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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[ X ] Annual Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the fiscal year ended October 31, 1998
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from _____ to _____.
Commission File Number: 33-27038
JPS TEXTILE GROUP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 57-0868166
(STATE OF OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
555 North Pleasantburg Drive, Suite 202, Greenville, SC 29607
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code: (864) 239-3900
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Par Value $.01 per share, 22,000,000 shares authorized;
10,000,000 shares issued and outstanding
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: [X]
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 the 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: [ ]
As of January 29, 1999, the aggregate market value of the Registrant's
Common Stock held by non-affiliates, based upon the closing price of the Common
Stock on January 29, 1999, as reported by the Nasdaq National Market, was
approximately $34,183,830.
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Section 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court: [X]
As of the date hereof, 10,000,000 of the registrant's Common Stock $.01
par value per share, were issued and outstanding.
The Registrant's Definitive Proxy Statement for the Annual Meeting of
Stockholders to be held on March 24, 1999 is incorporated by reference in Part
III of this Form 10-K to the extent stated herein.
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JPS TEXTILE GROUP, INC.
Table of Contents
PART I
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Item 1. BUSINESS........................................................................................... 3
Item 2. PROPERTIES......................................................................................... 13
Item 3. LEGAL PROCEEDINGS.................................................................................. 14
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS................................................. 14
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS........................................................................ 14
Item 6. SELECTED HISTORICAL FINANCIAL DATA................................................................. 15
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.......................................................................... 18
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.......................................... 29
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA........................................................ 31
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE................................................................ 64
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT................................................. 64
Item 11. EXECUTIVE COMPENSATION............................................................................. 64
Item 12. SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT........................................ 64
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..................................................... 65
Item 14. EXHIBITS, FINANCIAL SCHEDULE AND REPORTS ON FORM 8-K............................................... 65
INDEX TO EXHIBITS.................................................................................. 66
SIGNATURES......................................................................................... 71
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PART I
ITEM 1. BUSINESS
JPS Textile Group, Inc. is a Delaware corporation incorporated in December 1986,
with its principal executive offices located at 555 North Pleasantburg Drive,
Suite 202, Greenville, South Carolina 29607; telephone number (864) 239-3900.
Unless the context otherwise requires, the terms "JPS" and the "Company" as used
in this Form 10-K means JPS Textile Group, Inc. and JPS Textile Group, Inc.
together with its subsidiaries, respectively.
THE 1988 ACQUISITION
On May 9, 1988, the Company acquired substantially all the assets of certain
operating divisions of J.P. Stevens & Co., Inc. ("J.P. Stevens") in exchange for
approximately $527 million in cash and reorganized the newly acquired divisions
into wholly-owned subsidiaries. At that time, JPS raised $100 million by issuing
certain debt and equity securities in order to partially finance the
acquisition. In June 1989, JPS raised $323.6 million by issuing certain public
debt and equity securities to refinance certain outstanding notes and a portion
of the indebtedness incurred in connection with the acquisition. Due to
prevailing market conditions, the securities were priced for sale at higher
rates than JPS anticipated would be necessary at the time of the acquisition. As
a result of the high interest rates and a weak business environment for certain
of its subsidiaries, JPS realized lower than expected operating earnings and
cash flow which, in turn, materially impaired its ability to service its
outstanding debt and fund capital expenditures.
THE 1991 RESTRUCTURING
In 1990, JPS negotiated the terms of a recapitalization proposal with a steering
committee comprised of institutional holders of a substantial amount of the
then-outstanding securities, which culminated in JPS's prepetition solicitation
of votes to accept or reject a plan of reorganization under chapter 11, title 11
of the United States Code (the "Bankruptcy Code"). The plan was overwhelmingly
accepted. On February 7, 1991, JPS filed a petition for relief under the
Bankruptcy Code, and approximately 42 days thereafter, JPS's plan was confirmed
by the bankruptcy court and JPS emerged from chapter 11 on April 2, 1991.
Pursuant to that plan, in exchange for JPS's outstanding debt securities and
JPS's equity securities, JPS issued (i) $100 million in principal amount of
senior secured notes due June 1, 1995 and June 1, 1996 (all of which were
redeemed in 1994), (ii) $151.1 million in principal amount of 10.85% Senior
Subordinated Discount Notes due June 1, 1999 (the "10.85% Notes"), (iii) $125
million in principal amount of 10.25% Senior Subordinated Notes due June 1, 1999
(the "10.25% Notes"), (iv) $75 million in principal amount of 7% Subordinated
Debentures due May 15, 2000 (the "7% Subordinated Debentures"), (v) 390,719
shares of Series A Senior Preferred Stock (the "Old Senior Preferred Stock"),
(vi) 10,000 shares of Series B Junior Preferred Stock (the "Old Junior Preferred
Stock"), (vii) 490,000 shares of class A common stock, par value $0.01 per share
(the "Class A Common Stock") and (viii) 510,000 shares of class B common stock,
par value $0.01 per share (the "Class B Common Stock" and, together with the
Class A Common Stock, the "Old Common Stock"). The 1991 restructuring did not
significantly reduce the amount of JPS's outstanding indebtedness.
DISPOSITIONS OF ASSETS; PLANT CLOSING
Subsequent to the 1991 restructuring, JPS adopted and implemented various
strategies aimed at improving and realizing value in its operating subsidiaries.
These strategies included, among other things, the exit, through asset sales or
otherwise, of certain product lines.
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The Automotive Asset Sale
On June 28, 1994, the Company sold the businesses and assets of JPS Auto, Inc.
("Auto") and the synthetic industrial fabrics division of JPS Converter and
Industrial Corp. ("C&I") and JPS's investment in common stock of the managing
general partner of Cramerton Automotive Products, L.P. (an 80% owned joint
venture) for approximately $283 million.
The Carpet Asset Sale
On November 16, 1995, JPS and JPS Carpet Corp. ("Carpet") sold substantially all
the assets of Carpet used in the business of designing and manufacturing tufted
carpets for sale to residential, commercial and hospitality markets (the "Carpet
Business") to Gulistan Holdings Inc. ("Gulistan Holdings") and Gulistan Carpet
Inc., a wholly-owned subsidiary of Gulistan Holdings Inc. ("Gulistan Carpet"
and, together with Gulistan Holdings, "Gulistan"), for approximately $19 million
in cash, a promissory note due November 2001 issued by Gulistan Holdings in the
original principal amount of $10 million and payable to the order of Carpet, $5
million of preferred stock of Gulistan Holdings, and warrants to purchase 25% of
the common stock of Gulistan Holdings (collectively, the "Gulistan Securities").
Due to Gulistan's recurring losses, on August 28, 1997, the Company sold the
Gulistan Securities to Gulistan for $2 million in cash.
Plant Closing
On August 28, 1996, the Company implemented a plan to close its Dunean plant in
Greenville, South Carolina, as a result of management's determination that a
permanent decline in the Company's spun apparel business had occurred. This
plant had been operating on a reduced schedule due to poor market conditions and
financial projections indicated it would continue to do so. This plant was
closed on October 28, 1996 and sold on August 14, 1997 for approximately $1.2
million in cash.
The Rubber Products Group Sale
On September 30, 1996, JPS Elastomerics Corp. ("Elastomerics") sold
substantially all the assets of the Company's rubber products division, a
business engaged in the manufacture and sale of natural and synthetic elastic
for use in apparel products, diaper products and specialty industrial
applications to Elastomer Technologies Group, Inc. for approximately $5.1
million in cash.
THE 1997 RESTRUCTURING
As a result of the continued downturn in the apparel fabrics market and various
other factors, JPS determined that it would be unable to meet certain debt
obligations on its public bonds that would become due commencing in June, 1997.
Accordingly, on May 15, 1997, JPS, JPS Capital Corp., a wholly-owned subsidiary
of JPS ("JPS Capital") and an unofficial committee (the "Unofficial Bondholder
Committee") comprised of institutions that owned, or represented owners that
beneficially owned, approximately 60% of the 10.85% Notes, the 10.25% Notes and
the 7% Subordinated Debentures (the "Old Debt Securities") reached an agreement
in principle on the terms of a restructuring to be accomplished under chapter 11
of the Bankruptcy Code which culminated in a Joint Plan of Reorganization (as
amended, the "Plan of Reorganization") proposed by JPS and JPS Capital under
chapter 11 of the Bankruptcy Code. Pursuant to a disclosure statement, dated
June 25, 1997 (the "Disclosure Statement"), on June 26, 1997, JPS and JPS
Capital commenced a prepetition solicitation of votes by the holders of Old Debt
Securities and Old Senior Preferred Stock to accept or reject the Plan of
Reorganization. Under the Plan of Reorganization, the holders of Old Debt
Securities and Old Senior Preferred Stock were the only holders of impaired
claims and impaired equity interests entitled to receive a distribution, and
therefore, pursuant to section 1126 of the Bankruptcy Code, were the only
holders entitled to vote on the
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Plan of Reorganization. At the conclusion of the 32-day solicitation period, the
Plan of Reorganization had been accepted by holders of more than 99% of the Old
Debt Securities that voted on the Plan of Reorganization and by holders of 100%
of the Old Senior Preferred Stock that voted on the Plan of Reorganization.
On August 1, 1997, JPS commenced its voluntary reorganization case under chapter
11 of the Bankruptcy Code in the Bankruptcy Court for the Southern District of
New York (the "Bankruptcy Court"), and filed the Plan of Reorganization and the
Disclosure Statement. None of JPS's subsidiaries, including JPS Capital which
was a co-proponent of the Plan of Reorganization, commenced a case under the
Bankruptcy Code. Pursuant to orders of the Bankruptcy Court entered on September
9, 1997, the Bankruptcy Court (i) approved the Disclosure Statement and the
solicitation of votes on the Plan of Reorganization and (ii) confirmed the Plan
of Reorganization. The Plan of Reorganization became effective on October 9,
1997 (the "Effective Date") resulting in, among other things, the cancellation
of the Old Senior Preferred Stock, Old Junior Preferred Stock, and Old Common
Stock, and the issuance of 10,000,000 shares of common stock, $.01 par value per
share (the "Common Stock").
Through the implementation of the Plan of Reorganization as of the Effective
Date, JPS's most significant financial obligations were restructured:
$240,091,318 in face amount of outstanding Old Debt Securities were exchanged
for, among other things, $14 million in cash, 99.25% of the shares of Common
Stock and $34 million in aggregate principal amount (subject to adjustment on
the maturity date) of contingent payment notes issued by JPS Capital (the
"Contingent Notes"); the Old Senior Preferred Stock, the Old Junior Preferred
Stock and the Old Common Stock were canceled; warrants to purchase up to 5% of
the common stock of JPS (the "New Warrants") with an initial purchase price of
$98.76 per share were issued in respect of the Old Senior Preferred Stock; and
the obligations of JPS under its former working capital facility were satisfied
and the Revolving Credit Facility was obtained. JPS's senior management received
approximately 0.75% of the Common Stock in lieu of payment under their
contractual retention bonus agreements. As a result of the restructuring, JPS's
only significant debt obligation is its guaranty of the obligations of its
operating subsidiaries under the Revolving Credit Facility. The equipment loan
contracts, which are long-term obligations of the operating subsidiaries, are
not guaranteed by, or otherwise obligations of, JPS. In August 1998, the Company
reduced its long-term debt and related investments by repaying all of the
approximately $34 million in principal amount of JPS Capital's Contingent Notes.
EVENTS OCCURRING SUBSEQUENT TO OCTOBER 31, 1998
The Boger City Asset Sale (Home Fashion Textiles)
Pursuant to an Asset Purchase Agreement dated as of January 11, 1999, as
amended, JPS Converter and Industrial Corp. has agreed to sell substantially all
of the assets of the Company's Boger City Plant located in Lincolnton, North
Carolina. This plant is engaged primarily in the manufacture and sale of home
fashion textiles and accounted for sales of $33.6 million, $30.9 million and
$22.8 million in Fiscal 1996, 1997 and 1998, respectively. The consideration for
the sale will consist of approximately $7.9 million in cash, subject to a
post-closing adjustment based upon the amount of inventories transferred. A
charge of approximately $12.5 million related principally to the loss on
impairment of long-lived assets, including related organization value in excess
of amounts allocable to identifiable assets, has been included in the results of
operations in Fiscal 1998. See discussion under Item 7, "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS." The net
proceeds from the sale will be used to reduce the Company's outstanding
indebtedness. The closing of the sale of the Boger City Plant is expected to
occur early in the Company's 1999 second fiscal quarter.
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Plant Closing (Apparel Fabrics)
On February 10, 1999, the Company announced a plan to close its Angle Plant
located in Rocky Mount, Virginia. This plant was engaged primarily in the
manufacture and sale of apparel fabrics constructed of filament yarns. A charge
of approximately $4.3 million, related principally to the loss on impairment of
long-lived assets, including related reorganization value in excess of amounts
allocable to identifiable assets, has been included in the results of operations
in Fiscal 1998. The Company expects the plant closing to be substantially
complete by the end of its 1999 third fiscal quarter.
GENERAL
The Company is a major U.S. manufacturer of speciality extruded and woven
materials for a number of applications and greige goods (unfinished woven
fabrics) and yarn principally used in the manufacture of apparel. JPS products
are used in a wide range of applications including: commercial and institutional
roofing, reservoir and landfill liners and covers, printed circuit boards,
advanced composite materials, tarpaulins, awnings, athletic tapes, wallboard
tapes and tile backings, security glazing, athletic shoes, as well as medical,
automotive and industrial components and in consumer apparel products. As of
October 31, 1998, the Company conducted its operations from ten manufacturing
plants in five states and employed approximately 3,400 people. After giving
effect to the plant sale and plant closure discussed above, the Company will
operate eight plants with approximately 2,900 employees. Following are general
comments as they relate to each of the Company's segments:
Industrial Products
The Company is a well-established manufacturer of scrim-reinforced,
heat-weldable, single-ply roofing membrane that is sold globally through a
network of roofing distributors. The Company offers two roofing products: a
Hypalon(R) (chlorosulfonated polyethylene)-based material and a
polypropylene-based material. Both products are sold primarily to the CII
(commercial, industrial, institutional) industries and are used in both new and
retrofit construction.
The Company is also a major manufacturer of Environmental Geomembranes that are
sold on a global basis. As with the roofing products, the Company offers two
geomembrane products: Hypalon(R)-based material and a polypropylene-based
material. Geomembranes are sold to a limited number of fabricators/installers,
and are used primarily as floating covers and liners for potable water
reservoirs, landfill caps, wastewater liners and floating covers and mining heap
leach pads.
The Company produces specialty substrates woven from fiberglass and other
specialty fibers for a variety of applications such as printed circuit boards,
flame-retardancy, filtration products, tarpaulins, awnings, athletic tapes,
advanced composite materials, building products, defense, aerospace and general
industry sectors. In addition, the Company manufactures polyurethane film,
sheet, tubing, cord and profile used in athletic, automotive, medical,
industrial and consumer products as well as in security glazing applications.
Besides single-ply roofing and geomembranes, the Company is also a producer of
substrates used for wallboard tape, tile backing, as well as reinforcement for
roofing membranes, geomembranes and synthetic wall surfaces.
Apparel Fabrics
The Company is a leading manufacturer of greige goods (unfinished woven fabrics)
and yarn. The Company's products are used in the manufacture of a broad range of
consumer apparel products including blouses, dresses and sportswear.
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The Company produces fabrics from spun and filament yarns that are used
ultimately in the manufacture of apparel such as blouses, dresses and
sportswear. Greige goods are produced from a variety of fibers, including flax,
rayon, acetate, polyester and cotton yarns, and are primarily sold to other
textile manufacturers for use in producing printed and dyed fabrics.
The Company produces a variety of rayon and polyester spun yarns for its own use
and for sale to manufacturers of knitted apparel. On February 10, 1999, the
Company announced that it will close a plant principally engaged in the
manufacture and sale of apparel fabric. Production from this facility will be
absorbed by the remaining apparel fabric plants.
Home Fashion Textiles
The Company produces a variety of unfinished and loom finished woven fabrics and
yarns for use in the manufacture of draperies, curtain and lampshades and is a
major producer of solution-dyed drapery fabrics. As discussed above, subsequent
to October 31, 1998, the Company has agreed to sell a plant which accounts for a
major portion of the home fashion textiles segment and which produces 100% of
the unfinished woven fabrics included in this segment. On and after the closing
of the sale of the Boger City Plant, the Company's continuing home fashion
textiles business will consist primarily of yarn production.
SUBSIDIARIES
JPS's wholly-owned operating subsidiaries include Elastomerics and C&I. JPS's
other wholly-owned subsidiaries do not have any significant operations: JPS
Capital, International Fabrics, Inc. ("Fabrics"), Auto and Carpet. JPS business
units are managed in three separate groups: Elastomerics, Industrial Fabrics and
Apparel Fabrics. The Elastomerics and Industrial Fabrics units comprise the
Industrial Products group. The units are held by JPS's wholly-owned Elastomerics
and C&I subsidiaries. Each business unit has independent administrative,
manufacturing, and marketing capabilities for all material aspects of their
operations, including product design, technical development, customer service,
purchasing, and collections. JPS's parent company corporate group is responsible
for finance, strategic planning, legal, tax and regulatory affairs for its
subsidiaries. JPS Capital was formed in 1994 as a special purpose subsidiary to
hold (and invest) $39.5 million, representing a portion of the proceeds received
from the sale of the assets of JPS's automotive division in June 1994, including
the assets of Auto. Prior to the Effective Date, the funds held by JPS Capital
aggregated approximately $48 million, of which $14 million was distributed on
the Effective Date pursuant to the Plan of Reorganization to holders of certain
issues of Old Debt Securities on the Effective Date. In connection with the
implementation of the Plan of Reorganization, approximately $34 million in
aggregate principal amount of Contingent Notes were issued by JPS Capital on the
Effective Date to holders of certain issues of Old Debt Securities. On August
31, 1998, the Company repaid all of the approximately $34 million in principal
amount of Contingent Notes.
Auto and Carpet formerly owned and operated JPS's automotive products and carpet
businesses, respectively. The assets of those businesses were sold in 1994 and
1995, respectively. See "Disposition of Assets; Plant Closing."
MANUFACTURING
The Company operates ten facilities and will operate eight facilities after the
previously described plant sale and plant closure, in five states boasting
state-of-the-art manufacturing equipment. The vast majority of JPS equipment is
automated and computer controlled for maximum efficiency, cost control and
consistency. Following are comments on manufacturing as they relate to each of
the Company's segments:
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Industrial Products
Construction products are produced from raw materials, where they are blended to
proprietary specifications along with fire-retardant and UV stabilizers and then
calendered on state-of-the-art equipment.
Polyurethane is extruded in highly automated, computer controlled, blown film
and sheet fed extrusion processes from raw urethane resins. Depending on
end-uses, some materials are manufactured in clean zone environments.
Other industrial products are produced from substrates of fiberglass and
synthetic fibers.
Apparel Fabrics and Home Fashion Textiles
In the manufacture of woven textile products, the Company purchases synthetic
and natural fibers and spins them into yarn or purchases filament yarn for
processing. In addition, the Company purchases certain spun yarns. Yarns are
then coated, sized or directly woven into unfinished fabric. Upon completion of
the weaving process, fabrics are generally shipped to customers who dye, finish,
coat and cut those fabrics for resale.
The Company has a capital spending plan to lower cost and improve productivity
and efficiency, as described in "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS" included in Item 7 herein. The
Company believes that its manufacturing facilities and capital spending plan are
sufficient for its production requirements.
RAW MATERIALS
The Company maintains good relationships with its suppliers and has, where
possible, diversified its supplier base so as to avoid a disruption of supply.
In most cases, the Company's raw materials are staple goods that are readily
available from numerous domestic fiber and chemical manufacturers. For several
products, however, branded goods or other circumstances prevent such a
diversification, and an interruption of the supply of these raw materials could
have a significant negative impact on the Company's ability to produce certain
products. The construction products group has negotiated comprehensive supply
agreements for all its polymer, chemical and accessory products, with multiple
production sites assuring an uninterrupted supply. The urethane products group
purchases under contract from all major thermoplastic polyurethane suppliers.
The Company believes that its practice of purchasing such items from large,
stable companies minimizes the risk of interrupting the supply of raw materials.
MARKETING AND COMPETITION
The following is a discussion of marketing and competitive factors as they
relate to each of the Company's segments:
Industrial Products
The commercial roofing industry is highly competitive with a number of major
participants in all segments of the industry. Many of the Company's competitors
are significantly larger in terms of aggregate sales and financial resources. In
the specialty segment of the single-ply market where the Company competes, there
are more than ten competitors, with the Company having the largest market share
in this segment. Due to the success of the Company's EP product line, launched
in 1993, management expects continued growth in this sector. The Company markets
it products under the "Stevens" brand name using a push-pull strategy; pushing
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products through distribution to the roofing contractor and pulling products
through the market by creating demand for the products on the part of building
owners, architects and specifiers.
The Company has approximately twenty field sales staff (domestically), as well
as a network of independent representatives, distributors and
distributor-representatives as its sales force. In addition, the Company
operates a sales office in the United Kingdom. Marketing efforts in the roofing
industry include (i) new product development to meet changing market demands,
(ii) providing proprietary accessory products, (iii) implementing several
contractor-specific programs and (iv) a strong marketing communications effort.
On the geomembrane side, the Company markets to only a limited number of
fabricators/installers. The Company's marketing efforts are focused exclusively
on supporting those companies in a variety of ways.
The urethane products group also has a strong marketing and sales effort with
both direct sales personnel and a nationwide network of independent
representatives. The market for polyurethane film and sheet is fairly focused
and thus there are only a few competitors for sales in each product segment --
aliphatic and aromatic film and sheet. None of the Company's products are sold
"off the shelf," as each application has specific end-use performance
requirements. As with the construction products group, marketing efforts in the
urethane group include a variety of new product developments to meet changing
market demands and a strong marketing communications effort.
Other industrial products are marketed directly to other manufacturers and
distributors. The Company believes that price and its ability to meet customer
technical specifications are important competitive factors.
Apparel Fabrics
The textile industry is highly competitive and includes a number of participants
with aggregate sales and financial resources greater than the Company's. The
Company generally competes on the basis of price, quality, design and customer
service. Many companies compete in limited segments of the textile market. In
recent years, a large and growing percentage of domestic consumer apparel demand
has been met by foreign competitors whose products, both fabrics and garments,
are imported into the United States. The Company is well-positioned due to its
ability to respond quickly to changing styling and fashion trends. This ability
generally provides advantages for domestic textile manufacturers. Although no
single company dominates the industry, most market segments are dominated by a
small number of competitors. The Company believes it has a significant market
share in the market for rayon and acetate apparel fabrics, rayon yarn and
solution-dyed satin fabrics.
The Company's marketing efforts include the development of new product designs
and styles which meet customer needs. The Company's operating units have been
established suppliers to each of its markets for many years and are taking
advantage of well-established customer relationships to increase product
development with its customers. The "J.P. Stevens" trade name, which the Company
has a non-exclusive, royalty-free license to use until May 2013 (see "Patents,
Licenses and Trademarks" below), is widely recognized. The Company believes that
its relatively broad base of manufacturing operations provides it with a
competitive advantage in developing new textile products. In addition to its
direct marketing capabilities, the Company markets certain of its products
through distributors.
The Company markets its spun and filament fabrics to converters who finish
and/or dye these products prior to shipping to finished apparel manufacturers.
The Company has sought to maintain a relatively high proportion of such sales in
product areas where its manufacturing flexibility can provide a competitive
advantage.
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Regarding yarn sales, the Company competes with a large number of companies
which sell yarn to woven and knit goods manufacturers. Yarns are generally sold
on a direct basis, and the Company believes that quality and price are the
primary competitive factors.
Home Fashion Textiles
Effective with the sale of its Boger City Plant as discussed above, the Company
will exit a major portion of its home fashion textiles business. The remaining
business will consist solely of yarn sales. As discussed above, yarns are
generally sold on a direct basis, and the Company believes that quality and
price are the primary competitive factors.
CUSTOMERS
No customer accounts for more than 10% of the Company's sales. However, the loss
of certain customers could have a material adverse effect on sales.
PRODUCT DEVELOPMENT
The following is a discussion of product development as it relates to each of
the Company's segments:
Industrial Products
On-going product development activities include a constant evaluation of new
advanced polymers and polymer compounds, as well as the evaluation and analysis
of material additives required in the manufacture of commercial roofing
products, geomembranes and thermoplastic polyurethane. As appropriate, additives
are required to ensure long-term UV stability, fire or chemical resistance or to
ensure that a specific product can be used in contact with drinking water.
For its roofing products, the Company continues to develop advanced material
products that meet fire, wind and other building code requirements on a global
basis. Such building codes vary from country to country, even regionally,
presenting a challenge to the manufacturer. Geomembranes must also meet
stringent code requirements of several countries, particularly when used in
potable water reservoirs.
Polyurethane film and sheet materials are not available in "off the shelf"
configurations. The Company offers both aliphatic and aromatic polyurethane
products. Aliphatic, which is used in glass clad polycarbonate laminates for
security glazing applications, is extruded in a clean zone environment to ensure
maximum product cleanliness. Aromatic materials are extruded by blown film and
flat sheet fed technologies. The Company spends a considerable amount of R&D
effort to develop material additives that enable end products to be more fire
resistant, more breathable, more permeable, etc. In addition, the Company must
provide specific surface finishes and textures that may be required for end-use
applications.
Other industrial R&D efforts include silane finishes for quartz reinforced
laminates, alkali resistant meshes for exterior Insulation Facing Systems, and
finish additives that enhance the flex life of filtration bags and enable end
products to meet higher temperature requirements. In 1998, a new Technical
Services Center was established at the Slater facility for renewed emphasis on
new products and processes.
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Apparel Fabrics and Home Fashion Textiles
In general, the textile industry expends its efforts on design innovation and
capital expenditures for process enhancements rather than on basic research,
relying on fiber suppliers or machinery manufacturers for basic research.
The Company's research and development activities are directed toward the
development of new fabrics and styles which meet specific styling requirements.
Significant time is spent by employees in activities such as meeting with
stylists, designers, customers, suppliers and machinery manufacturers, as well
as producing samples and running trials in order to develop new products and
markets. These activities are performed at various levels and at various
locations, and their specifically identifiable incremental costs are not
material in relation to the Company's total operating costs.
BACKLOG
Unfilled open orders, which the Company believes are firm, were $38.5 million at
October 31, 1998 and $73.3 million at November 1, 1997. The Company generally
fills its open orders in the following fiscal year and the Company expects that
all of the open orders as of October 31, 1998 will be filled in the 52-week
period ending October 30, 1999 ("Fiscal 1999"). Unfilled open orders, which the
Company believes are firm, were approximately $38.8 million at December 31, 1998
compared to $62.9 million at December 31, 1997. The decrease in open orders at
December 31, 1998 as compared to December 31, 1997 is primarily due to a
decrease in customer demand for apparel fabrics and is representative of a
change in the timing of orders given to the Company creating shorter lead times
from order to delivery due to customers managing their inventory exposure. The
Company believes that the amount of backlog provides some indication of the
sales volume that can be expected in coming months, although changes in economic
conditions may result in deferral or acceleration of orders which may affect
sales volume for a period.
No significant portion of the Company's business is subject to renegotiation of
profits, or termination of contracts or subcontracts at the election of the
government.
PATENTS, LICENSES AND TRADEMARKS
The following is a discussion of patent licenses and trademarks as they relate
to each of the Company's segments:
Industrial Products
Products, such as commercial roofing, geomembranes and polyurethane, are
marketed under the "Stevens" brand name. As such, the Company is in the process
of securing trademarks for the following names: Stevens Roofing Systems, Stevens
EP, Stevens Hypalon, Stevens Walkway Roll, Stevens Geomembranes and Stevens
Urethane. In addition, the Company currently holds trademarks on the names
Hi-Tuff, Hi-Tuff/EP and Hi-Tuff/Hypalon in Europe and in Asia.
In terms of product licensing, the Company is currently involved with two
manufacturing licensees: Tsutsunaka Plastics Industries ("TPI") of Japan and
Protan A/S of Norway. The Company has licensed roofing technology to Protan for
manufacturing and marketing TPO-based roofing products in the Scandinavian
countries. In addition, Stevens roofing and geomembrane compound and
manufacturing technologies have been licensed to TPI for the production of
membranes in Japan.
-11-
<PAGE> 12
A total of three patents and thirty trademarks are secured or in the process of
being secured by the Company on other industrial businesses. These include, but
are not limited to: alkali resistant meshes for Exterior Insulation Facing
Systems trademarked under the names of Versaflex, Duraflex, Ultraflex and
Standardflex; filtration products trademarked under the names AcidGuard and
Ultraflex; and substrates meeting high temperature requirements trademarked
under the name Tempratex.
Apparel Fabrics and Home Fashion Textiles
Certain products are sold under registered trademarks which have been licensed
royalty-free to the Company from J.P. Stevens until May 2013, including
trademarks for certain products using the "J.P. Stevens" name. Patented
processes used in the manufacturing process are not a significant part of these
segments. The segments do not license their name or products to others except
for the licenses of certain trade names granted royalty free to operations that
the Company has sold.
EMPLOYEES
As of October 31, 1998, the Company had approximately 3,400 employees of which
approximately 2,900 were hourly and approximately 500 were salaried. After
giving effect to the plant sale and plant closure discussed above, the Company
will have approximately 2,900 employees of which approximately 2,500 will be
hourly and approximately 400 will be salaried. The Company's employees are not
represented by unions. The Company believes its relations with its employees to
be good and has not had any work stoppages or strikes.
ENVIRONMENTAL AND REGULATORY MATTERS
The Company is subject to various federal, state and local government laws and
regulations concerning, among other things, the discharge, storage, handling and
disposal of a variety of hazardous and non-hazardous substances and wastes. The
Company's plants generate small quantities of hazardous waste that are either
recycled or disposed of off-site by or at licensed disposal or treatment
facilities.
The Company believes that it is in substantial compliance with all existing
environmental laws and regulations to which it is subject. In addition, the
Company is subject to liability under environmental laws relating to the past
release or disposal of hazardous materials. To date, and in management's belief
for the foreseeable future, liability under and compliance with existing
environmental laws has not had and will not have a material adverse effect on
the Company's financial or competitive positions. No representation or assurance
can be made, however, that any change in federal, state or local requirements or
the discovery of unknown problems or conditions will not require substantial
expenditures by the Company.
SEASONALITY
Certain portions of the business of the Company are seasonal (principally
construction products) and sales of these products tend to decline during winter
months in correlation with construction activity. These declines have
historically tended to result in lower sales and operating profits in the first
and second quarters than in the third and fourth quarters of the Company's
fiscal year. An increasing emphasis on export sales has mitigated some of the
seasonality in the construction products business.
WORKING CAPITAL
Information regarding the Company's working capital position and practices is
set forth in Item 7 of this Form 10-K under the caption "Liquidity and Capital
Resources."
-12-
<PAGE> 13
Financial information for the Industrial Products, Apparel Fabrics and Home
Fashion Textiles industry segments is set forth in Note 13 to the Consolidated
Financial Statements included in Item 8 herein.
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The statements contained in this Item 1 "BUSINESS" and Item 7 "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" that
are not historical facts are forward-looking statements subject to the safe
harbor created by the Private Securities Litigation Reform Act of 1995. The
Company cautions readers of this Annual Report on Form 10-K that a number of
important factors could cause the Company's actual results in Fiscal 1999 and
beyond to differ materially from those expressed in any such forward-looking
statements. These factors include, without limitation, the general economic and
business conditions affecting the textile industry, the Company's ability to
meet its debt service obligations, competition from a variety of large textile
mills and foreign textile manufacturers which export to the U.S., the
seasonality of the Company's sales, the volatility of the Company's raw
materials cost and the Company's dependence on key personnel.
ITEM 2. PROPERTIES.
The following table sets forth certain information relating to the Company's
principal facilities (segment information relates to principal use). All of the
facilities owned or leased by the Company are used for manufacturing, except for
the facility in New York, New York, which is used for sales offices. Except as
noted, all of the Company's facilities are owned in fee and substantially all
owned facilities are pledged as collateral for the Company's bank financing
arrangement.
<TABLE>
<CAPTION>
Square Square
Location Footage Location Footage
-------- ------- -------- -------
Apparel Fabrics Industrial Products
--------------- -------------------
<S> <C> <C> <C>
Laurens, SC 475,000 Kingsport, TN 625,000
Greenville, SC 460,000 Slater, SC 433,000
Stanley, NC 338,000 Westfield, NC 237,000
S. Boston, VA 286,000 Easthampton, MA 50,000
Rocky Mount, VA 88,000 (1)
All Segments
Home Fashion Textiles ------------
---------------------
New York, NY (3) 10,000
Lincolnton, NC 387,000 (2)
</TABLE>
(1) Subsequent to October 31, 1998, the Company announced it would close
this facility in Fiscal 1999. See discussion under Item 7,
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS."
(2) Subsequent to October 31, 1998, the Company entered into an agreement
to sell this facility. See discussion under Item 7, "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS."
(3) The New York, NY facility is leased by the Company under a lease
agreement which expires on May 30, 1999.
-13-
<PAGE> 14
The Company also leases certain other warehouse facilities, various regional
sales offices, a subsidiary's corporate office and its corporate headquarters.
The Company believes that all of its facilities are suitable and adequate for
the current and anticipated conduct of its operations.
ITEM 3. LEGAL PROCEEDINGS.
The Company is a party to lawsuits in the normal course of its business. The
Company believes that it has meritorious defenses in all lawsuits in which the
Company or its subsidiaries is a defendant. Except as discussed below,
management believes that none of this litigation, if determined unfavorable to
the Company, would have a material adverse effect on the financial condition or
results of operations of the Company.
In June 1997, Sears Roebuck and Co. ("Sears") filed a multi-count complaint, in
the Circuit Court of Cook County, Illinois (Case No. 97C8586), against
Elastomerics and two other defendants alleging an unspecified amount of damages
in connection with the alleged premature deterioration of the Company's roofing
membrane installed on approximately 150 Sears stores. No trial date has been
established. The Company believes it has meritorious defenses to the claims and
intends to defend the lawsuit vigorously. Management, however, cannot determine
the outcome of the lawsuit or estimate the range of loss, if any, that may
occur. An unfavorable resolution of the actions could have a material adverse
effect on the business, results of operations or financial condition of the
Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS.
No matters were submitted to a vote of securityholders during the fourth quarter
of Fiscal 1998.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
On October 9, 1997 (the Effective Date of the Plan of Reorganization proposed by
JPS and JPS Capital and confirmed by order of the Bankruptcy Court entered on
September 9, 1997), 10,000,000 shares of Common Stock, par value of $.01 per
share, of JPS and warrants to purchase up to 526,316 shares of common stock of
JPS at an initial purchase price of $98.76 per share were issued by JPS and
distributed pursuant to the Plan of Reorganization.
The Common Stock of the Company was approved for listing and trading on the
Nasdaq National Market System under the stock symbol "JPST", effective January
30, 1998. Prior to that time, there was only sporadic trading of the Common
Stock in the over-the-counter market. The following table presents the high and
low sales prices for the Common Stock for each full quarterly period since the
Common Stock became eligible for trading on Nasdaq.
FISCAL 1998 HIGH LOW
----------- ---- ---
Second Quarter $13 3/8 $11 3/4
Third Quarter 14 1/2 11 1/2
Fourth Quarter 13 3 3/4
As of January 29, 1999, there were approximately nine holders of record of the
Company's Common Stock.
-14-
<PAGE> 15
The Company has never paid a dividend on its Common Stock. The Company presently
intends to retain earnings to fund working capital and for general corporate
purposes, and, therefore, does not intend to pay cash dividends on shares of the
Common Stock in the foreseeable future. The payment of future cash dividends, if
any, would be made only from assets legally available therefor, and would also
depend on the Company's financial condition, results of operations, current and
anticipated capital requirements, restrictions under then existing indebtedness
(including, without limitation, indebtedness evidenced by the Revolving Credit
Facility (as defined below) and refundings and refinancings thereof) and other
factors deemed relevant by JPS's Board of Directors.
The Company's ability to pay cash dividends is dependent on its earnings and
cash flow. The subsidiaries that are borrowers under certain credit agreements
are restricted from paying cash dividends to JPS with respect to their capital
stock unless, among other things, JPS and its subsidiaries satisfy certain
specified financial tests.
ITEM 6. SELECTED HISTORICAL FINANCIAL DATA.
(Dollars in Thousands Except Per Share Data)
The following table presents selected consolidated historical financial data for
the Company as of the dates and for the fiscal years or periods indicated. The
selected historical financial data for each of the three years ended November 2,
1996, the period from November 3, 1996 to October 9, 1997, the period from
October 10, 1997 to November 1, 1997 and the year ended October 31, 1998 have
been derived from the Consolidated Financial Statements of the Company for such
periods, which have been audited. The presentation of certain previously
reported amounts has been reclassified to conform to the current presentation
and to reflect discontinued operations of the automotive assets (sold in 1994)
and the Carpet Business (sold on November 16, 1995) as discussed in Note 3 to
the Consolidated Financial Statements of the Company at Item 8 in this Form
10-K. The financial statements for the period from October 10, 1997 to November
1, 1997 and for the year ended October 31, 1998 reflect the Company's emergence
from chapter 11 and were prepared utilizing the principles of fresh start
accounting contained in the American Institute of Certified Public Accountants'
Statement of Position 90-7, "Financial Reporting by Entities in Reorganization
Under the Bankruptcy Code". As a result of the implementation of fresh start
accounting, certain of the selected financial data for the period from October
10, 1997 to November 1, 1997 and for the year ended October 31, 1998 is not
comparable to the selected financial data of prior periods. Therefore, selected
financial data for the "Reorganized Company" has been separately identified from
that of the "Predecessor Company". The following information should be read in
conjunction with the Consolidated Financial Statements of the Company and Notes
thereto, and "Management's Discussion and Analysis of Financial Conditions and
Results of Operations" presented elsewhere herein.
-15-
<PAGE> 16
<TABLE>
<CAPTION>
Predecessor Company
----------------------------------------------------- Reorganized Company
| --------------------------
Fiscal Year Ended | Fiscal Year
--------------------------------------- Period from | Period from Ended
10/29/94 10/28/95 11/2/96 11/3/96 | 10/10/97 10/31/98
(52 Weeks) (52 Weeks) (53 Weeks) to 10/9/97 | to 11/1/97 (52 Weeks)
---------- ---------- ---------- ---------- | ---------- ----------
<S> <C> <C> <C> <C> | <C> <C>
INCOME STATEMENT DATA: |
Net sales $ 461,871 $ 472,565 $ 448,824 $ 379,643 | $ 38,728 $ 389,218
Cost of sales 397,921 406,070 397,804 327,667 | 31,058 331,473
----------- ----------- ----------- ----------- | ------------ ------------
Gross profit 63,950 66,495 51,020 51,976 | 7,670 57,745
Selling, general and |
administrative expenses 39,805 39,586 40,579 37,146 | 2,466 40,190
Other income (expense), net (2,914) (6,248) (2,498) (622)| 11 (54)
Charges for plant closing, loss on |
sale of certain operations, write- |
down of certain long-lived assets |
and restructuring costs -- -- (30,028) 574 | -- (19,245)
----------- ----------- ----------- ----------- | ------------ ------------
Operating profit (loss) 21,231 20,661 (22,085) 14,782 | 5,215 (1,744)
Valuation allowance on |
Gulistan securities -- -- (4,242) (5,070)| -- --
Interest income 749 2,821 2,856 2,744 | 93 1,038
Interest expense (55,570) (39,946) (40,510) (32,164)| (584) (8,592)
----------- ----------- ----------- ----------- | ------------ ------------
Income (loss) before |
reorganization items, income |
taxes, discontinued operations, |
extraordinary items and |
cumulative effects of |
accounting changes (3) (33,590) (16,464) (63,981) (19,708)| 4,724 (9,298)
Reorganization items: |
Fair-value adjustments -- -- -- (4,651)| -- --
Professional fees and |
expenses -- -- (2,255) (8,420)| -- --
----------- ----------- ----------- ----------- | ------------ ------------
Income (loss) before income taxes, |
discontinued operations, |
extraordinary items and |
cumulative effects of |
accounting changes (33,590) (16,464) (66,236) (32,779)| 4,724 (9,298)
Income taxes (benefit) 2,800 1,200 (300) (8,822)| 2,007 1,366
----------- ----------- ----------- ----------- | ------------ ------------
Income (loss) before discontinued |
operations, extraordinary |
items and cumulative effects |
of accounting changes (36,390) (17,664) (65,936) (23,957)| 2,717 (10,664)
Discontinued operations, |
net of taxes: |
Income (loss) from |
discontinued operations 23,628 (7,079) -- -- | -- --
Net gain (loss) on sale of |
discontinued operations 132,966 (26,241) (1,500) -- | -- --
Extraordinary gain (loss) on |
early extinguishment of debt (7,410) 20,120 -- 100,235 | -- --
Cumulative effects of accounting |
changes, net of taxes (708) -- -- -- | -- --
----------- ----------- ----------- ----------- | ------------ ------------
Net income (loss) $ 112,086 $ (30,864) $ (67,436) $ 76,278 | $ 2,717 $ (10,664)
=========== =========== =========== =========== | ============ ============
Income (loss) applicable to |
common stock $ 108,753 $ (34,695) $ (71,941) $ 72,451 | $ 2,717 $ (10,664)
=========== =========== =========== =========== | ============ ============
Weighted average number |
of shares outstanding(1) 1,000,000 1,000,000 1,000,000 1,000,000 | 10,000,000 10,000,000
=========== =========== =========== =========== | ============ ============
</TABLE>
-16-
<PAGE> 17
<TABLE>
<CAPTION>
Predecessor Company Reorganized Company
--------------------------------------------------- | ------------------------
Fiscal Year Ended | Fiscal Year
-------------------------------------- Period from | Period from Ended
10/29/94 10/28/95 11/2/96 11/3/96 | 10/10/97 10/31/98
(52 Weeks) (52 Weeks) (53 Weeks) to 10/9/97 | to 11/1/97 (52 Weeks)
---------- ---------- ---------- ----------- | ----------- -----------
<S> <C> <C> <C> <C> | <C> <C>
INCOME STATEMENT DATA: |
Basic and diluted earnings (loss) |
per common share: (1) |
Income (loss) before discontinued |
operations, extraordinary items |
and cumulative effects of |
accounting changes $ (39.73) $ (21.50) $ (70.44) $ (27.79) | $ 0.27 $ (1.07)
Discontinued operations, net of |
taxes: |
Income (loss) from discontinued |
operations 23.63 (7.08) -- -- | -- --
Net gain (loss) on sale of |
discontinued operations 132.97 (26.24) (1.50) -- | -- --
Extraordinary gain (loss), net of |
taxes (7.41) 20.12 -- 100.24 | -- --
Cumulative effects of accounting |
changes, net of taxes (0.71) -- -- -- | -- --
--------- --------- -------- -------- | ------ -------
Net income (loss) $ 108.75 $ (34.70) $ (71.94) $ 72.45 | $ 0.27 $ (1.07)
========= ========= ======== ======== | ====== =======
</TABLE>
<TABLE>
<CAPTION>
10/29/94 10/28/95 11/2/96 11/1/97 10/31/98
-------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital, excluding net
assets held for sale $ 65,855 $ 72,670 $(257,866)(2) $ 82,132 $ 81,177
Total assets 452,811 412,822 335,927 322,381 272,922
Total long-term debt, less current portion 335,472 327,668 4,226 (2) 94,891 99,089
Senior redeemable preferred stock 24,340 28,171 32,676 -- --
Shareholders' equity (deficit) (2,350) (37,045) (108,986) 126,047 109,528
</TABLE>
(1) In accordance with the provisions of SFAS No. 128, the presentation of
earnings per share data for all periods presented has been restated to
conform to SFAS No. 128.
(2) All of the Company's senior credit facility revolving line of credit
and all of the Company's subordinated notes and debentures are
classified as current liabilities as of November 2, 1996.
(3) The following non-cash charges have been included in the determination
of income (loss) before reorganization items, income taxes,
discontinued operations, extraordinary items and cumulative effects of
accounting changes for the periods shown above:
<TABLE>
<CAPTION>
Predecessor Company Reorganized Company
------------------------------------------------- | --------------------------------
Fiscal Year Ended |
------------------------------------ Period from | Period from Fiscal Year Ended
10/29/94 10/28/95 11/2/96 11/3/96 | 10/10/97 10/31/98
(52 Weeks) (52 Weeks) (53 Weeks ) to 10/9/97 | to 11/1/97 (52 Weeks)
---------- ---------- ----------- ---------- | ---------- ----------
<S> <C> <C> <C> <C> | <C> <C>
Certain non-cash charges to income: |
Depreciation $22,242 $20,820 $21,756 $16,986 | $ 681 $10,189
Amortization of goodwill |
and other 964 965 983 894 | 165 2,273
Product liability charge -- 5,000 -- -- | -- --
Plant closing, loss on sale of |
certain operations, writedown |
of certain long-lived assets |
and restructuring costs -- -- 17,554 -- | -- 19,245
Early retirement offer -- -- 1,125 -- | -- --
Valuation allowance on |
Gulistan securities -- -- 4,242 5,070 | -- --
Other non-cash charges to income 131 371 769 1,092 | 127 533
Non-cash interest 11,161 8,818 10,088 7,303 | 20 329
------- ------- ------- ------- | ------- -------
$34,498 $35,974 $56,517 $31,345 | $ 993 $32,569
======= ======= ======= ======= | ======= =======
</TABLE>
-17-
<PAGE> 18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
On October 9, 1997, JPS consummated a Plan of Reorganization as discussed in
Item 1 herein under the caption "The 1997 Restructuring". The following
discussion should be read in conjunction with Item 1 and with the Consolidated
Financial Statements of the Company and the Notes thereto included in Item 8
herein.
<TABLE>
<CAPTION>
Pro Forma(9)
Predecessor Company | ---------------------------- Reorganized Company(4)
------------------------------- | (Unaudited) -----------------------------
Fiscal Year Period From | Fiscal Year Ended Period from Fiscal Year
Ended 11/3/96 | ---------------------------- 10/10/97 Ended
11/2/96 to 10/9/97 | 11/2/96 11/1/97 to 11/1/97 10/31/98
----------- ----------- | ----------- ----------- ------------ -----------
<S> <C> <C> | <C> <C> <C> <C>
NET SALES |
Industrial products $ 193,001 $ 179,434 | $ 193,001 $ 197,281 $ 17,847 $ 189,658
Apparel fabrics 221,799 167,070 | 221,799 185,660 18,590 170,877
Home fashion textiles 34,024 33,139 | 34,024 35,430 2,291 28,683
----------- ----------- | ----------- ----------- ---------- -----------
$ 448,824 $ 379,643 | $ 448,824 $ 418,371 $ 38,728 $ 389,218
=========== =========== | =========== =========== ========== ===========
OPERATING PROFIT |
(LOSS) |
Industrial products $ 5,947 (2) $ 16,748 | $ 8,752 (2) $ 21,241 $ 2,652 $ 16,275 (5)
Apparel fabrics (22,422)(3) 1,210 | (15,063)(3) 9,253 2,201 2,274 (6)
Home fashion textiles 647 976 | 1,791 2,980 693 (7,689)(7)
Indirect corporate |
expenses, net (6,257) (4,152)| (7,611) (5,728) (331) (12,604)(8)
----------- ----------- | ----------- ----------- ---------- -----------
Operating Profit (Loss) (22,085) 14,782 | (12,131) 27,746 5,215 (1,744)
Valuation allowance on |
Gulistan securities (4,242) (5,070)| -- -- -- --
Interest income 2,856 2,744 | 1,130 1,192 93 1,038
Interest expense (40,510) (32,164)| (8,561) (8.676) (584) (8,592)
----------- ----------- | ----------- ----------- ---------- -----------
Income (loss) before |
reorganization items, |
income taxes, |
discontinued operations |
and extraordinary |
items $ (63,981) $ (19,708)| $ (19,562) $ 20,262 $ 4,724 $ (9,298)
=========== =========== | =========== =========== ========== ===========
|
OTHER DATA |
|
EBITDA(1) |
Industrial products $ 22,207 $ 22,002 | $ 20,890 $ 24,743 $ 2,935 $ 21,307
Apparel fabrics 10,574 10,046 | 12,154 13,151 2,498 11,328
Home fashion textiles 3,164 3,514 | 3,199 4,236 792 845
Indirect corporate |
expenses, net (6,393) (11,470)| (4,173) (3,415) (165) (3,517)
----------- ----------- | ----------- ----------- ---------- -----------
Total EBITDA $ 29,552 $ 24,092 | $ 32,070 $ 38,715 $ 6,060 $ 29,963
=========== =========== | =========== =========== ========== ===========
</TABLE>
(1) EBITDA represents operating income plus depreciation, amortization and
certain other charges (credits) aggregating approximately $30.0
million, ( $0.6 million) and $19.2 million in Fiscal 1996, the period
from November 3, 1996 to October 9, 1997, and Fiscal 1998,
respectively. These other charges (credits) represent the "plant
closing, loss on sale of certain operations, writedown of certain
long-lived assets and restructuring costs" as presented separately in
the Consolidated Financial Statements of the Company and Notes thereto,
and in Item 6, "Selected Historical Financial Data" presented elsewhere
herein. EBITDA as determined by the Company may not be comparable to
the EBITDA measure as reported by other companies. This presentation of
EBITDA is not intended to represent cash flow from operations as
defined by GAAP and should not be considered as an indicator of
operating performance or an alternative to cash flow or operating
income (as measured by GAAP) or as a measure of liquidity. In addition,
this measure does not represent
-18-
<PAGE> 19
funds available for discretionary use. It is included herein to provide
additional information with respect to ability of the Company to meet
its future debt service, capital expenditures and working capital
requirements.
(2) The Fiscal 1996 operating profit for industrial products includes
charges of approximately $8.1 million for writedown of certain
long-lived assets and $1.5 million for loss on sale of certain
operations
(3) The Fiscal 1996 operating loss for apparel fabrics includes charges of
approximately $14.2 million for plant closing and $6.2 million for loss
on sale of certain operations.
(4) The financial statements for the period from October 10, 1997 to
November 1, 1997 and the year ended October 31, 1998 reflect the
Company's emergence from chapter 11 and were prepared utilizing the
principles of fresh start reporting contained in the American Institute
of Certified Public Accountants' Statement of Position 90-7, "Financial
Reporting by Entities in Reorganization Under the Bankruptcy Code." As
a result of the implementation of fresh start accounting, the financial
information for the period from October 10, 1997 to November 1, 1997
and the year ended October 31, 1998 is not comparable to the financial
information of prior periods.
(5) The Fiscal 1998 operating profit for industrial products includes
charges of approximately $0.7 million for writedown of certain
long-lived assets.
(6) The Fiscal 1998 operating profit for apparel fabrics includes charges
of approximately $3.7 million for writedown of certain long-lived
assets and approximately $0.7 million for certain restructuring costs.
(7) The Fiscal 1998 operating loss for home fashion textiles includes
charges of approximately $7.2 million for writedown of certain
long-lived assets.
(8) The Fiscal 1998 operating loss related to indirect corporate expenses
includes charges of approximately $6.9 million for writedown of certain
long-lived assets (excess reorganization costs).
(9) The pro forma financial information was prepared for comparison
purposes and gives effect to the Plan of Reorganization as if the
transactions had occurred on October 29, 1995 (for Fiscal 1996) and
November 3, 1996 (for Fiscal 1997). The unaudited pro forma financial
information was derived by adjusting the historical consolidated
financial statements of the Company for the effects of fresh start
accounting as described in Note 1 to the Consolidated Financial
Statements included in Item 8 herein. Such adjustments primarily relate
to decreased depreciation expense resulting from revaluation of the
Company's fixed assets, decreased interest expense resulting from
extinguishment of Old Debt Securities in the reorganization, increased
amortization resulting from reorganization value in excess of amounts
allocable to identifiable assets and the elimination of reorganization
items, and their related tax effects. This pro forma information is
provided for informational purposes only and should not be construed to
be indicative of the results of operations of the Company had the
transactions been consummated on the respective dates indicated and are
not intended to be predictive of the results of operations of the
Company for any future period.
RESULTS OF OPERATIONS
The financial statements for the periods subsequent to the consummation of the
Plan of Reorganization (period from October 10, 1997 to November 1, 1997 and
Fiscal 1998) were prepared under the principles of fresh start reporting for
companies emerging from a plan of reorganization and are not comparable to prior
periods. The Company believes that the most meaningful comparisons to Fiscal
1998 are made using the pro forma financial information (for Fiscal 1996 and
1997) and therefore this discussion addresses such pro forma information.
GENERAL COMMENTS
Fiscal 1998 was a disappointing year financially; however, the Company continued
to reposition itself as a diversified industrial and speciality products
company. Recently, the Company announced several important actions which should
improve profitability in Fiscal 1999 and beyond, and reinforce plans to pursue
profitable growth strategies globally in industrial products, while continuing
to streamline the apparel and yarn businesses.
-19-
<PAGE> 20
With sales growth in each of the product segments through the first half of the
year and continued implementation of capacity expansion and cost reduction
programs in manufacturing facilities, the Company was optimistic that growth
targets for the year would be achieved. In the last half of the year, however,
global economic issues, adverse market conditions in electronic products and
circuit boards and athletic footwear, and the continued negative impact of
imported apparel fabrics, contributed to declining sales across all of the
segments and margin contraction.
Based on a rigorous assessment of product lines, market positions and
opportunities for profitable growth, the Company recently announced two
strategic initiatives. One is to close the Angle Plant (Apparel Fabrics) and
consolidate its operations into the more modern and versatile plant in South
Boston, Virginia. The second initiative is to sell the Boger City Plant, which
generates a majority of the Company's home fashion textiles business. The sale
of the Boger City Plant should close early in the second fiscal quarter of 1999.
Additionally, Company-wide cost reduction measures were also implemented at the
beginning of Fiscal 1999, which included the elimination of certain jobs at
projected annualized savings of $1.3 million.
The Company's focus for the remainder of Fiscal 1999 and the next several years
remains to continue its leadership position as a manufacturer of industrial
products, to continue to improve the efficiency and capacity of manufacturing
facilities, to bring to market innovative new products and to expand the
industrial products business globally.
FISCAL 1998 COMPARED TO FISCAL 1997 (PRO FORMA)
Consolidated net sales decreased $29.2 million, or 7.0%, from $418.4 million in
Fiscal 1997 to $389.2 million in Fiscal 1998. Operating income (loss) decreased
$29.4 million from a pro forma operating profit of $27.7 million in Fiscal 1997
to an operating loss of $1.7 million in Fiscal 1998. Fiscal 1998 results include
charges for loss on writedown of certain long-lived assets and certain
restructuring charges which totaled approximately $19.2 million. Excluding such
charges for comparative purposes, operating profit in Fiscal 1998 was $17.5
million compared to pro forma operating profit of $27.7 million in Fiscal 1997.
At the end of Fiscal 1998, the Company implemented cost reduction measures,
which included the elimination of certain jobs, resulting in projected future
annual savings of approximately $1.3 million.
Net sales in Fiscal 1998 in the industrial products segment, which includes
single-ply roofing and environmental membrane, woven substrates constructed of
cotton, synthetics and fiberglass for lamination, insulation and filtration
applications and extruded urethane products decreased $7.6 million, or 3.9%, to
$189.7 million from $197.3 million in Fiscal 1997. Sales of fiberglass products
decreased $1.9 million in Fiscal 1998. The electronics industry represents the
largest customer segment for the Company's fiberglass products. Global consumer
demand for electronic products did not meet expectations and, combined with
other factors, including the weakness in Asian economies, led to a slowdown in
demand for certain fiberglass products used in the manufacture of electrical
circuit boards. Management expects that demand for its fiberglass products will
recover and continue to grow in the future, but such resumed growth depends, to
some extent, on the timing and strength of a recovery of growth in global
consumer demand for electronic products. In Fiscal 1998, the Company completed
its capacity expansion and modernization program which it believes will
contribute to lower costs and higher productivity in the future. In view of this
market softness, the Company has taken a number of steps to improve capacity
utilization including finalizing arrangements with its largest customers to
purchase greater quantities of the Company's production. These aggressive
marketing efforts, combined with the Company's reputation for quality and
service, have increased the Company's market opportunities and enhanced its
prospects for future growth. Net sales of roofing membrane increased $0.3
million in Fiscal 1998. The domestic roofing market in Fiscal 1998 was
characterized by intense competition and market consolidation as growth rates
receded from the double-digit levels of the mid-1990's. New and aggressive
competitors in the Company's market niches have presented additional challenges
for growth. The Company is addressing those challenges through aggressive
pricing strategies, which are supported by lower
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manufacturing costs, and strengthening sales management in certain key
territories where such threats are most apparent. Sales of urethane products
decreased $3.5 million in Fiscal 1998, as a result of the decline in demand for
certain of the Company's products used in the manufacture of athletic footwear.
The athletic footwear industry has been depressed as a result of shifting
consumer preference in casual footwear. However, the Company has initiated an
aggressive marketing campaign of new product introduction to help offset the
loss of sales of athletic footwear. Sales of liner membrane decreased $1.0
million in Fiscal 1998 due to declining unit volumes. Sales of cotton industrial
products decreased $0.4 million in Fiscal 1998 due to declining unit volume and
unit selling prices.
Operating profit in Fiscal 1998 for the industrial products segment decreased
$4.9 million from pro forma operating profit of $21.2 million in Fiscal 1997 to
operating profit of $16.3 million in Fiscal 1998. Fiscal 1998 included charges
for writedown of certain long-lived assets of approximately $0.7 million.
Excluding the effects of such charges, operating profit decreased by $4.2
million. Lower unit prices for fiberglass products and lower unit sales in many
of the industrial product groups caused the decline. The Company believes that
through a series of customer agreements and other marketing improvements, future
sales of industrial products will be improved. However, price pressure is
expected to continue in the foreseeable future, but will be mitigated to some
degree through improvements in manufacturing efficiencies related to capital
expenditures, lower raw material costs and an improved product mix.
Net sales of apparel fabrics, which include unfinished woven apparel fabrics
(greige goods) and yarn primarily for women's wear, decreased $14.8 million, or
8.0%, from $185.7 million in Fiscal 1997 to $170.9 million in Fiscal 1998.
Market conditions for apparel fabrics constructed primarily of filament yarn
weakened during Fiscal 1998 producing unit volumes and average reduced selling
prices well below prior-year levels. Apparel imports and shifting consumer
preference in women's apparel reduced demand for domestically produced fabrics
and resulted in an over-produced market. In addition, apparel manufacturers
substituted lower cost imported polyester fabrics for acetate-rich fabrics.
Sales of fabric constructed primarily of spun yarns exceeded expectations for
Fiscal 1998 increasing from $68.4 million in Fiscal 1997 to $72.8 million in
Fiscal 1998. The Company is continuing to develop new fabric construction and
styles in an effort to improve sales and profitability of its product mix.
Operating profit in Fiscal 1998 for the apparel fabrics group decreased $7.0
million from pro forma operating profit of $9.3 million in Fiscal 1997 to
operating profit of $2.3 million in Fiscal 1998. Fiscal 1998 included charges of
approximately $4.4 million for certain restructuring costs and writedown of
certain long-lived assets. Excluding the effects of such charges, operating
profit decreased $2.6 million principally due to the lower sales volume, lower
unit prices and the effects of production curtailment to manage inventory
levels.
As a result of the Company's assessment of the market conditions for apparel
products constructed primarily of filament yarns, management concluded,
subsequent to October 31, 1998, that its Angle Plant located in Rocky Mount,
Virginia, should be closed. The plant was primarily engaged in the manufacture
and sale of apparel fabric constructed of filament yarns. The results of
operations for Fiscal 1998 includes a charge for writedown of certain long-lived
assets of approximately $2.7 million related principally to the loss on
impairment of the plant in accordance with Statement of Accounting Standard
("SFAS") No. 121, "Accounting for the Impairment of Long- Lived Assets and for
Long-Lived Assets to Be Disposed Of." The Company expects to complete the plant
closing by the end of its Fiscal 1999 third quarter and expects that the plant
closure will result in improved earnings and cash flow from operations in the
future. The Company estimates that approximately $1.4 million in plant closing
costs will be incurred in Fiscal 1999 relating primarily to employee severance
and plant run-out costs.
Additionally, in Fiscal 1998, the Company implemented cost reduction measures
which included, among other things, personnel reduction and the idling of
certain manufacturing equipment. The results of operations in Fiscal 1998
includes charges for writedown of certain long-lived assets of approximately
$1.7 million for asset impairment and restructuring costs of approximately $0.7
million for employee severance costs.
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Net sales in Fiscal 1998 in the home fashions textiles segment, which includes
woven drapery fabrics and yarns for the home furnishings industry, decreased
$6.7 million from $35.4 million in Fiscal 1997 to $28.7 million in Fiscal 1998.
This segment suffered from major changes by prominent retailers and shifting
consumer preferences. As a result, the Company's market position deteriorated
from the prior year leading to lower unit demand and generally weaker selling
prices and margins.
Operating profit in Fiscal 1998 for the home fashion textiles segment decreased
to an operating loss of $7.7 million from a pro forma operating profit of $3.0
million in Fiscal 1997. Fiscal 1998 included charges of approximately $7.2
million related to a loss on impairment of certain long-lived assets. Excluding
the effects of such charges, operating profit decreased $3.5 million due to
lower demand, weaker margins and the impact of lower production.
Pursuant to the terms of an Asset Purchase Agreement dated as of January 11,
1999, as amended, between JPS Converter and Industrial Corp., a wholly-owned
subsidiary of JPS, and Belding Hausman Incorporated, JPS Converter and
Industrial Corp. agreed to sell substantially all of the assets of its Boger
City Plant located in Lincolnton, North Carolina. This plant is primarily
engaged in the manufacture and sale of home fashion textiles and accounted for
sales of approximately $33.6 million, $30.9 million and $22.8 million in Fiscal
1996, 1997 and 1998, respectively. The consideration for the sale will consist
of approximately $7.9 million in cash, subject to a post-closing adjustment
based upon the amount of inventories transferred. The cash proceeds will be used
by the Company to reduce outstanding borrowings under its Revolving Credit
Facility and an equipment loan. In accordance with SFAS No. 121, the results of
operations for Fiscal 1998 includes a charge for writedown of certain long-lived
assets of approximately $7.2 million for the excess of the carrying value of the
plant over its fair value based on the estimated proceeds from the sale.
Indirect corporate expenses increased $6.9 million from $5.7 million (pro forma)
in Fiscal 1997 to $12.6 million in Fiscal 1998. In accordance with SFAS No. 121,
a portion of the excess reorganization costs arising from the 1997 financial
restructuring was allocated to the assets of the plant being sold and the plant
being closed as discussed above. The carrying amount of such allocated excess
reorganization costs of $6.9 million was charged to operations in Fiscal 1998.
Reorganization-related fees and expenses incurred in Fiscal 1997 totaled $8.4
million. Such fees and expenses, which represent fees and expenses of the
Company's financial advisor, legal counsel and other professionals associated
with the Company's 1997 financial restructuring and the financial advisor and
legal counsel for the holders of a substantial majority of the Company's old
outstanding bonds, have been excluded from the Fiscal 1997 pro forma financial
statements. No such expenses were incurred in Fiscal 1998.
Because of Gulistan's recurring losses during Fiscal 1997, the Company sold its
debt and equity securities of Gulistan Holdings consisting of a $10 million
Promissory Note due in November 2001, $5 million of preferred stocks redeemable
in November 2005 and warrants to purchase up to 25% of the common stock of
Gulistan Holdings. Proceeds from the sale were $2 million. The writedown of the
carrying value of the Gulistan securities to $2 million was reported in the
period from November 3, 1996 to October 9, 1997. Such writedown, which totaled
$5.1 million in Fiscal 1997, has been excluded from the Fiscal 1997 pro forma
financial statements.
As a result of the application of fresh start accounting as required by
Statement of Position 90-7 ("SOP 90-7") of the American Institute of Certified
Public Accountants, entitled "Financial Reporting by Entities in Reorganization
Under the Bankruptcy Code", a gain on early extinguishment of debt of
approximately $100.2 million and reorganization items of approximately $13.1
million were recorded as of the Effective Date. The reorganization items include
professional fees and expenses of approximately $8.4 million (discussed above)
and fair value adjustments of approximately $4.7 million. These items have been
excluded from the Fiscal 1997 pro forma financial information.
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Interest income and expense in Fiscal 1998 are consistent with the pro forma
Fiscal 1997 amounts.
FISCAL 1997 (PRO FORMA) COMPARED TO FISCAL 1996 (PRO FORMA)
Consolidated net sales declined $30.4 million, or 6.8%, from $448.8 million in
Fiscal 1996 to $418.4 million in Fiscal 1997. Pro forma operating profit (loss)
increased $39.8 million from a pro forma operating loss of $12.1 million in
Fiscal 1996 to a pro forma operating profit of $27.7 million in Fiscal 1997.
Fiscal 1996 results included charges for plant closing, loss on sale of certain
operations, and writedown of certain long-lived assets which totaled $30
million. Excluding such charges for comparative purposes, pro forma operating
profit in Fiscal 1996 was $17.9 million. All segments reported improved earnings
in Fiscal 1997 compared to Fiscal 1996.
Net sales in Fiscal 1997 in the industrial products segment increased $4.3
million, or 2.2%, to $197.3 million from $193.0 million in Fiscal 1996. Net
sales in Fiscal 1996 included $4.0 million of industrial elastic sales. The
Company sold its rubber products business, which produced these elastic
products, in September 1996 and therefore Fiscal 1997 includes no industrial
elastic sales.
Sales of fiberglass products increased $5.0 million in Fiscal 1997 primarily as
a result of the continued growth in demand for fabrics used in the manufacture
of electrical circuit boards. The Company expanded and enhanced its productive
capacity and invested in additional machinery and equipment in order to satisfy
customer demand and improve product quality. Sales of roofing membrane increased
$1.4 million from Fiscal 1996. The Company's "Hi-Tuff/EP" line of roofing
products increased in sales as a result of the membrane's competitive price and
outstanding performance characteristics. Sales of urethane products increased
$3.7 million from Fiscal 1996 primarily as a result of stronger demand for
certain of the Company's products used in the manufacture of athletic footwear.
The Company was successful in developing a variety of urethane film and sheet
products for specific customer requirements. Sales of cotton industrial products
increased $3.7 million from Fiscal 1996 due to improved unit volumes and selling
prices. Sales of other industrial products declined $5.5 million primarily as a
result of the exit of certain low margin products and redirecting such weaving
capacity toward more profitable goods.
Pro forma operating profit in Fiscal 1997 for the industrial products segment
increased by $12.5 million from $8.8 million in Fiscal 1996 to $21.2 million in
Fiscal 1997. Included in the Fiscal 1996 pro forma operating profit are charges
of approximately $9.6 million for writedown of certain long-lived assets and
loss on sale of operations. Adjusting for such charges, pro forma operating
profit in Fiscal 1997 increased by $2.8 million (15.2%) from Fiscal 1996. The
increases in sales as described above, and the exit of certain low margin
product lines, combined with improved operating efficiencies, increased pro
forma operating income in Fiscal 1997.
Net sales in Fiscal 1997 in the apparel fabrics segment declined $36.1 million
(16.3%) from $221.8 million in Fiscal 1996 to $185.7 million in Fiscal 1997.
Much of this decline in net sales was expected as a result of the Company's
actions in Fiscal 1996 to exit certain product lines which included plant
closings and asset sales. Net sales in Fiscal 1996 included $12.8 million of
apparel elastics sales. As discussed below, the Company sold its rubber products
business, which produced these elastic products, in September 1996. Apparel
fabric sales declined $20.5 million in Fiscal 1997 primarily as a result of the
Company's decision in Fiscal 1996 to close one of its facilities in Greenville,
South Carolina and cease production of certain commodity-type apparel fabrics
which, due to competitive pressures from abroad, carried very weak margins.
Pro forma operating profit (loss) in Fiscal 1997 for the apparel fabrics segment
increased by $24.4 million from a $15.1 million pro forma loss to a pro forma
operating profit of $9.3 million. Fiscal 1996 included charges of approximately
$20.4 million for plant closing and loss on sale of certain operations. Pro
forma operating profit before such charges increased by $4.0 million from $5.3
million in Fiscal 1996 to $9.3 million in Fiscal 1997. The improvement is the
result of several factors. Fiscal 1997 results were not adversely affected by
the negative
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<PAGE> 24
operating margins associated with the product lines exited during Fiscal 1996.
In addition, manufacturing efficiency and productivity improved as a result of
certain capital projects completed during Fiscal 1997.
Net sales in Fiscal 1997 in the home fashion textiles segment, increased $1.4
million (4.1%) to $35.4 million in Fiscal 1997 from $34.0 million in Fiscal 1996
primarily as a result of new product development and styling which resulted in
higher unit volumes and selling prices.
Pro forma operating profit in Fiscal 1997 for the home fashion textiles segment
increased $1.2 million (67%) to $3.0 million from $1.8 million in Fiscal 1996.
The aforementioned volume and product mix enhancements were the primary causes
for improved operating results. Substantially all of such improvement in pro
forma operating increase occurred during the first half of Fiscal 1997.
Indirect corporate expenses (pro forma) declined by $1.9 million from $7.6
million in Fiscal 1996 to $5.7 million in Fiscal 1997. Fiscal 1996 pro forma
expenses included a $1.1 million charge resulting from an early retirement offer
extended to certain salaried employees. Fiscal 1996 also included an expense of
$1.0 million for management services provided by a former shareholder pursuant
to a management services agreement. Pursuant to the Plan of Reorganization on
the Effective Date, such agreement was canceled and rejected and claims for
rejection damages were waived. Accordingly, no such expense was incurred in
Fiscal 1997. Offsetting such decreases were slightly higher employee
compensation costs and insurance costs.
Reorganization-related fees and expenses incurred in Fiscal 1997 totaled $8.4
million. These fees and expenses totaled $2.3 million in Fiscal 1996. The
writedown of the carrying value of the Gulistan securities totaled $4.2 million
in Fiscal 1996 and $5.1 million in Fiscal 1997 and has been excluded from the
pro forma financial statements.
Pro forma interest income and expense in Fiscal 1997 were consistent with the
pro forma amounts in Fiscal 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of liquidity for operations and expansion are
funds generated internally and borrowings under its Revolving Credit Facility
(as defined below). On October 9, 1997, Elastomerics and C&I (the "Borrowing
Subsidiaries") and JPS entered into the Credit Facility Agreement, (the "Credit
Agreement"), by and among the financial institutions party thereto, Citibank, as
agent, and NationsBank, N.A., as co-agent. The Credit Agreement provides for a
revolving credit loan facility and letters of credit (the "Revolving Credit
Facility") in a maximum principal amount equal to the lesser of (a) $135 million
and (b) a specified borrowing base (the "Borrowing Base"), which is based upon
eligible receivables, eligible inventory and a specified dollar amount
(currently $52,000,000 (subject to reduction) based on fixed assets of the
Borrowing Subsidiaries), except that (i) no Borrowing Subsidiary may borrow an
amount greater than the Borrowing Base attributable to it (less any reserves as
specified in the Credit Agreement) and (ii) letters of credit may not exceed $20
million in the aggregate. The Credit Agreement contains restrictions on
investments, acquisitions and dividends unless, among other things, the Company
satisfies a specified pro forma fixed charge coverage ratio and maintains a
specified minimum availability under the Revolving Credit Facility for a stated
period of time, and no default exists under the Credit Agreement. The Credit
Agreement also restricts, among other things, indebtedness, liens, affiliate
transactions, operating leases, fundamental changes and asset sales other than
the sale of up to $35 million of fixed assets, subject to the satisfaction of
certain conditions. The Credit Agreement contains financial covenants relating
to minimum levels of EBITDA, minimum interest coverage ratio, minimum fixed
charge coverage ratio and maximum capital expenditures. The maturity date of the
Revolving Credit Facility is October 9, 2002. On October 30, 1998, the Credit
Agreement was amended to, among other things (i) modify the financial covenants
relating to minimum levels of EBITDA, minimum interest coverage ratio, minimum
fixed charge coverage ratio and maximum capital
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<PAGE> 25
expenditures, (ii) modify the interest rate margin and unused commitment fees
and (iii) provide additional reduction of the fixed asset portion of the
Borrowing Base. As of October 31, 1998, the Company was in compliance with these
restrictions and all financial covenants, as amended. All loans outstanding
under the Revolving Credit Facility, as amended, bear interest at either the
Eurodollar Rate (as defined in the Credit Agreement) or the Base Rate (as
defined in the Credit Agreement) plus an applicable margin (the "Applicable
Margin") based upon the Company's fixed charge coverage ratio (which margin will
not exceed 2.50% for Eurodollar Rate borrowings and .25% for Base Rate
borrowings). The weighted average interest rate at October 31, 1998 is
approximately 6.9%. The Company pays a fee of .25% per annum if a specified
fixed charge coverage ratio is satisfied and a letter of credit fee equal to the
Applicable Margin for Eurodollar Rate borrowings. Borrowings under the Revolving
Credit Facility are made or repaid on a daily basis in amounts equal to the net
cash requirements or proceeds for that business day. As of October 31, 1998,
unused and outstanding letters of credit totaled $1,526,000. The outstanding
letters of credit reduce the funds available under the Revolving Credit
Facility. At October 31, 1998, the Company had approximately $38.3 million
available for borrowing under the Revolving Credit Facility.
Net cash provided by operations increased by approximately $16.5 million in
Fiscal 1998 compared to the combined periods from November 3, 1996 to October 9,
1997 and October 10, 1997 to November 1, 1997 (Fiscal 1997) primarily due to the
fact that Fiscal 1997 included payment of $14.0 million to holders of the 10.85%
Notes and 10.25% Notes and certain interest payments associated with the Old
Debt Securities. Working capital at October 31, 1998 was approximately $90.8
million compared to $82.1 million at November 1, 1997, principally due to the
estimated proceeds from the plant sale discussed above. Accounts receivable
decreased by approximately $11.6 million at October 31, 1998 compared to
November 1, 1997 due principally to a decrease in sales in Fiscal 1998 and the
timing of customer receipts. Inventories increased by approximately $9.8 million
in Fiscal 1998 as a result of the lower sales volume. Accounts payable and
accrued expenses decreased approximately $4.2 million in Fiscal 1998 principally
due to lower operating activity in the later part of the year.
The principal use of cash in Fiscal 1998 was for property, plant and equipment
expenditures of $22.4 million for upgrade and capacity improvements for the
Company's manufacturing operations. As of October 31 1998, the Company had
commitments of $1.1 for capital expenditures. The Company anticipates making
capital expenditures in Fiscal 1999 of approximately $8.2 million and expects
such amounts to be funded by cash from operations, bank and other equipment
financing sources.
On August 31, 1998, the Company reduced its long-term debt and related
investments by repaying all of the approximately $34 million in principal amount
of JPS Capital's Contingent Notes.
In Fiscal 1998, the Company entered into a seven-year lease agreement
(classified as capital lease) for certain machinery and equipment. The total
cost of the assets to be covered by the lease is limited to approximately $5.0
million. The total cost of assets under lease at October 31, 1998 was
approximately $3.5 million. The lease provides for an early buyout option at the
end of six years and includes purchase and renewal options at fair market value
at the end of the lease term.
Based upon the Company's ability to generate working capital through its
operations and its Revolving Credit Facility, the Company believes that it has
the financial resources necessary to pay its capital obligations and implement
its business plan for at least the next twelve months.
INFLATION AND TAX MATTERS
The Company is subject to the effects of changing prices. It has generally been
able to pass along inflationary increases in its costs by increasing the prices
for its products; however, market conditions sometimes preclude this practice.
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For the fiscal year ending October 31, 1998 the Company recorded a tax expense
of $1.4 million. A tax expense was recorded even though the Company had current
year losses. This expense was due to the nondeductibility of certain expenses
for tax purposes and the recording of an additional valuation allowance on the
Company's deferred tax assets. The nondeductible items consist primarily of
reorganization value in excess of amounts allocable to identifiable assets. The
additional valuation allowance was provided based on management's assessment of
the ability to recognize the net deferred tax assets. See Note 9 to the
Consolidated Financial Statements for additional information.
For the period from October 10, 1997 to November 1, 1997, the Company recorded a
tax expense of $2.0 million. The tax expense for the period ending November 1,
1997 includes the utilization of a portion of the deferred tax asset, described
below, which was recorded as of the Effective Date of the Plan of Reorganization
of the Company. The effective tax rate exceeds the statutory federal income tax
rate due to the impact of items not deductible for federal income tax purposes
and because of state income taxes.
The Company recorded a tax benefit for the period ending October 9, 1997 of
approximately $8.8 million. This consists of a benefit from the implementation
of the Plan of Reorganization net of state taxes on subsidiary operations that
could not be offset by operating loss carryovers or current year losses of JPS
or its subsidiaries. The benefit arose as consummation of the Plan of
Reorganization substantially deleveraged JPS. Accordingly, the reserve
established against the deferred tax assets that was required due to the
operating history was significantly reduced. However, the deferred tax asset
attributable to the net operating loss carryforwards was also reduced as a
result of the reduction in net operating loss carryforwards that is required for
reorganizations such as that provided in the Plan of Reorganization. The
reduction in reserves and reduction in deferred tax liabilities exceeded the
reduction in the gross deferred tax asset by a net amount of $9.7 million thus
resulting in a deferred tax benefit. The recording of the tax benefit and the
net deferred tax asset reflects the Company's determination that it is more
likely than not that these deferred tax assets, net of the valuation allowance,
will be realized based on current income tax laws and expectations of future
taxable income stemming from the reversal of deferred tax liabilities or
operations. Uncertainties surrounding income tax law changes, shifts in
operations between state taxing jurisdictions and future operating income levels
may, however, affect the ultimate realization of all or some portion of these
deferred income tax assets. In addition, the Company evaluates the valuation
allowance on quarterly basis to determine whether or not adjustment is required.
There was no adjustment to the valuation allowance for the period ending
November 1, 1997.
The Internal Revenue Code (the "Code") provides that there are no taxes payable
on gains such as the extraordinary gain on early extinguishment of debt that was
realized on the reorganization of the Company in the period from November 3,
1996 to October 9, 1997. However, the Company was required under provisions of
the Code to reduce certain net operating loss carryforwards and certain other
tax attributes as a result of such gain. Beginning net operating loss carryovers
were reduced by approximately $64 million. In addition, alternative minimum tax
credit carryovers were reduced by approximately $0.7 million. As a result of
valuation allowances on these assets, there was no tax expense attributable to
such reductions. In addition to attribute reduction, any remaining net operating
loss carryforwards and certain other tax attributes are subject to the
limitations imposed by Section 382 of the Code. The effect of these limitations
was to limit the utilization of the approximately $28 million in remaining net
operating loss carryovers and certain other attributes to an annual amount of
approximately $6.6 million (subject to certain adjustments).
The Company recorded a net $0.3 million income tax benefit on continuing
operations in Fiscal 1996. The Company had a $0.5 million deferred state tax
benefit from the charge for the plant closing and writedown of certain
long-lived assets. While no tax expense resulted from applying the statutory tax
rate to the loss before income taxes, the Company was not able to fully offset
subsidiary income in all tax jurisdictions with net operating losses of the
Company or other subsidiaries or operating loss carryovers. As a result, a $0.2
million provision for state income taxes was required in Fiscal 1996.
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During Fiscal 1994, the Company utilized approximately $141 million of net
operating loss carryforwards to offset the gain on sale of the automotive
assets. Income tax expense incident to the sale was reduced by approximately $49
million as a result of such utilization. Federal alternative minimum and state
taxes of approximately $2.8 million were recognized as a result of the sale.
Although the Company believed use of its net operating loss carryforwards to
offset the gain on the automotive assets would more likely than not be sustained
under existing tax laws, uncertainty existed primarily due to the fact that
applicable regulations under Section 382 of the Code had not been issued.
Therefore, in accordance with provisions of the indentures governing the Old
Debt Securities, the Company set aside, in a special-purpose subsidiary, a
portion ($39.5 million) of the net proceeds from the sale of the automotive
assets to satisfy, if necessary, these possible contingent tax liabilities. As
of November 1, 1997 and November 2, 1996, the aggregate fair value of the
investments was approximately $34.6 million and $46.2 million, respectively.
Under the terms of the Plan of Reorganization, the holders of the 10.25% and
10.85% Notes received $14 million in cash from these investments and Contingent
Notes with an aggregate principal amount of $34 million payable from these
investments upon the occurrence of certain events. The respective amounts of the
cash distribution and the initial principal amount of the Contingent Notes were
determined based on the assumptions used to determine the original amount set
aside for contingent tax liabilities related to the 1994 sale of the Company's
automotive business with adjustments for certain events arising subsequent to
the sale and such original determination. A current liability in an amount equal
to the approximate aggregate fair value of invested funds was recorded in the
Company's Consolidated Balance Sheet as of November 1, 1997. In accordance with
the indenture for the Contingent Notes, during 1998 a determination was made
that the Maturity Date (as defined in the indenture) would occur on August 31,
1998. Funds in the amount of $35,536,460 were placed with the paying agent on or
before August 28, 1998. On August 31, 1998 the Contingent Notes were no longer
deemed outstanding and all rights with respect to such notes ceased, other than
the right of the holders thereof to receive the principal amount and accrued
interest (as defined) payable under each Contingent Note held by them.
Even before giving effect to the previously described limitations on use of net
operating loss carryforwards occurring under the Plan of Reorganization, due to
the Company's operating history, it was uncertain that it would be able to
utilize all deferred tax assets. Therefore, for years ending prior to November
1, 1997, a valuation allowance had been provided equal to the deferred tax
assets remaining after deducting all deferred tax liabilities, exclusive of
those related to certain deferred state tax liabilities. As described above, a
portion of the valuation allowance was reversed and a tax benefit recognized
upon the Effective Date of the Plan of Reorganization.
YEAR 2000 COMPLIANCE
Description of Year 2000 Issue
As a result of the existence of computer programs and chips embedded in process
control equipment that use two digits rather than four to define the applicable
year, a concern commonly known as "Year 2000" has arisen globally. Computer
programs and equipment having time-sensitive software or imbedded processors may
recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in system failures or miscalculations causing disruptions of
operations, such as production shutdowns, or a temporary inability to process
transactions, send invoices or engage in similar normal business activities.
Mission-critical applications which could be impacted include purchasing and
inventory management, production control, general ledger accounting, billing,
payroll and disbursements.
The Company's Plan
In Fiscal 1997, the Company conducted a comprehensive review of its computer
systems to identify those systems that could be affected by the Year 2000 issue.
The Company has developed and is currently implementing its plan to address the
Year 2000 issue. Task teams led by senior executives identified six project
phases including (i) inventory of systems and process exposure, (ii) risk
assessment and prioritization, (iii) remediation of non-compliant
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<PAGE> 28
systems, (iv) testing and development of compliant systems, (v) maintenance once
compliance is achieved and (vi) contingency planning. The Company has completed
the inventory and risk assessment phases and is currently in the remediation and
testing phases of the project. Remediation involves repair of existing systems
and equipment, and, in some cases, complete replacement with purchased systems
and equipment that are Year 2000 compliant. Replaced and modified systems are
subjected to rigorous testing in a non-production environment in parallel with
production data and, once deployed, are continually monitored for compliance.
Activities to maintain such compliance include monitoring of reprogrammed
systems once back in production, audits of critical systems, vendor compliance
certifications and testing of contingency plans. Management has also reviewed
production equipment used in its operations and has performed a written survey
of its equipment vendors to certify that the systems imbedded in sophisticated
production equipment are Year 2000 compliant. In addition, all new equipment
purchases are screened for Year 2000 compliance. The Company expects that the
remediation phase will be substantially completed by the end of August 1999.
However, testing and maintenance will continue throughout 1999.
The Company has prepared and mailed letters to vendors and service providers to
discern their Year 2000 compliance status and testing procedures. Most of these
vendors and service providers supply raw materials and equipment to the Company.
The majority of responses have been received and no negative responses have been
received. However, many of the responses will require additional follow-up which
is to be completed by September 1999.
The Company is in the initial steps of developing contingency plans for its
mission-critical applications. The contingency plans will address (i) the
development of a contingency planning framework, including common approaches and
criteria, (ii) clear assignment of accountability for executing the contingency
planning framework, (iii) monitoring of results and (iv) testing and validation.
It is anticipated the contingency plans will enable the business to continue in
the event there are any system interruptions.
Costs Associated with Year 2000 Compliance
The incremental cost of addressing the Year 2000 issue will be substantially
absorbed in the normal budget for improvement in management information systems
and by normal costs for administrative and technical employees. The Company,
however, retains contract programmers to work on discrete projects and will
continue this practice into the foreseeable future. The incremental cost of
addressing the Year 2000 issue is estimated at $210,000 with $69,000 having been
spent as of October 31, 1998. Most of these expenditures have been for
remediation or replacement of existing systems. Management believes that the
cost of Year 2000 modifications will not have a material effect on results of
operations. The estimated cost of the Year 2000 project and the dates on which
the Company believes it will be completed are based on management's best
estimate. There can be no assurances that these estimates will not change.
Specific factors that could cause material differences with actual results
include, but are not limited to, the results of testing and the timeliness and
effectiveness of remediation efforts of third parties.
Risks Presented by Year 2000 Issues
There can be no assurance given that any or all of the Company's systems are or
will be Year 2000 compliant. A failure by the Company to resolve a material Year
2000 issue could result in an interruption in, or failure of, normal business
operations and could materially and adversely affect the Company's financial
condition. In addition, due to the uncertainties inherent in the Year 2000
problem, the Company cannot insure that its most important vendors, customers
and service providers will be Year 2000 compliant on time. The failure of
critical third parties to timely correct their Year 2000 problems could
materially and adversely affect the Company's operations and financial
condition, even resulting in an interruption in normal business operations if a
critical supplier is unable to meet commitments in a timely manner. However, as
a result of the activities described above, and assuming the remaining project
phases are completed in satisfactory manner, management believes that the Year
2000 issue will not pose significant operational problems for the Company's
computer or process systems.
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<PAGE> 29
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No.
130, "Reporting Comprehensive Income." SFAS No. 130 provides for the disclosure
of comprehensive income and its components with the same prominence as net
income, in a full set of general purpose financial statements. Comprehensive
income is defined as the change in equity of a business enterprise during a
period from transactions and other events from nonowner sources. This statement
will require additional disclosure but will not have a material impact on the
Company's financial position, results of operations or cash flows. The adoption
of SFAS No. 130 is effective for the Company in Fiscal 1999.
In June 1997, the FASB issued SFAS No. 131, "Disclosure About Segments of an
Enterprise and Related Information." SFAS No. 131 requires publicly-held
companies to report financial and other information about key revenue-producing
segments of the enterprise for which such information is available and is
utilized by the chief operating decision maker in allocating resources and
assessing performance. Specific information to be reported for individual
segments includes profit or loss, certain revenue and expense items and total
assets. A reconciliation of segment information to amounts reported in the
financial statements is also to be provided. SFAS No. 131 is effective for the
Company at the Fiscal 1999 year end, unless adopted earlier. Management of the
Company has not yet evaluated the effects of this change on its reporting
segments.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures About
Pensions and Other Postretirement Benefits - an Amendment of FASB Statements No.
87, 88 and 106." SFAS No. 132 revises disclosures about pension and other
postretirement benefit plans, but it does not change the measurement or
recognition of those plans and therefore will not have a significant impact on
the Company's financial position, results of operations or cash flows. SFAS No.
132 is effective for the Company in Fiscal 1999.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement requires companies to record
derivatives on the balance sheet as assets or liabilities, measured at fair
value. Gains or losses resulting from changes in the values of those derivatives
would be accounted for depending on the use of the derivative and whether it
qualifies for hedge accounting. SFAS No. 133 will be effective for the Company
in Fiscal 2000. Management of the Company has not yet evaluated the effects of
this statement on the Company's financial position, results of operations or
cash flows.
In March 1998, the American Institute of Certified Public Accountants (AICPA)
issued Statement of Position (SOP) 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use", which provides guidance on
accounting for the costs of computer software developed or obtained for internal
use. SOP 98-1 requires external and internal indirect costs of developing or
obtaining internal-use software to be capitalized as a long-lived asset and also
requires training costs included in the purchase price of computer software and
costs associated with research and development to be expensed as incurred. SOP
98-1 will be effective for the Company in Fiscal 1999. Management of the Company
has not yet evaluated the effects of this statement on the Company's financial
position, results of operations and cash flows.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest rate risk. The Company has exposure to interest rate changes primarily
relating to interest rate changes under its Revolving Credit Facility. The
Company's Revolving Credit Facility bears interest at rates which vary with
changes in (i) the London Interbank Offered Rate (LIBOR) or (ii) a rate of
interest announced publicly by Citibank in New York, New York. The Company does
not speculate on the future direction of interest rates. As of October 31, 1998,
approximately $94.1 million of the Company's debt bore interest at variable
rates. The Company believes that the effect, if any, of reasonably possible
near-term changes in interest rates on the Company's consolidated financial
position, results of operations or cash flows would not be significant.
-29-
<PAGE> 30
Commodity price risk. A portion of the Company's raw materials are staple goods
that are affected by commodity pricing and are, therefore, subject to price
volatility caused by weather, production problems, delivery difficulties and
other factors which are outside the control of the Company. In most cases,
essential raw materials are available from several sources. For several raw
materials, however, branded goods or other circumstances may prevent such
diversification and an interruption of the supply of these raw materials could
have a significant impact on the Company's ability to produce certain products.
The Company has established long-term relationships with key suppliers and may
enter into purchase contracts or commitments of one year or less for certain raw
materials. Such agreements generally include a pricing schedule for the period
covered by the contract or commitment. The Company believes that any changes in
commodity pricing which cannot be adjusted for by changes in its product pricing
or other strategies, would not be significant.
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<PAGE> 31
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEPENDENT AUDITORS' REPORT
JPS Textile Group, Inc.:
We have audited the accompanying consolidated balance sheets of JPS Textile
Group, Inc. and subsidiaries (the "Company") as of October 31, 1998 and November
1, 1997, and the related consolidated statements of operations, shareholders'
equity and of cash flows for the year ended October 31, 1998 and for the period
from October 10, 1997 to November 1, 1997 (Reorganized Company consolidated
operations), and the consolidated statements of operations, senior redeemable
preferred stock and shareholders' equity (deficit) and of cash flows for the
period from November 3, 1996 to October 9, 1997 and the year ended November 2,
1996 (Predecessor Company consolidated operations). Our audits also included the
financial statement schedule listed in the index at page S-1. 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 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.
As discussed in Note 1 to the consolidated financial statements, on September 9,
1997, the Bankruptcy Court entered an order confirming the Company's plan of
reorganization, which became effective after the close of business on October 9,
1997. The accompanying consolidated financial statements subsequent to October
9, 1997 were prepared in conformity with AICPA Statement of Position 90-7,
"Financial Reporting for Entities in Reorganization Under the Bankruptcy Code".
Accordingly, the Reorganized Company is a new entity with assets, liabilities,
and a capital structure having carrying values not comparable with prior periods
as described in Note 1.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company at October 31, 1998 and
November 1, 1997, and the results of its operations and its cash flows for the
year ended October 31, 1998 and the period from October 10, 1997 to November 1,
1997 (Reorganized Company) and for the period from November 3, 1996 to October
9, 1997 and the year ended November 2, 1996 (Predecessor Company) 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.
DELOITTE & TOUCHE LLP
Greenville, South Carolina
February 1, 1999
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<PAGE> 32
JPS TEXTILE GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
November 1, October 31,
1997 1998
----------- -----------
<S> <C> <C>
ASSETS (Note 7)
CURRENT ASSETS:
Cash $ 3,888 $ 1,549
Accounts receivable, less allowance of $1,053
in 1997 and $1,565 in 1998 79,569 67,949
Inventories (Notes 2 and 5) 44,770 51,542
Prepaid expenses and other (Notes 5 and 6) 37,085 4,101
Net assets held for sale (Note 4) -- 9,652
-------- --------
Total current assets 165,312 134,793
PROPERTY, PLANT AND EQUIPMENT, net 104,554 98,456
(Notes 2 and 5)
REORGANIZATION VALUE IN EXCESS
OF AMOUNTS ALLOCABLE TO IDENTIFIABLE
ASSETS, less accumulated amortization of
$164 in 1997 and $2,438 in 1998 (Notes 1, 2, and 4) 45,690 36,532
OTHER ASSETS (Note 5) 6,825 3,141
-------- --------
Total assets $322,381 $272,922
======== ========
</TABLE>
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<PAGE> 33
<TABLE>
<CAPTION>
November 1, October 31,
1997 1998
----------- -----------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 24,353 $ 22,158
Accrued interest 421 1,055
Accrued salaries, benefits and withholdings
(Note 10) 9,148 8,447
Other accrued expenses (Notes 5 and 10) 13,182 11,257
Current portion of long-term debt (Note 7) 36,076 1,047
-------- ---------
Total current liabilities 83,180 43,964
LONG-TERM DEBT (Note 7) 94,891 99,089
OTHER LONG-TERM LIABILITIES
(Notes 5, 10 and 11) 18,263 20,341
-------- ---------
Total liabilities 196,334 163,394
-------- ---------
COMMITMENTS AND CONTINGENCIES
(Notes 7 and 10)
SHAREHOLDERS' EQUITY (Note 8):
Common stock 100 100
Additional paid-in capital 123,230 123,230
Additional minimum pension liability adjustment (Note 11) -- (5,855)
Retained earnings (deficit) 2,717 (7,947)
-------- ---------
Total shareholders' equity 126,047 109,528
-------- ---------
Total liabilities and shareholders' equity $322,381 $ 272,922
======== =========
</TABLE>
See notes to consolidated financial statements.
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<PAGE> 34
JPS TEXTILE GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands Except Per Share Data)
<TABLE>
<CAPTION>
Predecessor Company Reorganized Company
---------------------------------- | ----------------------------------
Fiscal Year | Fiscal Year
Ended Period from | Period from Ended
November 2, November 3, 1996 | October 10, 1997 October 31,
1996 to October 9, 1997 | to November 1, 1997 1998
----------- ------------------ | ------------------- ------------
<S> <C> <C> | <C> <C>
Net sales $ 448,824 $ 379,643 | $ 38,728 $ 389,218
Cost of sales 397,804 327,667 | 31,058 331,473
--------- --------- | -------- ---------
Gross profit 51,020 51,976 | 7,670 57,745
Selling, general and administrative |
expenses (Note 10) 40,579 37,146 | 2,466 40,190
Other income (expense), net (Note 10) (2,498) (622) | 11 (54)
Charges for plant closing, loss |
on sale of certain operations, |
writedown of certain long-lived |
assets and restructuring |
costs (Notes 2 and 4) (30,028) 574 | -- (19,245)
--------- --------- | -------- ---------
Operating profit (loss) (22,085) 14,782 | 5,215 (1,744)
Valuation allowance on Gulistan |
securities (Note 3) (4,242) (5,070) | -- --
Interest income 2,856 2,744 | 93 1,038
Interest expense (Note 7) (40,510) (32,164) | (584) (8,592)
--------- --------- | -------- ---------
Income (loss) before reorganization |
items, income taxes, discontinued |
operations and extraordinary items (63,981) (19,708) | 4,724 (9,298)
Reorganization items (Note 1): |
Fair-value adjustments -- (4,651) | -- --
Professional fees and expenses (2,255) (8,420) | -- --
--------- --------- | -------- ---------
Income (loss) before income taxes, |
discontinued operations and |
extraordinary items (66,236) (32,779) | 4,724 (9,298)
Provision (benefit) for income |
taxes (Note 9) (300) (8,822) | 2,007 1,366
--------- --------- | -------- ---------
Income (loss) before discontinued |
operations and extraordinary |
items (65,936) (23,957) | 2,717 (10,664)
Loss on sale of discontinued |
operations, $0 taxes (Note 3) (1,500) -- | -- --
--------- --------- | -------- ---------
Income (loss) before extraordinary |
items (67,436) (23,957) | 2,717 (10,664)
</TABLE>
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<PAGE> 35
CONSOLIDATED STATEMENTS OF OPERATIONS (Continued)
<TABLE>
<CAPTION>
Predecessor Company Reorganized Company
--------------------------------- | -------------------------------------
Fiscal Year | Fiscal Year
Ended Period from | Period from Ended
November 2, November 3, 1996 | October 10, 1997 October 31,
1996 to October 9, 1997 | to November 1, 1997 1998
----------- ------------------ | ------------------- -------------
|
<S> <C> <C> | <C> <C>
Extraordinary gain on early |
extinguishment of debt, |
$0 taxes (Notes 1 and 7) -- 100,235 | -- --
----------- ---------- | ----------- ------------
Net income (loss) (67,436) 76,278 | 2,717 (10,664)
|
Senior redeemable preferred |
stock in-kind dividends |
and discount accretion 4,505 3,827 | -- --
----------- ---------- | ----------- ------------
Income (loss) applicable to |
common stock $ (71,941) $ 72,451 | $ 2,717 $ (10,664)
=========== ========== | =========== ============
Weighted average number |
of common shares |
outstanding (A) 1,000,000 1,000,000 | 10,000,000 10,000,000
=========== ========== | =========== ============
Basic and diluted earnings |
(loss) per common |
share (A): |
Income (loss) before |
discontinued operations |
and extraordinary items $ (70.44) $ (27.79) | $ 0.27 $ (1.07)
Net loss on sale of dis- |
continued operations (1.50) -- | -- --
Extraordinary gain -- 100.24 | -- --
------------ ---------- | ----------- ------------
Net income (loss) $ (71.94) $ 72.45 | $ 0.27 $ (1.07)
============ ========== | =========== ============
</TABLE>
(A) In accordance with the provisions of Statement of Financial Accounting
Standard No. 128 ("SFAS No. 128"') "Earning Per Share", the presentation
of earnings per share data for all periods presented has been restated to
conform to SFAS no. 128.
See notes to consolidated financial statements.
-35-
<PAGE> 36
JPS TEXTILE GROUP, INC.
CONSOLIDATED STATEMENTS OF SENIOR REDEEMABLE PREFERRED STOCK
AND SHAREHOLDERS' EQUITY (DEFICIT)
(In Thousands)
<TABLE>
<CAPTION>
Shareholders' Equity (Deficit)
-----------------------------------------------------------------
Senior Additional
Redeemable Junior Minimum Additional Retained
Preferred Common Preferred Pension Paid-In Earnings
Stock Stock Stock Liability Capital (Deficit)
---------- ------ --------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Predecessor Company
Balance - October 28, 1995 $ 28,171 $ 10 $ 250 $ 0 $ 29,613 $ (66,918)
Net loss for 53 weeks (67,436)
Preferred stock-in-kind dividends
and discount accretion 4,505 (4,505)
-------- ------- ----- --------- -------- ---------
Balance - November 2, 1996 32,676 10 250 0 25,108 (134,354)
Net income for the period from
November 3, 1996 to
October 9, 1997 76,278
Preferred stock-in-kind dividends
and discount accretion 3,827 (3,827)
Fresh start adjustments (36,503) 90 (250) 101,949 58,076
-------- ------- ----- --------- -------- ---------
Reorganized Company
Balance - October 9, 1997 0 100 0 0 123,230 0
Net income for the period from
October 10, 1997 to November 1,
1997 2,717
-------- ------- ----- --------- -------- ---------
Balance - November 1, 1997 0 100 0 0 123,230 2,717
Additional minimum pension liability
adjustment (5,855)
Net loss for 52 weeks (10,664)
-------- ------- ----- --------- -------- ---------
Balance - October 31, 1998 $ 0 $ 100 $ 0 $ (5,855) $123,230 $ (7,947)
======== ======= ===== ========= ======== =========
</TABLE>
See notes to consolidated financial statements.
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<PAGE> 37
JPS TEXTILE GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
<TABLE>
<CAPTION>
Predecessor Company Reorganized Company
---------------------------------- | -----------------------------------
Fiscal Year | Fiscal Year
Ended Period from | Period from Ended
November 2, November 3, 1996 | October 10, 1997 October 31,
1996 to October 9, 1997 | to November 1, 1997 1998
------------ ------------------ | ------------------- -----------
<S> <C> <C> | <C> <C>
CASH FLOWS FROM |
OPERATING ACTIVITIES |
Net income (loss) $ (67,436) $ 76,278 | $ 2,717 $(10,664)
--------- -------- | -------- --------
Adjustments to reconcile net |
income (loss) to net cash |
provided by (used in) operating |
activities: |
Charges for plant closing, |
loss on sale of certain |
operations, writedown of |
certain long-lived assets and |
restructuring costs 30,028 (574) | -- 19,245
Loss on sale of |
discontinued operations 1,500 -- | -- --
Extraordinary gain on |
early extinguishment of debt -- (100,235) | -- --
Depreciation and amortization, |
except amounts included |
in interest expense 22,739 17,880 | 846 12,462
Interest accretion and debt |
issuance cost amortization 10,088 7,303 | 20 329
Reorganization charges -- 5,581 | -- --
Tax benefit from reduction |
of valuation allowance -- (9,745) | -- --
Deferred income tax |
provision (benefit) (500) -- | 1,256 (817)
Valuation allowance on |
Gulistan securities 4,242 5,070 | -- --
Other, net (3,163) (3,229) | (295) (2,294)
Changes in assets and liabilities: |
Accounts receivable 10,372 10,599 | (15,002) 11,620
Inventories (2,635) (6,920) | 9,664 (9,884)
Prepaid expenses and other |
assets (2,348) (18,565) | 816 (123)
Accounts payable (3,983) 1,243 | (1,599) (1,419)
Accrued expenses and other |
liabilities (1,688) 15,432 | 650 (2,777)
--------- -------- | -------- --------
Total adjustments 64,652 (76,160) | (3,644) 26,342
--------- -------- | -------- --------
Net cash provided by (used in) |
operating activities (2,784) 118 | (927) 15,678
--------- -------- | -------- --------
</TABLE>
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<PAGE> 38
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
<TABLE>
<CAPTION>
Predecessor Company Reorganized Company
-------------------------------- | ---------------------------------
Fiscal | Fiscal
Year Ended Period from | Period from Year Ended
November 2, November 3, 1996 | October 10, 1997 October 31,
1996 to October 9,1997 | to November 1, 1997 1998
---------- ----------------- | ------------------- ----------
<S> <C> <C> | <C> <C>
CASH FLOWS FROM |
INVESTING ACTIVITIES |
Property and equipment additions (9,834) (14,467) | (1,618) (22,423)
Proceeds from sale of |
discontinued operations, net 17,077 -- | -- --
Proceeds from sale of certain |
operations 5,113 988 | -- --
Proceeds from sale of long-term |
investments -- 49,500 | -- 35,382
Purchase of investments -- (33,500) | -- --
-------- -------- | ------- --------
Net cash provided by (used in) |
investing activities 12,356 2,521 | (1,618) 12,959
-------- -------- | ------- --------
|
CASH FLOWS FROM |
FINANCING ACTIVITIES |
Financing costs incurred (614) (1,465) | (66) (146)
Proceeds from issuance of |
long-term debt 29 -- | -- --
Revolving credit facility |
borrowings (repayments), net (6,087) 3,361 | 3,245 1,849
Purchases and repayment of other |
long-term debt, net (2,792) (2,655) | (86) (32,679)
-------- -------- | ------- --------
Net cash provided by (used in) |
financing activities (9,464) (759) | 3,093 (30,976)
-------- -------- | ------- --------
|
NET INCREASE (DECREASE) |
IN CASH 108 1,880 | 548 (2,339)
Cash at beginning of period 1,352 1,460 | 3,340 3,888
-------- -------- | ------- --------
Cash at end of period $ 1,460 $ 3,340 | $ 3,888 $ 1,549
======== ======== | ======= ========
|
SUPPLEMENTAL INFORMATION |
ON CASH FLOWS FROM |
CONTINUING OPERATIONS: |
Interest paid $ 30,709 $ 7,944 | $ 24 $ 7,629
Income taxes paid (received), net 693 (46) | (8) 1,044
Non-cash financing activities: |
Capital lease obligation -- -- | -- 3,519
Senior redeemable preferred |
stock dividends-in-kind 3,114 -- | -- --
</TABLE>
See notes to consolidated financial statements.
-38-
<PAGE> 39
JPS TEXTILE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND BASIS OF PRESENTATION
Unless the context otherwise requires, the terms "JPS" and the
"Company" as used in these Consolidated Financial Statements mean JPS
Textile Group, Inc. and JPS Textile Group, Inc. together with its
subsidiaries, respectively.
The 1988 Acquisition - JPS purchased from J.P. Stevens & Co., Inc.
("J.P. Stevens") substantially all of the property, plant and
equipment, inventories, certain other assets and the business of five
former divisions of J.P. Stevens (the "Predecessor Stevens Divisions")
on May 9, 1988 (the "Acquisition"). The purchase was financed through
long-term borrowings and the sale of preferred and common stock. The
Company operates principally as a manufacturer of industrial products,
apparel fabrics and home fashion textiles. These products are sold
primarily to the athletic, automotive, medical, construction,
electrical, filtration, recreational, composite, defense, aerospace,
environmental and domestic clothing industries. As described in Notes 3
and 4, certain of the acquired businesses and operations have been
subsequently sold.
The 1991 Restructuring - In 1990, JPS negotiated the terms of a
recapitalization proposal with a steering committee comprised of
institutional holders of a substantial amount of the then-outstanding
securities, which culminated in JPS's prepetition solicitation of votes
to accept or reject a chapter 11 plan of reorganization. The plan was
overwhelmingly accepted. On February 7, 1991, JPS filed a petition for
relief under the Bankruptcy Code, and approximately 42 days thereafter,
JPS's plan was confirmed by the bankruptcy court and JPS emerged from
chapter 11 on April 2, 1991. Pursuant to that plan, in exchange for
JPS's outstanding debt securities and JPS's equity securities, JPS
issued (i) $100 million in principal amount of senior secured notes due
June 1, 1995 and June 1, 1996 (all of which were redeemed in 1994),
(ii) $151.1 million in principal amount of 10.85% Senior Subordinated
Discount Notes due June 1, 1999 (the "10.85% Notes"), (iii) $125
million in principal amount of 10.25% Senior Subordinated Notes due
June 1, 1999 (the "10.25% Notes"), (iv) $75 million in principal amount
of 7% Subordinated Debentures due May 15, 2000 (the "7% Subordinated
Debentures"), (v) 390,719 shares of Series A Senior Preferred Stock
(the "Old Senior Preferred Stock"), (vi) 10,000 shares of Series B
Junior Preferred Stock (the "Old Junior Preferred Stock"), (vii)
490,000 shares of class A common stock, par value $0.01 per share (the
"Class A Common Stock") and (viii) 510,000 shares of class B common
stock, par value $0.01 per share (the "Class B Common Stock" and,
together with the Class A Common Stock, the "Old Common Stock"). Since
this reorganization did not meet the criteria for "fresh-start"
accounting, the primary adjustment to historical carrying values as a
result of the reorganization was to state the new long-term debt and
senior redeemable preferred stock at present values of amounts to be
paid determined at appropriate current interest rates as of April 2,
1991, the effective date of the plan. The resulting present value
discount was amortized as interest expense or dividends over the life
of the related debt or senior redeemable preferred stock instrument
using the interest method.
The 1997 Restructuring - In 1996, JPS and JPS Capital Corp., a
wholly-owned subsidiary of JPS ("JPS Capital") commenced negotiations
with an unofficial committee (the "Unofficial Bondholder Committee")
comprised of institutions that owned, or represented holders that
beneficially owned, approximately 60% of the 10.85% Notes, the 10.25%
Notes and the 7% Subordinated Debentures (the "Old Debt Securities").
On May 15, 1997, the parties reached an agreement in principle on the
terms of a restructuring to be accomplished under chapter 11 of the
Bankruptcy Code which culminated in a
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<PAGE> 40
Joint Plan of Reorganization (as amended the "Plan of Reorganization")
proposed by JPS and JPS Capital under the Bankruptcy Code. Pursuant to
a disclosure statement, dated June 25, 1997 (the "Disclosure
Statement"), on June 26, 1997, JPS and JPS Capital commenced a
prepetition solicitation of votes by the holders of Old Debt Securities
and Old Senior Preferred Stock to accept or reject the Plan of
Reorganization. Under the Plan of Reorganization, the holders of Old
Debt Securities and Old Senior Preferred Stock were the only holders of
impaired claims and impaired equity interests entitled to receive a
distribution, and therefore, pursuant to section 1126 of the Bankruptcy
Code, were the only holders entitled to vote on the Plan of
Reorganization. At the conclusion of the 32-day solicitation period,
the Plan of Reorganization had been accepted by holders of more than
99% of the Old Debt Securities that voted on the Plan of Reorganization
and by holders of 100% of the Old Senior Preferred Stock that voted on
the Plan of Reorganization.
On August 1, 1997, JPS commenced its voluntary reorganization case
under chapter 11 of the Bankruptcy Code in the United States Bankruptcy
Court for the Southern District of New York (the "Bankruptcy Court"),
and filed the Plan of Reorganization and the Disclosure Statement. None
of JPS's subsidiaries, including JPS Capital which was a co-proponent
of the Plan of Reorganization, commenced a case under the Bankruptcy
Code. Pursuant to orders of the Bankruptcy Court entered on September
9, 1997, the Bankruptcy Court (i) approved the Disclosure Statement and
the solicitation of votes on the Plan of Reorganization and (ii)
confirmed the Plan of Reorganization. The Plan of Reorganization became
effective on October 9, 1997 (the "Effective Date") resulting in, among
other things, the cancellation of the Old Senior Preferred Stock, Old
Junior Preferred Stock, and Old Common Stock, and the issuance of 10
million shares of $.01 par value new common stock (the "Common Stock").
Through the implementation of the Plan of Reorganization as of the
Effective Date, JPS's most significant financial obligations were
restructured: $240,091,318 in face amount of outstanding Old Debt
Securities were exchanged for, among other things, $14 million in cash,
99.25% of the shares of Common Stock and approximately $34 million in
aggregate principal amount (subject to adjustment on the maturity date)
of contingent payment notes issued by JPS Capital (the "Contingent
Notes"); the Old Senior Preferred Stock, the Old Junior Preferred Stock
and the Old Common Stock were canceled; warrants to purchase up to 5%
of the common stock of JPS (the "New Warrants") with an initial
purchase price of $98.76 per share were issued in respect of the Old
Senior Preferred Stock; and the obligations of JPS under its former
working capital facility were satisfied and the Revolving Credit
Facility was obtained. JPS's senior management received approximately
0.75% of the Common Stock in lieu of payment under their contractual
retention bonus agreements. In August 1998, the Company reduced its
long-term debt and related investments by repaying all of the
approximately $34 million in principal amount of JPS Capital's
Contingent Notes.
The Plan of Reorganization was accounted for pursuant to Statement of
Position 90-7 ("SOP 90-7") of the American Institute of Certified
Public Accountants, entitled "Financial Reporting by Entities in
Reorganization under the Bankruptcy Code." The accompanying
consolidated financial statements reflect the use of "fresh start"
reporting as required by SOP 90-7, in which assets and liabilities were
adjusted to their fair values and resulted in the creation of a new
reporting entity (the "Company" or the "Reorganized Company") with no
retained earnings or accumulated deficit as of October 9, 1997.
Accordingly, the consolidated financial statements for the periods
prior to October 9, 1997 (the "Predecessor Company") are not comparable
to consolidated financial statements presented subsequent to October 9,
1997. A black line has been drawn on the accompanying consolidated
financial statements and notes thereto to distinguish between the
Reorganized Company and Predecessor Company balances.
The total reorganization value assigned to the Company's assets was
determined, by independent valuation, by calculating projected cash
flows before debt service requirements, for a three-year period, plus
an estimated terminal value of the Company (calculated using a multiple
of projected EBITDA),
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<PAGE> 41
each discounted back to its present value using a discount rate of 10%
(estimating the after-tax weighted average cost of capital). The above
calculations resulted in an estimated reorganization value attributable
to the common stock of approximately $123.3 million of which the Excess
Reorganization Value was approximately $45.9 million. The Excess
Reorganization Value is being amortized over twenty years.
As a result of the restructuring and the application of fresh start
accounting as required by SOP 90-7, a gain on early extinguishment of
debt of approximately $100.2 million and reorganization items of
approximately $13.1 million were recorded in the Predecessor Company
period ending October 9, 1997.
2. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation - The consolidated financial statements
include JPS Textile Group, Inc. and its direct subsidiaries, all of
which are wholly owned. Significant intercompany transactions and
accounts have been eliminated.
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.
The Company's most significant financial statement estimates include
the estimate of the allowance for doubtful accounts, reserve for
self-insurance liabilities, and the reserve for roofing products sold
under warranties, including those sold by the Predecessor Stevens
Division operations (discussed in Note 10). Management determines its
estimate of the allowance for doubtful accounts considering a number of
factors, including historical experience, aging of the accounts and the
current creditworthiness of its customers. The Company self-insures,
with various insured stop-loss limitations, its workers' compensation,
general liability and health claims. Management determines its estimate
of the reserve for self-insurance considering a number of factors,
including historical experience and third party claims administrator
and actuarial assessment of the liabilities for reported claims and
claims incurred but not reported. Management believes that its
estimates provided in the financial statements, including those for the
above-described items, are reasonable and adequate. However, actual
results could differ from those estimates.
Inventories - Inventories are stated at the lower of cost or market.
Cost, which includes labor, material and factory overhead, is
determined on the first-in, first-out basis.
Investments - At November 1, 1997, all debt and equity securities are
classified as held-for-sale and reported at fair value as determined
based on market prices or dealer quotes. In August 1998, all debt and
equity securities were sold and the proceeds were used to repay all of
the approximately $34 million in principal amount of the Contingent
Notes plus accrued interest.
Property, Plant and Equipment - As a result of the adoption of fresh
start accounting as described in Note 1, property, plant and equipment
was adjusted to estimated fair value as of October 9, 1997 and
historical accumulated depreciation was eliminated. Property, plant and
equipment is recorded at cost and depreciation is recorded using the
straight-line method for financial reporting purposes. The estimated
useful lives used in the computation of depreciation are as follows:
<TABLE>
<S> <C>
Land improvements 10 to 45 years
Buildings and improvements 25 to 45 years
Machinery and equipment 3 to 15 years
Furniture, fixtures and other 5 to 10 years
</TABLE>
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<PAGE> 42
Capital Leases - Assets under capital leases are amortized in
accordance with the Company's normal depreciation policy and the charge
to earnings is included in depreciation expense in the accompanying
consolidated financial statements.
Reorganization Value in Excess of Amounts Allocable to Identifiable
Assets - Reorganization value in excess of amounts allocable to
identifiable assets results from the application of "fresh start"
reporting, as discussed in Note 1, which requires the Predecessor
Company's unidentified intangibles, net of amortization, to be reduced
to zero and a new amount to be recorded equaling the excess of the fair
value of the Company over the fair value allocated to its identifiable
assets. This excess is classified as reorganization value in excess of
amounts allocable to identifiable assets and is being amortized over a
twenty-year period. In Fiscal 1998, the Company wrote off approximately
$6.9 million of the reorganization value in excess of amounts which was
allocable to identifiable assets in relation to the plant sale and
plant closure discussed in Note 4.
Debt Issuance Costs - Costs incurred in securing and issuing long-term
debt are deferred and amortized over the terms of the related debt in
amounts which approximate the interest method of amortization.
Product Warranties - On certain of its products, the Company provides a
warranty against defects in materials and workmanship under separately
priced extended warranty contracts generally for a period of ten years.
Revenue from such extended warranty contracts is deferred and
recognized as income on a straight-line basis over the contract period.
The cost of servicing such product warranties is charged to expense as
incurred.
Postretirement Benefits - The Company accounts for postretirement
benefits other than pensions using the principles of Statement of
Financial Accounting Standards ("SFAS") No. 106, "Employers' Accounting
for Postretirement Benefits Other Than Pensions". SFAS No. 106 requires
that the projected future cost of providing postretirement benefits,
such as health care and life insurance, be recognized as an expense as
employees render service. See Note 11 for a further description of the
accounting for postretirement benefits.
Postemployment Benefits - The Company accounts for postemployment
benefits using the principles of SFAS No. 112, "Employers' Accounting
for Postemployment Benefits". SFAS No. 112 requires that the cost of
benefits provided to former or inactive employees after employment but
before retirement be recognized on the accrual basis of accounting. See
Note 11 for a further description of the accounting for postemployment
benefits.
Fair Value of Financial Instruments - The carrying amounts of all
financial instruments approximate their estimated fair values in the
accompanying Balance Sheets. The carrying amounts of cash, accounts
receivable, accounts payable and accrued expenses approximate fair
value because of the short maturity of these items. The carrying value
of debt issued pursuant to the Company's senior credit facility
approximates fair value because interest rates on these instruments
change with market rates. The carrying value of other debt instruments,
including capital lease obligations, approximate fair value because
interest rates on such debt approximates rates that are currently
available to the Company for issuance of debt with similar terms and
remaining maturities.
Revenue Recognition - The Company recognizes revenue from product sales
when it has shipped the goods or ownership has been transferred to the
customer for goods to be held for future shipment at the customer's
request.
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<PAGE> 43
Advertising Costs - The Company defers advertising related costs until
the advertising is first run in magazines or other publications or in
the case of brochures, until the brochures are printed and available
for distribution. Advertising costs expensed were approximately
$1,967,000 in Fiscal 1996, $1,947,000 and $122,000 in the period from
November 3, 1996 to October 9, 1997 and the period from October 10,
1997 to November 1, 1997, respectively, and $1,581,000 in Fiscal 1998.
Income Taxes - The Company accounts for income taxes using the
principles of SFAS No. 109, "Accounting for Income Taxes". Under SFAS
No. 109, deferred taxes represent the future income tax effect of
temporary differences between the book and tax bases of the Company's
assets and liabilities, assuming they will be realized and settled at
the amount reported in the Company's financial statements.
Earnings Per Share - In 1997, the Financial Accounting Standards Board
(FASB) issued SFAS No. 128, "Earnings Per Share." SFAS No. 128 replaced
the previously required primary and fully diluted earnings per share
with basic and diluted earnings per share. Basic earnings per share is
computed using the weighted average number of common shares. Diluted
earnings per share is computed using the weighted average number of
common shares and potentially dilutive common shares outstanding during
the period. Potentially dilutive common shares consist primarily of
stock options and warrants. In the period from October 10, 1997 to
November 1, 1997 and the year ended October 31, 1998, the inclusion of
additional shares assuming the exercise of stock options and warrants
are antidilutive. Therefore, basic and diluted earnings per share are
the same. All earnings per share amounts for all periods have been
presented, and where necessary, restated to conform to SFAS No. 128
requirements.
Cash Flows - For purposes of reporting cash flows, cash includes cash
on hand and in banks. The Company has no investments that are deemed to
be cash equivalents.
Effects of Recent Accounting Pronouncements - In June 1997, the FASB
issued SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130
provides for the disclosure of comprehensive income and its components,
with the same prominence as net income in a full set of general purpose
financial statements. Comprehensive income is defined as the change in
equity of a business enterprise during a period from transactions and
other events from nonowner sources. This statement will require
additional disclosure but will not have a material impact on the
Company's financial position, results of operations or cash flows. The
adoption of SFAS No. 130 is effective for the Company in Fiscal 1999.
In June 1997, the FASB issued SFAS No. 131, "Disclosure About Segments
of an Enterprise and Related Information." SFAS No. 131 requires
publicly-held companies to report financial and other information about
key revenue-producing segments of the enterprise for which such
information is available and is utilized by the chief operating
decision maker in allocating resources and assessing performance.
Specific information to be reported for individual segments includes
profit or loss, certain revenue and expense items and total assets. A
reconciliation of segment information to amounts reported in the
financial statements is also to be provided. SFAS No. 131 is effective
for the Company at the Fiscal 1999 year end, unless adopted earlier.
Management of the Company has not yet evaluated the effects of this
change on its reporting segments.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
About Pensions and Other Postretirement Benefits - an Amendment of FASB
Statements No. 87, 88 and 106." SFAS No. 132 revises disclosures about
pension and other postretirement benefit plans, but it does not change
the measurement or recognition of those plans and therefore will not
have a significant impact on the Company's financial position, results
of operations or cash flows. SFAS No. 132 is effective for the Company
in Fiscal 1999.
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<PAGE> 44
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement requires companies
to record derivatives on the balance sheet as assets or liabilities,
measured at fair value. Gains or losses resulting from changes in the
values of those derivatives would be accounted for depending on the use
of the derivative and whether it qualifies for hedge accounting. SFAS
No. 133 will be effective for the Company in Fiscal 2000. Management of
the Company has not yet evaluated the effects of this statement on the
Company's financial position, results of operations or cash flows.
In March 1998, the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position (SOP) 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use",
which provides guidance on accounting for the costs of computer
software developed or obtained for internal use. SOP 98-1 requires
external and internal indirect costs of developing or obtaining
internal-use software to be capitalized as a long-lived asset and also
requires training costs included in the purchase price of computer
software and costs associated with research and development to be
expensed as incurred. SOP 98-1 will be effective for the Company in
Fiscal 1999. Management of the Company has not yet evaluated the
effects of this statement on the Company's financial position, results
of operations and cash flows.
Fiscal Year - The Company's operations are based on a fifty-two or
fifty-three week fiscal year ending on the Saturday closest to October
31. Fiscal 1996 had fifty-three weeks. The 1997 fiscal year consisted
of fifty-two weeks including the period from November 3, 1996 to
October 9, 1997 (Predecessor Company) and the period from October 10,
1997 to November 1, 1997 (Reorganized Company). Fiscal 1998 had
fifty-two weeks.
Reclassifications - Certain Fiscal 1996 and 1997 amounts have been
reclassified to conform to the 1998 presentation.
3. SALE OF DISCONTINUED OPERATIONS
Carpet Business - On November 16, 1995, pursuant to the terms of an
Asset Transfer Agreement dated as of November 16, 1995, by and among
JPS, JPS Carpet Corp. ("Carpet"), a wholly-owned subsidiary of JPS,
Gulistan Holdings Inc. and Gulistan Carpet Inc., a wholly-owned
subsidiary of Gulistan Holdings Inc. (collectively, "Gulistan"), the
Company and Carpet consummated the sale of substantially all of the
assets of Carpet used in the business of designing and manufacturing
tufted carpets for sale to residential, commercial and hospitality
markets (the "Carpet Business").
The consideration for the sale of the Carpet Business consisted of
approximately $22.5 million in cash, subject to certain post-closing
adjustments based on the audited amount of working capital transferred
on November 16, 1995, and other debt and equity securities of Gulistan
as follows: a $10 million Promissory Note due in November 2001, $5
million of preferred stock redeemable in November 2005, and warrants to
purchase 25% of the common stock of Gulistan. Based on an independent
valuation at the asset transfer date, the Company determined the fair
value of these debt and equity securities to be approximately $11.3
million. In addition, certain post-closing adjustments, which resulted
in a loss of $1.5 million, were recognized in Fiscal 1996 on the sale
of discontinued operations.
The Company did not record interest income on any of the Gulistan
securities held by the Company because of net losses reported by
Gulistan since the date of sale. Also, in accordance with relevant
accounting literature, the Company recorded a valuation allowance
against its investment in Gulistan securities and corresponding charges
to income of approximately $4.2 million in Fiscal 1996 and $2.1 million
in the period from November 3, 1996 to October 9, 1997 as a result of
the net losses incurred
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<PAGE> 45
by Gulistan. On August 28, 1997, the Company sold its investment in the
Gulistan securities to Gulistan for $2.0 million in cash resulting in
an additional charge of approximately $3.0 million.
Automotive Businesses - On June 28, 1994, the Company sold the business
and assets of JPS Auto, Inc. ("Auto") and the synthetic industrial
fabrics division of JPS Converter and Industrial Corp., a wholly owned
subsidiary of JPS ("C&I"), and JPS' investment in common stock of
Cramerton Automotive Products, L.P. (an 80% owned joint venture) for
approximately $283 million.
4. SALE OF CERTAIN OPERATIONS, PLANT CLOSING, WRITEDOWN OF CERTAIN LONG-
LIVED ASSETS AND RESTRUCTURING COSTS
Pursuant to an Asset Purchase Agreement dated September 30, 1996
between JPS Elastomerics Corp. ("Elastomerics"), a wholly-owned
subsidiary of the Company, and Elastomer Technologies Group, Inc.
("Elastomer") and a Receivables Purchase Agreement dated September 30,
1996 between Elastomerics and the Bank of New York Commercial
Corporation, Elastomerics sold substantially all the assets of its
rubber products division, a business engaged in the manufacture and
sale of natural and synthetic elastic for use in apparel products,
diaper products and specialty industrial applications (the "Rubber
Products Business"). The Rubber Products Business had accounted for
sales of $16.8 million in Fiscal 1996 (eleven months). Under the terms
of the agreement, Elastomer agreed to assume substantially all the
liabilities and obligations associated with the Rubber Products
Business. The Company and its subsidiaries agreed not to compete
directly or indirectly with the business that was sold for a period of
two years. The consideration for the Rubber Products Business consisted
of approximately $5.1 million in cash, subject to certain post-closing
adjustments based on the audited amount of working capital transferred
on the closing date, and resulted in a loss of approximately $7.7
million. This loss on sale was charged to operations in Fiscal 1996.
The net proceeds from the sale, after fees and expenses, was
approximately $4.8 million and was used to reduce the Company's
outstanding indebtedness. In April 1997, the Company paid $0.3 million
to Elastomer as final settlement for certain post-closing adjustments
based on the audited amount of net assets transferred.
On August 28, 1996, the Company implemented a plan to close its Dunean
plant in Greenville, South Carolina, as a result of management's
determination that a permanent decline in the Company's spun apparel
business had occurred. This plant had been operating on a reduced
schedule due to poor market conditions and financial projections
indicated it would continue to do so. As a result of the plant closing,
the accompanying Consolidated Statement of Operations includes a
"charge for plant closing" of approximately $14.2 million for Fiscal
1996 related principally to the estimated loss on the impairment of
long-lived assets in accordance with SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of", and employee severance costs. The plant closing was
completed on October 28, 1996 and the plant was sold on August 14, 1997
for approximately $1.2 million in cash.
Also in 1996, in connection with the Company's review of present and
expected conditions in the markets it serves, management determined
that its plant in Kingsport, Tennessee, which manufactures cotton
fabrics, was impaired under the criteria of SFAS No. 121 because
expected future cash flows from the operation of the plant were less
than the carrying value of the plant assets. The accompanying
Consolidated Statement of Operations for Fiscal 1996 includes a
"writedown of certain long-lived assets" of $8.1 million for the excess
of the carrying value of the plant over its estimated fair value.
Estimated fair value was determined based on an independent appraisal
of the plant's property, plant and equipment.
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<PAGE> 46
Pursuant to an Asset Purchase Agreement dated as of January 11, 1999,
as amended, between C&I and Belding Hausman Incorporated, C&I agreed to
sell substantially all the assets of its Boger City Plant located in
Lincolnton, North Carolina. This plant is primarily engaged in the
manufacture and sale of home fashion textiles and accounted for sales
of approximately $33.6 million, $30.9 million and $22.8 million in
Fiscal 1996, 1997 and 1998, respectively. The consideration for the
sale will consist of approximately $7.9 million in cash, subject to a
post-closing adjustment based upon the amount of inventories
transferred. The cash proceeds will be used by the Company to reduce
outstanding borrowings under its credit facility and certain equipment
loans. In accordance with SFAS No. 121, the accompanying Fiscal 1998
Consolidated Statement of Operations includes a "charge for writedown
of certain long-lived assets" of approximately $12.5 million
representing the loss on impairment of assets (approximately $7.2
million) for the excess of the carrying value of the plant over its net
realizable value and the writeoff of approximately $5.3 million of
related reorganization value in excess of amounts allocable to
identifiable assets. This transaction is expected to close early in the
Company's second fiscal quarter of Fiscal 1999.
On February 10, 1999, the Company announced that it would close its
Angle Plant located in Rocky Mount, Virginia, as a result of the
Company's assessment of the market conditions for apparel products
constructed primarily of filament yarns. As a result of this decision,
the accompanying Fiscal 1998 Consolidated Statement of Operations
includes a "charge for writedown of certain long-lived assets" of
approximately $4.3 million representing the loss on impairment of
assets (approximately $2.7 million) for the excess of the carrying
value of the plant over its estimated net realizable value (as
determined by independent appraisal or quoted prices from used
equipment dealers) and the writeoff of approximately $1.6 million of
related reorganization value in excess of amounts allocable to
identifiable assets in accordance with SFAS No. 121. This plant closing
is expected to be completed by the end of the Company's Fiscal 1999
third fiscal quarter. The Company expects to incur approximately $1.4
million in plant closing costs in Fiscal 1999 related principally to
employee severance and plant run-out costs.
In Fiscal 1998, the Company implemented certain cost reduction measures
which included personnel reductions and the idling of certain
manufacturing equipment. The accompanying Fiscal 1998 Consolidated
Statement of Operations includes a "charge for writedown of certain
long-lived assets" of approximately $1.7 million for the impairment of
idled assets and a "charge for restructuring costs" of approximately
$0.7 million related to employee severance costs.
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<PAGE> 47
5. BALANCE SHEET COMPONENTS
The components of certain balance sheet accounts are (in thousands):
<TABLE>
<CAPTION>
November 1, October 31,
1997 1998
---------- ----------
<S> <C> <C>
Inventories:
Raw materials and supplies $ 12,508 $ 10,382
Work-in-process 17,168 16,690
Finished goods 15,094 24,470
--------- ---------
$ 44,770 $ 51,542
========= =========
Prepaid expenses and other:
Investments $ 34,597
Deferred current tax 867 $ 1,509
Prepaid insurance 555 883
Other 1,066 1,709
--------- ---------
$ 37,085 $ 4,101
========= =========
Property, plant and equipment, net:
Land and improvements $ 4,187 $ 3,667
Buildings and improvements 13,548 12,818
Machinery and equipment 81,108 87,774
Furniture, fixtures and other 1,069 1,355
--------- ---------
99,912 105,614
Less accumulated depreciation (681) (8,692)
--------- ---------
99,231 96,922
Construction in progress 5,323 1,534
--------- ---------
$ 104,554 $ 98,456
========= =========
Other noncurrent assets:
Unamortized debt issuance costs $ 1,438 $ 1,255
Prepaid pension costs 2,043 --
Deferred income tax 3,344 1,886
--------- ---------
$ 6,825 $ 3,141
========= =========
Other accrued expenses:
Roofing product liability costs $ 1,500 $ 2,000
Taxes payable other than income taxes 1,090 1,356
Income taxes 3,292 2,813
Other 7,300 5,088
--------- ---------
$ 13,182 $ 11,257
========= =========
Other long-term liabilities:
Roofing product liability costs and deferred warranty income $ 14,744 $ 14,974
Accrued pension costs -- 2,036
Accrued postretirement benefit plan liability 3,393 3,331
Other 126 --
--------- ---------
$ 18,263 $ 20,341
========= =========
</TABLE>
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<PAGE> 48
6. INVESTMENTS
In connection with the sale of the Automotive Assets in June 1994, the
Company invested $39.5 million of the sale proceeds in long-term
securities. During 1997, the original investments matured and were
reinvested as detailed below. As of November 1, 1997, all investment
securities had a contractual maturity of less than one year. During
1998, these long-term securities were sold and the proceeds were used
to repay all of the approximately $34 million in principal amount plus
accrued interest of the Company's Contingent Notes. The following table
details the adjusted cost and fair value of the reinvested amounts at
November 1, 1997 (in thousands):
<TABLE>
<CAPTION>
Adjusted Cost
Held for Sale: and Fair Value
-------------- --------------
<S> <C>
U.S. Treasury obligations $ 28,553
Corporate obligations 5,938
Other 106
-----------
$ 34,597
===========
</TABLE>
7. LONG-TERM DEBT
Long-term debt consists of (in thousands):
<TABLE>
<CAPTION>
November 1, October 31,
1997 1998
---------- ----------
<S> <C> <C>
Senior credit facility, revolving line of credit $ 92,246 $ 94,095
Contingent Notes 34,540 --
Equipment financing 4,181 2,645
Capital lease obligation -- 3,396
--------- ---------
Total 130,967 100,136
Less current portion (36,076) (1,047)
--------- ---------
Long-term portion $ 94,891 $ 99,089
========= =========
</TABLE>
Senior Credit Facility - On October 9, 1997, Elastomerics and C&I (the
"Borrowing Subsidiaries") and JPS entered into the Credit Facility
Agreement, (the "Credit Agreement"), by and among the financial
institutions party thereto, Citibank, as agent, and NationsBank, N.A.,
as co-agent. The Credit Agreement provides for a revolving credit loan
facility and letters of credit (the "Revolving Credit Facility") in a
maximum principal amount equal to the lesser of (a) $135 million and
(b) a specified borrowing base (the "Borrowing Base"), which is based
upon eligible receivables, eligible inventory and a specified dollar
amount (currently $52,000,000 (subject to reduction) based on fixed
assets of the Borrowing Subsidiaries), except that (i) no Borrowing
Subsidiary may borrow an amount greater than the Borrowing Base
attributable to it (less any reserves as specified in the Credit
Agreement) and (ii) letters of credit may not exceed $20 million in the
aggregate. The Credit Agreement contains restrictions on investments,
acquisitions and dividends unless, among other things, the Company
satisfies a specified pro forma fixed charge coverage ratio and
maintains a specified minimum availability under the Revolving Credit
Facility for a stated period of time, and no default exists under the
Credit Agreement. The Credit Agreement also restricts, among other
things, indebtedness, liens, affiliate transactions, operating leases,
fundamental changes and asset sales other than the sale of up to $35
million of fixed assets, subject to the satisfaction of certain
conditions. The Credit Agreement contains financial covenants relating
to minimum levels of EBITDA, minimum interest coverage ratio, minimum
fixed charge coverage ratio and maximum capital expenditures. The
maturity date of the Revolving Credit Facility is October 9, 2002. On
October 30, 1998, the Credit Agreement was amended to, among other
things (i) modify the financial covenants relating to minimum levels of
EBITDA, minimum interest
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<PAGE> 49
coverage ratio, minimum fixed charge coverage ratio and maximum capital
expenditures, (ii) modify the interest rate margin and unused
commitment fees and (iii) provide additional reduction of the fixed
asset portion of the Borrowing Base. As of October 31, 1998, the
Company was in compliance with these restrictions and all financial
covenants, as amended. All loans outstanding under the Revolving Credit
Facility, as amended, bear interest at either the Eurodollar Rate (as
defined in the Credit Agreement) or the Base Rate (as defined in the
Credit Agreement) plus an applicable margin (the "Applicable Margin")
based upon the Company's fixed charge coverage ratio (which margin will
not exceed 2.50% for Eurodollar Rate borrowings and .25% for Base Rate
borrowings). The weighted average interest rate at October 31, 1998 is
approximately 6.9%. The Company pays a fee of .25% per annum if a
specified fixed charge coverage ratio is satisfied and a letter of
credit fee equal to the Applicable Margin for Eurodollar Rate
borrowings. Borrowings under the Revolving Credit Facility are made or
repaid on a daily basis in amounts equal to the net cash requirements
or proceeds for that business day. As of October 31, 1998, unused and
outstanding letters of credit totaled $1,526,000. The outstanding
letters of credit reduce the funds available under the Revolving Credit
Facility. At October 31, 1998, the Company had approximately $38.3
million available for borrowing under the Revolving Credit Facility.
The loans and extensions of credit to the Borrowing Subsidiaries under
the Credit Agreement are guaranteed by JPS and its other existing
subsidiaries other than JPS Capital, and are secured by the assets of
JPS (excluding the stock of JPS Capital) and its existing subsidiaries
other than JPS Capital.
Contingent Notes - As discussed in Note 1, on the Effective Date, under
the terms of the Plan of Reorganization, JPS Capital, the Company and
First Trust National Association, as trustee, entered into an
indenture, dated as of the Effective Date (the "Contingent Note
Indenture"), pursuant to which JPS Capital issued the Contingent Notes
in an initial principal amount of approximately $34 million. On August
31, 1998, the Company repaid the approximately $34 million in principal
amount of Contingent Notes plus accrued interest with the proceeds from
the sale of related investments discussed in Note 6. Accordingly, the
Company has no further obligation under the Contingent Note Indenture.
Equipment Financing - The Company has financed a portion of its
equipment purchases with loans from a finance company and certain
equipment vendors at fixed interest rates ranging from 7.6% to 9.7%.
Monthly principal payments are due in various amounts as determined by
the terms of the loans which have final maturity dates through December
2001.
Capital Lease Obligation - In Fiscal 1998, the Company entered into a
seven-year lease agreement (classified as a capital lease) for certain
machinery and equipment. The total cost of the assets to be covered by
the lease is limited to approximately $5.0 million. The total costs of
assets under lease at October 31, 1998 was approximately $3.5 million.
The lease provides for an early buyout option at the end of six years
and includes purchase and renewal options at the end of the lease term.
The lease has an implied interest rate of approximately 7.4%. See Note
10 for obligations under capital leases.
Other - Substantially all of the Company's assets are pledged as
collateral for the Credit Agreement and the equipment financing.
Interest expense includes $10,088,000 in Fiscal 1996, $7,303,000 in the
period from November 3, 1996 to October 9, 1997, $19,000 in the period
from October 10, 1997 to November 1, 1997 and $329,000 in Fiscal 1998,
representing amortization of debt issuance expenses and accretion of
interest on the discounted notes and accrued product liability costs
(see Note 10).
-49-
<PAGE> 50
Maturities - Aggregate principal maturities of all long-term debt,
exclusive of the capital lease obligation, are as follows (in
thousands):
<TABLE>
<CAPTION>
Fiscal Year Ending
------------------
<S> <C>
1999 $ 688
2000 638
2001 639
2002 94,775
-----------
$ 96,740
===========
</TABLE>
8. EQUITY SECURITIES AND SENIOR REDEEMABLE PREFERRED STOCK
Through the implementation of the Plan of Reorganization as of the
Effective Date, approximately $240 million in face amount of
outstanding debt securities were exchanged for, among other things, $14
million in cash, 9,924,623 shares of Common Stock and approximately $34
million in aggregate principal amount of Contingent Notes. The Old
Senior Preferred Stock, Old Junior Preferred Stock and Old Common Stock
were canceled. Warrants to purchase up to 5% of the Common Stock
exercisable until October 9, 2000 with an initial purchase price of
$98.76 per share were issued in respect of the Old Senior Preferred
Stock. Senior management received 75,377 shares of Common Stock on the
Effective Date in lieu of payment under their contractual retention
bonus arrangements.
Certain information on equity securities November 1, 1997 and October
31, 1998 is as follows:
<TABLE>
<CAPTION>
Shares Issued and Outstanding
--------------------------------
Par Value November 1, October 31,
Per Share Authorized 1997 1998
--------- ---------- -------------- ---------------
<S> <C> <C> <C> <C>
New Common Stock .01 22,000,000 10,000,000 10,000,000
</TABLE>
Until the Effective Date, the Old Senior Preferred Stock was
redeemable, prior to its maturity date of May 15, 2003, at 103% of the
liquidation preference of $100 per share. Dividends were cumulative and
calculated based on an annual rate of 6% of the liquidation preference.
Under the terms of various credit agreements, dividends had to be in
the form of additional shares until 1998. In connection with the 1991
restructuring, the Old Senior Preferred Stock was discounted to its
estimated net present value with the net discount of $23,351,000
reflected as an adjustment of additional paid-in capital.
The difference between the net carrying amount of the Old Senior
Preferred Stock and its mandatory value was amortized using the
interest method of amortization over the life of the shares by charges
to additional paid-in capital or, if available, by charges to retained
earnings. The Company did not issue first, second or third quarter
Fiscal 1997 dividends on its senior redeemable preferred stock. Such
cumulative dividends that had not been declared or issued totaled
$3,827,000 at October 9, 1997.
1997 Incentive and Capital Accumulation Plan
As of the Effective Date, the Company adopted the 1997 Incentive and
Capital Accumulation Plan (the "Incentive Plan") which provides certain
key employees and non-employee directors of the Company the right to
acquire shares of Common Stock or monetary payments based on the value
of such shares. Pursuant to the Incentive Plan, approximately 853,000
shares of Common Stock were reserved for issuance to the participants
in the form of stock options, stock appreciation rights, stock awards,
-50-
<PAGE> 51
performance awards, and stock units that may be granted by the
compensation committee comprised of certain members of the Company's
Board of Directors. The Incentive Plan will terminate ten years from
the date of adoption.
On October 30, 1997, options to acquire approximately 569,000 shares of
the shares reserved pursuant to the Incentive Plan were granted to
senior management of the Company. These options include a combination
of time vesting options which vest solely on the lapse of time and
performance options which vest upon achievement of specified corporate
performance goals and the lapse of time. These options are according to
specific vesting schedules as set forth in individual participant's
grant letters. In addition, on the Effective Date, each non-employee
director (except one, who waived his right to receive such options)
received options to purchase 25,000 shares of Common Stock. These
options vest equally in amounts of 5,000 shares per director, on the
Effective Date and the first, second, third and fourth anniversaries of
the Effective Date. On October 31, 1998, 94,009 options were canceled
due to the failure of the Company to meet its specified performance
goals for Fiscal 1998.
A summary of the activity in the Company's stock options for the year
ended October 31, 1998 and the period from the Effective Date to
November 1, 1997 is presented below:
<TABLE>
<CAPTION>
Number of Shares Exercise Price
---------------- --------------
<S> <C> <C>
Options granted on the Effective Date 100,000 $12.33
Options granted during the period from the
Effective Date to November 1, 1997 568,990 12.33
Options exercised -- --
Options canceled -- --
-------- ------
Outstanding at November 1, 1997 668,990 12.33
Options granted -- --
Options exercised -- --
Options canceled (94,009) 12.33
-------- ------
Outstanding at October 31, 1998 574,981 $12.33
======== ======
Exercisable at October 31, 1998 139,009 $12.33
======== ======
Exercisable at November 1, 1997 20,000
========
Weighted average remaining contractual life (years) 9
========
</TABLE>
The Company applies the principles of APB Opinion 25 in accounting for
employee stock option plans. The time vesting options are fixed as to
the number of shares that may be acquired and the amount to be paid by
the employee. Under APB Opinion 25, the Company generally recognizes no
compensation expense with respect to such awards because the quoted
market price and the amount to be paid by the employee are the same on
the date of grant. The performance vesting options are variable in
nature and the Company measures compensation expense for the difference
between the quoted market price on the date on which both the number of
shares that may be acquired by an individual employee and the option
price are known. In Fiscal 1998, no compensation expense was recognized
on the performance options. Had compensation cost been determined on
the basis of SFAS No. 123, "Accounting for Stock-Based Compensation",
compensation expense would have been recorded based on the estimated
fair value of stock options granted during the period from the
Effective Date to November 1, 1997. The total fair value of stock
options granted for the period from October 10, 1997 to November 1,
1997 was estimated at $3,266,000, based upon the Black-Scholes option
pricing model. The following weighted-average assumptions were used in
the Black-Scholes option pricing model for stock options granted during
the period from the Effective Date to November 1, 1997 (i) risk-free
interest rates of approximately 5.7%, (ii) a weighted average expected
life of approximately 4.4 years from the grant date and (iii) 38%
volatility. The expected life of the stock options granted and the
stock price volatility during the
-51-
<PAGE> 52
expected life of the options were estimated based upon historical
information from public textile companies and management's
expectations. Had compensation cost for the Company's stock option
plans been determined based on the estimated fair value at the grant
dates for awards under those plans consistent with the method of SFAS
123, the Company's income and earnings per share would have been
reduced to the pro forma amounts shown below (in thousands except per
share amounts):
<TABLE>
<CAPTION>
Period from
October 10, 1997 Fiscal
To November 1, 1997 1998
------------------- ---------
<S> <C> <C>
Net income (loss)
As reported $2,717 $(10,664)
Pro forma $2,647 $(11,242)
Earnings per share
As reported $ 0.27 $ (1.07)
Pro forma $ 0.26 $ (1.12)
</TABLE>
9. INCOME TAXES
The provision (benefit) for income taxes on continuing operations
included in the consolidated statements of operations consists of the
following (in thousands):
<TABLE>
<CAPTION>
Predecessor Company Reorganized Company
------------------------------- | -------------------------------
Period from | Period from
Fiscal November 3, 1996 | October 10, 1997 Fiscal
1996 to October 9, 1997 | to November 1, 1997 1998
----- ------------------ | ------------------- -------
<S> <C> <C> | <C> <C>
Current state provision (benefit) $ 200 $ 923 | $ (17) $ 550
Deferred federal provision (benefit) -- (6,080) | 1,714 1,041
Deferred state provision (benefit) (500) (3,665) | 310 (225)
----- ------- | ------- -------
Provision (benefit) for income |
taxes $(300) $(8,822) | $ 2,007 $ 1,366
===== ======= | ======= =======
</TABLE>
There is no current provision for Federal income taxes.
-52-
<PAGE> 53
A reconciliation between income taxes at the 35% statutory Federal
income tax rate and the provision (benefit) for income taxes for the
Fiscal 1996, the period from November 3, 1996 to October 9, 1997, the
period from October 10, 1997 to November 1, 1997 and the Fiscal 1998 is
as follows (in thousands):
<TABLE>
<CAPTION>
Predecessor Company Reorganized Company
---------------------------------- | -------------------------------
Period from | Period from
Fiscal November 3, 1996 | October 10, 1997 Fiscal
1996 to October 9, 1997 | to November 1, 1997 1998
-------- ------------------ | ------------------- -------
<S> <C> <C> | <C> <C>
Income tax provision (benefit) |
at Federal statutory rate $(23,183) $(11,473) | $1,653 $(3,254)
Increase (decrease) in income |
taxes arising from effect of: |
State and local income taxes (300) (2,742) | 293 325
Non-deductible reorganization |
costs -- 2,947 | -- --
Amortization of and |
deductions for goodwill or |
excess reorganization value 344 312 | 57 3,205
Losses not resulting in tax |
benefits -- 8,158 | -- --
Change in valuation reserve 22,730 (6,080) | -- 980
Other 109 56 | 4 110
-------- -------- | ------ -------
Provision (benefit) for income |
taxes $ (300) $ (8,822) | $2,007 $ 1,366
======== ======== | ====== =======
</TABLE>
-53-
<PAGE> 54
Presented below are the elements which comprise deferred tax assets and
liabilities (in thousands):
<TABLE>
<CAPTION>
November 1, October 31,
1997 1998
---------- -----------
<S> <C> <C>
Gross deferred assets:
Estimated allowance for doubtful accounts $ 1,035 $ 306
Excess of tax over financial statement basis of inventory 580 798
Accruals deductible for tax purposes when paid 2,275 2,202
Deferred compensation deductible for tax purposes when paid -- 323
Postretirement benefits deductible for tax purposes when paid 1,562 1,477
Pension liability deductible for tax purposes when paid -- 774
Miscellaneous 120 --
Alternative minimum tax credit carryforward available 1,827 1,773
Deferred financial statement income recognized for tax purposes
when received 5,013 5,396
Excess of tax over financial statement carrying value of
investment in discontinued operation -- 982
Excess of tax basis of intangibles over financial statement basis 10,406 9,926
Net operating loss carryforward 11,880 11,813
Less valuation allowance (28,444) (32,117)
-------- --------
Gross deferred assets 6,254 3,653
-------- --------
Gross deferred liabilities:
Pension asset recognized for book purposes (776) --
Excess of financial statement over tax basis of property, plant,
and equipment (1,267) (258)
-------- --------
Gross deferred liabilities (2,043) (258)
-------- --------
Net deferred tax asset $ 4,211 $ 3,395
======== ========
Recognized in the accompanying consolidated balance sheets
as follows:
Prepaid expenses and other $ 867 $ 1,509
Other non-current assets 3,344 1,886
-------- --------
$ 4,211 $ 3,395
======== ========
</TABLE>
For the Fiscal Year Ended October 31, 1998, the Company recorded a tax
expense of approximately $1.4 million. An expense was recorded even
though the Company had a loss from operations. This expense is due to
the fact that certain deductions taken for financial reporting
purposes, principally the amortization and writeoff of a portion of the
excess reorganization value, are not allowed for tax purposes. In
addition, the Company recorded an additional valuation allowance on its
deferred tax assets. This additional allowance was required due to the
limitation on asset recognition when, among other factors, there is a
history of recent losses. The Company did record a current state tax
expense of $0.6 million. The current state tax expense results from
filing separate state tax returns in some jurisdictions and the
inability to offset income from profitable subsidiaries with losses
from other subsidiaries. A deferred tax benefit was also recorded for
subsidiary losses that could not be currently utilized. As a result of
a valuation allowance, no benefit was recorded on the additional
pension liability recorded as an adjustment to equity (see Note 11).
For the period from October 10, 1997 to November 1, 1997, the Company
recorded a tax expense of $2.0 million. The tax expense for the period
ending November 1, 1997 includes the utilization of a portion of the
deferred tax asset, described below, which was recorded as of the
Effective Date of the Plan of Reorganization of the Company. The
effective tax rate exceeds the statutory federal income tax rate due to
the impact of items not deductible for federal income tax purposes and
because of state income taxes.
-54-
<PAGE> 55
The Company recorded a tax benefit for the period ending October 9,
1997 of approximately $8.8 million. This consists of a benefit from the
implementation of the Plan of Reorganization net of state taxes on
subsidiary operations that could not be offset by operating loss
carryovers or current year losses of JPS or its subsidiaries. The
benefit arose as consummation of the Plan of Reorganization
substantially deleveraged JPS. The deferred tax asset attributable to
the net operating loss carryforwards was reduced as a result of the
reduction in net operating loss carryforwards that is required for
reorganizations such as that provided in the Plan of Reorganization,
and the reserve established against the deferred tax assets that was
required due to the operating history was also significantly reduced.
The reduction in reserves and reduction in deferred tax liabilities
during the period ended October 9, 1997 resulted in a deferred tax
benefit of $9.7 million. The recording of the tax benefit and the net
deferred tax asset reflected the Company's determination that it was
more likely than not that these deferred tax assets, net of the
valuation allowance, would be realized based on current income tax laws
and expectations of future taxable income stemming from operations or
the reversal of deferred tax liabilities. Uncertainties surrounding
income tax law changes, shifts in operations between state taxing
jurisdictions and future operating income levels may, however, affect
the ultimate realization of all or some portion of these deferred
income tax assets.
At October 31, 1998, the Company had regular federal net operating loss
carryforwards for tax purposes of approximately $26 million. The net
operating loss carryforwards expire in years 2004 through 2012. The
Company also has federal alternative minimum tax net operating loss
carryforwards of approximately $23 million which expire in 2004 through
2013. Alternative minimum tax credits can be carried forward
indefinitely and used as a credit against regular federal taxes,
subject to limitation. During 1997, the Company reduced beginning net
operating loss carryforwards by approximately $64 million due to the
provisions of the Code requiring attribute reduction in certain
reorganizations, such as the Plan of Reorganization. The Company was
also required to reduce alternative minimum tax credit carryforwards by
approximately $737,000 as a result of these provisions.
The Company's future ability to utilize its net operating loss
carryforwards is limited under the income tax laws as a result of the
change in the ownership of the Company's stock occurring as a part of
the reorganization. The effect of such an ownership change is to limit
the annual utilization of the net operating loss carryforwards to an
amount equal to the value of the Company immediately after the time of
the change (subject to certain adjustments) multiplied by the Federal
long-term tax exempt rate. Due to the Company's operating history, it
is uncertain that it will be able to utilize all deferred tax assets.
Therefore, a valuation allowance has been provided. The Company is
required, under accounting guidelines, to reduce reorganization value
in excess of amounts allocable to identifiable assets by the amount of
any reduction in the valuation allowance established upon completion of
the Plan of Reorganization. The amount of valuation allowance subject
to such treatment was $28.4 million at both October 31, 1998 and
November 1, 1997.
10. COMMITMENTS AND CONTINGENCIES
The Company leases office facilities, machinery and computer equipment
under noncancellable operating leases and, beginning in Fiscal 1998,
certain capital leases. Rent expense was approximately $5,158,000,
$5,178,000, $399,000 and $5,862,000 in Fiscal 1996, the period from
November 3, 1996 to October 9, 1997, the period from October 10, 1997
to November 1, 1997 and Fiscal 1998, respectively.
-55-
<PAGE> 56
Future minimum payments, by year and in the aggregate, under the
noncancellable capital and operating leases with terms of one year or
more consist of the following at October 31, 1998 (in thousands):
<TABLE>
<CAPTION>
Capital Operating
Fiscal Year Ending Lease Leases
------------------ ------- ------
<S> <C> <C>
1999 $ 607 $4,005
2000 607 3,190
2001 607 1,277
2002 607 418
2003 607 35
Thereafter 1,353 --
------ ------
Total future minimum lease payments 4,388 $8,925
======
Less: amount representing interest 992
------
Present value of net minimum lease payments
(included in long-term debt - see Note 7) $3,396
======
</TABLE>
The Company has planned expenditures of approximately $8.2 million for
property, plant and equipment additions in Fiscal 1999. At October 31,
1998, the Company had commitments for capital expenditures of
approximately $1.1 million.
On the Effective Date, the Company entered into employment agreements
with certain of its executives and key employees. These agreements have
three-year terms and are automatically extended on an annual basis
after the third year unless the Company or the participant elects in
advance not to extend the employment period. The employment agreements
provide specific salary levels and bonus eligibility for each
participant. In addition, the agreements provide severance benefits if
the Company terminates the participant's employment for reasons other
than for cause (as defined). Under the terms of the employment
agreements, on the Effective Date, the participants received, in the
aggregate, a retention grant cash payment of $588,000 and 75,377 shares
of Common Stock.
The Company has provided for all estimated future costs associated with
certain roofing products sold by the Predecessor Stevens Division
operations. The liability for future costs associated with these
roofing products is subject to management's best estimate, including
factors such as expected future claims by geographic region and roofing
compound applied; expected costs to repair or replace such roofing
products; estimated remaining length of time that such claims will be
made by customers; and the estimated costs to litigate and settle
certain claims now in litigation. Based on warranties that were issued
on the roofs, the Company estimates that these roofing product claims
will be substantially settled by the year 2000. Management updates its
assessment of the adequacy of the remaining reserve for these roofing
products quarterly and if it is deemed that an adjustment to the
reserve is required, it will be charged to operations in the period in
which such determination is made. The Company charges the costs of
settling these roofing product claims as a reduction of the recorded
liability balance and, accordingly, such costs are not charged against
the results of operations. Costs associated with these product
liability claims were $3,111,000, $1,815,000, $521,000 and $1,053,000
in Fiscal 1996, the period from November 3, 1996 to October 9, 1997,
the period from October 10, 1997 to November 1, 1997 and Fiscal 1998,
respectively. Approximately $3.8 million and $2.8 million was accrued
for these estimated future costs at November 1, 1997 and October 31,
1998, respectively.
The Company is exposed to a number of asserted and unasserted potential
claims encountered in the normal course of business. Except as
discussed below, management believes that none of this litigation, if
determined unfavorable to the Company, would have a material adverse
effect on the financial condition or results of operations of the
Company.
-56-
<PAGE> 57
In June 1997, Sears Roebuck and Co. ("Sears") filed a multi-count
complaint against Elastomerics and two other defendants alleging an
unspecified amount of damages in connection with the alleged premature
deterioration of the Company's roofing membrane installed on
approximately 150 Sears stores. No trial date has been established. The
Company believes it has meritorious defenses to the claims and intends
to defend the lawsuit vigorously. Management, however, cannot determine
the outcome of the lawsuit or estimate the range of loss, if any, that
may occur. Accordingly, no provision has been made for any loss which
may result. An unfavorable resolution of the actions could have a
material adverse effect on the business, results of operations or
financial condition of the Company.
11. RETIREMENT PLANS
Defined Benefit Pension Plan - Substantially all of the Company's
employees are covered by a Company-sponsored defined benefit pension
plan. The plan also provides benefits to individuals employed by the
automotive businesses which were sold by the Company on June 28, 1994,
the Carpet Business sold on November 16, 1995 and the Rubber Products
Business sold on September 30, 1996. The benefits of these former
employees were "frozen" at the respective dates of sale of the
businesses. Accordingly, these former employees will retain benefits
earned through the respective disposal dates, however, they will not
accrue additional benefits. In addition, the plan provides benefits to
individuals employed by the Dunean plant which was closed effective
October 28, 1996. Benefits for employees who were terminated as a
result of the plant closing were also "frozen" as of October 28, 1996
and no additional benefits will accrue subsequent to that date. The
plan provides pension benefits that are based on the employees'
compensation during the last ten years of employment. The Company's
policy is to fund the annual contribution required by applicable
regulations.
Assets of the pension plan are invested in common and preferred stocks,
government and corporate bonds, real estate and various short-term
investments.
A reconciliation as of the most recent measurement date (October 31,
1998) of the funded status of the plan with amounts reported in the
Company's Consolidated Balance Sheets follows (in thousands):
<TABLE>
<CAPTION>
November 1, October 31,
1997 1998
----------- -----------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested $90,574 $ 105,595
Non-vested 197 296
------- ---------
Accumulated benefit obligation 90,771 105,891
Provision for future pay increases 5,528 5,731
------- ---------
Total projected benefit obligation 96,299 111,622
Plan assets at fair value 97,312 103,855
------- ---------
Projected benefit obligation (greater than) less than plan assets 1,013 (7,767)
Unrecognized net loss 1,030 11,586
Additional minimum liability recognized as a reduction of
shareholders' equity -- (5,855)
------- ---------
Pension asset (liability) in accompanying
Consolidated Balance Sheets $ 2,043 $ (2,036)
======= =========
</TABLE>
-57-
<PAGE> 58
<TABLE>
<CAPTION>
Predecessor Company Reorganized Company
-------------------------------- | -------------------------------
Period from | Period from
Fiscal November 3, 1996 | October 10, 1997 Fiscal
1996 to October 9, 1997 | to November 1, 1997 1998
------- ------------------ | ------------------- -------
<S> <C> <C> | <C> <C>
Components of net periodic |
pension cost: |
Service cost-benefits earned |
during the period $ 2,378 $ 2,026 | $ 136 $ 2,239
Interest cost on projected |
benefit obligation 7,048 6,683 | 449 7,505
Return on plan assets (7,674) (7,184) | (483) (8,543)
Net amortization and deferral 451 330 | -- --
------- ------- | ----- -------
Net periodic pension cost $ 2,203 $ 1,855 | $ 102 $ 1,201
======= ======= | ===== =======
</TABLE>
As of October 31, 1998, the Company reduced the weighted-average
discount rate used in determining the actuarial present value of the
projected benefit obligation from 7.8% to 6.75%, which more closely
approximates current interest rates on high-quality long-term
obligations. The provisions of SFAS No. 87, "Employers' Accounting for
Pensions," required the Company to record an additional minimum pension
liability of approximately $5.9 million at October 31, 1998. The
liability represents the amount by which the accumulated benefit
obligation exceeds the sum of the fair market value of plan assets and
accrued amounts previously recorded. This amount is recorded as a
reduction to a separate component of shareholders' equity on the
accompanying Consolidated Balance Sheet as of October 31, 1998. The
assumed rate of increase in compensation levels was based on
age-related tables at November 1, 1997 and October 31, 1998. Effective
November 1, 1993, the Company amended the benefit formula for salaried
employees to provide for an additional benefit based on compensation in
excess of the average social security wage base.
As a result of the application of fresh start accounting as described
in Note 1, all unamortized prior service costs and unrecognized gains
were immediately recognized as of October 9, 1997 and included in
reorganization items for the period then ended.
On February 15, 1996, the Company offered special early retirement
benefits to approximately fifty salaried employees who met certain
criteria. Approximately $2.2 million of pension benefits were paid in
lump-sums by the plan to twenty-eight employees who accepted the offer.
In Fiscal 1996, a charge of $1,125,000 representing the actuarial cost
to the plan of the early retirement offer as accepted by the employees
is included in other expense in the accompanying Consolidated Statement
of Operations.
Also in Fiscal 1996, the Company recognized losses of approximately
$632,000 for pension curtailment and special termination benefits in
accordance with SFAS No. 88, "Employees' Accounting for Settlements and
Curtailments of Defined Benefit Pension Plans and for Termination
Benefits", which related primarily to the sale of the Rubber Products
Business and the Dunean plant closing and related termination of
participation in the plan of these employees.
401(k) Savings Plan - The Company also has a savings, investment and
profit-sharing plan available to employees meeting eligibility
requirements. The plan is a tax qualified plan under Section 401(k) of
the Internal Revenue Code. The Company makes a matching contribution of
25% of each participant's contribution with a maximum matching
contribution of 1-1/2% of the participant's base compensation. Company
contributions were approximately $587,000 in Fiscal 1996, $523,000 in
the period from November 3, 1996 to October 9, 1997, $47,000 in the
period from October 10, 1997 to November 1, 1997 and $598,000 in Fiscal
1998.
-58-
<PAGE> 59
Postretirement Benefits - The Company has several unfunded
postretirement plans that provide certain health care and life
insurance benefits to eligible retirees. The plans are contributory,
with retiree contributions adjusted periodically, and contain
cost-sharing features such as deductibles and coinsurance. The
Company's life insurance plan provides benefits to both active
employees and retirees. Active employee contributions in excess of the
cost of providing active employee benefits are applied to reduce the
cost of retirees' life insurance benefits. The following table sets
forth the status of the Company's postretirement plans as recorded in
the accompanying Consolidated Balance Sheets (in thousands):
Accumulated postretirement benefit obligation (APBO):
<TABLE>
<CAPTION>
November 1, October 31,
1997 1998
----------- -----------
<S> <C> <C>
Retirees $1,444 $ 1,683
Fully eligible active plan participants 1,130 1,076
Other active plan participants 807 965
Unrecognized gain (loss) 12 (393)
------ -------
Accrued postretirement benefit plan liability $3,393 $ 3,331
====== =======
</TABLE>
Net periodic postretirement benefit expense included the following
components (in thousands):
<TABLE>
<CAPTION>
Predecessor Company Reorganized Company
------------------------------- | ------------------------------
Period from | Period from
Fiscal November. 3, 1996 | October 10, 1997 Fiscal
1996 to October. 9, 1997 | to November 1, 1997 1998
------ ------------------- | ------------------- ------
<S> <C> <C> | <C> <C>
Service cost for benefits earned $ 5 $ 5 | $ 6 $107
Interest cost on APBO 297 229 | 16 267
---- ---- | --- ----
Net periodic postretirement cost $302 $234 | $22 $374
==== ==== | === ====
</TABLE>
As of October 1, 1998, the Company decreased the discount rate
assumption from 7.8% to 6.75%, which more closely approximates current
interest rates on high-quality, long-term obligations. The Company
estimates that the projected future annual costs of postretirement
benefits will increase approximately 12% due to the effects of this
change in discount rate assumption.
As a result of the application of fresh start accounting as described
in Note 1, all unamortized gains were fully recognized as of October 9,
1997 and included in reorganization items for the period then ended.
In Fiscal 1996, the Company recognized a curtailment gain of
approximately $347,000 related to the sale of the Rubber Products
Business and the Dunean plant closing, and related termination of
participation in the plans of these employees.
Since the Company has capped its annual liability per person and all
future cost increases will be passed on to retirees, the annual rate of
increase in health care costs does not affect the postretirement
benefit obligation.
Postemployment Benefits - The Company provides certain benefits to
former or inactive employees after employment but before retirement. In
accordance with SFAS No. 112, these benefits are recognized on the
accrual basis of accounting. The liability for postemployment benefits
at November 1, 1997 and October 31, 1998 is included in other long-term
liabilities in the accompanying consolidated financial statements.
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<PAGE> 60
12. RELATED PARTIES
The Company incurred fees of $1,000,000 in Fiscal 1996 for management
services provided by a former shareholder pursuant to a management
services agreement. On the Effective Date, the agreement was canceled
and rejected and rejection damage claims were waived by the
shareholders.
13. BUSINESS SEGMENTS
The Company competes in three industry segments: Industrial Products,
Apparel Fabrics and Home Fashion Textiles. The industrial products
segment manufactures commercial roofing products made from woven
synthetic substrates and rubber-based specialty polymer compounds,
other building construction products made from glass and synthetic
fibers, various industrial products which generally have insulation or
filtration characteristics, and other rubber products and various
extruded polyurethane products. The apparel fabrics segment
manufactures a broad range of apparel fabrics and apparel related
products, including unfinished woven apparel fabrics (greige goods) for
men's, women's and children's wear and spun yarns for use in apparel.
The home fashion textiles segment manufactures a variety of unfinished
woven fabrics and yarns for use in the manufacturing of draperies,
curtains and lampshades and is a major producer of solution-dyed
drapery fabrics. As discussed in Note 4, the Company has agreed to sell
a major portion of its home fashion textiles business.
Export sales are approximately 4% of net sales and the Company has no
significant foreign operations. Earnings by business segment represent
operating profit, excluding net unallocated corporate operating
expenses. Identifiable segment assets are those assets used in the
operations of the segment. Corporate assets are cash and other assets
including reorganization value in excess of amounts allocable to
identifiable assets.
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<PAGE> 61
Industry segment information (in thousands):
<TABLE>
<CAPTION>
Predecessor Company Reorganized Company
------------------------------------- | -------------------------------------
Fiscal Year | Fiscal Year
Ended Period from | Period from Ended
November 2, November 3, 1996 | October 10, 1997 October 31,
1996 to October 9, 1997 | to November 1, 1997 1998
----------- ------------------ | ------------------- -----------
<S> <C> <C> | <C> <C>
Net sales: |
Industrial products $ 193,001 $ 179,434 | $ 17,847 $ 189,658
Apparel fabrics 221,799 167,070 | 18,590 170,877
Home fashion textiles 34,024 33,139 | 2,291 28,683
--------- --------- | --------- ---------
$ 448,824 $ 379,643 | $ 38,728 $ 389,218
========= ========= | ========= =========
Operating profit (loss): |
Industrial products $ 5,947 $ 16,748 | $ 2,652 $ 16,275
Apparel fabrics (22,422) 1,210 | 2,201 2,274
Home fashion textiles 647 976 | 693 (7,689)
Indirect corporate expenses, net (6,257) (4,152) | (331) (12,604)(1)
--------- --------- | --------- ---------
|
Operating profit (loss) (22,085) 14,782 | 5,215 (1,744)
|
Valuation allowance on |
Gulistan Securities (4,242) (5,070) | -- --
Interest income 2,856 2,744 | 93 1,038
Interest expense (40,510) (32,164) | (584) (8,592)
Restructuring fees and expenses (2,255) (13,071) | -- --
--------- --------- | --------- ---------
|
Income (loss) before income taxes, |
discontinued operations and |
extraordinary items $ (66,236) $ (32,779) | $ 4,724 $ (9,298)
========= ========= | ========= =========
|
Depreciation and amortization |
expense: |
Industrial products $ 6,282 $ 5,032 | $ 283 $ 4,425
Apparel fabrics 12,946 9,410 | 297 4,533
Home fashion textiles 2,517 2,537 | 100 1,211
--------- --------- | --------- ---------
Total segments 21,745 16,979 | 680 10,169
Corporate and other 994 901 | 166 2,293
--------- --------- | --------- ---------
$ 22,739 $ 17,880 | $ 846 $ 12,462
========= ========= | ========= =========
Capital expenditures: |
Industrial products $ 4,545 $ 3,636 | $ 1,130 $ 16,420
Apparel fabrics 4,389 10,473 | 472 5,470
Home fashion textiles 899 353 | 16 520
--------- --------- | --------- ---------
Total segments 9,833 14,462 | 1,618 22,410
Corporate and other 1 5 | -- 13
--------- --------- | --------- ---------
$ 9,834 $ 14,467 | $ 1,618 $ 22,423
========= ========= | ========= =========
</TABLE>
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<PAGE> 62
Industry segment information (in thousands) (Continued):
<TABLE>
<CAPTION>
Predecessor
Company Reorganized Company
------------ | -------------------------------
November 2, | November 1, October 31,
1996 | 1997 1998
------------ | ----------- -----------
<S> <C> | <C> <C>
Identifiable assets: |
Industrial products $101,376 | $100,140 $113,650
Apparel fabrics 127,909 | 110,891 100,950
Home fashion textiles 21,333 | 21,028 15,970
-------- | -------- --------
Total segments 250,618 | 232,059 230,570
Corporate and other 85,309 | 90,322 42,352
-------- | -------- --------
$335,927 | $322,381 $272,922
======== | ======== ========
</TABLE>
(1) Indirect corporate expenses include charges of approximately $6.9
million for writedown of reorganization values in excess of amounts
allocable to identifiable assets in relation to the plant sale and
plant closing discussed in Note 4.
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<PAGE> 63
Unaudited interim financial data (in thousands except per share amounts):
The results for each quarter include all adjustments which are, in the opinion
of management, necessary for a fair presentation of the results for interim
periods. The consolidated financial results on an interim basis are not
necessarily indicative of future financial results on either an interim or
annual basis. Selected consolidated financial data for each quarter within
Fiscal 1997 and Fiscal 1998 are as follows:
<TABLE>
<CAPTION>
Reorganized
Predecessor Company Company
------------------------------------------------------------ | -------------------
<S> <C> <C> <C> <C> | <C>
Period from | Period from
First Second Third August 3, 1997 | October 10, 1997
Year Ended November 1, 1997: Quarter Quarter Quarter to October 9, 1997 | to November 1, 1997
-------- --------- -------- ------------------ | -------------------
Net sales $ 97,167 $ 108,138 $ 95,883 $ 78,455 | $ 38,728
Cost of sales 84,934 93,038 80,682 69,013 | 31,058
-------- --------- -------- --------- | --------
Gross profit 12,233 15,100 15,201 9,442 | 7,670
Selling, general and |
administrative expenses 9,314 10,293 10,256 7,283 | 2,466
Other income (expense), net (6) (377) (102) 437 | 11
-------- --------- -------- --------- | --------
Operating profit 2,913 4,430 4,843 2,596 | 5,215
Valuation allowance on |
Gulistan securities (1,299) (789) (2,982) -- | --
Interest income 737 734 761 512 | 93
Interest expense (10,174) (10,049) (10,086) (1,855) | (584)
-------- --------- -------- --------- | --------
Income (loss) before |
reorganization items, income |
taxes and extraordinary items (7,823) (5,674) (7,464) 1,253 | 4,724
Reorganization items: |
Fair-value adjustments -- -- -- (4,651) | --
Professional fees and |
expenses (1,162) (1,982) (3,332) (1,944) | --
-------- --------- -------- --------- | --------
Income (loss) before income |
taxes and extraordinary items (8,985) (7,656) (10,796) (5,342) | 4,724
Provision (benefit) for |
income taxes 157 252 275 (9,506) | 2,007
-------- --------- -------- --------- | --------
Income (loss) before |
extraordinary items (9,142) (7,908) (11,071) 4,164 | 2,717
Extraordinary gain on early |
extinguishment of debt -- -- -- 100,235 | --
-------- --------- -------- --------- | --------
Net income (loss) $ (9,142) $ (7,908) $(11,071) $ 104,399 | $ 2,717
======== ========= ======== ========= | ========
Income (loss) applicable to |
common stock $(10,407) $ (9,185) $(12,356) $ 104,399 | $ 2,717
======== ========= ======== ========= | ========
Basic earnings (loss) per |
common share: |
Income (loss) before extra- |
ordinary gain on early |
extinguishment of debt $ (10.40) $ (9.19) $ (12.36) $ 4.16 | $ 0.27
Extraordinary gain on early |
extinguishment of debt -- -- -- 100.24 | --
-------- --------- -------- --------- | --------
Net income (loss) $ (10.40) $ (9.19) $ (12.36) $ 104.40 | $ 0.27
======== ========= ======== ========= | ========
</TABLE>
In accordance with the provision of SFAS No. 128, the presentation of earnings
per share data for all periods presented has been restated to conform to SFAS
No. 128.
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<PAGE> 64
<TABLE>
<CAPTION>
Reorganized Company
--------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
--------- --------- -------- ---------
<S> <C> <C> <C> <C>
Year Ended October 31, 1998:
Net sales $ 100,800 $ 101,348 $ 86,993 $ 100,077
Cost of sales 85,414 84,521 73,473 88,065
--------- --------- -------- ---------
Gross profit 15,386 16,827 13,520 12,012
Selling, general and administrative expenses 10,509 9,987 9,632 10,062
Other income (expense), net 24 35 (40) (73)
Charges for plant closing, loss on sale of certain
operations, writedown of certain long-lived
assets and restructuring costs -- -- -- (19,245)
--------- --------- -------- ---------
Operating profit (loss) 4,901 6,875 3,848 (17,368)
Interest income 325 239 324 150
Interest expense (2,284) (2,094) (2,132) (2,082)
--------- --------- -------- ---------
Income (loss) before income taxes 2,942 5,020 2,040 (19,300)
Provision (benefit) for income taxes 1,250 2,150 1,101 (3,135)
--------- --------- -------- ---------
Net income (loss) $ 1,692 $ 2,870 $ 939 $ (16,165)
========= ========= ======== =========
Net income (loss) per common share $ 0.17 $ 0.29 $ 0.09 $ (1.62)
========= ========= ======== =========
</TABLE>
During the period from August 3, 1997 to October 9, 1997, the Company
consummated its Plan of Reorganization, as described in Note 1. Accordingly,
the results of operations subsequent to October 9, 1997 are not comparable
to results of operations for periods preceding that date.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by Item 10 of Form 10-K with respect to identification
of directors and executive officers is incorporated by reference from the
information contained in the section captioned "Ratification of Directors" in
the Company's definitive Proxy Statement for the Annual Meeting of Stockholders
to be held March 24, 1999 (the "Proxy Statement"), a copy of which will be
filed with the Securities and Exchange Commission before the meeting date.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by Item 11 of Form 10-K is incorporated by reference
from the information contained in the section captioned "Executive Compensation
and Other Matters" in the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT.
The information required by Item 12 of Form 10-K is incorporated by reference
from the information contained in the section captioned "Security Ownership of
Principal Stockholders and Management" in the Proxy Statement.
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<PAGE> 65
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by Item 13, if any, is incorporated in a section
captioned "Certain Relationships and Related Transactions" in the Proxy
Statement.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K.
(a) (1) The following financial statements are included in Item 8:
(i) Independent Auditors' Report.
(ii) Consolidated Balance Sheets as of October 31, 1998
and November 1, 1997.
(iii) Consolidated Statements of Operations for the fiscal
year ended October 31, 1998 (Reorganized Company),
the periods from October 10, 1997 to November 1, 1997
(Reorganized Company) and November 3, 1996 to October
9, 1997 (Predecessor Company) and the fiscal year
ended November 2, 1996 (Predecessor Company).
(iv) Consolidated Statements of Senior Redeemable
Preferred Stock and Shareholders' Equity (Deficit)
for the fiscal year ended October 31, 1998
(Reorganized Company), the periods from October 10,
1997 to November 1, 1997 (Reorganized Company) and
November 3, 1996 to October 9, 1997 (Predecessor
Company) and the fiscal year ended November 2, 1996.
(v) Consolidated Statements of Cash Flows for the fiscal
year ended October 31, 1998 (Reorganized Company),
the periods from October 10, 1997 to November 1, 1997
(Reorganized Company) and November 3, 1996 to October
9, 1997 (Predecessor Company) and the fiscal year
ended November 2, 1996 (Predecessor Company).
(vi) Notes to Consolidated Financial Statements.
The registrant is primarily a holding company and all direct subsidiaries are
wholly owned.
(2) The financial statement schedule required by Item 8 is listed
on Index to Financial Statement Schedule, starting at page S-1
of this report.
(3) The exhibits required by Item 601 of Regulation S-K are listed
in the accompanying Index to Exhibits. Registrant will furnish
to any securityholder, upon written request, any exhibit
listed in the accompanying Index to Exhibits upon payment by
such securityholder of registrant's reasonable expenses in
furnishing any such exhibit.
(b) No reports on Form 8-K were filed during the quarter ended October 31,
1998.
(c) Reference is made to Item 14(a)(3) above.
(d) Reference is made to Item 14(a)(2) above.
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<PAGE> 66
INDEX TO EXHIBITS
The following is a complete list of Exhibits filed as part of this report, which
are incorporated herein:
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
2.1(i) Joint Plan of Reorganization for JPS Textile Group, Inc., a
Delaware corporation ("JPS"), proposed by JPS and JPS Capital
Corp., a Delaware corporation, pursuant to chapter 11 of title 11
United States Code (the "Bankruptcy Code"), dated August 1, 1997
(as amended, the "Plan").(K)
2.1(ii) Revised Technical and Conforming Amendment to the Plan, dated
September 4, 1997.(L)
3.1 Restated Certificate of Incorporation of JPS, filed with the
Secretary of State of the State of Delaware on October 9, 1997.(P)
3.2 Amended and Restated By-laws of JPS.(P)
4.1 Indenture, dated as of October 9, 1997 (the "Contingent Note
Indenture"), between JPS Capital Corp. ("Capital") and First Trust
National Association ("First Trust"), as Trustee, relating to
Capital's Contingent Notes (the "Contingent Notes").(K)
4.2 Form of Contingent Note, incorporated by reference to Exhibit A to
the Contingent Note Indenture.(K)
10.1 Loan and Security Agreement, dated as of October 30, 1991, (the
"CIT Loan Agreement"), between JPS Converter and Industrial Corp.,
a Delaware corporation ("JCIC") and The CIT Group/Equipment
Financing, Inc. ("CIT").(A)
10.2 First Amendment to the CIT Loan Agreement, dated as of June 26,
1992, by and between JCIC and CIT.(A)
10.3 Second Amendment to the CIT Loan Agreement, dated as of December
22, 1992, by and between JCIC and CIT.(A)
10.4 Agreement of Lease, dated as of June 1, 1988, by and between 1185
Avenue of the Americas Associates ("1185 Associates") and JCIC.(A)
10.5 Lease Modification and Extension Agreement, dated as of April 2,
1991, by and between 1185 Associates and JCIC.(A)
10.6 Third Amendment to the CIT Loan Agreement, dated as of August 6,
1993, by and between JCIC and CIT.(B)
10.7 Trademark License Agreement, dated as of May 9, 1988, by and
between J.P. Stevens and JPS Acquisition Corp. (predecessor to the
Company.)(B)
</TABLE>
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<PAGE> 67
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
10.8 Omnibus Real Estate Closing Agreement, dated as of May 9, 1988, by
and among J.P. Stevens, JPS Acquisition Corp., JPS Acquisition
Automotive Products Corp., JPS Acquisition Carpet Corp., JPS
Acquisition Industrial Fabrics Corp., JPS Acquisition Converter
and Yarn Corp. and JPS Acquisition Elastomerics Corp.(B)
10.9 Purchase Agreement, dated as of April 24, 1988, by and among JPS
Holding Corp., the Company, Odyssey Partners, West
Point-Pepperell, Inc., STN Holdings Inc., Magnolia Partners, L.P.
and J.P. Stevens.(B)
10.10 Asset Purchase Agreement, dated as of May 25, 1994, by and among
the Company, JAPC, JCIC, JPS Auto Inc., a Delaware corporation,
and Foamex International Inc., a Delaware corporation.(C)
10.11 Fourth Amended and Restated Credit Agreement (the "Existing Credit
Agreement"), dated as of June 24, 1994, by and among the Company,
JCIC, JPS Elastomerics Corp., a Delaware corporation ("JEC"), JPS
Carpet Corp., a Delaware corporation ("JCC"), the financial
institutions listed on the signature pages thereof, Citibank, N.A.
("Citibank") as Agent and Administrative Agent, and General
Electric Capital Corporation ("GECC") as Co-Agent and Collateral
Agent.(D)
10.12 First Amendment to the Existing Credit Agreement, dated as of
November 4, 1994, by and among the Company, JCIC, JEC, JCC, the
financial institutions listed on the signature pages thereof,
Citibank, as Agent and Administrative Agent, and GECC, as Co-Agent
and Collateral Agent.(E)
10.13 Second Amendment to the Existing Credit Agreement, dated as of
December 21, 1994, by and among the Company, JCIC, JEC, JCC, the
financial institutions listed on the signature pages thereof,
Citibank, as Agent and Administrative Agent, and GECC as Co-Agent
and Collateral Agent.(E)
10.14 Fourth Amendment to CIT Loan Agreement, dated as of December 29,
1994, by and between JCIC and CIT.(E)
10.15 Lease Modification and Extension Agreement, dated as of April 30,
1993, by and between 1185 Associates and JCIC.(E)
10.16 Third Amendment to Existing Credit Agreement, dated as of May 31,
1995 by and among the Company, JCIC, JEC, JCC, the financial
institutions listed on the signature pages thereof, Citibank, as
Agent and Administrative Agent, and GECC, as Co-Agent and
Collateral Agent.(F)
10.17 Fourth Amendment to Existing Credit Agreement, dated as of October
28, 1995 by and among the Company, JCIC, JEC, JCC, the financial
institutions listed on the signature pages thereof, Citibank, as
Agent and Administrative Agent, and GECC, as Co-Agent and
Collateral Agent.(G)
10.18 Lease Modification and Extension Agreement, dated as of November
17, 1994, by and between 1185 Associates and JCIC.(G)
</TABLE>
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<PAGE> 68
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
10.19 Asset Transfer Agreement, dated as of November 16, 1995, by and
among the Company, JPS Carpet Corp., a Delaware corporation,
Gulistan Holdings Inc. ("GHI"), a Delaware corporation and
Gulistan Carpet Inc., a Delaware Corporation and wholly-owned
subsidiary of GHI.(H)
10.20 Fifth Amendment to the Fourth Amended & Restated Credit Agreement,
dated as of May 6, 1996, by and among the Company, JPS
Elastomerics Corp., JPS Converter and Industrial Corp., JPS Auto
Inc., JPS Carpet Corp., International Fabrics, Inc., the financial
institutions listed on the signature pages thereof, Citibank, N.A.
as agent and Administrative Agent and General Electric Capital
Corporation as Co-Agent and Collateral Agent.(I)
10.21 Sixth Amendment to the Fourth Amended & Restated Credit Agreement,
dated as of May 15, 1996, by and among the Company, JPS
Elastomerics Corp., JPS Converter and Industrial Corp., JPS Auto
Inc., JPS Carpet Corp., International Fabrics, Inc., the financial
institutions listed on the signature pages thereof, Citibank, N.A.
as agent and Administrative Agent and General Electric Capital
Corporation as Co-Agent and Collateral Agent.(I)
10.22 Seventh Amendment to the Fourth Amended and Restated Credit
Agreement, dated as of July 22, 1996, by and among the Company,
JPS Elastomerics Corp., JPS Converter and Industrial Corp., JPS
Auto Inc., JPS Carpet Corp., International Fabrics, Inc., the
financial institutions listed on the signature pages thereof,
Citibank, N.A. as agent and Administrative Agent and General
Electric Capital Corporation as Co-Agent and Collateral Agent.(J)
10.23 Eighth Amendment to the Fourth Amended and Restated Credit
Agreement, dated as of September 6, 1996, by and among the
Company, JPS Elastomerics Corp., JPS Converter and Industrial
Corp., JPS Auto Inc., JPS Carpet Corp., International Fabrics,
Inc., the financial institutions listed on the signature pages
thereof, Citibank, N.A. as agent and Administrative Agent and
General Electric Capital Corporation as Co-Agent and Collateral
Agent.(J)
10.24 Employment Agreement dated October 9, 1997, between the Company
and Jerry E. Hunter. (P)
10.25 Employment Agreement dated October 9, 1997, between the Company
and David H. Taylor. (P)
10.26 Employment Agreement dated October 9, 1997, between the Company
and Monnie L. Broome.(P)
10.27 Employment Agreement, dated May 1, 1993 and amended September 11,
1995 between the Company and Carl Rosen.(J)
10.28 Employment Agreement, dated December 23, 1991 and amended August
20, 1996 and December 23, 1996 between the Company and Bruce
Wilby.(G)
10.29 Asset Purchase Agreement, dated as of September 30, 1996 between
Elastomer Technologies Group, Inc. a Delaware Corporation, and JPS
Elastomerics Corp., a Delaware Corporation and wholly- owned
subsidiary of the Company.(G)
</TABLE>
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<PAGE> 69
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
10.30 Receivables Purchase Agreement dated as of September 30, 1996
between The Bank of New York Commercial Corporation, a New York
Corporation and JPS Elastomerics Corp., a Delaware Corporation and
wholly-owned subsidiary of the Company.(G)
10.31 Registration Rights Agreement, dated as of October 9, 1997, by and
among JPS and the holders of JPS's Common Stock.(P)
10.32 Ninth Amendment to Existing Credit Agreement, dated as of February
21, 1997, by and among JPS, JCIC, JEC, JCC, the financial
institutions listed on the signature pages thereof, Citibank, as
agent and Administrative Agent and GECC as Co-Agent and Collateral
Agent.(N)
10.33 Tenth Amendment to the Existing Credit Agreement, dated as of
April 29, 1997, by and among JPS, JCIC, JEC, JCC, the financial
institutions listed on the signature pages thereof, Citibank, as
agent and Administrative Agent and GECC as Co-Agent and Collateral
Agent.(O)
10.34 Eleventh Amendment to the Existing Credit Agreement, dated as of
May 15, 1997, by and among JPS, JCIC, JEC, JCC, the financial
institutions listed on the signature pages thereof, Citibank, as
agent and Administrative Agent and GECC as Co-Agent and Collateral
Agent.(O)
10.35 Credit Facility Agreement, dated as of October 9, 1997, by and
among JPS, C&I, Elastomerics, the financial institutions listed on
the signature pages thereto, and the agent and co-agent party
thereto.(M)
10.36 1997 Incentive and Capital Accumulation Plan dated as of October
9, 1997.(P)
10.37 Warrant Agreement dated as of October 9, 1997.(P)
10.38 First Amendment to the Credit Facility Agreement, dated as of
October 30, 1998, by and among JPS, C&I, Elastomerics, the
financial institutions listed on the signature pages thereto, and
the agent and co-agent party thereto.(Q)
10.39 Asset Purchase Agreement, dated as of January 11, 1999, by and
between C&I and Belding Hausman Incorporated.(Q)
10.40 Amendment No. 1 to Asset Purchase Agreement, dated as of February
8, 1999, by and between C&I and Belding Hausman Incorporated. (Q)
10.41 JPS Guaranty Letter, dated as of January 11, 1999, by and between
JPS and Belding Hausman Incorporated. (Q)
10.42 Employment Agreement dated November 11, 1999, between the Company
and John W. Sanders, Jr. (Q)
11.1 Statement re: Computation of Per Share Earnings - not required
since such computation can be clearly determined from the material
contained herein.
12.1 Computation of Ratio of Earnings to Fixed Charges - not required
for Form 10-K per Item 503(d) of Regulation S-K.
</TABLE>
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<PAGE> 70
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
12.2 Computation of Ratio of Earnings to Combined Fixed Charges and
Preferred Stock Dividends--not required for Form 10-K per Item
503(d) of Regulation S-K.
21.1 List of Subsidiaries of the Company.(E)
24.1 Power of Attorney relating to JPS (included as part of the
signature page hereof).(M)
27.1 Financial data schedule (for SEC use only).(Q)
</TABLE>
- ------------------------------------
(A) Previously filed as an exhibit to Registration Statement No. 33-58272
on Form S-1, declared effective by the SEC on July 26, 1993, and
incorporated herein by reference.
(B) Previously filed as an exhibit to the Company's Annual Report on Form
10-K for the year ended October 30, 1993.
(C) Previously filed as an exhibit to the Company's Quarterly Report on
Form 10-Q for the quarter ended April 30, 1994.
(D) Previously filed as an exhibit to the Company's Quarterly Report on
Form 10-Q for the quarter ended July 30, 1994.
(E) Previously filed as an exhibit to the Company's Annual Report on Form
10-K for the year ended October 29, 1994.
(F) Previously filed as an exhibit to the Company's Quarterly Report on
Form 10-Q for the quarter ended April 29, 1995.
(G) Previously filed as an exhibit to the Company's Annual Report on Form
10-K for the year ended November 2, 1996.
(H) Previously filed as an exhibit to the Company's Current Report on Form
8-K dated December 1, 1995.
(I) Previously filed as an exhibit to the Company's Quarterly Report on
Form 10-Q for the quarter ended April 27, 1996.
(J) Previously filed as an exhibit to the Company's Quarterly Report on
Form 10-Q for the quarter ended July 27, 1996.
(K) Previously filed as an exhibit to JPS's Current Report on Form 8-K
dated July 2, 1997.
(L) Previously filed as an exhibit JPS's Registration Statement on Form 8-A
filed on September 8, 1997.
(M) Previously filed.
(N) Previously filed as an exhibit to JPS's Quarterly Report on Form 10-Q
for the quarter ended February 1, 1997.
(O) Previously filed as an exhibit to JPS's Quarterly Report on Form 10-Q
for the quarter ended May 3, 1997.
(P) Previously filed as an exhibit to JPS's Annual Report on Form 10-K for
the year ended November 1, 1997.
(Q) Filed herewith.
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<PAGE> 71
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
JPS TEXTILE GROUP, INC.
Date: February 16, 1999 By: /s/ Jerry E. Hunter
------------------------------------
JERRY E. HUNTER
Chairman of the Board, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/ Jerry E. Hunter Director, Chairman of the Board, February 16, 1999
- --------------------------------- President and Chief Executive Officer
JERRY E. HUNTER
/s/ John W. Sanders, Jr. Executive Vice President - Finance & February 16, 1999
- --------------------------------- Chief Financial Officer
JOHN W. SANDERS, JR.
/s/ Robert J. Capozzi Director February 16, 1999
- ---------------------------------
ROBERT J. CAPOZZI
/s/ Jeffrey S. Deutschman Director February 16, 1999
- ---------------------------------
JEFFREY S. DEUTSCHMAN
/s/ Nicholas P. DiPaolo Director February 16, 1999
- ---------------------------------
NICHOLAS P. DIPAOLO
/s/ Michael L. Fulbright Director February 16, 1999
- ---------------------------------
MICHAEL L. FULBRIGHT
/s/ John M. Sullivan, Jr. Director February 16, 1999
- ----------------------------------
JOHN M. SULLIVAN, JR.
/s/ L. Allen Ollis Controller February 16, 1999
- ----------------------------------
L. ALLEN OLLIS
</TABLE>
-71-
<PAGE> 72
JPS TEXTILE GROUP, INC. INDEX
TO SCHEDULE
INDEX TO FINANCIAL STATEMENT SCHEDULE
For the Fiscal Year Ended November 2, 1996 and the periods from November 3, 1996
to October 9, 1997 (Predecessor) and from October 10, 1997 to November 1, 1997
and for the Fiscal Year Ended October 31, 1998 (Reorganized Company).
FINANCIAL STATEMENT SCHEDULE
II. Valuation and Qualifying Accounts and Reserves S-2
Note: All other schedules are omitted because they are not applicable or not
required, or because the required information is shown either in the
consolidated financial statements or in the notes thereto.
S-1
<PAGE> 73
JPS TEXTILE GROUP, INC. SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(IN THOUSANDS)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
-------------- ---------- ------------------------ ---------- ----------
Charged to
Balance at Charged to Other Balance at
Beginning Costs and Accounts Deductions End of
Classification of Period Expenses Describe Describe Period
-------------- ---------- ---------- ----------- ---------- ----------
(a) (b)
<S> <C> <C> <C> <C> <C>
Allowances Deducted from Asset to Which They Apply:
Predecessor
Fiscal Year Ended November 2, 1996 (53 Weeks)
Allowance for doubtful accounts $ 1,950 $ 72 $ 563 $ 237 $2,348
Claims, returns and other allowances 181 -- 338 356 163
------- ------- ------- ------ ------
$ 2,131 $ 72 $ 901 $ 593 $2,511
======= ======= ======= ====== ======
For the Period From November 3, 1996
to October 9, 1997
Allowance for doubtful accounts $ 2,348 $ 781 $(1,258) $ 24 $1,847
Claims, returns and other allowances 163 -- 164 179 148
------- ------- ------- ------ ------
$ 2,511 $ 781 $(1,094) $ 203 $1,995
======= ======= ======= ====== ======
Reorganized Company
For the Period From October 10, 1997
to November 1, 1997
Allowance for doubtful accounts $ 1,847 $ -- $ (945) $ -- $ 902
Claims, returns and other allowances 148 -- 7 4 151
------- ------- ------- ------ ------
$ 1,995 $ -- $ (938) $ 4 $1,053
======= ======= ======= ====== ======
Fiscal Year Ended October 31, 1998 (52 Weeks)
Allowance for doubtful accounts $ 902 $ (28) $ 536 $ -- $1,410
Claims, returns and other allowances 151 -- 239 235 155
------- ------- ------- ------ ------
$ 1,053 $ (28) $ 775 $ 235 $1,565
======= ======= ======= ====== ======
</TABLE>
(a) Change in various reserves charged to net sales.
(b) Uncollected receivables written off, net of recoveries.
S-2
<PAGE> 1
EXHIBIT 10.38
FIRST AMENDMENT TO CREDIT FACILITY AGREEMENT
THIS FIRST AMENDMENT TO CREDIT FACILITY AGREEMENT dated as of October 30,
1998 (this "FIRST AMENDMENT" is entered into among JPS Textile Group, Inc. (the
"Company"), JPS Elastomerics Corp. and JPS Converter and Industrial Corp.
(together, the "BORROWING SUBSIDIARIES"), Citibank, N.A. ("CITIBANK"), as agent
and collateral agent (the "AGENT"), NationsBank, N.A., as co-agent (the
"CO-AGENT"), and the Lenders, and relates to that certain Credit Facility
Agreement dated as of October 9, 1997 (as the same may be amended and restated,
supplemented or modified from time to time, the "CREDIT AGREEMENT") among the
Company, the Borrowing Subsidiaries, the Agent, the Co-Agent and the Lenders.
W I T N E S S E T H:
WHEREAS, the Company and the Borrowing Subsidiaries have requested that
the Lenders, the Agent and the Co-Agent agree to amend the Credit Agreement as
provided for herein;
NOW THEREFORE, in consideration of the above premises, the Company, the
Borrowing Subsidiaries, the Agent, the Co-Agent and the Lenders agree as
follows:
1. DEFINITIONS. Capitalized terms used and not otherwise defined herein
have the meanings assigned to them in the Credit Agreement.
2. AMENDMENTS TO THE CREDIT AGREEMENT. Upon the "First Amendment
Effective Date" (as defined in Section 4 below), the Credit Agreement is hereby
amended as follows:
2.1 SECTION 1.01. Section 1.01 of the Credit Agreement is amended as
follows:
(a) The definition of "Applicable Margin" is amended to read in full as
follows:
"APPLICABLE MARGIN" means (x) for all periods ending on or before the end
of Fiscal Year 1999, (i) in the case of Base Rate Loans, 0% and (ii) in the
case of Eurodollar Rate Loans, 2.00%; and (y) at all times thereafter, (iii) in
the case of Base Rate Loans, the applicable rate per annum set forth below
under the heading "Base Rate Margin" and (iv) in the case of Eurodollar Rate
Loans, the applicable rate per annum set forth below under the heading
"Eurodollar Rate Margin":
<PAGE> 2
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
FIXED CHARGE EURODOLLAR RATE
COVERAGE RATIO BASE RATE MARGIN MARGIN
- -------------- ---------------- ---------------
<S> <C> <C>
if >=2.50 to 1 0% 1.75%
- -------------------------------------------------------------------------
if >=2.00 to 1 but <2.50 to 1 0% 2.00%
- -------------------------------------------------------------------------
if >=1.50 to 1 but <2.00 to 1 0% 2.25%
- -------------------------------------------------------------------------
if <1.50 to 1 0.25% 2.50%
- -------------------------------------------------------------------------
</TABLE>
(b) The definition of "Fixed Asset Portion" is amended by adding to
the end thereof the following additional provisos:
"; and provided, further, however, in addition to the reduction in the
Fixed Asset Portion contemplated by the preceding provisos, the Fixed Asset
Portion shall be further reduced by $833,000 on the last day of each fiscal
month of the Company ending during Fiscal Year 1999 commencing with the
fiscal month ending on December 5, 1998; and provided, further, however, in
the event that a Borrowing Subsidiary receives any cash proceeds or Net
Cash Proceeds referred to in clauses (i) through (iv) above during any
fiscal month, the amount of such cash proceeds and Net Cash Proceeds shall,
to the extent that the Fixed Asset Portion is reduced by such amount
pursuant to said clauses, be deducted from the amount of reductions in the
Fixed Asset Portion specified in the two immediately preceding provisos,
which deductions from such specified amounts of reductions in said provisos
shall be made in the direct order of the dates, beginning in such fiscal
month, specified for such reductions in said provisos"
(c) The definition of "Unused Commitment Fee Rate" is amended as
follows:
(i) within the definition of "Unused Commitment Fee Rate", the
grid setting forth the Unused Commitment Fee Rate for certain ratio
ranges is amended to read in full as follows:
<TABLE>
<CAPTION>
--------------------------------------------
FIXED CHARGE UNUSED
COVERAGE RATIO COMMITMENT FEE
-------------- --------------
<S> <C>
if >=2.5 to 1 0.25%
--------------------------------------------
is <2.5 to 1 0.375%
--------------------------------------------
</TABLE>
(ii) the term "Leverage Ratio", in each place it appears, is
replaced with the term "Fixed Charge Coverage Ratio".
2.2 Section 8.01. Section 8.01 of the Credit Agreement is amended
to read in full as follows:
8.01. Minimum EBITDA. EBITDA of the Company and its
Subsidiaries on a consolidated basis, as determined as of the last day of each
fiscal quarter set forth
-2-
<PAGE> 3
below for the twelve month period ending on such day, shall not be less than the
minimum amount set forth opposite such fiscal quarter:
<TABLE>
<CAPTION>
Fiscal Quarter Minimum Amount
-------------- --------------
<S> <C>
The fourth fiscal quarter of Fiscal Year 1998 27,000,000
The first fiscal quarter of Fiscal Year 1999 24,000,000
The second fiscal quarter of Fiscal Year 1999 23,000,000
The third fiscal quarter of Fiscal Year 1999 23,000,000
The fourth fiscal quarter of Fiscal Year 1999 26,000,000
The first fiscal quarter of Fiscal Year 2000 28,000,000
The second fiscal quarter of Fiscal Year 2000 30,000,000
The third fiscal quarter of Fiscal Year 2000 31,000,000
The fourth fiscal quarter of Fiscal Year 2000 33,000,000
The first fiscal quarter of Fiscal Year 2001 37,000,000
The second fiscal quarter of Fiscal Year 2001 37,000,000
The third fiscal quarter of Fiscal Year 2001 38,000,000
The fourth fiscal quarter of Fiscal Year 2001 39,000,000
The first fiscal quarter of Fiscal Year 2002 40,000,000
The second fiscal quarter of Fiscal Year 2002 41,000,000
The third fiscal quarter of Fiscal Year 2002 42,000,000
and thereafter
</TABLE>
2.3 Section 8.02. Section 8.02 of the Credit Agreement is amended to read
in full as follows:
8.02. Minimum Interest Coverage Ratio. The Interest Coverage Ratio
of the Company and its Subsidiaries on a consolidated basis, as determined as of
the last day of each fiscal quarter for the twelve month period ending on such
day, shall not be less than the minimum ratio set forth opposite such fiscal
quarter:
<TABLE>
<CAPTION>
Fiscal Quarter Minimum Amount
-------------- --------------
<S> <C>
The fourth fiscal quarter of Fiscal Year 1998 3.5 to 1.
The first fiscal quarter of Fiscal Year 1999 3.2 to 1.
The second fiscal quarter of Fiscal Year 1999 3.0 to 1.
The third fiscal quarter of Fiscal Year 1999 3.0 to 1.
The fourth fiscal quarter of Fiscal Year 1999 3.0 to 1.
The first fiscal quarter of Fiscal Year 2000 3.0 to 1.
The second fiscal quarter of Fiscal Year 2000 3.5 to 1.
and thereafter
</TABLE>
-3-
<PAGE> 4
2.4 Section 8.03. Section 8.03 of the Credit Agreement is amended to read
in full as follows:
8.03 Minimum Fixed Charge Coverage Ratio. The Fixed Charge Coverage
Ratio of the Company and its Subsidiaries on a consolidated basis, as
determined as of the last day of each fiscal quarter set forth below for the
twelve month period ending on such day, shall not be less than the minimum
ratio set forth opposite such fiscal quarter:
<TABLE>
<CAPTION>
FISCAL QUARTER MINIMUM RATIO
- -------------- -------------
<S> <C>
The fourth fiscal quarter of Fiscal Year 1998 N/A
The first fiscal quarter of Fiscal Year 1999 N/A
The second fiscal quarter of Fiscal Year 1999 N/A
The third fiscal quarter of Fiscal Year 1999 1.20 to 1
The fourth fiscal quarter of Fiscal Year 1999 1.30 to 1
The first fiscal quarter of Fiscal Year 2000 1.40 to 1
The second fiscal quarter of Fiscal Year 2000 1.40 to 1
The third fiscal quarter of Fiscal Year 2000 1.40 to 1
The fourth fiscal quarter of Fiscal Year 2000 1.40 to 1
The first fiscal quarter of Fiscal Year 2001 1.40 to 1
The second fiscal quarter of Fiscal Year 2001 1.40 to 1
The third fiscal quarter of Fiscal Year 2001 1.40 to 1
The fourth fiscal quarter of Fiscal Year 2001 1.40 to 1
The first fiscal quarter of Fiscal Year 2002 1.50 to 1
The second fiscal quarter of Fiscal Year 2002 1.55 to 1
The third fiscal quarter of Fiscal Year 2002
and thereafter 1.55 to 1
</TABLE>
2.5 Section 8.04. Section 8.04 of the Credit Agreement is amended to read
in full as follows:
8.04. Maximum Capital Expenditures. Capital Expenditures made or
incurred by the Company and its Subsidiaries on a consolidated basis for any
Fiscal Year shall not exceed in the aggregate the maximum amount set forth
below opposite such Fiscal Year:
-4-
<PAGE> 5
<TABLE>
<CAPTION>
Fiscal Year Maximum Amount
----------- --------------
<S> <C>
1998 25,000,000
1999 10,000,000
2000 20,000,000
2001 20,000,000
2002 20,000,000
</TABLE>
provided, however, if the maximum amount set forth above opposite any
Fiscal Year exceeds the amount of Capital Expenditures made or incurred by
the Company and its Subsidiaries on a consolidated basis for such Fiscal
Year, then Capital Expenditures made or incurred by the Company and its
Subsidiaries on a consolidated basis for the next Fiscal Year may exceed
the maximum amount set forth above opposite such next Fiscal Year (but not
subsequent Fiscal Years) by the amount of such excess from the immediately
preceding Fiscal Year; provided further, however, that, notwithstanding
anything contained in this Agreement to the contrary, the terms of any
external financing (other than any Permitted Financing) incurred after the
Effective Date pursuant to Section 7.01(v), the proceeds of which are used
by the Company and/or its Subsidiaries to make or incur Capital
Expenditures shall be in form and substance satisfactory to the Requisite
Lenders.
3. Representations and Warranties. Each of the Borrowers hereby
represents and warrants to each Lender, the Agent and the Co-Agent that, as of
the First Amendment Effective Date and after giving effect to this First
Amendment:
(a) Each of the representations and warranties contained in this First
Amendment, the Credit Agreement as amended hereby and the other Loan
Documents are true and correct in all material respects on and as of the
First Amendment Effective Date, as if then made, other than representations
and warranties which expressly speak as of a different date; and
(b) No Default or Event of Default has occurred and is continuing.
4. First Amendment Effective Date. This First Amendment shall
become effective as of the date hereof (the "First Amendment Effective Date")
when each of the following conditions shall have been satisfied:
(a) The Agent shall have received, by facsimile, counterparts hereof
executed by the Company, each Borrowing Subsidiary, the Agent, the Co-Agent
and the Requisite Lenders, and acknowledged by each of JCC, JPS Auto and
International Fabrics.
(b) Each of the representations and warranties contained in this First
Amendment, the Credit Agreement as amended hereby and the other Loan
Documents shall be true and correct in all material respects on and as of
the First Amendment Effective Date, as if
-5-
<PAGE> 6
then made, other than representations and warranties which expressly
speak as of a different rate.
(c) No Event of Default or Default shall have occurred and be
continuing on the First Amendment Effective Date.
5. Reference to and Effect on the Loan Documents.
(a) On and after the First Amendment Effective Date, each reference in
the Credit Agreement as amended hereby to "this Agreement", "hereunder",
"hereof", or words of like import, and each reference in the other Loan
Documents to the Credit Agreement, shall mean and be a reference to the Credit
Agreement as amended hereby.
(b) Except as specifically amended above, all of the terms of the
Credit Agreement and all other Loan Documents shall remain unchanged and in full
force and effect.
(c) The execution, delivery and effectiveness of this First Amendment
shall not, except as expressly provided herein, operate as a waiver of any
right, power or remedy of any Lender, the Agent or the Co-Agent under the Credit
Agreement or any of the Loan Documents, nor constitute a waiver of any provision
of the Credit Agreement or any of the Loan Documents.
6. Costs and Expenses. The Company and the Borrowing Subsidiaries
jointly and severally agree to pay upon demand in accordance with the terms of
Section 11.03 of the Credit Agreement all reasonable costs and expenses of the
Agent in connection with the preparation, reproduction, negotiation, execution
and delivery of this First Amendment and all other Loan Documents entered into
in connection herewith, including, without limitation, the reasonable fees,
expenses and disbursements of Sidley & Austin, counsel for the Agent with
respect to any of the foregoing.
7. Miscellaneous. The headings herein are for convenience of
reference only and shall not alter or otherwise affect the meaning hereof.
8. Counterparts. This First Amendment may be executed in any number
of counterparts and by the different parties hereto in separate counterparts,
each of which when so executed and delivered by facsimile shall be an original,
but all of which shall together constitute one and the same instrument.
9. GOVERNING LAW. THIS FIRST AMENDMENT SHALL BE INTERPRETED, AND THE
RIGHTS AND LIABILITIES OF THE PARTIES HERETO AND TO THE CREDIT AGREEMENT AS
AMENDED HEREBY DETERMINED, IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK.
-6-
<PAGE> 7
IN WITNESS WHEREOF, the Agent, the Co-Agent, the Lenders, the Company
and the Borrowing Subsidiaries have caused this First Amendment to be executed
by their respective officers thereunto duly authorized as of the date first
above written.
JPS TEXTILE GROUP, INC.
By: /s/ John W. Sanders, Jr.
------------------------------------
Title: Vice President
JPS CONVERTER AND INDUSTRIAL CORP.
By: /s/ John W. Sanders, Jr.
------------------------------------
Title: Vice President
JPS ELASTOMERICS CORP.
By: /s/ John W. Sanders, Jr.
------------------------------------
Title: Vice President
CITIBANK, N.A., as Agent, as Issuing
Bank and as a Lender
By: /s/ Brenda M. Cotsen
------------------------------------
Title: Vice President
-7-
<PAGE> 8
NATIONSBANK, N.A., as Co-Agent and as a Lender
By: /s/ Robert J. Dysart, Jr.
-----------------------------------
Title: Vice President
GENERAL ELECTRIC CAPITAL CORPORATION
By: /s/ Charles D. Chiodo
-----------------------------------
Title: Duly Authorized Signatory
HELLER FINANCIAL, INC.
By: /s/ John M. Szwalek
-----------------------------------
Title: Vice President
BNY FINANCIAL CORPORATION
By: /s/ Dan Murray
-----------------------------------
Title: SVP
BANKBOSTON, N.A.
By: /s/ John K. Hood
-----------------------------------
Title: Managing Director
-8-
<PAGE> 9
ACKNOWLEDGMENT
Reference is hereby made to (i) the Guaranty dated as of March 18, 1993
executed by JPS Carpet Corp., (ii) the Guaranty dated as of March 18, 1993
executed by JPS Auto Inc., and (iii) the Guaranty dated as of August 5, 1993
executed by International Fabrics, Inc., each as amended as of October 9, 1997
(each, as so amended, a "Guaranty") in favor of the Agent and the Lenders. Each
of the undersigned hereby consents to the terms of the foregoing First
Amendment to Credit Facility Agreement, and agrees that the terms thereof shall
not affect in any way its obligations and liabilities under each such Guaranty
or any other Loan Document (as defined therein), all of which obligations and
liabilities shall remain in full force and effect and each of which is hereby
reaffirmed.
JPS CARPET CORP.
By: /s/ John W. Sanders, Jr.
-----------------------------------
Title: Vice President
JPS AUTO INC.
By: /s/ John W. Sanders, Jr.
-----------------------------------
Title: Vice President
INTERNATIONAL FABRICS, INC.
By: /s/ John W. Sanders, Jr.
-----------------------------------
Title: Vice President
-9-
<PAGE> 1
EXHIBIT 10.39
ASSET PURCHASE AGREEMENT
Dated as of January 11, 1999
by and between
JPS CONVERTER AND INDUSTRIAL CORP.
as Seller
and
BELDING HAUSMAN INCORPORATED
as Purchaser
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I
DEFINITIONS...................................... 2
1.1 Defined Terms ............................................................. 2
1.2 Terms Defined Elsewhere in the Agreement .................................. 9
1.3 Other Definitional Provisions ............................................. 10
ARTICLE II
PURCHASE AND SALE OF ASSETS............................ 10
2.1 Sale of Assets; Assumption of Liabilities ................................. 10
2.2 Purchase Price ............................................................ 11
2.3 Adjustments to Purchase Price ............................................. 11
ARTICLE III
CLOSING........................................ 13
3.1 Closing ................................................................... 13
3.2 Conveyances at Closing .................................................... 14
(a) Instruments and Possession ....................................... 14
(b) Form of Instruments .............................................. 15
(c) Consents to Assignment ........................................... 15
3.3 Assumption Documents ...................................................... 16
3.4 Other Deliveries at Closing ............................................... 16
(a) Personal Property Lease Assignment and Assumption Agreement ...... 16
(b) Certificates; Opinions ........................................... 16
(c) Personal Property Leases and Other Third-Party Consents .......... 16
3.5 Certain Business Information .............................................. 17
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SELLER...................... 17
4.1 Organization .............................................................. 17
4.2 Corporate Authorization ................................................... 17
4.3 Personal Property Leases .................................................. 18
4.4 Title to Owned Real Property .............................................. 18
4.5 Title to Owned Personal Property .......................................... 18
4.6 Contracts and Commitments ................................................. 18
4.7 Litigation, Proceedings and Applicable Law ................................ 19
4.8 Compliance with Law ....................................................... 20
4.9 Taxes ..................................................................... 20
4.10 No Conflict or Violation .................................................. 20
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
4.11 Consents and Approvals .................................................... 21
4.12 Insurance ................................................................. 21
4.13 Employee Benefit Plans .................................................... 21
4.14 Labor Relations ........................................................... 22
4.15 Permits ................................................................... 23
4.16 Brokers ................................................................... 23
4.17 Boger City Plant .......................................................... 23
4.18 Environmental Matters ..................................................... 23
4.19 Condition of Fixed Assets ................................................. 24
4.20 Books and Records ......................................................... 24
4.21 Customers ................................................................. 24
4.22 Product Warranties ........................................................ 24
4.23 Absence of Certain Changes ................................................ 24
4.24 Certain Payments .......................................................... 25
4.25 October 31, 1998 and 1997 Statement ....................................... 25
4.26 Form of Purchase Order Confirmation ....................................... 25
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PURCHASER..................... 25
5.1 Organization .............................................................. 25
5.2 Corporate Authorization ................................................... 26
5.3 No Conflict or Violation .................................................. 26
5.4 Consents and Approvals .................................................... 26
5.5 Litigation ................................................................ 27
5.6 Brokers ................................................................... 27
ARTICLE VI
COVENANTS OF SELLER AND PURCHASER.......................... 27
6.1 Employees ................................................................. 27
(a) Employment ....................................................... 27
(b) Credited Service ................................................. 28
(c) Severance ........................................................ 28
(d) Health and Medical Plan Coverage ................................. 28
(e) Vacation ......................................................... 28
(f) Pension Benefits ................................................. 29
(g) Savings Plan ..................................................... 29
(h) Flex Plan ........................................................ 29
(i) Transfer of or Access to Records ................................. 30
(j) W-2 Matters ...................................................... 30
6.2 Further Assurances; Cooperation and Assistance ............................ 30
6.3 Nondisclosure ............................................................. 31
6.4 Non-Competition ........................................................... 31
6.5 Sums Received in Respect of Business ...................................... 32
6.6 Maintenance of the Business Prior to Closing .............................. 32
6.7 Consents .................................................................. 34
6.8 Public Announcements ...................................................... 34
6.9 Bill and Hold Insurance ................................................... 34
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
6.10 Financing ................................................................. 34
6.11 Pre-Closing Sales Tax Liabilities ......................................... 35
6.12 Testing ................................................................... 35
ARTICLE VII
CONDITIONS TO SELLER'S OBLIGATIONS.......................... 35
7.1 Representations, Warranties and Covenants ................................. 35
7.2 Certificates .............................................................. 35
7.3 Corporate Documents ....................................................... 36
7.4 Legal Opinion ............................................................. 36
7.5 Consents .................................................................. 36
7.6 No Governmental Proceedings or Litigation ................................. 36
ARTICLE VIII
CONDITIONS TO PURCHASER'S OBLIGATIONS........................ 36
8.1 Representations, Warranties and Covenants ................................. 36
8.2 Certificates .............................................................. 37
8.3 Section 1445 Certificate .................................................. 37
8.4 Corporate Documents ....................................................... 37
8.5 Legal Opinion ............................................................. 37
8.6 Consents .................................................................. 37
8.7 Delivery of Documents ..................................................... 37
8.8 Good Standing Certificates ................................................ 37
8.9 Release of Liens .......................................................... 37
8.10 No Governmental Proceedings or Litigation ................................. 38
8.11 Financing ................................................................. 38
ARTICLE IX
CERTAIN ACTIONS BY SELLER AND PURCHASER
AFTER THE CLOSING ......................... 38
9.1 Books and Records ......................................................... 38
9.2 Indemnification ........................................................... 38
(a) By Seller ........................................................ 38
(b) By Purchaser ..................................................... 39
(c) Claims by Third Parties .......................................... 39
(d) Limitations on Indemnification ................................... 40
9.3 [Reserved] ................................................................ 44
9.4 Tax Matters ............................................................... 44
9.5 Mail Received After Closing ............................................... 44
ARTICLE X
MISCELLANEOUS..................................... 45
10.1 Termination ............................................................... 45
10.2 Survival of Representations and Warranties ................................ 45
10.3 Assignment ................................................................ 46
</TABLE>
iii
<PAGE> 5
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
10.4 Notices ................................................................... 46
10.5 Choice of Law ............................................................. 47
10.6 Entire Agreement; Amendments and Waivers .................................. 47
10.7 Multiple Counterparts ..................................................... 48
10.8 Expenses .................................................................. 48
10.9 Invalidity ................................................................ 48
10.10 Titles .................................................................... 48
10.11 Confidential Transaction Information ...................................... 48
10.12 Third Parties ............................................................. 49
10.13 Neutral Construction ...................................................... 49
10.14 Revisions to Certain Schedules ............................................ 49
</TABLE>
iv
<PAGE> 6
EXHIBITS
Exhibit A -- Form of Bill of Sale
Exhibit B -- Form of Contract Rights Assignment and Assumption
Agreement
Exhibit C -- Excluded Assets
Exhibit D -- October 31, 1998 and 1997 Statement
Exhibit E -- Form of Personal Property Lease Assignment and Assumption
Agreement
Exhibit F -- Form of Purchase Order Confirmation
Exhibit G -- Form of Opinion of Jackson Walker L.L.P., Counsel to
Purchaser
Exhibit H -- Form of Opinion of Weil, Gotshal & Manges LLP, Counsel to
Seller
SCHEDULES
Schedule 1.1(a) - Fixed Assets
Schedule 1.1(b) - Exceptions to Title
Schedule 3.5(a) - Employees
Schedule 3.5(b) - Backlog
Schedule 4.3 - Personal Property Leases
Schedule 4.4 - Owned Real Property
Schedule 4.5 - Exceptions to Title to Owned Personal Property
Schedule 4.6 - Contracts
Schedule 4.7 - Seller's Legal Proceedings
Schedule 4.8 - Exceptions to Seller's Legal Compliance
Schedule 4.9 - Taxes
Schedule 4.10 - Seller's Conflicts or Violations
Schedule 4.11 - Seller's Consents and Approvals
Schedule 4.12 - Insurance
Schedule 4.13(a) - Employee Benefit Plans
Schedule 4.14(a) - Compensation
Schedule 4.14(b) - Floyd Clonninger
Schedule 4.14(c) - Employee Manuals
Schedule 4.14(d) - Labor Relations
Schedule 4.15 - Permits
Schedule 4.17 - Material Changes
Schedule 4.18 - Environmental Matters
Schedule 4.19 - Inoperable Fixed Assets
Schedule 4.21 - Customers
Schedule 4.22 - Product Warranties
Schedule 4.23 - Certain Changes
Schedule 4.26 - Purchase Orders
Schedule 5.3 - Purchaser's Conflicts or Violations
Schedule 5.4 - Purchaser's Consents and Approvals
Schedule 5.5 - Purchaser's Legal Proceedings
v
<PAGE> 7
Schedule 5.6 - Brokers
Schedule 6.1(c) - Seller's Severance and Layoff Benefits
Schedule 6.1(e) - Vacation Policy
Schedule 6.4(a) - Non-Compete
Schedule 6.4(b) - Key Employees
Schedule 6.6(b) - Employees and Business Relationships
Schedule 7.5 - Seller's Consents
Schedule 8.6 - Purchaser's Consents
vi
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ASSET PURCHASE AGREEMENT
This ASSET PURCHASE AGREEMENT (the "Agreement"), dated as of
January 11, 1999, is by and between JPS Converter and Industrial Corp., a
Delaware corporation ("Seller"), and Belding Hausman Incorporated, a Delaware
corporation ("Purchaser").
WITNESSETH:
WHEREAS, Seller is engaged in the business of manufacturing a
variety of yarns and manufacturing and selling a variety of unfinished woven
fabrics at Seller's Boger City Plant (the "Boger City Plant") located in
Lincolnton, North Carolina (the "Business"), which fabrics are marketed by
Seller to other end users for the manufacture of draperies, curtains,
lampshades, bedding and upholstery; and
WHEREAS, Seller desires to sell, and Purchaser desires to
purchase, substantially all of the properties, rights and assets used by Seller
in the conduct of the Business upon the terms and subject to the conditions
hereinafter set forth; and
WHEREAS, JPS (as defined herein) and Purchaser are
simultaneously herewith executing the JPS Agreement (as defined herein),
pursuant to which JPS, among other matters, shall guarantee the due and punctual
performance and discharge by Seller of all of Seller's obligations under this
Agreement; and
WHEREAS, Seller and Purchaser are simultaneously herewith
executing (i) the Supply Agreement (as defined herein), pursuant to which Seller
shall sell to Purchaser and Purchaser shall purchase from Seller Yarn (as
defined therein), subject to the terms and conditions contained therein, which
shall be effective only upon (a) the Closing (as defined herein) or (b) the
termination of this Agreement pursuant to (x) Section 10.1(c) hereof under the
circumstances in which all conditions to the obligations of Purchaser to
consummate the transactions provided for hereby (other than the conditions
contained in Section 8.7 hereof in respect of closing deliveries (provided that
Seller shall be willing and able to make such deliveries)) have been satisfied
or waived by Purchaser except for the condition set forth in Section 8.11 hereof
in respect of financing or (y) Section 10.1(d) hereof and (ii) the Transitional
Services Agreement (as defined herein), pursuant to which Seller shall provide
certain transitional services to
<PAGE> 9
Purchaser, subject to the terms and conditions contained therein, which shall be
effective only upon the Closing;
NOW, THEREFORE, in consideration of the mutual
premises, covenants, representations and warranties contained herein and of
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto, intending to be legally bound hereby,
agree as follows:
ARTICLE I
DEFINITIONS
1.1 Defined Terms. Unless otherwise defined herein, the
following terms as used herein shall have the following respective meanings:
"Accounts Receivable" means all accounts and notes receivable,
refunds and deposits received from third parties relating solely to the Business
together, in each case, with all security and collateral therefor.
"Accounts Payable" means all accounts payable relating solely
to the Business.
"Affiliate" means, with respect to any Person, any Person that
directly, or indirectly through one or more intermediaries, controls, or is
controlled by, or is under common control with, such Person.
"Agreement" shall have the meaning set forth in the recitals
hereto.
"Ancillary Agreements" means the other agreements, instruments
and documents executed or to be executed by Seller or Purchaser or their
respective Affiliates, as the case may be, in connection with this Agreement,
including, without limitation, the special warranty deed, the Bills of Sale, the
Personal Property Lease Assignment and Assumption Agreement, the Contract Rights
Assignment and Assumption Agreement, the Transitional Services Agreement and the
Supply Agreement.
"Assets" means all of Seller's rights, title and interests in
and to all of the properties, assets and rights constituting the Business (other
than the Excluded Assets) on the Closing Date, consisting of the following:
(a) all Accounts Receivable;
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<PAGE> 10
(b) all Contract Rights;
(c) all Owned Real Property;
(d) all Fixed Assets;
(e) all of Seller's rights and obligations under the
Personal Property Leases;
(f) all Inventory;
(g) to the extent transferable, all Permits; and
(h) all Books and Records, including books of account,
records, files, invoices, manuals, sales, marketing and advertising materials,
customer and supplier files, personnel files, equipment maintenance records,
equipment warranty information, material, specifications and drawings, equipment
drawings, customer specifications, sales, distribution and purchase
correspondence, trade association memberships and all other similar data,
manuals and property, in each case relating solely to the Business;
provided, however, that the Assets shall also include all other assets located
at the Boger City Plant as of the Closing Date (other than the Excluded Assets).
"Assumed Liabilities" shall mean the following liabilities and
obligations of Seller: (i) all duties and obligations under the contracts and
commitments set forth on Schedule 4.6 to the extent that such duties and
obligations accrue after the Closing Date, (ii) Accounts Payable, together with
any interest accrued thereon (A) in an amount not to exceed $900,000 in the
aggregate and (B) which, in respect of each Account Payable, is not more than 30
days from the invoice date, (iii) liabilities described in Section 6.1 hereof in
respect of the Transferred Employees and (iv) all Environmental Costs and
Liabilities at the Boger City Plant not attributable to Seller or any prior
owner or operator of the Business or which were not violations of Environmental
Laws in effect as of or prior to the Closing.
"Bills of Sale" means one or more Bills of Sale made as of the
Closing Date by Seller in the form of Exhibit A hereto.
"Boger City Plant" shall have the meaning set forth in the
recitals hereto.
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<PAGE> 11
"Books and Records" means all books and records relating
solely to the Business or relating solely to the Assets and the customers and
suppliers thereof.
"Business" shall have the meaning set forth in the recitals
hereto.
"Closing Date" means the date which is the fifth business day
after all the conditions to Closing set forth in Articles VII and VIII have been
satisfied or waived, or such other date as Purchaser and Seller shall mutually
agree.
"Closing Statement" means the audited statement which shall
set forth Accounts Receivable and Inventory as of the Closing Date, net of
appropriate reserves and allowances, calculated in accordance with GAAP and on a
basis consistent with the October 31, 1998 and 1997 Statement.
"Code" means the Internal Revenue Code of 1986, as amended.
"Contract Rights" means all of the rights, duties and
obligations of Seller under the contracts and commitments set forth on Schedule
4.6 hereto and all of Seller's right, title and interest in and to all
contracts, agreements, leases, notes, purchase orders, sales orders and other
commitments of Seller relating solely to the Business.
"Contract Rights Assignment and Assumption Agreement" means
that certain agreement dated as of the Closing Date by and between Seller and
Purchaser in the form of Exhibit B hereto.
"Employees" means all persons who are employed as current
employees of the Business on the Closing Date (or, for purposes of Section 3.5
only, on the dates specified therein), including but not limited to, all
Employees on vacation, a leave of absence, layoff or receiving benefits under
any disability plan of Seller; provided, however, that Employees shall not
include (i) the employees performing services for the Business who are located
in New York, New York and (ii) Emmett Eagle, the director of technical services
of Seller.
"Encumbrance" means any lien, mortgage, pledge, security
interest, charge or encumbrance of any nature whatsoever or any right or
interest whatsoever of any third party, including, without limitation, a lien,
claim or other
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<PAGE> 12
interest of a Governmental Agency or municipality for Taxes, assessments and
other such charges.
"Environmental Costs and Liabilities" means any and all
losses, liabilities, obligations, damages, fines, penalties, judgments, actions,
claims, costs and expenses (including, without limitation, fees, disbursements
and expenses of legal counsel, experts, engineers and consultants and the costs
of investigation and feasibility studies, monitoring or other studies or the
costs to cleanup, removal or otherwise treat any Hazardous Material) arising
from or under any Environmental Law or order.
"Environmental Laws" means all applicable federal, state,
local or foreign laws (including common law), statute, rule, regulation or other
legal requirement relating to the environment, natural resources or employee
health and safety including, without limitation, the Comprehensive Environmental
Resource, Compensation, and Liability Act (42 U.S.C. ss. 9601 et seq.)
("CERCLA"), the Hazardous Material Transportation Act (49 U.S.C. ss. 1801 et
seq.) ("RCRA"), the Clean Water Act (33 U.S.C. ss. 1251 et seq.), the Clean Air
Act (42 U.S.C. ss. 7401 et seq.), the Toxic Substances Control Act, as amended
(15 U.S.C. ss. 2601 et seq.), the Federal Insecticide, Fungicide, and
Rodenticide Act (7 U.S.C. ss. 136 et seq.), the Emergency Planning and Community
Right-to-Know Act (42 U.S.C. ss. 11001 et seq.), the Safe Drinking Water Act (42
U.S.C. ss. 201 and ss. 300f et seq.), the Oil Pollution Act (33 U.S.C. ss. 2701
et seq.) and the Occupational Safety and Health Act (29 U.S.C. ss. 651 et seq.),
as such laws have been amended or supplemented from time to time, and all
regulations, rules or ordinances duly promulgated pursuant thereto and any
analogous state, local or foreign laws, in each case as in effect as of the date
hereof and as of the Closing Date.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"Excluded Assets" means the properties and assets of the
Business listed on Exhibit C hereto and which are not being acquired by
Purchaser hereunder.
"Excluded Liabilities" means all liabilities of Seller other
than the Assumed Liabilities.
"Fixed Assets" means all of the furniture, fixtures,
furnishings, machinery, tools, equipment and other personal property owned by
Seller and used in connection with the Business, and located in, at or upon the
Owned Real
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<PAGE> 13
Property as of the Closing Date and which are necessary to the Business,
including all warranties and licenses received from manufacturers and sellers of
the aforesaid items to the extent assignable by Seller to Purchaser and any
related claims, credits and rights of recovery with respect to such items, as
set forth on Schedule 1.1(a) attached hereto, and four (4) ply-twisters from the
Seller's Stanley, North Carolina plant.
"GAAP" means U.S. generally accepted accounting principles
applicable to financial statements which omit complete footnotes and schedules,
consistently applied throughout the periods involved.
"Governmental Agency" means (a) any international, foreign,
federal, state, county, local or municipal government or administrative agency
or political subdivision thereof, (b) any governmental agency, authority, board,
bureau, commission, department or instrumentality, (c) any court or
administrative tribunal, (d) any non-governmental agency, tribunal or entity
that is vested by a governmental agency with applicable jurisdiction, or (e) any
arbitration tribunal or other non-governmental authority with applicable
jurisdiction.
"Hazardous Material" means any substance, material or waste
whether in a solid, liquid or gaseous state which is classified, regulated or
otherwise characterized by any Governmental Agency as hazardous, toxic,
contaminant, or pollutant or words of similar meaning or regulatory effect,
including, but not limited to, petroleum, petroleum products, asbestos, urea,
formaldehyde and polychlorinated biphenyls.
"Inventory" means all of (i) the inventory relating solely to
the Business held for sale to customers in the ordinary course of the Business
as of the Closing Date, (ii) the raw materials, work in process, finished
products, wrapping, supply and packaging items, and similar items, other than
tray packs, relating solely to the Business as of the Closing Date and (iii)
related claims and rights of recovery with respect to the items listed in
clauses (i) and (ii) hereto to the extent assignable.
"JPS" means JPS Textile Group, Inc., a Delaware corporation.
"JPS Agreement" means that certain letter agreement of even
date herewith, by and between Purchaser and JPS.
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<PAGE> 14
"Knowledge of Seller" shall mean the actual knowledge of any
of the following individuals: Jerry E. Hunter, the Chairman and Chief Executive
Officer, John Sanders, the Chief Financial Officer and Monnie L. Broome, the
Vice President - Human Resources (solely in respect of human resources and
employee benefit matters) of JPS or James H. Gully, the Executive Vice President
of Operations, Reid A. McCarter, the Business Manager, Charles O'Mahoney, the
Chief Financial Officer and Carl Rosen, the President of Seller or Floyd
Clonninger, the Plant Manager of the Boger City Plant.
"Material Adverse Effect" means any event, change, effect,
occurrence or state of facts that has had or is reasonably expected to have a
material adverse effect on the business, results of operations or the financial
condition of the Business taken as a whole; provided, however, that any adverse
effect arising out of or resulting from (a) an event or series of events or
circumstances affecting (i) the textiles industry generally in the United States
or (ii) the United States economy generally or (b) the entering into of this
Agreement, shall not, in and of itself, constitute a Material Adverse Effect.
"October 31, 1998 and 1997 Statement" means that certain
unaudited statement of Seller's Household Furnishing Division as of October 31,
1998 and November 1, 1997 which is attached hereto as Exhibit D.
"Owned Real Property" means the real property relating solely
to the Business and owned by Seller, as listed on Schedule 4.4.
"Permissible Liens" means, with respect to any Asset, (i) the
exceptions to title identified on Schedule 1.1(b) hereto, (ii) taxes not yet due
and payable as set forth on Schedule 1.1(b), (iii) such matters as set forth on
the surveys (if any) delivered by Seller to Purchaser with respect to the Owned
Real Property, (iv) laws and governmental regulations that affect the use and
maintenance of the Owned Real Property, provided that they are not violated by
the buildings and improvements constituting the Owned Real Property, (v) the
consents for the erection of any structures on, under or above any streets on
which the Owned Real Property abuts as set forth on Schedule 1.1(b), (vi) the
notices of violation of law or municipal ordinances, orders or requirements
issued by any Governmental Agency as set forth on Schedule 1.1(b), (vii) liens
for Taxes, assessments, water and sewer rents not yet due and payable as set
forth on Schedule 1.1(b) and (viii)
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<PAGE> 15
utility lines, sewer lines and railroad rights of way affecting the Owned Real
Property as set forth on Schedule 1.1(b).
"Permits" means all of Seller's licenses, permits,
certificates and other public, governmental and private third party
authorizations and approvals reasonably necessary to carry on the Business as
presently conducted, in each case relating solely to the Business, as listed on
Schedule 4.15.
"Person" means any individual, corporation, partnership,
association, joint-stock company, trust, unincorporated organization or a
government or political subdivision thereof.
"Personal Property Lease Assignment and Assumption Agreement"
means that certain agreement dated as of the Closing Date by and between Seller
and Purchaser in the form of Exhibit E hereto.
"Personal Property Leases" means all of the leases of personal
property relating solely to the Business listed on Schedule 4.3 hereto.
"Purchaser" shall have the meaning set forth in the recitals
hereto.
"Release" means any release, spill, emission, leaking,
pumping, emptying, dumping, injection, abandonment, deposit, disposal,
discharge, dispersal, leaching or migration on or into the indoor or outdoor
environment or on, into, above or beneath any property.
"Seller" shall have the meaning set forth in the recitals
hereto.
"Seller Credit Agreement" means the Credit Facility Agreement,
dated as of October 9, 1997, as amended, supplemented, modified, restated or
refinanced from time to time, among JPS, Seller, JPS Elastomerics Corp., the
financial institutions party thereto (the "Lenders"), Citibank, N.A., in its
capacity as agent and collateral agent for the Lenders, and NationsBank, N.A.,
in its capacity as co-agent for the Lenders, and all guarantees, collateral or
security agreements and related agreements entered into in connection therewith
and pursuant thereto.
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<PAGE> 16
"Supply Agreement" means that certain Supply Agreement of even
date herewith by and between Seller and Purchaser.
"Taxes" means all federal, state, local and foreign taxes,
charges, fees, levies, imposts, duties or other assessments, including, without
limitation, income, gross receipts, excise, employment, sales, use, transfer,
license, payroll, franchise, severance, stamp, occupation, windfall profits,
environmental (including taxes under Code Section 59A), premium, 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, imposed or required to be withheld by the United States or any
state, local, foreign government or subdivision or agency thereof, including any
interest penalties or additions thereto.
"Transferred Employees" means all Employees who commence
employment with Purchaser pursuant to Section 6.1(a) hereof.
"Transitional Services Agreement" means that certain
Transitional Services Agreement of even herewith by and between Seller and
Purchaser.
1.2 Terms Defined Elsewhere in the Agreement. For purposes of
this Agreement, the following terms have the meanings set forth in the sections
indicated:
<TABLE>
<CAPTION>
Term Section
---- -------
<S> <C>
Action 9.2(c)
Asset Transfer Date 6.1(g)
Arbitrator 2.3(c)
Cash Compensation 4.14(a)
CIT Agreement 6.6(g)
Closing 3.1
Collateral Agent 10.3
Consenting Party 3.4(c)
Contracts 4.6
Damages 9.2(a)
Dispute Notice 2.3(c)
Employees Policies and 4.14(c)
Procedures
JPS Flex Plan 6.1(h)
Pension Plan 6.1(f)
</TABLE>
9
<PAGE> 17
Plans 4.13(a)
Purchase Order Confirmation 4.26
Purchase Price 2.2
Purchaser Flex Plan 6.1(h)
Purchaser's Savings Plan 6.1(g)
Seller's Savings Plan 6.1(g)
1.3 Other Definitional Provisions.
(a) The words "hereof", "herein", and "hereunder" and
words of similar import, when used in this Agreement, shall refer to this
Agreement as a whole and not to any particular provision of this Agreement.
(b) Terms defined in the singular shall have a comparable
meaning when used in the plural, and vice versa.
(c) The terms "dollars" and "$" shall mean United States
dollars.
ARTICLE II
PURCHASE AND SALE OF ASSETS
2.1 Sale of Assets; Assumption of Liabilities. On the
Closing Date, in reliance upon the covenants, representations and warranties
contained herein and subject to the terms and conditions hereof:
(a) Seller hereby agrees to sell, convey, transfer,
assign, and deliver to Purchaser, and Purchaser hereby agrees to purchase from
Seller, the Assets.
(b) Purchaser hereby agrees to assume and pay, perform
and discharge as and when due the Assumed Liabilities. Purchaser expressly shall
not assume or pay for the Excluded Liabilities, including, without limitation,
liabilities relating to (A) the Excluded Assets, (B) income or franchise Taxes
imposed on net income or sales or real property taxes incurred by Seller or
relating to the Assets for any taxable period ending on or prior to the Closing
Date, (C) any liability for purchase money debt, debt for borrowed money or a
guaranty in respect thereof, except to the extent such liabilities are reflected
on the Closing Statement, and (D) (1) liabilities assumed by Seller pursuant to
Section 6.1 hereof and (2) liabilities incurred or accrued prior to the Closing
Date under any employee benefit plan, policy and arrangement covering or
providing benefits to the Employees.
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<PAGE> 18
2.2 Purchase Price.
(a) On the Closing Date, as consideration for the sale,
conveyance, transfer, assignment and delivery of the Assets (i) Purchaser shall
pay to Seller in cash an amount equal to $11,400,000 (the "Purchase Price"),
subject to adjustment as provided in Section 2.3 hereof; and (ii) Purchaser
shall assume the Assumed Liabilities.
(b) At the election of Seller, the Purchase Price shall
be paid at the Closing by either (i) wire transfer of immediately available
funds to an account designated in writing by Seller or (ii) federal funds check.
(c) Prior to the Closing, Seller shall prepare and
deliver to Purchaser a schedule which shall set forth the allocation of the
Purchase Price among the Assets. Such allocation shall be subject to Purchaser's
approval (which shall not be unreasonably withheld). Subject to the requirements
of any applicable Tax law, all Tax returns filed by Purchaser and Seller shall
be prepared consistently with such allocation and with the treatment of the
transaction pursuant to this Agreement as a purchase and sale of the Assets. In
the event of any Purchase Price adjustment pursuant to Section 2.3 hereof,
Purchaser and Seller agree to adjust such allocation to reflect such Purchase
Price adjustment and, subject to the requirements of any applicable Tax laws, to
file consistently any Tax returns required as a result of such Purchase Price
adjustment. In the event no such agreement is reached, the parties hereto shall
resolve such disagreement pursuant to the provisions provided for under Section
2.3(c) of this Agreement.
2.3 Adjustments to Purchase Price.
(a) The Purchase Price shall be increased or decreased
(on a dollar for dollar basis), as the case may be, for any increase or decrease
in Accounts Receivable and Inventory as set forth on the Closing Statement, if
the aggregate value of Accounts Receivable and Inventory as of the Closing Date
(net of appropriate reserves and allowances, calculated in accordance with GAAP
and on a basis consistent with the October 31, 1998 and 1997 Statement) is: (A)
greater than $7,538,000, then Purchaser shall pay to Seller the amount of such
excess; (B) less than $7,538,000, then Seller shall pay to Purchaser the amount
of such difference; or (C) equal to $7,538,000, then neither Seller nor
Purchaser shall owe any amount to the other pursuant to this Section 2.3(a).
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<PAGE> 19
(b) As soon as is reasonably practicable following the
Closing Date (but no later than 45 days following the Closing Date), Seller
shall prepare and deliver to Purchaser the Closing Statement which shall set
forth the Purchase Price adjustments to be made, if any, in accordance with
Section 2.3(a). In connection with the preparation of the Closing Statement,
Purchaser shall grant Seller and its accountants, counsel and other
representatives, full and complete access to all of the books and records of the
Business. The Closing Statement shall be audited by Seller's accountants and
shall include a schedule reviewed by such accountants showing the computation of
Accounts Receivable and Inventory as of the Closing Date (net of appropriate
reserves and allowances, calculated in accordance with GAAP and on a basis
consistent with the October 31, 1998 and 1997 Statement), computed in accordance
with the definitions of such terms set forth herein. Concurrently with their
delivery of the Closing Statement to Purchaser, Seller shall cause reasonable
access to be granted to Purchaser to the work papers, schedules and other
documents prepared or used by Seller and its accountants in connection with the
preparation of the Closing Statement. Seller shall pay all fees and expenses of
its accountants in connection with the preparation of the Closing Statement and
the computation of Accounts Receivable and Inventory as of the Closing Date.
(c) Unless Purchaser, within 30 days after receipt of the
Closing Statement, gives Seller a notice (the "Dispute Notice") (i) objecting in
good faith to the Closing Statement, (ii) setting forth in reasonable detail the
items being disputed and the reasons therefor, and (iii) specifying that
Purchaser's calculation of Accounts Receivable and Inventory as of the Closing
Date is in an amount which differs from that reflected in such Closing Statement
(the entire amount of such difference being hereinafter referred to as the
"Adjusted Amount"), the Accounts Receivable and Inventory as of the Closing Date
as set forth in the Closing Statement and the Purchase Price adjustment set
forth therein shall be binding and final upon the parties. If a Dispute Notice
is given by Purchaser, the parties shall negotiate in good faith with a view to
agreeing upon the Accounts Receivable and Inventory as of the Closing Date and
the corresponding amount of the adjustment required by paragraph (a) of this
Section 2.3. If negotiations between Purchaser and Seller fail to resolve all
disputed items within 30 days after the Dispute Notice was given to Seller, the
remaining disputed items shall be submitted to KPMG Peat Marwick LLP (the
"Arbitrator"). After affording each of Seller and Purchaser and their
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<PAGE> 20
accountants the opportunity to present its position as to such determination
(which opportunity shall not extend for more than 30 days from the date the
independent public accountants are retained), the accounting firm selected
pursuant to this paragraph shall determine the adjustment pursuant to paragraph
(a) of this Section 2.3 and such determination shall be final and binding. Each
party shall pay its own costs and expenses in connection with the foregoing. The
fees, costs and expenses of the Arbitrator shall be borne equally by Seller and
Purchaser.
(d) The amount of any Purchase Price adjustment required
under this Section 2.3 shall be delivered to Seller or Purchaser, as the case
may be, with interest thereon (calculated on the basis of a 360-day year
comprised of twelve 30-day months), from and including the Closing Date until
paid at an annual rate equal to the base rate of interest of Citibank, N.A. (as
such base rate is publicly announced from time to time as the base rate of such
bank), at such place in the United States as the party receiving such amount
shall designate in writing to the other party and shall be paid in immediately
available funds within 30 days after the final determination of such Purchase
Price adjustment.
(e) At the Closing (or after the Closing, to the extent
the necessary calculations cannot be made at the Closing), real property taxes,
water charges, sewer rents and other utility charges in respect of the Business
shall be prorated as of the Closing Date with Seller being responsible for such
items relative to periods prior to the Closing Date and Purchaser being
responsible for such items relative to periods commencing on or subsequent to
the Closing Date. If the Closing shall occur before a new tax rate is fixed, the
apportionment of real property taxes shall be upon the basis of the old tax rate
for the preceding period applied to the latest assessed valuation.
ARTICLE III
CLOSING
3.1 Closing. The Closing of the transactions contemplated
hereby (the "Closing") shall be held at 10:00 a.m. local time on the Closing
Date at the New York offices of Weil, Gotshal & Manges LLP, New York, New York,
or at such other time, date or place as the parties hereto may otherwise agree;
provided, however, that the conditions to the obligations of Seller and
Purchaser to consummate the
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transactions contemplated hereby shall have been at such time satisfied or
waived.
3.2 Conveyances at Closing.
(a) Instruments and Possession. To effect the sale
referred to in Section 2.1 hereof, Seller shall, on the Closing Date, execute
and deliver to Purchaser, in such form as to transfer to Purchaser, good title
to the Assets, subject to no Encumbrances, imperfections of title, covenants,
restrictions, easements, encroachments or any state of facts which would be
reflected on a current ALTA survey, other than, in the case of Owned Real
Property, Permissible Liens:
(i) a special warranty deed, in proper form for
recording and mutually and reasonably acceptable to Purchaser and
Seller, conveying good title (other than Permissible Liens) to all
Owned Real Property included in the Assets;
(ii) one or more Bills of Sale, conveying all of
the owned personal property included in the Assets;
(iii) subject to Section 3.2(c), the Personal
Property Lease Assignment and Assumption Agreement with respect to the
assignment of the Personal Property Leases hereunder;
(iv) subject to Section 3.2(c), the Contract
Rights Assignment and Assumption Agreement with respect to the
assignment of all Contract Rights included in the Assets;
(v) such other instruments as shall be
reasonably requested by Purchaser to vest in Purchaser good title
(other than, in the case of Owned Real Property, Permissible Liens) in
and to the Assets in accordance with the provisions hereof;
(vi) such affidavits, certificates or filings as
may be required to convey the Assets to Purchaser or as may be
reasonably requested by Purchaser's title company and agreed to by
Seller in connection with the issuance of the title policies with
respect to the Owned Real Property, all costs, charges and premiums of
which, shall be paid by Purchaser;
(vii) an affidavit, in a form reasonably
satisfactory to Purchaser, of Seller stating under
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<PAGE> 22
penalties of perjury Seller's United States taxpayer identification
number and that Seller is not a foreign person within the meaning of
Section 1445(b)(2) of the Code; and
(viii) physical possession and control of the
Assets.
(b) Form of Instruments. All of the foregoing instruments
shall be in form and substance, and shall be executed and delivered in a manner,
reasonably satisfactory to Purchaser.
(c) Consents to Assignment. Anything in this Agreement to
the contrary notwithstanding, and subject to the provisions concerning Personal
Property Leases set forth in Section 3.4(c) hereof, this Agreement shall not
constitute an assignment of, or an agreement to assign, Assets, consisting of
any claim, contract, license, lease commitment, sales order, purchase order or
any claim or right or any benefit arising thereunder or resulting therefrom if
an attempted assignment thereof, without the consent of the other party thereto,
would constitute a breach thereof; provided, however, that if Seller fails to
obtain any consent set forth in Part II of Schedule 8.6 on or prior to the
Closing Date, Purchaser shall, in accordance with Article 8 hereof, be under no
obligation to consummate the transactions provided for hereby. If such consent
is not obtained, or if an attempted assignment thereof would be ineffective or
would affect the rights thereunder so that Purchaser would not receive all such
rights, then, in accordance with Section 3.4(c) hereof, Seller will thereafter
take all reasonable actions in order to provide to Purchaser the benefits under
any such claim, contract, license, lease commitment, sales order or purchase
order, including, without limitation, enforcement for the benefit of Purchaser
(at Seller's expense) of any and all rights of Seller against such other party
thereto arising out of the breach or cancellation by such other party or
otherwise; and any transfer or assignment to Purchaser of any property or
property rights or any contract or agreement which shall require the consent or
approval of any such other party shall be made subject to such consent or
approval being obtained; provided, further, however, that if Seller fails to
obtain any consent set forth in Part II of Schedule 8.6 on or prior to the
Closing Date, Purchaser shall, in accordance with Article 8 hereof, be under no
obligation to consummate the transactions provided for hereby. Nothing contained
in this Section 3.2(c) shall be deemed to require Seller to make any payments to
obtain a consent or approval
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from any third party to the assignment by Seller to Purchaser. In addition,
Seller shall not obtain any consent that will affect Purchaser to its economic
detriment unless Purchaser expressly approves the obtaining of such consent.
3.3 Assumption Documents. Upon the terms and subject to
the conditions contained herein, on the Closing Date, Purchaser shall deliver to
Seller instruments of assumption evidencing Purchaser's assumption, pursuant to
Section 2.1(b) hereof, of the Assumed Liabilities. All such instruments shall be
in form and substance, and executed in a manner, reasonably satisfactory to
Seller.
3.4 Other Deliveries at Closing. In addition to the
foregoing matters, at the Closing:
(a) Personal Property Lease Assignment and Assumption
Agreement. Purchaser agrees to assume the Personal Property Leases assigned
hereunder by joining with Seller in the execution of the Personal Property Lease
Assignment and Assumption Agreement.
(b) Certificates; Opinions. Purchaser and Seller shall
deliver the certificates, opinions and other instruments described in Articles
VII and VIII hereof.
(c) Personal Property Leases and Other Third- Party
Consents. To the extent any of the Personal Property Leases or any other
Contract Right may not be assigned by Seller without the written consent of any
lender or other third party (collectively, a "Consenting Party"), Seller shall
use its reasonable efforts to secure and deliver the required consents to
Purchaser within 90 days after the Closing Date; provided, however, that no
modification of any such Personal Property Leases or Contract Right shall be
made without Purchaser's prior written consent, which consent shall not be
unreasonably withheld; provided, further, however, that to the extent such
consents are not obtained within 90 days of the Closing Date then Seller shall
have no further obligations hereunder and such Personal Property Leases or
Contract Rights shall be deemed to not be a part of the Assets; provided,
further, however, that if Seller fails to obtain any consent set forth in Part
II of Schedule 8.6 on or prior to the Closing Date, Purchaser shall, in
accordance with Article 8 hereof, be under no obligation to consummate the
transactions provided for hereby. Purchaser shall cooperate as reasonably
necessary or desirable to secure the consent of any Consenting Party, including,
without limitation, providing to such Consenting Party financial information,
operating
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history and information regarding Purchaser's intended use or disposition of any
Asset.
3.5 Certain Business Information. Attached hereto (a) as
Schedule 3.5(a) is a true and correct list of the Employees as of the date
hereof (which list shall, in respect of each Employee, contain the information
set forth in Section 4.14(a) hereof) and (b) as Schedule 3.5(b) is a true and
correct list of the backlog of the Business as of the date hereof, derived from
Seller's internal records of backlog of unfilled firm orders for products sold
by Seller in respect of the Business. No earlier than five (5) business days
prior to the Closing, Seller shall provide Purchaser with (x) updated versions
of the lists described in (a) and (b) above and (y) a list of standard prices of
the Business and any applicable discounts by customer name, in each case
certified by an officer of Seller as being true and correct in all material
respects as of the date delivered to Purchaser.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller hereby represents and warrants to Purchaser (as of the
date hereof and as of the Closing Date as if made on the Closing Date) as
follows:
4.1 Organization. Seller is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
and has full corporate power and authority to carry on its business as it is now
being conducted and to own and lease all of its properties and assets. Seller is
duly qualified to do business and is in good standing in each jurisdiction in
which the ownership of its properties or the conduct of its business requires
such qualification, except where the failure so to qualify would not be
material.
4.2 Corporate Authorization. Seller has all necessary
corporate power and authority and has taken all corporate action necessary to
enter into this Agreement and the Ancillary Agreements, to consummate the
transactions contemplated on its part hereby and thereby and to perform its
obligations hereunder and thereunder. This Agreement and the Ancillary
Agreements have been duly executed and delivered by Seller and, assuming the due
execution and delivery thereof by Purchaser, each is a valid and binding
obligation of Seller, enforceable against Seller in accordance with its terms,
except as such enforceability may
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be limited by bankruptcy, insolvency, reorganization, fraudulent conveyance,
moratoriums or other similar laws now or hereafter in effect relating to
creditors' rights generally and by general principles of equity (whether
considered in an action at law or in equity) and the discretion of the court
before which any proceeding therefor may be brought.
4.3 Personal Property Leases. Schedule 4.3 hereto
contains a complete and correct list of all Personal Property Leases relating to
the Business. Each Personal Property Lease listed on Schedule 4.3 is in full
force and effect. There are no asserted or unasserted defaults thereunder,
except for (i) defaults which would not, individually or in the aggregate, have
a Material Adverse Effect or (ii) defaults of a party to any such Personal
Property Lease which have been consented to or waived in writing by the other
party thereto.
4.4 Title to Owned Real Property. Schedule 4.4 hereto
contains a complete and correct list of all Owned Real Property. Except as set
forth on Schedule 4.4, Seller has good, valid and indefeasible fee title to all
Owned Real Property, free and clear of any and all Encumbrances, imperfections
of title, covenants, restrictions, easements or encroachments except for
Permissible Liens. Upon the consummation of the transactions contemplated
hereby, Purchaser shall receive good, valid and insurable title to such Owned
Real Property, free and clear of all Encumbrances except for Permissible Liens.
Other than Permissible Liens or as set forth on Schedule 4.4,
Seller has not granted any purchase options or rights of first refusal or first
offer with respect to the Owned Real Property and the Owned Real Property is not
subject to any such options or rights.
4.5 Title to Owned Personal Property. Except as set forth
on Schedule 4.5 hereto, Seller has good title to all of the personal property
owned by Seller and included in the Assets, free and clear of any and all
Encumbrances, except for Permissible Liens. Upon the consummation of the
transactions contemplated hereby, Purchaser shall receive good and valid title
to such Owned Personal Property, free and clear of all Encumbrances.
4.6 Contracts and Commitments. Schedule 4.6 hereto lists
all of the contracts, commitments, arrangements and understandings, both oral
and written, which pertain or relate primarily to the conduct, operations and
prospects of
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the Business, except for those contracts included in the Excluded Assets
(collectively, the "Contracts"). To the Knowledge of Seller, there are no
existing defaults, events of default or events, occurrences, acts or omissions
that, with the giving of notice or lapse of time or both, would constitute
defaults by Seller thereunder, and, except as described on Schedule 4.6, no
penalties have been incurred nor, to the Knowledge of Seller, are any amendments
pending with respect to the Contracts. Each Contract is in full force and effect
and, assuming the due authorization, execution and delivery thereof by the other
party thereto, each is a valid and binding obligation of Seller, enforceable
against Seller in accordance with its terms, except as such enforceability may
be limited by bankruptcy, insolvency, reorganization, fraudulent conveyance,
moratoriums or other similar laws now or hereafter in effect relating to
creditors' rights generally and by general principles of equity (whether
considered in an action at law or in equity) and the discretion of the court
before which any proceeding therefor may be brought, and no defenses, off-sets
or counterclaims have been asserted or, to the Knowledge of Seller, may be made
by any party thereto, nor has Seller waived any material rights thereunder,
except as described in Schedule 4.6. Since September 1, 1998, Seller has not
received written notice of any default with respect to any Contract. Except as
contemplated hereby, Seller has not received notice of any plan or intention of
any other party to any Contract to exercise any right to cancel or terminate any
Contract, and, to the Knowledge of Seller, no fact that would justify the
exercise of such a right exists. Except as listed in Schedule 4.6, none of the
customers or suppliers of Seller has refused, or communicated that it will or
may refuse, to purchase or supply goods or services, as the case may be, or has
communicated that it will or may substantially reduce the amounts of goods or
services that it is willing to purchase from, or sell to, Seller.
4.7 Litigation, Proceedings and Applicable Law. Except as
set forth on Schedule 4.7 hereto, there are no claims, actions, suits or
proceedings pending or, to the Knowledge of Seller, threatened, against or
affecting the Business which would have, individually or in the aggregate, an
adverse effect on the Business or the Assets or impair Seller's ability to
consummate the transactions contemplated hereby, or which question or challenge
the validity of this Agreement or any actions to be taken by Seller hereunder or
in connection with any of the transactions contemplated hereby. Except as set
forth on Schedule 4.7 hereto, Seller is not subject to any judgment, order,
writ, injunction or
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decree of any court or Governmental Agency, and there are no unsatisfied
judgments against Seller or the Business.
4.8 Compliance with Law. Except as set forth on Schedule
4.8 hereto, the Business has been operated in compliance with all applicable
laws, statutes, rules, regulations, ordinances, codes, orders, licenses, permits
or authorizations, as such now apply to the Business.
4.9 Taxes. Except as set forth on Schedule 4.9 hereto:
(a) None of the Assets is: (1) property which Purchaser
or Seller are or will be required to treat as owned by another person pursuant
to the provisions of Section 168(f) of the Internal Revenue Code of 1954 (as in
effect immediately prior to the Tax Reform Act of 1986); (2) "Tax-exempt use
property" within the meaning of Section 168(h)(1) of the Code; or (3)
"Tax-exempt bond financed property" within the meaning of Section 168(g)(5) of
the Code.
(b) Seller is not a foreign person within the meaning of
Section 1445(b)(2) of the Code.
4.10 No Conflict or Violation. Except as set forth on
Schedule 4.10 hereto, neither the execution, delivery nor performance of this
Agreement or the Ancillary Agreements or any of the transactions contemplated
hereby or thereby will (a) violate or conflict with any provision of the
Certificate of Incorporation or By-laws of Seller, (b) conflict with or result
in a breach of or default (or an event which, with notice, lapse of time or
both, would constitute a breach or default) under, result in the termination of,
accelerate the performance required by, cause the acceleration of the maturity
of any debt or obligation pursuant to, or result in the creation or imposition
of any lien or encumbrance on any of the Assets under any provision of any
contract, agreement, lease, commitment, license, franchise, permit,
authorization or concession to which Seller is a party or bound and to which the
Assets or the Business is subject, (c) result in a violation by Seller of, or
conflict with, any statute, rule, regulation, ordinance, code, order, judgment,
writ, injunction, decree, or award (or an event which with notice, lapse of
time, or both, would result in any such violation) or (d) result in the creation
of a lien or encumbrance on the Assets other than a Permissible Lien.
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4.11 Consents and Approvals. Except as set forth on
Schedule 4.11 hereto and other than real property recording and filing documents
normally required in connection with the conveyance of title, no notice to,
consent, approval or authorization of, or declaration, filing or registration
with, any Governmental Agency or any other person or entity, is required to be
made or obtained by Seller in connection with the execution, delivery and
performance of this Agreement or the Ancillary Agreements and the consummation
of the transactions contemplated hereby and thereby.
4.12 Insurance.
(a) Schedule 4.12 hereto contains a list of all policies
of title, liability, fire, workers' compensation and other forms of insurance
insuring the products, properties, assets and operations of the Business. At
Purchaser's request, Seller will provide Purchaser with true, correct and
complete copies of all such insurance policies. Except as set forth in Schedule
4.12, all such policies are in full force and effect.
(b) To the Knowledge of Seller, no notice of
cancellation, termination or reduction in coverage has been received by Seller
with respect to any policy listed in Schedule 4.12 hereto.
4.13 Employee Benefit Plans.
(a) Schedule 4.13(a) sets forth a list of each employee
benefit plan, policy and arrangement which covers or provides benefits to the
Employees (the "Plans"), including a summary of the material terms of such
Plans.
(b) Seller has complied in all material respects with the
terms of each Plan, and with any applicable provisions of ERISA and the Code.
(c) With respect to the Amended and Restated Savings,
Investment and Profit Sharing Plan of JPS Textile Group, Inc., Seller has
received a favorable determination letter from the Internal Revenue Service that
such plan is qualified within the meaning of Section 401(a) of the Code and the
trust related thereto is exempt from tax under Section 501(a) of the Code, and
no proceedings exist or, to the Knowledge of Seller, have been threatened which
could reasonably be expected to result in the revocation of such favorable
determination letter.
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4.14 Labor Relations. (a) Schedule 4.14(a) contains a
complete and accurate list of the names, titles and cash compensation, including
without limitation wages, salaries, bonuses (discretionary and formula) and
other cash compensation (the "Cash Compensation") of all Employees who are
currently compensated at a rate in excess of $40,000 per year. In addition,
Schedule 4.14(a) contains a complete and accurate description of (i) all
increases in Cash Compensation of Employees during the current fiscal year of
Seller and (ii) any scheduled increases in Cash Compensation of Employees that
have not yet been effected.
(b) Other than with respect to Floyd Clonninger, none of
the Employees are covered by or participate in any Seller sponsored deferred
compensation, incentive, bonus or performance awards, and stock ownership or
stock options. A summary of the terms of any such arrangements covering Mr.
Clonninger are set forth on Schedule 4.14(b). There are no employment agreements
to which Seller is a party with respect to the Employees.
(c) Schedule 4.14(c) contains a complete and accurate
list of all employee manuals and all other material policies, procedures and
work-related rules (the "Employee Policies and Procedures") that apply to
Employees. Seller has provided Purchaser with a copy of all such Employee
Policies and Procedures.
(d) With respect to the Employees, except as set forth in
Schedule 4.14(d), (i) Seller has been and is in compliance with all laws, rules,
regulations and ordinances respecting employment and employment practices, terms
and conditions of employment and wages and hours, and Seller has no liability
for any arrears of wages or penalties for failure to comply with any of the
foregoing, and (ii) there are no (A) unfair labor practice charges or complaints
or racial, color, religious, sex, national origin, age or handicap
discrimination charges or complaints pending or, to the Knowledge of Seller,
threatened against Seller before any federal, state or local court, board,
department, commission or agency nor, to the Knowledge of Seller, does any basis
therefor exist or (B) existing or, to the Knowledge of Seller, threatened labor
strikes, disputes, grievances, controversies or other labor troubles affecting
Seller, nor to the Knowledge of Seller, does any basis therefor exist, any of
which could result in any material liability.
(e) With respect to the Employees, Seller has never been
a party to any agreement with any union, labor
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organization or collective bargaining unit, no employees are represented by any
union, labor organization or collective bargaining unit and, to the Knowledge of
Seller, the Employees have not threatened to organize or join a union, labor
organization or collective bargaining unit.
(f) To the Knowledge of Seller, all Employees are
citizens of, or are authorized to be employed in, the United States.
4.15 Permits. Schedule 4.15 hereto sets forth a list of
all Permits required to conduct the Business (including, without limitation,
environmental permits required to construct, occupy, operate or use the Assets),
the dates such Permits were obtained, the date of renewals thereof and the
status of each Permit. Except as set forth on Schedule 4.15 there are no
administrative or judicial proceedings pending or, to the Knowledge of Seller,
threatened which seek to revoke, cancel or declare such Permits invalid in any
respect.
4.16 Brokers. No Person has acted directly or indirectly
as a broker, finder or financial advisor for Seller in connection with the
negotiations relating to or the transactions contemplated by this Agreement and
no Person is entitled to any fee or commission or like payment in respect
thereof based in any way on agreements, arrangements or understanding made by or
on behalf of Seller.
4.17 Boger City Plant. Except as set forth on Schedule
4.17 hereof, there have been no material changes to the plant and equipment at
the Boger City Plant since October 31, 1998.
4.18 Environmental Matters. Except as disclosed on
Schedule 4.18 or in the environmental reports delivered to Purchaser prior to
the Closing, (a) the Business and the Assets are in compliance with all
Environmental Laws and any historic incidents of non-compliance have been
corrected and any required reports have been submitted by Seller to the
appropriate governmental authority; (b) there are no pending or, to the
Knowledge of Seller, threatened, investigations, inquiries or proceedings
against the Assets by any governmental authority under Environmental Laws; (c)
neither the Business nor the Assets are subject to any obligation to remediate
contamination from Hazardous Materials under any Environmental Laws; and (d) to
the Knowledge of Seller, none of the Assets are included on any federal or state
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"Superfund" list or subject to any liens imposed pursuant to Environmental Laws.
4.19 Condition of Fixed Assets. Except as set forth on
Schedule 4.19, to the Knowledge of Seller, all of the plants, structures and
equipment included in the Assets are in good condition and repair for their
intended use in the ordinary course or business, subject to ordinary wear and
tear, and conform in all material respects with all applicable ordinances,
regulations and other laws.
4.20 Books and Records. The Books and Records of the
Business have been kept materially accurately by Seller in the ordinary course
of business, the transactions entered therein represent bona fide transactions
and the revenues, expenses, assets and liabilities of the Business have been
properly recorded in such Books and Records.
4.21 Customers. Schedule 4.21 contains a complete and
accurate list of the 20 largest non-intercompany customers of the Business in
terms of sales for each of the last three fiscal years and the current fiscal
year to date, showing, with respect to each such customer, the name and address
of such customer.
4.22 Product Warranties. Except as set forth on Schedule
4.22, there is no claim against or liability of Seller on account of product
warranties or with respect to the manufacture, sale or rental of defective
products of the Business and, to the Knowledge of Seller, there is no basis for
any such claim on account of defective products manufactured, sold or rented by
Seller in respect of the Business since September 1, 1998 that is not fully
covered by insurance.
4.23 Absence of Certain Changes. Except as set forth on
Schedule 4.23, since October 31, 1998, Seller has not, in respect of the
Business (a) suffered any material adverse change, whether or not caused by any
deliberate act or omission of Seller, in the condition (financial or otherwise),
operations, assets or liabilities of the Business, (b) contracted for the
purchase of any capital asset having a cost in excess of $100,000 or paid any
capital expenditures in excess of $100,000, (c) suffered any damage or
destruction to or loss of any Asset (whether or not covered by insurance) that
has materially and adversely affected, or could materially and adversely affect,
the Business, (d) acquired or disposed of any Asset except in the ordinary
course of business, (e) written up or written down the carrying value of any
Asset, (f) changed the
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costing system or depreciation methods of accounting for the Assets, (g)
increased the compensation of any Employee except in the ordinary course of
business, (h) entered into any other commitment or transaction or experienced
any other event that is materially adverse to this Agreement or to any of the
Ancillary Agreements or the transactions contemplated hereby or thereby, or that
has materially and adversely affected, or could materially and adversely affect,
the condition (financial or otherwise), operations, assets or liabilities of the
Business.
4.24 Certain Payments. To the Knowledge of Seller, with
respect to the Business, neither Seller nor any director, officer or employee of
Seller has paid or caused to be paid, directly or indirectly, to any government
or agency thereof or any agent of any supplier or customer any bribe, kick-back
or other similar payment.
4.25 October 31, 1998 and 1997 Statement. To the Knowledge
of Seller, the October 31, 1998 and 1997 Statement has been prepared in
accordance with the books and records of Seller on a consistent basis with
Seller's preparation of the same information for prior periods.
4.26 Form of Purchase Order Confirmation. The form of
Seller's purchase order confirmation attached hereto as Exhibit D (the "Purchase
Order Confirmation") is the form of agreement used by Seller in connection with
the purchase orders referenced in Part F of Schedule 4.6 and, except as set
forth on Schedule 4.26 hereto, such purchase orders do not contain or
incorporate by reference any material contractual terms which are not contained
in the Purchase Order Confirmation (other than in respect of product, price,
quantity and delivery terms).
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents and warrants to Seller (as of the
date hereof and as of the Closing Date as if made on the Closing Date) as
follows:
5.1 Organization. Purchaser is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware; Purchaser has full corporate power and authority to conduct the
Business as it is now being conducted and to own and lease the Assets.
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5.2 Corporate Authorization. Purchaser has all necessary
corporate power and authority to enter into this Agreement and the Ancillary
Agreements to which it is a party, to consummate the transactions contemplated
hereby and thereby and to perform its obligations hereunder and thereunder. The
execution, delivery and performance of this Agreement and the Ancillary
Agreements and the consummation of the transactions described herein and therein
by Purchaser have been duly authorized by all requisite corporate action. This
Agreement and the Ancillary Agreements have been duly executed and delivered by
Purchaser and, assuming the due execution and delivery thereof by Seller, each
is a valid and binding obligation of Purchaser, enforceable against Purchaser in
accordance with its terms, except as such enforceability may be limited by
bankruptcy, insolvency, moratorium, fraudulent conveyance, reorganization and
other similar laws now or hereafter in effect relating to creditors' rights
generally and by general principles of equity (whether considered in an action
at law or in equity) and the discretion of the court before which any proceeding
therefor may be brought.
5.3 No Conflict or Violation. Except as set forth on
Schedule 5.3 hereto, neither the execution, delivery nor performance of this
Agreement or any of the transactions contemplated hereby will (a) violate or
conflict with any provision of the Certificate of Incorporation or By laws of
Purchaser, (b) result in a breach of or a default under any provision of any
contract, agreement, lease, commitment, license, franchise, permit,
authorization or concession to which either Purchaser is a party or bound or to
which any property or asset of either Purchaser is subject or an event which
with notice, lapse of time, or both, would result in any such breach or default,
or (c) result in a violation by Purchaser of any statute, rule, regulation,
ordinance, code, order, judgment, writ, injunction, decree, or award, or an
event which with notice, lapse of time, or both, would result in any such
violation, which breach, default or violation would have a material adverse
effect on Purchaser's ability to consummate the transactions contemplated
hereby.
5.4 Consents and Approvals. Except as set forth on
Schedule 5.4, no consent, approval or authorization or declaration, filing or
registration with any Governmental Agency, or any other person or entity, is
required to be made or obtained by Purchaser in connection with the execution,
delivery and performance of this Agreement or the Ancillary Agreements and the
consummation of the transactions contemplated hereby and thereby.
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5.5 Litigation. There is no claim, action, suit,
proceeding or governmental investigation against Purchaser or any of Purchaser's
subsidiaries which (i) seeks to restrain or enjoin the consummation of the
transactions contemplated hereby or (ii) if adversely determined, could be
expected to have a material adverse effect on the ability of Purchaser to
consummate the transactions contemplated by this Agreement. Purchaser is not in
violation of any term of any judgment, decree, injunction or order outstanding
against it, which violation could reasonably be expected to have a material
adverse effect on the ability of Purchaser to consummate the transactions
contemplated hereby.
5.6 Brokers. Except as set forth on Schedule 5.6, no
Person has acted directly or indirectly as a broker, finder or financial advisor
for Purchaser in connection with the negotiations relating to or the
transactions contemplated by this Agreement and no Person is entitled to any fee
or commission or like payment in respect thereof based in any way or agreements,
arrangements or understandings made by or on behalf of Purchaser.
ARTICLE VI
COVENANTS OF SELLER AND PURCHASER
Seller and Purchaser each covenant with the other as follows:
6.1 Employees.
(a) Employment. Effective as of the Closing Date,
Purchaser shall offer employment to the Employees (other than those Employees on
layoff, but subject to any recall rights). For a period of at least ninety (90)
days from the Closing Date, Purchaser shall provide the Transferred Employees
with a comparable position and at the same level of wages and/or salary and
substantially similar benefits (other than with respect to benefits provided
under the Retirement Pension Plan for Employees of JPS Textile Group, Inc. and
the Group Medical Benefits for Retired Employees of JPS Textile Group, Inc.) as
provided by Seller immediately prior to the Closing Date as set forth on
Schedule 4.13(a), unless any such employee is terminated by Purchaser in the
ordinary course of business (provided that such terminations are limited to not
more than 40 such employees); provided, however, that Purchaser shall
specifically offer Transferred Employees the medical option under the Partners
National Health Plans of North Carolina, Inc. currently offered to such
employees if such coverage is
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reasonably available; and provided, further, however, that Purchaser may
terminate for cause the employment of any Transferred Employee during the ninety
(90) days immediately following the Closing Date.
(b) Credited Service. The Transferred Employees shall be
given full credit by Purchaser for their years of service recognized under
Seller's benefit plans and vacation policy for purposes of eligibility and
vesting in all employee benefit plans of Purchaser and for purposes of
calculating benefits under severance and vacation policies of Purchaser.
(c) Severance. For one (1) year from the Closing Date,
Purchaser shall maintain severance or layoff benefits no less favorable in the
aggregate than those severance or layoff benefits maintained by Seller for the
salaried Employees immediately prior to the Closing (the terms of which are set
forth on Schedule 6.1(c)) and Purchaser shall indemnify Seller with respect to
any such severance or layoff liability for any Employee terminated after the
Closing Date. Seller shall not be responsible and shall not pay severance or
layoff or any other similar arrangement with respect to any Employee terminated
after the Closing Date.
(d) Health and Medical Plan Coverage. Effective as of the
Closing Date, Purchaser shall provide Transferred Employees and their
beneficiaries with group health and medical coverage that contains no (i)
pre-existing condition exclusions or limitations or (ii) eligibility waiting
periods, applicable to Transferred Employees other than any limitations or
waiting periods that are already in effect and have not been satisfied with
respect to such employees. With respect to such plans, Purchaser shall give each
Transferred Employee credit toward applicable deductibles and annual
out-of-pocket limits for expenses incurred prior to the Closing Date during the
applicable plan year. If an event causing a Transferred Employee to be eligible
for health care benefits under Part 6 of Title I of ERISA, 29 U.S.C.ss.ss.1161
et. seq., as amended, occurs after the Closing Date, Purchaser will be obligated
to provide such health care benefits. Purchaser shall not be responsible for any
costs or expenses incurred prior to the Closing with respect to Seller's health
and welfare plans.
(e) Vacation. Purchaser shall pay each Transferred
Employee the vacation pay earned by such Transferred Employee in 1998 in
accordance with the terms, including both timing and amount of pay earned, of
Seller's
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vacation policy, which vacation payments are described in Schedule 6.1(e);
provided, however, that Seller shall reimburse Purchaser for the cost of such
vacation pay upon reasonable notice of actual payment(s) made to such
Transferred Employees. For calendar year 1999, Purchaser shall provide a
vacation policy and entitlement for Transferred Employees (based such employees'
years of service with Seller), the terms of which are set forth on Schedule
6.1(e).
(f) Pension Benefits. Seller shall cause the Retirement
Pension Plan for Employees of JPS Textile Group, Inc. (the "Pension Plan") to be
amended to provide Transferred Employees with full vesting as of the Closing
Date.
(g) Savings Plan. Seller shall cause the accounts of the
Transferred Employees who participate in the Amended and Restated Savings,
Investment and Profit Sharing Plan of JPS Textile Group, Inc. ("Seller's Savings
Plan") to be valued as of a specified valuation date as soon as practicable
following the Closing (the "Asset Transfer Date"). As of the Asset Transfer
Date, assets equal in value to the amount credited to each such employee's
account under Seller's Savings Plan will be transferred to a trust maintained
pursuant to a qualified 401(k) plan maintained by Purchaser ("Purchaser's
Savings Plan"); provided, however, that Purchaser provide to Seller a
determination letter or an opinion of counsel reasonably acceptable to Seller
that such trust and each plan associated therewith is qualified as to form under
Sections 401(a) and 501(a) of the Code. Such asset transfer shall include any
outstanding participant loans. As of the Asset Transfer Date, Purchaser shall be
liable for the payment of the benefits accrued by and transferred in respect of
any Transferred Employee who participated in Seller's Savings Plan and who was
effected by such transfer. Purchaser shall provide Transferred Employees who
participate in Purchaser's Savings Plan with matching contributions and
discretionary contributions at the same rate as Purchaser provides to its other
Employees.
(h) Flex Plan. Effective as of the Closing Date,
Purchaser shall recognize salary reduction elections made by Transferred
Employees under the JPS Textile Group, Inc. Flexible Benefits Program ("JPS Flex
Plan") as elections made under Purchaser's Code Section 125 flexible benefits
program ("Purchaser Flex Plan") and no new benefit elections for 1999 will be
allowed to the Transferred Employees except as otherwise provided by the
Purchaser Flex Plan in the event of a change in family status. Effective as of
the
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Closing Date, Purchaser shall assume all obligations to pay all unpaid claims
incurred in 1999 of the Transferred Employees participating in the Purchaser
Flex Plan as of the Closing Date. As soon as practicable following the Closing,
Seller shall transfer to Purchaser assets equal to the aggregate amount of 1999
salary reductions related to Transferred Employees' elections under the JPS Flex
Plan withheld through the Closing Date (less the aggregate claims paid under the
JPS Flex Plan to Transferred Employees from January 1, 1999 through the Closing
Date).
(i) Transfer of or Access to Records. Purchaser shall, at
Seller's request, allow Seller reasonable access to all personnel and other
records reasonably related to any Transferred Employee.
(j) W-2 Matters. Pursuant to the alternate procedure
prescribed by Revenue Procedure 96-60, Purchaser shall assume Seller's entire
obligation to furnish Forms W-2 for the calendar year ending December 31, 1999
to Transferred Employees. Seller shall provide Purchaser any information not
available to Purchaser relating to periods ending on the Closing Date necessary
for Purchaser to prepare and distribute Forms W-2 to Transferred Employees for
the year ending December 31, 1999, which Forms W-2 shall include all
remuneration earned by Transferred Employees from both Seller and Purchaser
during the year ending December 31, 1999, and Purchaser shall prepare and
distribute such Forms.
6.2 Further Assurances; Cooperation and Assistance. From
time to time from and after the Closing Date, at Purchaser's reasonable request,
Seller will (and will cause its officers, directors, employees, affiliates and
agents to) execute and deliver such other instruments of conveyance and transfer
and take such other actions as Purchaser may reasonably request in order to (i)
perfect and record, if necessary, the sale, assignment, conveyance, transfer,
and delivery to Purchaser of the Assets and (ii) convey, transfer to and vest in
Purchaser and to put Purchaser in possession and operating control of all or any
part of the Assets, including, without limitation, cooperating with and
assisting Purchaser in the prosecution of any claims and in the collection or
reduction to possession of accounts receivable and all the other Assets. Seller
hereby agrees that all out-of-pocket expenses incurred in connection with the
matters set forth in clause (ii) above shall be borne by it, and all other costs
incurred in clauses (i) and (ii) shall be borne by Purchaser.
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6.3 Nondisclosure. (a) From and after the Closing Date,
Seller will not use, divulge, furnish or make accessible to anyone any knowledge
or information with respect to confidential or secret processes, inventions,
discoveries, improvements, formulae, plans, material, devices or ideas or
know-how, whether patentable or not, with respect to any proprietary, material
non-public, confidential or secret aspects of the Business, in each case
relating solely to the Business (including, without limitation, customer lists,
supplier lists and pricing and marketing arrangements with customers or
suppliers) and Seller will cooperate reasonably with Purchaser in preserving
such proprietary, confidential or secret aspects of the Business, in each case
relating solely to the Business; provided, however, that nothing herein shall
prohibit Seller from (i) complying with any order or decree of any court of
competent jurisdiction or governmental authority, but Seller will give Purchaser
timely notice of the receipt of any such order or decree, or (ii) disclosing
such information to the extent necessary to any lenders under any of their
credit documentation, as it relates to the Business, and provided, further, that
the foregoing provision shall not apply to any information which is or becomes
generally available to the public through no breach of this Agreement.
6.4 Non-Competition. (a) Except as set forth in Schedule
6.4(a), Seller (on behalf of itself and its subsidiaries) agrees that for three
(3) years from and after the Closing Date, it shall not engage, directly or
indirectly, or render any consulting or advisory services to any person, firm or
corporation that engages, in the United States in the manufacturing and selling
of woven fabrics for use in the manufacture of draperies, curtains, lampshades,
bedding and upholstery and which directly compete with the Business, or own
stock or otherwise have an interest in or be affiliated with, any person,
corporation, firm, partnership or other entity engaged in such business (except
as a stockholder holding less than 10% of the stock of a publicly-owned
corporation); provided, however, that it shall not be a violation of this
Section 6.4(a) for Seller to (i) resell returned goods received from customers
of the Business (whether received by Seller before or after the Closing Date) or
(ii) sell yarn (other than solution-dyed rayon yarn) to third parties for the
use in the manufacture of woven fabrics for use in the home furnishing industry.
(b) Seller (on behalf of itself and its subsidiaries)
shall not (i) for a period of three (3) years from the Closing Date with respect
to any Employees listed
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as "Key Employees" in Schedule 6.4(b) and (ii) for a period of one (1) year from
the Closing Date with respect to any other salaried Employee, hire any such
Employee, without the prior written consent of Purchaser, except as otherwise
required by court order or unless as otherwise agreed between the parties.
(c) Seller (on behalf of itself and its subsidiaries)
agrees that a violation of Section 6.4(a) or 6.4(b) will cause irreparable
injury to Purchaser, and Purchaser will be entitled, in addition to any other
rights and remedies it may have at law or in equity, to apply for an injunction
enjoining and restraining Seller from doing or continuing to do any such act and
any other violations or threatened violations of this Section 6.4.
(d) Seller (on behalf of itself and its subsidiaries)
acknowledges and agrees that the covenants set forth in this Section 6.4 are
reasonable and valid in geographical and temporal scope and in all other
respects. If any of such covenants are found to be invalid or unenforceable by a
final determination of a court of competent jurisdiction (i) the remaining terms
and provisions hereof shall be unimpaired and (ii) the invalid or unenforceable
term or provision shall be deemed replaced by a term or provision that is valid
and enforceable and that comes closest to expressing the intention of the
invalid or unenforceable term or provision. In the event that, notwithstanding
the first sentence of this paragraph (d), any of the provisions of this Section
6.4 relating to the geographic or temporal scope of the covenants contained
therein or the nature of the business restricted thereby shall be declared by a
court of competent jurisdiction to exceed the maximum restrictiveness such court
deems enforceable, such provision shall be deemed to be replaced herein by the
maximum restriction deemed enforceable by such court.
6.5 Sums Received in Respect of Business. Seller shall
pay or cause to be paid over to Purchaser, promptly after the receipt thereof
after the Closing Date, all sums received in respect or on account of the Assets
other than the consideration received by Seller as set forth in Section 2.2
hereof.
6.6 Maintenance of the Business Prior to Closing. Unless
otherwise consented to by Purchaser, from the date hereof until the Closing,
Seller shall:
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(a) carry on the Business in the ordinary course in
accordance with past practice and not take any action inconsistent therewith or
with the consummation of the transactions contemplated hereby;
(b) except as set forth on Schedule 6.6(b), use its best
efforts to keep available generally the services of the present employees of the
Business, and preserve generally the present relationships with persons having
business dealings with the Business;
(c) maintain all of the Assets in good repair, order and
condition (except for ordinary wear and tear and equipment breakdowns of a type
normally occurring which do not materially interfere with the operation of the
Business);
(d) maintain the books, accounts and records in the
ordinary course consistent with past practice, and comply, in all material
respects, with all laws applicable to the conduct of the Business;
(e) not materially change or enter into any agreement to
materially change the character of the Business;
(f) not enter into any employment contract with any
employee of the Business or make any loan to, or enter into any material
transaction of any other nature with, any employee of the Business;
(g) other than in accordance with the Seller Credit
Agreement and/or the Loan and Security Agreement, by and between JPS Converter
and Industrial Corp. and The CIT Group/Equipment Financing, Inc., dated as of
October 31, 1991, as amended (the "CIT Agreement"), not sell or transfer any of
the Assets, except Inventory and Fixed Assets in the ordinary course of
business, and maintain Inventory at levels consistent with past practice;
(h) not terminate or modify any lease, license, Permit,
Contract or other agreement included in the Assets in a manner materially
adverse to the Business;
(i) other than in accordance with the Seller Credit
Agreement and/or the CIT Agreement, not release, waive, sell or assign any
debts, claims, rights or other intangible rights included in the Assets; and
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(j) maintain insurance coverage in the usual manner
consistent with prior practices
If, in accordance with the terms of the Seller Credit
Agreement or the CIT Agreement, any of the events described in (g) and (i) above
occur, then Seller shall promptly provide Purchaser with written notice of such
occurrence.
6.7 Consents. Purchaser and Seller, as applicable, will
take all reasonable action required hereunder to obtain all applicable Permits,
consents, approvals and agreements of, and to give all notices and make all
filings with, public and governmental authorities and third parties (at such
time as the parties mutually determine) as may be necessary to authorize,
approve or permit the full and complete sale, conveyance, assignment and
transfer of the Assets to Purchaser; provided, however, that nothing contained
in this Section 6.7 shall be deemed to require Seller to make any payments to
obtain a consent or approval from any third party.
6.8 Public Announcements. Neither Seller (nor any of its
affiliates) nor Purchaser (nor any of its affiliates) shall make any public
statement, including, without limitation, any press release, with respect to
this Agreement and the transactions contemplated hereby, without the prior
written consent of the other party (which consent may not be unreasonably
withheld or delayed), except as may be required by law, regulation, legal
process or stock exchange rules, and except that following the issuance of press
releases by the parties hereto with respect to the transactions contemplated
hereby the parties may continue routine communications (including discussions
regarding the transactions contemplated hereby) with investors and analysts.
6.9 Bill and Hold Insurance. From and after the Closing
Date, Seller shall (a) maintain insurance coverage in respect of all bill and
hold goods and (b) pay any processing fees in relation thereto at current rates
(i.e., $1.00 per bale for all goods received and/or shipped out or from the
Boger City Plant and $.75 per carton per month) for all goods stored at the
Boger City Plant until all such goods are shipped to customers.
6.10 Financing. Purchaser shall use its reasonable best
efforts to (a) enter into financing arrangements providing for financing
sufficient to complete the transactions contemplated by this Agreement, on terms
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and conditions reasonably satisfactory to Purchaser, and (b) obtain a commitment
letter in respect of such financing, on terms satisfactory to Purchaser but with
conditions reasonably satisfactory to Seller (and deliver a facsimile of an
executed copy thereof to Seller) no later than January 22, 1999.
6.11 Pre-Closing Sales Tax Liabilities. Seller shall be
responsible for all sales taxes applicable to sales of merchandise made by the
Business prior to the Closing Date.
6.12 Testing. From time to time, from and after the
Closing Date, Seller shall provide Purchaser reasonable ingress and egress to
and from the non-contiguous parcel of land located in Lincolnton, North Carolina
relating to the Business not being transferred to Purchaser hereunder in order
for Purchaser to comply with the terms of the Lincolnton Discharge Permit being
transferred to Purchaser as part of the Assets, with which Purchaser agrees to
comply; provided, however, that such permit has been transferred; provided,
further, however, that Seller shall not sell or otherwise transfer such
non-contiguous parcel to a third party unless the such third party shall agree
to be bound by the provisions of this Section 6.12.
ARTICLE VII
CONDITIONS TO SELLER'S OBLIGATIONS
The obligations of Seller to consummate the
transactions provided for hereby are subject to the satisfaction, on or prior to
the Closing Date, of each of the following conditions, any and all of which may
be waived in whole or in part by Seller:
7.1 Representations, Warranties and Covenants. All
representations and warranties of Purchaser contained in this Agreement shall be
true and correct in all material respects on and as of the Closing Date with the
same force and effect as though made on and as of the Closing Date, except as
affected by the transactions contemplated hereby, and Purchaser shall have
performed in all material respects all covenants and conditions contained in
this Agreement to be performed or complied with by it prior to or on the Closing
Date.
7.2 Certificates. Purchaser shall have furnished Seller
with such certificates, dated the Closing Date, of Purchaser's officers,
directors and others to evidence
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compliance with the conditions set forth in this Article VII as may be
reasonably requested by Seller.
7.3 Corporate Documents. Seller shall have received from
Purchaser certified copies of the resolutions duly adopted by the board of
directors of Purchaser approving the execution and delivery of this Agreement
and the Ancillary Agreements and the consummation of the transactions
contemplated hereby and thereby, and such resolutions shall be in full force and
effect as of the Closing Date.
7.4 Legal Opinion. Seller shall have received the opinion
of Jackson Walker L.L.P. counsel to Purchaser, in the form of Exhibit G hereto.
7.5 Consents. All consents listed on Schedule 7.5 hereto
shall have been obtained.
7.6 No Governmental Proceedings or Litigation. No suit,
action, investigation or other proceeding by any governmental authority or other
person or any other legal or administrative proceeding shall have been
instituted or threatened which would make illegal, or prevent, or question the
validity or legality of, the transactions contemplated hereby or which seeks
material damages in respect thereof.
ARTICLE VIII
CONDITIONS TO PURCHASER'S OBLIGATIONS
The obligations of Purchaser to consummate the
transactions provided for hereby are subject to the satisfaction, on or prior to
the Closing Date, of each of the following conditions, any or all of which may
be waived in whole or in part by Purchaser:
8.1 Representations, Warranties and Covenants. The
representations and warranties of Seller contained in this Agreement shall be
true and correct in all material respects on and as of the Closing Date with the
same force and effect as though made on and as of the Closing Date, and Seller
shall have performed in all material respects all covenants and conditions
contained in this Agreement to be performed or complied with by them prior to or
on the Closing Date.
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8.2 Certificates. Seller shall have furnished Purchaser
with such certificates, dated the Closing Date, of Seller's officers, directors
and others to evidence compliance with the conditions set forth in this Article
VIII as may be reasonably requested by Purchaser.
8.3 Section 1445 Certificate. Seller shall have furnished
Purchaser with a certificate that such Seller is not a foreign person within the
meaning of Section 1445 of the Code, which certificate shall set forth all
information required by, and otherwise be executed in accordance with, Treasury
Regulation Section 1.1445-2(b).
8.4 Corporate Documents. Purchaser shall have received
from Seller certified copies of the resolutions duly adopted by the boards of
directors of Seller and JPS approving the execution and delivery of this
Agreement and the Ancillary Agreements and the JPS Agreement and the
consummation of the transactions contemplated hereby and thereby.
8.5 Legal Opinion. Purchaser shall have received the
opinion of Weil, Gotshal & Manges LLP, counsel for Seller, in the form of
Exhibit H hereto.
8.6 Consents. All consents listed on Schedule 8.6 hereto
shall have been obtained.
8.7 Delivery of Documents. Seller shall have executed and
delivered to Purchaser at the Closing the Ancillary Agreements (other than the
Supply Agreement and the Transitional Services Agreement) and executed and/or
delivered the other documents listed in Sections 3.2, 3.3, 3.4 and 3.5 hereof.
8.8 Good Standing Certificates. Purchaser shall have
received (i) a certificate of the Secretary of State of the State of Delaware as
to Seller's good standing and legal existence dated as close as practicable to
the Closing Date and a bring-down notice dated as of the Closing Date as to
Seller's good standing and (ii) a certificate of the Secretary of State of the
State of North Carolina as to Seller's authority to do business in such state
dated as close as practicable to the Closing Date.
8.9 Release of Liens. Purchaser shall have received
evidence reasonably satisfactory to it that all liens of third parties in
respect of the Assets, other than Permitted Liens, shall have been released as
of the Closing Date.
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8.10 No Governmental Proceedings or Litigation. No suit,
action, investigation or other proceeding by any governmental authority or other
person or any other legal or administrative proceeding shall have been
instituted or threatened which would make illegal, or prevents, or questions the
validity or legality of, the transactions contemplated hereby or which seeks
material damages in respect thereof.
8.11 Financing. Purchaser shall have entered into
financing arrangements providing for financing sufficient to complete the
transactions contemplated by this Agreement, on terms and conditions reasonably
satisfactory to Purchaser.
ARTICLE IX
CERTAIN ACTIONS BY SELLER AND PURCHASER
AFTER THE CLOSING
9.1 Books and Records. Each party agrees that it will
cooperate with and make available to the other party, subject to Section 10.11
hereof, during normal business hours, all Books and Records, information and
employees (without substantial disruption of employment) retained and remaining
in existence after the Closing Date which are necessary or useful in connection
with any Tax inquiry, investigation or dispute, any litigation or investigation
or any other matter requiring any such Books and Records, information or
employees for any reasonable business purpose. The party requesting any such
Books and Records, information or employees shall bear all of the out-of-pocket
costs and expenses (including, without limitation, attorneys' fees) reasonably
incurred in connection with providing such Books and Records, information or
employees. Seller may require certain financial information relating to the
Business for periods prior to the Closing Date for the purpose of filing
federal, state, local and foreign tax returns and other governmental reports,
and Purchaser agrees to furnish such information to Seller at reasonable
request.
9.2 Indemnification.
(a) By Seller. Seller shall indemnify and hold harmless
Purchaser, its directors, officers, employees and each of their respective
successors and assigns from and against any and all demands, claims, actions or
causes of action, assessments, deficiencies, damages, losses, liabilities and
expenses (including, without limitation, reasonable expenses of investigation
and attorneys' fees and
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expenses in connection with any action, suit or proceeding or investigation
brought against Purchaser) (herein, the "Damages"), incurred in connection with
or arising out of or resulting from (i) any breach of or inaccuracy in any
representation or warranty made by Seller pursuant to this Agreement and/or the
Ancillary Agreements; (ii) the failure of Seller to comply with any of the
covenants contained in this Agreement or the Ancillary Agreements which are
required to be performed by Seller; (iii) any Excluded Liability; (iv) any Taxes
which result in a claim against Purchaser for any taxable period ending on or
prior to the Closing Date (other than taxes assumed by Purchaser hereunder); (v)
any product claim or warranty relating to products sold prior to the Closing and
all general liability claims arising out of events occurring prior to the
Closing (other than claims or warranties assumed by Purchaser hereunder); (vi)
the non-compliance by Seller with applicable bulk sales statutes; and (vii) the
operation of the Business (other than with respect to any liabilities arising on
or prior to the Closing Date which are Assumed Liabilities) on or prior to the
Closing Date.
(b) By Purchaser. Purchaser shall indemnify and hold
harmless Seller, its directors, officers and employees and each of their
respective successors and assigns from and against any and all Damages incurred
in connection with or arising out of or resulting from (i) any breach of or
inaccuracy in any representation or warranty made by Purchaser pursuant to this
Agreement and/or the Ancillary Agreements; (ii) the failure of Purchaser to
comply with any of the covenants contained in this Agreement or in any of the
Ancillary Agreements which are required to be performed by Purchaser; (iii) any
Assumed Liability; and (iv) the operation of the Business (other than with
respect to the Excluded Assets or any liabilities arising on or prior to the
Closing Date and which are not Assumed Liabilities) from and after the Closing
Date, including, without limitation, any claim, liability, obligation or
commitment of any nature in respect of any Permits operated by Seller for the
benefit of Purchaser from and after the Closing Date pursuant to Section 3.2
hereof.
(c) Claims by Third Parties. Promptly after receipt by an
indemnified party of written notice of the commencement of any investigation,
claim, proceeding or other action in respect of which indemnity may be sought
from the indemnitor (an "Action"), such indemnified party shall notify the
indemnitor in writing of the commencement of such Action; but the omission to so
notify the indemnitor shall not relieve it from any liability that it may other-
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wise have to such indemnified party, except to the extent that the indemnitor is
materially prejudiced or forfeits substantive rights or defenses as a result of
such failure. In connection with any Action in which indemnitor and any
indemnified party are parties, the indemnitor shall be entitled to participate
therein, and may assume the defense thereof. Notwithstanding the assumption of
the defense of any such Action by the indemnitor, each indemnified party shall
have the right to employ separate counsel and to participate in the defense of
such Action, and the indemnitor shall bear the reasonable fees, costs and
expenses of such separate counsel to such indemnified party if: (a) the
indemnitor shall have agreed to the retention of such separate counsel, (b) the
indemnified party shall have concluded that representation of such indemnified
party and the indemnitor by the same counsel would be inappropriate due to
actual or, as reasonably determined by such indemnified party's counsel,
potential differing interests between them in the conduct of the defense of such
Action, or if there may be legal defenses available to such indemnified party
that are different from or additional to those available to the other
indemnified party or to the indemnitor, or (c) the indemnitor shall have failed
to employ counsel reasonably satisfactory to such indemnified party within a
reasonable period of time after notice of the institution of such Action. If
such indemnified party retains separate counsel in cases other than as described
in clauses (a), (b) or (c) above, such counsel shall be retained at the expense
of such indemnified party. Except as provided above, it is hereby agreed and
understood that the indemnitor shall not, in connection with any Action in the
same jurisdiction, be liable for the fees and expenses of more than one counsel
for all such indemnified parties (together with appropriate local counsel). The
party from whom indemnification is sought shall not, without the written consent
of the party seeking indemnification (which consent shall not be unreasonably
withheld), settle or compromise any claim or consent to entry of any judgment
that involves more than the payment of money or that does not include an
unconditional release of the party seeking indemnification from all liabilities
with respect to such claim.
(d) Limitations on Indemnification. Notwithstanding any
other provision of this Agreement, none of the parties hereto shall be entitled
to indemnification pursuant to this Section 9.2 for any Damages arising out of
the breach of any representation or warranty made by the other party in this
Agreement except as follows: (i) with respect to any Damages resulting from a
breach of any of the
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representations and warranties by either party, the other party shall be
entitled to indemnification for only those Damages which arise out of such
breach and are in excess of $400,000 in the aggregate (it being agreed that such
other party shall bear the first $400,000 of Damages arising from such breaches
or alleged breaches); and (ii) unless the party seeking such indemnification
shall make its claim therefor on or prior to the date on which the relevant
representation or warranty shall expire pursuant to Section 10.2, except that if
a claim arises under a representation or warranty and a notice of such claim is
given prior to the expiration of the survival period, then such representation
or warranty shall not terminate with respect to such claim until indemnification
thereof (if any is owing) shall have been made in accordance with the provisions
of this Agreement. In no event will either party be liable under or with respect
to this Agreement for any Damages or any portion of any Damages arising out of
the breach of any representation or warranty in excess of $4,000,000 in the
aggregate; provided, however, that the foregoing limitations on liability for
Damages arising out of the breach of any representation or warranty shall not
apply to claims of Purchaser relating to the Excluded Liabilities or claims of
Seller relating to the Assumed Liabilities or to the representations or
warranties set forth in Section 4.2 or 5.2.
(e) Each party hereto acknowledges and agrees that, after
the Closing Date, its sole and exclusive legal remedy with respect to any and
all claims relating to or arising out of a breach of any representation,
warranty, covenant or agreement made by the other party in this Agreement shall
be pursuant to the indemnification provisions set forth in this Section 9.2,
except in the case of actual fraud.
(f) In calculating any amounts payable pursuant to this
Section 9.2 or Section 9.4 by Seller or Purchaser, as the case may be, such
amounts shall be reduced by (i) any tax benefit actually realized by the
Indemnified Party as a result of the facts giving rise to the claim for
indemnification and (ii) any insurance recoveries received by the Indemnified
Party. All amounts paid pursuant to this Section 9.2 or Section 9.4 by one party
to another party shall be treated by such parties as an adjustment to the
Purchase Price for the Assets.
(g) With respect to Remedial Activities for which Seller
must indemnify Purchaser:
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(i) Purchaser shall notify Seller of any
condition requiring Remedial Activities for which Seller is responsible
within 30 days of becoming aware that Remedial Activities are required.
Purchaser shall identify the conditions and the asserted grounds for
indemnification. Seller shall have 60 days from receipt of such notice
to commence an appropriate response, which may include investigation,
remediation, or response to and negotiation with regulatory
authorities, but need not involve actual Remedial Activities. Seller
shall promptly and diligently, consistent with clause (iii) below,
ascertain and complete all Remedial Activities required by
Environmental Laws and the governmental authorities responsible for
implementing those laws.
(ii) Claims by third parties alleging personal
injury or property damage arising out of Hazardous Materials which do
not arise out of and will not involve Remedial Activities shall be
governed by subsection 9.2(c) of this section.
(iii) Seller and Purchaser shall reasonably
cooperate in all decisions and activities related to Remedial
Activities, including without limitation, the timing, scope of work,
choice of consultant, choice of contractors, and remedy selected;
provided, however, that (a) Seller shall ensure that all Remedial
Activities are undertaken in a manner that does not prevent or
materially impair Purchaser from using the Boger City Plant in a
reasonable manner, (b) Seller shall comply with all applicable laws and
with all requirements imposed by governmental authorities with
responsiblity for implementing Environmental Laws, and (c) Seller may
use the least stringent criteria applicable to industrial property if
such criteria are acceptable to governmental authorities with
jurisdiction over the Remedial Activities. Seller shall provide
Purchaser with a written scope of work and the anticipated timeframe
for completion not less than 20 days before the commencement of work.
Purchaser shall have the right to review and to consult with Seller
with respect to finalization and implementation of such plan and
Seller, shall where reasonable, incorporate Purchaser's comments to
such plan.
(iv) Purchaser shall provide Seller and its
agents and representatives, including its environmental consultants and
contractors, with access to the Boger
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City Plant and any portion thereof on which Remedial Activities are to
be performed, and to water, telephone lines, electricity and other
readily available utilities. Purchaser shall cooperate with and assist
Seller in procuring required environmental permits and authorizations
and making required reports and filings. Purchaser shall not be
required to incur any out-of-pocket expenses or extraordinary personnel
or operating costs in connection with such cooperation and assistance
without reasonable compensation.
(v) If Seller fails for any reason to commence
and complete all required Remedial Activities in accordance with this
Agreement, then Purchaser shall, after reasonable notice, have the
right, but not the obligation, to perform such activities as Purchaser,
in its sole discretion, believes are required to obtain compliance with
Environmental Laws and Seller shall be responsible under Section 9.2(a)
for reimbursing all of Purchaser's reasonable costs; provided, however,
that Purchaser shall use the least stringent clean-up criteria
applicable to industrial property.
(vi) For purposes of this Section 9.2(g),
Remedial Activities means any actions specifically required by
Environmental Laws to cleanup, remove, treat, or in any other way
address Hazardous Materials located in, on or under the soil or
groundwater at the Boger City Plant at concentrations exceeding those
allowed by Environmental Laws. Remedial Activities shall not include
any action voluntarily undertaken to investigate or remediate Hazardous
Materials.
(h) (i) Omissions, conduct or conditions that were not
violations of Environmental Laws in effect on the Closing Date, but which
subsequently become violations due to a change in law, shall be Assumed
Liabilities, and omissions, conduct or conditions that would have been
violations of Environmental Laws in effect on the Closing Date (had all of the
facts and circumstances been known) shall be Excluded Liabilities.
(ii) Conditions existing on or before Closing for which
Remedial Activities (as defined in Section 9.2(g)(vi)) were not required under
Environmental Laws in effect on the Closing Date, but which subsequently become
subject to a remedial requirement due to a change in law, shall be Assumed
Liabilities, and all other conditions existing on or before Closing for which
Remedial Activities would have been
43
<PAGE> 51
required under Environmental Laws in effect on the Closing Date (had all of the
facts and circumstances been known) shall be Excluded Liabilities.
9.3 [Reserved].
9.4 Tax Matters. (a) Seller and Purchaser shall cooperate
fully with each other and make available or cause to be made available to each
other in a timely fashion such Tax data, prior Tax returns and filings and other
information as may be reasonably required for the preparation by Purchaser or
Seller of any Tax returns, elections, consents or certificates required to be
prepared and filed by Purchaser or Seller and any audit or other examination by
any taxing authority, or judicial or administrative proceeding relating to
liability for Taxes. Purchaser and Seller will each retain and provide to the
other party all records and other information which may be relevant to any such
Tax return, audit or examination, proceeding or determination, and will each
provide the other party with any final determination of any such audit or
examination, proceeding or determination that affects any amount required to be
shown on any Tax return of the other party for any period. Each of Purchaser and
Seller will retain copies of all Tax returns, supporting work schedules and
other records relating to Tax periods or portions thereof ending prior to or on
the Closing Date.
(b) Notwithstanding the provisions of Section 2.3(e)
hereof (i) any recording or other similar Taxes or fees imposed as a result of
the sale of the Owned Real Property to Purchaser pursuant to this Agreement
shall be paid by Purchaser and (ii) any sales, transfer, use or other similar
Taxes or fees imposed as a result of the sale of the Business to Purchaser
pursuant to this Agreement shall be paid by Seller. At the Closing, Seller and
Purchaser shall deliver to each other such properly completed resale exemption
certificates and other similar certificates or instruments as are necessary to
claim available exemptions from the payment of sales, transfer, use or other
similar Taxes under applicable law.
9.5 Mail Received After Closing. (a) Following the
Closing, Purchaser may receive and open all mail and other communications
addressed to Seller and deal with the contents thereof in its discretion to the
extent that such mail relates to the Business; provided that Purchaser shall
have no right to deal with the contents of any mail or other communication to
the extent that the same are not in respect of the Assets or the Business and
Purchaser shall promptly
44
<PAGE> 52
notify Seller as to the receipt thereof and make appropriate arrangements to
deliver such materials promptly to Seller.
(b) Following the Closing, Seller shall promptly notify
Purchaser of all mail and other communications relating solely to the Business
addressed to Seller and received by Seller, and shall make appropriate
arrangements to deliver such materials promptly to Purchaser.
ARTICLE X
MISCELLANEOUS
10.1 Termination. This Agreement may be terminated: (a) by
the written agreement of Seller and Purchaser; (b) by either Seller or Purchaser
if there shall be in effect a non-appealable order of a court of competent
jurisdiction permanently prohibiting the consummation of the transactions
contemplated hereby; (c) by either Seller or Purchaser if the Closing shall not
have occurred on or before March 1, 1999; (d) by Seller if Purchaser shall not
have obtained the commitment letter described in Section 6.10(b) hereof by
February 8, 1999; and (e) by Purchaser if there is a material occurrence of an
event described in Sections 6.6 (g) or 6.6 (i) or a material change in any
schedule pursuant to Section 10.14. Upon any termination of this Agreement
pursuant to this Section 10.1, no party hereto shall thereafter have any further
liability or obligation hereunder, other than for liabilities to the extent
arising from a willful breach of this Agreement prior to the date of such
termination.
10.2 Survival of Representations and Warranties. The
respective representations and warranties made by Seller and Purchaser in this
Agreement (including those made in the Exhibits and Schedules hereto) or in any
Ancillary Agreement shall not be deemed waived or otherwise affected by any
investigation made by any party hereto. Each and every such representation and
warranty of Seller and Purchaser shall expire with, and be terminated and
extinguished on, the first anniversary of the Closing Date (other than in
respect of the representations and warranties set forth in (i) Sections 4.9,
4.13 and 4.18, which shall survive for a period of three (3) years after the
Closing Date or (ii) Sections 4.2 or 5.2, which shall survive for a period equal
to the applicable statute of limitations) or the termination of this Agreement
pursuant to Section 10.1 hereof or otherwise.
45
<PAGE> 53
10.3 Assignment. Neither this Agreement nor any right or
obligation hereunder or part hereof may be assigned by any party hereto without
the prior written consent of the other party hereto (and any attempt to do so
will be void). Notwithstanding the foregoing, (i) Purchaser hereby acknowledges
and agrees that Seller may collaterally assign its rights, title and interest to
any payments under this Agreement to Citibank, N.A., as collateral agent
pursuant to the Seller Credit Agreement, or to any successor collateral agent
thereunder (Citibank, N.A., in such capacity, or any such successor being the
"Collateral Agent"), and Purchaser hereby consents to such assignment and (ii)
Seller hereby acknowledges and agrees that Purchaser may collaterally assign its
rights, title and interest to any payments under this Agreement to any financial
institution providing financing to Purchaser in connection with the transactions
contemplated by this Agreement. Furthermore, Purchaser hereby acknowledges and
agrees that upon receipt of written notice from the Collateral Agent that an
"Event of Default" has occurred pursuant to the Seller Credit Agreement,
Purchaser will tender any payments due under this Agreement to the Collateral
Agent in accordance with the instructions set forth in such notice; provided,
however, in the event that Purchaser tenders payment to Seller, such payment
shall be a complete discharge of Purchaser's obligation to the Collateral Agent
and Purchaser shall thereafter have no further liability to the Collateral Agent
with respect to such payment.
10.4 Notices. Unless otherwise provided herein, any
notice, request, instruction or other document to be given hereunder by either
party to the other shall be in writing and shall be deemed to have been duly
given if delivered by hand or sent by facsimile (with confirmation by facsimile
answer back) or mailed by certified or registered mail, postage prepaid, return
receipt requested (such mailed notice to be effective on the date such receipt
is acknowledged), as follows:
If to Seller, addressed to:
JPS Textile Group, Inc.
555 N. Pleasantburg Drive, Suite 202
Greenville, South Carolina 29607
Attention: Jerry E. Hunter, Chairman & CEO
Facsimile No.: (864) 271-9939
46
<PAGE> 54
With a copy to:
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Attention: Simeon Gold, Esq.
Facsimile No.: (212) 310-8007
If to Purchaser, addressed to:
Belding Hausman Incorporated
70 West 36th Street
Fifth Floor
New York, New York 10018
Attention: Nancy Zarin, President & CEO
Facsimile No: (212) 239-8696
With a copy to:
Jackson Walker L.L.P.
901 Main Street, Suite 6000
Dallas, Texas 75202
Attention: Richard F. Dahlson, Esq.
Facsimile No: (214) 953-5822
or to such other place with such other copies as either party may designate as
to itself by written notice to the others.
10.5 Choice of Law. The Agreement shall be construed and
interpreted, and the rights of the parties determined, in accordance with the
laws of the State of Delaware (without reference to the choice of law provisions
of Delaware law).
10.6 Entire Agreement; Amendments and Waivers. This
Agreement and the Ancillary Agreements, together with all Exhibits and Schedules
hereto and thereto, constitute the entire Agreement among the parties pertaining
to the subject matter hereof and supersedes all prior agreements,
understandings, negotiations and discussions, whether oral or written, of the
parties with respect to the subject matter hereof. No supplement, modification
or waiver of this Agreement shall be binding unless executed in writing by the
party to be bound thereby. No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any other provision hereof
(whether or not similar), nor shall such waiver constitute a continuing waiver
unless otherwise expressly provided. No act, delay or omission or course of
dealing on the part of
47
<PAGE> 55
either party in exercising any right, power or remedy under this Agreement or at
law or in equity shall operate as a waiver thereof or otherwise prejudice any of
such party's rights, powers and remedies. All remedies, whether at law or in
equity, shall be cumulative and the election of any one or more shall not
constitute a waiver of the right to pursue other available remedies.
10.7 Multiple Counterparts. This Agreement may be executed
in one or more counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument.
10.8 Expenses. Except as otherwise specified herein, each
party hereto shall pay its own legal, accounting, out-of-pocket and other
expenses incident to this Agreement; provided, however, with respect to costs,
fees or expenses paid in connection with transferring Permits or obtaining new
Permits to enable Purchaser to operate and continue to operate the Business,
such costs shall be borne solely by Purchaser.
10.9 Invalidity. In the event that any one or more of the
provisions contained in this Agreement or in any other instrument referred to
herein, shall, for any reason, be held to be invalid, illegal or unenforceable
in any respect, then to the maximum extent permitted by law, such invalidity,
illegality or unenforceability shall not affect any other provision of this
Agreement or any other such instrument and, in lieu of any such provision held
to be invalid, illegal or unenforceable, the parties shall agree to amend the
Agreement to include a similar provision that is valid, legal and enforceable.
10.10 Titles. The titles, captions or headings of the
Articles and Sections herein are inserted for convenience of reference only and
are not intended to be a part of or to affect the meaning or interpretation of
this Agreement.
10.11 Confidential Transaction Information. The parties
acknowledge that the transactions described herein are of a confidential nature
and shall not be disclosed except as provided herein or as required by law,
regulations, legal process or stock exchange rules. Neither Seller, Purchaser
nor their respective Affiliates shall make any public disclosure of the specific
terms of this Agreement without the prior written consent of the other parties
hereto, except as required by law or stock exchange rules or to bankers,
attorneys, accountants and other
48
<PAGE> 56
professional advisors. In connection with the performance of obligations
hereunder, each party acknowledges that it will have access to confidential
information relating to the other parties. Each party hereto shall treat such
information as confidential, preserve the confidentiality thereof and not
duplicate or disclose such information in connection with the transactions
contemplated hereby, except to advisors, lenders, consultants and affiliates who
also agree to treat such information as confidential. Seller, at a time and in a
manner which it reasonably determines and after prior notice to and consultation
with Purchaser, may notify employees, unions, bargaining agents and the public
at large of the fact of the subject transaction.
10.12 Third Parties. Except as set forth in Section 10.3
hereof, nothing expressed or implied herein is intended or shall be construed to
confer upon or give to any person or entity other than the parties hereto, and
their successors or permitted assigns, any rights or remedies under or by reason
of this Agreement (but in no event shall any of the Employees have any such
rights).
10.13 Neutral Construction. All of the parties to this
Agreement were represented by counsel, or had the opportunity to consult with
counsel. No party may rely on any drafts of this Agreement in any interpretation
of this Agreement. Each party to this Agreement has reviewed this Agreement and
has participated in its drafting and, accordingly, no party shall attempt to
invoke the normal rule of construction to the effect that ambiguities are to be
resolved against the drafting party in any interpretation of this Agreement.
10.14 Revisions to Certain Schedules. Notwithstanding
anything to the contrary in this Agreement, Seller may revise the schedules to
this Agreement (or the schedules to any exhibit to this Agreement) to reflect
operations of the Business in the ordinary course of business, as contemplated
by this Agreement, subject to the consent of Purchaser, which consent may not be
unreasonably withheld. Seller shall deliver to Purchaser any such revised
schedules prior to the Closing Date.
[SIGNATURE PAGE FOLLOWS]
49
<PAGE> 57
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed on their respective behalf, by their respective
officers thereunto duly authorized, in multiple originals, all as of the day and
year first above written.
JPS CONVERTER AND INDUSTRIAL CORP.
By /s/ John Sanders
---------------------------------
Name: John Sanders
Title: Vice President and
Assistant Secretary
BELDING HAUSMAN INCORPORATED
By /s/ Nancy Zarin
---------------------------------
Name: Nancy Zarin
Title: President and CEO
50
<PAGE> 58
Exhibit D
JPS CONVERTER & INDUSTRIAL CORP. ('000)
SUMMARY OF OPERATIONS - HOME FURNISHINGS
12 MONTHS ENDED
<TABLE>
<CAPTION>
11/01/97 10/31/98
LINE Y-T-D Y-T-D
NO. ITEM TOTAL TOTAL
- -------------------------------------------------------------------
<S> <C> <C> ('000) <C>
1 WEEKS 52 52
2 BILLINGS
3 1ST QUALITY
4 TRADE 23,115 17,830
5 INT'DIV 0 0
6 TOTAL 23,115 17,830
7 2ND QUALITY
8 TRADE 1,032 759
9 INT'DIV 0 0
10 TOTAL 1,032 759
11 RETURNS (401) (154)
12 ALLOWANCES (10) (2)
13 ------- -------
14 TOTAL BILLINGS 23,736 18,233
15
16 PROFIT
17 1ST QUALITY
18 TRADE 3,208 1,748
19 INT'DIV 0 0
20 TOTAL 3,208 1,748
21 2ND QUALITY
22 TRADE (365) (448)
23 INT'DIV 0 0
24 TOTAL (365) (448)
25 ------- -------
26 TOTAL PROFIT 2,843 1,300
27
28 SAMPLES (2) (2)
29 RESERVE 1ST QUAL (15) 10
30 RESERVE 2ND QUAL (4) (2)
31 DEGREE OF OPERATIONS 0 0
32 PLANT VARIANCE 14 (153)
33 ------- -------
34 TOTAL GROSS MARGIN 2,836 1,157
35 % GROSS MARGIN 11.95% 6.35%
36
37 FACTORING EXPENSE (105) (81)
38 SELLING EXPENSE (946) (998)
39 G & A (652) (679)
40 DISTRIBUTION (120) (67)
41 ------- -------
42 TOTAL SG&A (1,823) (1,825)
43
44 PROJECT EXPENSE (4) 0
45 ------- -------
46 OPERATING P/L 1,009 (668)
47 % OPERATING P/L BILLINGS 4.25% (3.66)%
48
49 I.B.I.T.D. 2,698 227
50 % I.B.I.T.D. 11.37% 1.24%
51
52 CAPITAL EXPENDITURES 242 280
53 DEPRECIATION 1,689 895
54 PROFIT 1ST @ STD 13.88 9.61
55 PROFIT 2ND @ STD (35.37) (59.03)
56 % SEC BILLED 4.27 4.13
57 % RETURN & ALLOW (1.70) (0.85)
58 INVENTORY TURN 7.05 4.51
59 RAW MATERIAL INVENTORY 622 475
60 WORK IN PROCESS INVENTORY 1,214 1,241
61 GOODS IN PROCESS INVENTORY 102 105
62 FINISHED GOODS INVENTORY 1,394 2,188
63 SALABLE WASTE & SUPPLIES 36 33
64 TOTAL INVENTORIES 3,368 4,042
65 RECEIVABLES 4,729 3,541
66 NET FIXED ASSETS 9,937 7,198
67 TOTAL INVESTMENT 18,034 14,781
68 RETURN ON INVESTMENT 5.59 (4.52)
69 BILL & / INVEST 1.32 1.23
70 % SELL OR BILL 3.99 5.47
71 % G&A OF BILL 2.75 3.72
72
73 UNITS PACKED 18,222 13,508
74 UNITS BILLED 17,619 13,345
75 AVERAGE SALES PRICE 1.3472 1.3663
76 BILL & HOLD 1,988 1,603
</TABLE>
<PAGE> 1
EXHIBIT 10.40
AMENDMENT NO. 1
AMENDMENT NO. 1 (this "Amendment"), dated as of February 8, 1999, to
the Asset Purchase Agreement (the "Agreement"), dated as of January 11, 1999,
is by and between JPS Converter and Industrial Corp. ("Seller") and Belding
Hausman Incorporated ("Purchaser").
RECITALS
WHEREAS, Seller and Purchaser have agreed to amend the Agreement upon
the terms and conditions contained herein;
WHEREAS, capitalized terms used herein which are not otherwise defined
herein shall have the respective meanings ascribed thereto in the Agreement.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt of which is hereby acknowledged, the
parties hereto agree as follows:
1. Amendment to the Agreement. On and after the date first written
above (the "Effective Date"), the Agreement is hereby amended in its entirety
as follows:
(a) Definitions. Section 1.1 of the Agreement is hereby
amended as follows:
(i) the definition of "Assets" is amended to read in its
entirety as follows:
"Assets" means all of Seller's rights, title and interests in
and to all of the properties, assets and rights constituting the Business
(other than the Excluded Assets) on the Closing Date, consisting of the
following:
(a) all Contract Rights;
(b) all Owned Real Property;
(c) all Fixed Assets;
(d) all of Seller's rights and obligations under the Personal
Property Leases;
(e) all Inventory;
<PAGE> 2
(f) to the extent transferable, all Permits; and
(g) all Books and Records, including books of account,
records, files, invoices, manuals, sales, marketing and advertising materials,
customer and supplier files, personnel files, equipment maintenance records,
equipment warranty information, material, specifications and drawings,
equipment drawings, customer specifications, sales, distribution and purchase
correspondence, trade association memberships and all other similar data,
manuals and property, in each case relating solely to the Business;
provided, however, that the Assets shall also include all other assets located
at the Boger City Plant as of the Closing Date (other than the Excluded
Assets).
(ii) the definition of "Assumed
Liabilities" is amended in its entirety as follows:
""Assumed Liabilities" shall mean the following
liabilities and obligations of Seller: (i) all
duties and obligations under the contracts and
commitments set forth on Schedule 4.6 to the extent
that such duties and obligations accrue after the
Closing Date, (ii) liabilities described in Section
6.1 hereof in respect of the Transferred Employees
and (iii) all Environmental Costs and Liabilities at
the Boger City Plant not attributable to Seller or
any prior owner or operator of the Business or which
were not violations of Environmental Laws in effect
as of or prior to the Closing."
(iii) the definition of "Closing Statement"
is amended in its entirety as follows:
"Closing Statement" means the audited statement
which shall set forth Inventory as of the Closing
Date, net of appropriate reserves, calculated in
accordance with GAAP and on a basis consistent with
the October 31, 1998 and 1997 Statement.
(b) Section 2.1(b) of the Agreement is hereby amended
in its entirety as follows:
"Purchaser hereby agrees to assume and pay, perform
and discharge as and when due the Assumed
Liabilities. Purchaser expressly shall not assume or
pay for the Excluded Liabilities, including, without
limitation, liabilities relating to (A) the Excluded
Assets, (B) income or franchise Taxes imposed on net
income or sales or real property taxes incurred by
Seller or relating to the Assets for any taxable
period ending on or prior to the Closing Date, (C)
any liability for purchase money debt, debt for
borrowed money or a guaranty in respect thereof,
except to the extent such liabilities are reflected
on the Closing Statement, (D) (1) liabilities assumed
by Seller pursuant to Section 6.1 hereof and (2)
liabilities incurred or accrued prior to the Closing
Date under any employee benefit plan, policy and
arrangement covering or providing benefits to the
Employees and (E) all Accounts Payable."
2
<PAGE> 3
(c) Section 2.2(a) of the Agreement is hereby
amended in its entirety as follows:
"(a) On the Closing Date, as consideration
for the sale, conveyance, transfer, assignment and
delivery of the Assets (i) Purchaser shall pay to
Seller in cash an amount equal to $8,391,037 (which
amount includes an amount equal to $900,000 of
Accounts Payable to be paid by Seller) (the
"Purchase Price"), subject to adjustment as provided
in Section 2.3 hereof; and (ii) Purchaser shall
assume the Assumed Liabilities."
(d) Section 2.2 of the Agreement is hereby amended
to add a new Section (d) as follows:
"(d) Within fifteen (15) days after the
Closing, Seller shall deliver to Purchaser (i) an
invoice for an amount equal to the net lost
opportunity cost incurred by (A) Seller on the one
hand, as a result of Seller retaining Accounts
Receivable as of the Closing Date, and (B) Purchaser
on the other hand, as a result of Seller retaining
the Accounts Payable in an amount equal to the lesser
of (i) $900,000, or Accounts payable within 30 days
of invoice date, in each case calculated in
accordance with the methodology set forth in Annex 1
hereto) (the "Net Lost Opportunity Price") and (ii) a
list of Accounts Receivable as of the Closing Date.
Within five (5) business days after receipt of such
invoice, Purchaser shall pay to Seller in cash an
amount equal to the Net Lost Opportunity Price, in
accordance with Section 2.2(b) hereof. Absent
manifest error in Seller's calculation of the Net
Lost Opportunity Price, the Net Lost Opportunity
Price shall be binding upon Purchaser."
(e) Section 2.3 of the Agreement is hereby amended
to read in its entirety as follows:
"(a) The Purchase Price shall be increased
or decreased (on a dollar for dollar basis), as the
case may be, for any increase or decrease in
Inventory as set forth on the Closing Statement, if
the aggregate value of Inventory as of the Closing
Date (net of appropriate reserves, calculated in
accordance with GAAP and on a basis consistent with
the October 31, 1998 and 1997
3
<PAGE> 4
Statement) is: (A) greater than $3,629,541 then
Purchaser shall pay to Seller the amount of such
excess; (B) less than $3,629,541 then Seller shall
pay to Purchaser the amount of such difference; or
(C) equal to $3,629,541 then neither Seller nor
Purchaser shall owe any amount to the other pursuant
to this Section 2.3(a).
(b) As soon as is reasonably practicable
following the Closing Date (but no later than 45
days following the Closing Date), Seller shall
prepare and deliver to Purchaser the Closing
Statement which shall set forth the Purchase Price
adjustments to be made, if any, in accordance with
Section 2.3(a). In connection with the preparation
of the Closing Statement, Purchaser shall grant
Seller and its accountants, counsel and other
representatives, full and complete access to all of
the books and records of the Business. The Closing
Statement shall be audited by Seller's accountants
and shall include a schedule reviewed by such
accountants showing the computation of Inventory as
of the Closing Date (net of appropriate reserves,
calculated in accordance with GAAP and on a basis
consistent with the October 31, 1998 and 1997
Statement), computed in accordance with the
definitions of such terms set forth herein.
Concurrently with their delivery of the Closing
Statement to Purchaser, Seller shall cause
reasonable access to be granted to Purchaser to the
work papers, schedules and other documents prepared
or used by Seller and its accountants in connection
with the preparation of the Closing Statement.
Seller shall pay all fees and expenses of its
accountants in connection with the preparation of
the Closing Statement and the computation of
Inventory as of the Closing Date.
(c) Unless Purchaser, within 30 days after
receipt of the Closing Statement, gives Seller a
notice (the "Dispute Notice") (i) objecting in good
faith to the Closing Statement, (ii) setting forth
in reasonable detail the items being disputed and
the reasons therefor, and (iii) specifying that
Purchaser's calculation of Inventory as of the
Closing Date is in an amount which differs from that
reflected in such Closing
4
<PAGE> 5
Statement (the entire amount of such difference
being hereinafter referred to as the "Adjusted
Amount"), the Inventory as of the Closing Date as
set forth in the Closing Statement and the Purchase
Price adjustment set forth therein shall be binding
and final upon the parties. If a Dispute Notice is
given by Purchaser, the parties shall negotiate in
good faith with a view to agreeing upon the
Inventory as of the Closing Date and the
corresponding amount of the adjustment required by
paragraph (a) of this Section 2.3. If negotiations
between Purchaser and Seller fail to resolve all
disputed items within 30 days after the Dispute
Notice was given to Seller, the remaining disputed
items shall be submitted to KPMG Peat Marwick LLP
(the "Arbitrator"). After affording each of Seller
and Purchaser and their accountants the opportunity
to present its position as to such determination
(which opportunity shall not extend for more than 30
days from the date the independent public
accountants are retained), the accounting firm
selected pursuant to this paragraph shall determine
the adjustment pursuant to paragraph (a) of this
Section 2.3 and such determination shall be final
and binding. Each party shall pay its own costs and
expenses in connection with the foregoing. The fees,
costs and expenses of the Arbitrator shall be borne
equally by Seller and Purchaser.
(d) The amount of any Purchase Price
adjustment required under this Section 2.3 shall be
delivered to Seller or Purchaser, as the case may
be, with interest thereon (calculated on the basis
of a 360-day year comprised of twelve 30-day
months), from and including the Closing Date until
paid at an annual rate equal to the base rate of
interest of Citibank, N.A. (as such base rate is
publicly announced from time to time as the base
rate of such bank), at such place in the United
States as the party receiving such amount shall
designate in writing to the other party and shall be
paid in immediately available funds within 30 days
after the final determination of such Purchase Price
adjustment.
5
<PAGE> 6
(e) At the Closing (or after the Closing,
to the extent the necessary calculations cannot be
made at the Closing), real property taxes, water
charges, sewer rents and other utility charges in
respect of the Business shall be prorated as of the
Closing Date with Seller being responsible for such
items relative to periods prior to the Closing Date
and Purchaser being responsible for such items
relative to periods commencing on or subsequent to
the Closing Date. If the Closing shall occur before
a new tax rate is fixed, the apportionment of real
property taxes shall be upon the basis of the old
tax rate for the preceding period applied to the
latest assessed valuation."
(f) Section 10.1(d) of the Agreement is hereby
amended in its entirety as follows:
"(d) by Seller if Purchaser shall not have
obtained the commitment letter described in Section
6.10(b) hereof by February 10, 1999;"
(g) Exhibit C to the Agreement is hereby amended by
adding the defined term "Accounts Receivable" to Schedule 1
thereto.
(h) The Agreement is hereby amended by adding a new
Annex 1 to the Agreement in the form attached as Exhibit A
hereto.
2. Choice of Law. This Amendment shall be construed
and interpreted, and the rights of the parties determined, in accordance with
the laws of the State of Delaware (without reference to the choice of law
provisions of Delaware law).
3. Multiple Counterparts. This Amendment may be
executed in one or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
4. Effect of Amendment. Except as specifically
amended hereby, the Agreement remains in full force and effect in accordance
with its terms.
[SIGNATURE PAGE FOLLOWS]
6
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed on their respective behalf, by their respective
officers thereunto duly authorized, in multiple originals, all as of the day
and year first above written.
JPS CONVERTER AND INDUSTRIAL CORP.
By /s/ John Sanders
----------------------------------------------
Name: John Sanders
Title: Vice President and Assistant Secretary
BELDING HAUSMAN INCORPORATED
By /s/ Nancy Zarin
----------------------------------------------
Name: Nancy Zarin
Title: President and CEO
ACKNOWLEDGED:
JPS Textile Group, Inc.
By: /s/ John Sanders
--------------------------------------------
Name: John Sanders
Title: Executive Vice President - Finance
and Chief Financial Officer
7
<PAGE> 8
Exhibit A
ANNEX 1
Calculation of Net Lost Opportunity Price
The Net Lost Opportunity Price shall be calculated in accordance with the
following methodology:
Accounts Receivable:
30/360 x .07 x $3,908,963 = $22,802.28
less
Accounts Payable:
30/360 x .07 x $900,000 = $ 5,250
Net Lost Opportunity Price: $17,552.28
Note that the referenced level of accounts receivable ($3,908,963) is as of
October 31, 1998 and is used in this Annex 1 for illustrative purposes only. The
Net Lost Opportunity Price shall be calculated using accounts receivable as of
the Closing Date. Net Lost Opportunity Price shall be calculated using the
lesser of (x) the referenced level of accounts payable ($900,000) or (y)
accounts payable within 30 days of invoice date as of the Closing Date.
Assumptions:
1. Accounts receivable are 30 days from invoice date.
2. Accounts payable are 30 days from invoice date.
3. The interest rate is 7%.
8
<PAGE> 1
EXHIBIT 10.41
January 11, 1999
JPS Textile Group, Inc.
555 N. Pleasantburg Drive
Suite 202
Greenville, South Carolina 29607
Ladies and Gentlemen:
Reference is made to that certain Asset Purchase Agreement, dated as of
January 11, 1999 (the "Agreement"), by and between JPS Converter and Industrial
Corp. ("Seller") and Belding Hausman Incorporated ("Purchaser").
As inducement for Purchaser to enter into the Agreement, you agree as
follows:
1. You (on your own behalf and on behalf of your subsidiaries other than
Seller) hereby agree to be bound by the provisions of Section 6.4 of the
Agreement.
2. You hereby absolutely and unconditionally (except as provided in the
next sentence) guarantee the due and punctual performance and discharge by
Seller of all of its obligations under the Agreement, and further agree that if
Seller shall fail to perform and discharge any such obligation in accordance
with the terms of the Agreement, you shall forthwith perform and discharge any
such obligation, as such performance and discharge is required to be made or
done by Seller. Notwithstanding the foregoing, you shall have the benefit of
any defenses, offsets, setoffs and counter-claims available to Seller.
3. Your liability under this letter agreement shall in no manner be
impaired, affected or released by the insolvency, bankruptcy, making of an
assignment for the benefit of creditors, arrangement, compensation, composition
or readjustment of Seller, or any proceeding affecting the status, existence or
assets of Seller or other similar proceedings instituted by or against Seller
and affecting the assets of Seller.
This letter agreement may be executed in one or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument. This letter agreement shall be
<PAGE> 2
construed and interpreted, and the rights of the parties determined, in
accordance with the laws of the State of Delaware (without reference to the
choice of law provisions of Delaware law).
Kindly confirm your agreement to the foregoing by signing the
enclosed copy of this letter, whereupon it shall be deemed to be a binding
agreement between us.
Very truly yours,
BELDING HAUSMAN INCORPORATED
By: /s/ Nancy Zarin
-------------------------------
Name: Nancy Zarin
Title: President & CEO
ACCEPTED AND AGREED TO:
JPS TEXTILE GROUP, INC.
By: /s/ John Sanders
----------------------------------
Name: John Sanders
Title: Executive Vice President -
Finance and Chief Financial
Officer
2
<PAGE> 1
EXHIBIT 10.42
JPS TEXTILE GROUP, INC.
555 NORTH PLEASANTBURG DRIVE, SUITE 202
GREENVILLE, SOUTH CAROLINA 29607
November 11, 1998
Mr. John W. Sanders, Jr.
102 Lytle Street
Greer, SC 29650
Dear John:
We are writing with respect to your employment by JPS Textile Group, Inc.
(The "Company") as Executive V.P. Finance and Chief Financial Officer of the
Company. The Company acknowledges and recognizes the value of your experience
and abilities to the Company since the beginning of your employment with the
Company, and desires to continue to retain and make secure for itself such
experience and abilities on the terms and subject to the conditions set forth
in this agreement (the "Agreement").
1. Employment. The Company agrees to employ you and you agree to be
employed by the Company and its wholly owned subsidiary, JPS Capital Corp,
dated November 11, 1998 (the "Effective Date") and ending on the first
anniversary thereof (unless sooner terminated as hereinafter provided) (the
"Employment Period"), on the terms and subject to the conditions set forth in
this Agreement; provided, however, that commencing on the first anniversary of
the Effective Date and each anniversary thereafter, the Employment Period shall
automatically be extended for one additional year (the "Extended Employment
Period") unless not later than the end of the Employment Period or the Extended
Employment Period, as the case may be, the Company or you shall have given
written notice to the other not to extend the Employment Period or any Extended
Employment Period. Unless specifically provided to the contrary, the Employment
Period shall be deemed to include any Extended Employment Period.
2. Duties. (a) You shall be employed as Executive V.P. Finance and Chief
Financial Officer of the Company. In such capacity, you shall serve as a senior
executive officer of the Company and shall have the duties and responsibilities
prescribed for such position by the By-Laws of the Company, and shall have such
other duties and responsibilities as may from time to time be prescribed by the
Board and are customarily performed by someone in your position, provided that
such duties and responsibilities are consistent with your position as Executive
V.P. Finance and CFO of the Company. In the performance of your duties, you
shall be subject to the supervision and direction of the Chief Executive
Officer of the Company.
(b) Subject to the terms of your employment hereunder, you shall devote
such time as is reasonably necessary to the proper performance of your duties
and responsibilities as Executive V.P. Finance and Chief Financial Officer of
the Company. You hereby represent and warrant to the Company that, except as
described above, you have no obligations under any existing employment or
service agreement and that your performance of the services required of you
hereunder will not conflict with your other existing obligations described
above.
3. Compensation.
(a) (i) Base Salary. During the term of your employment hereunder, the
Company shall pay you, and you shall accept from the Company for your services,
a salary at the rate of not less than $225,000 per year (the "Base Salary"),
payable in accordance with the Company's policy with respect to the
compensation of executives. The Board shall annually review your performance
and determine, in its sole discretion, whether or not to increase your Base
Salary and, if so, the amount of such increase.
<PAGE> 2
Mr. John W. Sanders, Jr.
Page 2
(ii)Bonus. In addition to your Base Salary, unless you voluntarily
terminate your employment for other than Good Reason (as hereinafter defined),
or are terminated by the Company for Cause (as hereinafter defined), you will
be eligible to participate in the 1999 Management Incentive Bonus Plan (the
"1999 Bonus Plan") and receive a bonus in an amount and based upon the
attainment of the performance goals specified therein. The Board shall
establish a performance-based annual bonus program for senior executives of the
Company including you for fiscal years after 1998 (a "Future Bonus Plan") and
award you an annual bonus opportunity thereunder which is not less favorable
than the opportunity provided pursuant to the 1998 Bonus Plan without
restricting the discretion of the Board to set reasonable targets and criteria
for such incentive compensation.
(iii) Incentive Compensation and Other Plans. During the term of your
employment hereunder, you shall participate in any incentive compensation
(including stock options, restricted stock and/or other long-term incentive
compensation), deferred compensation, savings and retirement plans, practices,
policies and programs as adopted and approved by the Board from time to time.
(b) Reimbursement of Expenses. During your employment, you will be
entitled to receive prompt reimbursement for all reasonable expenses incurred
by you in performing your services hereunder, provided that you properly
account therefor in accordance with Company policy.
4. Vacations. During your employment, you shall be entitled to reasonable
vacations from time to time in accordance with the regular procedures of the
Company governing senior executives. You shall also be entitled to all paid
holidays given by the Company to its senior executives.
5. Participation in Benefit Plans. You shall be entitled to participate in
and to receive benefits under all the Company's employee benefit plans and
arrangements in effect on the date hereof, and you shall be entitled to
participate in or receive benefits under any pension or retirement plan,
savings plan, or health-and-accident plan made available by the Company in the
future to its senior executives and other key management employees, subject to
and on a basis consistent with the terms, conditions and overall administration
of such plans and arrangements and provided that you meet the eligibility
requirements thereof.
6. Other Offices. You further agree to serve without additional
compensation, if elected or appointed thereto, as an officer or director of any
of the Company's subsidiaries or affiliates.
7. Termination.
(a) Death. Your employment hereunder shall terminate upon your death.
(b) Disability. In the event of your permanent disability (as hereinafter
defined) during the term of your employment hereunder, the Company shall have
the right, upon written notice to you, to terminate your employment hereunder,
effective upon the giving of such notice. For purposes hereof, "permanent
disability" shall be defined as any physical or mental disability or incapacity
which renders you incapable of fully performing the services required of you in
accordance with your obligations hereunder for a period of 150 consecutive days
or for shorter periods aggregating 150 days during any period of twelve (12)
consecutive months.
(c) Cause. The Company may terminate your employment hereunder for
"Cause." For purposes hereof, termination for "Cause" shall mean termination
after:
<PAGE> 3
Mr. John W. Sanders, Jr.
Page 3
(i) your violation of any of the provisions of paragraph 9 hereof;
(ii) your commission of an intentional act of fraud, embezzlement,
theft or dishonesty against the Company or its affiliates;
(iii) your conviction of (or pleading by you of nolo contendere to)
any crime which constitutes a felony or misdemeanor involving moral turpitude
or which might, in the reasonable opinion of the Company, cause embarrassment
to the Company; or
(iv) the gross neglect or willful failure by you to perform your
duties and responsibilities in all material respects as set forth in paragraph
2 hereof, if such breach of duty is not cured within 30 days after written
notice thereof to you by the Board.
For purposes of clause (iv), no act, or failure to act, on your part shall
be deemed "willful" unless done, or omitted to be done, by you not in good
faith and without reasonable belief that your act, or failure to act, was in
the best interest of the Company.
(d) Termination by You. You may terminate your employment hereunder for
Good Reason. For purposes of this Agreement,"Good Reason" shall mean (A) any
assignment to you of any duties (other than incident to a promotion) materially
different than or in addition to those contemplated by, or any limitation of
your powers or in any respect not contemplated by, paragraph 2 hereof, provided
that you first deliver written notice thereof to the Chairman of the Board and
the Company shall have failed to cure such non-permitted assignment or
limitation within thirty (30) days after receipt of such written notice, (B) a
reduction in your rate of base salary or the failure to maintain incentive
bonus arrangements substantially similar in earnings potential to those in
effect on the Effective Date, or a material reduction in your fringe benefits
or any other material failure by the Company to comply with paragraphs 3
through 5 hereof, provided that you first deliver written notice thereof to the
Chairman of the Board and the Company shall have failed to cure such reduction
or failure within thirty (30) days after receipt of such written notice, (C)
your being required to relocate your principal residence from its existing
location without your consent, or (D) upon notice by the Company as set forth
in paragraph 1 hereof not to extend the Employment Period.
(e) Notice. Any termination by the Company pursuant to paragraphs 7(b) or
7(c) above or by you pursuant to paragraph 7(d) above shall be communicated by
written Notice of Termination to the other party hereto. For purposes hereof, a
"Notice of Termination" shall mean a notice which shall indicate the specific
termination provision in this Agreement relied upon and shall set forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of your employment under the provision so indicated.
(f) Date of Termination. "Date of Termination" shall mean (i) if your
employment is terminated by your death, the date of your death, and (ii) if
your employment is terminated for any other reason, the date on which a Notice
of Termination is given.
8. Compensation Upon Termination of Employment or During Disability.
Subject to paragraph 8(e) below:
(a) Death. If your employment shall be terminated by reason of your death,
the Company shall pay or grant, to such person as you shall designate in a
notice filed with the Company, or, if no such person shall be designated, to
your estate as a lump sum death benefit, (i) an amount equal to any accrued but
unpaid Base Salary at the time of your death,
<PAGE> 4
Mr. John W. Sanders, Jr.
Page 4
plus an additional payment equal to your Base Salary for the period from such
date through the end of the month following the month in which you die, (ii) an
amount equal to any accrued but unpaid bonus under the 1999 Bonus Plan or any
bonus payable pursuant to any Future Bonus Plans, to the extent earned but not
paid with respect to any year prior to the year in which your death occurs; and
(iii) a pro rata portion (based on the number of days worked) of the bonus
payable under the 1999 Bonus Plan or any Future Bonus Plan in effect for the
year in which your death occurs based upon the assumption that the performance
goals established under the applicable program with respect to the entire year
in which your death occurs are met. In addition, you shall retain all stock
options that are vested in accordance with the terms of the stock option plan
and grant letter controlling such stock options, with such options remaining
exercisable for six months from the date of your death and you shall receive
such additional benefits as may be provided by the then existing plans,
programs and/or arrangements of the Company. This amount and these benefits
shall be exclusive of and in addition to any payments your widow, beneficiaries
or estate may be entitled to receive pursuant to any pension or employee
benefit plan maintained by the Company. Your designated beneficiary or the
executor of your estate, as the case may be, shall accept the payment provided
for in this paragraph 8 in full discharge and release of the Company of and
from any further obligations under this Agreement.
(b) Disability. During any period that you fail to perform your duties
hereunder as a result of incapacity due to physical or mental illness, you
shall continue to receive your full Base Salary until your employment is
terminated pursuant to paragraph 7(b) hereof. If your employment is terminated
by the Company pursuant to paragraph 7(b), the Company shall pay to you in a
lump sum payment, an amount equal to (i) any accrued but unpaid bonus under the
1999 Bonus Plan or any bonus payable pursuant to any Future Bonus Plans, to the
extent earned but not paid with respect to any year prior to the year in which
your disability occurs; and (ii) a pro rata portion (based on the number of
days worked) of the bonus payable under the 1999 Bonus Plan or any Future Bonus
Plan in effect for the year in which your disability occurs based upon the
assumption that the performance goals established under the applicable program
with respect to the entire year in which your disability occurs are met. In
addition, you shall retain all stock options that are vested in accordance with
the terms of the stock option plan and grant letter controlling such stock
options, with such options remaining exercisable for six months from the date
of your disability and you shall receive such additional benefits as may be
provided by the then existing plans, programs and/or arrangements of the
Company. During any such period and thereafter you shall continue to bear the
obligations provided for in paragraph 9 below in accordance with the terms of
such paragraph 9.
(c) Cause or Other Good Reason. If your employment shall be terminated for
Cause or you shall terminate your employment other than for Good Reason, the
Company shall be discharged and released of and from any further obligations
under this Agreement except for any Base Salary through the Date of Termination
or the date on which you terminate your employment at the rate in effect at the
time Notice of Termination is given or the date on which you terminate your
employment, to the extent required by law. Thereafter you shall continue to
have the obligations provided for in paragraph 9 below. Nothing contained
herein shall be deemed to be a waiver by the Company of any rights that it may
have against you in respect of your actions which gave rise to the termination
of your employment for Cause or for any reason other than for Good Reason.
(d) Other Than for Cause or For Good Reason. If the Company shall
terminate your employment other than pursuant to paragraphs 7(b) or 7(c) hereof
or if you shall terminate your employment for Good Reason, then:
(i) The Company shall continue to pay you your Base Salary, at the
rate in effect at the time that the Notice of Termination is given in
accordance with paragraph 7(e) hereof, without interest for one year from the
Date of Termination, in accordance with normal payroll practices; provided,
however, that in the event of your death prior to the expiration of payment
hereunder your estate or beneficiary shall receive the remaining amount
hereunder in a lump sum payment;
<PAGE> 5
Mr. John W. Sanders, Jr.
Page 5
(ii) The Company shall pay you an amount equal to the sum of (A) any
bonus earned as of the Date of Termination under the 1999 Bonus Plan or any
Future Bonus Plan for a fiscal year ending prior to the Date of Termination but
not paid as of such date, (B) a pro rata portion (based on the number of days
worked) of the target bonus (not in excess of fifty percent (50%) of your Base
Salary) payable under the 1999 Bonus Plan or any Future Bonus Plan in effect
for the fiscal year in which your Date of Termination occurs (determined
without regard to whether the performance goals established under the
applicable program are met) and (C) an amount equal to your target bonus (not
in excess of fifty percent (50%) of your Base Salary) under the 1999 Bonus Plan
or any Future Bonus Plan in effect for the fiscal year in which your Date of
Termination occurs (determined without regard to whether the performance goals
established under the applicable program are met), multiplied by one if the
Date of Termination is during any Extended Employment Period,
(iii)You shall become fully vested in any stock options, with such
options remaining exercisable for six months from the date of your termination
of employment; and
(iv) The Company shall maintain in full force and effect, for your
continued benefit for twenty-four months after termination of employment, all
employee benefit plans and programs providing health and/or life insurance
benefits in which you were entitled to participate immediately prior to the
Date of Termination provided that your continued participation is possible
under the general terms and provisions of such plans and programs. In the event
that your participation in any such plan or program is barred, the Company
shall provide you with comparable benefits under a mirror benefit plan.
Notwithstanding the above, if you are employed by a new employer and are
eligible to receive comparable coverage from such employer (including the
waiver of any pre-existing condition limitation) at a comparable cost to you,
you shall no longer be eligible to receive coverage under this paragraph.
(e) Parachute Payment. Notwithstanding anything herein to the contrary, if
any of the payments or benefits received or to be received by you in connection
with a Change in Control or your termination of employment (whether such
payments or benefits are provided pursuant to the terms of this Agreement or
any other plan, arrangement or agreement with the Company, any person whose
actions result in a Change in Control or any person affiliated with the Company
or such person) (such payments or benefits being hereinafter referred to as the
"Total Payments") would be subject to the excise tax (The "Excise Tax") imposed
under Section 4999 of the Internal Revenue Code of 1986, as amended (the
"Code"), then the payments under this paragraph 8 hereof shall be reduced (by
the minimal amount necessary) so that no portion of the Total Payments is
subject to the Excise Tax.
For purposes of determining whether any of the Total Payments will be
subject to the Excise Tax and the amount of such Excise Tax, (i) all of the
total Payments shall be treated as "parachute payments" (within the meaning of
Section 280G(b)(2) of the Code) unless, in the opinion of tax counsel (the "Tax
Counsel") selected by the Company and reasonably acceptable by you, such
payments or benefits (in whole or in part) do not constitute parachute
payments, including by reason of Section 280G(b)(4)(A) of the Code, (ii) all
"excess parachute payments" within the meaning of Section 280G(b)(1) of the
Code shall be treated as subject to the Excise Tax unless, in the opinion of
Tax Counsel, such excess parachute payments (in whole or in part) represent
reasonable compensation for services actually rendered (within the meaning of
Section 280G(b)(4)(B) of the Code) in excess of the "base amount" (as defined
in Section 280G(b)(3) of the Code) allocable to such payment, or are otherwise
not subject to the Excise Tax, and (iii) the value of any noncash benefits or
any deferred payment or benefit shall be determined by Tax Counsel in
accordance with the principles of Sections 280G(d)(3) and (4) of the Code.
<PAGE> 6
Mr. John W. Sanders, Jr.
Page 6
9. Restrictive Covenants and Confidentiality; Injunctive Relief.
(a) You agree, as a condition to the performance by the Company of its
obligations hereunder, particularly its obligations under paragraph 3 hereof,
that during the term of your employment, except for a termination of employment
without Cause or for Good Reason, hereunder and during the further period of
one (1) year after the termination of such employment, you shall not, without
the prior written approval of the Board, directly or indirectly through any
other person, firm or corporation:
(i) Solicit, raid, entice or induce any person, firm or corporation
that presently is or at any time during the term of your employment hereunder
shall be a customer of the Company, or any of its subsidiary companies, to
become a customer of any other person, firm or corporation, and you shall not
approach any such person, firm or corporation for such purpose or authorize or
knowingly approve the taking of such actions by any other person;
(ii) Solicit, raid, entice or induce any person that presently is or
at any time during the term of your employment hereunder shall be an employee
of the Company, or any of its subsidiary companies, to become employed by any
person, firm or corporation, and you shall not approach any such employee for
such purpose or authorize or knowingly approve the taking of such actions by
any other person; or
(iii)Engage, participate, make any financial investment in, or become
employed by any person, firm, corporation or other business enterprise in the
United States which is engaged, directly or indirectly, during the term of your
employment or at the time of your termination of employment, as the case may
be, which (x) derives in excess of 20% of its gross revenues from the sale of
products substantially the same as the products of the Company and/or any of
its subsidiary companies or (y) has substantially the same customer base for
the same products as the Company and/or any of its subsidiary companies. The
foregoing covenant shall not be construed to preclude you from making any
investments in the securities of any company, whether or not engaged in
competition with the Company and/or any of its subsidiary companies, to the
extent that such securities are actively traded on a national securities
exchange or in the over-the-counter market in the United States or any foreign
securities exchange and, after giving effect to such investment, you do not
beneficially own securities representing more than 5% of the combined voting
power of the voting securities of such company.
(b) Recognizing that the knowledge, information and relationship with
customers, suppliers, and agents, and the knowledge of the Company's and its
subsidiary companies' business methods, systems, plans and policies which you
shall hereafter establish, receive or obtain as an employee of the Company or
its subsidiary companies, are valuable and unique assets of the respective
businesses of the Company and its subsidiary companies, you agree that, during
and after the term of your employment hereunder, you shall not (otherwise than
pursuant to your duties hereunder) disclose or use, without the prior written
approval of the Board, any such knowledge or information pertaining to the
Company or any of its subsidiary companies, their business, personnel or
policies, to any person, firm, corporation or other entity, for any reason or
purpose whatsoever. The provisions of this paragraph 9 shall not apply to
information which is or shall become generally known to the public or the trade
(except by reason of your breach of your obligations hereunder), information
which is or shall become available in trade or other publications, information
known to you prior to entering the employ of the Company, and information which
you are required to disclose by law or an order of a court of competent
jurisdiction (provided that prior to your disclosure of any such information
you shall provide the Company with reasonable notice and a reasonable
opportunity to seek a protective order to prevent such disclosure).
(c) The provisions of paragraph 9(b) above shall survive the termination
of your employment hereunder, irrespective of the reason therefor.
<PAGE> 7
Mr. John W. Sanders, Jr.
Page 7
(d) You acknowledge that the services to be rendered by you are of a
special, unique and extraordinary character and, in connection with such
services, you will have access to confidential information vital to the
Company's and its subsidiary companies' businesses. By reason of this, you
consent and agree that if you violate any of the provisions of this Agreement
with respect to diversion of the Company's or its subsidiary companies'
customers or employees, or confidentiality, the Company and its subsidiary
companies would sustain irreparable harm and, therefore, in addition to any
other remedies which the Company may have under this Agreement or otherwise,
the Company shall be entitled to an injunction restraining you from committing
or continuing any such violation of this Agreement.
(10)Deductions and Withholdings. The Company shall be entitled to withhold
any amounts payable under this Agreement on account of payroll taxes and
similar matters as are required by applicable law, rule or regulation of
appropriate governmental authorities.
(11)Successors; Binding Agreement.
(a) The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of
the business and/or assets of the Company, by agreement in form and substance
reasonably satisfactory to you, to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform it if no such succession had taken place. Failure of the
Company to obtain such agreement prior to the effectiveness of any such
succession shall be a breach of this Agreement and shall entitle you to
compensation from the Company in the same amount and on the same terms as you
would be entitled to hereunder if you terminated your employment for Good
Reason, except that for purposes of implementing the foregoing, the date on
which any such succession becomes effective shall be deemed the Date of
Termination. As used in this Agreement, "Company" shall include any successor
to the Company's business and/or assets as aforesaid which executes and
delivers the agreement provided for in this paragraph 11 or which otherwise
becomes bound by all the terms and provisions of this Agreement by operation of
law.
(b) This Agreement and all your rights hereunder shall inure to the
benefit of and be enforceable by your personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees. If you should die while any amounts would still be payable to you
hereunder if you had continued to live, all such amounts, unless otherwise
provided herein, shall be paid in accordance with the terms of this Agreement
to your devisee, legatee, or other designee or, if there be no such designee,
to your estate. Your obligations hereunder may not be delegated and except as
otherwise provided herein relating to the designation of a devisee, legatee or
other designee, you may not assign, transfer, pledge, encumber, hypothecate or
otherwise dispose of this Agreement or any of your rights hereunder, and any
such attempted delegation or disposition shall be null and void and without
effect.
12. Notice. For purposes of this Agreement, notices and all other
communications provided for shall be in writing and shall be deemed to have
been duly given when delivered or mailed by United States registered or
certified mail, return receipt requested, postage prepaid, addressed as
follows:
If to you:
Mr. John W. Sanders, Jr.
102 Lytle Street
Greer, SC 29650
<PAGE> 8
Mr. John W. Sanders, Jr.
Page 8
If to the Company:
JPS Textile Group, Inc.
555 North Pleasantburg Drive, Suite 202
Greenville, South Carolina 29607
Attention: Chairman of the Board
or to such other address as any party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
13. Miscellaneous. No provision of this Agreement may be modified, waived
or discharged unless such waiver, modification or discharge is agreed to in
writing signed by you and by the Company. No waiver by either party hereto at
any time of any breach by the other party hereto of, or compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time. This Agreement constitutes the
complete understanding between the parties with respect to your employment and
supersedes any other prior oral or written agreements, arrangements or
understandings between you and the Company. This Agreement amends, restates and
supersedes any existing employment, retention, severance and change-in-control
agreements (collectively, the "Prior Agreements") between you and the Company
and/or any of its subsidiary companies upon the Effective Date, and any and all
claims under or in respect of the Prior Agreements that you may have or assert
shall, as of the Effective Date, be governed by and completely satisfied and
discharged in accordance with, the terms and conditions of this Agreement. No
agreements or representations, oral or otherwise, express or implied, with
respect to the subject matter hereof have been made by either party which are
not set forth expressly in this Agreement. This Agreement may not be changed or
terminated orally but only by an agreement in writing signed by the parties
hereto. The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the State of South Carolina.
14. Arbitration. All differences, claims or matters in dispute arising out
of this Agreement, the breach hereof or otherwise arising between the Company
or any of its affiliates and you shall, at the election of either party, by
notice to the other, be submitted to arbitration by the American Arbitration
Association or its successor, in Greenville, South Carolina. Such arbitration
shall be governed by the then existing rules of the American Arbitration
Association and the laws of the State of South Carolina as then in effect. The
expenses, including your reasonable attorneys' fees, in connection with such
arbitration shall be borne by the Company.
15. Validity; Effectiveness. The invalidity or unenforceability of any
provision or provisions of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement, which shall remain in
full force and effect.
16. Counterparts.This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
<PAGE> 9
Mr. John W. Sanders, Jr.
Page 9
If the foregoing is satisfactory, please so indicate by signing and
returning to the Company the enclosed copy of this letter whereupon this will
constitute our agreement on the subject.
JPS TEXTILE GROUP, INC.
By: /s/ Jerry E. Hunter
-------------------------------------
Name: Jerry E. Hunter
Title: Chief Executive Officer
ACCEPTED AND AGREED TO:
/s/ John W. Sanders, Jr.
- ---------------------------
John W. Sanders, Jr.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF JPS TEXTILE GROUP, INC. CONTAINED IN THE BODY OF THE
ACCOMPANYING FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-31-1998
<CASH> 1,549
<SECURITIES> 0
<RECEIVABLES> 69,514
<ALLOWANCES> 1,565
<INVENTORY> 51,542
<CURRENT-ASSETS> 134,793
<PP&E> 107,148
<DEPRECIATION> 8,692
<TOTAL-ASSETS> 272,922
<CURRENT-LIABILITIES> 43,964
<BONDS> 99,089
0
0
<COMMON> 100
<OTHER-SE> 109,428
<TOTAL-LIABILITY-AND-EQUITY> 272,922
<SALES> 389,218
<TOTAL-REVENUES> 389,218
<CGS> 331,473
<TOTAL-COSTS> 331,473
<OTHER-EXPENSES> (19,245)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,592
<INCOME-PRETAX> (9,298)
<INCOME-TAX> 1,366
<INCOME-CONTINUING> (10,664)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,664)
<EPS-PRIMARY> (1.07)
<EPS-DILUTED> (1.07)
</TABLE>
