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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
[X] Annual Report for the period from January 3, 1999 to January 1, 2000
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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
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Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
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The aggregate market value of the Common Stock of the Registrant held by
non-affiliates of the Registrant on March 31, 1999 was $11,458,030. 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 was computed as 6,789,944 shares.
The number of shares outstanding of the Registrant's Common Stock as of March
31, 2000 was 10,712,872 shares.
DOCUMENTS INCORPORATED BY REFERENCE:
There are no documents incorporated by reference herein.
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PART I.
ITEM 1. BUSINESS
GENERAL
Johnston Industries, Inc. ("Johnston") is a consolidated entity which
includes its direct wholly owned operating subsidiary, Johnston Industries
Alabama, Inc. ("JI Alabama"), and its indirect wholly owned subsidiaries,
Johnston Industries Composite Reinforcements, Inc. ("JICR") and Greater
Washington Investments, Inc. ("GWI") (collectively, the "Company").
The Company is a leading designer, manufacturer and marketer of
finished and unfinished (greige) cotton, synthetic and blended fabrics used in a
broad range of industrial and consumer applications. The Company's products are
sold to a number of "niche" markets, including segments of the home furnishings,
hospitality, industrial, automotive and specialty markets. In addition, the
Company reprocesses and markets waste textile fiber and off-quality fabrics for
sale to a broad range of specialty markets. The Company also manufactures
fabrics used in engineered composite materials serving primarily the recreation
and construction markets.
Effective in January, 2000, the Company created JI Fabrics, a strategic
alignment of the Greige Fabrics Division and the Finished Fabrics Division. JI
Fabrics focuses the Company's woven fabric operations on leveraging its diverse
specialized capabilities for the benefit of customer demand for innovative
solutions with increasingly shorter development cycles.
Greige Fabrics Division. The Greige Fabrics Division manufactures
cotton, synthetic and poly-cotton (blended) unfinished (unbleached, undyed)
fabric. The Greige Fabrics product line includes upholstery backing manufactured
for the home furnishings market, decorative and print base unfinished goods
(upholstery, window treatment and bedding) for the home furnishings and
hospitality markets and fabric used in a variety of products manufactured for
such automotive and industrial applications as belts, hosing and abrasives.
Management believes this division's diversified product line and range of
markets to which it sells enable it to mitigate the effects of a long-term
decline in any single market.
Finished Fabrics Division. The Finished Fabrics Division is a
vertically integrated manufacturer of finished (dyed, treated or coated) fabrics
through the application of value-added dyeing and finishing processes to greige
fabrics manufactured by JI Fabrics. The vertically integrated nature of this
division offers the potential for significant cost savings, allowing the
spinning, weaving, dyeing, and finishing of fabric in one facility. The Finished
Fabrics product line includes finished upholstery fabrics manufactured for the
mid-priced home furnishings market, the contract seating (i.e., stadium and
theater) market and the outdoor decorative (lawn and patio furniture) upholstery
market, premium napery (table linen products) for the home and hospitality
markets, print cloth for the home and hospitality (top of the bed) markets and
coated industrial (filtration and bagging) markets and automotive (seating
components, speaker covers, and lining) products.
The balance of the Company's operations are conducted through the Fiber
Products Division and JICR as follows:
Fiber Products Division. The Fiber Products Division reprocesses and
markets waste textile fiber and off-quality fabrics converting millions of
pounds of waste, which might otherwise be sent to landfills, into raw materials
that can be recycled in the textile manufacturing process or used as a low cost
substitute in a wide range of consumer and industrial applications. The
applications include padding (used in a variety of applications from mattresses
to sound proofing in automobiles), clean and reprocessed fiber reintroduced into
the textile yarn manufacturing process, wiper cloth and reworked off-quality
textile products, such as towels and sheets.
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JI Composite Reinforcements. JICR produces a variety of non-crimp
multi-axial fabrics from fiberglass, carbon and aramid fibers, which are sold to
specialty markets. JICR's products are used in engineered composite materials to
replace traditional fiberglass and metal components when superior performance or
specific weight characteristics are required. JICR serves the recreation market
with materials used in skis, snowboards, hockey sticks, baseball bats and
sailing and power yachts and the construction markets with materials used in
utility and lighting poles, bridges, oil well platforms and infrastructure
rehabilitation projects, such as structural bridge column repair, utility pole
repair and pipe rehabilitation.
In order to maintain its leadership position in the evolving textile
industry and to continually improve customer service, the Company has invested,
from fiscal 1991 through fiscal 1999, approximately $136 million to upgrade,
modernize and expand plant operations and reduce production bottlenecks,
establishing state-of-the-art vertically integrated, flexible manufacturing
capabilities with low cost structures. The Company's Greige Fabrics operations
are highly flexible as many of its current fabrics may be produced at more than
one of its three manufacturing facilities. This division allocates such
production to its facilities based on the technological features of the
equipment needed, available capacity and to maximize throughput efficiency. In
addition to producing fabric in a greige state or a variety of finished states,
the Company can produce fabrics in a broad range of widths, including 125 inch
width jacquard fabric which the Company believes only one other manufacturer can
provide.
RECENT HISTORY AND DEVELOPMENTS
The Company was incorporated in 1987 as a successor to a New York
corporation of the same name formed in 1948. The Company's principal offices are
located at 105 Thirteenth Street, Columbus, Georgia 31901, telephone number
(706) 641-3140.
Prior to March 1996, the Company conducted its operations through its
wholly owned subsidiaries, Opp and Micolas Mills, Inc. ("Opp and Micolas"),
Southern Phenix Textiles, Inc. ("Southern Phenix"), JICR, and one majority owned
subsidiary Jupiter National, Inc. ("Jupiter"). Jupiter's operations included
wholly owned subsidiaries Wellington Sears Company ("Wellington") which it had
acquired in November 1992 plus GWI and other venture capital investments. Each
of the four business units operated with a great deal of autonomy. During this
time, Southern Phenix, and, to a lesser degree, Opp and Micolas, enjoyed
long-standing reputations as innovative textile manufacturers serving niche
markets.
In 1987, the Company acquired a 28.4% interest in Jupiter, a publicly
traded company engaged in venture capital investments. Over time, and as Jupiter
invested in textile operations, the Company gradually increased its ownership
until it reached 54.2% in January, 1995. On March, 1996, the Company acquired
the outstanding minority interest of Jupiter. Also, in March 1996, the Company
acquired the T.J. Beall Company ("TJ Beall), a specialized textile waste broker.
In connection with these acquisitions, the Company's organizational structure
was altered centralizing the sales and marketing functions for all units at the
corporate level and removing much of the control over operations from unit level
managers. However, the Company did not consolidate the basic administrative
functions, such as accounting and management information services of the
acquired operations.
Subsequently, the Company determined that the organizational changes
introduced upon the acquisition of Jupiter, together with the failure to take
appropriate measures to consolidate overlapping administrative functions,
contributed to disappointing operating performance from certain of the Company's
textile operations including TJ Beall. These factors, along with delays and
shortfalls in liquidating the venture capital portfolio of Jupiter, adversely
restricted the Company's liquidity and its ability to successfully capitalize on
the opportunities created by the acquisitions.
In order to reinvigorate entrepreneurial spirit and bottom line
accountability among the Company's employees, the Company realigned its
operations during 1997 (the "1997 Realignment"). The 1997 Realignment
strategically organized sales, marketing, production and administration by
product-
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oriented operating divisions while the Company's corporate headquarters focused
on strategies, vision, finance and capital allocations.
In September, 1997 and in conjunction with the 1997 Realignment, the
Company's management reached an agreement to sell the assets of TJ Beall to a
member of the Beall family. This divestiture eliminated an operation which had
been unprofitable during the Company's brief ownership and also eliminated large
cyclical cash requirements inherent in the gin mote business.
Textile markets have changed, requiring producers to furnish innovative
solutions at a faster pace in order to retain customers, while competition for
commodity fabrics, used strategically to absorb overhead by filling available
capacity, has intensified. In an effort to make the Company's diverse
manufacturing capabilities available to each customer, and recognizing that a
customer, which traditionally required textile products from within only a
narrow range of characteristics, today demands products with a growing array of
specialized features, the Company has arranged its woven fabric operations to
create JI Fabrics. In order to satisfy changing customer needs and fully utilize
the capacity made available by the shift away from domestically produced
commodity fabrics, JI Fabrics is attempting to change the way textile products
are brought to market. A highly engineered industrial fabric may be produced on
one loom while a home products fabric is produced on the next loom, standing
side by side. This new approach requires flexible manufacturing and recognition
that yesterday's fabric constructions will not meet tomorrow's needs.
Significant elements of the Company's overall strategy include:
- - Focus on Niche Markets. Identify opportunities for introduction of
innovative new products to stable niche markets, utilizing the
Company's unique and versatile manufacturing capabilities.
- - Leverage Customer Relationships. Forge new relationships and enhance
existing customer relationships through delivery of uncompromised value
encompassing service, quality, and product innovation.
- - Improved Operating Efficiencies. Since initiation of the 1997
Realignment, the Company has consolidated or sold unprofitable,
non-core operations and assets acquired in the Jupiter and TJ Beall
acquisitions. In addition, management has decreased the Company's
number of business units and reduced divisional general and
administrative staffs and centralized certain strategic support
functions such as management information services.
- - Management Information Systems. During 1998 and 1999, the Company
installed an integrated procurement, inventory, manufacturing
management and customer order system at both the Finished Fabrics and
the Fiber Products Divisions and has re-engineered many of the
associated business processes around this system. Management believes
these projects have significantly expanded the information available to
decision makers and have streamlined many computer processes. The
Company is presently implementing advanced business intelligence tools,
which management believes will further enhance decision analysis tools.
- - Product Line Management. Management has focused considerable attention
and resources on improving product line profitability and identifying
opportunities to strengthen its market position in its key niche
markets. These efforts have resulted in several new strategic marketing
initiatives.
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CUSTOMERS AND BACKLOG
The Company sells its products to approximately 3,500 customers with
net sales to the single largest customer accounting for 4%, 5%, and 6% of total
sales for the fiscal years ended January 1, 2000, January 2, 1999 and January 3,
1998, respectively.
The Company traditionally manufactures approximately 75% of its
production against firm orders with finishing, packaging and other
specifications generally determined by its customers. At January 1, 2000, the
Company's backlog of orders was approximately $47.9 million compared to $49.4
million at January 2, 1999 and $69.4 million at January 3, 1998. The reduced
order backlog at January 1, 2000 reflects the impact of deflated fiber prices,
which have dropped during 1999. Historically, the Company's backlog of orders is
completed and realized as sales in approximately 2 1/2 months.
For the year ended January 1, 2000, the Company's production facilities
operated at approximately 63% of normal aggregate capacity. Management believes
the Company's production capability is sufficient to accommodate existing and
new production orders.
PRODUCTS
The Company's Finished Fabrics and Greige Fabrics Divisions provide
products for the home and hospitality, automotive and industrial segments of the
textile industry, as well as a variety of miscellaneous products. The home,
hospitality and industrial products manufactured by the Finished Fabrics and
Greige Fabrics Divisions include a variety of woven and non-woven fabrics,
including some proprietary applications. Such products include all cotton
fabrics, cotton/polyester blended fabrics, all polyester fabrics and other
products manufactured from blends and various synthetic and natural fibers. The
finished fabrics manufactured for these market segments include woven and
printed upholstery fabrics for indoor and outdoor use, ticking and filler cloth
for mattresses, finished premium napery (table linens) and coated, rubber goods,
filtration, scrim, bagging and footwear fabrics. The Greige Fabrics Division
manufactures upholstery backing, top of the bed fabrics, decorative and print
base unfinished goods, window and napery unfinished goods and, for the
industrial segment, abrasives, filtration media, wipecloth and certain footwear
fabrics.
The Company's Fiber Products Division markets a variety of waste
textile fiber and fabric reclamation products comprised of, for example, padding
used in a variety of applications, cleaned and reprocessed fiber and off-quality
towels and sheets (sold primarily in Africa). Cleaned and reprocessed fibers
provide a cost advantage for use in certain products and can be sold as raw
fiber or in a variety of manufactured states from yarn through woven and bonded
non-woven fabrics.
JICR manufactures fabrics, which are sold in specialty markets and used
in engineered composite materials, consisting of a variety of non-crimp
multi-axial fabrics manufactured from fiberglass, carbon and aramid fibers.
Composite reinforcement fabrics produced by the Company include its proprietary
Vectorply(R) fabrics. The Company's composite reinforcement 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, baseball bats and hockey sticks.
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For the year ended January 1, 2000, approximately 78% of the Company's
fabric was manufactured for the home furnishings and automotive/industrial
segments of the textile market; the balance was for the basic apparel, including
commercial uniform manufacturers (ducks, twills and bull denims), and specialty
markets, which in 1999 primarily involved sales of yarn, recycled textile fibers
and composite reinforcement fabrics. The following table sets forth the
percentage of sales by product type:
<TABLE>
<CAPTION>
JANUARY 1, JANUARY 2, JANUARY 3,
2000 1999 1998
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<S> <C> <C> <C>
Automotive & Industrial 27% 26% 28%
Home Furnishings 51% 55% 49%
Apparel 5% 2% 4%
Specialty Markets & Miscellaneous 17% 17% 19%
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100% 100% 100%
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</TABLE>
Outside of the United States, the Company principally markets its
products in Europe, Canada, and Mexico primarily through its direct sales force.
For the year ended January 1, 2000, the international direct sales volume
constituted approximately 6% of sales.
MANUFACTURING
Since its establishment in 1948, the Company has positioned itself as a
leader in the textile industry as evidenced by numerous awards it has received.
The Company has been selected "Supplier of the Year" or preferred supplier by
various customers on numerous occasions over the years and received America's
Textile International's first annual Award for Innovation in 1996.
In order to improve customer service and maintain its leadership
position in the constantly evolving textile industry, the Company has maintained
an aggressive capital improvement program across all of its units for the past
few years. For fiscal 1991 through 1999, the Company invested approximately $136
million to upgrade and modernize plant operations and to reduce bottlenecks,
establishing state-of-the-art, vertically integrated, flexible manufacturing
capabilities with low cost structures. Capital expenditures for the year ended
January 1, 2000 were $6.1 million compared to $9.1 million at January 2, 1999
and $10.4 million for the year ended January 3, 1998. The Company's extensive
capital expenditure program over this period has resulted in the conversion of
substantially all of its mills to open-end or air jet spinning and shuttleless
weaving. Future capital expenditures will be driven by market opportunities
evaluated against the cost of funds.
The Company spins the majority of its yarn needs using open-end
automatic rotor spinning machines, 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 that 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.
Additionally, the Company manufactures non-woven (stitchbond, chima, and weft
insertion warp knitted) fabrics using a variety of specialized machines. As of
January 1, 2000, the Company's mills have an annual capacity of approximately
201 million linear yards of woven fabric (approximately 110 million pounds), 6
million pounds of non-woven (stitchbond, chima and weft insertion warp knitted)
fabric, approximately 146 million linear yards of value-added finishing,
approximately 1 million pounds of sales yarn, approximately 12 million pounds of
non-woven fabric and composite reinforcements fabrics manufactured from man-made
synthetic fibers, approximately 67 million pounds of waste textile fiber and
fabric reclamation, and approximately 53 million pounds of bonded non-woven
fabric (manufactured through reclamation of textile waste products).
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The Company's mix of a variety of types of equipment, each with
distinct capabilities, permits it to produce many products in either a "greige"
state (i.e., unbleached and undyed as taken from the loom), a "finished" or
converted state (e.g., dyed, treated and/or coated) or both. 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 and, in some instances, are finished internally on a contract basis by
the Finished Fabrics Division.
DISTRIBUTION AND MARKETING
The Company's marketing activities, which are organized by operating
division and by product, utilize in-house sales personnel, commissioned sales
agents and independent brokers. In the aggregate, the Company employs a 43
person in-house sales force and utilizes approximately 29 commissioned sales
agents and brokers. For the year ended January 1, 2000, approximately 78% of
revenues were generated by in-house sales personnel, with 22% 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, certain of the Company's upholstery fabrics, and a
significant portion of composite reinforcement fabrics are sold through
commissioned sales agents.
In addition to its various employed and independent sales people,
approximately 21 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 of numerous companies, a limited
number of which 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. Although
market shares vary substantially from product to product within a group, the
Company believes that there are several competitors with greater sales than it
in each product group. 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. Competitive factors include product quality, service, design and
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, in general, the Company is not
materially directly affected by foreign competition; from time to time, there is
an indirect effect. Recently, certain of the Company's outdoor furniture and
home furnishings products have experienced competition from imports. While such
direct foreign competition arose only recently, management believes that such
competition may not be permanent for non-commodity fabrics and that the Company
has sufficient competitive advantages to regain market share over the long term.
Periodically, when total domestic textile sales volume is reduced as a result of
increased 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
lower margin commodity fabrics which may be produced by a number of the
Company's competitors.
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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 sources. The
Company purchases cotton through approximately ten established merchants with
whom it has long standing relationships. The majority of the Company's purchases
are executed using "on-call" contracts. These on-call arrangements are used to
insure that an adequate supply of cotton is available for the Company's
requirements. Under on-call contracts, the Company agrees to purchase specific
quantities for delivery on specific dates, with pricing to be determined at a
later time. Prices are set according to prevailing prices, as reported by the
New York Cotton Exchange, at the time of the Company's election to fix specific
contracts. 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 principal suppliers, management does not expect any significant
difficulty in obtaining fibers from one or more other suppliers.
EMPLOYEES
As of February 28, 2000, the Company had approximately 2,600 full-time
employees, none of whom are covered by collective bargaining agreements. The
Company believes its relations with its employees are good.
INVESTMENT ACTIVITIES
The investment activities of the Company were acquired in connection
with its acquisition of Jupiter on March 28, 1996 and are principally conducted
through Johnston's indirect wholly-owned subsidiary, GWI. The Company's plan is
to effect the divestiture of its non-textile industry investments. Since the
March 28, 1996 acquisition, twelve investments have been sold with five
remaining as of January 1, 2000. These remaining investments include debt
securities with maturities ranging from 2000 to 2004, equity securities, and one
real estate investment. No additional funding or investment of any significant
amount is contemplated while such investments are held for sale. Because of the
speculative nature of GWI's investments, and the lack of any ready market for
most of its investments when purchased, there is minimal liquidity and a
significantly greater risk of loss on each investment than is the case with
traditional investment companies. At January 1, 2000, the carrying value of the
remaining five investments totaled $3.9 million, which were recorded as assets
held for sale on the balance sheet.
THIS REPORT CONTAINS CERTAIN "FORWARD LOOKING STATEMENTS." THESE
STATEMENTS ARE AN ATTEMPT TO PREDICT FUTURE OCCURRENCES AND ARE INTENDED TO BE
COVERED BY THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995. FORWARD LOOKING STATEMENTS ARE IDENTIFIED BY WORDS SUCH AS
"BELIEVES," "EXPECTS," "ANTICIPATES" AND SIMILAR EXPRESSIONS.
RISK FACTORS AND INVESTMENT CONSIDERATIONS
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 2000, and beyond, to differ
materially from those expressed in any forward-looking statements made by, or on
behalf of, the Company:
The Company believes it has benefited and continues to benefit
substantially from the skills, experience and efforts of its senior
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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. For Biographies of Directors and Executive Officers, see Item 10.
Directors and Executive Officers below.
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 2000, 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, 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; under-utilization 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;
Continued or increased dumping of low priced textile products into
the US markets by predatory foreign producers;
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 and the possibility of a decline in domestic
demand as a result of any of the foregoing;
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 potential adverse effect of significant upward fluctuation of
raw material costs as specifically experienced in 1995 and 1996 plus
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 of 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;
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Unexpected losses in connection with the disposition of
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 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, the ability of participants of the employee
stock purchase plan to satisfy obligations under the plan guaranteed by the
Company, 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 any future 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.
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ITEM 2. PROPERTIES
Set forth below is a listing of facilities owned and leased by the
Company for each division describing the principal use and approximate size, in
square feet, of each facility.
<TABLE>
<CAPTION>
FACILITY LOCATION PRINCIPAL USE FLOOR OWNED/
SPACE IN LEASED
SQ FT
- -------------------------------- -------------------------- -------------------- ------------ -------
<S> <C> <C> <C> <C>
Johnston Industries, Inc.
Executive Offices Columbus, Georgia Admin. Offices 20,000 Owned
NY Sales Office New York, New York Sales/Marketing 10,000 Leased
Greige Fabrics Division
Opp Plant Opp, Alabama Manufacturing/ 339,000 Owned
Warehousing
Micolas Plant Opp, Alabama Manufacturing/ 430,000 Owned
Warehousing
Columbus Plant Columbus, Georgia Manufacturing/ 572,000 Owned
Warehousing
Warehouse Opp, Alabama Warehousing 65,000 Leased
Finished Fabrics Division
Marketing & Sales Ctr. Valley, Alabama Sales/Marketing 23,000 Owned
Southern Phenix Plant Phenix City, Alabama Manufacturing/ 629,000 Owned
Warehousing
Stitchbond Plant Phenix City, Alabama Manufacturing 76,000 Owned
Shawmut Plant Valley, Alabama Manufacturing/ 493,000 Owned
Warehousing
Textest Valley, Alabama UL Testing Lab 5,000 Owned
State Docks Warehouse Phenix City, Alabama Warehousing 83,000 Leased
Fiber Products Division
Utilization Plant Valley, Alabama Manufacturing 175,000 Owned
Lantuck Plant Lanett, Alabama Manufacturing 42,000 Leased
Langdale Plant Valley, Alabama Warehousing/ 441,000 Owned
Light Mfg.
DeWitt Plant DeWitt, Iowa Manufacturing 115,000 Owned
JICR
Stitchbond Plant (1) Phenix City, Alabama Manufacturing
Warehouse Phenix City, Alabama Warehousing 29,000 Leased
</TABLE>
(1) JICR leases approximately 29,000 of the 76,000 square foot Stitchbond
Plant which is shared with the Finished Fabrics Division.
12
<PAGE> 13
Set forth below is the manufacturing capacity of each operating
division by product line and the average percent of capacity operated for the
year ended January 1, 2000 for each division and the Company as a whole.
(Units Presented in Millions)
<TABLE>
<CAPTION>
PRODUCT GREIGE FINISHED FIBER JICR TOTAL
UNIT FABRICS FABRICS PRODUCTS
DIVISION DIVISION DIVISION
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Weaving Capacity
Linear Yards 144 57 201
Pounds 80 30 110
Sales Yarn Capacity
Pounds 1 1
Non-Woven Capacity
Pounds 6 53 12 71
Waste Textile and Fiber Reclamation
Pounds 67 67
Value Added Finishing Capacity
Linear Yards 146 146
Percent Capacity Utilization - 1999 73% 61% 71% 74% 67%
</TABLE>
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 and management of solid
wastes and hazardous substances. The Company believes that its facilities and
operations are in substantial compliance with all existing applicable laws and
regulations. The Company cannot, at this time, reasonably 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.
ITEM 3. LEGAL PROCEEDINGS
The Company is periodically involved in legal proceedings arising out
of the ordinary conduct of its business. Management does not expect that the
resolution of these proceedings will have a material adverse effect on the
Company's consolidated financial position, results of operations or liquidity.
During 1997, management became aware of certain industrial espionage activities
that targeted the Company and several other textile manufacturers, allegedly
carried out by agents of a large competitor. On October 8, 1998, the Company
filed suit in Alabama seeking recourse for damages and losses resulting from
these alleged activities. On March 10, 2000, the suit was dismissed for reasons
unrelated to the validity of the Company's allegations. The Company is presently
pursuing its options to have the suit reinstated or appeal the dismissal.
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 quarter ended January 1, 2000.
13
<PAGE> 14
PART II.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER 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.
<TABLE>
<CAPTION>
PRICE RANGE
-----------
HIGH LOW
---- ---
Quarter Ended:
<S> <C> <C>
January 1, 2000 $2 3/8 $1 9/16
October 2, 1999 2 1/2 1 5/8
July 3, 1999 2 9/16 1 1/2
April 3, 1999 3 5/16 2 1/8
January 2, 1999 $3 15/16 $2 15/16
October 3, 1998 4 9/16 3
July 4, 1998 5 3/4 4 5/8
April 4, 1998 6 1/16 4 3/8
</TABLE>
Holders of common stock are entitled to such dividends as may be
declared and paid out of funds legally available for payment of dividends. The
Company's amended 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: (a) 20% of total assets of the Company,
on a fully consolidated basis, as of the date of determination thereof; or (b)
$5 million 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 consolidated financial statements for such quarter. Regular
quarterly dividends were paid from September 28, 1990 to June 28, 1997. No
dividends have been paid since August, 1997. The Company does not expect to
resume the payment of dividends for the foreseeable future. The number of
shareholders of record at January 1, 2000 was approximately 700.
14
<PAGE> 15
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected consolidated financial data
for the years ended January 1, 2000, January 2, 1999, January 3, 1998 and
December 28, 1996, the six month period ended December 30, 1995 and for the
full fiscal year ended June 30, 1995. The statement of operations data for the
years ended January 1, 2000, January 2, 1999 and January 3, 1998 and the
balance sheet data as of January 1, 2000 and January 2, 1999 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.
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR YEAR YEAR
ENDED ENDED ENDED
JAN. 1, JAN. 2, JAN 3,
2000 (1) 1999 (1) 1998 (1)
-------- -------- --------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS:
Net sales $ 264,036 $ 283,724 $ 332,537
Income (loss) from continuing operations (8,008) (608) (8,622)
Income from discontinued operations -- -- 126
Extraordinary loss -- -- --
Net income (loss) (8,008) (608) (8,496)
Dividends on preferred stock -- -- (82)
Net income (loss) available to common stockholders $ (8,008) $ (608) $ (8,578)
Earnings (loss) per common share-basic:
Income (loss) from continuing operations $ (.75) $ (.06) $ (.82)
Income from discontinued operations .-- .-- .01
Extraordinary loss .-- .-- .--
Earnings (loss) per common share $ (.75) $ (.06) $ (.81)
Income (loss) from continuing operations
to sales % (3.03)% (.21)% (2.59)%
Net income (loss) to sales % (3.03)% (.21)% (2.55)%
Net income (loss) available to common stockholders
to sales % (3.03)% (.21)% (2.58)%
BALANCE SHEET DATA:
Total assets $ 193,966 $ 219,539 $ 234,788
Long-term debt - less current maturities 2,429 51,109 61,688
Stockholders' equity 40,251 48,274 49,124
OTHER DATA:
Equity per share $ 3.76 $ 4.50 $ 4.57
Dividends per common share .-- .-- .20
Depreciation and amortization 18,691 19,895 21,370
Capital expenditures 6,083 9,136 10,363
Return on beginning assets (3.65)% (.26)% (3.13)%
Return on beginning equity (16.59)% (1.24)% (14.35)%
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR SIX MONTHS YEAR
ENDED ENDED ENDED
DEC. 28, DEC. 30, JUNE 30,
1996 (1) 1995 (1)(2) 1995 (1)(3)
-------- ----------- -----------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS:
Net sales $ 321,883 $ 148,773 $ 262,279
Income (loss) from continuing operations (2,183) (6,348) 6,889
Income from discontinued operations 5,582 158 986
Extraordinary loss (527) -- --
Net income (loss) 2,872 (6,190) 7,875
Dividends on preferred stock (125) -- --
Net income (loss) available to common stockholders $ 2,747 $ (6,190) $ 7,875
Earnings (loss) per common share-basic:
Income (loss) from continuing operations $ (.22) $ (.60) $.65
Income from discontinued operations .53 .01 .09
Extraordinary loss (.05) .-- .--
Earnings (loss) per common share $ .26 $ (.59) $.74
Income (loss) from continuing operations
to sales % (.68)% (4.27)% 2.63%
Net income (loss) to sales % .89% (4.16)% 3.00%
Net income (loss) available to common stockholders
to sales % .85% (4.16)% 3.00%
BALANCE SHEET DATA:
Total assets $ 269,264 $ 240,539 $ 232,402
Long-term debt - less current maturities 144,191 110,755 83,560
Stockholders' equity 59,192 55,179 63,427
OTHER DATA:
Equity per share $ 5.53 $ 5.22 $ 5.93
Dividends per common share .40 .20 .39
Depreciation and amortization 19,715 8,874 13,766
Capital expenditures 20,527 17,781 21,448
Return on beginning assets 1.19% (2.66)% 5.62%
Return on beginning equity 5.20% (.96)% 13.17%
</TABLE>
- -------------------------------------------------------------------------------
(1) Earnings per common share-diluted are not presented as they are either
antidilutive in periods for which a loss is presented or the
difference is immaterial.
15
<PAGE> 16
(2) Effective September 1995, the Company's year end closing date was
changed to the Saturday closest to December 31. Therefore, the
Company's transition period 1995 ended on December 30, 1995.
(3) The operations of Jupiter, a majority-owned subsidiary, have been
included in the consolidated financial statements from January 1, 1995
forward. On March 28, 1996 Jupiter became a wholly owned subsidiary of
the Company.
Note: See Notes 2, 3, and 4 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 years ended
January 1, 2000, January 2, 1999 and January 3, 1998.
16
<PAGE> 17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
The operations of Johnston Industries, Inc. ("Johnston") include its
direct wholly owned operating subsidiary, Johnston Industries Alabama, Inc.
("JI Alabama"), and its indirect wholly owned subsidiaries, Johnston Industries
Composite Reinforcements, Inc. ("JICR"), and Greater Washington Investments,
Inc. ("GWI") (collectively, the "Company").
Prior to the acquisition of Jupiter in March 1996, the Company's GWI
subsidiary had been a "small business development company" under the Small
Business Investment Act of 1958 ("1958 Act"). In April, 1997, in consideration
of the Company's exit of venture capital investment activities, the Board of
Directors of GWI voted to return the SBIC license held by GWI to the Small
Business Administration. At January 1, 2000, the Company's total assets
attributable to the remaining portfolio investment activities were
approximately $3.9 million and all other assets, which are attributable to its
textile operations, were approximately $190 million.
During the second quarter of 1997, the Company's management embarked
on a restructuring (the "1997 Realignment") which further integrated the
operations of the former Wellington Sears Company ("Wellington"). The 1997
Realignment effectively eliminated the administrative infrastructure of
Wellington, which had been acquired through the March, 1996 acquisition of
Jupiter National, Inc. ("Jupiter") and resulted in a structure for JI Alabama
including three divisions which are the Greige Fabrics Division, the Finished
Fabrics Division, and the Fiber Products Division plus one operating
subsidiary, JICR.
In September, 1997 and in conjunction with the 1997 Realignment, the
Company's management reached an agreement to sell the assets of the T.J. Beall
Company ("TJ Beall") to a member of the Beall family. The sale of TJ Beall,
which had been acquired in March of 1996, was executed for consideration
including surrender of the series 1996 preferred stock, which had been used to
finance the acquisition, and issuance, by the buyer, of a promissory note in
the amount of $1.5 million payable in annual installments over 5 years. This
divestiture eliminated an operation which had been unprofitable during the
Company's brief ownership and also eliminated large cyclical cash requirements
inherent in the gin mote business.
Effective in January, 2000, the Company created JI Fabrics, a
strategic alignment of the Greige Fabrics Division and the Finished Fabrics
Division. JI Fabrics focuses the Company's woven fabric operations on
leveraging its diverse specialized capabilities for the benefit of customer
demand for innovative solutions with increasingly shorter development cycles.
RESULTS OF OPERATIONS
YEAR ENDED JANUARY 1, 2000 COMPARED WITH THE YEAR ENDED JANUARY 2, 1999
The year ended January 1, 2000 reflected continued general weakness in
markets for domestic textile producers despite the overall growth reported for
the United States economy. 1999 marked the closure of some domestic textile
manufacturers and weak performance by many others; a difficult year for the
domestic textile industry as a whole. The Company was first affected by the
current period of weak markets during the second quarter of 1998 when certain
indirect exports began to decline due to currency and financial instability in
Russia and Eastern Europe, followed by declining economic conditions in Asia,
and to a lesser degree, in South America, which led to an influx of low priced
imported textile goods. In response to these market conditions, the Company
developed several strategic marketing initiatives, which by the fourth quarter
of 1999, had begun to be reflected in the Company's sales and operating
margins.
17
<PAGE> 18
Net sales for the year ended January 1, 2000 were $264 million
compared to $283.7 million for the year ended January 2, 1999, declining by
$19.7 million or approximately 6.9%. Changes in net sales by major market were
as follows (in millions):
<TABLE>
<CAPTION>
Increase(Decrease)
------------------
<S> <C>
Automotive & Industrial $ (2.6)
Home Furnishings (19.5)
Apparel 5.2
Specialty Markets & Miscellaneous (2.8)
---------------
Total Change in Annual Net Sales $ (19.7)
===============
</TABLE>
- - Sales of automotive and industrial fabrics declined by 3.5% in 1999.
Declines in sales of automotive fabrics and several long standing
industrial fabrics were offset in part by increased sales of canvas, duck,
and footwear fabrics plus certain non-woven fabrics.
- - Sales of home furnishings fabrics in 1999 were approximately 12.6% less
than in 1998. These reduced sales include continued declines from 1998 in
outdoor furniture fabrics of $4.4 million and further declines in certain
substrate fabrics of $7.8 million. Outdoor furniture activity reflects a
fundamental shift in the market initiated by the introduction of low cost
Asian imports in 1998. Substrate fabrics, which began to decline following
economic and currency difficulties in Eastern Europe early in 1998,
remained weak through the first three quarters of 1999. Residential
upholstery and greige decorative fabrics declined by $6 million and $5.7
million, respectively, reflecting the Company's poor market position and
changes in market conditions. Sales of napery fabrics, however, continued
to grow in 1999, increasing by $4.9 million.
- - Sales of apparel fabrics increased by 77.1% over 1998. The Greige Fabrics
Division resorted to these low margin sales in order to fill unprecedented
available capacity. Sales of these fabrics, which had began to increase
during the first quarter of 1999, remained strong through the second and
third quarters, but began to return to more normal levels during the
fourth quarter as demand for more profitable products began to strengthen.
- - Sales to specialty markets plus sales of miscellaneous fabrics declined by
5.7%. The deflationary trend for market prices of virgin fibers in 1999
caused diminished advantage for purchasers of clean reprocessed fiber from
the Fiber Products Division. The Fiber Products Division also lost sales
following a fire at the DeWitt Plant, where production was curtailed for
approximately one month. Overall sales of recycled waste products declined
by $2.5 million. Sales of yarn by the Greige Fabrics Division were
significantly reduced as a result of plentiful supply in yarn markets
coupled with depressed prices for spun yarns. Continued growth in sales of
composite reinforcement fabrics by JICR partially offset declines in sales
of other specialty and miscellaneous products.
The Company's backlog of customer orders was $47.9 million at January
1, 2000 compared to $49.4 million at January 2, 1999. The reduced order backlog
at January 1, 2000 reflects the impact of deflated fiber prices, which have
dropped during 1999. While no assurances can be given, management believes that
the results of several strategic marketing initiatives in 1999 will begin to be
reflected in the Company's order backlog during the first half of 2000.
Gross margin declined from 13.6% for 1998 to 10.6% for 1999. This
decline reflects reduced contribution margin associated with reduced sales and
relatively constant fixed costs. Declining margins were further impacted by a
reduction in the favorable impact of LIFO income of $854 thousand for 1999
compared to $2.6 million for 1998. The LIFO income, which was recorded in the
fourth quarter of 1999, is a result of deflated raw material prices coupled
with reduced inventories.
Selling, general and administrative expenses for 1999 increased by
$154 thousand over 1998. This change includes increased provision for bad
debts, severance costs for certain eliminated positions plus overlapping costs
for personnel during transitional preparation for retirement of certain key
members of management. These increased costs are partially offset by cost
containment initiatives and, to a lesser degree, decreased commissions on sales
of certain upholstery fabrics.
18
<PAGE> 19
Interest expense was reduced by $1.4 million to $12 million in 1999
from $13.4 million in 1998. Changes in interest expense reflect the effects of
both reduced average borrowings and increased average rates. These increased
average rates include the effect of the April 1, 1999 amendments to the
Company's bank credit agreement, as discussed below, plus changes in prime
rates in response to several increases in federal funds rates by the Federal
Reserve Bank. The three months ended January 1, 2000 marks the ninth
consecutive quarter of debt reduction. Obligations under the Bank Credit
Agreement at January 1, 2000 of $110 million were $16.4 million less than
obligations of $126.4 million at January 2, 1999.
Other-net increased by $2.2 million over 1998. The Company recently
became aware of inappropriate transfers of stock acquired under the Employee
Stock Purchase plan by certain former participants. In recognition of the
Company's guarantee of these loans, and the inherent uncertainty of recovery
from participants involved, the Company recorded a loss of approximately $2.1
million as other-net in the 1999 consolidated statement of operations and
recorded the contingent liability as long-term debt in the January 1, 2000
Consolidated Balance Sheet. (See Note 14 of the consolidated financial
statements for an expanded discussion of the employee stock purchase plan.)
YEAR ENDED JANUARY 2, 1999 COMPARED WITH THE YEAR ENDED JANUARY 3, 1998
The results of operations for the year ended January 2, 1999 reflects
improvement following on the 1997 Realignment. The third and fourth quarters of
1998 marked the first profitable quarters for the Company since the first
quarter of 1997. The full impact of the 1998 improvements, however, was
mitigated in part by several factors including general weakness in domestic
textile markets resulting from economic conditions in Asia and to a lesser
degree, in South America, weakness in indirect exports due to currency and
financial instability in Russia and Eastern Europe, the residual effects of
relocating production of certain upholstery fabrics from the closed Langdale
facility to other of the Company's facilities, and disruption of operations due
to a tornado which struck Greige Fabric's Opp Mill in April 1998.
Net sales for the year ended January 2, 1999 were $283.7 million
compared to $332.5 million for the year ended January 3, 1998, declining by
$48.8 million or approximately 14.7%. Changes in net sales by major market were
as follows (in millions):
<TABLE>
<CAPTION>
Increase(Decrease)
------------------
<S> <C>
Automotive $ 1.7
Industrial (7.5)
Home Furnishings (20.1)
Apparel (5.5)
Specialty Markets (15.9)
Miscellaneous (1.5)
---------------
Total Change in Annual Net Sales $ (48.8)
===============
</TABLE>
- - Sales of automotive fabrics, which grew by 17.9% in 1998, reflect an
increase for a long-standing product of the Company, which has been on the
decline for several years. Additionally, 1998 included increased sales of
a relatively new seat support fabric.
- - During 1998, sales of industrial fabrics declined by 10.7%. Demand for
fabrics sold to rubber products customers fell by approximately $3 million
as two of the Company's customers lost sales volume to their competitors
and another rubber products customer experienced a labor strike. Sales of
fabrics for abrasives customers declined by $2 million, largely the result
of one customer's planned shut down to convert and upgrade their
production line. Sales to other industrial customers including footwear,
filtration, and coated fabrics also declined as the latter half of 1998
reflected softness in demand.
- - Sales of home furnishings fabrics fell by 11.5% in 1998 reflecting an
approximate $17 million decline in sales of certain substrate fabrics
which were sold by the Company's customers into Russia and Eastern Europe
where currency and economic difficulties prevailed. The Company's
discontinuance of certain unprofitable fabrics for window products caused
reduced sales of $4.6 million. During 1998, several customers for outdoor
furniture fabrics began purchasing low cost Asian imports which reduced
sales of
19
<PAGE> 20
such fabrics by $3.8 million. These declines were offset in part by growth
in sales of napery fabrics and increased sales for certain residential
upholstery fabrics.
- - During 1997, the Greige Fabrics Division capitalized on certain short-term
opportunities to sell apparel fabrics at attractive margins. These
opportunities concluded in early 1998 resulting in reduced sales of
apparel fabrics of $5.5 million.
- - Sales to specialty markets declined by 25% reflecting elimination of
unprofitable operations and products associated with the 1997 Realignment.
TJ Beall recorded sales of $13.9 million prior to its sale in September
1997 and the Fiber Products Division recorded revenues of $5.7 million for
sales yarn prior to closure of the Langdale facility late in 1997. These
revenue declines were partially mitigated by growth of $1.6 million in
other areas of the Fiber Products Division's business plus 33% growth in
sales for JICR.
- - Sales of miscellaneous fabrics were reduced by 63.7% as the Finished
Fabrics Division discontinued several unprofitable products which were
characterized by short runs and low margins. Miscellaneous fabrics now
account for less than 1% of the Company's total revenues.
The Company's backlog of customer orders was $49.4 million at January
2, 1999 compared to $69.4 million at January 3, 1998. The reduced order backlog
at January 2, 1999 includes the impact of currency and economic difficulties in
Eastern Europe, Asia and South America as well as the resulting reduction in
domestic demand. The 1998 year end order backlog for outdoor furniture fabrics
was much lighter compared to prior years as certain customers switched to low
cost Asian imports. Demand has slowed significantly for the Company's
upholstery substrate fabrics which were sold by its customers to eastern
European markets.
Gross margin improved to 13.6% for 1998 from 11.2% for 1997. This 2.4%
increase reflects the impact of LIFO income of $2.6 million, the majority of
which was recorded in the fourth quarter of 1998. The increase in gross margin
also includes the elimination of unprofitable operations and products beginning
mid-year in 1997, increased manufacturing efficiencies during 1998, and
reduction in raw material prices. These improvements in gross margin were
somewhat offset by lower capacity utilization in the second half of 1998
resulting from decreased market demand. The 1997 Realignment included closure
of the Langdale facility, elimination of certain unprofitable product lines,
and relocation of selected manufacturing equipment and products to the Southern
Phenix Facility and to the Micolas Facility. During the first quarter of 1998,
the Finished Fabrics Division incurred the negative impact of costs for
administering the phase out of the discontinued products plus inefficiencies
associated with absorption of the relocated production. The second, third and
fourth quarters of 1998 reflect continued improvement following the
transitional activities which were substantially completed during the first
quarter of 1998. Contributing in part to the improvement in margins was the
reclassification of $817 thousand in costs for corporate human resources
functions, which were included in costs of sales for 1997, but have been
included in general and administrative costs for 1998.
Selling, general and administrative expenses for 1998 decreased by
$898 thousand compared to 1997. Beginning in April 1997 and continuing through
April 1998, the Company incurred professional fees associated with the 1997
Realignment. This net improvement is principally due to reduced expenses for
professional services in 1998 coupled with administrative savings realized upon
integration of Wellington Sears into the Greige and Finished Fabrics Divisions
as part of the 1997 Realignment, but also includes additional costs for human
resources functions as described above.
Restructuring and impairment charges resulting from the 1997
Realignment were substantially completed in 1997. An additional $168 thousand
was recorded in 1998 for severance costs associated with positions which were
not scheduled for termination until early 1998, but was offset by a favorable
adjustment of $75 thousand to the impairment reserve for Jupiter's former
office building, which was sold in February of 1998.
Interest expense was reduced by $586 thousand to $13.4 million in 1998
from $14 million in 1997. Changes in interest expense include both reduced
average borrowings and increased average rates associated with the March 30,
1998 amendment to the bank credit agreement, as discussed below. Obligations
under the Company's bank credit agreement were reduced by $10.6 million from
$137 million at January 3, 1998 to
20
<PAGE> 21
$126.4 million at January 2, 1999. Additionally, the $550 thousand mortgage
associated with Jupiter's former office in Rockville, Maryland, was discharged
upon its sale in February 1998.
YEAR 2000
As previously reported, the Company developed and implemented a plan
to address the anticipated impact of the so-called Year 2000 ("Year 2000")
problem on the Company's information systems, computer platforms, and other
equipment and systems involving imbedded chip technologies. The Company also
assessed third parties with which it has material relationships ("Key Business
Partners") to determine their status of Year 2000 preparedness. Additionally,
the Company developed contingency plans in the event that the Company or one of
its Key Business Partners experienced disruption of critical business
activities as a result of the Year 2000 problem.
The Company's Year 2000 plan was completed in all material respects
prior to the anticipated Year 2000 failure dates. As of March 30, 2000, the
Company has not experienced any system failures or material disruption to
critical business activities, nor is it aware of any its Key Business Partners
who have experienced material Year 2000 disruptions or failures. Year 2000
validation, however, has many elements and potential consequences, some of
which may not be foreseeable or realized until future periods. Consequentially,
no assurances can be given that unforeseen failures might not be identified in
the future, or that the Company may not identify information systems, computers
or other equipment which may not be Year 2000 compliant.
While most of the Company's legacy systems had been replaced or
identified for replacement through out the last decade without consideration
for Year 2000, the cost of addressing the Year 2000 issues was absorbed in the
normal budget for improvement in management information systems and by normal
costs for administrative and technical employees. Management believes that the
cost of Year 2000 modifications has not had a material effect on its business,
operations or financial condition.
EFFECTS OF INFLATION
Management does not believe that inflation has had a material impact
on the results of operations for the periods presented. Raw material prices,
which had escalated sharply between 1995 and 1996, returned to traditional
levels during 1997 and have exhibited deflationary trends during 1998 and 1999.
Raw material pricing is generally known, within ranges, by many of the
Company's customers. Absent sudden or dramatic price swings and competitive
conditions permitting, management believes that, while no assurances can be
given, commodity price inflation can generally be offset through increased
selling prices within one inventory cycle.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary needs for capital resources have been funded by
(a) borrowings under its bank credit agreement, which was entered into on March
28, 1996 (the "Bank Credit Agreement") and thereafter amended several times to
modify certain covenants, the latest amendment of which was executed on April
1, 1999, (b) a $10 million leasing program with Boeing Capital, which was
entered into on September 28, 1998, and (c) a $7 million leasing program with
General Electric Capital Corporation, which was entered into on August 10,
1999. Borrowings under the Bank Credit Agreement were used to finance the
purchase of the outstanding public shares of Jupiter (as discussed above), to
refinance certain indebtedness, and to pay related fees and expenses related to
the foregoing, and available borrowings have been and will be used as needed to
finance working capital and capital expenditures. The leasing programs have
been utilized to facilitate installation of certain new manufacturing equipment
without drawing on available borrowings under the Bank Credit Agreement.
21
<PAGE> 22
The Bank Credit Agreement is comprised of two term loan facilities and a
revolving credit facility. Term loan facility A ("Term Loan A") is a $40 million
facility with an amended maturity date of July 2000. The interest rates on these
borrowings range from 8.40% to 10.25% and from 8.20% to 10.25% for the years
ended January 1, 2000 and January 2, 1999, respectively, which is based on a
Base Rate, the prime commercial lending rate, plus 1.75% and is subject to
change at the Company's option to a rate based on the London Interbank Offered
Rate ("LIBOR") plus 3.50%. As of January 1, 2000 and January 2, 1999 the
borrowings outstanding under Term Loan A were $19.2 million and $27 million,
respectively.
Term loan facility B ("Term Loan B") is a $40 million facility with an
amended maturity date of July 2000. The interest rates on these borrowings
range from 8.95% to 11.25% and from 8.70% to 10.75% for the years ended January
1, 2000 and January 2, 1999, respectively, which is based on a Base Rate, as
defined, plus 2.75% and 2.25%, respectively, and is subject to change at the
Company's option to a rate based on LIBOR, plus 4.50% and 4.00%, respectively.
As of January 1, 2000 and January 2, 1999, the borrowings outstanding under Term
Loan B were $30.9 million and $32.4 million, respectively.
The revolving credit facility (the "Revolving Credit Facility")
provides up to $80 million in borrowing, with an amended maturity date of July
2000. Principal amounts outstanding are due and payable at final maturity. The
interest rate on these borrowings range from 8.00% to 10.00% and from 8.40% to
9.25% for the years ended January 1, 2000 and January 2, 1999, respectively,
which is based on a Base Rate, as defined, plus 1.50% and is subject to change
at the Company's option to a rate based on LIBOR plus 3.50% and 3.00%,
respectively. Commitment fees are payable quarterly at 1/2 of 1%, based on the
unused portion of the facility.
The Bank Credit Agreement has been amended several times to modify
certain covenants, the latest amendment of which was executed on April 1, 1999
(the "1999 Amendment"). In addition to covenant modifications, the 1999
Amendment also includes an increase in interest rates of 1/2% effective as of
April 4, 1999.
In addition to limited covenant modifications, which were effective
through January 2, 1999, and increased interest rates, a March 30, 1998
amendment (the "March 1998 Amendment") required the Company to adopt new cash
management procedures during the second quarter of 1998, which included
establishment of a lock-box with instruction for customers to remit payments
directly to the lock-box. Deposits into the lock-box are applied daily against
the Revolving Credit Facility, which, in general, management believes to have
enhanced the Company's availability under the Revolving Credit Facility.
Pursuant to the March 1998 Amendment, the Company agreed that a collateral
monitoring arrangement should be put into effect whereby the Company is
required, through an independent collateral monitoring agent, to report certain
financial data on a periodic basis to the lenders.
As of January 1, 2000, the Company was not in compliance with certain
of the covenants under the Bank Credit Agreement. Considering the maturity date
of the Bank Credit Agreement plus the pending tender offer and refinancing
discussed below at Subsequent Events, no waivers have been sought.
Substantially all assets are pledged as collateral for the borrowings
under the Bank Credit Agreement. The amended Bank Credit Agreement requires the
Company to maintain certain financial ratios and specified levels of tangible
net worth and places a limit on the Company's level of capital expenditures and
type of mergers or acquisitions. The amended 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: (a) 20% of total
assets of the Company, on a fully consolidated basis, as of the date of
determination thereof; or (b) $5 million 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. Accordingly, at January 1, 2000, the Company is not permitted to
declare and pay dividends.
22
<PAGE> 23
(See Note 10 of the consolidated financial statements for an expanded
discussion of financing agreements.)
The net cash provided by operating activities for the year ended
January 1, 2000 was approximately $21.7 million. The cash provided by operating
activities for the year ended January 1, 2000 reflects a net loss of
approximately $8 million, total adjustments for non-cash expenses, net, of
approximately $23 million and net cash provided by changes in the components
of working capital of $6.7 million.
Capital expenditures for the years ended January 1, 2000 and January
2, 1999 were $6.1 million and $9.1 million, respectively. Heightened review of
proposed capital expenditures has resulted in a decreased level of capital
investment during both 1999 and 1998 in response to the Company's scheduled
repayments of outstanding debt and in accordance with management's goal of
deleveraging the Company.
During 1999, the Company repaid principal on Term Loans A and B
totaling $9.4 million while reducing obligations under its revolving credit
facility by $7 million for a total decrease in obligations under the Bank
Credit Facility of $16.4 million. Dividends were paid through the second
quarter of 1997 when the Company suspended dividends, subject to re-evaluation
by the Board of Directors on a quarterly basis, in consideration of operating
results and constrained liquidity.
Cash provided by operating activities was used proportionately for
debt service and for a prudent level of capital spending. The results of
several strategic marketing initiatives plus continued emphasis on improved
operating efficiencies and product rationalization are expected to enhance
operating results. Management remains focused in these areas with the goal of
enhancing liquidity through improved operating results coupled with continued
efforts to reduce debt and debt service requirements.
As stated above, all borrowings under the Bank Credit Agreement mature
in July, 2000. The Company is currently seeking refinancing of this facility
and has received a commitment letter from a group of banks as discussed under
"Subsequent Events". Although expenditures must be monitored closely,
management believes that funds generated from operations and funds available
under the Bank Credit Agreement until maturity and funds available under the
proposed replacement facility will be sufficient to satisfy the Company's
liquidity requirements for at least the next year.
SUBSEQUENT EVENTS
On March 30, 2000, the Company entered into an agreement with CGW
Southeast Partners IV ("CGW") providing for a tender offer for up to all of the
Company's common stock at a cash price of $3.00 per share. At the time the
tender offer closes, the agreement provides that CGW will also invest
approximately $27.0 million in the Company as a purchase of common and preferred
stock. The cash tender offer will be launched on or about April 7, 2000. If CGW
acquires less than 90% of the outstanding voting stock of the Company, it has
agreed to use best efforts to maintain a public market for the Company's common
stock on a national securities exchange, a Nasdaq Stock Market or in
over-the-counter trading for a period of three years. The closing of the tender
offer and stock purchase are subject to receipt by CGW of at least a majority of
the Company's voting stock, including the direct purchase by CGW, as well as
customary regulatory approvals and certain other conditions.
In connection with signing the purchase agreement described above, the
Company received a commitment letter for the refinancing of its indebtedness
under the Bank Credit Agreement. Such refinancing will be consummated upon
closing of the tender offer and stock purchase. Consummation of the refinancing
is conditioned on, among other things, the negotiation and execution of
definitive loan documents, the absence of a material adverse change in the
Company and the closing of the tender offer and stock purchase by CGW.
There can be no assurance that the conditions to the closing of the
tender offer, stock purchase and refinancing will be met and that such
transactions will close in a timely manner or at all.
23
<PAGE> 24
OTHER MATTERS
The Company is periodically involved in legal proceedings arising out
of the ordinary conduct of its business. Management does not expect that the
resolution of these proceedings will have a material adverse effect on the
Company's consolidated financial position, results of operations or liquidity.
During 1997, management became aware of certain industrial espionage activities
that targeted the Company and several other textile manufacturers, allegedly
carried out by agents of a large competitor. On October 8, 1998, the Company
filed suit in Alabama seeking recourse for damages and losses resulting from
these alleged activities. On March 10, 2000, the suit was dismissed for reasons
unrelated to the validity of the Company's allegations. The Company is
presently pursuing its options to have the suit reinstated or appeal the
dismissal.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk in interest rates, foreign
currency exchange and changes in commodity prices. The Company utilizes
derivative financial instruments to reduce exposure to adverse fluctuation in
interest and foreign exchange rates.
Interest Rate Swaps - Exposure to interest rate risk relates to
variable rate obligations under the Company's Bank Credit Agreement. Interest
rate swap agreements are utilized to manage overall borrowing costs and reduce
exposure to adverse fluctuations in interest rates. An interest rate swap
agreement is currently in place under which the Company pays an average of
certain LIBOR based rates on $26.5 million notional principal. This agreement,
which was entered into on June 3, 1999 and expires on July 1, 2000, also
contains interest rate caps which further limit interest rate exposures. The
notional amounts of interest rate agreements are used to measure interest to be
paid or received and do not represent the amount of exposure to credit loss. Any
differences paid or received on interest rate swap agreements are recognized as
adjustments to interest expense over the lives of the agreements without the
exchange of the underlying notional amounts.
If interest rates related to the Company's LIBOR obligations increased
by 100 basis points over the rates in effect at January 1, 2000, interest
expense, after considering the effects of interest rate swap agreements, would
increase by approximately $835 thousand in 2000. These amounts were determined
by considering the impact of hypothetical interest rates on the Company's
borrowing cost and interest rate swap agreements. The analyses do not consider
the effects of the overall reduced debt levels anticipated in 2000. Further, in
the event of a change of such magnitude, management would likely take actions
to further mitigate its interest rate exposures.
The fair values of interest rate instruments are the estimated amounts
that the Company would receive or pay to terminate the agreements at the
reporting date, taking into account current interest rates and the current
creditworthiness of the counterparties. At January 1, 2000 and January 2, 1999,
the Company estimates it would have paid $77 thousand and $304 thousand,
respectively, to terminate the agreements in place at those times.
Forward Exchange Contracts - The Company maintains forward exchange
contracts in connection with certain non-binding sales commitments denominated
in foreign currencies. These instruments are recorded at fair value for balance
sheet purposes and are accounted for using the mark-to-market method of
accounting in which the unrealized gains or losses resulting from the impact of
price movements are recognized as net gains or losses in the consolidated
statements of operations.
The fair values of foreign exchange contracts are the estimated
amounts that the Company would receive or pay to terminate the agreements at
the reporting date, taking into account current exchange rates and the current
creditworthiness of the counterparties. At January 1, 2000, the Company
estimates that it would have paid $57 thousand to terminate the contracts.
24
<PAGE> 25
The counterparties to these interest rate swap agreements and forward
exchange contracts are major financial institutions with which the Company also
has other financial relationships. The Company is exposed to credit loss in the
event of nonperformance by these counterparties. However, the Company does not
anticipate nonperformance by the other parties, and no material loss would be
expected from nonperformance by any one of such counterparties.
Cotton Contracts - The Company purchases cotton through approximately
ten established merchants with whom it has long standing relationships. The
majority of the Company's purchases are executed using "on-call" contracts.
These on-call arrangements are used to insure that an adequate supply of cotton
is available for the Company's requirements. Under on-call contracts, the
Company agrees to purchase specific quantities for delivery on specific dates,
with pricing to be determined at a later time. Prices are set according to
prevailing prices, as reported by the New York Cotton Exchange, at the time of
the Company's election to fix specific contracts.
Cotton on-call with a fixed price at January 1, 2000 was valued at
approximately $9 million, and is scheduled for delivery early in 2000. At
January 1, 2000, the Company had unpriced contracts for deliveries between
April 1, 2000 and July 1, 2001. Based on the prevailing price at January 1,
2000, the value of these commitments is approximately $12.3 million for
deliveries between April and December of 2000 and approximately $11.1 million
for deliveries between January and July of 2001. As commodity price
fluctuations are generally short-term in nature, and have not historically had
a significant long-term impact on operating performance, financial instruments
are not used to hedge commodity price risk.
The Company does not utilize financial instruments for trading or
other speculative purposes.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's consolidated balance sheets as of January 1, 2000 and
January 2, 1999, the related consolidated statements of operations,
comprehensive operations, stockholders' equity and cash flows for the years
ended January 1, 2000, January 2, 1999 and January 3, 1998, notes thereto and
Independent Auditors' Reports are provided at Exhibit 13(a). Supplementary Data
under the caption "Quarterly Information" is provided in Exhibit 13(b).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
On May 27, 1998, (a) the Company determined not to renew the
engagement of Deloitte & Touche LLP ("Deloitte"), the Company's auditors, who
were previously engaged as the principal accountant to audit the consolidated
financial statements of the Company and (b) selected KPMG LLP ("KPMG") as the
Company's principal accountant and replacement for Deloitte. The Audit
Committee of the Company's Board of Directors recommended that Deloitte's
engagement not be renewed and that KPMG be engaged to replace Deloitte, and the
Board of Directors approved this recommendation effective May 27, 1998.
The reports of Deloitte on the consolidated financial statements of
the Company as of and for the fiscal years ended January 3, 1998 and December
28, 1996 contained no adverse opinion or disclaimer of opinion, nor were such
financial statements qualified or modified as to uncertainty, audit scope or
accounting principles.
During the Company's two most recent fiscal years and the subsequent
interim period preceding the replacement of Deloitte, there were no
disagreements with Deloitte on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure,
which disagreement(s), if not resolved to the satisfaction of Deloitte, would
have caused it to make a reference to the subject matter of the disagreement(s)
in connection with its report. Further, Deloitte did not advise the Company
during the Company's two most recent fiscal years or during the subsequent
interim period preceding the Company's decision not to extend Deloitte's
engagement:
25
<PAGE> 26
(a) that the internal controls necessary for the Company to develop reliable
financial statements did not exist;
(b) that information had come to its attention that had led it to no longer be
able to rely on management's representations, or that had made it
unwilling to be associated with the financial statements prepared by
management;
(c) of the need to expand significantly the scope of its audit, or that
information had come to its attention during the two most recent fiscal
years or any subsequent period that if further investigated might (i)
materially have impacted the fairness or reliability of either: a
previously issued audit report or the underlying financial statements, or
the financial statements issued or to be issued covering the fiscal
period(s) subsequent to the date of the most recent financial statements
covered by an audit report or (ii) have caused it to be unwilling to rely
on management's representations or be associated with the Company's
financial statements; or
(d) that information had come to its attention that it had concluded
materially impacts the fairness or reliability of either (i) a previously
issued audit report or the underlying financial statements, or (ii) the
financial statements issued or to be issued covering the fiscal period(s)
subsequent to the date of the most recent financial statements covered by
an audit report.
Deloitte was authorized by the Company to respond fully to inquiries
of KPMG.
During the two most recent fiscal years and during the interim period
prior to engaging KPMG, neither the Company nor anyone on its behalf consulted
KPMG regarding either: (a) the application of accounting principles to a
specified transaction, either completed or proposed; or the type of audit
opinion that might be rendered on the Company's financial statements, and
neither a written report nor oral advice was provided to the Company that KPMG
concluded was an important factor considered by the Company in reaching a
decision as to accounting, auditing, or financial reporting issues; or (b) any
matter that was the subject of either a disagreement or any other event
described above.
On June 1, 1998, and at the Company's request, Deloitte furnished a
letter to the Securities and Exchange Commission stating whether or not it
agreed with the above statement. A copy of that letter is included as an
exhibit to the Company's Form 8-K, which was filed with the Securities and
Exchange Commission on June 2, 1998.
26
<PAGE> 27
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF JOHNSTON INDUSTRIES, INC.
The Directors and Executive Officers of Johnston Industries, Inc. are as
follows:
J. REID BINGHAM, age 54, has served as a Director since 1991. Mr.
Bingham has been General Counsel of Hamilton Bancorp, Inc. and Hamilton Bank,
N.A. since October 1996. He previously was a partner from 1994 to 1996 of the
law firm of Concepcion, Sexton, Bingham & Urdaneta (formerly Bingham &
Castilla). Prior to this time, he was a partner of the law firm of Kirkpatrick &
Lockhart from 1989 to 1994.
ALLYN P. CHANDLER, age 47, was appointed to the Board on October 22,
1998 to fill the vacancy left by the death of her father, David L. Chandler. For
the past five years, Ms. Chandler has held senior management positions in
not-for-profit organizations. In 1996, she served as Artistic Director and
General Manager of Live Arts in Charlottesville, VA. From 1997 through August
1998, Ms. Chandler held various free-lance assignments, mainly with schools,
theatres and a film company. Ms. Chandler currently is Chairperson, President
and CEO of Redlaw Industries, Inc. and GRM Industries, Inc., a wholly-owned
subsidiary of Redlaw Industries, Inc. Ms. Chandler has been a member of the
Board of GRM Industries, Inc. since 1985 and a member of the Board of Redlaw
Industries, Inc. since 1998.
JOHN A. FRIEDMAN, age 64, has served as a Director since 1996. For the
past five years, Mr. Friedman has been engaged in the private practice of law.
Prior to entering private practice Mr. Friedman, was a partner in the law firm
of Kaye, Scholer, Fierman, Hays and Handler for 20 years.
WILLIAM J. HART, age 59, has served as a Director since 1981. Mr. Hart
has been a partner of the law firm of Husch & Eppenberger since January 1997.
From August 1970 to January 1997 he was a partner of the law firm of Farrington
& Curtis, which was merged into the firm of Husch & Eppenberger.
HAROLD HARVEY, age 59, has served as President of the Greige Fabrics
Division since the first quarter of 1999 and assumed additional responsibilities
as President of the Finished Fabrics Division effective January 1, 2000. He was
the Principal of Harvey TMC International, a textile consulting firm, from 1994
until joining the Company. Mr. Harvey was the Chief Executive Officer of
Carrington Viyella from 1992 until 1994 and Chief Executive Officer of John
Foster and Sons plc from 1988 until 1992. Prior to that, he had served in
various consulting and textile management positions.
WILLIAM I. HENRY, age 60 has served as Vice President since January 1,
2000. Prior to that time, he served as President of the Finished Fabrics
Division from February 5, 1998 to December 31, 1999, Executive Vice President
from May 12, 1997 to February 5, 1998, Vice President of Operations from April
1996 to May 12, 1997, and Vice President of Product and Operations Planning from
January 1993 to April 1996. Prior to that, he had served as Vice President,
Operations of Southern Phenix.
GAINES R. JEFFCOAT, age 78, has served as a Director since 1986. From
January 1988 until Mr. Jeffcoat's retirement on June 30, 1990, he served as Vice
President of the Company. Further, he served as Chairman of the Board of Opp and
Micolas Mills, Inc., a subsidiary of the Company ("Opp and Micolas"), from
January 1, 1988 to December 31, 1989. Mr. Jeffcoat was President of Opp and
Micolas for more than five years prior to that time.
DONALD L. MASSEY, age 55, has served as President of Johnston
Industries Composite Reinforcements, Inc. since February 5, 1998. Prior to that
time, he served as Executive Vice President from May 12, 1997 to February 5,
1998 and as Vice President of the Company and President-Home Furnishings-Sales
and Marketing of Johnston Industries Alabama, Inc. from April 1996 to May 12,
1997. Mr. Massey was President and CEO of Johnston Industries Composite
Reinforcements, Inc. from March 31, 1992 until March 31, 1996. From December 1,
1990 until March 30, 1992, Mr. Massey was President and CEO of Fiber and Fabrics
Marketing, and prior to that, he served as Senior Vice President for world sales
of denim for Dominion Textiles.
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<PAGE> 28
JAMES J. MURRAY, age 39, has served as Executive Vice President and
Chief Financial Officer since September 22, 1997 and assumed additional
responsibilities as secretary effective January 1, 2000. Prior to that time, he
was Managing Director of Corporate Transaction Services for KPMG LLP since March
1996 and had served in a variety of capacities with KPMG LLP from January 1984
to March 1996. Prior to that time, Mr. Murray was a tax accountant in private
industry.
D. CLARK OGLE, age 53, has served as President and Chief Executive
Officer since March 20, 1998 and was appointed to the Board on April 7, 1998.
Prior to that time, Mr. Ogle served as Managing Director of National Strategic
and Operational Improvement Consulting for KPMG LLP. From April 1987 to October
1996, he served as CEO for a number of companies including Victory Markets,
Inc., Teamsports, Inc., WSR Corporation, Consumer Markets, Inc., and Peter J.
Schmitt Co., Inc. Mr. Ogle was Executive Vice President and Chief Operating
Officer, then President and Chief Executive Officer, of Scrivner, Inc. for more
than five years prior to that time.
TOMMY B. STRENGTH, age 50, has served as President of the Fiber
Products Division since January 28, 2000. Prior to that time, he served as
Vice-President of the Fiber Products Division from April 1996 to January 2000.
From 1992 to 1996, he served as General Manager of the Nonwoven Group of
Wellington Sears Company. From 1985 to 1992, he was General Manager of the
by-products operation of WestPoint Stevens, Inc. and for five years prior to
that time, held various management positions with WestPoint Stevens, Inc.
A. LEE TUCKER, age 44, has served as Treasurer since January 1, 2000.
Prior to that time, he served as Assistant Treasurer from June 1997 to January
2000 and as Corporate Director of Credit from June 1993 to June 1997. For more
than five years prior to that time Mr. Tucker was Director of Credit and Claims
for WestPoint Stevens, Inc.
C. PHILIP STANLEY, age 68, was appointed to the Board on April 7, 1998.
Mr. Stanley, who had retired in December 1996, returned from retirement to serve
as Vice Chairman of JI Alabama from May 12, 1997 through February 5, 1998. Prior
to that time, he served as President and Chief Operating Officer of Opp &
Micolas from January 1988 to December 1996 and prior to that, had served as Vice
President and General Manager of Opp and Micolas.
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<PAGE> 29
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the compensation paid by the Company for
the periods indicated to the Company's Chief Executive Officer ("CEO") during
fiscal 1999 and to the four most highly compensated executive officers (other
than the CEO) who were serving as executive officers at January 1, 2000 and who
earned more than $100,000 during fiscal 1999 (the "Named Executive Officers")
plus one additional individual for whom disclosure would have been provided but
for his retirement during 1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION(1) AWARDS
----------------------------------------------- ------------
OTHER SECURITIES
ANNUAL UNDERLYING ALL OTHER
SALARY BONUS COMPEN- OPTIONS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) SATION($) (#) ($)(2)
- --------------------------------- -------- ----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
D. Clark Ogle, 1999 450,000 225,000 --- --- 17,730
President and CEO(3) 1998 351,346 325,000 --- 300,000 ---
1997 --- --- --- --- ---
James J. Murray 1999 250,000 100,000 --- --- 50,000
Executive Vice President and 1998 192,609 20,000 --- 50,000 84,621
Chief Financial Officer(4) 1997 49,500 --- --- --- 6,907
C. Philip Stanley 1999 225,000 --- --- --- ---
President-Greige Fabrics 1998 225,000 40,436 --- 15,000 ---
Division(5) 1997 123,817 53,000 --- --- ---
Donald L. Massey, 1999 215,000 51,102 --- --- 14,609
President-Johnston Composite 1998 215,000 57,798 --- 2,000 15,158
Reinforcements 1997 203,750 --- --- --- 11,840
William I. Henry 1999 192,500 --- --- --- 28,987
President-Finished Fabrics 1998 192,500 --- --- 12,000 36,015
Division 1997 183,125 --- --- --- 27,671
Owen J. Hodges, III 1999 186,000 --- --- --- 7,487
President-Fiber Products 1998 186,000 43,375 --- --- 3,577
Division 1997 174,000 --- --- --- ---
</TABLE>
- ------------
(1) The amounts shown do not include perquisites and other personal
benefits, the value of which for each executive officer did not exceed
the lesser of $50,000 or 10% of the aggregate compensation for such
officer.
(2) Except as described herein, all payments relate to the Company's
executive stock purchase plan. "All Other Compensation" for each year
presented also includes amounts representing a housing allowance for
Mr. Ogle, forgiveness of a relocation loan for Mr. Murray, a partial
payment of premiums under a "split dollar" life insurance program for
Mr. Henry, and an automobile allowance for Mr. Hodges.
(3) Mr. Ogle became an Executive Officer of the Company effective March 19,
1998. Accordingly, compensation information is reported only for the
1998 and 1999 fiscal years.
(4) Mr. Murray became an Executive Officer of the Company effective
September 22, 1997.
(5) Mr. Stanley, who retired from the Company in December 1996, as
President and Chief Operating Officer of Opp and Micolas Mills,
returned from retirement to serve as President of the Greige Fabrics
Division from May 12, 1997 through February 5, 1999.
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<PAGE> 30
OPTION GRANTS IN LAST FISCAL YEAR
During fiscal 1999, there were no grants of options to the CEO or to any of the
Company's Named Executive Officers.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE ($) OF UNEXERCISED IN-
SHARES OPTIONS/SARS AT THE-MONEY OPTIONS/SARS AT
ACQUIRED ON VALUE YEAR-END EXERCISABLE/ YEAR-END EXERCISABLE/
NAME EXERCISE(#) REALIZED($) UNEXERCISABLE UNEXERCISABLE
- -------------------- ----------- ----------- --------------------- ----------------------------
<S> <C> <C> <C> <C>
D. Clark Ogle --- --- 200,000/300,000 ---/---
James J. Murray --- --- 50,000/--- ---/---
C. Philip Stanley --- --- 15,000/--- ---/---
Donald L. Massey --- --- 20,000/--- ---/---
William I. Henry --- --- 30,000/--- ---/---
Owen J. Hodges, III --- --- 20,000/--- ---/---
</TABLE>
The following table sets forth for certain executives the estimated
annual normal retirement benefits payable under the Salaried Employees' Pension
Plan and Executive Supplemental Retirement Plan based on 1999 plan limits upon
retirement at age 65 (assuming Social Security Average wages of $45,000 per
year) for various combinations of preretirement remuneration and years of
benefit service:
PENSION PLAN TABLE
<TABLE>
<CAPTION>
AVERAGE ANNUAL SALARY
LAST 10 YEARS YEARS OF BENEFIT SERVICE
OR LESS WHERE ----------------------------------------------------------------------------------------
APPLICABLE) 5 10 15 20 25 30 35
- ---------------------- --------- --------- --------- --------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
125,000 9,250 18,500 27,750 39,063 50,375 61,688 73,000
150,000 11,438 22,875 34,313 48,225 62,138 76,050 89,963
160,000 12,313 24,625 36,938 51,890 66,843 81,795 96,748
175,000 13,625 27,250 40,875 57,388 73,900 90,413 106,925
200,000 15,813 31,625 47,438 66,550 85,663 104,775 123,888
225,000 18,000 36,000 54,000 75,713 97,425 119,138 130,000
250,000 20,188 40,375 60,563 84,875 109,188 130,000 130,000
300,000 22,099 44,197 66,296 92,879 119,463 130,000 130,000
400,000 22,099 44,197 66,296 92,879 119,463 130,000 130,000
500,000 22,099 44,197 66,296 92,879 119,463 130,000 130,000
750,000 22,099 44,197 66,296 92,879 119,463 130,000 130,000
</TABLE>
- ----------------
The years of benefit service under the Pension Plan as of January 1,
2000 for Messrs. Ogle, Murray, Stanley, Massey, Henry and Hodges were 1, 2, 32,
7, 28, and 3, 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 employment; if employment terminates
later than normal retirement date, payments will be adjusted to provide benefits
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 the employee elects a method of distribution of
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<PAGE> 31
benefits other than a single life annuity, payments will be adjusted to provide
benefits actuarially equivalent to the benefits to which he would be entitled if
he had elected the single life annuity method.
EMPLOYMENT AGREEMENTS
Mr. Ogle's employment agreement is effective for a three year period
commencing on March 19, 1998 and provides for a base salary of $450,000, a one
time signing bonus of $100,000, a bonus of $225,000 payable following the first
year of employment and bonus or other additional compensation as approved by the
Compensation Committee of the Board of Directors over the term of the agreement.
In accordance with and upon execution of the agreement, the Company granted Mr.
Ogle options to purchase 300,000 shares of the Company's Common Stock which vest
in equal amounts over a three year period as governed by the Company's Stock
Incentive Plan. The agreement contains a non-competition clause plus a
non-solicitation clause (each as defined in the agreement) which are effective
for a one-year period following the termination of the employment agreement.
Under terms of the agreement, Mr. Ogle would be entitled to continuation of
salary and benefits but not bonus for a period of one year in the event of
termination by the Company "without cause" (as defined in the agreement). In the
event Mr. Ogle should terminate the agreement other than as a result of a
material breach by the Company not cured within thirty days or in the event the
Company may terminate the agreement "with cause" (as defined in the agreement),
Mr. Ogle would be entitled to all salary and benefits accrued though date of
termination.
Mr. Murray's employment agreement is effective for a three year period
commencing on September 22, 1997 and provides for a base salary, payable on
January 15, 1998, and bonus or other additional compensation as approved by the
Compensation Committee of the Board of Directors over the term of the agreement.
The agreement contains a non-competition clause which is effective during the
term of the contract plus a non-solicitation clause (each as defined in the
agreement) which is effective for a one-year period following the termination of
the employment agreement. Under terms of the agreement, Mr. Murray would be
entitled to continuation of salary and benefits but not bonus for the remainder
of the unexpired term in the event of termination by the Company "without cause"
(as defined in the agreement). In the event that Mr. Murray should voluntarily
terminate the agreement prior to expiration of the effective term of the
agreement, he would forfeit all salary and benefits for the remainder of the
unexpired term. In the event that the Company employs a new Chief Executive
Officer who desires to make his own selection of a Chief Financial Officer, the
agreement provides that within the following 30 day period, Mr. Murray may give
notice of termination and upon conclusion of a transition period, the Company
will pay salary and benefits for a period of one year following the date of
termination.
COMPENSATION OF DIRECTORS
Pursuant to the Company's Director Compensation Policy, each Director
who is not an officer or employee of or consultant to the Company is paid an
annual Director's fee of $12,000 plus $1,000 for each meeting of the Board or
any committee thereof at which such Director is in attendance.
31
<PAGE> 32
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of March 31, 2000 certain information
concerning ownership of Common Stock by: (i) each person who is known by the
Company to own beneficially more than 5% of the Common Stock, (ii) each Director
individually, (iii) the Company's Chief Executive Officer ("CEO") and each of
the Named Executive Officers (as defined herein) listed in the Summary
Compensation Table, and (iv) all directors and executive officers of the Company
as a group. The determinations of "beneficial ownership" of Common Stock are
based upon Rule 13d-3 under the Exchange Act of 1934, as amended (the "Exchange
Act"). Such rule provides that shares will be deemed "beneficially owned" where
a person has, either solely or in conjunction with others, the power to vote or
to direct the voting of shares and/or the power to dispose, or to direct the
disposition of, shares or where a person has the right to acquire any such power
within 60 days after the date such "beneficial ownership" is determined.
<TABLE>
<CAPTION>
AMOUNT OF PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OUTSTANDING
BENEFICIAL OWNER OR IDENTITY OF GROUP OWNERSHIP(1) SHARES
- --------------------------------------------------------- ------------ ------------
<S> <C> <C>
J. Reid Bingham 18,000 *
Allyn P. Chandler(2) 4,358,324 38.4%
John A. Friedman 8,500 *
William J. Hart 25,541 *
William I. Henry 93,368 *
Owen J. Hodges, III(3) 22,655 *
Gaines R. Jeffcoat 42,434 *
Donald L. Massey 37,850 *
James J. Murray 82,650 *
D. Clark Ogle 243,300 2.2%
C. Philip Stanley 38,762 *
All directors and officers as a group (14 persons)(4) 5,037,484 42.3%
Redlaw Industries, Inc.(5) 3,388,704 31.6%
Dimensional Fund Advisors, Inc.(6) 906,924 8.5%
Ann P. Chandler(7) 4,371,678 38.5%
Estate of David L. Chandler(8) 4,350,023 38.3%
Jerry Zucker(9) 1,166,900 10.9%
</TABLE>
- -------------
* Less than 1%.
(1) Unless otherwise indicated, the named individual or entity has sole
voting and investment power with respect to all shares shown as
beneficially owned by such person. For each beneficial owner, the
number of shares outstanding and the percentage of stock ownership
includes the number of common and common equivalent shares (including
options and warrants exercisable within 60 days) owned by such
individual or entity.
(2) Includes 750 shares owned directly by Ms. Chandler, 750 shares owned by
D. L. Chandler, Jr. for which Ms. Chandler holds a Power of Attorney,
and 3,388,704 shares owned by Redlaw Industries, Inc. ("Redlaw") and
its wholly owned subsidiary GRM Industries, Inc. ("GRM") of which Ms.
Chandler may be deemed to be a beneficial owner by virtue of her
relationship with Redlaw as set forth below in footnote 12. Ms.
Chandler, is one of the personal co-representatives of the Estate of
her late father, D. L. Chandler, (the "Estate") who was the Chairman of
Johnston Industries at the time of his death on August 21, 1998. Ms.
Chandler is deemed to be a beneficial owner of 331,590 shares of
Johnston stock and options for Johnston common stock totaling 636,530
options as held by the Estate. The foregoing information is based upon
a Schedule 13D/A filed September 16, 1999 on behalf of the Estate and a
Schedule 13D/A filed September 17, 1999 on behalf of Redlaw and amended
information provided to the Company on behalf of the Estate. The
address for Ms. Chandler is P.O. Box 1350, Hobe Sound, Florida 33475.
32
<PAGE> 33
(3) Mr. Hodges resigned from employment with the Company on February 1,
2000.
(4) Includes an aggregate of 1,076,280 shares issuable pursuant to stock
options which are currently exercisable or exercisable within 60 days.
(5) Redlaw Industries, Inc. ("Redlaw") reports its address as 3968 Wainman
Line, Seven Township, R.R. #2, Orillia, Ontario, Canada L3V 6H2. These
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 with stock traded on the OTC Bulletin
Board. Ms. Allyn Chandler is Chairperson of the Board, President, and
Chief Executive Officer of both Redlaw and GRM. She is also a
co-representative of the Estate, which owns 67.7% of the outstanding
stock of Redlaw and may be deemed to be the beneficial owner of the
Johnston shares owned by Redlaw. The foregoing information is based
upon a Schedule 13D/A filed September 17, 1999 and amended information
provided to the Company on behalf of the Estate.
(6) Dimensional Fund Advisors, Inc. ("Dimensional") reports its address as
1299 Ocean Avenue, 11th Floor, Santa Monica, California 90401.
Dimensional reports sole voting and dispositive power with respect to
all shares. The foregoing is based on a Schedule 13G dated February 3,
2000.
(7) Mrs. Ann P. Chandler is the widow of the late D. L. Chandler, who was
Chairman of Johnston Industries, Inc. and, Chairman, President and
Chief Executive Officer of Redlaw and GRM at the time of his death.
Mrs. Chandler is co-representative of the Estate and therefore is
deemed to be the beneficial owner of shares owned by Redlaw, and the
shares and options directly part of the Estate. The foregoing
information is based upon a Schedule 13D filed September 16, 1999 and
amended information provided to the Company on behalf of the Estate.
(8) Mrs. Ann P. Chandler and Ms. Allyn P. Chandler are co-representatives
of the Estate, which reports sole voting and dispositive power with
respect to all shares shown. The foregoing information is based upon a
Schedule 13D filed September 16, 1999 and amended information provided
to the Company on behalf of the Estate.
(9) Mr. Zucker reports his address as P.O. Box 5205, North Charleston,
South Carolina 29405. Mr. Zucker reports sole voting and dispositive
power with respect to all shares. The foregoing is based on a Schedule
13D dated September 13, 1999.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Exchange Act requires the Company's executive
officers and directors, and persons who beneficially own more than ten percent
of the Company's Common Stock, to file initial reports of ownership and reports
of changes in ownership with the SEC. Persons subject to these reporting
requirements are also required by SEC regulations to furnish the Company with
copies of all Section 16(a) forms they file. Based solely on a review of copies
of the SEC reporting forms furnished to the Company and written representations
from the Company's executive officers and directors, the Company believes that
all required Section 16(a) reports were timely filed during fiscal 1999.
33
<PAGE> 34
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Allyn P. Chandler, a Director of Johnston Industries, Inc., is
Chairperson, President and CEO of Redlaw Industries, Inc. ("Redlaw") and GRM
Industries, Inc. ("GRM"), a wholly-owned subsidiary of Redlaw. Ms. Chandler is
also one of the personal co-representatives of the Estate of her late father,
David L. Chandler, who was the Chairman of Johnston Industries, Inc. at the time
of his death on August 21, 1998.
David L. Chandler was a party to two "rabbi" trust agreements whereby,
during his employment, the Company transferred assets to the trusts in
accordance with his employment agreement. During 1999, the Company purchased
demand notes payable by Redlaw, and guaranteed by GRM, from the trusts at a
substantially discounted cost of approximately $200 thousand. The notes, which
have maturities from one to five years, can be called on demand by the payee,
bear interest at 10% per annum, and are convertible, at the option of the
holder, into (i) common shares of Redlaw, or (ii) common shares of Johnston
Industries, Inc. held of record by GRM. Conversion to shares of Johnston
Industries, Inc. is contingent on the release by a secured lender of its first
security interest in shares of Johnston Industries, Inc. held of record by GRM.
34
<PAGE> 35
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 January 1, 2000 and January 2,
1999.
- Consolidated Statements of Operations for the years ended January 1,
2000, January 2, 1999 and January 3, 1998.
- Consolidated Statements of Comprehensive Operations for the years
ended January 1, 2000, January 2, 1999 and January 3, 1998.
- Consolidated Statements of Stockholders' Equity for the years ended
January 1, 2000, January 2, 1999 and January 3, 1998.
- Consolidated Statements of Cash Flows for the years ended January 1,
2000, January 2, 1999 and January 3, 1998.
- Notes to Consolidated Financial Statements.
- Independent Auditors' Reports
(a)(2) Financial Statement Schedules
The following reports and consolidated financial statement schedules
are filed herewith as Exhibit 13(a).
- 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 year
ended January 1, 2000.
35
<PAGE> 36
(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>
3.1(a) Certificate of Incorporation of Registrant(7).
3.1(b) Certificate of Amendment of Registrant's Certificate of
Incorporation dated December 20, 1993(7).
3.1(c) Certificate of Designation by the Board of Directors dated
January 22, 1996(7).
3.1(d) Certificate of Designation by the Board of Directors dated May
26, 1999(15).
3.2(a) By-Laws of Registrant(8).
3.2(b) Amendment to By-Laws of Registrant dated May 1, 1996(8)
3.2(c) Amendment to By-Laws of Registrant dated July 31, 1996(8)
+10.3 Registrant's Executive Insurance Plan, as amended and restated
effective May 21, 1984(4).
+10.4 Letter to Participants dated March 1, 1989 in Registrant's
Executive Insurance Plan setting forth revisions thereto
[Exhibit 10.3(b)](4).
+10.5 Registrant's Salaried Employees, Pension Plan, as amended and
restated effective July 1 1989 [Exhibit 10.4](1).
+10.6 Amended and Restated Stock Incentive Plan for Key Employees of
the Registrant and its Subsidiaries(4).
+10.7 Employee Stock Purchase Plan effective October 15, 1990 (with
1991 and 1992 amendments) [Exhibit 10.5(b)(i)](2).
+10.8 Amendment dated October 29, 1992 to Employee Stock Purchase
Plan [Exhibit 10.5(b)(ii)](3).
+10.9 Amendment dated December 17, 1993 to Employee Stock Purchase
Plan [Exhibit 10.9(b)(iii)](4).
+10.10 Amendment dated January 24, 1995 to Employee Stock Purchase
Plan [Exhibit 10.9(b)(iii)](4).
+10.13 Trust Agreement dated as of February 12, 1991, with Chemical
Bank & Trust Company and David L. Chandler [Exhibit
10.6(d)(2)](2).
+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](3)
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](5).
10.22 Bank 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 therein, The Chase Manhattan Bank, N.A as
Administrative Agent, Chase Securities, Inc. as Arranger, and
Nationsbank, N.A. as Syndication Agent.(6)
10.23 Amendment # 1 dated June 28, 1996 to Bank Credit Agreement.(9)
10.24 Amendment # 2 dated February 28, 1997 to Bank Credit
Agreement.(9)
+10.25 Employment Agreement with James J. Murray dated September 15,
1997.(10)
10.26 Amendment # 3 dated December 18, 1997 to Bank Credit
Agreement.(11)
+10.27 Employment Agreement with D. Clark Ogle dated March 20, 1998.(11)
10.28 Amendment # 4 dated March 30, 1998 to Bank Credit Agreement.(12)
10.29 Amendment # 5 dated July 10, 1998 to Bank Credit Agreement.(13)
10.30 Amendment # 6 dated December 22, 1998 to Bank Credit Agreement.(14)
10.31 Amendment # 7 dated April 1, 1999 to Bank Credit Agreement.(14)
10.32 Purchase Agreement by and among CGW Southeast Partners IV, L.P.,
JI Acquisition Corp., and Johnston Industries, Inc. dated as of
March 30, 2000
</TABLE>
36
<PAGE> 37
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ----------------------
<S> <C>
11 Statement of Computation of Per Share Earnings for the years
ended January 1, 2000, January 2, 1999 and January 3, 1998.
13(a) Consolidated balance sheets as of January 1, 2000 and January
2, 1999, the related consolidated statements of operations,
comprehensive operations, stockholders' equity and cash flows
for the years ended January 1, 2000, January 2, 1999 and
January 3, 1998, notes thereto and Independent Auditors'
Reports and related financial statement schedule.
13(b) Supplementary Data captioned "Quarterly Information"
21 List of Subsidiaries of Registrant.
23.1 Consent of KPMG LLP.
23.2 Consent of Deloitte & Touche LLP.
27 Financial Data Schedule as of January 1, 2000 (for SEC use only)
</TABLE>
- --------------------------------------------------------------------------------
(1) Previously filed with the Company's Annual Report on Form 10-K for the
year ended June 30, 1991.
(2) Previously filed with the Company's Annual Report on Form 10-K for the
year ended June 30, 1992.
(3) Previously filed with the Company's Annual Report on Form 10-K for the
year ended June 30, 1993.
(4) Previously filed with the Company's Annual Report on Form 10-K for the
year ended June 30, 1995.
(5) Previously filed with the Company's Form 8-K on August 21, 1995.
(6) Previously filed with the Company's Annual Report on Form 10-K for the
transition period ended December 30, 1995.
(7) Previously filed with the Company's Quarterly Report on Form 10-Q for
the quarter ended March 30, 1996.
(8) Previously filed with the Company's Quarterly Report on Form 10-Q for
the quarter ended June 29, 1996.
(9) Previously filed with the Company's Annual Report on Form 10-K for the
quarter ended December 28, 1996.
(10) Previously filed with the Company's Quarterly Report on Form 10-Q for
the quarter ended September 27, 1997.
(11) Previously filed with the Company's Annual Report on Form 10-K for the
year ended January 3, 1998.
(12) Previously filed with the Company's Quarterly Report on Form 10-Q for
the quarter ended July 4, 1998.
(13) Previously filed with the Company's Quarterly Report on Form 10-Q for
the quarter ended October 3, 1998.
(14) Previously filed with the Company's Quarterly Report on Form 10-K for
the year ended January 2, 1998.
(15) Previously filed with the Company's Quarterly Report on Form 10-Q for
the quarter ended June 3, 1999.
+ Management contract or compensatory plan or arrangement required to be
filed as an exhibit to Form 10-K pursuant to Item 14(c)
37
<PAGE> 38
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 6, 2000 By: /s/ D. Clark Ogle
-----------------------------
D. Clark Ogle
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C> <C>
s/ D. Clark Ogle President and April 6, 2000
- ----------------- Chief Executive Officer
D. Clark Ogle (Principal Executive Officer)
/s/ J. Reid Bingham Director April 6, 2000
- -------------------
J. Reid Bingham
Director
- --------------------
Allyn P. Chandler
Director
- ----------------
John A. Friedman
/s/ William J. Hart Director April 6, 2000
- -------------------
William J. Hart
/s/ Gaines R. Jeffcoat Director April 6, 2000
- ----------------------
Gaines R. Jeffcoat
/s/ James J. Murray Chief Financial Officer April 6, 2000
- ------------------- (Principal Accounting Officer)
James J. Murray
/s/ C. Philip Stanley Director April 6, 2000
- ---------------------
C. Philip Stanley
</TABLE>
38
<PAGE> 39
JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING SCHEDULES
(in thousands)
<TABLE>
<CAPTION>
YEAR ENDED
----------------------------------------
JANUARY 1, JANUARY 2, JANUARY 3,
2000 1999 1998
---------- ---------- ----------
<S> <C> <C> <C>
Allowance for doubtful accounts:
Balance at beginning of period $ 1,442 $ 2,176 $ 1,379
Additions charged to operations 993 507 1,764
Additions charged to other - net 2,270 -- --
Deductions (1) (1,082) (1,241) (967)
---------- ---------- ----------
Balance at end of year $ 3,623 $ 1,442 $ 2,176
========== ========== ==========
</TABLE>
(1) Amounts written off, net of recoveries.
<PAGE> 1
EXHIBIT 10.32
PURCHASE AGREEMENT
BY AND AMONG
CGW SOUTHEAST PARTNERS IV, L.P.,
JI ACQUISITION CORP.,
AND
JOHNSTON INDUSTRIES, INC.
DATED AS OF MARCH 30, 2000
<PAGE> 2
PURCHASE AGREEMENT
THIS PURCHASE AGREEMENT (this "Agreement") is made and entered into as
of March 30, 2000, by and among CGW Southeast Partners IV, L.P. ("CGW"), a
limited partnership formed under the Delaware Revised Uniform Limited
Partnership Act; JI Acquisition Corp. ("Purchaser"), a Delaware corporation;
and Johnston Industries, Inc. ("Johnston"), a Delaware corporation.
PREAMBLE
The respective Boards of Directors of Johnston and Purchaser and the General
Partner of CGW have approved, and deem it advisable and in the best interests
of their respective stockholders to enter into this Agreement to provide for,
the acquisition of Johnston Common Stock and Johnston Preferred Stock by
Purchaser upon the terms and subject to the conditions set forth herein.
Certain terms used in this Agreement are defined in Section 10.1
of this Agreement.
NOW, THEREFORE, in consideration of the above and the mutual
warranties, representations, covenants, and agreements set forth herein, the
parties agree as follows:
ARTICLE 1
THE OFFER
1.1 THE OFFER.
(a) Subject to the provisions of this Agreement, as
promptly as reasonably practicable, Purchaser shall, and CGW shall cause
Purchaser to, commence (within the meaning of Rule 14d-2 under the 1934 Act) a
tender offer (as it may be amended from time to time as permitted by this
Agreement, the "Offer") for all of the then outstanding shares (the "Shares")
of Johnston Common Stock at a price of $3.00 per Share, net to the seller in
cash (such price, or any such higher price per Share as may be paid in the
Offer, being referred to herein as the "Offer Price"). The obligation of
Purchaser to, and of CGW to cause Purchaser to, commence the Offer and accept
for payment, and pay for, any Shares tendered pursuant to the Offer shall be
subject to the conditions set forth in Article 8 hereof and Exhibit 1 hereto
(any of which may be waived by Purchaser in its sole discretion) and to the
terms and conditions of this Agreement. Purchaser expressly reserves the right
to modify the terms of the Offer, except that, without the consent of Johnston,
Purchaser shall not (i) reduce the price per Share to be paid pursuant to the
Offer, (ii) modify or add to the conditions set forth in Exhibit 1, (iii)
except as provided in the next sentence, extend the Offer, or (iv) change the
form of consideration payable in the Offer. Notwithstanding the foregoing,
Purchaser may, without the consent of Johnston, (i) extend the Offer, if at the
scheduled expiration date of the Offer any of the conditions to Purchaser's
<PAGE> 3
obligations to purchase Shares shall not be satisfied, (ii) extend the Offer
for a period of not more than ten business days beyond the initial expiration
date of the Offer (which initial expiration date shall be 20 business days
following the commencement of the Offer), if on the date of such extension less
than 90% of the outstanding Shares have been validly tendered and not properly
withdrawn pursuant to the Offer, notwithstanding that all conditions to the
Offer are satisfied as of the date of such extension, (iii) extend the Offer
for any period required by any rule, regulation, interpretation or position of
the SEC or the staff thereof applicable to the Offer, and (iv) extend the Offer
for any reason for a period of not more than ten business days beyond the
latest expiration date that would otherwise be permitted under clause (i), (ii)
or (iii) of this sentence. Notwithstanding the foregoing, the Offer may not be
extended beyond the date of termination of this Agreement pursuant to Article
9. Subject to the terms and conditions of the Offer and this Agreement,
Purchaser shall, and CGW shall cause Purchaser to, pay for all Shares validly
tendered and not withdrawn pursuant to the Offer that Purchaser becomes
obligated to purchase pursuant to the Offer as soon as practicable after the
expiration of the Offer.
(b) On the date of commencement of the Offer, Purchaser
shall file, and CGW shall cause Purchaser to file, with the SEC a Tender Offer
Statement on Schedule TO with respect to the Offer, which shall contain an
offer to purchase (the "Offer to Purchase") and a related letter of transmittal
and summary advertisement, all in accordance with the terms of the Offer as set
forth herein (such Schedule TO and the documents included therein pursuant to
which the Offer will be made, together with any supplements or amendments
thereto, the "Offer Documents"). The Offer Documents shall comply in all
material respects with the requirements of applicable federal securities laws
and, on the date filed with the SEC and on the date first published, sent or
given to Johnston's stockholders, shall not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading, except that no
representation is made by Purchaser with respect to information furnished in
writing by or on behalf of Johnston expressly for inclusion in the Offer
Documents. Purchaser and Johnston each agree promptly to correct any
information provided by or on its behalf for use in the Offer Documents if and
to the extent that such information shall have become false or misleading in
any material respect, and Purchaser further agrees to promptly take all steps
necessary to amend or supplement the Offer Documents and to cause the Offer
Documents as so amended or supplemented to be filed with the SEC and to be
disseminated to Johnston's stockholders, in each case as to and to the extent
required by applicable federal securities laws. Johnston and its counsel shall
be given the opportunity to review the Schedule TO before it is filed with the
SEC. In addition, Purchaser will provide Johnston and its counsel, in writing,
with any comments, whether written or oral, Purchaser or its counsel may
receive from time to time from the SEC or its staff with respect to the Offer
Documents promptly after the receipt of such comments.
1.2 JOHNSTON ACTIONS.
(a) Johnston hereby approves the making of, and consents to
the Offer and represents and warrants that its Board of Directors, at a meeting
duly called and held, has duly adopted resolutions (i) approving this
Agreement, consenting to the Offer being made and
-2-
<PAGE> 4
approving the sale of Johnston Common Stock and Johnston Preferred Stock
contemplated by Article 3 hereof (collectively, the "Transactions"), and such
approval constitutes approval of the Transactions for purposes of Section 203
of the DGCL and the Stockholder Protection Agreement, dated as of May 17, 1999,
between Johnston and The Bank of New York (the "Stockholder Protection
Agreement"), such that the provisions of said Section 203 and the Stockholder
Protection Agreement will not apply to the Transactions and (ii) determining,
in reliance on the opinion described in Section 4.22 hereof, that the terms of
the Transactions are fair to, and in the best interests of, the stockholders of
Johnston.
(b) On the date the Offer Documents are filed with the SEC,
Johnston shall file with the SEC a Solicitation/Recommendation Statement on
Schedule 14D-9 with respect to the Offer (together with all amendments and
supplements thereto and including the exhibits thereto, the "Schedule 14D-9")
which shall contain the position of the Board of Directors of Johnston and
shall mail the Schedule 14D-9 to the stockholders of Johnston. The Schedule
14D-9 shall comply in all material respects with the requirements of applicable
federal securities laws and, on the date filed with the SEC and on the date
first published, sent or given to Johnston's stockholders, shall not contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading, except that no representation is made by Johnston with respect to
information furnished in writing by or on behalf of Purchaser expressly for
inclusion in the Schedule 14D-9. Purchaser and Johnston agree promptly to
correct any information provided by or on its behalf for use in the Schedule
14D-9 if and to the extent that such information shall have become false or
misleading in any material respect, and Johnston further agrees to promptly
take all steps necessary to amend or supplement the Schedule 14D-9 and to cause
the Schedule 14D-9 as so amended or supplemented to be filed with the SEC and
to be disseminated to Johnston's stockholders, in each case as to and to the
extent required by applicable Federal securities laws. Purchaser and its
counsel shall be given the opportunity to review the Schedule 14D-9 before it
is filed with the SEC. In addition, Johnston agrees to provide Purchaser and
its counsel, in writing, with any comments, whether written or oral, that
Johnston or its counsel may receive from time to time from the SEC or its staff
with respect to the Schedule 14D-9 promptly after the receipt of such comments
or other communications.
(c) In connection with the Offer, Johnston will promptly
furnish or cause to be furnished to Purchaser mailing labels, security position
listings and any available listing, or computer file containing the names and
addresses of all record holders of the Shares as of a recent date, and shall
furnish Purchaser with such additional information (including, but not limited
to, updated lists of holders of the Shares and their addresses, mailing labels
and lists of security positions) and assistance as the Purchaser or its agents
may reasonably request in communicating the Offer to the record and beneficial
holders of the Shares. Subject to the requirements of applicable Law, and
except for such steps as are necessary to disseminate the Offer Documents, CGW
and Purchaser shall hold in confidence the information contained in any of such
labels and lists and the additional information referred to in the preceding
sentence, will use such information only in connection with the Offer, and, if
this Agreement is terminated, will promptly deliver or cause to be delivered to
Johnston all copies of such information then in their possession.
-3-
<PAGE> 5
ARTICLE 2
EFFECTIVE TIME AND CLOSING
2.1 EFFECTIVE TIME. The Transactions shall become effective on
the date and at the time that payment for the Shares validly tendered and not
withdrawn pursuant to the Offer has been made by Purchaser (the "Effective
Time").
2.2 TIME AND PLACE OF CLOSING. The closing of the Transactions
(the "Closing") will take place at 9:00 A.M. on the date that the Effective
Time occurs (or the immediately preceding day if the Effective Time is earlier
than 9:00 A.M.), or at such other time as the Parties, acting through their
authorized officers, may mutually agree. The Closing shall be held at such
location as may be mutually agreed upon by the Parties.
ARTICLE 3
STOCK PURCHASE
Pursuant to the following provisions of this Article 3, Purchaser shall
purchase shares of Johnston Common Stock and Johnston Preferred Stock having an
aggregate value of $27 million.
3.1 PURCHASE OF COMMON STOCK. At the Closing, Purchaser shall
purchase and acquire, and CGW shall cause Purchaser to purchase and acquire,
and Johnston shall issue and sell to Purchaser, 8,750,000 shares of authorized
but unissued Johnston Common Stock (the "Additional Common Stock") at a per
share purchase price of $3.00 per share for an aggregate value of $26.25
million. The issuance of the Additional Common Stock shall have been duly
approved by the Board of Directors of Johnston as required by applicable law,
such that, when issued, the shares of Additional Common Stock will be duly and
validly issued and outstanding and fully paid and nonassessable under the DGCL.
3.2 DESIGNATION OF SERIES A PREFERRED STOCK. Prior to the
Effective Time, Johnston shall cause its Board of Directors to designate a
class of Johnston Preferred Stock as Series A Preferred Stock having the
designations and powers, preferences and rights, and the qualifications,
limitations and restrictions set forth in the Certificate of Designation
attached hereto as Exhibit 2.
3.3 PURCHASE OF PREFERRED STOCK. At the Closing, Purchaser shall
purchase and acquire, and CGW shall cause Purchaser to purchase and acquire and
Johnston shall issue and sell to Purchaser, 250,000 shares of Series A
Preferred Stock of Johnston at a per share purchase price of $3.00 per share
for an aggregate value of $750,000. The issuance of such Series A Preferred
Stock shall have been duly approved by the Board of Directors of Johnston as
required by applicable Law, such that, when issued, the shares of Series A
Preferred Stock will be duly and validly issued and outstanding and fully paid
and nonassessable under the DGCL.
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ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF JOHNSTON
Except as specifically set forth in the Johnston Disclosure
Memorandum, Johnston hereby represents and warrants to CGW and Purchaser as
follows:
4.1 ORGANIZATION, STANDING, AND POWER. Johnston is a corporation
duly organized, validly existing, and in good standing under the Laws of the
State of Delaware, and has the corporate power and authority to carry on its
business as now conducted and to own, lease and operate its material Assets.
Johnston is duly qualified or licensed to transact business as a foreign
corporation in good standing in the States of the United States and foreign
jurisdictions where the character of its Assets or the nature or conduct of its
business requires it to be so qualified or licensed, except for such
jurisdictions in which the failure to be so qualified or licensed is not
reasonably likely to have, individually or in the aggregate, a Johnston
Material Adverse Effect. The minute books and other organizational documents
for Johnston have been made available to CGW for its review and are true and
complete in all material respects as of the date of this Agreement and
accurately reflect in all material respects all amendments thereto and all
proceedings of the Board of Directors and stockholders thereof.
4.2 AUTHORITY OF JOHNSTON; NO BREACH BY AGREEMENT.
(a) Johnston has the corporate power and authority
necessary to execute, deliver, and perform its obligations under this Agreement
and to consummate the Transactions. The execution, delivery, and performance of
this Agreement and the consummation of the Transactions have been duly and
validly authorized by all necessary corporate action in respect thereof on the
part of Johnston. This Agreement represents a legal, valid, and binding
obligation of Johnston, enforceable against Johnston in accordance with its
terms (except in all cases as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, receivership, conservatorship,
moratorium, or similar Laws affecting the enforcement of creditors' rights
generally and except that the availability of the equitable remedy of specific
performance or injunctive relief is subject to the discretion of the court
before which any proceeding may be brought).
(b) Neither the execution and delivery of this Agreement by
Johnston, nor the consummation by Johnston of the Transactions, nor compliance
by Johnston with any of the provisions hereof, will (i) conflict with or result
in a breach of any provision of Johnston's Certificate of Incorporation or
Bylaws or the certificate or articles of incorporation or bylaws of any
Johnston Subsidiary or any resolution adopted by the board of directors or the
stockholders of any Johnston Entity, or (ii) except as set forth in Section 4.2
of the Johnston Disclosure Memorandum, constitute or result in a Default under,
or require any Consent pursuant to, or result in the creation of any Lien on
any material Asset of any Johnston Entity under, any Contract of any Johnston
Entity, where such Default or Lien, or any failure to obtain such Consent, is
reasonably likely to have, individually or in the aggregate, a Johnston
Material Adverse Effect, or, (iii) subject to receipt of the requisite Consents
referred to in Section 8.1(a), constitute or result in a Default under, or
require any Consent pursuant to, any Law or Order applicable to any Johnston
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Entity or any of their respective material Assets (including any CGW Entity or
any Johnston Entity becoming subject to or liable for the payment of any Tax or
any of the Assets owned by any CGW Entity or any Johnston Entity being
reassessed or revalued by any Taxing authority).
(c) No notice to, filing with, or Consent of, any
Governmental Entity is necessary for the consummation by Johnston of the
Transactions, except for (i) the filing of a premerger notification and report
form by CGW and Johnston under the HSR Act, (ii) the filing with the SEC of (y)
the Schedule TO, and (z) such reports under Section 13(a) of the 1934 Act as
may be required in connection with the Transactions, (iii) the filing of
appropriate documents with the relevant authorities of jurisdictions in which
Johnston is qualified to do business, and (iv) such other notices, filings and
Consents as are disclosed in Section 4.2 of the Johnston Disclosure Memorandum.
4.3 CAPITAL STOCK.
(a) The entire authorized capital stock of Johnston
consists of 23,000,000 shares, of which 20,000,000 are shares of Johnston
Common Stock and 3,000,000 are shares of Johnston Preferred Stock. Of the
Johnston Common Stock, 10,721,872 shares are issued and outstanding and
1,745,819 are held in treasury, and of the Johnston Preferred Stock, no shares
have been issued and are outstanding, except for (i) 325,000 shares which have
been designated as Johnston preferred stock, series 1996, of which no shares of
such Johnston preferred stock, series 1996, are outstanding and no shares are
held in treasury, and (ii) 200,000 shares which have been designated as Series
X Junior Participating Preferred Stock, par value $.01 per share (the "Series X
Preferred Stock"), of which no shares of Series X Preferred Stock are
outstanding and no shares are held in treasury. All of the issued and
outstanding shares of capital stock of Johnston are duly and validly issued and
outstanding and are fully paid and nonassessable under the DGCL. None of the
outstanding shares of capital stock of Johnston have been issued in violation
of any preemptive rights of the current or past stockholders of Johnston.
(b) Except for the shares set forth above, or as disclosed
in Section 4.3(b) of the Johnston Disclosure Memorandum, there are no shares of
capital stock or other equity securities of Johnston outstanding and no
outstanding Johnston Equity Rights. All shares of Johnston Common Stock which
may be issued pursuant to Johnston Equity Rights as described in Section 4.3(b)
of the Johnston Disclosure Memorandum, when issued, will have been duly
authorized, validly issued, fully paid and nonassessable. Set forth on Section
4.3(b) of the Johnston Disclosure Memorandum is a list of the holders of
Johnston Equity Rights, including the number of shares of Johnston Common Stock
issuable upon the exercise of each such Johnston Equity Rights and the exercise
price thereof. Except as set forth in Section 4.3(b) of the Johnston Disclosure
Memorandum, Johnston does not have any outstanding option, warrant,
subscription or other right, agreement or commitment that either (i) obligates
Johnston to issue, sell or transfer, repurchase, redeem or otherwise acquire or
vote any shares of the capital stock of Johnston or (ii) restricts the transfer
of Johnston Common Stock.
4.4 JOHNSTON SUBSIDIARIES. Johnston has disclosed in Section 4.4
of the Johnston Disclosure Memorandum all of the Johnston Subsidiaries that are
corporations (identifying its
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jurisdiction of incorporation, each jurisdiction in which it is qualified
and/or licensed to transact business, and the number of shares owned and
percentage ownership interest represented by such share ownership) and all of
the Johnston Subsidiaries that are general or limited partnerships, limited
liability companies, or other non-corporate entities (identifying the Law under
which such entity is organized, each jurisdiction in which it is qualified
and/or licensed to transact business, and the amount and nature of the
ownership interest therein). Except as disclosed in Section 4.4 of the Johnston
Disclosure Memorandum, Johnston or one of its Subsidiaries owns all of the
issued and outstanding shares of capital stock (or other equity interests) of
each Johnston Subsidiary. No capital stock (or other equity interest) of any
Johnston Subsidiary is or may become required to be issued by reason of any
Johnston Equity Rights, and there are no Contracts by which any Johnston
Subsidiary is bound to issue additional shares of its capital stock (or other
equity interests) or Johnston Equity Rights or by which any Johnston Entity is
or may be bound to transfer any shares of the capital stock (or other equity
interests) of any Johnston Subsidiary. There are no Contracts relating to the
rights of any Johnston Entity to vote or to dispose of any shares of the
capital stock (or other equity interests) of any Johnston Subsidiary. All of
the shares of capital stock (or other equity interests) of each Johnston
Subsidiary held by a Johnston a Johnston Entity are fully paid and
nonassessable under the applicable corporation Law of the jurisdiction in which
such Subsidiary is incorporated or organized and are owned by the Johnston
Entity free and clear of any Lien. Except as disclosed in Section 4.4 of the
Johnston Disclosure Memorandum, each Johnston Subsidiary is a corporation, and
each such Subsidiary is duly organized, validly existing, and (as to
corporations) in good standing under the Laws of the jurisdiction in which it
is incorporated or organized, and has the corporate power and authority
necessary for it to own, lease, and operate its material Assets and to carry on
its business as now conducted. Each Johnston Subsidiary is duly qualified or
licensed to transact business as a foreign corporation in good standing in the
States of the United States and foreign jurisdictions where the character of
its Assets or the nature or conduct of its business requires it to be so
qualified or licensed, except for such jurisdictions in which the failure to be
so qualified or licensed is not reasonably likely to have, individually or in
the aggregate, a Johnston Material Adverse Effect. The minute books and other
organizational documents for each Johnston Subsidiary have been made available
to CGW for its review, and, except as disclosed in Section 4.4 of the Johnston
Disclosure Memorandum, are true and complete in all material respects as in
effect as of the date of this Agreement and accurately reflect all amendments
thereto and all proceedings of the Board of Directors and stockholders thereof.
4.5 SEC FILINGS; FINANCIAL STATEMENTS.
(a) Johnston has timely filed and made available to CGW all
SEC Documents required to be filed by Johnston since January 1, 1996 (the
"Johnston SEC Reports"). The Johnston SEC Reports (i) at the time filed,
complied in all material respects with the applicable requirements of the
Securities Laws and other applicable Laws and (ii) did not, at the time they
were filed (or, if amended or superseded by a filing prior to the date of this
Agreement, then on the date of such filing) contain any untrue statement of a
material fact or omit to state a material fact required to be stated in such
Johnston SEC Reports or necessary in order to make the statements in such
Johnston SEC Reports, in light of the circumstances under which they were made,
not materially misleading. No Johnston Subsidiary is required to file any SEC
Documents.
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(b) Each of the Johnston Financial Statements (including,
in each case, any related notes) contained in the Johnston SEC Reports,
including any Johnston SEC Reports filed after the date of this Agreement until
the Effective Time, complied as to form in all material respects with the
applicable published rules and regulations of the SEC with respect thereto, was
prepared in accordance with GAAP applied on a consistent basis throughout the
periods involved (except as may be indicated in the notes to such financial
statements or, in the case of unaudited interim statements, as permitted by
Form 10-Q of the SEC), and fairly presented in all material respects the
consolidated financial position of Johnston and its Subsidiaries as at the
respective dates and the consolidated results of operations and cash flows for
the periods indicated, except that the unaudited interim financial statements
were or are subject to normal and recurring year-end adjustments which were not
or are not expected to be material in amount or effect.
4.6 ABSENCE OF UNDISCLOSED LIABILITIES. Except as set forth in
Section 4.6 of the Johnston Disclosure Memorandum, no Johnston Entity has any
Liabilities that are reasonably likely to have, individually or in the
aggregate, a Johnston Material Adverse Effect. No Johnston Entity has incurred
or paid any Liability since January 1, 1999, except for such Liabilities
incurred or paid (i) in the ordinary course of business consistent with past
business practice and which are not reasonably likely to have, individually or
in the aggregate, a Johnston Material Adverse Effect or (ii) in connection with
the transactions contemplated by this Agreement. Except as disclosed in Section
4.6 of the Johnston Disclosure Memorandum, no Johnston Entity is directly or
indirectly liable, by guarantee, indemnity, or otherwise, upon or with respect
to, or obligated, by discount or repurchase agreement or in any other way, to
provide funds in respect to, or obligated to guarantee or assume any Liability
for any Person for any amount in excess of $50,000.
4.7 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since January 1, 1999,
except as disclosed in Section 4.7 of the Johnston Disclosure Memorandum, (i)
there have been no events, changes, or occurrences which have had, or are
reasonably likely to have, individually or in the aggregate, a Johnston
Material Adverse Effect, (ii) there has not been any split, combination or
reclassification of any of Johnston's outstanding capital stock or any issuance
or authorization of any issuance of any other securities in respect of, in lieu
of or in substitution for shares of its outstanding capital stock, (iii) there
has not been any material change in the accounting methods, principles or
practices by Johnston or any Johnston Subsidiaries, except insofar as may have
been required by GAAP, and (iv) the Johnston Entities have not taken any
action, or failed to take any action, prior to the date of this Agreement,
which action or failure, if taken after the date of this Agreement, would
represent or result in a material breach or violation of any of the covenants
and agreements of Johnston provided in Section 6.2.
4.8 TAX MATTERS.
(a) All Tax Returns required to be filed by or on behalf of
any of the Johnston Entities have been timely filed or requests for extensions
have been timely filed, granted, and have not expired for periods ended on or
before December 31, 1997, and on or before the date of the most recent fiscal
year end immediately preceding the Effective Time, all Tax Returns filed are
complete and accurate in all material respects. All Taxes shown on filed Tax
Returns have been
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paid. There is no audit examination, deficiency, or refund Litigation with
respect to any Taxes that is reasonably likely to result in a determination
that would have, individually or in the aggregate, a Johnston Material Adverse
Effect, except as reserved against in the Johnston Financial Statements
delivered prior to the date of this Agreement or as disclosed in Section 4.8 of
the Johnston Disclosure Memorandum. Johnston's federal income Tax Returns have
been audited by the IRS and accepted through June 30, 1995. All Taxes and other
Liabilities due with respect to completed and settled examinations or concluded
Litigation have been paid. There are no Liens with respect to Taxes upon any of
the material Assets of the Johnston Entities.
(b) Except as set forth in Section 4.8 of the Johnston
Disclosure Memorandum, none of the Johnston Entities has executed an extension
or waiver of any statute of limitations on the assessment or collection of any
Tax due (excluding such statutes that relate to years currently under
examination by the Internal Revenue Service or other applicable taxing
authorities) that is currently in effect.
(c) The provision for any Taxes due or to become due for
any of the Johnston Entities for the period or periods through and including
the date of the respective Johnston Financial Statements that has been made and
is reflected on such Johnston Financial Statements is sufficient to cover all
such Taxes.
(d) Deferred Taxes of the Johnston Entities have been
provided for in accordance with GAAP.
(e) None of the Johnston Entities is a party to any Tax
allocation or sharing agreement and none of the Johnston Entities has been a
member of an Affiliated group filing a consolidated federal income Tax Return
(other than a group the common parent of which was Johnston) or has any
Liability for Taxes of any Person (other than Johnston and its Subsidiaries)
under Treasury Regulation Section 1.1502-6 (or any similar provision of state,
local or foreign Law) as a transferee or successor or by Contract or otherwise.
(f) Each of the Johnston Entities is in compliance with,
and its records contain all information and documents (including properly
completed IRS Forms W-9) necessary to comply with, all material applicable
information reporting and Tax withholding requirements under federal, state,
and local Tax Laws, and such records identify with specificity all accounts
subject to backup withholding under Section 3406 of the Internal Revenue Code,
except for such instances of noncompliance and such omissions as are not
reasonably likely to have, individually or in the aggregate, a Johnston
Material Adverse Effect.
(g) Except as disclosed in Section 4.8 of the Johnston
Disclosure Memorandum, none of the Johnston Entities has made any payments, is
obligated to make any payments, or is a party to any Contract that could
obligate it to make any payments that would be disallowed as a deduction under
Section 280G or 162(m) of the Internal Revenue Code.
(h) There has not been an ownership change, as defined in
Internal Revenue Code Section 382(g), of the Johnston Entities that occurred
during or after any Taxable Period in
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which the Johnston Entities incurred a net operating loss that carries over to
any Taxable Period ending after November 2, 1997.
(i) No Johnston Entity has or has had in any foreign
country a permanent establishment, as defined in any applicable tax treaty or
convention between the United States and such foreign country.
4.9 ASSETS.
(a) Except as disclosed in Section 4.9 of the Johnston
Disclosure Memorandum or as disclosed or reserved against in the Johnston
Financial Statements delivered prior to the date of this Agreement, the
Johnston Entities have good and marketable title, free and clear of all Liens,
to all of their respective material Assets, except for any such Liens or other
defects of title which are not reasonably likely to have a Johnston Material
Adverse Effect. All material tangible properties used in the businesses of the
Johnston Entities are in good condition, reasonable wear and tear excepted, and
are usable in the ordinary course of business consistent with Johnston's past
practices.
(b) All items of inventory of the Johnston Entities
reflected on the most recent balance sheet included in the Johnston Financial
Statements delivered prior to the date of this Agreement and prior to the
Effective Time consisted and will consist, as applicable, of items of a quality
and quantity usable and salable in the ordinary course of business and conform
to generally accepted standards in the industry in which the Johnston Entities
are a part.
(c) The accounts receivable of the Johnston Entities as set
forth on the most recent balance sheet included in the Johnston Financial
Statements delivered prior to the date of this Agreement or arising since the
date thereof are valid and genuine; have arisen solely out of bona fide sales
of goods, performance of services and other business transactions in the
ordinary course of business consistent with past practice; are not subject to
valid defenses, set-offs or counterclaims; and are collectible within 90 days
after billing at the full recorded amount thereof less, in the case of accounts
receivable appearing on the most recent balance sheet included in the Johnston
Financial Statements delivered prior to the date of this Agreement, the
recorded allowance for collection losses on such balance sheet. The allowance
for collection losses on such balance sheet has been determined in accordance
with GAAP.
(d) All Assets which are material to Johnston's business on
a consolidated basis, held under leases or subleases by any of the Johnston
Entities, are held under valid Contracts enforceable in accordance with their
respective terms (except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, or other Laws affecting the
enforcement of creditors' rights generally and except that the availability of
the equitable remedy of specific performance or injunctive relief is subject to
the discretion of the court before which any proceedings may be brought), and
each such Contract is in full force and effect.
(e) The Johnston Entities currently maintain insurance
substantially similar in amounts, scope, and coverage to that maintained by
other peer organizations. None of the
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Johnston Entities has received notice from any insurance carrier that (i) any
policy of insurance will be canceled or that coverage thereunder will be
reduced or eliminated, or (ii) premium costs with respect to such policies of
insurance will be substantially increased. Except as set forth in Section 4.9
of the Johnston Disclosure Memorandum, there are presently no claims for
amounts exceeding in any individual case $50,000 pending under such policies of
insurance and no notices of claims in excess of such amounts have been given by
any Johnston Entity under such policies.
(f) The Assets of the Johnston Entities include all Assets
required to operate the business of the Johnston Entities as presently
conducted.
4.10 INTELLECTUAL PROPERTY. Each Johnston Entity owns or has a
license to use all of the material Intellectual Property used by such Johnston
Entity in the course of its business. Each Johnston Entity is the owner of or
has a license to any material Intellectual Property sold or licensed to a third
party by such Johnston Entity in connection with such Johnston Entity's
business operations, and such Johnston Entity has the right to convey by sale
or license any material Intellectual Property so conveyed. No Johnston Entity
is in Default under any of its material Intellectual Property licenses. No
proceedings have been instituted, or are pending or, to Johnston's Knowledge,
threatened, which challenge the rights of any Johnston Entity with respect to
material Intellectual Property used, sold or licensed by such Johnston Entity
in the course of its business, nor to Johnston's Knowledge has any person
claimed or alleged any rights to such Intellectual Property. To Johnston's
Knowledge, the conduct of the business of the Johnston Entities does not
infringe any Intellectual Property of any other person. No Johnston Entity is
obligated to pay any recurring royalties to any Person with respect to any such
Intellectual Property. Except as disclosed in Section 4.10 of the Johnston
Disclosure Memorandum, every officer, director, or employee of any Johnston
Entity is a party to a Contract which requires such officer, director or
employee to assign any interest in any Intellectual Property to a Johnston
Entity and to keep confidential any trade secrets, proprietary data, customer
information, or other business information of a Johnston Entity, and, to
Johnston's Knowledge, no such officer, director or employee is party to any
Contract with any Person other than a Johnston Entity which requires such
officer, director or employee to assign any interest in any Intellectual
Property to any Person other than a Johnston Entity or to keep confidential any
trade secrets, proprietary data, customer information, or other business
information of any Person other than a Johnston Entity. Except as disclosed in
Section 4.10 of the Johnston Disclosure Memorandum, to Johnston's Knowledge, no
officer, director or employee of any Johnston Entity is party to any Contract
which restricts or prohibits such officer, director or employee from engaging
in activities competitive with any Person, including any Johnston Entity.
4.11 ENVIRONMENTAL MATTERS.
(a) Except as set forth in Section 4.11 of the Johnston
Disclosure Memorandum, each Johnston Entity, its Participation Facilities, and
its Operating Properties are, and have been during any Johnston Entity's tenure
as an owner or operator thereof, and to Johnston's Knowledge were prior to such
tenure, in compliance with all Environmental Laws, except for violations which
are not reasonably likely to have, individually or in the aggregate, a Johnston
Material Adverse Effect.
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(b) Except as set forth in Section 4.11 of the Johnston
Disclosure Memorandum, there is no Litigation pending or, to the Knowledge of
Johnston, threatened before any court, governmental agency, or authority or
other forum in which any Johnston Entity or any of its Operating Properties or
Participation Facilities (or Johnston in respect of such Operating Property or
Participation Facility) has been or, with respect to threatened Litigation, may
be named as a defendant (i) for alleged noncompliance with any Environmental
Law or (ii) relating to the release, discharge, spillage, or disposal into the
environment of any Hazardous Material, whether or not occurring at, on, under,
adjacent to, or affecting (or reasonably expected to affect) a site owned,
leased, or operated by any Johnston Entity or any of its Operating Properties
or Participation Facilities, except for such Litigation pending or threatened
that is not reasonably likely to have, individually or in the aggregate, a
Johnston Material Adverse Effect, nor, to Johnston's Knowledge, is there any
reasonable basis for any Litigation of a type described in this sentence,
except such as is not reasonably likely to have, individually or in the
aggregate, a Johnston Material Adverse Effect.
(c) Except as set forth in Section 4.11 of the Johnston
Disclosure Memorandum during the period of (i) any Johnston Entity's ownership
or operation of any of their respective current properties, (ii) any Johnston
Entity's participation in the management of any Participation Facility, or
(iii) to Johnston's Knowledge, any Johnston Entity's holding of a security
interest in an Operating Property, there have been no releases, discharges,
spillages, or disposals of Hazardous Material in, on, under, adjacent to, or
affecting (or potentially affecting) such properties, except such as are not
reasonably likely to have, individually or in the aggregate, a Johnston
Material Adverse Effect. Prior to the period of (i) any Johnston Entity's
ownership or operation of any of their respective current properties, (ii) any
Johnston Entity's participation in the management of any Participation
Facility, or (iii) to Johnston's Knowledge, any Johnston Entity's holding of a
security interest in a Operating Property, to the Knowledge of Johnston, there
were no releases, discharges, spillages, or disposals of Hazardous Material in,
on, under, or affecting any such property, Participation Facility or Operating
Property, except such as are not reasonably likely to have, individually or in
the aggregate, a Johnston Material Adverse Effect.
4.12 COMPLIANCE WITH LAWS. Each Johnston Entity has in effect all
material Permits necessary for it to own, lease, or operate its material Assets
and to carry on its business as now conducted, and there has occurred no
Default under any such Permit, other than Defaults which are not reasonably
likely to have, individually or in the aggregate, a Johnston Material Adverse
Effect. Except as disclosed in Section 4.12 of the Johnston Disclosure
Memorandum, none of the Johnston Entities:
(a) is in Default under any of the provisions of its
Certificate of Incorporation or Bylaws (or other governing
instruments);
(b) Except for the environmental issues described in Section
4.11 of the Johnston Disclosure Memorandum, is in Default under any
Laws, Orders, or Permits applicable to its business or employees
conducting its business, except for Defaults which
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are not reasonably likely to have, individually or in the aggregate, a
Johnston Material Adverse Effect; or
(c) Except for the environmental issues described in Section
4.11 of the Johnston Disclosure Memorandum, since January 1, 1995, has
received any notification or communication from any agency or
department of federal, state, or local government or any Regulatory
Authority or the staff thereof (i) asserting that any Johnston Entity
is not in compliance with any of the Laws or Orders which such
governmental authority or Regulatory Authority enforces, where such
noncompliance is reasonably likely to have, individually or in the
aggregate, a Johnston Material Adverse Effect, (ii) threatening to
revoke any material Permits, the revocation of which is reasonably
likely to have, individually or in the aggregate, a Johnston Material
Adverse Effect, or (iii) requiring any Johnston Entity to enter into
or consent to the issuance of a cease and desist order, formal
agreement, directive, commitment, or memorandum of understanding, or
to adopt any Board resolution or similar undertaking.
Copies of all material reports, correspondence, notices and other documents
relating to any inspection, audit, monitoring or other form of review or
enforcement action by a Regulatory Authority, which are in Johnston's
possession, have been made available to CGW.
4.13 LABOR RELATIONS. No Johnston Entity is the subject of any
Litigation asserting that it or any other Johnston Entity has committed an
unfair labor practice (within the meaning of the National Labor Relations Act
or comparable state law) or seeking to compel it or any other Johnston Entity
to bargain with any labor organization as to wages or conditions of employment,
nor is any Johnston Entity party to any collective bargaining agreement, nor is
there any strike or other labor dispute involving any Johnston Entity, pending
or, to Johnston's Knowledge, threatened, or to the Knowledge of Johnston, is
there any activity involving any Johnston Entity's employees seeking to certify
a collective bargaining unit or engaging in any other organization activity.
4.14 EMPLOYEE BENEFIT PLANS.
(a) Johnston has disclosed in Section 4.14 of the Johnston
Disclosure Memorandum, and has delivered or made available to CGW prior to the
execution of this Agreement copies in each case of, all pension, retirement,
profit-sharing, deferred compensation, stock option, employee stock ownership,
severance pay, vacation, bonus, or other incentive plan, all other written
employee programs, arrangements, or agreements, all medical, vision, dental, or
other health plans, all life insurance plans, and all other employee benefit
plans or fringe benefit plans, including "employee benefit plans" as that term
is defined in Section 3(3) of ERISA, currently adopted, maintained by,
sponsored in whole or in part by, or contributed to by any Johnston Entity or
ERISA Affiliate thereof for the benefit of employees, retirees, dependents,
spouses, directors, independent contractors, or other beneficiaries and under
which employees, retirees, dependents, spouses, directors, independent
contractors, or other beneficiaries are eligible to participate (collectively,
the "Johnston Benefit Plans"). Any of the Johnston Benefit Plans which is an
"employee pension benefit plan," as that term is defined in Section 3(2) of
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ERISA, is referred to herein as a "Johnston ERISA Plan." Each Johnston ERISA
Plan which is also a "defined benefit plan" (as defined in Section 414(j) of
the Internal Revenue Code) is referred to herein as an "Johnston Pension Plan."
No Johnston Pension Plan is or has been a multiemployer plan within the meaning
of Section 3(37) of ERISA.
(b) All Johnston Benefit Plans are in compliance with the
applicable terms of ERISA, the Internal Revenue Code, and any other applicable
Laws the breach or violation of which are reasonably likely to have,
individually or in the aggregate, a Johnston Material Adverse Effect. Each
Johnston ERISA Plan which is intended to be qualified under Section 401(a) of
the Internal Revenue Code has received a favorable determination letter from
the Internal Revenue Service, and Johnston is not aware of any circumstances
likely to result in revocation of any such favorable determination letter. No
Johnston Entity has engaged in a transaction with respect to any Johnston
Benefit Plan that, assuming the taxable period of such transaction expired as
of the date hereof, would subject any Johnston Entity to a Tax imposed by
either Section 4975 of the Internal Revenue Code or Section 502(i) of ERISA.
(c) Except as set forth in Section 4.14(c) of the Johnston
Disclosure Memorandum, no Johnston Pension Plan has any "unfunded current
liability," as that term is defined in Section 302(d)(8)(A) of ERISA, and the
fair market value of the assets of any such plan exceeds the plan's "benefit
liabilities," as that term is defined in Section 4001(a)(16) of ERISA, when
determined under actuarial factors that would apply if the plan terminated in
accordance with all applicable legal requirements. Since the date of the most
recent actuarial valuation, there has been (i) no material change in the
financial position of any Johnston Pension Plan, (ii) no change in the
actuarial assumptions with respect to any Johnston Pension Plan, and (iii) no
increase in benefits under any Johnston Pension Plan as a result of plan
amendments or changes in applicable Law which is reasonably likely to have,
individually or in the aggregate, a Johnston Material Adverse Effect or
materially adversely affect the funding status of any such plan. Neither any
Johnston Pension Plan nor any "single-employer plan," within the meaning of
Section 4001(a)(15) of ERISA, currently or formerly maintained by any Johnston
Entity, or the single-employer plan of any entity which is considered one
employer with Johnston under Section 4001 of ERISA or Section 414 of the
Internal Revenue Code or Section 302 of ERISA (whether or not waived) (an
"ERISA Affiliate") has an "accumulated funding deficiency" within the meaning
of Section 412 of the Internal Revenue Code or Section 302 of ERISA. No
Johnston Entity has provided, or is required to provide, security to a Johnston
Pension Plan or to any single-employer plan of an ERISA Affiliate pursuant to
Section 401(a)(29) of the Internal Revenue Code.
(d) No Liability under Subtitle C or D of Title IV of ERISA
has been or is expected to be incurred by any Johnston Entity with respect to
any ongoing, frozen, or terminated single-employer plan or the single-employer
plan of any ERISA Affiliate. No Johnston Entity has incurred any withdrawal
Liability with respect to a multiemployer plan under Subtitle B of Title IV of
ERISA (regardless of whether based on contributions of an ERISA Affiliate). No
notice of a "reportable event," within the meaning of Section 4043 of ERISA for
which the 30-day reporting requirement has not been waived, has been required
to be filed for any Johnston Pension Plan or by any ERISA Affiliate within the
12-month period ending on the date hereof.
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(e) Except as disclosed in Section 4.14 of the Johnston
Disclosure Memorandum, no Johnston Entity has any Liability for retiree health
and life benefits under any of the Johnston Benefit Plans and there are no
restrictions on the rights of such Johnston Entity to amend or terminate any
such retiree health or benefit Plan without incurring any Liability thereunder.
(f) Except as disclosed in Section 4.14 of the Johnston
Disclosure Memorandum, neither the execution and delivery of this Agreement nor
the consummation of the Transactions will (i) result in any payment (including
severance, unemployment compensation, golden parachute, or otherwise) becoming
due to any director or any employee of any Johnston Entity from any Johnston
Entity under any Johnston Benefit Plan or otherwise, (ii) increase any benefits
otherwise payable under any Johnston Benefit Plan, or (iii) result in any
acceleration of the time of payment or vesting of any such benefit.
(g) The actuarial present values of all accrued deferred
compensation entitlements (including entitlements under any executive
compensation, supplemental retirement, or employment agreement) of employees
and former employees of any Johnston Entity and their respective beneficiaries,
other than entitlements accrued pursuant to funded retirement plans subject to
the provisions of Section 412 of the Internal Revenue Code or Section 302 of
ERISA, have been fully reflected on the Johnston Financial Statements to the
extent required by and in accordance with GAAP.
4.15 MATERIAL CONTRACTS. Except as disclosed in Section 4.15 of
the Johnston Disclosure Memorandum or otherwise reflected in the Johnston
Financial Statements, none of the Johnston Entities, nor any of their
respective Assets, businesses, or operations, is a party to, or is bound or
affected by, or receives benefits under, (i) any employment, severance,
termination, consulting, or retirement Contract providing for aggregate
payments to any Person in any calendar year in excess of $50,000, (ii) any
Contract relating to the borrowing of money by any Johnston Entity or the
guarantee by any Johnston Entity of any such obligation (other than Contracts
evidencing trade payables and Contracts relating to borrowings or guarantees
made in the ordinary course of business), (iii) any Contract which prohibits or
restricts any Johnston Entity from engaging in any business activities in any
geographic area, line of business or otherwise in competition with any other
Person, (iv) any Contract between or among Johnston Entities, (v) any Contract
involving Intellectual Property (other than Contracts entered into in the
ordinary course with customers and "shrink-wrap" software licenses), (vi) any
Contract relating to the provision of data processing, network communication,
or other technical services to or by any Johnston Entity, (vii) any Contract
relating to the purchase or sale of any goods or services (other than Contracts
entered into in the ordinary course of business and involving payments under
any individual Contract not in excess of $100,000), (viii) any agreement with
any holder (or Affiliate thereof) of 5% or more of any class of securities of
Johnston or any Johnston Entity and (ix) any other Contract or amendment
thereto that would be required to be filed as an exhibit to a Form 10-K filed
by Johnston with the SEC as of the date of this Agreement (together with all
Contracts referred to in Sections 4.9 and 4.14(a), the "Johnston Contracts").
With respect to each Johnston Contract and except as disclosed in Section 4.15
of the Johnston Disclosure Memorandum:
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(a) the Contract is in full force and effect; (b) no Johnston Entity is in
Default thereunder, other than Defaults which are not reasonably likely to
have, individually or in the aggregate, a Johnston Material Adverse Effect, (c)
no Johnston Entity has repudiated or waived any material provision of any such
Contract; and (d) no other party to any such Contract is, to the Knowledge of
Johnston, in Default in any respect, other than Defaults which are not
reasonably likely to have, individually or in the aggregate, a Johnston
Material Adverse Effect, or has repudiated or waived any material provision
thereunder. Except as set forth in Section 4.15 of the Johnston Disclosure
Memorandum, all of the indebtedness of any Johnston Entity for money borrowed
is prepayable at any time by such Johnston Entity without penalty or premium.
4.16 LEGAL PROCEEDINGS. There is no Litigation instituted or
pending, or, to the Knowledge of Johnston, threatened (or unasserted but
considered probable of assertion and which if asserted would have at least a
reasonable probability of an unfavorable outcome) against any Johnston Entity,
or against any director, employee or employee benefit plan of any Johnston
Entity, or against any material Asset, interest, or right of any of them, that
is reasonably likely to have, individually or in the aggregate, a Johnston
Material Adverse Effect, nor are there any Orders of any Regulatory
Authorities, other governmental authorities, or arbitrators outstanding against
any Johnston Entity, that are reasonably likely to have, individually or in the
aggregate, a Johnston Material Adverse Effect. Section 4.16 of the Johnston
Disclosure Memorandum contains a summary of all Litigation as of the date of
this Agreement to which any Johnston Entity is a party and which names a
Johnston Entity as a defendant or cross-defendant or for which, to Johnston's
Knowledge, any Johnston Entity has any potential Liability.
4.17 REPORTS. Since January 1, 1996, or the date of organization
if later, each Johnston Entity has timely filed all reports and statements,
together with any amendments required to be made with respect thereto, that it
was required to file with Regulatory Authorities (except failures to file which
are not reasonably likely to have, individually or in the aggregate, a Johnston
Material Adverse Effect). As of their respective dates, each of such reports
and documents, including the financial statements, exhibits, and schedules
thereto, complied in all material respects with all applicable Laws. As of its
respective date, each such report and document did not, in all material
respects, contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
made therein, in light of the circumstances under which they were made, not
materially misleading.
4.18 STATEMENTS TRUE AND CORRECT. No statement, certificate,
instrument, or other writing furnished or to be furnished by any Johnston
Entity or any Affiliate thereof to CGW pursuant to this Agreement or in
connection with the Transactions contains or will contain, when considered in
light of all information provided to CGW pursuant hereto, any untrue statement
of material fact or will omit to state a material fact necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. None of the information supplied or to be supplied by Johnston,
or any of its officers, directors, employees, representatives or agents, for
inclusion or incorporation by reference in the Offer Documents or the Schedule
14D-9 including any amendments or supplements thereto, will at the respective
times the Offer Documents or the Schedule 14D-9 are filed with the SEC or first
published, sent or given to Johnston's stockholders, contain any statement
which, at such time and in light of the circumstances under which it is made,
is false or misleading with respect to any material fact, or, in light of the
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circumstances under which they were made, omit to state any material fact
necessary in order to make the statements therein not false or misleading;
provided, that Johnston makes no representation or warranty with respect to
information that has been or will be supplied in writing by or on behalf of
CGW, Purchaser or any CGW Subsidiaries, or their officers, directors,
employees, representatives or agents, for inclusion or incorporation by
reference in any of the foregoing documents. The Schedule 14D-9 and any
amendments or supplements thereto will comply in all material respects with the
applicable provisions of the 1934 Act and the rules and regulations thereunder
and all other documents that any Johnston Entity or any Affiliate thereof is
responsible for filing with any Regulatory Authority in connection with the
Transactions will comply as to form in all material respects with the
provisions of applicable Law.
4.19 REGULATORY MATTERS. No Johnston Entity or any Affiliate
thereof has taken or agreed to take any action or has any Knowledge of any fact
or circumstance that is reasonably likely to materially impede or delay receipt
of any Consents of Regulatory Authorities referred to in Section 8.1(a) or
result in the imposition of a condition or restriction of the type referred to
in the last sentence of such Section.
4.20 STATE TAKEOVER LAWS. Each Johnston Entity has taken all
necessary action to exempt the transactions contemplated by this Agreement
from, or if necessary to challenge the validity or applicability of, any
applicable "moratorium," "fair price," "business combination," "control share,"
or other anti-takeover Laws (collectively, "Takeover Laws").
4.21 CHARTER PROVISIONS. Each Johnston Entity has taken all
action so that the entering into of this Agreement and the consummation of the
Transactions do not and will not result in the grant of any rights to any
Person under the Certificate of Incorporation, Bylaws or other governing
instruments of any Johnston Entity or restrict or impair the ability of CGW or
any of its Subsidiaries to vote, or otherwise to exercise the rights of a
stockholder with respect to, shares of any Johnston Entity that may be directly
or indirectly acquired or controlled by them.
4.22 OPINION OF FINANCIAL ADVISOR. Johnston has received the
opinion of The Robinson-Humphrey Company, LLC, dated the date of this
Agreement, to the effect that the consideration to be received by the holders
of Johnston Common Stock is fair, from a financial point of view, to such
holders, a signed copy of which has been delivered to CGW.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents and warrants to Johnston as follows:
5.1 ORGANIZATION, STANDING, AND POWER. Purchaser is a corporation
duly organized, validly existing, and in good standing under the Laws of the
State of Delaware, and has the corporate power and authority to carry on its
business as now conducted and to own,
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lease and operate its material Assets. Purchaser is duly qualified or licensed
to transact business as a foreign corporation in good standing in the States of
the United States and foreign jurisdictions where the character of its Assets
or the nature or conduct of its business requires it to be so qualified or
licensed, except for such jurisdictions in which the failure to be so qualified
or licensed is not reasonably likely to have, individually or in the aggregate,
a Purchaser Material Adverse Effect.
5.2 AUTHORITY; NO BREACH BY AGREEMENT.
(a) Purchaser has the corporate power and authority
necessary to execute, deliver and perform its obligations under this Agreement
and to consummate the Transactions. The execution, delivery and performance of
this Agreement and the consummation of the transactions contemplated herein
have been duly and validly authorized by all necessary corporate action in
respect thereof on the part of Purchaser. This Agreement represents a legal,
valid, and binding obligation of Purchaser, enforceable against Purchaser in
accordance with its terms (except in all cases as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, receivership,
conservatorship, moratorium, or similar Laws affecting the enforcement of
creditors' rights generally and except that the availability of the equitable
remedy of specific performance or injunctive relief is subject to the
discretion of the court before which any proceeding may be brought).
(b) Neither the execution and delivery of this Agreement by
Purchaser, nor the consummation by Purchaser of the Transactions, nor
compliance by Purchaser with any of the provisions hereof, will, subject to
receipt of the requisite Consents referred to in Section 8.1(a), constitute or
result in a Default under, or require any Consent pursuant to, any Law or Order
applicable to Purchaser.
(c) No notice to, filing with, or Consent of, any
Governmental Entity is necessary for the consummation by Purchaser of the
Transactions, except for (i) the filing of a premerger notification and report
form by Purchaser under the HSR Act, (ii) the filing with the SEC of the Offer
Documents and such reports under Sections 13 and 16(a) of the 1934 Act as may
be required in connection with the Transactions, and (iii) such other notices,
filings and Consents as may be required under the Takeover Laws or "blue-sky"
Laws of various states.
5.3 LEGAL PROCEEDINGS. There is no Litigation instituted or
pending, or, to the Knowledge of Purchaser, threatened (or unasserted but
considered probable of assertion and which if asserted would have at least a
reasonable probability of an unfavorable outcome) against Purchaser, that is
reasonably likely to prevent, materially delay or materially impair the ability
of Purchaser to consummate the transactions contemplated hereby.
5.4 STATEMENTS TRUE AND CORRECT. No statement, certificate,
instrument or other writing furnished or to be furnished by Purchaser or any
Affiliate thereof to Johnston pursuant to this Agreement contains or will
contain, when considered in light of all information provided to Johnston
pursuant hereto, any untrue statement of material fact or will omit to state a
material fact necessary to make the statements therein, in light of the
circumstances under which they were
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made, not misleading. None of the information supplied or to be supplied by
Purchaser, or any of its officers, directors, employees, representatives or
agents for inclusion or incorporation by reference in the Offer Documents or
the Schedule 14D-9 including any amendments or supplements thereto, will at the
respective times they are filed with the SEC or first published or sent or
given to Johnston's stockholders, contain any statement which, at such time and
in light of the circumstances under which it is made, is false or misleading
with respect to any material fact, or, in light of the circumstances under
which they were made, omit to state any material fact necessary in order to
make the statements therein not false or misleading. Notwithstanding the
foregoing, Purchaser does not make any representation or warranty with respect
to the information that has been supplied in writing by or on behalf of any
Johnston Entity or their respective officers, directors, employees,
representatives or agents for inclusion or incorporation by reference in any of
the foregoing documents. The Offer Documents and any amendments or supplements
thereto will comply in all material respects with the applicable provisions of
the 1934 Act and the rules and regulations thereunder and all other documents
that Purchaser or any Affiliate thereof is responsible for filing with any
Regulatory Authority in connection with the Transactions will comply as to form
in all material respects with the provisions of applicable Law.
5.5 REGULATORY MATTERS. Neither Purchaser nor any Affiliate
thereof has taken or agreed to take any action or has any Knowledge of any fact
or circumstance that is reasonably likely to materially impede or delay receipt
of any Consents of Regulatory Authorities referred to in Section 8.1(a) or
result in the imposition of a condition or restriction of the type referred to
in the last sentence of such Section.
5.6 COMMITMENT LETTER. Purchaser has received a commitment
letter, dated the date hereof, from a lender to restructure the Bank Credit
Agreement, dated as of March 28, 1996, as amended, between Johnston, the
Johnston Subsidiaries 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, on terms and conditions satisfactory to
Purchaser.
5.7 INVESTMENT INTENT. Purchaser is acquiring the Additional
Common Stock and Series A Preferred Stock to be issued pursuant to Article 3 of
this Agreement for investment only, for Purchaser's own account and not as a
nominee or agent, and not with the view to, or for resale in connection with,
any distribution thereof or participation therein. Purchaser is an "accredited
investor" as such term is defined in Rule 501(a) under the Securities Act.
Purchaser understands that the shares of Johnston Common Stock and Series A
Preferred Stock to be issued pursuant to Article 3 of this Agreement have not
been, and will not be, registered under the 1933 Act in reliance upon the
representations set forth herein.
ARTICLE 6
CONDUCT OF BUSINESS PENDING CONSUMMATION
6.1 AFFIRMATIVE COVENANTS OF JOHNSTON. From the date of this
Agreement until the earlier of the termination of this Agreement or the time
designees of Purchaser have been elected to and constitute a majority of the
Board of Directors of Johnston (the "Appointment Date"),
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unless the prior written consent of Purchaser shall have been obtained, and
except as otherwise expressly contemplated herein, Johnston shall and shall
cause each of its Subsidiaries to (a) operate its business only in the usual,
regular, and ordinary course, (b) preserve intact its business organization and
material Assets and maintain its material rights, and (c) take no action which
would (i) materially adversely affect the ability of any Party to obtain any
Consents required for the Transactions without imposition of a condition or
restriction of the type referred to in the last sentences of Section 8.1(a) or
8.1(b), (ii) except as otherwise permitted by Section 7.9, cause any of the
conditions to the Offers set forth in Exhibit 1, not to be satisfied, or (iii)
materially adversely affect the ability of any Party to perform its covenants
and agreements under this Agreement.
6.2 NEGATIVE COVENANTS OF JOHNSTON. From the date of this
Agreement until the earlier of the termination of this Agreement or the
Appointment Date, unless the prior written consent of Purchaser shall have been
obtained, and except as otherwise expressly contemplated herein, Johnston
covenants and agrees that it will not do or agree or commit to do, or permit
any of its Subsidiaries to do or agree or commit to do, any of the following:
(a) amend the Certificate of Incorporation, Bylaws or other
governing instruments of any Johnston Entity, or
(b) incur any additional debt obligation or other obligation
for borrowed money (other than indebtedness of a Johnston Entity to
another Johnston Entity) in excess of an aggregate of $100,000 (for
all the Johnston Entities on a consolidated basis) except in the
ordinary course of the business of the Johnston Entities consistent
with past practices, or impose, or suffer the imposition, on any
material Asset of any Johnston Entity of any Lien or permit any such
Lien to exist (other than in connection with Liens in effect as of the
date hereof that are disclosed in the Johnston Disclosure Memorandum);
or
(c) repurchase, redeem, or otherwise acquire or exchange
(other than exchanges in the ordinary course under employee benefit
plans), directly or indirectly, any shares, or any securities
convertible into any shares, of the capital stock of any Johnston
Entity, or declare or pay any dividend or make any other distribution
in respect of Johnston's capital stock; or
(d) except for this Agreement, or pursuant to the exercise of
stock options outstanding as of the date hereof and pursuant to the
terms thereof in existence on the date hereof, issue, sell, pledge,
encumber, authorize the issuance of, enter into any Contract to issue,
sell, pledge, encumber, or authorize the issuance of, or otherwise
permit to become outstanding, any additional shares of Johnston Common
Stock or any other capital stock of any Johnston Entity, or any stock
appreciation rights, or any option, warrant, or other Johnston Equity
Right; or
(e) adjust, split, combine or reclassify any capital stock of
any Johnston Entity or issue or authorize the issuance of any other
securities in respect of or in substitution for shares of Johnston
Common Stock, or sell, lease, mortgage or otherwise dispose of or
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otherwise encumber (x) any shares of capital stock of any Johnston
Subsidiary (unless any such shares of stock are sold or otherwise
transferred to another Johnston Entity) or (y) any Asset having a book
value in excess of $25,000 other than in the ordinary course of
business for reasonable and adequate consideration; or
(f) purchase any securities or make any material investment,
either by purchase of stock of securities, contributions to capital,
Asset transfers, or purchase of any Assets, in any Person other than a
wholly owned Johnston Subsidiary, or otherwise acquire direct or
indirect control over any Person, other than in connection with (i)
foreclosures in the ordinary course of business, or (ii) the creation
of new wholly owned Subsidiaries organized to conduct or continue
activities otherwise permitted by this Agreement; or
(g) grant any increase in compensation or benefits to the
employees or officers of any Johnston Entity, except in accordance
with past practice disclosed in Section 6.2(g) of the Johnston
Disclosure Memorandum or as required by Law; pay any severance or
termination pay or any bonus other than pursuant to written policies
or written Contracts in effect on the date of this Agreement and
disclosed in Section 6.2(g) of the Johnston Disclosure Memorandum; and
enter into or amend any severance agreements with officers of any
Johnston Entity; grant any material increase in fees or other
increases in compensation or other benefits to directors of any
Johnston Entity except in accordance with past practice disclosed in
Section 6.2(g) of the Johnston Disclosure Memorandum; or
(h) enter into or amend any employment Contract between any
Johnston Entity and any Person (unless such amendment is required by
Law) that the Johnston Entity does not have the unconditional right to
terminate without Liability (other than Liability for services already
rendered), at any time on or after the Effective Time; or
(i) adopt any new employee benefit plan of any Johnston
Entity or terminate or withdraw from, or make any material change in
or to, any existing employee benefit plans of any Johnston Entity
other than any such change that is required by Law or that, in the
opinion of counsel, is necessary or advisable to maintain the tax
qualified status of any such plan, or make any distributions from such
employee benefit plans, except as required by Law, the terms of such
plans or consistent with past practice; or
(j) make any significant change in any Tax or accounting
methods or systems of internal accounting controls, except as may be
appropriate to conform to changes in Tax Laws or regulatory accounting
requirements or GAAP; or
(k) commence any Litigation other than in accordance with
past practice, or settle any Litigation involving any Liability of any
Johnston Entity for material money damages or restrictions upon the
operations of any Johnston Entity; or
(l) enter into, modify, amend or terminate any material
Contract or waive, release, compromise or assign any material rights
or claims; or
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(m) authorize any of, or commit or agree to take any of,
the foregoing actions.
6.3 ADVERSE CHANGES IN CONDITION. Johnston agrees to give written
notice promptly to CGW and Purchaser upon becoming aware of the occurrence or
impending occurrence of any event or circumstance relating to it or any of its
Subsidiaries which (i) is reasonably likely to have, individually or in the
aggregate, a Johnston Material Adverse Effect or (ii) would cause or constitute
a material breach of any of its representations, warranties, or covenants
contained herein, and to use its reasonable efforts to prevent or promptly to
remedy the same.
ARTICLE 7
ADDITIONAL AGREEMENTS
7.1 MERGER WITHOUT MEETING OF STOCKHOLDERS. In the event that
Purchaser and any Affiliates shall acquire in the aggregate at least 90% of the
outstanding shares of the voting capital stock of Johnston, pursuant to the
Offer or otherwise (including the purchase of Additional Common Stock and
Series A Preferred Stock pursuant to Article 3 of this Agreement), the parties
hereto shall, at the request of Purchaser and subject to the provisions of this
Article 7, take all necessary and appropriate action to cause a wholly owned
subsidiary of Purchaser to be merged with and into Johnston, with Johnston as
the surviving corporation (the "Merger"), without a meeting of stockholders of
Johnston, in accordance with the DGCL; such that each share of capital stock of
the wholly owned subsidiary of Purchaser owned by Purchaser or its Affiliates
shall be cancelled and cease to be outstanding and each share of Johnston
Common Stock, other than those held by CGW, Purchaser or their Affiliates,
shall be exchanged for cash consideration equal to the Offer Price.
7.2 ALTERNATIVE MERGER. In the event that Purchaser and any
Affiliates shall acquire in the aggregate at least 50.1% of the outstanding
shares of the voting capital stock of Johnston, pursuant to the Offer or
otherwise (including the purchase of the Additional Common Stock and Series A
Preferred Stock pursuant to Article 3 of this Agreement), then as soon as
practicable after the Closing the parties hereto shall, subject to the
provisions of this Article 7, take all necessary and appropriate action to
cause a wholly owned subsidiary of Purchaser to be merged with and into
Johnston, with Johnston as the surviving corporation (the "Alternative Merger")
without a meeting of stockholders of Johnston, in accordance with the DGCL;
such that each share of capital stock of the wholly owned subsidiary of
Purchaser owned by Purchaser or its Affiliates shall be cancelled and cease to
be outstanding.
7.3 APPLICATIONS; ANTITRUST NOTIFICATION. Purchaser shall
promptly prepare and file, and Johnston shall cooperate in the preparation and,
where appropriate, filing of, applications with all Regulatory Authorities
having jurisdiction over the transactions contemplated by this Agreement
seeking the requisite Consents necessary to consummate the transactions
contemplated by this Agreement. To the extent required by the HSR Act, each of
the Parties will promptly file with the United States Federal Trade Commission
and the United States Department of Justice the notification and report form
required for the Transactions and any supplemental or
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additional information which may reasonably be requested in connection
therewith pursuant to the HSR Act and will comply in all material respects with
the requirements of the HSR Act. The Parties shall deliver to each other copies
of all filings, correspondence and orders to and from all Regulatory
Authorities in connection with the Transactions.
7.4 FILINGS WITH STATE OFFICES. If required pursuant to Sections
7.1 or 7.2, Johnston shall execute and file the necessary Certificate of Merger
with the Secretary of State of the State of Delaware.
7.5 AGREEMENT AS TO EFFORTS TO CONSUMMATE. Subject to the terms
and conditions of this Agreement, each Party agrees to use, and to cause its
Subsidiaries to use, its reasonable efforts to take, or cause to be taken, all
actions, and to do, or cause to be done, all things necessary, proper, or
advisable under applicable Laws to consummate and make effective, as soon as
reasonably practicable after the date of this Agreement, the transactions
contemplated by this Agreement, including using its reasonable efforts to lift
or rescind any Order adversely affecting its ability to consummate the
transactions contemplated herein and to cause to be satisfied the conditions
referred to in Exhibit 1 and in Article 8; provided, that nothing herein shall
preclude either Party from exercising its rights under this Agreement. Each
Party shall use, and shall cause each of its Subsidiaries to use, its
reasonable efforts to obtain all Consents necessary or desirable for the
consummation of the transactions contemplated by this Agreement.
7.6 BOARD OF DIRECTORS OF JOHNSTON.
(a) Promptly upon the purchase of and payment for shares of
Johnston Common Stock and Series A Preferred Stock by Purchaser pursuant to
Article 1 and Article 3 hereof, which represent at least a majority of the
outstanding shares of Johnston's capital stock, Purchaser shall be entitled to
designate such number of directors, rounded up to the next whole number, on the
Board of Directors of Johnston as is equal to the product of the total number
of directors on such Board (giving effect to the directors designated by
Purchaser pursuant to this sentence) multiplied by the percentage that the
number of shares of Johnston capital stock so purchased bears to the total
number of shares of Johnston capital stock then outstanding. In furtherance
thereof, Johnston shall, upon the request of Purchaser, use its commercially
reasonable efforts promptly either to increase the size of its Board of
Directors, including amending the By-laws of Johnston if necessary to so
increase the size of Johnston's Board of Directors, or secure the resignations
of such number of its incumbent directors, or both, as is necessary to enable
Purchaser's designees to be so elected to Johnston's Board of Directors, and
shall take all actions available to Johnston to cause Purchaser's designees to
be so elected. At such time, Johnston shall, if requested by Purchaser, also
cause persons designated by Purchaser to constitute at least the same
percentage (rounded up to the next whole number) as is on Johnston's Board of
Directors of (i) each committee of Johnston's Board of Directors, (ii) of each
Johnston Subsidiary and (iii) each committee (or similar body) of each such
board.
(b) Johnston shall promptly take all actions required
pursuant to Section 14(f) of the 1934 Act and Rule 14f-1 promulgated thereunder
in order to fulfill its obligations under Section 7.6(a), including mailing to
stockholders the information required by Section 14(f) of the
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1934 Act and Rule 14f-1 as is necessary to enable CGW's designees to be elected
to Johnston's Board of Directors. Purchaser shall supply Johnston and be solely
responsible for any information with respect to it and its nominees, officers,
directors and Affiliates required by this Section 7.6(b). The rights and
obligations provided for in this Section 7.6(b) are in addition to and shall
not limit any rights which Purchaser or any of its Affiliates may have as a
holder or beneficial owner of shares of Johnston Common Stock as a matter of
law with respect to the election of directors or otherwise.
7.7 PAYMENT IN RESPECT OF JOHNSTON EQUITY RIGHTS. As soon as
practicable after the date of this Agreement and following the effectiveness of
the Merger or the Alternative Merger, the Board of Directors of Johnston (or if
appropriate, any committee administering the Johnston Stock Plans) shall adopt
such resolutions or take such other actions as are required to adjust the terms
of all outstanding Johnston Equity Rights to purchase shares of Johnston Common
Stock (except for those Johnston Equity Rights set forth on Schedule 7.7, the
"Retained Johnston Equity Rights") to provide that each Johnston Equity Right
(excluding the Retained Johnston Equity Rights) outstanding immediately prior
to the acceptance for payment of Shares pursuant to the Offer shall be
cancelled and the holder thereof shall be entitled to receive a cash payment
from Purchaser at the Effective Time of an amount equal to (i) the excess, if
any, of (x) the price per Share to be paid pursuant to the Offer over (y) the
exercise or conversion price per Share of such Johnston Equity Right,
multiplied by (ii) the number of Shares for which such Johnston Equity Right
shall not theretofore been exercised (the "Option Consideration"). Until
surrendered for payment in accordance with the provisions of this Section 7.7,
all Johnston Equity Rights (excluding the Retained Johnston Equity Rights)
shall, from and after the Effective Time, represent for all purposes only the
right to receive the consideration provided in this Section 7.7, without any
interest thereon.
Johnston shall use its best efforts to obtain all necessary Consents or
releases from holders of Johnston Equity Rights, to the extent required by the
terms of the plans or agreements governing such Johnston Equity Rights, as the
case may be, or pursuant to the terms of any Johnston Equity Right granted
thereunder, and take all such other lawful action as may be necessary to give
effect to the transactions contemplated by this Section 7.7 (except for such
action that may require the approval of Johnston's stockholders).
7.8 INVESTIGATION AND CONFIDENTIALITY.
(a) Prior to the Effective Time, Johnston shall keep CGW
advised of all material developments relevant to its business and shall permit
CGW to make or cause to be made such investigation of the business and
properties of Johnston and its Subsidiaries and of their respective financial
and legal conditions as CGW reasonably requests, provided that such
investigation shall be reasonably related to the Transactions and shall not
interfere unnecessarily with normal operations. No investigation by a Party
shall affect the representations and warranties of the other Party.
(b) In addition to CGW's obligations under the
Confidentiality Agreement, which is hereby reaffirmed and adopted, and
incorporated by reference herein, CGW shall, and
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shall cause Purchaser and their respective advisers and agents to, maintain the
confidentiality of all confidential information furnished to it or any of them
by Johnston concerning Johnston and its Subsidiaries' businesses, operations,
and financial positions and shall not use such information for any purpose
except in furtherance of the transactions contemplated by this Agreement. If
this Agreement is terminated prior to the Effective Time, CGW shall promptly
return or cause to be returned, or certify or cause to be certified the
destruction of, all documents and copies thereof, and all work papers
containing confidential information received from Johnston.
(c) Johnston shall use its best efforts to exercise and
enforce its rights, and shall not, without the prior written consent of
Purchaser, waive any of its rights, under confidentiality agreements entered
into with Persons which were considering an acquisition proposal with respect
to Johnston.
(d) Each Party agrees to give the other Party notice as
soon as practicable after any determination by it of any fact or occurrence
relating to the other Party which it has discovered through the course of its
investigation and which represents, or is reasonably likely to represent,
either a material breach of any representation, warranty, covenant or agreement
of the other Party or which has had or is reasonably likely to have a Johnston
Material Adverse Effect or a CGW Material Adverse Effect, as applicable.
7.9 PRESS RELEASES. Prior to the Effective Time, the Parties
shall consult with each other as to the form and substance of any press release
or other public disclosure materially related to this Agreement or any other
transaction contemplated hereby; provided, that nothing in this Section 7.9
shall be deemed to prohibit any Party from making any disclosure which its
counsel deems necessary or advisable in order to satisfy such Party's
disclosure obligations imposed by Law.
7.10 CERTAIN ACTIONS. Except with respect to this Agreement and
the Transactions, and as provided below, no Johnston Entity nor any Affiliate
thereof nor any Representatives thereof retained by any Johnston Entity shall
directly or indirectly initiate, solicit, encourage or knowingly facilitate
(including by way of furnishing information) any inquiries or the making of any
acquisition proposal. Notwithstanding anything herein to the contrary, Johnston
and its Board of Directors shall be permitted (i) to the extent applicable, to
comply with Rule 14d-9 and Rule 14e-2 promulgated under the 1934 Act with
regard to an acquisition proposal, and (ii) to engage in any discussions or
negotiations with, or provide any information to, any Person in response to an
unsolicited bona fide written acquisition proposal by any such Person, if and
only to the extent that (a) Johnston's Board of Directors concludes in good
faith and consistent with its fiduciary duties to Johnston's stockholders under
applicable Law that such acquisition proposal could reasonably be expected to
result in a Superior Proposal, (b) prior to providing any information or data
to any Person in connection with an acquisition proposal by any such Person,
Johnston's Board of Directors receives from such Person an executed
confidentiality agreement containing confidentiality terms at least as
stringent as those contained in the confidentiality agreement between Johnston
and CGW, and (c) prior to providing any information or data to any Person or
entering into discussions or negotiations with any Person, Johnston's Board of
Directors notifies CGW and Purchaser promptly of such inquiries, proposals or
offers received by, any such
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information requested from, or any such discussions or negotiations sought to
be initiated or continued with, any of its Representatives indicating, in
connection with such notice, the name of such Person and the material terms and
conditions of any inquiries, proposals or offers. Johnston agrees that it will
promptly keep CGW informed of the status and terms of any such proposals or
offers and the status and terms of any such discussions or negotiations.
Johnston agrees that it will, and will cause its officers, directors and
Representatives to, immediately cease and cause to be terminated any
activities, discussions or negotiations existing as of the date of this
Agreement with any parties conducted heretofore with respect to any acquisition
proposal. Johnston agrees that it will use reasonable best efforts to promptly
inform its directors, officers, key employees, agents and Representatives of
the obligations undertaken in this Section 7.10. Nothing in this Section shall
(x) permit Johnston to terminate this Agreement (except as specifically
provided in Article 9 thereof) or (y) affect any other obligation of CGW,
Purchaser or Johnston under this Agreement.
7.11 STATE TAKEOVER LAWS. Each Johnston Entity shall take all
necessary steps to exempt the transactions contemplated by this Agreement from,
or if necessary to challenge the validity or applicability of, any applicable
state takeover law, including Section 203 of the DGCL.
7.12 CHARTER PROVISIONS. Each Johnston Entity shall take all
necessary action to ensure that the entering into of this Agreement and the
consummation of the Transactions do not and will not result in the grant of any
rights to any Person under the Certificate of Incorporation, Bylaws or other
governing instruments of any Johnston Entity or restrict or impair the ability
of CGW or any of its Subsidiaries to vote, or otherwise to exercise the rights
of a stockholder with respect to, shares of any Johnston Entity that may be
directly or indirectly acquired or controlled by them.
7.13 INDEMNIFICATION.
(a) For a period of three years after the Effective Time,
Purchaser shall, and shall cause Johnston to, indemnify, defend and hold
harmless the present and former directors, officers, employees and agents of
the Johnston Entities (each, an "Indemnified Party") against all Liabilities
arising out of actions or omissions relating to the Indemnified Party's service
or services as directors, officers, employees or agents of Johnston or, at
Johnston's request, of another corporation, partnership, joint venture, trust
or other enterprise occurring at or prior to the Effective Time (including the
transactions contemplated by this Agreement) to the fullest extent permitted
under Delaware Law and by Johnston's Certificate of Incorporation and Bylaws as
in effect on the date hereof, including provisions relating to advances of
expenses incurred in the defense of any Litigation and whether or not Purchaser
is insured against any such matter. Without limiting the foregoing, in any case
in which approval by Johnston is required to effectuate any indemnification,
Johnston shall direct, at the election of the Indemnified Party, that the
determination of any such approval shall be made by independent counsel
mutually agreed upon between Purchaser and the Indemnified Party.
(b) Purchaser shall, or shall cause Johnston to, use its
reasonable efforts (and Johnston shall cooperate prior to the Effective Time in
these efforts) to maintain in effect for a
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period of three years after the Effective Time Johnston's existing directors'
and officers' liability insurance policy (provided that Purchaser may
substitute therefor (i) policies of at least the same coverage and amounts
containing terms and conditions which are substantially no less advantageous or
(ii) with the consent of Johnston given prior to the Effective Time, any other
policy) with respect to claims arising from facts or events which occurred
prior to the Effective Time and covering persons who are currently covered by
such insurance; provided, that neither Purchaser, the surviving corporation of
the Merger, if applicable, nor Johnston shall be obligated to make aggregate
premium payments for such three-year period in respect of such policy (or
coverage replacing such policy) which exceed, for the portion related to
Johnston's directors and officers, 150% of the annual premium payments on
Johnston's current policy in effect as of the date of this Agreement (the
"Maximum Amount"). If the amount of the premiums necessary to maintain or
procure such insurance coverage exceeds the Maximum Amount, Purchaser shall use
its reasonable efforts to maintain the most advantageous policies of directors'
and officers' liability insurance obtainable for a premium equal to the Maximum
Amount.
(c) Any Indemnified Party wishing to claim indemnification
under paragraph (a) of this Section 7.13, upon learning of any such Liability
or Litigation, shall promptly notify Purchaser thereof. In the event of any
such Litigation (whether arising before or after the Effective Time), (i) CGW
or Johnston shall have the right to assume the defense thereof and neither
Purchaser nor Johnston shall be liable to such Indemnified Parties for any
legal expenses of other counsel or any other expenses subsequently incurred by
such Indemnified Parties in connection with the defense thereof, except that if
Purchaser or Johnston elects not to assume such defense or counsel for the
Indemnified Parties advises that there are substantive issues which raise
conflicts of interest between Purchaser or Johnston and the Indemnified
Parties, the Indemnified Parties may retain counsel satisfactory to them, and
Purchaser or Johnston shall pay all reasonable fees and expenses of such
counsel for the Indemnified Parties promptly as statements therefor are
received; provided, that Purchaser and Johnston shall be obligated pursuant to
this paragraph (c) to pay for only one firm of counsel for all Indemnified
Parties in any jurisdiction, (ii) the Indemnified Parties will cooperate in the
defense of any such Litigation, and (iii) neither Purchaser nor Johnston shall
be liable for any settlement effected without its prior written consent; and
provided further that neither Purchaser nor Johnston shall have any obligation
hereunder to any Indemnified Party when and if a court of competent
jurisdiction shall determine, and such determination shall have become final,
that the indemnification of such Indemnified Party in the manner contemplated
hereby is prohibited by applicable Law.
(d) If Purchaser or Johnston or any successors or assigns
shall consolidate with or merge into any other Person and shall not be the
continuing or surviving Person of such consolidation or merger or shall
transfer all or substantially all of its assets to any Person, then and in each
case, proper provision shall be made so that the successors and assigns of
Purchaser or Johnston shall assume the obligations set forth in this Section
7.13.
(e) The provisions of this Section 7.13 are intended to be
for the benefit of and shall be enforceable by, each Indemnified Party and
their respective heirs and representatives.
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7.14 MAINTENANCE OF PUBLIC TRADING MARKET. In the event that the
Minimum Tender Condition is met but the Purchaser and any Affiliates shall not
have acquired in the aggregate at least 90% of the outstanding Shares of
Johnston pursuant to the Transactions, CGW and Purchaser shall, for a period of
three years after the Effective Date use their commercially reasonable best
efforts to maintain a public trading market for the Johnston Common Stock
either on a national securities exchange, any of the Nasdaq Stock Markets, or
in over-the-counter trading, and as long as such public trading market exists
CGW and Purchaser shall comply with the 1934 Act, and the rules and regulations
promulgated thereunder.
ARTICLE 8
CONDITIONS PRECEDENT TO OBLIGATIONS TO CONSUMMATE
8.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY. The respective
obligations of each Party to perform this Agreement and the other Transactions
are subject to the satisfaction of the following conditions, unless waived by
both Parties pursuant to Section 10.6:
(A) REGULATORY APPROVALS. All Consents of, filings and
registrations with, and notifications to, all Regulatory Authorities
required for consummation of the Transactions shall have been obtained
or made and shall be in full force and effect and all waiting periods
required by Law shall have expired. No Consent obtained from any
Regulatory Authority which is necessary to consummate the Transactions
shall be conditioned or restricted in a manner (including requirements
relating to the raising of additional capital or the disposition of
Assets) which in the reasonable judgment of the Board of Directors of
Purchaser and the General Partner of CGW would so materially adversely
impact the economic or business benefits of the transactions
contemplated by this Agreement that, had such condition or requirement
been known, CGW and Purchaser would not have entered into this
Agreement.
(B) CONSENTS AND APPROVALS. Each Party shall have obtained
any and all Consents required for the preventing of any Default under
any Contract or Permit of such Party which, if not obtained or made, is
reasonably likely to have, individually or in the aggregate, a Johnston
Material Adverse Effect or a Purchaser Material Adverse Effect, as
applicable. No Consent so obtained which is necessary to consummate the
Transactions shall be conditioned or restricted in a manner which in the
reasonable judgment of the Board of Directors of Purchaser and the
General Partner of CGW would so materially adversely impact the economic
or business benefits of the transactions contemplated by this Agreement
that, had such condition or requirement been known, CGW and Purchaser
would not have entered into this Agreement.
(C) LEGAL PROCEEDINGS. No court or governmental or regulatory
authority of competent jurisdiction shall have enacted, issued,
promulgated, enforced or entered any Law or Order (whether temporary,
preliminary or permanent) or taken any other action which prohibits,
restricts or makes illegal consummation of the Transactions contemplated
by this Agreement.
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(D) PURCHASE OF SHARES IN OFFER. Purchaser shall have
purchased Shares pursuant to the Offer, except that this condition shall
not apply if Purchaser shall have failed to purchase Shares pursuant to
the Offer in breach of their obligations under this Agreement.
(E) EMPLOYEE LOANS. Each of the financial institutions that
have made loans to employees of Johnston to purchase shares of Johnston
Common Stock ("Employee Loans"), and which loans are guaranteed by
Johnston (such employees, the lending institutions and the outstanding
amounts under their loans are set forth on Schedule A hereto), shall
have agreed to restructure the Employee Loans on terms reasonably
acceptable to the Parties, including the pledge by each borrower under
the Employee Loans of all shares of Johnston Common Stock held by such
borrower and purchased with the proceeds of the Employee Loan to the
lender to secure the Employee Loans; provided, however, that should any
such employee borrower choose to tender such shares of Johnston Common
Stock acquired with the Employee Loans, the Employee Loan relating to
that employee borrower shall not be restructured and shall remain due
and payable in accordance with its original terms.
(F) REFINANCING OF JOHNSTON DEBT. Purchaser shall have
restructured the Bank Credit Agreement, dated as of March 28, 1996, as
amended, between Johnston, the Johnston Subsidiaries 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, on terms and conditions satisfactory to Purchaser.
(G) FINANCING. Purchaser will have prior to the Effective
Time, sufficient cash, available lines of credit or other sources of
immediately available funds to enable it to make the aggregate cash
payment required to be paid pursuant to Article 2 of this Agreement and
to purchase and pay for the Additional Common Stock and the Series A
Preferred Stock pursuant to Article 3 of this Agreement (the financing
described in this paragraph (g), together with the financing described
in paragraph (f) above, hereinafter referred to as the "Financing").
8.2 CONDITIONS TO OBLIGATIONS OF CGW AND PURCHASER. The
obligations of CGW and Purchaser to perform their respective obligations under
this Agreement are subject to the satisfaction of the following conditions,
unless waived by CGW and Purchaser pursuant to Section 10.6(a):
(A) REPRESENTATIONS AND WARRANTIES. For purposes of this
Section 8.2(a), the accuracy of the representations and warranties of
Johnston set forth in this Agreement shall be assessed as of the date of
this Agreement and as of the Effective Time with the same effect as
though all such representations and warranties had been made on and as
of the Effective Time (provided that representations and warranties
which are confined to a specified date shall speak only as of such
date). The representations and warranties set forth in Section 4.3 shall
be true and correct (except for inaccuracies which are de minimus in
amount). The representations and warranties set forth in Sections 4.20,
and 4.21 shall be
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true and correct in all material respects. There shall not exist
inaccuracies in the representations and warranties of Johnston set forth
in this Agreement (including the representations and warranties set
forth in Sections 4.3, 4.20, and 4.21) such that the aggregate effect of
such inaccuracies has, or is reasonably likely to have, a Johnston
Material Adverse Effect; provided that, for purposes of this sentence
only, those representations and warranties which are qualified by
references to "material" or "Material Adverse Effect" or to the
"Knowledge" of any Person shall be deemed not to include such
qualifications.
(B) PERFORMANCE OF AGREEMENTS AND COVENANTS. Each and all of
the agreements and covenants of Johnston to be performed and complied
with pursuant to this Agreement and the other agreements contemplated
hereby prior to the Effective Time shall have been duly performed and
complied with in all material respects.
(C) CERTIFICATES. Johnston shall have delivered to CGW and
Purchaser (i) a certificate, dated as of the Effective Time and signed
on its behalf by its chief executive officer and its chief financial
officer, to the effect that the conditions set forth in Section 8.1 as
relates to Johnston and in Section 8.2(a) and 8.2(b) have been
satisfied, and (ii) certified copies of resolutions duly adopted by
Johnston's Board of Directors evidencing the taking of all corporate
action necessary to authorize the execution, delivery and performance of
this Agreement, and the consummation of the Transactions, all in such
reasonable detail as CGW, Purchaser and their counsel shall request.
8.3 CONDITIONS TO OBLIGATIONS OF JOHNSTON. The obligations of
Johnston to perform its obligations under this Agreement are subject to the
satisfaction of the following conditions, unless waived by Johnston pursuant to
Section 10.6(b):
(A) REPRESENTATIONS AND WARRANTIES. For purposes of this
Section 8.3(a), the accuracy of the representations and warranties of
Purchaser set forth in this Agreement shall be assessed as of the date
of this Agreement and as of the Effective Time with the same effect as
though all such representations and warranties had been made on and as
of the Effective Time (provided that representations and warranties
which are confined to a specified date shall speak only as of such
date). The representations and warranties of Purchaser set forth in
Sections 5.5 and 5.7 shall be true and correct in all material respects.
There shall not exist inaccuracies in the representations and warranties
of Purchaser set forth in this Agreement (including the representations
and warranties set forth in Sections 5.5 and 5.7) such that the
aggregate effect of such inaccuracies has, or is reasonably likely to
have, a Purchaser Material Adverse Effect; provided that, for purposes
of this sentence only, those representations and warranties which are
qualified by references to "material" or "Material Adverse Effect" or to
the "Knowledge" of any Person shall be deemed not to include such
qualifications.
(B) PERFORMANCE OF AGREEMENTS AND COVENANTS. Each and all of
the agreements and covenants of CGW and Purchaser to be performed and
complied with pursuant to this Agreement, including, but not limited to
the provisions set forth in Article 3
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herein and Section 8.1(f) hereof, and the other agreements contemplated
hereby prior to the Effective Time shall have been duly performed and
complied with in all material respects.
(C) CERTIFICATES. Purchaser shall have delivered to Johnston
(i) a certificate, dated as of the Effective Time and signed on its
behalf by its president, to the effect that the conditions set forth in
Section 8.1 as relates to CGW and Purchaser and in Section 8.3(a) and
8.3(b) have been satisfied, and (ii) certified copies of resolutions
duly adopted by Purchaser's Board of Directors evidencing the taking of
all corporate action necessary to authorize the execution, delivery and
performance of this Agreement, and the consummation of the Transactions,
all in such reasonable detail as Johnston and its counsel shall request.
(D) PAYING AGENT CERTIFICATION. The bank or trust company
selected by CGW to act as paying agent (the "Paying Agent") shall have
delivered to Johnston a certificate, dated as of the Effective Time, to
the effect that Purchaser has deposited with the Paying Agent sufficient
funds to pay the aggregate cash payments required to be paid pursuant to
Article 1.
ARTICLE 9
TERMINATION
9.1 TERMINATION. Notwithstanding any other provision of this
Agreement, and notwithstanding the approval of this Agreement by the
stockholders of Johnston and CGW or both, this Agreement may be terminated at
any time prior to the Effective Time:
(a) By mutual consent of CGW and Johnston; or
(b) By either of Johnston or CGW:
(i) if (A) the Offer shall have expired without any
Shares being purchased therein or (B) Purchaser shall not have accepted
for payment all Shares tendered pursuant to the Offer by June 30, 2000;
provided, however, that the right to terminate this Agreement under this
Section 9.1(b)(i) shall not be available to any Party whose failure to
fulfill any obligation under this Agreement has been the cause of, or
resulted in, the failure of Purchaser, to purchase the Shares pursuant
to the Offer on or prior to such date; or
(ii) if any court, arbitration tribunal,
administrative agency or commission or other governmental or regulatory
authority or agency (a "Governmental Entity") shall have issued an
order, decree or ruling or taken any other action (which order, decree,
ruling or other action the parties hereto shall use their reasonable
efforts to lift), which permanently restrains, enjoins or otherwise
prohibits the acceptance for payment of, or payment for, Shares pursuant
to the Offer and such order, decree, ruling or other action shall have
become and final and non-appealable; or
(c) By Johnston:
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(i) if Purchaser shall have failed to commence the
Offer as soon as reasonably practical following the date of the initial
public announcement of the Offer; provided, that Johnston may not
terminate this Agreement pursuant to this Section 9.1(c)(i) if Johnston
is at such time in willful and material breach of this Agreement; or
(ii) if CGW or Purchaser shall have breached in any
material respect any of their respective representations, warranties,
covenants or other agreements contained in this Agreement, which breach
cannot be or has not been cured, in all material respects, within 30
days after the giving of written notice to CGW or Purchaser, as
applicable; or
(iii) if the Board of Directors of Johnston shall
have determined to endorse, enter into and recommend to Johnstons'
shareholders a Superior Proposal and shall have concurrently therewith
entered into a definitive Contract with a Person in accordance with
Section 7.10 with respect to such Superior Proposal, provided it has
complied with all of the provisions thereof, including the notice
provisions thereof; or
(d) By CGW:
(i) if, due to an occurrence not involving a breach
by CGW or Purchaser of their obligations hereunder, which makes it
impossible to satisfy any of the conditions set forth in Exhibit 1,
Purchaser shall have failed to commence the Offer as soon as reasonably
practical following the date of the initial public announcement of the
Offer; or
(ii) if prior to the purchase of Shares pursuant to
the Offer, Johnston shall have breached in any material respect any
representation, warranty, covenant or other agreement contained in this
Agreement or in the agreements governing the Financing, which (A) would
give rise to the failure of a condition set forth in paragraph (f), (g)
and (j) of Exhibit 1, and (B) as of the Closing, cannot be or has not
been cured, in all material respects.
9.2 EFFECT OF TERMINATION. In the event of the termination and
abandonment of this Agreement pursuant to Section 9.1, this Agreement shall
become void and have no effect, except that (i) the provisions of this Section
9.2 and Article 10 shall survive any such termination and abandonment, and (ii)
a termination other than pursuant to Section 9.1(a) shall not relieve the
breaching Party from Liability for an uncured willful breach of a
representation, warranty, covenant, or agreement giving rise to such
termination.
9.3 NON-SURVIVAL OF REPRESENTATIONS AND COVENANTS. The respective
representations, warranties, obligations, covenants, and agreements of the
Parties shall not survive the Effective Time except this Section 9.3 and
Articles 2, 10 and Section 7.13.
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ARTICLE 10
MISCELLANEOUS
10.1 DEFINITIONS.
(a) Except as otherwise provided herein, the capitalized
terms set forth below shall have the following meanings:
"1933 ACT" shall mean the Securities Act of 1933, as amended.
"1934 ACT" shall mean the Securities Exchange Act of 1934, as
amended.
"AFFILIATE" of a Person shall mean: (i) any other Person
directly, or indirectly through one or more intermediaries, controlling,
controlled by or under common control with such Person; (ii) any
officer, director, partner, employer, or direct or indirect beneficial
owner of any 10% or greater equity or voting interest of such Person; or
(iii) any other Person for which a Person described in clause (ii) acts
in any such capacity.
"AGREEMENT" shall mean this Purchase Agreement, including the
Exhibits delivered pursuant hereto and incorporated herein by reference.
"ASSETS" of a Person shall mean all of the assets,
properties, businesses and rights of such Person of every kind, nature,
character and description, whether real, personal or mixed, tangible or
intangible, accrued or contingent, or otherwise relating to or utilized
in such Person's business, directly or indirectly, in whole or in part,
whether or not carried on the books and records of such Person, and
whether or not owned in the name of such Person or any Affiliate of such
Person and wherever located.
"CONFIDENTIALITY AGREEMENT" shall mean that certain
Confidentiality Agreement dated March 2, 1999, between Johnston and CGW.
"CONSENT" shall mean any consent, approval, authorization,
clearance, exemption, waiver, or similar affirmation by any Person
pursuant to any Contract, Law, Order, or Permit.
"CONTRACT" shall mean any written or oral agreement,
arrangement, authorization, commitment, contract, indenture, instrument,
lease, obligation, plan, practice, restriction, understanding, or
undertaking of any kind or character, or other document to which any
Person is a party or that is binding on any Person or its capital stock,
Assets or business.
"DGCL" shall mean the Delaware General Corporation Law.
"DEFAULT" shall mean (i) any breach or violation of, default
under, contravention of, or conflict with, any Contract, Law, Order, or
Permit, (ii) any occurrence of any event that with the passage of time
or the giving of notice or both would constitute a breach or
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violation of, default under, contravention of, or conflict with, any
Contract, Law, Order, or Permit, or (iii) any occurrence of any event
that with or without the passage of time or the giving of notice would
give rise to a right of any Person to exercise any remedy or obtain any
relief under, terminate or revoke, suspend, cancel, or modify or change
the current terms of, or renegotiate, or to accelerate the maturity or
performance of, or to increase or impose any Liability under, any
Contract, Law, Order, or Permit.
"JOHNSTON COMMON STOCK" shall mean the $.10 par value per
share, common stock of Johnston.
"JOHNSTON DISCLOSURE MEMORANDUM" shall mean the written
information entitled "Johnston Disclosure Memorandum" delivered prior to
the date of this Agreement to CGW describing in reasonable detail the
matters contained therein and, with respect to each disclosure made
therein, specifically referencing each Section of this Agreement under
which such disclosure is being made. Information disclosed with respect
to one Section shall be deemed to be disclosed for purposes of any other
Section for which such disclosure is applicable, if such applicability
is clear in the specific context and cross-referenced in the appropriate
sections.
"JOHNSTON ENTITIES" shall mean, collectively, Johnston and all
Johnston Subsidiaries.
"JOHNSTON EQUITY RIGHTS" shall mean all arrangements, calls,
commitments, Contracts, options (including employee stock options),
rights to subscribe to, scrip, understandings, warrants, or other
binding obligations of any character whatsoever relating to, or
securities or rights convertible into or exchangeable for, shares of the
capital stock of a Person or by which a Person is or may be bound to
issue additional shares of its capital stock or other Equity Rights.
"JOHNSTON FINANCIAL STATEMENTS" shall mean (i) the
consolidated balance sheets (including related notes and schedules, if
any) of Johnston as of January 2, 1999, January 3, 1998 and December 28,
1996, and the related statements of operations, changes in stockholders'
equity, and cash flows (including related notes and schedules, if any)
for the three months ended October 2, 1999, and for each of the three
fiscal years ended January 2, 1999, January 3, 1998 and December 28,
1996, as filed by Johnston in SEC Documents, and (ii) the consolidated
balance sheets of Johnston (including related notes and schedules, if
any) and related statements of operations, changes in stockholders'
equity, and cash flows (including related notes and schedules, if any)
included in SEC Documents filed with respect to periods ended subsequent
to January 2, 1999.
"JOHNSTON MATERIAL ADVERSE EFFECT" shall mean an event,
change or occurrence which, individually or together with any other
event, change or occurrence, has a material adverse impact on (i) the
financial position, business, or results of operations of Johnston and
its Subsidiaries, taken as a whole, or (ii) the ability of Johnston to
perform its obligations under this Agreement or the other transactions
contemplated by this Agreement.
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"JOHNSTON PREFERRED STOCK" shall mean the $.01 par value per
share, preferred stock of Johnston.
"JOHNSTON STOCK PLANS" shall mean the existing stock option
and other stock-based compensation plans of Johnston set forth in
Schedule 4.14 of the Johnston Disclosure Memorandum.
"JOHNSTON SUBSIDIARIES" shall mean the Subsidiaries of
Johnston, which shall include the Johnston Subsidiaries described in
Section 4.4 and any corporation or other organization acquired as a
Subsidiary of Johnston in the future and held as a Subsidiary by
Johnston at the Effective Time.
"ENVIRONMENTAL LAWS" shall mean all currently existing Laws
relating to pollution or protection of human health or the environment
(including ambient air, surface water, ground water, land surface, or
subsurface strata) and which are administered, interpreted, or enforced
by the United States Environmental Protection Agency and state and local
agencies with jurisdiction over, and including common law in respect of,
pollution or protection of the environment, including the Comprehensive
Environmental Response Compensation and Liability Act, as amended, 42
U.S.C. 9601 et seq. ("CERCLA"), the Resource Conservation and Recovery
Act, as amended, 42 U.S.C. 6901 et seq. ("RCRA"), and other currently
existing Laws relating to emissions, discharges, releases, or threatened
releases of any Hazardous Material, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage,
disposal, transport, or handling of any Hazardous Material.
"ERISA" shall mean the Employee Retirement Income Security
Act of 1974, as amended.
"EXHIBIT 1" shall mean the Exhibit so marked, a copy of which
is attached to this Agreement. Such Exhibit is hereby incorporated by
reference herein and made a part hereof, and may be referred to in this
Agreement and any other related instrument or document without being
attached hereto.
"GAAP" shall mean generally accepted accounting principles,
consistently applied during the periods involved.
"HAZARDOUS MATERIAL" shall mean (i) any hazardous substance,
hazardous material, hazardous waste, regulated substance, or toxic
substance (as those terms are defined by any applicable Environmental
Laws) and (ii) any chemicals, pollutants, contaminants, petroleum,
petroleum products, or oil (and specifically shall include asbestos
requiring abatement, removal, or encapsulation pursuant to the
requirements of governmental authorities and any polychlorinated
biphenyls).
"HSR ACT" shall mean Section 7A of the Clayton Act, as
added by Title II of the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, and the rules and regulations promulgated thereunder.
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<PAGE> 37
"INTELLECTUAL PROPERTY" shall mean copyrights, patents,
trademarks, service marks, service names, trade names, applications
therefor, technology rights and licenses, computer software (including
any source or object codes therefor or documentation relating thereto),
trade secrets, franchises, know-how, inventions, and other intellectual
property rights.
"INTERNAL REVENUE CODE" shall mean the Internal Revenue Code
of 1986, as amended, and the rules and regulations promulgated
thereunder.
"KNOWLEDGE" as used with respect to a Person (including
references to such Person being aware of a particular matter) shall mean
those facts that are known or should reasonably have been known after
due inquiry by the president, chief financial officer, chief accounting
officer, chief operating officer, or any senior or executive vice
president of such Person.
"LAW" shall mean any code, law (including common law),
ordinance, regulation, reporting or licensing requirement, rule, or
statute applicable to a Person or its Assets, Liabilities, or business,
including those promulgated, interpreted or enforced by any Regulatory
Authority.
"LIABILITY" shall mean any direct or indirect, primary or
secondary, liability, indebtedness, obligation, penalty, cost or expense
(including costs of investigation, collection and defense), claim,
deficiency, guaranty or endorsement of or by any Person (other than
endorsements of notes, bills, checks, and drafts presented for
collection or deposit in the ordinary course of business) of any type,
whether accrued, absolute or contingent, liquidated or unliquidated,
matured or unmatured, or otherwise.
"LIEN" shall mean any conditional sale agreement, default of
title, easement, encroachment, encumbrance, hypothecation, infringement,
lien, mortgage, pledge, reservation, restriction, security interest,
title retention or other security arrangement, or any adverse right or
interest, charge, or claim of any nature whatsoever of, on, or with
respect to any property or property interest, other than (i) Liens for
current property Taxes not yet due and payable, and (iii) Liens which do
not materially impair the use of or title to the Assets subject to such
Lien.
"LITIGATION" shall mean any action, arbitration, cause of
action, claim, complaint, criminal prosecution, governmental or other
examination or investigation, hearing, administrative or other
proceeding relating to or affecting a Party, its business, its Assets
(including Contracts related to it), or the transactions contemplated by
this Agreement.
"MATERIAL" for purposes of this Agreement shall be determined
in light of the facts and circumstances of the matter in question;
provided that any specific monetary amount stated in this Agreement
shall determine materiality in that instance.
"OPERATING PROPERTY" shall mean any property owned, leased,
or operated by the Party in question or by any of its Subsidiaries or in
which such Party or Subsidiary holds
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<PAGE> 38
a security interest or other interest (including an interest in a
fiduciary capacity), and, where required by the context, includes the
owner or operator of such property, but only with respect to such
property.
"ORDER" shall mean any administrative decision or award,
decree, injunction, judgment, order, quasi-judicial decision or award,
ruling, or writ of any federal, state, local or foreign or other court,
arbitrator, mediator, tribunal, administrative agency, or Regulatory
Authority.
"PARTICIPATION FACILITY" shall mean any facility or property
in which the Party in question or any of its Subsidiaries participates
to a material degree in the management and, where required by the
context, said term means the owner or operator of such facility or
property, but only with respect to such facility or property.
"PARTY" shall mean either Johnston or CGW, and "PARTIES"
shall mean both Johnston and CGW.
"PERMIT" shall mean any federal, state, local, and foreign
governmental approval, authorization, certificate, easement, filing,
franchise, license, notice, permit, or right to which any Person is a
party or that is or may be binding upon or inure to the benefit of any
Person or its securities, Assets, or business.
"PERSON" shall mean a natural person or any legal, commercial
or governmental entity, such as, but not limited to, a corporation,
general partnership, joint venture, limited partnership, limited
liability company, trust, business association, group acting in concert,
or any person acting in a representative capacity.
"PURCHASER MATERIAL ADVERSE EFFECT" shall mean an event,
change or occurrence which, individually or together with any other
event, change or occurrence, has a material adverse impact on the
ability of CGW or Purchaser to perform their respective obligations
under this Agreement.
"REGULATORY AUTHORITIES" shall mean, collectively, the SEC,
the NYSE, the Nasdaq National Market, the Federal Trade Commission, the
United States Department of Justice, and all other federal, state,
county, local or other governmental or regulatory agencies, authorities
(including self-regulatory authorities), instrumentalities, commissions,
boards or bodies having jurisdiction over the Parties and their
respective Subsidiaries.
"REPRESENTATIVE" shall mean any investment banker, financial
advisor, attorney, accountant, consultant, or other representative
engaged by a Person.
"SEC DOCUMENTS" shall mean all forms, proxy statements,
registration statements, reports, schedules, and other documents filed,
or required to be filed, by a Party or any of its Subsidiaries with any
Regulatory Authority pursuant to the Securities Laws.
"SECURITIES LAWS" shall mean the 1933 Act, the 1934 Act, the
Investment Company Act of 1940, as amended, the Investment Advisors Act
of 1940, as amended, the
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<PAGE> 39
Trust Indenture Act of 1939, as amended, and the rules and regulations
of any Regulatory Authority promulgated thereunder.
"SUBSIDIARIES" shall mean all those corporations,
associations, or other business entities of which the entity in question
either (i) owns or controls 50% or more of the outstanding equity
securities either directly or through an unbroken chain of entities as
to each of which 50% or more of the outstanding equity securities is
owned directly or indirectly by its parent (provided, there shall not be
included any such entity the equity securities of which are owned or
controlled in a fiduciary capacity), (ii) in the case of partnerships,
serves as a general partner, (iii) in the case of a limited liability
company, serves as a managing member, or (iv) otherwise has the ability
to elect a majority of the directors, trustees or managing members
thereof.
"SUPERIOR PROPOSAL" shall mean any proposal (i) made by a
third party to acquire, directly or indirectly, including pursuant to a
tender offer, exchange offer, merger, consolidation, business
combination, recapitalization, liquidation, dissolution or similar
transaction, for consideration consisting of cash and/or securities,
more than 50% of the combined voting power of the shares of Johnston
Common Stock then outstanding or all or substantially all the assets of
Johnston, (ii) which the Board of Directors of Johnston determines in
its good faith judgment that such proposal, if accepted, is reasonably
likely to be consummated, taking into account all legal, financial and
regulatory aspects of the proposal and the Person making the proposal
and (iii) which would, if consummated, result in a more favorable
transaction to the shareholders of Johnston than the transaction
contemplated by this Agreement, taking into account, to the extent
relevant, the long-term prospects and interests of Johnston and its
stockholders.
"TAX" or "TAXES" shall mean any federal, state, county,
local, or foreign taxes, charges, fees, levies, imposts, duties, or
other assessments, including income, gross receipts, excise, employment,
sales, use, transfer, license, payroll, franchise, severance, stamp,
occupation, windfall profits, environmental, federal highway use,
commercial rent, customs duties, capital stock, paid-up capital,
profits, withholding, Social Security, single business and unemployment,
disability, real property, personal property, registration, ad valorem,
value added, alternative or add-on minimum, estimated, or other tax or
governmental fee of any kind whatsoever, imposes or required to be
withheld by the United States or any state, county, local or foreign
government or subdivision or agency thereof, including any interest,
penalties, and additions imposed thereon or with respect thereto.
"TAX RETURN" shall mean any report, return, information
return, or other information required to be supplied to a taxing
authority in connection with Taxes, including any return of an
Affiliated or combined or unitary group that includes a Party or its
Subsidiaries.
(b) The terms set forth below shall have the meanings ascribed
thereto in the referenced sections:
<TABLE>
<S> <C>
Additional Common Stock Section 3.1
</TABLE>
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<PAGE> 40
<TABLE>
<S> <C>
Appointment Date Section 6.1
Alternative Merger Section 7.2
Closing Section 2.2
Johnston Benefit Plans Section 4.14
Johnston Contracts Section 4.15
Johnston ERISA Plan Section 4.14
Johnston Pension Plan Section 4.14
Johnston SEC Reports Section 4.5
Effective Time Section 2.1
ERISA Affiliate Section 4.14
Fully Diluted Shares Exhibit 1
Governmental Entity Section 9.1
Indemnified Party Section 7.13
Maximum Amount Section 7.13
Merger Section 7.1
Offer Section 1.1
Offer Documents Section 1.1
Offer Price Section 1.1
Offer to Purchase Section 1.1
Option Consideration Section 7.7
Paying Agent Section 8.3
Schedule TO Section 1.1
Schedule 14D-9 Section 1.2
Shares Section 1.1
Stockholder Protection Agreement Section 1.2
Takeover Laws Section 4.20
Transactions Section 1.2
</TABLE>
(c) Any singular term in this Agreement shall be deemed to
include the plural, and any plural term the singular. Whenever the words
"include," "includes" or "including" are used in this Agreement, they shall be
deemed followed by the words "without limitation."
10.2 EXPENSES.
(a) Except as otherwise provided in this Section 10.2, each
of the Parties shall bear and pay all direct costs and expenses incurred by it
or on its behalf in connection with the transactions contemplated hereunder,
including filing, registration and application fees, printing fees, and fees
and expenses of its own financial or other consultants, investment bankers,
accountants, and counsel.
(b) If (i) Johnston terminates this Agreement pursuant to
Section 9.1(c)(iii), or (ii) either Johnston or CGW terminates this Agreement
pursuant to Section 9.1(b)(i) and prior thereto there shall have been publicly
announced another acquisition proposal, Johnston shall pay to CGW, an amount
equal to $3,000,000, plus an amount equal to CGW's actual, reasonable and
reasonably documented out-of-pocket fees and expenses incurred by CGW and
Purchaser in
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connection with the Offer, this Agreement and the consummation of the
Transactions, which shall be payable in same day funds, provided that in no
event shall Johnston be obligated to pay any such fees and expenses in excess
of $4,000,000.
(c) If Johnston terminates this Agreement pursuant to
Section 9.1(c)(i) or (ii), then CGW shall pay to Johnston an amount equal to
Johnston's reasonable and reasonably documented legal fees and expenses
incurred, as of the date of such termination, with respect to this Agreement
and the Transactions.
(d) If CGW terminates this Agreement pursuant to Section
9.1(d)(ii), then Johnston shall pay to CGW an amount equal to CGW's reasonable
and reasonably documented legal fees and expenses incurred, as of the date of
such termination, with respect to this Agreement and the Transactions.
(e) If, upon expiration of the Offer, the Minimum Tender
Condition (as defined in Exhibit 1 hereto) is not satisfied, Johnston shall pay
to CGW an amount equal to CGW's reasonable and reasonably documented legal fees
and expenses incurred, with respect to this Agreement and the Transactions.
(f) Nothing contained in this Section 10.2 shall constitute
or shall be deemed to constitute liquidated damages for the willful breach by a
Party of the terms of this Agreement or otherwise limit the rights of the
nonbreaching Party.
10.3 BROKERS AND FINDERS. Each of the Parties represents and
warrants that neither it nor any of its officers, directors, employees, or
Affiliates has employed any broker or finder or incurred any Liability for any
financial advisory fees, investment bankers' fees, brokerage fees, commissions,
or finders' fees in connection with this Agreement or the Transactions. In the
event of a claim by any broker or finder based upon his or its representing or
being retained by or allegedly representing or being retained by Johnston or by
CGW, each of Johnston and CGW, as the case may be, agrees to indemnify and hold
the other Party harmless of and from any Liability in respect of any such
claim.
10.4 ENTIRE AGREEMENT. Except as otherwise expressly provided
herein, this Agreement (including the documents and instruments referred to
herein) constitutes the entire agreement between the Parties with respect to
the transactions contemplated hereunder and supersedes all prior arrangements
or understandings with respect thereto, written or oral (except, as to Section
7.10(b), for the Confidentiality Agreement). Nothing in this Agreement
expressed or implied, is intended to confer upon any Person, other than the
Parties or their respective successors, any rights, remedies, obligations, or
liabilities under or by reason of this Agreement.
10.5 AMENDMENTS. To the extent permitted by Law, this Agreement
may be amended by a subsequent writing signed by each of the Parties upon the
approval of each of the Parties.
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<PAGE> 42
10.6 WAIVERS.
(a) Prior to or at the Effective Time, CGW, acting through
its General Partner, shall have the right to waive, for itself and for
Purchaser, any Default in the performance of any term of this Agreement by
Johnston, to waive or extend the time for the compliance or fulfillment by
Johnston of any and all of its obligations under this Agreement, and to waive
any or all of the conditions precedent to the obligations of CGW under this
Agreement, except any condition which, if not satisfied, would result in the
violation of any Law. No such waiver shall be effective unless in writing
signed by the General Partner of CGW.
(b) Prior to or at the Effective Time, Johnston, acting at
the direction of its Board of Directors, shall have the right to waive any
Default in the performance of any term of this Agreement by CGW or Purchaser,
to waive or extend the time for the compliance or fulfillment by CGW or
Purchaser of any and all of these respective obligations under this Agreement,
and to waive any or all of the conditions precedent to the obligations of
Johnston under this Agreement, except any condition which, if not satisfied,
would result in the violation of any Law. No such waiver shall be effective
unless in writing signed by a duly authorized officer of Johnston.
(c) The failure of any Party at any time or times to
require performance of any provision hereof shall in no manner affect the right
of such Party at a later time to enforce the same or any other provision of
this Agreement. No waiver of any condition or of the breach of any term
contained in this Agreement in one or more instances shall be deemed to be or
construed as a further or continuing waiver of such condition or breach or a
waiver of any other condition or of the breach of any other term of this
Agreement.
10.7 ASSIGNMENT. Except as expressly contemplated hereby, neither
this Agreement nor any of the rights, interests or obligations hereunder shall
be assigned by any Party hereto (whether by operation of Law or otherwise)
without the prior written consent of the other Party. Subject to the preceding
sentence, this Agreement will be binding upon, inure to the benefit of and be
enforceable by the Parties and their respective successors and assigns.
10.8 NOTICES. All notices or other communications which are
required or permitted hereunder shall be in writing and sufficient if delivered
by hand, by facsimile transmission, by registered or certified mail, postage
pre-paid, or by courier or overnight carrier, to the persons at the addresses
set forth below (or at such other address as may be provided hereunder), and
shall be deemed to have been delivered as of the date so delivered:
Johnston: Johnston Industries, Inc.,
105 Thirteenth Street
Columbus, Georgia 31901
Telecopy Number: (706) 641-3159
Attention: D. Clark Ogle
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<PAGE> 43
Copy to Counsel: Paul, Hastings, Janofsky & Walker LLP
600 Peachtree Street
Atlanta, GA 30308
Telecopy Number: (404) 815-2400
Attention: Elizabeth H. Noe
CGW or Purchaser: CGW Southeast Partners IV, L.P.
Twelve Piedmont Center, Suite 210
Atlanta, Georgia 30305
Telecopy Number: (404) 816-3258
Attention: Roy R. Bowman
Copy to Counsel: Alston & Bird LLP
1201 West Peachtree Street
Atlanta, GA 30309-7260
Telecopy Number: (404) 881-4777
Attention: Sidney J. Nurkin
10.9 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the Laws of the State of Georgia, without regard
to any applicable conflicts of Laws.
10.10 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
10.11 CAPTIONS; ARTICLES AND SECTIONS. The captions contained in
this Agreement are for reference purposes only and are not part of this
Agreement. Unless otherwise indicated, all references to particular Articles or
Sections shall mean and refer to the referenced Articles and Sections of this
Agreement.
10.12 INTERPRETATIONS. Neither this Agreement nor any uncertainty
or ambiguity herein shall be construed or resolved against any party, whether
under any rule of construction or otherwise. No party to this Agreement shall
be considered the draftsman. The parties acknowledge and agree that this
Agreement has been reviewed, negotiated, and accepted by all parties and their
attorneys and shall be construed and interpreted according to the ordinary
meaning of the words used so as fairly to accomplish the purposes and
intentions of all parties hereto.
10.13 SEVERABILITY. Any term or provision of this Agreement which
is invalid or unenforceable in any jurisdiction shall, as to that jurisdiction,
be ineffective to the extent of such
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<PAGE> 44
invalidity or unenforceability without rendering invalid or unenforceable the
remaining terms and provisions of this Agreement or affecting the validity or
enforceability of any of the terms or provisions of this Agreement in any other
jurisdiction. If any provision of this Agreement is so broad as to be
unenforceable, the provision shall be interpreted to be only so broad as is
enforceable.
IN WITNESS WHEREOF, each of the Parties has caused this Agreement
to be executed on its behalf by its duly authorized officers as of the day and
year first above written.
CGW Southeast Partners IV, L.P.
By: CGW Southeast IV, L.L.C., its General Partner
By: CGW, Inc., its Manager
By:
-----------------------------------------------
Name:
---------------------------------------------
Title:
--------------------------------------------
JI Acquisition Corp.
By:
-----------------------------------------------
Name:
---------------------------------------------
Title:
---------------------------------------------
Johnston Industries, Inc.
By:
-----------------------------------------------
Name:
---------------------------------------------
Title:
---------------------------------------------
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<PAGE> 45
EXHIBIT 1
CONDITIONS OF THE OFFER
The capitalized terms used in this Exhibit 1 have the meanings assigned to them
in the Purchase Agreement to which this Exhibit 1 is attached.
Notwithstanding any other provision of the Offer or the Purchase
Agreement, Purchaser shall not be required to accept for payment or, subject to
any applicable rules and regulations of the SEC, including Rule 14e-1(c) under
the 1934 Act (relating to Purchaser's obligation to pay for or return tendered
Shares promptly after termination or withdrawal of the Offer), pay for any
Shares tendered pursuant to the Offer, and may postpone the acceptance for
payment or, subject to the restriction referred to above, payment for any
Shares tendered pursuant to the Offer, and may amend or terminate the Offer as
to any Shares not then paid for unless (i) there shall have been validly
tendered and not withdrawn, prior to the expiration of the Offer, that number
of Shares which, when aggregated with the shares of Johnston Common Stock and
Series A Preferred Stock to be acquired by the Purchaser pursuant to Article 3
hereof, would represent at least a majority of the Fully Diluted Shares (as
defined below) (the "Minimum Tender Condition") and (ii) any waiting period
under the HSR Act applicable to the purchase of Shares pursuant to the Offer
shall have expired or been terminated. The term "Fully Diluted Shares" means
all outstanding securities entitled generally to vote in the election of
directors of Johnston on a fully diluted basis, after giving effect to the
exercise or conversion of all Retained Johnston Equity Rights exercisable or
convertible into such voting securities and the purchase of the Additional
Common Stock and Series A Preferred Stock pursuant to Article 3 of the
Agreement. Furthermore, notwithstanding any other term of the Offer or the
Purchase Agreement, Purchaser shall not be required to accept for payment or,
subject as aforesaid, to pay for any Shares not theretofore accepted for
payment or paid for, and may terminate or amend the Offer, with the consent of
Johnston or if, at any time on or after the date of the Purchase Agreement and
prior to the acceptance for payment of Shares or the payment therefor, any of
the following conditions exists:
(a) there shall have been instituted, threatened or pending any
Litigation brought by any Governmental Entity or other person, or before
any court or governmental authority, agency or tribunal, domestic or
foreign, in each case that has a reasonable likelihood of success, (i)
challenging the acquisition by CGW or Purchaser of any Shares, directly
or indirectly seeking to restrain or prohibit or otherwise make more
costly the making or consummation of the Offer, or seeking to obtain
from Johnston, CGW or Purchaser any damages that are material in
relation to Johnston and its Subsidiaries, taken as a whole, (ii)
seeking to prohibit or limit the ownership or operation by Johnston, CGW
or any of their respective Subsidiaries of any material portion of the
business or assets of Johnston, CGW or any of their respective
Subsidiaries, or to compel Johnston, CGW or any of their respective
Subsidiaries to dispose of or hold separate any material portion of the
business or assets of Johnston, CGW or any of their respective
Subsidiaries, as a result of the Offer,
<PAGE> 46
(iii) seeking to impose or to confirm limitations on the ability of CGW
or any of its Subsidiaries effectively to acquire or hold or to exercise
full rights of ownership of Shares, including without limitation the
right to vote any Shares acquired or owned by CGW or any of its
Subsidiaries on all matters properly presented to the stockholders of
Johnston, or the right to vote any shares of capital stock of any
Subsidiary directly or indirectly owned by Johnston, (iv) seeking to
prohibit CGW or any of its Subsidiaries from effectively controlling in
any material respect the business or operations of Johnston or any of its
Subsidiaries, or (v) which otherwise is reasonably likely to have a
Johnston Material Adverse Effect
(b) there shall be any Law or Order threatened, proposed, sought,
enacted, entered, enforced, promulgated, amended or issued with respect
to, or deemed applicable to, or any Consent withheld with respect to,
(i) CGW, Johnston or any of their respective Subsidiaries or (ii) the
Offer, by any Governmental Entity or before any court or governmental
authority, agency or tribunal, domestic or foreign, that is reasonably
likely to result, directly or indirectly, in any of the consequences
referred to in clauses (i) through (iv) of paragraph (a) above;
(c) there shall have occurred any Johnston Material Adverse Effect or
any development that, insofar as reasonably can be foreseen, is
reasonably likely to result in a Johnston Material Adverse Effect;
(d) there shall have occurred (i) any general suspension of trading
in, or limitation on prices for, securities on the New York Stock
Exchange or in the Nasdaq National Market for a period in excess of 24
hours (excluding suspensions or limitations resulting solely from
physical damage or interference not relating to monetary conditions),
(ii) a decline of at least 25% in either the Dow Jones Average of
Industrial Stocks or the Standard & Poor's 500 index from the date
hereof, or a material disruption of or material adverse change in
financial, banking or capital market conditions that could materially
adversely affect syndication of loan facilities, (iii) any material
adverse change in United States currency exchange rates or a suspension
of, or limitation on, the markets therefor, (iv) a declaration of a
banking moratorium or any suspension of payments in respect of banks in
the United States, (v) any limitation (whether or not mandatory) by any
domestic government or governmental, administrative or regulatory
authority or agency on, or any other event that could reasonably be
expected to materially adversely affect the extension of credit by banks
or other lending institutions, (vi) a commencement of a war or armed
hostilities or other national or international calamity having a
Johnston Material Adverse Effect or CGW Material Adverse Effect or
materially adversely affecting (or materially delaying) the consummation
of the Offer or (vii) in the case of any of the foregoing existing on
the date of the Purchase Agreement, a material acceleration or worsening
thereof;
(e) (i) it shall have been publicly disclosed or Purchaser shall have
otherwise learned that beneficial ownership (determined for the purposes
of this paragraph as set forth in Rule 13d-3 promulgated under the 1934
Act) of more than 20% of the outstanding Shares has been acquired by any
corporation (including Johnston or any of its Subsidiaries or
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<PAGE> 47
Affiliates), partnership, person or other entity or "group" (within the
meaning of Section 13(d)(3) of the 1934 Act), other than Purchaser or
any of its Affiliates, or (ii) (A) the Board of Directors of Johnston or
any committee thereof shall have approved or recommended any acquisition
proposal or any other acquisition of Shares other than the Offer or (B)
Johnston shall have entered into an agreement with respect to an
acquisition proposal or (C) the Board of Directors of Johnston or any
committee thereof shall have resolved to do any of the foregoing;
(f) any of the representations and warranties of Johnston set forth in
the Purchase Agreement that are qualified as to materiality shall not be
true and correct, or any such representations and warranties that are
not so qualified shall not be true and correct in any material respect,
in each case as if such representations and warranties were made at the
time of such determination;
(g) Johnston shall have failed to perform in any material respect any
obligation or to comply in any material respect with any agreement or
covenant of Johnston to be performed or complied with by it under the
Purchase Agreement;
(h) the Purchase Agreement shall have been terminated in accordance
with its terms or the Offer shall have been terminated with the consent
of Johnston;
(i) all Consents of and notices to or filings with governmental
authorities and third parties required in connection with the
Transactions shall not have been obtained or made other than those the
absence of which, individually or in the aggregate, would not have a
Johnston Material Adverse Effect or prevent or materially delay
consummation of any of the Transactions;
(j) Notwithstanding Section 5.6 of the Purchase Agreement, Purchaser
shall not have received financing in an amount necessary to consummate
the Transactions, including the payment of fees and expenses relating to
the Transactions, on terms and conditions reasonably satisfactory to
Purchaser and CGW; or
(k) CGW and Purchaser shall not have received confirmation from
Johnston that each of the financial institutions that have made loans to
employees of Johnston to purchase shares of Johnston Common Stock
("Employee Loans"), and which loans are guaranteed by Johnston (such
employees, the lending institutions and the outstanding amounts under
their loans are set forth on Schedule A hereto), shall have agreed to
restructure the Employee Loans on terms reasonably acceptable to CGW and
Purchaser, including the pledge by each borrower under the Employee
Loans of all shares of Johnston Common Stock held by such borrower and
purchased with the proceeds of the Employee Loan to the lender to secure
the Employee Loans; provided, however, that should any such employee
borrower choose to tender such shares of Johnston Common Stock acquired
with the Employee Loans, the Employee Loan relating to that employee
borrower shall not be restructured and shall remain due and payable in
accordance with its original terms;
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<PAGE> 48
which, in the sole and reasonable judgment of CGW or Purchaser, in any such
case, and regardless of the circumstances giving rise to any such condition
(including any action or inaction by CGW or any of its Affiliates), makes it
inadvisable to proceed with such acceptance for payment or payment.
The foregoing conditions are for the sole benefit of CGW and Purchaser
and may be asserted by CGW or Purchaser regardless of the circumstances giving
rise to any such condition or may be waived by CGW or Purchaser in whole or in
part at any time and from time to time in their sole discretion (subject in
each case to the terms of the Purchase Agreement). The failure by CGW or
Purchaser at any time to exercise any of the foregoing rights shall not be
deemed a waiver of any such right, the waiver of any such right with respect to
particular facts and other circumstances shall not be deemed a waiver with
respect to any other facts and circumstances, and each such right shall be
deemed an ongoing right that may be asserted at any time and from time to time.
Any determination by CGW or Purchaser concerning the events described in this
Exhibit 1 will be final and binding upon all parties.
-4-
<PAGE> 49
EXHIBIT 2
SERIES B PREFERRED STOCK DESIGNATION
<PAGE> 50
CERTIFICATE OF DESIGNATION, PREFERENCES AND RIGHTS OF
SERIES A CONVERTIBLE PREFERRED STOCK
OF JOHNSTON INDUSTRIES, INC.
Pursuant to Section 151 of the General Corporation Law of the State of
Delaware, we, D. Clark Ogle, President and Chief Executive Officer, and F.
Ferrell Walton, Secretary of JOHNSTON INDUSTRIES, INC. (the "Corporation"), a
corporation organized and existing under the General Corporation Law of the
State of Delaware, in accordance with provisions of Section 103 thereof,
DO HEREBY CERTIFY: That pursuant to the authority conferred upon the
Board of Directors by the Certificate of Incorporation, as amended, of the said
Corporation, the said Board of Directors on ___________ ___, 2000, adopted the
following resolution creating a series of 250,000 shares of Preferred Stock
designated as Series A Convertible Preferred Stock:
RESOLVED, that a series of the Corporation's Preferred Stock consisting
of 250,000 shares of Preferred Stock, par value $.01 per share, be and hereby
is, designated as "Series A Convertible Preferred Stock" (the "Series A
Preferred Stock"), and that the Series A Preferred Stock shall have the
designations, powers, preferences, rights and qualifications, limitations and
restrictions substantially as set forth in the Certificate of Designation,
Preferences and Rights of Series A Convertible Preferred Stock (the
"Certificate") described below.
This Certificate states that the Board of Directors does hereby fix and
herein state and express such designations, powers, preferences and relative and
other special rights and qualifications, limitations and restrictions thereof as
follows (all terms used herein which are defined in the Certificate of
Incorporation shall be deemed to have the meanings provided therein):
SECTION 1.
DESIGNATION AND AMOUNT
The shares of such series shall be designated as "Series A Convertible
Preferred Stock" (the "Series A Preferred Stock") and the number of shares
constituting such series shall be 250,000. Such number of shares of Series A
Preferred Stock may be increased or decreased by resolution of the Board of
Directors; provided however, that no decrease shall reduce the number of shares
of Series A Preferred Stock to a number less than the number of shares of Series
A Preferred Stock then outstanding plus the number of shares of Series A
Preferred Stock reserved for issuance upon the exercise of outstanding options,
rights or warrants exercisable for, or upon the conversion of any outstanding
securities issued by the Corporation convertible into, Series A Preferred Stock.
SECTION 2.
DIVIDENDS AND DISTRIBUTIONS
(A) Subject to the prior and superior rights of the holders of any
shares of any series of preferred stock ranking prior and superior to the shares
of Series A Preferred Stock with respect to dividends, the holders of shares of
Series A Preferred Stock shall be entitled to receive, when, as and if declared
by the Board of Directors out of funds legally available therefor, dividends
payable in cash, property, or in shares of the Common Stock, par value $.01 per
share of the Corporation (the "Common Stock") in an amount per share equal to
that amount of cash,
<PAGE> 51
property or Common Stock per share declared and paid out of funds legally
available therefor, on the Common Stock.
(B) The Corporation shall declare a dividend or distribution on
the Series A Preferred Stock as provided in paragraph (A) above immediately
after it declares a dividend or distribution on the Common Stock.
(C) Dividends shall begin to accrue and be cumulative on
outstanding shares of Series A Preferred Stock from the date of declaration of
dividends on the Common Stock. Accrued but unpaid dividends shall not bear
interest. Dividends paid on the shares of Series A Preferred Stock in an amount
less than the total amount of such accrued dividends shall be allocated pro rata
on a share-by-share basis among all such shares at the time outstanding. The
Board of Directors may fix a record date for the determination of holders of
shares of Series A Preferred Stock entitled to receive payment of a dividend or
distribution declared thereon, which record date shall be no more than 30 days
prior to the date fixed for the payment thereof.
SECTION 3.
VOTING RIGHTS
The holders of shares of Series A Preferred Stock shall have the same
voting rights with respect to matters which the holders of Common Stock are
entitled to vote, and, except as expressly set forth in the General Corporation
Law of the State of Delaware, the holders of shares of Series A Preferred Stock
shall vote together with the holders of Common Stock as a single class.
SECTION 4.
CERTAIN RESTRICTIONS
(A) Whenever dividends or distributions payable on the Series A
Preferred Stock as provided in Section 2 are in arrears, thereafter and until
all accrued and unpaid dividends and distributions on shares of Series A
Preferred Stock outstanding shall have been paid in full, the Corporation shall
not: (i) declare or pay dividends on, make any other distribution on, or redeem
or purchase or otherwise acquire for consideration any shares of stock ranking
junior (either as to dividends or upon liquidation, dissolution or winding up)
to the Series A Preferred Stock; (ii) declare or pay dividends on or make any
other distributions on any shares of stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with the Series A
Preferred Stock, except dividends paid or distributions made ratably on the
Series A Preferred Stock and all such stock ranking on a parity with respect to
the particular dividend or distribution in proportion to the total amounts to
which the holders of all such shares are then entitled; (iii) redeem or purchase
or otherwise acquire for consideration shares of any stock ranking on a parity
(either as to dividends or upon liquidation, dissolution or winding up) with the
Series A Preferred Stock, provided that the Corporation may at any time redeem,
purchase or otherwise acquire shares of any such parity stock in exchange for
shares of any stock of the Corporation ranking junior (both as to dividends and
upon dissolution, liquidation or winding up) to the Series A Preferred Stock; or
(iv) purchase or otherwise acquire for consideration any shares of Series A
Preferred Stock, or any shares of stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with the Series A
Preferred Stock, except in accordance with a purchase offer made in writing or
by publication (as determined by the Board of Directors) to all holders of such
shares upon such terms as the Board of Directors, after consideration of the
respective annual dividend rates and other relative rights and preferences of
the respective series
-2-
<PAGE> 52
and classes, shall determine in good faith will result in fair and equitable
treatment among the respective series or classes.
(B) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any shares of
stock of the Corporation unless the Corporation could, under paragraph (A) of
this Section 4, purchase or otherwise acquire such shares at such time and in
such manner.
SECTION 5.
CONVERSION RIGHTS
(A) General Rights. The shares of Series A Preferred Stock shall
be convertible into Common Stock on the following terms and conditions:
(a) Term. Pursuant to the provisions of paragraph
5(A)(g), the outstanding shares of Series A Preferred Stock shall be
convertible into such number of fully paid and nonassessable shares of
Common Stock as are issuable pursuant to the conversion formula set
forth in paragraph 5(A)(c), as the same may be adjusted from time to
time pursuant to Section 5(B). The Corporation shall make no payment or
adjustment on account of distributions accrued or in arrears on the
Series A Preferred Stock surrendered for conversion and no adjustment
on account of distributions on the shares of Common Stock issuable upon
conversion.
(b) Surrender of Shares. Upon the occurrence of the
provisions set forth in paragraph 5(A)(g), the holders of Series A
Preferred Stock may surrender the certificate or certificates for such
shares of Series A Preferred Stock at the offices of the Corporation,
or at such other place or places, if any, as the Board of Directors of
the Corporation may determine, duly endorsed to the Corporation or in
blank or accompanied by proper instruments of transfer to the
Corporation or in blank, and shall state in writing therein the name or
names in which the holder wishes the certificate or certificates for
shares of Common Stock issuable on such conversion to be issued. The
surrender of shares of Series A Preferred Stock shall constitute a
contract between the holder and the Corporation whereby (i) such holder
shall be deemed to subscribe for the amount of Common Stock which he
will be entitled to receive upon such conversion and, in payment and
satisfaction of such subscription, to surrender the shares of Series A
Preferred Stock and to release the Corporation from all obligation
thereon, and (ii) the Corporation shall be deemed to agree that the
surrender of the certificate or certificates for such shares of Series
A Preferred Stock and the extinguishment of obligation thereon shall
constitute full payment of such subscription for the Common Stock so
subscribed for and to be issued upon such conversion.
The Corporation will as soon as practicable after such deposit
of certificates for shares of Series A Preferred Stock, issue and
deliver to the person for whose account such shares of Series A
Preferred Stock were so surrendered, or to his nominee or nominees, a
certificate or certificates for the number of full shares of Common
Stock to which the holder shall be entitled as aforesaid, together with
a check or cash in respect of any fraction of a share as hereinafter
provided in paragraph 5(A)(f). Subject to the following provisions of
this Section 5, such conversion shall be deemed to have been made on
the Business Day on which a holder of Series A Preferred Stock has
surrendered its shares of Series A Preferred Stock in accordance with
the conditions described in paragraph 5(A), and the person or persons
entitled to receive the Common Stock issuable
-3-
<PAGE> 53
upon conversion of the Series A Preferred Stock shall be deemed for all
purposes to have become the record holder or holders of such Common
Stock and to have ceased to be the holder of Series A Preferred Stock
on such Business Day.
(c) Stock Unit. Each share of Series A Preferred Stock
shall be convertible, at the times and places and in the manner
referred to in this Section 5, into one "Stock Unit". The contents of a
Stock Unit as of the date of filing of this Certificate of Designation
with the Secretary of State of the State of Delaware, shall be one (1)
share of Common Stock (as constituted upon such date) of the
Corporation. The contents of a Stock Unit shall thereafter be subject
to adjustment in accordance with the provisions of Section 5(B).
(d) Taxes. The issue of share certificates on conversion
of the Series A Preferred Stock shall be made free of any tax in
respect of such issue. The Corporation shall not, however, be required
to pay any tax which may be payable in respect of any transfer involved
in the issue and delivery of shares in a name other than that of the
holder of Series A Preferred Stock converted, and the Corporation shall
not be required to issue or deliver any such share certificate unless
and until the person or persons requesting the issuance thereof shall
have paid to the Corporation the amount of any such tax or shall have
established to the satisfaction of the Corporation that such tax has
been paid.
(e) Reservation of Shares. The Corporation shall at all
times reserve and keep available, out of its authorized and unissued
shares, solely for the purpose of effecting the conversion of Series A
Preferred Stock, such number of shares of Common Stock as shall from
time to time be sufficient to effect the conversion of all shares of
Series A Preferred Stock from time to time outstanding. The Corporation
shall from time to time, in accordance with the General Corporation Law
of the State of Delaware, use its best efforts to cause the number of
authorized shares of its Common Stock to be increased if at any time
the number of authorized shares of Common Stock remaining unissued
shall not be sufficient to permit the conversion of all of the then
outstanding shares of Series A Preferred Stock.
(f) Fractional Shares. The Corporation shall not be
required to issue fractional shares of Common Stock or scrip upon
conversion of Series A Preferred Stock. As to any final fraction of a
share of Common Stock which a holder of one or more shares of Series A
Preferred Stock would otherwise be entitled to receive upon conversion
of Series A Preferred Stock, the Corporation shall pay a cash
adjustment in respect of such final fraction in an amount equal to
$3.00 per share of Series A Preferred Stock.
(g) Terms of Conversion. The shares of Series A Preferred
Stock shall be convertible to Common Stock, at the times and places and
in the manner referred to in this Section 5(A), at the election of the
holders of the Series A Preferred Stock, provided the number of shares
of Common Stock authorized but unissued under the Corporation's
Certificate of Incorporation is sufficient to satisfy the number of
shares of Series A Preferred Stock being converted at such time.
(B) Antidilution. The number of shares of Common Stock comprising
a Stock Unit shall be subject to adjustment from time to time, as follows:
-4-
<PAGE> 54
(a) Recapitalization. In case the Corporation after the
date of filing of this Certificate of Designation with the Secretary of
State of the State of Delaware (the "Base Date") shall (i) issue a
share dividend to the holders of its Common Stock, (ii) combine its
outstanding shares of Common Stock into a smaller number of shares, or
(iii) issue by reclassification of its shares of Common Stock any
shares of the Corporation, then the number of shares of Common Stock
comprising a Stock Unit immediately after the happening of any of the
events described above shall be adjusted by multiplying the Stock Unit
in effect immediately prior to such event by a fraction, the numerator
of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number
of shares of Common Stock that were outstanding immediately prior to
such event. Similar adjustments to the content of a Stock Unit shall be
made if any of the events described above in this subparagraph (a)
shall thereafter occur. An adjustment made pursuant to this
subparagraph (a) shall become effective retroactively immediately after
the record date in the case of a share dividend, and shall become
effective immediately after the effective date in the case of a
combination or reclassification.
(b) Other Actions by Corporation. In case the Corporation
after the Base Date shall take any action affecting the Common Stock,
other than action described in subparagraph (a) of this Section 5(B),
which in the opinion of the Board of Directors of the Corporation would
materially affect the rights of the holders of the Series A Preferred
Stock, the Common Stock included in a Stock Unit shall be adjusted in
such manner, if any, and at such time, as the Board of Directors of the
Corporation, in its sole discretion, may determine to be equitable in
the circumstances. Failure of the Board of Directors of the Corporation
to provide for an adjustment prior to the effective date of any such
action by the Corporation affecting the Common Stock shall be
conclusive evidence that the Board of Directors of the Corporation has
determined that it is equitable to make no adjustment in the
circumstances.
(c) Notices of Adjustment. Whenever the content of a
Stock Unit is adjusted pursuant to this Section 5(B), the Corporation
shall promptly mail to each holder of record of the shares of Series A
Preferred Stock, a certificate signed by the President or Vice
President and by the Treasurer or an Assistant Treasurer or the
Secretary or an Assistant Secretary of the Corporation setting forth in
reasonable detail the events requiring the adjustment and the method by
which such adjustment was calculated and specifying the number, or
kind, or class of shares or other securities or property comprising a
Stock Unit after giving effect to such adjustment.
Failure to file any certificate or notice or to
publish or mail any notice, or any defect in any certificate or notice,
pursuant to this Section 5(B) shall not affect the legality or validity
of the adjustment in the content of a Stock Unit or of any transaction
giving rise thereto.
SECTION 6.
REACQUIRED SHARES
Any shares of Series A Preferred Stock purchased or otherwise acquired
by the Corporation in any manner whatsoever shall be retired and canceled
promptly after the acquisition thereof. All such shares shall upon their
cancellation become authorized but unissued shares of Preferred Stock and may be
reissued as part of a new series of Preferred Stock to be
-5-
<PAGE> 55
created by resolution or resolutions of the Board of Directors, subject to the
conditions and restrictions on issuance set forth herein.
SECTION 7.
LIQUIDATION, DISSOLUTION OR WINDING UP
(A) Upon any liquidation (voluntary or otherwise), dissolution or
winding up of the Corporation, no distribution shall be made to the holders of
shares of stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series A Preferred Stock unless, prior
thereto, the holders of shares of Series A Preferred Stock shall have received
[$3.00] per share, plus an amount equal to accrued and unpaid dividends and
distributions thereon, if declared, to the date of such payment (the "Series A
Liquidation Preference"). Following the payment of the full amount of the Series
A Liquidation Preference, holders of Series A Preferred Stock and holders of
shares of Common Stock shall receive their ratable and proportionate share of
remaining assets to be distributed.
(B) In the event, however, that there are not sufficient assets
available to permit payment in full of the Series A Liquidation Preference and
the liquidation preferences of all other series of preferred stock, if any,
which rank on a parity with the Series A Preferred Stock, then such remaining
assets shall be distributed ratably to the holders of the Series A Preferred
Stock and the holders of such parity shares in proportion to their respective
liquidation preferences.
SECTION 8.
NO REDEMPTION
The shares of Series A Preferred Stock shall not be redeemable.
SECTION 9.
RANKING
The Series A Preferred Stock shall rank junior to all other series of
the Corporation's preferred stock, if any, as to the payment of dividends and
the distribution of assets, unless the terms of any such series shall provide
otherwise. Nothing in this Certificate shall limit the power of the Board of
Directors to create a new series of preferred stock ranking senior to the Series
A Preferred Stock in any respect.
SECTION 10.
AMENDMENT
The Certificate of Incorporation of the Corporation shall not be
further amended in any manner which would materially alter or change the powers,
preferences or special rights of the Series A Preferred Stock so as to affect
them adversely without the affirmative vote of the holders of two-thirds or more
of the outstanding shares of Series A Preferred Stock, voting separately as a
class.
SECTION 11.
FRACTIONAL SHARES
-6-
<PAGE> 56
Series A Preferred Stock may be issued in fractions of a share, which
shall entitle the holder, in proportion to such holder's fractional shares, to
receive dividends, participate in distributions and to have the benefit of all
other rights of holders of Series A Preferred Stock.
IN WITNESS WHEREOF, we have executed and subscribed this Certificate and do
affirm the foregoing as true under the penalties of perjury this _____ day of
____, 2000.
---------------------------------------
D. Clark Ogle, President
Attest:
--------------------------------
F. Ferrell Walton, Secretary
<PAGE> 1
EXHIBIT 11
JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES
STATEMENT OF COMPUTATION OF PER SHARE EARNINGS
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
The weighted average number of common and common share equivalents on a basic
and diluted basis are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
JANUARY 1, JANUARY 2, JANUARY 3,
2000 1999 1998
---------- ---------- ----------
<S> <C> <C> <C>
Weighted average common shares outstanding 10,722 10,722 10,562
Shares issued from assumed exercise of
Incentive stock options -- 135 211
Shares issued from assumed exercise of
Nonqualified stock options(1) 30 28 58
-------- -------- --------
Weighted average number of shares outstanding,
As adjusted 10,752 10,885 10,831
======== ======== ========
Loss from continuing operations $ (8,008) $ (608) $ (8,622)
Loss from discontinued operations -- -- 126
-------- -------- --------
Net Loss $ (8,008) $ (608) $ (8,496)
Dividends on Preferred Stock -- -- (82)
-------- -------- --------
Net Loss available to common stockholders $ (8,008) $ (608) $ (8,578)
======== ======== ========
Earnings (Loss) per common share-basic:
Loss from continuing operations $ (.75) $ (.06) $ (.82)
Discontinued operations -- -- .01
-------- -------- --------
Loss per common share $ (.75) $ (.06) $ (.81)
======== ======== ========
</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: Earnings per share is not presented on a diluted basis as the effect of
potentially dilutive securities was either anti-dilutive due to net
losses or immaterial for the periods presented.
<PAGE> 1
EXHIBIT 13(a)
JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED JANUARY 1, 2000, JANUARY 2, 1999 AND JANUARY 3,
1998
<TABLE>
<S> <C>
Report of KPMG LLP as of and for the Years ended January 1, 2000 and January 2, 1999................. F-1
Report of Deloitte & Touche LLP for the Year ended January 3, 1998................................... F-2
Consolidated Balance Sheets.......................................................................... F-3
Consolidated Statements of Operations................................................................ F-4
Consolidated Statements of Comprehensive Operations.................................................. F-5
Consolidated Statements of Stockholders' Equity...................................................... F-6
Consolidated Statements of Cash Flows................................................................ F-7 to F-8
Notes to the Consolidated Financial Statements....................................................... F-9 to F-29
</TABLE>
<PAGE> 2
Independent Auditors' Report
The Board of Directors and Stockholders
Johnston Industries, Inc.:
We have audited the accompanying consolidated balance sheets of Johnston
Industries, Inc. and subsidiaries (the "Company") as of January 1, 2000 and
January 2, 1999 and the related consolidated statements of operations,
comprehensive operations, stockholders' equity, and cash flows for each of the
years then ended. We also have audited the financial statement schedule of
valuation and qualifying accounts for the years ended January 1, 2000 and
January 2, 1999. These consolidated financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Johnston Industries,
Inc. and subsidiaries as of January 1, 2000 and January 2, 1999, and the results
of their operations and their cash flows for the years then ended, in conformity
with generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule for the years ended January 1, 2000 and January 2,
1999, when considered in relation to the basic consolidated financial statements
taken as a whole, presents fairly, in all material respects, the information set
forth therein.
/s/KPMG LLP
- -----------
KPMG LLP
Atlanta, Georgia
March 3, 2000, except for
note 21, as to which the date
is March 30, 2000
F-1
<PAGE> 3
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Johnston Industries, Inc.:
We have audited the accompanying consolidated statements of operations,
comprehensive operations, stockholders' equity, and cash flows of Johnston
Industries, Inc. and subsidiaries (the "Company") for the year ended January 3,
1998. Our audit also included the financial statement schedule listed in the
Index at Item 14. These financial statements and financial statement schedule
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and financial statement
schedule based on our audit.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the results of its operations and its cash flows for the
year ended January 3, 1998 in conformity with generally accepted accounting
principles. Also in our opinion, such financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.
/s/DELOITTE & TOUCHE LLP
- ------------------------
DELOITTE & TOUCHE LLP
Atlanta, Georgia
March 6, 1998
March 30, 1998 (As to Note 10)
April 1, 1999 (As to Note 17)
F-2
<PAGE> 4
JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF JANUARY 1, 2000 AND JANUARY 2, 1999
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
JANUARY 1, JANUARY 2,
2000 1999
---------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,292 $ 1,231
Accounts and notes receivable net of allowance for
doubtful accounts of $3,623 and $1,442 31,103 34,768
Inventories 50,415 58,079
Assets held for sale 3,957 3,788
Income taxes receivable 249 --
Deferred income taxes 2,861 1,249
Prepaid expenses and other 4,457 3,111
---------- ----------
Total current assets 94,334 102,226
Property, plant and equipment-net 86,972 99,486
Goodwill - net of accumulated amortization of $2,356 and $1,728 10,217 10,845
Intangible asset-pension -- 1,651
Other assets 2,443 5,331
---------- ----------
Total assets $ 193,966 $ 219,539
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 16,124 $ 13,867
Accrued expenses 10,269 9,859
Revolving credit facility 59,941 66,954
Current maturities of long-term debt 50,931 9,989
Income taxes payable -- 479
---------- ----------
Total current liabilities 137,265 101,148
Long-term debt - less current maturities 2,429 51,109
Other liabilities 6,188 8,878
Deferred income taxes 7,833 10,130
STOCKHOLDERS' EQUITY:
Preferred stock, par value $.10 per share; authorized,
3,000 shares -- --
Common stock, par value $.10 per share; authorized,
20,000 shares; issued 12,468 1,246 1,246
Additional paid-in capital 21,445 21,445
Retained earnings 25,842 33,850
---------- ----------
Total 48,533 56,541
Less treasury stock; 1,755 shares and 1,746 shares (8,282) (8,267)
---------- ----------
Total stockholders' equity 40,251 48,274
---------- ----------
Total liabilities and stockholders' equity $ 193,966 $ 219,539
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements
F-3
<PAGE> 5
JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JANUARY 1, 2000, JANUARY 2, 1999 AND JANUARY 3, 1998
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------------
JANUARY 1, JANUARY 2, JANUARY 3,
2000 1999 1998
---------- ---------- ----------
<S> <C> <C> <C>
Net sales $ 264,036 $ 283,724 $ 332,537
---------- ---------- ----------
Costs and expenses:
Cost of sales 235,950 245,278 295,338
Selling, general and administrative 26,872 26,718 27,616
Amortization of goodwill 628 632 680
Restructuring and impairment charges -- 93 6,273
---------- ---------- ----------
Total costs and expenses 263,450 272,721 329,907
---------- ---------- ----------
Income from operations 586 11,003 2,630
Other expenses (income):
Interest expense 12,017 13,420 14,006
Interest income (572) (703) (795)
Other-net 2,599 392 1,681
---------- ---------- ----------
Total other expenses - net 14,044 13,109 14,892
Realized and unrealized investment gain (loss) (50) (19) 561
Equity in earnings of equity investments 799 326 --
---------- ---------- ----------
Loss from continuing operations before benefit for income taxes (12,709) (1,799) (11,701)
Benefit for income taxes (4,701) (1,191) (3,079)
---------- ---------- ----------
Loss from continuing operations (8,008) (608) (8,622)
DISCONTINUED OPERATIONS:
Loss from discontinued operations of Jupiter National, (less
applicable income tax benefit of $5) -- -- (11)
Income on disposal of Jupiter National, (less applicable
tax of $60) -- -- 137
---------- ---------- ----------
Income from discontinued operations -- -- 126
Net loss (8,008) (608) (8,496)
Dividends on preferred stock -- -- (82)
---------- ---------- ----------
Net loss available to common stockholders $ (8,008) $ (608) $ (8,578)
========== ========== ==========
Earnings (loss) per common share-basic and diluted:
Loss from continuing operations $ (0.75) $ (0.06) $ (0.82)
Discontinued operations -- -- 0.01
---------- ---------- ----------
Net loss per common share-basic and diluted $ (0.75) $ (0.06) $ (0.81)
========== ========== ==========
Weighted average number of common shares outstanding 10,722 10,722 10,562
========== ========== ==========
</TABLE>
See Notes to Consolidated Financial Statements
F-4
<PAGE> 6
JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE OPERATIONS
FOR THE YEARS ENDED JANUARY 1, 2000, JANUARY 2, 1999 AND JANUARY 3, 1998
(IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------
JANUARY 1, JANUARY 2, JANUARY 3,
2000 1999 1998
---------- ---------- ----------
<S> <C> <C> <C>
Net loss $ (8,008) $ (608) $ (8,496)
-------- -------- --------
Other comprehensive income, before tax:
Minimum pension liability adjustment -- -- (754)
-------- -------- --------
Other comprehensive loss before benefit for
income tax related to items of other comprehensive income (8,008) (608) (9,250)
-------- -------- --------
Benefit for income tax related to items of other
comprehensive income -- -- (276)
-------- -------- --------
Comprehensive loss $ (8,008) $ (608) $ (8,974)
======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements
F-5
<PAGE> 7
JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JANUARY 1, 2000, JANUARY 2, 1999 AND JANUARY 3, 1998
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
MINIMUM
ADDITIONAL PENSION
PAID-IN RETAINED LIABILITY
PREFERRED STOCK COMMON STOCK CAPITAL EARNINGS TREASURY STOCK ADJUSTMENT TOTAL
--------------- ---------------- ---------- -------- ----------------- ---------- --------
SHARES AMOUNT SHARES AMOUNT AMOUNT AMOUNT SHARES AMOUNT
------ ------ ------ ------ ---------- -------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE - December 28, 1996 325 $ 3 12,450 $1,245 $ 23,568 $ 45,111 2,087 $(10,257) $(478) $ 59,192
Exercise of options -- -- 18 1 74 -- (17) 32 -- 107
Issuance of treasury stock -- -- -- -- -- -- (345) 2,200 -- 2,200
Cancellation of preferred shares (325) (3) -- -- (2,197) -- -- -- -- (2,200)
Net loss -- -- -- -- -- (8,496) -- -- -- (8,496)
Minimum pension liability
adjustment, net of taxes of $276 -- -- -- -- -- -- -- -- 478 478
Dividends paid - common stock
($0.20 per share) -- -- -- -- -- (2,075) -- -- -- (2,075)
Dividends paid - preferred stock
($0.25 per share) -- -- -- -- -- (82) -- -- -- (82)
---- --- ------ ------ -------- -------- ------ -------- ----- --------
BALANCE - January 3, 1998 -- -- 12,468 1,246 21,445 34,458 1,725 (8,025) -- 49,124
Purchase of treasury stock -- -- -- -- -- -- 21 (242) -- (242)
Net loss -- -- -- -- -- (608) -- -- -- (608)
---- --- ------ ------ -------- -------- ------ -------- ----- --------
BALANCE - January 2, 1999 -- -- 12,468 1,246 21,445 33,850 1,746 (8,267) -- 48,274
Purchase of treasury stock -- -- -- -- -- -- 9 (15) -- (15)
Net loss -- -- -- -- -- (8,008) -- -- -- (8,008)
---- --- ------ ------ -------- -------- ------ -------- ----- --------
BALANCE - January 1, 2000 -- $-- 12,468 $1,246 $ 21,445 $ 25,842 1,755 $ (8,282) $ -- $ 40,251
==== === ====== ====== ======== ======== ====== ======== ===== ========
</TABLE>
See Notes to Consolidated Financial Statements
F-6
<PAGE> 8
JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JANUARY 1, 2000, JANUARY 2, 1999 AND JANUARY 3, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
------------------------------------------------
JANUARY 1, JANUARY 2, JANUARY 3,
2000 1999 1998
---------- ---------- ----------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
CONTINUING OPERATIONS:
Net loss from continuing operations $ (8,008) $ (608) $ (8,622)
Adjustments to reconcile net loss from continuing operations
to net cash provided by continuing operations:
Depreciation 18,063 19,263 20,690
Amortization of goodwill 628 632 680
Amortization of deferred financing costs 1,828 1,671 843
Restructuring and impairment charges -- -- 5,609
Provision for bad debts 3,066 507 1,490
Unrealized foreign exchange loss 79 -- --
Loss on disposal of fixed assets 133 119 292
Net unrealized (gain) loss on portfolio investments 50 19 (478)
Undistributed income in equity investments (799) (326) --
Changes in operating assets and liabilities:
Accounts and notes receivable 2,580 508 (47)
Inventories 7,664 (6,996) 13,063
Deferred income taxes (3,909) (927) 783
Prepaid expenses and other assets (543) (751) (2,056)
Accounts payable 2,298 (1,916) (6,363)
Accrued expenses 353 (339) 303
Income taxes receivable (728) 5,317 (3,176)
Other liabilities (1,039) 94 (1,887)
Other-net -- 121 738
-------- -------- --------
Total adjustments 29,724 16,996 30,484
-------- -------- --------
Net cash provided by continuing operations 21,716 16,388 21,862
DISCONTINUED OPERATIONS:
Loss from discontinued operations -- -- (11)
Gain on disposal of discontinued operations -- -- 137
Changes in operating assets and liabilities for
discontinued operating activities -- -- 1,929
-------- -------- --------
Net cash provided by discontinued operations -- -- 2,055
-------- -------- --------
Net cash provided by operating activities 21,716 16,388 23,917
-------- -------- --------
INVESTING ACTIVITIES:
Additions to property, plant and equipment (6,083) (9,136) (10,363)
Decrease in non-operating accounts payable (41) (1,305) (2,458)
Proceeds from sale and leaseback of equipment 463 3,557 --
Proceeds from sale of assets held for sale 518 830 932
Proceeds from sale of Tarboro assets -- -- 2,330
-------- -------- --------
Net cash used in investing activities (5,143) (6,054) (9,559)
-------- -------- --------
</TABLE>
Continued
F-7
<PAGE> 9
JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JANUARY 1, 2000, JANUARY 2, 1999 AND JANUARY 3, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
------------------------------------------------
JANUARY 1, JANUARY 2, JANUARY 3,
2000 1999 1998
---------- ---------- ----------
<S> <C> <C> <C>
FINANCING ACTIVITIES:
Principal payments of long-term debt (280,854) (153,059) (17,173)
Proceeds from issuance of long-term debt 264,357 141,914 5,500
Purchase of treasury stock (15) (242) --
Proceeds from issuance of common stock -- -- 36
Dividends paid -- -- (2,157)
---------- ---------- ----------
Net cash used in financing activities (16,512) (11,387) (13,794)
---------- ---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 61 (1,053) 564
CASH AND CASH EQUIVALENTS:
Beginning of Year 1,231 2,284 1,720
---------- ---------- ----------
End of Year $ 1,292 $ 1,231 $ 2,284
========== ========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid (received) during the year for:
Interest $ 11,153 $ 12,365 $ 13,582
========== ========== ==========
Income taxes $ (63) $ (5,579) $ (654)
========== ========== ==========
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING ACTIVITIES - During 1997, the
Company sold TJ Beall back to a member of the Beall Family in exchange for the
preferred stock and a note receivable in the amount of $1,500.
In June 1997, the Company contributed 345 shares of treasury stock, totaling
$2,200 to the Company's defined benefit pension plans.
During 1999, the Company accrued $1,703 in anticipation that it will be called
on to honor its guarantee on certain employee obligations under the Company's
Employee Stock Purchase Plan (See Note 14).
Concluded
See Notes to Consolidated Financial Statements
F-8
<PAGE> 10
JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED JANUARY 1, 2000, JANUARY 2, 1999 AND JANUARY 3,
1998 (IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
- -------------------------------------------------------------------------------
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING
POLICIES.
ORGANIZATION - The consolidated financial statements for the years ended
January 1, 2000, January 2, 1999, and January 3, 1998 include the accounts of
Johnston Industries, Inc. ("Johnston"), its direct wholly owned subsidiary,
Johnston Industries Alabama, Inc. ("JI Alabama") and its indirect wholly owned
subsidiaries, Johnston Industries Composite Reinforcements, Inc. ("JICR"), JI
Georgia, Inc., formerly T.J. Beal Company ("TJ Beall"), and Greater Washington
Investments ("GWI") (collectively, the "Company"). All significant intercompany
accounts and transactions have been eliminated.
On September 29, 1997, the Company sold substantially all of the
assets of TJ Beall (see Note 3).
OPERATIONS - Johnston and its wholly owned subsidiaries 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.
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.
CASH EQUIVALENTS - The Company classifies all highly liquid investments with a
maturity of three months or less as cash equivalents.
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 ("LIFO") cost flow assumption) or market. However, JICR's inventories
and all of the Company's parts and supplies are stated at the lower of cost
determined on the first-in, first-out ("FIFO") basis or market (net realizable
value).
ASSETS HELD FOR SALE - All long-lived assets for which management, having
authority to approve the actions, has committed to a plan of disposal, whether
by sale or by abandonment, are classified as "held for sale" and reported at
the lower of cost or fair value less cost to sell. Upon management's commitment
to a disposal plan, depreciation is stopped for assets included within the
plan. Subsequent revisions of estimated fair value less cost to sell are
reported as adjustments in carrying amount, provided that the carrying amount
does not exceed the carrying amount of the asset before an adjustment was made
to reflect the decision to dispose of the asset.
The fair value of instruments in debt and equity securities are not readily
determinable and are carried at the lower of costs or estimated net realizable
value, the fair value of real estate is based on appraised values less estimated
cost of disposal.
PROPERTY, PLANT, AND EQUIPMENT - Property, plant, and equipment is stated at
cost. Depreciation and amortization are computed principally using 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.
GOODWILL - Goodwill, which represents the excess of purchase price over fair
value of net assets acquired, is amortized on a straight-line basis over the
expected periods to be benefited, generally 20 years. The Company assesses the
recoverability of this intangible asset by determining whether the amortization
of
F-9
<PAGE> 11
the goodwill balance over its remaining life can be recovered through
undiscounted future operating cash flows of the acquired operation. The amount
of goodwill impairment, if any, is measured based on projected discounted
future operating cash flows using a discount rate reflecting the Company's
average cost of funds. The assessment of the recoverability will be impacted if
estimated future operating cash flows are not achieved.
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 $6,872 and $7,264 at January 1, 2000 and January 2, 1999,
respectively.
In December 1999, the United States Securities and Exchange Commission
issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements". SAB No. 101 summarizes certain of the staff's views in applying
generally accepted accounting principles to revenue recognition in financial
statements, including among other issues, bill-and-hold sales. SAB No. 101A
deferred the effective date for SAB No. 101, for registrants with a calendar
year end, until the second fiscal quarter of 2000 to permit time for a detailed
review of the SAB. The Company is currently reviewing SAB No. 101 and assessing
whether and to what extent it may be impacted by adoption.
INCOME TAXES - Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
EARNINGS (LOSS) PER SHARE - Net income (loss) per share-basic is computed based
on net income (loss) divided by the weighted average common shares outstanding
during the year. EPS is not presented on a diluted basis as the effect of
potentially dilutive securities was either anti-dilutive due to net losses or
the difference was immaterial for the periods presented.
IMPAIRMENT OF LONG-LIVED ASSETS - The Company reviews 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. During the years ended January 2, 1999, and
January 3, 1998, the Company recorded impairment charges of ($75) and $5,609,
respectively, in connection with restructurings (see Note 4) and the revision
of prior estimates of the net realizable value of assets held for sale. All
long-lived assets held for sale are reported at the lower of cost or fair value
less cost to sell.
COMMITMENTS AND CONTINGENCIES - Liabilities for loss contingencies arising from
claims, assessments, litigation, fines and penalties, and other sources are
recorded when it is probable that a liability has been incurred and the amount
of the assessment and/or remediation can be reasonably estimated.
The Company accrues for losses associated with environmental
remediation obligations when such losses are probable and reasonably estimable.
Accruals for losses from environmental remediation obligations generally are
recognized no later than completion of the remedial feasibility study, if a
remedial feasibility study is appropriate, or required. Such accruals are
adjusted as further information develops or circumstances change. Costs of
future expenditures for environmental remediation obligations are not
discounted to their present value. Recoveries of environmental remediation
costs from
F-10
<PAGE> 12
other parties are recorded as assets when their receipt is deemed probable.
Recoveries of environmental remediation costs from third parties which are
probable of realization are separately recorded, and are not offset against the
related environmental liability.
PENSION AND OTHER POSTRETIREMENT 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.
STOCK-BASED COMPENSATION -The Company applies the intrinsic value-based method
of accounting prescribed by Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations, in
accounting for its fixed plan stock options. As such, compensation expense
would be recorded on the date of grant only if the current market price of the
underlying stock exceeded the exercise price. SFAS No. 123, "Accounting for
Stock-Based Compensation," established accounting and disclosure requirements
using a fair value-based method of accounting for stock-based employee
compensation plans. As allowed by SFAS No. 123, the Company has elected to
continue to apply the intrinsic value-based method of accounting described
above and has adopted the disclosure requirements of SFAS No. 123.
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES - In June
1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities." This statement establishes accounting and reporting
standards for derivative instruments, including certain derivatives imbedded in
other contracts, and for hedging activities. It requires that, at adoption,
hedging relationships should be designated anew and that entities recognize all
derivatives as either assets or liabilities in the statement of financial
position and to measure those instruments at fair value. The accounting for
changes in fair value of a derivative depends on the intended use of the
derivative and the resulting designation. Pursuant to SFAS No. 137, this
statement is effective for all fiscal quarters of all fiscal years beginning
after June 15, 2000. The Company expects that there will be no material impact
as a result of its adoption of SFAS No. 133 in 2001.
RECLASSIFICATIONS - Certain prior year and prior period amounts have been
reclassified to conform to the current year presentation.
F-11
<PAGE> 13
2. JUPITER NATIONAL, INC.
DISCONTINUANCE OF THE VENTURE CAPITAL SEGMENT - Concurrent with the acquisition
of Jupiter National, Inc. ("Jupiter") in 1996, the Company's management made
the decision to discontinue the venture capital investment segment of Jupiter's
operation. Through June 28, 1997, the segment was accounted for as discontinued
operations, and the net assets of the discontinued segment were recorded as an
asset on the consolidated balance sheet and were expected to be disposed of by
June 1997. During that period, the results of operations for Jupiter's venture
capital investment activities were recorded as discontinued operations.
At June 29, 1997, the remaining undisposed portfolio investments were
reclassified from net assets of discontinued operations to assets held for sale
on the consolidated balance sheet, and the results of continuing operations for
their remaining portfolio investments have been reported as income from
continuing operations on the consolidated statements of operations.
Loss from discontinued operations of Jupiter includes the following components:
<TABLE>
<CAPTION>
YEAR ENDED
JANUARY 3,
1998
------------
<S> <C>
Operating costs ....................................... $ 16
Income tax benefit .................................... (5)
------------
Loss from discontinued operations of Jupiter ..... $ (11)
============
</TABLE>
The following summarizes the aggregate carrying value of the portfolio
investments held for sale at January 1, 2000 and January 2, 1999:
<TABLE>
<CAPTION>
JANUARY 1, JANUARY 2,
2000 1999
------------ ------------
<S> <C> <C>
Debt securities ........................ $ 1,422 $ 1,550
Equity securities ...................... 1,671 872
Land ................................... 850 850
------------ ------------
$ 3,943 $ 3,272
============ ============
</TABLE>
F-12
<PAGE> 14
3. T.J. BEALL COMPANY
On March 25, 1996, the Company acquired all of the outstanding common
stock of TJ Beall, a broker in cotton by-products located in West Point,
Georgia. The TJ Beall stock was acquired in exchange for 325,000 shares of
nonvoting convertible preferred stock ("Series 1996 Preferred Stock") of the
Company. Dividends on the Series 1996 Preferred Stock were payable quarterly at
the rate of $.125 per share. The acquisition was accounted for under the
purchase method of accounting. Goodwill of $2,116 was recorded and was
originally assigned a useful life of 20 years. Each share of Series 1996
Preferred Stock was convertible into the Company's voting common stock, par
value $.10 per share (the "Common Stock"), on a one-for-one basis on a
specified time frame.
In September 1997, an agreement was reached culminating in the sale of
substantially all of the assets and current liabilities of TJ Beall back to a
member of the Beall family. The sale of TJ Beall resulted in a loss of $546,
which is recorded in other - net in the 1997 statement of operations.
4. RESTRUCTURING AND IMPAIRMENT CHARGES
The Company recorded the following restructuring and impairment
charges:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 2, 1999 YEAR ENDED JANUARY 3, 1998
------------------------------- -------------------------------
RESTRUCTURING IMPAIRMENT RESTRUCTURING IMPAIRMENT
------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Langdale facility.............................. $ 168 $ -- $ 389 $ 2,630
TJ Beall....................................... -- -- -- 1,984
Tarboro facility............................... -- -- -- 11
Other restructuring and impairment charges..... -- (75) 275 984
------------- -------------- ------------- --------------
Total.......................................... $ 168 $ (75) $ 664 $ 5,609
============= ============== ============= ==============
</TABLE>
LANGDALE FACILITY - In August 1997, the Company finalized its plans to cease
manufacturing operations at its Langdale Facility in an effort to further
consolidate certain manufacturing activities and concentrate on efficient and
profitable operations. The Langdale Facility contained both weaving operations
and yarn manufacturing operations. The yarn manufacturing operations were
eliminated and selected equipment and associated product offerings of the
weaving operations were relocated to other facilities. The remaining weaving
operations at the Langdale Facility were closed. The Langdale Facility was
retained for light manufacturing, warehouse, distribution, and potential future
manufacturing space of JI Alabama's Fiber Products Division. During 1997, the
Company recorded charges totaling $3,019 related to closure of the Langdale
Facility and the Outlet Store including write-downs on machinery and equipment
of $2,057, a write-down of $573 on the Langdale building and restructuring
charges of $389. During 1998, the Company recorded $168 in additional
restructuring charges related to closure of the Langdale Facility.
T.J. BEALL IMPAIRMENT - In recognition of the disappointing operating results
realized at TJ Beall since its acquisition in March of 1996 and risks inherent
in future operations, the Company recorded restructuring charges of $1,984 in
June of 1997 for the write-off of goodwill related to the acquisition of TJ
Beall. (See Note 3).
TARBORO FACILITY - In 1995, the Company decided to close the manufacturing
facility in Tarboro, North Carolina (the "Tarboro Facility"), which had been
operated by the Wellington Sears Company, a wholly-owned subsidiary of Jupiter.
All activities related to the closing of the Tarboro Facility were
substantially completed in January 1997. In 1997, the Company recorded
impairment charges totaling $11 in settlement of the reserve established for
restructuring and impairment. In December 1997, the Tarboro Facility was sold
resulting in net proceeds of $2,330. A gain of $405, net of taxes of $234, was
recorded on the sale.
F-13
<PAGE> 15
OTHER RESTRUCTURING AND IMPAIRMENT CHARGES -In 1997, the Company recorded $275
in restructuring charges related to the realignment of divisions. Also, in
1997, the Company recorded impairment losses totaling $984, which includes a
$552 write-down of the Company's investment in software for which the original
implementation attempt was abandoned, an additional $253 write-down of the
Jupiter building, and a $179 write-down of the outlet store in West Point,
Georgia. In 1998, the Company recorded a favorable adjustment of $75 to the
impairment reserve for Jupiter's former office building in Rockville, Maryland,
which was sold in February 1998.
5. STEEL FABRICATION OPERATIONS
The accompanying consolidated balance sheets at January 1, 2000 and
January 2, 1999 include current and other liabilities of $5,400 and $6,624,
respectively, for the remaining costs expected to be incurred in connection
with the Company's former steel fabrication operations, which were discontinued
in 1981. These costs are principally related to health insurance and death
benefits for former employees and are stated at the actuarially determined
discounted present value.
6. INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
JANUARY 1, JANUARY 2,
2000 1999
------------ -------------
<S> <C> <C>
Inventories - FIFO cost flow assumption
Finished goods.......................................................... $ 28,231 $ 33,136
Work-in-process......................................................... 7,984 8,793
Raw materials........................................................... 10,150 12,317
Direct materials and supplies........................................... 4,050 4,687
------------ -------------
50,415 58,933
Less LIFO reserve....................................................... -- 854
------------ -------------
Inventories - LIFO cost flow assumption............................. $ 50,415 $ 58,079
============ =============
</TABLE>
7. ASSETS HELD FOR SALE
Assets held for sale consisted of the following:
<TABLE>
<CAPTION>
JANUARY 1, JANUARY 2,
2000 1999
------------ -------------
<S> <C> <C>
Jupiter investments (see Note 2)............................................. $ 3,943 $ 3,272
Other........................................................................ 14 516
------------ -------------
Assets held for sale.................................................... $ 3,957 $ 3,788
============ =============
</TABLE>
F-14
<PAGE> 16
8. PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment consisted of the following:
<TABLE>
<CAPTION>
JANUARY 1, JANUARY 2,
2000 1999
------------ -------------
<S> <C> <C>
Land......................................................................... $ 933 $ 935
Buildings and improvements................................................... 36,923 36,105
Machinery and equipment...................................................... 206,133 202,680
------------ -------------
243,989 239,720
Less accumulated depreciation................................................ 157,017 140,234
------------ -------------
Property, plant, and equipment - net.................................... $ 86,972 $ 99,486
============ =============
</TABLE>
9. ACCRUED EXPENSES
Accrued expenses consisted of the following:
<TABLE>
<CAPTION>
JANUARY 1, JANUARY 2,
2000 1999
------------ -------------
<S> <C> <C>
Salaries, wages, and employee benefits....................................... $ 6,254 $ 5,805
Taxes, other than income taxes............................................... 1,093 1,008
Interest expense............................................................. 702 791
Current portion of estimated phase-out costs
of steel fabrication operations......................................... 950 1,150
Other........................................................................ 1,270 1,105
------------ -------------
Accrued expenses........................................................ $ 10,269 $ 9,859
============ =============
</TABLE>
10. LONG-TERM DEBT AND REVOLVING CREDIT FACILITY
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
JANUARY 1, JANUARY 2,
2000 1999
------------ -------------
<S> <C> <C>
Revolving credit facility.................................................... $ 59,941 $ 66,954
Term loans................................................................... 50,085 59,402
Purchase money mortgage loan................................................. 826 913
Industrial development note (net of unamortized discount).................... 382 439
Capital lease obligations.................................................... 314 344
Other........................................................................ 1,753 --
------------ -------------
Total................................................................... 113,301 128,052
Less current maturities and revolving credit facility............... 110,872 76,943
------------ -------------
Long-term debt less current maturities.................................. $ 2,429 $ 51,109
============ =============
</TABLE>
F-15
<PAGE> 17
In compliance with the Emerging Issues Task Force Issue No. 95-22,
"Balance Sheet Classification of Borrowings Outstanding under Revolving Credit
Agreements that include both a Subjective Acceleration Clause and a Lock-Box
Arrangement" the revolving credit facility in the amount of $59,941 and $66,954
is classified as short-term debt in the consolidated financial statements.
The estimated fair value of long-term debt (including current
maturities) approximates book value at January 1, 2000 and January 2, 1999.
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.
FINANCING - On March 28, 1996, the Company signed an agreement with a syndicate
of lenders (the "Bank Credit Agreement") to provide financing required to
consummate the merger with Jupiter, 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 provided for the consolidation
of the Company's outstanding debt.
The Bank Credit Agreement is comprised of two term loan facilities and
a revolving credit facility. Term loan facility A ("Term Loan A") is a $40,000
facility with an amended maturity date of July 2000. The interest rates on these
borrowings range from 8.40% to 10.25% and from 8.20% to 10.25% for the years
ended January 1, 2000 and January 2, 1999, respectively, which is based on a
Base Rate, the prime commercial lending rate, plus 1.75% and is subject to
change at the Company's option to a rate based on the London Interbank Offered
Rate ("LIBOR") plus 3.50%. As of January 1, 2000 and January 2, 1999 the
borrowings outstanding under Term Loan A were $19,155 and $26,987, respectively.
Term loan facility B ("Term Loan B") is a $40,000 facility with an
amended maturity date of July 2000. The interest rates on these borrowings range
from 8.95% to 11.25% and from 8.70% to 10.75% for the years ended January 1,
2000 and January 2, 1999, respectively, which is based on a Base Rate, as
defined, plus 2.75% and 2.25%, respectively, and is subject to change at the
Company's option to a rate based on LIBOR, plus 4.50% and 4.00%, respectively.
As of January 1, 2000 and January 2, 1999, the borrowings outstanding under Term
Loan B were $30,930 and $32,415, respectively.
The revolving credit facility (the "Revolving Credit Facility")
provides up to $80,000 in borrowing, with an amended maturity date of July 2000.
Principal amounts outstanding are due and payable at final maturity. The
interest rate on these borrowings range from 8.00% to 10.00% and from 8.40% to
9.25% for the years ended January 1, 2000 and January 2, 1999, respectively,
which is based on a Base Rate, as defined, plus 1.50% and is subject to change
at the Company's option to a rate based on LIBOR plus 3.50% and 3.00%,
respectively. Commitment fees are payable quarterly at 1/2 of 1%, based on the
unused portion of the facility.
Substantially all assets are pledged as collateral for the borrowings
under the Bank Credit Agreement. The amended Bank Credit Agreement requires the
Company to maintain certain financial ratios and specified levels of tangible
net worth and places a limit on the Company's level of capital expenditures and
type of mergers or acquisitions. The amended 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: (a) 20% of total
assets of the Company, on a fully consolidated basis, as of the date of
determination thereof; (b) $5,000 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
F-16
<PAGE> 18
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
consolidated financial statements for such quarter. Accordingly, at January 1,
2000, the Company is not permitted to declare and pay dividends.
AMENDMENTS TO THE BANK CREDIT AGREEMENT - The Bank Credit Agreement has been
amended several times to modify certain covenants, the latest amendment of
which was executed on April 1, 1999 (the "1999 Amendment"). In addition to
covenant modifications, the 1999 Amendment also includes an increase in
interest rates of 1/2% effective as of April 4, 1999.
In addition to limited covenant modifications, which were effective
through January 2, 1999, and increased interest rates, a March 30, 1998
amendment (the "March 1998 Amendment") required the Company to adopt new cash
management procedures during the second quarter of 1998, which included
establishment of a lock-box with instruction for customers to remit payments
directly to the lock-box. Pursuant to the March 1998 Amendment, the Company
agreed that a collateral monitoring arrangement should be put into effect
whereby the Company is required, through an independent collateral monitoring
agent, to report certain financial data on a periodic basis to the lenders.
The Company paid amendment fees as a result of both the March 1998
Amendment and the 1999 Amendment, each in an amount equal to 1/4 of 1% of Term
Loan A, Term Loan B, and the Revolving Credit Facility.
FINANCIAL COVENANTS - As of January 1, 2000, the Company was not in compliance
with certain of the covenants under the Bank Credit Agreement. Considering the
maturity date of the Bank Credit Agreement plus the pending tender offer and
refinancing (see Note 21), no waivers have been sought.
OTHER DEBT INSTRUMENTS - The following discussion relates to debt outstanding,
which is unrelated to borrowings under the Bank Credit Agreement.
PURCHASE MONEY MORTGAGE LOAN - In connection with the purchase of an office
building during 1994, Johnston obtained a Purchase Money Mortgage Loan of
$1,325. 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 8.50% at January 1, 2000
and 7.75% at January 2, 1999. Beginning on March 31, 1994, Johnston was
obligated to make 58 consecutive quarterly payments of principal of $22 plus
interest, with all remaining principal and interest due on December 31, 2007.
The Company's office building in Columbus, Georgia is pledged as collateral
under this loan agreement.
CONTINGENT LIABILITY GUARANTEES - Based on the probability that it will be
called upon to fulfill its guarantee on certain loans to former participants of
the Company's Employee Stock Purchase Plan, the Company has recorded a
contingent liability which includes long-term liability of $1,362 and current
maturities of long-term liabilities of $341 (see Note 14).
INDUSTRIAL DEVELOPMENT NOTE - In October 1995, the Company entered into an
Industrial Development Note 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 beginning December 31, 1996
through December 31, 2004. At January 1, 2000 and January 2, 1999, the
unamortized discount on the note was $118 and $161 (discount based on an
imputed interest rate of 9.75%), respectively.
F-17
<PAGE> 19
DEBT MATURITIES - Aggregate scheduled repayments, resulting from the amended
credit agreement, of long-term debt as of January 1, 2000 are summarized as
follows:
<TABLE>
<CAPTION>
YEAR ENDING AMOUNT
- ----------- ----------
<S> <C>
2000................................................... $ 110,872
2001................................................... 504
2002................................................... 503
2003................................................... 510
2004................................................... 519
Thereafter............................................. 393
----------
$ 113,301
==========
</TABLE>
11. FINANCIAL INSTRUMENTS
The Company utilizes derivative financial instruments to reduce
exposure to adverse fluctuation in interest and foreign exchange rates. These
financial instruments are designated and used as hedges against specific
underlying exposures. Because of these specific relationships, fluctuations in
the value of the instruments are generally offset by changes in the value of
the underlying exposures. The Company does not utilize financial instruments
for trading or other speculative purposes.
INTEREST RATE SWAPS - Exposure to interest rate risk relates to
variable rate obligations under the Company's Bank Credit Agreement. Interest
rate swap agreements are utilized to manage overall borrowing costs and reduce
exposure to adverse fluctuations in interest rates. An interest rate swap
agreement is currently in place under which the Company pays an average of
certain LIBOR based rates on $26,500 notional principal. This
agreement, which was entered into on June 3, 1999 and expires on July 1, 2000,
also contains interest rate caps which further limit interest rate exposures.
The notional amounts of interest rate agreements are used to measure interest
to be paid or received and do not represent the amount of exposure to credit
loss. Any differences paid or received on interest rate swap agreements are
recognized as adjustments to interest expense over the lives of the agreements
without the exchange of the underlying notional amounts.
The fair values of interest rate instruments are the estimated amounts
that the Company would receive or pay to terminate the agreements at the
reporting date, taking into account current interest rates and the current
creditworthiness of the counterparties. At January 1, 2000 and January 2, 1999,
the Company estimates it would have paid $77 and $304, respectively, to
terminate the agreements in place at those times.
FORWARD EXCHANGE CONTRACTS - The Company maintains forward exchange
contracts in connection with certain non-binding sales commitments denominated
in foreign currencies. These instruments are recorded at fair value for balance
sheet purposes and are accounted for using the mark-to-market method of
accounting in which the unrealized gains or losses resulting from the impact of
price movements are recognized as net gains or losses in the consolidated
statements of operations.
The fair values of foreign exchange contracts are the estimated
amounts that the Company would receive or pay to terminate the agreements at
the reporting date, taking into account current exchange rates and the current
creditworthiness of the counterparties. At January 1, 2000, the Company
estimates that it would have paid $57 to terminate the contracts.
The counterparties to these contractual arrangements are major
financial institutions with which the Company also has other financial
relationships. The Company is exposed to credit loss in the event of
nonperformance by these counterparties. However, the Company does not anticipate
nonperformance by the other parties, and no material loss would be expected from
nonperformance by any one of such counterparties.
F-18
<PAGE> 20
It is estimated that the carrying value of the Company's other
financial instruments (see Note 10) approximated fair value at January 1, 2000
and January 2, 1999.
12. OTHER LIABILITIES
Other liabilities consisted of the following:
<TABLE>
<CAPTION>
JANUARY 1, JANUARY 2,
2000 1999
------------ -------------
<S> <C> <C>
Long-term portion of estimated phase-out costs
of steel fabrication operations......................................... $ 4,450 $ 5,474
Additional pension liability (see Note 18)................................... -- 324
Other........................................................................ 1,738 3,080
------------ -------------
$ 6,188 $ 8,878
============ =============
</TABLE>
13. STOCK OPTION PLANS
EMPLOYEES' STOCK INCENTIVE PLAN - Johnston has a stock incentive plan for key
employees and non-employee directors 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 2,858,450. 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>
WEIGHTED
INCENTIVE RANGE OF AVERAGE
NONQUALIFIED STOCK EXERCISE EXERCISE
OPTIONS OPTIONS TOTAL PRICES PRICES
------------ ----------- ----------- -------------- ---------
<S> <C> <C> <C> <C> <C>
Options outstanding at December 28, 1996......... 713,816 364,514 1,078,330 1.98 - 8.25 4.84
Total options granted in 1997............... 20,000 -- 20,000 7.50 7.50
Total options exercised in 1997............. -- (34,800) (34,800) 1.98 1.98
Total options cancelled in 1997............. (16,000) -- (16,000) 7.50 - 8.25 8.11
----------- ----------- ----------- -------------- ---------
Options outstanding at January 3, 1998........... 717,816 329,714 1,047,530 1.98 - 8.25 5.15
Total options granted in 1998............... 415,937 51,063 467,000 4.38 - 5.88 5.47
Total options cancelled in 1998............. (218,000) -- (218,000) 4.63 - 8.25 7.09
----------- ----------- ----------- -------------- ---------
Options outstanding at January 2, 1999........... 915,753 380,777 1,296,530 1.98 - 8.25 5.00
Total options granted in 1999............... 111,000 -- 111,000 1.50 - 2.94 2.17
Total options converted from ISO's to NQSO's 329,714 (329,714) -- 1.98 - 3.62 2.92
Total options cancelled in 1999............. (37,500) -- (37,500) 2.94 - 8.25 6.80
----------- ----------- ----------- -------------- ---------
Options outstanding at January 1, 2000........... 1,318,967 51,063 1,370,030 1.50 - 8.25 4.70
=========== =========== =========== ============== =========
Total options exercisable at January 1,2000. 1,103,009 17,021 1,120,030 1.98 - 8.25 4.53
=========== =========== =========== ============== =========
Options available for grant at January 1, 2000... 356,645
===========
</TABLE>
F-19
<PAGE> 21
The following table summarizes information about outstanding and
exercisable stock options at January 1, 2000:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------- -----------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE NUMBER CONTRACT EXERCISE NUMBER EXERCISE
PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
------------- ----------- --------- -------- ----------- ----------
<S> <C> <C> <C> <C> <C>
$ 1.98 -2.50 396,376 2.6 $ 2.11 371,376 $ 2.16
2.94 -3.62 141,154 1.7 3.54 141,154 3.54
4.38 -5.88 614,500 6.4 5.54 399,500 7.50
7.50 -8.25 218,000 6.7 7.50 208,000 7.50
----------- --------- -------- ----------- ----------
Total 1,370,030 4.9 $ 4.70 1,120,030 $ 4.53
=========== ========= ======== =========== ==========
</TABLE>
During 1999, the expiration date was modified on 636,530 options
previously granted to a former officer of the Company. As a result of this
modification, 329,714 of these options, which were qualified incentive stock
options were converted to non-qualified stock options.
The estimated weighted average fair value of options granted during
1999, 1998 and 1997 was $1.23, $2.91 and $4.03 per share, respectively. The
Company applies APB No. 25 and related interpretations in accounting for its
stock incentive plan. Accordingly, no compensation cost has been recognized for
its stock incentive plan. Had compensation cost for the Company's stock
incentive plan been determined based on the fair value at the grant dates for
awards under this plan consistent with the method of SFAS No. 123, additional
compensation expense of approximately $130, $1,254 and $71 for the years ended
January 1, 2000, January 2, 1999 and January 3, 1998, respectively, would have
been recorded.
Accordingly, the Company's net loss and loss per share would have been
increased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
JANUARY 1, JANUARY 2, JANUARY 3,
2000 1999 1998
------------ ------------ ------------
<S> <C> <C> <C>
Net loss available to common shareholders:
As reported $ (8,008) $ (608) $ (8,578)
Pro forma (8,090) (1,403) (8,623)
Net loss per common and common equivalent share:
As reported $ (0.75) $ (0.06) $ (0.81)
Pro forma (0.75) (0.13) (0.81)
</TABLE>
Options which are modified during the year are considered to be
re-issued options. Such modified options result in pro forma compensation
expense to the extent that the fair value of the option exceeds its intrinsic
value at the date of modification.
F-20
<PAGE> 22
The fair value of options granted under the Company's stock incentive plan was
estimated on the date of grant or modification using the Black-Scholes option
pricing model with the following weighted average assumptions used:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Expected volatility......................................... 41.74% 36.76% 33.65%
Risk free interest rate..................................... 5.36% 5.60% 6.24%
Expected lives in years..................................... 8.00 8.00 8.00
</TABLE>
14. 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 January 1, 2000, 23 key employees and directors
currently have outstanding loans of $2,956 related to the purchase of 353,464
shares of the Company's common stock. To purchase stock, participants generally
execute five-year full recourse demand promissory notes with a third-party
lender. The notes generally bear interest at prime plus .25%.
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. As of January 1, 2000, the
market value of the purchased stock was $596. The Company has no obligation to
repurchase the stock from the participant.
At January 1, 2000 and January 2, 1999, the Company had guaranteed
plan participants' borrowings totaling approximately $2,956 and $5,585,
respectively. During 1999, the Company made payments of approximately $186 to a
third party lender in connection with default on two participant's loans.
The Company has become aware of inappropriate transfers of the stock
acquired under the plan by certain former participants. The Company intends to
assist the lenders in seeking full collection of the loans from the
participants, including offsetting amounts or benefits due these former
participants. In recognition of the Company's guarantee of these loans and the
inherent uncertainty of recovery from participants involved, the Company has
recognized a loss of $2,073 as "other-net" in the 1999 consolidated statement of
operations and recorded a contingent liability in the 1999 consolidated balance
sheet at January 1, 2000. The Company is in negotiations with the lenders
concerning collection under the Company's guarantee and restructuring the
program to prohibit future unauthorized transfers.
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 $401, $435, and $385 for the
years ended January 1, 2000, January 2, 1999 and January 3, 1998, respectively.
F-21
<PAGE> 23
15. INCOME TAXES
The provision (benefit) for income taxes is comprised of the
following:
<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------------------
JANUARY 1, JANUARY 2, JANUARY 3,
2000 1999 1998
----------- ----------- -----------
<S> <C> <C> <C>
Federal:
Current.............................................. $ (371) $ (370) $ (3,128)
Deferred............................................. (3,566) (861) 295
----------- --------- ----------
(3,937) (1,231) (2,833)
State:
Current.............................................. (421) 106 (292)
Deferred............................................. (343) (66) 101
----------- --------- ----------
(764) 40 (191)
----------- --------- ----------
Provision (benefit) for income taxes...................... $ (4,701) $ (1,191) $ (3,024)
=========== ========= ==========
Components of provision (benefit) for income taxes:
Continuing operations................................ $ (4,701) $ (1,191) $ (3,079)
Discontinued operations.............................. -- -- 55
----------- --------- ----------
Total............................................ $ (4,701) $ (1,191) $ (3,024)
=========== ========= ===========
</TABLE>
The significant components of deferred income tax assets and
liabilities are as follows:
<TABLE>
<CAPTION>
JANUARY 1, JANUARY 2,
2000 1999
----------- ------------
<S> <C> <C>
Deferred tax assets:
Estimated phase-out costs of steel fabrication operations............... $ 1,979 $ 2,427
Unrealized depreciation - investments................................... -- 47
Alternative minimum tax credits......................................... 4,615 4,986
Federal tax net operating loss carryforwards ........................... 2,006 --
State tax net operating loss carryforwards.............................. 978 1,239
Other - net............................................................. 883 135
----------- ------------
10,461 8,834
Deferred tax liabilities:
Property, plant, and equipment.......................................... (11,560) (13,032)
Inventories............................................................. (2,780) (3,444)
Unrealized appreciation - investments................................... (193) --
----------- ------------
.................................................................... (14,533) (16,476)
Valuation allowance..................................................... (900) (1,239)
----------- ------------
Net deferred tax liability.......................................... $ (4,972) $ (8,881)
=========== ============
Components of net deferred tax assets (liability):
Net current deferred tax assets......................................... $ 2,861 $ 1,249
Net long-term deferred tax liability.................................... (7,833) (10,130)
----------- ------------
$ (4,972) $ (8,881)
============ ============
</TABLE>
F-22
<PAGE> 24
Net deferred tax liabilities are classified in the consolidated 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.
The reconciliation of the Company's effective income tax rate to the
federal statutory rate of 34% follows:
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------------------------------
JANUARY 1, JANUARY 2, JANUARY 3,
2000 1999 1998
--------------- --------------- ----------------
<S> <C> <C> <C>
Federal income tax benefit at statutory rate.............. $ (4,321) $ (612) $ (3,917)
State income taxes, net of federal tax effect............. (504) 26 (126)
Amortization of goodwill.................................. 214 219 906
Other - net............................................... 26 95 113
Tax rate differential related to
net operating loss carryback......................... (116) (919) --
---------------- --------------- ----------------
$ (4,701) $ (1,191) $ (3,024)
================ =============== ================
</TABLE>
At January 1, 2000 and January 2, 1999, the Company has non-expiring
alternative minimum tax credit carryforwards of approximately $4,615 and 4,986,
respectively, which have been used as a basis for recording tax assets. At
January 1, 2000, the Company has a federal net operating loss carryforward for
the current year of $5,900 available to reduce future taxable income. The tax
effect of the federal net operating loss carryforward, $2,006, has been recorded
as a tax asset, and expires in the year 2019. At January 1, 2000 and January 2,
1999, the Company also has state net operating loss carryforwards of $26,360 as
of its tax year ending January 1, 2000 and $30,969 as of its former tax year
ending June 30, 1998. The state net operating loss carryforwards from the
Company's various states of operation expire from 2003 to 2019. In assessing the
realizability of deferred tax assets, management considers whether it is more
likely than not that some portion or all of the deferred tax assets will not be
realized. The ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income during the periods in which those temporary
differences become deductible. Management considers the scheduled reversal of
deferred tax liabilities, projected future taxable income, and tax planning
strategies in making this assessment. Based upon the level of historical taxable
income and projections for future taxable income over the periods which the
deferred tax assets are deductible, management believes it is more likely than
not the Company will realize the benefits of these deductible differences, net
of the existing valuation allowances. All of the aforementioned tax assets are
included in the long-term deferred taxes payable account.
16. COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS - Rent expense under operating leases covering production
equipment and office facilities was approximately $2,241 for the year ended
January 1, 2000, $1,218 for the year ended January 2, 1999 and $1,158 for the
year ended January 3, 1998.
At January 1, 2000, the Company is committed to pay the following
minimum rental payments on non-cancelable operating leases:
<TABLE>
<CAPTION>
YEAR ENDING AMOUNT
- ----------- ----------------
<S> <C>
2000......................................................... $ 2,512
2001......................................................... 2,252
2002......................................................... 2,118
2003......................................................... 1,985
2004......................................................... 1,723
Thereafter................................................... 3,545
----------------
$ 14,135
================
</TABLE>
F-23
<PAGE> 25
OTHER COMMITMENTS - The Company has employment contracts with certain of its
employees extending through 2002 aggregating approximately $1,665.
As of January 1, 2000, the Company has purchase commitments with
several vendors to buy inventory totaling approximately $38,301.
The Company purchases cotton through approximately ten established
merchants with whom it has long-standing relationships. The majority of the
Company's purchases are executed using "on-call" contracts. These on-call
arrangements are used to insure that an adequate supply of cotton is available
for the Company's requirements. Under on-call contracts, the Company agrees to
purchase specific quantities for delivery on specific dates, with pricing to be
determined at a later time. Prices are set according to prevailing prices, as
reported by the New York Cotton Exchange, at the time of the Company's election
to fix specific contracts.
Cotton on-call with a fixed price at January 1, 2000 was valued at
approximately $9,016, and is scheduled for delivery early in 2000. At January 1,
2000, the Company had unpriced contracts for deliveries between April 1, 2000
and July 1, 2001. Based on the prevailing price at January 1, 2000, the value of
these commitments is approximately $12,250 for deliveries between April and
December of 2000 and approximately $11,146 for deliveries between January and
July of 2001. As commodity price fluctuations are generally short-term in
nature, and have not historically had a significant long-term impact on
operating performance, financial instruments are not used to hedge commodity
price risk.
On September 28, 1998 and June 22, 1999, the Company entered into a
leasing programs, under which, the Company is able to enter into operating
leases for manufacturing and other equipment for which original cost is expected
to approximate $7,500 and $5,250, respectively.
The Company also has capital commitments with terms extending over one
year as of January 1, 2000 with several vendors for the purchase of machinery
and equipment aggregating approximately $310.
GENERAL - The Company is periodically involved in legal proceedings arising out
of the ordinary conduct of its business. Management does not expect that the
resolution of these proceedings will have a material adverse effect on the
Company's consolidated financial position, results of operations or liquidity.
17. SEGMENT AND RELATED INFORMATION
Effective December 15, 1998, the Company adopted SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information. " The
Company's principal operations include manufacturing and marketing of finished
and unfinished (greige) fabrics plus processing and marketing of textile waste
fibers and fabrics. The Company's operations are organized around manufacturing
processes and its reportable business segments include the Greige Fabrics
Division, the Finished Fabrics Division and the Fiber Products Division. All
remaining operations have been aggregated as "All Other". Segments are evaluated
on the basis of income (loss) on continuing operations before income taxes.
Intersegment transactions are generally recorded at cost.
F-24
<PAGE> 26
Financial and related information for business segments is as follows:
<TABLE>
<CAPTION>
Greige Finished Fiber All Reconciling
Year Fabrics Fabrics Products Other Eliminations Consolidated
- -------------------------------------------- --------- --------- -------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
AS OF AND FOR THE YEAR ENDED JANUARY 1, 2000
Trade revenues $ 126,926 $ 93,476 $ 31,937 $ 11,697 $ -- $ 264,036
Intersegment revenues 5,354 5,328 603 -- (11,285) --
Income (loss) before income taxes 4,582 (868) 470 (16,893) -- (12,709)
Interest income (41) (40) -- (491) -- (572)
Interest expense 11 44 -- 11,962 -- 12,017
Income tax expense (benefit) 1,847 (242) 218 (6,524) -- (4,701)
Equity in income of investees -- -- -- 799 -- 799
Depreciation and amortization 10,636 6,051 1,115 889 -- 18,691
Total assets 92,792 64,410 18,468 308,749 (290,453) 193,966
Expenditures for segment assets 1,703 1,792 1,732 856 -- 6,083
Investment in equity method investee -- -- -- 1,171 -- 1,171
AS OF AND FOR THE YEAR ENDED JANUARY 2, 1999
Trade revenues $ 137,443 $ 100,954 $ 34,390 10,937 $ -- $ 283,724
Intersegment revenues 7,221 4,362 1,040 -- (12,623) --
Income (loss) before income taxes 14,296 (3,096) 2,169 (15,168) -- (1,799)
Interest income (19) (5) -- (679) -- (703)
Interest expense 31 75 -- 13,314 -- 13,420
Income tax expense (benefit) 5,404 (1,057) 842 (6,380) -- (1,191)
Equity in income of investees -- -- -- 326 -- 326
Depreciation and amortization 11,391 6,274 1,051 1,179 -- 19,895
Other significant non-cash items:
Restructuring and impairment charges -- 132 36 (75) -- 93
Total assets 105,957 73,525 19,714 339,976 (319,633) 219,539
Expenditures for segment assets 3,946 2,603 1,729 858 -- 9,136
Investment in equity method investee -- -- -- 372 -- 372
AS OF AND FOR THE YEAR ENDED JANUARY 3, 1998
Trade revenues $ 161,939 $ 109,986 $ 52,397 $ 8,215 $ -- $ 332,537
Intersegment revenues 5,348 4,608 3,212 -- (13,168) --
Income (loss) before income taxes 19,859 (7,174) (3,919) (20,467) -- (11,701)
Interest income (10) (18) -- (767) -- (795)
Interest expense 47 69 -- 13,890 -- 14,006
Income tax expense (benefit) 7,428 (2,517) (760) (7,230) -- (3,079)
Depreciation and amortization 11,373 7,594 1,213 1,190 -- 21,370
Other significant non-cash items:
Restructuring and impairment charges -- 3,383 2,492 398 -- 6,273
Total assets 110,981 78,829 16,238 411,257 (382,517) 234,788
Expenditures for segment assets 6,001 3,438 645 279 -- 10,363
</TABLE>
The Company sells its products to approximately 3,500 customers with
net sales to the largest customer accounting for 4%, 5%, and 6% of total sales
for the years ended January 1, 2000, January 2, 1999 and January 3, 1998,
respectively. The Company sells its products throughout the United States as
well as internationally. The largest portion of domestic sales are for customers
located in the eastern half of the United States, and though generally no more
than 6% of its annual sales are derived from direct international sales, there
is no significant concentration of direct sales into any particular country.
F-25
<PAGE> 27
18. 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
actuarially determined liability for the SRP is immaterial to the consolidated
financial statements taken as a whole.
The provisions of SFAS No. 87 require recognition in the consolidated
balance sheets of an additional minimum liability and related intangible asset
for pension plans with accumulated benefits in excess of plan assets. At January
2, 1999, an additional liability of $1,651 was recorded in the consolidated
balance sheets.
Net periodic pension cost for the hourly and salaried defined benefit
pension plans included the following components:
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------------------------------
JANUARY 1, JANUARY 2, JANUARY 3,
2000 1999 1998
--------------- --------------- ----------------
<S> <C> <C> <C>
Service cost.............................................. $ 1,807 $ 1,671 $ 1,664
Interest cost............................................. 2,629 2,507 2,444
Expected return on plan assets............................ (2,905) (2,757) (2,212)
=============== =============== ================
Amortization costs:
Transition (asset)/obligation........................ 298 298 298
Prior service costs.................................. 228 255 255
Actuarial (gain)/loss................................ 78 -- --
--------------- --------------- ----------------
Net amortization................................. 604 553 553
Net periodic pension cost................................. $ 2,135 $ 1,974 $ 2,449
=============== =============== ================
</TABLE>
The following is a reconciliation of the projected benefit obligation
for the hourly and salaried defined benefit pension plans:
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------------------------------
JANUARY 1, JANUARY 2, JANUARY 3,
2000 1999 1998
--------------- --------------- ----------------
<S> <C> <C> <C>
Projected benefit obligation at beginning of year......... $ 40,155 $ 36,779 $ 30,302
Service cost.............................................. 1,807 1,671 1,664
Interest cost............................................. 2,629 2,507 2,444
Actuarial (gain) loss..................................... (1,766) 1,960 4,344
Benefits paid............................................. (2,380) (2,762) (1,975)
---------------- --------------- ----------------
Projected benefit obligation at end of year............... $ 40,445 $ 40,155 $ 36,779
=============== =============== ================
</TABLE>
F-26
<PAGE> 28
The following is a reconciliation of plan assets for the hourly and
salaried defined benefit pension plans:
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------------------------------
JANUARY 1, JANUARY 2, JANUARY 3,
2000 1999 1998
--------------- --------------- ----------------
<S> <C> <C> <C>
Fair value of plan assets at beginning of year............ $ 37,890 34,076 26,044
Actual return on plan assets.............................. 5,215 4,939 4,249
Employer contributions.................................... 1,501 1,637 5,758
Benefits paid............................................. (2,380) (2,762) (1,975)
---------------- --------------- ----------------
Fair value of plan assets at end of year.................. $ 42,226 $ 37,890 $ 34,076
=============== =============== ================
</TABLE>
The following is a reconciliation of funded status for the hourly and
salaried defined benefit pension plans:
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------------------------------
JANUARY 1, JANUARY 2, JANUARY 3,
2000 1999 1998
--------------- --------------- ----------------
<S> <C> <C> <C>
Accumulated benefit obligation (ABO)
Vested............................................... $ 30,772 $ 31,858 $ 34,286
Nonvested............................................ 5,796 5,772 291
--------------- --------------- ----------------
Total accumulated benefit obligation...................... 36,568 37,630 34,577
=============== =============== ================
Projected benefit obligation (PBO)........................ 40,445 40,155 36,779
Market value of plan assets............................... 42,226 37,890 34,076
--------------- --------------- ----------------
Unfunded projected benefit obligation..................... (1,781) 2,265 2,703
Unrecognized net transition obligation.................... (745) (1,042) (1,340)
Unrecognized prior service costs.......................... (1,174) (1,402) (1,657)
Unrecognized net gain (loss).............................. 1,212 (2,942) (2,563)
Additional liability...................................... -- 1,651 1,882
--------------- --------------- ----------------
Prepaid pension cost recognized in the
consolidated balance sheets.......................... $ (2,488) $ (1,470) $ (975)
================ =============== ================
Adjustments to Reflect Minimum Liability
Additional liability...................................... $ -- $ 1,651 $ 1,882
Intangible asset.......................................... -- 1,651 1,882
--------------- --------------- ----------------
Cumulative charge to equity.......................... $ -- $ -- $ --
=============== =============== ================
</TABLE>
F-27
<PAGE> 29
The following are assumptions regarding determination of pension costs:
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------------------------------
JANUARY 1, JANUARY 2, JANUARY 3,
2000 1999 1998
--------------- --------------- ----------------
<S> <C> <C> <C>
Weighted average discount rate for obligations............ 7.30% 6.80% 7.25%
Long-term rate of investment return....................... 8.0% 8.00% 8.00%
Salary increase rate*..................................... 7.50% - 4.00% 7.50% - 4.00% 7.50% - 4.00%
</TABLE>
* Higher initial rate, gradually decreasing to lower ultimate rate.
DEFINED CONTRIBUTION PLANS - The Company has a defined contribution savings plan
that covers substantially all full-time employees who qualify as to age and
length of service. The Company expanded this plan in 1997 and may make
discretionary contributions to the plan. The Company made no contributions for
the years ended January 1, 2000, January 2, 1999, and January 3, 1998.
19. TRUST AGREEMENTS
During 1991, 1993, and 1997, the Company entered into "rabbi" trust
agreements with officers to transfer assets to trusts in lieu of paying
compensation, bonuses, and consulting fees. These trust assets, which are
classified as trading assets (as defined by SFAS No. 115) and included in "Other
Assets" on the consolidated balance sheets, are recorded at the fair market
value of the underlying assets and short-term investments. The compensation to
the officers is determined in accordance with the employment agreements. Upon
termination of the officer's 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 January 1,
2000 and January 2, 1999, trust assets and corresponding liabilities, which are
included in "Other Liabilities" on the consolidated balance sheets, each totaled
$751 and $2,032, respectively.
20. 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 $282 and
$295, related to Redlaw's commissioned sales business for the years ended
January 2, 1999 and January 3, 1998, respectively. As of November 30, 1998, the
Company terminated its commissioned sales agency arrangement with Redlaw.
Allyn P. Chandler, a Director of Johnston Industries, Inc., is
Chairperson, President and CEO of Redlaw and GRM Industries, Inc. ("GRM"), a
wholly-owned subsidiary of Redlaw. Ms. Chandler is also one of the personal
co-representatives of the Estate of her late father, David L. Chandler, who was
the Chairman of Johnston Industries, Inc. at the time of his death on August 21,
1998,
David L. Chandler was a party to two "rabbi" trust agreements whereby,
during his employment, the Company transferred assets to the trusts in
accordance with his employment agreement. During 1999, the Company purchased
demand notes payable by Redlaw, and guaranteed by GRM, from the trusts at a
substantially discounted cost of approximately $200. The notes, which have
maturities from one to five years, can be called on demand by the payee, bear
interest at 10% per annum, and are convertible, at the option of the holder,
into (i) common shares of Redlaw, or (ii) common shares of Johnston Industries,
Inc. held of record by GRM. Conversion to shares of Johnston Industries, Inc. is
contingent on the release by a secured lender of its first security interest in
shares of Johnston Industries, Inc. held of record by GRM.
F-28
<PAGE> 30
21. SUBSEQUENT EVENT
On March 30, 2000, the Company entered into an agreement with CGW
Southeast Partners IV ("CGW") providing for a tender offer for up to all of the
Company's common stock at a cash price of $3.00 per share. At the time the
tender offer closes, the agreement provides that CGW will also invest
approximately $27.0 million in the Company as a purchase of common and preferred
stock. The cash tender offer will be launched on or about April 7, 2000. If CGW
acquires less than 90% of the outstanding voting stock of the Company, it has
agreed to use best efforts to maintain a public market for the Company's common
stock on a national securities exchange, a Nasdaq Stock Market or in
over-the-counter trading for a period of three years. The closing of the tender
offer and stock purchase are subject to receipt by CGW of at least a majority of
the Company's voting stock, including the direct purchase by CGW, as well as
customary regulatory approvals and certain other conditions.
In connection with signing the purchase agreement described above, the
Company received a commitment letter for the refinancing of its indebtedness
under the Bank Credit Agreement. Such refinancing will be consummated upon
closing of the tender offer and stock purchase. Consummation of the refinancing
is conditioned on, among other things, the negotiation and execution of
definitive loan documents, the absence of a material adverse change in the
Company and the closing of the tender offer and stock purchase by CGW.
F-29
<PAGE> 1
JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES
EXHIBIT 13(B)
QUARTERLY INFORMATION (UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
The following summarizes the unaudited quarterly results of operations for the
years ended January 1, 2000 (Fiscal Year 1999) and January 2, 1999 (Fiscal Year
1998).
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------
FISCAL YEAR 1999 APRIL 3 JULY 3 OCT. 2 JAN. 1
- ---------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales $ 65,032 $ 67,762 $ 63,330 $ 67,912
Gross margin 7,302 6,187 5,401 9,196
Income (loss) from continuing operations (1,747) (1,905) (2,686) (1,670)
---------- ---------- ---------- ----------
Net income (loss) available to common stockholders $ (1,747) $ (1,905) $ (2,686) $ (1,670)
========== ========== ========== ==========
Net earnings (loss) per common share-basic (1) $ (.16) $ (.18) $ (.25) $ (.16)
========== ========== ========== ==========
Weighted average shares outstanding 10,722 10,722 10,722 10,722
========== ========== ========== ==========
<CAPTION>
THREE MONTHS ENDED
------------------
FISCAL YEAR 1998 APRIL 4 JULY 4 OCT. 3 JAN. 2
- ----------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales $ 79,839 $ 69,063 $ 69,572 $ 65,250
Gross margin 9,779 8,710 9,408 10,549
Income (loss) from continuing operations (935) (568) 140 755
---------- ---------- ---------- ----------
Net income (loss) available to common stockholders $ (935) $ (568) $ 140 $ 755
========== ========== ========== ==========
Net earnings (loss) per common share-basic (1) $ (.09) $ (.05) $ .01 $ .07
========== ========== ========== ==========
Weighted average shares outstanding 10,710 10,404 10,726 10,722
========== ========== ========== ==========
</TABLE>
(1) Earnings per common share-diluted are not presented as they are either
antidilutive in periods for which a loss is presented or immaterial.
Note: See Notes 2, 3 and 4 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 1998 fiscal year.
<PAGE> 1
JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES
EXHIBIT 21
LIST OF SUBSIDIARIES OF JOHNSTON INDUSTRIES, INC.
1. Johnston Industries Alabama, Inc.
State of Incorporation: Alabama
2. Johnston Industries Composite Reinforcements, Inc.
State of Incorporation: Alabama
3. Greater Washington Investments, Inc.
State of Incorporation: Delaware
<PAGE> 1
JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Johnston Industries, Inc.:
We consent to incorporation by reference in the registration statements (Nos.
33-86414, 33-38359, 33-44669, 33-50100 and 33-73268) on Form S-8 of Johnston
Industries, Inc. of our report dated March 3, 2000, except for Note 21 as to
which the date is March 30, 2000, relating to the consolidated balance sheets of
Johnston Industries, Inc. and subsidiaries as of January 1, 2000 and January 2,
1999 and the related consolidated statements of operations, comprehensive
operations, stockholders' equity, and cash flows for each of the years in the
two year period ended January 1, 2000 and the related schedule for the years
ended January 1, 2000 and January 2, 1999 which report appears in the January 1,
2000, annual report on Form 10-K of Johnston Industries, Inc.
/s/KPMG LLP
- -----------
KPMG LLP
Atlanta, Georgia
April 6, 2000
<PAGE> 1
JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
Johnston Industries, Inc.:
We consent to the incorporation by reference in Registration Statements No.
33-86414, 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 6, 1998 (March 30,
1998 as to Note 10 and April 1, 1999 as to Note 17) appearing in the Annual
Report on Form 10-K of the Company for the year ended January 1, 2000.
/s/ DELOITTE & TOUCHE LLP
- -------------------------
DELOITTE & TOUCHE LLP
Atlanta, Georgia
April 6, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JOHNSTON
INDUSTRIES, INC. AND SUBSIDIARIES FINANCIAL STATEMENTS AS OF JANUARY 1, 2000 AND
FOR THE YEAR THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-01-2000
<PERIOD-END> JAN-01-2000
<CASH> 1,292,000
<SECURITIES> 0
<RECEIVABLES> 34,726,000
<ALLOWANCES> 3,623,000
<INVENTORY> 50,415,000
<CURRENT-ASSETS> 94,334,000
<PP&E> 243,989,000
<DEPRECIATION> 157,017,000
<TOTAL-ASSETS> 193,966,000
<CURRENT-LIABILITIES> 137,265,000
<BONDS> 113,301,000
0
0
<COMMON> 1,246,000
<OTHER-SE> 39,005,000
<TOTAL-LIABILITY-AND-EQUITY> 193,966,000
<SALES> 264,036,000
<TOTAL-REVENUES> 264,036,000
<CGS> 235,950,000
<TOTAL-COSTS> 235,950,000
<OTHER-EXPENSES> 27,500,000
<LOSS-PROVISION> 891,000
<INTEREST-EXPENSE> 12,017,000
<INCOME-PRETAX> (12,709,000)
<INCOME-TAX> (4,701,000)
<INCOME-CONTINUING> (8,008,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,008,000)
<EPS-BASIC> (.75)
<EPS-DILUTED> (.75)
</TABLE>
