:_______________ BORROWER: Pillowtex Corporation This Borrowing Base Estimate, prepared as of ___________, is executed and delivered by Borrower pursuant to that certain Amended and Restated Credit Agreement dated as of December 19, 1997 among the Borrower, each of the banks or other lending institutions which is or may from time to time become a signatory thereto and any successors or permitted assigns thereof ("Lenders") and ------- Administrative Agent (as amended, supplemented or modified from time to time, the "Credit Agreement"). All terms used herein shall have the meanings assigned ---------------- to them in the Credit Agreement. Borrower represents and warrants to Administrative Agent that the total Eligible Accounts and total Eligible Inventory referred to below represent the Borrower's good faith estimate of the Eligible Accounts and Eligible Inventory that qualify for purposes of determining the Borrowing Base under the Credit Agreement. Such estimates have been prepared based on all information available to the Borrower at the time of preparation of this report and, to the best of the Borrower's knowledge based on such information, are true, correct, and complete. ELIGIBLE ACCOUNTS OF THE OBLIGORS: 1. Accounts (ending balance for period ended ____________, 20__) $_________ 2. Less: Accounts or any portion of any account not paid within 90 days after original date of invoice................ $_________ 3. Total Eligible Accounts (Line 1 minus Line 2) ............... $_________ ELIGIBLE INVENTORY OF THE OBLIGORS: 4. All inventory................................................ $_________ 5. Less: Reserves against inventory............................. $_________ 6. Total Eligible Inventory (Line 4 minus Line 5)............... $_________ BORROWING BASE: 7. Total Eligible Accounts (Line 3)............................. $_________ 8. Total Eligible Inventory (Line 6)............................ $_________ 9. 80% of Line 7................................................ $_________ 10. 45% of Line 8................................................ $_________ 11. Borrowing Base: Sum of Lines 9 and 10........................ $_________ 12. Commitment as of the date of this estimate................... $_________ 13. Lesser of Line 11 or Line 12................................. $_________ 14. Outstanding Revolving Credit Advances........................ $_________ 15. Outstanding Reimbursement Obligations........................ $_________ 16. Revolving Availability or amount to be paid if negative [(Line 13 minus Line 14 minus Line 15]....................... $_________ Date: _______________ PILLOWTEX CORPORATION By: --------------------------------- Name: ------------------------------ Title: ------------------------------ ____________________________ /5/ Must be a Responsible Officer of the Borrower EX-10.15 7 SIXTH AMENDMENT AND WAIVER TO TERM CREDIT AGR. EXHIBIT 10.15 SIXTH AMENDMENT AND WAIVER TO TERM CREDIT AGREEMENT THIS SIXTH AMENDMENT AND WAIVER TO TERM CREDIT AGREEMENT (this "Waiver"), dated as of February 15, 2000, is entered into among PILLOWTEX CORPORATION, a Texas corporation (the "Borrower"), the institutions listed on the signature pages hereof that are parties to the Credit Agreement defined below (collectively, the "Lenders"), and BANK OF AMERICA, N.A. (formerly known as NationsBank, N.A., successor by merger to NationsBank of Texas, N.A.), as Administrative Agent for itself and the Lenders (in said capacity, the "Administrative Agent"). BACKGROUND ---------- A. The Borrower, the Lenders and the Administrative Agent are parties to that certain Term Credit Agreement, dated as of December 19, 1997 (as amended through the date hereof, the "Credit Agreement"). Terms defined in the Credit Agreement and not otherwise defined herein shall be used herein as defined in the Credit Agreement. B. The Borrower has requested a waiver of certain Events of Default under the Credit Agreement. NOW, THEREFORE, in consideration of the covenants, conditions and agreements hereinafter set forth, and for other good and valuable consideration, the receipt and adequacy of which are all hereby acknowledged, the Borrower, the Lenders and the Administrative Agent covenant and agree as follows: 1. WAIVER. Subject to the satisfaction of the conditions of effectiveness ------- set forth in Section 10 of this Waiver and the other conditions contained ---------- herein, the Lenders hereby waive (a) the Event of Default with respect to Section 7.11 of the Credit Agreement which occurred as a result of the failure - ------------ of the Borrower to comply with the required Leverage Ratio at the end of the Fiscal Quarter ended October 2, 1999, (b) the Event of Default which occurred as a result of the failure of the Borrower to cause a lien to be granted to the Administrative Agent, for the benefit of the Lenders, on certain leasehold property in Phenix City, Alabama, on or before January 15, 2000, and (c) any Events of Default with respect to Sections 7.11, 7.12, and 7.13 of the Credit ------------- ---- ---- Agreement which may occur as a result of the failure of the Borrower to comply with the required Leverage Ratio, Fixed Charge Coverage Ratio, and Net Worth at the end of the Fiscal Quarter ended January 1, 2000 (the "Existing Events of ------------------ Default"). The waiver provided in this Section 1 shall not be and shall not be - ------- --------- deemed to be a waiver of any Events of Default under the Credit Agreement other than the Existing Events of Default. 2. TERMINATION. The Waiver described in Section 1 above shall terminate ----------- --------- automatically without any action by the Administrative Agent, the Lenders or any other Person and be of no further force or effect upon termination of the Waiver Period. For purposes hereof, the "Waiver Period" shall mean the period commencing on the effective date of this ------------- Waiver and terminating upon the earliest to occur of (a) March 31, 2000, (b) the declaration or payment by the Borrower of any cash dividends in respect of any Capital Stock of the Borrower, or (c) the occurrence of any Event of Default other than the Existing Events of Default. 3. AMENDMENTS TO CREDIT AGREEMENT. The Credit Agreement is hereby amended ------------------------------ as follows: (a) Section 1.1 is amended by entirely amending the following ----------- definition: "Fieldcrest Cannon Subordinated Debenture Reserve" means (a) for the ------------------------------------------------ period from and including October 8, 1999 through and including March 31, 2000, zero, and (b) for the period from and including April 1, 2000 and thereafter, an amount equal to 50% of the aggregate amount of cash consideration that may be requested, at any time of determination, by the holders of Fieldcrest Cannon Subordinated Debentures in respect of a conversion thereof. (b) Section 10.1(f) is hereby amended by inserting the text, ", --------------- financial advisors," immediately following the word, "attorneys" in the first sentence thereof. 4. BORROWING BASE. Notwithstanding anything in the Credit Agreement or -------------- any other Loan Document, commencing on the date of this Waiver and continuing at all times thereafter the Borrower shall not permit the sum of (a) the outstanding principal amount of all Revolving Credit Advances, Facility A Term Loan Advances and Facility B Term Loan Advances and (b) without duplication, the Reimbursement Obligations, to exceed (i) the book value of the Liquid Assets of the Borrower and each other Obligor, provided that an Event of Default shall -------- ---- arise from Borrower's failure to comply with this clause (i) only if such ---------- failure continues for seven days after a Responsible Officer of Borrower knows or reasonably should know of such failure, or (ii) 102.50% of the book value of the Liquid Assets of the Borrower and each other Obligor. For purposes hereof, "Liquid Assets" shall mean net accounts receivable, net inventory and cash balances. 5. CAPITAL EXPENDITURES. Notwithstanding anything in the Credit Agreement -------------------- or any other Loan Document, during the Waiver Period the Borrower shall not, and shall not permit any of its Subsidiaries to, make any Capital Expenditures in an aggregate amount that exceeds $8,000,000. 6. WAIVER FEE. Borrower shall pay to the Administrative Agent, for the ---------- pro rata benefit of the Lenders that execute and deliver this Waiver to the Administrative Agent (or its counsel) not later than 5:00 p.m., Dallas time, February 15, 2000, a waiver fee in an amount equal to the product of (a) 0.15% multiplied by (b) an amount equal to such Lender's portion of the Commitment. Such waiver fee shall be paid in immediately available funds and shall be payable only if the conditions set forth in Section 10 of this Waiver have been ---------- satisfied and shall be due and payable to each Lender eligible for payment pursuant to the preceding sentence no later than two -2- Business Days after the conditions set forth in Section 10 of this Waiver have ---------- been satisfied. The Borrower agrees that the failure to pay the waiver fee provided in this Section 6 shall, after the expiration of any applicable grace --------- period, be an Event of Default under Section 8.1(b)(ii) of the Credit Agreement. ------------------ 7. OVERLINE FACILITY. During the Waiver Period, the Borrower shall not ----------------- make any payments or prepayments of principal owing under the Overline Facility. 8. RELEASE. ------- (a) The Borrower and each Guarantor hereby unconditionally and irrevocably remises, acquits, and fully and forever releases and discharges the Administrative Agent and the Lenders and all respective affiliates and subsidiaries of the Administrative Agent and the Lenders, their respective officers, servants, employees, agents, attorneys, principals, directors and shareholders, and their respective heirs, legal representatives, successors and assigns (collectively, the "Released Lender Parties") from any and all ----------------------- claims, demands, causes of action, obligations, remedies, suits, damages and liabilities (collectively, the "Borrower Claims") of any nature --------------- whatsoever, whether now known, suspected or claimed, whether arising under common law, in equity or under statute, which the Borrower or any Guarantor ever had or now has against the Released Lender Parties which may have arisen at any time on or prior to the date of this Waiver and which were in any manner related to any of the Loan Documents or the enforcement or attempted enforcement by the Administrative Agent or the Lenders of rights, remedies or recourses related thereto. (b) The Borrower and each Guarantor covenants and agrees never to commence, voluntarily aid in any way, prosecute or cause to be commenced or prosecuted against any of the Released Lender Parties any action or other proceeding based upon any of the Borrower Claims which may have arisen at any time on or prior to the date of this Waiver and were in any manner related to any of the Loan Documents. (c) The agreements of the Borrower and each Guarantor set forth in this Section 8 shall survive termination of this Waiver and the other Loan --------- Documents. 9. REPRESENTATIONS AND WARRANTIES. By its execution and delivery hereof, ------------------------------ the Borrower represents and warrants to the Lenders that, as of the date hereof: (a) after giving effect to the waiver set forth in Section 1 of this --------- Waiver, the representations and warranties contained in the Credit Agreement and the other Loan Documents are true and correct on and as of the date hereof as if made on and as of such date; (b) after giving effect to the waiver set forth in Section 1 of this --------- Waiver, no event has occurred and is continuing which constitutes an Event of Default; -3- (c) the Borrower has full power and authority to execute and deliver this Waiver, and this Waiver constitutes the legal, valid and binding obligation of the Borrower, enforceable in accordance with its terms, except as enforceability may be limited by applicable Debtor Relief Laws and by general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law) and except as rights to indemnity may be limited by federal or state securities laws; (d) neither the execution, delivery and performance of this Waiver nor the consummation of any transactions contemplated herein will conflict with any Law, the articles of incorporation, bylaws or other governance document of the Borrower or any of its Subsidiaries, or any indenture, agreement or other instrument to which the Borrower or any of its Subsidiaries or any of their respective property is subject; and (e) no authorization, approval, consent, or other action by, notice to, or filing with, any governmental authority or other Person (including the Board of Directors of the Borrower or any Guarantor), is required for the execution, delivery or performance by the Borrower of this Waiver or the acknowledgment of this Waiver by any Guarantor. 10. CONDITIONS OF EFFECTIVENESS. This Waiver shall be effective as of --------------------------- February 15, 2000, so long as each of the following conditions precedent shall have been satisfied: (a) the Administrative Agent shall receive counterparts of (i) this Waiver and (ii) the Sixth Amendment and Waiver to Amended and Restated Credit Agreement, each executed by the Required Lenders (as defined in the Intercreditor Agreement) and the Borrower and acknowledged by each Guarantor; (b) the Administrative Agent shall receive counterparts of the Fourth Amendment to Promissory Note, executed by the Borrower and Bank of America, N.A., extending the maturity of the Overline Facility to the end of the Waiver Period; (c) the representations and warranties set forth in Section 9 of this --------- Waiver shall be true and correct; (d) all reasonable out-of-pocket fees and expenses in connection with the Loan Documents, including this Waiver, including legal and other professional fees and expenses incurred on or prior to the date of this Waiver by Administrative Agent or any Lender, including, without limitation, the reasonable fees and expenses of Winstead Sechrest & Minick P.C. and PricewaterhouseCoopers, shall have been paid; and (e) the Administrative Agent shall receive, in form and substance satisfactory to the Administrative Agent and its counsel, such other documents, certificates and instruments as the Administrative Agent shall reasonably require. -4- 11. GUARANTOR ACKNOWLEDGMENT. By signing below, each of the Guarantors ------------------------ (i) acknowledges, consents and agrees to the execution and delivery of this Waiver, (ii) acknowledges and agrees that its obligations in respect of its Subsidiary Guaranty are not released, diminished, waived, modified, impaired or affected in any manner by this Waiver or any of the provisions contemplated herein, (iii) ratifies and confirms its obligations under its Subsidiary Guaranty, and (iv) acknowledges and agrees that it has no claims or offsets against, or defenses or counterclaims to, its Subsidiary Guaranty as a result of this Waiver. 12. BANK OF AMERICA CONSENT. Bank of America, N.A., in its capacity as ----------------------- provider of the Overline Facility, hereby (i) agrees to this Waiver and acknowledges that the waivers provided herein shall also be effective with respect to the Overline Facility, (ii) agrees that it will not accept any payment of principal under the Overline Facility during the Waiver Period, and (iii) acknowledges that the maturity date of the Overline Facility has been extended to the termination of the Waiver Period. 13. REFERENCE TO CREDIT AGREEMENT. Upon the effectiveness of this Waiver, ----------------------------- each reference in the Credit Agreement to "this Agreement," "hereunder," or words of like import shall mean and be a reference to the Credit Agreement, as affected and amended by this Waiver. 14. COUNTERPARTS; EXECUTION VIA FACSIMILE. This Waiver may be executed in ------------------------------------- one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. This Waiver may be validly executed and delivered by facsimile or other electronic transmission. 15. GOVERNING LAW: BINDING EFFECT. This Waiver shall be governed by and ----------------------------- construed in accordance with the laws of the State of Texas and shall be binding upon the Borrower, the Administrative Agent, each Lender and their respective successors and assigns. 16. HEADINGS. Section headings in this Waiver are included herein for -------- convenience of reference only and shall not constitute a part of this Waiver for any other purpose. 17. LOAN DOCUMENT. This Waiver is a Loan Document and is subject to all ------------- provisions of the Credit Agreement applicable to Loan Documents, all of which are incorporated in this Waiver by reference the same as if set forth in this Waiver verbatim. 18. NO ORAL AGREEMENTS. THIS WRITTEN AGREEMENT AND THE OTHER LOAN ------------------ DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. ================================================================================ REMAINDER OF PAGE LEFT INTENTIONALLY BLANK ================================================================================ -5- PILLOWTEX CORPORATION By: Jaime Vasquez Title: Vice President/Treasurer BANK OF AMERICA, N.A. (formerly known as NationsBank, N.A., successor by merger to NationsBank of Texas, N.A.), as Administrative Agent and as a Lender, Swing Line Bank and Issuing Bank By: William E. Livingstone, IV Title: Managing Director THE BANK OF NOVA SCOTIA ATLANTA AGENCY By: Peiter J. Van Schaick Title: Relationship Manager THE FIRST NATIONAL BANK OF CHICAGO By: Randall B. Durant Title: First Vice President WELLS FARGO BANK (TEXAS), NATIONAL ASSOCIATION By: Roger Fruenat Title: Vice President COMERICA BANK By: Mark B. Grover Title: Vice President CREDIT LYONNAIS - NEW YORK BRANCH By: John-Charles Van Essche Title: Vice President -6- THE BANK OF TOKYO-MITSUBISHI, LTD. By: John W. McGhee Title: Vice President & Manager BANK ONE, TEXAS, N.A. By: Randall B. Durant Title: First Vice President BHF (USA) CAPITAL CORPORATION By: Dan Dobrjanskyj Title: Assistant Vice President By: Chris Yu Title: Associate FIRST UNION NATIONAL BANK By: Ron R. Ferguson Title: Senior Vice President COOPERATIEVE CENTRALE RAIFFEISEN- BOERENLEENBANK B.A., "RABOBANK NEDERLAND", NEW YORK BRANCH By: Ian Reece Title: Senior Credit Officer By: Richard Matthews Title: Vice President THE BANK OF NEW YORK By: Albert R. Taylor Title: Vice President CREDIT INDUSTRIEL ET COMMERCIAL By: Anthony Rock Title: Vice President -7- By: Marcus Edward Title: Vice President BANK AUSTRIA CREDITANSTALT CORPORATE FINANCE, INC. By: Richard W. Varalla Title: Senior Associate By: Stephen W. Hipp Title: Senior Associate THE FUJI BANK, LTD. By: John D. Doyle Title: Vice President & Manager NATIONAL BANK OF CANADA By: Bill Handley Title: Vice President By: (signature illegible) Title: Vice President & Manager NATIONAL CITY BANK OF KENTUCKY By: Jeffrey C. Geeding Title: Senior Vice President THE PRUDENTIAL INSURANCE COMPANY OF AMERICA By: B. Ross Smead Title: Vice President BANK POLSKA KASA OPIEKI, S.A., NEW YORK BRANCH By: Hussein B. El-Tawil Title: Vice President -8- GUARANTY FEDERAL BANK, F.S.B. By: Robert S. Hays Title: Senior Vice President GENERAL ELECTRIC CAPITAL CORPORATION By: Thomas E. Johnstone Title: SOCIETE GENERALE, SOUTHWEST AGENCY By: Robert Petersen Title: Director CONSENTED TO BY: KZH WATERSIDE LLC By: Susan Lee Title: Authorized Agent SENIOR DEBT PORTFOLIO By: Boston Management and Research as Investment Advisor By: Scott H. Page Title: Vice President AERIES FINANCE-II LTD. By: INVESCO Senior Secured Management, Inc. as Sub-Managing Agent By: (signature illegible) Title: Vice President CYPRESSTREE INVESTMENT PARTNERS I, LTD., By: CypressTree Investment Management -9- Company, Inc., as Portfolio Manager By: Jeffrey W. Hener Title: Principal NORTH AMERICAN SENIOR FLOATING RATE FUND By: Cypress Tree Investment Management Company, Inc., as Portfolio Manager By: Jeffrey Hener Title: Principal CYPRESSTREE INVESTMENT MANAGEMENT COMPANY, INC. As: Attorney-in-Fact and on behalf of First Allmerica Financial Life Insurance Company as Portfolio Manager By: Jeffrey W. Hener Title: Principal VAN KAMPEN CLO I, LIMITED By: VAN KAMPEN MANAGEMENT, INC., as Collateral Manager By: Darvin D. Pierce Title: Vice President BALANCED HIGH-YIELD FUND I LTD. By: BHF (USA) CAPITAL CORPORATION, acting as attorney-in-fact By: Dan Dobrjanskyj Title: Assistant Vice President By: Chris Yu Title: Associate INDOSUEZ CAPITAL FUNDING IIA, LIMITED By: INDOSUEZ CAPITAL as Portfolio Manager By: Melissa Marano Title: Vice President -10- VAN KAMPEN SENIOR INCOME TRUST By: Van Kampen Investment Advisory Corp. By: Darvin D. Pierce Title: Vice President INDOSUEZ CAPITAL FUNDING IV, L.P. By: Indosuez Capital as Portfolio Manager By: Melissa Marano Title: Vice President CYPRESSTREE INSTITUTIONAL FUND, LLC By: CypressTree Investment Management Company, Inc., its Managing Member By: Jeffrey W. Hener Title: Principal CYPRESSTREE INVESTMENT FUND, LLC By: CypressTree Investment Management Company, Inc., its Managing Member By: Jeffrey W. Hener Title: Principal KZH-CYPRESSTREE-1 LLC By: Susan Lee Title: Authorized Agent OXFORD STRATEGIC INCOME FUND By: Eaton Vance Management, as Investment Advisor By: Scott H. Page Title: Vice President EATON VANCE INSTITUTIONAL SENIOR LOAN FUND By: Eaton Vance Management, as Investment Advisor By: Scott H. Page -11- Title: Vice President VAN KAMPEN CLO II, LIMITED By: Van Kampen Management, Inc., as Collateral Manager By: Darvin D. Pierce Title: Vice President CAPTIVA FINANCE, LTD. By: David Byer Title: Director BALANCED HIGH-YIELD FUND II LTD. By: BHF (USA) CAPITAL CORPORATION acting as attorney-in-fact By: Dan Dobrjanskyj Title: Assistant Vice President By: Chris Yu Title: Associate FINOVA CAPITAL CORPORATION By: (signature illegible) Title: Authorized Signer THE DAI-ICHI KANGYO BANK LIMITED, NEW YORK BRANCH By: Ronald Wolinsky Title: Vice President & Group Leader MOUNTAIN CAPITAL CLO I LTD. By: Darren P. Riley Title: Director MARINER LDC By: Charles R. Howe, II -12- Title: Director LEHMAN COMMERCIAL PAPER, INC. By: Steven Pomerantz Title: PRESIDENT & FELLOWS OF HARVARD COLLEGE By: Regiment Capital Management, LLC as its Investment Advisor By: Regiment Capital Advisors, LLC its Manager and pursuant to delegated authority By: Timothy Peterson Title: President ACKNOWLEDGED AND AGREED: PILLOWTEX, INC. PTEX HOLDING COMPANY PILLOWTEX MANAGEMENT SERVICES COMPANY BEACON MANUFACTURING COMPANY MANETTA HOME FASHIONS, INC. TENNESSEE WOOLEN MILLS FIELDCREST CANNON, INC. CRESTFIELD COTTON COMPANY ENCEE, INC. FCC CANADA, INC. FIELDCREST CANNON FINANCING, INC. FIELDCREST CANNON LICENSING, INC. FIELDCREST CANNON INTERNATIONAL, INC. FIELDCREST CANNON SF, INC. (formerly known as Fieldcrest Cannon Sure Fit, Inc.) FIELDCREST CANNON TRANSPORTATION, INC. ST. MARYS, INC. AMOSKEAG COMPANY AMOSKEAG MANAGEMENT CORPORATION DOWNEAST SECURITIES CORPORATION BANGOR INVESTMENT COMPANY MOORE'S FALLS CORPORATION -13- THE LESHNER CORPORATION LESHNER OF CALIFORNIA, INC. OPELIKA INDUSTRIES, INC. By: Jaime Vasquez Title: Vice President -14- EX-10.16 8 WAIVER AND SEVENTH AMENDMENT TO TERM CREDIT AGR. EXHIBIT 10.16 WAIVER AND SEVENTH AMENDMENT TO TERM CREDIT AGREEMENT THIS WAIVER AND SEVENTH AMENDMENT TO TERM CREDIT AGREEMENT (this "Amendment"), dated as of March 31, 2000, is entered into among PILLOWTEX CORPORATION, a Texas corporation (the "Borrower"), the institutions listed on the signature pages hereof that are parties to the Credit Agreement defined below (collectively, the "Lenders"), and BANK OF AMERICA, N.A. (formerly known as NationsBank, N.A., successor by merger to NationsBank of Texas, N.A.), as Administrative Agent for itself and the Lenders (in said capacity, the "Administrative Agent"). BACKGROUND ---------- A. The Borrower, the Lenders and the Administrative Agent are parties to that certain Term Credit Agreement, dated as of December 19, 1997 (as amended through the date hereof, the "Credit Agreement"). Terms defined in the Credit Agreement and not otherwise defined herein shall be used herein as defined in the Credit Agreement. B. The Borrower, the Lenders and the Administrative Agent desire to make certain amendments to the Credit Agreement and certain other loan documents. C. The Borrower has requested a waiver of existing Events of Default under the Credit Agreement. NOW, THEREFORE, in consideration of the covenants, conditions and agreements hereinafter set forth, and for other good and valuable consideration, the receipt and adequacy of which are all hereby acknowledged, the Borrower, the Lenders and the Administrative Agent covenant and agree as follows: 1. WAIVER. Subject to the satisfaction of the conditions of effectiveness ------ set forth in Section 8 of this Amendment and the other conditions contained ---------- herein, the Lenders hereby waive (a) the Events of Default with respect to Section 7.11 of the Credit Agreement which occurred as a result of the failure - ------------ of the Borrower to comply with the required Leverage Ratio at the end of the Fiscal Quarters ended October 2, 1999 and January 1, 2000, and (b) the Events of Default with respect to Sections 7.12 and 7.13 of the Credit Agreement which ------------- ---- occurred as a result of the failure of the Borrower to comply with the required Fixed Charge Coverage Ratio and Net Worth at the end of the Fiscal Quarter ended January 1, 2000 (the "Existing Events of Default"). The waiver provided -------------------------- in this Section 1 shall not be and shall not be deemed to be a waiver of any --------- Events of Default under the Credit Agreement other than the Existing Events of Default. Each of the prior Events of Default that have been waived in prior waivers or amendments to the Credit Agreement that have subsequently been cured shall not constitute an Event of Default hereunder due to its mere occurrence so long as it has been cured. 2. AMENDMENTS TO CREDIT AGREEMENT. The Credit Agreement is hereby amended ------------------------------ as follows: (a) Section 1.1 is amended by adding or entirely amending the ----------- following definitions: "Applicable Base Rate Margin" means (a) 2.000% with respect to --------------------------- Facility A Term Loan Advances and (b) 2.500% with respect to Facility B Term Loan Advances, provided that the Applicable Base Rate Margin shall be ------------- decreased by 0.500% as of the first day of the calendar month following the date the Borrower delivers its annual financial statements for Fiscal Year 2000 to the Administrative Agent in accordance with Section 6.2 hereof, if ----------- such financial statements show EBITDA (plus all fees and expenses incurred in connection with the restructuring of any Indebtedness of the Borrower and its Subsidiaries which have been deducted in calculating EBITDA) of greater than $173,000,000 for such Fiscal Year. "Applicable LIBOR Rate Margin" means (a) 3.500% with respect to ---------------------------- Facility A Term Loan Advances and (b) 4.000% with respect to Facility B Term Loan Advances; provided that the Applicable LIBOR Rate Margin shall be ------------- decreased by 0.500% as of the first day of the calendar month following the date the Borrower delivers its annual financial statements for Fiscal Year 2000 to the Administrative Agent in accordance with Section 6.2 hereof, if ----------- such financial statements show EBITDA (plus all fees and expenses incurred in connection with the restructuring of any Indebtedness of the Borrower and its Subsidiaries which have been deducted in calculating EBITDA) of greater than $173,000,000 for such Fiscal Year. "EBITDA" means, for any period, determined in accordance with GAAP on ------ a consolidated basis for the Borrower and its Subsidiaries, the sum of (a) Earnings from Operations plus (b) depreciation, amortization and other non cash charges (excluding any such non-cash charge to the extent it represents an accrual of or reserve for cash charges in any future period or amortization of a prepaid cash expense that was paid in a prior period) to the extent included in determining Earnings From Operations. "Facility A Term Loan Maturity Date" means January 31, 2002, or the ---------------------------------- earlier date of acceleration of the Facility A Term Loan Advances pursuant to Section 8.2 hereof. ----------- "Facility B Term Loan Maturity Date" means January 31, 2002, or the ---------------------------------- earlier date of acceleration of the Facility B Term Loan Advances pursuant to Section 8.2 hereof. ----------- (b) Section 2.7(a) is entirely amended, as follows: -------------- (a) Facility A Term Loan Advances. To the extent not otherwise ----------------------------- required to be paid earlier as provided herein, beginning on March 31, 2000, the principal amount of the Facility A Term Loan Advances shall be repaid on each Quarterly Date -2- and on the Facility A Term Loan Maturity Date in such amounts as set forth next to each such date below:
- ---------------------------------------------------------------------------------------------- Amount of Reduction of Facility A Term Quarterly Date Loans Advances as of each Date -------------- ------------------------------ - ---------------------------------------------------------------------------------------------- March 31, 2000 $ 3,750,000 - ---------------------------------------------------------------------------------------------- June 30, 2000 $ 3,750,000 - ---------------------------------------------------------------------------------------------- September 30, 2000 $ 3,750,000 - ---------------------------------------------------------------------------------------------- December 31, 2000 $ 3,750,000 - ---------------------------------------------------------------------------------------------- March 31, 2001 $ 6,250,000 - ---------------------------------------------------------------------------------------------- June 30, 2001 $ 6,250,000 - ---------------------------------------------------------------------------------------------- September 30, 2001 $ 6,250,000 - ---------------------------------------------------------------------------------------------- December 31, 2001 $ 6,250,000 - ---------------------------------------------------------------------------------------------- January 31, 2002 $79,017,000 or such other amount of Facility A Term Loan Advances then outstanding - ----------------------------------------------------------------------------------------------
(c) Section 2.7(b) is entirely amended, as follows: -------------- (b) Facility B Term Loan Advances. To the extent not otherwise ----------------------------- required to be paid earlier as provided herein, beginning on March 31, 2000, the principal amount of the Facility B Term Loan Advances shall be repaid on each Quarterly Date and on the Facility B Term Loan Maturity Date in such amounts as set forth next to each such date below:
- ---------------------------------------------------------------------------------------------- Amount of Reduction of Facility B Term Loan Quarterly Date Advances as of each Date -------------- ------------------------ - ---------------------------------------------------------------------------------------------- March 31, 2000 $ 562,500 - ---------------------------------------------------------------------------------------------- June 30, 2000 $ 562,500 - ---------------------------------------------------------------------------------------------- September 30, 2000 $ 562,500 - ---------------------------------------------------------------------------------------------- December 31, 2000 $ 562,500 - ---------------------------------------------------------------------------------------------- March 31, 2001 $ 562,500 - ----------------------------------------------------------------------------------------------
-3-
- ---------------------------------------------------------------------------------------------- June 30, 2001 $ 562,500 - ---------------------------------------------------------------------------------------------- September 30, 2001 $ 562,500 - ---------------------------------------------------------------------------------------------- December 31, 2001 $ 562,500 - ---------------------------------------------------------------------------------------------- January 31, 2002 $215,199,000 or such other amount of Facility B Term Loan Advances then outstanding - ----------------------------------------------------------------------------------------------
(d) Section 6.8(c) is entirely amended, as follows: -------------- (c) As soon as available, but in any event no later than Friday of each week, a good faith estimate of Eligible Accounts (as defined in the Amended and Restated Credit Agreement) and Eligible Inventory (as defined in the Amended and Restated Credit Agreement) as of the previous Friday. (e) New Section 6.9 is hereby added immediately following Section 6.8, ----------- ----------- as follows: Section 6.9 Monthly Financial Statements. As soon as available, ---------------------------- but in any event within 20 Business Days after the end of each Fiscal Month other than December, and within 45 Business Days after the end of the Fiscal Month of December, the consolidated balance sheets of the Borrower and its Subsidiaries as at the end of such Fiscal Month and the related consolidated statements of earnings for such Fiscal Month and for the elapsed portion of the year ended with the last day of such Fiscal Month, and consolidated statements of cash flow for the elapsed portion of the year ended with the last day of such Fiscal Month, all of which shall be certified by a Responsible Officer, to, in his or her opinion acting solely in his or her capacity as an officer of the Borrower, present fairly in all material respects, in accordance with GAAP (except for the absence of footnotes), the financial position and results of operations of the Borrower and its Subsidiaries as at the end of and for such Fiscal Month, and for the elapsed portion of the year ended with the last day of such Fiscal Month, subject only to normal year-end adjustments. (f) Section 7.7 is entirely amended, as follows: ----------- Section 7.7 Capital Expenditures. The Borrower shall not, and -------------------- shall not permit any of its Subsidiaries to, make or commit to make any Capital Expenditures in an aggregate amount that exceeds (a) from January 2, 2000 through and including December 30, 2000, $50,000,000, provided, however, that no more than $25,000,000 of such permitted -------- ------- ---- amount may be expended in any single Fiscal Quarter of the Borrower, and (b) from December 31, 2000, through and including the Maturity Date, $30,000,000 plus the amount by which $50,000,000 exceeds actual -4- Capital Expenditures made from January 2, 2000 through and including December 30, 2000, provided, however, that no more than $15,000,000 of -------- ------- ---- such permitted amount may be expended in any single Fiscal Quarter of the Borrower. (g) Clause (c) of Section 7.8 is entirely amended, as follows: ---------- ----------- (c) non-equity consideration paid to any Person in connection with the redemption, contractual sinking fund payments or restructuring of the Fieldcrest Cannon Subordinated Debentures (including fees and expenses); provided, however, the Borrower shall not pay or make any Restricted Payments permitted by this Section 7.8 unless there shall ----------- exist no Default or Event of Default prior to or after giving effect to any such proposed Restricted Payment. (h) Exhibit E is amended and restated in the form of, and all --------- references in the Credit Agreement to Exhibit E are hereby deemed to be --------- references to, the attached Exhibit E. --------- 3. FINANCIAL COVENANTS. Notwithstanding anything contained in the Credit ------------------- Agreement or any other Loan Document, the Borrower shall not be obligated to comply, and the Lenders hereby waive compliance by the Borrower, with the covenants set forth in Sections 7.11, 7.12 and 7.13 of the Credit Agreement with respect to any relevant period ending on or after January 1, 2000; provided, -------- however, that, in lieu of such covenants, the Borrower will not permit EBITDA - ------- (plus all fees and expenses incurred in connection with the restructuring of any Indebtedness of the Borrower and its Subsidiaries which have been deducted in calculating EBITDA) for the periods set forth below to be less than the amount set forth opposite each such period:
Period Amount - ------------------------------- ------------ 3 months ended 4/1/00 $ 26,000,000 6 months ended 7/1/00 $ 59,000,000 9 months ended 9/30/00 $105,000,000 12 months ended 12/30/00 $147,000,000 12 months ended 3/31/01 $147,000,000 12 months ended 6/30/01 $160,000,000 12 months ended 9/29/01 $170,000,000 12 months ended 12/29/01 $180,000,000
4. AMENDMENT FEE. Borrower shall pay to the Administrative Agent, for the ------------- pro rata benefit of the Lenders that execute and deliver this Amendment to the Administrative Agent (or its counsel) not later than 5:00 p.m., Dallas time, March 30, 2000, an amendment fee in an amount equal to the product of (a) 0.25% multiplied by (b) with respect to each Lender which is owed Facility A Term Loan Advances or Facility B Term Loan Advances, the aggregate amount of Facility A Term Loan Advances and Facility B Term Loan Advances owed to such Lender. Such amendment fee shall be paid in immediately available funds and shall be payable only if the conditions set forth in Section 8 of this Amendment have been --------- satisfied and shall be due and payable -5- to each Lender eligible for payment pursuant to the preceding sentence no later than two Business Days after the conditions set forth in Section 8 of this --------- Amendment have been satisfied. The Borrower agrees that the failure to pay the amendment fee provided in this Section 4 shall, after the expiration of any --------- applicable grace period, be an Event of Default under Section 8.1(b)(ii) of the ------------------ Credit Agreement. 5. COLLATERAL REDUCTION FEE. Within 30 Business Days after the Payment ------------------------ Date (as defined below) with respect to any cash consideration in excess of $10,000,000, in the aggregate, paid or to be paid on or before January 31, 2002 to any Person in connection with the restructuring of the Fieldcrest Cannon Subordinated Debentures (including fees and expenses), Borrower shall pay to the Administrative Agent, for the benefit of the Revolving Lenders (as defined in the Intercreditor Agreement) and the Term Lenders (as defined in the Intercreditor Agreement), each of whom shall receive their Pro Rata (as defined in the Intercreditor Agreement) share thereof, a fee equal to 20% of such excess amount multiplied by a fraction, the numerator of which is the number of days from the Payment Date through and including January 31, 2002, and the denominator of which is 360. For purposes hereof, "Payment Date" shall mean the ------------ earlier of (a) the date upon which actual cash payment is made or (b) the date upon which the Borrower or any of its Subsidiaries becomes obligated to make such payment. So long as no Event of Default has occurred and is continuing, the Borrower and its Subsidiaries shall be permitted to make all scheduled payments of principal and interest provided for under the documents evidencing the Subordinated Debt. 6. RELEASE. ------- (a) The Borrower and each Guarantor hereby unconditionally and irrevocably remises, acquits, and fully and forever releases and discharges the Administrative Agent and the Lenders and all respective affiliates and subsidiaries of the Administrative Agent and the Lenders, their respective officers, servants, employees, agents, attorneys, financial advisors, principals, directors and shareholders, and their respective heirs, legal representatives, successors and assigns (collectively, the "Released Lender --------------- Parties") from any and all claims, demands, causes of action, obligations, ------- remedies, suits, damages and liabilities (collectively, the "Borrower -------- Claims") of any nature whatsoever, whether now known, suspected or claimed, ------ whether arising under common law, in equity or under statute, which the Borrower or any Guarantor ever had or now has against the Released Lender Parties which may have arisen at any time on or prior to the date of this Amendment and which were in any manner related to any of the Loan Documents or the enforcement or attempted enforcement by the Administrative Agent or the Lenders of rights, remedies or recourses related thereto. (b) The Borrower and each Guarantor covenants and agrees never to commence, voluntarily aid in any way, prosecute or cause to be commenced or prosecuted against any of the Released Lender Parties any action or other proceeding based upon any of the Borrower Claims which may have arisen at any time on or prior to the date of this Amendment and were in any manner related to any of the Loan Documents. -6- (c) The agreements of the Borrower and each Guarantor set forth in this Section 6 shall survive termination of this Amendment and the other --------- Loan Documents. 7. REPRESENTATIONS AND WARRANTIES. By its execution and delivery hereof, ------------------------------ the Borrower represents and warrants to the Lenders that, as of the date hereof: (a) after giving effect to the waiver set forth in Section 1 of this --------- Amendment, the representations and warranties contained in the Credit Agreement and the other Loan Documents are true and correct on and as of the date hereof as if made on and as of such date; (b) after giving effect to the waiver set forth in Section 1 of this --------- Amendment, no event has occurred and is continuing which constitutes an Event of Default; (c) the Borrower has full power and authority to execute and deliver this Amendment, and this Amendment constitutes the legal, valid and binding obligation of the Borrower, enforceable in accordance with its terms, except as enforceability may be limited by applicable Debtor Relief Laws and by general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law) and except as rights to indemnity may be limited by federal or state securities laws; (d) neither the execution, delivery and performance of this Amendment nor the consummation of any transactions contemplated herein will conflict with any Law, the articles of incorporation, bylaws or other governance document of the Borrower or any of its Subsidiaries, or any indenture, agreement or other instrument to which the Borrower or any of its Subsidiaries or any of their respective property is subject; and (e) no authorization, approval, consent, or other action by, notice to, or filing with, any governmental authority or other Person (including the Board of Directors of the Borrower or any Guarantor), is required for the execution, delivery or performance by the Borrower of this Amendment or the acknowledgment of this Amendment by any Guarantor. 8. CONDITIONS OF EFFECTIVENESS. This Amendment shall be effective as of --------------------------- March 31, 2000, so long as each of the following conditions precedent shall have been satisfied: (a) the Administrative Agent shall receive counterparts of (i) this Amendment and (ii) the Waiver and Seventh Amendment to Amended and Restated Credit Agreement, each executed by the Required Lenders (as defined in the Intercreditor Agreement) and the Borrower and acknowledged by each Guarantor; -7- (b) the Administrative Agent shall receive counterparts of the Fifth Amendment to Promissory Note, executed by the Borrower and Bank of America, N.A., extending the maturity of the Overline Facility to the Maturity Date; (c) the representations and warranties set forth in Section 7 of this --------- Amendment shall be true and correct; (d) all reasonable out-of-pocket fees and expenses in connection with the Loan Documents, including this Amendment, including legal and other professional fees and expenses incurred on or prior to the date of this Amendment by Administrative Agent or any Lender, including, without limitation, the reasonable fees and expenses of Winstead Sechrest & Minick P.C., Donohoe Jameson & Carroll and PricewaterhouseCoopers, shall have been paid; and (e) the Administrative Agent shall receive, in form and substance satisfactory to the Administrative Agent and its counsel, such other documents, certificates and instruments as the Administrative Agent shall reasonably require. 9. GUARANTOR ACKNOWLEDGMENT. By signing below, each of the Guarantors (i) ------------------------ acknowledges, consents and agrees to the execution and delivery of this Amendment, (ii) acknowledges and agrees that its obligations in respect of its Subsidiary Guaranty are not released, diminished, waived, modified, impaired or affected in any manner by this Amendment or any of the provisions contemplated herein, (iii) ratifies and confirms its obligations under its Subsidiary Guaranty, and (iv) acknowledges and agrees that it has no claims or offsets against, or defenses or counterclaims to, its Subsidiary Guaranty as a result of this Amendment. 10. BANK OF AMERICA CONSENT. Bank of America, N.A., in its capacity as ----------------------- provider of the Overline Facility, hereby (i) agrees to this Amendment and acknowledges that the waivers provided herein shall also be effective with respect to the Overline Facility, and (ii) acknowledges that the maturity date of the Overline Facility has been extended to the Maturity Date. 11. REFERENCE TO CREDIT AGREEMENT. Upon the effectiveness of this ----------------------------- Amendment, each reference in the Credit Agreement to "this Agreement," "hereunder," or words of like import shall mean and be a reference to the Credit Agreement, as affected and amended by this Amendment. 12. COUNTERPARTS; EXECUTION VIA FACSIMILE. This Amendment may be executed ------------------------------------- in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. This Amendment may be validly executed and delivered by facsimile or other electronic transmission. -8- 13. GOVERNING LAW: BINDING EFFECT. This Amendment shall be governed by ----------------------------- and construed in accordance with the laws of the State of Texas and shall be binding upon the Borrower, the Administrative Agent, each Lender and their respective successors and assigns. 14. HEADINGS. Section headings in this Amendment are included herein for -------- convenience of reference only and shall not constitute a part of this Amendment for any other purpose. 15. LOAN DOCUMENT. This Amendment is a Loan Document and is subject to ------------- all provisions of the Credit Agreement applicable to Loan Documents, all of which are incorporated in this Amendment by reference the same as if set forth in this Amendment verbatim. 16. NO ORAL AGREEMENTS. THIS WRITTEN AGREEMENT AND THE OTHER LOAN ------------------ DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. ================================================================================ REMAINDER OF PAGE LEFT INTENTIONALLY BLANK ================================================================================ -9- IN WITNESS WHEREOF, the parties hereto have executed this Amendment as the date first above written. PILLOWTEX CORPORATION By: Jaime Vasquez Vice President and Treasurer BANK OF AMERICA, N.A. (formerly known as NationsBank, N.A., successor by merger to NationsBank of Texas, N.A.), as Administrative Agent and as a Lender, Swing Line Bank and Issuing Bank THE BANK OF NOVA SCOTIA ATLANTA AGENCY THE FIRST NATIONAL BANK OF CHICAGO WELLS FARGO BANK (TEXAS), NATIONAL ASSOCIATION BANKBOSTON, N.A. COMERICA BANK CREDIT LYONNAIS - NEW YORK BRANCH THE BANK OF TOKYO-MITSUBISHI, LTD. BANK ONE, TEXAS, N.A. BHF (USA) CAPITAL CORPORATION FIRST UNION NATIONAL BANK Seventh Amendment to Term Credit Agreement Signature Page COOPERATIEVE CENTRALE RAIFFEISEN- BOERENLEENBANK B.A., "RABOBANK NEDERLAND", NEW YORK BRANCH THE BANK OF NEW YORK CREDIT INDUSTRIEL ET COMMERCIAL BANK AUSTRIA CREDITANSTALT CORPORATE FINANCE, INC. FLEET BANK, N.A. THE FUJI BANK, LTD. NATIONAL BANK OF CANADA NATIONAL CITY BANK OF KENTUCKY THE PRUDENTIAL INSURANCE COMPANY OF AMERICA BANK POLSKA KASA OPIEKI, S.A., NEW YORK BRANCH GUARANTY FEDERAL BANK, F.S.B. GENERAL ELECTRIC CAPITAL CORPORATION SOCIETE GENERALE, SOUTHWEST AGENCY CONSENTED TO BY: KZH WATERSIDE LLC SENIOR DEBT PORTFOLIO By: Boston Management and Research as Investment Advisor AERIES FINANCE-II LTD. BY: INVESCO Senior Secured Management, Inc. as Sub-Managing Agent Seventh Amendment to Term Credit Agreement Signature Page CYPRESSTREE INVESTMENT PARTNERS I, LTD. By: CypressTree Investment Management Company, Inc., as Portfolio Manager NORTH AMERICAN SENIOR FLOATING RATE FUND By: CypressTree Investment Management Company, Inc., as Portfolio Manager CYPRESSTREE INVESTMENT MANAGEMENT COMPANY, INC. As: Attorney-in-Fact and on behalf of First Allmerica Financial Life Insurance Company as Portfolio Manager VAN KAMPEN CLO I, LIMITED By: VAN KAMPEN MANAGEMENT, INC., as Collateral Manager BALANCED HIGH-YIELD FUND I LTD. By: BHF (USA) CAPITAL CORPORATION, acting as attorney-in-fact INDOSUEZ CAPITAL FUNDING IIA, LIMITED By: INDOSUEZ CAPITAL as Portfolio Advisor VAN KAMPEN SENIOR INCOME TRUST INDOSUEZ CAPITAL FUNDING IV, L.P. By: Indosuez Capital as Portfolio Advisor CYPRESSTREE INSTITUTIONAL FUND, LLC By: CypressTree Investment Management Company, Inc., its Managing Member CYPRESSTREE INVESTMENT FUND, LLC By: CypressTree Investment Management Company, Inc., its Managing Member KZH CYPRESSTREE-1 LLC OXFORD STRATEGIC INCOME FUND By: Eaton Vance Management, as Investment Advisor EATON VANCE INSTITUTIONAL SENIOR LOAN FUND By: Eaton Vance Management, as Seventh Amendment to Term Credit Agreement Signature Page Investment Advisor VAN KAMPEN CLO II, LIMITED By: Van Kampen Management, Inc., as Collateral Manager CAPTIVA FINANCE, LTD. BALANCED HIGH-YIELD FUND II LTD. By: BHF (USA) CAPITAL CORPORATION, acting as attorney-in-fact FINOVA CAPITAL CORPORATION THE DAI-ICHI KANGYO BANK LIMITED, NEW YORK BRANCH MOUNTAIN CAPITAL CLO I LTD. MARINER LDC LEHMAN COMMERCIAL PAPER, INC. PRESIDENT & FELLOWS OF HARVARD COLLEGE By: Regiment Capital Management, LLC, as its Investment Advisor By: Regiment Capital Advisors, LLC, its Manager and pursuant to delegated authority ACKNOWLEDGED AND AGREED: PILLOWTEX, INC. PTEX HOLDING COMPANY PILLOWTEX MANAGEMENT SERVICES COMPANY BEACON MANUFACTURING COMPANY MANETTA HOME FASHIONS, INC. TENNESSEE WOOLEN MILLS FIELDCREST CANNON, INC. CRESTFIELD COTTON COMPANY ENCEE, INC. FCC CANADA, INC. FIELDCREST CANNON FINANCING, INC. FIELDCREST CANNON LICENSING, INC. Seventh Amendment to Term Credit Agreement Signature Page FIELDCREST CANNON INTERNATIONAL, INC. FIELDCREST CANNON SF, INC. (formerly known as Fieldcrest Cannon Sure Fit, Inc.) FIELDCREST CANNON TRANSPORTATION, INC. ST. MARYS, INC. AMOSKEAG COMPANY AMOSKEAG MANAGEMENT CORPORATION DOWNEAST SECURITIES CORPORATION BANGOR INVESTMENT COMPANY MOORE'S FALLS CORPORATION THE LESHNER CORPORATION LESHNER OF CALIFORNIA, INC. OPELIKA INDUSTRIES, INC. Jaime Vasquez Vice President and Treasurer Seventh Amendment to Term Credit Agreement Signature Page EXHIBIT E COMPLIANCE CERTIFICATE ---------------------- To: Bank of America, N.A., as Administrative Agent From: Pillowtex Corporation Date: , . ------------------- ----- Re: Term Credit Agreement, dated as of December 19, 1997 (as amended, the "Credit Agreement"), among Pillowtex Corporation ( the "Borrower"), certain Lenders, and Bank of America, N.A., as Administrative Agent This Compliance Certificate is delivered pursuant to Section 6.3 of the Credit Agreement. All capitalized terms used herein and defined in the Credit Agreement shall be used as so defined. For purposes hereof, section references herein related to sections of the Credit Agreement and bracketed amounts or ratios refer to the maximum or minimum amounts or ratios required under the relevant sections of the Credit Agreement. I. EBITDA Covenant Calculation --------------------------- EBITDA, calculated for the ____________________ /1/ period ending on the date of calculation 1. Earnings from Operations $ ------------- 2. Depreciation $ ------------- 3. Amortization $ ------------- 4. Other non-cash charges (excluding any such non-cash charge to the extent it represents an accrual of or reserve for cash charges in any future period or amortization of a prepaid cash expense that was paid in a prior period) to the extent included in determining Earnings from Operations $ ------------- 5. EBITDA [(1) + (2) + (3) + (4)] $ ----------- 6. Fees and expenses incurred - ------------------- /1/ See Table 1 in connection with the restructuring of Indebtedness $ ------------- 7. Adjusted EBITDA [(5) + (6)] $ -------------------- 8. Minimum Required $ /1/ ------------- II. Certain Other Covenant Calculations. Demonstration of compliance with ----------------------------------- certain covenants contained in Article 7 of the Credit Agreement for the period ended . ------------- ---------------- (a) Section 7.1(c). Indebtedness of the Borrower and its $ Domestic Subsidiaries, including in respect of Capitalized ---------- Lease Obligations, incurred to purchase, or to finance the purchase of, assets which constitute property, plant and equipment 1. Maximum in aggregate principal amount $35,515,000 outstanding, when aggregated with Section 7.1(o) -------------- 2. Actual $ ---------- 3. Difference [(1) - (2)] $ ---------- (b) Section 7.1(o) Other Indebtedness of the Borrower and -------------- its Domestic Subsidiaries 1. Maximum in aggregate principal amount $35,515,000 Outstanding, when aggregated with Section 7.1(c) 2. Actual $ ---------- 3. Difference [(1) - (2)] $ ---------- (c) Section 7.5(c) Net Cash Proceeds from the disposition of -------------- assets (to the extent not applied pursuant to Section 2.5(b)) outstanding and pending reinvestment pursuant to -------------------------------------------------------- Section 7.5(c) -------------- 1. Maximum at any Time $1,000,000 2. Actual $ ---------- 3. Difference [(1) - (2)] $ ---------- (d) Section 7.7 Capital Expenditures ----------- 1. Actual amount expended previous quarter $ ---------- 2. Maximum Allowed $ /2/ ---------- 3. Difference [(1) - (2)] $ ---------- 4. Actual amount expended since January 2, 2000 or December 31, 2000, whichever is most recent relative to end of previous quarter $ ---------- 5. Maximum Allowed $ /3/ ---------- 6. Difference [(4) - (5)] $ ---------- III. Tables. ------- Table 1 ------- Period Minimum Required ------ ---------------- 3 months ended 4/1/00 $ 26,000,000 6 months ended 7/1/00 $ 59,000,000 9 months ended 9/30/00 $105,000,000 12 months ended 12/30/00 $147,000,000 12 months ended 3/31/01 $147,000,000 12 months ended 6/30/01 $160,000,000 12 months ended 9/29/01 $170,000,000 12 months ended 12/29/01 $180,000,000 Table 2 ------- For Quarters Ending Maximum Allowed ------------------- --------------- 4/1/00, 7/1/00, 9/30/00, and 12/30/00 $ 25,000,000 3/31/01, 6/30/01, 9/29/01, and 12/29/01 $ 15,000,000 Table 3 ------- Period Maximum Allowed ------ --------------- 1/2/00 through 12/30/00 $50,000,000 12/31/00 through 1/31/02 $30,000,000 plus the amount which $50,000,000 exceeds actual - ------------------------- /2/ See Table 2 /3/ See Table 3 expenditures made from 1/2/00 through 12/30/00 IV. Compliance Certificate. The undersigned hereby certifies to you as ---------------------- follows: (a) I am the duly elected qualified and acting chief financial officer [or chief accounting officer] of the Borrower. (b) I have reviewed the provisions of the Credit Agreement and the other Loan Documents, and a review of the activities of Borrower during the period from _______________________, ______ to ______________________, _______ (the "Reporting Period") has been made under my supervision with a view toward determining whether, during the Reporting Period, the Borrower has kept, observed, performed and fulfilled all its obligations under the Credit Agreement and such other Loan Documents. (c) The representations and warranties made in the Loan Documents are true and correct in all material respects as of the date hereof as though made at and as of the date hereof, except for such representations and warranties which relate to a particular date or which fail to be true and correct as a result of events or occurrences permitted under the Loan Documents, and no Default or Event of Default has occurred or is continuing. This Compliance Certificate is executed and delivered on the ________ day of ________________, _______. PILLOWTEX CORPORATION EX-10.20 9 FOURTH AMENDMENT TO THE PROMISSORY NOTE EXHIBIT 10.20 FOURTH AMENDMENT TO PROMISSORY NOTE THIS FOURTH AMENDMENT TO PROMISSORY NOTE (this "Amendment"), dated as of --------- February 15, 2000, is entered into between PILLOWTEX CORPORATION, a Texas corporation ("Borrower"), and BANK OF AMERICA, N.A. (formerly known as -------- NationsBank, N.A.) ("Lender"). ------ A. Borrower executed that certain Promissory Note, dated May 4,1999, in the maximum principal amount of $20,000,000, payable to the order of Lender, as amended and increased to $35,000,000 by that certain First Amendment to Promissory Note, dated as of July 27, 1999 (said Promissory Note, as amended, the "Promissory Note"; the terms defined in the Promissory Note and not --------------- otherwise defined herein shall be used herein as defined in the Promissory Note). B. Borrower and Lender desire to amend the Promissory Note. NOW, THEREFORE, in consideration of the covenants, conditions and agreements hereafter set forth, and for other good and valuable consideration, the receipt and adequacy of which are all hereby acknowledged, Borrower and Lender covenant and agree as follows: 1. AMENDMENT TO PROMISSORY NOTE. The Promissory Note is hereby amended by ---------------------------- amending the definition of "Maturity Date" set forth in Article III thereof to read as follows: "Maturity Date" means the earliest of (a) the occurrence of a ------------- Prepayment Event, (b) March 31, 2000, (c) the date of termination in whole of the Commitment hereunder or (d) the date of termination of the Waiver Period, as defined in that certain Sixth Amendment and Waiver to Amended and Restated Credit Agreement, dated to be effective as of December 7, 1999, executed and delivered in connection with the Credit Agreement. 2. REPRESENTATIONS AND WARRANTIES TRUE; NO EVENT OF DEFAULT. By its -------------------------------------------------------- execution and delivery hereof, Borrower represents and warrants that, as of the date hereof and after giving effect to the amendment provided in the foregoing Section 1 and the Sixth Amendment and Waiver to Amended and Restated Credit Agreement referred to therein: (a) the representations and warranties contained in the Promissory Note are true and correct on and as of the date hereof as if made on and as of such date; (b) no event has occurred and is continuing which constitutes an Event of Default; (c) Borrower has full power and authority to execute and deliver this Amendment, and this Amendment and the Promissory Note, as amended hereby, constitute the legal, valid and binding obligations of the Borrower, enforceable in accordance with their respective terms, except as enforceability may be limited by applicable debtor relief laws and by general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law) and except as rights to indemnity may be limited by federal or state securities laws; and (d) no authorization, approval, consent or other action by, notice to, or filing with, any governmental authority or other Person, is required for the execution, delivery or performance by Borrower of this Amendment or the acknowledgment of this Amendment by any Person that executed a Guaranty Agreement (each such Person being a "Guarantor"). --------- 3. CONDITIONS OF EFFECTIVENESS. This Amendment shall be effective as of --------------------------- February 15, 2000, subject to the following: (a) Lender shall have received counterparts of this Amendment executed by Borrower and acknowledged by each Guarantor; and (b) the conditions precedent (other than the effectiveness of this Amendment) to the effectiveness of that certain Sixth Amendment and Waiver to Amended and Restated Credit Agreement, dated to be effective as of February 15, 2000, by and among the Borrower, the Guarantors, the lenders party thereto and Bank of America, N.A., as administrative agent, shall have been satisfied. 4. GUARANTOR ACKNOWLEDGMENT. By signing below, each Guarantor (i) ------------------------ acknowledges, consents and agrees to the execution, delivery and performance by Borrower of this Amendment, (ii) acknowledges and agrees that its obligations in respect of its Guaranty Agreement are not released, diminished, waived, modified, impaired or affected in any manner by this Amendment or any of the provisions contemplated herein, (iii) ratifies and confirms its obligations under its Guaranty Agreement (including, without limitation, with respect to the Commitment as increased hereby), and (iv) acknowledges and agrees that it has no claim or offsets against, or defenses or counterclaims to, its obligations under its Guaranty Agreement. 5. REFERENCE TO THE PROMISSORY NOTE. -------------------------------- (a) Upon the effectiveness of this Amendment, each reference in the Promissory Note to "this Note", "hereunder", or words of like import shall mean and be a reference to the Promissory Note, as affected and amended by this Amendment. (b) The Promissory Note, as amended by this Amendment, shall remain in full force and effect and are hereby ratified and confirmed. 6. COSTS, EXPENSES AND TAXES. Borrower agrees to pay on demand all costs ------------------------- and expenses of Lender in connection with the preparation, reproduction, execution and delivery of this Amendment and the other instruments and documents to be delivered hereunder (including the reasonable fees and out-of-pocket expenses of counsel and financial consultants for Lender). 7. COUNTERPARTS; EXECUTION VIA FACSIMILE. This Amendment may be executed ------------------------------------- in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which when -2- taken together shall constitute but one and the same instrument. This Amendment may be validly executed and delivered by facsimile or other electronic transmission. 8. GOVERNING LAW; BINDING EFFECT. This Amendment shall be governed by and ----------------------------- construed in accordance with the laws of the State of Texas and shall be binding upon Borrower and Lender and their respective successors and assigns. 9. HEADINGS. Section headings in this Amendment are included herein for -------- convenience of reference only and shall not constitute a part of this Amendment for any other purpose. 10. ENTIRE AGREEMENT. THE PROMISSORY NOTE, AS AMENDED BY THIS AMENDMENT, ---------------- REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AS TO THE SUBJECT MATTER HEREIN AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS BETWEEN THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. ================================================================================ REMAINDER OF PAGE LEFT INTENTIONALLY BLANK ================================================================================ -3- IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the date first above written. PILLOWTEX CORPORATION By: Jaime Vasquez Title: Vice President/Treasurer BANK OF AMERICA, N.A. Fourth Amendment to Promissory Note Signature Page ACKNOWLEDGED AND AGREED: PILLOWTEX, INC. PTEX HOLDING COMPANY PILLOWTEX MANAGEMENT SERVICES COMPANY BEACON MANUFACTURING COMPANY MANETTA HOME FASHIONS, INC. TENNESSEE WOOLEN MILLS FIELDCREST CANNON, INC. CRESTFIELD COTTON COMPANY ENCEE, INC. FCC CANADA, INC. FIELDCREST CANNON FINANCING, INC. FIELDCREST CANNON LICENSING, INC. FIELDCREST CANNON INTERNATIONAL, INC. FIELDCREST CANNON SF, INC. (formerly know as Fieldcrest Cannon Sure Fit, Inc.) FIELDCREST CANNON TRANSPORTATION, INC, ST. MARYS, INC. AMOSKEAG COMPANY AMOSKEAG MANAGEMENT CORPORATION DOWNEAST SECURITIES CORPORATION BANGOR INVESTMENT COMPANY MOORE'S FALLS CORPORATION THE LESHNER CORPORATION LESHNER OF CALIFORNIA, INC. OPELIKA INDUSTRIES, INC. By: Jaime Vasquez Title: Vice President/Treasurer Fourth Amendment to Promissory Note Signature Page EX-10.21 10 FIFTH AMENDMENT TO THE PROMISSORY NOTE EXHIBIT 10.21 FIFTH AMENDMENT TO PROMISSORY NOTE THIS FIFTH AMENDMENT TO PROMISSORY NOTE (this "Amendment"), dated as of --------- March 31, 2000, is entered into between PILLOWTEX CORPORATION, a Texas corporation ("Borrower"), and BANK OF AMERICA, N.A. (formerly known as -------- NationsBank, N.A.) ("Lender"). ------ A. Borrower executed that certain Promissory Note, dated May 4,1999, in the maximum principal amount of $20,000,000, payable to the order of Lender, as amended and increased to $35,000,000 by that certain First Amendment to Promissory Note, dated as of July 27, 1999 (said Promissory Note, as amended, the "Promissory Note"; the terms defined in the Promissory Note and not --------------- otherwise defined herein shall be used herein as defined in the Promissory Note). B. Borrower and Lender desire to amend the Promissory Note. NOW, THEREFORE, in consideration of the covenants, conditions and agreements hereafter set forth, and for other good and valuable consideration, the receipt and adequacy of which are all hereby acknowledged, Borrower and Lender covenant and agree as follows: 1. AMENDMENTS TO PROMISSORY NOTE. The Promissory Note is hereby amended, ----------------------------- as follows: (a) Section 1.8(c) is entirely amended, as follows: The principal amount of all Advances outstanding hereunder shall be due and payable in equal quarterly installments of $87,500, together with accrued and unpaid interest thereon, on the last day of each March, June, September and December, commencing March 31, 2000, with a final payment of all outstanding principal, accrued interest and fees thereon, due and payable on the Maturity Date. Notwithstanding anything herein to the contrary, each installment payment hereunder shall constitute a permanent reduction to the Commitment in the amount of such payment. (b) The following definitions set forth in Article III of the Promissory Note are hereby amended to read as follows: "Base Rate" means an interest rate per annum for each day equal to the --------- sum of (a) the Base Rate Margin plus (b) higher of (i) the Prime Rate in effect on such day or (ii) the Federal Funds Rate in effect on such day plus 1/2%, each without notice to Borrower. "Eurodollar Rate" means an interest rate per annum equal to the sum of --------------- (i) the Eurodollar Rate Margin plus (ii) a rate per annum determined pursuant to the following formula: London Interbank Rate ----------------------------------------- 100% - Eurodollar Reserve Percentage "Maturity Date" means the earliest of (a) the occurrence of a ------------- Prepayment Event, (b) January 31, 2002, or (c) the date of termination in whole of the Commitment hereunder. (c) The following definitions are added to Article III of the Promissory Note and inserted in appropriate alphabetical order therein as follows: "Base Rate Margin" means 3.000%, provided that the Base Rate Margin ---------------- ------------- shall be decreased to 2.500% as of the first day of the calendar month following the date the Borrower delivers its annual financial statements for Fiscal Year 2000 to the Lender, if such financial statements show EBITDA (plus all fees and expenses incurred in connection with the restructuring of any Indebtedness of the Borrower and its Subsidiaries which have been deducted in calculating EBITDA) of greater than $173,000,000 for such Fiscal Year. "Eurodollar Rate Margin" means 4.500%, provided that the Eurodollar ---------------------- ------------- Rate Margin shall be decreased to 4.000% as of the first day of the calendar month following the date the Borrower delivers its annual financial statements for Fiscal Year 2000 to the Lender, if such financial statements show EBITDA (plus all fees and expenses incurred in connection with the restructuring of any Indebtedness of the Borrower and its Subsidiaires which have been deducted in calculating EBITDA) of greater than $173,000,000 for such Fiscal Year. 2. REPRESENTATIONS AND WARRANTIES TRUE; NO EVENT OF DEFAULT. By its -------------------------------------------------------- execution and delivery hereof, Borrower represents and warrants that, as of the date hereof and after giving effect to the amendment provided in the foregoing Section 1 and the Waiver and Seventh Amendment to Amended and Restated Credit Agreement referred to therein: (a) the representations and warranties contained in the Promissory Note are true and correct on and as of the date hereof as if made on and as of such date; (b) no event has occurred and is continuing which constitutes an Event of Default; (c) Borrower has full power and authority to execute and deliver this Amendment, and this Amendment and the Promissory Note, as amended hereby, constitute the legal, valid and binding obligations of the Borrower, enforceable in accordance with their respective terms, except as enforceability may be limited by applicable debtor relief laws and by general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law) and except as rights to indemnity may be limited by federal or state securities laws; and (d) no authorization, approval, consent or other action by, notice to, or filing with, any governmental authority or other Person, is required for the execution, delivery or performance by Borrower of this Amendment or the acknowledgment of this Amendment by any Person that executed a Guaranty Agreement (each such Person being a "Guarantor"). --------- 3. CONDITIONS OF EFFECTIVENESS. This Amendment shall be effective as of --------------------------- March 31, 2000, subject to the following: -2- (a) Lender shall have received counterparts of this Amendment executed by Borrower and acknowledged by each Guarantor; (b) Lender shall have received an amendment fee from Borrower in consideration for this Amendment in the amount of $87,500 (which fee shall be fully-earned when paid, and nonrefundable for any reason); and (c) the conditions precedent (other than the effectiveness of this Amendment) to the effectiveness of that certain Waiver and Seventh Amendment to Amended and Restated Credit Agreement, dated to be effective as of March 31, 2000, by and among the Borrower, the Guarantors, the lenders party thereto and Bank of America, N.A., as administrative agent, shall have been satisfied. 4. GUARANTOR ACKNOWLEDGMENT. By signing below, each Guarantor (i) ------------------------ acknowledges, consents and agrees to the execution, delivery and performance by Borrower of this Amendment, (ii) acknowledges and agrees that its obligations in respect of its Guaranty Agreement are not released, diminished, waived, modified, impaired or affected in any manner by this Amendment or any of the provisions contemplated herein, (iii) ratifies and confirms its obligations under its Guaranty Agreement (including, without limitation, with respect to the Commitment as increased hereby), and (iv) acknowledges and agrees that it has no claim or offsets against, or defenses or counterclaims to, its obligations under its Guaranty Agreement. 5. REFERENCE TO THE PROMISSORY NOTE. -------------------------------- (a) Upon the effectiveness of this Amendment, each reference in the Promissory Note to "this Note", "hereunder", or words of like import shall mean and be a reference to the Promissory Note, as affected and amended by this Amendment. (b) The Promissory Note, as amended by this Amendment, shall remain in full force and effect and are hereby ratified and confirmed. 6. COSTS, EXPENSES AND TAXES. Borrower agrees to pay on demand all costs ------------------------- and expenses of Lender in connection with the preparation, reproduction, execution and delivery of this Amendment and the other instruments and documents to be delivered hereunder (including the reasonable fees and out-of-pocket expenses of counsel and financial consultants for Lender). 7. COUNTERPARTS; EXECUTION VIA FACSIMILE. This Amendment may be executed ------------------------------------- in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which when taken together shall constitute but one and the same instrument. This Amendment may be validly executed and delivered by facsimile or other electronic transmission. -3- 8. GOVERNING LAW; BINDING EFFECT. This Amendment shall be governed by and ----------------------------- construed in accordance with the laws of the State of Texas and shall be binding upon Borrower and Lender and their respective successors and assigns. 9. HEADINGS. Section headings in this Amendment are included herein for -------- convenience of reference only and shall not constitute a part of this Amendment for any other purpose. 10. ENTIRE AGREEMENT. THE PROMISSORY NOTE, AS AMENDED BY THIS AMENDMENT, ---------------- REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AS TO THE SUBJECT MATTER HEREIN AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS BETWEEN THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. ================================================================================ REMAINDER OF PAGE LEFT INTENTIONALLY BLANK ================================================================================ -4- IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the date first above written. PILLOWTEX CORPORATION By: Jaime Vasquez Vice President and Treasurer BANK OF AMERICA, N.A. ACKNOWLEDGED AND AGREED: PILLOWTEX, INC. PTEX HOLDING COMPANY PILLOWTEX MANAGEMENT SERVICES COMPANY BEACON MANUFACTURING COMPANY MANETTA HOME FASHIONS, INC. TENNESSEE WOOLEN MILLS FIELDCREST CANNON, INC. CRESTFIELD COTTON COMPANY ENCEE, INC. FCC CANADA, INC. FIELDCREST CANNON FINANCING, INC. FIELDCREST CANNON LICENSING, INC. FIELDCREST CANNON INTERNATIONAL, INC. FIELDCREST CANNON SF, INC. (formerly know as Fieldcrest Cannon Sure Fit, Inc.) FIELDCREST CANNON TRANSPORTATION, INC, ST. MARYS, INC. AMOSKEAG COMPANY AMOSKEAG MANAGEMENT CORPORATION DOWNEAST SECURITIES CORPORATION BANGOR INVESTMENT COMPANY Fifth Amendment to Promissory Note Signature Page MOORE'S FALLS CORPORATION THE LESHNER CORPORATION LESHNER OF CALIFORNIA, INC. OPELIKA INDUSTRIES, INC. By: Jaime Vasquez Vice President and Treasurer Fifth Amendment to Promissory Note Signature Page EX-10.23 11 CONSENT Exhibit 10.23 CONSENT THIS CONSENT (this "Consent"), dated as of the 15th day of February, 2000, ------- between PILLOWTEX CORPORATION, a Texas corporation (the "Borrower"), and BANK OF -------- AMERICA, N.A. (formerly known as NationsBank, N.A.) ("Lender"). ------ BACKGROUND ---------- A. The Borrower executed that certain Promissory Note, dated May 4,1999, in the original principal amount of $20,000,000 and increased by amendment to $35,000,000 (said Promissory Note, as amended, the "Promissory Note"; terms --------------- defined in the Promissory Note and not otherwise defined herein shall be used herein as defined in the Promissory Note). B. Article IV of the Promissory Note incorporates by reference Articles 5 (except for Section 5.8), 6 and 7 of the Credit Agreement and all definitions thereto, and provides that no waiver with respect to such Articles of the Credit Agreement after May 4, 1999 shall be effective without the written consent of the Lender. C. The Borrower is entering into a Sixth Amendment and Waiver to Amended and Restated Credit Agreement, dated to be effective as of February 15, 2000, with the lenders party thereto and Bank of America, N.A., as administrative agent (the "Sixth Amendment"), which Sixth Amendment, among other things, --------------- temporarily waives certain provisions of Article 7 of the Credit Agreement. D. The Borrower has requested that the Lender execute this Consent. NOW, THEREFORE, in consideration of the covenants, conditions and agreements hereafter set forth, and for other good and valuable consideration, the receipt and adequacy of which are all hereby acknowledged, the parties hereto covenant and agree as follows: 1. CONSENT. The Lender hereby consents to the Sixth Amendment. ------- 2. REPRESENTATIONS AND WARRANTIES TRUE; NO EVENT OF DEFAULT. By its -------------------------------------------------------- execution and delivery hereof, the Borrower represents and warrants that, as of the date hereof and after giving effect to the Consent set forth in the foregoing Section 1: (a) the representations and warranties contained in the Promissory Note are true and correct on and as of the date hereof as made on and as of such date; and (b) no event has occurred and is continuing which constitutes an Event of Default. 3. CONDITIONS OF EFFECTIVENESS. This Consent shall be effective as of --------------------------- February 15, 2000, subject to the following: (a) the representations and warranties set forth in Section 2 of this Consent shall be true and correct; (b) the Lender shall have received counterparts of this Consent executed by the Borrower and acknowledged by each Guarantor; and (c) the Lender shall have received in form and substance satisfactory to the Lender, such other documents, certificates and instruments as the Lender shall require. 4. GUARANTOR'S ACKNOWLEDGMENT. By signing below, each Guarantor (i) -------------------------- acknowledges, consents and agrees to the execution, delivery and performance by the Borrower of this Consent, (ii) acknowledges and agrees that its obligations in respect of its Guaranty Agreement are not released, diminished, waived, modified, impaired or affected in any manner by this Consent, or any of the provisions contemplated herein, (iii) ratifies and confirms its obligations under its Guaranty Agreement, and (iv) acknowledges and agrees that it has no claim or offsets against, or defenses or counterclaims to, its Guaranty Agreement as a result of this Consent. 5. REFERENCE TO THE PROMISSORY NOTE. -------------------------------- (a) Upon the effectiveness of this Consent, each reference in the Promissory Note to "this Note", "hereunder", or words of like import shall mean and be a reference to the Promissory Note, as affected by this Consent. (b) The Promissory Note, as affected by this Consent, shall remain in full force and effect and is hereby ratified and confirmed. 6. COSTS, EXPENSES AND TAXES. The Borrower shall be obligated to pay the ------------------------- costs and expenses of the Lender in connection with the preparation, reproduction, execution and delivery of this Consent and the other instruments and documents to be delivered hereunder. 7. COUNTERPARTS; EXECUTION VIA FACSIMILE. This Consent may be executed in ------------------------------------- any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which when taken together shall constitute but one and the same instrument. This Consent may be validly executed and delivered by facsimile or other electronic transmission. 8. GOVERNING LAW; BINDING EFFECT. This Consent shall be governed by and ----------------------------- construed in accordance with the laws of the State of Texas, and shall be binding upon the Borrower and each Lender and their respective successors and assigns. 9. HEADINGS. Section headings in this Consent are included herein for -------- convenience of reference only and shall not constitute a part of this Consent for any other purpose. 2 10. ENTIRE AGREEMENT. THE PROMISSORY NOTE, AS AMENDED BY THIS CONSENT, ---------------- REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AS TO THE SUBJECT MATTER THEREIN AND HEREIN AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS BETWEEN THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. =============================================================================== REMAINDER OF PAGE LEFT INTENTIONALLY BLANK =============================================================================== 3 IN WITNESS WHEREOF, the parties hereto have executed this Consent as of the date first above written. PILLOWTEX CORPORATION By: Jaime Vasquez Title: Vice President/Treasurer BANK OF AMERICA, N.A. (formerly known as NationsBank, N.A.) By: ------------------------------------- Name: ------------------------------ Title: ------------------------------ Consent Signature Page ACKNOWLEDGED AND AGREED: PILLOWTEX, INC. PTEX HOLDING COMPANY PILLOWTEX MANAGEMENT SERVICES COMPANY BEACON MANUFACTURING COMPANY MANETTA HOME FASHIONS, INC. TENNESSEE WOOLEN MILLS FIELDCREST CANNON, INC. CRESTFIELD COTTON COMPANY ENCEE, INC. FCC CANADA, INC. FIELDCREST CANNON FINANCING, INC. FIELDCREST CANNON LICENSING, INC. FIELDCREST CANNON INTERNATIONAL, INC. FIELDCREST CANNON SF, INC. (formerly know as Fieldcrest Cannon Sure Fit, Inc.) FIELDCREST CANNON TRANSPORTATION, INC, ST. MARYS, INC. AMOSKEAG COMPANY AMOSKEAG MANAGEMENT CORPORATION DOWNEAST SECURITIES CORPORATION BANGOR INVESTMENT COMPANY MOORE'S FALLS CORPORATION THE LESHNER CORPORATION LESHNER OF CALIFORNIA, INC. OPELIKA INDUSTRIES, INC. By: Jaime Vasquez Title: Vice President/Treasurer Consent Signature Page EX-10.24 12 CONSENT EXHIBIT 10.24 CONSENT THIS CONSENT (this "Consent"), dated as of the 31st day of March, 2000, ------- between PILLOWTEX CORPORATION, a Texas corporation (the "Borrower"), and BANK OF -------- AMERICA, N.A. (formerly known as NationsBank, N.A.) ("Lender"). ------ BACKGROUND ---------- A. The Borrower executed that certain Promissory Note, dated May 4,1999, in the original principal amount of $20,000,000 and increased by amendment to $35,000,000 (said Promissory Note, as amended, the "Promissory Note"; terms --------------- defined in the Promissory Note and not otherwise defined herein shall be used herein as defined in the Promissory Note). B. Article IV of the Promissory Note incorporates by reference Articles 5 (except for Section 5.8), 6 and 7 of the Credit Agreement and all definitions thereto, and provides that no amendment of the Credit Agreement after May 4, 1999 shall be effective with respect to such Articles as they are incorporated into the Promissory Note without the written consent of the Lender. C. The Borrower is entering into a Waiver and Seventh Amendment to Amended and Restated Credit Agreement, dated to be effective as of March 31, 2000, with the lenders party thereto and Bank of America, N.A., as administrative agent (the "Seventh Amendment"), which, among other things, amends certain provisions ----------------- of Articles 6 and 7 of the Credit Agreement. D. The Borrower has requested that the Lender execute this Consent. NOW, THEREFORE, in consideration of the covenants, conditions and agreements hereafter set forth, and for other good and valuable consideration, the receipt and adequacy of which are all hereby acknowledged, the parties hereto covenant and agree as follows: 1. CONSENT. The Lender hereby (a) consents to the Seventh Amendment and ------- (b) agrees that the amendment of certain provisions of Articles 6 and 7 of the Credit Agreement as provided in the Seventh Amendment shall be effective as of March 31, 2000 with respect to the Promissory Note such that those provisions of the Credit Agreement, as amended by the Seventh Amendment, are incorporated into the Promissory Note. 2. REPRESENTATIONS AND WARRANTIES TRUE; NO EVENT OF DEFAULT. By its -------------------------------------------------------- execution and delivery hereof, the borrower represents and warrants that, as of the date hereof and after giving effect to the Consent set forth in the foregoing Section 1: (a) the representations and warranties contained in the Promissory Note are true and correct on and as of the date hereof as made on and as of such date; and (b) no event has occurred and is continuing which constitutes an Event of Default. 3. CONDITIONS OF EFFECTIVENESS. This Consent shall be effective as of --------------------------- March 31, 2000, subject to the following: (a) the representations and warranties set forth in Section 2 of this Consent shall be true and correct; (b) the Lender shall have received counterparts of this Consent executed by the Borrower and acknowledged by each Guarantor; and (c) the Lender shall have received in form and substance satisfactory to the Lender, such other documents, certificates and instruments as the Lender shall require. 4. GUARANTOR'S ACKNOWLEDGMENT. By signing below, each Guarantor (i) -------------------------- acknowledges, consents and agrees to the execution, delivery and performance by the Borrower of this Consent, (ii) acknowledges and agrees that its obligations in respect of its Guaranty Agreement are not released, diminished, waived, modified, impaired or affected in any manner by this Consent, or any of the provisions contemplated herein, (iii) ratifies and confirms its obligations under its Guaranty Agreement, and (iv) acknowledges and agrees that it has no claim or offsets against, or defenses or counterclaims to, its Guaranty Agreement as a result of this Consent. 5. REFERENCE TO THE PROMISSORY NOTE. -------------------------------- (a) Upon the effectiveness of this Consent, each reference in the Promissory Note to "this Note", "hereunder", or words of like import shall mean and be a reference to the Promissory Note, as affected by this Consent. (b) The Promissory Note, as affected by this Consent, shall remain in full force and effect and is hereby ratified and confirmed. 6. COSTS, EXPENSES AND TAXES. The Borrower shall be obligated to pay the ------------------------- costs and expenses of the Lender in connection with the preparation, reproduction, execution and delivery of this Consent and the other instruments and documents to be delivered hereunder. 7. EXECUTION IN COUNTERPARTS; EXECUTION VIA FACSIMILE. This Consent may -------------------------------------------------- be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which when taken together shall constitute but one and the same instrument. This Consent may be validly executed and delivered by facsimile or other electronic transmission. -2- 8. GOVERNING LAW; BINDING EFFECT. This Consent shall be governed by and ----------------------------- construed in accordance with the laws of the State of Texas, and shall be binding upon the Borrower and each Lender and their respective successors and assigns. 9. HEADINGS. Section headings in this Consent are included herein for -------- convenience of reference only and shall not constitute a part of this Consent for any other purpose. 10. ENTIRE AGREEMENT. THE PROMISSORY NOTE, AS AMENDED BY THIS CONSENT, ---------------- REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AS TO THE SUBJECT MATTER THEREIN AND HEREIN AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS BETWEEN THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. =============================================================================== REMAINDER OF PAGE LEFT INTENTIONALLY BLANK =============================================================================== -3- IN WITNESS WHEREOF, the parties hereto have executed this Consent as of the date first above written. PILLOWTEX CORPORATION Jaime Vasquez Vice President and Treasurer -4- BANK OF AMERICA, N.A. (formerly known as NationsBank, N.A.) ACKNOWLEDGED AND AGREED: PILLOWTEX, INC. PTEX HOLDING COMPANY PILLOWTEX MANAGEMENT SERVICES COMPANY BEACON MANUFACTURING COMPANY MANETTA HOME FASHIONS, INC. TENNESSEE WOOLEN MILLS FIELDCREST CANNON, INC. CRESTFIELD COTTON COMPANY ENCEE, INC. FCC CANADA, INC. FIELDCREST CANNON FINANCING, INC. FIELDCREST CANNON LICENSING, INC. FIELDCREST CANNON INTERNATIONAL, INC. FIELDCREST CANNON SF, INC. (formerly know as Fieldcrest Cannon Sure Fit, Inc.) FIELDCREST CANNON TRANSPORTATION, INC, ST. MARYS, INC. AMOSKEAG COMPANY AMOSKEAG MANAGEMENT CORPORATION DOWNEAST SECURITIES CORPORATION BANGOR INVESTMENT COMPANY MOORE'S FALLS CORPORATION THE LESHNER CORPORATION LESHNER OF CALIFORNIA, INC. OPELIKA INDUSTRIES, INC. Jaime Vasquez Vice President and Treasurer -5- EX-10.51 13 FORM OF EMPLOYMENT AGREEMENT EXHIBIT 10.51 EMPLOYMENT AGREEMENT THIS AGREEMENT, dated as of December 15, 1999, is by and between Fieldcrest Cannon, Inc., a Delaware corporation ("Employer"), and Richard A. Grissinger ("Employee"). WITNESSETH: WHEREAS, Employee desires to enter into the employment of Employer and Employer desires to employ Employee in the capacity and on the terms set forth below. NOW, THEREFORE, in consideration of the foregoing recital and of the mutual agreements contained herein, and for other valuable consideration, receipt of which is hereby acknowledged, the parties hereto agree as follows: 1. Employment and Scope. -------------------- (a) Commencing as of December 15, 1999 (the "Commencement Date") and continuing throughout the Term of this Agreement, Employer agrees to employ Employee and Employee agrees to serve as the employee of Employer with the title and capacity of Senior Vice President - Bed and Bath Marketing. As such, Employee's duties shall include responsibility for the marketing of all sheets, top of the bed products and bed and bath products, as well as such other responsibilities as may be assigned from time to time by the Chairman of the Board, the Chief Executive Officer, the President, the Chief Operating Officer or the President of Sales and Marketing of Employer. Employee shall report to the President of Sales and Marketing of Employer. (b) Employee's performance of services under this Agreement shall occur primarily at Employer's executive offices at One Lake Circle Drive, Kannapolis, North Carolina 1 28081, subject to such travel as is consistent with the office of Senior Vice President - Bed and Bath Marketing. (c) During the Term of Employee's employment, Employee shall devote Employee's full business time (at least 40 hours per week) exclusively to the performance of Employee's duties as stated in this Agreement and to the furtherance of Employer's business. 2. Term. ---- (a) The term of this Agreement (the "Term") shall begin on the Commencement Date and shall continue through the second anniversary thereof, subject to automatic extension as provided below and unless terminated earlier in accordance with Section 4. (b) The Term of this Agreement will be automatically extended for an additional one year at the end of the initial or any extended Term hereof unless either Employer or Employee shall give the other at least six (6) months written notice of termination, prior to the end of the initial Term or any extension of the Term hereof. 3. Compensation. During the Term of this Agreement, Employer shall ------------ compensate Employee as set forth below: (a) Employer shall pay to Employee a base salary of $275,000, payable in accordance with Employer's payroll policies in effect from time to time for executive officers generally, subject to all appropriate withholdings. (b) Employee shall be eligible to participate in Employer's incentive bonus plans as they may be amended from time to time to the same extent as similarly situated executive officers generally. (c) Employee shall be entitled to the amount of vacation to which Employee would be entitled under Employer's vacation policy as it may be amended from time to time. 2 (d) Employee shall be entitled to participate in Employer's health, benefit and welfare plans offered by Employer as they may be amended from time to time to the same extent as similarly situated executive officers of Employer generally. (e) Employer will pay Employee a car allowance of $750 per month plus an additional amount equal to all federal and state income taxes arising with respect to any portion of the allowance taxable as income to Employee. 4. Termination During Term. Notwithstanding anything to the contrary in ----------------------- Section 2 of this Agreement, Employee's employment under this Agreement may be terminated during the Term as set forth below: (a) Employer may terminate Employee's employment for Cause, in which case the parties' rights and obligations shall be as set forth in Section 5(a) below. (b) Employer may terminate Employee's employment in the absence of Cause and other than upon Employee's Retirement or Permanent Disability, in which case the parties' rights and obligations shall be as set forth in either Section 5(b) or (e) below, as applicable. (c) Employee's employment shall be terminated upon Employee's Permanent Disability, in which case the parties' rights and obligations shall be as set forth in Section 5(c) below. (d) Employee's employment shall be terminated upon Employee's Retirement, in which case the parties' rights and obligations shall be as set forth in Section 5(d) below. (e) In the event of a Change in Control of Pillowtex or Employer, Employee may terminate Employee's employment (i) for any reason, for up to six months after the Change in Control of Pillowtex or Employer, or (ii) for Good Reason, in which case the parties' rights and obligations shall be as set forth in Section 5(e) below. 3 (f) Employee may terminate Employee's employment at any time for any reason not heretofore enumerated, in which case the parties' rights and obligations shall be as set forth in Section 5(f) below. (g) The following definitions shall apply for purposes of the early termination of the Term of this Agreement: (i) "Cause" shall mean the occurrence of any of the following: (A) Employee's engagement in any personal misconduct involving willful dishonesty, illegality, or moral turpitude that is demonstrably and materially detrimental or injurious to the business interests, reputation or goodwill of Employer or its affiliates; (B) Employee's engagement in any act involving willful dishonesty, disloyalty, or infidelity against Employer or its affiliates; (C) Employee's willful and continued breach of or failure substantially to perform under any of the material terms and covenants of this Agreement; and (D) Employee's willful and continued breach of or failure substantially to perform under any material policy established by the Company with respect to the operation of the Company's business and affairs, or the conduct of the Company's employees. For purposes of this Section 4(g)(i), no act, or failure to act, on Employee's part shall be considered "willful" unless done, or omitted to be done, by Employee in bad faith and without reasonable belief that Employee's action or omission was in the best interest of Employer. Prior to asserting any action or failure to act as Cause for Employee's termination as set forth above, Employer shall provide Employee a written notice referencing this Section 4(g)(i), setting out with specificity the conduct asserted to constitute Cause. Any disputes arising as to whether Cause existed for Employee's termination shall be resolved through binding arbitration in accordance with Section 9 of this Agreement. 4 (ii) "Change in Control of Pillowtex or Employer" means the occurrence during the Term of any of the following events: (A) Pillowtex Corporation, a Texas corporation ("Pillowtex"), or Employer is merged, consolidated or reorganized into or with another corporation or other legal person, and as a result of such merger, consolidation or reorganization less than a majority of the combined voting power of the then-outstanding securities entitled to vote generally in the election of directors ("Voting Stock") of such corporation or person immediately after such transaction are held in the aggregate by the holders of Voting Stock of Pillowtex or Employer, as the case may be, immediately prior to such transaction; (B) Pillowtex or Employer sells or otherwise transfers all or substantially all of its assets to another corporation or other legal person, and as a result of such sale or transfer less than a majority of the combined voting power of the then-outstanding Voting Stock of such corporation or person immediately after such sale or transfer is held in the aggregate by the holders of Voting Stock of Pillowtex or Employer, as the case may be, immediately prior to such sale or transfer; (C) There is a report filed on Schedule 13D or Schedule 14D-1 (or any successor schedule, form or report), each as promulgated pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange Act"), disclosing that any person (as the term "person" is used in Section 13(d)(3) or Section 14(d)(2) of the Exchange Act) other than an "Excluded Person" as defined below has become the beneficial owner (as the term "beneficial owner" is defined under Rule 13d-3 or any successor rule or regulation promulgated under the Exchange Act) of securities representing 35% or more of the combined voting power of the then-outstanding Voting Stock of Pillowtex; or 5 (D) If, during any period of 24 consecutive months, individuals who at the beginning of any such period constitute the Directors of Pillowtex cease for any reason to constitute at least a majority thereof; provided, however, that for purposes of this clause (D) each Director who is first elected, or first nominated for election by Pillowtex's stockholders, by a vote of at least two-thirds of the Directors of Pillowtex (or a committee thereof) then still in office who were Directors of Pillowtex at the beginning of any such period will be deemed to have been a Director of Pillowtex at the beginning of such period. (iii) "Excluded Person" shall mean any of (A) Charles M. Hansen, Jr., Mary R. Silverthorne or the John H. Silverthorne Estate or any person for which any of Charles M. Hansen, Jr., Mary R. Silverthorne or the John H. Silverthorne Estate are deemed to hold beneficial ownership of securities of Pillowtex registered in the name of such person; (B) Pillowtex; (C) any entity in which Pillowtex directly or indirectly owns 50% or more of the outstanding Voting Stock (a "Subsidiary"); or (D) any employee benefit plan sponsored by Pillowtex or any Subsidiary. (iv) "Good Reason" shall mean termination of Employee's employment by Employee after a Change in Control of Pillowtex or Employer upon the occurrence of any of the following: (A) the assignment to Employee of any duties inconsistent with Employee's position, duties and status with Employer as existing immediately prior to a Change in Control of Pillowtex or Employer; a substantial alteration in the nature or status of Employee's responsibilities from those in effect immediately prior to a Change in Control of Pillowtex or Employer; the failure to provide Employee with substantially the same perquisites which Employee had immediately prior to a Change in Control of Pillowtex or Employer, including but not limited to an office and appropriate support services; or a change in Employee's titles or offices as in effect 6 immediately prior to a Change in Control of Pillowtex or Employer, or any removal of Employee from or failure to re-elect Employee to any such positions; (B) a reduction by Employer in Employee's base salary in effect immediately prior to a Change in Control of or Pillowtex or Employer; (C) the requirement by Employer that Employee be based anywhere other than the metropolitan area in which Employee's office is located immediately prior to a Change in Control of Pillowtex or Employer, except for required travel on Employee's business to an extent substantially consistent with Employee's business travel obligations immediately prior to a Change in Control of Pillowtex or Employer; or (D) the taking of any action by Employer which would (1) materially and adversely affect Employee's participation in or materially reduce Employee's benefits under any employee benefit or compensation plan in which Employee participates immediately prior to a Change in Control of Pillowtex or Employer, or (2) deprive Employee of any material fringe benefit enjoyed by Employee, or to which Employee is entitled, as existing immediately prior to a Change in Control of Pillowtex or Employer (v) "Permanent Disability" shall mean any physical or mental impairment rendering Employee unable to perform the essential functions of Employee's job (as determined by Employer), with or without reasonable accommodation that does not constitute undue hardship to Employer, and such impairment is permanent or is likely to continue for a period exceeding six consecutive months. If Employee fails to notify Employer of Employee's need for accommodation, Employer is not required to accommodate Employee and may hold Employee to the same standards as persons without a disability. The determination of whether Employee has a Permanent Disability shall be made as set forth below. During any period in which the existence of a Permanent Disability 7 is being determined, Employee shall continue to receive Employee's full base salary at the rate then in effect and all compensation and benefits paid during such period until a Permanent Disability is conclusively determined and this Agreement is terminated in accordance with Section 8 hereof, provided Employee (and Employee's personal and legal representatives) act in good faith and with reasonable diligence in pursuing a determination. This definition is not intended to either expand or limit any rights and protections granted to Employee by law. Employer may require Employee to be examined by a physician, at Employee's own expense, in order to determine whether Employee has a Permanent Disability. If Employer disagrees with the written opinion of this physician ("First Physician"), it may engage, at its own expense, another physician ("Second Physician") to examine Employee. If the First and Second Physicians agree in writing that Employee has not suffered a Permanent Disability, their written opinion shall, except as otherwise set forth in this Section 4(g)(v), be conclusive on the issue of Permanent Disability. If the First and Second Physicians disagree on whether Employee has suffered a Permanent Disability, they shall choose a third consulting physician (whose expense shall be shared equally by Employer and Employee) and the written opinion of a majority of these three physicians shall be conclusive as to the issue of Permanent Disability. In connection with a Permanent Disability determination, Employee hereby consents to any required medical examination and agrees to furnish any medical information requested by any examining physician and to waive any applicable physician-patient privilege that may arise because of such examination. All physicians must be board certified in the specialty most closely related to the nature of the Permanent Disability alleged to exist. (vi) "Retirement" shall mean termination by Employer or Employee in accordance with Employer's retirement policy (including early retirement, if included in such policy and elected by Employee in writing) generally applicable to its senior executive employees, or in 8 accordance with any other retirement agreement entered into by and between Employee and Employer. 5. Compensation Upon Termination. If Employee's employment is terminated ----------------------------- during the Term of this Agreement, Employee shall be entitled to compensation as set forth below: (a) If Employer terminates Employee's employment for Cause, Employer shall pay Employee's undiscounted base salary through the date of Employee's termination at the rate then in effect and all amounts to which Employee is entitled upon termination of employment under Employer's employee benefit plans. (b) If Employer terminates Employee's employment without Cause, then Employer shall pay Employee, not later than the fifth day following the date of termination, a severance payment equal to the sum of (i) Employee's undiscounted base salary through the date of Employee's termination at the rate then in effect and all amounts to which Employee is entitled upon termination of employment under Employer's employee benefit plans; and (ii) Employee's undiscounted base salary through the remaining duration of the Term or, if greater, for a period of 24 months, at the highest rate in effect during the 12 months immediately preceding the date of Employee's termination. The severance payment provided for in clause (ii) of the first sentence of this Section 5(b) shall be paid, at the option of the Employer, either in a lump sum or in equal installments during the severance period in accordance with Employer's customary pay practices. Notwithstanding the foregoing, the provisions of this Section 5(b) shall not apply if Employer terminates Employee's employment without Cause subsequent to a Change in Control of Employer. (c) If Employee's employment is terminated upon Employee's Permanent Disability, Employer shall pay Employee's undiscounted base salary through the date of Employee's termination at the rate then in effect and all amounts to which Employee is entitled upon termination 9 of employment under Employer's employee benefit plans. Employee's additional compensation and benefits, if any, shall be determined in accordance with Employer's employee benefit plans or other insurance programs then in effect. (d) If Employee's employment is terminated upon Employee's Retirement, Employer shall pay Employee's undiscounted base salary through the date of Employee's termination at the rate then in effect and all amounts to which Employee is entitled upon termination of employment under Employer's employee benefit plans. Employee's additional compensation and benefits shall be determined in accordance with Employer's retirement policy applicable to similarly situated executive employees or in accordance with any other retirement agreement entered into by and between Employee and Employer. (e) If, at any time within two (2) years after the effective date of a Change in Control of Pillowtex or Employer, Employee's employment (x) is terminated by Employee for any reason during a period of six months beginning on the date of the Change in Control of Pillowtex or Employer, or if less, during the remaining duration of the Term; (y) is terminated by Employee for Good Reason; or (z) is terminated by Employer without Cause (and not by reason of Employee's Permanent Disability Retirement, or death), Employee shall be entitled to the compensation and benefits provided below: (i) Employer shall pay Employee's undiscounted base salary through the date of Employee's termination at the rate then in effect; (ii) Employer shall pay all amounts to which Employee is entitled upon termination of employment under Employer's employee benefit plans; (iii) Employer shall pay as severance pay to Employee, not later than the fifth day following Employee's termination, a lump sum severance payment (together with the 10 payments described in Sections 5(e)(iv) and (v), the "Severance Payments") equal to the product obtained by multiplying Employee's undiscounted annual base salary at the highest rate in effect during the 12 months immediately preceding Employee's termination by two; (iv) in lieu of shares of common stock, $0.01 par value, of Pillowtex (the "Shares") issuable upon the exercise of options ("Options"), if any, granted to Employee under any stock option plan of Pillowtex (which Options shall be canceled upon the making of the payment referred to below), Employer shall pay Employee in one sum in cash, not later than the fifth day following the date of Employee's termination, an aggregate amount equal to the product of (A) the difference (to the extent that such differences are a positive number) obtained by subtracting the per Share exercise price of each Option held by Employee, whether or not then fully exercisable, from the higher of (1) the closing price of the Shares, as reported on the New York Stock Exchange on the Date of Termination (or the last trading date prior thereto) or (2) the highest price per Share actually paid in connection with any Change in Control of Pillowtex or Employer, and (B) the number of shares covered by each such Option; (v) Employer shall pay Employee the retirement benefits to which Employee is entitled under Employee's retirement policy or other retirement agreement; (vi) Employer shall reimburse Employee for all legal fees and expenses incurred by Employee as a result of such termination (including all such fees and expenses, if any, incurred in successfully contesting or disputing any such termination or seeking to obtain or enforce any right or benefit provided by this Agreement); and (vii) if Severance Payments become subject to the excise tax (the "Excise Tax") imposed under section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), Employer shall pay to Employee an additional amount (the "Gross-Up Payment") such that the net 11 amount retained by Employee, after deduction of any Excise Tax on the Severance Payments (and any federal, state and local income tax and Excise Tax upon the payment provided for in this Section 5(e)(vii)), shall be equal to the Severance Payments. For purposes of determining whether any of the Severance Payments will be subject to the Excise Tax and the amount of such Excise Tax, (A) any other payment or benefit received or to be received by Employee in connection with a Change in Control of Employer and Employee's subsequent termination of employment (whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement with Employer, any person whose actions resulted in the Change in Control of Employer or any person affiliated with Employer or such person) shall be treated as a "parachute payment" within the meaning of section 280G(b)(2) of the Code, and all "excess parachute payments" within the meaning of section 280G(b)(1) of the Code shall be treated as subject to the Excise Tax, unless in the opinion of tax counsel selected by Employer's independent auditors and reasonably acceptable to Employee such other payments or benefits (in whole or in part) do not constitute parachute payments, (B) the amount of the Severance Payments which shall be treated as subject to the Excise Tax shall be equal to the lesser of (1) the total amount of the Severance Payments and (2) the amount of excess parachute payments within the meaning of section 280(G)(b)(1) of the Code (after applying clause (A) above), and (C) the value of any non-cash benefit, deferred payment or other benefit shall be determined by Employer's independent auditors in accordance with the principles of sections 280(G)(d)(3) and (4) of the Code and the applicable Treasury Regulations. For purposes of determining the amount of the Gross-Up Payment, Employee shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of Employee's residence on the date of Employee's termination, net of the maximum reduction in 12 federal income taxes which could be obtained from deduction of such state and local taxes. If the Excise Tax is subsequently determined to be less than the amount taken into account hereunder at the time of Employee's termination of employment, Employee shall repay to Employer, at the time that the amount of such reduction in Excise Tax is finally determined, the portion of the Gross-Up Payment attributable to such reduction (plus that portion of the Gross-Up Payment attributable to the Excise Tax and federal, state and local income tax imposed on the Gross-Up Payment being repaid by Employee to the extent that such repayment results in a reduction in Excise Tax and/or a federal, state or local income tax deduction) plus interest on the amount of such repayment at the rate provided in section 1274(b)(2)(B) of the Code. If the Excise Tax is determined to exceed the amount taken into account hereunder at the time of the termination of Employee's employment (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), Employer shall make an additional Gross-Up Payment in respect of such excess (plus any interest, penalties or additions payable by Employee with respect to such excess) at the time that the amount of such excess is finally determined. Employee and Employer shall each reasonably cooperate with the other in connection with any administrative or judicial proceedings concerning the existence or amount of liability for Excise Tax with respect to the Severance Payments. (f) If Employee terminates Employee's employment under circumstances in which Section 5(e) does not apply, or if Employee's employment is terminated by reason of his death, Employer shall pay Employee's full base salary through the date of Employee's termination at the rate then in effect and all amounts to which Employee is entitled upon termination of employment under Employer's employee benefit plans. 6. Insurance. If Employee's employment is terminated under the provisions --------- of Section 4(e) of this Agreement, Employee shall participate, for a period of two years from the date 13 of Employee's termination, in all employee benefit plans providing health and dental benefits in which Employee participated or was entitled to participate immediately prior to Employee's termination, provided that such participation is permitted under the general terms and provisions of such plans and under applicable law. If Employee's participation in any such plan is not permitted for any reason, Employer shall arrange to provide Employee, at Employer's sole cost and expense, with benefits substantially similar to those which Employee is entitled to receive under such plans. At the end of such two year period, Employee will be entitled to take advantage of any conversion privileges applicable to the benefits available under any such plans. 7. Future Employment. Employee shall not be required to mitigate the ----------------- amount of any payment provided for in Section 5 hereof by seeking other employment or otherwise, nor shall the amount of any payment provided for in Section 5 hereof be reduced by any compensation earned by Employee as a result of employment by another employer after the date of Employee's termination, or otherwise. 8. Notice of Termination. --------------------- (a) Any purported termination by Employer or by Employee shall be communicated by a written "Notice of Termination" to the other party. A Notice of Termination shall mean a notice indicating the specific termination provision in this Agreement relied upon and setting forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Employee's employment under the provision so indicated. (b) The "date of Employee's termination" shall be: (i) if Employee's employment is terminated by reason of Employee's Permanent Disability, the date that is 30 days after the determination of Permanent Disability pursuant to Section 4(g)(v) of this Agreement, (ii) if Employee's employment is terminated for Cause, the date specified in the Notice of Termination, or 14 (iii) if Employee's employment is terminated for any other reason, the date specified in the Notice of Termination, provided such date is not more than 30 days from the date such Notice of Termination is given. 9. Arbitration. All disputes or claims arising under this Agreement or in ----------- connection with Employee's employment with Employer (including any claims under any federal, state, or local law or ordinance), except for any dispute or claim arising under Sections 10, 11, 12, 13, and 16 of this Agreement, shall be subject to binding arbitration pursuant to the Commercial Arbitration Rules of the American Arbitration Association, the cost of which shall be borne by the party against whom an arbitration award is entered. 10. Nondisclosure Agreement. Employer, during the term of Employee's ----------------------- employment under this Agreement, shall provide Employee access to, and Employee shall have access to and become familiar with, various trade secrets and proprietary and confidential information consisting of, but not limited to, financial statements, processes, computer programs, compilations of information, records, sales procedures, customer requirements, pricing techniques, customer lists, methods of doing business and other confidential information (collectively referred to herein as the "Trade Secrets"), which are owned by Employer and its affiliates and are regularly used in the operation of their businesses, but in connection with which Employer and its affiliates take precautions to prevent dissemination to persons other than certain directors, officers and employees. Employee acknowledges and agrees that the Trade Secrets (a) are secret and not known in Employer's industry; (b) are entrusted to Employee after being informed of their confidential and secret status by Employer or its affiliates and because of the fiduciary position occupied by Employee with Employer; (c) have been developed by Employer and its affiliates for and on behalf of Employer and its affiliates through substantial expenditures of time, effort and money and are used in their 15 businesses; (d) give Employer and its affiliates an advantage over competitors who do not know or use the Trade Secrets; (e) are of such value and nature as to make it reasonable and necessary to protect and preserve the confidentiality and secrecy of the Trade Secrets; and (f) are valuable, special and unique assets of Employer and its affiliates, the disclosure of which could cause substantial injury and loss of profits and goodwill to Employer and its affiliates. Employee shall not use in any way or disclose any of the Trade Secrets, directly or indirectly, either during the Term of this Agreement or at any time thereafter, except as required in the course of Employee's employment under this Agreement. All files, records, documents, information, data and similar items relating to the business of Employer and its affiliates, whether prepared by Employee or otherwise coming into Employee's possession, shall remain the exclusive property of Employer and its affiliates and shall not be removed from the premises of Employer and its affiliates under any circumstances without the prior written consent of the Board of Directors of Employer (except in the ordinary course of business during Employee's period of active employment under this Agreement), and in any event shall be promptly delivered to Employer upon termination of this Agreement. Employee agrees that upon Employee's receipt of any subpoena, process or other request to produce or divulge, directly or indirectly, any Trade Secrets to any entity, agency, tribunal or person, Employee shall timely notify and promptly hand deliver a copy of the subpoena, process or other request to the Chief Executive Officer of Pillowtex. For this purpose, Employee irrevocably nominates and appoints Employer (including any attorney retained by Employer), as Employee's true and lawful attorney-in-fact, to act in Employee's name, place and stead to perform any act that Employee might perform to defend and protect against any disclosure of any Trade Secrets. 16 As used in this Agreement, "affiliates" shall mean persons or entities that directly, or indirectly through one or more intermediaries, control or are controlled by, or are under common control with, Employer. 11. Intentionally Omitted. 12. Nonemployment Agreement. During the period of employment with ----------------------- Employer and for a period of two years thereafter, Employee shall not, on Employee's own behalf or on behalf of any other person, partnership, association, corporation or other entity, hire or solicit or in any manner attempt to influence or induce any employee of Employer or its affiliates to leave the employment of Employer or its affiliates, nor shall Employee use or disclose to any person, partnership, association, corporation or other entity any information obtained while an employee of Employer concerning the names and addresses of the employees of Employer or its affiliates. 13. Nondisparagement Agreement. Employee shall not, either during the -------------------------- Term of this Agreement or at any time thereafter, make statements, whether orally or in writing, concerning Employer, any of its directors, officers, employees or affiliates or any of its business strategies, policies or practices, that shall be in any way disparaging, derogatory or critical, or in any way harmful to the reputation of Employer, any such persons or entities or business strategies, policies or practices. 14. Successors; Binding Agreement. ----------------------------- (a) Employer will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of Employer, by agreement in form and substance satisfactory to Employee, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that Employer would be required to perform it if no such succession had taken place. Failure of Employer to obtain such 17 agreement prior to the effectiveness of any succession shall be a breach of this Agreement and shall entitle Employee to compensation from Employer in the same amount and on the same terms as Employee would be entitled hereunder if Employee terminated Employee's employment for Good Reason, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the date of Employee's termination. As used in this Agreement, "Employer" shall mean Employer as hereinbefore defined and any successor to its business and/or assets as aforesaid which executes and delivers the agreement provided for in this Section 14 or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law or otherwise. (b) This Agreement shall inure to the benefit of and be enforceable by Employee's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. In the event of Employee's death, any amounts owed to Employer under this Agreement shall be paid to Employee's surviving spouse, if any, and if none, to Employee's estate. 15. Severability. The parties hereto intend all provisions of Sections ------------ 10, 11, 12, 13 and 16 hereof to be enforced to the fullest extent permitted by law. Accordingly, should a court of competent jurisdiction determine that the scope of any provision of Sections 10, 11, 12, 13 and 16 hereof is too broad to be enforced as written, the parties intend that the court reform the provision to such narrower scope as it determines to be reasonable and enforceable. In addition, however, Employee agrees that the provisions of each of the foregoing sections constitute separate agreements independently supported by good and adequate consideration and shall be severable from the other provisions of, and shall survive, this Agreement. The existence of any claim or cause of action of Employee against Employer, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by Employer of the covenants and agreements of Employee contained 18 in the non-competition, nondisclosure, nonemployment or nondisparagement agreements. If any provision of this Agreement is held to be illegal, invalid or unenforceable under present or future laws effective during the term hereof, such provision shall be fully severable and this Agreement shall be construed and enforced as if such illegal, invalid or unenforceable provision never comprised a part of this Agreement; and the remaining provisions of this Agreement shall remain in full force and effect and shall not be affected by the illegal, invalid or unenforceable provision or by its severance therefrom. Furthermore, in lieu of such illegal, invalid or unenforceable provision, there shall be added automatically as part of this Agreement, a provision as similar in its terms to such illegal, invalid or unenforceable provision as may be possible and be legal, valid and enforceable. 16. Inventions. Employee shall promptly disclose, grant and assign to ---------- Employer for its sole use and benefit any and all inventions, improvements, technical information and suggestions relating in any way to the products of Employer or any of its affiliates or capable of beneficial use by Employer or any of its affiliates, which Employee has in the past conceived, developed or acquired, or may conceive, develop or acquire during the term hereof (whether or not during usual working hours), together with all patent applications, letters patent, copyrights and reissues thereof that may at any time be granted upon any such invention, improvement or technical information. In connection therewith, Employee shall promptly at all times during and after the term hereof: (a) execute and deliver such applications, assignments, descriptions and other instruments as may be necessary or proper in the opinion of Employer to vest title to such inventions, improvements, technical information, patent applications and patents or reissues thereof in Employer and to enable it to obtain and maintain the entire right and title thereto throughout the world; and (b) render to Employer, at its expense, all such assistance as it may require in the prosecution of applications for said patents or reissues thereof, in the prosecution or defense of 19 interferences which may be declared involving any said application or patents and in any litigation in which Employer or its affiliates may be involved relating to any such patents, inventions, improvements or technical information. 17. Affiliates. Employee will use Employee's best efforts to ensure that ---------- no relative of his or corporation of which Employee is an officer, director or shareholder, or other affiliate of his, shall take any action that Employee could not take without violating any provision of this Agreement. 18. Remedies. Employee recognizes and acknowledges that the ascertainment -------- of damages in the event of his breach of any provision of this Agreement would be difficult, and Employee agrees that Employer, in addition to all other remedies it may have, shall have the right to injunctive relief if there is such a breach. 19. Notices. Any notices, consents, demands, requests, approvals and ------- other communications to be given under this Agreement by either party to the other shall be in writing and shall be either (i) delivered in person, (ii) mailed by registered or certified mail, return receipt requested, postage prepaid, (iii) delivered by overnight express delivery service or same-day local courier service or (iv) delivered by facsimile transmission, to the addresses set forth below. If to Employer: Fieldcrest Cannon, Inc. 4111 Mint Way Dallas, Texas 75237 Attention: President and Chief Operating Officer Facsimile No. (214) 339-8565 If to Employee: Richard A. Grissinger 18703 Headsail Court Cornelius, North Carolina 28031 Notices delivered personally, by overnight express delivery, local courier or facsimile shall be deemed communicated as of actual receipt; mailed notices shall be deemed communicated as of three days after mailing. 20 20. Entire Agreement. This Agreement supersedes any and all other ---------------- agreements, either oral or written, between the parties hereto with respect to the subject matter hereof, including, without limitation, that certain Employee Retention Agreement between Employee and Employer, and contains all of the covenants and agreements between the parties with respect thereto. 21. Modification. No change or modification of this Agreement shall be ------------ valid or binding upon the parties hereto, nor shall any waiver of any term or condition in the future be so binding, unless such change or modification or waiver shall be in writing and signed by the parties hereto. 22. GOVERNING LAW AND VENUE. THE PARTIES ACKNOWLEDGE AND AGREE THAT THIS ----------------------- AGREEMENT AND THE OBLIGATIONS AND UNDERTAKINGS OF THE PARTIES HEREUNDER WILL BE PERFORMABLE IN KANNAPOLIS, NORTH CAROLINA. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NORTH CAROLINA. IF ANY ACTION IS BROUGHT TO ENFORCE OR INTERPRET THIS AGREEMENT, VENUE FOR SUCH ACTION SHALL BE IN CARRABUS COUNTY, NORTH CAROLINA. EACH OF THE PARTIES HERETO HEREBY AGREES IRREVOCABLY AND UNCONDITIONALLY TO CONSENT TO SUBMIT TO THE EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NORTH CAROLINA AND OF THE UNITED STATES OF AMERICA LOCATED IN CHAROLETTE, NORTH CAROLINA FOR ANY ACTIONS, SUITS OR PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT AND FURTHER AGREES THAT SERVICE OF PROCESS, SUMMONS OR NOTICE BY U.S. REGISTERED MAIL TO THE APPLICABLE ADDRESSES SET FORTH IN SECTION 19 HEREIN SHALL BE EFFECTIVE SERVICE OF PROCESS OF ANY ACTION, SUIT OR PROCEEDING BROUGHT AGAINST SUCH PARTY IN ANY SUCH COURT. 21 23. Counterparts. This Agreement may be executed in counterparts, each of ------------ which shall constitute an original, but all of which shall constitute one document. 24. Costs. If any action or law or in equity is necessary to enforce or ----- interpret the terms of this Agreement, the prevailing party shall be entitled to reasonable attorneys' fees, costs and necessary disbursements in addition to any other relief to which Employee or it may be entitled. 25. Assignment. Employer shall have the right to assign this Agreement to ---------- its successors or assigns. The terms "successors" and "assigns" shall include any person, corporation, partnership or other entity that buys all or substantially all of Employer's assets or all of its stock, or with which Employer merges or consolidates. The rights, duties and benefits to Employee hereunder are personal to Employee, and no such right or benefit may be assigned by Employee. 26. Binding Effect. This Agreement shall be binding upon the parties -------------- hereto, together with their respective executors, administrators, successors, personal representatives, heirs and assigns. 27. No Waiver. The failure by Employer to enforce at any time any of the --------- provisions of this Agreement or to require at any time performance by Employee of any of the provisions hereof shall in no way be construed to be a waiver of such provisions or to affect the validity of this Agreement, or any part hereof, or the right of Employer thereafter to enforce each and every such provision in accordance with the terms of this Agreement. 22 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. FIELDCREST CANNON, INC. By: Charles M. Hansen, Jr. Chairman and Chief Executive Officer EMPLOYEE Richard A. Grissinger 23 EX-21.1 14 SUBSIDIARIES LIST EXHIBIT 21.1 PRINCIPAL OPERATING SUBSIDIARIES State of Incorporation ---------------------- Beacon Manufacturing Company North Carolina Pillowtex Canada Inc. Ontario, Canada Fieldcrest Cannon, Inc. Delaware Encee, Inc. Delaware The Leshner Corporation Ohio Opelika Industries, Inc. Alabama Pillowtex, Inc. Delaware Pillowtex Management Services Company Delaware EX-23.1 15 CONSENT OF KPMG LLP Exhibit 23.1 INDEPENDENT AUDITORS' CONSENT The Board of Directors Pillowtex Corporation: We consent to the incorporation by reference in Registration Statements (nos. 33-65408, 33-84624, 33-81478, 333-39191 and 333-57727) on Form S-8 of Pillowtex Corporation of our report dated February 15, 2000, except for Note 11, as to which the date is March 31, 2000, relating to the consolidated balance sheets of Pillowtex Corporation and subsidiaries as of January 2, 1999 and January 1, 2000, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the years in the three-year period ended January 1, 2000, and related schedule, which report is included in the January 1, 2000 annual report on Form 10-K of Pillowtex Corporation. KPMG LLP Dallas, Texas March 31, 2000 EX-27 16 FINANCIAL DATA SCHEDULE
5 1,000 YEAR YEAR JAN-02-1999 JAN-01-2000 JAN-04-1998 JAN-03-1999 JAN-02-1999 JAN-01-2000 5,561 4,854 0 0 267,465 301,850 21,117 33,351 434,281 423,052 707,157 721,425 629,205 644,821 43,555 49,296 1,654,154 1,683,389 259,224 316,693 944,493 965,323 63,057 73,898 0 0 141 142 237,792 207,247 1,654,154 1,683,389 1,509,841 1,552,068 0 0 1,237,085 1,358,966 1,237,085 1,358,966 122,338 119,022 6,347 12,234 72,288 87,279 70,244 (27,433) 27,389 (7,901) 42,855 (19,532) 0 0 0 0 0 0 40,758 (31,826) 2.89 (2.25) 2.52 (2.25)
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