FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT
UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended March 31, 1997
Commission File No. 0-5200
BONTEX, INC.
(Exact name of registrant as specified in its charter)
VIRGINIA 54-0571303
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ONE BONTEX DRIVE, BUENA VISTA, VIRGINIA 24416-0751
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: 540-261-2181
Georgia Bonded Fibers, Inc., 15 Nuttman Street, Newark, New Jersey 07013-3508
(former name or former address, if changed since last report)
Indicate by checkmark whether the registrant (1) has filed all reports 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 the description and number of shares outstanding of each of the
issuer's classes of common stock as of the latest practicable date.
Class Outstanding at May 8, 1997
Common Stock - $.10 par value 1,572,824
Preferred Stock - no par value None
<PAGE>
BONTEX, INC.
FORM 10-Q
FOR THE SECOND QUARTER ENDED MARCH 31, 1997
INDEX
PART I. FINANCIAL INFORMATION Page No.
Item 1. Financial Statements
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, 1997 and 1996, June 30,1996 . . . . . . . . . . . . . . . . . . 3
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND RETAINED EARNINGS
Third Quarter Ended March 31, 1997 and 1996 . . . . . . . . . . . . . . . 4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Third Quarter Ended March 31, 1997 and 1996 . . . . . . . . . . . . . . . 5
CONDENSED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. . . . 6, 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations. . . . . . . . . . . . . . . . . . . . .8-10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . .11
Item 2. Changes in Securities. . . . . . . . . . . . . . . . . . . . . .11
Item 3. Defaults Upon Senior Securities. . . . . . . . . . . . . . . . .11
Item 4. Submission of Matters to Vote of Security Holders. . . . . . . .11
Item 5. Other Information. . . . . . . . . . . . . . . . . . . . . . . .11
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . .11
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
BONTEX, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
March 31, June 30,
(unaudited)
1997 1996 1996
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,096 $ 286 $ 715
Trade accounts receivable, less allowance
for doubtful accounts of $244 ($138 at
March '96, $134 at June '96) 11,610 13,289 14,078
Other receivables 741 631 527
Inventories 5,801 6,937 5,495
Deferred income taxes 320 450 676
Income taxes refundable 5 357 14
Other current assets 419 309 116
------- ------- -------
TOTAL CURRENT ASSETS 19,992 22,259 21,621
------- ------- -------
Property, plant and equipment:
Land 284 293 298
Buildings and building improvements 4,571 4,297 4,785
Machinery, furniture and equipment 15,540 14,211 15,755
Construction in progress 1,838 2,676 782
------- ------- -------
22,233 21,477 21,620
Less accumulated depreciation and amortization 11,506 11,056 11,165
------- ------- -------
Net property, plant and equipment 10,727 10,421 10,455
------- ------- -------
Deferred income taxes 232 846 442
Other assets, at cost less applicable
amortization 341 455 663
------- ------- -------
TOTAL ASSETS $ 31,292 $ 33,981 $ 33,181
======= ======= =======
<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 7,543 $ 9,241 $ 9,416
Accounts payable 6,967 8,755 8,047
Accrued expenses 2,436 2,748 2,345
Income taxes payable 154 - 169
Deferred income taxes - - -
Long-term debt due currently 588 589 566
------- ------- -------
TOTAL CURRENT LIABILITIES 17,688 21,333 20,543
Long-term debt 2,813 2,444 2,330
Other long-term liabilities - 35 -
------- ------- -------
TOTAL LIABILITIES 20,501 23,812 22,873
------- ------- -------
Stockholders' equity:
Common stock of $.10 par value. Authorized
10,000,000 shares; issued 1,572,824 shares 157 157 157
Preferred stock of no par value. Authorized
10,000,000 shares; issued no shares - - -
Additional capital 1,551 1,551 1,551
Retained earnings 8,474 7,382 7,611
Foreign currency translation adjustment 609 1,079 989
------- ------- -------
TOTAL STOCKHOLDERS' EQUITY 10,791 10,169 10,308
------- ------- -------
TOTAL LIABILITIES & STOCKHOLDER'S EQUITY $ 31,292 $ 33,981 $ 33,181
======= ======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
BONTEX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
AND RETAINED EARNINGS
(Dollars in Thousands Except for per Share Amounts)
(Unaudited)
Nine Months Ended Quarter Ended
March 31, March 31,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Net Sales $35,815 $34,389 $13,097 $13,117
Cost of Sales 24,497 27,248 8,756 9,618
------- ------- ------- -------
Gross Profit 11,318 7,141 4,341 3,499
Selling, General and Administrative Expenses 8,957 8,091 3,360 2,895
------- ------- ------- -------
Operating Income (Loss) 2,361 (950) 981 604
------- ------- ------- -------
Other (Income) Expense:
Interest expense 922 919 281 293
Interest income (2) (31) (1) (4)
Foreign currency exchange (gain) loss (5) (569) 33 25
Other, net 7 (70) (8) (9)
------- ------- ------- -------
Total Other 922 249 305 305
------- ------- ------- -------
Income (Loss) Before Income Taxes 1,439 (1,199) 676 299
Provision for Income Taxes 576 (368) 274 187
------- ------- ------- -------
Net income (loss) 863 (831) 402 112
Retained earnings, beginning of period 7,611 8,213 8,072 7,270
------- ------- ------- -------
Retained earnings, end of period $ 8,474 $ 7,382 $ 8,474 $ 7,382
======= ======= ======= =======
Income (Loss) per share $ .55 $ (.53) $ .26 $ .07
======= ======= ======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
BONTEX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars In Thousands)
(unaudited)
Nine Months Ended
March 31,
1997 1996
<S> <C> <C>
Cash Flows from Operating Activities:
Cash received from customers $ 38,081 $ 38,660
Cash paid to suppliers and employees (34,924) (37,499)
Interest received 62 106
Interest paid (1,026) (1,014)
Income taxes paid, net of refunds (106) (248)
------- -------
Net cash provided by operating activities 2,087 5
------- -------
Cash Flows from Investing Activities:
Acquisition of property, plant and equipment (1,651) (1,529)
Other assets, net - (8)
------- -------
Net cash used in investing activities (1,651) (1,537)
------- -------
Cash Flows from Financing Activities:
Decrease in short-term borrowings, net (594) (2,062)
Long-term debt incurred 2,551 -
Principal payments on long-term debt and capital lease obligations (1,867) (488)
------- -------
Net cash provided by (used in) financing activities 90 (2,550)
------- -------
Effect of Exchange Rate Changes on Cash (145) (11)
------- -------
Net Increase (Decrease) in Cash and Cash Equivalents 381 (4,093)
Cash and Cash Equivalents at Beginning of Year 715 4,379
------- -------
Cash and Cash Equivalents at End of Period $ 1,096 $ 286
======= =======
Reconciliation of Net Income (Loss) to Net Cash Provided by
Operating Activities:
Net income (loss) $ 863 $ (831)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization 911 796
Provision for bad debts 177 10
Deferred income taxes 529 (532)
Change in assets and liabilities:
Decrease in trade accounts and other receivables 1,258 1,325
(Increase) decrease in inventories (908) 557
Increase in other assets (310) (75)
Decrease in accounts payable and accrued expenses (451) (865)
Increase (decrease) in income taxes 10 (239)
Increase (decrease) in other liabilities 8 (141)
------- -------
Net cash provided by operating activities $ 2,087 $ 5
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
BONTEX, INC.
CONDENSED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997 AND 1996 AND JUNE 30, 1996
(Unaudited)
1. The accompanying unaudited condensed consolidated financial statements
have been prepared by Bontex, Inc. and its subsidiaries (the "Company")
in accordance with generally accepted accounting principles for interim
financial reporting information and the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and notes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all material adjustments, consisting of normal recurring
accruals, considered necessary for a fair presentation of the results
of operations, financial position and cash flows for each period shown,
have been included. Operating results for interim periods are not
necessarily indicative of the results for the full year. The unaudited
condensed consolidated financial statements and condensed notes are
presented as permitted by Form 10-Q and do not contain certain
information included in the Company's annual consolidated financial
statements and notes. For further information, refer to the
consolidated financial statements and notes thereto included in the
Company's annual report on Form 10-K for the year ended June 30, 1996.
2. The condensed consolidated balance sheets include the following related
to European subsidiaries:
<TABLE>
<CAPTION>
March 31, June 30,
1997 1996 1996
(Dollars in Thousands)
<S> <C> <C> <C>
Current assets $ 13,311 $ 15,088 $ 14,905
Total assets 18,755 21,102 20,412
Current liabilities 13,157 16,458 15,991
Total liabilities 14,850 17,594 17,090
Stockholders' equity 3,905 3,508 3,249
</TABLE>
The condensed consolidated statements of income include the
following related to European subsidiaries:
<TABLE>
<CAPTION>
Nine Months Ended Quarter Ended
March 31, March 31,
1997 1996 1997 1996
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Net Sales $21,026 $21,792 $ 7,585 $8,364
Net income (loss) 565 (419) 368 (16)
</TABLE>
<PAGE>
BONTEX, INC.
CONDENSED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997 AND 1996 AND JUNE 30, 1996
(Unaudited)
3. The last in, first out (LIFO) method of inventory pricing is used by
the United States company. Inventories of the European subsidiaries
are valued at the lower of cost or market using the first-in, first-out
(FIFO) and weighted average bases. Inventories are summarized as
follows:
<TABLE>
<CAPTION>
March 31, June 30,
1997 1996 1996
(Dollars in Thousands)
<S> <C> <C> <C>
Finished goods $ 3,341 $ 3,792 $ 3,731
Raw Materials 2,204 3,218 1,791
Supplies 635 575 603
------ ------ ------
Inventories at FIFO 6,180 7,585 6,125
LIFO reserves 379 648 630
------ ------ ------
$ 5,801 $ 6,937 $ 5,495
====== ====== ======
</TABLE>
4. Per share calculations are based on shares outstanding of 1,572,824
common shares for all periods.
<PAGE>
BONTEX, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FOR THE NINE MONTHS AND QUARTER ENDED MARCH 31, 1997
(Unaudited)
On January 2, 1997, the Company completed a reorganization plan which
changed, among several items, the Company's name to Bontex, Inc. (formerly
Georgia Bonded Fibers, Inc.). For further information see REORGANIZATION
below.
RESULTS OF OPERATIONS
Except for historical data set forth herein, the following discussion
contains certain forward-looking information. The Company's actual results
may differ significantly from the projected results. Factors that could
cause or contribute to such differences include, but are not limited to,
level of sales to key customers, actions by competitors, and fluctuations in
the price of primary raw materials and foreign currency exchange rates.
The results of operations for the third quarter of fiscal 1997 reflect
continued improvement and profitability. During the third quarter, the
Company generated a consolidated operating profit of $981,000, and net income
of $402,000 or $.26 per share, as compared to the operating profit of
$604,000 and net income of $112,000 or $.07 per share last year. For the
nine months ending March 31, 1997, the Company generated an operating profit
of $2.4 million and net income of $863,000 or $.55 per share, an improvement
of $1.7 million and $461,000, respectively, as compared to the prior year.
Consolidated net sales increased $1.4 million or 4.1 percent to $35.8 million
for the nine months ended March 31, 1997.
The higher consolidated sales reflect both increased volume and higher
average selling prices. The fluctuation in foreign currency exchange rates
resulted in a $100,000 translation decrease in net sales.
Seasonality exists in that the first half of each fiscal year is typically
lower in volume than the second half, which is largely due to customer's
scheduled vacations, shutdowns, holidays and purchasing cycles.
Gross profit as a percentage of net sales (i.e., Gross Margin) for the first
nine months of fiscal 1997 improved significantly over the same period last
year from 20.8 percent to 31.6 percent. These positive operating conditions
are expected to continue during the remainder of fiscal 1997.
The overall decline in operating margins during the last quarter of fiscal
1995 and first half of fiscal 1996 is mainly attributed to the increase in
raw material costs. Selling price increases implemented in fiscal 1996,
coupled with various cost control measures and the moderation of certain raw
material costs, helped restore the Company's operating margins, as noted
during the last six months of fiscal 1996, and the first three quarters of
fiscal 1997. However, the Company's operating margins remain under pressure
from continued increasing environmental control costs and we have noted
slight increases in domestic pulp prices.
Selling, General & Administrative (SG&A) expenses as a percent of net sales
increased from 23.5 percent to 25.0 percent, as compared to the corresponding
prior year. The increase in SG&A percentage is mainly due to management
increasing certain marketing expenses.
<PAGE>
The prior year first nine months includes a higher than normal exchange gain,
because during the first quarter last year, the Company recovered a large
portion of the foreign exchange losses incurred during fiscal 1995. Future
exchange gains or losses are not expected to be material due to the
implementation of the revised risk management program.
FINANCIAL CONDITION
The consolidated financial condition of the Company continues to improve as a
result of positive operating results due to, among other things, management's
continued efforts to control costs and increase sales. Consolidated equity
increased from June 30, 1996 and totaled $10.8 million at the end of March
1997. The increase in consolidated equity was partially offset by a
translation decrease in equity of $380,000, resulting from an increase in the
value of the US dollar relative to the Belgian franc and Italian lire.
Financial ratios at March 31, 1997 generally improved from June 30, 1996
because of the improved operating results. Working capital increased to $2.3
million from $1.1 million, because of a decrease in short-term borrowings,
accounts payable, accrued expenses and improved operating results. The
fluctuation in foreign currency exchange rates resulted in a translation
decrease of $2.1 million in total assets as compared to the prior year.
The increase in cash mainly reflects the Company's financing and hedging
position at European Operations, as well as intercompany payments in-transit.
Trade Accounts Receivables decreased by $2.5 million to $11.6 million, mainly
because of the collection of higher sales from the fourth quarter of fiscal
1996 and improved aging.
Inventories at March 31, 1997 increased $306,000 to $5.8 million, as compared
to June 30, 1996, mainly due to the forward purchasing of certain raw
materials to defer price increases.
The $613,000 increase in property, plant and equipment is largely due to
additions relating to the wastewater treatment project at the Company's
Belgian manufacturing facility and production process improvements at Bontex
USA.
The decrease in deferred income taxes mainly reflects the utilization of net
operating losses to offset taxable income. The decrease in income taxes
refundable is because the Company received the refund for losses carried-back
to offset income taxes previously paid. The ultimate realization of deferred
tax assets is dependent upon the generation of future taxable income.
Management believes that it is more likely than not that the Company will
realize these deferred tax assets.
Accounts Payable, accrued expenses and short-term borrowings decreased $2.9
million, which primarily corresponds to a reduction in accounts receivable,
and positive operating results. Management believes that existing credit
facilities will be sufficient to meet anticipated operating and capital
requirements.
<PAGE>
REORGANIZATION
On January 2, 1997, the Company received the final State regulatory approvals
of its proposal, which was adopted by the Company's stockholders at the
Annual Meeting of Stockholders held on November 7, 1996, to change the state
of incorporation of the Company to Virginia and effect Amended and Restated
Articles of Incorporation (the "Reorganization").
As a result of the Reorganization, the Company is now a Virginia corporation,
with its principal place of business at One Bontex Drive, Buena Vista,
Virginia 24416-0751, and the name of the Company has been changed to "Bontex,
Inc." The Company's common stock continues to be traded on the Nasdaq-NMS
under the symbol "BOTX." The Reorganization did not result in any change in
the business, management, assets, liabilities, or net worth of the Company.
For further information, refer to Report on Form 8-K, Reorganization of
Georgia Bonded Fibers, Inc., filed January 30, 1997, and Proxy Statement for
meeting of Shareholders held on November 7, 1996.
ENVIRONMENTAL
As with all manufacturers, the Company is subject to regulation by various
regulatory agencies concerning compliance with environmental control
statutes. The facility in USA is impacted by regulations concerning air
emissions and has entered into a consent order with the Virginia Department
of Environmental Quality, pursuant to which the Company has committed to take
appropriate action with respect to air quality emissions. This consent order
has been amended requiring the Company to achieve compliance by December 31,
1997 rather than by September 30, 1997. The cost of air control technologies
based on current information is expected to be approximately $250,000. The
waste water treatment facility in Belgium is under construction and is
anticipated to be completed in 1997 at an estimated cost of $1.5 million.
<PAGE>
PART II. OTHER INFORMATION
BONTEX, INC.
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1997
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a.) Exhibits:
10(i) Executive Compensation Agreement dated January 22, 1997,
between Bontex, Inc. and James C. Kostelni.
27 Financial Data Schedule
(b.) Reports on Form 8-K:
Reorganization of Georgia Bonded Fibers, Inc., filed January 30,
1997.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BONTEX, INC.
(Registrant)
5-8-97 /s/James C. Kostelni
----------- --------------------
(Date) James C. Kostelni
Chairman of the Board
and President
5-8-97 /s/David A. Dugan
----------- --------------------
(Date) David A. Dugan
Controller and
Corporate Secretary
<PAGE>
Exhibit Index
10(i) Executive Compensation Agreement dated January 22, 1997, between
Bontex, Inc. and James C. Kostelni.
27 Financial Data Schedule
<PAGE>
EXECUTIVE COMPENSATION AGREEMENT
THIS AGREEMENT is dated January 22, 1997, between Bontex, Inc., a
Virginia corporation (the "Company"), and James C. Kostelni (the "Employee").
1. Employment. The Company employs James C. Kostelni as President
and Chief Executive Officer of the Company, and the Employee accepts
employment upon the terms and conditions of this Agreement.
2. Definitions. As used in this Agreement, the following
capitalized terms have the indicated meanings unless the context clearly
requires otherwise:
(a) "Applicable Federal Rate" has the meaning ascribed to that
term in Section 1274(d)(1) of the Internal Revenue Code of 1986, as amended.
(b) "Cause" means (i) the Employee's conviction of a felony
during the term of this Agreement; (ii) the Employee's material breach of
this Agreement which remains uncured sixty (60) days after notice by the
Company to the Employee of such material breach; or (iii) the Employee's
dishonesty directly related to the performance of his duties hereunder.
Notwithstanding the foregoing, the Employee shall not be deemed to have been
terminated for Cause under this Agreement based upon either clause (ii) or
(iii) above, unless and until there shall have been delivered to him a copy
of a resolution, duly adopted by the affirmative vote of not less than a
majority (more than 50%) of the Board of Directors of the Company at a
meeting called and held for the purpose (after reasonable notice to the
Employee and an opportunity for him, together with his counsel, to be heard
before the Board of Directors of the Company), finding that, in the good
faith opinion of the Board, the Employee was guilty of conduct set forth
above in either clause (ii) or (iii) and specifying the particulars thereof
in detail.
(c) "Change in Control" means a change in control occurring
after the date of this Agreement of a nature that would be required to be
reported (assuming such event has not been "previously reported") in response
to Item 1(a) of the Current Report on Form 8-K, as in effect on the date
hereof, pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934, as amended ("Exchange Act"); provided that, notwithstanding the
foregoing and without limitation, such a change in control shall be deemed to
have occurred at such time after the date of this Agreement as (i) any Person
(as hereinafter defined) is or becomes the "beneficial owner" (as defined in
Rule 13d-3 or Rule 13d-5 under the Exchange Act as in effect on January 1,
1996), directly or indirectly, of 20% or more of the combined voting power of
the Company's voting securities; (ii) the members of the Company's Board of
Directors on the date of this Agreement (the "Incumbent Board") cease for any
reason to constitute at least the majority of the Board, provided that any
person becoming a director subsequent to the date hereof whose election, or
nomination for election by the Company's shareholders, was approved by a vote
of at least 75% of the directors comprising the Incumbent Board (either by a
specific vote or by approval of the proxy statement of the Company in which
such person is named as a nominee for director, without objection to such
nomination) shall be, for purposes of this clause (ii) considered as though
such person were a member of the Incumbent Board; (iii) all or substantially
all of the assets of the Company are sold, transferred or conveyed by any
means, including, but not limited to, direct purchase or merger, if the
<PAGE>
transferee is not controlled by the Company, control meaning the ownership of
more than 75% of the combined voting power of such entity's voting
securities; or (iv) the Company is merged or consolidated with another
corporation or entity and as a result of such merger or consolidation less
than 75% of the outstanding voting securities of the surviving or resulting
corporation or entity shall be owned in the aggregate by the former
shareholders of the Company. Notwithstanding anything in the foregoing to
the contrary, no change in control shall be deemed to have occurred for
purposes of this Agreement by virtue of any transaction after the date hereof
(i) which results in the Employee (his heirs, assigns or successors in
interest) or a group of Persons which includes the Employee (his heirs,
assigns or successors in interest), acquiring, directly or indirectly, 20% or
more of the combined voting power of the Company's voting securities; or
(ii) which results in the Company, any subsidiary of the Company or any
profit-sharing plan, employee stock ownership plan or employee benefit plan
of the Company or any of its subsidiaries (or any trustee of or fiduciary
with respect to any such plan acting in such capacity) acquiring, directly or
indirectly, 20% or more of the combined voting power of the Company's voting
securities; or (iii) which results in the heirs, successors or assigns of
Hugo N. Surmonte acquiring, directly or indirectly, 20% or more of the
combined voting power of the Company's voting securities.
(d) "Date of Termination" means (i) if the Employee's
employment is to be terminated for Disability (as defined in paragraph 9
below), thirty (30) days after Notice of Termination is given (provided that
in the case of Disability, the Employee shall not have returned to the
performance of his duties on a full-time basis during such thirty (30) day
period), (ii) if the Employee's employment is to be terminated for Cause, the
date specified in the Notice of Termination, (iii) the date of the Employee's
death, or (iv) if the Employee's employment is to be terminated by the
Company for any reason other than Cause, the date specified in the Notice of
Termination, which in no event shall be a date earlier than ninety (90) days
after the date on which such Notice of Termination is given, unless an
earlier date has been expressly agreed to by the Employee in writing either
in advance of, or after, receiving such Notice of Termination.
(e) "Company" includes any corporation or other entity which is
the surviving or continuing entity in respect of any merger, consolidation or
form of business combination in which the Company ceases to exist.
(f) "Notice of Termination" means a written notice that
indicates the specific termination provision of this Agreement relied upon
and sets forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of the Employee's employment under the
provision so indicated.
(g) "Person" has the meaning ascribed to that term in Sections
3(d)(9) and 13(d)(3) of the Exchange Act.
(h) "Retirement" and means the Employee's voluntary termination
of employment after the attainment of age sixty-five (65) or the attainment
of age fifty-five (55) having worked full time for the Company for a period
of ten (10) consecutive employment years.
(i) "Successor" means any Person that succeeds to, or has the
practical ability to control (either immediately or with the passage of time)
the Company's business directly by merger or consolidation, or indirectly by
purchase of the Company's voting securities, all or substantially all of its
assets or otherwise.
<PAGE>
3. Term. (a) The term of this Agreement shall begin on the date
hereof and shall terminate on May 15, 2005. This Agreement supercedes in its
entirety the Executive Compensation Agreement dated June 29, 1989, by and
between the Company (as successor to Georgia Bonded Fibers, Inc. ("GBF")) and
the Employee. The Supplemental Executive Compensation Agreement dated as of
May 26, 1994, by and between the Company (as successor to GBF) and the
Employee remains in full force and effect and shall not be deemed modified
hereby.
(b) Notwithstanding anything in this Agreement to the contrary,
this Agreement shall continue in effect for at least a period of thirty-six
(36) months beyond the date of a Change in Control of the Company, if one
shall have occurred during any term of this Agreement.
4. Compensation. For all services rendered by the Employee, the
Company shall pay the Employee a base salary of Two Hundred Twenty Two
Thousand Dollars ($222,000) a year for the first year of this Agreement,
payable in twenty-four (24) equal installments on the 15th and last day of
each month. Salary payments shall be subject to withholding and other
applicable taxes. The base salary herein set forth shall be annually
adjusted by the Compensation Committee of the Board of Directors of the
Company, and the Employee shall receive during the term of this Agreement
such bonuses as are approved by the Board of Directors of the Company and all
fringe benefits offered to Company employees, including medical, dental,
hospital, life and long-term disability insurance coverage. The Company
shall continue to provide the Employee with "kidnap" insurance coverage
during the term of this Agreement. The Employee shall continue to receive
annual payments made pursuant to the Company's Contingent Compensation Plan.
The Company shall maintain its contributions to the Pension Plan. The
Company shall not alter or reduce the compensation or benefits being provided
to the Employee as of the date of this Agreement without prior written
consent of the Employee.
5. Services. The Employee shall exert his best efforts and devote
substantially all of his time and attention to the affairs of the Company.
Unless the Employee agrees otherwise, in writing, the Employee shall be the
Chairman of the Board, President and Chief Executive Officer in complete
charge of the operation of the Company, and shall have full authority and
responsibility, subject to the general direction, approval and control of the
Board of Directors of the Company, for formulating policies and administering
the Company in all respects. His powers shall include the authority to hire
and fire personnel of the Company, except for members of the Board of
Directors who are also employees of the Company, and to retain consultants
and other professionals when he deems necessary in order to implement Company
policies. The Employee shall be a member of the Board of Directors of the
Company, Bontex, S.A., Bontex Italia s.r.l., Bontex De Mexico, S.A. De C.V.
and such other subsidiaries of the Company as may be formed from time to
time, and shall be a member of the Executive Committee of the Board of
Directors of the Company. The Employee shall, at his discretion, and at the
expense of the Company, travel outside the United States to confer with
customers, suppliers and distributors, to supervise all foreign operations,
to oversee the manufacture, sale and distribution of materials, to conduct
management, sales and budget reviews with Company employees and to attend
trade shows and exhibitions.
<PAGE>
6. Working Facilities. The Employee shall have a private office at
the Company's plant in Buena Vista, Virginia, and shall have stenographic and
secretarial help and such other facilities and services as are suitable to
his position and appropriate for the performance of his duties. The office
and other facilities and services to be provided to the Employee shall be of
no less quality than those available to the Employee as of the date of this
Agreement. The Employee shall not be required to relocate his office without
his consent and unless he deems it in the best interest of the Company to do
so and necessary to perform his duties as President and Chief Executive
Officer.
7. Expenses.
(a) Reimbursement. The Company will reimburse the Employee for
all reasonable and necessary expenses incurred by him in carrying out his
duties under this Agreement, including, without limitation, travel and
lodging expenses. The Employee shall be provided credit and travel cards
comparable to those being used as of the date of this Agreement, and the
Employee shall present to the Company from time to time an itemized account
of such expenses in such form as may be required by the Board of Directors of
the Company.
(b) Automobile. In recognition of the Employee's need for an
automobile for business purposes, the Company will provide the Employee with
a new automobile every three years, comparable to the one presently provided
to the Employee by the Company. The Company will provide maintenance,
repairs, insurance and all costs incident thereto.
8. Vacations. The Employee shall be entitled each year to a
vacation of three weeks, and all Company holidays, during which time the
Employee's compensation shall be paid in full.
9. Disability. If the Employee is unable to perform his services by
reason of illness, incapacity or accident for a period of more than twelve
(12) consecutive months ("Disability"), the Company may terminate the
Employee's employment upon thirty (30) days written notice to the Employee,
and upon approval by a majority (more than 50%) of the members of the Board
of Directors.
10. Payment Upon Termination.
Subject to the provisions of Paragraph 11 below, the following shall
apply in the case of termination of employment:
(a) Termination for Cause. If the Employee's employment is
terminated by the Company for Cause, the Company shall pay the Employee his
full salary through the Date of Termination at the rate in effect at the time
Notice of Termination is given and all other unpaid amounts, if any, to which
the Employee is entitled as of the Date of Termination under any plan or
arrangement of the Company at the time such payments are due.
(b) Termination due to Death. If the Employee dies during the
term of this Agreement, the Company shall pay to the estate of the Employee
the compensation which would otherwise be payable to the Employee up to the
end of the month in which his death occurs. In addition, his estate shall be
paid, as additional compensation hereunder, within forty-five (45) days after
his date of death, an amount equal to six (6) months compensation or the
balance due under this Agreement, whichever is less. The Company shall also
pay, within sixty (60) days after the death of the Employee, $5,000 to the
<PAGE>
widow of the Employee, or if he is not then survived by his widow, to the
Employee's surviving children in equal shares, or if there are no such
surviving children, to the estate of the Employee. Further, the Employee's
spouse shall continue to receive, from the Company, health insurance benefits
substantially similar to those being provided to the Employee prior to his
death, for the remainder of her lifetime, to the extent permitted by
applicable law; provided, however, that after age 65, such benefits shall
convert to Medicaid/Medicare supplemental benefits.
(c) Termination Due to Disability. If the Employee's
employment hereunder is terminated under paragraphs 9 because of the
Employee's Disability, the Employee shall be paid, as additional compensation
hereunder, within forty-five (45) days after the Date of Termination, an
amount equal to six (6) months compensation or the balance due under this
Agreement, whichever is less, and the Employee, or in the case of his death,
his spouse, shall continue to receive from the Company health insurance
benefits substantially similar to those being provided to the Employee prior
to the Date of Termination, for a period of six months from the Date of
Termination.
(d) Other Termination. If the Employee's employment is
terminated by the Company for reason other than Cause, Change in Control,
Death or Disability, the Company shall pay the Employee the lump sum payment
equal to the greater of (i) the amount the Employee would be entitled to
under the Company's severance pay policy in effect as of the date of this
Agreement; or (ii) the total salary that the Employee would have earned had
the Employee continued in the Company's employ through the remaining term of
the Agreement, such salary to be at the rate in effect at the time Notice of
Termination is given.
(e) Payment upon Retirement. If this Agreement is terminated
for retirement, the Employee, for the remainder of his lifetime, or, in the
event of his death, his spouse, for the remainder of her lifetime, shall
continue to receive health insurance benefits substantially similar to those
being provided to the Employee prior to his retirement to the extent
permitted by applicable law; provided, however, that after age 65, such
benefits shall convert to Medicaid/Medicare supplemental benefits.
11. Termination Following a Change in Control. Upon termination of
the Employee's employment within thirty-six (36) months following a Change in
Control of the Company, unless such termination is (i) because of the
Employee's death or Retirement, or (ii) by the Company for Cause or
Disability, the Company shall pay to the Employee the benefits provided below
in lieu of those provided in paragraph 10:
(a) The Company shall pay the Employee his full salary (whether
such salary has been paid by the Company or by any of its subsidiaries)
through the Date of Termination at the rate in effect at the time Notice of
Termination is given and all other unpaid amounts, if any, to which the
Employee is entitled as of the Date of Termination under any plan or other
arrangement of the Company, at the time such payments are due;
(b) The Company shall pay to the Employee an amount equal to
2.99 multiplied by the Employee's annualized includable compensation for the
base period, within the meaning of Section 280G(d)(1) of the Internal Revenue
Code of 1986, as amended (the "Code"), provided, however, that if any of such
payment is or will be subject to the excise tax imposed by Section 4999 of
the Code or any similar tax that may hereafter be imposed ("Excise Tax"),
such payment shall be reduced to a smaller amount, even to zero, which
<PAGE>
smaller amount shall be the largest amount payable under this paragraph that
would not be subject in whole or in part to the Excise Tax after considering
all other payments to the Employee required to be considered under Sections
4999 or 280G of the Code. Such payment shall be referred to as the
"Severance Payment."
In the event that the Severance Payment is subsequently determined to
be less than the amount actually paid hereunder, the Employee shall repay the
excess to the Company at the time that the proper amount is finally
determined, plus interest on the amount of such repayment at the Applicable
Federal Rate. In the event that the Severance Payment is determined to
exceed the amount actually paid hereunder, the Company shall pay the Employee
such difference plus interest on the amount of such additional payment at the
Applicable Federal Rate at the time that the amount of such difference is
finally determined.
In the event that the amount of the Severance Payment exceeds or is
less than the amount initially paid, such difference shall constitute a loan
by the Company to the Employee, or by the Employee to the Company, as the
case may be, payable on the fifth (5th) day after demand (together with
interest at the Applicable Federal Rate).
The amount of any payment provided for in this subparagraph shall not
be reduced, offset or subject to recovery by the Company or the Company's
Successor by reason of any compensation earned by the Employee as the result
of employment by another employer after the Date of Termination, or
otherwise.
(c) The Company shall also pay to the Employee all legal fees
and related expenses incurred by the Employee in connection with this
Agreement, whether or not the Employee prevails (including, without
limitation, all such fees and expenses, if any, incurred in contesting or
disputing any such termination or in seeking to obtain or enforce any right
or benefit provided by this Agreement).
(d) The Company shall maintain in full force and effect, for
the Employee's continued benefit until the earlier of (i) the death of the
Employee and his spouse; or (ii) the Employee's commencement of full-time
employment with a new employer, all life insurance, medical, health and
accident, and disability plans, programs or arrangements in which the
Employee was entitled to participate immediately prior to the Date of
Termination, provided that the Employee's continued participation is possible
under the general terms and provisions of such plans and programs. In the
event that the Employee's participation in any such plan or program is
barred, the Company shall arrange to provide the Employee with benefits
substantially similar to those which the Employee is entitled to receive
under such plans and programs.
12. Restrictive covenant. (a) For a period of three (3) years from
the date that his employment ends or terminates under this Agreement, the
Employee shall not, directly or indirectly, own, manage, operate, control, be
employed by, participate in, or be connected in any manner with the
ownership, management, operation, or control of any business similar to the
type of business conducted by the Company at the time his employment under
this Agreement ends or terminates.
<PAGE>
(b) In the event of the Employee's actual or threatened breach
of this paragraph, the Company shall be entitled to a preliminary restraining
order and injunction restraining the Employee from violating its provisions.
Nothing in this Agreement shall be construed to prohibit the Company from
pursuing any other available remedies for such breach or threatened breach,
including the recovery of damages from the Employee.
(c) The Employee acknowledges and agrees that the Company's
remedy at law for any breach of any of the Employee's obligations hereunder
would be inadequate, and agrees and consents that temporary and permanent
injunctive relief may be granted in any proceeding which may be brought to
enforce any provision hereof, without the necessity of proof of actual
damages.
(d) In the event that any court shall hold that any provision
hereof is too broad or is unreasonable, whether in time, scope, geographic
area or otherwise, it is agreed that such provision shall not be rendered
void, but shall be deemed reformed to be limited to the maximum restriction
which is deemed reasonable by such court under applicable law.
13. Disclosure of information. (a) Employee will not at any time,
either during employment (except pursuant to agreements executed by the
Company) or after employment terminates, directly or indirectly make known or
divulge to any person, firm or corporation the names or addresses of any of
the customers, employees, suppliers or potential customers of the Company or
any other confidential propriety, material or important information of any
kind, nature or description concerning the business of the Company, its
manner of operation, or its plans or data.
(b) The Employee will not, during the period of three (3) years
after the date his employment is terminated or ends, directly or indirectly,
either for himself or for any other person, firm or corporation, solicit,
divert, or take away, or attempt to solicit, divert, or take away, any of the
customers, employees, suppliers or potential customers of the Company.
(c) All books, records, files, forms, reports, memoranda,
papers, accounts and documents relating in any manner to the Company's
business, employees, customers or suppliers, whether prepared or paid for by
the Employee or anyone else, shall be the exclusive property of the Company
and shall be returned immediately to the Company upon termination of
employment or upon the Company's request at any time.
(d) The parties hereby stipulate that each of the foregoing
matters are important, material and confidential, and affect the effective
and successful conduct of the business of the Company and its reputation and
good will, and in the event of the Employee's breach or threatened breach of
this paragraph, the Company shall be entitled to a preliminary restraining
order and temporary and permanent injunctions restraining and enjoining the
Employee from the prohibited activity. In addition to or in lieu of the
above, the Company may pursue all other remedies available to the Company for
such breach or threatened breach, including the recovery of damages from the
Employee.
14. Arbitration. In the event of a dispute arising out of or in
connection with this Agreement, including any questions regarding its
existence, validity, breach or termination, either party may give notice in
writing to the other party informing it of the matter in dispute. If the
parties are unable to resolve the dispute within thirty (30) days of the
notice, then such dispute shall be submitted to arbitration and resolved by a
three-arbitrator panel. The party desiring to submit a matter to arbitration
<PAGE>
shall select one qualified disinterested arbitrator and shall notify the
other party in writing of its appointment. Within thirty (30) days after
receipt of notice of the appointment of the initial arbitrator, the remaining
party shall select a qualified disinterested arbitrator and shall notify the
party initiating the arbitration procedure of its selection in writing. The
two arbitrators so selected shall then select a third arbitrator who shall
act as chairman of the arbitration panel which shall determine the dispute.
The arbitrators so appointed shall hold such hearing or hearings as the
arbitrators may determine in order to permit the parties to the dispute to
present such evidence as they may desire. All such arbitration hearings
shall take place in the City of Roanoke, Virginia. The arbitrators shall
decide the issues presented by majority decision. In all other respects the
arbitration proceeding shall be conducted in accordance with the Virginia
Uniform Arbitration Act (the "Arbitration Act"). The award or decision
rendered by the arbitration panel (including an allocation of the costs of
arbitration) shall be final, binding and conclusive, and judgment may be
entered upon such award by any court of competent jurisdiction. The
arbitration provisions of this Agreement shall not prevent any party from
obtaining injunctive relief from a court of competent jurisdiction to enforce
the obligations of the other party hereunder for which such party may require
provisional relief pending a decision on the merits by the arbitration panel.
The arbitration panel shall have authority to award any remedy or relief that
a court of competent jurisdiction could grant in conformity to applicable
law, including the authority to award attorneys' fees or punitive damages.
If either party to this Agreement brings an arbitration or action to enforce
its rights under this Agreement, the prevailing party shall be entitled to
recover its costs and expenses, including, without limitation, reasonable
attorneys' fees and fees of experts incurred in connection with such action,
including any appeal to the arbitrators award or confirmation proceedings
with respect thereto, which may be filed pursuant to the Arbitration Act.
15. Stock Options.
(a) Grant of Option. Employee is hereby granted the option to
purchase up to 80,000 shares of Company common stock under the following
terms and conditions, at a purchase price of $4.50 per share, which is the
market price on the date of the execution of this Agreement:
(i) The options granted hereunder may be exercised,
during the applicable period set forth below, either at once or from time to
time in blocks of not less than 100 shares.
(ii) The grant of options above are exercisable only
during a period which begins with the date of this Agreement and ends on the
ten-year anniversary date of this Agreement, provided, however, that all
unexercised options shall expire thirty (30) days after the termination of
Employee's employment for any reason except death, and provided, further,
that in the event of Employee's death, any options held by him which were
exercisable at the time of his death may be exercised by the person
designated in Employee's will or by the proper legal representative of the
Employee only within one year following Employee's death, but in no event
later than the expiration date of the option. Any option which is not
exercisable at the time of Employee's termination of employment for any
reason, including death, shall expire on the date Employee's employment
terminates. No stock option granted hereunder shall be transferrable by
Employee other than by will or the laws of descent and distribution, and an
option may be exercised during the lifetime of Employee only by him or his
guardian or legal representative.
<PAGE>
(b) Restrictions. The options granted hereunder and the shares
of common stock issuable upon exercise of such options have not been
registered under the Securities Act of 1933 ("Securities Act"), or under the
Blue Sky or other securities laws of any state, and cannot be sold or offered
for sale unless subsequently so registered or an exemption from registration
is available. Employee understands that these securities are being issued in
reliance on Section 4(2) of the Securities Act and other available exemptions
from registration under federal and state securities laws and that he may be
required to hold the securities indefinitely. Employee further understands
and agrees that the Company has no obligation to register or qualify the
securities or any portion thereof, either under the Securities Act or any
other law. All certificates representing the securities shall be subject to
stop transfer orders and shall bear an appropriate restrictive legend.
Employee agrees that he will not dispose of any of the securities except in a
manner and fashion which is in total compliance with the law and unless and
until either (i) the Company shall have received an opinion of legal counsel
satisfactory to it that such disposition does not violate the Securities Act
and regulations promulgated thereunder and any applicable state securities
laws or regulations, or (ii) the securities have been validly registered
under the Securities Act and any applicable state Blue Sky or securities law.
(c) Miscellaneous Considerations. The number of optioned
shares shall be adjusted from time to time to prevent dilution of Employee's
rights caused by stock dividends, stock splits, recapitalizations, mergers,
consolidations, combinations or exchanges of shares, reorganizations,
liquidations and similar matters. An option may be exercised by giving
written notice of exercise to the Company specifying the number of shares to
be purchased and by paying in full in cash the exercise price. Upon
notification of the amount due and prior to, or concurrently with, the
delivery to Employee of a certificate representing any shares purchased
pursuant to the exercise of an Option, Employee shall promptly pay to the
Company any amount necessary to satisfy applicable federal, state or local
tax requirements.
16. Indemnity. The Company shall indemnify the Employee and hold him
harmless for any acts or decisions made by him in good faith while performing
services for the Company and use its best efforts to obtain coverage for the
Employee under any insurance policy now in force or hereinafter obtained
during the term of this Agreement covering the other officers and directors
of the Company against lawsuits. The Company will pay all expenses,
including attorneys' fees, actually and necessarily incurred by the Employee
in connection with the defense of such act, suit or proceeding and in
connection with any appeal thereon, including the costs of court settlements.
17. Notices. Any notice required or desired to be given under this
Agreement shall be deemed given if in writing sent by certified mail to his
residence in the case of the Employee, or to its principal office in the case
of the Company.
18. Waiver of Breach. The waiver by the Company of a breach of any
provision of this Agreement by the Employee shall not operate or be construed
as a waiver of any subsequent breach by the Employee. No waiver shall be
valid unless in writing and signed by an authorized officer of the Company.
19. Assignment. The Employee acknowledges that the services to be
rendered by him are unique and personal. Accordingly, the Employee may not
assign any of his rights or delegate any of his duties or obligations under
this Agreement. The rights and obligations of the Company under this
Agreement shall inure to the benefit of and shall be binding upon the
Successors and assigns of the Company.
<PAGE>
20. Entire Agreement. This Agreement contains the entire
understanding of the parties. It may not be changed orally, but only by an
agreement in writing approved by the Board of Directors of the Company and
signed by the party against whom enforcement of any waiver, change,
modification, extension or discharge is sought. The respective obligations
of, and benefits afforded to the Employee in, paragraphs 10, 11, and 12 shall
survive termination of this Agreement.
21. Governing law. This Agreement shall be governed by and construed
in accordance with the laws of the Commonwealth of Virginia.
IN WITNESS WHEREOF the parties have executed this Agreement on January
22, 1997, pursuant to a resolution of the Board of Directors, duly convened
following timely notice, on the 7th day of November, and pursuant to a
resolution of the Compensation Committee of the Board of Directors, duly
convened following timely notice, on the 22nd day of January, 1997.
Sworn to and subscribed BONTEX, INC.
before me, in my presence
this 22nd day of January, 1997.
A Virginia Notary Public. In
and for Buena Vista County/City By s/Robert J. Weeks
s/Linda Austin Floyd Notary ----------------------------------
Public. Robert J. Weeks, Chairman
Compensation Committee of the
My Commission Expires Board of Directors of Bontex, Inc.
July 31, 2000.
s/James C. Kostelni
-------------------------------------
James C. Kostelni
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BONTEX,
INC.'S UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENT FOR THE QUARTER
ENDED MARCH 31, 1997, AS SET FORTH IN THE COMPANY'S QUARTERLY REPORT ON FORM
10-Q, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> MAR-31-1997
<CASH> 1,096
<SECURITIES> 0
<RECEIVABLES> 11,610
<ALLOWANCES> 244
<INVENTORY> 5,801
<CURRENT-ASSETS> 19,992
<PP&E> 22,233
<DEPRECIATION> 11,506
<TOTAL-ASSETS> 31,292
<CURRENT-LIABILITIES> 17,688
<BONDS> 2,813
157
0
<COMMON> 0
<OTHER-SE> 10,634
<TOTAL-LIABILITY-AND-EQUITY> 31,292
<SALES> 35,815
<TOTAL-REVENUES> 35,815
<CGS> 24,497
<TOTAL-COSTS> 33,454
<OTHER-EXPENSES> 922
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 922
<INCOME-PRETAX> 1,439
<INCOME-TAX> 576
<INCOME-CONTINUING> 863
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 863
<EPS-PRIMARY> .55
<EPS-DILUTED> .55
</TABLE>
