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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from July 1, 1995 to December 30, 1995
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Commission file number 1-6687
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JOHNSTON INDUSTRIES, INC.
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 11-1749980
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
105 Thirteenth Street, Columbus, Georgia 31901
(Address of principal executive offices) (Zip Code)
(706) 641-3140
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12 (b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Common Stock, $.10 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 XX 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 Common Stock of the Registrant held by
non-affiliates of the Registrant on March 15, 1996 was $43,828,448. The
aggregate market value was computed by reference to the closing price of the
stock on the New York Stock Exchange on such date.
For purposes of this response, executive officers, directors and Redlaw
Industries, Inc. are deemed to be affiliates of the registrant and the holdings
by non-affiliates is computed as 5,156,288 shares.
The number of shares outstanding of the Registrant's Common Stock as of March
15, 1996 was 10,587,479 shares.
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DOCUMENTS INCORPORATED BY REFERENCE:
None.
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PART I.
ITEM 1. BUSINESS
General
Johnston Industries, Inc. is a consolidated entity which includes its
direct wholly owned subsidiaries, Southern Phenix Textiles, Inc. ("Southern
Phenix"), Opp and Micolas Mills, Inc. ("Opp and Micolas"), Johnston Industries
Composite Reinforcements, Inc. ("JICR") f/k/a Tech Textiles USA ("Tech
Textiles"), and Jupiter National, Inc. ("Jupiter") and its indirect wholly
owned subsidiary, Wellington Sears Company ("Wellington Sears"). References to
"Johnston", "JII" or the "Company" include Johnston Industries, Inc., its
predecessor and its direct and indirect subsidiaries, unless the context
indicates otherwise. Johnston and its direct wholly owned subsidiaries,
Southern Phenix, Opp and Micolas, and JICR and its indirect wholly owned
subsidiary, Wellington Sears are diversified manufacturers of woven and
non-woven fabrics, principally for the home furnishings, industrial and, to a
lesser extent, basic apparel, automotive and other textile markets.
On September 22, 1995, the Board of Directors of the Company authorized a
change in the Company's fiscal year from a period beginning on July 1 and
ending on June 30 to a variable period ending on the Saturday nearest to
December 31. Such change was made to make Johnston's year-end consistent with
its quarterly accounting periods which, in the case of 52-week years, consist
of two four week and one five week periods per quarter ending on a Saturday.
In addition to conforming Johnston's yearly and quarterly accounting periods,
the change in the Company's fiscal year conforms to an annual reporting period
more closely associated with the calendar year and, to the fiscal years
utilized by a majority of the public companies in the textile industry.
In March 1996, the Company acquired all of the issued and outstanding
stock of Jupiter not previously owned by it. In January 1995, the Company had
purchased 89,300 shares of Jupiter for approximately $2,300,000 which had
increased the Company's ownership interest in the outstanding shares of Jupiter
from 49.6% at December 31, 1994 to 54.2%. As a result, Jupiter became a
consolidated majority owned subsidiary of the Company in January 1995 and the
operating results of Jupiter and the Company were consolidated, in compliance
with generally accepted accounting principles, effective January 1, 1995.
The Company engages in textile manufacturing through its wholly owned
direct and indirect subsidiaries: Southern Phenix; Opp and Micolas; Wellington
Sears Company; and JICR, which in the aggregate utilize 4,025,000 square feet
of manufacturing, warehouse and administrative facilities. For the six months
ended December 30, 1995, approximately 79% of the Company's fabric was
manufactured for the home furnishings and industrial segments of the textile
market; the balance is for the automotive segment, basic apparel manufacturers
(duck and pocketing) and the specialty markets, which currently is composed of
mostly sales of yarn, recycled textile fibers and non-crimp fabrics. The
following table sets forth the percentage of sales by product type:
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<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 30, TWELVE MONTHS ENDED JUNE 30,
1995 1995 1994 1993
-------------------- ---------- ---------- ----------
<C> <C> <C> <C> <C>
Automotive 2% 6% 10% 10%
Industrial 22% 25% 24% 24%
Home Furnishing 57% 55% 57% 48%
Apparel 3% 4% 7% 14%
Specialty Markets 15% 9% -- --
Miscellaneous 1% 1% 2% 4%
--- --- --- ---
100% 100% 100% 100%
=== === === ===
</TABLE>
In addition to sales in the United States, the Company also markets its
products in Europe, Canada and Mexico on a limited basis. In April 1995, the
position of Vice President of International Sales was established and staffed
to direct the Company's sales efforts on a global basis. For the six months
ended December 30, 1995, the international direct sales volume constituted
approximately 3% of sales. Although no assurances can be given that its
international expansion will be successful, the Company's goal is to eventually
have international sales account for approximately 10% of its total sales
revenue.
The Company was selected as Textile World's 22nd Annual Model Mill in 1994
and its operating divisions have been selected as "Supplier of the Year" for
various customers on numerous occasions. On February 15, 1996, the Company was
awarded ATI's ("America's Textiles International") first annual Award for
Innovation.
THE FOLLOWING DISCUSSION OF ASPECTS OF THE COMPANY'S BUSINESS AND
PROPERTIES ALSO CONSTITUTES A CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE
HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995.
The Company wishes to caution readers that the following important
factors, among others, in some cases have affected, and in the future could
affect, the Company's actual results and could cause the Company's actual
consolidated results for the first quarter of 1996, and beyond, to differ
materially from those expressed in any forward-looking statements made by, or
on behalf of, the Company:
Customers and Backlog
The Company sells its products to approximately 2,400 customers with net
sales to the single largest customer accounting for 6%, 6%, 11% and 10% of
total sales for the six months ended December 30, 1995, and the fiscal years
ended June 30, 1995, 1994, and 1993, respectively. Note that total sales for
the purpose of the foregoing percentage calculation for the fiscal years ended
June 30, 1994 and 1993 did not include Wellington Sears as these periods
preceded the Company's majority ownership of Jupiter.
The Company traditionally manufactures approximately 75% of its production
against firm orders with finishing, packaging and other specifications
generally determined by its customers. At December 30, 1995, the Company's
backlog of orders was approximately $64,399,000 compared to $63,320,000 at June
30, 1995, $45,136,000 at June 30, 1994 and $37,671,000 at June 30, 1993. The
Company's backlog of orders at December 30, 1995 and June 30, 1995 include
Wellington Sears while June 30, 1994 and June 30, 1993 preceded the Company's
majority ownership of Jupiter and appropriately do not include Wellington
Sears. The backlog of orders increased only marginally from June 30, 1995 to
December 30, 1995, which management believes is a reflection of continued
customer resistance to higher raw material costs and weakness in the economy in
general. All backlog at year-end is expected to be delivered in the current
fiscal year. For the six months ended December 30, 1995, the Company's
production facilities operated at approximately 78% of normal capacity.
Management believes the Company's production capability is sufficient to
accommodate existing and new production orders.
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Products
The Company's products include a variety of proprietary and
non-proprietary woven and non-woven fabrics for automotive, industrial, home
furnishings, apparel and specialty customers. The Company's Southern Phenix
operations manufacture woven fabrics from 100% polyester fiber and other
synthetic and natural fibers for use in the automotive industry, home
furnishings industry, for the coating and laminating trades, industrial
applications and by various other fabricators. Its products are used in
backing for foam car seat cushions, tufted upholstery and marine coated
products, mattress ticking for popularly priced mattresses, and products for
soft furniture.
The Company's Opp and Micolas operations manufacture more than 464
different styles (in the "greige" state, i.e., unbleached and undyed as taken
from the loom) of all cotton fabrics and cotton/polyester blended fabrics and
other fabrics for the coating, home furnishings and apparel markets. Opp and
Micolas also produces fabrics for the footwear and building supplies industries
and for various industrial operations. Its fabrics are used in a broad range of
coated products including wall coverings, coated fabrics for autos such as
convertible tops, cloth roof coverings and felt window liners, rubber coated
products such as automotive V-belts and other belts for industrial machinery,
apparel, industrial protective clothing and specialty items, such as tote bags,
handbags and shoes.
The Company's Wellington Sears operations manufacture cotton and polyester
olefin and other blended fiber fabrics for the home furnishings and industrial
products markets. Its operations include spinning, weaving, finishing, product
testing, waste textile fiber and fabric reclamation and other non-woven
production. Its fabrics are used in outdoor furniture, wiper cloths, napery,
furniture upholstery, mattress pads, bed linens, and other industrial
applications.
The Company's JICR operations produces a variety of non-crimp multi-axial
fabrics out of fiberglass, carbon and aramid fibers for use in engineered
composite materials, including the Company's proprietary VECTORPLY(R) fabrics.
JICR fabrics are used in a variety of industrial, transportation, marine and
sporting goods applications, from sea walls and roof panels to motor campers
and heavy trucks to large yachts and off-shore racing boats to water skis and
hockey sticks.
The Company also produces a variety of greige, dyed and finished fabrics
for specialty markets. Such products are typified by short customized
production runs, small lot sizes and quick delivery requirements. Such
products often are manufactured to customer furnished proprietary
specifications.
Manufacturing
The company spins its own yarn primarily using Rieter(R) and
Schlafhorst(R) open-end automatic rotor spinning machines, Murata(R) air jet
spinning machines and some ring spinning equipment. Open-end and air jet are
fully automated spinning processes which yield an excellent quality yarn which
is produced using highly efficient processes. Fabric is manufactured on a
variety of shuttleless looms using rapier, projectile and air jet technologies,
as well as a few shuttle looms. Non-woven fabric is made in the Company's
Southern Phenix stitchbond facility. The Company's mills have an annual
capacity of approximately 230 million linear yards of woven fabric
(approximately 117 million pounds), approximately 16 million pounds of sales
yarn, and approximately 105 million pounds of non-woven fabric (manufactured
through the reclamation of textile waste products).
In recent years, the Company has engaged in an extensive capital
expenditure program aimed at converting substantially all of its mills to
open-end spinning and shuttleless weaving.
Certain fabrics, primarily those produced by Opp and Micolas and
consisting of greige fabrics, are sold directly to manufacturers which have
their own converting departments or finishing facilities and to fabric
converters who dye and print unfinished fabrics.
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Capital Improvements and Expansion
In an effort to maintain its technological edge, the Company has
maintained an aggressive capital improvement program across all of its
divisions. Capital investment in operations for the six months ended December
30, 1995 was $17,987,000 compared to $21,983,000 and $12,701,000 for the fiscal
years ended June 30, 1995 and June 30, 1994 respectively. Capital investment
totals for the six months ended December 30, 1995 and the year ended June 30,
1995 include Wellington Sears. Capital investment for the fiscal year ended
June 30, 1994 do not include expenditures by Wellington Sears as such periods
preceded the Company's majority ownership of Jupiter.
Distribution and Marketing
The Company uses in-house sales personnel, commissioned sales agents and
independent brokers in the sale of its products. It employs a 30 person
in-house sales force and utilizes approximately 33 commissioned sales agents
and brokers. The sales force is organized divisionally both geographically and
by product lines. For the six months ended December 30, 1995, approximately 77
% of revenues were generated by in-house sales personnel, with 23% generated by
commissioned sales agents and independent brokers. Fabrics sold through
in-house personnel include home furnishings, abrasive, napery, rubber products,
filtration, duck, wipe cloth, reprocessed waste products and various industrial
fabrics. Mattress pads and certain of the Company's upholstery fabrics are sold
through commissioned sales agents.
In addition to its various employed and independent sales people,
approximately 38 Company personnel provide support services such as design,
technical support, customer services, and coordination of production with the
mill.
Competition
The Company's competition consists principally of about 50 companies,
although only approximately 20 companies compete with the Company in a
substantial portion (more than fifty percent) of the product groups serviced by
the Company. The competing companies in each of its product groups include a
number of companies which are larger and have significantly greater resources
than the Company. While the Company believes that there are several competitors
with greater sales than it in each product group, market shares vary
substantially from product to product within a group and there are individual
products for which the Company is the market leader as well as others for which
it does not have a significant market share. Areas of competition include
quality of product and of service -- chiefly the ability to respond and meet
customer product requirements expeditiously and reliably -- design, as well as
price. Management believes that service is an important positive competitive
factor for the Company's operations. Management also believes that competition
from domestic manufacturers has intensified over the last several years and will
continue to increase in the future.
Although management believes that the Company is not, in general, directly
affected by foreign competition; there is an indirect effect. As total
domestic textile sales volume is reduced as a result of imports, the companies
that are directly affected (generally fashion and apparel manufacturers) search
for sales volume in other product groups to replace their lost volume.
Historically, this has resulted in increased competition and price pressures
with respect to certain fabrics, most notably in some of the products in the
specialty market. While such heightened competition may have a negative effect
on margins for particular orders or products, management does not believe that
such competition has had a material adverse effect on the Company's results of
operations.
Raw Materials
The Company utilizes cotton, polyester and other natural and synthetic
fibers in its manufacturing operations. Currently, the supplier for most of
its polyester fiber is Wellman, Inc., formerly Fiber Industries, Inc.
("Wellman"). The Company does not have a long-term agreement with Wellman and
does not maintain long-term supply contracts with Wellman or any other
synthetic fiber suppliers. Other potential suppliers of polyester include
DuPont and Hoechst-Celanese, as well as a number of other domestic and foreign
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sources. Although the Company has some cotton fiber supply contracts, the
Company buys most of its cotton in the open market from approximately ten
established domestic cotton merchants with whom it has long time relationships.
From time to time, the company may enter various provisional pricing
arrangements with its cotton suppliers in connection with cotton purchase
contracts. Under such provisional pricing arrangements, the Company accepts
delivery of certain quantities of raw cotton and pays an agreed upon
"provisional" price for such purchases. The Company may fix the final price at
a later date. The Company utilizes such pricing arrangements to mitigate its
exposure to changes in raw materials cost. Any gain or loss related to such
arrangements is recorded as a component of cost of goods sold. Management
believes that adequate supplies of cotton, polyester and its other fiber needs
are available in the open market and should supplies of cotton, polyester or
other fibers cease to be available from any of the Company's its principal
suppliers, management does not expect any significant difficulty in obtaining
fibers from one or more other suppliers.
Employees
As of February 24, 1996, the Company had approximately 3,040 full-time
employees, none of whom is covered by collective bargaining agreements. The
Company believes its relations with its employees are good.
Corporate Organization and History
Originally founded in 1948, Johnston Industries, Inc. is a Delaware
corporation which became the successor to a New York corporation of the same
name on December 31, 1987 through a reincorporation merger. The Company
consolidates certain functions of its subsidiaries through Company-wide
operations and by entering into a number of joint arrangements and
transactions. The cost of certain routine administrative functions, such as
the accounts receivable and payable and credit functions, is allocated among
Southern Phenix, Opp and Micolas, JICR and Wellington Sears on an equitable
basis, according to the work performed for each business unit. Selling
expenses incurred in connection with international sales are similarly shared
by the Company's subsidiaries according to the volume of international sales
generated by each unit. Subsequent to December 30, 1995, the Company acquired
all of the outstanding stock of Jupiter. As a result of the Company's
acquisition of a majority interest in Jupiter in 1995, the operating results of
Jupiter and the Company were consolidated, in compliance with generally
accepted accounting principles, effective January 1, 1995. The Company began
acquiring its ownership interest in Jupiter in 1986.
In November 1992, Jupiter purchased the custom fabrics division of West
Point Pepperell (now Wellington Sears) and in September 1993 acquired certain
assets of Polylok Corporation (currently being operated as the Tarboro
Finishing Division of Wellington Sears). Over time, the Company has increased
its investment in Jupiter, particularly in connection with Jupiter's textile
acquisitions noted above, and effective March 22, 1996 Jupiter became a wholly
owned subsidiary of the Company. Subsequent to December 30, 1995, the Company
entered into a letter of intent to acquire the T.J. Beall Company, a textile
company whose primary business is the recycling of "gin motes," non-perishable
shorter fibers separated from cotton during the ginning process. In 1992, the
Company entered into a partnership with an English company to establish Tech
Textiles for the joint manufacture and sale of certain specialized textile
products. In 1995, the Company completed the purchase of the English company's
ownership interest and became the sole owner of Tech Textiles. On December 30,
1995, the operations of Tech Textiles and JI International, Inc. were merged
into a new subsidiary, JICR.
Investment Activities
The investment activities of the Company were acquired in connection with
its acquisition of Jupiter and are principally conducted through Jupiter's
wholly-owned subsidiary, Greater Washington Investments, Inc. ("GWI"). The
Company's business strategy contemplates the gradual divestiture of its
non-textile industry investments. GWI is a "small business development
company" under the Small Business Investment Act of 1958 ("1958 Act"), which
restricts its investment to qualifying small business
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concerns as defined in the 1958 Act. GWI previously invested in companies
which were believed by GWI's management to have the potential of above-average
capital appreciation as well as a current return on investment. Because of the
speculative nature of GWI's investments and the lack of any ready market for
most of its investment when purchased, there is minimal liquidity and a
significantly greater risk of loss on each investment than is the case with
traditional investment companies. The value of the securities shown in the
table below are based on the following: (i) securities with readily available
market quotations were valued at the current market price; (ii) all other
securities were valued at fair value as determined in good faith by Jupiter's
Board of Directors using a formal portfolio valuation procedure. In
determining "fair value", the Jupiter Board adhered to the standard recommended
for investment companies by the American Institute of Certified Public
Accountants and the Securities and Exchange Commission. That standard defines
"fair value" as the expected realization if the securities were to be disposed
of in an orderly distribution over a reasonable period of time. There is no
guarantee, however, that GWI would be able to dispose of all or certain of
its investments within a reasonable period of time. Disposing of such
investments under such circumstances could entail substantial discounts or
losses. Following is a list of the investments held by Jupiter and GWI as of
December 30, 1995.
<TABLE>
<CAPTION>
VALUE OF
INVESTMENT AT
DECEMBER 30, 1995(1)
PORTFOLIO COMPANY NATURE OF INVESTMENT (IN THOUSANDS)
- ------------------------------------------ -------------------------------- --------------------
<C> <C> <C>
AEGEAN R & D CORPORATION
Herndon, Virginia 10% subordinated note
Bioremediation company due 1998 (with warrants) $1,300
AUTOGRAPHIX, INC.
Burlington, Massachusetts 12% subordinated note
Presentation graphics systems due 1996 (with warrants) 930
CCC DEVELOPMENT CORPORATION
Boston, Massachusetts common stock and 9% subordinated
Low Income Housing Development note due October 1998 1,100
CENTENNIAL MEDIA CORPORATION convertible preferred stock;
Englewood, Colorado convertible subordinated note;
Publisher of Denver telephone directory and bank guaranty 250
CUSTOM CAPTIVE CORPORATION
Newark, Delaware 11% subordinated note
Industrial reclamation service company due 1998 (with warrants) 850
EMC CORPORATION(2)
Hopkington, Massachusetts
Supplier of intelligent storage and
retrieval technology common stock 8,588
FUISZ TECHNOLOGIES, LTD.(3)
Chantilly, Virginia
Pharmaceutical R&D common stock 2,952
GULF COMPONENTS, INC.
Fort Lauderdale, Florida 9% subordinated note
Electronic components distributor due 1998 (with warrants) 3,157
MADDEX FARM, L. P.
Shepardstown, West Virginia 10% participating 1st
Land development mortgage due 2000 1,410
MEDIATECH, INC.
Herndon, Virginia 10-12% subordinated note
due 1998 (with warrants) 1,700
</TABLE>
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<TABLE>
<CAPTION>
<S> <C> <C>
Research laboratory media producer
METROPOLITAN PERSONNEL SERVICES, INC. 12% subordinated note 400
Washington, D. C. due 1999 (with warrants)
Temporary personnel services
MONITORING TECHNOLOGY CORPORATION 10% subordinated note 1,000
Fairfax, Virginia due 2004 (with warrants)
Predictive maintenance devices
NEURALTECH, INC. common stock 500
Fairfax, Virginia
Artificial neural services software
SENSORMEDICS CORPORATION convertible preferred stock; 1,548
Anaheim, California and common stock
Physiological measurement products
VIASOFT, INC.(4) common stock and warrants 7,162
Phoenix, Arizona
Software products for COBOL re-engineering
ZOLL MEDICAL CORPORATION(5) common stock 1,890
Woburn, Massachusetts
External cardiac pacemaker/defibrillator
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34,737
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</TABLE>
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(1) Publicly traded securities are valued at the current market price. The
value of securities that are restricted in their disposition is based on
the Jupiter Board of Directors' good faith determination of "fair value".
In determining "fair value," the Board of Directors adheres to the
standard recommended for investment companies by the American Institute of
Certified Public Accountants and the Securities and Exchange Commission.
The standard defines "fair value" as the expected realization if the
securities were to be disposed of in an orderly distribution over a
reasonable period of time. There is no guarantee, however, that the
Company would be able to dispose of all or certain of its investments
within a reasonable period of time. Disposing of such investments under
such circumstances could entail substantial discounts or losses.
(2) Based on a price per share of $15.40, the closing price per share of
common stock of EMC Corporation ("EMC") on the New York Stock Exchange on
December 29, 1995. As a result of the acquisition of McDATA Corporation
by EMC on December 6, 1995, the Company's investment in McDATA was
converted into 564,216 shares of common stock of EMC, of which 56,421
shares are to be held in escrow for one year as security for potential
indemnification obligations of McDATA. Valuation includes a 10% discount
for the 56,421 shares which are subject to a one year sales restriction.
As of March 25, 1996, the Company had liquidated $7,807,349 (507,795
shares) of its investment in EMC (based on year end values). A net
realized gain of $8,468,000 on this investment with a basis of
approximately $337,000 will result in connection with this liquidation.
The approximate holding period of this initial investment was 11 years.
(3) Based on a price per share of $15.25, the closing price per share of
common stock of Fuisz Technologies, Ltd. ("Fuisz") on the NASDAQ National
Market System on December 29, 1995. On December 14, 1995, Fuisz completed
an underwritten public offering of its common stock at a price of $12.00
per share to the public. As a result of the offering, the Company's
investment in Fuisz was converted into 215,080 shares of Fuisz common
stock. In connection with the Fuisz offering, the Company agreed not to
dispose of its shares of Fuisz common stock for a period of 180 days.
Valuation includes a 10% discount for all 215,080 shares which are subject
to a 180 day sales restriction.
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(4) Based on a price per share of $11.88, the closing price per share of
common stock of Viasoft, Inc. ("Viasoft") on the NASDAQ National Market
System on December 29, 1995. As of March 25, 1996, the Company had
liquidated $6,743,991 (567,915 shares) of its investment in Viasoft (based
on year end values). A net realized gain of $10,015,000 on this
investment with a basis of approximately $1,462,000 will result in
connection with this liquidation. The approximate holding period of this
initial investment was 11 years.
(5) Based on a price per share of $9.00, the closing price per share of
common stock of Zoll Medical Corporation on the NASDAQ National Market
System on December 29, 1995. As of March 25, 1996 the Company had
liquidated $90,000 (10,000 shares) of its investment in Zoll (based on
year end values). A net realized gain of $114,500 on this investment with
a basis of approximately $5,500 will result in connection with this
liquidation. The approximate holding period of this initial investment
was 15 years.
As of March 25, 1996, the Company had liquidated $14,641,339 of its investment
portfolio (based on year-end values).
GWI's debt consists of subordinated debentures ("Debentures") which are
guaranteed by the Small Business Administration ("SBA") and bear an effective
weighted-average interest rate of 7.8% at December 30, 1995. Principal payments
due on these Debentures are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
---- -----------
<S> <C>
1998 $2,500,000
2001 7,000,000
2003 5,000,000
-----------
$14,500,000
===========
</TABLE>
Debentures carry certain restrictions, and GWI may not (1) make any
distribution to its shareholder other than periodic payments out of accumulated
net realized income or (2) permit its cumulative operating deficit plus any net
unrealized appreciation on investments to exceed 50% of its paid-in capital. In
addition, the Debentures cannot be prepaid except with SBA approval based upon
such exceptional circumstances as license surrender, reorganization and merger,
debt restructure for credit or cash-flow reasons, or liquidation of idle funds
as a result of large capital gains or anticipated portfolio payments. At
December 30, 1995, GWI did not meet requirements for distribution to its
shareholder or for the prepayment of its Debentures.
RELIANCE ON SENIOR MANAGEMENT
The Company believes it has benefitted and continues to benefit
substantially from the skills, experience and efforts of its senior management.
The loss of the services of members of the Company's senior management could
have a material adverse effect on the Company's business and prospects. See
Directors and Executive Officers of Johnston Industries, Inc.
ADDITIONAL RISK FACTORS AND INVESTMENT CONSIDERATIONS
Additional or related factors which could affect the Company's actual
results and could cause the Company's actual consolidated results for the first
quarter of 1996, and beyond, to differ materially from those expressed in any
forward-looking statements made by, or on behalf of, the Company include:
Continued or increased pressure to change the selling prices for the
Company's products, and the resulting effects on margins, the Company's actions
in connection with continued and increasing competition in many product areas,
including, but not limited to, price competition and fluctuating demand for
certain textile products by one or more textile customers;
Difficulties or delays in the development, production, testing and
marketing of products, including, but not limited to, a failure to ship new
products especially composite fabrics when anticipated, the failure of
customers to accept these products or technologies when planned, any defects in
products and a failure of manufacturing economies to develop when planned;
Occurrences affecting the Company's ability to reduce product and other
cost, and to increase productivity;
Inability to offset pricing competition with production efficiencies and
economies of scale; underutilization of the Company's plants and factories
resulting in production inefficiencies and higher costs; start-up expenses and
inefficiencies and delays and increased depreciation costs in connection with
the start of production in new plants and expansions;
The amount, and rate of growth in, the Company's selling, general and
administrative expenses, and the impact of unusual items resulting from the
Company's ongoing evaluation of its business strategies, asset valuations and
organizational structures;
The adverse effect of continued high raw material costs or the significant
upward fluctuation of raw material costs as specifically experienced in 1995
and difficulties in obtaining raw materials, supplies, power and natural
resources and any other items needed for the production of products;
The acquisition of fixed assets and other assets, including inventories
and receivables, and the making or incurring or any expenditures and expenses,
including, but not limited to, depreciation and research and development
expenses, any revaluation of assets or related expenses and the amount of, and
any changes to, tax rates;
Unexpected losses in connection with the disposition of the non-textile
related investments formerly made by Jupiter and GWI, unanticipated write down
of the value of such investments due to among other things their limited
liquidity, and/or an inability to dispose of one or more of such investments
due to the nature or character of such investments involving, without
limitation, the liquidity of such investment, the lack of a market for such
investment, and whether the Company's investment represents a minority interest
in such enterprise.
The effects of, and changes in, trade, monetary and fiscal policies, laws
and regulations, other activities of governments, agencies and similar
organizations, and social and economic conditions, such as trade restrictions
or prohibitions, inflation and monetary fluctuations, import and other changes
or taxes, the ability or inability of the Company to obtain, or hedge against,
foreign currency, foreign exchange rates and fluctuations in those rates, loss
of international contracts or lower international revenue resulting from
increased expenses associated with overseas operations, the impact of foreign
labor laws and disputes, adverse effects arising out of political unrest,
terrorist activity, nationalizations and unstable governments and legal
systems, and intergovernmental disputes.
The costs and other effects of legal and administrative cases and
proceedings (whether civil, such as environmental and product-related, or
criminal), settlements and investigations, claims, and changes in those items,
developments or assertions by or against the Company relating to intellectual
property rights and intellectual property licenses, adoptions of new, or
changes in, accounting policies and practices and the application of such
policies and practices;
The effects of changes within the Company's organization or in
compensation and benefit plans, any activities of parties with which the
Company has an agreement or understanding, including any issues affecting any
investment or joint venture in which the Company has an investment, the amount,
type and cost of the financing which the Company has, and any changes to that
financing; and
The ability to integrate acquisitions into the Company's existing
operations and unexpected difficulties or problems with such acquired entities
including inadequate production equipment, inadequate production capacity or
quality, outdated or incompatible technologies or an inability to realize
anticipated synergies and efficiencies, whether within anticipated time frames
or at all.
ITEM 2. PROPERTIES
The executive offices of the Company are located at 105 13th Street,
Columbus, Georgia 31901 in a 20,000 square foot, two story, brick office
building, which was purchased August 20, 1993. Its telephone number is (706)
641-3140. The Company owns twelve manufacturing facilities and leases one
additional facility. Such facilities are described below.
The Company's Southern Phenix operations utilize two manufacturing
facilities totaling 708,000 square feet, each of which are located in Phenix
City, Alabama. The primary facility houses Southern Phenix's administrative
offices, weaving mill and finishing operations on 13 acres of a 124 -- acre
tract accessible both by road and rail. The plant, which was one of the first in
the United States to make woven goods from 100% polyester, was built in 1968,
but its equipment and machinery continue to be extensively modernized. A second
facility with 78,000 square feet on 11 acres contains the stitchbond operation.
The annualized operating capacity of these facilities is approximately 79
million linear yards of fabric (38 million pounds) and, during the six months
ended December 30, 1995, these facilities operated at approximately 65%
capacity.
The Company's Opp and Micolas operations utilize two manufacturing
facilities totaling 781,000 square feet, each of which are located on in Opp,
Alabama. The Opp facility encompasses 13 acres and has approximately 340,000
square feet of plant facility located on a major U.S. highway. The Micolas
facility, which is located very close to the Opp plant, sits on 19 acres with
approximately 441,000 square feet of plant facility. A nearby Company-owned
tract of 140 acres is available for future expansion. The plants, which share
some basic facilities and services but are equipped to operate independently,
are single level facilities which were built in 1922, and have undergone
extensive modernization programs from the late 1980's on into the 1990's.
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The annualized operating capacity of the facilities is approximately 106
million linear yards of fabric (49 million pounds), and during the six months
ended December 30, 1995, the facilities operated at approximately 85% capacity.
Headquarters for the Company's Jupiter subsidiary is located in Rockville,
Maryland where it owns and occupies a 3,400 square foot building on
approximately three-quarters of an acre of land.
The Company's Wellington Sears operations utilize eight manufacturing
facilities, including a finishing operation, a U.L. certified testing
laboratory, a fabric design center, a retail outlet and a corporate office
located just off Interstate I-85 in Valley, Alabama near West Point, Georgia.
Two facilities are located in Columbus, Georgia, three are located in Valley,
Alabama, and the remaining two facilities located in DeWitt, Iowa and Tarboro,
North Carolina, respectively. Together the eight facilities total approximately
2,458,000 square feet of building space sitting on approximately 257 acres of
land. The annualized operating capacity of the facilities is approximately 45
million linear yards of fabric (30 million pounds), approximately 16 million
pounds of sales yarn, and approximately 95 million pounds of non-woven
material. The Wellington Sears' facilities overall operated at approximately
80% capacity for the six months ended December 30, 1995. Wellington Sears also
leases a plant located in Lanett, Alabama, which is used for manufacturing
non-woven mattress pads.
In February 1996, the Company announced that it was closing its Tarboro
plant in an effort to realign and consolidate certain operations, concentrate
capital resources on more profitable operations and better position itself to
achieve its strategic corporate objectives. Such decision was reached after
sales during the six months ended December 30, 1995 from the plant were lower
than expected which caused continued operating losses and negative cash flows.
Operations at the Tarboro Plant are currently scaling down and are expected to
conclude around August of 1996. The Company is currently pursuing the sale of
the Tarboro facility, as a whole, however management anticipates that a portion
of the equipment located at such facility will be moved to the other company
locations and the remainder will be sold, with the land and building to then be
marketed and sold. The Tarboro operation includes a facility of approximately
479,000 square feet with annualized operating capacity of approximately 6
million linear yards of fabric (6 million pounds). Management believes the
shutdown of the Tarboro facility will not have a material adverse impact on the
Company's production capacity. For further discussion of the disposition of
the Tarboro facility and of the impact of such shutdown on the Company's
results of operations, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and Note 8 of the Financial Statements set
forth elsewhere in this Report.
The Company's JICR operations are located in Phenix City, Alabama in a
facility leased from Southern Phenix and include approximately 39,000 square
feet of the 78,000 square foot facility which houses the Southern Phenix
stitchbond operation. The operating capacity of JICR was approximately 10
million pounds and JICR operated at approximately 54% of capacity during the
six months ended December 30, 1995.
Environmental
The Company is subject to regulation under federal, state, and local laws
and regulations governing pollution and protection of human health and the
environment, including air emissions, water discharges, management and cleanup
of solid and hazardous substances and wastes. The Company believes that its
facilities and operations are in material compliance with all existing
applicable laws and regulations. The Company cannot, at this time, estimate
the impact of any future laws or regulations on its future operations or future
capital expenditure requirements. The Company is not aware of any pending
federal or state legislation that would have a material impact on the Company's
financial position, results of operations or capital expenditure requirements.
The Company is currently involved in litigation relating to claimed remediation
costs associated with a former subsidiary facility. See "Legal Proceedings".
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<PAGE> 12
ITEM 3. LEGAL PROCEEDINGS
Johnston Industries, Inc.
In 1981, a subsidiary of the Company closed a steel fabricating facility
in Pennsylvania which it had operated before its closing. The facility was
purchased from the Company and again operated as a steel fabricating facility
by the new owner for approximately two years and thereafter was purchased by
the present owner who also operated it as a steel fabricating facility for
about three years. Since that time, the facility has been closed.
In February 1994, the operators of the facility filed a complaint in the
United States District Court, Eastern District of Pennsylvania, Bethlehem Iron
Works, Inc. and Steel Structures Corp. vs. Lewis Industries, Inc., Charles P.
Lewis and Johnston Industries, Inc. No. 94-CV-0752, against previous owners and
operators of the facility including the Company claiming contamination by a
former Johnston subsidiary which had operated at the facility before its close
in 1981. The complaint seeks to hold predecessors in title and former
operators at the site responsible for costs alleged to have been incurred to
remediate the plant site by the present owners. Such costs are alleged to be
$3.5 million, however, the Company disputes that such costs were incurred for
response and believes that it has presented meritorious defenses against the
imposition of such costs. A non-jury trial began in the United States District
Court for the Eastern District of Pennsylvania on July 20, 1995 and was
concluded on August 25, 1995. Briefs by all the parties have been filed. The
Court is expected to render a decision during the quarter ending June 29, 1996.
In June 1995, the Company established a reserve of $1,000,000 for costs
which it believed could be incurred to resolve the dispute. Based upon
subsequent events, including the trial and the discovery that certain
co-defendants had no assets or had been through bankruptcy proceedings, and
based upon the fact that the Court has not dismissed the plaintiff's claims,
the Company's management determined to accrue an additional $1,000,000 in
the three months ended December 30, 1995, thereby increasing the reserve to
$2,000,000 as of December 30, 1995. Management continues to dispute the
apportionment of any of these costs against the Company. The loss provision is
included in Other-net in the Statement of Operations. In addition, the Company
has established a reserve in the amount of $200,000 as an estimate of potential
additional legal costs and other costs to be incurred subsequent to December
30, 1995, in connection with the defense of this matter. Although management
believes that the accruals described above are reasonable based upon the
available facts as of the respective balance sheet dates, and that the accrual
as of December 30, 1995 is sufficient to cover the estimated costs of such
matter, the ultimate outcome of the litigation cannot presently be determined.
Jupiter Litigation
The purchase of the assets of Polylok Corporation ("Polylok") which
comprises Wellington Sears' Tarboro facility ("Tarboro") produced significant
litigation among Jupiter, Wellington Sears, Polylok, and Daniel Duhl ("Duhl"),
Polylok's principal shareholder. The first action, styled Jupiter National,
Inc. vs. Daniel Duhl, Polylok Corporation and Polylok Finishing Corporation,
No. 93-468-CIV-5-F (E.D.N.C.), which was settled in August 1994, involved
assertions against Polylok and Duhl of misrepresentations made in connection
with the purchase of Polylok's assets. Subsequently, in March 1995, Polylok
and Duhl commenced an action against Jupiter and Wellington Sears, in the
United States District Court, Eastern District of North Carolina, Daniel Duhl
and Polylok Corporation vs. Jupiter National, Inc. and Wellington Sears
Company, No. 5:95-CV-171-F(1), which action asserted a breach of contract
relating to installment payments due to Duhl pursuant to a $1,600,000 purchase
money note. Jupiter and Wellington Sears filed counterclaims against Polylok
and Duhl for breach of Duhl's consultancy agreement and breech of the prior
August 1994 settlement. On October 18, 1995, the breech of contract claim
asserted by Polylok and Duhl and the counterclaim by Jupiter and Wellington
Sears for breach of consultancy agreement and the August 1994 settlement were
resolved.
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<PAGE> 13
On October 25, 1995, approximately $541,000 was placed in an escrow account to
settle all obligations for Duhl's consultancy agreement.
In further litigation, Polylok and Duhl took legal action against
Jupiter and Wellington Sears, styled Polylok Corporation and Polylok Finishing
Corporation vs. Jupiter National, Inc. and Wellington Sears Company, No.
4:95-CV-105-F (E.D.N.C.), regarding withdrawal of funds set aside in an escrow
account, from the August 1994 settlement, providing for remediation of
environmental contamination at the Tarboro plant. Subsequent to the August
1994 settlement, Jupiter paid environmental expenses, later reimbursed from the
escrow account, incurred before the settlement. Polylok and Duhl took the
position these expenses were of a non-environmental nature. However, Jupiter
took the position these expenses relate directly to environmental concerns and
in light of the 1994 settlement the reimbursement of funds from the escrow
account was proper. On January 5, 1996, the parties reached a settlement for
this case whereby Duhl received $296,000 out of the escrow account and whereby
the parties agreed to mutual general releases.
The Company is periodically involved in legal proceedings arising out of
the ordinary conduct of its business. Management does not expect that any of
these legal proceedings have a material adverse effect on the Company's
consolidated financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of the Company's security holders during
the six months ended December 30, 1995.
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PART II.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS
MATTERS
The Company's common stock has traded on the New York Stock Exchange under the
symbol "JII" since December 1987. The following table indicates the high and
low closing sales prices for the common stock as quoted on the New York Stock
Exchange composite tape for the periods indicated below. All sales prices and
dividend payments have been adjusted for a three-for-two stock split effective
January 24, 1994.
<TABLE>
Price Range
- ------------------------------------------------------------------------------
High Low
- ------------------------------------------------------------------------------
<S> <C> <C>
Quarter Ended:
December 30, 1995 9 1/8 7 3/8
September 30, 1995 9 5/8 7 7/8
June 30, 1995 10 3/8 7 7/8
March 31, 1995 12 10
December 31, 1994 11 8 1/4
September 20, 1994 9 7/8 8 1/4
June 30, 1994 11 8 7/8
March 31, 1994 11 3/4 9 3/4
December 31, 1993 13 11 1/8
September 30, 1993 11 5/8 9 3/8
</TABLE>
Holders of common stock are entitled to such dividends as may be declared and
paid our of funds legally available for payment of dividends. The Company's
bank credit agreement permits the Company to pay dividends on its Common Stock
provided it is in compliance with various covenants and provisions contained
therein, which among other things limits dividends and restricts investments to
the lesser of (x) 20% of total assets of the Company, on a fully consolidated
basis, as of the date of determination thereof, or (y) $5,000,000 for the
period commencing on January 1, 1996 and ending on December 31, 1996 or (z)
$5,000,000 plus 50% of cumulative consolidated net income for the period
commencing on January 1, 1997, minus 100% of cumulative consolidated net loss
for the consolidated entities for such period, as calculated on a cumulative
basis as of the end of each fiscal quarter of the consolidated entities with
reference to the financial statements for such quarter. Future determination
as to the payment of dividends is subject to the discretion of the Board of
Directors and will depend upon a number of factors, including future earnings,
capital requirements, financial condition, and the existence or absence of any
contractual limitation on the payment of dividends. Regular quarterly
dividends have been paid since September 28, 1990. The current quarterly
dividend is $.10 a share. This rate has been in effect since February 1995.
From April 1994 to January 1995, the rate was $.095 a share. From October 1992
to March 1994, the rate was $.083 a share. From February 1992 to September
1992, the rate was $.66 a share. Prior to February 1992, the rate was $.055 a
share. The number of shareholders of record at December 30, 1995 was
approximately 700.
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<PAGE> 15
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected consolidated financial data for the
transition period and for each of the full fiscal years in the five year period
ended June 30, 1995. The income statement data for the transition period and
for the fiscal years ended June 30, 1995, 1994 and 1993 and the balance sheet
data as of December 30, 1995 and June 30, 1995, 1994 and 1993 have been derived
from the Company's consolidated financial statements included elsewhere in this
report. This data should be read in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations," the
consolidated financial statements and the notes thereto.
(In thousands, except per share data)
<TABLE>
<CAPTION>
Six Months Six Months
Ended Ended Fiscal Year Ended June 30,
Dec. 30, Dec. 31,
1995 (1) 1994 1995 (2) 1994 1993 1992 1991
---------- ---------- -------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Net Sales $150,023 $ 84,970 $263,327 $159,904 $154,074 $138,272 $117,315
Income (Loss) from Operations (10,640) 7,441 17,891 15,135 11,400 10,325 1,846
Pre-tax Income (Loss) (14,832) 6,761 16,658 10,559 13,599 10,231 (1,301)
Net Income (Loss) (6,190) 4,196 7,875 6,495 8,414 6,689 (1,028)
Earnings (Loss) Per Share (.59) .39 .74 .60 .77 .62 .10
Income (Loss) from Operations
to Sales % (7.09)% 8.76% 6.79% 9.47% 7.40% 7.47% 1.57%
Net Income (Loss) to Sales % (4.13)% 4.94% 2.99% 4.06% 5.46% 4.84% (.88)%
BALANCE SHEET DATA:
Total Assets 263,549 143,463 255,101 140,194 136,071 127,885 111,558
Long Term Debt 125,941 36,195 98,834 36,216 22,500 30,000 25,000
Stockholders' Equity 55,179 61,248 63,427 59,808 60,173 57,213 52,644
OTHER DATA:
Equity Per Share 5.22 5.73 5.93 5.51 5.50 5.26 4.91
Dividends Per Share .200 .173 .390 .345 .320 .240 .220
Depreciation and Amortization 9,007 5,645 13,939 10,202 9,761 9,304 8,081
Capital Expenditures 17,987 5,818 21,983 12,701 10,381 9,405 18,030
Return on Beginning Assets (2.43)% 2.99% 5.62% 4.79% 6.58% 6.00% (1.02)%
Return on Beginning Equity (9.76)% 7.02% 13.17% 10.79% 14.71% 12.71% (1.81)%
</TABLE>
(1) Effective September 1995, Johnston's year end closing date was changed to
the Saturday closest to December 31. Therefore, Johnston's transition
period 1995 ended on December 30, 1995.
(2) The operations of Jupiter, a majority-owned subsidiary, for the periods
beginning January 1, 1995 have been included in the consolidated financial
statements since that date. Subsequent to December 30, 1995, Jupiter
became a wholly owned subsidiary of the Company.
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<PAGE> 16
Note: See Notes 2, 4, 8 and 23 of the consolidated financial statements and
Management's Discussion and Analysis of Financial Condition and Results of
Operations for discussion of certain transactions impacting the three
months ended December 30, 1995.
16
<PAGE> 17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
Johnston Industries, Inc. ("Johnston") is a consolidated entity which includes
its direct wholly owned operating subsidiaries, Southern Phenix Textiles, Inc.
("Southern Phenix"), Opp and Micolas Mills, Inc. ("Opp and Micolas"), Johnston
Industries Composite Reinforcements, Inc. ("JICR") (formerly Tech Textiles,
USA), and Jupiter National, Inc. ("Jupiter"), and its indirect wholly owned
subsidiaries, Wellington Sears Company ("Wellington"), Pay Telephone America,
Ltd., and Greater Washington Investments, Inc. ("GWI") (collectively, the
"Company"). Johnston and its direct wholly owned subsidiaries, Southern Phenix,
Opp and Micolas, and JICR and its indirect wholly owned subsidiary, Wellington,
are diversified manufacturers of woven and non-woven fabrics primarily for the
home furnishings, industrial and, to a lesser extent, basic apparel, automotive
and other textile markets. Jupiter is a holding company for Greater Washington
Investments, Inc. ("GWI"), a small business development company under the Small
Business Investment Act of 1958, as amended. GWI previously invested in
companies which were believed by GWI's management to have the potential of
above-average capital appreciation as well as a current return on investment.
Total assets as of December 30, 1995 attributable to the textile operations and
to the portfolio investment activities are approximately $223.2 million and
$40.4 million, respectively.
On August 16, 1995, Johnston jointly announced with Jupiter an agreement and
plan of merger under which the public shareholders of Jupiter would receive
cash from Johnston for each outstanding Jupiter share. The merger was approved
by Jupiter's shareholders on March 12, 1996, and was consummated March 28,
1996. The final price was $33.97 per share. Purchase consideration of
approximately $39,000,000 included payments to stockholders and certain
holders of all outstanding options to purchase common stock, and approximately
$2,800,000 paid for expenses related to the transaction.
In January 1995, Johnston purchased an additional 89,300 shares of Jupiter for
approximately $2,300,000 which increased Johnston's ownership interest in the
outstanding shares of Jupiter from 49.6% at December 31, 1994 to 54.2%. As a
result, Jupiter became a consolidated, majority owned subsidiary of Johnston in
January 1995. Therefore, financial data for the six months ended December 30,
1995 and fiscal year ended June 30, 1995, except net income and net income
(loss) per share, is not directly comparable to prior period data.
During 1992, the Company entered into a 50%/50% partnership with an English
company to establish JICR for the joint manufacture and sale of certain
specialized textile products. During September 1995, the Company began
consolidating the financial statements of JICR, as the Company purchased the
remaining 50% interest for a total cost of $655,000.
On January 22, 1996, Johnston's Board of Directors agreed to buy the
outstanding common shares of T.J. Beall Company, a cotton by-products processor
located in WestPoint, Georgia effective March 25, 1996. This acquisition
has been financed through the issuance of 325,000 shares of one cent ($.01) par
value, nonvoting preferred stock of the Company, which has an estimated value
of $3,250,000. Dividends shall accrue and be payable quarterly at a rate of
$.125 per share per quarter. The preferred stock issued has been designated as
Johnston Industries, Inc. preferred stock, Series 1996 and is convertible into
shares of ten cent ($.10) par value voting common stock. Each share of
preferred stock may be converted into one share of voting common stock with the
shareholder having the right (but not the obligation) to convert up to
one-third of preferred stock twelve months after closing, one-third twenty-four
months after closing, and the final one-third thirty-six months after closing.
Management believes the positive impact of Johnston's acquisition of Jupiter,
combined with the tactical acquisitions described above, the strategy of product
innovation, capital investment, and aggressive marketing at all operating
divisions will result in synergies and enhance growth and performance potential
in the future.
On September 22, 1995, the Board of Directors of Johnston authorized a change
in the fiscal year from a period beginning July 1 and ending June 30 to a
variable period ending on the Saturday nearest to December 31. Therefore,
Johnston's fiscal period 1995 ended on December 30, 1995. Such change will
make Johnston's year-end consistent with its quarterly accounting periods
which, in the case of 52-week years, consist of two four week and one five week
period per quarter ending on a Saturday. Additionally, the change in the
Company's fiscal year conforms to an annual reporting period more closely
associated with the calendar year and, to the fiscal years utilized by a
majority of the public companies in the textile industry.
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<PAGE> 18
RESULTS OF OPERATIONS
Six Months Ended December 30, 1995 Compared with Six Months Ended December 31,
1994
Net sales for the six months ended December 30, 1995 were $150,023,000
compared to $84,970,000 for the prior comparable period, an increase of
$65,053,000 or 77%. This increase was primarily due to sales of $68,386,000
from Wellington for the six months ended December 30, 1995 reflecting the
consolidation of Jupiter with Johnston effective January 1, 1995. Additionally,
net sales of $4,493,000 for JICR were recorded during the six months ended
December 30, 1995 reflecting the consolidation of JICR into Johnston during
this period. These increases were partially offset by decreases in two product
types (automotive and apparel) during the six months ended December 30, 1995.
Net sales to the automotive sector, which is cyclical in nature, decreased in
the six months ended December 30, 1995 to $2,395,000 from $6,727,000 in the
comparable 1994 period. This 65% decrease was due to lower demand in the six
months ended December 30, 1995. While no assurances can be given, management
anticipates net sales of automotive fabrics will rebound at such time that
sales of vehicles by the principal domestic automobile manufacturers increase.
The extent and timing of any increase in sales of automotive fabrics currently
cannot be predicted with any certainty. The apparel market continues to
decrease but represents only 3% of the Company's sales for the six months ended
December 30, 1995 which reflects management's decreased emphasis in this low
margin business. To offset these decreases, management will continue to place
greater emphasis on the high margin products and designs in the decorative
fabrics sector of the home furnishings market. Home furnishings represented
57% or approximately $85,513,000 of net sales during the six months ended
December 30, 1995.
Sales backlog of the Company was $64,399,000 and $63,320,000 at December 30,
1995 and June 30, 1995, respectively. The marginal increase in backlog at
December 30, 1995 from June 30, 1995 was the result of continued resistance to
higher raw material costs and general weakness in the marketplace.
Cost of sales increased in the six months ended December 30, 1995 to
$128,914,000 versus $65,118,000 for the comparable 1994 period primarily as a
result of cost of $62,417,000 related to Wellington for the six months ended
December 30, 1995. The gross margin was approximately 14% for the six months
ended December 30, 1995 compared to approximately 23% for the six months ended
December 31, 1994. This decrease was mainly the result of three factors.
First, raw material costs increased significantly during the six months ended
December 30, 1995 compared to the 1994 period generally without the ability to
pass on such price increases to customers. Second, although Wellington added
net sales of $68,386,000 for the six months ended December 30, 1995, the
Wellington margin for the period was only 9%. Historically, Wellington's
margins have been lower than Southern Phenix and Opp and Micolas margins.
Third, margins were negatively impacted by the decreased sales volume in
certain products types (principally automotive) which did not allow the Company
increased productivity through higher utilization of plant and equipment.
Selling, general, and administrative expenses increased from $6,766,000 for the
six months ended December 31, 1994 to $16,210,000 for the six months ended
December 30, 1995, a 140% increase. This increase was mainly due to the Jupiter
selling, general, and administrative expenses of $6,088,000 for the six months
ended December 30, 1995. The remainder of the increase primarily relates to
significant operating expenses incurred as a direct or indirect result of the
anticipated merger of Johnston and Jupiter which was consummated during March
1996. As a result, selling, general, and administrative expenses as a
percentage of sales was 11% in the six months ended December 30, 1995 and 8% in
the comparable 1994 period. Management is optimistic that in time as the
integration of Johnston and Jupiter operations is effected, selling, general
and administrative expenses as a percentage of sales will return to lower
levels as experienced in periods prior to the inception of the Jupiter
acquisition based upon synergies expected to be achieved.
18
<PAGE> 19
In February, 1996, the Company announced that it was closing its Tarboro plant
in an effort to realign and consolidate certain operations, concentrate capital
resources on more profitable operations and better position itself to achieve
its strategic corporate objections. Such decision was reached after sales
during the six months ended December 31, 1995 from the plant were lower than
expected which caused continued operating losses and negative cash flows.
As a result of closing this facility, Wellington recorded a $6,532,000
non-recurring charge to operations in December 1995 resulting from the
write-down of property, plant, and equipment at Wellington's Tarboro plant due
to impairment. (See Note 8 of the consolidated financial statements for
further discussion.) Once the Tarboro facility ceases operations, certain costs
associated with maintaining and holding the Tarboro facility for disposition
are expected to continue and to be recorded on a month to month basis during
1996 until disposal of the facility is completed.
Depreciation and amortization was $9,007,000 for the six months ended
December 30, 1995 versus $5,645,000 for the comparable 1994 period. This 60%
increase includes depreciation and amortization expense of $2,844,000 for
Jupiter for the six months ended December 30, 1995. In addition, the increase
reflects the continued investments in capital expenditures. In the last three
and one-half years, the Company has invested $63,052,000 in continuing efforts
to upgrade machinery and equipment to state-of-the-art levels, and to move into
new more profitable markets.
Net interest expense was up $2,673,000 for the six months ended December 30,
1995 to $4,451,000 from the comparable 1994 period of $1,778,000. This increase
was mainly due to the consolidation of Jupiter with Johnston which entailed
recording substantial Jupiter debt levels, thus resulting in $2,374,000 of
additional net interest expense for the six months ended December 30, 1995.
Other expenses - net includes a negative effect on the six months ended
December 30, 1995 net income caused by an additional charge of $1,000,000 for
estimated environmental cleanup costs related to a property sold by Johnston in
1982. Johnston has been unable to amicably resolve litigation concerning
responsibility for clean-up costs associated with this site. Such litigation
is in process, and the ultimate outcome of the litigation cannot presently be
determined. (See Note 4 of the consolidated financial statements for further
discussion.) Additionally, other expenses for the six months ended December
30, 1995 includes a charge of approximately $1,000,000 related to transaction
costs such as professional fees incurred for the Johnston and Jupiter merger.
These expenses are nonrecurring in nature.
The consolidation of Jupiter also resulted in the separate reporting of income
or loss activity of the investment portfolio. (See Note 2 to the consolidated
financial statements for further explanation.) From January 1, 1995
through June 30, 1995, the Company's equity in earnings/loss of equity
investments included only the Company's then 50% interest in JICR, whereas prior
to January 1, 1995, the equity in earnings/loss included Johnston's
proportionate interest in its equity investment in Jupiter and JICR.
Therefore, for the six months ended December 30, 1995, the equity in earnings
of equity investments is not applicable.
The realized and unrealized investment portfolio gain of Jupiter for the six
months ended December 30, 1995 was $3,767,000. In connection with the
acquisition of McDATA Corporation by EMC on December 6, 1995, the Company's
investment in McDATA was converted into 564,216 shares of common stock of EMC,
of which 56,421 shares are to be held in escrow for one year as security for
potential indemnification obligations of McDATA. As a result, Jupiter recorded
an unrealized gain of $3,863,000 in the quarter ended December 30, 1995. On
December 14, 1995, Fuisz completed an underwritten public offering of its
common stock at a price of $12.00 per share. Therefore, the Company's
investment in Fuisz was converted into 215,080 shares of Fuisz common stock and
Jupiter recorded an unrealized gain of $593,000 in the quarter ended December
30, 1995. An additional unrealized gain of $45,000 was recorded during the six
months ended December 30, 1995 related to Jupiter's investment in Viasoft, Inc.
These unrealized gains were offset by unrealized depreciation of $734,000
related to Jupiter's investment in Zoll Medical Corporation. As of March 28,
1996, the Company had liquidated $14,671,000 of its investment portfolio (based
on year-end values). (See Note 2 to the consolidated financial statements and
see Liquidity and Capital Resources for further discussion).
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Jupiter carries its portfolio investments at market or fair value. Minority
interest is recorded for the minority shareholders' proportionate share of the
equity and earnings of Jupiter.
The benefit related to income taxes was at an effective rate of 43% for the six
months ended December 30, 1995 versus a provision for income taxes with an
effective rate of 38% in the comparable 1994 period. The increased rate is
mainly due to taxes related to equity in income of Johnston's majority owned
subsidiary, Jupiter, as of December 30, 1995.
Fiscal 1995 Compared with Fiscal 1994
Net sales for fiscal 1995 were $263,327,000 compared to $159,904,000 for the
prior year, an increase of $103,423,000 or 65%. The majority of this increase
was primarily due to sales of $84,299,000 from Wellington for the period
January 1, 1995 to June 30, 1995 reflecting the consolidation of Jupiter with
Johnston effective Jnuary 1, 1995. The remaining increase was primarily the
result of higher unit sales and changes in product mix. Sales in the
upholstery and furniture markets were up approximately $14,235,000 in fiscal
1995, an increase of 20% over fiscal 1994. Additionally, improved sales in the
home products markets have increased fiscal 1995 sales. Management has
continued to place greater emphasis on these high margin products and designs
in the decorative fabrics sector of the home furnishings market. These
increases have been partially offset by a 3% reduction in the apparel market
sales at Opp and Micolas. The reduction in the apparel marketplace is the
result of management's decreased emphasis in this low margin business.
Additionally, net sales to the automotive sector, which is cyclical in nature,
decreased in fiscal 1995 to $15,015,000 from $16,950,000 in fiscal 1994, an 11%
decrease, due to lower demand especially in the quarter ended June 30, 1995.
Sales backlog of Johnston and Jupiter on a consolidated basis was $61,847,000
and $67,508,000 at June 30, 1995 and 1994, respectively. The decrease in
backlog at June 30, 1995 from June 30, 1994 was the result of decrease in
orders due to resistance to higher raw material costs and weaknesses in the
marketplace in general. These conditions have resulted in weak sales during
the period subsequent to June 30, 1995.
Cost of sales increased in fiscal 1995 to $209,598,000 compared to fiscal 1994
of $121,261,000 primarily as a result of $71,812,000 related to Wellington from
January 1, 1995 to June 30, 1995. Sharply escalating raw material costs --
especially cotton and polyester -- took a considerable toll on margins. These
steep raw material increases generally could not be passed on to customers
which was a major reason for lower margins in fiscal 1995 compared to fiscal
1994. Significant LIFO adjustments of $2,724,000, or 12 cents a share, for the
quarter ended June 30, 1995 and $4,349,000, or 20 cents a share, for fiscal
1995 substantially reduced the Company's margins.
Margins were positively impacted by the increased sales volume which continued
to allow the Company to maintain an increased level of productivity through
higher utilization of plant and equipment. The increased volume, coupled with
certain price increases, has enabled the Company to partially offset increases
in raw material costs.
Selling, general, and administrative expenses increased from $13,306,000 for
fiscal 1994 to $21,899,000 for fiscal 1995, a 65% increase. This increase was
mainly due to the Jupiter selling, general, and administrative expenses of
$8,309,000 for the period January 1, 1995 to June 30, 1995. Selling, general,
and administrative expenses as a percentage of sales was 8% in fiscal 1995 and
fiscal 1994.
Depreciation and amortization was up $3,737,000 in fiscal 1995 to $13,939,000
compared to fiscal 1994 of $10,202,000. This 37% increase included
depreciation and amortization expense of $2,589,000 for Jupiter for the period
January 1, 1995 to June 30, 1995. In addition, the increase represents the
continued investments in capital expenditures. In the last three years, the
Company has invested $45,065,000 in continuing efforts to upgrade machinery and
equipment to state-of-the-art levels, and to move into more profitable markets.
Net interest expense was up $3,070,000 in fiscal 1995 to $5,915,000 from fiscal
1994 of $2,845,000. This increase was mainly due to two factors. First, the
consolidation of Jupiter with Johnston entailed recording substantial Jupiter
debt levels, thus resulting in $2,214,000 of additional net interest expense
for the period January 1, 1995 to June 30, 1995. Second, effective January
1995, Johnston restructured its revolving debt agreements and increased its
borrowings under the revolving credit loan from $35,000,000 to $45,000,000.
Other expenses - net includes a negative effect on both the quarter ended June
30, 1995 and fiscal 1995 net income caused by a charge of $1,000,000 to
establish a reserve for estimated environmental cleanup costs related to a
property sold by Johnston in 1982. This steel fabrication operation, sold by
Johnston 13 years ago, has no relationship to today's operations. Johnston has
been unable to amicably resolve litigation concerning responsibility for
clean-up costs associated with this site. Such litigation is in process, and
the ultimate outcome of the litigation cannot presently be determined. (See
Note 4 of the consolidated financial statements for further discussion.)
The consolidation of Jupiter also resulted in the separate reporting of income
or loss activity of the investment portfolio. (See Note 2 to the consolidated
financial statements for further explanation.) Hence, beginning January 1,
1995, the Company's equity in earnings/loss of equity investments included only
the Company's then 50% interest in Tech Textiles, whereas prior to January 1,
1995, the equity in earnings/loss also included Johnston's proportionate
interest in its equity investment in Jupiter. The equity loss in Tech Textiles
was $308,000 for fiscal 1995 compared to $980,000 in the prior year period.
The Company estimated Tech Textiles to have a three-year start-up phase and at
June 30, 1995 it is performing to the Company's expectations. During September
1995, Johnston purchased the remaining 50% interest in Tech Textiles for a
total cost of $655,000. Thus Tech Textiles is a consolidated wholly owned
subsidiary of Johnston effective September 1995.
The realized and unrealized investment portfolio gain of Jupiter for the period
January 1, 1995 to June 30, 1995 was $5,191,000. (See Note 2 to the
consolidated financial statements for further explanation.) This gain reflects
increases in the market value of Jupiter's investment in Viasoft, Inc. of
$2,602,000 and McData Corporation of $2,300,000 for the period January 1, 1995
to June 30, 1995. For the quarter ended June 30, 1995, the increase in the
market value of Jupiter's investment in Viasoft, Inc. and McData Corporation
was $2,452,000 and $2,300,000, respectively. Viasoft, Inc. is a company with
publicly traded stock, thus the market value increase is determined in the
public marketplace. McData Corporation's increase in market value was
estimated by Jupiter's Board of Directors in the absence of readily available
market values. For the six months ended December 31, 1994, and for the year
ended June 30, 1994, Johnston's equity in the changes in net assets of Jupiter
was $1,308,000 and ($161,000), respectively. For the six months ended December
31, 1994, the market price of Jupiter's investment in Zoll Medical increased
$588,000. In fiscal 1994, Jupiter's investment in Zoll Medical had a
substantial decrease in value, which exceeded total increases in Jupiter's
remaining investments.
Jupiter carries its portfolio investments at market or fair value. Minority
interest is recorded for the minority shareholders' proportionate share of the
equity and earnings of Jupiter.
The provision for income taxes was an effective rate of 43% in fiscal 1995
versus and effective rate of 38% in fiscal 1994. The increased rate is mainly
due to taxes related to equity in income of its majority owned subsidiary,
Jupiter.
Fiscal 1994 Compared With Fiscal 1993
Net sales for fiscal 1994 were $159,904,000 compared to $154,074,000 for the
prior year, an increase of 4%. This increase was primarily the result of a 24%
improvement in sales of upholstery and furniture products by Opp and Micolas
and Southern Phenix offset by a 46% reduction in apparel market sales at Opp
and Micolas. The decrease in the low margin apparel market sales reflects
management's decision to significantly reduce its involvement in this market.
Apparel market sales represent only 13% of the Opp and Micolas total business,
and the increase in upholstery and furniture market products produced
significantly higher gross margins. In addition, Johnston placed greater
emphasis on the development of new high margin products and designs in the
decorative fabrics sector of the home furnishings market.
Although net sales for fiscal 1994 increased 4% from fiscal 1993, Johnston's
operating income increased approximately 33%.
Cost of sales as a percentage of sales made a significant improvement in 1994.
Gross profit was 22% in 1993 and improved to 24% in 1994. Improved sales
volumes, especially in upholstery and furniture fabrics at Southern Phenix,
have significantly increased productivity through higher utilization of plant
and equipment. This improvement also reflects decreased costs resulting from
utilization of newer machinery and equipment purchased over the past several
years.
Selling, general, and administrative expenses increased 11% in fiscal 1994
compared to fiscal 1993. In fiscal 1994, approximately one-half of the increase
was in selling expenses (personnel, samples, and commissions) at Southern
Phenix directly related to the new line of decorative fabrics introduced in the
upholstery and furniture markets. There were also small increases in support
expenses in administrative functions to support the sales effort. While the
absolute dollars of fiscal 1994 selling, general, and administrative expenses
were higher than fiscal 1993, such expenses as a percentage of sales increased
only 1/2 of 1%. In addition, increased expenses due to the development of new,
value added products, were offset and substantially exceeded by increased
profitability. In fiscal 1993, Johnston wrote off $736,000 related to accounts
receivable. The majority of this write off was related to a bankrupt customer;
however, the amount written off was previously reserved.
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No such substantial write offs of accounts receivable occurred in fiscal 1994.
Depreciation and amortization were up 5% in fiscal 1994 to $10,202,000
compared to $9,761,000 in fiscal 1993, reflecting the recent increased level
of capital expenditures. Over the past three years, Johnston has invested
$32,487,000 to continue its effort to upgrade machinery and equipment to
state-of-the-art levels, and move into new more profitable markets.
Net interest expense was up 18% in fiscal 1994 to $2,845,000 from fiscal
1993 of $2,403,000. This change was primarily due to a $379,000 reduction
in interest income in 1994 because of the payment of a note receivable in
July 1993. The average interest rate increased slightly from 6-1/4% to
6-1/2%, and the total bank debt increased $1,800,000.
Other expenses - net increased in fiscal 1994 compared to fiscal 1993. The
increase in 1994 relates to the liability for Johnston's former steel
fabrication operations which are discussed in Note 4 in the financial
statements. This liability represents costs related to health insurance and
death benefits and is stated at the actuarially determined discounted present
value.
In fiscal 1994, there was a loss of $980,000 from the operations of Tech
Textiles, compared to a loss of $889,000 in fiscal 1993. These amounts
reflect the start-up nature of this new business and are consistent with
Johnston's expectations and original business plan.
As of June 30, 1994 and 1993, Johnston held a 49% and 40% interest in
Jupiter, respectively, and accounted for such investment using the equity
method. In fiscal 1993, the net asset value of Jupiter continued to increase
because of the market value of the investment portfolio and the operating
profits of Wellington, a major manufacturing acquisition by Jupiter in that
fiscal year. In fiscal 1994, the market value of one of the portfolio
companies in which Jupiter has a financial interest decreased significantly in
value, which exceeded other increases in portfolio investments of Jupiter and
the operating profit generated by Wellington. Consequently, for the last two
years, Johnston recognized a loss of $106,000 for fiscal 1994 and income from
Jupiter of $6,163,000 for fiscal 1993. Because of these factors, Jupiter has
reported volatility in its earnings for the last two years and will
continue to potentially show such volatility dependent on the value of
its portfolio investments due to market conditions and the profit
generated from the operations of Wellington.
The provision for income taxes in fiscal 1994 remained consistent with 1993 at
an effective 38% rate.
In February 1992, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 109 ("SFAS 109"), Accounting for
Income Taxes. Effective July 1, 1993, the Company adopted SFAS 109
retroactively, and restated all prior years presented. The effect of the
retroactive restatement on shareholders equity at July 1, 1992 was a
reduction of $418,000. The restatement impact of applying SFAS 109 on net
income was a $352,000 reduction and a reduction of $.03 on earnings per share
in fiscal 1993.
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EFFECTS OF INFLATION
Management does not believe that inflation has had a material impact on the
results of operations for the periods presented, except as discussed above,
related to sharply escalating raw material costs in fiscal 1995 and, the six
months ended December 30, 1995. These increases in raw material costs had a
significant impact on the Company and the industry. However, management
believes that the raw material costs have stabilized and to the extent general
inflation affects its costs in the future, the Company can generally offset
inflation by increasing prices if competitive conditions permit.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary needs for capital resources are to be funded from a new
debt agreement. This new funding was used to finance the purchase of the
outstanding public shares of Jupiter as discussed above, to refinance certain
indebtedness, to pay related fees and expenses, and will be used as needed to
finance accounts receivable, inventories and capital expenditures in the future.
The agreement signed on March 28, 1996 is comprised of two term loan facilities
("A" and "B") and a revolving credit facility. Term loan facility A is a
$40 million facility with a final maturity date of March 2001. Principal is
repayable for the Company's year ending as follows: 1996 - $0, 1997 - $0,
1998 - $8 million, 1999 - $10 million, 2000 - $10 million, and 2001 - $12
million. The interest rate on these borrowings is 8% at March 28, 1996 which
is based on a Base Rate, defined as the greater of the Federal Funds Rate plus
1/2 of 1%, or the prime commercial lending rate, plus 1 1/4% and is subject to
change at the Company's option upon the bank's receipt of annual audited
financial statements or 60 days to a rate based on the London Interbank
Offered Rate ("LIBOR") plus 2 1/2%. Thereafter, the rate is based upon a
ratio with the range as follows: Base rate plus 0 - 1 1/4% or LIBOR plus 1% -
2 1/2%.
Term facility B is a $40 million facility with a final maturity date of March
2003. Principal is repayable for the Company's year ending as follows: 1996 -
$0, 1997 - $0, 1998-2001 - $500,000 each year, and 2002-2003 - $19 million
each year. The interest rate on these borrowings is 8.5% at March 28, 1996
based on a Base Rate, as defined, plus 1 3/4% and is subject to change at the
Company's option to a rate based on LIBOR, plus 3%.
The revolving credit facility provides up to $80 million in borrowings, with a
final maturity date of March 2001. Principal amounts outstanding are due and
payable at final maturity. The interest rate on these borrowings is 8% at
March 28, 1996 which is based on a Base Rate, as defined, plus 1 1/4%, and is
subject to change at the Company's option, upon the bank's receipt of the
annual audited financial statements or 60 days to a rate based on LIBOR plus 2
1/2%. Thereafter, the rate is based upon a ratio with the range as follows:
Base rate plus 1 1/4% or LIBOR plus 1% - 2 1/2%. Commitment fees are
payable at 1/2%, based on the unused portion of the facility until the date of
the receipt of the audited financial statements by the bank.
Substantially all assets are pledged as collateral for the borrowings under
these facilities. This agreement requires the Company to maintain certain
financial ratios and specified levels of tangible net worth. The agreement
places a limit on the Company's level of capital expenditures and type of
mergers or acquisitions. Additionally, the agreement permits the Company to
pay dividends on its Common Stock provided it is in compliance with various
covenants and provisions contained therein, which among other things limits
dividends and restricts investments to the lesser of (x) 20% of total assets of
the Company, on a fully consolidated basis, as of the date of determination
thereof, or (y) $5,000,000 for the period commencing on January 1, 1996 and
ending on December 31, 1996 or (z) $5,000,000 plus 50% of cumulative
consolidated net income for the period commencing on January 1, 1997, minus
100% of cumulative consolidated net loss for the consolidated entities for
such period, as calculated on a cumulative basis as of the end of each fiscal
quarter of the consolidated entities with reference to the financial
statements for such quarter.
In March 1996, the Company borrowed $144,028,000 under these facilities and
liquidated the Johnston line-of credit and revolving credit loans, and the
Wellington revolving credit loans, term loans, and equipment loans. Management
will use the proceeds generated from liquidated portfolio investments to pay
down outstanding debt under this new agreement.
Johnston
Purchase Money Mortgage Loan - A decision was made by Johnston in fiscal 1993
to move the executive office to Columbus, Georgia. In that regard, in fiscal
1994, a building was purchased and renovated, and Johnston obtained a Purchase
Money Mortgage Loan of $1,325,000. As of December 30, 1995, $1,174,000 was
outstanding on this loan.
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Jupiter
Subordinated Debentures - The subordinated debentures with an outstanding
balance of $14,500,000 at December 30, 1995 are payable to the Small Business
Administration.
COVENANTS AND RESTRICTIONS
The Johnston revolving credit agreement that provided for the line-of-credit
borrowings and the revolving credit loans and the Wellington revolving credit,
term loan, and equipment loan agreement (which have both been refinanced as
noted above) required the manintenance of certain financial ratios, specified
levels of certain balances, and certain other restrictions. At certain times
during the six months ended December 30, 1995, Johnston and Wellington were in
technical noncompliance with certain of their covenants. At certain times
during the years ended June 30, 1995 and 1994, Wellington was in technical
noncompliance with certain of its covenants. All of these events of
noncompliance were waived by the lending institutions. As of December 30,
1995, Johnston and Wellington were in technical noncompliance with certain of
their covenants. However, all of these covenants have been replaced in
conjunction with the Company's refinancing.
(See Note 12 of the consolidated financial statements for an expanded discussion
of financing agreements.)
The net cash used in operating activities for the six months ended was
$3,871,000 primarily the result of the net loss of $6,190,000 for the period.
The net cash provided by operating activities of $17,069,000 in fiscal 1995
was $3,984,000 higher than the fiscal 1994 amount of $13,085,000. This
significant increase is largely due to management of the Wellington inventory
levels from January 1995 (the date of consolidation) to June 1995, which was
not a factor in the prior year.
Capital expenditures for the six months ended December 30, 1995 were $17,987,000
compared to $5,818,000 in the comparable 1994 period, an increase of
$12,169,000. This increase is due to $7,348,000 of capital expenditures at
Wellington for the six months ended December 30, 1995, which were not included
in the consolidated amounts of the prior year. In addition, Johnston invested
$10,639,000 which was primarily for the replacement of existing equipment
with the latest technology and the implementation of new manufacturing
processes.
Management believes that funds generated from operations and funds available
under the new financing agreements will be sufficient to meet the needs of
the Company's current operations for at least the next 12 months.
NEW ACCOUNTING STANDARD
Statement of Financial Accounting Standards No. 123 ("SFAS 123"),
"Accounting for Stock-Based Compensation," establishes financial accounting and
reporting standards for stock-based compensation plans. SFAS 123 is effective
for fiscal years beginning after December 15, 1995 and includes fair value
recognition provisions for stock-based compensation which will be elective for
employee arrangements and required for nonemployee transactions. For the
employee arrangements, management will continue with the accounting prescribed
by APB No. 25 and, accordingly, will make pro forma disclosures of net income
and earnings per share as if the fair value method of accounting defined in
SFAS 123 has been applied. For the nonemployee arrangements, the Company does
not expect the adoption of SFAS 123 to have a material impact on the financial
statements.
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OTHER MATTERS
Jupiter's purchase of the assets of Polylok Corporation ("Polylok") which
comprises Wellington's Tarboro facility ("Tarboro") resulted in significant
litigation among Jupiter, Wellington, Polylok, and Daniel Duhl ("Duhl"),
Polylok's principal shareholder. The first action, which was settled in August
1994, involved assertions against Polylok and Duhl of misrepresentations made
in connection with the purchase of Polylok's assets. Subsequently, in March
1995, Polylok and Duhl commenced an action against Jupiter and Wellington,
which action asserted a breach of contract relating to installment payments due
Duhl pursuant to a $1,600,000 purchase money note. Jupiter and Wellington
filed counterclaims against Polylok and Duhl for breach of Duhl's consultancy
agreement and breach of the prior August 1994 settlement. On October 18, 1995,
the breach of contract claim asserted by Polylok and Duhl and the counter
claim by Jupiter and Wellington for breach of consultancy agreement and the
August 1994 settlement were resolved. On October 25, 1995, approximately
$541,000 was placed in an escrow account to settle all obligations for Mr.
Duhl's consultancy agreement.
In further litigation in the United States District Court, Eastern District of
North Carolina, Polylok Corporation and Polylok Finishing Corporation vs.
Jupiter National, Inc. and Wellington Sears Company, No. 4:95-CV-105-H(2),
Polylok and Duhl have taken legal action against Jupiter and Wellington
regarding withdrawal of monies set aside in an escrow account, from the August
1994 settlement, providing for remediation of environmental contamination at
the Tarboro plant. On January 5, 1995, the parties reached a settlement for
this case whereby Duhl received $296,000 from an escrow account.
At December 30, 1995, Wellington has accrued $1,610,000 as additional purchase
consideration in connection with Wellington's original purchase of assets from
WestPoint Pepperell, Inc. ("WestPoint"). The additional purchase price has
been allocated to property, plant, and equipment and was based upon Wellington
exceeding a cumulative earnings threshold, as defined by the purchase
agreement, during the three-year period ended November 28, 1995. While the
amount recorded by Wellington represents management's best estimate of
consideration owed, the amount is currently being disputed. Ultimately, the
disagreement may be settled through arbitration as provided by the purchase
agreement. The ultimate resolution of this matter could result in a payment of
an amount different from the accrued amount. Any adjustment to the accrual
will increase or decrease the purchase price allocated to property, plant, and
equipment.
The Company is periodically involved in legal proceedings arising out of the
ordinary conduct of business. Management does not expect that they will have
a material adverse effect on the Company's consolidated financial position or
results of operations.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's consolidated balance sheets as of December 30, 1995, June
30, 1995 and 1994, the related consolidated statements of operations,
stockholders' equity and cash flows for the six months ended December 30, 1995
and each of the three years in the period ended June 30, 1995, unaudited
consolidated statements of operations and cash flows for the six months ended
December 30, 1994, notes thereto and Independent Auditors' Report are
reproduced in Exhibit 13(a). Supplementary Data under the caption "Quarterly
Information" is reproduced in Exhibit 13(b).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF JOHNSTON INDUSTRIES, INC.
The Directors and Executive Officers of Johnston Industries, Inc. are as
follows:
DAVID L. CHANDLER has served as Chairman of the Board of Johnston
Industries, Inc. since 1981 and served as Chief Executive Officer from January
1990 until December 1, 1995. Mr. Chandler has been a Director since 1981. He
had also served as President of Johnston from January 1990 to October 1992.
Mr. Chandler is 69 years old. Mr. Chandler has been Chairman of the Board of
Redlaw Industries, Inc. ("Redlaw") (a former manufacturer of automotive and
transportation products) and its wholly-owned subsidiary, GRM Industries, Inc.,
which owns approximately 41% of the Common Shares of Johnston for more than
five years. He has been Chairman of the Board of Galtaco, Inc. (a former
ferrous casting products manufacturer) for more than five years. Mr. Chandler
is also Chairman of the Board and Chief Executive Office of Jupiter. On
October 27, 1994, Mr. Chandler, in an administrative proceeding, without
admitting or denying the findings or undertaking to pay any fine or penalty,
consented to the issuance of a cease and desist order and findings of the
Securities and Exchange Commission in connection with certain incorrect or late
filings of Forms 3, 4 and 5 and Schedules 13D required to be filed with respect
to Johnston and Redlaw. Under the order, Mr. Chandler may not commit or cause
any violation of Section 13(d) and 16(a) of the Securities Exchange Act of 1934
and Rules 13d-1, 13d-2, 16a-2 and 16a-3 promulgated thereunder.
GERALD B. ANDREWS has served as President and Chief Operating Officer
since October 1992 and since December 1, 1995, Mr. Andrews has served as Chief
Executive Officer. Mr. Andrews has been a Director since 1993. Prior to that
time, he had served in a variety of senior management positions at West Point
Pepperell, over a period of 38 years, most recently as Executive Vice President
of Merchandising. Mr. Andrews is 58 years old.
J. REID BINGHAM has been a Director of the Company since 1991. Mr.
Bingham has been a partner of Concepcion, Sexton, Bingham & Urdaneta (formerly
Bingham & Castilla) (attorneys) since May 1994. Prior to that time, he was a
partner of Kirkpatrick & Lockhart since 1989, prior thereto he was a partner of
Hughes, Hubbard & Reed since 1987, and prior thereto he was a partner of Sage,
Gray, Todd & Sims for more than five years. Mr. Bingham is 50 years old.
JOHN A. FRIEDMAN was elected as a Director on January 18, 1996. For the
past three years has been engaged in the private practice of law. Prior to his
entering private practice, he was a partner in the law firm of Kaye, Scholer,
Fierman, Hayes and Handler for 20 years. Mr. Friedman is 60 years old.
LARRY L. GALBRAITH has served as Executive Vice President of the Company
since November 1, 1992 and as President and Chief Executive Officer of Southern
Phenix since July 1989. Prior to that time he had served as Vice President for
engineering, purchasing and finishing at Southern Phenix for more than five
years. Mr. Galbraith is 56 years old.
ROGER J. GILMARTIN has served as Executive Vice President of the Company
since November 1, 1992 and as Chairman and Chief Executive Officer of Opp and
Micolas since January 1990. Prior to that time, Mr. Gilmartin was Senior
Vice President and Director for more than five years of Werner International,
Inc., management consultants to the textile industry. Mr. Gilmartin is 51
years old. Mr. Gilmartin has informed the Company of his plans to leave the
Company effective in mid April 1996.
WILLIAM J. HART has been a Director of the Company since 1981. He has
been a partner of Farrington & Curtis (attorneys) for more than five years.
Mr. Hart is 55 years old.
WILLIAM I. HENRY has served as Vice President of Product and Operations
Planning since January 1, 1993, and for more than five years prior had served
as Vice President, Operations of Southern Phenix. Mr. Henry is 56 years old.
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<PAGE> 27
L. ALLEN HINKLE has been President and Chief Operating Officer of
Wellington Sears since its formation in November 1992. Prior to that he was
the Vice President of Manufacturing of the Custom Fabrics Division of West
Point Pepperell and was promoted to the Position of President of that same
Division. Mr. Hinkle is 52 years old.
GAINES R. JEFFCOAT has been a director of the Company since 1986. Prior
to Mr. Jeffcoat's retirement on June 30, 1990, he had served as Vice President
of the Company since January 1, 1988 and as Chairman of the Board of Opp and
Micolas, a subsidiary of the Company, from January 1, 1988 to December 31,
1989. He was President of Opp and Micolas for more than five years prior to
that time. Mr. Jeffcoat is a Director of Jupiter. Mr. Jeffcoat is 73 years
old.
JOHN W. JOHNSON has served as Vice President and Chief Financial Officer
since September 1, 1994. Mr. Johnson had been Treasurer and Secretary of the
Company from January 1, 1992 until September 1, 1994. From July 1991 to
December 1991 he was Assistant Secretary-Treasurer of the Company and for more
than five years prior was Vice President, Finance of Southern Phenix. Mr.
Johnson is 59 years old.
C.J. KJORLIEN has been a Director of the Company since 1989. Mr. Kjorlien
is a director of Fieldcrest Cannon, Inc., of Service America Corp. (a food
service company), and of Jupiter. From June 1974 to May 1989, he was a
director of West Point Pepperell, Inc. (a textile manufacturer). For five
years prior to December 1986 he was President and Chief Operating Officer of
West Point Pepperell, Inc. Mr. Kjorlien is 79 years old.
CHARLES F. FAZIO has served as Vice President of International Sales since
March 1995. Prior to that time, he had served in a variety of international
sales positions with several textile companies, most recently for more than
five years as Vice President International Products Division, Bibb Company. Mr.
Fazio is 51 years old.
F. FERRELL WALTON has served as Secretary and Treasurer since September 1,
1994. Mr. Walton had been Director of Financial Operations for the Company from
April 1, 1993 to September 1, 1994 and for more than five years prior to that
time was Vice President, Finance of Opp and Micolas. Mr. Walton is 51 years
old.
The Directors of Johnston Industries, Inc. are elected for a one year term
by the Company's Stockholders at the Annual Meeting of Stockholders. The
officers of Johnston Industries, Inc. are elected for a one year term by the
Board of Directors at the Annual Meeting of the Board held following the Annual
Meeting of Stockholders.
Section 16(a) of the Securities Exchange act of 1934 requires the
Company's Directors and Executive Officers, and persons who beneficially own
more than 10% of the Company's Common Stock, to file with the Commission and
the NYSE, reports of beneficial ownership and changes in beneficial ownership
of Common Stock. Officers, Directors and greater than 10% stockholders are
required by Commission regulations to furnish the Company with copies of all
Section 16(a) forms they file. Based solely on a review of the copies of such
reports furnished to the Company or written representations that no other
reports were required, the Company believes that, during the transition period
ended December 30, 1995, all filing requirements applicable to its Directors,
Executive Officers and 10% stockholders were fully complied with.
27
<PAGE> 28
ITEM 11. EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION AND RELATED MATTERS
The following table sets forth information concerning the compensation for
the Company's transition period and its last three completed fiscal years with
respect to its chief executive officer and the four other most highly
compensated executive officers, ("Named Executive Officers") who served as such
at December 30, 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------- ---------------
NAME AND OTHER ANNUAL ALL OTHER
PRINCIPAL POSITION PERIOD (1) SALARY BONUS COMPENSATION OPTIONS/SAR'S COMPENSATION (2)
- ---------------------------- ----------- -------- ------- ------------ --------------- --------------------
<C> <C> <C> <C> <C> <C> <C>
David L. Chandler (3) SY 1995 $272,500 -- -- -- $100,856
Chairman of the Board (4) FY 1995 467,500 213,000 46,138 (5) 44,444 118,391
FY 1994 390,000 176,788 47,296 (5) -- 12,718
FY 1993 390,000 135,758 48,449 (5) -- --
Gerald B. Andrews SY 1995 185,000 -- -- -- 14,161
President, Chief Executive FY 1995 370,000 200,000 -- -- 15,306
Officer and Chief Operating FY 1994 361,945 185,000 -- -- 3,321
Officer FY 1993 256,572 105,000 -- 150,000 sh (6) 666
Roger J. Gilmartin SY 1995 148,750 -- -- -- 7,486
Executive Vice President; FY 1995 285,000 138,053 -- -- 7,761
Chairman of Opp and FY 1994 285,000 142,643 -- -- 1,514
Micolas Mills FY 1993 260,000 94,000 -- 63,750 sh (6) 924
Larry L. Galbraith SY 1995 122,500 -- -- -- 9,496
Executive Vice President; FY 1995 245,000 35,648 -- -- 15,561
President of Southern FY 1994 235,000 55,695 -- -- 3,297
Phenix Textiles FY 1993 235,000 23,500 -- -- 255
L. Allen Hinkle SY 1995 100,000 27,528 -- -- --
President and (7) FY 1995 100,000 25,850 -- -- --
Chief Operating Officer FY 1994 -- -- -- -- --
Wellington Sears Company (8) FY 1993 -- -- -- -- --
</TABLE>
(1) The Company has changed its year end from June 30 to the Saturday closest
to December 31 effective for the period ended December 31, 1995. Periods
shown as SY 1995 refer to the six months ended December 30, 1995. Periods
using FY refer to fiscal years ended June 30 of the period indicated.
(2) Except as described herein, all payments relate to the stock purchase plan
described below under the heading Stock Purchase Plan. All other
compensation for SY95 also includes $18,000 representing a partial payment
of premiums under a "split dollar" life insurance program. Such program
was terminated as of December 30, 1995.
(3) Mr. Chandler also received compensation for his services as Chief
Executive Officer of Jupiter, which became a majority owned subsidiary of
the Company during January 1995. Accordingly, the amounts shown in the
table for SY 1995 include compensation paid to Mr. Chandler by Jupiter
for the six months ended December 30, 1995, as follows: salary of $77,500
and all other compensation of $37,500 contributed by Jupiter to a
deferred compensation trust in which Mr. Chandler is the sole participant.
Because Jupiter was not a subsidiary of the Company prior to January
1995, the table does not reflect compensation paid to Mr. Chandler by
Jupiter during those periods.
28
<PAGE> 29
(4) Mr. Chandler also received compensation for his services as Chief
Executive Officer of Jupiter, which became a majority owned subsidiary of
the Company during January 1995. Accordingly, the amounts shown in the
table for fiscal 1995 include compensation paid to Mr. Chandler by
Jupiter for the six months ended June 30, 1995, as follows: salary of
$77,500; bonus of $25,000; 44,444 shares underlying options grants; and
all other compensation of $37,500 contributed by Jupiter to a deferred
compensation trust in which Mr. Chandler is the sole participant. Because
Jupiter was not a subsidiary of the Company prior to January 1995, the
table does not reflect compensation paid to Mr. Chandler by Jupiter
during those periods.
(5) Present value of consulting payments as described below under the heading
Employment Agreements.
(6) Option awards.
(7) Mr. Hinkle is deemed to have become an executive officer of the Company
upon the Company's acquisition of majority ownership of Jupiter in January
1995. Amounts shown for FY 1995 represent only that compensation beyond
December 31, 1994.
(8) Wellington Sears Company was a majority owned subsidiary of the Company
at December 30, 1995 and became a wholly owned indirect subsidiary on
March 28, 1996.
STOCK INCENTIVE PLAN
GENERAL. The Amended and Restated Stock Incentive Plan for Key Employees
of Johnston Industries, Inc. and its Subsidiaries (the "Incentive Plan"),
approved by shareholders in December 1988, authorizes the grant of awards in
the form of Incentive Stock Options ("ISO's"), within the meaning of Section
422A of the Internal Revenue Code of 1986, as amended (the "Code"),
Non-Qualified Stock Options ("NQSO's"), Stock Appreciation Rights ("SAR's"),
Restricted Stock or a combination of these forms of awards. All officers and
key employees of the Company and its subsidiaries who are in positions which
enable them to make significant contributions to the long-term performance and
growth of the Company are eligible to receive awards. The Incentive Plan is
administered by the Stock Option Committee (the "Committee") of the Board of
Directors. Members of the Committee are not eligible to participate.
INCENTIVE STOCK OPTIONS. The exercise price of an ISO may not be less than
100% of the fair market value on the date of the grant and the aggregate
exercise price of all shares that become exercisable by an individual optionee
in a single calendar year for options granted after January 1, 1987 may not
exceed $100,000, plus any unused limit carryover to such year within the
meaning of Section 422A of the Code. Additional restrictions apply to ISO's
granted to a 10 percent stockholder (as defined in Section 422A(b)(6) of the
Code). An ISO may be exercised in whole or in part throughout the period of the
ISO with the exercise price to be paid in cash or in such alternate form as the
Committee may authorize. An ISO terminates upon termination of the optionee's
employment, subject, in the case of termination of employment by reason of
death or disability, to the right to exercise within 12 months after such
termination, unless the expiration date of the ISO occurs sooner.
NON-QUALIFIED STOCK OPTIONS. NQSO's granted under the Incentive Plan (a)
may be for such (i) number of shares, (ii) purchase price and (iii) term (up to
10 years) as the Committee, in its sole discretion, may determine and (b)
become exercisable six months after date of grant (or later if the Committee so
determines). An NQSO terminates upon termination of the optionee's employment,
unless the Committee in its sole discretion determines otherwise, subject in
the case of termination by reason of retirement at or after age 65, disability,
or death, to the right to exercise within three months after retirement or
disability or one year after death, unless the expiration date of the NQSO
occurs sooner.
29
<PAGE> 30
STOCK APPRECIATION RIGHTS. Pursuant to the terms of the Incentive Plan,
SAR's are granted only (i) in conjunction with the granting of options, (ii) in
an amount not in excess of the number of Shares granted in the related option
and (iii) on terms providing that the exercise of an option for a given number
of Shares terminates the related SAR for that number of Shares (so that the
total number of Shares for which an option and the related SAR may be exercised
cannot exceed the number of Shares granted in the option). SAR's provide the
participant with an amount equal to the difference between the fair market
value of the Shares on the date the SAR is exercised and the exercise price of
the option. Each SAR is subject to the same conditions on termination of
employment as the related option.
RESTRICTED STOCK. The Committee may make awards entitling the recipient to
receive shares at no out-of-pocket costs or at such price as the Committee
determines, the shares purchased to be subject to the restrictions set by the
Committee and which lapse or may be waived as determined by it.
The following table provides information concerning options granted,
options exercised, and year-end option values for the transition period with
respect to the Company's Named Executive Officers.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
No options nor SAR's were granted by Johnston or Jupiter during the
transition period ended December 30, 1995 to the Company's Named Executive
Officers.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND SY-END
OPTION/SAR VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY
SHARES ACQUIRED VALUE OPTIONS/SAR/S AT SY-END OPTIONS/SAR'S AT SY-END
NAME ON EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ---- --------------- -------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
David L. Chandler
Company Options -- -- 180,000/0 $462,600/$0
Jupiter Options -- -- 144,444/0 (1) $2,384,966/$0
Gerald B. Andrews
Company Options -- -- 150,000/0 $181,200/$0
Jupiter Options -- -- -- --
Roger J. Gilmartin
Company Options -- -- 48,750/15,000 --
Jupiter Options -- -- -- --
</TABLE>
(1) The Board of Directors initially authorized a transaction whereby, upon
completion of the proposed merger between Johnston and Jupiter , Mr.
Chandler was to be able to choose to forego receiving the difference
between the exercise price of his Jupiter options and the purchase price
of $32.50 for shares of Jupiter common stock specified in the Merger
Agreement, and in return would receive options to purchase Johnston common
stock equivalent in value to 74,444 of his Jupiter options as well as a
cash payment of $2,616,487.73 (sufficient to provide Mr. Chandler with
$30.00 per share after taxes for each of his remaining 70,000 options). If
the merger was not consummated, for any reason whatsoever, the Board had
approved the possible purchase of up to 70,000 shares of Jupiter common
stock from Mr. Chandler at a purchase price of $30.00 per share. Such
arrangements were modified subsequent to year end. For a description of
the current arrangements between the Company and Mr. Chandler concerning
his employment agreement with Jupiter and his Jupiter stock options, see
Employment Agreements below under Item 11 Executive Compensation.
30
<PAGE> 31
STOCK PURCHASE PLAN
The Company has a stock purchase plan (the "Plan") under which the Company
may assist selected key employees and directors of the Company and its
subsidiaries in the purchase of shares of its Common Stock; as amended by the
Board to date, an aggregate of 976,284 shares are covered by the Plan. The Plan
is administered by a committee of directors (members of which are not eligible
to participate in the Plan while serving on the committee).
The committee determines the eligible key employees and directors who will
be granted participation in the Plan, the number of shares which a participant
may purchase, the purchase price thereof, the manner in which such purchase
will be effected, any provisions for loans to be arranged to enable Plan
participants to pay for their shares, any provisions for the payment of cash
bonuses to reimburse Plan participants for any interest payable on their loans
not covered by the dividends paid on their shares, any provisions for Company
guarantee of such loans, and other terms and conditions consistent with the
provisions of the Plan.
The Plan authorizes the Company to guarantee loans arranged by the
committee for the purchase of shares under the Plan up to a maximum of
$9,000,000 in aggregate outstanding principal amount of loans.
The shares purchased may consist of authorized but unissued shares, or
treasury shares, or shares purchased in the open market on behalf of the
participants under arrangements approved by the committee.
The Company has furnished the participants with guarantees of loans for
the purchase price of the shares (which bear interest at rates of 1/2% under or
1/2% above the prime lending rate of the lending bank).
The committee also authorized the payment of additional compensation to
the Plan participants who have purchased the 976,284 shares in the form of
quarterly cash bonuses in amounts that will equal the excess of the interest
payable on their loans over the dividends paid on their shares. Under the terms
of the stock purchase agreements entered into between the Plan participants and
the Company, the Company's obligation to pay such cash bonuses terminates upon
the termination of employment of the Plan participant by the Company or any of
its subsidiaries for any reason.
The Plan is neither qualified under Section 401(a) of the Internal Revenue
Code of 1986 nor subject to the provisions of the Employee Retirement Income
Security Act of 1974.
The amount of any cash bonus received under the Plan must be treated as
compensation income by the employee and the Company will be entitled to a
corresponding tax deduction in the same amount which the employee is required
to treat as compensation income (subject to appropriate withholding of taxes).
HOURLY EMPLOYEES' PENSION PLAN
The Company maintains a non-contributory Hourly Employees' Pension Plan
(the "Hourly Plan") which covers substantially all hourly employees who have
been employed on a full-time basis for at least one year. An employee may elect
to receive distribution of benefits under the Hourly Plan upon retirement in
one of several annuity forms including single life, ten years certain and life
or joint and survivor. Effective July 1, 1989, accrued benefits under this plan
become vested proportionately (20% per year) after an employee has been
credited with three years of service under the Pension Plan. Employees attain
100% vesting of accrued benefits after seven years of credited service.
If an employee participates in the Hourly Plan until normal retirement
date (age 65, 66 or 67, based on the year of birth), and, if he elects to
receive his distribution in the form of a single life annuity, the amount of
the annual benefit upon retirement will be the sum of (a) and (b), where (a) is
$96 times the number of years of service to 1992 and (b) is $192 times the
number of years of service thereafter. The Hourly Plan provides that if an
employee's employment terminates prior to normal retirement date, payments at
normal retirement date will be reduced to reflect the early termination of his
employment; if his employment terminates later than normal retirement date,
payments will be equal to the benefits which are actuarially equivalent to the
benefits otherwise payable at normal retirement date, but not less than the
accrued benefit determined at date of retirement; and if he elects a method of
distribution of benefits other than a single life annuity, payments will be
adjusted to provide benefits which are actuarially equivalent to the benefits
to which he would be entitled if he had elected the single life annuity method.
31
<PAGE> 32
SALARIED EMPLOYEES' PENSION PLAN
The Company maintains a non-contributory Salaried Employees' Pension Plan
(the "Pension Plan") which covers substantially all salaried employees who have
been employed on a full-time basis for at least one year. An employee may elect
to receive distribution of benefits under the Pension Plan upon retirement in
one of several annuity forms, including single life, ten years certain and life
or joint and survivor. Effective July 1, 1987, accrued benefits under this plan
become vested proportionately (20% per year) after an employee has been
credited with three years of service under the Pension Plan. Employees attain
100% vesting of accrued benefits after seven years of credited service.
If an employee participates in the Pension Plan until normal retirement
date (age 65, 66 or 67, based on the year of birth), and, if he elects to
receive his distribution in the form of a single life annuity, the amount of
his annual benefit upon retirement will be the sum of (a) and (b), where (a) is
36% (assuming 20 or more years of service) of average annual earnings and (b)
is 26.25% (assuming 35 or more years of service) of the net amount of average
annual earnings less Social Security average wages. (Average annual earnings
means the annual average of the employee's earnings for the ten highest
consecutive calendar years of benefit service immediately preceding his normal
retirement date. Social Security average wages means the average of the
maximum amount of wages subject to Social Security tax for the 35 years
preceding the participant's Social Security normal retirement date.) The
maximum annualized benefit is $120,000 at normal retirement date for
participants whose normal retirement dates fall during the plan year ending
December 31, 1995.
The following table sets forth the estimated annual normal retirement
benefits (assuming Social Security Average wages of $45,000 per year) for
various combinations of preretirement remuneration and years of benefit
service:
<TABLE>
<CAPTION>
YEARS OF BENEFIT SERVICE
AVERAGE ANNUAL SALARY ------------------------
LAST 10 YEARS
(OR LESS WHERE APPLICABLE) 5 10 15 20 25 30 35
- -------------------------- - -- -- -- -- -- --
<S> <C> <C> <C> <C> <C> <C> <C>
125,000 14,250 28,500 42,750 57,000 60,000 63,000 66,000
175,000 17,438 34,875 52,313 69,750 73,688 77,625 81,563
225,000 17,438 34,875 52,313 69,750 73,688 77,625 81,563
275,000 17,438 34,875 52,313 69,750 73,688 77,625 81,563
325,000 17,438 34,875 52,313 69,750 73,688 77,625 81,563
375,000 17,438 34,875 52,313 69,750 73,688 77,625 81,563
425,000 17,438 34,875 52,313 69,750 73,688 77,625 81,563
475,000 17,438 34,875 52,313 69,750 73,688 77,625 81,563
525,000 17,438 34,875 52,313 69,750 73,688 77,625 81,563
575,000 17,438 34,875 52,313 69,750 73,688 77,625 81,563
</TABLE>
The years of benefit service under the plan as of December 31, 1995, for
Messrs. Galbraith, Chandler, Gilmartin, Andrews and Hinkle were 24, 22, 5, 3
and 0, respectively.
The Pension Plan provides that if an employee's employment terminates
prior to normal retirement date, payments at normal retirement date will be
reduced to reflect the early termination of his employment; if his employment
terminates later than normal retirement date, payments will be adjusted to
provide benefits which are actuarially equivalent to the benefits otherwise
payable at the normal retirement date, but not less than the accrued benefit
determined at date of retirement; and if he elects a method of distribution of
benefits other than a single life annuity, payments will be adjusted to provide
benefits which are actuarially equivalent to the benefits to which he would be
entitled if he had elected the single life annuity method.
32
<PAGE> 33
EXECUTIVE INSURANCE PLAN
The Company has maintained a contributory Executive Insurance Plan (the
"Executive Plan") covering selected executives of the Company and its
subsidiaries, administered by an Administrative Committee consisting of the
Chief Executive Officer, the Vice President/Finance and the Secretary/Treasurer
and providing for life insurance coverage of participants in the Executive Plan
in an amount equal to approximately three times annual compensation up to a
maximum annual salary of $100,000.
The Executive Plan provides for benefits to the executive or his
beneficiaries in the event of death before retirement, termination of
employment, disability, termination of the Executive Plan or retirement. The
Company is reimbursed for all premiums paid if the executive dies prior to
retirement or if such policy is fully assigned to the executive.
In January 1989, the Company determined to "freeze" the Executive Plan by
neither extending benefits to persons not already participants nor changing the
coverage for those persons who were already participants. It was also
determined to commence benefits for participants at age 65 with the
participants to elect either to purchase the insurance contract at age 65 or
take payout of their benefits over a 10-year certain period commencing at that
age. Participants who had already reached age 65 received payments equivalent
to the amounts they would have received had their payments begun at age 65.
EMPLOYMENT AGREEMENTS
The Company has an employment agreement with Mr. Chandler which continues
until December 31, 1996. The agreement commits Mr. Chandler to serve as chief
executive officer and entitles him to a base salary of not less than $350,000,
an annual bonus equal to 1 1/2% of consolidated pre-tax earnings (as defined in
the agreement and net of any consolidated pretax losses for prior years) and,
upon the conclusion of his employment, to a monthly consultancy fee of $8,333
for a term equal to the number of months of his employment under the new
agreement from January 1, 1990 forward. The agreement permits Mr. Chandler to
terminate his employment under it at any time on six months' notice and gives
him the option to terminate his employment within 30 days of the Company's
merger or consolidation with or sale of all its assets to another company.
The Company and Mr. Chandler are also parties to an agreement with a
trustee bank establishing a trust to which payments on account of bonus and
consultancy fees may be made. At the option of the Company (whose authority in
this regard has been delegated by the Board of Directors to a committee of
Messrs. Hart, Jeffcoat and Kjorlien) it may make the quarterly estimated bonus
payment to the trust rather than to Mr. Chandler directly and may satisfy its
obligations with respect to future consultancy fees by paying to the trust
quarterly their current actuarial equivalent.
Jupiter has entered into an employment agreement with Mr. Chandler
providing for his continued employment as a senior executive of Jupiter until
December 31, 1996. Under his employment agreement, Mr. Chandler is entitled to
receive an annual salary of at least $125,000, plus such bonuses or other
compensation as Jupiter may determine. At the conclusion of his employment, Mr.
Chandler is also entitled to receive a consulting fee of $6,250 per month until
the earlier of (i) the completion of a term equal to the number of months
during which he was employed by Jupiter under the employment agreement
(beginning with January 1991), or (ii) his death. In the event that Mr.
Chandler dies prior to the completion of the term described in clause (i) of
the preceding sentence, his wife will be entitled to receive $3,125 per month
for that period.
The Company has entered into an agreement with Mr. Chandler pursuant to which,
upon the effectiveness of the acquisition of the minority interest in Jupiter
by the Company, the employment agreement between Jupiter and Mr. Chandler was
terminated and in lieu of a cash payment of $2,616,487.73 to be made to Mr.
Chandler in satisfaction of his Jupiter stock options and in settlement of his
Jupiter employment agreement, the Company agreed to: (i) make a lump sum
payment to Mr. Chandler of approximately $407,598, (ii) convert respectively
70,000 and 30,000 Jupiter incentive stock options held by Mr. Chandler into
options to purchase 287,360 and 123,154 shares of the Common Stock of the
Company, (iii) convert 44,444 Jupiter non-qualified stock options into options
to purchase 99,816 shares of Common stock with an exercise price of $2.50 per
share and (iv) repurchase of $2,150,000 worth of Common Stock (259,819 shares)
from GRM, $300,000 of such amount was paid at the time of the agreement. The
number of new shares issuable pursuant to options was based on an exchange
ratio equal to $33.97 divided by the average market price of the Company's
Common Stock for a five day period, the midpoint of which was the date of the
Jupiter merger; which was the same price at which Common stock was repurchased
from GRM. The amount of the lump sum to be paid to Mr. Chandler was equal to
the present value (based on a discount rate of 7.5%) of the remaining salary
and consulting fees which Mr. Chandler would otherwise have been entitled to
receive under the terms of the employment agreement. Under the agreement, the
Jupiter stock options held by Mr. Chandler became options to acquire Johnston
Common Stock subject to the same terms and conditions except that (x) the
incentive options became exerciseable for that number of shares of the
Company's common stock equal to the number of shares of Jupiter common stock
covered by the Jupiter stock options multiplied by the exchange ratio, and (y)
the per share exercise for the shares of common stock issuable upon exercise of
the options will be the exercise price for the Jupiter stock options divided by
the exchange ratio. The number of shares issuable pursuant to conversion of
non-qualified stock options and the exercise price thereof are, in each case,
less than the number that would have been received by application of the
Exchange Ratio as described above, although such arrangement is intended to
result in the same total "spread" Mr. Chandler would have received, based on
the Exchange Ratio. See Certain Relationships and Related Transactions.
33
<PAGE> 34
Mr. Andrews' employment agreement provides for his employment as President
of the Company until October 1996. He is entitled to a base salary of not less
than $280,000, to payments to a deferred benefit trust of $70,000 minimum each
year and to annual incentive compensation in accordance with the terms of an
incentive compensation plan--which may also be paid into the deferred benefit
trust.
Mr. Gilmartin's employment agreement provides for his employment as
Chairman and Chief Executive Officer of Opp and Micolas Mills, Inc. until
December 31, 1998 and entitles him to a base salary of not less than $285,000 a
year and such additional compensation as is determined by the Chief Executive
Officer.
Mr. Galbraith's employment agreement provides for his employment as
President and Chief Executive Officer of Southern Phenix Textiles, Inc. until
June 30, 1998, and entitles him to a base salary of not less than $245,000 a
year and such additional compensation as is determined by the Chief Executive
Officer.
Mr. Hinkle's employment agreement provides for his employment as President
and Chief Operating Officer of Wellington Sears Company until July 25, 1998.
The employment agreement provides for successive one year renewal terms
thereafter and entitles Mr. Hinkle to a base salary of not less than $200,000 a
year and such additional compensation as is determined by the Chief Executive
Officer.
In connection with the execution of the Merger Agreement, Jupiter,
Wellington Sears and GWI entered into a termination agreement with Rainer H.
Bosselmann pursuant to which Mr. Bosselmann resigned, effective August 16,
1995, as an officer and director of those companies, and Johnston entered into
a severance agreement whereby Mr. Bosselmann resigned, effective August 16,
1995, as an officer and director of Johnston and its affiliates. Pursuant to
the termination agreement, Jupiter paid Mr. Bosselmann a lump sum severance
payment of $250,000. The termination agreement also provides that, upon
consummation of the Merger, any unexercised stock options held by Mr.
Bosselmann will be canceled in exchange for a cash payment equal to the excess
of the Merger Consideration over the option exercise price. In addition, under
the termination agreement, Mr. Bosselmann will continue to be employed by
Jupiter at an annual salary of $25,000 and will remain eligible for benefits
for a period for one year from the date of his resignation. Under the severance
agreement with Johnston and its affiliates, Mr. Bosselmann received a lump sum
severance payment of $75,000, and agreed to various standstill provisions for a
period of eighteen months following the agreement.
DIRECTORS' COMPENSATION
All directors are reimbursed for expenses incurred in attending Board and
committee meetings. Each Director and Executive Committee Member who is not an
officer of, or a consultant to, the Company receives a Director's fee of
$12,000 per year plus $1,000 for each Board or Committee meeting attended
during the fiscal year.
34
<PAGE> 35
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of March 22, 1995, certain information
with respect to each person (other than directors and executive officers) who,
to the knowledge of the Company, may be deemed the beneficial owner of more
than 5% of the shares of Company's outstanding common stock (the "Johnston
Shares"), its only class of equity securities. Unless otherwise indicated,
these shareholders have sole dispositive and voting power for their respective
shares as shown below:
<TABLE>
<CAPTION>
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER OF SHARES BENEFICIALLY OWNED PERCENT OF CLASS
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Redlaw Industries, Inc. (1) 4,249,368 40.1%
174 Stanley Street Brantford, Ontario Canada N3S 7S3
Dimensional Fund Advisors, Inc. (2) 689,773 6.5%
1299 Ocean Avenue Santa Monica, California 90401
</TABLE>
(1) These Johnston Shares are owned by GRM Industries, Inc., a Tennessee
corporation and wholly-owned subsidiary of Redlaw. Redlaw is a holding
company incorporated in Ontario, Canada, and its stock is traded on the
American Stock Exchange. Galtaco, a holding company incorporated in
Ontario, Canada, owns approximately 8.0% of the outstanding shares of
common stock of Redlaw (40.6% if Galtaco were to exercise its warrants to
acquire Redlaw shares). Galtaco's stock is traded on the Toronto Stock
Exchange. David L. Chandler, Chairman and Chief Executive Officer of the
Company, owns approximately 35.9% of the outstanding stock of Redlaw and
may be deemed to be the beneficial owner of the Shares owned by Redlaw.
(2) The following information is based on a Schedule 13G dated as of February
7, 1996. Dimensional Fund Advisors, Inc. ("Dimensional") reports it has
sole voting and dispositive power with respect to 449,786 shares of Common
Stock and sole dispositive power with respect to an additional 239,987
shares of Common Stock, in each case, as of December 31, 1995.
Dimensional reports it is a registered investment advisor and that all
such shares are held in portfolios of DFA Investment Dimensions Group,
Inc., a registered open-end investment company, or in a series of the DFA
Investment Trust Company, a Delaware business trust, or the DFA Group
Trust and DFA Participation Group Trust, investment vehicles for qualified
employee benefit plans, all of which Dimensional serves as investment
manager. Dimensional disclaims beneficial ownership of all such shares.
The following table sets forth, as of March 22, 1995, with respect to the
beneficial ownership of shares of common stock of the Company by each director
of the Company, by each Named Executive Officer, and by all directors and
executive officers of the Company as a group.
<TABLE>
<CAPTION>
JOHNSTON COMMON STOCK
------------------------------------
NUMBER OF SHARES
NAME OWNED BENEFICIALLY PERCENT OF CLASS
- -------------------- ------------------ ----------------
<C> <C> <C>
Gerald B. Andrews 232,525 (1) 02.2%
J. Reid Bingham 10,500 *
David L. Chandler 4,747,943 (2) 44.8%
Larry L. Galbraith 78,338 *
Roger J. Gilmartin 98,250 (3) *
William J. Hart 18,007 *
Gaines R. Jeffcoat 26,434 *
John W. Johnston 62,889 --
C.J. Kjorlien 47,075 *
All directors and
executive officers
as a group
(Fourteen Persons) 5,431,191 (4) 51.3%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
* Less than 1%.
35
<PAGE> 36
(1) Of the Johnston Shares held by Mr. Andrews 150,000 Shares are subject to
stock options.
(2) Includes Johnston Shares owned by Redlaw and its wholly owned subsidiary
GRM Industries, Inc., as set forth in the preceding table. Mr. Chandler
may be deemed to be a beneficial owner of those Shares by virtue of his
relationship with Redlaw as set forth in Note 1 of the preceding table. Of
the Johnston Shares held by Mr. Chandler, 180,000 Shares are subject to
stock options.
(3) 63,760 shares issuable pursuant to options exercisable within 60 days.
(4) 393,750 shares issuable pursuant to options exercisable within 60 days.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Johnston and Jupiter (or certain of their respective subsidiaries) have
entered into a number of joint arrangements and transactions. Wellington Sears
received approximately $623,000 and $715,000 from Johnston for finishing
services rendered to Opp and Micolas and Southern Phenix during the six months
ended December 30, 1995, and the year ended June 30, 1995 respectively. In
addition, Wellington Sears paid approximately $1,019,000 and $1,718,000 to
Johnston to purchase cloth and raw materials and administrative and credit
services from Johnston during the six months ended December 30, 1995, and the
year ended June 30, 1995 respectively. Wellington Sears' trade receivables
from Johnston were approximately $167,000 and $146,000 respectively, at
December 30, 1995 and June 30, 1995. Amounts payable to Johnston by Wellington
Sears at December 30, 1995 and June 30, 1995 were approximately $555,000 and
$116,000 respectively.
Redlaw acts as a Canadian Broker and/or distributor for a number of
subsidiaries of both Johnston and Jupiter and, in that capacity, earns
commissions from the Company. Redlaw received approximate commissions for sales
into Canada as follows:
<TABLE>
<CAPTION>
AFFILIATE SY 1995 FY 1995
- ---------------------- ------- -------
<S> <C> <C>
Johnston Subsidiaries:
Southern Phenix $37,301 $80,010
Opp and Micolas 3,261 13,510
JICR 5,353 6,225
Jupiter Subsidiaries:
Wellington Sears 29,613 52,590
</TABLE>
For a description of the agreement between the Company and Mr. Chandler
concerning his employment agreement with Jupiter and his Jupiter stock options
and the repurchase of shares from GRM, see Item 11 Executive Compensation.
36
<PAGE> 37
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a)(1) Consolidated Financial Statements
The consolidated financial statements are filed herewith within Exhibit
13(a), as provided in Item 8 hereof:
- Consolidated Balance Sheets as of December 30, 1995, June 30, 1995
and 1994.
- Consolidated Statements of Operations for the six months ended
December 30, 1995 and the fiscal years ended June 30, 1995, 1994 and
1993, and (Unaudited) Consolidated Statement of Operations for the
six months ended December 31, 1994.
- Consolidated Statements of Stockholders' Equity for the six months
ended December 30, 1995 and the fiscal years ended June 30, 1995,
1994, and 1993.
- Consolidated Statements of Cash Flows for the six months ended
December 30, 1995 and for the fiscal years ended June 30, 1995, 1994
and 1993, and (Unaudited) Consolidated Statement of Cash Flows for
the six months ended December 31, 1994.
- Notes to Consolidated Financial Statements.
(a)(2) Financial Statement Schedules
The following report and consolidated financial statement schedules
are filed herewith as Exhibit 13(a).
- Independent Auditors' Report
- Schedule I - Condensed Financial Information of Registrant
- Schedule II - Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission
have been omitted because such schedules are not required under the
related instructions or are inapplicable or because the information
required is included in the Consolidated Financial Statements or
notes thereto.
(a)(3) Reports on Form 8-K
There were no reports on Form 8-K during the last quarter of the
transition period ended December 30, 1995.
(a)(4) Listing of Exhibits
The exhibits listed below are filed with or incorporated by reference
into this annual report on Form 10-K.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- -----------------------------------------------------------
<S> <C> <C>
3.1(a) Certificate of Incorporation of Registrant(7).
</TABLE>
37
<PAGE> 38
(b) Certificate of Amendment of Registrant's
Certificate of Incorporation dated December 20,
1993(7).
3.2 By-Laws of Registrant(7).
10.2 Third Amended and Restated Credit and Security
Agreement dated as of January 31, 1995 among
Johnston Industries, Inc., Southern Phenix
Textiles, Inc., Opp and Micolas Mills, Inc.,
The Chase Manhattan Bank, N. A., NationsBank of
North Carolina, N. A. and Comerica Bank [Exhibit
10](6).
+10.3 Registrant's Executive Insurance Plan, as amended
and restated effective May 21, 1984(7).
+10.4 Letter to Participants dated March 1, 1989 in
Registrant's Executive Insurance Plan setting
forth revisions thereto [Exhibit 10.3(b)](7).
+10.5 Registrant's Salaried Employees, Pension Plan,
as amended and restated effective July 1 1989
[Exhibit 10.4](2).
+10.6 Amended and Restated Stock Incentive Plan for
Key Employees of the Registrant and its
Subsidiaries(7).
+10.7 Employee Stock Purchase Plan effective October
15, 1990 (with 1991 and 1992 amendments)
[Exhibit 10.5(b)(i)](3).
+10.8 Amendment dated October 29, 1992 to Employee
Stock Purchase Plan [Exhibit 10.5(b)(ii)](4).
+10.9 Amendment dated December 17, 1993 to Employee
Stock Purchase Plan [Exhibit 10.9(b)(iii)](7).
+10.10 Amendment dated January 24, 1995 to Employee
Stock Purchase Plan [Exhibit 10.9(b)(iii)](7).
+10.11 Employment Agreement with Gerald B. Andrews dated
as of October 17, 1992 [Exhibit 10.6(b)](4).
+11.12 Employment Agreement with David L. Chandler
effective as of January 1, 1990 [Exhibit 10.6(d)
(1)](3).
+10.13 Trust Agreement dated as of February 12, 1991,
with Chemical Bank & Trust Company and David L.
Chandler [Exhibit 10.6(d)(2)](3).
+10.14 Employment Agreement with Roger J. Gilmartin
dated April 22, 1993 [Exhibit 10.6(d)](4)
+10.16 Employment Agreement with W. I. Henry dated as
of January 1, 1993 [Exhibit 10.6(f)](4).
+10.17 Employment Agreement with John W. Johnson dated
January 27, 1993 [Exhibit 10.6(g)](4).
38
<PAGE> 39
+10.18 Johnston Industries, Inc. Deferred Payment Plan
Trust Agreement dated as of October 17, 1992
with First Alabama Bank & Trust Company [Exhibit
10.7](4).
+10.19 Employment Agreement with Larry L. Galbraith
dated May 31, 1995.
+10.20 Employment Agreement with L. Allen Hinkle dated
May 26, 1995.
10.21 Agreement and Plan of Merger, dated August 16,
1995, among and between Johnston Industries,
Inc., JI Acquisition Corp., and Jupiter
National, Inc. [Exhibit 99.3](8).
10.22 Bank Credit Agreement among Johnston Industries,
Inc., Wellington Sears Company, Southern Phenix
Textiles, Inc., Opp and Micolas Mills, Inc.,
Johnston Industries Composite Reinforcements,
Inc., T.J. Beall Company and the banks named
therein, The Chase Manhattan Bank, N.A as
Administrative Agent, Chase Securities, Inc. as
Arranger, and Nationsbank, N.A. as Syndication
Agent.
11 Statement of Computation of Per Share Earnings
for the years ended December 30, 1995 and June 30,
1995, 1994 and 1993.
13(a) Consolidated balance sheets as of December 30,
1995, June 30, 1995 and 1994, the related
consolidated statements of operations,
stockholders' equity and cash flows for the six
months ended December 30, 1995 and each of the
three years in the period ended June 30, 1995,
unaudited consolidated statements of operations
and cash flows for the six months ended December
30, 1994, notes thereto and Independent Auditors'
Report and related financial statement schedules.
(b) Supplementary Data captioned "Quarterly
Information".
21 List of Subsidiaries of Registrant.
23 Consent of Deloitte & Touche LLP.
27 Financial Data Schedule (for SEC use only)
- --------------------
(1) Previously filed with the Company's Annual Report on Form 10-K for the
year ended June 30, 1990.
(2) Previously filed with the Company's Annual Report on Form 10-K for the
year ended June 30, 1991.
(3) Previously filed with the Company's Annual Report on Form 10-K for the
year ended June 30, 1992.
(4) Previously filed with the Company's Annual Report on Form 10-K for the
year ended June 30, 1993.
(5) Previously filed with the Company's Annual Report on Form 10-K for the
year ended June 30, 1994.
(6) Previously filed with the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1995.
39
<PAGE> 40
(7) Previously filed with the Company's Annual Report on Form 10-K for the
year ended June 30, 1995.
(8) Previously filed with the Company's Form 8-K on August 21, 1995.
+ Management contract or compensatory plan or arrangement required to be
filed as an exhibit to Form 10-K pursuant to Item 14(c).
40
<PAGE> 41
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
JOHNSTON INDUSTRIES, INC.
Date: April 12, 1996 By: /s/ David L. Chandler
--------------------------
David L. Chandler
Chairman
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 and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ---------------------- ------------------------------ --------------
<S> <C> <C>
/s/ David L. Chandler Chairman of the Board and April 12, 1996
- --------------------- Director
David L. Chandler
/s/ Gerald B. Andrews President and April 12, 1996
- --------------------- Chief Executive Officer and
Gerald B. Andrews Chief Operating Officer and
Director
(Principle Executive Officer)
/s/ J. Reid Bingham Director April 12, 1996
- -------------------
J. Reid Bingham
/s/ John A. Friedman Director April 12, 1996
- --------------------
John A. Friedman
/s/ William J. Hart Director April 12, 1996
- -------------------
William J. Hart
/s/ Gaines R. Jeffcoat Director and April 12, 1996
- ---------------------- Retired Vice President
Gaines R. Jeffcoat
/s/ John W. Johnson Chief Financial Officer April 12, 1996
- ------------------- (Principal Accounting Officer)
John W. Johnson
/s/ C.J. Kjorlien Director April 12, 1996
- -----------------
C. J. Kjorlien
</TABLE>
41
<PAGE> 1
EXHIBIT 10.19
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement"), made this 31st day of May, 1995
by and between SOUTHERN PHENIX TEXTILES, INC., an Alabama corporation
(hereinafter referred to as "Employer"), and LARRY L. GALBRAITH (hereinafter
referred to as "Employee").
WITNESSETH THAT:
WHEREAS, Employee has been employed by Employer pursuant to an Employment
Agreement dated June 1, 1989, which Employment Agreement expires on July 1,
1995; and
WHEREAS, Employer and Employee have agreed that Employee shall continue to
be employed by Employer for the period commencing on June 1, 1995, for the term
and under the provisions and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual promises herein set forth,
it is agreed as follows:
1. Employer hereby employs Employee as a senior executive officer for the
period commencing June 1, 1995, and ending on June 30, 1988, or such earlier or
later date within a week of said June 30, 1998, on which Employer's fiscal year
shall end. Unless either Employer or Employee, by written notice to the other
on or before April 1, 1998, elects not to extend this Agreement, and if this
Agreement has not been terminated in accordance with the terms set forth
hereinbelow, it shall be extended automatically for an additional period of
three (3) years ending on June 30, 2001, or such earlier or later date within a
week of said June 30, 2001, on which Employer's fiscal year shall end.
Employee shall have such executive duties as may be assigned to him by
Employer to be rendered on behalf of Employer or its parent corporation,
Johnston Industries, Inc. ("Johnston"), or any of Johnston's affiliates or
subsidiaries, subject to supervision, change of duties, direction and control
by the Chief Executive Officer or Chief Operating Officer of Johnston.
Employee accepts such employment and agrees to perform his duties in
connection therewith to the best of his ability and to devote his full working
time thereto.
Employee, at the request of Employer, agrees to serve as a Director or
other officer of Employer or of any affiliated or subsidiary corporation of
Employer, without any additional compensation for such service.
Employee agrees during the term of this Agreement not to have or acquire
any ownership interest, directly or indirectly, in, or be employed by, any
person, firm or corporation which is engaged in a business competitive with any
of the businesses now or hereafter engaged in by Employer or Johnston or
<PAGE> 2
by any of Employer's or Johnston's affiliates or subsidiaries or which is a
supplier or customer of Employer or Johnston or of any of Employer's or
Johnston's affiliates or subsidiaries, except that Employee may acquire or own
securities listed on any recognized public exchange. Employee acknowledges
that he is knowledgeable of the businesses now engaged in by Employer and
Johnston and by Employer's and Johnston's affiliates and subsidiaries and is
knowledgeable of the principal customers and suppliers of Employer and Johnston
and of Employer's and Johnston's affiliates and subsidiaries. If Employee
shall violate the provisions of this paragraph or fail or refuse to perform
adequately the duties assigned to him, then, in any such event, Employer may
terminate this Agreement and Employee's employment hereunder immediately upon
the giving of written notice of such termination to Employee, and in such
event, Employee shall be entitled to receive only the salary and other
compensation and benefits provided for hereunder which have accrued to the date
of such termination, prorated on a per diem basis.
2. As full compensation for all Employee's services, employer agrees to
pay to Employee a base salary in the amount of $245,000.00 per year, payable in
equal monthly installments on the last day of each month as long as this
Agreement shall be in effect. During the term of this Agreement, Employee's
base salary may be adjusted from time to time and in such amounts as shall be
mutually agreed upon by Employer and Employee.
3. Employer may at any time and from time to time pay to Employee such
bonus or other additional compensation, in addition to the base salary provided
for hereinabove, as Employer may determine in Employer's sole discretion.
Employee shall be eligible to participate in such employee benefits as from
time to time are provided for executive employees of Employer generally, such
as group life insurance and medical and pension benefits, subject to the
provisions of such benefit plans as may be in effect from time to time during
the term of this Agreement. Employer shall not be obligated to adopt or
maintain any particular employee benefits or plans therefor, such adoption or
maintenance to be within the sole discretion of Employer.
4. This Agreement may be transferred or assigned by Employer to Johnston
or to any of Johnston's affiliates or subsidiaries or to any other corporation
with or into which either Employer or Johnston or any such assignee shall merge
or consolidate, or to which either Employer or Johnston shall transfer all or
substantially all of its assets, and such assignee or successor corporation
shall thereupon be obligated to perform the terms and provisions hereof
pertaining to Employer (and such successor shall
2
<PAGE> 3
thereupon be deemed Employer hereunder). In the event of any such assignment
or transfer by Employer, Employee shall continue to be bound by the terms and
provisions of this Agreement.
5. If Employee shall become incapacitated during the period of his
employment hereunder to such an extent that in the judgment of Employer he is
unable to perform his duties hereunder, and such incapacity shall continue for
at least six successive calendar months, Employer may, at any time after the
end of such period of six consecutive calendar months and during the
continuance of such incapacity, give notice to Employee of the termination of
his employment hereunder on a date stated in such notice, which shall not be
less than thirty (30) days after the date of the giving of such notice, and in
such event, notwithstanding the foregoing provisions of paragraph 1 hereof,
Employee's employment hereunder shall terminate on such date, and Employee's
rights to the base salary provided for herein and any other compensation and
benefits provided for hereunder shall terminate on such date.
6. Should Employee terminate his employment with Employer during the term
of this Agreement, then Employee shall only be entitled to receive the base
salary and other compensation and benefits provided for hereunder which shall
have accrued to the date of such termination, prorated on a per diem basis.
7. Employer and Employee hereby agree that the aforedescribed previous
Employment Agreement dated June 1, 1989 shall terminate, effective at midnight
on May 31, 1995, immediately prior to the effective date of this Agreement.
8. This Agreement constitutes the entire agreement between the parties
herto with regard to the subject matter hereof and may not be altered or
amended except by written agreement of the parties.
IN WITNESS WHEREOF, Employer has caused this Agreement to be executed by
one of its officers thereunto duly authorized, and Employee has hereto
subscribed his name as of the day and year first above written.
SOUTHERN PHENIX TEXTILES, INC.
/s/ John W. Johnson By: /s/ Gerald B. Andrews
- ------------------- --------------------------
Witness: Title: President
"Employer"
/s/ Wayne Merritt /s/ Larry L. Galbraith (L.S.)
- ------------------- --------------------------
Witness: LARRY L. GALBRAITH
"Employee"
3
<PAGE> 1
EXHIBIT 10.20
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the "Agreement") is an
amendment and restatement of the Employment Agreement dated November 19, 1992
("Original Employment Agreement") and is made and entered into as of this 26th
day of July, 1995, by and between L. ALLEN HINKLE, an individual resident of
the State of Alabama ("Executive"), and WELLINGTON SEARS COMPANY, a Delaware
corporation ("Company").
W I T N E S S E T H
WHEREAS, Company desires to employ Executive, and Executive desires to be
employed by Company on the terms and conditions contained herein;
WHEREAS, the Board of Directors has determined in its business judgment
that the continued employment of Executive is necessary to maintain the value
of Wellington Sears Company;
NOW, THEREFORE, in consideration of the mutual promises and agreements
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, intending to
be legally bound, hereby agree as follows:
SECTION 1. EMPLOYMENT
1.1 DUTIES. Subject to the terms contained herein, Company hereby
employs Executive, and Executive hereby accepts such employment. Executive
shall serve as President and Chief Operating Officer. In his capacity as
President and Chief Operating Officer, Executive shall (i) report to the
Chairman, Vice Chairman, President and the Board of Directors and (ii) assume
and perform such further reasonable responsibilities and duties assigned to him
by the Board of Directors of the Company. Executive shall devote his full
business time (except for periods of illness and incapacity) and best efforts
to rendering services on behalf of Company. Nothing in this Agreement shall
preclude Executive from engaging, so long as, in the reasonable determination
of such Board of Directors, such activities do not interfere with his duties
and responsibilities hereunder, in charitable and community affairs, from
managing any passive investment made by him or from serving, subject to the
prior approval of such Board of Directors, as a member of the Board of
Directors or as a trustee of any other corporation, association or entity.
1.2 DIRECTORSHIP. If elected or appointed, Executive shall
serve as a member of the Board of Directors of the Company without any
additional compensation.
1.3 LOCATION. Company agrees that Executive shall remain in the
East Alabama/West Georgia area during the term of this Agreement.
SECTION 2. TERM
The employment of Executive hereunder commenced as of the date of the
Original Agreement and shall continue for a period of three (3) years (the
"Initial Employment Term"). Following the Initial Employment Term, this
Agreement shall continue in force for another eighteen (18) month term (the
"Second Employment Term"). Following the Second Employment Term, this
Agreement shall continue in force for successive one (1) year terms (each, a
"Renewal Term") unless either the
<PAGE> 2
Wellington Sears Company
Employment Agreement
Company or the Executive provides not less than one (1) year's prior written
notice to the other that this Agreement shall terminate at the end of the
Second Employment Term. During any Renewal Term, either the Company or the
Executive may terminate this Agreement effective at the end of such Renewal
Term by giving the other party not less than one year's prior written notice
of such termination. For the avoidance of doubt, the parties specifically
agree that the intent of the foregoing provisions is that, if a Renewal Term
ends on December 31 of a given year, the Executive must be given notice of
termination on or before January 1 of the following year in order for the
termination to be effective on the next December 31.
SECTION 3. COMPENSATION: EXPENSES
3.1 SALARY. During the Employment Term, the Second Employment
Term and any Renewal Term, Executive shall be paid a salary by Company at the
annual rate of not less than Two Hundred Thousand Dollars ($200,000) (as from
time-to-time increased in accordance with the terms of this Agreement, the
"Salary"); however, the Salary shall be reviewed by the Board of Directors of
the Company on an annual basis and the Salary may be increased based on the
performance of Executive. The Salary shall be paid to Executive in equal
monthly installments, less all applicable withholding taxes in the same manner
as other executive officers of the Company.
3.2 BONUSES. In addition to the Salary, Executive shall be paid,
subject to conditions set forth herein, an annual bonus ("Bonus") during the
Employment Term, the Second Employment Term and any Renewal Term in respect of
each fiscal year of the Company commencing on or after December 31, 1994. The
amount of Executive's bonus payable under this subsection 3.2 in each such
fiscal year shall be based upon the attainment of performance targets to be
established and mutually agreed upon by Executive and the Board of Directors.
The Bonus shall be paid in cash when bonuses are paid generally to other senior
executives of the Company for the relevant fiscal year, and in a manner in
accordance with the ordinary payroll practices of the Company.
3.3 OTHER REMUNERATION. Executive shall be entitled to such other
remuneration as the Board of Directors of the Company may hereafter from
time-to-time approve for payment to Executive.
3.4 EXPENSES. Executive is authorized to incur reasonable and
necessary expenses in carrying out his duties and responsibilities under this
Agreement, including, without limitation, expenses for travel and similar items
related to such duties and responsibilities. The Company will reimburse
Executive for all such expenses upon presentation by Executive from
time-to-time of appropriately itemized and approved (consistent with Company's
policy) accounts of such expenditures.
SECTION 4. ADDITIONAL EMPLOYMENT BENEFITS
During the Employment Term, the Second Employment Term and any Renewal
Term, Company shall provide Executive with the following fringe benefits
(collectively, the "Benefits"):
2
<PAGE> 3
Wellington Sears Company
Employment Agreement
4.1 MEDICAL INSURANCE. Executive shall be entitled to participate
in such medical, dental, disability, hospitalization, life insurance and other
benefit plans (such as pension and profit sharing plans) as shall be made
available to similarly situated officers of the Company on the terms and
subject to the conditions set forth in such plans.
4.2 VACATION. Executive shall receive four (4) weeks of paid
vacation time each fiscal year during the Employment Term, the Second
Employment Term and any Renewal Term. In the event that this Agreement is
terminated by the Company other than for cause or by Executive pursuant to
Subsection 5.3, Executive shall be paid for each unused vacation day at the
rate of 1/365th of the Salary in effect during the year in which the vacation
day accrued.
4.3 OTHER. In addition to the foregoing, Executive shall be
entitled to the prerequisites and other fringe benefits made available to
senior executives of the Company.
SECTION 5. TERMINATION
The following provisions relate solely to termination of the Executive's
employment during the Employment Term, the Second Employment Term and any
Renewal Term:
5.1 DEATH OR DISABILITY.
(a) Subject to Section 7 below, this Agreement shall
terminate automatically upon the Executive's death.
(b) Subject to Section 7 below, the Company shall at all
times have the right to terminate the Executive's employment hereunder at any
time after the Employee shall be absent from his employment, for whatever
cause, including but not limited to mental or physical incapacity, illness or
disability (collectively "Disability") for a continuous period of more than
twenty-six (26) weeks.
5.2 CAUSE. The Company may terminate the Executive's employment
for "Cause." For purposes of this Agreement, Cause means (i) if Executive is
convicted by a court of competent jurisdiction of a felony, (ii) if Executive
engages in illegal or other wrongful conduct substantially detrimental to the
business or the reputation of the Company, or (iii) repeated violations by the
Executive of the Executive's obligations under Sections 1.1 or 1.2 of this
Agreement unless Executive corrects such violation within ten (10) days after
written notice from the Company of such violation or if, having once received
such notice of violation and having so corrected such violation, Executive at
any time thereafter again violates Executive's obligations under Sections 1.1
or 1.2 of this Agreement.
5.3 WITHOUT CAUSE. Upon the occurrence of any of the following,
the Executive shall have the right to terminate his employment by resignation on
not less than ninety (90) days' prior written notice: (a) the making of any
material change by the Company or the "Successor" (as defined below) in the
Executive's function, duties or responsibilities with the Company or the
Successor, as the case may be, that would cause the Executive's position to
become of less dignity, responsibility, importance or scope; (b) the relocation
of the place of Executive's employment from the East Alabama/West Georgia area;
or (c) the occurrence of any material breach of this Agreement.
<PAGE> 4
Wellington Sears Company
Employment Agreement
"Successor" means the person, or group of persons that (i) owns or
operates all or substantially all of the company's business; or (ii) that
survives a merger or consolidation of the company.
SECTION 6. NOTICE OF TERMINATION
Any termination by the Company for Cause shall be communicated in writing
to the Executive and if the termination date is other than the date of receipt,
the notice shall specify the termination date.
SECTION 7. OBLIGATIONS OF THE COMPANY UPON TERMINATION
The following provisions apply only in the event the Executive's
employment hereunder is terminated.
7.1 DEATH. If the Executive's employment is terminated by
reason of the Executive's death, the Company shall pay, in addition to any
accrued benefits payable hereunder, the salary to the Executive's legal
representatives for a period of one year subsequent to such termination. The
Salary may be paid, at the option of the Company, either in a lump sum or in
equal monthly installments. The Executive's family shall also be entitled to
receive benefits at least equal to those provided by the Company to surviving
families of executives of the Company in comparable positions under such plans,
programs and policies relating to family death benefits, if any.
7.2 DISABILITY. If the Executive's employment is terminated by
reason of the Executive's Disability, the Executive shall be entitled to
receive, in addition to any accrued benefits payable hereunder, the Salary for
a period of one (1) year subsequent to such termination. The Salary may be
paid, at the option of the Company, either in a lump sum or in equal monthly
installments. The Executive shall also be entitled to receive benefits at least
equal to those provided by the Company to disabled employees of the Company in
accordance with such plans, programs and policies relating to disability, if
any.
7.3 CAUSE. If the Executive's employment shall be terminated
for Cause, the Company shall pay the Executive his Salary through the date of
termination at the rate in effect at the time notice of termination is given
and shall have no further obligation to the Executive under this Agreement.
7.4 TERMINATION WITHOUT CAUSE. If the Company shall terminate the
Executive's employment with the Company without Cause or if the Executive shall
terminate his employment with the Company pursuant to Subsection 5.3:
(a) The Company shall pay to the Executive at the time
such payments would otherwise be payable hereunder, the Salary for the
remaining term of this Agreement (including any Renewal Term to which the
Executive would be entitled by reason of the Company's failure to provide the
termination notice required by Section 2 of this Agreement). The Executive
shall also be entitled to a bonus equal to the product of the prior year's
bonus multiplied by a fraction, the numerator of which is the number of months
Executive was employed during the year of termination and the denominator of
which is twelve (12);
4
<PAGE> 5
Wellington Sears Company
Employment Agreement
(b) The Company shall, promptly upon submission by the Executive
of supporting documentation, pay or reimburse, or cause to be paid or
reimbursed, to the Executive any business related costs and expenses paid or
incurred by the Executive on or before the date of termination which would have
been payable if the Executive's employment had not terminated; and
(c) until the first anniversary of the Executive's termination,
the Company shall continue benefits (or equivalent coverage) to the Executive
and/or the Executive's family at least equal to those which would have been
provided to them in accordance with the plans, programs and policies described
in effect as of the date of termination.
SECTION 8. NON-COMPETITION.
At all times during Executive's employment with the Company and (i) if
Executive is terminated without cause, during that period which Executive is
still being compensated by the Company in accordance with Section 7.4 hereof
(in any event not to exceed two (2) years) or (ii) if Executive resigns, is
terminated for cause or disability, for a period of two (2) years subsequent to
such termination, Executive shall not anywhere in the United States, directly
or indirectly, engage in any business, enterprise or employment, whether as
owner, operator, shareholder, director, partner, financial backer, creditor,
consultant, agent, executive or any capacity whatsoever that is directly or
indirectly competitive with the business of the Company; provided, however,
that the foregoing shall not be deemed to prohibit the Executive from
acquiring, solely as an investment and through market purchases, securities of
any issuer that are registered under Section 12(b) or 12(g) of the Securities
Exchange Act of 1934, as amended, and that are listed or admitted for trading
on any United States national securities exchange or that are quoted on the
National Association of Securities Dealers Automated Quotations System or any
similar system of automated dissemination of quotations of securities prices in
common use, so long as the Executive is not a member of any control group
(within the meaning of the rules and regulations of the Securities and Exchange
Commission) of any such issuer. For purposes of this Section 8, a business
shall be deemed to be in competition with the Company if it is involved in the
design, manufacture and sale of any products designed, manufactured or sold by
the Company.
SECTION 9. NON-SOLICITATION OF EMPLOYEES AND CUSTOMERS.
The Executive shall not at any time during his employment hereunder and
for a period of two years after the date his employment is terminated for any
reason, directly or indirectly, for himself or for any other person, firm,
corporation, partnership, association or other entity, (i) attempt to employ,
employ or enter into any contractual arrangement with any employee or former
employee of the Company, its affiliates, or predecessors-in-interest, unless
such employee or former employee has not been employed by the Company, its
affiliates, or predecessors-in-interest for a period in excess of six months;
and/or (ii) call on or solicit any of the actual or targeted prospective
customers or suppliers of the Company or its predecessor-in-interest with
respect to any matters, related to or competitive with the business of the
company, nor shall the Executive make known the names or addresses of such
customers or suppliers or any information relating in any manner to the
Company's trade or business relationships with such customers or suppliers.
5
<PAGE> 6
Wellington Sears Company
Employment Agreement
SECTION 10. NON-DISCLOSURE
Except as expressly permitted by the Company, or in connection with the
performance of his duties hereunder, the Executive shall not at any time during
or subsequent to his employment by the Company, disclose, directly or
indirectly to any person, firm, corporation, partnership, association or other
entity any proprietary or confidential information relating to the Company or
any information concerning the Company's financial condition or prospects, the
Company's customers or suppliers, the Company's sources of leads and methods of
obtaining new business, the design, development, manufacture or selling of the
Company's products or the Company's methods of doing and operating its business
(collectively, "Confidential Information") except when required to do so by a
court of competent jurisdiction, by any governmental agency having supervisory
authority over the business of the Company or, as the case may be, an affiliate
of the Company or by any administrative body or legislative body (including a
committee thereof) with jurisdiction to order Executive to divulge, disclose or
make accessible such information. Confidential Information shall not include
information which, at the time of disclosure, is known or available to the
general public by publication or otherwise through no act or failure to act on
the part of the Executive. The Executive acknowledges and agrees that the
Confidential Information is a valuable, special and unique asset of the
Company's business.
SECTION 11. BOOKS AND RECORDS.
All books, records and accounts relating in any manner to the Company's
customers or suppliers, whether prepared by the Executive or otherwise coming
into the Executive's possession, and all copies thereof in the Executive's
possession, shall be the exclusive property of the Company and shall be
returned immediately to the Company upon termination of the Executive's
employment hereunder or upon the Company's request at any time.
SECTION 12. INJUNCTION.
Executive acknowledges that if he were to breach any of the provisions of
Section 8, 9 or 10 or 11, it should result in immediate and irreparable injury
to the Company which cannot be adequately or reasonably compensated at law.
Therefore, Executive agrees that the Company shall be entitled, if any such
breach shall occur or be threatened or attempted, if it so elects, to a decree
of specific performance and to a temporary and permanent injunction, without
being required to post a bond, enjoining and restraining such breach by the
Executive, his associates, his partners or agents, either directly or
indirectly, and that such right to injunction shall be cumulative to whatever
remedies or actual damages the Company may possess.
SECTION 13. MISCELLANEOUS
13.1 BINDING EFFECT. This Agreement shall inure to the benefit of
and shall be binding upon Executive and his executor, administrator, heirs,
personal representatives and assigns, and Company and its respective successors
and assigns, provided, however, that Executive shall not be entitled to assign
or delegate any of his rights or obligations hereunder without the prior
written consent of the Company.
6
<PAGE> 7
Wellington Sears Company
Employment Agreement
13.2 GOVERNING LAW. This Agreement shall be deemed to be made
in, and in all respects shall be interpreted, construed and governed by and in
accordance with, the laws of the State of Georgia (without giving effect to the
conflicts of law principles thereof). No provision of this Agreement or any
related document shall be construed against or interpreted to the disadvantage
of any party hereto by any court or other governmental or judicial authority by
reason of such party having or being deemed to have structured or drafted such
provision.
13.3 HEADINGS. The section and paragraph headings contained in
this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement.
13.4 NOTICES. Unless otherwise agreed to in writing by the
parties hereto, all communications provided for hereunder shall be in writing
and shall be deemed to be given when delivered in person (by courier service or
otherwise) or seven days after being deposited in the United States mail, first
class, registered or certified, return receipt requested, with proper postage
prepaid, and addressed as follows:
(a) If to Company:
Rainer Bosselmann
Jupiter National, Inc.
39 West Montgomery Avenue
Rockville, Maryland 20850
with a copy to:
Arthur Bill, Esq.
Freedman, Levy, Kroll & Simonds
1050 Connecticut Avenue, NW, Suite 825
Washington, D.C. 20036
(b) If to Executive, addressed to:
L. Allen Hinkle
1724 Spring Road
Lanett, AL 36863
with a copy to:
Philip Theodore, Esq.
King & Spalding
191 Peachtree Street
Atlanta, Georgia 30303
7
<PAGE> 8
Wellington Sears Company
Employment Agreement
13.5 COUNTERPARTS. This Agreement may be executed in two (2)
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
13.6 ENTIRE AGREEMENT. This Agreement is intended by the parties
hereto to be the final expression of their agreement with respect to the
subject matter hereof and is the complete and exclusive statement of the terms
thereof, notwithstanding any representations, statements or agreement to the
contrary heretofore made. This Agreement may be modified only by a written
instrument signed by each of the parties hereto.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement under
seal as of the date first above written.
WELLINGTON SEARS COMPANY
By /s/ Rainer H. Bosselmann
-----------------------------------
Rainer H. Bosselmann, Chairman,
Chief Executive Officer
EXECUTIVE
/s/ L. Allen Hinkle
-------------------
L. Allen Hinkle, President,
Chief Operating Officer
8
<PAGE> 1
EXHIBIT 10.22
US$160,000,000
CREDIT AGREEMENT
Dated as of March 28, 1996
among
JOHNSTON INDUSTRIES, INC.
WELLINGTON SEARS COMPANY
SOUTHERN PHENIX TEXTILES, INC.
OPP AND MICOLAS MILLS, INC.
JOHNSTON INDUSTRIES COMPOSITE REINFORCEMENTS, INC.
T.J. BEALL COMPANY
-and-
THE BANKS NAMED HEREIN,
THE CHASE MANHATTAN BANK, N.A.
as Administrative Agent,
CHASE SECURITIES, INC.
as Arranger
and
NATIONSBANK, N.A.
as Syndication Agent
<PAGE> 2
TABLE OF CONTENTS
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ARTICLE I
CERTAIN DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.01. Certain Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.02. Computation of Time Periods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 1.03. Accounting Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 1.04. Payments on a Day Other Than a
Business Day . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE II
THE CREDIT
SECTION 2.01. The Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 2.02. Making the Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 2.03. The Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 2.04. Interest; Conversion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 2.05. Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 2.06. Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 2.07. Mandatory Prepayment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
SECTION 2.08. Changes of Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 2.09. Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 2.10. Late Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 2.11. Payments and Computations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 2.12. Application of Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
SECTION 2.13. Reserves; Additional Costs; Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
ARTICLE III
THE LETTERS OF CREDIT
SECTION 3.01. Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
SECTION 3.02. Purposes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
SECTION 3.03. Procedures for Issuance of
Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
SECTION 3.04. Participating Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
SECTION 3.05. Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
SECTION 3.06. Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
SECTION 3.07. Obligations Absolute . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
SECTION 3.08. Cash Collateral Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
SECTION 3.09. Letter of Credit Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
</TABLE>
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ARTICLE IV
SECURITY
SECTION 4.01. Security Agreements; Collateral
Assignment; Mortgages;
Pledge Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
ARTICLE V
CONDITIONS OF LENDING
SECTION 5.01. Conditions Precedent to the
Initial Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
SECTION 5.02. Conditions Precedent to Each Revolving
Credit Loan or Letter of Credit . . . . . . . . . . . . . . . . . . . . . . . . . 44
SECTION 5.03. Deemed Representations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF BORROWERS
SECTION 6.01. Representations and Warranties
of Borrowers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
ARTICLE VII
COVENANTS OF THE BORROWERS
SECTION 7.01. Affirmative Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
SECTION 7.02. Negative Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
SECTION 7.03. Financial Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
ARTICLE VIII
EVENTS OF DEFAULT
SECTION 8.01. Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
SECTION 8.02. Setoff . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
ARTICLE IX
REMEDIES AFTER DEFAULT
SECTION 9.01. Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
SECTION 9.02. No Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
SECTION 9.03. Application of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
SECTION 9.04. Attorneys-in-Fact . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
</TABLE>
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ARTICLE X
THE AGENT
SECTION 10.01. Appointment, Powers and Immunities . . . . . . . . . . . . . . . . . . . . . . .. . . . . . 77
SECTION 10.02. Reliance by Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
SECTION 10.03. Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . 79
SECTION 10.04. Rights as a Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
SECTION 10.05. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . 79
SECTION 10.06. Non-Reliance on Agent and Other Banks . . . . . . . . . . . . . . . . . . . . . . . . . . 80
SECTION 10.07. Failure to Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . 80
SECTION 10.08. Resignation or Removal of Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
SECTION 10.09. Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . 81
SECTION 10.10. Amendments Concerning Agency Function . . . . . . . . . . . . . . . . . . . . . . . . . . 81
SECTION 10.11. Liability of Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 81
SECTION 10.12. Transfer of Agency Function . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
SECTION 10.13. Non-Receipt of Funds by the Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
SECTION 10.14. Withholding Taxes . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . 82
ARTICLE XI
RELATIONS AMONG THE BANKS AND THE BORROWERS . . . . . . . . . . . . . . . . . 83
SECTION 11.01. Obligations and Rights of Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
SECTION 11.02. Pro Rata Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
SECTION 11.03. Sharing of Recoveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
SECTION 11.04. Security Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
SECTION 11.05. Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
SECTION 11.06. Amendment of ARTICLES X and XI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
ARTICLE XII
THE ARRANGER . . . . . . . . . . . . . . . . . . . . . . . . . 85
SECTION 12.01. The Arranger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
SECTION 12.02. Exculpatory Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
SECTION 12.03. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
SECTION 12.04. Arranger in its Individual Capacity . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
SECTION 12.05. Non-Reliance on Arranger
and Other Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
ARTICLE XIII
THE SYNDICATION AGENT . . . . . . . . . . . . . . . . . . . . . . 87
SECTION 13.01. The Syndication Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
SECTION 13.02. Exculpatory Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
SECTION 13.03. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
SECTION 13.04. Rights as a Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
SECTION 13.05. Non-Reliance on Syndication
Agent and Other Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
</TABLE>
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ARTICLE XIV
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . 89
SECTION 14.01. Amendments, Waivers, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
SECTION 14.02. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
SECTION 14.03. No Waiver, Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
SECTION 14.04. Costs, Expenses, Taxes, Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
SECTION 14.05. Limitation on Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
SECTION 14.06. Severability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
SECTION 14.07. Binding Effect; Governing Law;
Consent to Jurisdiction;
Waiver of Jury Trial; Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
SECTION 14.08. Assignment; Participations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
SECTION 14.09. Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
EXHIBITS
Exhibit A-1 Revolving Credit Note
Exhibit A-2 Term Note A
Exhibit A-3 Term Note B
Exhibit B-1 Notice of Borrowing
Exhibit B-2 Notice of Letter of Credit
Exhibit C Borrowers' Security Agreement
Exhibit D Intellectual Property Security Agreement
Exhibit E Collateral Assignment
Exhibit F Form of Mortgage
Exhibit G Environmental Indemnity
Exhibit H Stock Pledge Agreement
Exhibit I-1 Form of Legal Opinion of Fried, Frank,
Harris, Shriver & Jacobson
Exhibit I-2 Form of Legal Opinion of Page & Scrantom
Exhibit J Borrowing Base Certificate
Exhibit K Solvency Certificate
Exhibit L Environmental Work
SCHEDULES
Schedule I Bank Commitments
Schedule II List of Mortgages and Description of
Real Property to which such Mortgages Relate
Schedule III Environmental Reports
Schedule 6.01(a) List of Subsidiaries and % Ownership
Schedule 6.01(e) Disclosure of Liens
</TABLE>
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Schedule 6.01(g) Disclosure of Existing Guaranties,
Contingent Obligations, Unfunded Vested
Liabilities, Secured Guaranties, Credit
Agreements and Arrangements,
Purchase Agreements, Capital Leases and Material
Investments
Schedule 6.01(i) List of Intellectual Property
Schedule 7.01(n) Tarboro Plant Machinery & Equipment and
List of Other Investment Securities of
Jupiter
Schedule 7.02(a)(ii) Permitted Debt
Schedule 7.02(d)(x) Permitted Liens
Schedule 7.02(q) List of Existing Operating Accounts
</TABLE>
-v-
<PAGE> 7
CREDIT AGREEMENT dated as of March 28, 1996 among Johnston
Industries, Inc., a Delaware corporation ("Johnston"), WELLINGTON SEARS
COMPANY, an Alabama corporation ("Wellington"), SOUTHERN PHENIX TEXTILES, INC.,
an Alabama corporation ("Phenix"), OPP AND MICOLAS MILLS, INC., an Alabama
corporation ("Opp"), JOHNSTON INDUSTRIES COMPOSITE REINFORCEMENTS, INC., an
Alabama corporation ("JICR") and T.J. Beall Company, a Georgia corporation
("TJB") (Johnston, Wellington, Phenix, Opp, JICR and TJB hereinafter
individually referred to as the "Borrower" and collectively as the
"Borrowers"), the several banks parties hereto or which shall become a party
hereto from time to time (individually a "Bank" and collectively the "Banks"),
THE CHASE MANHATTAN BANK, N.A. ("Chase"), as administrative agent for the Banks
("Agent"), NATIONSBANK, N.A. ("NationsBank"), as syndication agent for the
Banks ("Syndication Agent") and CHASE SECURITIES, INC., as arranger
("Arranger").
W I T N E S S E T H:
WHEREAS, the Borrowers wish to arrange a credit facility in an
aggregate amount of up to $160,000,000, the proceeds of which will be used to
repay existing indebtedness, finance the acquisition of the remaining issued
and outstanding capital stock of Jupiter National, Inc. ("Jupiter") and for
general working capital purposes; and
WHEREAS, the Borrowers are all affiliated entities engaged in
strategically related businesses and, consequently, each will derive
substantial economic benefit from the making of the credit facility; and
WHEREAS, the Banks are willing to provide the Borrowers with
the credit facility on the terms and conditions set forth herein.
NOW, THEREFORE, the Banks, the Agent, the Arranger, the
Syndication Agent, and each Borrower, jointly and severally, hereby agree as
follows:
ARTICLE I
CERTAIN DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.01. Certain Defined Terms. As used in this
Agreement and unless otherwise expressly indicated, the following terms shall
have the following meanings (such meanings to be equally applicable to both the
singular and plural forms of the terms defined):
<PAGE> 8
"Acceptable Acquisition" shall mean (x) any Acquisition (a)
which has been either approved by the Board of Directors of the corporation
which is the subject of such Acquisition or recommended by such Board to the
shareholders of such corporation, and (b) the acquired entity of which is in
the textile or textile-related business, and (c) which, after considering the
pro forma position of the Consolidated Entities after giving effect to such
Acquisition, the Borrowers remain in compliance with all the covenants
contained in ARTICLE VII; or (y) any investment by a Consolidated Entity in any
partnership or joint venture which is or is intended to be engaged in the
textile or textile-related business, provided that after considering the pro
forma position of the Consolidated Entities subsequent to such investment, the
Borrowers remain in compliance with the covenants contained in ARTICLE VII.
"Acquisition" shall mean any transaction pursuant to which a
Consolidated Entity shall (a) acquire equity securities (or warrants, options
or other rights to acquire such securities) of any Person other than a
Consolidated Entity, or (b) make any Person a Subsidiary of any Consolidated
Entity or cause any Person to be merged into any Consolidated Entity, in any
case pursuant to a merger, purchase of assets or any reorganization providing
for the delivery or issuance to the holders of such Person's then outstanding
securities, in exchange for such securities, of cash or securities of any
Consolidated Entity, or a combination thereof, or (c) purchase all or
substantially all of the business or assets of any Person.
"Affiliate" means any Person: (a) which directly or
indirectly controls, or is controlled by, or is under common control with, any
Consolidated Entity; (b) which directly or indirectly beneficially owns or
holds 15% or more of any class of voting stock of any Consolidated Entity; or
(c) 15% or more of the voting stock of which is directly or indirectly
beneficially owned or held by any Consolidated Entity. The term "control"
means the direct or indirect ability to direct or cause the direction of the
management and policies of a Person, whether through the ownership of voting
securities, by contract, or otherwise, alone or as part of a group.
"Agent" shall mean Chase, as administrative agent for the
Banks, appointed pursuant to ARTICLE X and its successors, if any, in such
capacity.
"Agreement" means this Credit Agreement, as it may be amended,
supplemented, restated or otherwise modified from time to time.
"Applicable Margin" shall mean, [1] with respect to Revolving
Credit Loans and Term Loan A: (a) if such Loan is a Eurodollar Loan made at
any time after the Closing Date until the Initial Repricing Date, two hundred
and fifty (250) basis points
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<PAGE> 9
(2.5%); (b) if such Loan is a Base Rate Loan made at any time after the Closing
Date until the Initial Repricing Date, one hundred twenty-five (125) basis
points (1.25%); and (c) if such Loan is made at any time after the Initial
Repricing Date, the Applicable Margins shall mean for each Loan, the amount
calculated by reference to the Debt Ratio as at the last day of the most
recently ended fiscal quarter of Johnston ("Testing Date"), which, if such Debt
Ratio shall fall within any of the ranges set forth in the table below, then
the "Applicable Margin" shall be the respective basis points set forth opposite
such range in the table below during the period commencing on the Margin Change
Date (as defined below) for such Testing Date to but not including the Margin
Change Date for the next succeeding Testing Date:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
DEBT RATIO: LESS THAN OR GREATER THAN 2:00:1, GREATER THAN 2:75:1 GREATER THAN 4:25:1 OR
EQUAL TO BUT LESS THAN OR BUT LESS THAN OR 3:50:1 BUT LESS GREATER
2:00:1 EQUAL TO 2:75:1 EQUAL TO 3:50:1 THAN OR EQUAL TO
4:25:1
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
EURODOLLAR 100.00 bp 125.00 bp 150.00 bp 200.00 bp 250.00 bp
LOAN:
- --------------------------------------------------------------------------------------------------------------------
BASE RATE 0 0 25.00 bp 75.00 bp 125.00 bp
LOAN:
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
* bp = basis points
For purposes of this definition, "Margin Change Date" shall mean, for any
Testing Date, ten days after the Agent receives the Borrower's Financial
Statements pursuant to SECTION 7.01(b)(i) or (ii) hereof for such Testing Date
(except that for any Testing Date that is a fiscal year end, for purposes of
determining the Applicable Margin, the Borrowers may deliver a statement
setting forth a calculation of the Debt Ratio for such fiscal year, certified
by the treasurer or a senior financial officer of Johnston and the Applicable
Margin shall be adjusted accordingly in the event that the Debt Ratio as set
forth in any such statement differs from the Debt Ratio calculated based on the
applicable audited Financial Statements for such fiscal year).
[2] with respect to Term Loan B: (a) if such Loan is a Eurodollar Loan, three
hundred (300) basis points (3.00%), and (b) if such Loan is a Base Rate Loan,
one hundred seventy-five (175) basis points (1.75%).
"Arranger" shall mean Chase Securities, Inc., as the arranger
for this credit facility, appointed pursuant to ARTICLE XII, and its
successors, if any, in such capacity.
"Authority" means any nation or government, any state or other
political subdivision thereof and any entity, including, without limitation,
the Board of Governors of the Federal Reserve System, exercising executive,
legislative, regulatory or adminis-
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<PAGE> 10
trative functions of or pertaining to a government having jurisdiction with
respect to loans hereunder.
"Base Rate" shall mean, for all applicable Interest Payment
Dates, the greater of (i) the Federal Funds Rate from time to time in effect
plus 1/2 of 1%, or (ii) the Prime Rate from time to time in effect.
"Base Rate Loan" shall mean any Loan at such time as interest
thereon accrues at a rate of interest based upon the Base Rate.
"Borrowing Base" means, at any date of determination thereof,
an amount determined by the Agent, with reference to the most recent Borrowing
Base Certificate, to be equal to the sum of (a) 85% of Eligible Receivables,
plus (b) the permitted percentages of each category of Eligible Inventory as
specified on the Schedules to Exhibit J, plus (c) (i) for the period commencing
on the Closing Date and ending on February 28, 1997, up to 25% of the appraised
orderly liquidation value of all plant and equipment of the Borrowers on a
consolidated basis currently equal to $117,299,775 (for purposes of this
definition, the "Appraised OLV") and (ii) for all times thereafter, up to 20%
of the Appraised OLV; provided, however, that during the Sale Period, the
Borrowing Base shall be reduced by the Restricted Revolver Amount.
"Borrowing Base Certificate" means the borrowing base
certificate substantially in the form of Exhibit J (including all Schedules
annexed to said Exhibit) to be delivered by the Borrowers under the terms of
this Agreement.
"Business Day" means any day of the year on which commercial
banks are not required or authorized to be closed in New York City, and
whenever such day relates to a Eurodollar Loan, a day on which dealings in
Dollar deposits are also carried out in the London interbank market.
"Capital Expenditure" means, with respect to any Person, any
expenditure made or obligation incurred by such Person to purchase, acquire or
construct fixed assets, plant and equipment (including renewals, improvements,
replacements and incurrence of obligations under Capital Leases), but excluding
expenditures made or obligations incurred to consummate the Jupiter
Acquisition.
"Capital Lease" means any lease which has been or should be
capitalized on the books of the lessee in accordance with GAAP.
"Change of Control" shall mean the occurrence, without the
prior consent of the Required Banks, of: (a) (i) an acquisition resulting in
beneficial ownership (within the meaning
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<PAGE> 11
of Rule 13d-3 promulgated under the Securities Exchange Act of 1934 and
referred to in this definition as "Beneficial Ownership") of more than 25% of
the outstanding voting securities of Johnston (for purposes of this definition,
the "Voting Shares") by any Person (other than David L. Chandler, a Subsidiary
of Johnston or an employee benefit plan or trust forming a part thereof
maintained by Johnston or any of its Subsidiaries) that is deemed to be a
"person" under Sections 13(d)(3) and 14(d)(2) of the Securities Exchange Act of
1934, as amended, and (ii) a percentage of the combined voting power of
Johnston's then outstanding Voting Shares greater than that Beneficially Owned
by David L. Chandler; provided, however, that a Change of Control shall not be
deemed to occur solely because any Person acquired effective control of more
than 25% of the then outstanding Voting Shares as a result of the acquisition
by Johnston of any of its Voting Shares which has the effect of reducing the
number of Voting Shares then outstanding and increasing the proportional number
of shares owned by such Person, so long as a Change of Control would not have
otherwise occurred but for such acquisition by Johnston of its Voting Shares;
or (b) the individuals who, as of the Closing Date, are members of the Board of
Directors of Johnston cease for any reason to constitute a majority of the
members of said Board, unless the election or nomination for election by
Johnston's common stockholders of any new director is approved by a vote of a
least a majority of the individuals constituting at the time of such election
or nomination at least a majority of the Board of Directors of Johnston.
"Closing Date" means the date upon which the initial borrowing
of a Loan occurs hereunder.
"Code" means the Internal Revenue Code of 1986, as amended
from time to time.
"Collateral" shall mean all property and assets with respect
to which a Lien is or may be granted pursuant to the Collateral Security
Documents.
"Collateral Assignment" has the meaning assigned to that term
in SECTION 4.01.
"Collateral Security Documents" has the meaning assigned to
that term in SECTION 4.01.
"Commitment" shall mean, in the case of any Bank, its
Revolving Credit Commitment, Term Loan A Commitment or Term Loan B Commitment,
and the Revolving Credit Commitments, Term Loan A Commitments and Term Loan B
Commitments of all the Banks are referred to collectively herein as the
"Commitments".
"Consolidated Capital Expenditures" means, with respect to any
fiscal period, the aggregate amount of Capital
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<PAGE> 12
Expenditures made by the Consolidated Entities for such period, as determined
on a consolidated basis in accordance with GAAP.
"Consolidated Current Assets" means, at any date of
determination thereof, all assets of the Consolidated Entities treated as
current assets, as determined on a consolidated basis in accordance with GAAP.
"Consolidated Current Liabilities" means, at any date at which
the amount thereof is to be determined, all liabilities of the Consolidated
Entities which are or should be classified as current liabilities in accordance
with GAAP, excluding the current portion (in accordance with GAAP) of
Consolidated Debt having maturities in excess of one year from the date of
determination.
"Consolidated Debt" means, at any date of determination
thereof, the aggregate amount of Debt of the Consolidated Entities as
determined on a consolidated basis in accordance with GAAP.
"Consolidated EBIT" means, with respect to any fiscal period,
the sum of (a) Consolidated Net Income for such period, plus (b) the aggregate
amount of (i) income taxes and (ii) Consolidated Interest Expense, to the
extent that such aggregate amount was deducted in the computation of
Consolidated Net Income for such period.
"Consolidated EBITA" means, with respect to any fiscal period,
the sum of (a) Consolidated EBIT for such period, plus (b) the aggregate amount
of amortization, to the extent that such aggregate amount was deducted in the
computation of Consolidated EBIT for such period.
"Consolidated EBITDA" means, with respect to any fiscal
period, the sum of (a) Consolidated EBITA for such period, plus (b) the
aggregate amount of depreciation, to the extent that such aggregate amount was
deducted in the computation of Consolidated EBITA for such period.
"Consolidated Entities" means, collectively, each Borrower,
and each Subsidiary of each Borrower whose accounts are or are required to be
consolidated or included with the accounts of Johnston in accordance with GAAP.
"Consolidated Funded Debt" means, at any date of determination
thereof, the result of (a) the aggregate amount of Consolidated Debt minus (b)
the aggregate amount of Consolidated Debt that (i) is payable on demand or
within one year of the creation thereof other than any such Debt that, although
payable within one year, constitutes payments required to be made on account of
principal of indebtedness expressed to mature more than one year from the date
of creation thereof, and (ii) would
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<PAGE> 13
constitute a guaranty of Debt of the type permitted to be outstanding pursuant
to SECTION 7.02(i) hereof.
"Consolidated Interest Expense" means, for any period, all
amounts deducted for interest expense (including payments with respect to
Capital Leases and Operating Leases to the extent properly classifiable as
interest) of the Consolidated Entities for such period, on a consolidated basis
determined in accordance with GAAP.
"Consolidated Net Income (or Loss)" for any period, shall mean
the amount of net income (or loss) of the Consolidated Entities for such period
on a consolidated basis, determined in accordance with GAAP, excluding (i) net
equity on the earnings of the unconsolidated Subsidiaries of the Borrowers,
(ii) extraordinary or nonrecurring gains or losses and (iii) unrealized
investment gains or losses.
"Consolidated Tangible Net Worth" shall mean, as of any date
of determination thereof, the amount by which (a) total assets of the
Consolidated Entities, on a consolidated basis, less the book amount of
Intangible Assets, exceeds (b) total liabilities of the Consolidated Entities,
on a consolidated basis in accordance with GAAP.
"Credit Arrangements" has the meaning assigned to that term in
SECTION 6.01(p).
"Current Ratio" shall mean, for any period, the ratio of (a)
Consolidated Current Assets for such period to (b) Consolidated Current
Liabilities for such period.
"Debt" of any Person shall mean at any time, (i) all
obligations of such Person for borrowed money, (ii) all obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments,
(iii) all obligations of such Person to pay the deferred purchase price of
property or services, except trade accounts payable that arise in the ordinary
course of business but only if and so long as the same are payable on customary
trade terms, (iv) all obligations of such Person as lessee under Capital
Leases, (v) all obligations of such Person to reimburse any other Person in
respect of the face amounts under outstanding letters of credit or similar
instruments, (vi) all obligations with respect to Unfunded Vested Liabilities
of such Person, (vii) all Debt secured by (or for which the holder of such Debt
has an existing right, contingent or otherwise, to be secured by) a Lien on any
asset of such Person, whether or not such Debt is assumed by such Person, and
(viii) all obligations of others guaranteed or endorsed by such Person (other
than for collection in the ordinary course of business) and other contingent
obligations not in the ordinary course of business to purchase, provide funds
for payment, supply funds to invest in any Person, or otherwise to assure a
Person against loss.
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<PAGE> 14
"Debt Ratio" shall mean the ratio of (a) Consolidated Funded
Debt as indicated on the pro forma balance sheet of the Consolidated Entities
as at February 24, 1996, to (b) Consolidated EBITDA, calculated for the
12-month period ended December 31, 1995, and for each fiscal quarter
thereafter, the ratio of (c) Consolidated Funded Debt to (d) Consolidated
EBITDA calculated for the twelve month period consisting of such fiscal quarter
and the three preceding fiscal quarters.
"Default" shall mean any Event of Default and any event or
circumstance which, with the lapse of time or the giving of notice, or both,
could become an Event of Default.
"Default Rate" means a floating rate of interest equal to the
Interest Rate from time to time in effect plus two (2%) percent per annum.
"Dollars" and the sign "$" shall mean lawful money of the
United States of America.
"Eligible Inventory" means, as of any date of determination
thereof, all Inventory of the Borrowers as to which the Agent holds a first
priority perfected security interest, provided that such Inventory: (a) is
located in the United States; (b) does not include unsalable goods returned or
rejected by a customer of any Borrower; (c) does not include goods to be
returned to any Borrower's suppliers; (d) does not include any chemicals, dyes
or supplies; (e) does not include any inventory aged over six months ("Slow
Moving Inventory"); and (f) does not include any LIFO reserves.
"Eligible Receivables" means, as of any date of determination
thereof, all Receivables of the Borrowers as to which the Agent holds a first
priority perfected security interest, provided that such Receivables: (a) arose
in the ordinary course of business of any Borrower; (b) do not represent
amounts owed to any Borrower for goods shipped on a consignment basis; (c)
represent amounts owed for goods sold or leased or services rendered to a
customer of any Borrower; (d) are payable in Dollars; (e) do not include any
amount which is not due or has not been paid within 60 days of the due date;
(f) do not have as the customer a Person that is the subject of any proceeding
under any bankruptcy, reorganization, arrangement, readjustment of debt,
dissolution or liquidation law; (g) do not have as the customer any Affiliate,
except for Receivables due from any Affiliate that are incurred in the ordinary
course of business and in an arm's-length transaction so long as the aggregate
amount of such Receivables does not exceed 5% of the aggregate unpaid principal
balance of all Eligible Receivables due from all customers; (h) do not have as
the customer a Person located outside the United States unless the Receivable
is supported by a letter of credit, FICA insurance, other appropriate credit
support or as specifically described in Schedule B to Exhibit L;
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<PAGE> 15
(i) do not include any portion of a Receivable as to which the customer has
asserted any defense; (j) do not include that portion of any Receivable as to
which any offset or counterclaim has been asserted by any distributor for any
promotional, advertising or other expense; (k) do not include the amount by
which the aggregate unpaid principal balance of all Eligible Receivables due
from any single customer exceeds 25% of the aggregate unpaid principal balance
of all Receivables due from all customers; (l) do not include any Receivable
due from a customer if 35% or more of the aggregate Receivables due from that
customer have not been paid within 60 days of the due date; and (m) do not
include any Receivable (or portion thereof) that the Agent, in the exercise of
its good faith business judgment, has deemed ineligible because of the
impairment of the collateral value thereof to the Banks, the inability of the
Banks to realize such value thereof or the significant uncertainty as to the
ability of the customer to make payment thereunder.
"Environmental Indemnity" has the meaning assigned to that
term in SECTION 4.01.
"Environmental Laws" means any and all applicable federal,
state, local and foreign statutes, laws, regulations, ordinances, rules,
judgments, orders, decrees, permits, licenses, agreements or other governmental
restrictions relating to the environment or to emissions, discharges, releases
or threatened releases of pollutants, contaminants, chemicals, or industrial,
toxic or hazardous substances or wastes into the environment including, without
limitation, ambient air, surface water, ground water, or land, or otherwise
relating to the manufacture, processing distribution, use, treatment, storage,
disposal, transport, or handling of pollutants, contaminants, chemicals, or
industrial, toxic or hazardous substances or wastes.
"Environmental Reports" shall mean the Phase I Environmental
Assessments and such other reports as described on Schedule III annexed hereto.
"Environmental Work" means all action, practices, procedures,
arrangements and work (including, without limitation, all testing, sampling,
removal, disposal, remediation and other such work and all maintenance and
prevention work) described on Exhibit L hereof, together with all work
necessary to remediate any contamination or unsafe environmental conditions
disclosed in the course of, or caused by, the foregoing Environmental Work (the
latter work being referred to as the "Supplemental Environmental Work")
"Environmental Work Deadline" means (i) the date which is
specified for each portion of Environmental Work on Exhibit L and (ii) in the
case of the Supplemental Environmental Work, the date which is six months from
the Environmental Work Deadline for
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<PAGE> 16
the portion of the Environmental Work which gave rise to the Supplemental
Environmental Work.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended from time to time, including any rules and regulations
promulgated thereunder.
"ERISA Affiliate" means any corporation or trade or business
which is a member of any group of organizations (i) described in Section 414(b)
or (c) of the Code of which any Consolidated Entity is a member, or (ii) solely
for purposes of potential liability under Section 302(c)(11) of ERISA and
Section 41 2(c)(11) of the Code and the lien created under Section 302(f) of
ERISA and Section 412(n) of the Code, described in Section 414(m) or (o) of the
Code of which any Consolidated Entity is a member.
"Eurodollar Loan" means a Loan at such time as interest
thereon accrues at a fixed rate of interest based upon the LIBO Rate and to
which a single Interest Period applies.
"Events of Default" has the meaning assigned to that term in
SECTION 8.01.
"Excess Cash Flow" means, with respect to any fiscal year of
the Consolidated Entities, Consolidated EBITDA for such fiscal year plus,
without duplication, the result of (a) the sum of (i) non-cash charges,
extraordinary or nonrecurring non-cash losses incurred during such fiscal year
(to the extent taken into account in determining Consolidated EBITDA) and (ii)
any decrease in Working Investment for such fiscal year, minus, without
duplication, (b) the sum of (i) extraordinary or nonrecurring non-cash gains
realized during such fiscal year (to the extent taken into account in
determining Consolidated EBITDA), plus (ii) the aggregate of all principal
payments made during such fiscal year (other than any mandatory payments made
pursuant to SECTION 2.07(b)) on, or with respect to, Consolidated Debt, plus
(iii) the aggregate amount of Consolidated Interest Expense paid during such
fiscal year, plus (iv) income taxes paid by the Consolidated Entities during
such fiscal year, plus (v) dividends declared or paid to the extent permitted
in ARTICLE VII, plus (vi) Consolidated Capital Expenditures made during such
fiscal year not otherwise deducted from Consolidated EBITDA (to the extent that
such Consolidated Capital Expenditures were permitted hereunder), plus (vii)
any increase in Working Investment for such fiscal year, plus (viii) net gains
on asset sales during such fiscal year (to the extent included in determining
Consolidated EBITDA).
"Federal Funds Rate" shall mean the rate per annum equal to
the weighted average of the rates on overnight federal funds transactions as
published by the Federal Reserve Bank of New York for any day of determination
thereof.
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<PAGE> 17
"Financial Statements" has the meaning assigned to that term
in SECTION 5.01.
"Fixed Charge Coverage Ratio" means, at any date of
determination thereof, the ratio of (a) the result of (i) Consolidated EBITDA
for the Relevant Quarter or Relevant Period (as said terms are defined below)
minus (ii) the aggregate amount of Consolidated Capital Expenditures during
such Relevant Quarter or Relevant Period to (b) the sum of (i) all scheduled
payments of principal due during such Relevant Quarter or Relevant Period
(excluding any mandatory payments pursuant to SECTION 2.07) on, or with respect
to, Consolidated Debt (including, without limitation, imputed principal on
Capital Leases), plus (ii) Consolidated Interest Expense during such Relevant
Quarter or Relevant Period, plus (iii) all dividend payments. For purposes
hereof, "Relevant Quarter" means (1) for the period from the Closing Date to
the fiscal quarter ending June 30, 1996, the two most recent fiscal quarters
ended June 30, 1996, (2) for the period after June 30, 1996 to September 30,
1996, the three most recent fiscal quarters ended September 30, 1996, (3) for
the period after September 30, 1996 to December 31, 1996, the four most recent
fiscal quarters ended December 31, 1996, and (4) for all times thereafter, the
Relevant Period, which for the purposes hereof, shall mean the four most
recently ended fiscal quarters of the Consolidated Entities.
"FUNB" shall mean First Union National Bank of Georgia.
"GAAP" shall mean generally accepted accounting principles in
the United States of America as in effect on the date hereof, applied on a
basis consistent with those used in the preparation of Financial Statements
(except for changes concurred in by the Borrowers' independent public
accountants).
"GWI" means Greater Washington Investments, Inc., a Delaware
corporation and wholly-owned subsidiary of Jupiter.
"Hazardous Materials" means any and all pollutants,
contaminants, toxic or hazardous wastes or any other substances, the removal of
which is required or the generation, manufacture, refining, production,
processing, treatment, storage, handling, transportation, transfer, use,
disposal, release, discharge, spillage, seepage, or filtration of which is
restricted, prohibited or penalized by any applicable Environmental Law.
"Initial Repricing Date" shall mean the first date after the
Closing Date on which the Agent shall receive annual audited Financial
Statements of the Consolidated Entities.
"Intangible Assets" shall mean the book amount of all
intangible assets of the Consolidated Entities, on a consolidated basis, which
are or should be classified as intangibles in accordance with GAAP, including,
without limitation, goodwill,
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<PAGE> 18
trademarks, trade names, copyrights, patents, licenses, treasury stock,
customer lists, non-compete contracts, any excess of costs over book carrying
value of any assets, organizational or research and development expenses;
provided, however, that Intangible Assets shall not include any assets,
recorded as intangible assets in accordance with GAAP, that are associated with
any Plan.
"Intercreditor" shall mean that certain Intercreditor
Agreement among Chase, NationsBank, Comerica Bank and FUNB dated as of January
14, 1994, as amended, supplemented or modified from time to time.
"Interest Coverage Ratio" shall mean the ratio of (a)
Consolidated EBIT for the Relevant Quarter or Relevant Period (as said terms
are defined below) to (b) Consolidated Interest Expense during such Relevant
Quarter or Relevant Period. For purposes hereof, "Relevant Quarter" means (1)
for the period from the Closing Date to the fiscal quarter ending June 30,
1996, the two most recent fiscal quarters ended June 30, 1996, (2) for the
period after June 30, 1996 to September 30, 1996, the three most recent fiscal
quarters ended September 30, 1996, (3) for the period after September 30, 1996
to December 31, 1996, the four most recent fiscal quarters ended December 31,
1996, and (4) for all times thereafter, the Relevant Period, which for the
purposes hereof shall mean the four most recently ended fiscal quarters of the
Consolidated Entities.
"Interest Payment Date" shall mean (i) with respect to each
Eurodollar Loan, the last day of the Interest Period for such Eurodollar Loan;
provided, however, that in the case of Interest Periods in excess of three
months, interest shall be payable on the last day of the third month of such
Interest Period, on each integral multiple thereof during such Interest Period
and on the last day of such Interest Period, and (ii) with respect to each Base
Rate Loan, [June 30, 1996] and the last day of each consecutive calendar
quarter thereafter.
"Interest Period" means with respect to any Eurodollar Loan
and subject to availability:
(1) initially, the period commencing on,
as the case may be, the borrowing or conversion date with respect to a
Eurodollar Loan and ending one month, three months or six months thereafter as
selected by the Borrowers; and
(2) thereafter, each period commencing
on the last day of the next preceding Interest Period applicable to such
Eurodollar Loan and ending one month, three months or six months as selected by
the Borrowers by irrevocable notice to the Agent not less than three (3)
Working Days prior to the last day of the then current Interest Period with
respect to such Eurodollar Loan if the Borrowers elect that the Eurodollar Loan
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<PAGE> 19
is to be maintained as such; provided, however, that all of the foregoing
provisions relating to Interest Periods are subject to the following:
(A) if any Interest Period in respect of a
Eurodollar Loan would otherwise end on a day which is not a Working Day, that
Interest Period shall be extended to the next succeeding Working Day unless the
result of such extension would be to carry such Interest Period into another
calendar month in which event such Interest Period shall end on the immediately
preceding Working Day;
(B) no Interest Period which would extend beyond the
Revolving Credit Termination Date, Term Loan A Termination Date or Term Loan B
Termination Date for any portion of a Eurodollar Loan shall be available;
(C) any Interest Period pertaining to a Eurodollar
Loan that begins on the last Working Day of a calendar month (or on a day for
which there is no numerically corresponding day in any calendar month any part
of which commences during such Interest Period) shall end on the last Working
Day of a calendar month;
(D) if the Borrowers shall fail to give notice as to
the Interest Rate desired prior to the end of the Interest Period with respect
to any Eurodollar Loan as provided in this Agreement, the Borrowers shall be
deemed to have elected to convert the affected Eurodollar Loan to a Base Rate
Loan;
(E) for purposes of determining the availability of
Interest Periods in respect of a Eurodollar Loan, such Interest Periods shall
be deemed available if the applicable Bank is offered a rate as provided in the
definition of LIBO Rate. If a requested Interest Period shall be unavailable
in accordance with the foregoing sentence, the Agent may, at its sole option,
either select an alternative Interest Period, or, if no alternative Interest
Period is chosen by the Agent, the Borrowers shall be deemed to have requested
a Base Rate Loan; and
(F) no change in the Applicable Margin in effect for
a Eurodollar Loan shall be permitted until the expiration of the Interest
Period to which such Loan relates, notwithstanding a determination of Debt
Ratio which would warrant a change in the Applicable Margin for such Loan prior
to the expiration of the relevant Interest Period.
"Interest Rate" means (a) for all Base Rate Loans, the Base
Rate plus the Applicable Margin, or (b) for all Eurodollar Loans, the LIBO Rate
for the applicable Interest Period plus the Applicable Margin.
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<PAGE> 20
"Inventory" shall mean all inventory (as determined in
accordance with GAAP) of the Consolidated Entities including, without
limitation, all goods intended for sale, raw materials, work in process and
finished goods, together with all materials and supplies of any kind, nature or
description with respect to such goods and all documents of title or documents
representing the same and any other assets which are or should be classified as
inventory in accordance with GAAP.
"Interest Rate Protection Agreement" means, with respect to
any Person, an interest rate swap, cap or collar agreement or similar
arrangement between one or more financial institutions (including, without
limitation, the Banks) and such Person providing for the transfer or mitigation
of interest risks either generally or under specific contingencies.
"Issuing Bank" means Chase, acting in its capacity as a Bank
hereunder.
"Jupiter Acquisition" shall mean the acquisition by Johnston
of the balance of the issued and outstanding capital stock of Jupiter pursuant
to the terms of the Jupiter Acquisition Documents.
"Jupiter Acquisition Documents" means (a) the Amended and
Restated Agreement and Plan of Merger dated as of January 26, 1996 among
Johnston, Jupiter and J1 Acquisition Corp. and (b) the certificate of merger to
be executed at the closing of the Jupiter Acquisition.
"Jupiter Premises" shall mean the premises located at 39 West
Montgomery Avenue, Rockville, Maryland and owned by Jupiter.
"Lending Office" shall mean the lending office of the Agent
and each Bank designated as such for each type of Loan on the signature page
hereof, or such other office of the Agent and each Bank as the Agent and each
Bank may from time to time specify to the Borrowers as the office by which its
Loans of each type are to be made and maintained.
"Letter of Credit Availability" means, at any date of
determination thereof, the amount by which (a) the lesser of (i) the result of
(A) the aggregate amount of the Revolving Credit Commitments or the Borrowing
Base as of such date, whichever is less, minus (B) the unpaid aggregate
principal amount of the Revolving Credit Loans and Letter of Credit Obligations
then outstanding and (ii) $8,000,000 exceeds (b) the aggregate amount of the
Letter of Credit Obligations at such date.
"Letter of Credit Funding" shall have the meaning assigned to
such term in SECTION 3.05(b) hereof.
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<PAGE> 21
"Letter of Credit Obligations" means, at any date of
determination thereof, all liabilities of the Borrowers with respect to Letters
of Credit, whether or not any liability is contingent, including (without
limitation) the sum (without duplication) of (a) the aggregate amount available
to be drawn under the Letters of Credit then outstanding plus (b) the aggregate
amount of all unpaid Reimbursement Obligations.
"Letters of Credit" shall have the meaning assigned to such
term in SECTION 3.01(a) hereof.
"Leverage Ratio" shall mean, as of any date of determination
thereof, the ratio of (a) Consolidated Debt to (b) Consolidated Tangible Net
Worth.
"LIBO Rate" means with respect to each Interest Period, the
rate per annum equal to the quotient of (a) the rate at which the principal
London branch of the Reference Bank's Lending Office is offered Dollar deposits
three (3) Working Days prior to the beginning of such Interest Period in the
interbank eurodollar market where the foreign currency and exchange operations
of the Lending Office are customarily conducted at or about 10:00 a.m., New
York City time, for delivery on the first day of such Interest Period for the
number of days therein and in an amount comparable to the amount of the
Eurodollar Loan to be outstanding during such Interest Period divided by (b) a
number equal to 1.00 minus the aggregate (without duplication) of the rates
(expressed as a decimal) of reserve requirements current on the date three (3)
Working Days prior to the beginning of such Interest Period (including, without
limitation, basic, supplemental, marginal and emergency reserves under any
regulations of any and all Authorities as now and from time to time hereafter
in effect, dealing with reserve requirements prescribed for eurocurrency
funding (currently referred to as "Eurocurrency liabilities" in Regulation D of
the Board of Governors of the Federal Reserve System ("System")) maintained by
a member bank of such System (such LIBO Rate to be adjusted to the next higher
1/100 of one percent). The foregoing shall not in any way limit or affect any
indemnification by the Borrowers contained in this Agreement.
"Lien" shall mean, with respect to any asset, (a) any
mortgage, lien, pledge, charge, security interest, encumbrance or preference,
priority or other security arrangement of any kind or nature in respect of such
asset, (b) the interest of a vendor or lessor under any conditional sale
agreement, financing lease or other title retention agreement relating to such
asset or (c) the filing of any financing statement under the UCC or comparable
law with respect to such asset.
"Loan" means any Loan made by a Bank pursuant to SECTION 2.01.
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<PAGE> 22
"Loan Documents" shall mean, collectively, this Agreement, the
Notes, the Collateral Security Documents, the Environmental Indemnity, the
Letters of Credit and the Interest Rate Protection Agreements with any Bank,
each as may be amended, modified or restated from time to time.
"Long Term Debt" shall mean, as at any date which the amount
thereof is determined, the aggregate Debt of the Consolidated Entities,
determined on a consolidated basis, which is not included within the definition
of Consolidated Current Liabilities.
"Material Adverse Effect" means any material adverse effect on
(a) the business, properties or condition of the Consolidated Entities, taken
as a whole, (b) the ability of any Consolidated Entity to perform any of its
material obligations under each of the Loan Documents to which it is a party,
(c) the binding nature, validity or enforceability of any of the Loan Documents
or (d) the validity, perfection, priority or enforceability of the Liens in
favor of the Agent securing the obligations hereunder, which, in each case,
arises from, or reasonably could be expected to arise from, any action or
omission of action on the part of any Consolidated Entity or the occurrence of
any event or the existence of any fact or condition in respect of any
Consolidated Entity or any of their respective properties.
"Mortgages" means, collectively, the mortgages which are
listed and described on Schedule II hereto issued by certain of the Borrowers
with respect to the Real Property, as same may be amended, supplemented,
restated or otherwise modified from time to time.
"Multiemployer Plan" shall mean a Plan defined as such in
Section 3(37) of ERISA to which contributions have been made by any
Consolidated Subsidiary or any ERISA Affiliate and which is covered by Title IV
of ERISA.
"Notes" mean, collectively, the Revolving Credit Notes, the
Term A Notes and the Term B Notes.
"Notice of Borrowing" shall have the meaning assigned to that
term in SECTION 2.02.
"Notice of Letter of Credit" shall mean the irrevocable,
written notice of the Borrowers requesting the issuance of a Letter of Credit
pursuant to ARTICLE III of this Agreement in the form annexed hereto as Exhibit
B-2.
"Operating Lease" shall mean any lease of real or personal
property other than a Capital Lease.
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<PAGE> 23
"PBGC" shall mean the Pension Benefit Guaranty Corporation and
any entity succeeding to any or all of its functions under ERISA.
"Participating Interest" means, with respect to each Letter of
Credit, each Bank's undivided participating interest in such Letter of Credit.
"Patent Security Agreement" has the meaning assigned to that
term in SECTION 4.01.
"Permitted Debt" shall mean the Debt described in Schedule
7.02(a)(ii) attached hereto.
"Person" shall mean an individual, partnership, corporation,
business trust, joint stock company, trust, unincorporated association, joint
venture, governmental authority or political subdivision or agency thereof or
other entity of whatever nature.
"Plan" shall mean any employee benefit or other plan
established or maintained, or to which contributions have been made, by any
Consolidated Entity or any ERISA Affiliate and which is covered by Title IV of
ERISA or to which Section 412 of the Code applies.
"Pledge Agreement" has the meaning assigned to that term in
SECTION 4.01.
"Premises" shall mean, collectively, the Real Property and all
improvements thereon encumbered by any of the Mortgages.
"Prime Rate" shall mean the fluctuating rate of interest from
time to time announced by Chase at its principal office presently located at 1
Chase Manhattan Plaza, New York, New York 10081 as its prime commercial lending
rate.
"Prohibited Transaction" means any transaction set forth in
Section 406 of ERISA or Section 4975 of the Code.
"PTA" shall mean Pay Telephone America, Ltd., a Mississippi
corporation, all of whose capital stock is owned by Jupiter.
"Purchase Money Lien" means a Lien on any property acquired by
any Consolidated Entity (including property acquired pursuant to an Acceptable
Acquisition) or placed on any property in order to finance the acquisition of
such property, or the assumption of any Lien on property existing at the time
of the acquisition of such property or of the Person holding such property or a
Lien in connection with any conditional sale or other title retention agreement
or a Capital Lease.
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<PAGE> 24
"Real Property" shall mean all real property listed and
described on Schedule II attached hereto.
"Receivables" means all of each Consolidated Entity's
accounts, contract rights, instruments, documents, chattel paper, general
intangibles relating to accounts, drafts and acceptances, and all other forms
of obligations owing to such Consolidated Entity arising out of or in
connection with the sale or lease of Inventory, goods, equipment or other
property or for services rendered, all guarantees and other security therefor,
whether secured or unsecured, now existing or hereafter created, and whether or
not specifically sold or assigned to the Agent under the Security Agreement or
under any other Collateral Security Document.
"Reference Bank" shall mean Chase.
"Regulatory Change" means, with respect to any Bank, any
change after the date of this Agreement in United States federal, state,
municipal or foreign laws or regulations (including without limitation
Regulation D of the Board of Governors of the Federal Reserve System) or the
adoption or making after such date of any written interpretations, directives
or requests applying to a class of banks of which such Bank is a member, of or
under any United States, federal, state, municipal or foreign laws or
regulations (whether or not having the force of law) by any court or
governmental or monetary authority charged with the interpretation or
administration thereof.
"Reimbursement Obligation" means the obligation of the
Borrowers to reimburse the Issuing Bank in accordance with the terms of this
Agreement for the payment made by the Issuing Bank under any Letter of Credit.
"Reportable Event" shall mean any of the events set forth in
Section 4043(b) of ERISA as to which events the PBGC, by regulation, has not
waived the requirement of Section 4043(a) of ERISA that it be notified within
30 days of the occurrence of such event, provided that a failure to meet the
minimum funding standard of Section 412 of the Code or Section 302 of ERISA
shall be a Reportable Event regardless of any waivers given under Section
412(d) of the Code.
**** "Required Banks" shall mean, at any time, the Banks having at
least 66 2/3% of the aggregate amount of all Commitments, or upon termination
of the Commitments, the Banks holding at least 66 2/3% of the aggregate
principal amount of the outstanding Loans.
"Reserve Requirement" means for any Eurodollar Loan for any
Interest Period therefor, the average maximum rate (expressed as a decimal) at
which reserves (including any marginal, supplemental or emergency reserves) are
required to be maintained
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<PAGE> 25
during such Interest Period under Regulation D by member banks of the Federal
Reserve System in New York City with deposits exceeding $1,000,000,000 against
"Eurocurrency liabilities" (as such term is used in Regulation D). Without
limiting the effect of the foregoing, the Reserve Requirement shall reflect any
other reserves required to be maintained by such member banks by reason of any
Regulatory Change against (i) any category of liabilities which includes
deposits by reference to which the LIBO Rate for Eurodollar Loans is to be
determined as provided in the definition of "LIBO Rate" in this SECTION 1.01 or
(ii) any category of extensions of credit or other assets which include
Eurodollar Loans.
"Restricted Investments" shall have the meaning assigned to
that term in SECTION 7.02(f).
"Restricted Revolver Amount" means $6,000,000 plus all net
proceeds received from the sale, transfer or other disposition by Jupiter
and/or GWI of any of their assets from and after the Closing Date until the
expiration of the Sale Period, which Restricted Revolver Amount may, at the
Borrower's option, be applied during the Sale Period to reduce the principal
amounts outstanding under any Revolving Credit Loans.
"Revolving Credit Borrowing Date" has the meaning assigned to
that term in SECTION 2.02.
"Revolving Credit Commitment" means, with respect to each
Bank, the obligation of such Bank to make Revolving Credit Loans hereunder in
the aggregate principal amount set forth in Schedule I, as such amount may be
reduced or otherwise modified from time to time.
"Revolving Credit Commitment Fee" has the meaning assigned to
that term in SECTION 2.05.
"Revolving Credit Commitment Percentage" means, as to any Bank
at any date of determination thereof, the percentage of the aggregate Revolving
Credit Commitments constituted by such Bank's Revolving Credit Commitment at
such date.
"Revolving Credit Facility" shall mean the Revolving Credit
Loans made available to the Borrowers hereunder in an aggregate principal
amount not to exceed at any one time outstanding $80,000,000.
"Revolving Credit Loan" shall have the meaning assigned to
such term in SECTION 2.01 (a) hereof.
"Revolving Credit Note" means the promissory note issued by
the Borrowers pursuant to SECTION 2.03 evidencing the Revolving Credit Loans
made by a Bank hereunder and all promis-
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<PAGE> 26
sory notes delivered in substitution or exchange therefor, as amended or
supplemented from time to time.
"Revolving Credit Termination Date" means the fifth
anniversary of the Closing Date.
"Sale Period" has the meaning assigned to that term in Section
2.07(a).
"SBA Loans" shall mean the debentures issued by GWI in an
amount equal to $14,500,000 in the aggregate, which have been funded by the
formation of a pool of such debentures and similar securities against which the
U.S. Small Business Administration ("SBA") has issued SBA-guaranteed
participation certificates.
"SBA Sale" has the meaning assigned to that term in Section
2.07(a).
"Secured Guaranties" shall mean the guaranties issued by
Johnston in favor of FUNB to secure certain loans made by FUNB to certain
employees, officers and directors of the Borrowers or Guarantor, which
guaranties are secured as described in the Intercreditor, in an amount of up to
$8,500,000 in the aggregate.
"Security Agreement" has the meaning assigned to that term in
SECTION 4.01.
"Senior Facilities" shall mean the collective reference to the
Lines of Credit and the Revolving Credit Facility (as such terms are defined in
the Amended Agreement referred to below) made available to Johnston, Phenix and
Opp pursuant to that certain Third Amended and Restated Credit and Security
Agreement dated as of January 31, 1995 among the aforesaid obligors and Chase,
NationsBank and Comerica Bank ("Amended Agreement").
"Solvency Certificate" means the consolidated solvency
certificate substantially in the form of Exhibit K to be delivered by Johnston
under the terms of this Agreement.
"Subsidiaries" shall mean the collective reference to any
corporation, association or business entity, the majority of the voting control
of which is owned or controlled, directly or indirectly, by any of the
Borrowers; and "Subsidiary" shall mean any one of them.
"Syndication Agent" shall mean NationsBank, as syndication
agent for the Banks, appointed pursuant to ARTICLE XIII, and its successors, if
any, in such capacity.
"Tarboro Plant" shall mean the Tarboro Plant of Polylock
located at Tarboro, North Carolina and owned by Wellington and the machinery,
equipment and other assets located
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<PAGE> 27
thereon, including the assets described in Schedule 7.01(n) annexed hereto.
"Term Loan A" shall mean the five year term loan made
available to the Borrowers hereunder in an aggregate principal amount not to
exceed $40,000,000, amortized in accordance with SECTION 2.01(b) and for which
Term Loan A Commitments have been made.
"Term Loan A Commitment" means, with respect to each Bank, the
obligation of such Bank to make a Term Loan A under this Agreement in the
aggregate principal amount set forth in Schedule I.
"Term Loan A Note" means the promissory note issued by the
Borrowers pursuant to SECTION 2.03 evidencing the Term Loan A made by a Bank
hereunder and all promissory notes delivered in substitute or exchange
therefor, as amended or supplemented from time to time.
"Term Loan A Termination Date" means the fifth anniversary of
the Closing Date.
"Term Loan B" shall mean the seven year term loan made
available to the Borrowers hereunder in an aggregate principal amount not to
exceed $40,000,000, amortized in accordance with SECTION 2.01(b) and for which
Term Loan B Commitments have been made.
"Term Loan B Commitment" means, with respect to each Bank, the
obligation of such Bank to make a Term Loan B under this Agreement in the
aggregate principal amount set forth in Schedule I.
"Term Loan B Notes" means the promissory note issued by the
Borrowers pursuant to SECTION 2.03 evidencing the Term Loan B made by a Bank
hereunder and all promissory notes delivered in substitution or exchange
therefor, as amended or supplemented from time to time.
"Term Loan B Termination Date" means the seventh anniversary
of the Closing Date.
"Term Loan Percentage" means, as to any Bank at any date of
determination thereof, the percentage of the aggregate outstanding principal
amount of Term Loans constituted by the outstanding principal amount of such
Lender's Term Loan A and/or Term Loan B at such date.
"Term Loans" means, collectively, all Term Loans A and Term
Loans B.
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<PAGE> 28
"Term Notes" means, collectively, all Term Loan A Notes and
Term Loan B Notes.
"Total Costs" has the meaning assigned to that term in
SECTION 14.04.
"Total Loan Commitment" means the aggregate of the Revolving
Loan Commitment, the Term Loan A Commitment and the Term Loan B Commitment in a
maximum aggregate amount not to exceed at any one time outstanding
$160,000,000.
"UCC" shall mean the Uniform Commercial Code as in effect in
the State of New York or in such other State in which the Collateral is
located, as same may be amended or modified from time to time.
"UCP" shall mean the Uniform Customs and Practice for
Documentary Credits (1993 Revision), International Chamber of Commerce,
Publication No. 500.
"Unfunded Vested Liabilities" shall mean, with respect to any
Plan, the amount (if any) by which the present value of all vested benefits
under the Plan exceeds the fair market value of all Plan assets allocable to
such benefits, as determined on the most recent valuation date of the Plan.
"Unrestricted Subsidiary" shall mean any Subsidiary of the
Borrowers that is (i) not incorporated in nor has its principal place of
business and substantially all of its owned operating property located in the
United States, Canada or Puerto Rico, (ii) not in the textile business, (iii)
not a Consolidated Entity or (iv) designated by the Required Banks as an
Unrestricted Subsidiary.
"Wellington Facilities" shall mean, collectively, the
outstanding credit facilities made available to Wellington by Fleet Capital
Corporation and First Alabama Bank in an aggregate outstanding amount equal to
$[_________________].
"Working Investment" shall mean, at any time of determination
thereof, the sum of (i) all accounts receivable and inventory (as determined in
accordance with GAAP) of the Consolidated Entities, minus (ii) accounts payable
and accrued expenses (as determined in accordance with GAAP) of the
Consolidated Entities.
"Working Day" shall mean any day on which dealings in foreign
currencies and exchange are carried on in London, England and in New York, New
York.
SECTION 1.02. Computation of Time Periods. Unless
otherwise provided, in the computation of periods of time from a specified date
to a later specified date herein, the word "from"
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<PAGE> 29
means "from and including" and the words "to" and "until" each means "to but
excluding."
SECTION 1.03. Accounting Terms. All accounting terms not
specifically defined herein shall be construed in accordance with GAAP. In
connection therewith, any references to, or terms, provisions or conditions in
connection with, "the Borrowers and their respective Consolidated
Subsidiaries", hereunder or under any of the Loan Documents, unless the context
otherwise requires, shall be deemed to refer to each of the Borrowers hereunder
and their respective Consolidated Subsidiaries taken as a cumulative whole, on
a fully consolidated basis.
SECTION 1.04. Payments on a Day Other Than a Business Day.
Whenever any payment or other obligation hereunder or under the Loan Documents
shall be due on a day other than a Business Day, such payment shall be made on
the next succeeding Business Day (or, if such next succeeding Business Day
falls in the next calendar month, the preceding Business Day in the appropriate
calendar month).
ARTICLE II
THE CREDIT
SECTION 2.01. The Loans. (a) Subject to the terms and
conditions of this Agreement, each of the Banks severally agrees to make
revolving credit loans (the "Revolving Credit Loans") to the Borrowers from
time to time from the Closing Date to the Revolving Credit Termination Date, in
such amounts that the aggregate principal amount of such Bank's Revolving
Credit Loan(s) at any one time outstanding does not exceed the amount of its
Revolving Credit Commitment. The aggregate amount of the Revolving Credit
Loans outstanding at any time shall never exceed the lesser of (A) the
Borrowing Base then in effect and (B) the Revolving Credit Facility minus the
aggregate amount of Letter of Credit Obligations outstanding at such time. The
Revolving Credit Loans shall be due and payable on the Revolving Credit
Termination Date. Prior to the Revolving Credit Termination Date, Borrowers
may use the Revolving Credit Facility by borrowing, prepaying in whole or in
part, and reborrowing the Revolving Credit Loans, all in accordance with the
terms and conditions of this Agreement; provided, however, that no portion of
the Restricted Revolver Amount shall be borrowed or reborrowed at any time
prior to the Expiration of the Sale Period. Each Revolving Credit Loan made by
a Bank hereunder shall be made and maintained at such Bank's Lending Office for
such type of Loan.
(b) Subject to the terms and conditions of this
Agreement, each of the Banks severally agrees to make a Term Loan A and/or a
Term Loan B to the Borrowers on the Closing Date, in an amount equal to the
amount of its Term Loan A Commitment
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<PAGE> 30
and/or Term Loan B Commitment. The Term Loans shall be repaid in annual
installments, each such installment to be payable on each anniversary of the
Closing Date until and including the Term Loan A Termination Date and Term Loan
B Termination Date, respectively, in the aggregate amounts set forth below,
such that on each such payment date, each Bank shall be paid an amount equal to
such Bank's pro rata share of Term Loan A or Term Loan B, as the case may be
(calculated based on its Term Loan Percentage), of the amounts set forth below:
<TABLE>
<CAPTION>
AGGREGATE ANNUAL AMOUNT OF
PAYMENT DATE INSTALLMENT
------------ -----------
<S> <C> <C>
TERM LOAN A YEAR 1 - 0 -
YEAR 2 $ 8,000,000
YEAR 3 $10,000,000
YEAR 4 $10,000,000
YEAR 5 $12,000,000
TERM LOAN B YEAR 1 - 0 -
YEAR 2 $ 500,000
YEAR 3 $ 500,000
YEAR 4 $ 500,000
YEAR 5 $ 500,000
YEAR 6 $19,000,000
YEAR 7 $19,000,000
</TABLE>
Each type of Term Loan made by a Bank hereunder shall be made and maintained at
such Bank's Lending Office for such type of Loan.
SECTION 2.02. Making the Loans. (a) Each Borrower agrees to
give to the Agent at least one (1) Business Day's prior, irrevocable written
notice duly completed substantially in the form of Exhibit B annexed hereto (a
"Notice of Borrowing") for a Base Rate Loan and at least three (3) Working
Days' prior, irrevocable written notice, by a duly completed Notice of
Borrowing, for a Eurodollar Loan of its intention to borrow under this ARTICLE
II specifying: (i) the proposed revolving credit borrowing date ("Revolving
Credit Borrowing Date"), (ii) the principal amount of the Revolving Credit Loan
to be made on such date, which shall be in an amount of not less than $500,000
or an integral multiple of $50,000 in excess thereof for Base Rate Loans or in
an amount of not less than $3,000,000 or an integral multiple of $250,000 in
excess thereof for Eurodollar Loans, and (iii) whether the Revolving Credit
Loan is to be a Base Rate Loan
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<PAGE> 31
or a Eurodollar Loan and, if the Loan is a Eurodollar Loan, the Interest
Period; provided, however, that no Eurodollar Loans shall be made or available
to the Borrowers until the 60th day after the Closing Date. The Agent shall
promptly deliver to each Bank by telefax any such Notice of Borrowing received
from a Borrower. If any borrowing under this SECTION 2.02 occurs upon the
execution and delivery of this Agreement, the Notice of Borrowing may be
delivered to the Agent by no later than 12:00 noon on such date, and each Bank
with a Revolving Credit Commitment shall, through the Lending Office of the
Agent and subject to the conditions of this Agreement, make the amount of the
Revolving Credit Loan to be made by it in accordance with its Revolving Credit
Commitment available to the Borrowers by 1:00 p.m. on such day in immediately
available funds, provided, however, that no Revolving Credit Loan shall be made
unless the Notice of Borrowing shall have been received by the Agent by 12:00
noon on such day. Each Notice of Borrowing shall be made by written
instructions signed by a person authorized by the Borrowers to execute and
deliver such Notice of Borrowing (an "Authorized Signatory").
(b) Subject to the terms of this Agreement,
funding of any Loan by the Banks shall be made by crediting an account of such
Borrower maintained with the Agent, in accordance with the instructions set
forth in the Notice of Borrowing.
(c) The obligations of the Borrowers hereunder shall
be joint and several and each Loan made to any one of the Borrowers shall be
deemed to be a Loan made to all of the Borrowers hereunder.
SECTION 2.03. The Notes. On or prior to the Closing Date,
each Borrower shall duly issue and deliver to the Agent for each Bank in
accordance with its Revolving Credit Commitment, Term Loan A Commitment and/or
Term Loan B Commitment, a Revolving Credit Note, Term Loan A Note and/or Term
Loan B Note in the forms of Exhibits A-1, A-2 and A-3, respectively, annexed
hereto, payable to the order of each Bank, dated the Closing Date, in the
principal amount of each Bank's Commitment. Each Bank is hereby authorized by
the Borrowers to enter on the schedule attached to its Revolving Credit Note
the amount of each Revolving Credit Loan made by such Bank hereunder, each
payment thereon, and the other information provided for on such schedule;
provided, however, that the failure to make any such entry or any error in
making any such entry with respect to any Revolving Credit Loan shall not limit
or otherwise affect the joint and several obligations of the Borrowers
hereunder or under any Revolving Credit Note, and, in all events, the principal
amount jointly and severally owing by the Borrowers in respect of the Notes
shall be the aggregate of all Loans made by the Banks less all payments of
principal thereon made by the Borrowers. In the event that such schedule shall
be filled, each Bank may attach an additional schedule or schedules thereto.
The Agent will maintain on its
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<PAGE> 32
books accounts showing the aggregate principal amount of all Loans made from
time to time by the Banks hereunder, interest accrued hereunder from time to
time and all payments and prepayments with respect thereto made from time to
time by the Borrowers hereunder, and the entries made in such accounts shall be
prima facie evidence of the existence and amount of the obligations of the
Borrowers therein recorded. In case of discrepancy between the entries in the
Agent's books, and any Bank's, such Bank's account shall be considered correct
in the absence of manifest error. Each Revolving Credit Note shall mature on
the Termination Date; each Term Loan A Note shall mature on the Term Loan A
Termination Date and each Term Loan B Note shall mature on the Term Loan B
Termination Date.
SECTION 2.04. Interest; Conversion. (a) Interest shall
accrue on the outstanding and unpaid principal amount of each Loan for the
period from the date of such Loan to the date such Loan is due at the
applicable Interest Rate for such Loan. If an Event of Default shall exist,
interest shall accrue on the outstanding principal amount of any Loan and any
other amount payable by the Borrowers hereunder, under any Note or under any
other Loan Document to the fullest extent permitted by law from such due date
to the date such amount is paid in full or such Event of Default is cured or
waived at the Default Rate. Interest on each Loan shall be calculated on the
basis of a year of 360 days for the actual number of days elapsed. Promptly
after the determination by Agent of any Interest Rate provided for herein or
any change therein (including the Applicable Margin thereof), the Agent shall
notify the Borrowers and the Banks in writing of such determination.
(b) Each change in the rate of interest payable
on the Notes due to a change in the Federal Funds Rate or the Prime Rate shall
be effective as of the effective date of such change in the applicable rate.
(c) With respect to Eurodollar Loans and to
conversions from Eurodollar Loans to Base Rate Loans or from Base Rate Loans to
Eurodollar Loans:
(i) Interest on a Eurodollar Loan
shall be payable on the first Interest Payment Date following the Closing Date
and each Interest Payment Date thereafter, and at maturity, until and including
the date the principal amount of each Revolving Credit Note or Term Note is
paid in full.
(ii) The Borrowers may elect from time
to time to convert a Loan from a Eurodollar Loan to a Base Rate Loan by giving
the Agent irrevocable written notice at least three (3) Working Days prior to
the last day of the Interest Period for such Eurodollar Loan. If the Borrowers
shall fail to give such notice as provided above, the Borrowers shall be deemed
to have
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<PAGE> 33
elected to convert the affected Eurodollar Loan to a Base Rate Loan.
(iii) The Borrowers may elect from time
to time to (A) convert a Loan from a Base Rate Loan to a Eurodollar Loan and
(B) may elect to continue a Loan as a Eurodollar Loan as such upon the
expiration of the then current Interest Period with respect to such Eurodollar
Loan, in each case by giving the Agent irrevocable written notice at least
three (3) Working Days prior to, in the case of conversion, the conversion
date, or, in the case of a continuation, the last day of the then current
Interest Period with respect to such Eurodollar Loan. The Agent shall promptly
notify each Bank of a Borrower's election pursuant to any such notice. With
respect to any of the foregoing, such notice shall specify the amount to be
converted to or continued as a Eurodollar Loan and the selected Interest
Period. If any default in payment under this Agreement or any of the Notes
shall have occurred and be continuing, then no Eurodollar Loan may be continued
as such, but shall be automatically converted to a Base Rate Loan on the last
day of the last Interest Period for which a LIBO Rate was determined by the
Reference Bank on or prior to such Bank's obtaining knowledge of such default;
in addition no Base Rate Loan may be converted to a Eurodollar Loan when any
such default has occurred and is continuing.
(iv) A Eurodollar Loan shall have only
one (1) Interest Period. A Eurodollar Loan may have an Interest Period of one
month, three months or six months, but no combination thereof. No more than
five Interest Periods may be outstanding at any one time.
(v) In the event that the Reference
Bank shall have determined (which determination shall be conclusive and binding
upon the Borrowers) that (A) by reason of circumstances affecting the interbank
eurodollar market, adequate and reasonable means do not exist for ascertaining
the LIBO Rate for any requested Interest Period or (B) the LIBO Rate determined
pursuant to this SECTION 2.04 for such Interest Period does not accurately
reflect the cost to such Bank of making or maintaining a LIBO Rate Loan during
such Interest Period, with respect to (1) a proposed Loan that the Borrowers
have requested be made as a Eurodollar Loan, (2) a Eurodollar Loan that will
result from the requested conversion of a Base Rate Loan to a Eurodollar Loan
or (3) the continuation of a Eurodollar Loan beyond the expiration of the then
current Interest Period with respect thereto, in each case the Agent, at the
direction of the Reference Bank, shall forthwith give notice by telephone of
such determination, confirmed in writing, to the Borrowers and at least one day
prior to, as the case may be, the requested date for such Eurodollar Loan, the
conversion date of such Base Rate Loan or the last day of such Interest Period.
If such notice is given, (x) any requested Eurodollar Loan shall be made as a
Base Rate Loan, (y) any Base Rate Loan that was to have been converted to a
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Eurodollar Loan shall be continued as a Base Rate Loan and (z) any outstanding
Eurodollar Loan shall be converted, on the last day of the then current
Interest Period with respect thereto, to a Base Rate Loan. Until such notice
has been withdrawn by the Agent, at the direction of the Reference Bank, no
further Eurodollar Loans shall be made nor shall the Borrowers have the right
to convert a Base Rate Loan to a Eurodollar Loan.
(vi) With respect to Eurodollar Loans,
all payments made by the Borrowers hereunder shall be made free and clear of,
and without reduction for or on account of future income, stamp or other taxes,
levies, imposts, duties, charges, fees, deductions, reserves or withholdings
hereafter imposed, levied, collected, withheld or assessed by any Authority
(collectively, "Foreign Taxes"), excluding income and franchise taxes of the
United States of America or any political subdivision or taxing authority
thereof or therein (including Puerto Rico), and the county in which the
applicable Bank's Lending Office may be located or any political subdivision or
taxing authority thereof or therein. If any Foreign Taxes are required to be
withheld from any amounts payable to a Bank hereunder, the amounts so payable
to such Bank shall be increased to the extent necessary to yield to such Bank
(after payment of all Foreign Taxes) interest or any such other amounts payable
hereunder at the rate or in the amounts specified hereunder. Whenever any
Foreign Tax is payable pursuant to applicable law by the Borrowers, as promptly
as possible thereafter, such Borrower shall send to the applicable Bank an
original official receipt, if available, or certified copy thereof showing
payment of such Foreign Tax. The Borrowers hereby jointly and severally
indemnify the Banks for any incremental taxes, interest or penalties that may
become payable by any of the Banks which may result from any failure by the
Borrowers to pay any such Foreign Tax when due to the appropriate taxing
authority or failure to remit to the Banks the required receipts or other
required documentary evidence.
(vii) Notwithstanding any other
provisions herein, if any law, treaty, rule or regulation or determination of
an arbitrator or a court or other Authority, in each case applicable to or
binding upon such Person or any of its property or to which such Person or any
of its property is subject ("Requirement of Law") or any change therein or in
the interpretation or application thereof, shall hereafter make it unlawful for
any of the Banks to make or maintain a Eurodollar Loan as contemplated
hereunder, (A) the commitment of the Banks hereunder to convert Base Rate Loans
to Eurodollar Loans shall be cancelled forthwith, and (B) any outstanding
Eurodollar Loan shall be converted automatically to a Base Rate Loan on the
next succeeding Interest Payment Date or within such earlier period as required
by any such law. The Borrowers hereby agree promptly to pay the Banks, upon
demand, any additional amounts necessary to compensate the Banks for any costs
incurred by the Banks in making any such conversion in accordance with this
Agreement,
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including, but not limited to, any interest or fees payable by the Banks to
lenders of funds obtained by it in order to make or maintain its Eurodollar
Loans hereunder. A Bank's notice of such costs, as certified to the Borrowers,
shall be conclusive absent manifest error.
(viii) In the event that any Requirement
of Law or any change therein or in the interpretation or application thereof or
compliance by any Bank with any request or directive (whether or not having the
force of law) from any central bank or other Authority:
(A) does or shall hereafter subject a
Bank to any tax of any kind whatsoever with respect to this Agreement,
the Notes or any Loans made by such Bank, or change the basis of
taxation of payments to such Bank of principal, commitment fee,
interest or any other amount payable hereunder (except for changes in
the rate of tax on the overall net income of a Bank);
(B) does or shall hereafter impose,
modify or hold applicable any reserve, special deposit, compulsory
loan or similar requirement against assets held by, or deposits or
other liabilities in or for the account of, advances or loans by, or
other credit extended by, or any other acquisition of funds by, any
office of a Bank which is not otherwise included in the determination
of the LIBO Rate hereunder;
(C) does or shall hereafter have the
effect of reducing the rate of return on a Bank's capital as a
consequence of its obligations hereunder to a level below that which
such Bank could have achieved but for such adoption, change or
compliance (taking into consideration such Bank's policies with
respect to capital adequacy) by any amount deemed by such Bank to be
material; or
(D) does or shall hereafter impose on
a Bank any other condition; and the result of any of the foregoing is
to increase the cost to such Bank of making, renewing or maintaining
advances or extensions of credit or to reduce any amount receivable
hereunder,
then, absent manifest error by any such Bank, in any such case, the Borrowers
shall promptly pay such Bank, upon its demand, any additional amounts necessary
to compensate such Bank for such additional cost or reduced amount receivable
which such Bank deems to be material as determined by such Bank. If a Bank
becomes entitled to claim any additional amounts pursuant to this paragraph, it
shall notify the Borrowers promptly of the event by reason of which it has
become so entitled. A certificate as to any additional amounts payable
pursuant to the foregoing sentence submitted by such Bank to the Borrowers and
to the Agent shall be
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conclusive in the absence of manifest error. This provision shall survive
payment of the Note and payment of all obligations under this Agreement.
(ix) The Borrowers agree to jointly
and severally indemnify the Banks and to hold the Banks harmless from any loss
or expense which any of the Banks may sustain or incur as a consequence of (A)
default by the Borrowers in payment of the principal of or interest on any
Eurodollar Loans, including, but not limited to, any such loss or expense
arising from interest or fees payable by any Bank to lenders of funds obtained
by it in order to maintain its Eurodollar Loans hereunder, (B) default by the
Borrowers in making a borrowing or conversion after the Borrowers have given a
notice in accordance with this Agreement, including, but not limited to, any
such loss or expense arising from interest or fees payable by any Bank to
lenders of funds obtained by it in order to make or maintain its Eurodollar
Loans hereunder, and (C) any prepayment of Eurodollar Loans on a day that is
not the last day of an Interest Period with respect thereto, including, but not
limited to, any such loss or expense arising from interest or fees payable by
any Bank to lenders of funds obtained by it in order to maintain its Eurodollar
Loans hereunder. This provision shall survive payment of the Notes in full and
the satisfaction of all obligations of the Borrowers under this Agreement and
the Loan Documents.
SECTION 2.05. Fees. (a) In order to induce the Banks to
enter into this Agreement, the Borrowers shall pay to the Agent for the account
of each Bank, in arrears, a commitment fee (the "Revolving Credit Commitment
Fee") on the daily average unborrowed amount of the Revolving Credit Facility
then available for the period commencing on the Closing Date to the Repricing
Date at the rate of fifty (50) basis points (1/2 of 1%), computed on the basis
of a 360-day year for the actual number of days elapsed. Thereafter, the
Revolving Credit Commitment Fee shall be payable upon any reduction or
termination of the Revolving Credit Facility and quarterly, in arrears,
commencing on the first Measurement Date after the Repricing Date at a rate of
twenty-five (25) basis points (1/4 of 1%) if the Debt Ratio during the 3-month
period ended on such Measurement Date is less than 2.00:1; thirty-seven and
one-half (37.50) basis points (.375%) if the Debt Ratio during the 3-month
period ended on a Measurement Date is greater than 2.00:1 but less than or
equal to 3.50:1; and fifty (50) basis points (1/2 of 1%) if the Debt Ratio
during the 3-month period ended on a Measurement Date is greater than 3.50:1.
(b) The Borrowers shall pay to the Agent and the
Arranger, respectively, for each of their own accounts, the fees set forth in
the fee letter between the Borrowers and the Agent on the Closing Date or as
otherwise set forth in such fee letter.
SECTION 2.06. Prepayments. (a) Upon at least three (3)
Business Days' or Working Days', as the case may be, prior
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written notice to the Agent specifying the amount and the date of prepayment,
the Borrowers shall have the right to prepay the principal amount of the Term
Notes in whole or in part from time to time, in principal amounts equal to at
least $500,000, or in any larger amount provided said amount is an integral
multiple of $50,000, or the remaining balance, if less, in all cases without
premium or penalty, subject to clause (b) herein. All such prepayments shall
be applied pro rata to the principal installments of the Term Loans in inverse
order of their maturities, and in accordance with the Banks' respective
Commitments.
(b) The Borrowers shall have the right to make
prepayments of the principal amount of any Eurodollar Loan without penalty or
premium (other than compensation payable in accordance with SECTION 2.13) at
any time or from time to time, provided that the Borrowers give the Agent prior
written notice of each such prepayment as provided in clause (a) above, and
such Eurodollar Loans are prepaid only on the last day of an Interest Period
for such Loans, unless the Borrowers agree to provide to the Agent, for the
account of each Bank, compensation in accordance with SECTION 2.13 and subject
to SECTION 2.04(c).
SECTION 2.07. Mandatory Prepayment. (a) If, at any time,
any Consolidated Entity sells or otherwise disposes of all or any substantial
part of its assets (other than in the ordinary course of business) ("Sale"),
then, (i) with respect to the Restricted Revolver Amount, 100% of such proceeds
shall be applied to the SBA Loans after six (6) months from the Closing Date
(the "Sale Period") if GWI has failed, by the end of such Sale Period, to sell,
transfer or otherwise dispose of the SBA Loans, whether as a separate asset or
as part of the sale of GWI as a going concern ("SBA Sale"); (ii) with respect
to the Restricted Revolver Amount in the event that the SBA Sale has occurred
prior to the end of the Sale Period, 100% of such proceeds shall be applied (x)
first, to the principal installments of the Term Loans in inverse order of
their maturities until the Term Loans shall have been paid in full, and (y)
second, to the Revolving Credit Loans until the Revolving Credit Loans shall
have been paid in full; (iii) with respect to any proceeds received from Sales
in an amount in excess of the Restricted Revolver Amount but less than or equal
to $20,000,000 on or prior to the first anniversary of the Closing Date, 100%
of such proceeds (net of taxes and transaction expenses, including commissions)
shall be applied to the principal installments of the Term Loans in inverse
order of their maturities until the Term Loans shall have been paid in full;
(iv) with respect to proceeds received from Sales in an amount in excess of
$20,000,000 on or prior to the first anniversary of the Closing Date, 100% of
the cash consideration received (net of taxes and transaction expenses,
including commissions), shall be applied, at the Borrowers' option, to the
principal installments of the Term Loans in inverse order of their maturities
until the Term Loans shall have been paid in full, or to the Revolving Credit
Loans until the
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Revolving Credit Loans shall have been paid in full; and (v) with respect to
proceeds received from Sales after the first anniversary of the Closing Date,
100% of the cash consideration shall be applied (x) first, to the principal
installments of the Term Loans in inverse order of their maturities until the
Term Loans shall have been paid in full, and (y) second, to the Revolving
Credit Loans until the Revolving Credit Loans shall have been paid in full.
(b) Not later than 5 days after receipt by the Agent of
the Consolidated Entities' audited fiscal year-end Financial Statements,
commencing with the year ending December 31, 1996, the Borrowers shall make
mandatory prepayments in an aggregate amount equal to (i) 75% of the Excess
Cash Flow for each fiscal year, (ii) 100% of the insurance proceeds recovered
by any Consolidated Entity, but which are not applied, within a reasonable time
after receipt thereof, toward repair, replacement or substitution of damaged or
lost property for which such proceeds were recovered ("Insurance"), and (iii)
100% of the net proceeds of any issuance by any Consolidated Entity of Debt or
equity ("Debt Issuance"), other than Debt Issuances which are a result of any
intercompany loans made by one Borrower to another or the exercise of any stock
options by any employee of any Borrower, in either case, if otherwise
permissible under this Agreement. In each case, such Insurance or Debt
Issuance proceeds, or Excess Cash Flow, whenever received, shall be applied (x)
first to the principal installments of the Term Loans in inverse order of their
maturities until the Term Loans shall have been paid in full, and (y) second,
to the Revolving Credit Loans until the Revolving Credit Loans shall have been
paid in full.
(c) If any time prior to the Revolving Credit Termination
Date, the aggregate amount of all Revolving Credit Loans shall exceed the
result of (i) the lesser of (A) the Borrowing Base and (B) the aggregate amount
of the Revolving Credit Facility minus (ii) the aggregate amount of Letter of
Credit Obligations outstanding at such time, the Borrowers shall repay the
Banks forthwith such amounts as may be necessary to eliminate such excess.
(d) The Borrowers shall make all mandatory prepayments
due hereunder to the Agent, for the account of the Banks, in amount(s) due
within five (5) days after the occurrence of an event triggering the mandatory
prepayment hereunder. All applications of such mandatory prepayments as set
forth in clauses (a) and (b) hereof shall be made on a pro rata basis, in
accordance with the Banks' respective Commitments.
SECTION 2.08. Changes of Commitments. The Borrowers shall
have the right to reduce or terminate the pro rata amount of unused Commitments
at any time or from time to time, computed on the basis of each Bank's
Commitment, provided that the Borrowers shall have given three (3) Business
Days' prior, irrevocable,
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written notice of each such reduction or termination to the Agent (who will
notify the Banks promptly of the receipt of such notice) specifying the amount
of the Commitment to be reduced or terminated. Each partial reduction shall be
in an aggregate amount at least equal to $500,000. The Commitments, once
reduced or terminated, may not be reinstated.
SECTION 2.09. Use of Proceeds. The proceeds of all
borrowings made by Borrowers hereunder shall be used by the Borrowers solely
(i) to finance the Jupiter Acquisition; (ii) to finance working capital
requirements; (iii) for general corporate purposes in connection with the
Borrowers' ordinary business affairs as currently conducted; (iv) to repay
existing indebtedness of the Consolidated Entities (other than existing
indebtedness of TJB, unless and until all liens, encumbrances and other
security interests of any creditor of TJB existing as of the Closing Date
including, without limitation, the Liens listed on Schedule 7.02(d)(X) as
temporarily Permitted Liens of TJB, shall be terminated or otherwise satisfied
to the satisfaction of the Agent within 15 Business Days from the Closing Date;
(v) to finance certain joint projects between or among Consolidated Entities;
provided, however, that no more than $41,000,000 of the aggregate amount of the
proceeds of the Loans advanced on the Closing Date shall be used to finance the
Jupiter Acquisition, and the proceeds of any Loans made hereunder shall not be
used for the purpose, whether immediate, incidental or ultimate, of (x)
purchasing or carrying margin stock or margin securities within the meaning of
Regulations U, G, T and X of the Board of Governors of the Federal Reserve, or
(y) financing the activities, working capital requirements or expenditures, of
any nature, of GWI; and (vi) to finance the repurchase by Johnston of its
common stock in an amount not to exceed $2,150,000, provided such repurchase
occurs contemporaneously with the closing of this Agreement.
SECTION 2.10. Late Payments. If any payment is not made when
due hereunder or under the Notes, whether at maturity, by acceleration or
otherwise, and with respect to late payments of interest, after notice of
default has been given and the expiration of any applicable grace period
pursuant to SECTION 8.01(a) hereof, interest on the total of the unpaid
principal amounts then due and on all other amounts due thereunder shall accrue
at a rate per annum equal to the Default Rate from the due date thereof until
paid in full and the unpaid principal amount of the Notes, plus interest and
all amounts due thereunder shall immediately be due and payable.
SECTION 2.11. Payments and Computations. (a) The Borrowers
shall make each payment due hereunder and under the Notes not later than 1:00
P.M. (New York City time) on the date when due, in same day funds to the
account of the Agent at its Lending Office or as otherwise directed by the
Agent.
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(b) The Borrowers hereby authorize the Agent, if
and to the extent payment owed to the Banks is not made when due hereunder or
under the Notes, to apply any amount available under the Commitment or any
credit balance to which Borrowers are entitled on any account of Borrowers with
the Agent in satisfaction of any sums due and payable from Borrowers hereunder
but unpaid. The Agent shall not be obligated to exercise any right given to it
by this SECTION 2.11. The failure or delay of the Agent in exercising any such
right shall not be deemed a waiver thereof and the rights available to the
Agent under this SECTION 2.11 are in addition to any other rights available to
the Agent hereunder, at law or in equity.
(c) All computations of interest and fees
hereunder shall be made by the Agent on the basis of a year of 360 days, in
each case for the actual number of days elapsed (including the first day but
excluding the last day) occurring in the period for which such interest is
payable. Each determination by the Agent of the Interest Rate hereunder shall
be conclusive and binding for all purposes.
SECTION 2.12. Application of Payments. Except as otherwise
provided in this Agreement, the Agent shall have the absolute right to
determine the order in which payments received under this Agreement and the
Notes shall be applied to the amounts which are then due and payable hereunder,
regardless of any application designated by the Borrowers; provided, however,
that unless and until the occurrence of an Event of Default hereunder, all
payments, including all prepayments, shall be applied first against any fees or
expenses due and payable under this Agreement and the Notes or any other Loan
Document, second against interest due under the Notes and third, against the
principal amount of the Notes then due and payable, pro rata to each Bank's
Commitment.
SECTION 2.13. Reserves; Additional Costs; Taxes. In the
event that any applicable law, regulation or guideline or any interpretation
thereof by any governmental authority charged with administration thereof, or
any change therein, subjects any Bank to any tax of any kind whatsoever with
respect to any Loan hereunder, or changes the basis of taxation of payments to
any Bank of principal or interest payable on such Loans (except for the changes
in the rate of tax based solely on the overall net income of the Banks) or
imposes, modifies or deems applicable any reserve, special deposit or similar
requirement against assets held by or deposits or other liabilities in or for
the account of, or Loans made by, any Bank or imposes on any Bank, directly or
indirectly, any of the conditions affecting such Loans or the cost of U.S.
dollar deposits obtained by any Bank in the interbank market, and the result of
any of the foregoing is to increase the cost to any Bank of making or
maintaining such Loans by an amount which such Bank deems to be material, then
Borrowers will pay to the Agent, for the account of such Bank, upon its demand,
the
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additional amount necessary to compensate such Bank for such additional cost.
Absent manifest error, the Bank's statement shall be conclusive as to any
additional amount to be paid. Borrowers shall pay to the Agent all principal
of and interest on any such Loans free and clear of any and all present and
future taxes, levies, imposts, duties, deductions, withholdings, fees,
liabilities and similar charges. In the event Borrowers are or may become
required to pay any such costs, Borrowers may elect to prepay any outstanding
Loans, together with any such costs and any additional costs associated with
such prepayment including, without limitation, any losses associated with
redeployment of prepaid amounts at rates different from that borne by such
prepaid Loans.
ARTICLE III
THE LETTERS OF CREDIT
SECTION 3.01. Letters of Credit. (a) Subject to the terms and
conditions of this Agreement, the Issuing Bank, on behalf of the Banks, and in
reliance on the agreement of the Banks set forth in SECTION 3.04, agrees to
issue on any Business Day prior to the Revolving Credit Termination Date, for
the account of any Borrower, irrevocable standby and documentary letters of
credit in such form as may from time to time be approved by the Issuing Bank
(together with the applications therefor, the "Letters of Credit"); provided
that on the date of the issuance of any Letter of Credit, and after giving
effect to such issuance, the Letter of Credit Obligations shall not exceed the
Letter of Credit Availability.
(b) Each Letter of Credit shall (i) have an
expiry date no later than the earlier of (A) one year from the date of issuance
and (B) the Revolving Credit Termination Date, (ii) be denominated in Dollars,
(iii) be in a minimum face amount of $100,000 and (iv) provide for the payment
of sight drafts when presented for honor thereunder in accordance with the
terms thereof and when accompanied by the documents described or when such
documents are presented, as the case may be.
SECTION 3.02. Purposes. The Borrowers shall use the Letters of
Credit for working capital and general corporate purposes.
SECTION 3.03. Procedures for Issuance of Letters of Credit. The
Borrowers may from time to time request that the Issuing Bank issue a Letter of
Credit by delivering to the Issuing Bank at its address for notices specified
herein a Notice of Letter of Credit and an application for the Letter of Credit
in such form as may from time to time be approved by the Issuing Bank,
completed to the reasonable satisfaction of the Issuing Bank, and such other
certificates, documents and other papers and information as the
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Issuing Bank may reasonably request. Upon receipt of any such application, the
Issuing Bank will process such application and the certificates, documents and
other papers and information delivered to it in connection therewith in
accordance with its customary procedures and shall promptly issue the Letter of
Credit, in such customized form as may reasonably be requested by such Borrower
(but in no event shall the Issuing Bank issue any Letter of Credit later than
three Business Days after receipt of the application therefor and all such
other certificates, documents and other papers and information relating thereto
in fulfillment of all conditions), by issuing the original of such Letter of
Credit to the beneficiary thereof or as otherwise may be agreed by the Issuing
Bank and such Borrower. The Issuing Bank shall furnish a copy of such Letter
of Credit to such Borrower and the Agent promptly following the issuance
thereof.
SECTION 3.04. Participating Interests. In the case of each Letter of
Credit, effective as of the date of the issuance thereof, the Issuing Bank
agrees to allot and does allot to each other Bank with a Revolving Credit
Commitment, and each such Bank severally and irrevocably agrees to take and
does take a Participating Interest in such Letter of Credit in a percentage
equal to such Bank's pro rata share of the Letter of Credit Obligations
(calculated based on its Revolving Credit Commitment Percentage).
SECTION 3.05. Payments. (a) In order to induce the Issuing Bank to
issue the Letters of Credit, the Borrowers, jointly and severally, agree to
reimburse the Issuing Bank, for the account of the Banks, by not later than
1:00 p.m., New York City time, on each date that the Borrowers have been
notified by the Issuing Bank that any draft presented under any Letter of
Credit is to be paid by the Issuing Bank, for (i) the amount of the draft to be
paid by the Issuing Bank and (ii) the amount of any taxes, fees, charges or
other reasonable costs or expenses whatsoever incurred by the Issuing Bank or
any other Bank in connection with any payment made by the Issuing Bank under,
or with respect to, such Letter of Credit. Each such payment shall, subject to
the next sentence hereof, be made to the Issuing Bank at its Lending Office
therefor, in lawful money of the United States and in immediately available
funds by not later than 1:00 p.m., New York City time, on the day that payment
is made by the Issuing Bank (or, if such drawing occurs after 1:00 p.m. New
York City time, on the next succeeding Business Day). If such payment is not
made in full, all amounts remaining unpaid by any Borrower under this SECTION
3.05 shall, to the extent otherwise permitted hereunder, automatically be
deemed to be a borrowing as Revolving Credit Loans bearing interest at the Base
Rate plus the Applicable Margin. Except as otherwise permitted by the
preceding sentence, interest on any and all amounts remaining unpaid by the
Borrowers under this SECTION 3.05 at any time from the date such amounts become
payable (whether at stated maturity, by acceleration or otherwise) until
payment in full, shall be payable to the Issuing Bank on demand at the Default
Rate.
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(b) In the event that the Issuing Bank makes a payment (a
"Letter of Credit Funding") under any Letter of Credit and is not reimbursed in
full therefor on or before the date of such Letter of Credit Funding in
accordance with the terms hereof, the Issuing Bank will promptly, through the
Agent, notify each Bank with a Participating Interest in such Letter of Credit.
No later than the close of business on the date any such notice is given, each
such Bank will transfer to the Agent, for the account of the Issuing Bank, in
immediately available funds, an amount equal to such Bank's pro rata share of
the unreimbursed portion of such Letter of Credit Funding (calculated based on
its Revolving Credit Commitment Percentage), together with interest, if any,
accrued thereon from and including the date of such transfer at a rate per
annum equal to the Federal Funds Rate.
(c) Whenever, at any time after the Issuing Bank has made
a Letter of Credit Funding and has received from any Bank such Bank's pro rata
share of the unreimbursed portion of such Letter of Credit Funding, the Issuing
Bank receives any reimbursement on account of such unreimbursed portion or any
payment of interest on account thereof, the Issuing Bank will distribute to the
Agent, for the account of each such Bank, its pro rata share thereof; provided,
however, that in the event that the receipt by the Issuing Bank of such
reimbursement or such payment of interest (as the case may be) is required to
be returned, such Bank will promptly return to the Agent, for the account of
the Issuing Bank, any portion thereof previously distributed by the Issuing
Bank to it.
SECTION 3.06. Further Assurances. The Borrowers hereby agree to do
and perform any and all acts and to execute any and all further instruments
from time to time reasonably requested by the Issuing Bank more fully to effect
the purposes of this Agreement and the issuance of the Letters of Credit
hereunder.
SECTION 3.07. Obligations Absolute. The payment obligations of the
Borrowers under SECTION 3.05 shall be joint and several, unconditional and
irrevocable and shall be paid strictly in accordance with the terms of this
Agreement under all circumstances, including, without limitation, the following
circumstances:
(a) the existence of any claim, set-off, defense or other
right which any Borrower may have at any time against any beneficiary, or any
transferee, of any Letter of Credit (or any Persons for whom any such
beneficiary or any such transferee may be acting), the Issuing Bank or any
Bank, or any other Person, whether in connection with this Agreement, any other
Loan Document, the transactions contemplated herein, or any unrelated
transaction;
(b) any statement or any other document presented under
any Letter of Credit proves to be forged, fraudulent, in-
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valid or insufficient in any respect or any statement therein is untrue or
inaccurate in any respect;
(c) payment by the Issuing Bank under any Letter of
Credit against presentation of a draft or certificate which does not comply
with the terms of such Letter of Credit; or
(d) any other circumstances or happening whatsoever,
whether or not similar to any of the foregoing, provided that this subparagraph
(d) shall not relieve the Issuing Bank of any liability determined to have
resulted from (i) the gross negligence or willful misconduct of the Issuing
Bank or (ii) violations of the standards set forth in the UCP.
SECTION 3.08. Cash Collateral Account. If the Commitments are duly
terminated and all amounts owing under this Agreement, the Notes and the
Letters of Credit become due and payable pursuant to the terms of this
Agreement, the Borrowers shall deposit with the Agent, on the date such
obligations become due and payable, an amount in cash or cash equivalents equal
to the Letter of Credit Obligations as of such date and the Letter of Credit
fees in accordance with SECTION 3.09. Such amount shall be deposited in a cash
collateral account to be established by the Agent, for the benefit of the
Issuing Bank and the Banks with Participating Interests, and shall constitute
collateral security for the Letter of Credit Obligations and other amounts
owing hereunder. All amounts in such cash collateral account shall be
maintained pursuant to a cash collateral account agreement which shall grant to
the Agent a security interest in all such funds and in any investments made
therewith or proceeds thereof to secure payment to the Agent of Reimbursement
Obligations with respect to outstanding Letters of Credit. In the event that
the Agent pays any drawing under a Letter of Credit, the Agent may withdraw
funds on deposit to make reimbursement of such drawing, in an amount equal to
such drawing. Upon payment by the Borrowers of all Reimbursement Obligations
with respect to Letters of Credit or the termination or other expiration of all
Letters of Credit, remaining funds on deposit in the cash collateral account
shall be returned promptly to the Borrowers.
SECTION 3.09. Letter of Credit Fees. (a) The Borrowers agree to pay
the Agent a nonrefundable facility fee for the account of the Issuing Bank
equal to one-quarter of one percent per annum, and a letter of credit fee for
the account of the Banks computed at the rate of two percent per annum, in each
case, calculated on the aggregate amount available for drawing under all
Letters of Credit, calculated on the basis of a year of 360 days for the actual
number of days elapsed, payable on the last Business Day of each fiscal
quarter, commencing on June 30, 1996.
(b) The Borrower agrees to pay the Issuing Bank, for its
own account, its normal and customary administration, amend-
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ment, transfer, payment and negotiation fees charged in connection with its
issuance and administration of letters of credit.
ARTICLE IV
SECURITY
SECTION 4.01. Security Agreements; Collateral Assignment;
Mortgages; Pledge Agreement. (a) To secure the payment to the Banks of all
sums due or to become due under this Agreement and under each Term Note,
Revolving Credit Note, Letter of Credit and Interest Rate Protection Agreement,
and the fulfillment of all other obligations of the Borrowers to the Banks and
the Agent hereunder and under each Term Note, Revolving Credit Note, Letter of
Credit, Interest Rate Protection Agreement and the other Loan Documents, the
Agent shall receive from the Borrowers on or prior to the Closing Date the
following documents (collectively, the "Collateral Security Documents"):
(i) a security agreement executed by
each of the Borrowers substantially in the form of Exhibit C
annexed hereto (the "Security Agreement"), granting to the Agent, for
and on behalf of the Banks, a first priority lien and security interest
in all assets and fixtures owned by the Borrowers including, without
limitation, all Inventory and Receivables, accompanied by evidence
satisfactory to the Agent that all UCC-1 financing statements or other
recordable instruments have been filed and all other steps required to
perfect the Lien thereunder have been taken;
(ii) a security agreement executed by
each of the Borrowers substantially in the form of Exhibit D
annexed hereto (the "Intellectual Property Security Agreement"),
covering the patents, trademarks, tradenames, copyrights and other
intellectual property described therein, owned or to be owned by any
Borrower, accompanied by evidence satisfactory to the Agent that all
appropriate filings (including any UCC-1 financing statements) have
been made with the U.S. Patent and Trademark Office or such other
applicable Authority and all other steps required to perfect the Lien
of the Agent thereunder have been taken;
(iii) collateral assignment agreement
substantially in the form of Exhibit E annexed hereto, executed by
each Borrower (the "Collateral Assignment"), assigning to the Agent
for and on behalf of the Banks, all of the Borrowers' respective
rights and interests in all contracts, leases, licenses and agreements
(including, without limitation, any Interest Rate Protection
Agreement), accompanied by evidence satisfactory to the Agent that all
UCC-1 financing statements have been filed and all other
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steps required to perfect the Lien of the Agent thereunder have been
taken;
(iv) the Mortgages substantially in
the form of Exhibit F annexed hereto and related documents granting to
the Agent, for and behalf of the Banks, a first mortgage lien on and
security interest in the Real Property including, without limitation,
title insurance, opinions regarding title, surveys and UCC financing
statements; together with an environmental indemnity executed by each
Borrower substantially in the form of Exhibit G annexed hereto (the
"Environmental Indemnity") covering the Real Property; and
(v) a stock pledge agreement (the
"Pledge Agreement") executed by Johnston substantially in the
form of Exhibit H annexed hereto accompanied by stock certificates
representing all of the outstanding capital stock of each of Johnston's
Subsidiaries held by Johnston (other than as specified in such Pledge
Agreement) and stock powers in connection therewith undated and duly
endorsed in blank.
(b) The Borrowers shall each maintain, at their
expense, books and records pertaining to the Collateral in such detail, form
and scope as the Agent shall, from time to time, reasonably require. Borrowers
shall mark their respective records with appropriate notations satisfactory to
the Agent disclosing that the Banks have been granted a security interest in
the Collateral. Borrowers shall permit the Agent, and its respective
employees, agents and representatives, access to the books and records of each
Borrower at reasonable intervals and upon reasonable advance notice and,
further, to make copies thereof during business hours as may be necessary for
the Agent to monitor compliance with the terms of this Agreement.
(c) The liens, security interests, encumbrances
and assignments granted, created or conveyed pursuant to any of the Collateral
Security Documents or any other document shall be security for the payment and
performance of any and all obligations, joint and several, of each of the
Borrowers to the Banks.
ARTICLE V
CONDITIONS OF LENDING
SECTION 5.01. Conditions Precedent to the Initial Loans. The
obligation of the Banks to make the initial Loans and/or issue the initial
Letters of Credit is subject to the conditions precedent that on or prior to
the Closing Date, the Agent shall have received the following, in form and
substance satisfactory to the Agent:
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(a) The Notes, each duly executed by each of the
Borrowers;
(b) Each of the Collateral Security Documents
duly executed by each Borrower;
(c) Legal opinions from counsel to the Borrowers
dated the Closing Date, substantially in the form of Exhibits I-1 and
I-2 annexed hereto;
(d) Such consents or acknowledgments, with
respect to such of the transactions hereunder, from such Persons as
the Agent or its counsel may determine to be necessary or appropriate;
(e) Executed copies of the UCC termination
statements (UCC-3) to be filed in order to terminate the security
interests of other Persons (other than Persons having Liens permitted
hereunder) in and to the collateral covered by the Collateral Security
Documents and evidence of the termination of all assignments to other
Persons in and to the collateral purported to be covered by the Patent
Security Agreement;
(f) Certificates of the Secretary or Assistant
Secretary of each Borrower dated the Closing Date, (i) attesting to
all corporate action taken by each such Person, including resolutions
of its Boards of Directors authorizing the execution, delivery and
performance of each of the Loan Documents to which it is a party and
each other document to be delivered pursuant to this Agreement, (ii)
certifying the names and true signatures of the officers of each such
Person authorized to sign the Loan Documents to which it is a party
and the other documents to be delivered by it under this Agreement and
(iii) verifying that the charter and by-laws of each such Person
attached thereto are true, correct and complete as of the date
thereof;
(g) A certificate of a duly authorized officer of
each Borrower, dated the Closing Date, stating that (i) the
representations and warranties in ARTICLE VI are true and correct on
such date as though made on and as of such date (provided that any
representations and warranties which speak to a specific date shall
remain true and correct in all material respects as of such specific
date), (ii) all agreements and conditions required to be performed and
complied with by such date have been performed and complied with,
(iii) no Default has occurred, and (iv) the Borrowers have no
Subsidiaries other than those listed on Schedule 6.01(a) attached
hereto;
(h) Good standing certificates and certified
copies of all charter documents with respect to each
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Borrower certified by the Secretary of State of its respective
jurisdictions of incorporation, and evidence that each is qualified as
a foreign corporation in every other jurisdiction in which it does
business and in which the failure to qualify could be expected to have
a Material Adverse Effect;
(i) Evidence that the Jupiter Acquisition shall
have been consummated (or will be consummated contemporaneously with
the making of the initial Loans hereunder) in accordance with the
Jupiter Acquisition Documents, including evidence that the Certificate
of Merger, in recordable form, shall have been executed by the parties
thereto, and counterparts thereof have been (or upon the making of the
initial Loans, will be) presented for filing with the Secretary of
State of the State of Delaware;
(j) A certificate of a duly authorized officer of
Johnston, dated the Closing Date, attaching true and correct copies of
(i) all material consents under any indenture, agreement, lease or
instrument obtained in connection with the Jupiter Acquisition, (ii)
all consents and authorizations required in connection with the
Jupiter Acquisition under any law, rule or regulation, and (iii) all
certificates of merger, certificates of incorporation and other
corporate documentation, evidencing the merger of J1 Acquisition Corp.
into Jupiter, all as certified by the Secretary of State of the
jurisdiction in which such merger occurs.
(k) Certified complete and correct copies of the
Jupiter Acquisition Documents, including minutes of the meeting of the
shareholders approving the Jupiter Acquisition (and all exhibits,
schedules and disclosure letters referred to in the Jupiter
Acquisition Documents or delivered pursuant thereto, if any);
(l) An initial Notice of Borrowing relating to
the Loans to be made on the Closing Date together with a funding
letter from the Borrowers containing wire transfer instructions and
account information relating to the disposition of the funds to be
made available by the Banks to the Borrowers on the Closing Date;
(m) A Borrowing Base Certificate as of February
24, 1996;
(n) Evidence of the repayment in full of all
indebtedness owed under the Senior Facilities and the Wellington
Facilities and payment of all fees, commissions and expenses payable
in connection with such repayment;
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(o) Evidence that all collateral security
securing the Secured Guaranties has been released by FUNB;
(p) Evidence that the Intercreditor has been
terminated;
(q) Payment with respect to all fees due
hereunder;
(r) Payment with respect to all of the Total
Costs;
(s) Audited consolidated financial statements as
at June 30, 1995 and for the period then ended, unaudited consolidated
and consolidating financial statements as at December 31, 1995 and for
the periods then ended, pro forma balance sheet of the Consolidated
Entities as at February 24, 1996 and the interim combined balance
sheet of the Consolidated Entities for the period from January 1, 1996
to February 24, 1996 and the related combined income statements and
combined statement of cash flow for the 2-month period then ended, in
each case including notes, comments, schedules and supplemental data
thereto (collectively, the "Financial Statements"), all of which shall
have been prepared from the books and records of the Consolidated
Entities, on a consolidated basis, in accordance with GAAP
consistently applied and maintained throughout the periods indicated
and which fairly present the financial condition of each Borrower on a
consolidating basis and of the Consolidated Entities, taken as a whole
on a consolidated basis, as at their respective dates and the results
of their respective operations for the periods covered thereby;
(t) Certificates or other evidence that each
Consolidated Entity is insured against loss or damage under such
policies of insurance, with such insurance companies and covering such
risks as the Required Banks shall deem necessary or advisable,
including, without limitation, general liability, public liability,
business interruption and workers' compensation insurance, together
with evidence that the Agent, for and on behalf of the Banks, shall
have been named as loss payee under such policies (other than policies
for workers' compensation insurance);
(u) Certificates or other evidence of casualty
insurance policies covering all of the Real Property subject to the
Lien of the Agent under the Collateral Security Documents with
appropriate loss payable endorsements indicating assignment of
proceeds thereunder to the Agent and certificates or other evidence of
liability insurance with appropriate endorsements indicating the
coverage of the Agent as an additional insured;
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(v) Each Bank shall have completed a due
diligence review with respect to the Borrowers' financial condition
and business operations, which review shall have been deemed
satisfactory to such Bank;
(w) Audited financial statements of Jupiter for
the years ended 1995, 1994, 1993 and 1992, together with notes,
comments, schedules and supplemental data thereto, all of which shall
have been prepared from the books and records of Jupiter in accordance
with GAAP, consistently applied and maintained throughout the periods
indicated and which fairly present the financial condition of Jupiter,
on an unconsolidated basis, as at their respective dates and the
results of its operations for the periods covered thereby;
(x) A report prepared by a Person acceptable to
the Agent providing an audit of the Receivables and Inventory of the
Consolidated Entities, dated no more than 90 days prior to the Closing
Date;
(y) Appraisals of the plant and equipment and
Real Property of the Consolidated Entities, prepared by a Person
acceptable to the Agent;
(aa) Evidence that, as of the Closing Date, the
total Consolidated Debt hereunder will not, after giving effect to the
Loans made available hereunder, exceed $174,500,000;
(bb) Evidence that, as of the Closing Date, the
Consolidated Entities will have a Consolidated Tangible Net Worth of
no less than $50,000,000;
(cc) There shall have been no material adverse
change, as determined by the Required Banks in their reasonable
discretion, in the financial condition or business condition of the
Consolidated Entities taken as a whole, or in the Collateral;
(dd) Solvency Certificate issued by a duly
authorized officer of Johnston;
(ee) No suit, action, investigation, inquiry or
other proceeding (including, without limitation, the enactment or
promulgation of a statute or rule) by or before any arbitrator or any
government, state or political subdivision thereof or any entity or
agency shall be pending and no preliminary or permanent injunction or
order by a state or federal court shall have been entered (i) in
connection with this Agreement, the Notes or any Loan Document or any
of the transactions contemplated hereby or thereby or (ii) which,
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in any such case, in the judgment of the Required Banks, could have a
Material Adverse Effect;
(ff) The Environmental Reports; and
(gg) The Agent or its counsel shall have
received such other and further approvals, opinions and documents as
it or its counsel may have reasonably requested and all legal matters
incident to this Agreement and the making of the Loans shall be
satisfactory to the Agent or its counsel.
SECTION 5.02. Conditions Precedent to Each Revolving Credit
Loan or Letter of Credit. The obligation of the Banks to make any Loans or
issue any Letters of Credit on or after the initial borrowing hereunder shall
be subject to the Agent having received from each Borrower not less than one
(1) Business Day's prior written notice of such borrowing for a Base Rate Loan
and three (3) Working Days prior written notice of such borrowing for a
Eurodollar Loan, and to the fulfillment of the following conditions precedent:
(a) The Agent shall have timely received a
Notice of Borrowing with respect to such Loan, and with respect to any
Revolving Credit Loan requested therein, the aggregate amount of all
outstanding Revolving Credit Loans shall not, after giving effect to
such Revolving Credit Loan, exceed the lesser of the (i) Borrowing
Base then in effect, or (ii) Revolving Credit Facility;
(b) The representations and warranties
contained in this Agreement and the Loan Documents shall be true in
all material respects on and as of the date of such Loan as though
made on and as of such date, no Default hereunder or thereunder shall
have occurred and be continuing; no material adverse change in the
condition, affairs or operations (financial or otherwise) of any
Consolidated Entity, or the value of the Collateral shall have
occurred, and Borrowers shall have complied and shall then be in
compliance in all respects with all of the terms, covenants and
conditions of this Agreement, the Notes and any Loan Document which is
binding on them;
(c) If the Agent shall have so requested by
notice to the Borrowers, the Agent shall have received from Borrowers'
counsel an opinion dated the date of such Loan, addressed to the Agent
and the Banks to the effect that there has been no material change in
the opinion rendered to the Agent pursuant to SECTION 5.01(c) of this
Agreement;
(d) The Agent shall have received payment of
all of the Total Costs; and
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(e) The Agent shall have received such other
and further approvals, opinions and documents as may be reasonably
requested by the Agent or its counsel and all legal matters incident
to this Agreement and the making of such Loan shall be satisfactory to
the Agent or its counsel.
SECTION 5.03. Deemed Representations. Each and every Notice
of Borrowing with respect to a Loan hereunder, each request for a Letter of
Credit and/or any acceptance by a Borrower of the proceeds of any Loan made
hereunder shall constitute a representation and warranty that the statements
made in SECTIONS 5.01 and 5.02 are true and correct in all material respects on
and as of the date of such Notice of Borrowing, as though made on and as of
such date (except as may be otherwise permitted in this Agreement).
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF BORROWERS
SECTION 6.01. Representations and Warranties of Borrowers.
Further in order to induce the Banks to enter into this Agreement, Borrowers
hereby each represent and warrant to the Banks and to the Agent as of the
Closing Date as follows:
(a) Incorporation, Good Standing and Due
Qualification. Each of the Consolidated Entities is duly
incorporated, validly existing and in good standing under the laws of
the jurisdiction of its incorporation, has the corporate power and
authority to own its assets and to transact the business in which it
is now engaged or proposed to be engaged, and is duly qualified as a
foreign corporation and in good standing under the laws of each other
jurisdiction in which such qualification is required (with the
exception of Wellington in the State of North Carolina, Ohio and New
Jersey and Phenix in the State of New Jersey, such qualifications to
be obtained within 30 days of the Closing Date), except where the
failure to qualify could not reasonably be expected to have a Material
Adverse Effect. Schedule 6.01(a) contains a complete
and accurate list of each Subsidiary of each Borrower, such
Subsidiary's jurisdiction of incorporation and percentage of such
Borrower's ownership of the outstanding stock (or other interest) of
each such Subsidiary.
(b) Corporate Power and Authority; No
Conflicts. The execution, delivery and performance by each of the
Consolidated Entities of the Loan Documents to which it is a party and
the borrowings hereunder have been duly authorized by all necessary
corporate action and do not and will not: (a) require any consent or
approval of its stockholders; (b) contravene its charter or by-laws;
(c) violate any provision
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of, or require any filing (other than the filing of the financing
statements and assignments required pursuant to the terms of the
Collateral Security Documents), registration, consent or approval
under, any law, rule or regulation (including, without limitation,
Regulations G, T, U and X of the Federal Reserve Board) or any order,
writ, judgment, injunction, decree, determination or award presently
in effect having applicability to any Consolidated Entity; (d) result
in a breach of or constitute a default or require any consent under
any indenture or loan or credit agreement or any other agreement,
lease or instrument to which any Consolidated Entity is a party or by
which it or its properties may be bound or affected; (e) result in, or
require, the creation or imposition of any Lien (other than as created
under the Collateral Security Documents), upon or with respect to any
of the assets now owned or hereafter acquired by the Consolidated
Entities; or (f) cause the Consolidated Entities to be in default
under any such law, rule, regulation, order, writ, judgment,
injunction, decree, determination or award or any such indenture,
agreement, lease or instrument.
(c) Legally Enforceable Agreements. Each Loan
Document to which any Consolidated Entity is a party is, or when
delivered under this Agreement will be, a legal, valid and binding
obligation of such Consolidated Entity enforceable against it in
accordance with its terms, except to the extent that such enforcement
may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium and other similar laws affecting creditors' rights
generally and general principles of equity (regardless of whether such
enforceability is considered in a proceeding at law or in equity).
The Collateral Security Documents, when executed and delivered in
accordance with this Agreement, will create in favor of the Agent, on
behalf of the Banks, valid, continuing first liens on substantially
all of the assets, real and personal, and the fixtures owned by each
Borrower; and when financing statements, mortgages or other recordable
documents have been filed and recorded and other steps required to
perfect the Banks' liens thereunder have been taken, they will create
in favor of the Banks valid, fully perfected liens on the Collateral,
except in each case as enforceability may be limited by equitable
principles and by bankruptcy, insolvency, reorganization, moratorium
and other similar laws affecting creditors' rights generally.
(d) Litigation. No litigation or
administrative proceeding of or before any court or governmental body
or agency is now pending, nor, to the knowledge of any Consolidated
Entity, is any such litigation or proceeding now threatened against
any Consolidated Entity or any of their properties, which, if
adversely determined, would have a Material Adverse Effect, nor, to
the best of any of their
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knowledge, is there a valid basis for the initiation of any such
litigation or proceeding.
(e) Ownership and Liens. Except as otherwise
disclosed in Schedule 6.01(e) attached hereto or in the Financial
Statements, the Consolidated Entities have good and marketable title
to all their respective properties and assets, real and personal,
subject to no mortgage, security interest, pledge, Lien, charge,
encumbrance or title retention or other security agreement or
arrangement of any nature whatsoever (other than as created under the
Collateral Security Documents), except for bill and hold arrangements
made in the ordinary course of business and Permitted Liens.
(f) Defaults. To the best of their knowledge
based upon a good faith investigation, none of the Consolidated
Entities is in default in the payment or performance of any of their
obligations for the payment of money or under any material lease,
franchise, indenture, mortgage, deed of trust, material agreement or
other instrument to which they are a party or by which any of them or
any of their properties may be bound.
(g) Guaranties. Except as otherwise disclosed
in the Financial Statements and on Schedule 6.01(g) attached hereto,
there are no outstanding material contracts of guaranty or suretyship
made by any of the Consolidated Entities nor are any of the
Consolidated Entities subject to any other material contingent
liability or obligation, except for the endorsement of negotiable
instruments for deposit or collection or similar transactions in the
ordinary course of business.
(h) Taxes. Each Consolidated Entity has filed
all federal and state and local and foreign tax returns which are
required to be filed and has paid, or made adequate provision for the
payment of, all taxes which have or may become due pursuant to said
returns or to assessments received by a Consolidated Entity, except
for taxes which are being contested in good faith and for which
adequate reserves have been set aside, and each Consolidated Entity
has made adequate provision for all current taxes.
(i) Licenses, Patents, Trademarks. Each
Borrower possesses or has the right to use all of its patents, patent
rights or licenses, trademarks, trademark rights, trade names, trade
name rights, and permits which are required to conduct its business as
now conducted and Schedule 6.01(i) sets forth a complete and correct
list of (i) all United States patents, patent applications, trade
names, trademarks, trademark registrations and applications, service
mark registrations and applications, and licenses
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presently owned, possessed, used or held by each Borrower and required
to conduct its respective businesses as now conducted and, unless
otherwise indicated in such Schedule, each Borrower owns the entire
right, title and interest in and to the same free and clear of all
Liens (other than as created under the Collateral Security Documents),
and none of the Borrowers has received notice of any claims alleging
violation of, infringement of or interest in any of same and (ii) all
licenses granted to any Borrower by others and to others by any
Borrower. The trademarks, service marks and trade names listed on
Schedule 6.01(i) are subsisting in good standing (with respect
to those registered) and have never been declared invalid by a final
judgment of a court or tribunal of competent jurisdiction, have not
been disclaimed or dedicated to the public and have not expired. Each
patent listed on Schedule 6.01(i) is valid and enforceable.
(j) ERISA. Each of the Consolidated Entities
is in compliance in all material respects with all applicable
provisions of ERISA. Neither a Reportable Event nor a Prohibited
Transaction has occurred with respect to any Plan; no notice of intent
to terminate a Plan has been filed nor has any Plan been terminated;
no circumstance exists which constitutes grounds under Section 4042 of
ERISA entitling the PBGC to institute proceedings to terminate, or
appoint a trustee to administer, a Plan, nor has the PBGC instituted
any such proceedings; none of the Consolidated Entities nor any ERISA
Affiliate has completely or partially withdrawn under Sections 4201 or
4204 of ERISA from a Multiemployer Plan; each of the Consolidated
Entities and each of their ERISA Affiliates has met its minimum
funding requirements under ERISA with respect to all of its Plans; and
none of the Consolidated Entities nor any ERISA Affiliate has incurred
any liability to the PBGC under ERISA.
(k) Financial Statements. (i) The Financial
Statements of the Consolidated Entities which have been delivered to
the Agent on or prior to the Closing Date present fairly the financial
condition of each Consolidated Entity, and of all the Consolidated
Entities, taken as a cumulative whole, on a consolidated basis, as of
the dates and for the periods set forth therein. As of the Closing
Date, none of the Consolidated Entities have had contingent or fixed
liabilities other than as indicated in such Financial Statements which
may be material to the ability of any Consolidated Entity to perform
any of their obligations under the Loan Documents. All of such
Financial Statements, including the notes relating thereto, have been
prepared in accordance with GAAP consistently applied through the
period involved. Such Financial Statements and related notes are
correct and complete in all material respects and fairly present the
consolidated financial position and results of
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operations and changes in financial position of the Consolidated
Entities as of the respective dates thereof and for the periods
indicated and disclose all material liabilities of the Consolidated
Entities as of the respective dates thereof. Since February 24, 1996
there has been no material adverse change in the business or financial
condition of any Consolidated Entity.
(ii) The projected balance sheet of the
Consolidated Entities as of the Closing Date, a true and correct copy
of which has heretofore been delivered to the Agent, for the current
and subsequent fiscal years of the Consolidated Entities and their
operating plan for such fiscal years, including budget, personnel,
facilities and Capital Expenditure projections on a monthly basis, and
projected income and cash flows statements for each such fiscal year
on a monthly basis, have been prepared as of the date thereof in good
faith and are based on reasonable forecasts for the operating
performance of the Consolidated Entities on and after such date.
(l) Margin Stock. None of the Consolidated
Entities is engaged in the business of extending credit for the
purpose of purchasing or carrying any margin stock or margin
securities (within the meaning of Regulations G, T, U and X issued by
the Board of Governors of the Federal Reserve System), and no proceeds
of any of the Loans will be used, directly or indirectly, to purchase
or carry any margin stock or margin securities or to extend credit to
others for the purpose of purchasing or carrying any margin stock or
margin securities. None of the transactions contemplated by this
Agreement will violate or result in a violation of Section 7 of the
Securities Exchange Act of 1934, as amended.
(m) Representations and Warranties. The
representations and warranties of Borrowers in this Agreement and in
each of the Loan Documents are true, complete and correct in all
material respects, and each Borrower hereby confirms each such
representation and warranty as being true, complete and correct in all
material respects with the same effect as if set forth in its entirety
herein.
(n) Investment Company. Other than GWI, none
of the Consolidated Entities is an "investment company" within the
meaning of the Investment Company Act of 1940, or a company
"controlled by an investment company" that is required to register
under such Act as amended. Other than GWI, none of the Consolidated
Entities is subject to regulation under any federal or state statute
or regulation which limits their respective ability to incur Debt.
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(o) Insurance. The original or duplicate
policies of insurance or certificates of insurers furnished by the
Borrowers to the Agent concurrently with or prior to the Closing Date
evidence (i) the general public liability insurance in force against
claims for bodily injury, death or property damage occurring on, in or
about the Borrowers' properties in connection with their respective
businesses and (ii) insurance with respect to the assets of each
Borrower, including, without limitation, any Real Property, against
loss or damage by fire, lightning, flood and other risks from time to
time included under "extended coverage" policies in amounts as are
customary for companies engaged in similar businesses and owning and
operating similar properties similarly situated.
(p) Credit Arrangements. Schedule 6.01(g) is a
complete and correct list of all Unfunded Vested Liabilities, all
Secured Guaranties issued as of the Closing Date, and each material
credit agreement, indenture, purchase agreement, guaranty, Capital
Lease and other investment, agreement and arrangement (collectively,
the "Credit Arrangements") presently in effect (other than Credit
Arrangements which represent liabilities or obligations of the
Consolidated Entities in an amount less than $250,000 in the
aggregate) and which provides for or relates to extensions of credit
(including agreements and arrangements for the issuance of letters of
credit or for acceptance financing) in respect of which any
Consolidated Entity is, in any manner, directly or contingently
obligated; and the maximum principal or face amounts of the credit in
question, outstanding and which can be outstanding, are correctly
stated, and all Liens of any nature given or agreed to be given as
security therefor are correctly described or indicated in such
Schedule or in Schedule 6.01(e).
(q) Hazardous Materials. Each of the
Consolidated Entities is in compliance in all material respects with
all Environmental Laws in effect in each jurisdiction where it is
presently doing business. No Consolidated Entity is subject to any
material liability under any Environmental Law. As of the Closing
Date, no Consolidated Entity has received any (i) notice from any
Governmental Authority by which any of its present or previously-owned
or leased Real Property has been designated, listed, or identified in
any manner by any Governmental Authority charged with administering or
enforcing any Environmental Law as a Hazardous Material disposal or
removal site, "Super Fund" clean-up site, or candidate for removal or
closure pursuant to any Environmental Law, (ii) notice of any Lien
arising under or in connection with any Environmental Law that has
attached to any revenues of, or to, any of its owned or leased Real
Property, or (iii) summons, citation, notice, directive, letter, or
other written communication from any
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Governmental Authority concerning any intentional or unintentional
action or omission by such Consolidated Entity in connection with its
ownership or leasing of any Real Property resulting in the releasing,
spilling, leaking, pumping, pouring, emitting, emptying, dumping, or
otherwise disposing of any Hazardous Material into the environment
resulting in any violation of any Environmental Law, except, in each
case, as is specifically disclosed in the Environmental Reports.
(r) Labor Disputes and Acts of God. Neither
the business nor the properties of any Consolidated Entity have been
affected by any fire, explosion, accident, strike, lockout or other
labor dispute, drought, storm, hail, earthquake, embargo, act of God
or of the public enemy or other casualty (whether or not covered by
insurance), in each case which could reasonably be expected to have a
Material Adverse Effect.
(s) Solvency. The assets of the Consolidated
Entities, taken as a whole, do not constitute unreasonably small
capital for the Consolidated Entities to carry out their businesses as
now conducted and as proposed to be conducted. The Consolidated
Entities do not intend to, nor do they believe that they will, incur
debts beyond their ability to pay such debts as they mature (taking
into account the timing and amounts of cash to be received by the
Consolidated Entities, on a consolidated basis, and of amounts to be
payable on or in respect of Debt of such Consolidated Entities, on a
consolidated basis). The cash available to the Consolidated Entities,
taken as a whole, after taking into account all other anticipated uses
of the cash of such Consolidated Entities, on a consolidated basis, is
anticipated to be sufficient to pay all such amounts on or in respect
of Debt of the Consolidated Entities, on a consolidated basis, when
such amounts are required to be paid.
(t) Representations and Warranties in the
Jupiter Acquisition Documents. The Agent has received a complete and
correct copy of the Jupiter Acquisition Documents (including all
exhibits, schedules and disclosure letters referred to therein or
delivered pursuant thereto, if any) and all amendments thereto,
waivers relating thereto and other side letters or agreements
affecting the terms thereof. The Jupiter Acquisition Documents have
been duly executed and delivered by the parties thereto and are in
full force and effect. Each of the representations and warranties set
forth in each of the Jupiter Acquisition Documents is, to the best of
Johnston's knowledge, true and correct in all material respects as of
the Closing Date. Each Jupiter Acquisition Document is a legal, valid
and binding obligation of Johnston, enforceable against it in
accordance with
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<PAGE> 59
its terms, except to the extent that such enforcement may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium and
other similar laws affecting creditors' rights generally and general
principles of equity (regardless of whether such enforceability is
considered in a proceeding at law or in equity). All transactions
contemplated by the Jupiter Acquisition Documents to be consummated on
or prior to the Closing Date have been consummated without any
material amendment, waiver or modification of the terms thereof.
Other than as set forth in Schedule 6.01(e) hereto, there is no
outstanding indebtedness owed by Jupiter to any Person, after giving
effect to the Jupiter Acquisition.
(u) Statements and Information. All statements
contained in this Agreement and all information, reports and other
papers and data furnished to the Banks by or on behalf of the
Consolidated Entities in connection with this Agreement are accurate,
correct and complete in all material respects. Notwithstanding the
foregoing, all projections prepared or to be prepared by or on behalf
of the Borrowers contained in any documents or materials furnished by
the Borrowers to the Agent, or any Bank (including the pro forma
financial statements and the budgets to be furnished hereunder) have
been or will be prepared in good faith on the basis of reasonable
assumptions, it being acknowledged and agreed, however, that the
Borrowers make no representation or warranty as to the attainability
or accuracy of such projections.
ARTICLE VII
COVENANTS OF THE BORROWERS
SECTION 7.01. Affirmative Covenants. Each Borrower
covenants and agrees that from and after the date of execution hereof and so
long as any amount may be borrowed hereunder or remains unpaid on account of
any Note or Letter of Credit, or the Borrowers shall have any obligation to the
Banks hereunder or pursuant hereto, Borrowers shall each comply, and cause each
Consolidated Entity to comply, with each of the following obligations:
(a) Payments. The Borrowers shall, jointly and
severally, duly and punctually pay the principal and interest on each
Revolving Credit Note, Term Note A, Term Note B, Letter of Credit, the
Revolving Credit Commitment Fee and any other fees and amounts due
under this Agreement, any fee letter(s) or any other Loan Document.
(b) Reporting Requirements. Borrowers shall
furnish to the Agent:
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(i) within 90 days after the end of each
fiscal year of the Consolidated Entities, a consolidated
balance sheet and income statement and consolidated statement
of cash flows of the Consolidated Entities on a fully
consolidated basis, and a consolidating balance sheet and
income statement and consolidating statement of cash flows of
each of the Consolidated Entities for such fiscal year,
setting forth the corresponding figures of the previous annual
audit in comparative form, all in reasonable detail and all
prepared in accordance with GAAP, audited and certified by
Deloitte & Touche or other independent accountants of national
standing selected by the Borrowers and acceptable to the
Agent, each of which shall be accompanied by a certificate of
the chief financial officer of Johnston calculating the
Consolidated Tangible Net Worth, Fixed Charge Coverage Ratio,
Current Ratio, Leverage Ratio, Interest Coverage Ratio, Debt
Ratio and Consolidated Capital Expenditures as of the end of
each fiscal year of the Consolidated Entities;
(ii) within 45 days after the end of each
of the first three quarters of each fiscal year of the
Consolidated Entities, a consolidated balance sheet as of the
end of such quarter and consolidated year-to-date income
statement and consolidated year-to-date statement of cash
flows of all of the Consolidated Entities, on a fully
consolidated basis, and consolidating balance sheet as of the
end of such quarter and consolidating year-to-date income
statement and consolidating year-to-date statement of cash
flows of each of the Consolidated Entities, all in reasonable
detail and setting forth in comparative form the corresponding
figures of the previous fiscal year, prepared in accordance
with GAAP and certified by the chief financial officer of each
Consolidated Entity, and a certificate of the chief financial
officer of Johnston calculating the Consolidated Tangible Net
Worth, Fixed Charge Coverage Ratio, Current Ratio, Leverage
Ratio, Interest Coverage Ratio, Debt Ratio and Consolidated
Capital Expenditures for the preceding fiscal quarter then
ended;
(iii) within 30 days after the end of each
calendar month, a certificate of the chief financial officer
of Johnston setting forth, with respect to each Consolidated
Entity (i) the changes in Capital Expenditure proposals and/or
projections of each Consolidated Entity, and Consolidated
Capital Expenditures, (ii) a statement of backlog position of
each Consolidated Entity, and of all the Consolidated Entities
on a fully consolidated basis, setting forth comparative
figures or corresponding dates for the previous fiscal year,
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and (iii) management (internal) financial statements for each
Consolidated Entity, and for all the Consolidated Entities on
a fully consolidated basis, in form reasonably satisfactory to
the Agent;
(iv) within 20 days after the end of each
calendar month, a Borrowing Base Certificate executed by the
chief financial officer of Johnston;
(v) within 30 days after the end of each
quarter of each fiscal year of the Borrowers, a detailed aged
Receivables and Inventory report as at the end of such quarter
in form reasonably satisfactory to the Agent;
(vi) simultaneously with the delivery of
the financial statements referred to in SECTIONS 7.01(b)(i)
and (ii) above, a certificate of the chief financial officer
of Johnston certifying that to the best of his knowledge, no
Default or Event of Default has occurred and is continuing or,
if a Default or Event of Default has occurred and is
continuing, a statement as to the nature thereof and the
action which is proposed to be taken with respect thereto, and
at all other times, prompt notice in writing to each Bank and
the Agent of the occurrence of any Default or Event of Default
with any such notice being deemed a Notice of Default for
purposes of this Agreement;
(vii) within 30 days from the Closing
Date, audited consolidated financial statements of the
Consolidated Entities as at December 30, 1995;
(viii) if requested by the Agent, at the
direction of the Required Banks, simultaneously with the
delivery of the annual financial statements referred to in
SECTION 7.01(b)(i), a certificate of the independent public
accountants who audited such statements to the effect that, in
making the examination necessary for the audit of such
statements, they have obtained no knowledge of any condition
or event which constitutes a Default or Event of Default, or
if such accountants shall have obtained knowledge of any such
condition or event, specifying in such certificate each such
condition or event of which they have knowledge and the nature
and status thereof;
(ix) promptly after the commencement
thereof, notice of all actions, suits, and proceedings before
any court or governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign,
affecting any of the Consolidated Entities
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which, if determined adversely, could have a Material Adverse
Effect;
(x) promptly after the filing or
receiving thereof and if requested by the Agent, copies of all
reports and notices which the Consolidated Entities file with
or receive from the PBGC or the U.S. Department of Labor under
ERISA, except that the annual reports that the Consolidated
Entities file with the PBGC or the U.S. Department of Labor
under ERISA shall always be delivered, and each certificate of
the chief financial officer to be delivered under SECTION
7.01(b)(ii) shall include a statement that no Reportable Event
or Prohibited Transaction has occurred with respect to any
Plan; and as soon as possible and in any event within 10 days
after any Consolidated Entity knows or has reason to know that
any Reportable Event or Prohibited Transaction has occurred
with respect to any Plan or that the PBGC or any Consolidated
Entity has instituted or will institute proceedings under
Title IV of ERISA to terminate any Plan, the Borrowers will
deliver to each Bank and the Agent a certificate of the chief
financial officer of each Borrower setting forth details as to
such Reportable Event or Prohibited Transaction or Plan
termination and the action the Borrowers propose to take with
respect thereto;
(xi) promptly after the execution
thereof, copies of any loan or credit or similar agreement
other than those which, in the aggregate, represent
liabilities or obligations of the Borrowers less than
$100,000, not otherwise required to be furnished to the Agent
pursuant to any other clause of this SECTION 7.01;
(xii) promptly after the sending or filing
thereof, copies of all proxy statements, financial statements
and reports which any Consolidated Entity sends to its
stockholders, and copies of all regular, periodic and special
reports, including, without limitation, annual budgets,
management letters and shareholder reports and all
registration or other statements which any Consolidated Entity
files with, or receives from any Person related to any
Consolidated Entity with respect to, the Securities and
Exchange Commission or any Authority which may be substituted
therefor;
(xiii) within 90 days upon the Agent's
request (but not more frequently than once in any calendar
year), a current appraisal of the plant, Real Property and
equipment of the Consolidated Entities, in form and
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substance and prepared by Persons satisfactory to the Agent
and the Required Banks;
(xiv) within 90 days upon the Agent's
Request, a current audit of the Receivables and Inventory of
the Consolidated Entities, in form and substance and prepared
by Persons satisfactory to the Agent and the Required Banks;
and
(xv) such other information respecting
the condition or operations, financial or otherwise, of each
Consolidated Entity as the Agent from time to time, at the
direction of the Required Banks, may reasonably request.
(c) Taxes. Borrowers shall each, and shall cause
each Consolidated Entity to, pay and discharge, in the ordinary course
of business, all of their respective obligations and liabilities
(including, without limitation, tax liabilities and other governmental
charges other than such taxes or charges being contested in good faith
and for which adequate reserves have been set aside, but excluding
intercompany obligations and liabilities unless the failure to pay and
discharge such obligations or liabilities would have a Material
Adverse Effect), and maintain in accordance with GAAP appropriate
accruals for any of the same.
(d) Corporate Existence. Each Borrower shall,
and shall cause each Consolidated Entity to, maintain its respective
corporate existence, rights and franchises necessary to continue their
respective businesses in the manner historically conducted and to
comply with all laws and regulations and agreements applicable to them
and their property and operations, the non-compliance with which could
have a Material Adverse Effect, and maintain the properties used or
useful in their respective businesses in good working order and
condition, reasonable wear and tear excepted; provided however, that
any Consolidated Entity may be liquidated, dissolved, merged or
disposed of if permitted by SECTION 7.02(b).
(e) Inspection of Property. Borrowers shall, and
shall cause each Consolidated Entity to, permit any authorized
representative designated by the Agent and any Bank to visit and
inspect the properties of the Borrowers including their respective
books of account, and to discuss their affairs, finances and accounts
with appropriate officers, at reasonable intervals and upon reasonable
advance notice, at such reasonable times during normal business hours
and as often as may be reasonably requested by such Bank or the Agent.
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(f) Insurance. Borrowers shall, and cause each
Consolidated Entity to, keep their assets which are of an insurable
character insured by financially sound and reputable insurers against
loss or damage by fire, extended coverage and explosion in amounts
sufficient to prevent a Consolidated Entity from becoming a co-insurer
and not in any event less than for full coverage (i.e. not
replacement) value, and maintain with financially sound and reputable
insurers, or state or other governmentally operated insurance funds,
comprehensive general liability insurance against other hazards and
risks and liability to persons and property to the extent and in
amounts as are customarily carried by Persons of comparable size
engaged in the same or similar business. Borrowers shall cause the
Agent to be named as co-insured and the loss payee, on behalf of the
Banks, on any such property insurance.
(g) Books and Records. Borrowers shall, and
shall cause each Consolidated Entity to, keep accurate records and
books of account in which full, accurate and correct entries will be
made of all dealings or transactions in relation to their respective
businesses and affairs.
(h) Compliance with Laws. Borrowers shall, and
shall cause each Consolidated Entity to, duly comply in all material
respects with all laws applicable to them and their respective
properties, operations, business and employees, unless Borrowers are,
in good faith, contesting such laws.
(i) Indemnification. Each Borrower jointly and
severally agrees to pay, protect, indemnify and save harmless each of
the Banks, the Agent, the Arranger and the Syndication Agent and, in
their respective capacity as such, their respective officers,
directors, shareholders, controlling persons, employees, agents and
servants (each referred to for purposes of this clause (i)
individually as an "Indemnified Party" or collectively as the
"Indemnified Parties") from and against, all liabilities, losses,
claims, damages, penalties, causes of action, suits, judgments, costs,
expenses or disbursements (including, without limitation, reasonable
attorneys' fees and expenses) of any kind whatsoever which may at any
time be imposed on, incurred by or asserted against the Indemnified
Parties in any way relating to or arising out of this Agreement, the
Notes, Collateral Security Documents, any other Loan Documents or any
documents contemplated by or referred to therein or the transactions
contemplated thereby, provided that Borrowers will not be liable to
the Indemnified Parties for such liabilities, losses, claims, damages,
penalties, causes of action, suits, judgments, costs, expenses or
disbursements (including, without limitation, attorneys' fees) or
judgments arising from the gross negligence or willful misconduct of
any Indemnified Party. The Banks, the Agent, the
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<PAGE> 65
Arranger and the Syndication Agent agree that with respect to any
action, suit or proceeding against any of them, or any of their
respective officers, directors, shareholders, controlling persons,
employees, agents and servants, in respect of which indemnity may be
sought hereunder, they will give written notice of the commencement of
such action to Borrowers within seven (7) Business Days after any of
them is made a party to such action. Upon receipt of any such notice,
Borrowers shall be entitled to assume the defense of such action,
including the employment of counsel and the payment of all expenses in
connection with such defense, and shall have the right to negotiate
and consent to settlement. Any Indemnified Party shall have the right
to employ separate counsel in any such action against it and to
participate in the defense thereof, and the fees and expenses of such
counsel shall be at the expense of such Indemnified Party.
Notwithstanding the foregoing, Borrowers shall not have the right to
defend the Indemnified Party in any action or proceeding if such
Indemnified Party has been advised by its own counsel that there are
legal defenses available to such Indemnified Party which are different
from, additional to or conflict with the defenses available to
Borrowers, in which case, the fees and expenses of such separate
counsel to such Indemnified Party shall be at the expense of the
Borrowers. Borrowers shall not be liable for any settlement of any
such action effected without its consent; but if any such action is
settled with the consent of Borrowers or if there be a final judgment
for the plaintiff in any such action, Borrowers shall indemnify and
hold harmless each Indemnified Party from and against any losses,
claims, damages, liabilities or expenses incurred or suffered by
reason of such settlement of judgment, except as otherwise set forth
herein. The provisions of this SECTION 7.01(i) shall survive the
repayment in full of the Notes and the satisfaction of all obligations
of the Borrowers under this Agreement, the Collateral Security
Documents and other Loan Documents.
(j) Change in Ownership. Borrowers shall notify
the Agent of any acquisition or disposition of the equity ownership of
Johnston which is reported under Section 13(d) of the Securities and
Exchange Act of 1934, as amended, promptly after actual knowledge
thereof.
(k) Collateral Security Documents. Each Borrower
hereby agrees to perform all covenants contained in each of the
Collateral Security Documents to which it is a party (including,
without limitation, maintaining the first priority position of the
Agent, on behalf of the Banks, with respect to the Liens granted
thereunder) with the same effect as if set forth in its entirety
herein.
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(l) Violation of Loan Documents. The Borrowers
hereby each agree that none of them shall fail to perform any acts or
omit any action or steps which would cause any of the Borrowers to be
in violation of any of the covenants, terms and conditions of this
Agreement or of any of the Loan Documents.
(m) GWI Investments. Each Borrower hereby agrees
that, to the extent any investment securities, equities and similar
assets currently held by, or in the name of, GWI, have not been sold,
transferred, assigned or otherwise disposed of within 12 months of the
Closing Date, Borrowers shall (i) immediately grant or cause GWI to
grant to the Agent, on behalf of the Banks, a first priority lien on
and security interest in any such asset (subject to the interest of
the Small Business Administration in the SBA Loans) and take or cause
to be taken such other steps (including, without limitation,
transferring the asset to a segregated custody account designated by
the Agent, endorsing or otherwise transferring the asset over to the
Agent, and filing UCC financing statements) and execute or cause to be
executed such agreements or documents necessary to record and perfect
the Lien of the Agent thereunder, and (ii) pledge or cause to be
pledged all of the outstanding and issued capital stock of GWI held by
any Borrower and shall immediately transfer or cause to be transferred
into the Agent's possession the stock certificates representing such
stock.
(n) Jupiter Investments. Each Borrower hereby
agrees that, to the extent that any investment securities, equities
and similar assets described below and which are currently held by, or
in the name of, Jupiter, are not sold, transferred, assigned or
otherwise disposed of within the time periods specified therefor, the
Borrowers shall immediately grant or cause Jupiter to grant to the
Agent, on behalf of the Banks, a first priority lien on and security
interest in such asset and take or cause to be taken any and all steps
and execute or cause to be executed such agreements or documents as
shall be necessary to record and perfect the Lien of the Agent
thereunder (including, without limitation, pledging or causing Jupiter
to pledge all of the outstanding and issued capital stock of PTA held
by Jupiter or any Borrower and transferring, or cause the transfer
into the Agent's possession of the stock certificates representing
such stock, executing and delivering or causing to be executed and
delivered appropriate mortgages in favor of the Agent with respect to
the Jupiter Premises and Tarboro Plant, together with related
documents such as title insurance, surveys, appraisals and
environmental indemnities and filing or causing to be filed UCC-1
financing statements).
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<TABLE>
<CAPTION>
Type of Asset: Time Period:
------------- -----------
<S> <C>
100% of the capital Within 12 months
stock of PTA of the Closing Date
Jupiter Premises Within 14 months
of the Closing Date
Tarboro Plant Within 18 months
of the Closing Date
All other investment
securities, equities Within 12 months
and similar assets as of the Closing Date.
set forth in Schedule 7.01(n)
annexed hereto.
</TABLE>
(o) Surveys. The Borrowers shall, at its own
expense, within 45 days from the Closing Date: (i) deliver to the
Agent a survey of each of the Premises, each of which shall: (v) be
dated no earlier than the Closing Date hereof, (w) be certified to the
Agent, for itself and as Agent for the Banks, and Lawyers Title
Insurance Corporation ("LTIC") and their respective successors and
assigns in substantially the form of the certification annexed hereto
as Schedule 7.01(o), and otherwise in form and substance
satisfactory to the Agent and LTIC, by an independent surveyor
reasonably satisfactory to the Agent, (x) be made in accordance with
the current ALTA/ACSM minimum standard detail requirements for land
title surveys, (y) show (1) the locations of all buildings and other
structures, if any, on the Real Property and the established building
setback lines, (2) all easements and other encumbrances affecting the
Real Property, whether recorded, apparent from a physical inspection
of the Real Property or otherwise known to the surveyor, (3) any
encroachments on any adjoining property by the building, structures
and improvements on the Real Property, and (4) and certify that no
portion of the Premises lies within a designated Flood Plain Area as
defined by the Federal Insurance Administration or a flood hazard zone
as established by the Federal Emergency Management Agency, and (z) not
disclose or contain any matter inconsistent with any policy of title
insurance insuring the Agent's interest in the Mortgages; (ii) cause
to be recorded modifications to the Mortgages in form and substance
acceptable to the Agent, at Borrowers' expense, replacing the
description of the Real Property contained in each Mortgage as of the
date hereof with the description of such Real Property contained and
certified in the surveys; and (iii) deliver or cause to be delivered
to the Agent an endorsement to the aforesaid title insurance policies
which (v) removes the general survey exception and all other sur-
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<PAGE> 68
vey exceptions from such policies and insures the survey descriptions
as part of the Agent's insured estate, (w) down dates such policies to
the date that LTIC shall have removed the general survey exception
from the policies and insured the survey descriptions, (x) raises no
additional exceptions to the coverages afforded by such policies other
than those which the Agent approve in its sole discretion in writing,
(y) adds to such policies (1) a so-called ALTA 9 or comprehensive
endorsement, (2) a land-same-as-survey endorsement, (3) a zoning
endorsement (ALTA Form 3.1), (4) a contiguity endorsement with respect
to all contiguous parcels, and (5) such other affirmative insurance
and endorsements as the Agent shall require as a result of any matter
contained in or disclosed by any such survey, and (z) is otherwise in
form and substance acceptable to the Agent.
(p) Interest Rate Protection Agreements. The
Borrowers shall procure, within 60 days of the Closing Date and
thereafter, so long as the aggregate principal amount of the Term
Loans is in excess of $40,000,000, and maintain in full force and
effect at all times Interest Rate Protection Agreements which may be
with one or more of the Banks to protect itself against fluctuations
of interest rates on a notional principal amount of not less than 50%
of the aggregate principal amount of the then outstanding Term Loans
on terms and conditions reasonably acceptable to the Agent (provided
that the term of such Interest Rate Protection Agreements may be as
short as three years subject to renewal for subsequent two year terms
or such shorter term as may coincide with the remaining period in
which the principal amount of the Term Loans (taking into account
scheduled repayments hereunder) will exceed $40,000,000. The
Borrowers shall, at its sole expense, take all actions necessary to
ensure that the Agent, for the benefit of the Banks, shall have a
perfected first priority security interest in Borrowers' rights under
the Interest Rate Protection Agreements.
(q) Merger or Consolidation of Certain
Borrowers. The Borrowers acknowledge and agree that it is their
intention to cause Phenix, Wellington and Jupiter to consolidate with
or merge into Opp within 60 days from the Closing Date, and covenant
that, as a result of any such merger or consolidation: (w) Opp or any
other successor Borrower shall succeed to all the assets of Phenix,
Wellington and Jupiter such that the Liens and security interests
provided to the Agent pursuant to this Agreement and the Collateral
Security Documents will continue to be perfected, first priority Liens
on and security interests in the Collateral; (x) the Agent shall be
immediately furnished with the certificates of merger, merger or
consolidation agreements and such other documents evidencing the
consummation of the merger or consolidation and the recording of
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same with the appropriate Authorities, to the satisfaction of the
Agent; (y) there shall not occur any Material Adverse Effect; and (z)
the surviving Borrowers, after giving effect to such consolidation or
merger, shall be in compliance with all the covenants contained in
ARTICLE VII. In connection with any such consolidation or merger, the
Borrowers acknowledge that the Loans made or Letters of Credit issued
hereunder are viewed by the Agent and the Banks as Loans made on a
consolidated basis to the Borrowers as a consolidated group of
entities.
(r) Environmental Work. On or before each
Environmental Work Deadline (i) the portion of the Environmental Work
to which each such Environmental Work Deadline relates shall be
performed and completed, and (ii) evidence satisfactory to Agent
demonstrating the performance and completion of such portion of the
Environmental Work (which evidence may include, without limitation, at
the Agent's discretion, copies of testing and sampling results,
certifications and other documents from independent supervising
engineers acceptable to Agent and certified copies of all approvals,
permits certifications and other documents required by or available
pursuant to any Environmental Laws in connection with such
Environmental Work) shall be furnished to Agent. All of the
Environmental Work shall be performed and completed at all times in
compliance with all Environmental Laws and the terms and provisions of
this Agreement and all of the other Loan Documents.
(s) TJB Mortgages. The Borrowers shall, at
their own expense, within 45 days from the Closing Date, deliver to
the Agent mortgages, in form and substance satisfactory to the Agent
and an independent title company acceptable to the Agent, together
with all related documents deemed necessary and appropriate by the
Agent to grant to the Agent, for the benefit of the Banks, a first
mortgage lien on and security interest in the Real Property owned by
TJB including, without limitation, title insurance, opinions regarding
title, surveys and UCC financing statements, and environmental
indemnities in the form of Exhibit G annexed hereto with respect to
such Real Property, in each case to the satisfaction of the Agent and
its counsel.
SECTION 7.02. Negative Covenants. Each Borrower covenants
and agrees that from and after the date of execution hereof and so long as any
amount may be borrowed hereunder or remains unpaid on account of any Note or
Letter of Credit, or Borrowers shall have any obligation to the Banks hereunder
or pursuant hereto, Borrowers shall not, and shall not permit any Consolidated
Subsidiary to, without the prior written consent of the Required Banks in each
instance:
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(a) Restriction on Debt. Incur, create,
assume, guarantee or suffer to exist, or become or remain liable,
directly or indirectly, for or on account of any Debt except:
(i) Debt to the Banks hereunder, under
the Notes, any Letter of Credit and under any Interest Rate
Protection Agreement with any Bank;
(ii) Permitted Debt as set forth on
Schedule 7.02(a)(ii) hereof, including all renewals,
extensions or refinancings thereof, provided that the
principal amount thereof does not increase;
(iii) Debt of any of the Consolidated
Entities, which is secured by Purchase Money Liens permitted
under SECTION 7.02(d);
(iv) Debt of the Consolidated Entities to
one another or to any Subsidiary, of any Subsidiary to a
Consolidated Entity, or of any Subsidiary to any other
Subsidiary;
(v) Debt permitted under SECTION
7.02(i); and
(vi) Increases in existing Unfunded
Vested Liabilities, provided that such increases do not result
from benefit increases voluntarily granted by a Consolidated
Entity (it being understood that there shall in all events be
permitted such increases as may result from any requirements
for continued qualification of the subject Plan, or from
reasonable modifications agreed to by Borrowers' consulting
actuary based on computations or actuarial assumptions).
(b) Merger and Sale of Substantially All
Assets. Merge or consolidate with any other Person, or sell, lease or
otherwise transfer to any Person all or substantially all of its
assets, except for (i) transfer of assets, consolidations or mergers
among the Borrowers, or (ii) transfers of assets to, consolidations
with, or mergers into, any Person whose business is related to the
textile industry, provided that the transferee or surviving entity (as
the case may be) is, or, as a result of such transaction becomes, a
Borrower.
(c) Collateral. Sell, assign, discount or
otherwise dispose of all or any portion of the Collateral, other than
in the ordinary course of business, or permit anything to be done to
any Collateral that materially impairs the value of any Collateral or
the security interest
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<PAGE> 71
intended to be afforded by this Agreement and/or any Collateral
Security Document.
(d) Liens. Create, assume, incur or suffer to
exist any lien, charge, mortgage, deed of trust, pledge, security
interest or other encumbrance with respect to any Collateral and on
any of the Consolidated Entities' assets, other than:
(i) Liens securing the Loans hereunder,
any Interest Rate Protection Agreement with any Bank, or any
other Liens granted in favor of the Agent, on behalf of the
Banks;
(ii) Liens for taxes or assessments or
other government charges or levies if not yet due and payable
or, if due and payable, if they are being contested in good
faith by appropriate proceedings and for which appropriate
reserves are maintained;
(iii) Liens arising by operation of law,
such as mechanic's, materialmen's, landlord's, warehousemen's,
carrier's and other similar Liens, securing obligations
incurred in the ordinary course of business which are not past
due for more than 30 days, or which are being contested in
good faith by appropriate proceedings and for which
appropriate reserves have been established;
(iv) Liens under workmen's compensation,
unemployment insurance, social security or similar legislation
(other than ERISA);
(v) Liens, deposits or pledges to secure
the performance of bids, tenders, contracts (other than
contracts for the payment of money), leases (to the extent
permitted under the terms of this Agreement), public or
statutory obligations, surety, stay, appeal, indemnity,
performance or other similar bonds, or other similar
obligations arising in the ordinary course of business;
(vi) Judgment and other similar Liens
arising in connection with court proceedings; provided that
the execution or other enforcement of such Liens is
effectively stayed and the claims secured thereby are being
actively contested in good faith and by appropriate
proceedings;
(vii) Easements, rights-of-way,
restrictions and other similar encumbrances which, in the
aggregate, do not materially interfere with the occupation,
use and enjoyment by any Consolidated Entity of the
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property or assets encumbered thereby in the normal course of
their business or materially impair the value of the property
subject thereto;
(viii) Liens securing obligations of one
Consolidated Entity to another, or of a Consolidated Entity to
a Subsidiary, or of a Subsidiary to another Subsidiary;
(ix) Purchase Money Liens on any
property hereafter acquired, provided that:
(1) any property subject to
such Purchase Money Lien is acquired by a Consolidated
Entity in the ordinary course of its business and the
Lien on any such property is created
contemporaneously with such acquisition;
(2) the obligation secured by
any Lien so created, assumed or existing shall not
exceed 100% of the lesser of cost or fair market
value as of the time of acquisition of the property
covered thereby to any Consolidated Entity acquiring
the same;
(3) each such Lien shall attach
only to the property so acquired and fixed
improvements thereon;
(4) the obligations secured by
such Lien are permitted by the provisions of SECTION
7.02(a).
(x) Liens existing on the date hereof
and set forth on Schedule 7.02(d)(x) hereto, provided that
there are no renewals of such Liens or extensions of such
Liens to property other than property now subject to such
Liens, or to secure amounts of Debt greater than such amounts
as existing on the date hereof, as such Debt is set forth in
Schedule 7.02(a)(ii) hereto;
(xi) the Lien of FUNB in a certain
office building in Columbus, Georgia pursuant to a Deed to
Secure Debt and Assignment of Rent issued by Johnston to FUNB
in the principal amount of $1,325,000 dated as of August 20,
1993; and
(xii) other Liens not exceeding, in the
aggregate, $1,000,000 at any one time outstanding for the
Consolidated Entities taken as a whole.
(e) Leases. Create, incur, assume or suffer to
exist, or permit any Consolidated Entity to create, incur,
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assume or suffer to exist, any obligation as lessee for the rental or
hire of any real or personal property, except: (i) leases (inclusive
of Capital Leases and Operating Leases) existing on the date of this
Agreement and any extensions or renewals thereof; (ii) leases (other
than Capital Leases) which do not in the aggregate require the
Consolidated Entities, on a consolidated basis, to make payments
(including taxes, insurance, maintenance and similar expenses required
under the terms of any lease) in any fiscal year of the Consolidated
Entities in excess of $2,000,000; and (iii) Capital Leases permitted
by SECTION 7.02(a).
(f) Investments. Make, or permit any
Consolidated Entity to make any loan or advance or capital
contribution to, or guaranty directly or otherwise, on a contingent or
any other basis, the Debt of, any Person (including any Affiliate or
Unrestricted Subsidiary) or purchase, exercise an option to purchase
or otherwise acquire, or permit any such Consolidated Entity to
purchase, exercise an option to purchase or otherwise acquire, any
capital stock, assets, obligations or other securities of, or
otherwise invest in, or acquire any interest in, or pay cash dividends
(whether regular or extraordinary) from the Closing Date and
thereafter, or purchase or redeem stock of, any Person, Affiliate or
Unrestricted Subsidiary (any such loan, advance, capital contribution,
guaranty, purchase, investment or dividend payment hereinafter
collectively referred to as the "Restricted Investments"), except:
(i) direct obligations of the United States of America or any agency
thereof with maturities of one year or less from the date of
acquisition; (ii) commercial paper of a domestic issuer rated at least
"A-1" by Standard & Poor's Corporation or "P-1" by Moody's Investors
Service, Inc.; (iii) certificates of deposit with maturities of one
year or less from the date of acquisition, repurchase agreements and
bankers acceptances issued or purchased by any commercial bank
operating within the United States of America having capital and
surplus in excess of $200,000,000; (iv) capital stock, obligations or
securities received in settlement of debts (created in the ordinary
course of business) owing to any Consolidated Entity; (v) intercompany
transactions among the Consolidated Entities; (vi) Acceptable
Acquisitions, (vii) the Jupiter Acquisition and (viii) $2,150,000,
provided such amount is used in accordance with SECTION 2.09(vi) (the
aforesaid investments in clauses (i) - (viii), collectively referred
to as the "Permitted Investments"); provided, however, that the
Consolidated Entities may make such Restricted Investments or
otherwise invest in or acquire any interest in any Person, so long as
the Consolidated Entities are otherwise in compliance with the
covenants contained in ARTICLE VII after giving effect to the
Restricted Investment, and the aggregate investments at any time made
pur-
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suant to this SECTION 7.02(f), excluding the Permitted Investments, do
not, at any time, exceed the following amount (the "Aggregate
Restrictive Investment Amount"): an amount which is the lesser of (x)
20% of total assets of the Consolidated Entities, on a fully
consolidated basis, as of the date of determination thereof, or (y)
$5,000,000.00 for the period commencing on January 1, 1996 and ending
on December 31, 1996 , or (z) $5,000,000.00, plus 50% of cumulative
Consolidated Net Income for the period commencing on January 1, 1997,
minus 100% of cumulative Consolidated Net Loss for the Consolidated
Entities for such period, as calculated on a cumulative basis as of
the end of each fiscal quarter of the Consolidated Entities with
reference to the Financial Statements for such quarter. For the
purposes of this SECTION 7.02(f), any purchase money obligation owing
to a Consolidated Entity created upon any sale permitted under this
Agreement shall not be deemed to be a Restricted Investment.
(g) Sale of Assets. Except in the ordinary
course of business, sell, lease, assign, transfer or otherwise dispose
of, or permit any Consolidated Entity to sell, lease, assign, transfer
or otherwise dispose of, any of its now owned or hereafter acquired
assets (including, without limitation, shares of stock and
indebtedness of such Consolidated Entity, Receivables and leasehold
interests) except: (i) the sale or other disposition of assets no
longer used or useful in the conduct of its business; (ii) that any
Borrower may sell, lease, assign, or otherwise transfer its assets to
any other Borrower; and (iii) the sale or other disposition of assets
to a partnership or joint venture in connection with an Acceptable
Acquisition as defined in clause (y) of the definition of Acceptable
Acquisition.
(h) Acquisitions. Make any Acquisition other
than an Acceptable Acquisition or the Jupiter Acquisition.
(i) Obligations of Third Persons. Guarantee,
endorse or otherwise in any way be or become responsible or permit any
Consolidated Entity to guarantee, endorse or be or become responsible,
in any way, for obligations of any Person, whether by agreement to
purchase Debt, or agreement for furnishing funds through the purchase
of goods, supplies or services (or by way of stock purchase, capital
contribution, advance or loan) for the purpose of paying or
discharging any Debt or obligation of any other Person, or agreement
to maintain minimum working capital or net worth of any Person, or
otherwise, except (i) guaranties by endorsement of negotiable
instruments for deposit or collection or similar transactions in the
ordinary course of business; (ii) guaranties issued by Johnston, on an
unsecured basis, to secure loans made by FUNB and certain other
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banks to certain employees, officers and directors of the Borrowers in
an aggregate amount of up to $8,500,000; (iii) other guaranties not
otherwise expressly permitted herein arising in the ordinary course of
business which do not exceed $500,000 in the aggregate at any one time
outstanding for the Consolidated Entities taken as a whole; (iv) any
guaranty existing on the date hereof and any renewals thereof and
which are permitted under SECTION 7.02(f) hereof; and (v) any other
guarantee, not otherwise allowed pursuant to this SECTION 7.02(i),
provided that (x) no Default has occurred hereunder or shall occur as
a result of such guarantee and (y) the obligations created by such
guarantees are subordinated in a manner satisfactory to the Agent to
existing Debt of the Consolidated Entities, as appropriate, and, with
respect to each Borrower, to amounts owed hereunder, by agreements in
form and substance satisfactory to the Agent.
(j) Stock. Declare or pay cash dividends on any
shares of any class of its capital stock, or apply any of its property
or assets to the purchase, redemption or other retirement of, or set
apart any sum for the payment of dividends on, or for the purchase,
redemption or other retirement of, or make any other distribution by
reduction of capital stock or otherwise in respect of, any shares of
any class of its capital stock, except (i) dividends on the common
stock of any of the Consolidated Entities payable to any of the
Borrowers, (ii) Johnston may declare and deliver dividends and
purchase or redeem common stock or make distributions as aforesaid in
accordance with SECTION 7.02(f) hereof, up to an amount which does
not, in the aggregate, exceed the Aggregate Restrictive Investment
Amount, and (iii) each Borrower may purchase or otherwise acquire
shares of its capital stock by exchange for or out of proceeds
received from a substantially concurrent issue of new shares of its
capital stock.
(k) Affiliates. Enter into or permit any
Consolidated Entity to enter into any transaction (including without
limitation, the purchase, sale or exchange of securities or other
property or the rendering of any service) with any Affiliate, except
in the ordinary course of and pursuant to the reasonable requirements
of its business upon fair and reasonable terms no less favorable to it
as it would obtain in an arm's length transaction with a Person not an
Affiliate, and which would not otherwise violate SECTION 7.02(f)
hereof.
(l) Use, Operation, etc. of Collateral. Use,
service, repair, operate or locate (or cause to be used, serviced,
repaired or operated) any of the Collateral (i) in violation of any
law, rule, regulation, order, or ordinance of any Person having
jurisdiction of the Collateral, and
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(ii) in any area excluded from insurance coverage as required by the
terms of this Agreement.
(m) Change of Ownership. Undergo a change in
equity ownership of any Borrower other than Johnston, except as
otherwise permitted by this Agreement.
(n) Use of Proceeds. Use the proceeds of the
Loans for any purpose other than as set forth in SECTION 2.09.
(o) Nature of Business. Make any material change
in the nature or scope of any of the Consolidated Entities' respective
businesses, including, without limitation, material changes in
accounting policies and practices and changes in the fiscal year of
any of the Consolidated Entities.
(p) Change in Management. Gerald Andrews shall
have ceased to continue to serve in the operational and managerial
capacities in which he now serves or in enhanced operational or
managerial capacities with Johnston and a successor shall not be
appointed within 90 days thereafter upon the approval of the board of
directors, after prior consultation with the Required Banks.
(q) Operating Accounts. Open or maintain any
operating account(s) for or in the name of any Consolidated Entity
with any bank or financial institution, other than (i) such accounts
which are existing as of the Closing Date and disclosed in Schedule
7.02(q) annexed hereto, and (ii) such accounts opened at any Bank
after the Closing Date, provided that any such Bank shall act as
collateral agent on behalf of all the Banks with respect to all monies
held in any such accounts and shall execute such agreements as the
Agent shall deem necessary or appropriate to evidence the security
interest of the Agent, for the benefit of the Banks, in such accounts.
SECTION 7.03. Financial Covenants. Each Borrower
covenants and agrees that from and after the date of execution hereof
and so long as any amount may be borrowed hereunder or remains unpaid
on account of any Note or Letter of Credit, or Borrowers shall have
any obligation to the Banks hereunder or pursuant hereto, Borrowers
shall not, and shall not permit any Consolidated Entity to, without
the prior written consent of the number of Banks as indicated in
SECTION 14.01 herein, in each instance:
(a) Total Loan Commitment. Permit the Total Loan
Commitment under this credit facility to exceed $160,000,000 at any
one time outstanding.
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(b) Capital Expenditures. Permit Consolidated
Capital Expenditures to exceed the lesser of (i) $24,000,000 for the
fiscal year ending December 31, 1996 and $25,000,000 for the fiscal
year ending December 31, 1997 and at all times thereafter, or (ii)
110% of the depreciation amount set forth in the Consolidated
Entities' Financial Statements for the previous fiscal year, provided
that, amounts of Consolidated Capital Expenditures permitted hereunder
but not utilized in any fiscal year may be carried forward and
utilized in the following fiscal year, so long as, after giving effect
to such carry-forward, the Borrowers remain in compliance with all
covenants contained in ARTICLE VII.
(c) Consolidated Funded Debt. Incur or permit
Consolidated Funded Debt to exceed $177,140,000 at any time.
(d) Consolidated Tangible Net Worth. Permit its
Consolidated Tangible Net Worth, at all times during the periods set
forth below, to be less than the amount set forth opposite such
period:
<TABLE>
<CAPTION>
Period: Amount:
------ ------
<S> <C>
Closing Date - 3/31/97 $50,000,000
4/1/97 - 9/30/97 $55,000,000
10/1/97 - 12/31/97 $60,000,000
1/1/98 - 9/30/98 $75,000,000
10/1/98 and all times thereafter $80,000,000
</TABLE>
(e) Leverage Ratio. Permit the Leverage Ratio,
as determined at the end of each fiscal quarter, to be greater than
the ratio set forth opposite the following periods:
<TABLE>
<CAPTION>
Period: Ratio:
------ -----
<S> <C>
Closing Date - 6/30/96 4.50:1.00
7/1/96 - 9/30/96 4.25:1.00
10/1/96 - 3/31/97 4.00:1.00
4/1/97 - 9/30/97 3.50:1.00
10/1/97 - 3/31/98 3.25:1.00
4/1/98 - 9/30/98 3.00:1.00
10/1/98 - 9/30/99 2.50:1.00
10/1/99 and all times thereafter 2.00:1.00
</TABLE>
(f) Current Ratio. Permit the Current Ratio, as
determined at the end of each fiscal quarter, to be less than
2.00:1.00 at any time for the period commencing on the Closing Date
and at all times thereafter.
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(g) Interest Coverage Ratio. Permit the Interest
Coverage Ratio, as determined at the end of each fiscal quarter, to be
less than the ratio set forth opposite the following periods:
<TABLE>
<CAPTION>
Period: Ratio:
------ -----
<S> <C>
Closing Date - 12/31/96 1.50:1.00
1/1/97 and all times thereafter 2.50:1.00
</TABLE>
(h) Fixed Charge Coverage Ratio. Permit the
Fixed Charge Coverage Ratio, as determined at the end of each fiscal
quarter, to be less than the ratio set forth opposite the following
periods:
<TABLE>
<CAPTION>
Period: Ratio:
------ -----
<S> <C>
Closing Date - 6/30/97 1.00:1.00
7/1/97 - 9/30/97 1.10:1.00
10/1/97 - 12/31/97 1.25:1.00
1/1/98 and all times thereafter 1.50:1.00
</TABLE>
(i) Debt Ratio. Permit the Debt Ratio, as
determined at the end of each fiscal quarter, to be less than the
ratio set forth opposite the following periods:
<TABLE>
<CAPTION>
Period: Ratio:
------ -----
<S> <C>
As of the Closing Date 6.75:1.00
From and after the
Closing Date to 6/30/96 6.00:1.00
7/1/96 - 9/30/96 4.75:1.00
10/1/96 - 6/30/97 3.50:1.00
7/1/97 and all times thereafter 3.00:1.00
</TABLE>
ARTICLE VIII
EVENTS OF DEFAULT
SECTION 8.01. Events of Default. If any of the following
events ("Events of Default") shall occur and be continuing:
(a) Borrowers shall fail to pay any amounts due
(including principal, interest and fees) hereunder, under or in respect of any
of the Notes, any Letter of Credit or under any Loan Document when due (whether
by maturity, acceleration or otherwise), provided that, any such failure of the
Borrowers to pay interest under any Note shall not constitute an Event of
Default hereunder unless such failure is not cured by the Borrowers within five
(5) days of the due date thereof;
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(b) Any event of default shall have occurred
under any Collateral Security Documents;
(c) Any representation, warranty or opinion made
or given in this Agreement or in any certificate, opinion, financial or other
statement delivered pursuant to or in connection with this Agreement or by
Borrowers in any Loan Document shall prove to have been untrue, false or
misleading in any material respect on or as of (as the case may be) the date as
of which made;
(d) Without affecting or limiting the Events of
Default in clause (a), (b) and (c) herein, Borrowers shall fail in the
observance or performance of any of the covenants and agreements contained in
(i) SECTIONS 7.01(a), (i), (k), (m), (n) and (o), 7.02 and 7.03 of this
Agreement, or (ii) any other covenant or agreement contained in this Agreement,
or Borrowers or any Consolidated Entity shall fail in the observance or
performance of any covenant or agreement contained in any of the Collateral
Security Documents or Loan Documents and the continuance of the same for 30
days after receipt by Borrowers of notice of such default from the Agent;
(e) The occurrence of any event or circumstance,
and continuation thereof unremedied for any applicable grace period, under any
agreement, guaranty or evidence of Debt relating to any obligation of a
Consolidated Entity for borrowed money, other than the Debt evidenced by this
Agreement, which would give the holder thereof or any other Person the right to
declare such obligation due and payable, assuming that any required notice had
been given at the time of such occurrence and, with respect to a default in the
payment of principal or interest on such Debt, which Debt has an outstanding
principal amount in excess of $1,500,000 in the aggregate for the Consolidated
Entities;
(f) The entry of a decree or order for relief by
a court having jurisdiction in the premises in respect of any Borrower or any
Consolidated Entity in an involuntary case under the federal bankruptcy laws,
as now or hereafter constituted, or any other applicable federal or state
bankruptcy, insolvency or other similar law, or appointing a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or similar official) of
any of the Borrowers or any Consolidated Entity, or for any substantial part of
any of their property, or ordering the winding-up or liquidation of any of
their affairs and the continuance of any such decree or order unstayed and in
effect for a period of 60 consecutive days;
(g) The commencement by any Borrower or any
Consolidated Entity of a voluntary case under the federal bankruptcy laws, as
now constituted or hereafter amended, or any other applicable federal or state
bankruptcy, insolvency or other
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similar laws, or the consent by any of them to the appointment of or taking
possession by a receiver, liquidator, assignee, trustee, custodian,
sequestrator (or other similar official) of the Borrowers or any Consolidated
Entity, or for any substantial part of any of their property, or the making by
any of them of any assignment for the benefit of creditors, or the failure of
any Borrower or any Consolidated Entity generally to pay their debts as such
debts become due, or the taking of corporate or other action by any Borrower or
any Consolidated Entity in furtherance of any of the foregoing;
(h) The entry of any judgments against any
Borrower or any Consolidated Entity aggregating more than $500,000 or any
attachments or other levy against the property of any Borrower or any
Consolidated Entity with respect to claims aggregating in excess of $500,000,
if the same remain unpaid, unappealed, undischarged, unbonded, unstayed or
undismissed, for a period of 60 days;
(i) This Agreement, any Note or any Loan Document
shall, at any time after their respective execution and delivery and for any
reason, cease to be in full force and effect or shall be declared to be null
and void, or the validity or enforceability thereof shall be contested by any
Borrower, or any Borrower shall deny that they have any or further liability or
obligation under this Agreement, the Notes or any Loan Document to which such
Person is a party; and
(j) A Change of Control shall have occurred
which, in the good faith opinion of the Required Banks, results in a Material
Adverse Effect;
(k) Any material adverse change in the condition,
affairs or operations (financial or otherwise) of any Borrower or any
Consolidated Entity, or the value of the Collateral, determined in the sole
good faith discretion of the Required Banks; and
(l) Borrowers shall fail, within 15 Business Days
of the Closing Date, to terminate all liens, encumbrances or security interests
(other than the Liens granted to the Agent hereunder) existing as of the
Closing Date with respect to TJB including, without limitation, the Liens
listed as temporarily Permitted Liens on Schedule 7.02(d)(x) hereof to the
satisfaction of the Agent;
then, in the case of any of the events specified in paragraphs (f) and (g), the
Commitment shall be immediately terminated and each Note and all other amounts
payable by Borrowers to the Banks, the Agent, the Arranger and the Syndication
Agent under this Agreement, the Notes and the other Loan Documents shall be
immediately due and payable without any action on the part of the Agent, the
Arranger, the Syndication Agent, any of the Banks,
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Borrowers or any other Person, and, in the case of any of the other events
specified above, the Agent, at the direction of the Required Banks (i) upon
written notice to any Borrower, may immediately terminate the then unused
portion of the Commitment and/or declare the Notes to be immediately due and
payable, whereupon the Commitment shall be immediately terminated and/or the
unpaid principal balance of the Notes, together with accrued interest thereon,
shall become immediately due and payable without presentment, demand, protest
or other notice of any kind, all of which are hereby expressly waived, and (ii)
shall have the right to first set off without demand or notice upon any and all
accounts of any Borrower at the Agent to the extent necessary to cure said
Event of Default before exercising any other remedy under this ARTICLE VIII or
ARTICLE IX, provided, however, that the Agent shall give the Borrowers notice
after any exercise of such right of setoff.
SECTION 8.02. Setoff. This Agreement shall not limit any
rights which the Agent or any of the Banks or any agent of the Agent have by
law to set off and apply deposits held by the Agent or any of the Banks at any
of their respective offices to or for the credit or the account of any Borrower
against any and all of the obligations of the Borrowers then due and payable
under this Agreement, the Notes, any Collateral Security Document or any other
Loan Document.
ARTICLE IX
REMEDIES AFTER DEFAULT
SECTION 9.01. Remedies. Upon maturity of the Notes, whether
by acceleration or otherwise, unless Borrowers shall have paid in full all
amounts due thereunder and under this Agreement and the Collateral Security
Documents, the Agent may, pursuant to the direction of the Required Banks in
accordance with ARTICLE X, and in addition to any rights it may have at law, in
equity or pursuant to any of the Collateral Security Documents:
(a) notify the mortgagors, obligors, lessees or
other parties interested in the Collateral of their respective interests
therein and of any action proposed to be taken with respect thereto, and inform
any such parties that all payments otherwise payable to Borrowers with respect
thereto shall thereafter be made to the Agent:
(b) receive and retain all payments and all other
distributions of any kind upon any and all of the Collateral;
(c) exercise any rights of consent pertaining to any
item of Collateral to the same extent as if the Agent were the owner thereof,
or cause any item of the Collateral to be transferred to its own name and have
such transfer recorded in
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any place or places deemed appropriate by the Agent; provided, however, that
the Agent agrees that if it takes title to the Collateral, it shall proceed in
a commercially reasonable manner to realize on such Collateral and apply the
proceeds of the sale of the Collateral in the same manner provided in this
ARTICLE IX;
(d) take such action with respect to the
foreclosure, sale, assignment and delivery of the whole of, or from time to
time any part of, the Collateral, including, without limitation, sell, assign
and deliver the whole of, or from time to time any part of, the Collateral at
any broker's board or at any private sale, or at public auction, after
advertisement of the time and place of sale, for cash, for credit or for other
property, for immediate or future delivery, and for such price or prices as the
Agent shall determine, and the Agent may bid for and purchase the whole or any
part of the Collateral on account of the Banks so sold free from any right or
equity of redemption; adjourn any such sale or cause the same to be adjourned
from time to time to a subsequent time and place announced at the time and
place fixed for the sale; carry out any agreement to sell any item or items of
Collateral in accordance with the terms of such agreement, notwithstanding the
fact that after the Agent shall have entered into such an agreement, the Notes
and other indebtedness due under this Agreement may have been paid in full,
unless the Agent is able to terminate or cancel such Agreement to its
satisfaction without any liability to any Person; and
(e) in addition to, and not by way of limitation of,
any of the rights specified above, exercise any and all rights and remedies
afforded to it, as a secured party (and as Agent for the Banks hereunder) in
possession of Collateral or otherwise, under any and all applicable provisions
of law.
SECTION 9.02. No Liability. Neither the Agent nor any Bank
nor the Arranger, nor the Syndication Agent, nor any of their respective
officers, directors, shareholders, employees, counsel and agents shall incur
any liability as a result of the sale of the Collateral, or any part thereof,
in accordance with applicable law and the provisions of this Agreement or any
Collateral Security Document, for the failure to sell or offer for sale the
Collateral, or any part thereof, or for any other reason whatsoever. Borrowers
waive any claims against the Agent, Arranger, Syndication Agent, each Bank and
any of their respective officers, directors, shareholders, employees, counsel
and agents arising with respect to the price at which the Collateral, or any
part thereof, may have been sold by reason of the fact that such price was less
than the aggregate amount of the indebtedness due under the Notes, this
Agreement and the other Loan Documents.
SECTION 9.03. Application of Proceeds. (a) Subject to
SECTION 11.02, the Agent shall apply the proceeds received from any sale or
other disposition of the Collateral or from any
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other source, together with any other monies at the time held by the Agent
under the provisions of this Agreement or any Collateral Security Document,
after deducting all costs and expenses incurred by the Agent, Arranger,
Syndication Agent, and each Bank in connection with such collection and sale
(including, without limitation, reasonable counsel fees, brokers' fees and
expenses), as follows and in the following order:
(i) to the payment of any fees, disbursements
and other amounts then due and owing to the Agent, Arranger,
Syndication Agent, and each of the Banks hereunder or under any of the
Loan Documents;
(ii) to payment in full of the amounts due under
the Notes, this Agreement and any other Loan Document, first, to
payment of interest due on the Term Notes in inverse order of their
maturities and on the Revolving Credit Notes and second, to repayment
of the outstanding principal amount of the Term Notes in inverse order
of their maturities and on the Revolving Credit Notes (in each case on
a pro rata basis in accordance with ARTICLE XI);
(iii) to a cash reserve account for payment of
outstanding Letter of Credit Obligations until all Letters of Credit
have either expired undrawn or have been drawn and terminated; and
(iv) the remainder, if any, shall be paid to
Borrowers, as their interests may appear, or Borrowers' designee(s).
(b) If the amount of all proceeds received in
liquidation of the Collateral which shall be applied to payment of the
indebtedness due in respect of this Agreement, the Notes and the Collateral
Security Documents shall be insufficient to pay all such indebtedness or
obligations in full, Borrowers acknowledge that they shall remain jointly and
severally liable for any deficiency, together with interest thereon and costs
of collection thereof (including reasonable counsel fees and legal expenses).
SECTION 9.04. Attorneys-in-Fact. Borrowers hereby jointly
and severally make, constitute and appoint the Agent, and its respective agents
and designees, the true and lawful agent and attorney-in-fact of each Borrower,
with full power of substitution, to take any or all of the following actions
upon the occurrence of an Event of Default: (i) to receive, open and dispose of
all mail addressed to any Borrower relating to the Collateral, (ii) to notify
and direct the United States Post Office authorities by notice given in the
name of any Borrower and signed on its behalf, to change the address for
delivery of all mail addressed to such Borrower relating to the Collateral to
an address to be designated by the Agent, and to cause such mail to
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be delivered to such designated address where the Agent may open all such mail
and remove therefrom any notes, checks, acceptances, drafts, money orders or
other instruments in payment of the Collateral in which the Banks have a
security interest hereunder and any documents relative thereto, with full power
to endorse the name of any Borrower upon any such notes, checks, acceptances,
drafts, money orders or other form of payment or on Collateral or security of
any kind and to effect the deposit and collection thereof, and the Agent shall
have the further right and power to endorse the name of each Borrower on any
documents otherwise relating to such Collateral, and (iii) to do any and all
other things necessary or proper to carry out the intent of this Agreement and
to perfect and protect the Liens and rights of the Banks created under this
Agreement, including, without limitation, to claim, bring suit, settle or
adjust any insurance proceeds claims relating to the Collateral. After taking
any of the aforesaid actions, the Agent shall provide the Borrowers with notice
thereof. For purposes of this SECTION 9.04, Borrowers agree that neither the
Agent nor any of its respective officers, directors, shareholders, employees,
counsel, agents, designees or attorneys-in-fact will be liable for any acts of
commission or omission, or for any error of judgment or mistake of fact or law,
except for any acts of gross negligence or willful misconduct. The powers
granted hereunder are coupled with an interest and shall be irrevocable during
the term hereof.
ARTICLE X
THE AGENT
SECTION 10.01. Appointment, Powers and Immunities. Each Bank
hereby irrevocably appoints and authorizes Chase to act as its agent hereunder
and under the other Loan Documents with such powers as are specifically
delegated to the Agent by the terms of this Agreement and the other Loan
Documents, together with such other powers as are reasonably incidental
thereto. The Agent (which term as used in this Agreement shall include
reference to its Affiliates and its own and its Affiliates' officers,
directors, employees and agents): (a) shall have no duties or responsibilities
except those expressly set forth in this Agreement and in the other Loan
Documents and shall not by reason of this Agreement or any other Loan Document
be a trustee for any Bank; (b) shall not be responsible to the Banks for any
recitals, statements, representations or warranties contained in this Agreement
or in any other Loan Document, or in any certificate or other document referred
to or provided for in, or received by any of them under, this Agreement or any
other Loan Document, or for the value, validity, effectiveness, genuineness,
enforceability or sufficiency of this Agreement, the Notes or any other Loan
Document or any other document referred to or provided for herein or therein or
for any failure by the Borrowers or any other Person to perform any of its
obligations hereunder or thereunder
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or for the perfection or priority of any collateral security for the Loans; (c)
shall not be required to initiate or conduct any litigation or collection
proceedings hereunder or under any other Loan Document other than in accordance
with this Agreement including, without limitation, SECTIONS 10.03 and 10.05;
(d) shall not be responsible for any action taken or omitted to be taken by it
hereunder or under any other Loan Document or under any other document or
instrument referred to or provided for herein or therein or in connection
herewith or therewith, except for its own gross negligence or willful
misconduct; and (e) shall not, in its capacity as Agent, be responsible to the
Borrowers or the Banks for any funding or other obligations of a Bank hereunder
nor for (i) determining whether or not any of the transactions contemplated
hereby qualifies as a highly leveraged transaction ("HLT") as defined by any
bank regulatory authority, (ii) notifying the Banks regarding the HLT status of
any transaction contemplated hereby or of any change in that status or (iii)
the correctness of any determination as to HLT status. The Agent may employ
agents and attorneys-in-fact and shall not be responsible for the negligence
or misconduct of any such agents or attorneys-in-fact, so long as the Agent was
not grossly negligent in selecting such agents or attorneys-in-fact.
SECTION 10.02. Reliance by Agent. The Agent shall be
entitled to rely upon any certification, notice or other communication
(including, without limitation, any thereof by telephone, telecopy, telex,
telegram or cable) believed by it to be genuine and correct and to have been
signed or sent by or on behalf of the proper Person or Persons, and upon advice
and statements of legal counsel, independent accountants and other experts
selected by the Agent. The Agent may deem and treat each Bank as the holder of
the Commitments attributable to it for all purposes hereof unless and until a
notice of the assignment or transfer thereof satisfactory to the Agent signed
by such Bank shall have been furnished to the Agent but the Agent shall not be
required to deal with any Person who has acquired a participation in any
Commitments from a Bank. As to any matters not expressly provided for by this
Agreement or any other Loan Document, the Agent shall in all cases be fully
protected in acting, or in refraining from acting, hereunder or thereunder in
accordance with instructions given by the Required Banks or, if provided
herein, in accordance with the instructions given by all of the Banks as is
required in such circumstance, and such instructions and any action taken or
failure to act pursuant thereto shall be binding on all of the Banks.
SECTION 10.03. Defaults. The Agent shall not be deemed to
have knowledge or notice of the occurrence of a Default (other than the
non-payment of principal of or interest on the Loans and the Revolving Credit
Commitment Fee) unless the Agent has received notice from a Bank or a Borrower
specifying such Default and stating that such notice is a "Notice of Default".
In the event that the Agent receives such a notice of the
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occurrence of a Default, the Agent shall give prompt notice thereof to the
Banks (and shall give each Bank prompt notice of each such non-payment). The
Agent shall (subject to SECTION 10.07 hereof) take such action with respect to
such Default as shall be directed by the Required Banks, provided that, unless
and until the Agent shall have received such directions, the Agent may (but
shall not be obligated to) take such action, or refrain from taking such
action, with respect to such Default as it shall deem advisable in the best
interests of the Banks, except that the Agent shall not be required to take any
action which it determines to be contrary to law.
SECTION 10.04. Rights as a Bank. With respect to its
Commitments and the Loans made by it, the Agent, in its capacity as a Bank
hereunder, shall have the same rights and powers hereunder as any other Bank
and may exercise the same as though it were not acting as the Agent, and the
term "Bank" or "Banks" shall, unless the context otherwise indicates, include
the Agent in its individual capacity. The Agent and its Affiliates may
(without having to account therefor to any Bank) accept deposits from, lend
money to, make investments in and generally engage in any kind of banking,
trust or other business with the Borrowers and any Consolidated Entity or
Affiliate as if it were not acting as the Agent, and the Agent and its
Affiliates may accept fees and other consideration from any Consolidated Entity
for services in connection with this Agreement or otherwise without having to
account for the same to the Banks. Although the Agent and its Affiliates may
in the course of such relationships and relationships with other Persons
acquire information about any Consolidated Entity or any Affiliate, the Agent
shall have no duty to disclose such information to the Banks.
SECTION 10.05. Indemnification. The Banks agree to indemnify
the Agent (to the extent not reimbursed under SECTION 7.01(i) hereof, but
without limiting the obligations of the Borrowers under said SECTION 7.01(i))
ratably in accordance with the aggregate principal amount of the Loans held by
the Banks, for any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind and nature whatsoever that may be imposed on, incurred by or asserted
against the Agent (including by any Bank) arising out of or by reason of any
investigation in or in any way relating to or arising out of this Agreement,
the Notes or any other Loan Document or any other documents contemplated by or
referred to herein or therein or the transactions contemplated hereby or
thereby (including, without limitation, the costs and expenses that the
Borrowers are obligated to pay under SECTION 14.04 hereof), or the enforcement
of any of the terms hereof or thereof or of any such other documents; provided
that no Bank shall be liable for any of the foregoing to the extent they arise
from the gross negligence or willful misconduct of the party to be indemnified.
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SECTION 10.06. Non-Reliance on Agent and Other Banks. Each
Bank agrees that it has, independently and without reliance on the Agent or any
other Bank, and based on such documents and information as it has deemed
appropriate, made its own credit analysis of each Consolidated Entity and
decision to enter into this Agreement and that it will, independently and
without reliance upon the Agent or any other Bank, and based on such documents
and information as it shall deem appropriate at the time, continue to make its
own analysis and decisions in taking or not taking action under this Agreement.
The Agent shall not be required to keep itself informed as to the performance
or observance by the Borrowers of this Agreement or any of the other Loan
Documents or any other document referred to or provided for herein or therein
or to inspect the properties or books of any Consolidated Entity. Except for
notices, reports and other documents and information expressly required to be
furnished to the Banks by the Agent hereunder, the Agent shall not have any
duty or responsibility to provide any Bank with any credit or other information
concerning the affairs, financial condition or business of any Consolidated
Entity (or any of their Affiliates) that may come into the possession of the
Agent or any of its Affiliates.
SECTION 10.07. Failure to Act. Except for action expressly
required of the Agent hereunder and under the other Loan Documents, the Agent
shall in all cases be fully justified in failing or refusing to act hereunder
and thereunder unless it shall receive further assurances to its satisfaction
from the Banks of their indemnification obligations under SECTION 10.05 hereof
against any and all liability and expense that may be incurred by it by reason
of taking or continuing to take any such action.
SECTION 10.08. Resignation or Removal of Agent. Subject to
the appointment and acceptance of a successor Agent as provided below, the
Agent may resign at any time by giving notice thereof to the Banks and the
Borrowers, and the Agent may be removed at any time with or without cause by
the Required Banks. Upon any such resignation or removal, the Required Banks
shall have the right to appoint a successor Agent. If no successor Agent shall
have been so appointed by the Required Banks and shall have accepted such
appointment within 30 days after the retiring Agent's giving of notice of
resignation or the Required Banks' removal of the retiring Agent, then the
retiring Agent may, on behalf of the Banks, appoint a successor Agent, that
shall be a bank with a combined capital and surplus of at least $100,000,000.
Upon the acceptance of any appointment as Agent hereunder by a successor Agent,
such successor Agent shall thereupon succeed to and become vested with all the
rights, powers, privileges and duties of the retiring Agent, and the retiring
Agent shall be discharged from its duties and obligations as Agent hereunder.
After any retiring Agent's resignation or removal hereunder as Agent, the
provisions of this
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ARTICLE X shall continue in effect for its benefit in respect of any actions
taken or omitted to be taken by it while it was acting as the Agent.
SECTION 10.09. Documents. The Agent will forward to each
Bank, promptly after the Agent's receipt thereof, a copy of each report, notice
or other document required by this Agreement or any other Loan Document to be
delivered to the Agent, including, without limitation, any and all Financial
Statements, reports or other documents required to be delivered under SECTION
7.01(b). The Agent shall additionally make requests for information, reports,
documents and such other matters to which it is entitled under this Agreement
or any Loan Document, on behalf and at the express request of, the Required
Banks, acting as a group.
SECTION 10.10. Amendments Concerning Agency Function. The
Agent shall not be bound by any waiver, amendment, supplement or modification
of this Agreement or any other Loan Document which affects its duties hereunder
or thereunder unless it shall have given its prior written consent thereto.
SECTION 10.11. Liability of Agent. The Agent shall not have
any liabilities or responsibilities to any Consolidated Entity on account of
the failure of any Bank to perform its obligations hereunder, except with
respect to any claim arising out of the gross negligence or willful misconduct
of the Agent, or to any Bank on account of the failure of any Consolidated
Entity to perform its obligations hereunder or under any other Loan Document.
SECTION 10.12. Transfer of Agency Function. Without the
consent of the Borrowers or any Bank, the Agent may at any time or from time to
time transfer its functions as Agent hereunder to any of its offices wherever
located, provided that the Agent shall promptly notify the Borrowers and the
Banks thereof and such transfer shall not impose any additional costs on the
Borrowers.
SECTION 10.13. Non-Receipt of Funds by the Agent. Unless the
Agent shall have been notified by a Bank or the Borrowers (any one of them as
appropriate being the "Payor") prior to the date on which such Bank is to make
payment hereunder to the Agent of the proceeds of a Loan or the Borrowers are
to make payment to the Agent, as the case may be (either such payment being a
"Required Payment"), which notice shall be effective upon receipt, that the
Payor does not intend to make the Required Payment to the Agent, the Agent may
assume that the Required Payment has been made and may, in reliance upon such
assumption (but shall not be required to), make the amount thereof available to
the intended recipient on such date and, if the Payor has not in fact made the
Required Payment to the Agent, the recipient of such payment (and, if such
recipient is a Borrower and the Payor Bank fails to pay the amount thereof to
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the Agent forthwith upon demand, a Borrower) shall, on demand, repay to the
Agent the amount made available to it together with interest thereon for the
period from the date such amount was so made available by the Agent until the
date the Agent recovers such amount at a rate per annum equal to the average
daily Federal Funds Rate for such period. If the Agent fails to pay any Bank
its pro rata share of any payment due such Bank and which payment has been
actually received by the Agent from a Borrower, within two Business Days of
receipt thereof, the Agent shall pay to each Bank its pro rata share of such
payment (if any) together with interest thereon from the date such amount was
actually received by the Agent until the date paid to such Bank at a rate per
annum equal to the average daily Federal Funds Rate for such period.
SECTION 10.14. Withholding Taxes. Each Bank represents to
the Agent and each Borrower that it is entitled to receive any payments to be
made to it hereunder without the withholding of any tax and will furnish, prior
to becoming a Bank hereunder, one copy to each Borrower and one copy to the
Agent such forms, certifications, statements and other documents as the Agent
or the Borrowers may request from time to time to evidence such Lender's
exemption from the withholding of any tax imposed by any jurisdiction or to
enable the Agent or the Borrowers to comply with any applicable laws or
regulations relating thereto. Without limiting the effect of the foregoing, if
any Bank is not created or organized under the laws of the United States of
America or any state thereof, in the event that the payment of interest by the
Borrowers is treated for U.S. income tax purposes as derived in whole or in
part from sources from within the U.S., such Bank will furnish to the Agent
Form 4224 or Form 1001 of the Internal Revenue Service, or such other forms,
certifications, statements or documents, duly executed and completed by such
Bank as evidence of such Bank's exemption from the withholding of U.S. tax with
respect thereto. Until such Bank shall have furnished to the Agent and the
Borrowers any requested form, certification, statement or document, the Agent
or the Borrowers may withhold taxes from any payment to such Bank at applicable
rates.
ARTICLE XI
RELATIONS AMONG THE BANKS AND THE BORROWERS
SECTION 11.01. Obligations and Rights of Banks. The failure
of any Bank to make any Loan to be made by it on the date specified therefor
shall not relieve any other Bank of its obligation to make its Loan on such
date, but no Bank shall be responsible for the failure of any other Bank to
make a Loan to be made by such other Bank. The amounts payable at any time
hereunder to each Bank shall be a separate and independent debt, and each Bank
shall be entitled to protect and enforce its rights arising out of this
Agreement, and it shall not be necessary for
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any other Bank to be joined as an additional party in any proceeding for such
purpose, subject to the provisions of ARTICLE X.
SECTION 11.02. Pro Rata Treatment. Except to the extent
otherwise provided herein, (a) each borrowing under SECTION 2.02 shall be made
from the Banks pro rata in accordance with their respective Commitments, (b)
each payment of principal, including any prepayments pursuant to SECTIONS 2.06
and 2.07, shall be made to the Agent for the Account of the Banks pro rata in
accordance with the respective principal amounts then outstanding, (c) each
payment of interest on Loans, commitment fees or Total Costs shall be made to
the Agent for the account of the Banks pro rata in accordance with their
respective amounts thereof then due and payable, (d) each reduction in the
Commitments shall be applied to the Commitments pro rata in accordance with the
Banks' respective Commitments; and (e) each repayment and payment of fees under
ARTICLE III hereof and the Letter of Credit Obligations shall be made to the
Agent for the account of the Issuing Bank and the Banks with Participating
Interests pro rata in accordance with the pro rata share of such Banks in the
Letter of Credit Obligations held by each of them.
SECTION 11.03. Sharing of Recoveries. Each Bank agrees that,
if, as a result of (a) the exercise of any right of counterclaim, setoff,
banker's lien or similar right, (b) its receipt of a secured claim under any
applicable bankruptcy, insolvency or other similar law, (c) the allocation of
payments by the Borrowers in a manner contrary to the provisions hereunder or
(d) any other reason, such Bank receives payment of a proportion of the
aggregate amount due and payable to it hereunder and under its Notes as
principal, interest or commitment fees that is greater than the proportion
received by any other Bank in respect of the aggregate of such amounts due and
payable, proratably, to such other Bank hereunder and under its Notes, then the
Bank receiving such proportionately greater payment shall purchase
participations (which it shall be deemed to have done simultaneously upon the
receipt of such payment) in the rights of the other Bank hereunder and under
its Notes so that all such recoveries with respect to such amounts due and
payable hereunder and under all the Notes held by the Banks shall be pro rata
in accordance with the unpaid amount of principal and interest on the Loans and
Letters of Credit held by each of them; provided that if all or part of such
proportionately greater payment received by the purchasing Bank is thereafter
recovered by or on behalf of any Borrower from such Bank, such purchases shall
be rescinded and the purchase prices paid for such participations shall be
returned to such Bank to the extent of such recovery, but without interest
(unless the purchasing Bank is required to pay interest on the amount recovered
to the Person recovering such amount, in which case the selling Bank shall be
required to pay interest at a like rate); provided further that nothing in this
SECTION 11.03 shall impair the right of any Bank to exercise any right of
setoff or counterclaim it may have and to apply the
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amount subject to such exercise to the payment of Debt of any Borrower. The
Borrowers expressly consent to the foregoing arrangements and agree that any
holder of a participation in any rights hereunder so purchased or acquired
pursuant to this SECTION 11.03 shall, with respect to such participation, be
entitled to all of the rights of a Bank hereunder and may exercise any and all
rights of setoff with respect to such participation as fully as if the
Borrowers were directly indebted to the holder of such participation for Loans
in the amount of such participation.
SECTION 11.04. Security Documents. Subject to the foregoing
provisions of this ARTICLE XI, the Agent shall, on behalf of the Banks: (a)
execute any and all of the Collateral Security Documents on behalf of the
Banks; (b) hold and apply any and all Collateral, and the proceeds thereof, at
any time received by it, in accordance with the provisions of the Collateral
Security Documents and this Agreement; (c) exercise any and all rights, powers
and remedies of the Banks under this Agreement or any of the Collateral
Security Documents, including the giving of any consent or waiver or the
entering into of any amendment, subject to the provisions of SECTION 14.01; (d)
execute, deliver and file financing statements, mortgages, deeds of trust,
lease assignments and other such agreements, and possess instruments on behalf
of any or all of the Banks; and (e) in the event of acceleration of the
Borrowers' obligations hereunder, use its best efforts to sell or otherwise
liquidate or dispose of the Collateral and otherwise exercise the rights of the
Banks thereunder upon the direction of the Required Banks.
SECTION 11.05. Collateral. Notwithstanding SECTION 11.04,
the Agent and the other Banks agree, as among themselves, that the Agent shall
not, without the consent of the Required Banks, make any sale or disposition of
the Collateral pursuant to any of the Collateral Security Documents. The Agent
acknowledges to the other Banks that it is acting in an agency capacity
hereunder and that the security interest in the Collateral granted under the
Collateral Security Documents secures the obligations held by all of the Banks.
In the event of any Default or Event of Default, the Agent will apply and/or
pay over to the Banks any net proceeds derived from the Collateral pro rata on
the basis of the aggregate unpaid principal amount of the outstanding Loans
held by the Banks. The Agent will be reimbursed or properly indemnified by the
Banks in the event the Agent is requested by the Banks to take or omit to take
any action with respect to the Collateral (any such reimbursement or
indemnification to be provided in SECTION 10.05). The Agent shall have the
right to retain counsel to advise it as to any action or decision with respect
to the Collateral and shall be reimbursed by the other Banks for the cost of
the same (to the extent the Agent is not reimbursed by the Borrowers) prior to
distributing any of the Collateral or any proceeds thereof (any such
reimbursement to be pro rata as aforesaid).
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SECTION 11.06. Amendment of ARTICLES X and XI. The Borrowers
hereby agree that the foregoing provisions of ARTICLES X and XI constitute an
agreement among the Agent and the Banks and that any and all of the provisions
of ARTICLES X and XI, other than SECTION 10.08, SECTION 10.11, SECTION 10.12,
SECTION 10.14 or any other provision the amendment of which would adversely
affect the rights and interests of the Borrowers, may be amended at any time by
the Required Banks without the consent or approval of, or notice to, the
Borrowers.
ARTICLE XII
THE ARRANGER
SECTION 12.01. The Arranger. The Borrowers and the Banks
hereby confirm the appointment of and designate Chase Securities, Inc. as
Arranger under this Agreement. The Arranger assumes no responsibility or
obligation hereunder for servicing, enforcement or collection of the Loans, nor
any duties as agent for the Banks. The title "Arranger" implies no fiduciary
responsibility on the part of the Arranger to the Agent, Syndication Agent, the
Banks or the Borrowers, and the use of such title does not impose on the
Arranger any duties or obligations under this Agreement, except as may be
expressly set forth herein.
SECTION 12.02. Exculpatory Provisions. Neither the Arranger
nor any of its officers, directors, employees, agents, attorneys-in-fact or
affiliates shall be (a) liable for any action lawfully taken or omitted to be
taken by them under or in connection with this Agreement (except for such
Person's own gross negligence or willful misconduct), or (b) responsible in any
manner to any of the Banks for any recitals, statements, representations or
warranties made by the Borrowers or any officer thereof contained in this
Agreement or in any certificate, report, statement or other document referred
to or provided for in, or received by the Arranger under or in connection with,
this Agreement or for the value, validity, effectiveness, genuineness,
enforceability or sufficiency of this Agreement, the Notes or any of the Loan
Documents or for any failure of the Borrowers to perform their obligations
hereunder or thereunder.
SECTION 12.03. Indemnification. The Banks agree to indemnify
the Arranger in its capacity as such (to the extent not reimbursed by the
Borrowers and without limiting the obligation of the Borrowers to do so
pursuant to SECTION 7.01(i)), ratably according to the respective amounts of
their Commitments in effect on the day indemnification is sought under this
SECTION 12.03 (or, if the indemnification is sought after the date upon which
the Commitments shall have terminated and the obligations shall have been paid
in full, ratably in accordance with their respective Commitments immediately
prior to such date) from and
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against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements of any kind
whatsoever which may at any time (including, without limitation, at any time
following the payment of the Loans) be imposed on, incurred by or assessed
against the Arranger in connection with this Agreement; provided that no Bank
shall be liable for the payment of any arrangement fees or any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements to the extent it results from the
Arranger's gross negligence or willful misconduct. The agreements in this
SECTION 12.03 shall survive the payment of the Loans.
SECTION 12.04. Arranger in its Individual Capacity. The
Arranger and its affiliates may arrange loans for and generally engage in any
kind of business with the Borrowers as though the Arranger were not the
Arranger hereunder.
SECTION 12.05. Non-Reliance on Arranger and Other Banks.
Each Bank expressly acknowledges that neither the Arranger nor any of its
officers, directors, employees, agents, attorneys-in-fact or affiliates has
made any representations or warranties to it and that no act by the Arranger
hereinafter taken, including any review of the affairs of the Consolidated
Entities, shall be deemed to constitute any representation or warranty by the
Arranger to any Bank. Each Bank represents to the Arranger that it has,
independently and without reliance upon the Arranger or any other Bank, and
based on such documents and information as it has deemed appropriate, made its
own appraisal of and investigation into the business, operations, property,
financial and other condition and creditworthiness of the Consolidated Entities
and made its own decision to make its loans hereunder and enter into this
Agreement. Each Bank also represents that it will, independently and without
reliance upon the Arranger or any other Bank, and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit analysis, appraisals and decisions in taking or not taking action under
this Agreement, and to make such investigations as it deems necessary to inform
itself as to the business, operations, property, financial and other condition
and creditworthiness of the Consolidated Entities. The Arranger shall not have
any duty or responsibility to provide any Bank with any information concerning
the business, operations, property, financial and other condition or
creditworthiness of the Consolidated Entities which may come into its
possession or any of its officers, directors, employees, agents,
attorneys-in-fact or Affiliates.
ARTICLE XIII
THE SYNDICATION AGENT
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SECTION 13.01. The Syndication Agent. The Borrowers and the
Banks hereby confirm the appointment of and designate NationsBank, N.A. as
Syndication Agent under this Agreement. The Syndication Agent assumes no
responsibility or obligation hereunder for servicing, enforcement or collection
of the Loans, nor any duties as agent for the Banks. The title "Syndication
Agent" implies no fiduciary responsibility on the part of the Syndication Agent
to the Agent, the Arranger, the Banks or the Borrowers, and the use of such
title does not impose on the Syndication Agent any duties or obligations under
this Agreement, except as may be expressly set forth herein.
SECTION 13.02. Exculpatory Provisions. Neither the
Syndication Agent nor any of its officers, directors, employees, agents,
attorneys-in-fact or affiliates shall be (a) liable for any action lawfully
taken or omitted to be taken by them under or in connection with this Agreement
(except for such Person's own gross negligence or willful misconduct), or (b)
responsible in any manner to any of the Banks for any recitals, statements,
representations or warranties made by the Borrowers or any officer thereof
contained in this Agreement or in any certificate, report, statement or other
document referred to or provided for in, or received by the Syndication Agent
under or in connection with, this Agreement or for the value, validity,
effectiveness, genuineness, enforceability or sufficiency of this Agreement,
the Notes or any of the Loan Documents or for any failure of the Borrowers to
perform their obligations hereunder or thereunder.
SECTION 13.03. Indemnification. The Banks agree to indemnify
the Syndication Agent in its capacity as such (to the extent not reimbursed by
the Borrowers and without limiting the obligation of the Borrowers to do so
pursuant to SECTION 7.01(i)), ratably according to the respective amounts of
their Commitments in effect on the day indemnification is sought under this
SECTION 13.03 (or, if the indemnification is sought after the date upon which
the Commitments shall have terminated and the Loans shall have been paid in
full, ratably in accordance with their respective Commitments immediately prior
to such date) from and against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
of any kind whatsoever which may at any time (including without limitation at
any time following the payment of the Loans) be imposed on, incurred by or
assessed against the Syndication Agent in connection with this Agreement;
provided that no Bank shall be liable for the payment of any syndication agent
fees or any portion of such liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements to the
extent it results from the Syndication Agent's gross negligence or willful
misconduct. The agreements in this SECTION 13.03 shall survive the payment of
the Loans.
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SECTION 13.04. Rights as a Bank. With respect to its
Commitments and the Loans made by it, the Syndication Agent, in its capacity as
a Bank hereunder, shall have the same rights and powers hereunder as any other
Bank and may exercise the same as though it were not acting as the Syndication
Agent, and the term "Bank" or "Banks" shall, unless the context otherwise
indicates, include the Syndication Agent in its individual capacity. The
Syndication Agent and its Affiliates may (without having to account therefor to
any Bank) accept deposits from, lend money to, make investments in and
generally engage in any kind of banking, trust or other business with the
Borrowers and any Consolidated Entity or Affiliate as if it were not acting as
the Syndication Agent, and the Syndication Agent and its Affiliates may accept
fees and other consideration from any Consolidated Entity for services in
connection with this Agreement or otherwise without having to account for the
same to the Banks. Although the Syndication Agent and its Affiliates may in
the course of such relationships and relationships with other Persons acquire
information about any Consolidated Entity or any Affiliate, the Syndication
Agent shall have no duty to disclose such information to the Banks.
SECTION 13.05. Non-Reliance on Syndication Agent and Other
Banks. Each Bank expressly acknowledges that neither the Syndication Agent nor
any of its officers, directors, employees, agents, attorneys-in-fact or
affiliates has made any representations or warranties to it and that no act by
the Syndication Agent hereinafter taken, including any review of the affairs of
the Consolidated Entities, shall be deemed to constitute any representation or
warranty by the Syndication Agent to any Bank. Each Bank represents to the
Syndication Agent that it has, independently and without reliance upon the
Syndication Agent or any other Bank, and based on such documents and
information as it has deemed appropriate, made its own appraisal of and
investigation into the business, operations, property, financial and other
condition and creditworthiness of the Consolidated Entities and made its own
decision to make its loans hereunder and enter into this Agreement. Each Bank
also represents that it will, independently and without reliance upon the
Syndication Agent or any other Bank, and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit analysis, appraisals and decisions in taking or not taking action under
this Agreement, and to make such investigations as it deems necessary to inform
itself as to the business, operations, property, financial and other condition
and creditworthiness of the Consolidated Entities. The Syndication Agent shall
not have any duty or responsibility to provide any Bank with any information
concerning the business, operations, property, financial and other condition or
creditworthiness of the Consolidated Entities which may come into its
possession or any of its officers, directors, employees, agents,
attorneys-in-fact or Affiliates.
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<PAGE> 96
ARTICLE XIV
MISCELLANEOUS
SECTION 14.01. Amendments, Waivers, Etc. Except as otherwise
provided herein, the Agent may, with the prior written consent of the Required
Banks (but not otherwise), consent to any amendment, modification, supplement
or waiver under this Agreement or any of the Loan Documents, provided that,
without the prior written consent of each Bank, the Agent shall not (except as
provided herein): (a) increase or extend the term, or extend the time or waive
any requirement for the reduction or termination, of the Commitments; (b)
extend the date fixed for the payment of principal of or interest on any Loan,
any Letter of Credit Obligation or any fee or other amounts payable hereunder;
(c) reduce the amount of any payment of principal payable hereunder or the rate
at which interest is payable thereon or any fee or other amounts payable
hereunder, (d) alter the terms of this SECTION 14.01; (e) amend the definition
of the term "Required Banks"; (f) waive any of the conditions precedent set
forth in ARTICLE VI hereof; (g) discharge the Borrowers from the mandatory
prepayment obligations set forth in ARTICLE II hereof; or (h) release all or
any part of the Collateral other than pursuant to a disposition of property
permitted hereunder or release any Borrower from any of its payment obligations
hereunder; and provided, further, that any amendment of ARTICLE XI hereof or
any amendment which increases the obligations of the Agent hereunder shall
require the consent of the Agent. No failure on the part of the Agent or any
Bank to exercise, and no delay in exercising, any right hereunder shall operate
as a waiver thereof or preclude any other or further exercise thereof or the
exercise of any other right. Subject to the foregoing, no such amendment,
modification, supplement or waiver shall in any event be effective unless the
same shall be in writing and signed by the Required Banks or each Bank, as the
case may be, and each Borrower, and then such amendment, modification,
supplement, waiver or consent shall be effective only in the specific instance
and for the specific purpose for which given.
SECTION 14.02. Notices. Unless the party to be notified
otherwise notifies the other parties in writing as provided in this SECTION
14.02, and except as otherwise provided in this Agreement, notices shall be
given to the Agent in writing, by telex, telecopy or other writing or by
telephone, confirmed by telex, telecopy or other writing, and to the Banks and
to the Borrowers by ordinary mail, hand delivery, overnight courier or
telecopier addressed to such party at its address on the signature page of this
Agreement. Notices shall be effective: (a) if given by mail, 72 hours after
deposit in the mails with first class postage prepaid, addressed as aforesaid;
and (b) if given by telecopier, when confirmation of delivery of the telecopy
to the telecopier number as aforesaid is transmitted.
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<PAGE> 97
SECTION 14.03. No Waiver, Remedies. No failure on the part
of the Agent or any Bank to exercise, and no delay in exercising, any right
hereunder or under any Note or any of the Collateral Security Documents shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right hereunder or under any Note or any of the Collateral Security Documents
preclude any other or further exercise thereof or the exercise of any other
right. The remedies herein provided are cumulative and not exclusive of any
remedies provided by law.
SECTION 14.04. Costs, Expenses, Taxes, Investments.
Borrowers jointly and severally agree to pay on demand all costs and expenses
together with any taxes thereon incurred by the Agent, the Arranger, the
Syndication Agent and the Banks in connection with the preparation, execution
and delivery of this Agreement, the Notes, or any of the Collateral Security
Documents, Loan Documents and any other documents to be delivered hereunder or
thereunder, including, without limitation, all reasonable fees and expenses
incurred with respect to valuation and accounting, and the reasonable fees and
out-of-pocket expenses of counsel of and for the Agent, the Arranger, the
Syndication Agent and the Banks with respect thereto and with respect to
advising the Agent, the Arranger, the Syndication Agent and the Banks as to
their rights and responsibilities under this Agreement and such other
documents, and all costs and expenses, if any (including, without limitation,
reasonable fees and out-of-pocket expenses of counsel), in connection with any
collateral agent agreement entered into with respect to any operating accounts
referred to in SECTION 7.02(q), and with the enforcement of this Agreement, the
Notes, the Collateral Security Agreements, the Loan Documents and any other
documents to be delivered hereunder or thereunder; in addition, Borrowers shall
pay any and all stamp and other taxes payable or determined to be payable in
connection with the execution and delivery of, or any borrowings or
reborrowings under, this Agreement, the Notes, the Collateral Security
Agreements, the Loan Documents and any other documents to be delivered
hereunder or thereunder and any fees due under SECTIONS 2.05 and 3.09 hereunder
(all of the foregoing being referred to herein collectively as the "Total
Costs") and agree to hold the Agent, the Arranger, the Syndication Agent and
the Banks harmless from and against any and all liabilities with respect to or
resulting from any delay in paying or omission to pay such taxes. The Agent,
the Arranger, the Syndication Agent and the Banks shall not be responsible for
any costs or expenses of any kind whatsoever incurred by Borrowers and/or any
Person on behalf of Borrowers in connection with the preparation of this
Agreement, the Notes, the Collateral Security Agreements, the Loan Documents or
any other documents to be delivered hereunder or thereunder.
SECTION 14.05. Limitation on Interest. No provision of this
Agreement or the Notes shall require the payment or
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<PAGE> 98
permit the collection of interest in excess of the maximum rate permitted by
applicable law.
SECTION 14.06. Severability. Every provision of this
Agreement is intended to be severable, and if any term or provision hereof
shall be invalid, illegal, or unenforceable for any reason, the validity,
legality, and enforceability of the remaining provisions hereof shall not be
affected or impaired thereby, and any invalidity, illegality, or
unenforceability in any jurisdiction shall not affect the validity, legality,
or enforceability of any such term or provision in any other jurisdiction.
SECTION 14.07. Binding Effect; Governing Law; Consent to
Jurisdiction; Waiver of Jury Trial; Construction. This Agreement shall become
effective when it shall have been executed and delivered by each Borrower, the
Agent, the Arranger, the Syndication Agent and each Bank and thereafter shall
be binding upon and inure to the benefit of each of their respective successors
and assigns. This Agreement, the Notes and the Loan Documents shall be
governed by, and construed in accordance with, the laws of the State of New
York without regard to the principles of conflicts of laws, except only to the
extent that the validity or perfection of the security interest hereunder, in
respect of any particular Collateral, are governed by the laws of a
jurisdiction other than the State of New York.
EACH BORROWER, THE AGENT, THE ARRANGER, THE SYNDICATION AGENT
AND THE BANKS HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY NEW YORK
STATE OR UNITED STATES FEDERAL COURT SITTING IN NEW YORK COUNTY OVER ANY ACTION
OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, ANY NOTE OR ANY
OTHER LOAN DOCUMENT, AND EACH BORROWER, THE AGENT, THE ARRANGER, THE
SYNDICATION AGENT AND THE BANKS HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN
RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH NEW
YORK STATE OR FEDERAL COURT. EACH BORROWER, THE AGENT, THE ARRANGER, THE
SYNDICATION AGENT AND THE BANKS IRREVOCABLY CONSENTS TO THE SERVICE OF ANY AND
ALL PROCESS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES OF SUCH
PROCESS TO SUCH PERSON AT ITS ADDRESS SPECIFIED ON THE SIGNATURE PAGES HEREOF.
EACH BORROWER, THE AGENT, THE ARRANGER, THE SYNDICATION AGENT AND THE BANKS
AGREE THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE
CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT
OR IN ANY OTHER MANNER PROVIDED BY LAW. EACH BORROWER, THE AGENT, THE
ARRANGER, THE SYNDICATION AGENT AND THE BANKS FURTHER WAIVE ANY OBJECTION TO
VENUE IN SUCH STATE AND ANY OBJECTION TO AN ACTION OR PROCEEDING IN SUCH STATE
ON THE BASIS OF FORUM NON CONVENIENS. EACH BORROWER FURTHER AGREES THAT ANY
ACTION OR PROCEEDING BROUGHT AGAINST THE AGENT, THE ARRANGER, THE SYNDICATION
AGENT OR ANY BANK SHALL BE BROUGHT ONLY IN NEW YORK STATE OR UNITED STATES
FEDERAL COURT SITTING IN NEW YORK COUNTY. EACH BORROWER, THE
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<PAGE> 99
AGENT, THE ARRANGER, THE SYNDICATION AGENT AND THE BANKS WAIVES ANY RIGHT IT
MAY HAVE TO JURY TRIAL.
SECTION 14.08. Assignment; Participations.
(a) This Agreement shall be binding upon, and shall inure
to the benefit of, the Borrowers, the Agent, the Syndication Agent, the
Arranger, the Banks and their respective successors and assigns, except that
the Borrowers may not assign or transfer their rights or obligations hereunder.
Each Bank may assign or sell participations in all of its rights and
obligations hereunder or any part of its rights and obligations hereunder to:
[A] any other Bank without limitation or restriction, and [B] to another bank
or other financial institution provided, however, that each such assignment or
participation shall be in a minimum amount equal to $5,000,000 and provided
further that (i) in the case of an assignment, upon notice thereof by the Bank
to the Borrowers with a copy to the Agent, the assignee shall have, to the
extent of such assignment (unless otherwise provided therein), the same rights,
benefits and obligations as it would have if it were a Bank hereunder; and (ii)
in the case of a participation, the participant shall have no rights under the
Loan Documents and all amounts payable by the Borrowers under the Loan
Documents, including, without limitation, under SECTION 2.05, shall be
determined as if such Bank had not sold such participation. The agreement
executed by such Bank in favor of the participant shall not give the
participant the right to require such Bank to take or omit to take any action
hereunder except action directly relating to (i) the extension of a payment
date with respect to any portion of the principal of or interest on any amount
outstanding hereunder allocated to such participant, (ii) the reduction of the
principal amount outstanding hereunder allocated to such participant or (iii)
the reduction of the rate of interest payable on such amount or any amount of
fees payable hereunder to a rate or amount, as the case may be, below that
which the participant is entitled to receive under its agreement with such
Bank. Such Bank may furnish any information concerning any Consolidated Entity
or any of their respective Affiliates in the possession of such Bank from time
to time to assignees and participants (including prospective assignees and
participants); provided that such Bank shall require any such prospective
assignee or such participant (prospective or otherwise) to agree in writing to
maintain the confidentiality of such information. In connection with any
assignment or sale of a participation interest pursuant to this paragraph (a),
the assigning or selling Bank shall pay the Agent an administrative fee for
processing such assignment or participation in the amount of $2,500.
(b) In addition to the assignments and participations
permitted under paragraph (a) above, any Bank may assign and pledge all or any
portion of the Commitments held by it to (i) any affiliate of such Bank or (ii)
any Federal Reserve Bank as
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<PAGE> 100
collateral security pursuant to Regulation A of the Board of Governors of the
Federal Reserve System and any Operating Circular issued by such Federal
Reserve Bank. No such assignment shall release the assigning Bank from its
obligations hereunder.
(c) The assignor Bank shall be solely responsible for
obtaining from any participant or assignee and providing to the Agent and
Borrowers all forms required under this SECTION 14.08. If, pursuant to this
SECTION 14.08, any interest in this Agreement is transferred to any assignee
that is organized under the laws of any jurisdiction other than the United
States or any state thereof, the Bank transferring such interest (the
"Transferor Bank") shall cause such assignee concurrently with the
effectiveness of such transfer, (a) to represent to the Transferor Bank (for
the benefit of the Transferor Bank, the Agent and the Borrowers) that it is
either (i) entitled to the benefits of an income tax treaty with the United
States that provides for an exemption from United States withholding tax on
interest and other payments which may be made by the Borrowers under this
Agreement; or (ii) is engaged in the trade or business within the United States
and such Loan is effectively connected with such trade or business, (b) to
furnish to the Transferor Bank, the Agent and the Borrowers either Internal
Revenue Service Form 4224 or Internal Revenue Service Form 1001 (wherein such
assignee claims entitlement to complete exemption from federal withholding tax
of the United States of America on all payments hereunder) and (c) to agree
(for the benefit of the Transferor Bank, the Agent and the Borrowers) to
provide to the Transferor Bank, Agent and Borrowers such forms or documentation
as may be required from time to time, including a new Form 4224 or Form 1001
upon the obsolescence of any previously delivered form, in accordance with
applicable laws and regulations of the United States of America establishing
the current status of such assignee with regard to continued entitlement to
such complete withholding tax exemption.
SECTION 14.09. Entire Agreement. This Agreement contains the
entire understanding of, and supersedes all prior agreements, written and
verbal, among, the Banks, the Agent, the
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<PAGE> 101
Arranger, the Syndication Agent and the Borrowers with respect to the subject
matter hereof and shall not be modified except in writing executed by the
parties hereto.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective officers thereunto duly
authorized, as of the date first above written.
<TABLE>
<CAPTION>
THE ADMINISTRATIVE AGENT: THE ARRANGER:
- ------------------------ ------------
<S> <C>
THE CHASE MANHATTAN BANK, N.A. CHASE SECURITIES, INC.
By: /s/ Jo Zalon Meer By: /s/ Jo Zalon Meer
---------------------------- ----------------------------
Name: Jo Zalon Meer Name: Jo Zalon Meer
Title: Vice President Title: Vice President
Address: The Chase Manhattan Bank, Address: One Chase Manhattan Plaza
N.A., New York Agency 8th Flr.
4 Chase Metrotech Center New York, NY 10081
13th Flr. Attn: Sandra P. Anton
Brooklyn, NY 11245 Telephone: (212) 552-1249
Attn: Lucy D'Orazio Telefax: (212) 552-7536
Telephone: (718) 242-6909
Telefax:
--------------------
THE SYNDICATION AGENT:
---------------------
NATIONSBANK, N.A.
By:/s/ J. Lance Walton
---------------------------
Name: J. Lance Walton
Title: Senior Vice President
Address: NationsBank Corporation
Center
NC1-077-08-11
100 N. Tyron Street
Charlotte, NC 28255
Attn: Lance Walton, SVP
Telephone: 704-386-6744
Telefax: 704-386-1270
</TABLE>
<PAGE> 102
<TABLE>
<CAPTION>
THE BORROWERS:
<S> <C>
WELLINGTON SEARS COMPANY JOHNSTON INDUSTRIES, INC.
By: /s/ John W. Johnson By: /s/ John W. Johnson
---------------------------- ---------------------------
Name: John W. Johnson Name: John W. Johnson
----------------------- ----------------------
Title: Vice President Title: Vice President
---------------------- ---------------------
Address: 105 Thirteenth Street Address: 105 Thirteenth Street
Columbus, GA 31901 Columbus, GA 31901
----------------------- ----------------------
Attn: John W. Johnson Attn: John W. Johnson
----------------------- ----------------------
Telephone: (706) 641-3148 Telephone: (706) 641-3148
-------------------- -------------------
Telefax: (706) 641-3159 Telefax: (706) 641-3159
-------------------- -------------------
OPP AND MICOLAS MILLS, INC. T.J. BEALL COMPANY
By: /s/ John W. Johnson By: /s/ John W. Johnson
---------------------------- ---------------------------
Name: John W. Johnson Name: John W. Johnson
----------------------- ----------------------
Title: Vice President Title: Vice President
---------------------- ---------------------
Address: 105 Thirteenth St. Address: 105 Thirteenth St.
Columbus, GA 31901 Columbus, GA 31901
----------------------- ----------------------
Attn: John W. Johnson Attn: John W. Johnson
----------------------- ----------------------
Telephone: (706) 641-3148 Telephone: (706) 641-3148
-------------------- -------------------
Telefax: (706) 641-3159 Telefax: (706) 641-3159
-------------------- ---------------------
SOUTHERN PHENIX TEXTILES, INC. JOHNSTON INDUSTRIES COMPOSITE
REINFORCEMENTS, INC.
By: /s/ John W. Johnson By: /s/ John W. Johnson
---------------------------- ---------------------------
Name: John W. Johnson Name: John W. Johnson
----------------------- ----------------------
Title: Vice President Title: Vice President
---------------------- ---------------------
Address: 105 Thirteenth St. Address: 105 Thirteenth St.
Columbus, GA 31901 Columbus, GA 31901
----------------------- -----------------------
Attn: John W. Johnson Attn: John W.Johnson
----------------------- ----------------------
Telephone: (706) 641-3148 Telephone: (706) 641-3148
-------------------- -------------------
Telefax: (706) 641-3159 Telefax: (706) 641-3159
-------------------- ----------------------
</TABLE>
<PAGE> 103
<TABLE>
<CAPTION>
THE BANKS:
- ---------
<S> <C>
THE CHASE MANHATTAN BANK, N.A.
By: /s/ Jo Zalon Meer
---------------------------
Name: Jo Zalon Meer
Title: Vice President
Lending Office and Address
for Notices:
Textile and Apparel Division
1411 Broadway, 5th Floor
New York, New York 10018
Attention: Ms. Jo Zalon Meer, Vice President
Telecopier No.: (212) 391-7118
NATIONSBANK, N.A.
By: /s/ Lance Walton
---------------------------
Name: Lance Walton
Title: Sr. Vice President
Lending Office and Address
for Notices:
NationsBank, N.A.
NationsBank Corporation Center
NC1-007-08-11
100 N. Tryon Street
Charlotte, NC 28255
Attention: Lance Walton
Telecopier No.: (704) 386-1270
FIRST ALABAMA BANK
By: /s/ Dennis Schuett
---------------------------
Name: Dennis Schuett
Title: Senior Vice President
Lending Office and Address
for Notices:
First Alabama Bank
P.O. Box 1377
Columbus, GA 31702
Attention: Dennis D. Schuett
Telecopier No.: (706) 660-3790
</TABLE>
<PAGE> 104
<TABLE>
<CAPTION>
COMERICA BANK
<S> <C>
By: /s/ Bradley A. Terryn
---------------------------
Name: Bradley A. Terryn
Title: Vice President
Lending Office and Address
for Notices:
Comerica Bank
500 Woodward Avenue, 9th Flr, M/C 3280
Detroit, MI 48226
Attention: Bradley A. Terryn
Telecopier No.: (313) 222-6231
VAN KAMPEN AMERICAN CAPITAL
By: /s/ Jeffrey Maillet
---------------------------
Name: Jeffrey Maillet
Title: Sr. Vice President
Lending Office and Address
for Notices:
Van Campen American Capital State Street Bank & Trust
One Parkview Plaza Corporate Trust Department
Oakbrook Terrace, IL 60181 P.O. Box 778
Attention: Brian Murphy Boston, MA 02102
Telecopier No.: (708) 684-6740 Attention: Laura Magazu
Telecopier No.: (617) 664-5366
</TABLE>
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<PAGE> 105
<TABLE>
<CAPTION>
CORESTATES FINANCIAL CORP.
<S> <C>
By: /s/ Marcus F. Brown
--------------------------
Name: Marcus F. Brown
Title: Vice President
Lending Office and Address
for Notices:
Corestates Bank, N.A.
F.C. 1-8-4-12
1339 Chestnut Street
Philadelphia, PA 19107-3579
Attention: Marcus F. Brown
Telecopier No.: (215) 973-6680
THE SUMITOMO BANK, LIMITED
By: /s/ Roger N. Arsham By: /s/ Sybil H. Weldon
-------------------------- ----------------------------
Name: Roger N. Arsham Name: Sybil H. Weldon
Title: Vice President Title: Vice President & Manager
Address for Notices: Lending Office:
The Sumitomo Bank, Limited The Sumitomo Bank, Limited
303 Peachtree St., N.E. 233 South Wacker Drive
Suite 4420 Chicago, IL 60606
Atlanta, GA 30308
Attention: Diane Rhoades
Telecopier No.: (404) 523-7983
WACHOVIA BANK OF GEORGIA, N.A.
By:/s/ Elspeth G. England
--------------------------
Name: Elpseth G. England
Title: Senior Vice President
Lending Office and Address
for Notices:
Wachovia Bank of Georgia, N.A.
191 Peachtree St., N.E., 30th Flr.
Atlanta, GA 30303-1751
Attention: Douglas W. Strickland
Telecopier No.: (404) 332-6920
</TABLE>
<PAGE> 106
CREDIT AGREEMENT- SCHEDULE I
BANK COMMITMENTS
<TABLE>
<CAPTION>
RC RC TLA TLA
Institution Allocation Percent Allocation Percent
----------- ---------- ------- ---------- -------
<S> <C> <C> <C> <C>
Chase 17,512,437.81 21.89055% 8,756,218.91 21.89055%
NationsBank 17,512,437.81 21.89055% 8,756,218.91 21.89055%
Regions Financial 13,681,592.04 17.10199% 6,840,796.02 17.10199%
Comerica 10,945,273.63 13.68159% 5,472,636.82 13.68159%
VKM 0.00 0.00000% 0.00 0.00000%
CoreStates Financial 8,208,955.22 10.26119% 4,104,477.61 10.26119%
Sumitomo 6,666,666.67 8.33333% 3,333,333.33 8.33333%
Wachovia 5,472,636.82 6.84080% 2,736,318.41 6.84080%
Total 80,000,000.00 100.00000% 40,000,000.00 100.00000%
<CAPTION>
TLB TLB Total Total
Institution Allocation Percent Allocation Percent
----------- ---------- ------- ---------- -------
<S> <C> <C> <C> <C>
Chase 5,731,343.28 14.32836% 32,000,000.00 20.0000%
NationsBank 5,731,343.28 14.32836% 32,000,000.00 20.0000%
Regions Financial 4,477,611.94 11.19403% 25,000,000.00 15.6250%
Comerica 3,582,089.55 8.95522% 20,000,000.00 12.5000%
VKM 16,000,000.00 40.00000% 16,000,000.00 10.0000%
CoreStates Financial 2,686,567.16 6.71642% 15,000,000.00 9.3750%
Sumitomo 0.00 0.00000% 10,000,000.00 6.2500%
Wachovia 1,791,044.78 4.47761% 10,000,000.00 6.2500%
Total 40,000,000.00 100.00000% 160,000,000.00 100.0000%
</TABLE>
<PAGE> 1
JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES
EXHIBIT 11 - STATEMENT OF COMPUTATION OF PER SHARE EARNINGS
The weighted average number of common and common share equivalents on a primary
and full-diluted basis are as follows:
Primary
<TABLE>
<CAPTION>
For the For the
------- -------
Six Months Year
---------- ----
Ended Ended
----- -----
December 30, June 30,
------------ --------
1995 1995 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted average common shares outstanding 10,564,979 10,599,242 10,714,651 10,794,81
Shares issued from assumed exercise of
incentive stock options -- -- 1,174 26,473
Shares issued from assumed exercise of
nonqualified stock options(1) -- 98,097 134,316 110,487
----------- ---------- ---------- ----------
Weighted average number of shares
outstanding, as adjusted 10,564,979 10,697,339 10,850,141 10,931,781
=========== ========== ========== ==========
Net Income (Loss) ($6,190,000) $7,875,000 $6,495,000 $8,414,000
=========== ========== ========== ==========
Earnings (Loss) per share $ (.59) $ .74 $ .60 $ .77
=========== ========== ========== ==========
</TABLE>
(1) Shares issued from assumed exercise of options included the number of
incremental shares which result from applying the "treasury stock
method" for options.
Note: Fully diluted earnings per share are not presented because the difference
from primary earnings per share is insignificant for all periods
presented.
<PAGE> 1
Exhibit 13a
JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAGE
<S> <C>
INDEPENDENT AUDITORS' REPORT F-1
CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheets, December 30, 1995, June 30, 1995 and 1994 F-3
Consolidated Statements of Operations, Six Months Ended December 30, 1995,
Fiscal Years Ended June 30, 1995, 1994, and 1993, and (Unaudited) Six Months
Ended December 31, 1994 F-4
Consolidated Statements of Stockholders' Equity, Six Months Ended
December 30, 1995 and Fiscal Years Ended June 30, 1995, 1994, and 1993 F-5
Consolidated Statements of Cash Flows, Six Months Ended December 30, 1995,
Fiscal Years Ended June 30, 1995, 1994, and 1993, and (Unaudited) Six Months
Ended December 31, 1994
Notes to Consolidated Financial Statements F-8
FINANCIAL STATEMENT SCHEDULES
Johnston Industries, Inc. and Subsidiaries
Schedule I - Condensed Financial Information of Registrant S-1 to S-4
Schedule II - Valuation and Qualifying Accounts S-5
</TABLE>
<PAGE> 2
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Johnston Industries, Inc.:
We have audited the accompanying consolidated balance sheets of Johnston
Industries, Inc. and subsidiaries (the "Company") at December 30, 1995, June
30, 1995 and 1994 and the related consolidated statements of operations,
stockholders' equity, and cash flows for the six months ended December 30, 1995
and for each of the three years in the period ended June 30, 1995. Our audits
also included the financial statement schedules listed in the Index at Item 14.
These financial statements and financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and financial statement schedules
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, such consolidated financial statements present fairly, in all
material respects, the financial position of Johnston Industries, Inc. and
subsidiaries at December 30, 1995, June 30, 1995 and 1994, and the results of
their operations and their cash flows for the six months ended December 30,
1995 and for each of the three years in the period ended June 30, 1995 in
conformity with generally accepted accounting principles. Also, in our
opinion, such financial statement schedules, when considered in relation to the
basic consolidated financial statements taken as a whole, present fairly in all
material respects the information set forth therein.
As discussed in Note 2 to the consolidated financial statements, through
December 31, 1994, the consolidated financial statements include the Company's
investment in and equity in earnings of its affiliate, Jupiter National, Inc.
("Jupiter"). In January 1995, the Company increased its ownership interest in
Jupiter from 49.6% at December 31, 1994 to 54.2%. As a result, Jupiter became
a consolidated, majority owned subsidiary of the Company in January 1995. As
discussed in Note 23 to the financial statements, on March 28, 1996, the
Company consummated its purchase of the remaining outstanding shares of
Jupiter.
As of December 30, 1995 and June 30, 1995, $14,145,000 and $19,892,000,
respectively, of the Company's investments are recorded at their estimated fair
market value based on estimates by Jupiter's Board of Directors in the absence
of readily ascertainable market values. Earnings related to these investments
for the six months ended December 30, 1995 and the year ended June 30, 1995
were $-0- and $2,455,000, respectively. The Company's equity in the net assets
of Jupiter at June 30, 1994 was $18,701,000, which included $9,074,000 of
security values determined by Jupiter's Board of Directors. For the years
<PAGE> 3
ended June 30, 1994 and 1993, $1,091,000 and $(582,000), respectively, of the
Company's equity in Jupiter's changes in net assets was derived from net
unrealized appreciation (depreciation) of investments whose values have been
estimated by Jupiter's Board of Directors. We have reviewed the procedures
used in arriving at the estimates of value of such securities and have
inspected underlying documentation and, in the circumstances, we believe the
procedures are reasonable and the documentation appropriate. However, because
of the inherent uncertainty of valuation, those estimated values may differ
significantly from the values that would have been used had a ready market for
Jupiter's investments existed, and the difference could be material to the
Company's consolidated financial statements.
As discussed in Note 1 to the consolidated financial statements, effective July
1, 1995, the Company changed its method of accounting for the impairment of
long-lived assets and long-lived assets to be disposed of to conform with
Statement of Financial Accounting Standards No. 121.
/s/ DELOITTE & TOUCHE LLP
- ----------------------------
DELOITTE & TOUCHE LLP
March 28, 1996
F-2
<PAGE> 4
JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 30, 1995, JUNE 30, 1995 AND 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 30, JUNE 30, JUNE 30,
ASSETS 1995 1995 1994
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents (restricted: $3,458,000,
$5,025,000, and $-0-, respectively) $ 4,912,000 $ 9,456,000 $ 3,914,000
Marketable securities, at fair value 20,592,000 9,741,000
Investments - at estimated fair market value as
determined by Jupiter's directors 14,145,000
Accounts and notes receivable, net of allowance of
$1,772,000, $1,113,000, and $368,000 42,326,000 43,333,000 18,152,000
Income taxes receivable 835,000
Inventories 53,112,000 46,389,000 25,438,000
Prepaid expenses and other 1,899,000 1,892,000 1,330,000
Assets held for sale 5,462,000
------------ ------------ -----------
Total current assets 143,283,000 110,811,000 48,834,000
INVESTMENTS - At estimated fair market value
as determined by Jupiter's directors 19,892,000
INVESTMENTS - At equity 4,174,000 21,036,000
PROPERTY, PLANT, AND EQUIPMENT - Net 112,007,000 114,309,000 65,354,000
INTANGIBLE ASSET - Pension 2,464,000 2,675,000 2,874,000
OTHER ASSETS 5,795,000 3,240,000 2,096,000
------------ ------------ ------------
$263,549,000 $255,101,000 $140,194,000
============ ============ ============
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 30, JUNE 30, JUNE 30,
LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1995 1994
<S> <C> <C> <C>
CURRENT LIABILITIES:
Short-term borrowings $ 6,800,000 $ 2,500,000
Current maturities of long-term debt $ 1,942,000 5,894,000 5,087,000
Accounts payable 28,812,000 19,692,000 6,410,000
Accrued expenses 13,321,000 13,084,000 7,372,000
Income taxes payable 1,219,000 806,000
Deferred income taxes 4,320,000 2,947,000 1,164,000
------------ ------------ ------------
Total current liabilities 48,395,000 49,636,000 23,339,000
------------ ------------ ------------
LONG-TERM DEBT 125,941,000 98,834,000 36,216,000
------------ ------------ ------------
OTHER LIABILITIES 14,091,000 14,023,000 16,876,000
------------ ------------ ------------
DEFERRED INCOME TAXES 1,975,000 9,012,000 3,955,000
------------ ------------ ------------
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST 17,968,000 20,169,000
------------ ------------
STOCKHOLDERS' EQUITY:
Preferred stock, par value $.01 per share;
authorized, 3,000,000 shares; none issued
Common stock, par value $.10 per share; authorized,
20,000,000 shares; issued 12,426,891, 12,426,891, 1,243,000 1,243,000 1,241,000
and 12,411,891
Additional paid-in capital 17,293,000 17,258,000 17,107,000
Retained earnings 46,505,000 54,808,000 51,065,000
------------ ------------ ------------
Total 65,041,000 73,309,000 69,413,000
Less treasury stock: 1,861,912, 1,861,912,
and 1,682,112 shares at cost (8,108,000) (8,108,000) (6,407,000)
Less minimum pension liability adjustment, net of
tax benefit (1,754,000) (1,774,000) (3,198,000)
------------ ------------ ------------
Stockholders' equity 55,179,000 63,427,000 59,808,000
------------ ------------ ------------
$263,549,000 $255,101,000 $140,194,000
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 5
JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED DECEMBER 30, 1995 AND FISCAL YEARS ENDED JUNE 30, 1995,
1994, AND 1993 AND (UNAUDITED) SIX MONTHS ENDED DECEMBER 31, 1994
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED ENDED YEAR ENDED JUNE 30,
DECEMBER 30, DECEMBER 31, ------------------------------------------
1995 1994 1995 1994 1993
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET SALES $150,023,000 $84,970,000 $263,327,000 $159,904,000 $154,074,000
------------ ----------- ------------ ------------ ------------
COSTS AND EXPENSES:
Cost of sales, excluding depreciation and
amortization 128,914,000 65,118,000 209,598,000 121,261,000 120,933,000
Selling, general, and administrative 16,210,000 6,766,000 21,899,000 13,306,000 11,980,000
Loss on impairment of assets 6,532,000
Depreciation and amortization 9,007,000 5,645,000 13,939,000 10,202,000 9,761,000
------------ ----------- ------------ ------------ ------------
Total costs and expenses 160,663,000 77,529,000 245,436,000 144,769,000 142,674,000
------------ ----------- ------------ ------------ ------------
INCOME (LOSS) FROM OPERATIONS (10,640,000) 7,441,000 17,891,000 15,135,000 11,400,000
OTHER EXPENSE (INCOME):
Interest income (531,000) (52,000) (1,583,000) (103,000) (482,000)
Interest expense 4,982,000 1,830,000 7,498,000 2,948,000 2,885,000
Other - net 3,508,000 (58,000) 1,509,000 590,000 491,000
------------ ----------- ------------ ------------ ------------
Total other expense (income) - net 7,959,000 1,720,000 7,424,000 3,435,000 2,894,000
------------ ----------- ------------ ------------ ------------
EQUITY IN EARNINGS (LOSSES)
OF EQUITY INVESTMENTS 1,040,000 1,000,000 (1,141,000) 5,093,000
NET REALIZED AND UNREALIZED
INVESTMENT PORTFOLIO GAIN 3,767,000 5,191,000
------------ ----------- ------------ ------------ ------------
INCOME (LOSS) BEFORE PROVISION (BENEFIT) FOR
INCOME TAXES AND MINORITY INTEREST (14,832,000) 6,761,000 16,658,000 10,559,000 13,599,000
PROVISION (BENEFIT) FOR INCOME TAXES (6,346,000) 2,565,000 7,083,000 4,064,000 5,185,000
------------ ----------- ------------ ------------ ------------
INCOME (LOSS) BEFORE MINORITY INTEREST (8,486,000) 4,196,000 9,575,000 6,495,000 8,414,000
MINORITY INTEREST IN INCOME (LOSS) OF
CONSOLIDATED SUBSIDIARY (2,296,000) 1,700,000
------------ ----------- ------------ ------------ ------------
NET INCOME (LOSS) $ (6,190,000) $ 4,196,000 $ 7,875,000 $ 6,495,000 $ 8,414,000
============ =========== ============ ============ ============
EARNINGS (LOSS) PER SHARE $ (0.59) $ 0.39 $ 0.74 $ 0.60 $ 0.77
============ =========== ============ ============ ============
DIVIDENDS PER SHARE $ 0.20 $ 0.19 $ 0.39 $ 0.35 $ 0.32
============ =========== ============ ============ ============
WEIGHTED AVERAGE NUMBER OF
COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING 10,564,979 10,726,234 10,697,339 10,850,141 10,931,781
============ =========== ============ ============ ============
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 6
JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
SIX MONTHS ENDED DECEMBER 30, 1995 AND
FISCAL YEARS ENDED JUNE 30, 1995, 1994, AND 1993
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TREASURY STOCK
----------------------- PAID-IN RETAINED ----------------------
SHARES AMOUNT CAPITAL EARNINGS SHARES AMOUNT
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JUNE 30, 1992 12,178,422 $1,219,000 $15,938,000 $43,262,000 1,328,062 $(3,366,000)
Exercise of stock options 159,823 16,000 795,000
Purchase of treasury stock 322,350 (2,693,000)
Net income 8,414,000
Dividends paid ($.32 per share) (3,412,000)
---------- --------- ----------- ----------- ---------- -----------
BALANCE, JUNE 30, 1993 12,338,245 1,235,000 16,733,000 48,264,000 1,650,412 (6,059,000)
Exercise of stock options 73,742 6,000 376,000
Purchase of fractional shares (96) (2,000)
Purchase of treasury stock 31,700 (348,000)
Net income 6,495,000
Dividends paid ($.35 per share) (3,694,000)
Minimum pension liability adjustment,
net of tax benefit of $1,957,000
---------- --------- ----------- ----------- ---------- -----------
BALANCE, JUNE 30, 1994 12,411,891 1,241,000 17,107,000 51,065,000 1,682,112 (6,407,000)
Exercise of stock options 15,000 2,000 151,000
Purchase of treasury stock 179,800 (1,701,000)
Net income 7,875,000
Dividends paid ($.39 per share) (4,132,000)
Minimum pension liability adjustment,
net of taxes of $871,000
---------- --------- ----------- ----------- ---------- -----------
BALANCE, JUNE 30, 1995 12,426,891 1,243,000 17,258,000 54,808,000 1,861,912 (8,108,000)
Net loss (6,190,000)
Dividends paid ($.20 per share) (2,113,000)
Other 35,000
Minimum pension liability adjustment,
net of taxes of $12,000
---------- ---------- ----------- ----------- ---------- -----------
BALANCE, DECEMBER 30, 1995 12,426,891 $1,243,000 $17,293,000 $46,505,000 1,861,912 $(8,108,000)
========== ========== =========== =========== ========== ===========
<CAPTION>
MINIMUM
PENSION LIABILITY
ADJUSTMENT TOTAL
<S> <C> <C>
BALANCE, JUNE 30, 1992 $57,053,000
Exercise of stock options 811,000
Purchase of treasury stock (2,693,000)
Net income 8,414,000
Dividends paid ($.32 per share) (3,412,000)
-----------
BALANCE, JUNE 30, 1993 60,173,000
Exercise of stock options 382,000
Purchase of fractional shares (2,000)
Purchase of treasury stock (348,000)
Net income 6,495,000
Dividends paid ($.35 per share) (3,694,000)
Minimum pension liability adjustment,
net of tax benefit of $1,957,000 $(3,198,000) (3,198,000)
----------- -----------
BALANCE, JUNE 30, 1994 (3,198,000) 59,808,000
Exercise of stock options 153,000
Purchase of treasury stock (1,701,000)
Net income 7,875,000
Dividends paid ($.39 per share) (4,132,000)
Minimum pension liability adjustment,
net of taxes of $871,000 1,424,000 1,424,000
----------- -----------
BALANCE, JUNE 30, 1995 (1,774,000) 63,427,000
Net loss (6,190,000)
Dividends paid ($.20 per share) (2,113,000)
Other 35,000
Minimum pension liability adjustment,
net of taxes of $12,000 20,000 20,000
----------- -----------
BALANCE, DECEMBER 30, 1995 $(1,754,000) $55,179,000
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 7
JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED DECEMBER 30, 1995 AND FISCAL YEARS ENDED JUNE 30, 1995,
1994, AND 1993 AND (UNAUDITED) SIX MONTHS ENDED DECEMBER 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED ENDED
DECEMBER 30, DECEMBER 31,
1995 1994
(UNAUDITED)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $(6,190,000) $4,196,000
----------- ----------
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 9,007,000 5,645,000
Loss on impairment of assets 6,532,000
Provision for bad debts 791,000 81,000
Net realized and unrealized gain on portfolio investment (3,767,000)
(Gain) loss on disposal of fixed assets 428,000
Undistributed (income) losses in investments (1,040,000)
Minority interest in (income) loss of consolidated subsidiary (2,296,000)
Changes in assets and liabilities, net of effect of acquisitions:
Accounts and notes receivable 1,451,000 1,240,000
Inventories (5,501,000) (2,863,000)
Deferred income taxes 1,373,000 (68,000)
Prepaid expenses and other assets (2,020,000) 285,000
Accounts payable 4,636,000 (785,000)
Accrued expenses 138,000 (469,000)
Income taxes payable (2,019,000) (46,000)
Other liabilities (6,625,000) 271,000
Other, net 191,000 57,000
----------- ----------
Total adjustments 2,319,000 2,308,000
----------- -----------
Net cash provided by (used in) operating activities (3,871,000) 6,504,000
----------- -----------
INVESTING ACTIVITIES:
Additions to property, plant, and equipment (17,987,000) (5,818,000)
Nonoperating accounts payable 4,254,000 1,189,000
Investments:
Purchases (1,189,000) (1,173,000)
Sales 7,000
Repayments of loans by stockholders
Purchase of majority interest in Jupiter, net of cash acquired
------------ -----------
Net cash used in investing activities (14,915,000) (5,802,000)
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------------
1995 1994 1993
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ 7,875,000 $ 6,495,000 $ 8,414,000
----------- ----------- -----------
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 13,939,000 10,202,000 9,761,000
Loss on impairment of assets
Provision for bad debts 89,000 151,000 383,000
Net realized and unrealized gain on portfolio investment (5,191,000)
(Gain) loss on disposal of fixed assets (42,000) 4,000 48,000
Undistributed (income) losses in investments (1,000,000) 1,141,000 (5,093,000)
Minority interest in (income) loss of consolidated subsidiary 1,700,000
Changes in assets and liabilities, net of effect of acquisitions:
Accounts and notes receivable (9,140,000) (2,563,000) (375,000)
Inventories 7,432,000 (2,244,000) (309,000)
Deferred income taxes 1,783,000 (50,000) (21,000)
Prepaid expenses and other assets 287,000 (566,000) 264,000
Accounts payable (1,014,000) (2,157,000) (4,133,000)
Accrued expenses 47,000 794,000 (27,000)
Income taxes payable (551,000) 168,000 113,000
Other liabilities 847,000 1,683,000 2,222,000
Other, net 8,000 27,000 124,000
----------- ----------- -----------
Total adjustments 9,194,000 6,590,000 2,957,000
----------- ----------- -----------
Net cash provided by (used in) operating activities 17,069,000 13,085,000 11,371,000
INVESTING ACTIVITIES:
Additions to property, plant, and equipment (21,983,000) (12,701,000) (10,381,000)
Nonoperating accounts payable 5,784,000 482,000 2,767,000
Investments:
Purchases (4,347,000) (4,578,000) (2,034,000)
Sales 1,093,000
Repayments of loans by stockholders 5,383,000 341,000
Purchase of majority interest in Jupiter, net of cash acquired 3,758,000
------------ ------------ -----------
Net cash used in investing activities (15,695,000) (11,414,000) (9,307,000)
------------ ------------ -----------
</TABLE>
(Continued)
F-6
<PAGE> 8
JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED DECEMBER 30, 1995 AND FISCAL YEARS ENDED JUNE 30, 1995,
1994, AND 1993 AND (UNAUDITED) SIX MONTHS ENDED DECEMBER 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED ENDED
DECEMBER 30, DECEMBER 31,
1995 1994
(UNAUDITED)
<S> <C> <C>
FINANCING ACTIVITIES:
Principal payments of debt $(2,827,000) $(1,021,000)
Proceeds from issuance of long-term debt 12,732,000
Borrowings under line-of-credit agreements 12,450,000 7,000,000
Repayments under line-of-credit agreements (6,000,000) (3,750,000)
Purchase of treasury stock (1,521,000)
Proceeds from employee stock ownership plan
Proceeds from issuance of common stock
Dividends paid (2,113,000) (2,019,000)
----------- -----------
Net cash provided by (used in) financing activities 14,242,000 (1,311,000)
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (4,544,000) (609,000)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 9,456,000 3,914,000
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 4,912,000 $ 3,305,000
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 4,571,000 $ 1,809,000
Income taxes $ 1,315,000 $ 1,829,000
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------------
1995 1994 1993
<S> <C> <C> <C>
FINANCING ACTIVITIES:
Principal payments of debt $ (5,086,000) $ (4,022,000) $(2,000,000)
Proceeds from issuance of long-term debt 12,634,000 13,325,000
Borrowings under line-of-credit agreements 17,275,000 11,750,000 8,000,000
Repayments under line-of-credit agreements (14,975,000) (19,250,000) (4,000,000)
Purchase of treasury stock (1,701,000) (348,000) (2,693,000)
Proceeds from employee stock ownership plan 1,454,000
Proceeds from issuance of common stock 153,000 380,000 811,000
Dividends paid (4,132,000) (3,694,000) (3,412,000)
------------ ------------ -----------
Net cash provided by (used in) financing activities 4,168,000 (1,859,000) (1,840,000)
------------ ------------ -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 5,542,000 (188,000) 224,000
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 3,914,000 4,102,000 3,878,000
------------ ------------ -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 9,456,000 $ 3,914,000 $ 4,102,000
============ ============ ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 6,720,000 $ 2,962,000 $ 2,861,000
Income taxes $ 3,932,000 $ 2,908,000 $ 2,472,000
</TABLE>
See notes to consolidated financial statements.
(Concluded)
F-7
<PAGE> 9
JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES
Organization and Operations - The consolidated financial statements
include the accounts of Johnston Industries, Inc. ("Johnston"), its
wholly owned subsidiaries, Southern Phenix Textiles, Inc. ("Southern
Phenix"), Opp and Micolas Mills, Inc. ("Opp and Micolas"), and
Johnston Industries Composite Reinforcements, Inc. ("JICR") (formerly,
Tech Textiles, USA), its majority owned subsidiary, Jupiter National,
Inc. ("Jupiter") and Jupiter's wholly owned subsidiaries, Wellington
Sears Company ("Wellington"), Pay Telephone America, Ltd., and Greater
Washington Investments, Inc. ("GWI") (collectively, the "Company")
(see Note 23). All significant intercompany
accounts and transactions have been eliminated.
Johnston and its wholly owned subsidiaries and Wellington are
diversified manufacturers of woven and nonwoven fabrics used
principally for home furnishings, industrial, and to a lesser extent,
basic apparel, automotive, and other textile markets. The markets for
these products are located principally throughout the continental
United States. Jupiter holds venture capital portfolio investments in
new and developing companies that offer long-term growth prospects.
GWI is a small business investment company licensed under the Small
Business Investment Act of 1958. Under applicable Small Business
Administration regulations, GWI is restricted to investing only in
qualified small business concerns contemplated by the 1958 Act, as
amended, and such regulations.
Fiscal Year-End - Prior to December 30, 1995, Johnston had a fiscal
year-end of June 30. However, the operating subsidiaries had fiscal
year-ends based on a 52/53 week reporting period that ended on the
Saturday closest to June 30. For the fiscal years ended on June 30,
1995 and 1994, such operating subsidiaries' fiscal years ended on July
1, 1995 and July 2, 1994, respectively. On September 22, 1995,
Johnston's Board of Directors authorized a change in the fiscal year
from a period beginning July 1 and ending June 30 to a variable period
ending on the Saturday nearest to December 31. Therefore, Johnston's
fiscal period 1995 ended on December 30, 1995. Such change will make
Johnston's year-end consistent with its quarterly accounting periods
which, in the case of 52-week years, consist of two four-week periods
and one five-week period per quarter ending on a Saturday. The
unaudited financial information for the six months ended December 31,
1994 is presented for comparative purposes and includes all
adjustments (consisting of only normal, recurring adjustments) which
are, in the opinion of management, necessary for a fair presentation.
Cash Equivalents - The Company classifies all highly liquid
investments with a maturity of three months or less as cash
equivalents. Cash equivalents held by GWI are required to be invested
in securities guaranteed by the U.S. Government until such time as GWI
invests such funds in qualified small business concerns.
Inventories - The Company's inventories of finished goods,
work-in-process, and raw materials are generally stated at the lower
of cost (using the last-in, first-out cost flow assumption) or market.
However, JICR's inventories and all of the Company's parts and
supplies are stated at cost determined on the first-in, first-out
basis.
Property, Plant, and Equipment - Property, plant, and equipment is
stated at cost. Depreciation and amortization are computed principal-
ly by the use of the straight-line method over the estimated useful
service lives of 20-40 years for buildings, 20 years for improvements,
and 3-20 years for machinery and equipment.
F-8
<PAGE> 10
Revenue Recognition - Revenue is generally recognized as products are
shipped to customers. When customers, under the terms of specific
orders, request that the Company manufacture and invoice goods on a
bill and hold basis, the Company recognizes revenue based on the
completion date required in the order and actual completion of the
manufacturing process, because at that time, the customer is invoiced
and title and risks of ownership are transferred to the customer
pursuant to the terms of the sales contract. Those terms provide that
merchandise invoiced and held at any location by the Company, for
whatever reason, shall be at the buyer's risk, and the Company may
charge for insurance and storage at prevailing rates. Accounts
receivable included bill and hold receivables of $9,984,000,
$9,150,000 and $3,736,000 at December 30, 1995 and June 30, 1995 and
1994, respectively.
Concentration of Credit Risk - The Company's accounts receivable are
generally unsecured and are liquidated based on cash flows generated
by its customers' operations.
Valuation of Investments - Portfolio investments held by Jupiter in
publicly traded entities are stated at fair value as determined by
quoted market prices and are reflected as marketable securities in the
accompanying balance sheets. Other portfolio investments held by
Jupiter are recorded at estimated fair values as determined in good
faith by Jupiter's Board of Directors. Such marketable securities and
portfolio investments that have been sold or are expected to be sold
within the next twelve months are classified as current assets (see
Note 2). Unrealized appreciation (depreciation) is included as a
component of net income. Because of the inherent uncertainty of
valuation, values for Board-valued portfolio investments may differ
significantly from the values that would have been used had a ready
market for Jupiter's investments existed, and the difference could be
material to the Company's consolidated financial statements.
Investments in companies and joint ventures in which the Company had a
20% to 50% interest are accounted for under the equity method. The
investments are recorded at cost and adjusted for the Company's share
of earnings or losses and cash distributions.
Gains or Losses on Securities Sold - Sales of securities by Jupiter
are recorded on the trade date (date the order to sell is executed).
The cost of securities sold is reported on the average cost basis for
financial statement purposes. Realized losses are recognized for
securities whose value is considered permanently impaired.
Earnings (Loss) Per Share - Earnings per share are calculated based on
the weighted average number of common and common equivalent shares
outstanding during each respective fiscal year. Loss per share for
the six months ended December 30, 1995 excluded stock options from the
weighted average number of shares outstanding due to the fact that
they would be anti-dilutive. Fully diluted earnings per share are not
presented because the difference from primary earnings per share is
insignificant for all periods presented.
F-9
<PAGE> 11
Use of Estimates - The preparation of 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 financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed
Of - On July 1, 1995, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 121 ("SFAS 121"), "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed of." Under this method, the Company is required to review
long-lived assets and certain identifiable intangibles to be held and
used for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
All long-lived assets to be disposed of are reported at the lower of
carrying amount or fair value less cost to sell. No cumulative
effect on the Company's results of operations from adopting SFAS 121
was recorded because there was no impact as of July 1, 1995.
Stock Based Compensation - Statement of Financial Accounting Standards
No. 123 ("SFAS 123"), "Accounting for Stock-Based Compensation,"
establishes financial accounting and reporting standards for
stock-based compensation plans. SFAS 123 is effective for fiscal
years beginning after December 15, 1995 and includes fair value
recognition provisions for stock-based compensation which will be
elective for employee arrangements and required for nonemployee
transactions. For the employee arrangements, management will continue
with the accounting prescribed by APB No. 25 and, accordingly, will
make pro forma disclosures of net income and earnings per share as if
the fair value method of accounting defined in SFAS 123 had been
applied. For the nonemployee arrangements, the Company does not
expect the adoption of SFAS 123 to have a material impact on the
financial statements.
Reclassifications - Certain prior year and prior period amounts have
been reclassified to conform to the current year presentation.
2. JUPITER NATIONAL, INC.
In January 1995, the Company purchased an additional 89,300 shares of
Jupiter for approximately $2,300,000 which increased the Company's
ownership interest in the outstanding shares of Jupiter from 49.6% at
December 31, 1994 to 54.2%. As a result, Jupiter became a
consolidated, majority owned subsidiary of the Company in January
1995. Minority interest is recorded for the minority shareholders'
proportionate share of the equity and earnings (losses) of Jupiter.
F-10
<PAGE> 12
The following represents the results of operations on a pro forma
basis assuming Johnston had owned 54.2% of Jupiter as of July 1, 1993.
This pro forma information is provided for informational purposes
only. Such pro forma information is based on historical information
and is not necessarily indicative of the actual results that would
have been achieved had Johnston purchased the additional shares of
Jupiter on July 1, 1993, nor is it necessarily indicative of future
results of operations (see Note 23).
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------
1995 1994
<S> <C> <C>
Net sales $333,873,000 $290,572,000
Net income 8,117,000 6,371,000
Earnings per share 0.76 0.59
</TABLE>
The Company accounted for its investment in Jupiter using the equity
method through December 31, 1994. For the six months ended December
31, 1994 and for the years ended June 30, 1994 and 1993, Johnston
recorded equity in the changes in net assets of Jupiter of $1,308,000,
$(161,000), and $5,982,000, respectively.
As of December 30, 1995 and June 30, 1995, $14,145,000 and
$19,892,000, respectively, of the Company's investments are recorded
at their estimated fair market value based on estimates by Jupiter's
Board of Directors. Earnings related to these investments for the six
months ended December 30, 1995 and the year ended June 30, 1995 were
$-0- and $2,455,000, respectively. Effective January 1995, the
Company's proportionate share of the unrealized appreciation
(depreciation) of Jupiter's portfolio companies is included as a
separate line item in the Company's income statement. The Company's
equity in the net assets of Jupiter at June 30, 1994 was $18,701,000,
which include $9,074,000 of security values determined by Jupiter's
Board of Directors. For the years ended June 30, 1994 and 1993,
$1,091,000 and $(582,000), respectively, of the Company's equity in
Jupiter's changes in net assets was derived from net unrealized
appreciation (depreciation) of investments whose values have been
estimated by Jupiter's Board of Directors.
Two significant portfolio investment transactions occurred during the
three months ended December 30, 1995. First, as a result of the
acquisition of McDATA Corporation ("McDATA") by EMC Corporation
("EMC") on December 6, 1995, Jupiter's investment in McDATA was
converted into 564,216 shares of common stock of EMC, of which 56,421
shares are to be held in escrow for one year as security for potential
indemnification obligations of McDATA. As a result, Jupiter recorded
an unrealized gain of $3,863,000 in the quarter ended December 30,
1995. Second, on December 14, 1995, Fuisz Technologies, Ltd.
("Fuisz") completed an underwritten public offering of its common
stock at a price of $12.00 per share. As a result of the offering,
Jupiter's investment in Fuisz was converted into 215,080 shares of
Fuisz common stock, and Jupiter recorded an unrealized gain of
$593,000 in the quarter ended December 30, 1995. In connection with
the Fuisz offering, the Company agreed not to dispose of its shares of
Fuisz for a period of 180 days. Jupiter's investments in EMC and
Fuisz were transferred from the investments determined by Jupiter's
Board of Directors to marketable securities. As of March 28, 1996, the
Company had liquidated $14,641,000 of the Jupiter investment portfolio
(based on year-end values).
The quoted market value of the Company's investment in Jupiter was
approximately $20,148,000 on June 30, 1994.
F-11
<PAGE> 13
Summarized financial information of Jupiter as of June 30, 1994 and
for the years ended June 30, 1994 and 1993 is as follows:
FINANCIAL POSITION
<TABLE>
<CAPTION>
1994
<S> <C>
Net current assets $ 27,186,000
Investments 22,218,000
Total assets 111,610,000
Long-term debt (including current portion) 54,766,000
Net assets 38,099,000
</TABLE>
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Net sales $130,688,000 $77,499,000
Operating income 5,210,000 3,508,000
Net income 233,000 15,917,000
</TABLE>
Through November 30, 1994, Jupiter was considered a closed-end venture
capital investment company that used specialized accounting policies
required for investment companies to determine the net asset value of
its portfolio of investments. Under these policies, securities with
readily available market quotations were valued at the current market
price, and all other investments were valued at fair value as
determined in good faith by Jupiter's Board of Directors using a
formal portfolio valuation procedure. Effective December 1, 1994,
Jupiter received approval from the Securities and Exchange Commission
to withdraw its election as a business development company under the
Investment Act of 1940. As a result, majority owned operating
companies are required to be recorded at historical cost. This change
to the historical cost basis for such operating companies was effected
through a retroactive change in accounting method that resulted in a
restatement of Johnston's and Jupiter's prior financial statements
through December 31, 1994. This retroactive change did not have a
material impact on Johnston's financial position or results of
operations.
Jupiter's remaining portfolio of investments require periodic
valuation of each investment to determine net asset value as described
above.
F-12
<PAGE> 14
The following summarizes the aggregate cost and market or fair value
of the portfolio investments:
<TABLE>
<CAPTION>
MARKET OR
COST FAIR VALUE
<S> <C> <C>
AS OF DECEMBER 30, 1995:
Marketable securities $ 4,059,000 $20,592,000
=========== ===========
Portfolio investments - current $14,279,000 $14,145,000
=========== ===========
AS OF JUNE 30, 1995:
Marketable securities $ 1,575,000 $ 9,741,000
=========== ===========
Portfolio investments - long-term $15,426,000 $19,892,000
=========== ===========
</TABLE>
These investments are principally comprised of subordinated notes,
preferred stock, and common stock of new and developing companies.
3. GREATER WASHINGTON INVESTMENTS, INC.
As discussed in Note 1, GWI is a small business investment company
licensed under the Small Business Investment Act of 1958. Summary
financial information for GWI consists of the following:
STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
DECEMBER 30, JUNE 30,
1995 1995
<S> <C> <C>
Current assets $ 4,536,000 $ 5,933,000
Portfolio investments, at fair value 29,780,000 23,951,000
Other assets 44,000 44,000
----------- -----------
Total assets $34,360,000 $29,928,000
=========== ===========
Current liabilities $ 327,000 $ 325,000
Subordinated debentures 14,500,000 14,500,000
Deferred income taxes 4,204,000 2,677,000
----------- -----------
Total liabilities 19,031,000 17,502,000
Shareholder's equity 15,329,000 12,426,000
----------- -----------
Total liabilities and shareholder's equity $34,360,000 $29,928,000
=========== ===========
</TABLE>
F-13
<PAGE> 15
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED
ENDED DECEMBER JUNE 30,
1995 1995
<S> <C> <C>
Operating income $ 488,000 $ 1,485,000
Operating expenses (3,000)
Interest expense (582,000) (1,155,000)
----------- -----------
Net operating income (loss) (94,000) 327,000
Realized gain on sale of investments 0 392,000
----------- -----------
Net realized gain (loss) (94,000) 719,000
Increase in unrealized appreciation of investments 4,492,000 6,253,000
Provision for income taxes (1,495,000) (2,371,000)
----------- -----------
Results of operations $ 2,903,000 $ 4,601,000
=========== ===========
</TABLE>
4. STEEL FABRICATION OPERATIONS
The accompanying balance sheets at December 30, 1995, June 30, 1995
and 1994 include accruals of $9,380,000, $8,363,000 and $7,903,000,
respectively, for the remaining costs expected to be incurred in
phasing out the Company's steel fabrication operations (see Notes 11
and 13). These costs are principally related to health insurance and
death benefits for former employees and are stated at the actuarially
determined discounted present value. These operations were
discontinued in 1981.
In February 1994, the operators of the facility filed a complaint
against previous owners and operators of the facility including the
Company claiming contamination by a former Johnston subsidiary which
had operated at the facility before its close in 1981. The complaint
seeks to hold predecessors in title and former operators at the site
responsible for costs alleged to have been incurred to remediate the
plant site by the present owners. Such costs are alleged to be $3.5
million; however, the Company disputes that such costs were incurred
for response and believes that it has presented meritorious defenses
against the imposition of such costs. A nonjury trial began in the
United States District Court for the Eastern District of Pennsylvania
on July 20, 1995 and was concluded on August 25, 1995. Briefs by all
the parties have been filed. The Court is expected to render a
decision during the quarter ending June 29, 1996.
In June 1995, the Company established a reserve of $1,000,000 for
costs which it believed could be incurred to resolve the dispute.
Based upon subsequent events, including the trial and the discovery
that certain co-defendants had no assets or had been through
bankruptcy proceedings, and based upon the fact that the Court has not
dismissed the plaintiff's claims, the Company's management determined
to accrue an additional $1,000,000 in the three months ended December
30, 1995 and to increase the reserve to $2,000,000 as of December 30,
1995. Management continues to dispute the apportionment of any of
these costs against the Company. The loss provision is included in
Other - net in the Statement of Operations. In addition, the Company
has established a reserve in the amount of $200,000 as an estimate of
potential additional legal costs and other costs to be incurred
subsequent to December 30, 1995, in connection with the defense of
this matter. Although management believes that the accruals described
above are reasonable based upon the available facts as of the
respective balance sheet dates and that the accrual as of December 30,
1995 is sufficient to cover the estimated costs of such matter, the
ultimate outcome of the litigation cannot presently be determined.
F-14
<PAGE> 16
5. RELATED PARTY TRANSACTIONS
In May 1994, Redlaw Industries, Inc. ("Redlaw"), a stockholder, became
the commissioned sales agent in Canada for sales of textile products
manufactured by the Company. The Company paid Redlaw approximately
$76,000 and $152,000 related to Redlaw's commissioned sales business
for the six months ended December 30, 1995 and the fiscal year ended
June 30, 1995, respectively.
During 1992 and 1993, the Company made secured revolving loans to
Redlaw. As of June 30, 1993, $5,524,000 was outstanding. In July
1993, principal and interest was paid in full. An additional loan of
$1,300,000 was made to Redlaw in October 1993 and interest and
principal was paid in full in December 1993. All loans bore interest
at the Company's interest rate on its revolving credit loan plus 1/2
of 1%.
6. NOTES RECEIVABLE
In September 1995, Wellington entered into a financing agreement with
T.J. Beall Company ("TJB") whereby Wellington purchases from and
resells to TJB cotton gin by-products for an amount not exceeding
$4,000,000. Wellington's selling price, as defined by the agreement,
is cost plus 1 1/2% above Wellington's revolving debt interest rate
which was 11% at December 30, 1995. The inventory is pledged as
collateral for the receivable. At December 30, 1995, the note
receivable was $3,346,000 (See Note 23).
7. INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
JUNE 30,
DECEMBER 30, ----------------------------
1995 1995 1994
<S> <C> <C> <C>
Finished goods $22,982,000 $18,191,000 $11,585,000
Work-in-process 15,595,000 15,288,000 6,897,000
Raw materials and supplies 14,535,000 12,910,000 6,956,000
----------- ----------- -----------
53,112,000 46,389,000 25,438,000
Difference between LIFO carrying value
and current replacement cost 5,674,000 4,107,000 (838,000)
----------- ----------- -----------
Current replacement cost $58,786,000 $50,496,000 $24,600,000
=========== =========== ===========
</TABLE>
Although current replacement cost for inventories at June 30, 1994 was
less than last-in, first-out carrying value, the carrying value was
recovered through subsequent sales which yielded normal profit
margins.
F-15
<PAGE> 17
8. IMPAIRMENT OF ASSETS
In February, 1996, the Company announced that it was closing
Wellington's Tarboro Facility ("Tarboro") in an effort to realign and
consolidate certain operations, concentrate capital resources on more
profitable operations and better position itself to achieve its
strategic corporate objectives. Such decision was reached after sales
during the six months ended December 30, 1995 from the plant were
lower than expected which caused continued operating losses and
negative cash flows. Management evaluated the carrying value of the
Tarboro plant and wrote down the value of such property, plant, and
equipment by $6,532,000 in December 1995 due to impairment in
accordance with SFAS 121. The carrying value of such assets prior to
the write-down was approximately $12 million. The Tarboro plant
revenues and operating loss (exclusive of the impairment of assets)
for the six months ended December 30, 1995 were approximately
$5,983,000 and $2,571,000, respectively. Management anticipates that
although some of the equipment may be moved to other Company
locations, the majority of such assets will be marketed and sold.
Assets to be disposed of through future sale were written down to
their estimated fair values and are classified on the Company's
year-end balance sheet as assets held for sale.
The values ascribed to such assets held for sale is based on
management's best estimates of their fair value. While the estimates
are based on management's analysis of the property, including
valuations by independent appraisers, the amounts the Company might
ultimately realize could vary from the estimated values ascribed to
such assets.
In addition to the above impairment, it is anticipated that certain
inventory will be sold, certain accounts receivable will be settled,
and severance costs will be incurred in connection with the Tarboro
plant closing that will result in restructuring charges to be recorded
during fiscal year 1996.
9. JOHNSTON INDUSTRIES COMPOSITE REINFORCEMENTS, INC.
During 1992, the Company entered into a 50%/50% partnership with an
English company to establish JICR for the joint manufacture and sale
of certain specialized textile products. During September 1995, the
Company began consolidating the financial statements of JICR, as the
Company purchased the remaining 50% interest for a total cost of
$655,000. The Company's investment in this entity was $4,174,000 and
$2,335,000 at June 30, 1995 and 1994, respectively.
Summarized financial information of JICR as of June 30, 1995 and 1994
and for each of the three years in the period ended June 30, 1995 is
as follows:
FINANCIAL POSITION
<TABLE>
<CAPTION>
JUNE 30,
-----------------------
1995 1994
<S> <C> <C>
Net current assets $2,365,000 $ 593,000
Total assets 4,559,000 2,662,000
Net assets 4,174,000 2,335,000
</TABLE>
F-16
<PAGE> 18
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Net sales $4,027,000 $2,016,000 $ 402,000
Operating income (loss) 448,000 (147,000) (246,000)
Net loss (308,000) (980,000) (889,000)
</TABLE>
10. PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment consisted of the following:
<TABLE>
<CAPTION>
JUNE 30,
DECEMBER 30, ----------------------------
1995 1995 1994
<S> <C> <C> <C>
Land $ 1,373,000 $ 1,373,000 $ 555,000
Buildings and improvements 27,881,000 33,671,000 19,422,000
Machinery and equipment 169,214,000 159,741,000 106,871,000
------------ ------------ ------------
198,468,000 194,785,000 126,848,000
Less accumulated depreciation and
amortization (86,461,000) (80,476,000) (61,494,000)
------------ ------------ ------------
Property, plant, and equipment - net $112,007,000 $114,309,000 $ 65,354,000
============ ============ ============
</TABLE>
11. ACCRUED EXPENSES
Accrued expenses consisted of the following:
<TABLE>
<CAPTION>
JUNE 30,
DECEMBER 30, -------------------------
1995 1995 1994
<S> <C> <C> <C>
Salaries, wages, and employee benefits $ 4,539,000 $ 5,100,000 $2,821,000
Pension costs 2,410,000 2,148,000 1,697,000
Taxes, other than income taxes 750,000 1,459,000 1,276,000
Interest expense 1,168,000 507,000 41,000
Current estimated phase-out costs of steel
fabrication operations 3,000,000 2,000,000 1,000,000
Other 1,454,000 1,870,000 537,000
----------- ----------- ----------
$13,321,000 $13,084,000 $7,372,000
=========== =========== ==========
</TABLE>
F-17
<PAGE> 19
12. LONG-TERM FINANCING AND SHORT-TERM BORROWINGS
Long-term debt and short-term borrowings consisted of the following:
<TABLE>
<CAPTION>
JUNE 30,
DECEMBER 30, ----------------------------
1995 1995 1994
<S> <C> <C> <C>
JOHNSTON
Short-term borrowings $ 6,800,000 $ 2,500,000
============ ===========
Line-of-credit borrowings $ 13,250,000
Revolving credit loans 45,000,000 $ 45,000,000 $35,000,000
Term notes payable 5,000,000
Purchase money mortgage loan 1,174,000 1,217,000 1,303,000
------------ ------------ -----------
59,424,000 46,217,000 41,303,000
JUPITER
Subordinated debentures 14,500,000 14,500,000
Securities loans 1,540,000 1,191,000
Other debt 879,000 933,000
------------ ------------
16,919,000 16,624,000
WELLINGTON SEARS
Revolving credit loans 27,471,000 17,361,000
Term loan 18,594,000 19,687,000
Equipment loans 4,806,000 2,768,000
Industrial Development Bond (net
of unamortized discount) 590,000
Amounts due former affiliates
of Polylok 13,000 1,434,000
Installment and other loans 66,000 637,000
------------ ------------
51,540,000 41,887,000
------------ ------------ -----------
Total 127,883,000 104,728,000 41,303,000
Less current maturities (1,942,000) (5,894,000) (5,087,000)
------------ ------------ -----------
$125,941,000 $ 98,834,000 $36,216,000
============ ============ ===========
</TABLE>
The estimated fair value of long-term debt (including current
maturities) is $130,321,000 and $107,086,000 at December 30, 1995 and
June 30, 1995, respectively. Interest rates that are currently
available to the Company for issuance of debt with similar terms,
credit characteristics, and remaining maturities were used to estimate
fair value of long-term debt.
REFINANCING
On March 28, 1996, the Company signed an agreement with a syndicate of
banks (the "Credit Agreement") to provide financing required to
consummate the merger with Jupiter (see Note 23), to refinance certain
existing indebtedness, to pay related fees and expenses, and to
finance the ongoing working capital requirements of the Company. This
agreement also provides for the consolidation of the Company's
outstanding debt.
F-18
<PAGE> 20
The Credit Agreement is comprised of two term loan facilities ("A" and
"B") and a revolving credit facility. Term loan facility A is a $40
million facility with a final maturity date of March 2001. Principal
is repayable for the Company's year ending as follows: 1996 - $0,
1997 - $0, 1998 - $8 million, 1999 - $10 million, 2000 - $10 million,
and 2001 - $12 million. The interest rate on these borrowings is 8%
at March 28, 1996 which is based on a Base Rate, defined as the
greater of the Federal Funds Rate plus 1/2 of 1%, or the prime
commercial lending rate, plus 1 1/4% and is subject to change at the
Company's option upon the bank's receipt of annual audited
financial statements or 60 days to a rate based on the London
Interbank Offered Rate ("LIBOR") plus 2 1/2%. Thereafter, the rate is
based upon a ratio with the range as follows: Base Rate plus 1 1/4%
or LIBOR plus 1-2 1/2%.
Term facility B is a $40 million facility with a final maturity date
of March 2003. Principal is repayable for the Company's year ending
as follows: 1996 - $0, 1997 - $0, 1998-2001 - $500,000 each year, and
2002-2003 - $19 million each year. The interest rate on these
borrowings is 8.5% at March 28, 1996 based on a Base Rate, as defined,
plus 1 3/4% and is subject to change at the Company's option
to a rate based on LIBOR, plus 3%.
The revolving credit facility provides up to $80 million in
borrowings, with a final maturity date of March 2001. Principal
amounts outstanding are due and payable at final maturity. The
interest rate on these borrowings is 8% at March 28, 1996 which is
based on a Base Rate, as defined, plus 1 1/4%, and is subject to
change at the Company's option upon the bank's receipt of the annual
audited financial statements or 60 days to a rate based on LIBOR plus
2 1/2%. Thereafter, the rate is based upon a ratio with the range as
follows: Base Rate plus 1 1/4% basis points or LIBOR plus 1-2 1/2%.
Commitment fees are payable at 1/2 of 1%, based on the unused
portion of the facility until the date of the receipt of the audited
financial statements by the bank.
Substantially all assets are pledged as collateral for the borrowings
under these facilities. This agreement requires the Company to
maintain certain financial ratios and specified levels of tangible net
worth. The agreement places a limit on the Company's level of capital
expenditures and type of mergers or acquisitions. The Credit
Agreement permits the Company to pay dividends on its Common Stock
provided it is in compliance with various covenants and provisions
contained therein, which among other things limits dividends and
restricts investments to the lesser of (x) 20% of total assets of the
consolidated entities, on a fully consolidated basis, as of the date
of determination thereof, or (y) $5,000,000 for the period commencing
on January 1, 1996 and ending on December 31, 1996 or (z) $5,000,000
plus 50% of cumulative consolidated net income for the period
commencing on January 1, 1997, minus 100% of cumulative consolidated
net loss for the consolidated entities for such period, as calculated
on a cumulative basis as of the end of each fiscal quarter of the
consolidated entities with reference to the financial statements for
such quarter.
In March 1996, the Company borrowed $144,028,000 under these
facilities and used a portion of such borrowings to liquidate the
Johnston line-of-credit borrowings and revolving credit loans, and the
Wellington revolving credit loans, term loans, and equipment loans.
The interest rate as of December 30, 1995 on the Johnston line-
of-credit borrowings and revolving credit loans was 8%. The interest
rate as of December 30, 1995 on the Wellington revolving credit loans,
term loans, and equipment loans was 9 1/2%.
The following discussion relates to the Johnston, Jupiter, and
Wellington debt outstanding as of December 30, 1995 that was not be
refinanced by borrowings under the Credit Agreement.
JOHNSTON
Purchase Money Mortgage Loan - In connection with the purchase of a
new office building during 1994, Johnston obtained a Purchase Money
Mortgage Loan of $1,325,000. As of December 30, 1995 and June 30,
1995 and 1994, borrowings outstanding under this loan were $1,174,000,
$1,217,000, and $1,303,000, respectively. Borrowings under this loan
accrue interest at the lesser of: (1) 30-day adjustable, 60-day
adjustable, or 90-day adjustable LIBOR rate plus 2.70% or (2) the
prime rate. The interest rate on this loan was 8.75% at June 30,
1995. Beginning on March 31, 1994, Johnston was obligated to make 58
consecutive quarterly payments of principal of $21,667 plus interest,
with all remaining principal and interest due on December 31, 2008.
F-19
<PAGE> 21
The new office building in Columbus, Georgia is pledged as collateral
under this loan agreement.
JUPITER
Subordinated Debentures - The subordinated debentures, which relate to
GWI, are payable to the Small Business Administration ("SBA") and bear
interest at an effective weighted rate of 7.80% at December 30, 1995.
Principal payments are due as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 30, AMOUNT
<S> <C>
1998 $ 2,500,000
2001 7,000,000
2003 5,000,000
-----------
$14,500,000
===========
</TABLE>
The subordinated debentures contain restrictions on prepayments,
distributions to shareholders, and certain operating results. At
December 30, 1995, GWI did not have available funds for distribution
(equity of $15,329,000) to its shareholder nor funds for the
prepayment of its debentures.
Securities Loans - At December 30, 1995, Jupiter had borrowed
$1,540,000 under a brokerage margin account with average interest
rates of 10%.
WELLINGTON
Industrial Development Bond - In October 1995, Wellington entered into
an Industrial Development Bond with the County of Chambers, Alabama,
the proceeds of which were used to purchase a building. The original
principal amount is repayable in equal annual installments of $100,000
beginning December 31, 1996 through December 31, 2004. At December
30, 1995, the unamortized discount on the note was $310,000 (discount
based on an imputed interest rate of 10%).
Amounts Due Former Affiliates of Polylok Corporation ("Polylok") -
At July 1, 1995, amounts due former affiliates were comprised of
$1,434,000 due under a note payable agreement and deferred
compensation agreement with the former owner and a former member of
management of Polylok. In October 1995, the outstanding balance owed
to the former owner was paid in full. At December 30, 1995, $13,000
is owed to the former member of management. Amounts are payable in
equal monthly installments of $833 through April 1997.
Installment and Other Loans - At December 30, 1995 and July 1, 1995,
installment and other loans were comprised of $527,000 for the
purchase of certain machinery and equipment, and $66,000 and $110,000,
respectively, borrowed to finance the construction of a new roof in
one of the Company's facilities. The principal under the roof loan is
payable in installments of $7,340 through September 1996. Both loans
are noninterest-bearing, and the Company did not record any imputed
interest.
F-20
<PAGE> 22
COVENANTS AND RESTRICTIONS
The Johnston revolving credit agreement that provided for the
line-of-credit borrowings and the revolving credit loans and the
Wellington revolving credit, term loan, and equipment loan agreement
(which have both been refinanced as noted above) required the
maintenance of certain financial ratios, specified levels of certain
balances, and certain other restrictions. At certain times during the
six months ended December 30, 1995, Johnston and Wellington were in
technical noncompliance with certain of their covenants. At certain
times during the years ended June 30, 1995 and 1994, Wellington was in
technical noncompliance with certain of its covenants. All of these
events of noncompliance were waived by the lending institutions. As
of December 30, 1995, Johnston and Wellington were in technical
noncompliance with certain of their covenants. However, all of these
covenants have been replaced in conjunction with the Company's
refinancing.
DEBT MATURITIES - Aggregate scheduled repayments of long-term debt
comprehending the new debt in connection with the refinancing and
other debt outstanding as of December 30, 1995 that was not refinanced
are summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 30, AMOUNT
<S> <C>
1996 $ 1,942,000
1997 182,000
1998 11,161,000
1999 11,200,000
2000 and thereafter 136,155,000
------------
$160,640,000
============
</TABLE>
13. OTHER LIABILITIES
Other liabilities consisted of the following:
<TABLE>
<CAPTION>
JUNE 30,
DECEMBER 30, ----------------------------
1995 1995 1994
<S> <C> <C> <C>
Long-term portion of estimated phase-out
costs of steel fabrication operations $ 6,380,000 $ 6,363,000 $ 6,903,000
Additional pension liability (see Note 19) 5,429,000 5,534,000 8,029,000
Other 2,282,000 2,126,000 1,944,000
----------- ----------- -----------
$14,091,000 $14,023,000 $16,876,000
=========== =========== ===========
</TABLE>
14. COMMON STOCK
On November 1, 1993, the Board of Directors approved a three-for-two
stock split, whereby shareholders of record on January 4, 1994 were
entitled to one additional share of common stock for every two shares
held, payable on January 24, 1994. Stock options, treasury stock,
outstanding common stock, and per share data have been retroactively
adjusted to reflect the split.
F-21
<PAGE> 23
On February 1, 1993, Johnston purchased 294,000 shares of its stock at
$8.50 per share from GRM Industries, Inc., a subsidiary of Redlaw.
15. STOCK OPTION PLANS
Employees' Stock Incentive Plan - Johnston has a Stock Incentive Plan
for Key Employees under which Johnston may grant incentive stock
options, nonqualified stock options, stock appreciation rights, and
restricted stock. Stock appreciation rights may only be granted in
conjunction with nonqualified stock options. The maximum number of
common shares which could be issued upon exercise of options or
through awards granted under this plan is 2,358,450. Incentive stock
options granted under the plan are exercisable, on a cumulative basis,
at a rate of 25% each year, beginning one year after the date of
grant. Nonqualified stock options are exercisable beginning six
months after the date of grant.
A summary of employee stock option activity is as follows:
<TABLE>
<CAPTION>
NON- INCENTIVE
QUALIFIED STOCK EXERCISE
OPTIONS OPTIONS TOTAL PRICE
<S> <C> <C> <C> <C>
Options outstanding at June 30, 1992 371,362 57,204 428,566 $2.37 - $ 5.55
Options granted 213,750 213,750 6.85 - 10.17
Options exercised (107,438) (52,386) (159,824) 2.37 - 3.22
-------- ------- --------
Options outstanding at June 30, 1993 477,674 4,818 482,492 3.22 - 10.17
Options exercised (68,924) (4,818) (73,742) 2.37 - 3.22
-------- ------- --------
Options outstanding at June 30, 1994 408,750 - 408,750 2.37 - 10.17
Options exercised (15,000) (15,000) 3.22
-------- ------- --------
Options outstanding at June 30, 1995
and December 30, 1995 393,750 - 393,750 5.55 - 10.17
======== ======= ========
Options available for grant at December 30, 1995 855,000
========
</TABLE>
No stock option activity occurred during the six months ended December
30, 1995. At December 30, 1995, 378,750 of the outstanding options
are exercisable.
Other Stock Option Agreement - During 1991, Johnston entered into a
nonqualified stock option agreement with a director under which the
director was granted options to purchase a maximum of 22,500 shares of
Johnston's common stock. The options are exercisable at $3.22 per
share.
Jupiter Stock Option Plans - Jupiter has an employee stock option plan
and a director stock option plan under which options have been granted
to purchase 428,220 shares of Jupiter common stock at prices ranging
from $3.62 to $28.75. At December 30, 1995, 424,109 of the options
were exercisable.
In connection with Johnston's acquisition of the remaining outstanding
shares of Jupiter (see Note 23), these options were purchased by
Johnston.
F-22
<PAGE> 24
16. EMPLOYEE STOCK PURCHASE PLAN
On October 15, 1990, the Company adopted an Employee Stock Purchase
Plan under which eligible key employees and directors of the Company
may purchase shares of the Company's common stock through loans
guaranteed by the Company. Under the plan, as of December 30, 1995,
31 key employees and directors currently have loans outstanding for
the purchase of a total of 976,284 shares of the Company's common
stock at market prices. To purchase stock, participants generally
execute five-year full recourse demand promissory notes with a third-
party lender. The notes generally bear interest only during the term
of the loan, at prime plus 1/4%.
The third-party lender has the right to recover the loan proceeds from
the participant's personal assets, including the purchased stock in
the event of default. The participants may not sell their shares
until they have made arrangements to pay off their loans with the
proceeds from the sale of the stock or by settling the loans with
other personal assets. In the event of default, the Company's
exposure is limited to the amount by which a participant's loan
balance exceeds the market value of the underlying stock less any
proceeds recovered by the lender from the participant's personal
assets. As of December 30, 1995 and June 30, 1995 and 1994, the
market value of the purchased stock was $7,932,000, $7,089,000, and
$7,038,000, respectively. The Company has no obligation to repurchase
the stock from the participant or lender.
The Company has the discretion to reimburse the participants for their
payments of interest under the plan in excess of dividends paid on the
Company's common stock in any given year. The Company treats these
payments as compensation expense and income to the participants.
Compensation expense relating to interest payments under the plan was
$154,000, $226,000, and $70,000 for the six months ended December 30,
1995 and the fiscal years ended June 30, 1995 and 1994, respectively.
At December 30, 1995, June 30, 1995, and June 30, 1994, the Company
had guaranteed plan participants' borrowings totaling approximately
$7,657,000, $6,978,000, and $5,004,000, respectively. Prior to
December 30, 1995, the Company had never made any payments under the
guarantee. Subsequent to December 30, 1995, the Company made a
payment of approximately $198,000 to a third party lender in connection
with a default on a participant's loan. The Company believes it will
be successful in collecting the full amount from the participant's
assets including the stock. Additionally, this default is not
expected to be indicative of the status of the overall plan.
17. INCOME TAXES
The Company adopted SFAS 109 effective July 1, 1993 and has applied
the provisions of such statement retroactively to July 1, 1988.
Accordingly, the consolidated financial statements have been restated
to comply with the provisions of SFAS 109.
The effect of the retroactive restatement on stockholders' equity at
July 1, 1991 was a reduction of $418,000. The impact of applying SFAS
109 on net income and earnings per share for the year ended June 30,
1993 was a reduction of $352,000 and $.03, respectively.
F-23
<PAGE> 25
The provision (benefit) for income taxes is comprised of the
following:
<TABLE>
<CAPTION>
YEAR ENDED
SIX MONTHS ENDED JUNE 30,
DECEMBER 30, -------------------------------------------
1995 1995 1994 1993
<S> <C> <C> <C> <C>
Federal:
Current $ 56,000 $ 2,834,000 $ 2,604,000 $ 2,185,000
Deferred (5,837,000) 3,276,000 810,000 2,191,000
----------- ----------- ----------- -----------
(5,781,000) 6,110,000 3,414,000 4,376,000
----------- ----------- ----------- -----------
State:
Current (85,000) 552,000 689,000 392,000
Deferred (480,000) 421,000 (39,000) 417,000
----------- ----------- ----------- -----------
(565,000) 973,000 650,000 809,000
----------- ----------- ----------- -----------
Provision (benefit) for income
taxes $(6,346,000) $ 7,083,000 $ 4,064,000 $ 5,185,000
=========== =========== =========== ===========
</TABLE>
The significant components of deferred income tax assets and
liabilities are as follows:
<TABLE>
<CAPTION>
JUNE 30,
DECEMBER 30, ------------------------------
1995 1995 1994
<S> <C> <C> <C>
Deferred tax assets:
Estimated phase-out costs of steel
fabrication operations $ 3,561,000 $ 3,174,000 $ 3,000,000
Alternative minimum tax 4,406,000 1,949,000 678,000
Additional pension liabilities 1,073,000 1,086,000 1,957,000
Other - net 3,254,000 2,413,000 1,570,000
------------ ------------ ------------
12,294,000 8,622,000 7,205,000
------------ ------------ ------------
Deferred tax liabilities:
Unrealized appreciation - investments (6,232,000) (5,012,000)
Inventories (2,114,000) (2,365,000) (2,235,000)
Investments - at equity (in consolidated
affiliates) (1,827,000) (2,916,000) (1,742,000)
Property, plant, and equipment (8,416,000) (10,288,000) (8,347,000)
------------ ------------ ------------
(18,589,000) (20,581,000) (12,324,000)
------------ ------------ ------------
Net deferred tax liability $ (6,295,000) $(11,959,000) $ (5,119,000)
============ ============ ============
Net current deferred tax liability $ (4,320,000) $ (2,947,000) $ (1,164,000)
Net long-term deferred tax liability (1,975,000) (9,012,000) (3,955,000)
------------ ------------ ------------
$ (6,295,000) $(11,959,000) $ (5,119,000)
============ ============ ============
</TABLE>
Net deferred tax liabilities are classified in the financial
statements as current or long-term depending upon the classification
of the temporary difference to which they relate. Management believes
it is more likely than not that future taxable income will be
sufficient to realize fully the benefits of deferred tax assets.
F-24
<PAGE> 26
The reconciliation of the Company's effective income tax rate to the
federal statutory rate of 34% follows:
<TABLE>
<CAPTION> YEAR ENDED
SIX MONTHS ENDED JUNE 30,
DECEMBER 30, -----------------------------------------------
1995 1995 1994 1993
<S> <C> <C> <C> <C>
Federal income taxes at statutory rate $(5,042,000) $ 5,664,000 $ 3,590,000 $ 4,624,000
State income taxes, net of federal
tax benefit (359,000) 746,000 429,000 533,000
Equity in income of majority owned
subsidiary (942,000) 607,000
Impact of purchase accounting
adjustments (61,000)
Other, net (3,000) 66,000 45,000 89,000
----------- ----------- ----------- -----------
$(6,346,000) $ 7,083,000 $ 4,064,000 $ 5,185,000
=========== =========== =========== ===========
Effective tax rate 42.8% 42.5 % 38.5 % 38.1 %
=========== =========== =========== ===========
</TABLE>
At December 30, 1995, the Company has alternative minimum tax credit
carryforwards of approximately $4,406,000 which have been used as a
basis for recording tax assets and are included in the long-term
deferred taxes payable account. The Company presently believes that
realization of these carryforwards is more likely than not and as such
has not established any valuation allowance against these assets.
18. COMMITMENTS AND CONTINGENCIES
Litigation - Jupiter's purchase of the assets of Polylok which
represents Tarboro resulted in significant litigation among Jupiter,
Wellington, Polylok, and Daniel Duhl ("Duhl"), Polylok's principal
shareholder. The first action, which was settled in August 1994,
involved assertions against Polylok and Duhl of misrepresentations
made in connection with the purchase of Polylok's assets.
Subsequently, in March 1995, Polylok and Duhl commenced an action
against Jupiter and Wellington, which action asserted a breach of
contract relating to installment payments due Duhl pursuant to a
$1,600,000 purchase money note. Jupiter and Wellington filed
counterclaims against Polylok and Duhl for breach of Duhl's
consultancy agreement and breach of the prior August 1994 settlement.
On October 18, 1995, the breach of contract claim asserted by Polylok
and Duhl and the counterclaim by Jupiter and Wellington for breach of
consultancy agreement and the August 1994 settlement were resolved.
On October 25, 1995, approximately $541,000 was placed in an escrow
account to settle all obligations for Duhl's consultancy agreement.
In further litigation in the United States District Court, Eastern
District of North Carolina, Polylok Corporation and Polylok Finishing
Corporation vs. Jupiter National, Inc. and Wellington Sears Company,
No. 4:95-CV-105-H(2), Polylok and Duhl have taken legal action
against Jupiter and Wellington regarding withdrawal of monies set
aside in an escrow account, from the August 1994 settlement, providing
for remediation of environmental contamination at the Tarboro plant.
On January 5, 1996, the parties reached a settlement for this case
whereby Duhl received $296,000 from an escrow account.
Disputed Purchase Consideration - At December 30, 1995, Wellington has
accrued $1,610,000 as additional purchase consideration in connection
with Wellington's original purchase of assets from WestPoint
Pepperell, Inc. ("WestPoint"). The additional purchase price has been
F-25
<PAGE> 27
allocated to property, plant, and equipment and was based upon
Wellington exceeding a cumulative earnings threshold, as defined by
the purchase agreement, during the three-year period ended November
28, 1995. While the amount recorded by Wellington represents
management's best estimate of consideration owed, the amount is
currently being disputed. Ultimately, the disagreement may be settled
through arbitration as provided by the purchase agreement. The
ultimate resolution of this matter could result in a payment of an
amount different from the accrued amount. Any adjustment to the
accrual will increase or decrease the purchase price allocated to
property, plant, and equipment.
The Company is periodically involved in legal proceedings arising out
of the ordinary conduct of its business. Management does not expect
that they will have a material adverse effect on the Company's
consolidated financial position or results of operations.
Provisional Cotton Pricing Arrangements - During the six months ended
December 30, 1995, Opp and Micolas entered into various provisional
pricing arrangements with its cotton vendors in connection with
existing cotton purchase contracts. Under such provisional pricing
arrangements, Opp and Micolas accepts delivery of certain quantities
of raw cotton bales and pays an arranged "provisional" price for such
purchases. However, Opp and Micolas has not "fixed" the price of such
cotton purchases due to the expectation that cotton prices will
decrease in the future, at which time such contracted prices will be
fixed enabling Opp and Micolas to manage its exposure to the current
perceived high raw material costs. As of December 30, 1995, 5,193,570
pounds of cotton are subject to provisional pricing arrangements with
a total provisional price of approximately $4,409,000. As of March
28, 1996, the price had been fixed at $.8399 per pound for 4,548,885
pounds of cotton resulting in a gain of $46,000. Any gain or loss
related to this arrangement is recorded as a component of inventory.
Upon the sale of such inventory, the gain or loss is recorded as a
component of cost of goods sold.
Lease Commitments - Rent expense under operating leases covering
production equipment and office facilities was $542,000 for the six
months ended December 30, 1995, $791,000 in fiscal 1995, $785,000 in
fiscal 1994, and $1,100,000 in fiscal 1993.
At December 30, 1995, the Company is committed to pay the following
minimum rental payments on noncancelable operating leases:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 30, AMOUNT
<S> <C>
1996 $ 703,000
1997 462,000
1998 203,000
1999 112,000
2000 and thereafter 40,000
----------
$1,520,000
==========
</TABLE>
Other Commitments - The Company has employment contracts with certain
of its employees extending through 1998 aggregating $4,994,000.
As of December 30, 1995, the Company has purchase commitments with
terms in excess of one year with several vendors to buy inventory
totaling approximately $8,140,000.
F-26
<PAGE> 28
The Company also has capital commitments with terms extending over one
year as of December 30, 1995 with several vendors for the purchase of
machinery and equipment aggregating approximately $800,000.
19. EMPLOYEE BENEFIT PLANS
Defined Benefit Pension Plans - Johnston has two noncontributory
qualified defined benefit pension plans covering substantially all
hourly and salaried employees. The plan covering salaried employees
provides benefit payments based on years of service and the employees'
final average ten years' earnings. The plan covering hourly employees
generally provides benefits of stated amounts for each year of
service. Johnston's current policy is to fund retirement plans in an
amount that falls between the minimum contribution required by ERISA
and the maximum tax deductible contribution. Plan assets consist
primarily of government and agency obligations, corporate bonds,
common stocks, mutual funds, cash equivalents, and unallocated
insurance contracts.
Effective July 1, 1995, Johnston adopted a noncontributory,
nonqualified defined benefit plan covering the five senior executives
of Johnston ("SRP") designed to provide supplemental retirement
benefits.
The provisions of Statement of Financial Accounting Standards No.
87 ("SFAS 87"), "Employers' Accounting for Pensions" require
recognition in the balance sheet of an additional minimum liability
and related intangible asset for pension plans with accumulated
benefits in excess of plan assets. At December 30, 1995, June 30,
1995 and 1994, an additional liability of $5,429,000, $5,534,000 and
$8,029,000, respectively, is reflected in the consolidated balance
sheets. At December 30, 1995, June 30, 1995 and 1994, the liability
exceeded the unrecognized prior service cost resulting in a minimum
pension liability, net of taxes, of $1,754,000, $1,774,000 and
$3,198,000, respectively, recorded as a reduction of the Company's
equity.
Net periodic pension cost included the following components:
<TABLE>
<CAPTION>
YEAR ENDED
SIX MONTHS ENDED JUNE 30,
DECEMBER 30, --------------------------------------------
1995 1995 1994 1993
<S> <C> <C> <C> <C>
Service cost $ 564,000 $ 953,000 $ 1,010,000 $ 824,000
Interest cost 1,056,000 1,999,000 1,829,000 1,729,000
Actual (return) loss on assets (1,731,000) (2,460,000) 395,000 (1,202,000)
Net amortization and deferral 1,347,000 1,850,000 (1,029,000) 464,000
----------- ----------- ----------- -----------
Net periodic pension cost $ 1,236,000 $ 2,342,000 $ 2,205,000 $ 1,815,000
=========== =========== =========== ===========
</TABLE>
F-27
<PAGE> 29
The following sets forth the funded status of the plans:
<TABLE>
<CAPTION>
JUNE 30,
DECEMBER 30, ----------------------------
1995 1995 1994
<S> <C> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation $27,460,000 $25,280,000 $24,784,000
Nonvested benefit obligation 629,000 729,000 464,000
----------- ----------- -----------
Accumulated benefit obligation $28,089,000 $26,009,000 $25,248,000
=========== =========== ===========
Projected benefit obligation $30,273,000 $27,798,000 $27,048,000
Plan assets at fair value 21,062,000 19,013,000 15,769,000
----------- ----------- -----------
Projected benefit obligation in excess of
plan assets $ 9,211,000 $ 8,785,000 $11,279,000
=========== =========== ===========
Unrecognized prior service cost $ 902,000 $ 590,000 $ 491,000
Unrecognized net loss 4,794,000 4,649,000 6,956,000
Unrecognized net liability at date of initial
adoption 1,935,000 2,084,000 2,382,000
Pension liability recognized 1,580,000 1,462,000 1,450,000
----------- ----------- -----------
Total $ 9,211,000 $ 8,785,000 $11,279,000
=========== =========== ===========
</TABLE>
For the salaried and hourly plans, the weighted average discount rate
used in determining the projected benefit obligation was 7.5% for the
six months ended December 30, 1995, 8% in fiscal 1995 and 7.5% in
fiscal 1994, and the rate of increase in future compensation levels
was graded by age from 7.50% to an ultimate rate of 4.0% for the six
months ended December 30, 1995 and for fiscal 1995 and was a flat rate
of 6% for fiscal 1994. The expected long-term rate of return on plan
assets was 8% for the six months ended December 30, 1995 and for
fiscal 1995 and 1994 for both plans.
For the six months ended December 30, 1995, the weighted average
discount rate used in determining the projected benefit obligation for
the SRP was 7.50% and the rate of increase in future compensation
levels was graded by age from 7.50% to 4.0%. This plan has no assets;
therefore, there is no applicable long-term rate of return.
Defined Contribution Plans - Through December 31, 1994, Jupiter
maintained a defined contribution employee pension plan for
substantially all employees to which it made annual contributions of
10% of compensation, subject to a $30,000 individual annual
limitation. A portion of the plan's assets was invested in Jupiter's
common stock. At June 30, 1995, 7,554 Jupiter shares were owned by
the plan. During August 1995, Jupiter received a favorable
determination letter from the Internal Revenue Service to terminate
the plan, effective December 31, 1994. Accordingly, the plan assets
were distributed to the participants during August 1995.
Wellington has a defined contribution savings plan that covers
substantially all full-time Wellington employees who qualify as to age
and length of service. Wellington may make discretionary
contributions to the plan. Wellington made contributions of $154,000
and $286,000 for the six months ended December 30, 1995 and for the
year ended June 30, 1995.
F-28
<PAGE> 30
20. MAJOR CUSTOMERS
Net sales to a major customer of the Company comprised 5%, 6%, 11%,
and 10% of net sales for the six months ended December 30, 1995 and
for the years ended June 30, 1995, 1994, and 1993, respectively.
21. TRUST AGREEMENTS
During 1991 and 1993, the Company entered into trust agreements with
officers to transfer assets to trusts in lieu of paying annual bonuses
and consulting fees. These trust assets, which are included in "Other
Assets" on the consolidated balance sheets and are recorded at the
fair market value of the underlying assets, include corporate stocks
including equity securities of affiliated companies, corporate bonds
including debt securities of affiliated companies, and short-term
investments. The compensation to the officers is determined in
accordance with the employment agreements. Upon termination of the
officers' employment with the Company, the trust assets will be
distributed to the officers. If the Company becomes insolvent at any
time before the assets of the trust are distributed to the officers,
the trust assets may be used to satisfy the claims of the Company's
creditors. As of December 30, 1995 and June 30, 1995 and 1994, the
trust assets and corresponding liabilities, which are included in
"Other Liabilities" on the consolidated balance sheets, each totaled
$1,269,000, $1,061,000, and $1,005,000, respectively.
22. SEGMENT INFORMATION
The Company has two major segments for financial reporting purposes
which are: Textile operations consisting of the operations of
Johnston, Southern Phenix, Opp and Micolas, Wellington, and JICR, and
portfolio investment activities consisting principally of the
activities of Jupiter including GWI (in thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED DECEMBER 30, 1995 FISCAL YEAR ENDED JUNE 30, 1995
-------------------------------------- --------------------------------------
PORTFOLIO PORTFOLIO
TEXTILE INVESTMENT TEXTILE INVESTMENT
OPERATIONS ACTIVITIES TOTAL OPERATIONS ACTIVITIES TOTAL
<S> <C> <C> <C> <C> <C> <C>
Net sales $148,773 $ 1,250 $150,023 $262,279 $ 1,048 $263,327
Income (loss) from
operations (8,087) (2,553) (10,640) 19,179 (1,288) 17,891
Realized and unrealized
investment portfolio gain 3,767 3,767 5,191 5,191
Identifiable assets 223,179 40,370 263,549 216,764 38,337 255,101
Capital expenditures 17,781 206 17,987 21,448 535 21,983
Depreciation and amortization 8,874 133 9,007 13,766 173 13,939
</TABLE>
Income (loss) from operations for each segment is net sales less
operating expenses (see Note 8 for discussion of $6,532,000 charge
which is included in Textile Operations for the six months ended
December 30, 1995). In computing such amount for each segment, the
corporate expenses of Johnston have been allocated to the textile
operations, and the corporate expenses of Jupiter have been allocated
to the portfolio investment activities. The following items have not
been added or deducted: interest expense, interest income, other -
net expense, and income taxes. Identifiable assets are those assets
used in each segment's operations.
F-29
<PAGE> 31
Corporate assets of Johnston are allocated to the textile operations
and corporate assets of Jupiter are allocated to the investment
portfolio activities.
23. SUBSEQUENT EVENTS
On August 16, 1995, Johnston jointly announced with Jupiter an
agreement and plan of merger under which the public shareholders of
Jupiter would receive cash from Johnston for each outstanding Jupiter
share. The merger was approved by Jupiter's shareholders on March 12,
1996, and was consummated on March 28, 1996. The final price was
$33.97 per share. Purchase consideration of approximately $39,000,000
included payments to stockholders and certain holders of all
outstanding options to purchase common stock, and approximately
$2,800,000 paid for expenses related to the transaction.
In connection with the completion of the merger of Johnston and
Jupiter, the Company repurchased from GRM Industries, Inc., a
stockholder, 259,819 shares of Johnston's common stock having an
aggregate value of $2,150,000.
On January 22, 1996, Johnston's Board of Directors agreed to buy all
of the outstanding common stock of T.J. Beall Company, a cotton
by-products processor located in WestPoint, Georgia effective March
25, 1996 (see Note 6). This acquisition has been financed through the
issuance of 325,000 shares of one cent ($.01) par value, nonvoting
convertible preferred stock of the Company, which has an estimated
value of $3,250,000. Dividends shall accrue and be payable quarterly
at the rate of $.125 per share per quarter. The preferred stock
issued has been designated as "Johnston Industries, Inc. Preferred
Stock, Series 1996" and is convertible into shares of ten cent ($.10)
par value voting common stock. Each share of preferred stock may be
converted into one share of voting common stock with the shareholder
having the right (but not the obligation) to convert up to one-third
of preferred stock twelve months after closing, one-third twenty-four
months after closing, and the final one-third thirty-six months
after closing.
Both of the above acquisitions will be accounted for under the
purchase method of accounting.
F-30
<PAGE> 32
JOHNSTON INDUSTRIES, INC. (PARENT COMPANY)
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEETS
DECEMBER 30, 1995, JUNE 30, 1995 AND 1994
<TABLE>
<CAPTION>
ASSETS December 30, June 30, June 30,
1995 1995 1994
------------ ------------ -------------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 847,000 $ 2,979,000 $ 3,681,000
Prepaid expenses and other 465,000 469,000 522,000
Intercompany receivable 7,798,000
Income taxes receivable 971,000
Deferred income taxes 1,279,000 788,000
------------ ----------- ------------
Total current assets 11,360,000 4,236,000 4,203,000
INVESTMENT IN WHOLLY OWNED CONSOLIDATED
SUBSIDIARIES - At equity 92,150,000 95,705,000 92,116,000
INVESTMENTS IN MAJORITY OWNED SUBSIDIARY AND
IN UNCONSOLIDATED AFFILIATES - At equity 22,026,000 29,067,000 21,036,000
PROPERTY, PLANT, AND EQUIPMENT - Net 1,891,000 2,739,000 2,331,000
INTANGIBLE ASSET - PENSION 2,464,000 2,675,000 2,874,000
OTHER ASSETS 4,075,000 1,721,000 7,127,000
LONG-TERM DEFERRED INCOME TAXES 6,393,000 4,859,000 5,933,000
------------ ------------ -------------
$140,359,000 $141,002,000 $ 135,620,000
============ ============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1994
CURRENT LIABILITIES:
Short-term borrowings $ -- $ 6,800,000 $ 2,500,000
Current maturities of long-term debt 87,000 87,000 5,087,000
Accounts payable 808,000 856,000 280,000
Accrued expenses 4,725,000 3,012,000 2,037,000
Intercompany payables 7,019,000 7,541,000 11,030,000
Income taxes payable 656,000
Deferred income taxes 1,731,000
------------ ------------ -------------
Total current liabilities 12,639,000 18,296,000 23,321,000
LONG-TERM DEBT 59,337,000 46,130,000 36,216,000
------------ -------------
OTHER LIABILITIES 13,204,000 13,149,000 16,275,000
------------ ------------ -------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, par value $.10 per share; authorized,
20,000,000 shares; issued 12,426,891, 12,426,891
and 12,411,891 1,243,000 1,243,000 1,241,000
Additional paid-in capital 17,293,000 17,258,000 17,107,000
Retained earnings 46,505,000 54,808,000 51,065,000
------------ ------------ -------------
Total 65,041,000 73,309,000 69,413,000
Less treasury stock: 1,861,912, 1,861,912 and
1,682,112 shares at cost (8,108,000) (8,108,000) (6,407,000)
Less minimum pension liability adjustment, net of tax
benefit (1,754,000) (1,774,000) (3,198,000)
------------ ------------ -------------
Stockholders' equity 55,179,000 63,427,000 59,808,000
------------ ------------ -------------
$140,359,000 $141,002,000 $ 135,620,000
============ ============ =============
</TABLE>
S - 1
<PAGE> 33
JOHNSTON INDUSTRIES, INC. (PARENT COMPANY)
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF OPERATIONS
SIX MONTHS ENDED DECEMBER 30, 1995
AND FISCAL YEARS ENDED JUNE 30, 1995, 1994, AND 1993
<TABLE>
<CAPTION>
Six Months Ended Year Ended June 30,
December 30, -------------------------------------------
1995 1995 1994 1993
<S> <C> <C> <C> <C>
NET SALES $ - $ - $ - $ -
COSTS AND EXPENSES:
Selling, general, and administrative 476,000 (53,000) (310,000) 93,000
Depreciation and amortization 94,000 250,000 243,000) (156,000)
----------- ----------- ----------- -----------
Total costs and expenses 570,000 197,000 (67,000) (63,000)
----------- ----------- ----------- -----------
INCOME (LOSS) FROM OPERATIONS (570,000) (197,000) 67,000 63,000
OTHER EXPENSE:
Interest expense - net 2,089,000 3,776,000 2,984,000 2,504,000
Other - net 1,407,000 1,717,000 619,000 1,095,000
----------- ----------- ----------- -----------
Total other expenses 3,496,000 5,493,000 3,603,000 3,599,000
----------- ----------- ----------- -----------
EQUITY IN EARNINGS (LOSSES)
OF EQUITY INVESTMENTS (2,771,000) 2,784,000 (1,141,000) 5,093,000
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE PROVISION (BENEFIT) FOR
INCOME TAXES AND INCOME FROM SUBSIDIARIES (6,837,000) (2,906,000) (4,677,000) 1,557,000
PROVISION (BENEFIT) FOR INCOME TAXES (2,461,000) (926,000) (1,606,000) 512,000
----------- ----------- ----------- -----------
NET INCOME (LOSS) BEFORE INCOME
OF SUBSIDIARIES (4,376,000) (1,980,000) (3,071,000) 1,045,000
INCOME FROM OPERATIONS OF SUBSIDIARIES (1,814,000) 9,855,000 9,566,000 7,369,000
----------- ----------- ----------- -----------
NET INCOME (LOSS) $(6,190,000) $ 7,875,000 $ 6,495,000 $ 8,414,000
=========== =========== =========== ===========
</TABLE>
S - 2
<PAGE> 34
JOHNSTON INDUSTRIES, INC. (PARENT COMPANY)
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED DECEMBER 30, 1995
AND FISCAL YEARS ENDED JUNE 30, 1995, 1994, AND 1993
<TABLE>
<CAPTION>
Six Months Ended Year Ended June 30,
December 30, -------------------------------------------------
1995 1995 1994 1993
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $(6,190,000) $ 7,875,000 $ 6,495,000 $ 8,414,000
----------- ----------- ----------- -----------
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization 94,000 255,000 (240,000) (252,000)
Undistributed income from operations of 1,814,000 (9,855,000) (9,566,000) (7,369,000)
subsidiaries
Undistributed income of affiliates 2,771,000 (2,784,000) 1,141,000 (5,093,000)
Changes in assets and liabilities:
Deferred income taxes (488,000) (359,000) (161,000) 507,000
Prepaid expenses and other assets (2,647,000) (299,000) (198,000) 324,000
Accounts payable 215,000 715,000 222,000 (36,000)
Accrued expenses 1,714,000 975,000 (18,000) (94,000)
Income taxes payable (991,000) (687,000) (9,000) 152,000
Intercompany accounts (3,791,000) (9,441,000) (10,752,000) (8,019,000)
Other liabilities (1,427,000) (568,000) 487,000 1,060,000
Other, net 234,000 4,000 124,000 124,000
----------- ----------- ----------- -----------
Total adjustments (2,502,000) (22,044,000) (18,970,000) (18,696,000)
----------- ----------- ----------- -----------
Net cash used in operating activities (8,692,000) (14,169,000) (12,475,000) (10,282,000)
----------- ----------- ----------- -----------
INVESTING ACTIVITIES:
Additions to property, plant, and equipment (15,000) (720,000) (1,997,000) (200,000)
Increase in investments (5,247,000) (4,578,000) (2,034,000)
Repayments of loans by stockholders 5,383,000 341,000
----------- ----------- ----------- -----------
Net cash used in investing activities (15,000) (5,967,000) (1,192,000) (1,893,000)
----------- ----------- ----------- -----------
FINANCING ACTIVITIES:
Principal payments of debt (46,000) (5,086,000) (4,022,000) (2,000,000)
Proceeds from issuance of long-term debt 10,000,000 13,325,000
Borrowings under line-of-credit agreements 12,450,000 17,275,000 11,750,000) 8,000,000
Repayments under line-of-credit agreements (6,000,000) (14,975,000) (19,250,000) (4,000,000)
Purchase of treasury stock - (1,701,000) (348,000) (2,693,000)
Proceeds from employee stock ownership plan 1,454,000
Proceeds from issuance of common stock - 101,000 380,000 811,000
Payments from consolidated subsidiaries 2,284,000 15,952,000 15,818,000 16,749,000
Dividends paid (2,113,000) (4,132,000) (3,694,000) (3,412,000)
----------- ----------- ----------- -----------
Net cash provided by financing activities 6,575,000 19,434,000 13,959,000 14,909,000
----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (2,132,000) (702,000) 292,000 2,734,000
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 2,979,000 3,681,000 3,389,000 655,000
----------- ----------- ----------- -----------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 847,000 $ 2,979,000 $ 3,681,000 $ 3,389,000
=========== =========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest paid $ 1,885,000 $ 3,673,000 $ 2,962,000 $ 2,861,000
=========== =========== =========== ===========
Income taxes paid - $ 3,168,000 $ 2,401,000 $ 2,052,000
=========== =========== =========== ===========
</TABLE>
S - 3
<PAGE> 35
JOHNSTON INDUSTRIES, INC. (PARENT COMPANY)
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
NOTES TO CONDENSED FINANCIAL STATEMENTS
Johnston Industries, Inc. and subsidiaries (the "Company") publish consolidated
financial statements that are its primary financial statements. Therefore,
these parent company condensed financial statements are not intended to be the
primary financial statements of the Company, and should be read in conjunction
with the consolidated financial statements and notes thereto of the Company.
S - 4
<PAGE> 36
JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT ADDITIONS
BEGINNING CHARGED TO OTHER BALANCE AT
DESCRIPTION OF YEAR OPERATIONS ACCOUNTS DEDUCTIONS END OF YEAR
<S> <C> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS
Six months ended December 30, 1995 $1,113,000 $ 791,000 $ 45,000(3) $ (177,000)(1) $ 1,772,000
========== ========= ========= ========== ============
Fiscal year ended June 30, 1995 $ 368,000 $ 89,000 $ 838,000(2) $ (182,000)(1) $ 1,113,000
========== ========= ========= ========== ============
Fiscal year ended June 30, 1994 $ 314,000 $ 151,000 $ (97,000)(1) $ 368,000
========== ========= ========= ========== ============
Fiscal year ended June 30, 1993 $ 667,000 $ 383,000 $ (736,000)(1) $ 314,000
========== ========= ========= ========== ============
</TABLE>
(1) Amounts written off, net of recoveries.
(2) Additional amount added during the year is from the consolidation of
Jupiter in January 1995 representing the balance at the date of
consolidation.
(3) Additional amount added during the year is from the purchase of the 50%
partnership interest from Tech Textiles Limited in September.
S - 5
<PAGE> 1
JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES
EXHIBIT 13(b) - QUARTERLY INFORMATION (UNAUDITED)
(In Thousands, Except Per Share Data)
The following summarizes the unaudited quarterly results of operations for the
six months ended December 30, 1995 and the years ended June 30, 1995 and 1994.
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------------------------------------------------------
TRANSITION PERIOD 1995 (1) Sept. 30 Dec. 30
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Sales $73,524 $76,499
Gross Margin 11,161 9,948
Net Loss (1,862) (4,328)
Loss Per Share (.18) (.41)
Weighted Average Shares Outstanding 10,565 10,565
Three Months Ended
-----------------------------------------------------------------------------
FISCAL YEAR 1995 Sept. 30 Dec. 31 March 31 June 30
-----------------------------------------------------------------------------
Net Sales $40,773 $44,197 $91,002 $87,355
Gross Margin 9,815 10,037 18,194 15,683
Net Income (3) 1,682 2,514 2,633 1,046
Earnings Per Share(3) .16 .24 .25 .10
Weighted Average Shares Outstanding 10,766 10,687 10,682 10,654
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
- -------------------------------------------------------------------------------
FISCAL YEAR 1994 Sept. 30 Dec. 31 March 31 June 30
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Sales $33,695 $38,295 $42,595 $43,319
Gross Margin 7,709 8,858 10,602 11,474
Net Income (3) 2,146 1,046 2,429 874
Earnings Per Share(2)(3) .20 .10 .22 .08
Weighted Average Shares Outstanding(2) 10,844 10,860 10,863 10,832
</TABLE>
- -------------------------------------------------------------------------------
(1) Effective September 1995, Johnston's year end closing date was changed to
the Saturday closest to December 31. Therefore, Johnston's transition
period 1995 ended on December 30, 1995.
(2) Restated to reflect the three-for-two stock split effective January 4,
1994.
(3) Restated to reflect the equity in earnings of Jupiter National, Inc. on
an operating company basis effective December 1994.
Note: See Notes 2, 4, 8 and 23 of the consolidated financial statements and
Management's Discussion and Analysis of Financial Condition and Results of
Operations for discussion of certain transactions impacting the three
months ended December 30, 1995.
<PAGE> 1
JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES
EXHIBIT 21 - LIST OF SUBSIDIARIES OF JOHNSTON INDUSTRIES, INC.
1. Southern Phenix Textiles, Inc.
State of Incorporation: Alabama
2. Opp and Micolas Mills, Inc.
State of Incorporation: Alabama
3. Johnston Industries Composite Reinforcements, Inc.
State of Incorporation: Alabama
4. Jupiter National, Inc.
State of Incorporation: Delaware
5. Wellington Sears Company
State of Incorporation: Alabama
6. Greater Washington Investments, Inc.
State of Incorporation: Delaware
7. Pay Telephone America, LTD.
State of Incorporation: Mississippi
<PAGE> 1
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
Johnston Industries, Inc.:
We consent to the incorporation by reference in Registration Statements No.
33-86414, No. 33-38359, No. 33-44669, No. 33-50100, and No. 33-73268 of
Johnston Industries, Inc. (the "Company") on Form S-8 of our report dated
March 28, 1996 appearing in the Transition Report on Form 10-K of the Company
for the period July 1, 1995 to December 30, 1995.
/s/ DELOITTE & TOUCHE LLP
- -------------------------
DELOITTE & TOUCHE LLP
Atlanta, Georgia
April 12, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JOHNSTON
INDUSTRIES, INC. AND SUBSIDIARIES FINANCIAL STATEMENTS AS OF DECEMBER 30, 1995
AND FOR THE SIX MONTHS THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-END> DEC-30-1995
<CASH> 4,912,000
<SECURITIES> 34,737,000
<RECEIVABLES> 42,326,000
<ALLOWANCES> 1,772,000
<INVENTORY> 53,112,000
<CURRENT-ASSETS> 143,283,000
<PP&E> 198,468,000
<DEPRECIATION> 86,461,000
<TOTAL-ASSETS> 263,549,000
<CURRENT-LIABILITIES> 48,395,000
<BONDS> 125,941,000
0
0
<COMMON> 1,243,000
<OTHER-SE> 53,936,000
<TOTAL-LIABILITY-AND-EQUITY> 263,549,000
<SALES> 150,023,000
<TOTAL-REVENUES> 150,023,000
<CGS> 128,914,000
<TOTAL-COSTS> 160,663,000
<OTHER-EXPENSES> 3,508,000
<LOSS-PROVISION> 791,000
<INTEREST-EXPENSE> 4,982,000
<INCOME-PRETAX> (14,832,000)
<INCOME-TAX> (6,346,000)
<INCOME-CONTINUING> (6,190,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,190,000)
<EPS-PRIMARY> (.59)
<EPS-DILUTED> 0
</TABLE>
