-----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, HhI61bF2jNoiugcvY7aUfJPoT+vuVNg7V+oD1j3ZhwSEGj5IjrzMMUWA3yMAKt9w f8Wl8s3EcTqT22fKslCgYw== 0000950134-97-007090.txt : 19970930 0000950134-97-007090.hdr.sgml : 19970930 ACCESSION NUMBER: 0000950134-97-007090 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970910 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19970929 SROS: NYSE 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: 8-K/A SEC ACT: SEC FILE NUMBER: 001-11756 FILM NUMBER: 97687730 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 8-K/A 1 AMENDMENT NO. 1 TO FORM 8-K 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ______________________________ FORM 8-K/A (Amendment No. 1) CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of Earliest Event Reported): SEPTEMBER 10, 1997 PILLOWTEX CORPORATION (Exact Name of Registrant as Specified in its Charter) TEXAS 1-11756 75-2147728 (State of (Commission (IRS Employer Incorporation) File Number) 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 ================================================================================ 2 On September 11, 1997, Pillowtex Corporation, a Texas corporation, filed a Current Report on Form 8-K dated September 10, 1997 (the "Form 8-K") with the Securities and Exchange Commission. This Amendment No. 1 to the Form 8-K hereby amends and restates in their entirety Items 5 and 7 of the Form 8-K. ITEM 5. OTHER EVENTS. GENERAL On September 10, 1997, Pillowtex Corporation (the "Company"), a wholly owned subsidiary of the Company ("Newco"), and Fieldcrest Cannon, Inc. ("Fieldcrest") entered into an agreement (the "Merger Agreement") pursuant to which, on the terms and subject to the conditions set forth therein, Newco will be merged with and into Fieldcrest (the "Merger"), and Fieldcrest will thereby become a wholly owned subsidiary of the Company. A copy of the Merger Agreement is filed as Exhibit 2.1 hereto and is incorporated herein by this reference. On September 11, 1997, the Company issued a press release announcing the Merger. A copy of the press release is filed as Exhibit 99.1 hereto and is incorporated herein by this reference. THE MERGER Conversion of Fieldcrest Shares. At the effective time of the Merger (the "Effective Time"), each outstanding share of Common Stock, par value $1.00 per share, of Fieldcrest ("Fieldcrest Common Stock") will be converted into a right to receive total consideration valued at $34.00, consisting of (i) $27.00 in cash and (ii) a number (the "Conversion Number") of shares of Common Stock, par value $0.01 per share, of the Company ("Pillowtex Common Stock") equal to the quotient obtained by dividing $7.00 by the average of the closing sales prices per share of Pillowtex Common Stock on the New York Stock Exchange (the "NYSE") for each of the 20 consecutive trading days immediately preceding the fifth trading day prior to the date (the "Closing Date") on which the Merger is consummated (the "Determination Price"), except that, absent an election by the Company as described below, the Conversion Number will not be more than 0.333 or less than 0.269. If the Determination Price is less than $21.00, the Company will have the right to elect to increase the cash portion of such consideration and/or the Conversion Number such that the sum of (i) the cash portion of such consideration and (ii) the product of (a) the Conversion Number and (b) the Determination Price equals $34.00 and, if the Company does not so elect, Fieldcrest will have the right to terminate the Merger Agreement. At the Effective Time, each outstanding share of $3.00 Series A Convertible Preferred Stock, par value $0.01 per share, of Fieldcrest, other than shares converted into Fieldcrest Common Stock prior to the Merger, will be converted into a right to receive total consideration valued at $58.12, consisting of (i) a cash payment equal to the -2- 3 product of (a) the amount of the cash payment to be made on account of each share of Fieldcrest Common Stock converted in the Merger and (b) 1.7094 and (ii) a number of shares of Pillowtex Common Stock equal to the product of (a) the Conversion Number and (b) 1.7094. Treatment of Fieldcrest Options. Each holder of an outstanding option (a "Fieldcrest Option") to purchase shares of Fieldcrest Common Stock may, prior to the Effective Time, elect to receive for each share of Fieldcrest Common Stock subject to such Fieldcrest Option an amount in cash equal to the difference between $34.00 and the per share exercise price of such Fieldcrest Option. At the Effective Time, each outstanding Fieldcrest Option, other than Fieldcrest Options in respect of which the above-described election was made, will be assumed by the Company and will constitute an option to purchase, in lieu of each share of Fieldcrest Common Stock previously subject thereto, a number of shares of Pillowtex Common Stock (increased to the nearest whole share) equal to the product of (i) the number of shares of Fieldcrest Common Stock subject to such Fieldcrest Option immediately prior to the Effective Time and (ii) a conversion number (the "Option Conversion Number") equal to the quotient obtained by dividing $34.00 by the Determination Price, at an exercise price per share of Pillowtex Common Stock (increased to the nearest whole cent) equal to the exercise price per share of Fieldcrest Common Stock subject to such Fieldcrest Option immediately prior to the Effective Time divided by the Option Conversion Number. The Option Conversion Number will not be more than 1.619 or less than 1.308, except that, if the Company elects to increase the Conversion Number as described above, the Option Conversion Number will be increased such that the product of (a) the Option Conversion Number and (b) the Determination Price equals $34.00. Treatment of Fieldcrest SARs. Pursuant to the Merger Agreement, each holder of an outstanding stock appreciation right issued by Fieldcrest (a "Fieldcrest SAR") will be paid, at or immediately prior to the Effective Time, a cash amount equal to the product of (i) the difference between $34.00 and the grant price of such Fieldcrest SAR and (ii) the number of shares subject to such Fieldcrest SAR. Treatment of Fieldcrest Convertible Debentures. Fieldcrest's 6.0% Convertible Debentures due 2012 (the "Fieldcrest Convertible Debentures"), which are convertible into shares of Fieldcrest Common Stock at a conversion price of $44.25 per share, will remain outstanding immediately after the Effective Time. As a result of the Merger, Fieldcrest Convertible Debentures will become convertible into the same consideration that the holder of the number of shares of Fieldcrest Common Stock into which such Fieldcrest Convertible Debentures might have been converted immediately prior to the Merger would be entitled to receive in the Merger. For example, a Fieldcrest Convertible Debenture having an aggregate principal amount of $1,000 will become convertible into (i) a cash payment equal to the product of (a) the amount of the cash payment to be made on account of each share of Fieldcrest Common Stock converted in the merger and (b) 22.60 and (ii) number of shares of Pillowtex Common Stock equal to the product of (a) the Conversion Number and (b) 22.60. -3- 4 Consequences of Failure to Obtain Approval of Issuance of Pillowtex Shares. The Merger Agreement provides that, if the Company's shareholders fail to approve the issuance of Pillowtex Common Stock and Pillowtex Preferred Stock (as hereinafter defined) in connection with the Merger and related financing transactions, (i) the consideration to be paid to holders of Fieldcrest Common Stock will be a cash payment in an amount equal to $34.00 per share, (ii) the consideration to be paid to holders of Fieldcrest Preferred Stock will be a cash payment in an amount equal to $58.12 per share, (iii) each holder of an Option will receive for each share of Fieldcrest Common Stock subject to such Option an amount in cash equal to the difference between $34.00 and the per share exercise price at such Option, and (iv) the conditions described in clauses (ii) and (iv) of the immediately following paragraph will be inapplicable. However, Charles M. Hansen, Jr., Chairman of the Board and Chief Executive Officer of the Company, and Mary R. Silverthorne, a director of the Company, beneficially own, in the aggregate, 52.9% of the currently outstanding shares of Pillowtex Common Stock and each of them has separately informed the Company that he or she intends to vote his or her shares of Pillowtex Common Stock for the approval of the issuance of shares of Pillowtex Common Stock and Pillowtex Preferred Stock in connection with the Merger and related financing transactions. Accordingly, the approval by the Company's shareholders of the issuance of shares of Pillowtex Common Stock and Pillowtex Preferred Stock in connection with the Merger and related financing transactions is expected to occur. Conditions to the Merger. The obligations of the Company and Fieldcrest to consummate the Merger are conditioned upon, among other things, (i) approval and adoption of the Merger Agreement by Fieldcrest's stockholders; (ii) approval by the Company's shareholders of the issuance of shares of Pillowtex Common Stock and Pillowtex Preferred Stock in connection with the Merger and related financing transactions; (iii) the absence of any order or injunction that prohibits the consummation of the Merger; (iv) the shares of Pillowtex Common Stock to be issued in connection with the Merger having been authorized for listing on the NYSE, subject to official notice of issuance; (v) a Registration Statement on Form S-4 having been declared effective by the Securities and Exchange Commission and not being subject to any stop order or proceeding seeking the same; and (vi) the waiting period pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, having expired or been terminated. There can be no assurance that such conditions will be satisfied. MERGER FINANCING In order to finance the Merger and the repayment of certain indebtedness of Fieldcrest, refinance the existing senior bank credit facility of the Company, and provide working capital for the combined enterprise that will result from the Merger, the Company (i) has negotiated and entered into (a) a commitment letter with NationsBank of Texas, N.A. providing for new senior revolving credit and term loan facilities (the "New Pillowtex Bank Facilities Commitment") and (b) a preferred stock purchase agreement with Apollo Investment Fund III, L.P., Apollo Overseas Partners III, L.P., and Apollo (UK) Partners III, L.P., providing for the issuance and sale of 65,000 shares of -4- 5 Series A Redeemable Convertible Preferred Stock, par value $0.01 per share ("Pillowtex Preferred Stock"), of the Company (the "Pillowtex Preferred Stock Commitment" and, together with the New Pillowtex Bank Facilities Commitment, the "Primary Financing Commitments"), and (ii) proposes to issue and sell new subordinated debt securities (the "New Pillowtex Subordinated Notes"). The terms of the financings contemplated by the Primary Financing Commitments and anticipated terms of the New Pillowtex Subordinated Notes are briefly summarized below. Such summaries of the Primary Financing Commitments are qualified in their entirety by reference to the full text thereof, copies of which are attached as Exhibits 10.1 and 10.2 hereto and are incorporated herein by this reference. New Pillowtex Bank Facilities . . . . . . . . . . . . The New Pillowtex Bank Facilities Commitment provides for, on the terms and subject to the conditions set forth therein, (i) a $350.0 million revolving credit facility (including $40.0 million for standby and commercial letters of credit and up to $15.0 million for swing line loans) and (ii) a $250.0 million term loan facility, consisting of a $125.0 million tranche A term loan and a $125.0 million tranche B term loan (such facilities being referred to herein collectively as the "New Pillowtex Bank Facilities"). A copy of the New Pillowtex Bank Facilities Commitment is filed as Exhibit 10.1 hereto and is incorporated herein by this reference. Sale of Pillowtex Preferred Stock . . . . . . . . . . . . . . . . . The Pillowtex Preferred Stock Commitment provides for, on the terms and subject to the conditions set forth therein, the issuance and sale to Apollo Investment Fund III, L.P., Apollo Overseas Partners III, L.P., and Apollo (UK) Partners III, L.P. of 65,000 shares of Pillowtex Preferred Stock for approximately $65.0 million. A copy of the Pillowtex Preferred Stock Commitment is filed as Exhibit 10.2 hereto and is incorporated herein by this reference. Sale of New Pillowtex Subordinated Notes . . . . . . . . . . The Company intends to issue and sell, on or prior to the Closing Date, up to $150.0 million aggregate principal amount of New Pillowtex Subordinated Notes. Although the specific terms of the New Pillowtex Subordinated Notes have not yet been established, (i) for purposes of the pro forma financial information presented below, the principal -5- 6 thereof is assumed to bear interest at a rate of 9 3/8% per annum, payable semi-annually in arrears, (ii) the New Pillowtex Subordinated Notes are expected to be due and payable in full in 2007, and (iii) the indenture or other instrument under which the New Pillowtex Subordinated Notes are to be issued is expected to contain affirmative, restrictive, and financial covenants and to specify events of default generally comparable to the covenants and events of default contained and specified in the indenture under which the Company's existing 10% Senior Subordinated Notes Due 2006 (the "Existing Pillowtex Subordinated Notes") were issued. In addition to the Primary Financing Commitments, the Company has negotiated and entered into a commitment letter with NationsBridge L.L.C. providing for a standby bridge loan facility (the "Standby Bridge Loan Facility Commitment" and, together with the Primary Financing Commitments, the "Financing Commitments"). The Standby Bridge Loan Facility Commitment provides for, on the terms and subject to the conditions set forth therein, a standby bridge loan facility (the "Standby Bridge Loan Facility") pursuant to which up to $150.0 million will be available to the Company to finance the Merger and complete the related refinancings to the extent that less than $135.0 million aggregate principal amount of New Pillowtex Subordinated Notes shall have been issued and sold as of the Closing Date. The Company presently does not intend to utilize the Standby Bridge Loan Facility. In the event it becomes necessary to utilize the Standby Bridge Loan Facility, borrowings thereunder would initially be evidenced by senior subordinated bridge notes. The terms of such bridge notes would be less favorable to the Company than the anticipated terms of the New Pillowtex Subordinated Notes. Interest on such bridge notes would be payable at a floating rate higher than the fixed rate of interest expected to be borne by the New Pillowtex Subordinated Notes, which floating rate would increase at specified intervals as long as such notes were outstanding (subject to certain limitations). The bridge notes would mature one year from the date of issuance and, if not repaid in full, could, subject to certain conditions, be satisfied at that time through the issuance and delivery of senior subordinated rollover notes with a maturity of nine years. Interest on such rollover notes would also be payable at a floating rate which would increase at specified intervals (subject to certain limitations). The obligations of third parties under the Financing Commitments to extend loans or purchase Pillowtex Preferred Stock, as the case may be, are subject to various specified conditions. Because such conditions relate to matters beyond the Company's control, there can be no assurance that such conditions will be timely satisfied. -6- 7 SUMMARY PRO FORMA FINANCIAL INFORMATION Giving effect to the Merger and the Financing Transactions as if such transactions had been consummated on June 28, 1997, at such date, on a pro forma combined basis, the Company would have had total assets of $1,403.0 million, total long-term debt of $805.2 million, and total shareholders' equity of $184.7 million. Giving effect to the Merger and the Financing Transactions as if such transactions had been consummated on December 31, 1995, the first day of the Company's 1996 fiscal year, (a) for the fiscal year ended December 28, 1996, on a pro forma combined basis, the Company would have had earnings before income taxes and extraordinary items of $21.3 million, earnings before extraordinary items of $11.3 million, and earnings before extraordinary items per share of $0.66 and (b) for the six months ended June 28, 1997, on a pro forma combined basis, the Company would have had earnings before income taxes and extraordinary items of $13.2 million, earnings before extraordinary items of $7.2 million, and earnings before extraordinary items per share of $0.43. As used herein, the term "Financing Transactions" means (i) estimated initial borrowings under the New Pillowtex Bank Facilities of $427.2 million, (ii) the issuance and sale of $135.0 million aggregate principal amount of New Pillowtex Subordinated Notes resulting in estimated net proceeds of $131.4 million, (iii) the issuance and sale of 65,000 shares of Pillowtex Preferred Stock resulting in estimated net proceeds of $63.5 million, (iv) the repayment of all amounts outstanding under the Company's and Fieldcrest's existing bank credit facilities, and (v) the satisfaction and discharge of all indebtedness represented by Fieldcrest's 11.25% Senior Subordinated Debentures Due 2002 to 2004 pursuant to an irrevocable deposit of amounts sufficient to provide for the redemption thereof. Because the Standby Bridge Loan Facility is expected to be drawn upon, if at all, only in the event that less than $135.0 million aggregate principal amount of New Pillowtex Subordinated Notes shall have been issued and sold as of the Closing Date, the foregoing pro forma information assumes that no amounts will be borrowed thereunder. If, in lieu of the issuance and sale of $135.0 million aggregate principal amount of New Pillowtex Subordinated Notes, the Company were assumed to have borrowed $135.0 million under the Standby Bridge Bank Facility, then (i) for the year ended December 28, 1996, on a pro forma combined basis, the Company would have had interest expense of $61.8 million, earnings before income taxes and extraordinary items of $18.3 million, earnings before extraordinary items of $9.5 million, and earnings before extraordinary items per share of $0.54 and (ii) for the six months ended June 28, 1997, on a pro forma combined basis, the Company would have had interest expense of $39.4 million, earnings before income taxes and extraordinary items of $8.9 million, earnings before extraordinary items of $4.6 million, and earnings before extraordinary items per share of $0.26. The pro forma combined financial information presented above is for illustrative purposes only and is not necessarily indicative of what the Company's actual financial position or results of operations would have been had the above-referenced transactions been consummated as of the above-referenced dates or of the financial position or results of operations that may be reported by the Company in the future. The pro forma -7- 8 combined financial information should be read in conjunction with the historical financial statements of the Company and Fieldcrest, the related notes, and the other information contained in the exhibits hereto. Certain historical financial statements of the Company and Fieldcrest are filed as Exhibits 99.2 and 99.3, respectively, hereto and are incorporated herein by this reference. ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS. (c) Exhibits:
Exhibit Number 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. 10.1** Commitment Letter, dated September 10, 1997, by and between NationsBank of Texas, N.A. and Pillowtex Corporation 10.2* 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. 99.1* Press release, dated September 11, 1997, issued by Pillowtex Corporation 99.2 Audited Financial Statements of Pillowtex Corporation as of and for the fiscal years ended December 30, 1995 and December 28, 1996 (incorporated by reference to pages F-1 through F-24 in Pillowtex Corporation's Annual Report on Form 10-K for the fiscal year ended December 28, 1996 filed with the Securities and Exchange Commission) and Unaudited Financial Statements of Pillowtex Corporation as of June 28, 1997 and for the six months ended June 28, 1997 and June 29, 1996 (incorporated by reference to pages 3 through 14 in Pillowtex Corporation's Quarterly Report
- ----------------------- * Previously filed. ** Filed herewith. -8- 9 on Form 10-Q for the fiscal quarter ended June 28, 1997 filed with the Securities and Exchange Commission) 99.3 Audited Financial Statements of Fieldcrest Cannon, Inc. as of and for the fiscal years ended December 31, 1995 and December 31, 1996 (incorporated by reference to pages 18 through 34 in Fieldcrest Cannon, Inc.'s Annual Report on Form 10-K for the fiscal year ended December 31, 1996 filed with the Securities and Exchange Commission) and Unaudited Financial Statements of Fieldcrest Cannon, Inc. as of June 30, 1997 and for the six months ended June 30, 1997 and June 30, 1996 (incorporated by reference to pages 1 through 8 in Fieldcrest Cannon, Inc.'s Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 1997 filed with the Securities and Exchange Commission)
-9- 10 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized. PILLOWTEX CORPORATION By: /s/ John H. Karnes ------------------------------- John H. Karnes Vice President and General Counsel Date: September 29, 1997 -10- 11 INDEX TO EXHIBITS
EXHIBIT NUMBER 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. 10.1** Commitment Letter, dated September 10, 1997, by and between NationsBank of Texas, N.A. and Pillowtex Corporation 10.2* 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. 99.1* Press release, dated September 11, 1997, issued by Pillowtex Corporation 99.2 Audited Financial Statements of Pillowtex Corporation as of and for the fiscal years ended December 30, 1995 and December 28, 1996 (incorporated by reference to pages F-1 through F-24 in Pillowtex Corporation's Annual Report on Form 10-K for the fiscal year ended December 28, 1996 filed with the Securities and Exchange Commission) and Unaudited Financial Statements of Pillowtex Corporation as of June 28, 1997 and for the six months ended June 28, 1997 and June 29, 1996 (incorporated by reference to pages 3 through 14 in Pillowtex Corporation's Quarterly Report on Form 10-Q for the fiscal quarter ended June 28, 1997 filed with the Securities and Exchange Commission) 99.3 Audited Financial Statements of Fieldcrest Cannon, Inc. as of and for the fiscal years ended December 31, 1995 and December 31, 1996 (incorporated by reference to pages 18 through 34 in Fieldcrest Cannon, Inc.'s Annual Report on Form 10-K for the fiscal year ended December 31, 1996 filed with the Securities and Exchange Commission) and Unaudited Financial Statements of Fieldcrest Cannon, Inc. as of June 30, 1997 and for the six months ended June 30, 1997 and June 30, 1996 (incorporated by reference to pages 1 through 8 in Fieldcrest Cannon, Inc.'s Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 1997 filed with the Securities and Exchange Commission)
__________________________________ * Previously filed. ** Filed herewith EX-10.1 2 COMMITTMENT LETTER DATED SEPTEMBER 10, 1997 1 Exhibit 10.1 September 10, 1997 Pillowtex Corporation 4111 Mint Way Dallas, TX 75237 Attn: Mr. Jeffrey D. Cordes RE: Merger Financing Gentlemen: You have advised us that Pillowtex Corporation (the "Borrower") intends to acquire all of the capital stock of Fieldcrest Cannon Inc. (the "Acquired Company") for approximately $415 million through the merger of the Acquired Company with or into the Borrower or a wholly owned subsidiary thereof (hereinafter the acquisition of Acquired Company may be referred to as the "Merger"). You have advised us that in connection with the Merger approximately $13 million of the Acquired Company's existing industrial revenue bond obligations will remain outstanding and that the Acquired Company's existing $118 million 6% convertible subordinated debentures will either remain outstanding, or be converted at the option of the holders into approximately $72 million in cash and $19 million of Pillowtex common stock. All other existing debt of the Acquired Company (consisting of approximately $115 million of senior secured bank debt and approximately $85 million of senior subordinated debentures) will be repaid or called for redemption simultaneously with the completion of the Merger. You have also advised us that the Borrower intends to refinance its existing bank senior debt (approximately $94 million) simultaneously with the completion of the Merger, and keep outstanding its existing senior subordinated debentures (approximately $125 million) and certain other existing senior secured debt (approximately $9 million). In order to complete the Merger and refinancings described above, and to pay the costs and expenses related to the Merger and related financings, you have advised us that the Borrower intends (i) to pay not less than 20.58% of the total consideration paid to holders of the Acquired Company's capital stock in the form of newly issued common stock of the Borrower, (ii) to pay not less than 20.58% of any conversion consideration requested by holders of the Acquired Company's 6% convertible subordinated debentures in the form of newly issued common stock of the Borrower, (iii) to privately place not less than $65 million of its newly issued preferred stock, (iv) to raise not less than $135 million from its issuance of new senior subordinated debt (the "Subordinated Debt") either through the issuance of subordinated bridge notes under the commitment letter with NationsBridge L.L.C. dated as the date hereof (together with any extensions thereof being the "Bridge Notes") or through its issuance of other Subordinated Debt, and (v) to borrow not more than $455 million (with such amount being increased by 79.42% of any conversion consideration requested by holders of the Acquired Company's 6% convertible subordinated debentures) under newly arranged senior credit facilities. 2 Pillowtex Corporation September 10, 1997 Page 2 In connection with the foregoing, NationsBank of Texas, N.A. ("NationsBank" or the "Agent") is pleased to advise you of its commitment (this letter agreement being the "Commitment Letter") to provide the full principal amount of the Senior Credit Facilities described in the Summary of Indicative Terms and Conditions attached to this Commitment Letter as Exhibit A (the "Term Sheet"). NationsBanc Capital Markets, Inc. ("NCMI") is pleased to advise you of its commitment, as Arranger and Syndication Agent for the Senior Credit Facilities, to form a syndicate of financial institutions (the "Lenders") reasonably acceptable to you for the Senior Credit Facilities. If NationsBank and NCMI shall determine in their sole discretion that it will not adversely affect syndication of the Senior Credit Facilities, the Revolving Credit Facility described in the Term Sheet may be documented as a renewal and extension of the Borrower's existing revolving credit agreement and the Term Loan Facility described in the Term Sheet may be documented under a separate new credit agreement. In such event, the separate credit agreements will contain identical provisions as outlined in the Term Sheet and will subject to an inter-creditor agreement providing for cross collateralization, cross approval of amendments and waivers, and such other matters as are necessary to accomplish the intent of the Term Sheet. All capitalized terms used and not otherwise defined herein shall have the meanings set forth in the Term Sheet, and this letter agreement. The commitments of NationsBank and NCMI hereunder are subject to each of the terms and conditions set forth herein and in the Term Sheet, and to the satisfaction of each of the following conditions precedent in a manner acceptable to NationsBank and NCMI: (a) execution by the Borrower, the Acquired Company and/or other appropriate parties of the definitive merger agreement and other related documentation relating to the Merger (the "Merger Agreement"), substantially in the form executed on September 10, 1997 provided to NationsBank and NCMI; (b) the negotiation, execution and delivery of definitive documentation with respect to the Senior Credit Facilities consistent with the Term Sheet and otherwise reasonably satisfactory to NationsBank and NCMI; and (c) there not having occurred and being continuing since the date hereof a material adverse change in the market for syndicated bank credit facilities or a material disruption of, or a material adverse change in, financial, banking or capital market conditions, in each case as determined by NationsBank and NCMI in their reasonable discretion. NationsBank will act as Agent for the Senior Credit Facilities and NCMI will act as Arranger and Syndication Agent for the Senior Credit Facilities. No additional agents will be appointed without the prior approval of the Borrower, NationsBank and NCMI. Furthermore, the commitments of NationsBank and NCMI hereunder are based upon the financial and other information regarding the Borrower, the Acquired Company and their respective subsidiaries previously provided to NationsBank and NCMI and are subject to the condition, among others, that there shall not have occurred after the date of such information, in the reasonable opinion of NationsBank and NCMI, any material adverse change in the business, assets, liabilities (actual or contingent), operations, condition (financial or otherwise) or prospects of the Borrower, the Acquired Company and their 3 Pillowtex Corporation September 10, 1997 Page 3 subsidiaries taken as a whole. If the continuing review by NationsBank and NCMI of the Borrower and the Acquired Company discloses information relating to conditions or events not previously disclosed to NationsBank and NCMI or relating to new information or additional developments concerning conditions or events previously disclosed to NationsBank and NCMI which NationsBank and NCMI in their reasonable discretion believe may have a material adverse effect on the condition (financial or otherwise), assets, properties, business, operations or prospects of the Borrower, the Acquired Company, and their subsidiaries taken as a whole, NationsBank and NCMI may, in their reasonable discretion, suggest alternative financing amounts or structures that ensure adequate protection for the Lenders or decline to participate in the proposed financing. You agree to actively assist NationsBank and NCMI in achieving syndication of the Senior Credit Facilities in a manner reasonably satisfactory to NationsBank, NCMI and you. In the event that such syndication cannot be achieved in a manner reasonably satisfactory to NationsBank, NCMI and you under the structure outlined in the Term Sheet you agree to cooperate with NationsBank and NCMI in developing an alternative structure that will permit syndication of the Senior Credit Facilities in a manner reasonably satisfactory to NationsBank, NCMI and you. Syndication of the Senior Credit Facilities will be accomplished by a variety of means, including direct contact during the syndication between senior management and advisors of the Borrower and the proposed Lenders. To assist NationsBank and NCMI in the syndication efforts, you hereby agree to (a) provide and cause your advisors to provide NationsBank and NCMI and the other Lenders upon request with all information reasonably deemed necessary by NationsBank and NCMI to complete syndication, including but not limited to information and evaluations prepared by the Borrower and its advisors, or on their behalf, relating to the Merger, (b) assist NationsBank and NCMI upon their reasonable request in the preparation of an Information Memorandum to be used in connection with the syndication of the Senior Credit Facilities and (c) otherwise assist NationsBank and NCMI in their syndication efforts, including making available officers and advisors of the Borrower and its subsidiaries from time to time to attend and make presentations regarding the business and prospects of the Borrower and the Acquired Company and their subsidiaries, as appropriate, at a meeting or meetings of prospective Lenders. You further agree to refrain from engaging in any additional debt financings for the Acquired Company (except as described in this letter and except for the Subordinated Debt) during such syndication process unless otherwise agreed to by NationsBank and NCMI. It is understood and agreed that NationsBank and NCMI, after consultation with you, will manage and control all aspects of the syndication, including decisions as to the selection of proposed Lenders and any titles offered to proposed Lenders, when commitments will be accepted and the final allocations of the commitments among the Lenders. NationsBank agrees to use its reasonable efforts to satisfy the Borrower's preferences with respect to the selection of proposed Lenders and the final allocation of the commitments among the Lenders. It is understood that no Lender participating in the Senior Credit Facilities will receive compensation from you outside the terms contained herein and in the Term Sheet in order to obtain its commitment. It is also understood and agreed that the amount and distribution of the fees among the Lenders will be at the sole discretion of NationsBank and NCMI and that any syndication prior to execution of definitive documentation will reduce the commitment of NationsBank. You hereby represent, warrant and covenant that to the best of your knowledge (a) all information, other than Projections (as defined below), which has been or is hereafter made 4 Pillowtex Corporation September 10, 1997 Page 4 available to NationsBank and NCMI or the Lenders by you or any of your representatives in connection with the transactions contemplated hereby ("Information") is and will be complete and correct in all material respects and does not and will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements contained therein not misleading, and (b) all financial projections concerning the Borrower and the Acquired Company that have been or are hereafter made available to NationsBank and NCMI or the Lenders by you or any of your representatives (the "Projections") have been or will be prepared in good faith based upon reasonable assumptions. You agree to furnish us with such Information and Projections as we may reasonably request and to supplement the Information and the Projections from time to time until the closing date for the Senior Credit Facilities so that the representation and warranty in the preceding sentence is correct on the such date. In arranging and syndicating the Senior Credit Facilities, NationsBank and NCMI will be using and relying on the Information and the Projections without independent verification thereof. By executing this Commitment Letter you also agree to reimburse NationsBank and NCMI from time to time on demand for all reasonable out-of-pocket fees and expenses (including, but not limited to, the reasonable fees, disbursements and other charges of legal counsel to NationsBank) incurred in connection with the Senior Credit Facilities and the preparation of the definitive documentation for the Senior Credit Facilities and the other transactions contemplated hereby. IN THE EVENT THAT NATIONSBANK OR NCMI BECOMES INVOLVED IN ANY CAPACITY IN ANY ACTION, PROCEEDING OR INVESTIGATION IN CONNECTION WITH ANY MATTER CONTEMPLATED BY THIS LETTER, THE BORROWER WILL REIMBURSE NATIONSBANK AND NCMI FOR THEIR REASONABLE LEGAL AND OTHER EXPENSES (INCLUDING THE COST OF ANY INVESTIGATION AND PREPARATION) AS THEY ARE INCURRED BY NATIONSBANK OR NCMI. THE BORROWER ALSO AGREES TO INDEMNIFY AND HOLD HARMLESS NATIONSBANK, NCMI AND THEIR AFFILIATES AND THEIR RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS (THE "INDEMNIFIED PARTIES") FROM AND AGAINST ANY AND ALL LOSSES, CLAIMS, DAMAGES AND LIABILITIES, JOINT OR SEVERAL, RELATED TO OR ARISING OUT OF ANY MATTERS CONTEMPLATED BY THIS LETTER (INCLUDING ANY ARISING OUT OF THE NEGLIGENCE OF ANY INDEMNIFIED PARTY), UNLESS AND ONLY TO THE EXTENT THAT IT SHALL BE FINALLY JUDICIALLY DETERMINED THAT SUCH LOSSES, CLAIMS, DAMAGES OR LIABILITIES RESULTED PRIMARILY FROM THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF NATIONSBANK, NCMI OR SUCH OTHER INDEMNIFIED PARTY. The provisions of the immediately preceding two paragraphs shall remain in full force and effect regardless of whether definitive financing documentation shall be executed and delivered and notwithstanding the termination of this letter agreement or the commitment of NationsBank and NCMI hereunder, provided, however, that the provisions of the immediately preceding two paragraphs shall be superseded by the provisions of the definitive financing documentation. As described herein and in the Term Sheet, NCMI will act as Arranger and Syndication Agent for the Senior Credit Facilities. NationsBank reserves the right to allocate, in whole or in part, to NCMI certain fees payable to NationsBank in such manner as NationsBank 5 Pillowtex Corporation September 10, 1997 Page 5 and NCMI agree in their sole discretion. You acknowledge and agree that NationsBank may share with any of its affiliates (including specifically NCMI) any information relating to the Senior Credit Facilities, the Borrower, the Acquired Company and their subsidiaries and affiliates, subject to a confidentiality agreement reasonably acceptable to you. This Commitment Letter may not be assigned without the prior written consent of NationsBank and NCMI. If you are in agreement with the foregoing, please execute and return the enclosed copy of this letter agreement no later than 5:00 p.m. Dallas, Texas time on September 11, 1997. This letter agreement will become effective upon your delivery to us of executed counterparts of this letter agreement and the fee letter of even date herewith (the "Fee Letter") and, without limiting the more specific terms hereof and of the Term Sheet, you agree upon acceptance of this commitment to pay the fees set forth in the Term Sheet and in the Fee Letter. This commitment shall terminate if not so accepted by you prior to that time. Following acceptance by you, this commitment will terminate on December 31, 1997 , unless the Senior Credit Facilities are closed by such time. Except as required by applicable law, this Commitment Letter, the Term Sheet, and the Fee Letter and the contents hereof and thereof shall not be disclosed by you to any third party without the prior consent of NationsBank and NCMI, other than to your attorneys, financial advisors and accountants, in each case to the extent necessary in your reasonable judgment; provided, however, it is understood and agreed that after your acceptance of this Commitment Letter, the Term Sheet and the Fee Letter you may disclose the terms of this letter and the Term Sheet (but not the Fee Letter) to the Acquired Company and its attorneys and financial advisors and accountants in connection with the Merger, in filings with the SEC and other applicable regulatory authorities and stock exchanges, and in proxy and other materials disseminated to stockholders and other purchasers of securities of the Borrower. Without limiting the foregoing, in the event that you disclose the contents of this letter or the Fee Letter in contravention of the preceding sentence, you shall be deemed to have accepted the terms of this Commitment Letter and Term Sheet, and the Fee Letter. THIS COMMITMENT LETTER (INCLUDING THE TERM SHEET), THE FEE LETTER AND ANY OTHER AGREEMENTS EXECUTED IN CONNECTION HEREWITH REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES WITH RESPECT TO THE MATTERS COVERED HEREIN AND THEREIN AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENT OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES RELATING TO THE SUBJECT MATTER HEREOF. THIS LETTER SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS WITHOUT REGARD TO ITS PRINCIPLES OF CONFLICTS OF LAW. {Remainder of page intentionally left blank} 6 Pillowtex Corporation September 10, 1997 Page 6 This letter may be executed in counterparts which, taken together, shall constitute an original. Very truly yours, NATIONSBANK OF TEXAS, N.A. By: /s/ DOUGLAS E. HUTT ------------------------------ Title: Senior Vice President NATIONSBANC CAPITAL MARKETS, INC. By: /s/ HAROLD R. BEATTIE ------------------------------ Title: Managing Director ACCEPTED AND AGREED TO: PILLOWTEX CORPORATION By: /s/ JEFFREY D. CORDES ------------------------------ Title: President and COO Date: 9/10/97 7 EXHIBIT A PILLOWTEX CORPORATION SUMMARY OF INDICATIVE TERMS AND CONDITIONS SEPTEMBER 10, 1997 =============================================================================== BORROWER: Pillowtex Corporation. GUARANTORS: The Senior Credit Facilities shall be guaranteed by all existing and hereafter acquired domestic subsidiaries of the Borrower (the "Guarantors") upon consummation of the Merger. All guarantees shall be guarantees of payment and not of collection. AGENT: NationsBank of Texas, N.A. (the "Agent" or "NationsBank") will act as sole and exclusive administrative and collateral agent. As such, NationsBank will negotiate with the Borrower, act as the primary contact for the Borrower and perform all other duties associated with the role of exclusive administrative agent. No other agents or co-agents may be appointed without the prior written consent of the Borrower, NationsBank and NCMI. ARRANGER & SYNDICATION AGENT: NationsBanc Capital Markets, Inc. ("NCMI"). LENDERS: A syndicate of financial institutions (including NationsBank) arranged by NCMI, which institutions shall be reasonably acceptable to the Borrower and the Agent (collectively, the "Lenders"). SENIOR CREDIT FACILITIES: An aggregate principal amount of up to $600 million will be available under the conditions hereinafter set forth: Revolving Credit Facility: $350 million revolving credit facility, which will include a $40 million sublimit for the issuance of standby and commercial letters of credit (each a "Letter of Credit"). Letters of Credit will be issued by NationsBank (in such capacity, the "Fronting Bank"), and each Lender will purchase an irrevocable and unconditional participation in each Letter of Credit. Up to $15 million of the Revolving Credit Facility will be available for swing line advances to be funded solely by the Agent ("Swing Line Loans"). Swing Line Loans will constitute usage under the Revolving Credit Facility (except for purposes of computing the Commitment Fee), and will reduce availability for Revolving Credit Loans and Letters of Credit. At any time (including during the continuance of an event of default) the Agent may require that its Swing Line Loans be refinanced with new Revolving Credit Loans which will be made pro-rata by all Lenders. A-1 8 Term Loan Facility: $250 million term loan facility comprised of two separate term loan tranches: (i) $125 million Tranche A Term Loan. (ii) $125 million Tranche B Term Loan. PURPOSE: The proceeds of the Senior Credit Facilities shall be used: (i) to refinance and/or redeem certain existing indebtedness of the Borrower and the Acquired Company (ii) to purchase the capital stock of the Acquired Company pursuant to the Merger Agreement (as defined below) and to pay any conversion consideration requested by holders of the Acquired Company's 6% convertible subordinated debentures; (iii) to pay fees and expenses incurred in connection with the Merger, and (iv) to provide for working capital and general corporate purposes of the Borrower. INTEREST RATES: The Senior Credit Facilities (except for Swing Line Loans) shall bear interest, at the option of the Borrower, at a rates per annum equal to either (i) the LIBOR interbank rate, adjusted for reserves, or (ii) the Base Rate (defined as the higher of (a) the NationsBank prime rate and (b) the Federal Funds rate plus 1/2%), in each case plus the "Applicable Margins" set forth below.
x = Ratio of Debt/EBITDA LIBOR + * Base Rate + * ------------------------ --------- ------------- x < or = to 5.50 225 bps 75 bps 5.00 < or = to x < 5.50 200 bps 50 bps 4.50 < or = to x < 5.00 175 bps 25 bps 4.00 < or = to x < 4.50 150 bps 0 bps 3.50 < or = to x < 4.00 125 bps 0 bps 3.00 < or = to x < 3.50 100 bps 0 bps x < 3.00 75 bps 0 bps
* The Applicable Margins shown above are applicable only to the Revolving Credit Loans and Tranche A Term Loan. The Applicable Margins with respect to the Tranche B Term Loan shall be equal to the Applicable Margins shown above, plus 50 bps. Nothwithstanding the foregoing, the Applicable Margins with respect to the Tranche B Term Loan shall never be reduced below Libor + 200bps and Base Rate + 50 bps. Swing Line Loans shall bear interest at the Base Rate plus the Applicable Margins shown above, less the Commitment Fee. The Borrower's initial Applicable Margins shall be based upon the Borrower's ratio of Debt/EBITDA at Closing using the most recent combined LTM EBITDA of the Borrower and the Acquired Company adjusted to include those pro-forma cost savings permitted by the Borrower's independent accountants in accordance with Regulation S-X. Notwithstanding the foregoing, the Borrower's initial Applicable Margins shall not assume a ratio of Debt/EBITDA of less than 5.00 to 1.00. Changes in the Borrower's Applicable Margin will be effective two business days following the Agent's receipt of financial A-2 9 statements indicating a change, commencing with the receipt of the Borrower's 3-31-98 financial statements. If during the 180 day period following the Closing, any breakage costs, charges or fees are incurred with respect to LIBOR loans on account of the syndication of the Senior Credit Facilities, the Borrower shall immediately reimburse the Agent for any such costs, charges or fees. Such right of reimbursement to be in addition to and not in limitation of customary cost and yield protection. The Borrower may select interest periods of 1, 2, 3 or 6 months for LIBOR loans, subject to availability. A penalty rate shall apply on all loans in the event of default at a rate per annum of 2% above the applicable interest rate. The loan documentation shall include cost and yield protection customary for transaction and facilities of this type, including without limitation changes in capital adequacy and capital requirements or their interpretation, illegality, unavailability, and reserves, all without proration or offset. LETTER OF CREDIT FEES: Letter of Credit fees are due quarterly in arrears to be shared proportionately by the Lenders. Fees will be equal to (i) for standby Letters of Credit 100%, and (ii) for commercial Letters of Credit 50%, of the Libor Applicable Margin for Revolving Credit Loans in effect from time to time on a per annum basis, plus a fronting fee of 12.5 bps per annum to be paid to Fronting Bank for its own account. Fees will be calculated on the aggregate stated amount for each letter of credit for the stated duration thereof. COMMITMENT FEE A 50 basis points per annum (calculated on the basis of actual number of days elapsed in a year of 360 days) Commitment Fee calculated on the unused portion of the Senior Credit Facilities shall commence to accrue upon the closing of a definitive credit agreement, and shall thereafter be payable quarterly in arrears. The Commitment Fee shall be reduced (i) to 37.5 basis points per annum for any period where the Borrower's ratio of Debt/EBITDA < 4.00, and (ii) to 25 basis points during any period where the Borrower's ratio of Debt/EBITDA < 3.50. For purposes of determining the Commitment Fee, Revolving Credit Loans and Letters of Credit, but not Swing Line Loans, constitute usage. MATURITY: The Revolving Credit Facility shall terminate and all amounts outstanding thereunder shall be due and payable in full six years from 12/31/97. The Term Loan Facility shall be subject to repayment according to the Scheduled Amortization, with the final payment of all amounts outstanding, plus accrued interest, being due six years from 12/31/97 for the Tranche A Term Loan and seven years from 12/31/97 for the Tranche B Term Loan. AVAILABILITY/SCHEDULED A-3 10 AMORTIZATION: Revolving Credit Facility: Loans under the Revolving Credit Facility ("Revolving Credit Loans" and "Swing Line Loans", and together with the Term Loans, the "Loans") may be made, and Letters of Credit may be issued subject to availability. Term Loan Facility: Loans under the Term Loan Facility ("Term Loans") will be available in a single borrowing at Closing and be subject to quarterly amortization of principal, based upon the annual amounts shown below (the "Scheduled Amortization").
Tranche A Tranche B Year Ending Term Loan Term Loan ----------- --------- --------- 12/31/98 $0 $1,250,000 12/31/99 $5,000,000 $1,250,000 12/31/00 $15,000,000 $1,250,000 12/31/01 $25,000,000 $1,250,000 12/31/02 $35,000,000 $1,250,000 12/31/03 $45,000,000 $1,250,000 12/31/04 $0 $117,500,000
SECURITY: Concurrently with the Merger, the Agent (on behalf of the Lenders) shall receive a first priority perfected security interest in all of the capital stock of each of the domestic subsidiaries (direct or indirect) of the Borrower and 65% of the capital stock of each foreign subsidiary (direct or indirect) of the Borrower, which capital stock shall not be subject to any other lien or encumbrance. The Agent (on behalf of the Lenders) shall also receive a first priority perfected security interest in all other presently unencumbered and future domestic assets and properties of the Borrower and its subsidiaries (including, without limitation, accounts receivable, inventory, material real property, machinery, equipment, contracts, trademarks, copyrights, patents, license agreements, and general intangibles). The foregoing security shall ratably secure the Senior Credit Facilities and any interest rate swap/foreign currency swap or similar agreements with a Lender under the Senior Credit Facilities. MANDATORY PREPAYMENTS AND COMMITMENT REDUCTIONS: Until the Borrower's ratio of Debt/EBITDA less than 4.00, in addition to the amortization set forth above, the Term Loan Facility will be prepaid by an amount equal to (a) 100% of the net cash proceeds of all asset sales by the Borrower or any subsidiary of the Borrower (including stock of subsidiaries), subject to de minimus baskets and reinvestment provisions to be agreed upon and net of selling expenses and taxes to the extent such taxes are paid; (b) 75% of Excess Cash Flow (to be defined) pursuant to an annual cash sweep arrangement; (c) 100% of the net cash proceeds from the issuance of any debt after the Closing by the Borrower or any subsidiary (excluding certain permitted debt and Subordinated Debt issued to refinance the Bridge Notes); and (d) 50% of the net cash proceeds from the issuance of equity by the Borrower or any subsidiary after the A-4 11 Closing (excluding equity proceeds that are applied to repay the Bridge Notes). Prepayments shall be applied pro rata to reduce the Tranche A Term Loan and the Tranche B Term Loan, and within each tranche, pro rata with respect to each remaining installment of principal. OPTIONAL PREPAYMENTS AND COMMITMENT REDUCTIONS: The Borrower may prepay the Senior Credit Facilities in whole or in part at any time without premium or penalty, subject to reimbursement of the Lenders' breakage and re-deployment costs in the case of prepayment of LIBOR borrowings. Optional Prepayments of the Term Loans shall be applied pro rata to reduce the Tranche A Term Loan and the Tranche B Term Loan, and within each tranche, pro rata with respect to each remaining installment of principal. CONDITIONS PRECEDENT TO CLOSING: The initial funding of the Senior Credit Facilities will be subject to the satisfaction of conditions precedent usual and customary for leveraged financings generally and for this transaction in particular, including but not limited to the following: (i) The negotiation, execution and delivery of definitive documentation with respect to the Senior Credit Facilities reasonably satisfactory to NCMI, the Agent and the Lenders. (ii) The Merger shall have been consummated in accordance with the terms of the Merger Agreement and in compliance with applicable law and regulatory approvals. The Merger Agreement shall not have been altered, amended or otherwise changed or supplemented in any material respect or any material condition therein waived, without the prior written consent of the Agent, which shall not be unreasonably withheld. (iii) The Agent shall be satisfied that after giving affect to transactions contemplated hereby, at the Closing (a) the Borrower will have not less than $40 million of availability under the Revolving Credit Facility immediately after the initial funding of the Senior Credit Facilities (with such amount being increased by 79.42% of any conversion consideration which may be requested by holders of the Acquired Company's 6% convertible subordinated debentures after the initial funding of the Senior Credit Facilities), (b) the Borrower shall have issued the Bridge Notes in accordance with the commitment letter of NationsBridge, L.L.C. of even date herewith, or other Subordinated Debt on terms satisfactory to the Agent, in an amount of not less than $135 million, (c) the Borrower shall have issued $65 million in new preferred stock of the Borrower on substantially the terms set forth in the Preferred Stock Purchase Agreement of even date herewith, a copy of which has been provided to Agent, and (d) the Borrower A-5 12 shall have issued its common stock as partial consideration for not less than 20.58% of the aggregate value of all capital stock of the Acquired Company acquired by the Borrower and any conversion consideration requested by holders of the Acquired Company's 6% convertible subordinated debentures at the Closing. (iv) There shall not have occurred, in the Agent's reasonable estimation, a material adverse change since December 31, 1996 in the business, assets, operations, condition (financial or otherwise) or prospects of the Borrower and its subsidiaries and the Acquired Company and its subsidiaries taken as a whole, or in the facts and information regarding such entities as represented to date. (v) The Agent shall have received (a) satisfactory opinions of counsel to the Borrower (which shall cover, among other things, authority, legality, validity, binding effect and enforceability of the documents for the Senior Credit Facilities) and such corporate resolutions, certificates and other documents as the Agent shall reasonably require and (b) satisfactory evidence that the Agent (on behalf of the Lenders) holds a perfected, first priority lien in all collateral for the Senior Credit Facilities, subject to no other liens except for permitted liens to be determined. (vi) Receipt of all governmental, shareholder and third party consents (including Hart-Scott Rodino clearance) and approvals necessary, in the reasonable opinion of the Agent, in connection with the purchase of the Acquired Company and the related financings and other transactions contemplated hereby and expiration of all applicable waiting periods without any action being taken by any authority that could restrain, prevent or impose any material adverse conditions on the Borrower and its subsidiaries (including the Acquired Company and its subsidiaries), or such other transactions, or that could seek or threaten any of the foregoing, and no law or regulation shall be applicable which in the judgment of the Agent could have such effect. (vii) The Borrower and its subsidiaries (including the Acquired Company and its subsidiaries) shall be in compliance with all existing financial obligations (after giving effect to the Merger). REPRESENTATIONS & WARRANTIES: Usual and customary for transactions of this type, to include without limitation: (i) corporate status; (ii) corporate power and authority/enforceability; (iii) no violation of law or contracts or organizational documents; (iv) no material litigation; (v) correctness of specified financial statements and no material adverse change; (vi) no required governmental or third party approvals; (vii) use of proceeds/compliance with margin A-6 13 regulations; (viii) status under Investment Company Act; (ix) ERISA; (x) environmental matters; (xi) perfected liens and security interests; (xii) payment of taxes, and (xiii) consummation of the Merger. COVENANTS: Usual and customary for transactions of this type, to include without limitation: (i) delivery of financial statements and other reports; (ii) delivery of compliance certificates: (iii) notices of default, material litigation and material governmental and environmental proceedings; (iv) compliance with laws; (v) payment of taxes; (vi) maintenance of insurance; (vii) limitation on liens; (viii) limitations on mergers, consolidations and sales of assets; (ix) limitations on incurrence of debt; (x) limitations on dividends and stock redemptions and the redemption and/or prepayment of other debt; (xi) limitations on investments; (xii) ERISA; (xiii) limitation on transactions with affiliates; and (xiv) limitation on capital expenditures. Financial covenants to include (but not limited to): o Maintenance at all times of a Minimum Net Worth, with step-up provisions to be agreed upon, o Maintenance on a rolling four quarter basis of a Maximum Leverage Ratio (total funded debt/EBITDA), and o Maintenance on a rolling four quarter basis of a Minimum Fixed Charge Coverage Ratio (EBITDA less capital expenditures)/(interest expense + scheduled principal repayments). EVENTS OF DEFAULT: Usual and customary in transactions of this nature, and to include, without limitation, (i) nonpayment of principal, interest, fees or other amounts, (ii) violation of covenants, (iii) inaccuracy of representations and warranties, (iv) cross-default to other material agreements and indebtedness, (v) bankruptcy, (vi) material judgments, (vii) ERISA, (viii) actual or asserted invalidity of any loan documents or security interests, or (ix) Change in Control of the Borrower. ASSIGNMENTS/ PARTICIPATIONS: Each Lender will be permitted to make assignments to other financial institutions approved by the Borrower and the Agent, which approval shall not be unreasonably withheld. Lenders will be permitted to sell participations with voting rights limited to significant matters such as changes in amount, rate, and maturity date. An assignment fee of $3,500 is payable by the Lender to the Agent upon any such assignment occurring (including, but not limited to an assignment by a Lender to another Lender). WAIVERS & AMENDMENTS: Amendments and waivers of the provisions of the loan agreement and other definitive credit documentation will require the approval of Lenders holding loans and commitments representing more than 50% of the aggregate amount of loans and commitments under the Senior Credit Facilities, except that (a) the consent of all the Lenders affected thereby shall be A-7 14 required with respect to (i) increases in commitment amounts, (ii) reductions of principal, interest, or fees, (iii) extensions of scheduled maturities or times for payment, (iv) releases of all or substantially all collateral and (v) releases of all or substantially all guarantors and (b) the consent of the Lenders holding at least 50% of the Tranche A Term Loan Facility and at least 50% of the Tranche B Term Loan Facility shall be required with respect to any amendment that changes the allocation of any payment between the Tranche A and Tranche B Term Loan Facilities. INDEMNIFICATION: The Borrower shall indemnify the Lenders from and against all losses, liabilities, claims, damages or expenses relating to their loans, the Borrower's use of loan proceeds or the commitments, including but not limited to reasonable attorneys' fees and settlements costs. This indemnification shall survive and continue for the benefit of the Lenders at all times after the Borrower's acceptance of the Lenders' commitment for the Senior Credit Facilities, notwithstanding any failure of the Senior Credit Facilities to close. CLOSING: On or before December 31, 1997. GOVERNING LAW: Texas EXPENSES: Borrower will pay all reasonable out-of-pocket costs and expenses associated with the preparation, due diligence, administration, syndication and enforcement of all documents executed in connection with the Senior Credit Facilities, including without limitation, the reasonable legal fees of the Agent's counsel regardless of whether or not the Senior Credit Facilities are closed. OTHER: This term sheet is intended as an outline only and does not purport to summarize all the conditions, covenants, representations, warranties and other provisions which would be contained in definitive legal documentation for the Senior Credit Facilities contemplated hereby. The Borrower shall waive its right to a trial by jury. A-8 -----END PRIVACY-ENHANCED MESSAGE-----