-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RGP1BNS895r7Sl74tZHxl1HKZlEIf2E3NB4GPrCxIaBJpebN7jL6WUzBVZB6APfi vCO1i39Wua7HFwc2Moy+XQ== 0000950144-97-000796.txt : 19970203 0000950144-97-000796.hdr.sgml : 19970203 ACCESSION NUMBER: 0000950144-97-000796 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19961102 FILED AS OF DATE: 19970131 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: JPS TEXTILE GROUP INC /DE/ CENTRAL INDEX KEY: 0000846615 STANDARD INDUSTRIAL CLASSIFICATION: BROADWOVEN FABRIC MILLS, COTTON [2211] IRS NUMBER: 570868166 STATE OF INCORPORATION: DE FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 033-27038 FILM NUMBER: 97515610 BUSINESS ADDRESS: STREET 1: 555 N PLEASANTBURG DR STE 202 CITY: GREENVILLE STATE: SC ZIP: 29607 BUSINESS PHONE: 803-239-3900 MAIL ADDRESS: STREET 1: 555 N PLEASANTBURG DR SUITE 202 CITY: GREENVILLE STATE: SC ZIP: 29607 10-K405 1 JPS TEXTILE GROUP, INC. 1 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 November 2, 1996 [ ] 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: None. Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: /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: /X/ As of January 30, 1997, there were 490,000 shares of the registrant's Class A Common Stock, $.01 par value per share (the "Class A Common Stock"), held by non-affiliates of the registrant. There is no established public trading market for such shares. 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, 490,000 shares of Class A Common Stock and 510,000 shares of the registrant's Class B Common Stock, $.01 par value per share, were issued and outstanding. 2 JPS TEXTILE GROUP, INC. Table of Contents PART I Item 1. BUSINESS........................................................ 2 Item 2. PROPERTIES...................................................... 10 Item 3. LEGAL PROCEEDINGS............................................... 10 Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS.............. 10 PART II Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS..................................... 11 Item 6. SELECTED HISTORICAL FINANCIAL DATA.............................. 12 Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS....................................... 14 Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA..................... 24 Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE............................. 51 PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT............... 51 Item 11. EXECUTIVE COMPENSATION........................................... 53 Item 12. SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT...... 58 Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................... 60 PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K... 60 SIGNATURES....................................................... 66
3 PART I ITEM 1. BUSINESS. HISTORICAL BACKGROUND JPS Textile Group, Inc. ("JPS" or the "Company") 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. On March 14, 1988, the Company executed a merger agreement providing for the acquisition of J.P. Stevens & Co., Inc. ("J.P. Stevens"). On March 15, 1988, the Company commenced a tender offer pursuant to such merger agreement for all of the outstanding stock of J.P. Stevens. Subsequently, the Company terminated its tender offer and J.P. Stevens agreed to be acquired by another entity. Simultaneously therewith, J.P. Stevens agreed to sell to the Company the business and substantially all of the assets of five J.P. Stevens divisions: the Converter and Yarn division; the Automotive Products division; the Elastomerics division; the Carpet division; and the Industrial Fabrics division (the "Predecessor Stevens Divisions"), for approximately $527.0 million (the "Acquisition"). Subsequent to the Acquisition, due to certain financial concerns, the Company engaged certain financial advisors in March 1990 to advise the Company concerning a possible restructuring of its debts and equity capitalization. In furtherance thereof, the Company, together with its legal and financial advisors, met with representatives of the Company's senior lenders and with the respective legal and financial representatives of certain large institutional holders of the Company's (i) Senior Variable Rate Notes due June 1, 1996, (ii) Senior Subordinated Discount Notes due June 1, 1999, (iii) 15.25% Senior Subordinated Notes due June 1, 1999, and (iv) 14.25% Subordinated Debentures due May 15, 2000 (collectively, the "Old Debt Securities"), to discuss the Company's general business and financial status, and to explore various financial restructuring alternatives. In November 1990, the Company and representatives of the holders of the Old Debt Securities determined that a transaction involving the exchange of the Old Debt Securities for a significant percentage of "new" common stock and "new" debt securities with a fixed lower per annum interest rate, together with the issuance to the holders of the Company's Series A Exchangeable Adjustable Rate Preferred Stock and Series B Junior Preferred Stock (together, the "Old Securities") of a significant percentage of the Company's "new" preferred equity securities, would improve the Company's financial condition and overall creditworthiness and simplify its capital structure, and that such transaction would best be accomplished pursuant to a pre-petition solicitation of votes to accept or reject a voluntary plan of reorganization (the "Plan of Reorganization") under chapter 11 of Title 11 of the United States Code (the "Bankruptcy Code"). The Company's solicitation was successfully completed and the chapter 11 case was commenced in early February 1991 before the United States Bankruptcy Court for the Southern District of New York (the "Bankruptcy Court"). The Plan of Reorganization was confirmed by the Bankruptcy Court pursuant to a court order signed on March 21, 1991 and the Plan of Reorganization became effective on April 2, 1991. As part of the Plan of Reorganization, the Company, together with its senior bank lenders, agreed to restructure the then-existing bank debt of the Company. 2 4 On June 28, 1994, pursuant to the terms of an Asset Purchase Agreement dated May 25, 1994, as amended, (the "Asset Purchase Agreement"), by and among the Company, JPS Auto Inc., a wholly-owned subsidiary of the Company ("Auto"), JPS Converter and Industrial Corp., a wholly-owned subsidiary of the Company ("C&I"), Foamex International Inc. ("Foamex") and JPS Automotive Products Corp., an indirect, wholly-owned subsidiary of Foamex ("Purchaser"), the Company consummated the disposition of its Automotive Assets (as described below) to the Purchaser. The "Automotive Assets" consisted of the businesses and assets of Auto and the synthetic industrial fabrics division of C&I, and the Company's investment in common stock of the managing general partner of Cramerton Automotive Products, L.P. (an 80% owned joint venture). Pursuant to the Asset Purchase Agreement, the Purchaser agreed to assume substantially all of the liabilities and obligations associated with the Automotive Assets. In addition, the Company and its affiliates agreed, for a four year period, not to directly or indirectly compete in North, Central and South America with the businesses that were sold. The sale price for the Automotive Assets was approximately $283 million, consisting of $264 million of cash paid at closing, $15 million of assumed debt as of June 28, 1994, and certain post-closing adjustments which resulted in a net gain of $4.4 million recognized in 1995. The sale of the Automotive Assets resulted in an approximate total gain of $137.4 million, net of income taxes of $2.9 million. The net cash proceeds from the disposition of the Automotive Assets (after deductions for fees, other expenses and amounts designated by management to satisfy possible contingent tax liabilities) were approximately $217 million, and such proceeds were used by the Company to reduce its outstanding indebtedness. On November 16, 1995, pursuant to the terms of an Asset Transfer Agreement dated as of November 16, 1995, by and among the Company, JPS Carpet Corp. ("Carpet"), a wholly-owned subsidiary of the Company, 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 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"). Pursuant to the Asset Transfer Agreement, Gulistan agreed to assume substantially all of the liabilities and obligations associated with the Carpet Business. Gulistan was formed and its common stock is owned by certain members of the former management team at Carpet. The Company and its subsidiaries have agreed, for a three-year period, not to compete in certain specified geographic areas directly or indirectly with the business that was sold. The consideration received for 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 which resulted in a reduction to net cash proceeds of approximately $3.5 million, and other debt and equity securities of Gulistan as follows: a $10 million Promissory Note due in November 2001, $5 million 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. 3 5 The Carpet Assets were reduced to their net realizable value as of October 28, 1995 and such reduction was reflected as a loss on sale of discontinued operations of $30.7 million in the 1995 consolidated financial statements. In May 1996, the Company and Gulistan agreed on the amount of the post-closing adjustment to the consideration received for the Carpet Business. As a result, the Company paid a post-closing adjustment of $3.5 million (an estimated post-closing adjustment of $2.0 million was included in the Fiscal 1995 loss on sale of discontinued operations) and has recognized in Fiscal 1996 an additional loss of $1.5 million on the sale of discontinued operations. The final amount of net cash proceeds applied by the Company to reduce outstanding borrowings under its senior credit facility was approximately $16.7 million (net of fees, expenses and the post-closing adjustment resulting from the level of working capital transferred at the closing date). 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 completed the sale of 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 $22.6, $20.7 million and $16.8 million in Fiscal 1994, 1995 and 1996 (eleven months), respectively. 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 have 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 which was charged to operations in Fiscal 1996. The net proceeds from the sale, after fees and expenses, were approximately $4.8 million and were used to reduce the Company's outstanding indebtedness. GENERAL The Company is one of the largest diversified domestic manufacturers of textile and textile related products, principally for the apparel, industrial and home fashion markets. JPS conducts its operations from 10 manufacturing plants in five states and employs approximately 4,000 people. The Company competes in three industry segments; apparel fabrics and products, industrial fabrics and products and home fashion textiles. Certain financial information about the Company's industry segments for each of the last three fiscal years is included in Note 12 of the Notes to Consolidated Financial Statements included in Item 8 herein. APPAREL FABRICS AND PRODUCTS 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, sportswear and undergarments. Greige Goods. 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 rayon, acetate, polyester and cotton yarns, and are primarily sold to other textile manufacturers for use in producing printed and dyed fabrics. Yarn. The Company produces a variety of rayon and polyester spun yarns for its own use and for sale to manufacturers of knitted apparel. 4 6 INDUSTRIAL FABRICS AND PRODUCTS Commercial Roofing Products. The Company is a well-established manufacturer of single-ply membrane roofs that are made from woven synthetic fabrics and rubber-based or polypropylene specialty polymer compounds which are sold principally to roofing distributors for use in both the new and replacement commercial markets. Other Building Construction Products. The Company is a producer of fabrics made from glass and synthetic fibers that are used in a number of applications in the building construction industry. Products include various scrims used for wallboard tapes and certain roofing applications, and reinforcement substrates used for the installation of internal and external tiles and synthetic wall surfaces. The Company produces and sells membrane products (similar to commercial roofing products) for use in environmental containment applications such as reservoir liners and covers. Other Industrial Products. The Company produces a wide variety of other industrial textile products that are used in many industries for many different end uses. Many of these products have characteristics that provide insulation or filtration properties. These specialty fabrics are used in the manufacture of such products as flame-retardant clothing, filtration products, tarpaulins, awnings, athletic tapes, printed circuit boards and advanced composites. In addition, the Company produces urethane products for use in the manufacture of various products such as athletic shoes, "bulletproof" glass, disposable intravenous bags, seamless welded drive belts and tubing. HOME FASHION TEXTILES The Company produces a variety of unfinished woven fabrics and yarns for use in the manufacture of draperies, curtains and lampshades and is a major producer of solution-dyed drapery fabrics. OPERATIONS Each operating unit of the Company has individual administrative, manufacturing and marketing capabilities for all material aspects of operations, including product design, customer service, purchasing and credit and collection. Corporate support services include finance, strategic planning, legal, tax and regulatory affairs. Following the Acquisition and through the date hereof, management's business plans have included many cost-reduction activities aimed at improving return on assets. These activities included consolidating manufacturing operations, exiting unprofitable product lines, more aggressive capital spending programs to improve quality and productivity and reorganizing certain manufacturing operations. The Company plans to continue its manufacturing modernization program to improve efficiency and productivity and further reduce its cost structure. The Company's corporate headquarters is located in Greenville, South Carolina. The Company maintains a sales office in New York, New York for certain of its operations. Five additional regional sales offices are maintained by the Company, principally for its roofing and building construction products. See Item 2, "PROPERTIES". 5 7 MANUFACTURING The Company's experienced workforce and wide variety of yarn making, fabric forming and other manufacturing equipment allow the Company to rapidly and efficiently change its product mix to meet style and seasonal requirements. The Company's activities generally encompass all phases of manufacturing its products. 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, fabric is generally shipped to customers who dye, finish, coat and cut those fabrics for resale. Single-ply membrane roofing is made by processing a Company-manufactured woven substrate with specialty polymers. Other industrial fabric products are produced from either woven fiberglass or cotton and synthetic fibers, which fibers are processed into yarn, woven and finished into fabrics by the Company. Other specialty industrial products are produced by extrusion of urethane resins. The Company believes that its manufacturing facilities are sufficient for its present and reasonably foreseeable future 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 Company believes that its practice of purchasing such items from large, stable companies minimizes the risk of such an interruption in supply. MARKETING AND COMPETITION 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, solution-dyed satin fabrics and quartz fabrics. 6 8 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 (see "--Patents, Licenses and Trademarks" below), is widely recognized throughout the textile industry. 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 following is a discussion of marketing and competitive factors as they relate to each of the Company's segments. Apparel Fabrics and Products Greige Goods. 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. The Company has entered into a joint venture with a Mexican company involved in dyeing, printing and finishing fabrics primarily for use in Mexico. The Company expects its sales of greige goods to Mexico to grow significantly as a result of this venture. Yarn. 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. Industrial Fabrics and Products Construction Products. The Company markets its single-ply roofing products on a direct basis to roofing distributors. The Company competes with manufacturers of this and other types of roofing products. The Company believes that its product's ease of installation and warranty are important competitive factors. Other Products. Other industrial fabrics and 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. Home Fashion Textiles The Company's home fashion operations compete with a large number of manufacturers of similar woven fabric products. In general, product markets are differentiated on the basis of price and quality. The Company believes that design and style features are important 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. 7 9 PRODUCT DEVELOPMENT 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 (in the case of apparel and home furnishing fabrics and products) or other specific properties such as insulation, weight, strength, filtration or laminate adherence (in the case of industrial fabrics and products). 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 $52.6 million at November 2, 1996 and $50.5 million at October 28, 1995 (1995 amount is adjusted to exclude the discontinued operations of the Carpet Business sold in November 1995). The Company generally fills its open orders in the following fiscal year and the Company expects that all of the open orders as of November 2, 1996 will be filled in the 52-week period ending November 1, 1997 ("Fiscal 1997"). Unfilled open orders, which the Company believes are firm, were $60.8 million at December 30, 1996 compared to $68.0 million at December 30, 1995. The decrease in open orders at December 30, 1996 as compared to December 30, 1995 is primarily due to a decrease in customer demand for apparel fabrics and products and is representative of a change in the timing of the acceptance of certain orders by the Company. 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 Certain of the Company's 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 the Company's business. The Company does not license its name or products to others except for the licenses of certain trade names granted royalty free to operations that the Company has sold. EMPLOYEES The Company currently has approximately 4,000 employees of which approximately 3,500 are hourly and approximately 500 are 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. 8 10 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 nonhazardous 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. 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." 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 1997 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 restructure its debt and meet its debt service obligations, competition from a variety of large textile mills and foreign textile manufacturers who 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. 9 11 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, and a facility in Greenville, South Carolina, comprising 399,000 square feet, which was closed effective October 28, 1996. 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.
Square Square Location Footage Location Footage -------- ------- -------- ------- Apparel Fabrics and Products Industrial Fabrics and Products ---------------------------- ------------------------------- Greenville, SC 399,000 Kingsport, TN 625,000 Laurens, SC 475,000 Slater, SC 433,000 Greenville, SC 460,000 Westfield, NC 237,000 Stanley, NC 338,000 Easthampton, MA 50,000 S. Boston, VA 286,000 Rocky Mount, VA 81,000 All Segments ------------ New York, NY(1) 10,000 Home Fashion Textiles --------------------- Lincolnton, NC 387,000
(1) The New York, NY facility is leased by the Company under a lease agreement which expires on May 30, 1997. 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 involved in various legal proceedings which are routine litigations incidental to the conduct of its business. Management believes that none of this litigation, if determined unfavorably to the Company, would have a material adverse effect on the financial condition or results of operations of the Company. No proceeding was terminated in the fourth quarter of Fiscal 1996 that had a material adverse effect on the financial condition or results of operations 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 1996. 10 12 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. There is currently no established public trading market for the Company's Class A Common Stock, $.01 par value per share (the "Class A Common Stock"), or the Company's Class B Common Stock, $.01 par value per share (the "Class B Common Stock" and together with the Class A Common Stock, the "Common Stock"). As of January 17, 1997, there were 12 holders of record of Class A Common Stock and 2 holders of record of Class B Common Stock. As a holding company, the Company's ability to pay cash dividends is dependent on the earnings and cash flows of its subsidiaries and the ability of its subsidiaries to make funds available to the Company for such purpose. Under the terms of its outstanding indebtedness, the Company is currently prohibited from paying cash dividends on the Common Stock. Given the Company's existing indebtedness and its current financial condition, it 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. 11 13 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 indicated. The presentation of certain previously reported amounts have 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 financial statements at Item 8 in this Form 10-K.
Fiscal Year Ended --------------------------------------------------------- 10/31/92 10/30/93 10/29/94 10/28/95 11/2/96 INCOME STATEMENT DATA: (52 Weeks) (52 Weeks) (52 Weeks) (52 Weeks) (53 Weeks) ---------- ---------- ---------- ---------- ---------- Net sales $ 476,326 $ 457,552 $ 461,871 $ 472,565 $ 448,824 Cost of sales 404,547 396,160 397,921 406,070 397,804 --------- --------- --------- --------- --------- Gross profit 71,779 61,392 63,950 66,495 51,020 Selling, general and administrative expenses 37,391 39,023 39,805 39,586 40,579 Other expense, net 1,372 1,236 2,914 6,248 2,498 Charges for plant closing, loss on sale of certain operations and writedown of certain long-lived assets - - - - 30,028 --------- --------- --------- --------- --------- Operating profit (loss) 33,016 21,133 21,231 20,661 (22,085) Valuation allowance on Gulistan securities - - - - (4,242) Interest income 1 48 749 2,821 2,856 Interest expense (58,513) (60,407) (55,570) (39,946) (40,510) --------- --------- --------- --------- --------- Loss before reorganization items, income taxes, discontinued operations, extraordinary items and cumulative effects of accounting changes (1) (25,496) (39,226) (33,590) (16,464) (63,981) Reorganization items - professional fees and expenses - - - - (2,255) --------- --------- --------- --------- --------- Loss before income taxes, discontinued operations, extraordinary items and cumulative effects of accounting changes (25,496) (39,226) (33,590) (16,464) (66,236) Income taxes (benefit) 1,446 1,782 2,800 1,200 (300) --------- --------- --------- --------- --------- Loss before discontinued operations, extraordinary items and cumulative effects of accounting changes (26,942) (41,008) (36,390) (17,664) (65,936) Discontinued operations, net of taxes: Income (loss) from discontinued operations 16,089 24,165 23,628 (7,079) - Net gain (loss) on sale of discontinued operations - - 132,966 (26,241) (1,500) Extraordinary gain (loss), net of taxes - - (7,410) 20,120 - Cumulative effects of accounting changes, net of taxes - (4,988) (708) - - --------- --------- --------- --------- --------- Net income (loss) $ (10,853) $ (21,831) $ 112,086 $ (30,864) $ (67,436) ========= ========= ========= ========= ========= Income (loss) applicable to common stock $ (13,312) $ (24,694) $ 108,753 $ (34,695) $ (71,941) ========= ========= ========= ========= =========
(Continued) 12 14 INCOME STATEMENT DATA (CONTINUED):
Fiscal Year Ended --------------------------------------------------------- 10/31/92 10/30/93 10/29/94 10/28/95 11/2/96 (52 Weeks) (52 Weeks) (52 Weeks) (52 Weeks) (53 Weeks) ---------- ---------- ---------- ---------- ---------- Weighted average number of shares outstanding 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000 ========= ========= ========= ========= ========= Earnings (loss) per common share: Loss before discontinued operations, extraordinary items and effects of accounting changes $ (29.40) $ (43.87) $ (39.73) $ (21.50) $ (70.44) Discontinued operations, net of taxes: Income (loss) from discontinued operations 16.09 24.17 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 - Cumulative effects of accounting changes, net of taxes - (4.99) (0.71) - - --------- --------- --------- --------- --------- Net income (loss) $ (13.31) $ 24.69) $ 108.75 $ (34.70) $ (71.94) ========= ========= ========= ========= ========= BALANCE SHEET DATA: Working capital, excluding net assets held for sale $ 61,431 $ 63,821 $ 65,855 $ 72,670 $(257,866)(2) Total assets 511,535 532,608 452,811 412,822 335,927 Total long-term debt, less current portion 488,280 522,947 335,472 327,668 4,226 Senior redeemable preferred stock 18,144 21,007 24,340 28,171 32,676 Shareholders' deficit (86,409) (111,103) (2,350) (37,045) (108,986)
(1) The following non-cash charges have been included in the determination of loss before reorganization items, income taxes, discontinued operations, extraordinary items and cumulative effects of accounting changes for the periods shown above. (2) As discussed in Note 6 of the Notes to Consolidated Financial Statements included in Item 8 herein, 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.
10/31/92 10/30/93 10/29/94 10/28/95 11/2/96 (52 Weeks) (52 Weeks) (52 Weeks) (52 Weeks) (53 Weeks) ---------- ---------- ---------- ---------- ---------- Certain non-cash charges to income: Depreciation $ 19,736 $ 19,799 $ 22,242 $ 20,820 $ 21,756 Amortization of goodwill and other 975 969 964 965 983 Product liability charge - - - 5,000 - Writedown of certain long-lived assets - - - - 17,554 Valuation allowance on Gulistan securities - - - - 4,242 Other non-cash charges to income 888 1,957 131 371 - Non-cash interest 18,502 11,729 11,161 8,818 10,088 ---------- ---------- ---------- ---------- ---------- $ 40,101 $ 34,454 $ 34,498 $ 35,974 $ 54,623 ========== ========== ========== ========== ==========
13 15 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The following discussion should be read in conjunction with the Consolidated Financial Statements of the Company and the Notes thereto included in Item 8 herein.
Fiscal Year Ended ----------------------------------------------- 10/29/94 10/28/95 11/2/96 ----------- ----------- ------------ (In Thousands) NET SALES Apparel fabrics and products $ 254,810 $ 247,846 $ 221,799 Industrial fabrics and products 169,736 191,985 193,001 Home fashion textiles 37,325 32,734 34,024 ----------- ----------- ------------ $ 461,871 $ 472,565 $ 448,824 =========== =========== ============ OPERATING PROFIT (LOSS) Apparel fabrics and products $ 18,487 $ 16,667 $ (22,422)(1) Industrial fabrics and products 7,618 7,590 5,947 (2) Home fashion textiles 2,564 1,749 647 Indirect corporate expenses, net (7,438) (5,345) (6,257) ----------- ----------- ------------ Operating Profit (Loss) 21,231 20,661 (22,085) Valuation allowance on Gulistan securities - - (4,242) Interest income 749 2,821 2,856 Interest expense (55,570) (39,946) (40,510) Restructuring fees and expenses - - (2,255) ----------- ----------- ------------ Loss before income taxes, discontinued operations, extraordinary items and cumulative effects of accounting changes $ (33,590) $ (16,464) $ (66,236) =========== =========== ============
(1) The Fiscal 1996 operating loss for apparel fabrics and products includes charges of approximately $14.2 million for plant closing and $6.2 million for loss on sale of certain operations. (2) The Fiscal 1996 operating profit for industrial fabrics and 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. 14 16 RESULTS OF OPERATIONS FISCAL 1996 COMPARED TO FISCAL 1995 Consolidated net sales from continuing operations declined $23.8 million (5.0%) from $472.6 million in Fiscal 1995 to $448.8 million in Fiscal 1996. Operating profit (loss) from continuing operations decreased $42.8 million from an operating profit of $20.7 million in Fiscal 1995 to an operating loss of $22.1 million in Fiscal 1996. Excluding charges for plant closings, loss on sale of certain operations, and charges for writedown of certain long-lived assets, operating profit would have been $7.9 million, compared to $25.7 million in Fiscal 1995 (excluding the product liability charge). Substantially all of the declines in sales and operating profits are attributable to the apparel fabrics segment which has been severely impacted by lower unit volumes and margins. Net sales in Fiscal 1996 in the apparel fabrics and products segment, which includes unfinished woven apparel fabrics (greige goods) primarily for women's wear, yarn sales and elastic products for various apparel uses, declined $26.0 million (10.5%) from $247.8 million in Fiscal 1995 to $221.8 million in Fiscal 1996. Fiscal 1996 saw the continuation of the trend of weakened demand for apparel fabrics which began during the second half of Fiscal 1995. Apparel fabric sales declined $22.3 million in Fiscal 1996 as a result of lower unit volume combined with lower average selling prices. Fiscal 1996 has been marked by generally poor retail women's apparel sales, increased competitive pressures from abroad (particularly in commodity-type fabrics), and falling margins. As a result of this weaker demand, the Company curtailed production for most of its apparel fabrics, and experienced a less favorable product mix with a higher ratio of commodity-type fabrics than was experienced in Fiscal 1995. These and other conditions led management to conclude in the third fiscal quarter of 1996 that one of its facilities in Greenville, South Carolina should be closed. The plant, which was closed on October 28, 1996, had been operating on a significantly reduced production schedule and was not cost-effective. The accompanying consolidated statement of operations for Fiscal 1996 includes a "charge for plant closing" of approximately $14.2 million related principally to the loss on impairment of the plant in accordance with SFAS No. 121, employee severance costs and estimated costs of equipment relocation. The Company expects that the plant closure will result in improved earnings and cash flow from operations in the future. Many participants in the domestic women's apparel industry have suffered from falling margins in recent years as a result of a number of factors, including increased imports of both fabric and garments, generally relaxed consumer attitudes regarding fashion, and price pressures from a troubled retail industry. Many of the Company's customers for apparel fabric (converters) have seen their importance to the industry diminish and their volumes decline. The Company has taken steps to broaden its sales distribution in its apparel fabrics segment to include export sales to Mexico, Europe and other continents. Exports have not comprised a significant portion of the Company's sales in the past. In addition, the Company expects to increase its level of capital investment in this segment, with such investments focused primarily on cost reduction and productivity improvements. Sales of elastic apparel products declined $4.6 million to $12.8 million in Fiscal 1996 from $17.4 million in Fiscal 1995. As discussed below, the Company sold its rubber products business, which produced these elastic products, in September 1996. Discontinuation in Fiscal 1996 of certain unprofitable product lines, changes in customer requirements to non-rubber elastomers, and less than a full year's sales in Fiscal 1996 caused the decline in elastic sales from Fiscal 1995. 15 17 Operating loss in Fiscal 1996 for the apparel fabrics and products segment decreased by $39.1 million to a $22.4 million loss from a $16.7 million profit. Included in the Fiscal 1996 operating loss are charges of approximately $14.2 million for plant closing and $6.2 million for loss on sale of certain operations. Operating profit (loss) in Fiscal 1996 for the apparel fabrics and products segment before the charges for plant closing and loss on sale of certain operations declined by $18.7 million to a $2.0 million loss from a $16.7 million profit in Fiscal 1995. Such decline results from the significantly lower unit volume and the lower margins associated with the Fiscal 1996 product mix. Net sales in Fiscal 1996 in the industrial fabrics and products segment, which includes single-ply roofing and environmental membrane, woven fabrics constructed of cotton, synthetics and fiberglass for insulation, filtration, and lamination applications, and extruded urethane products, increased $1.0 million (0.5%) to $193.0 million from $192.0 million in Fiscal 1995. Sales of fiberglass fabrics increased $7.7 million from Fiscal 1995 as a result of the continued growth in demand for fabrics used in the manufacture of electrical circuit boards. The growing global demand for electronic products has fueled significant increases in sales of fiberglass fabric for the last several years. The Company expects this demand to continue in the foreseeable future. The Company has expanded and enhanced its productive capacity in the fiberglass weaving area in order to satisfy this demand and improve product quality. Sales of roofing membrane increased $8.8 million from Fiscal 1995, as a result of the continued success of the Company's "Hi-Tuff/EP" line of roofing products, which was introduced in late 1993. This product's competitive price and improved performance characteristics have driven its sales growth, and the product now accounts for 75% of the Company's roofing sales. The Company expects roofing sales to continue to grow as the Company capitalizes on the market acceptance of its roofing products to gain market share. Sales of extruded urethane products increased $1.9 million from Fiscal 1995 as a result of the Company's expanded productive capacity and success in developing and satisfying the specification-driven customer requirements for urethane products. Sales of cotton industrial fabrics declined $12.8 million as a result of weak markets and intense foreign competition, particularly from China. Sales of other industrial fabrics and products declined $4.6 million primarily as a result of exiting certain industrial fabric markets during late 1995. Operating profit in Fiscal 1996 for the industrial fabrics and products segment decreased by $1.7 million from $7.6 million in 1995 to $5.9 million in 1996. Included in the Fiscal 1996 operating profit are charges of approximately $8.1 million for writedown of certain long-lived assets and $1.5 million for loss on sale of certain operations. Operating profit in Fiscal 1996 for the industrial fabrics and products segment before the charge for the writedown of certain long-lived assets and loss on sale of certain operations increased $8.0 million (105%) to $15.6 million from $7.6 million in Fiscal 1995. Fiscal 1995 operating profit reflects a charge of $5 million related to product liability costs. No such charge occurred in Fiscal 1996. The aforementioned sales volume increases in roofing, fiberglass, and extruded urethane products, combined with improved manufacturing and operating efficiencies, increased operating profits. Partially offsetting these improvements, however, are the effects of lower sales volumes of cotton industrial fabrics and other synthetic industrial fabrics. Curtailed production schedules in the Company's cotton manufacturing facility and the resulting under-absorption of costs were negative influences on operating profit. The Company does not expect the demand for its cotton industrial fabric to rebound from Fiscal 1996 levels and has adjusted its operating schedule accordingly. As a result of the Company's assessment of the market conditions for its cotton industrial fabrics, management concluded that its plant in Kingsport, Tennessee, which manufactures such fabrics, is impaired under the criteria of Statement of Financial Accounting Standard ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of". SFAS No. 121 requires a writedown to fair value in circumstances in which the expected future net cash flows from the operation of the plant are less than its carrying value. The accompanying consolidated statement of operations for Fiscal 1996 includes a charge, "writedown of certain long-lived assets", of $8.1 million for the excess of the 16 18 carrying amount of this plant over its estimated fair value. Pursuant to the terms of an Asset Purchase Agreement dated September 30, 1996, between JPS Elastomerics Corp., a wholly-owned subsidiary of the Company, and Elastomer Technologies Group, Inc. and a Receivables Purchase Agreement dated September 30, 1996 between JPS Elastomerics Corp. and the Bank of New York Commercial Corporation, JPS Elastomerics Corp. consummated the sale of substantially all of the assets of its rubber products division, a business engaged in the manufacture and sale of natural and synthetic elastics for use in apparel products, diaper products, and specialty industrial applications (the "Rubber Products Business"). Pursuant to the Asset Purchase Agreement, Elastomer Technologies Group, Inc. agreed to assume substantially all of the liabilities and obligations associated with the Rubber Products Business. The consideration for the sale of the Rubber Products Business consisted of approximately $5.1 million in cash, subject to certain post-closing adjustments based on the amount of working capital transferred. The net cash proceeds of approximately $4.8 million were used by the Company to reduce outstanding borrowings under its senior credit facility. Revenues of the Rubber Products Business for Fiscal 1994, Fiscal 1995 and Fiscal 1996 were $22.6 million, $20.7 million and $16.8 million, respectively. Net sales in Fiscal 1996 in the home fashion textiles segment, which includes woven drapery fabrics and yarns for the home furnishings industry increased $1.3 million (3.9%) to $34.0 million from $32.7 million in Fiscal 1995 due primarily to an increase in yarn sales. Sales of home furnishings fabrics in Fiscal 1996 were approximately flat with Fiscal 1995. Demand for the Company's woven fabrics used in home decoration has been in decline for several years. Operating profit in Fiscal 1996 in the home fashion textile segment declined by $1.1 million (64%) to $0.6 million from $1.7 million in Fiscal 1995 primarily as a result of lower margins on fabric sales. Indirect corporate expenses in Fiscal 1996 increased $1.0 million from $5.3 million in Fiscal 1995 to $6.3 million in Fiscal 1996 primarily as a result of the $1.1 million cost of an early retirement offer extended to certain salaried employees. Lower corporate employee compensation costs in Fiscal 1996 partially offset this increase. Debt restructuring fees and expenses totaled $2.3 million in Fiscal 1996. There were no comparable charges in Fiscal 1995. Such expenses represent fees and expenses of the Company's financial advisor, the financial advisor for the holders of a substantial majority of its outstanding bonds, the Company's legal counsel and other professionals associated with the Company's financial restructuring. During Fiscal 1996, Gulistan reported net losses of approximately $4.5 million before interest expense on the promissory note held by the Company. Accordingly, the Company did not record interest income on any of the Gulistan securities held by the Company. Also, in accordance with relevant accounting literature, the Company has recorded a valuation allowance against its investment in the Gulistan securities and a corresponding charge to income of $4.2 million as a result of the net loss ($4.5 million reduced by the $0.3 million of common equity held by Gulistan management) incurred by Gulistan during Fiscal 1996. Interest expense in Fiscal 1996 was $40.5 million, or $0.6 million more than Fiscal 1995 due primarily to the compounding effect of accretion of debt discounts and non-cash interest. 17 19 FISCAL 1995 COMPARED TO FISCAL 1994 (RESTATED FOR EFFECT OF CLASSIFYING CARPET BUSINESS AS DISCONTINUED OPERATIONS) Consolidated net sales from continuing operations increased $10.7 million (2.3%) from $461.9 million in Fiscal 1994 to $472.6 million in Fiscal 1995. Operating profit from continuing operations decreased $0.5 million (2.4%) from $21.2 million in Fiscal 1994 to $20.7 million in Fiscal 1995. Excluding a $5 million charge to income in Fiscal 1995 for product liability costs (discussed below), operating income would have increased $4.5 million in Fiscal 1995 over Fiscal 1994. Substantially all of these increases in consolidated net sales and operating profits occurred in the first two fiscal quarters of 1995. The last two fiscal quarters of 1995 saw declines in operating results from comparable prior year levels. Net sales in Fiscal 1995 in the apparel fabrics and products segment declined $7.0 million (2.7%) from $254.8 million in Fiscal 1994 to $247.8 million in Fiscal 1995. Fiscal 1995 results in the apparel fabrics and products segment were marked by two distinct halves. During the first two fiscal quarters of 1995, the Company reported results which were stronger than the comparable 1994 quarters primarily as a result of the Company's change in its product offering to emphasize specialty fabrics with more fashion and styling characteristics. Although overall apparel market conditions were not strong, these fabrics commanded higher average selling prices and margins than commodity type fabrics and allowed the Company to improve its margins in the face of the continued flood of imported commodity apparel fabrics, primarily from Chinese and Eastern European sources. The passage of the General Agreement on Tariffs and Trade (GATT) is expected to foster such foreign competition in the commodity apparel fabrics market in the future. During the second half of Fiscal 1995, consumer demand for apparel products weakened significantly which in turn has led to a much weaker market for the Company's fabrics. As a result of this lower unit demand for all fabric styles, the impact of the aforementioned change in product offering was much less apparent in the second half. Operating profit in the apparel fabrics and products segment declined by $1.8 million (9.8%) from $18.5 million in Fiscal 1994 to $16.7 million in Fiscal 1995. This decrease is primarily the result of lower unit volume and poor average selling prices for the Company's apparel fabrics and products. In addition to the weak market conditions, the Company has experienced significant price increases for many of its most important raw materials, including rayon and polyester fiber. Net sales in Fiscal 1995 in the industrial fabrics and products segment increased $22.3 million (13.1%) to $192.0 million from $169.7 million in Fiscal 1994. Sales of fiberglass fabrics for electrical circuit boards and construction-related scrims increased $7.0 million. The market for fiberglass fabrics, particularly those used in the manufacture of electronic circuit boards has been growing in connection with the rapidly expanding worldwide consumer demand for electronic products. Sales of cotton industrial fabrics increased $6.7 million as a result of higher unit volume in the first fiscal quarter and the pass-through of relatively higher cotton costs in Fiscal 1995. Sales of roofing membrane increased $4.9 million primarily as a result of the continued success of the Company's new line of roofing products introduced in late 1993. Operating profit in Fiscal 1995 for the industrial fabrics and products segment was level with Fiscal 1994 at $7.6 million. The operating profit in Fiscal 1995 was reduced as a result of a $5 million charge for product liability costs for which there was no comparable charge to income in Fiscal 1994. 18 20 During the fourth quarter of Fiscal 1995, management determined that the estimate of the future costs associated with providing services and materials to repair or replace certain defective roofing products sold by the Company's predecessor prior to 1987 required revision. In 1988, the Company estimated the aggregate future costs to repair or replace those defective roofing products to be approximately $34.1 million. This estimate was based on a number of factors, including assumed claim rates and costs to repair or replace. Through October 28, 1995, approximately $29.8 million has been incurred and charged to this liability. The Company reevaluated the exposure based on recent experience and claims in process. The liability for future costs associated with these defective roofing products is subject to management's best estimate, including factors such as expected future claims experience 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 and those that may result in future litigation. Based on warranties that were issued on the roofs, the Company estimates that the defective roofing product claims will be substantially settled by 2000. Based on management's estimate of a range of future costs of approximately $9.3 million to $11.4 million, the Company recorded a $5.0 million addition to the liability for such defective products increasing such liability to $9.3 million at October 28, 1995. Operating profit in Fiscal 1995 in the industrial fabrics and products segment, excluding the aforementioned charge for product liability costs, increased $5.0 million (65.3%) to $12.6 million from $7.6 million in Fiscal 1994. The increase in operating profit is primarily a result of the higher sales volumes described above combined with the effects of improved manufacturing and operating efficiencies. Net sales in Fiscal 1995 in the home fashion textiles segment declined by $4.6 million (12.3%) to $32.7 million from $37.3 million in Fiscal 1994. The decline in volume results from weak demand for the Company's woven fabrics used in home decoration, a continuation of a trend in home fashion textile use for several years, combined with the weak soft goods market in 1995. Operating profit in Fiscal 1995 in the home fashion textile segment declined by $0.8 million (31.8%) to $1.7 million primarily as a result of the lower sales volume described above and lower average selling prices for the Company's fabrics. Indirect corporate expenses in Fiscal 1995 declined $2.1 million from $7.4 million in Fiscal 1994 to $5.3 million in Fiscal 1995, primarily as a result of lower professional fees and lower depreciation and amortization. Interest expense in Fiscal 1995 was $15.6 million lower than it was for Fiscal 1994. Giving effect to the reduction of debt associated with the use of the net proceeds from the sale of the Automotive Assets in Fiscal 1994 on a pro forma basis would reduce interest expense by $14.1 million in Fiscal 1994. Such pro forma reduction includes $1.3 million representing interest accretion and debt issuance cost amortization. After giving pro forma effect to the debt reduction described above, interest expense decreased approximately $1.5 million in Fiscal 1995 from Fiscal 1994. In Fiscal 1995, a $3.4 million decrease in interest expense as a result of the lower debt balances caused by the Company's open market purchases of certain of its previously outstanding notes and debentures (as discussed below) was offset to the extent of $1.9 million due primarily to higher average interest rates and the compounding effect of accretion of debt discounts and non-cash interest. 19 21 During the first quarter of Fiscal 1995, the Company expended $36.6 million to make open market purchases of certain of its outstanding notes and debentures with an aggregate face value of $66.6 million and a carrying value (including interest due at maturity) of $59.2 million. The Company recognized a gain from early extinguishment of debt of $20.1 million, net of expenses of $1.9 million and income taxes of $0.6 million. The Company has made no further open market purchases and is not currently seeking to make any such purchases. The terms of the Asset Purchase Agreement dated May 25, 1994, as amended, regarding the sale of the Automotive Assets on June 28, 1994, provided that the selling price be adjusted based on the net assets sold. During Fiscal 1995, such amount was finalized and resulted in additional cash proceeds to the Company of $4.5 million. Such amount, net of $0.1 million of tax, has been included as gain on sale of discontinued operations in Fiscal 1995. On November 16, 1995, pursuant to the terms of an Asset Transfer Agreement dated as of November 16, 1995, by and among the Company, JPS Carpet Corp. ("Carpet"), a wholly-owned subsidiary of the Company, 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"). Pursuant to the Asset Transfer Agreement, Gulistan agreed to assume substantially all of the liabilities and obligations associated with the Carpet Business. The consideration for the sale of the Carpet Business consisted of approximately $19.0 million in cash, as adjusted, 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, the Company has determined the fair value of these debt and equity securities to be approximately $11.3 million. The net assets of the Carpet Business (adjusted to net realizable value) have been classified as "net assets held for sale" on the October 28, 1995 Consolidated Balance Sheet. As of October 28, 1995, the Company adjusted the net assets of the Carpet Business to their net realizable value, which resulted in a charge to the 1995 Consolidated Statement of Operations of $30.7 million, classified as loss on sale of discontinued operations. The cash consideration was adjusted in Fiscal 1996 pursuant to the terms of the Asset Transfer Agreement based on the audited amount of working capital transferred, which adjustment resulted in a reduction of $3.5 million in the cash consideration and an additional charge to income in Fiscal 1996 of $1.5 million. The fiscal amount of net cash proceeds (net of fees, expenses and the post-closing adjustment) of $16.7 million was applied by the Company to reduce outstanding borrowings under the credit agreement for the senior credit facility. The loss on the sale is not currently recognizable for tax purposes and the Company has recorded no net tax benefit as a result of this loss due to uncertainties regarding the ability to utilize these losses in future years. 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). At November 2, 1996, the Company had $18.6 million available for borrowing under the Revolving Credit Facility. 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. 20 22 The Company expects that its planned capital expenditures in Fiscal 1997 of approximately $23 million will be funded by cash from operations, bank and other equipment financing sources. Should such capital resources be inadequate or unavailable, however, management would defer certain of its planned capital expenditures or take other appropriate actions to preserve liquidity. At November 2, 1996, the Company had commitments for capital expenditures of approximately $1.4 million. The Company and its operating subsidiaries (being hereinafter collectively referred to as the "Borrowing Subsidiaries") are parties to the Fourth Amended and Restated Credit Agreement, dated as of June 24, 1994, as amended (the "Restated Credit Agreement"), by and among the financial institutions party thereto, Citibank, N.A. ("Citibank"), as administrative agent and co-agent, and General Electric Capital Corporation ("GECC"), as collateral agent and co-agent. The Restated Credit Agreement, as amended, 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) $118 million and (b) a specified borrowing base, which is based upon eligible receivables and inventory of the Borrowing Subsidiaries (the "Borrowing Base"), except that (i) no Borrowing Subsidiary may borrow an amount greater than the Borrowing Base attributable to it, (ii) letters of credit may not exceed $15 million in the aggregate, and (iii) $20 million of the Revolving Credit Facility is available, not subject to the Borrowing Base, to purchase property, plant and equipment or to finance or refinance such purchases ("Capex Loans"), provided that the aggregate of all revolving credit loans, including Capex Loans, and letters of credit may not exceed the lesser of (A) $118 million and (B) the sum of the Borrowing Base plus $25 million (subject to certain reductions). The Revolving Credit Facility (or a similar credit facility) is essential for the Company's continued operations. On September 6, 1996, the Revolving Credit Facility was amended to, among other things, extend its expiration date and reduce the interest rate by 0.25%. Under the terms of the Restated Credit Agreement, the Revolving Credit Facility expires on March 1, 1997 (unless otherwise extended) if the Company has not commenced a case under chapter 11 of the Bankruptcy Code. If such a case is commenced on or prior to March 1, 1997, the Revolving Credit Facility will be extended automatically to the earlier of November 1, 1997 or the effective date of a reorganization under chapter 11 of the Bankruptcy Code. At this time, the Company has not made a decision to commence a case under the Bankruptcy Code. The Company has classified the $85.6 million outstanding under its Revolving Credit Facility revolving line of credit as a current liability in the accompanying consolidated balance sheet. In addition, the loan covenants were amended to be based upon the activities of the consolidated operating subsidiaries (JPS Converter and Industrial Corp. and JPS Elastomerics Corp.) rather than the consolidated Company (i.e., excludes the assets and liabilities of the parent company and other non-operating subsidiaries). The Restated Credit Agreement does not permit additional borrowings by the Borrowing Subsidiaries for, among other things, loans or dividends to the Company for the payment of interest on its notes and debentures. As a result of the aforementioned restriction on the use of proceeds of revolving loans, the Company did not make scheduled November 15, 1996 interest payments of approximately $1.9 million on its subordinated debentures and did not make scheduled December 1, 1996 interest payments of approximately $5.4 million on its senior subordinated discount notes and approximately $3.6 million on its senior subordinated notes. The failure to make these scheduled interest payments constitutes an event of default under the indentures governing these debt securities. As a result, the holders of these debt securities are entitled to accelerate the debt represented thereby, among other things. Accordingly, these debt obligations are classified as current liabilities in the accompanying consolidated balance sheet as of November 2, 1996. The Company does not have the ability to repay such indebtedness if the same were to be accelerated. On May 8, 1996, the Company engaged The Blackstone Group, L.P. to act as its financial advisor in connection with a potential financial restructuring of its debt obligations. In addition, at the request of the holders of a substantial majority of its outstanding bonds, the Company engaged Houlihan, Lokey, Howard & Zukin, Inc., effective April 10, 1996 to act as financial advisors to the holders of the Company's debt 21 23 securities in connection with such a financial restructuring. The Company has provided substantial information to these financial advisors on a confidential basis regarding the Company's business, strategies, plans and prospects. In addition, the Company is discussing the terms of a potential financial restructuring with these advisors and the holders of a substantial majority of its outstanding bonds. The Company's ability to accomplish a restructuring of the terms of its debt securities or any refinancing thereof will depend on a number of factors, including its operating performance, market conditions and the ability of the Company and its bondholders to come to an agreement as to the appropriate terms of any such restructuring. Although no agreement, formal or informal, has been reached between the Company and its bondholders regarding the terms of a potential financial restructuring, management is optimistic that a restructuring will be accomplished. Management is unable to predict the impact of any such restructuring on the accompanying financial statements. 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. 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 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 current year provision for state income taxes was required. 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. The Company's future ability to utilize its net operating losses may be significantly limited under the income tax laws should there be changes in the ownership of the Company's stock which constitute an ownership change for tax purposes. The effect of such an ownership change would be to significantly limit the annual utilization of the remaining net operating loss to an amount equal to the value of the Company immediately prior to the time of the change (subject to certain adjustments) multiplied by the Federal long-term tax exempt rate. The Company does not believe that this potential limitation on net operating loss carryforwards is currently applicable. However, there is no assurance that the Internal Revenue Service will not take a contrary position or that such limitation will not become applicable for subsequent taxable periods. The Company has provided a 100% valuation allowance of $53.6 million for its remaining deferred tax asset, net of existing taxable "temporary differences," except those related to certain deferred state tax liabilities. The gross deferred tax asset relates primarily to the benefit of the net operating loss carryforward and losses from discontinued operations not currently recognizable for tax purposes. In the Company's opinion, the valuation allowance is required as realization of the tax benefit is not assured based on prior operating history. Although the Company believes use of its net operating losses to offset the gain on the Automotive Assets will more likely than not be sustained under existing tax laws, uncertainty exists primarily due to the fact that applicable regulations under Internal Revenue Code Section 382 have not been issued. Therefore, in accordance with provisions of the Indentures, 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. These funds have been invested in U.S. Government securities and are classified as other noncurrent assets in the Company's consolidated balance sheets. 22 24 In the first quarter of Fiscal 1995, the Company estimated that the open market purchases of certain of its debt securities would result in additional tax liabilities of approximately $3.2 million. Such amount was recorded as a reduction of the extraordinary gain from early extinguishment of debt in the first fiscal quarter. This amount of tax was based on management's best estimate at that time of alternative minimum taxable income for Fiscal 1995. During the fourth fiscal quarter, management's estimate of Fiscal 1995 alternative minimum taxable income was revised downward. Accordingly, the Company reduced the $3.2 million tax estimate by $2.6 million to $0.6 million during the fourth quarter of Fiscal 1995. The loss recorded on the disposition of the Carpet Business is not currently recognizable for tax purposes. The Company has recorded no net tax benefit in its financial statements due to uncertainties surrounding the Company's ability to utilize such losses in future years. 23 25 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 November 2, 1996 and October 28, 1995, and the related consolidated statements of operations, senior redeemable preferred stock and shareholders' equity (deficit), and cash flows for each of the three years in the period ended November 2, 1996. 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. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company at November 2, 1996 and October 28, 1995, and the results of its operations and its cash flows for each of the three years in the period ended November 2, 1996 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. The accompanying consolidated financial statements for the years ended November 2, 1996 and October 28, 1995 have been prepared assuming that the Company will continue as a going concern. As discussed in Note 14 to the consolidated financial statements, the Company has had recurring net losses from continuing operations since inception, has a net shareholders' deficiency, is in default on its senior subordinated discount notes, the senior subordinated notes and the subordinated debentures and, under certain conditions, the Company's senior revolving credit facility expires on March 1, 1997. The events of default entitle the holders of these debt securities to accelerate payment on such debt. The Company's default on its notes and debentures, its inability to service its debt without a restructuring thereof, the uncertainty of the Company's ability to restructure its notes and debentures and to meet the requirements for extension of its senior revolving credit facility or to obtain alternative sources of financing as described in Note 14 raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 14. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. DELOITTE & TOUCHE LLP Greenville, South Carolina January 17, 1997 24 26 JPS TEXTILE GROUP, INC. CONSOLIDATED BALANCE SHEETS (In Thousands Except Share Data)
October 28, November 2, 1995 1996 ----------- ----------- ASSETS CURRENT ASSETS: Cash $ 1,352 $ 1,460 Accounts receivable, less allowance of $2,131 in 1995 and $2,511 in 1996 (Note 6) 88,186 75,166 Inventories (Notes 5 and 6) 48,729 48,374 Prepaid expenses and other 2,545 1,967 Net assets held for sale (Note 3) 28,932 - -------- -------- Total current assets 169,744 126,967 PROPERTY, PLANT AND EQUIPMENT, net (Notes 5 and 6) 161,436 124,004 EXCESS OF COST OVER FAIR VALUE OF NET ASSETS ACQUIRED, less accumulated amortization of $6,877 in 1995 and 31,489 30,506 $7,860 in 1996 OTHER ASSETS (Notes 5, 9, 10 and 13) 50,153 54,450 -------- -------- Total $412,822 $335,927 ======== ========
25 27
October 28, November 2, 1995 1996 ----------- ----------- LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) CURRENT LIABILITIES: Accounts payable $ 29,754 $ 24,708 Accrued interest 9,895 9,608 Accrued salaries, benefits and withholdings (Note 9) 11,503 10,440 Other accrued expenses (Notes 5, 9 and 11) 12,699 13,987 Senior credit facility, revolving line of credit (Note 6) - 85,639 Current portion of long-term debt (Note 6) 2,770 240,451 -------- -------- Total current liabilities 66,621 384,833 LONG-TERM DEBT (Note 6) 327,668 4,226 DEFERRED INCOME TAXES (Note 8) 4,165 3,665 OTHER LONG-TERM LIABILITIES (Notes 5, 9 and 10) 23,242 19,513 -------- -------- Total liabilities 421,696 412,237 -------- -------- COMMITMENTS AND CONTINGENCIES (Notes 4, 6, 8 and 9) SENIOR REDEEMABLE PREFERRED STOCK, redemption value of $51,324 in 1995 and $54,520 in 1996 (Note 7) 28,171 32,676 -------- -------- SHAREHOLDERS' EQUITY (DEFICIT) (Note 7): Junior preferred stock 250 250 Common stock: Class A, 490,000 shares issued and outstanding 5 5 Class B, 510,000 shares issued and outstanding 5 5 Additional paid-in capital 29,613 25,108 Deficit (66,918) (134,354) -------- -------- Total shareholders' deficit (37,045) (108,986) -------- -------- Total $412,822 $335,927 ======== ========
See notes to consolidated financial statements. 26 28 JPS TEXTILE GROUP, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in Thousands Except Per Share Data)
Year Ended ------------------------------------------ October 29, October 28, November 2, 1994 1995 1996 ----------- ----------- ----------- Net sales $ 461,871 $ 472,565 $ 448,824 Cost of sales 397,921 406,070 397,804 --------- --------- --------- Gross profit 63,950 66,495 51,020 Selling, general and administrative expenses (Note 11) 39,805 39,586 40,579 Other expense, net (Notes 9 and 10) 2,914 6,248 2,498 Charges for plant closing, loss on sale of certain operations and writedown of certain long-lived assets (Note 4) - - 30,028 --------- --------- --------- Operating profit (loss) 21,231 20,661 (22,085) Valuation allowance on Gulistan securities (Note 3) (4,242) Interest income 749 2,821 2,856 Interest expense (Note 6) (55,570) (39,946) (40,510) Debt restructuring fees and expenses (Note 1) - - (2,255) --------- --------- --------- Loss before income taxes, discontinued operations, extraordinary items and cumulative effects of accounting changes (33,590) (16,464) (66,236) Provision (benefit) for income taxes (Note 8) 2,800 1,200 (300) --------- --------- --------- Loss before discontinued operations, extraordinary items and cumulative effects of accounting changes (36,390) (17,664) (65,936) Discontinued operations: Income (loss) from discontinued operations 23,628 (7,079) - Net gain (loss) on sales of discontinued operations, net of taxes of $2,800 in 1994 and $100 in 1995 (Note 3) 132,966 (26,241) (1,500) --------- --------- --------- Income (loss) before extraordinary items and cumulative effects of accounting changes 120,204 (50,984) (67,436) Extraordinary gain (loss) on early extinguishment of debt, net of taxes of $600 in 1995 (Note 6) (7,410) 20,120 - Cumulative effects of accounting changes (Note 10) (708) - - --------- --------- --------- Net income (loss) 112,086 (30,864) (67,436) Senior redeemable preferred stock in-kind dividends and discount accretion (Note 7) (3,333) (3,831) (4,505) --------- --------- --------- Income (loss) applicable to common stock $ 108,753 $ (34,695) $ (71,941) ========= ========= ========= Weighted average number of common shares outstanding 1,000,000 1,000,000 1,000,000 ========= ========= ========= Earnings (loss) per common share: Loss before discontinued operations, extraordinary items and cumulative effects of accounting changes $ (39.73) $ (21.50) $ (70.44) Discontinued operations: Income (loss) from discontinued operations 23.63 (7.08) - Net gain (loss) on sales of discontinued operations 132.97 (26.24) (1.50) --------- --------- --------- Income (loss) before extraordinary items and cumulative effects of accounting changes 116.87 (54.82) (71.94) Extraordinary gain (loss) on early extinguishment of debt (7.41) 20.12 - Cumulative effects of accounting changes (0.71) - - --------- --------- - Net income (loss) $ 108.75 $ (34.70) $ (71.94) ========= ========= =========
See notes to consolidated financial statements. 27 29 JPS TEXTILE GROUP, INC. CONSOLIDATED STATEMENTS OF SENIOR REDEEMABLE PREFERRED STOCK AND SHAREHOLDERS' EQUITY (DEFICIT) (In Thousands)
Shareholders' Equity (Deficit) ---------------------------------------------- Senior Redeemable Junior Additional Preferred Common Preferred Paid-In Stock Stock Stock Capital Deficit ---------- --------- --------- ---------- --------- Balance - October 30, 1993 $ 21,007 $ 10 $ 250 $ 36,777 $(148,140) Net income for 52 weeks 112,086 Preferred stock-in-kind dividends and discount accretion 3,333 (3,333) --------- --------- --------- --------- --------- Balance - October 29, 1994 24,340 10 250 33,444 (36,054) Net loss for 52 weeks (30,864) Preferred stock-in-kind dividends and discount accretion 3,831 (3,831) --------- --------- --------- --------- --------- Balance - October 28, 1995 28,171 10 250 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 $ 25,108 $(134,354) ========= ========= ========= ========= =========
See notes to consolidated financial statements. 28 30 JPS TEXTILE GROUP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands)
Year Ended ------------------------------------- October 29, October 28, November 2, 1994 1995 1996 ----------- ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $ 112,086 $ (30,864) $ (67,436) --------- --------- --------- 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 and writedown of certain long-lived assets -- -- 30,028 Loss (income) from discontinued operations (23,628) 7,079 -- Loss (gain) on sales of discontinued operations (132,966) 26,241 1,500 Extraordinary loss (gain) on early extinguishment of debt 7,410 (20,120) -- Cumulative effects of accounting changes 708 -- -- Depreciation and amortization, except amounts included in interest expense 23,206 21,785 22,739 Interest accretion and debt issuance cost amortization 11,161 8,818 10,088 Product liability charge -- 5,000 -- Deferred income tax provision (benefit) 1,227 -- (500) Financing costs incurred (2,943) (25) (614) Valuation allowance on Gulistan securities -- -- 4,242 Other, net (2,970) (498) (3,163) Changes in assets and liabilities: Accounts receivable 426 (1,086) 10,372 Inventories (179) (685) (2,635) Prepaid expenses and other assets (1,248) (2,505) (2,348) Accounts payable 228 (911) (3,983) Accrued expenses and other liabilities (2,951) (7,202) (1,688) --------- --------- --------- Total adjustments (122,519) 35,891 64,038 --------- --------- --------- Net cash provided by (used in) operating activities (10,433) 5,027 (3,398) --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Property and equipment additions (18,423) (18,811) (9,834) Receipts from discontinued operations, net 17,115 3,453 -- Proceeds from sale of discontinued operations, net 259,044 4,415 17,077 Proceeds from sale of certain operations -- -- 5,113 Purchase of long-term investments (39,500) -- -- --------- --------- --------- Net cash provided by (used in) investing activities 218,236 (10,943) 12,356 --------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issuance of long-term debt 285 5,000 29 Revolving credit facility borrowings (repayments), net (41,666) 41,808 (6,087) Purchases and repayment of other long-term debt (166,044) (41,384) (2,792) --------- --------- --------- Net cash provided by (used in) financing activities (207,425) 5,424 (8,850) --------- --------- --------- NET INCREASE (DECREASE) IN CASH 378 (492) 108 Cash at beginning of year 1,466 1,844 1,352 --------- --------- --------- Cash at end of year $ 1,844 $ 1,352 $ 1,460 ========= ========= =========
29 31 JPS TEXTILE GROUP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) (In Thousands)
Year Ended ----------------------------------------------- October 29, October 28, November 2, 1994 1995 1996 ----------- ----------- ----------- SUPPLEMENTAL INFORMATION ON CASH FLOWS FROM CONTINUING OPERATIONS: Interest paid $ 48,219 $ 33,681 $ 30,709 Income taxes paid 376 3,314 693 Non-cash financing activities: Senior redeemable preferred stock dividends-in-kind 2,765 2,936 3,114
See notes to consolidated financial statements. 30 32 JPS TEXTILE GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. BUSINESS AND BASIS OF PRESENTATION JPS Textile Group, Inc. (the "Company") 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 apparel fabrics and products, industrial fabrics and products and home fashion textiles. These products are sold primarily to the domestic clothing manufacturing and construction industries. As described in Notes 3 and 4, certain of the acquired businesses and operations have been subsequently sold. A Plan of Reorganization (the "Plan") which was distributed to the Company's bondholders and preferred stockholders (the "Securityholders") on December 21, 1990, was approved by the securityholders in early February 1991 and in accordance with the Plan, the Company filed a voluntary petition for reorganization under Chapter 11 of the United States Bankruptcy Code. Subsequently, in March 1991, the bankruptcy court confirmed the Plan and it became effective April 2, 1991. The Plan provided for, among other things, the cancellation of certain existing debt and preferred stock securities in exchange for 490,000 shares of new Class A common stock along with new debt instruments and new preferred stock with lower interest and dividend rates. Since the Company's 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 is amortized as interest expense or dividends over the life of the related debt or senior redeemable preferred stock instrument using the interest method. 2. SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation - The consolidated financial statements include JPS Textile Group, Inc. and its subsidiaries, all of which are wholly owned. Significant intercompany transactions and accounts have been eliminated. The equity method of accounting is used to account for the Company's 50% interest in a joint venture with a Mexican company (see Note 13). Under the equity method, the Company's original investment is recorded at cost and is adjusted by the Company's share of undistributed earnings or loss of the investee. 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 certain defective roofing products sold by the Predecessor Stevens Division operations (discussed in Note 9). 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 31 33 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. Property, Plant and Equipment - 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: 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 Excess of Cost Over Fair Value of Net Assets Acquired - Excess of cost over fair value of net assets acquired is being amortized on a straight-line basis over a period of forty years. Periodically, the Company evaluates the realizability of the excess of cost over fair value of net assets acquired based upon expectations of undiscounted future cash flows and comparing such future cash flows to the carrying amount of the related asset. 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 10 for a further description of the accounting for postretirement benefits. Postemployment Benefits - Effective October 31, 1993, the Company adopted 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 instead of when paid, as had been the Company's practice. See Note 10 for a further description of the accounting for postemployment benefits. 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. 32 34 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 were approximately $708,000, $1,225,000 and $1,856,000 in Fiscal 1994, 1995 and 1996, respectively. 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 - Earnings per share is computed by dividing earnings applicable to common stock (net income or loss adjusted by senior redeemable preferred stock dividends) by the weighted average number of shares of common stock outstanding during the period. 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. 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. The 1994 and 1995 fiscal years each consisted of fifty-two weeks and Fiscal 1996 had fifty-three weeks. Reclassifications - Certain Fiscal 1995 and 1994 amounts have been reclassified to conform to the 1996 presentation. In addition, see Note 3 regarding reclassifications of Fiscal 1994 amounts for discontinued operations. 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 the Company, JPS Carpet Corp. ("Carpet"), a wholly-owned subsidiary of the Company, 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"). Pursuant to the Asset Transfer Agreement, Gulistan agreed to assume substantially all of the liabilities and obligations associated with the Carpet Business. Gulistan was formed and its common stock is owned by certain members of the former management team at Carpet. The Company and its subsidiaries have agreed, for a three-year period, not to compete directly or indirectly with the business that was sold. The Consolidated Statements of Operations and Cash Flows for Fiscal 1994 have been reclassified to reflect the Carpet Business as discontinued operations. 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. These debt and equity securities are included in other non-current assets on the November 2, 1996 balance sheet. Since the disposal of 33 35 the Carpet Business occurred subsequent to the end of Fiscal 1995, the net assets of the Carpet Business (adjusted to net realizable value) were classified as "net assets held for sale" on the October 28, 1995 Consolidated Balance Sheet. As of October 28, 1995, the Company adjusted the net assets of the Carpet Business to their net realizable value, which resulted in a charge to the 1995 Consolidated Statement of Operations of $30.7 million (net of tax), classified as loss on sale of discontinued operations. The loss on the sale is not currently recognizable for tax purposes and the Company has recorded no net tax benefit as a result of this loss due to uncertainties regarding the ability to utilize these losses in future years. Net sales from the discontinued operations of the Carpet Business were $141.6 million and $120.1 million in Fiscal years 1994 and 1995, respectively. In May 1996, the Company and Gulistan agreed on the amount of the post-closing adjustment. As a result, the Company paid a post-closing adjustment of $3.5 million (an estimated post-closing adjustment of $2.0 million was included in the Fiscal 1995 loss on sale of discontinued operations) and has recognized in Fiscal 1996 an additional loss of $1.5 million on the sale of discontinued operations. The final amount of net cash proceeds applied by the Company to reduce outstanding borrowings under its senior credit facility was approximately $16.7 million (net of fees, expenses, and the post-closing adjustment resulting from the level of working capital transferred at the closing date). In Fiscal 1996, Gulistan reported a net loss of approximately $4.5 million before interest expense on the promissory note held by the Company. Accordingly, the Company did not record interest income on any of the Gulistan securities held by the Company. Also, in accordance with relevant accounting literature, the Company has recorded a valuation allowance against its investment in the Gulistan securities and a corresponding charge to income of $4.2 million as a result of the net loss ($4.5 million reduced by the $0.3 million of common equity held by Gulistan management) incurred by Gulistan during the 1996 fiscal year. The valuation allowance will be increased or decreased (but not below zero) with a corresponding charge or credit to income to give effect to future losses or earnings of Gulistan as those losses or earnings occur. Automotive Businesses - On June 28, 1994, pursuant to the terms of an Asset Purchase Agreement dated May 25, 1995 (the "Asset Purchase Agreement"), by and among the Company, JPS Auto Inc., a wholly-owned subsidiary of the Company ("Auto"), JPS Converter and Industrial Corp., a wholly-owned subsidiary of the Company ("C&I"), Foamex International Inc. ("Foamex") and JPS Automotive Products Corp., an indirect, wholly-owned subsidiary of Foamex ("Purchaser"), the Company consummated the disposition of its Automotive Assets (as described below) to the Purchaser. The Automotive Assets consisted of the businesses and assets of Auto and the synthetic industrial fabrics division of C&I, and the Company's investment in common stock of the managing general partner of Cramerton Automotive Products, L.P. (an 80% owned joint venture). Net sales from the discontinued operations of the Automotive Assets were $224.9 million for the eight months ended June 28, 1994. Pursuant to the terms of the Asset Purchase Agreement, the Purchaser agreed to assume substantially all of the liabilities and obligations associated with the Automotive Assets. In addition, the Company and its affiliates agreed, for a period of four years, not to directly or indirectly compete in North, Central and South America with the businesses that were sold. The sale price for the Automotive Assets was approximately $283 million, consisting of $264 million of cash paid at closing, $15 million of assumed debt as of June 28, 1994 and certain post-closing adjustments which resulted in a gain of $4.4 million, net of $0.1 million of taxes, recognized in Fiscal 1995. The sale of the Automotive Assets resulted in an approximate total gain of $137.4 million, net of income taxes of $2.9 million. 34 36 The net cash proceeds from the disposition of the Automotive Assets (after deductions for fees, other expenses and amounts designated by management to satisfy possible contingent tax liabilities) were approximately $217 million and such proceeds were used by the Company to reduce its outstanding indebtedness. The Company has allocated to the discontinued operations of the Automotive Assets and the Carpet Business a pro-rata portion of the interest expense of its senior credit facility, which pro-rata portions were approximately $3.4 million and $1.6 million in Fiscal 1994 and 1995, respectively. 4. SALE OF CERTAIN OPERATIONS, PLANT CLOSING AND WRITEDOWN OF CERTAIN LONG-LIVED ASSETS 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 $22.6 million, $20.7 million and $16.8 million in Fiscal 1994, 1995 and 1996 (eleven months), respectively. 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 have 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. 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 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", employee severance costs and estimated costs for equipment relocation. As of November 2, 1996, this plant closing was substantially complete. Of the approximately $4.8 million in exit costs recognized in association with the plant closing, approximately $2.3 million related to equipment relocation and employee severance was not paid at November 2, 1996. Also, 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, is impaired under the criteria of SFAS No. 121 because expected future cash flows from the operation of the plant are 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. 35 37 5. BALANCE SHEET COMPONENTS The components of certain balance sheets accounts are (in thousands):
October 28, November 2, 1995 1996 ----------- ----------- Inventories: Raw materials and supplies $ 13,909 $ 13,155 Work-in-process 18,334 16,912 Finished goods 16,486 18,307 ----------- ----------- $ 48,729 $ 48,374 =========== =========== Property, plant and equipment, net: Land and improvements $ 7,349 $ 5,921 Buildings and improvements 53,649 42,775 Machinery and equipment 205,345 183,320 Furniture, fixtures and other 7,725 8,116 ----------- ----------- 274,068 240,132 Less accumulated depreciation (118,866) (117,642) ----------- ----------- 155,202 122,490 Construction in progress 6,234 1,514 ----------- ----------- $ 161,436 $ 124,004 =========== =========== Other noncurrent assets: Unamortized debt issuance costs $ 1,092 $ 351 Prepaid pension costs 5,973 1,055 Investments (Notes 3 and 9) 42,885 52,986 Other 203 58 --- -- $ 50,153 $ 54,450 =========== =========== Other accrued expenses: Roofing product liability costs $ 4,000 $ 3,000 Taxes payable other than income taxes 1,433 1,250 Income taxes 2,753 2,150 Other 4,513 7,587 ----------- ----------- $ 12,699 $ 13,987 =========== =========== Other long-term liabilities: Roofing product liability costs and deferred warranty income $ 15,700 $ 14,361 Accrued postretirement benefit plan liability 5,249 4,808 Other 2,293 344 ----------- ----------- $ 23,242 $ 19,513 =========== ===========
36 38 6. LONG-TERM DEBT Long-term debt consists of (in thousands):
October 28, November 2, 1995 1996 ---------- ----------- Senior credit facility, revolving line of credit $ 91,726 $ 85,639 Senior subordinated discount notes (including interest due at maturity of $4,370 and $6,002, respectively) 113,617 115,249 Senior subordinated notes (including interest due at maturity of $4,347 and $5,609, respectively) 81,120 82,382 Subordinated debentures 54,071 54,071 Equipment financing 9,780 7,016 --------- --------- Total 350,314 344,357 Less reorganization discount: Senior subordinated discount notes (5,171) (3,308) Senior subordinated notes (4,435) (2,694) Subordinated debentures (10,270) (8,039) --------- --------- Total long-term debt 330,438 330,316 Less current portion (2,770) (326,090) --------- --------- Long-term portion $ 327,668 $ 4,226 ========= =========
Senior Credit Facility - On September 6, 1996, the senior credit facility was amended to, among other things, extend its expiration date and reduce the interest rate by 0.25%. Under the terms of the amended credit agreement, the senior credit facility expires on March 1, 1997 (unless otherwise extended) if the Company has not commenced a case under chapter 11 of the Bankruptcy Code. If such a case is commenced on or prior to March 1, 1997 (or any extended date), the senior credit facility will be extended automatically until the earlier of November 1, 1997 or the effective date of a reorganization under chapter 11 of the Bankruptcy Code. The Company has classified the $85.6 million outstanding under its senior credit facility revolving line of credit as a current liability in the accompanying Consolidated Balance Sheet. In addition, the loan covenants were amended to be based upon the activities of the consolidated operating subsidiaries (JPS Converter and Industrial Corp. and JPS Elastomerics Corp.) rather than the consolidated Company (i.e. excludes the assets and liabilities of the parent company and other non-operating subsidiaries). The amended credit agreement does not permit additional borrowings by the operating subsidiaries for, among other things, loans or dividends to the Company for the payment of interest on its notes and debentures. As a result of this restriction, the Company did not make interest payments of approximately $1.9 million on its subordinated debentures due November 15, 1996, and did not make interest payments of approximately $5.4 million and $3.6 million on its senior subordinated discount notes and senior subordinated notes, respectively, due December 1, 1996. The terms of the indentures governing the Company's subordinated debt provide that such a failure to pay interest when due results in an event of default on such indebtedness and as a result, the holders of these debt securities are entitled to accelerate the debt represented thereby. Accordingly, all of the Company's notes and debentures have been classified as current liabilities as of November 2, 1996. As discussed in Note 14, the Company has engaged financial advisors regarding extension, replacement or refinancing of its debt securities. 37 39 The senior credit facility provides for a $118 million revolving line of credit. The Company pays a fee of 1/2 of 1% per annum of the average unused line of credit. All senior borrowings bear interest at a Base Rate (as defined) plus 1.0% per annum (9.25% at November 2, 1996) or at the Eurodollar Rate (as defined) plus 2.50% per annum (approximately 7.88% at November 2, 1996). Borrowings under the revolving line of credit (other than for loans used to purchase property, plant and equipment or to finance or refinance such purchases ("Capex Loans")) are limited to specified percentages of eligible accounts receivable and inventories, as defined, and such borrowings plus letters of credit outstanding and Capex Loans may not exceed the lesser of $118 million and the borrowing base plus an additional amount of $25,000,000. As of November 2, 1996, unused letters of credit issued and outstanding totaled $2,385,000. The outstanding unused letters of credit reduce the funds available under the revolving line of credit. At November 2, 1996, the Company had $18,656,000 available for borrowing under the revolving credit agreement. The senior credit facility also permits, subject to certain conditions, the sale of fixed assets to the extent the net cash proceeds of all such sales made from March 1994 forward do not cumulatively exceed $35 million (excluding the proceeds from the sale or transfer of the Automotive Assets and the Carpet Business). As of November 2, 1996, such limit has not been exceeded. During the first quarter of Fiscal 1995, the Company borrowed $36,607,000 under the revolving line of credit and made open market purchases of certain of its outstanding notes and debentures with an aggregate face value (including interest due at maturity) of $68,318,000 and a carrying value of $59,225,000. The Company recognized an extraordinary gain from early extinguishment of debt of $20,120,000, net of expenses of $1,898,000 and income taxes of $600,000. Senior Subordinated Discount Notes - The Company issued the discount notes in the 1991 reorganization. The discount notes began accruing interest on June 1, 1992 at 10.85% with 9.85% paid semi-annually and 1% payable at maturity. Interest payable at maturity compounds semi-annually at the annual rate of 10.85%. In connection with the 1991 reorganization, the carrying value of the discount notes was reduced to its estimated net present value using an effective interest rate of 13%. Under the terms of the indenture, mandatory redemption payments equal to $37,777,000, plus accrued interest, are due on each of June 1, 1997 and June 1, 1998 prior to maturity on June 1, 1999 with optional early redemption available. However, due to the event of default discussed above, all of the discount notes are classified as current liabilities as of November 2, 1996. Senior Subordinated Notes - The senior subordinated notes bear interest at 10.25% with 9.25% paid semi-annually and 1% payable at maturity and were issued in the 1991 reorganization. Interest payable at maturity compounds semi-annually at the annual rate of 10.25%. In connection with the 1991 reorganization, the notes were adjusted to their estimated net present value by recording a discount resulting in an effective interest rate of 13%. Under the terms of the indenture, mandatory redemption payments equal to $31,250,000, plus accrued interest, are due on each of June 1, 1997 and June 1, 1998 with optional early redemption available. However, due to the event of default discussed above, all of the senior subordinated notes are classified as current liabilities as of November 2, 1996. 38 40 Subordinated Debentures - The subordinated debentures bear interest at 7%, payable semi-annually, with a mandatory redemption payment of principal of $37,500,000 due May 15, 1999, prior to maturity on May 15, 2000, with optional early redemption available. In connection with the 1991 reorganization, the debentures were adjusted to an estimated net present value by recording a discount of $24,390,000 resulting in an effective interest rate of 13.5%. Due to the event of default discussed above, the subordinated debentures are classified as current liabilities as of November 2, 1996. 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 ranging from October 1997 through December 2001. Restrictive Covenants - Provisions of the senior credit agreement and the Company's other debt indentures place significant restrictions on certain corporate acts such as mergers, consolidations, acquisitions, repurchases of stock, the making of certain other restricted payments, transactions with affiliates and the sale of assets and prohibit the payment of cash dividends. The Company must maintain minimum levels of "net worth", defined to be total assets (excluding investments designated by management to satisfy possible contingent tax liabilities) minus total liabilities plus the subordinated notes and debentures and other adjustments, which vary quarterly from $100 million at November 2, 1996 to $105 million in the fourth quarter of 1997. In addition, the senior credit agreement contains requirements to meet certain financial ratios which vary quarterly or annually and place limitations on the Company's ability to incur additional debt or grant a security interest in its assets. Other customary covenants, conditions and default provisions are also present in the agreement and indentures. The Company was in compliance with the restrictions and financial covenants of its senior credit agreement and its long-term debt indentures at November 2, 1996. However, as discussed above, subsequent to November 2, 1996, the Company did not make the scheduled interest payments on its debt securities which constituted a default under the indentures. Fair Value - The fair value of the Company's long-term debt based on estimated quoted prices, compared to the carrying values (at discounted amounts), is as follows (in thousands):
October 28, 1995 November 2, 1996 --------------------- ------------------- Carrying Fair Carrying Fair Value Value Value Value -------- ----- --------- ----- 10.85% Senior Subordinated Discount Notes $108,446 $ 96,138 $ 111,941 $ 63,364 10.25% Senior Subordinated Notes 76,685 66,025 79,688 44,544 7% Subordinated Debentures 43,081 32,443 46,032 10,820
Because of the lack of significant trading activity of the Company's notes and debentures, estimated quoted prices vary. Other - Substantially all of the Company's assets are pledged as collateral for the senior credit facility and the equipment financing. Interest expense includes $11,161,000 in Fiscal 1994, $8,818,000 in Fiscal 1995 and $10,088,000 in Fiscal 1996 representing amortization of debt issuance expenses and accretion of interest on the discounted notes and accrued product liability costs (see Note 9). 39 41 In 1994, the Company recorded a $7,410,000 loss on early extinguishment of debt in connection with the retirement of certain debt with a portion of the proceeds of the Automotive Assets sale as discussed above. The loss represents deferred financing fees and reorganization discounts associated with the retired debt along with expenses of the transactions. Maturities - Aggregate principal maturities of all long-term debt are as follows (in thousands):
Fiscal Year Ending ------------------ 1997 $ 340,132 1998 1,580 1999 689 2000 638 2001 638 Thereafter 680 ----------- $ 344,357 ===========
7. SENIOR REDEEMABLE PREFERRED STOCK AND EQUITY SECURITIES Certain information on senior redeemable preferred stock and equity securities at October 28, 1995 and November 2, 1996 is as follows:
Shares Issued and Outstanding ----------------------------- Par Value October 28, November 2, Per Share Authorized 1995 1996 --------- ---------- --------- --------- Series A Senior Redeemable Preferred Stock $.01 700,000(1) 507,031 538,176 Series B Junior Preferred Stock .01 700,000(1) 10,000 10,000 Class A Common Stock .01 700,000 490,000 490,000 Class B Common Stock .01 700,000 510,000 510,000
(1) The aggregate number of authorized shares of preferred stock is 700,000, including both the senior redeemable preferred stock and the junior preferred stock. The senior redeemable preferred stock must be redeemed on May 15, 2003. Its holders vote with the junior preferred stockholders as a single class to elect two directors, otherwise, except in the event of default, the senior redeemable preferred stock is non-voting. The senior redeemable preferred stock is redeemable at the option of the Company prior to maturity at 103% of the liquidation preference of $100 per share. Dividends are cumulative and are calculated based on an annual rate of 6% of the liquidation preference and are paid quarterly. Under the terms of various credit agreements, dividends must be in the form of additional shares until 1998. In connection with the 1991 reorganization, the senior redeemable 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 value of the senior redeemable preferred stock and its mandatory redemption value is being 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 effective dividend rate on the senior redeemable preferred stock is 15.0%. The unamortized discount was approximately $23,153,000 at October 28, 1995 and $21,844,000 at November 2, 1996. Because of the lack of recent trading activity and disparities in potential valuation methodologies, determination of the fair value of the Company's senior redeemable preferred stock is impractical. 40 42 The junior preferred stock has a liquidation preference of $25 per share. Its holders vote with the senior redeemable preferred stockholders as a single class to elect two directors, otherwise, except in the event of default, the junior preferred stock is non-voting. The liquidation preference increases $15 per share for each year that the Company attains certain specified earnings levels for each of the first five fiscal years ended after April 2, 1991. No increase in the liquidation preference occurred because actual earnings were less than the specified earnings levels in each of the years. Dividends are non-cumulative and are payable at the same rate as is paid on the common stock, if any. As of November 2, 1996, no dividends had been paid. The Company's senior credit agreement prohibits the payment of cash dividends. The Class A and Class B common stocks have substantially the same voting rights except in the election of directors. The Class A common stockholders, voting separately as a class, have the right to elect three out of the seven Company directors. 8. INCOME TAXES The Fiscal 1994, 1995 and 1996 provision (benefit) for income taxes on continuing operations included in the consolidated statements of operations consists of the following (in thousands):
Fiscal Fiscal Fiscal 1994 1995 1996 ---- ---- ---- Current state $ 1,573 $ 1,200 $ 200 Deferred state provision (benefit) 1,227 - (500) -------- -------- ------- Provision (benefit) for income taxes $ 2,800 $ 1,200 $ (300) ======== ======== =======
There is no provision for Federal income taxes. A reconciliation between income taxes at the 35% statutory Federal income tax rate and the provision (benefit) for income taxes for the fiscal years ended 1994, 1995 and 1996 is as follows (in thousands):
Fiscal Fiscal Fiscal 1994 1995 1996 ---- ---- ---- Income tax benefit at Federal statutory rate $ (11,757) $ (5,762) $ (23,183) Increase (decrease) in income taxes arising from effect of: State and local income taxes 2,800 1,200 (300) Amortization of goodwill 316 316 344 Other 250 212 109 Losses not resulting in tax benefits 11,191 5,234 22,730 ---------- --------- ---------- Provision (benefit) for income taxes $ 2,800 $ 1,200 $ (300) ========== ========= ==========
41 43 Presented below are the elements which comprise deferred tax assets and liabilities (in thousands):
October 28, November 2, 1995 1996 ---------- ---------- Gross deferred assets: Estimated allowance for doubtful accounts $ 476 $ 412 Excess of tax over financial statement basis of inventory 634 647 Accruals deductible for tax purposes when paid 2,263 2,497 Deferred compensation deductible for tax purposes when paid 39 157 Postretirement benefits deductible for tax purposes when paid 2,177 2,141 Miscellaneous 56 83 Alternative minimum tax credit carryforward available 2,300 2,564 Deferred financial statement income recognized for tax purposes when received 5,432 6,489 Excess of tax over financial statement carrying value of investment in discontinued operation 11,231 13,474 Excess of tax basis of intangibles over financial statement basis 8,004 8,817 Net operating loss carryforward 23,519 33,291 Less valuation allowance (26,020) (53,578) ---------- ---------- Gross deferred assets 30,111 16,994 ---------- ---------- Gross deferred liabilities: Pension asset recognized for book purposes (2,208) (411) Excess of financial statement over tax basis of property, plant, and equipment (21,550) (11,898) Excess of tax over financial statement basis of debt instruments (net of deferred financing fees) (6,353) (4,685) Deferred state taxes resulting from filing separate subsidiary returns in some jurisdictions (4,165) (3,665) ---------- ------ Gross deferred liabilities (34,276) (20,659) ---------- ---------- Net deferred noncurrent tax liability $ (4,165) $ (3,665) ========== ==========
At November 2, 1996, the Company had regular federal net operating loss carryforwards for tax purposes of approximately $90,000,000. The net operating losses expire in years 2005 through 2011. The Company also has federal alternative minimum tax net operating losses of approximately $45,000,000 which expire in 2007 and 2011. During 1995, the Company utilized approximately $6,000,000 of alternative minimum tax net operating loss carryovers to offset income from the extraordinary gain on early extinguishment of debt. As previously noted, alternative minimum taxes can be carried forward indefinitely and used as a credit against regular federal taxes. The Company's future ability to utilize its net operating losses may be significantly limited under the income tax laws should there be changes in the ownership of the Company's stock which constitute an ownership change for tax purposes. The effect of such an ownership change would be to significantly limit the annual utilization of the net operating loss carryforwards to an amount equal to the value of the Company immediately prior to the time of the change (subject to certain adjustments) multiplied by the Federal long-term tax exempt rate. The Company does not believe this potential limitation on utilization of the net operating loss carryforwards currently applies. However, there is no assurance that the Internal Revenue Service will not take a contrary position or that such limitation will not become applicable for subsequent taxable periods. 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 equal to the deferred tax assets remaining after deducting all deferred tax liabilities, exclusive of those related to certain deferred state tax liabilities. 42 44 9. COMMITMENTS AND CONTINGENCIES The Company leases office facilities, machinery and computer equipment under noncancellable operating leases. Rent expense was approximately, $2,810,000 in Fiscal 1994, $3,411,000 in Fiscal 1995 and $5,158,000 in Fiscal 1996. Future minimum payments, by year and in the aggregate, under the noncancellable operating leases with terms of one year or more consist of the following at November 2, 1996 (in thousands): 1997 $ 4,235 1998 3,816 1999 3,239 2000 2,581 2001 907 --------- $ 14,778 =========
The Company has planned expenditures of approximately $23.5 million for property, plant and equipment additions in Fiscal 1997. The Company has established long-term incentive compensation plans for certain of its key executives. One plan provides for payments to participants at retirement or termination based on the increase of the fair value, as defined, of the common stock of the Company over certain established levels, as determined by the Company's Board of Directors. No amounts have been earned under the provisions of this plan, except for a termination and death benefit of $203,000 which was paid in Fiscal 1994. Another plan, effective November 1, 1994, provides for payments to covered participants from amounts accumulated in individual award banks. Awards are determined based on the achievement of specified returns on net assets employed. No awards are expected to be paid out under this plan for operating results through November 2, 1996. The Company's policy is to accrue the cost of the plans as the fair value of the common stock increases over the established levels or as actual earnings occur if the cumulative earnings for the periods included under the plan are expected to reach the specified levels necessary for bonuses to be payable. As required by the September 6, 1996 amendment to the senior credit facility, the Company entered into retention bonus agreements with certain of its executives and key employees during Fiscal 1996. The retention bonus agreements provide specific individual awards if the participants continue active employment with the Company for at least six months following the completion of the proposed financial restructuring discussed in Note 14. Under the terms of the agreements, an aggregate of approximately $675,000 will be paid out on the effective date of a restructuring and an aggregate of approximately $1,200,000 will be paid out six months after the effective date of a restructuring. No amounts are considered earned until the effective date of a restructuring. In Fiscal 1996, approximately $363,000 was accrued and included in restructuring fees and expenses in the accompanying Consolidated Statements of Operations. 43 45 The Company has provided for all estimated future costs associated with certain defective roofing products sold by the Predecessor Stevens Division operations. The liability for future costs associated with these defective 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 and those that may result in future litigation. Based on warranties that were issued on the roofs, the Company estimates that the defective roofing product claims will be substantially settled by 2000. Management updates its assessment of the adequacy of the remaining reserve for defective 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. Based on management's estimate of a range of future costs, the Company recorded a $5,000,000 addition to the liability for such defective products, charged to other expense in the accompanying Fiscal 1995 Consolidated Statement of Operations. No additional amounts were accrued in Fiscal 1996. The Company charges the costs of settling these defective material obligations as a reduction of the recorded liability balance and, accordingly, such costs are not charged against the results of operations. Payments on the defective product liability claims were $3,870,000, $4,040,000 and $3,111,000 in fiscal years 1994, 1995 and 1996, respectively. 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 (principally United States Treasury Securities maturing in 1997) designated by management to be available to satisfy possible contingent tax liabilities. The investments are classified as "held-to-maturity" and recorded at amortized cost. As of October 28, 1995 and November 2, 1996, the aggregate fair value of the United States Treasury Securities was approximately $43,400,000 and $46,200,000, respectively, with gross unrealized holding gains of approximately $500,000 and $400,000 in Fiscal 1995 and 1996, respectively. The Company is exposed to a number of asserted and unasserted potential claims encountered in the normal course of business. In the opinion of management, the resolution of these matters will not have a material adverse effect on the Company's financial position or future results of operations. 10. 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. 44 46 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 (November 1, 1995) of the funded status of the plan with amounts reported in the Company's Consolidated Balance Sheets follows (in thousands):
October 28, November 2, 1995 1996 --------- -------- Actuarial present value of benefit obligations: Vested $ 89,236 $ 88,983 Non-vested 613 377 Accumulated benefit obligation 89,849 89,360 Provision for future pay increases 6,232 6,755 --------- -------- Total projected benefit obligation 96,081 96,115 Plan assets at fair value 91,996 89,410 --------- -------- Projected benefit obligation greater than plan assets (4,085) (6,705) Unrecognized net loss 4,460 4,212 Prior service cost not yet recognized in net periodic pension cost 5,598 3,548 --------- -------- Pension asset in accompanying Consolidated Balance Sheets $ 5,973 $ 1,055 ========= ========
Fiscal Fiscal Fiscal Components of net periodic pension cost: 1994 1995 1996 ---------- ---------- ------- Service cost-benefits earned during the period $ 2,925 $ 2,483 $ 2,378 Interest cost on projected benefit obligation 6,987 7,131 7,048 Return on plan assets 3,802 (15,628) (7,674) Net amortization and deferral (10,291) 8,478 451 ---------- --------- -------- Net periodic pension cost 3,423 2,464 2,203 Cost allocated to discontinued operations 1,051 444 - ---------- --------- --- Net periodic pension cost for continuing operations $ 2,372 $ 2,020 $ 2,203 ========== ========= ========
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. 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. The weighted-average discount rate used in determining the actuarial present value of the projected benefit obligation at October 28, 1995 and November 2, 1996 was 7.8%. The expected long-term rate of return on assets was 9% at October 28, 1995 and November 2, 1996. The assumed rate of increase in compensation levels was based on age-related tables at October 28, 1995 and November 2, 1996. Effective November 1, 1993, the Company amended the benefit formula for salaried employees to provide for an additional benefit on compensation in excess of the average social security wage base. 45 47 401(k) Savings Plan - The Company also has a savings, investment and profit-sharing plan available to employees meeting eligibility requirements. Effective January 1, 1994, the Company amended the plan to include coverage of hourly wage employees (previously the plan covered substantially only salaried employees). 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 $536,000 in Fiscal 1994, $589,000 in Fiscal 1995 and $587,000 in Fiscal 1996. 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):
October 28, November 2, 1995 1996 -------- --------- Retirees $ 2,974 $ 1,721 Fully eligible active plan participants 1,242 1,075 Other active plan participants 551 914 Unrecognized gain 482 1,098 -------- --------- Accrued postretirement benefit plan liability $ 5,249 $ 4,808 ======== =========
Net periodic postretirement benefit expense included the following components (in thousands):
Fiscal Fiscal Fiscal 1994 1995 1996 ------ ------ ----- Service cost for benefits earned $ 7 $ 1 $ 5 Interest cost on APBO 352 357 297 ------ ------ ----- Net periodic postretirement cost $ 359 $ 358 $ 302 ====== ====== =====
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. The weighted-average discount rate used in determining the accumulated postretirement benefit obligation was 7.8% as of October 28, 1995 and November 2, 1996. 46 48 Postemployment Benefits - Effective October 31, 1993, the Company adopted SFAS No. 112, which 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 instead of when paid, as had been the Company's practice. The cumulative effects as of October 31, 1993 of adopting SFAS No. 112 were to increase accrued postemployment benefit costs by approximately $708,000 and charge income for approximately $708,000. Income taxes were not applicable. The effect of adopting SFAS No. 112 on income from operations in 1994 was not significant. The liability for postemployment benefits at October 28, 1995 and November 2, 1996 is included in other long-term liabilities in the accompanying Consolidated Balance Sheets. 11. RELATED PARTIES The Company incurred fees of $1,250,000 in Fiscal 1994 and $1,000,000 in each of Fiscal 1995 and 1996 for management services provided by a certain shareholder pursuant to a management services agreement. The balance sheets as of October 28, 1995 and November 2, 1996 include accrued fees of $1,000,000 each in other accrued expenses. The agreement provides for payments of $1,000,000 to the shareholder annually through the year 2001. Payment of the Fiscal 1996 accrued management fee is limited to $450,000 by the Company's senior credit facility, as amended on September 6, 1996, with the balance to be paid upon the earlier of the consummation of a financial restructuring as discussed in Note 14 or completion of the Company's 1997 second fiscal quarter. 12. BUSINESS SEGMENTS The Company competes in three industry segments: Apparel Fabrics and Products, Industrial Fabrics and Products and Home Fashion Textiles. The apparel fabrics and products 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 industrial fabrics and products segment manufactures commercial roofing products made from woven synthetic fabrics 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 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. 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. 47 49 Industry segment information (in thousands):
Fiscal Fiscal Fiscal 1994 1995 1996 ---------- ---------- --------- Net sales: Apparel fabrics and products $ 254,810 $ 247,846 $ 221,799 Industrial fabrics and products 169,736 191,985 193,001 Home fashion textiles 37,325 32,734 34,024 ---------- ---------- --------- $ 461,871 $ 472,565 $ 448,824 ========== ========== ========= Operating profit (loss): Apparel fabrics and products $ 18,487 $ 16,667 $ (22,422) Industrial fabrics and products 7,618 7,590 5,947 Home fashion textiles 2,564 1,749 647 Indirect corporate expenses, net (7,438) (5,345) (6,257) ---------- ---------- --------- Operating profit (loss) 21,231 20,661 (22,085) Valuation allowance on Gulistan Securities - - (4,242) Interest income 749 2,821 2,856 Interest expense (55,570) (39,946) (40,510) Restructuring fees and expenses - - (2,255) ---------- ---------- --------- Loss before income taxes, discontinued operations, extraordinary items and cumulative effects on accounting changes $ (33,590) $ (16,464) $ (66,236) ========== ========== ========= Depreciation and amortization expense: Apparel fabrics and products $ 13,329 $ 12,722 $ 12,946 Industrial fabrics and products 6,103 5,690 6,282 Home fashion textiles 2,359 2,394 2,517 ---------- ---------- --------- Total segments 21,791 20,806 21,745 Corporate and other 1,415 979 994 ---------- ---------- --------- $ 23,206 $ 21,785 $ 22,739 ========== ========== ========= Capital expenditures: Apparel fabrics and products $ 8,120 $ 8,852 $ 4,389 Industrial fabrics and products 6,171 9,312 4,545 Home fashion textiles 4,122 643 899 ---------- ---------- --------- Total segments 18,413 18,807 9,833 Corporate and other 10 4 1 ---------- ---------- --------- $ 18,423 $ 18,811 $ 9,834 ========== ========== =========
Continued 48 50 Industry segment information (in thousands):
October 29, October 28, November 2, 1994 1995 1996 --------- ----------- ----------- Identifiable assets: Apparel fabrics and products $ 171,164 $ 165,622 $ 127,909 Industrial fabrics and products 106,124 115,710 101,376 Home fashion textiles 24,752 20,731 21,333 --------- ----------- ----------- Total segments 302,040 302,063 250,618 Corporate and other 81,087 81,827 85,309 --------- ----------- ----------- 383,127 383,890 335,927 Net assets held for sale 69,684 28,932 - --------- ----------- ----------- $ 452,811 $ 412,822 $ 335,927 ========= =========== ===========
13. JOINT VENTURE In May 1996, the Company purchased a 50% ownership interest in a Mexican corporation engaged in the manufacture and sale of textile products for the apparel industry in Mexico. The investment is accounted for on the equity method of accounting. As of November 2, 1996, the carrying value of the investment was approximately $146,000. The effect of the joint venture on Fiscal 1996 results of operations was not significant. In 1996, the Company had sales to the joint venture of approximately $2.0 million. As of November 2, 1996, the Company's accounts receivable from the joint venture was approximately $1.8 million. 14. LIQUIDITY AND GOING CONCERN The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. The Company has had recurring net losses from continuing operations since its inception, has a net shareholder's deficiency of approximately $108,986,000 at November 2, 1996, is in default on its senior subordinated discount notes, senior subordinated notes and subordinated debentures, and, under the circumstances discussed below, the Company's senior revolving credit facility expires on March 1, 1997. The Company's senior revolving credit facility (or a similar credit facility) is essential for the Company's continued operations. On September 6, 1996, the senior credit agreement was amended to, among other things, extend its expiration date and reduce the interest rate by 0.25%. Under the terms of the amended credit agreement, the senior credit facility expires on March 1, 1997 (unless otherwise extended) if the Company has not commenced a case under chapter 11 of the Bankruptcy Code. If such a case is commenced on or prior to March 1, 1997, the senior credit facility will be extended automatically to the earlier of November 1, 1997 or the effective date of a reorganization under chapter 11 of the Bankruptcy Code. At this time, the Company has not made a decision to commence a case under the Bankruptcy Code. In addition, the loan covenants were amended to be based upon the activities of the consolidated operating subsidiaries (JPS Converter and Industrial Corp. and JPS Elastomerics Corp.) rather than the consolidated Company (i.e., excludes the assets and liabilities of the parent company and other non-operating subsidiaries). The amended credit agreement does not permit additional borrowings by the borrowing subsidiaries for, among other things, loans or dividends to the Company for the payment of interest on its notes and debentures. As a result of the aforementioned restriction on the use of proceeds of revolving loans, the Company 49 51 did not make scheduled November 15, 1996 interest payments of approximately $1.9 million on its subordinated debentures and did not make scheduled December 1, 1996 interest payments of approximately $5.4 million on its senior subordinated discount notes and approximately $3.6 million on its senior subordinated notes. The failure to make these scheduled interest payments constitutes an event of default under the indentures governing these debt securities. As a result, the holders of these debt securities are entitled to accelerate the debt represented thereby, among other things. The Company does not have the ability to repay such indebtedness if the same were to be accelerated. On May 8, 1996, the Company engaged The Blackstone Group, L.P. to act as its financial advisor in connection with a potential financial restructuring of its debt obligations. In addition, at the request of the holders of a substantial majority of its outstanding bonds, the Company engaged Houlihan, Lokey, Howard & Zukin, Inc., effective April 10, 1996 to act as financial advisors to the holders of the Company's debt securities in connection with such a financial restructuring. The Company has provided substantial information to these financial advisors on a confidential basis regarding the Company's business, strategies, plans and prospects. In addition, the Company is discussing the terms of a potential financial restructuring with these advisors and the holders of a substantial majority of its outstanding bonds. The Company's ability to accomplish a restructuring of the terms of its debt securities or any refinancing thereof will depend on a number of factors, including its operating performance, market conditions and the ability of the Company and its bondholders to come to an agreement as to the appropriate terms of any such restructuring. Although no agreement, formal or informal, has been reached between the Company and its bondholders regarding the terms of a potential financial restructuring, management is optimistic that a restructuring will be accomplished. Management is unable to predict the impact of any such restructuring on the accompanying financial statements. If the Company is not successful in this regard, the default on the Company's debt securities and its inability to service such debt as required raise substantial doubt about the Company's ability to continue as a going concern. 50 52 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 following table sets forth certain information with respect to the persons who are members of the Board of Directors or executive officers of the Company. Each director serves until a successor is elected and qualified. Directors receive no compensation for their services.
Name Age Position(s) Held - ---- --- ---------------- Jerry E. Hunter 59 Director, Chairman of the Board, President and Chief Executive Officer David H. Taylor 41 Director, Executive Vice President-Finance and Secretary Steven M. Friedman 42 Director Muzzafar Mirza 38 Director Alain M. Oberrotman 45 Director Marc C. Particelli 51 Director
The business experience of each of the directors and executive officers during the past five years is as follows: Jerry E. Hunter was appointed Chairman of the Board of the Company on July 30, 1996. Mr. Hunter has been a director of the Company since April 6, 1993 and Chief Executive Officer since November 29, 1994. Mr. Hunter has served as President of the Company since September 1988. Prior to that time, from May 1988 to September 1988, he was Executive Vice President - Operations. He also serves as a Vice President of each of the Company's subsidiaries. From April 1986 to May 1988 he was Vice President - Technical Services at J.P. Stevens. From March 1983 to March 1986, he was Senior Vice President at Cannon Mills, Inc., a textile manufacturer. Prior to March 1983, he was employed by Springs Industries, a textile manufacturer, for twenty-one years. David H. Taylor was appointed as a director of the Company on April 15, 1993. Mr. Taylor has served as Executive Vice President - Finance and Secretary of the Company since June 1991, and prior thereto he was Controller and Assistant Secretary of the Company since May 1988. Prior to that time, he was a Senior Manager at Deloitte Haskins & Sells, a public accounting firm by which he was employed from June 1977 through May 1988. In addition, Mr. Taylor serves as a Vice President and Assistant Secretary of each of the Company's subsidiaries. 51 53 Steven M. Friedman has served as a director of the Company since May 1988. He was Chief Executive Officer of the Company from April 1991 to November 1994. Mr. Friedman became a general partner of EOS Partners, L.P. ("EOS") (a private investment firm) on January 1, 1994. Prior thereto, he was a general partner of Odyssey Partners, a private investment partnership with substantial capital invested in marketable securities and closely-held businesses, since July 1988. He is also a director of Forstmann & Company, Inc., a manufacturer of textiles and textile-related products, Eagle Food Centers, Inc., a chain of grocery stores, The Leslie Fay Companies, Inc., a women's wear designer and manufacturer, Rickel Home Centers, Inc., a chain of home center retail stores, and The Caldor Corporation, a chain of discount retail stores. Muzzafar Mirza was appointed as a director of the Company on October 25, 1993. He has been a principal of Odyssey Partners since July 1993. From May 1988 to June 1993, he was employed by General Electric Capital Corporation, as head of Merchant Banking for the GE Capital Corporate Finance Group. From 1983 to 1988, he was a Vice President of Marine Midland Bank, N.A. Mr. Mirza is also a director of The Scotsman Group, Inc. and its parent, Scotsman Holdings, Inc., a lessor of mobile office units. Alain M. Oberrotman was appointed as a director of the Company on January 25, 1994. He has been a principal of Odyssey Partners since October 1992. From September 1990 to October 1992, he was a principal of Hambro International Equity Partners, a venture capital firm. Marc C. Particelli was appointed as a director of the Company on November 29, 1994. He has been a principal of Odyssey Partners since October 1, 1994. Prior thereto, he was worldwide Practice Leader for the Consumer Products group at Booz, Allen & Hamilton, an international management consulting firm by which he was employed from 1974 to 1994. The Company's directors are elected annually to serve until the next annual meeting of stockholders and until their successors have been elected and qualified. None of the directors or executive officers listed herein is related to any other such director or executive officer. 52 54 ITEM 11. EXECUTIVE COMPENSATION. The following summary compensation table sets forth information concerning compensation for the last three years for services in all capacities awarded to, earned by or paid to the Company's Chief Executive Officer and the five other most highly compensated executive officers of the Company during Fiscal 1996. SUMMARY COMPENSATION TABLE
Name and Annual Compensation All Other Principal Position Year Salary Bonus Compensation(2) - ------------------ ---- ------ ----- --------------- Jerry E. Hunter 1996 $ 332,025 $ - $ 3,371 Chairman of the Board, President 1995 306,075 195,902 3,228 and Chief Executive Officer 1994 291,500 292,793 5,219 Carl Rosen 1996 251,875 - 3,131 President, JPS Converter & 1995 243,750 83,000 3,046 Industrial Corp.(1) 1994 217,708 60,000 4,354 David H. Taylor 1996 204,783 - 2,291 Executive Vice President - 1995 196,350 118,139 2,238 Finance and Secretary 1994 187,000 162,631 3,271 Monnie L. Broome 1996 162,775 - 2,295 Vice President-Human Resources 1995 155,925 91,822 2,250 1994 148,500 122,590 3,029 Bruce R. Wilby 1996 161,474 57,761 6,040 President, JPS Elastomerics Corp. (1) 1995 140,359 - 5,591 1994 139,669 75,000 6,173 Heyward D. Maddox 1996 124,813 93,249 2,258 Vice President - Sales and Marketing, 1995 119,242 - 1,724 JPS Converter & Industrial Corp.(1) 1994 114,321 54,000 1,530
(1) Such executive officers of the Company's subsidiaries perform certain policy-making functions for the Company and are therefore included herein pursuant to Item 402(a)(3) of Regulation S-K and Rule 36-7 under the Exchange Act. (2) Employer-matching 401(k) plan contribution, employer-provided life insurance premiums and imputed lease value of company-provided automobiles. 53 55 The following table sets forth certain information regarding estimated potential awards to named executive officers of the Company pursuant to Retention Bonus Agreements dated July 12, 1996: LONG-TERM INCENTIVE PLANS/AWARDS IN 1996
Performance Estimated Future Payouts Under or other Period Non-Stock Price-Based Plans Name Until Maturation or Payout (1) Threshold Target Maximum - ---- -------------------------- --------- ------ ------- Jerry E. Hunter NA N/A N/A $794,000 (2) David H. Taylor NA N/A N/A $510,000 (3) Monnie L. Broome NA N/A N/A $359,000 (2)
(1) The Retention Bonus Agreements have no specified maturation or payout period. Payment of the bonuses are contingent on the successful completion of a restructuring of the terms of the Company's debt securities and the continuing employment of the named executives with the Company. The Retention Bonus Agreements are void if the individuals are terminated for cause (as defined in the agreements) or if they voluntarily discontinue employment with the Company. (2) Pursuant to the Retention Bonus Agreements dated July 12, 1996 (subject to the contingencies specified in Note (1) above), each named executive will receive a retention bonus, payable in two components, as follows: (i) an amount equal to 50% of the sum of annual base salary plus the average of annual bonuses with the Company for the years 1989 through 1995 payable on the effective date of a proposed restructuring and (ii) an amount equal to 100% of the sum of annual base salary plus the average of annual bonuses with the Company for the years 1989 through 1995 payable six months after the effective date of a proposed restructuring. (3) Pursuant to the Retention Bonus Agreement dated July 12, 1996 (subject to the contingencies specified in Note (1) above), the named executive will receive a retention bonus, payable in two components, as follows: (i) an amount equal to 50% of the sum of annual base salary plus the average of annual bonuses with the Company for the years 1989 through 1995 payable on the effective date of a proposed restructuring and (ii) an amount equal to 50% of the sum of annual base salary plus the average of annual bonuses with the Company for the years 1989 through 1995 plus an amount equal to $200,000 payable six months after the effective date of a proposed restructuring. LONG-TERM INCENTIVE PLAN The Company and certain of its subsidiaries (the "Subsidiary Participants") have adopted a Long-Term Incentive Plan for certain officers and key employees effective November 1, 1994. The plan provides for annual awards which are accumulated in individual award banks. Awards may be either positive or negative in any given year and are added or subtracted each year from each participant's respective award bank. A percentage of each participant's award bank balance is paid out annually beginning after Fiscal 1996. Awards are based on the achievement of certain financial performance targets by the Company and the Subsidiary Participants. Such financial performance targets are established on a rolling three-year basis and are subject to change at the discretion of the Boards of Directors of the Company and the Subsidiary Participants. 54 56 The following employees named in the Summary Compensation Table are currently employee participants in the Long-Term Incentive Plan: Jerry E. Hunter, Carl Rosen, David H. Taylor and Monnie L. Broome. As of January 31, 1997, there have been no awards granted under this plan. AGREEMENTS WITH EXECUTIVE OFFICERS On December 23, 1991, the Company entered into an employment agreement with Bruce R. Wilby. This agreement, as amended, provides severance benefits in the event Mr. Wilby is terminated prior to December 23, 1999 for reasons other than for cause (as defined in the agreement). If such termination occurs, Mr. Wilby is entitled to receive an amount equal to his annual base salary including normal fringe benefits payable in the normal course as if employment had not been terminated. As of January 31, 1997, there have been no payments under this agreement. On May 1, 1993, the Company entered into an employment agreement with Carl Rosen. This agreement, as amended, provides that Mr. Rosen will serve as President of JPS Converter & Industrial Corp. until April 30, 1998. Base salary under the agreement is currently $265,000 and may be increased but not reduced over the term of the agreement. Mr. Rosen is eligible for an annual bonus with a target level equal to 50% of base salary. If the Company terminates Mr. Rosen's employment for reasons other than for cause (as defined in the agreement), he is entitled to severance benefits equal to his annual base salary including fringe benefits plus a pro rata bonus amount up to the date of termination. In the event the Company reduces Mr. Rosen's base salary or bonus or materially changes the requirements of his position, Mr. Rosen may voluntarily terminate his employment with the Company with such termination being treated, for purposes of severance benefits, as a termination by the Company. On October 30, 1995, the Company entered into substantially similar severance agreements with Jerry E. Hunter, David H. Taylor and Monnie L. Broome. These agreements provide certain payments if there is a termination of employment for reasons other than for cause (as defined in the agreements) or as a result of a change in control or ownership of the Company or in the event of the executive's death. These payments include an amount equal to the annual base salary including normal fringe benefits payable for a one-year period and a lump sum bonus payment equal to the average of all annual bonuses from 1989 through the date of termination or death. As of January 31, 1997, there have been no payments under these agreements. As required by the September 6, 1996 amendment to the senior credit facility, the Company entered into retention bonus agreements with certain of its key executives and key employees during Fiscal 1996. The retention bonus agreements provide specific individual awards if the participants continue active employment with the Company for at least six months following the completion of the proposed financial restructuring discussed in Note 14 to the Consolidated Financial Statements. Under the terms of the agreements, an aggregate of approximately $675,000 will be paid out on the effective date of a restructuring and an aggregate of approximately $1,200,000 will be paid out six months after the effective date of a restructuring. No amounts are considered earned until the effective date of a restructuring. As of January 31, 1997, there have been no payments under these agreements. The accompanying Long Term Incentive Plan Table discloses the estimated future payout to executive officers who participate in the Retention Bonus Plan. 55 57 RETIREMENT PENSION PLAN The Company maintains a Retirement Pension Plan for all employees (the "Pension Plan"), including its salaried employees. The Pension Plan is a defined benefit pension plan providing a formula benefit with contributions determined on an actuarial basis. The Pension Plan generally covers all employees 21 years of age or older who have completed one year of service with the Company. The Pension Plan generally takes into account annual compensation earned under certain predecessor plans of J.P. Stevens. The following table indicates the approximate amounts of annual retirement income that would be payable to a salaried employee under the Pension Plan based on the compensation levels and years of credited service shown. There would be no social security or other offset deducted from the amounts shown. PENSION PLAN TABLE*
Years of Service --------------------------------------------------------------------- Remuneration 15 Years 20 Years 25 Years 30 Years 35 Years - ------------ -------- -------- -------- -------- -------- $125,000 $20,018 $26,691 $33,364 $40,036 $46,709 150,000 and above 24,518 32,691 40,864 49,036 57,209
* Assumes individual retires at age 65 in 1996 with the indicated years of service and compensation. The social security integration level of such individuals would be $27,576. The social security integration level is adjusted annually. Credited years of service for benefit accrual under the Pension Plan as of November 2, 1996 for the following executive officers are: Jerry E. Hunter............................... 10 years Carl Rosen.................................... 5 years David H. Taylor............................... 8 years Monnie L. Broome.............................. 8 years Bruce R. Wilby................................ 21 years Heyward D. Maddox............................. 28 years
Annual retirement benefits for salaried employees are generally computed as the sum of 0.6% of a participant's average compensation (the annual average of five consecutive, complete plan years of highest compensation during the last 10 plan years of service) multiplied by the years of benefit service plus 0.6% of a participant's compensation which exceeds the Participant's Social Security Integration Level (equal to $27,576 in 1996) multiplied by the participant's years of benefit service. The Pension Plan provides that each participant's benefits fully vest after five years of service or the attainment of age 65. 56 58 This table may understate the benefits available to certain participants because salaried employees who were covered by the Pension Plan before July 1, 1989 are entitled to the greater of the benefit formula noted above or the prior benefit formula, plus additional accrued benefits under the new formula since July 1, 1989. Under the prior formula, a participant's annual pension payable as of normal retirement age was equal to 1% of the portion of "final average compensation" which was equal to the "social security integration level" in effect for the year of retirement, plus 1.5% of the portion of the participant's final average compensation in excess of the social security integration level, the sum of which was multiplied by the number of years of credited service not exceeding 35. In addition, as noted below, the table assumes that covered compensation was limited to the current allowable amount for all years while benefits may have been accrued in years when limitations were higher. Compensation covered by the Pension Plan consists of all payments made to a participant for personal services rendered as an employee of the Company which are subject to federal income tax withholding, excluding imputed income attributable to certain fringe benefit programs. In accordance with the Revenue Reconciliation Act of 1993 with respect to salaried employees, plan compensation covers up to a maximum of $150,000 as adjusted per individual for the plan year beginning November 1, 1994. Plan compensation was subject to substantially higher limits in previous years ($235,840 for 1994). The amounts shown are also subject to possible maximum limitations under Section 415 of the Internal Revenue Code of 1986, as amended (the "Code"), and are subject to possible reduction for amounts payable under other JPS qualified plans. COMPENSATION OF DIRECTORS Members of the Board of Directors receive no compensation for their services. MANAGEMENT AGREEMENT Pursuant to a management agreement (the "Management Agreement"), dated as of April 2, 1991, between the Company and Odyssey Investors, Inc., a Delaware corporation and an affiliate of Odyssey Partners ("Odyssey Investors"), the Company agreed to pay Odyssey Investors a $1.0 million fee for Fiscal 1995 and for each fiscal year thereafter through April 2, 2001, in exchange for certain management services provided by Odyssey Investors. Such services include continual financial advisory and business management services in order to maximize the efficiency of operations and enhance profitability. Payment of the Fiscal 1996 accrued management fee is limited to $450,000 by provisions of the Company's Restated Credit Agreement, as amended on September 6, 1996, with the balance to be paid upon the earlier of the consummation of a financial restructuring as discussed in Note 14 to the Consolidated Financial Statements or completion of the Company's 1997 second fiscal quarter. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The Company does not have a compensation committee or other board committee performing equivalent functions thereto. However, Odyssey Investors, as part of its duties under the Management Agreement, from time to time during the past fiscal year has participated in certain discussions with Jerry E. Hunter, the Chairman, Chief Executive Officer and a Director of the Company, David H. Taylor, Executive Vice President-Finance and Director of the Company and Monnie L. Broome, Vice President-Human Resources of the Company in determining certain business and financial objectives and other criteria to enable the Company to set compensation awards and Long Term Incentive Plan targets for the Company's executive officers. 57 59 ITEM 12. SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT. The following table sets forth information as of December 19, 1996 with respect to the beneficial ownership of shares of (i) Senior Preferred Stock; (ii) Junior Preferred Stock; (iii) Class A Common Stock; and (iv) Class B Common Stock by (a) each person or group that is known to the Company to be the beneficial owner of more than 5% of the outstanding shares, (b) each director of the Company, and (c) all directors and executive officers of the Company as a group.
Senior Preferred Stock Junior Preferred Stock Class A Common Stock Class B Common Stock ---------------------- ---------------------- -------------------- -------------------- Number Percent Number Percent Number Percent Number Percent Name of 5% of of of of of of of of Beneficial Owner Shares Class Shares Class Shares Class (1) Shares Class (1) - ---------------- ------ ----- ------ ----- ------ --------- ------ --------- Bear Stearns Securities Corp. 169,966 31.58% (4) % ADP Proxy Services 51 Mercedes Way Edgewood, NY 11717 Presidential Life 53,813 10.00% Insurance Company c/o The Bank of New York Post Office Box 16203 New York, NY 10249 Romulus Holdings Inc. 42,591 7.91% 20 Rockridge Circle New Rochelle, NY 10804 Citibank, N.A. (4) 28,436 5.28% P. O. Box 1530, Grand Central 111 Wall Street 20th FL., Zone 9 New York, NY 10043 Lehman Brothers (6)(7) 27,333 5.08% 73,847 7.38% c/o ADP Proxy Services 51 Mercedes Way Edgewood, NY 11717 BT Securities Corp (4) 26,904 5.00% 130 Liberty Street New York, NY 10015 Dabney Resnick Imperial LLC 52,504 5.25% Trading Account (4) 150 S. Rodeo Dr., #100 Beverly Hills, CA 90212 Odyssey Partners, L.P. (2) 5,000 50.00% 340,000 34.00% 31 West 52nd Street New York, NY 10019 DLJ Capital Corp. (3) 170,000 17.00% 140 Broadway New York, NY 10005-1285 Messrs. Grant M. Wilson, 5,000 50.00% William J. DeBrule and Yehochai Schneider 111 Pond Street Cohasset, MA 02025
58 60
Senior Preferred Stock Junior Preferred Stock Class A Common Stock Class B Common Stock ---------------------- ---------------------- -------------------- -------------------- Number Percent Number Percent Number Percent Number Percent Name of 5% of of of of of of of of Beneficial Owner Shares Class Shares Class Shares Class (1) Shares Class (1) - ---------------- ------ ----- ------ ----- ------ --------- ------ --------- Lutheran Brotherhood Research 70,180 7.02% Corp. 625 Fourth Avenue South Minneapolis, MN 55415 Everest Capital Fund, L.P. 51,223 5.12% c/o Morgan Stanley & Co., Inc. One Pierpont Plaza Brooklyn, NY 11201 Directors and executive officers 510,000 51.0% as a group (5) (6 persons)
(1) Percentages represented hereunder are based on the combined Class A Common Stock and Class B Common Stock issued and outstanding. (2) Represents shares of Class B Common Stock and Junior Preferred Stock owned by Odyssey Partners. In addition, Odyssey Partners has voting control with respect to the 5,000 shares of Junior Preferred Stock held by Grant M. Wilson, William J. DeBrule and Yehochai Schneider. The Class B Common Stock shares are subject to a Stockholders' Agreement, which provides, among other things, for certain restrictions on the voting and transfer of such shares. Leon Levy, Jack Nash, Stephen Berger, Joshua Nash, the Nash Family Partnership and Brian Wruble, by virtue of being general partners of Odyssey Partners, share voting and dispositive power with respect to the Class B Common Stock and Junior Preferred Stock owned by Odyssey Partners and, accordingly, may each be deemed to own beneficially such stock owned by Odyssey Partners. Each of such persons has expressly disclaimed any such beneficial ownership (within the meaning of Rule 13d-3(a) under the Securities and Exchange Act of 1934, as amended (the "Exchange Act")) which exceeds the proportionate interest in the Class B Common Stock and Junior Preferred Stock which he or it may be deemed to own as a general partner of Odyssey Partners. Mr. Friedman has an indirect fractional financial interest in the shares of Class B Common Stock owned by Odyssey Partners; however, he has no voting or dispositive power over any shares owned by Odyssey Partners. (3) Such shares are subject to the Stockholders' Agreement, which provides, among other things, for certain restrictions on the voting and transfer of such shares. In addition, pursuant to the Voting Trust Agreement, dated as of April 2, 1991, between DLJ and Lincoln National, DLJ conferred the right to vote 120,000 of such shares of Class B Common Stock to Lincoln National, as voting trustee. Such shares include shares held by DLJ First ESC L.L.C. which is an "employee securities corporation" formed to hold securities on behalf of participants in certain DLJ incentive compensation plans. (4) It is not known if these shares are held beneficially or as nominee for one or more beneficial owners. (5) None of Jerry E. Hunter, Carl Rosen, David H. Taylor, Monnie L. Broome, Bruce R. Wilby or Heyward D. Maddox, the executive officers listed above in Item 11, " -- Executive Compensation -- Summary Compensation Table," beneficially own, or may be deemed to own, any shares of capital stock of the Company, and therefore are not listed in this table. (6) Disclaims beneficial ownership. (7) Per Lehman Brothers preferred stock was sold subsequent to December 19.
59 61 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. None. PART IV 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 November 2, 1996 and October 28, 1995. (iii) Consolidated Statements of Operations for the fiscal years ended November 2, 1996, October 28, 1995 and October 29, 1994. (iv) Consolidated Statements of Senior Redeemable Preferred Stock and Shareholders' Equity (Deficit) for the fiscal years ended November 2, 1996, October 28, 1995 and October 29, 1994. (v) Consolidated Statements of Cash Flows for the fiscal years ended November 2, 1996, October 28, 1995 and October 29, 1994. (vi) Notes to Consolidated Financial Statements. The registrant is primarily a holding company and all 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) Report on Form 8-K dated December 15, 1996, containing disclosure of the Company's default on the indentures governing its subordinated debentures, senior subordinated discount notes and senior subordinated notes due to the Company's failure to make scheduled interest payments on November 15, 1996 and December 1, 1996. (c) Reference is made to Item 14(a)(3) above. (d) Reference is made to Item 14(a)(2) above. 60 62 INDEX TO EXHIBITS The following is a complete list of Exhibits filed as part of this report, which are incorporated herein:
Exhibit Number Description - ------ ----------- 2.1(i) Plan of Reorganization of JPS Textile Group, Inc., a Delaware corporation (the "Company"), filed pursuant to Chapter 11 of the United States Bankruptcy Code, dated February 7, 1991 (the "Plan).(A) 2.1(ii) Revised Technical and Conforming Amendment to the Company's Plan, dated March 20, 1991.(A) 3.1 Restated Certificate of Incorporation of the Company, filed with the Secretary of State of the State of Delaware on April 1, 1991.(A) 3.2 By-laws of the Company.(A) 3.3 Certificate of Designations of the Company's Series A Senior Preferred Stock (the "Senior Preferred Stock").(A) 3.4 Certificate of Designations of the Company's Series B Junior Preferred Stock.(A) 4.1 Indenture, dated as of April 2, 1991 (the "Discount Note Indenture"), between the Company and First Trust National Association ("First Trust"), as Trustee, relating to the Company's Senior Subordinated Discount Notes due June 1, 1999 (the "Discount Notes").(A) 4.2 Form of Discount Note, incorporated by reference to Exhibit A to the Discount Note Indenture.(A) 4.3 Indenture, dated as of April 2, 1991 (the "Subordinated Note Indenture"), between the Company and First Trust, as Trustee, relating to the Company's 10.25% Senior Subordinated Notes due June 1, 1999 (the "Subordinated Notes"). (A) 4.4 Form of Subordinated Note, incorporated by reference to Exhibit A to the Subordinated Note Indenture.(A) 4.5 Indenture, dated as of April 2, 1991 (the "Debenture Indenture"), between the Company and First Bank National Association, as Trustee, relating to the Company's 7% Subordinated Debentures due May 15, 2000 (the "Debentures").(A) 4.6 Form of Debenture, incorporated by reference to Exhibit A to the Debenture Indenture.(A) 4.7 Stockholders' Agreement, dated as of April 2, 1991, among Odyssey Partners, L.P. ("Odyssey Partners"), DLJ Capital Corp. ("DLJ Capital") and Lincoln National Bank and Trust Company of Fort Wayne ("Lincoln National").(A)
61 63
Exhibit Number Description - ------ ----------- 4.8 Letter Agreement, dated April 2, 1991 regarding certain rights of "co-sale" granted by Odyssey partners, DLJ Capital and Lincoln National to the holders of the Company's Class A Common Stock.(A) 4.9 Letter Agreement, dated April 2, 1991, among Odyssey Partners, Grant M. Wilson, William J. DeBrule and Yehochai Schneider.(A) 9.1 Voting Trust Agreement, dated as of April 2, 1991, between DLJ Capital and Lincoln National.(A) 10.1 Management Agreement, dated as of April 2, 1991, between the Company and Odyssey Investors, Inc.(A) 10.2 Registration Rights Agreement, dated as of April 2, 1991, by and among the Company and the holders of the Company's Senior Notes, Discount Notes, Subordinated Notes, Senior Preferred Stock and Class A Common Stock (collectively, the "Securities").(A) 10.3 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) 10.4 First Amendment to the CIT Loan Agreement, dated as of June 26, 1992, by and between JCIC and CIT.(A) 10.5 Second Amendment to the CIT Loan Agreement, dated as of December 22, 1992, by and between JCIC and CIT.(A) 10.6 Agreement of Lease, dated as of June 1, 1988, by and between 1185 Avenue of the Americas Associates ("1185 Associates") and JCIC.(A) 10.7 Lease Modification and Extension Agreement, dated as of April 2, 1991, by and between 1185 Associates and JCIC.(A) 10.8 Third Amendment to the CIT Loan Agreement, dated as of August 6, 1993, by and between JCIC and CIT.(B) 10.9 Trademark License Agreement, dated as of May 9, 1988, by and between J.P. Stevens and JPS Acquisition Corp. (predecessor to the Company.)(B) 10.10 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)
62 64
Exhibit Number Description - ------ ----------- 10.11 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) 10.12 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) 10.13 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) 10.14 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) 10.15 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) 10.16 Fourth Amendment to CIT Loan Agreement, dated as of December 29, 1994, by and between JCIC and CIT.(E) 10.17 Lease Modification and Extension Agreement, dated as of April 30, 1993, by and between 1185 Associates and JCIC.(E) 10.18 Long-Term Incentive Plan of the Company effective November 1, 1994.(F) 10.19 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.(G) 10.20 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.(H) 10.21 Lease Modification and Extension Agreement, dated as of November 17, 1994, by and between 1185 Associates and JCIC.(H)
63 65
Exhibit Number Description - ------ ----------- 10.22 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.(I) 10.23 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.(C) 10.24 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.(C) 10.25 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.(L) 10.26 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.(L) 10.27 Retention Bonus Agreement, dated July 12, 1996, between the Company and Jerry E. Hunter.(L) 10.28 Retention Bonus Agreement, dated July 12, 1996, between the Company and David H. Taylor.(L) 10.29 Retention Bonus Agreement, dated July 12, 1996 between the Company and Monnie L. Broome.(L) 10.30 Employment Agreement, dated October 30, 1995, between the Company and Jerry E. Hunter.(L) 10.31 Employment Agreement, dated October 30, 1995 between the Company and David H. Taylor.(L) 10.32 Employment Agreement, dated October 30, 1995 between the Company and Monnie L. Broome.(L) 10.33 Employment Agreement, dated May 1, 1993 and amended September 11, 1995 between the Company and Carl Rosen.(L)
64 66
Exhibit Number Description - ------ ----------- 10.34 Employment Agreement, dated December 23, 1991 and amended August 20, 1996 and December 23, 1996 between the Company and Bruce Wilby.(H) 10.35 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.(H) 10.36 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.(H) 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. 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) 27.1 Financial data schedule.(for SEC use only)(H) -------- (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 January 28, 1995. (G) Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended April 29, 1995. (H) Filed herewith. (I) Previously filed as an exhibit to the Company's Current Report on Form 8-K dated December 1, 1995. (J) Previously filed as an exhibit to the Company's Annual Report on Form 10-K for the year ended October 28, 1995. (K) Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended April 27, 1996. (L) Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended July 27, 1996.
65 67 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: January 31, 1997 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.
SIGNATURE TITLE DATE - --------- ----- ---- /s/ Jerry E. Hunter Director, Chairman of the Board, January 31, 1997 - ------------------------------ President and Chief Executive Officer JERRY E. HUNTER /s/David H. Taylor Director, Executive January 31, 1997 - ----------------------------- Vice President-Finance, DAVID H. TAYLOR Principal Financial Officer and Secretary /s/ Steven M. Friedman Director January 31, 1997 - ------------------------- STEVEN M. FRIEDMAN /s/ Muzzafar Mirza Director January 31, 1997 - ------------------------- MUZZAFAR MIRZA /s/ Alain M. Oberrotman Director January 31, 1997 - ------------------------- ALAIN M. OBERROTMAN /s/ Marc C. Particelli Director January 31, 1997 - ------------------------- MARC. C. PARTICELLI /s/ L. Allen Ollis Controller January 31, 1997 - ------------------------- L. ALLEN OLLIS
66 68 JPS TEXTILE GROUP, INC. INDEX TO SCHEDULE INDEX TO FINANCIAL STATEMENT SCHEDULE For the Fiscal Years Ended October 29, 1994, October 28, 1995 and November 2, 1996 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 69 JPS TEXTILE GROUP, INC. SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS AND RESERVES (IN THOUSANDS)
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) Allowances Deducted from Asset to Which They Apply: Fiscal Year Ended October 29, 1994 (52 Weeks) Allowance for doubtful accounts $ 1,938 $ 748 $ 847 $ 1,606 $ 1,927 Claims, returns and other allowances 777 (73) 369 423 650 -------- ------ ------- ------- -------- $ 2,715 $ 675 $ 1,216 $ 2,029 $ 2,577 ======== ====== ======= ======= ======== Fiscal Year Ended October 28, 1995 (52 Weeks) Allowance for doubtful accounts $ 1,927 $(114) $ 206 $ 69 $ 1,950 Claims, returns and other allowances 650 175 644 181 -------- ----- ------- ------- -------- $ 2,577 $(114) $ 381 $ 713 $ 2,131 ======== ====== ======= ======= ======== 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 ======== ====== ======= ======= ========
(a) Change in various reserves charged to net sales. (b) Uncollected receivables written off, net of recoveries. S-2 EX-10.34 2 EMPLOYMENT AGREEMENT 1 EXHIBIT 10.34 December 23, 1991 JPS Textile Group, Inc. Suite 312 555 North Pleasantburg Drive Greenville, South Carolina 29607 Gentlemen: This letter confirms my agreement with JPS Textile Group, Inc. (the "Company"), for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, with respect to the following: 1. If the Company terminates my employment prior to the fifth anniversary of the date hereof (the "Five-Year Period") other than for "cause" (as defined in Paragraph 2 below), I shall be entitled to receive as severance an amount equal to my annual base salary in effect at the time of such termination payable in the ordinary course, as if my employment had not been terminated (this shall include fringe benefits accorded all active employees, except L.T.D., provided appropriate contributions are made as required); provided, however, that in no event shall any payment be made pursuant to this Paragraph 1 to the extent such payment would constitute an "excess parachute payment" as defined in Section 280G(b) of the Internal Revenue Code of 1986, as amended, or the corresponding provisions of any successor statute. 2. For the purposes hereof, the term "cause" shall mean any of the following: (i) My failure to perform any material obligations of my employment and which I shall have failed to cure within ten (10) days after receiving written notice thereof from the Company; or (ii) I shall have violated the provisions of Paragraph 3 hereof; or (iii) The Company shall reasonably believe that I have committed an act of fraud, embezzlement, theft or dishonesty against the Company; or 2 JPS Textile Group, Inc December 23, 1991 Page 2 (iv) I shall have been convicted of (or plead nolo contendere to) any felony or any misdemeanor involving moral turpitude or which might, in the reasonable opinion of the Company, cause embarrassment to the Company. In the event that during the Five-Year Period, the Company elects to terminate my employment for "cause", the Company shall send me written notice thereof terminating my employment and describing the action constituting "cause", and thereupon the Company shall have no further obligations pursuant to this letter agreement, but I shall have the obligations provided for in Paragraph 3 below. In the event that during the Five-Year Period, I leave the employ of the Company of my own accord, the Company shall have no further obligations pursuant to this letter agreement but I shall have the obligations provided for in Paragraph 3 below. 3. (a) I hereby agree that during my employment and during the period from the date of termination of my employment through and including the date which is one year from the date of the termination of my employment, I shall not, without the prior written approval of the Company, directly or indirectly through any other person, firm or corporation, (i) engage or participate in or become employed by or render advisory or other services to or for any person, firm or corporation, or in connection with any business enterprise, which is, directly or indirectly, in competition with any of the business operations or activities of the Company, (ii) hire, solicit, raid, entice or induce any person or organization who on the date of termination of employment is, or within the last six (6) months of my employment was a customer of the Company, to become a customer of any person, firm or corporation, and I shall not approach any such customer for such purpose or knowingly approve the taking of such actions by other persons, or (iii) solicit, raid, entice or induce any such person who on the date of termination of my employment is, or within the last six (6) months of my employment by the Company was, an employee of the Company, to become employed by any person, firm or corporation, and I shall not approach any such employee for such purpose or authorize or knowingly approve the taking of such actions by any other person; provided, however, that I shall not be bound by the restrictions contained in clause (i) of this Paragraph 3(a) if the Company terminates my employment prior to the fifth anniversary of the date hereof other than for "cause" (as defined in Paragraph 2 hereof). For the purposes hereof, a person, firm, corporation or other business enterprise shall be deemed to be in competition with the Company if it is a textile manufacturer or seller which sells 3 JPS Textile Group, Inc. December 23, 1991 Page 3 and/or manufacturers, as the case may be, products of the kind manufactured and sold by the Company, within any geographic area in which the Company operates or sells its products. (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 I have established, received or obtained during my employment or hereafter shall 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, I agree that, during my employment and at all times thereafter, I shall not (otherwise than pursuant to my duties) disclose or use, without the prior written approval of the Company, 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 3(b) shall not apply to information which is or shall become generally known to the public or the trade (except by reason of the breach of my obligations hereunder), information which is or shall become available in trade or other publications, information known to me prior to entering the employ of the Company, and information which I am required to disclose by law or an order of a court of competent jurisdiction. If I am required by law or a court order to disclose such information, I shall notify the Company of such requirement prior to disclosing such information and provide the Company an opportunity (if the Company so elects) to contest such law or court order. 4. If any provision of this letter agreement or the application of any such provision to any party or circumstances shall be determined by any court of competent jurisdiction to be invalid and unenforceable to any extent, the remainder of this letter agreement or the application of such provision to such person or circumstances other than those to which it is so determined to be invalid and unenforceable, shall not be affected thereby, and each provision thereof shall be validated and shall be enforced to the fullest extent permitted by law. 5. This letter agreement (i) is in lieu of any other provision for severance payments by the Company which are hereby waived, (ii) contains the entire agreement among the parties hereto with respect to the subject matter hereof and supercedes all prior and contemporaneous agreements with respect thereto, (iii) may be executed and delivered in one or more counterparts, all of which 4 JPS Textile Group, Inc. December 23, 1991 Page 4 taken together shall constitute but one and the same original instrument, and (iv) shall be governed and construed in accordance with the laws of the State of New York without regard to the conflicts of law principles of such state. Very truly yours, By: /s/ Bruce R. Wilby (Signature) -------------------- Print Name: Bruce R. Wilby Print Title: V.P./General Manager ACCEPTED AND AGREED TO: JPS TEXTILE GROUP, INC. By: /s/ Jerry E. Hunter ----------------------- Name: Jerry E. Hunter Title: President 5 MUTUAL MODIFICATION AND ASSIGNMENT OF EMPLOYMENT AGREEMENT The parties to this modification and assignment are Bruce R. Wilby (hereafter "Employee"), JPS Textile Group, Inc. (hereafter "Company"), and JPS Elastomerics Corp. (hereafter "Employer"). 1. BACKGROUND AND STATEMENT OF INTENT. On December 23, 1991, the Employee and the Company entered into an Employment Agreement, a copy of which is attached as Attachment A. It is the intent and desire of the parties that the Employment Agreement be assigned from the Company to the Employer. After the execution of this document, the Employer shall be the employer-in-fact of the Employee, and the Company shall be released from any and all liability under the prior agreement. 2. ASSIGNMENT AND MODIFICATION. The parties to this agreement do hereby specifically modify the Employment Agreement by replacing the Company (JPS Textile Group, Inc.) in the Employment Agreement, with the Employer (JPS Elastomerics Corp.), such that the Employer shall be the employer-in-fact of the Employee. To this end, the Company transfers and assigns to the Employer all of its right, title, and interest in and to the Employment Agreement. Likewise, the Employer accepts and assumes all of the obligations and responsibilities of the Employment Agreement, including the payment of compensation to the Employee, as stated herein. Moreover, the Employer does also release, acquit, and discharge the Company from any and all liability and responsibility under the Employment Agreement. 3. CONSENT BY EMPLOYEE. The Employee does hereby consent to the modification and assignment of the Employment Agreement from the Company to the Employer, and does 6 acknowledge that the assignment and modification is supported by good and sufficient consideration which includes, but is not limited to, the assumption by the Employer of the financial responsibility of the Employment Agreement, and the Employee's opportunity for continued employment and payment of compensation as provided in the Employment Agreement. Furthermore, since the Employment Agreement has been assigned and the Employer has assumed all of the responsibilities thereunder, the Employee does hereby release, acquit, and discharge the Company from any liability, claim, debt, payment, or consideration, whatsoever, under the Employment Agreement. 4. This modification and assignment is the entire agreement of the parties and supersedes any prior agreement or understanding between them regarding the subject of this agreement. Its language shall be construed as a whole and according to its fair meaning, and not strictly for or against either party. It is expressly understood and agreed that any rule requiring construction of this modification and assignment against its drafter shall not be applied in this case. This modification and assignment is governed by the laws of the State of New York. 5. The parties acknowledge having an adequate opportunity to consider the terms of this modification and assignment with counsel and advisors of their choice and do voluntarily accept and agree to its terms, as evidenced by their signatures below. -2- 7 IN WITNESS WHEREOF, this agreement is made and entered into on this 20 day of August, 1996. WITNESSES: /s/Sally L. Lepage /s/Bruce R. Wilby - ------------------------- -------------------------- Signature of "Employee" - ------------------------- /s/Phyllis Fagen /s/Jerry E. Hunter - ------------------------- -------------------------- /s/Janice Lollis JPS Textile Group, Inc. - ------------------------- (the "Company") /s/Phyllis Fagen /s/Jerry E. Hunter - ------------------------- -------------------------- /s/Janice Lollis (the "Employer") -3- 8 SECOND MODIFICATION OF EMPLOYMENT AGREEMENT The parties to this Second Modification of Employment Agreement are Bruce R. Wilby ("Employee") and JPS Elastometrics Corp. ("Employer"). 1. BACKGROUND AND STATEMENT OF INTEREST. On December 23, 1991, the Employee entered into an Employment Agreement, a copy of which is attached and incorporated by reference. That Agreement was subsequently modified and assigned by mutual agreement on August 20, 1996, to JPS Elastometrics Corp. Significant portions of the Employment Agreement are scheduled to expire in December 23, 1996, and it is the intent of the Employee and Employer to postpone the original expiration date and extend the Employment Agreement for a period of three years, or until December 23, 1999. 2. MUTUAL MODIFICATION. In exchange for good and valuable consideration, including the promises made herein, the Employee and Employer agree to extend the duration of the Employment Agreement by modifying it as follows: a. At Paragraph 1, page 1, substitute the following language: "If the Company [JPS Elastometrics Corp.] terminates my employment between December 23, 1996, to December 23, 1999 (the "Three-Year-Period"), other than for "cause" (as defined in paragraph 2 below), I shall be entitled to receive as severance an amount equal to my annual base salary in effect at the time of such termination payable in the ordinary course, as if my employment had not been terminated (this shall include fringe benefits accorded all active employees, except L.T.D., provided appropriate contributions are made as required); provided, however, that in no event shall any payment be made pursuant to this paragraph 1 to the extent such payment would constitute as "excess parachute payment" as defined in Section 280G(b) of the Internal Revenue Service Code of 1986, as amended, or the corresponding provisions of any successor statute. b. At paragraph 2, page 2, substitute "Three-Year-Period" for "Five-Year-Period." c. At paragraph 3(a), fifth line from the bottom of page 2, substitute "third anniversary" for "fifth anniversary." d. At any other portions of the Employment Agreement referencing "Five-Year Period" or "Five-Year Anniversary" substitute "Three-Year Period" or "Three-Year Anniversary." 9 3. EFFECTIVE DATE. The parties agree that this Second Modification of the Employment Agreement shall take effect on the last day of the original term of the Employment Agreement, December 23, 1996, such that employment shall continue until December 23, 1999, unless sooner terminated pursuant to the provisions of the Employment Agreement. 4. Except as specifically modified above, all other provisions of the Employment Agreement will remain in full force and effect for the new term of the Employment Agreement. Accepted and Agreed to: Accepted and Agreed to: By: /s/Jerry E. Hunter By: --------------------------- ----------------------------- V.P. JPS Elastomerics Corp. Bruce R. Wilby Date: 11-5-96 Date: --------------------------- -------------------------- EX-10.35 3 ASSET PURCHASE AGREEMENT 1 EXHIBIT 10.35 =============================================================================== ASSET PURCHASE AGREEMENT BETWEEN ELASTOMER TECHNOLOGIES GROUP, INC. (Purchaser) AND JPS ELASTOMERICS CORP. (Seller) FOR THE SALE OF SELLER'S RUBBER PRODUCTS GROUP Dated: September 30, 1996 =============================================================================== 2 TABLE OF CONTENTS ARTICLE I GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.01. Sale and Purchase of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.02. Liabilities Assumed by Purchaser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 1.03. Retained Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 1.04. Delivery of Certain Assets, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 ARTICLE II PURCHASE PRICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 2.01. Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 2.02. Estimated Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 2.03. Preparation of Closing Balance Sheet and Closing Date Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 2.04. Adjustment of Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 2.05. Allocation of Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 2.06. Certain Payments and Prorations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 ARTICLE III REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 3.01. Representations and Warranties of Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 (a) Organization and Standing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 (b) Consents, Authorizations and Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 (c) Financial Statements and Financial Condition . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 (d) Title and Condition of Purchased Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 (e) Real Estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 (f) Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 (g) Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 (h) Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 (i) Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 (j) Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 (k) Environment, Health and Safety . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 (1) Taxes and Other Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 (m) Customers and Suppliers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 (n) Patents, Trademarks, Trade Secrets, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 (o) Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 (p) Pension and Other Employee Plans and Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . 16 (q) Company Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 (r) Conflicts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 (s) Labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 (t) Product Liability Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 (u) Warranties and Returns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 (v) Absence of Certain Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 (w) Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 (x) Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 (y) Solvency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 3.02. Representations and Warranties of Purchaser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 (a) Due Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 (b) Consents, Authorizations and Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 (c) Financing Arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 (d) Disputes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 (e) Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 (f) Solvency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 ARTICLE IV CLOSING AND CONDITIONS OF CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 4.01. Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
i 3 4.02. Conditions of Obligations of Purchaser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 (a) Representations and Warranties; Performance of Obligations . . . . . . . . . . . . . . . . . . . . 23 (b) Authorization of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 (c) Transfer of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 (d) Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 (e) Surveys and Title Insurance Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 (f) Security Interests, Encumbrances, Liens, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 (g) Opinion of Counsel to Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 (h) Suits or Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 (i) Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 (j) Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 4.03. Conditions of Obligations of Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 (a) Representations and Warranties; Performance of Obligations . . . . . . . . . . . . . . . . . . . . 25 (b) Authorization of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 (c) Opinion of Counsel to Purchaser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 (d) Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 (e) Assumption of Liabilities and Certain Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . 25 (f) Suits or Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 (g) Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 ARTICLE V INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 5.01. Indemnification of Purchaser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 5.02. Indemnification of Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 5.03. Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 ARTICLE VI CERTAIN POST CLOSING MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 6.01. Allocation of Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 6.02. Non-Competition and Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 6.03. Certain Employee and Employee Benefits Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 6.04. Offers of Employment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 6.05. Product Returns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 6.06. Access to Records After Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 6.07. Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 6.08. Accounts Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 ARTICLE VII MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 7.01. Further Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 7.02. Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 7.03. Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 7.04. Descriptive Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 7.05. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 7.06. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 7.07. Assignability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 7.08. Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 7.09. Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 7.10. Waivers and Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 7.11. Third Party Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 7.12. Illegality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 7.13. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 7.14. Bulk Transfer Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
ii 4 ASSETS PURCHASE AGREEMENT dated as of the 30th day of September, 1996 (this "Agreement") between (i) ELASTOMER TECHNOLOGIES GROUP, INC., a Delaware corporation ("Purchaser"), and (ii) JPS ELASTOMERICS CORP., a Delaware corporation ("Seller"). Seller is engaged through its Rubber Products Group in the design, production and marketing of rubber and synthetic elastic used in apparel products, diaper products and specialty applications (being sometimes hereinafter called the "Business"). Seller desires to sell to Purchaser, and Purchaser desires to purchase from Seller, the Business and manufacturing assets used in the Business, upon the terms and conditions hereinafter set forth. NOW, THEREFORE, in consideration of the mutual benefits to be derived and the representations and warranties, conditions and promises herein contained, and intending to be legally bound hereby, Purchaser and Seller hereby agree as follows: ARTICLE I GENERAL 1.01. Sale and Purchase of Assets. On the Closing Date (as defined in Article IV) and with effect from the close of business on the day immediately preceding the Closing Date, Seller shall convey, sell, transfer, assign and deliver to Purchaser, and its successors and assigns forever, all of the right, title and interest of Seller in the businesses, franchises, rights, claims (including insurance claims), privileges, properties and manufacturing assets used in the Business, except as set forth on Schedule 1.01(o), wherever located, consistent with the representations and warranties with respect thereto made in or pursuant to this Agreement (hereinafter sometimes collectively referred to as the "Purchased Assets"), including the Business' petty cash and the following: (a) All machinery, equipment and other items of personal property located at the Patrick Facility, the Greensboro Facility and, to the extent dedicated to the Business, the Westfield Facility (as such terms are defined in Schedule 1.01(b)) including without limitation the machinery and equipment listed on Schedule 1.01(a). (b) All owned real property relating to the Business, including buildings, structures and improvements located thereon, fixtures contained therein and appurtenances attached thereto, as described on Schedule 1.01(b); 5 (c) All work-in-process and inventories (wherever located) of raw materials, finished products, supplies, spare parts and materials of the Business, including any inventory on consignment located at the locations set forth on Schedule 1.01(c) (collectively, the "Inventories"); (d) All prepaid expenses, advances and deposits reflected on the Closing Statement (as hereinafter defined); (e) All rights of Seller in and to insurance and indemnity claims relating to the Purchased Assets (as hereinafter defined) or the Assumed Liabilities, except as set forth on Schedule 1.01(e); (f) Subject to Section 1.04 hereof, all rights of Seller with respect to the Business in, to and under all written contracts, licenses, leases, and commitments assumed by Purchaser and/or identified on Schedule 1.01(f), and the Ordinary Course purchase orders, sales orders and other agreements not required to be specifically listed as a Company Contract pursuant to Section 3.01(q) and consistent with the representations, warranties and agreements of Seller in this Agreement (the "Seller Contracts" and, together with the Company Contracts, the "Contracts"); (g) The entire right, title and interest of Seller in and to all patents, patent applications, trade names, service marks, trademarks, trademark applications, copyrights, copyright applications, inventions, trade secrets, logos, slogans, proprietary processes and formulae, and to the extent transferable, computer software and all other proprietary, technical or other information, know-how and intellectual property rights, whether patentable or unpatentable, to the extent used in the Business (collectively, the "Intellectual Property"), including without limitation, the items listed on Schedule 3.01(n)(i) and all variants thereof, associated tradestyle and all related good will, but excluding the trademarks and tradenames that are the subject matter of the License Agreement (as hereinafter defined); (h) All records and files of Seller in existence on the Closing Date relating to the Business including, but not limited to, property records, production records, engineering records, purchasing and sales records, personnel records, plant records, mailing lists, customer and vendor lists and records, and computer programs, computer records, computer files and related software (collectively, the "Transferred Records"); (i) All interests of Seller in and to any telephone and facsimile and other data communication numbers and accounts used primarily by the Business and all listings pertaining thereto in any telephone books and directories, in each case, to the extent transferable; 2 6 (j) All stationery, purchase orders, forms, labels, shipping material, catalogs, brochures, art work, photographs and advertising material relating to the Business; (k) All Federal, state, local and foreign governmental licenses, permits, authorizations and approvals required for the operation of the Business which are transferable to Purchaser; (l) All rights of the Seller with respect to insurance reserves relating to insurance policies and/or insured liabilities that are being assumed by Purchaser, to the extent legally transferable to Purchaser; (m) All rights against third parties relating to the Purchased Assets or the Assumed Liabilities (as defined in Section 1.02); and (n) Those additional assets, properties and rights, if any, set forth on Schedule 1.01(n), provided, however, that the Purchased Assets shall not include the properties, assets and other items identified on Schedule 1.01(o) hereto (the "Excluded Assets") or the accounts receivable (the "Accounts Receivable") of Seller related to the Business which are being purchased by a third party financial institution contemporaneously with the Closing. 1.02. Liabilities Assumed by Purchaser. (a) Subject to the terms and provisions of this Agreement, and except as otherwise provided by this Section 1.02, on the Closing Date, Purchaser shall assume and pay, perform and discharge as and when due all debts, claims, liabilities, obligations and expenses of every kind and nature, whether known, unknown, contingent, absolute, determined, indeterminable or otherwise arising prior to the Closing (excluding the Retained Liabilities (as hereinafter defined)), to the extent relating to or arising from the Business, including, without limitation, those claims against, and liabilities and obligations of, Seller with respect to (i) any Contracts related to the Business and assigned to Purchaser to the extent they remain unsatisfied and are required to be performed on or after the Closing Date, including, without limitation, the lease with respect to Seller's facilities in Greensboro, North Carolina, (ii) accounts payable to third parties, together with any interest accrued thereon, incurred in connection with the Business and set forth on the Closing Statement, (iii) the Employees (other than with respect to the "Excluded Employee Benefits" as defined in Section 1.03) and (iv) environmental claims and environmental costs and liabilities relating to or arising from the Business (collectively, the "Assumed Liabilities"). (b) Notwithstanding the foregoing, the Assumed Liabilities shall not include any liabilities or obligations to the extent they constitute an intentional or grossly negligent 3 7 breach of the representations and warranties made by Seller in this Agreement. 1.03. Retained Liabilities. Regardless of whether any of the following may be disclosed to Purchaser or whether Purchaser may have knowledge of the same, the Assumed Liabilities shall not include and Seller shall retain responsibility for the following debts, claims, liabilities and obligations (the "Retained Liabilities"): (A) liabilities relating to the Excluded Assets, (B) income Taxes, franchise Taxes imposed on net income and sales Taxes (except for the sales and transfer taxes contemplated by Section 2.06(b)) which are owed or incurred by Seller (or any other corporation which is or was included in a consolidated, combined or unitary group with Seller) in respect of all periods prior to the Closing Date or as a result of the sale of the Purchased Assets contemplated hereby (the "Retained Taxes"), (C) any liability or obligations for or related to purchase money debt, debt for borrowed money or a guaranty in respect thereof (including, but not limited to obligations and liabilities under the Seller Credit Agreement), except to the extent such liabilities are specifically assumed by Purchaser and are reflected on the Closing Statement, (D) liabilities arising out of the ownership or use by Seller of facilities, assets or businesses other than those included in the Purchased Assets, (E) liabilities of Seller under this Agreement and for its expenses in connection with the negotiation, execution and consummation of the transaction contemplated by this Agreement, (F) the liabilities and obligations of Seller for the repair or replacement of products sold or shipped by the Business prior to the Closing Date, to the extent such liabilities or obligations are "Retained Warranty Obligations" as provided in Section 6.05, and (G) liabilities arising out of or in connection with any legal proceeding pending on the Closing Date against Seller or involving the Business including without limitation the matters described on Schedule ' 3.01(i), (H) liabilities arising out of or with respect to any of the "Benefit Plans" as such term is defined in Section 3.01(p), including without limitation, "Retiree Health Benefits," "Pre-Closing Severance Benefits," "Pre-Closing Health Benefits," "Pre-Closing Workers' Compensation Benefits" and "Seller's Disability Obligations" as such terms are defined in Section 6.03, collectively, the "Excluded Employee Benefits"), and (I) liabilities and obligations under the agreements pursuant to which Seller acquired the Business, subject to obligations otherwise assumed by Buyer under this Agreement. (a) For all purposes of this Agreement, any reference to any "liability" or "obligation" of Seller shall include without limitation (i) any right to payment and (ii) any right to an equitable remedy, in each case whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured or unsecured. 4 8 1.04. Delivery of Certain Assets, Etc. Seller shall take all reasonable action to obtain and deliver to Purchaser on the Closing Date, where necessary, assignments and consents authorizing the transfer and assignment to Purchaser of, or the substitution of Purchaser for Seller under, all Purchased Assets. Possession of all Purchased Assets to be acquired by Purchaser pursuant to this Agreement shall be delivered to Purchaser on the Closing Date, except that possession of the Transferred Records listed on Schedule 1.04 hereof may be delivered to Purchaser simultaneously with the delivery of the Closing Statement. Without limitation to Seller's indemnification obligation in respect of any breach of the foregoing provisions of this Section 1.04, Seller agrees to hold in trust for the benefit of Purchaser any non-assignable Purchased Assets and Purchased Assets with respect to which consents to assignments shall not be obtained or any attempted assignment would be ineffective or would impair the rights of Seller thereunder, if any, and, insofar as permissible, to assign to Purchaser, at Purchaser's written request from time to time, any or all of such Purchased Assets, and to remit to Purchaser all amounts paid to Seller with respect thereto after the Closing, promptly upon receipt thereof and to cooperate with Purchaser in any reasonable arrangement designed to provide for Purchaser the benefits thereunder. Nothing contained in this Section shall be deemed to require Seller to make any payments to obtain a consent or approval from any third party to the assignment by Seller to Purchaser of any of the Purchased Assets. 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. All material consents not obtained by reason of the immediately preceding two sentences are listed in Schedule 1.04. ARTICLE II PURCHASE PRICE 2.01. Purchase Price. The purchase price (the "Purchase Price") for the Purchased Assets being acquired by Purchaser pursuant to this Agreement is an amount equal to (i) the sum of the Closing Adjusted Net Working Capital (as hereinafter defined) plus $500,000 (ii) less $2,597,328. 2.02. Estimated Purchase Price. At the Closing, Purchaser shall pay to Seller the sum of $2,520,075 by wire transfer in immediately available funds to an account in the United States designated by Seller (the "Estimated Purchase Price"). 2.03. Preparation of Closing Balance Sheet and Closing Date Statement. (a) As soon as practicable after the Closing, Seller shall prepare a statement setting forth the Closing Adjusted Net Working Capital (as hereinafter defined) (the "Closing Statement"). Seller shall be responsible for causing Deloitte & 5 9 Touche LLP, its independent auditors, to conduct a complete audit (the "Audit") of the Closing Statement as of the close of business on the day immediately preceding the Closing Date, as a stand-alone entity, which audit shall include the taking of a physical inventory of all merchandise, materials and products of the Business. The Closing Statement shall be prepared in accordance with accounting principles and practices described on Schedule 2.04 (the "Accounting Principles") and U.S. generally accepted accounting principles applicable to financial statements, consistently applied throughout the periods involved ("GAAP"). Seller shall use its best efforts to cause Deloitte & Touche LLP to complete the Audit within 120 days after the Closing. (b) In connection with the preparation and audit 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. Seller and Purchaser shall provide such independent public accountants with such information, certificates and representations (including but not limited to a management's letter of representation) reasonably requested by such accountants in order for such accountants to render an opinion with respect to the Closing Statement. 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. (c) Unless Purchaser, within 45 days after receipt of the Closing Statement, gives Seller a notice (the "Dispute Notice") (i) objecting in good faith to the Closing Statement and (ii) setting forth in reasonable detail the items being disputed and the reasons therefor or that Purchaser requires additional information to state such reasons, the Closing Adjusted Net Working Capital as set forth in the Closing Statement and the adjustment to the Purchase Price 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 Closing Adjusted Net Working Capital as of the day immediately preceding the Closing Date and the corresponding amount of the adjustment required by Section 2.04. After receipt of a Dispute Notice, Seller shall have the right to dispute items disputed by Purchaser and to provide additional information with respect thereto ("Seller's Disputed Items"). 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 (including the remaining Seller's Disputed Items) at the request of either Seller or Purchaser shall be submitted to a nationally recognized firm of independent public accountants which is not affiliated with either party and is designated jointly by Seller and Purchaser. After affording each of Seller and Purchaser and their respective accountants the opportunity to present its position as to such 6 10 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 Section 2.04 and such determination shall be final and binding. All fees, costs and expenses of such accounting firm shall be subject to pro rata allocation between the parties based on a percentage calculated by dividing the total dollar amount of all disputed items with respect to which a party was the prevailing party by the total dollar amount of all disputed items. Notwithstanding the foregoing, to the extent that any amount of the adjustment to the Purchase Price is not disputed, such undisputed amount shall be delivered to Seller or Purchaser, as the case may be, in accordance with Section 2.04(c) below. 2.04. Adjustment of Purchase Price. For the purposes of this adjustment, the "Closing Adjusted Net Working Capital" shall mean the amount of current assets minus current liabilities of the Business as of the close of business on the day immediately preceding the Closing Date, all determined from the Audit. The parties acknowledge that the Accounts Receivable are being included in working capital solely for purposes of this adjustment and that the Purchased Assets do not include the Accounts Receivable. (a) If the sum of the Closing Adjusted Net Working Capital plus $500,000 exceeds $5,117,403, Purchaser will promptly pay to Seller the difference, together with interest at the "Prime Rate" from time to time in effect on such amount from the Closing Date until paid. As used in this Agreement, "Prime Rate" means the a rate of interest equal to the highest "prime rate" reported from time to time in the "Money" column of The Wall Street Journal, and shall change from time to time effective with any changes in the reporting of such rate. (b) If the sum of the Closing Adjusted Net Working Capital plus $500,000 is less than $5,117,403, Seller will promptly pay to Purchaser the difference, together with interest at the "Prime Rate" from time to time in effect on such amount from the Closing Date until paid. (c) Any payments to be made pursuant to this Section shall be made by wire transfer of immediately available funds to the account designated in Schedule 2.04(c) or to another account designated by the recipient at least two business days prior to the transfer, except that payments of less than $5,000 may be made by check subject to collection. 2.05. Allocation of Purchase Price. The Estimated Purchase Price shall be allocated among the Purchased Assets in accordance with Schedule 2.05 hereto. The Purchase Price as adjusted pursuant to Section 2.04 shall be allocated in a manner consistent with Schedule 2.05, taking into account the nature of adjustments made pursuant to Section 2.04. Such adjustment shall 7 11 be reflected in Revised Schedule 2.05, to be initialed by the parties. 2.06. Certain Payments and Prorations. (a) Liabilities such as taxes (to the extent described in 6.07(c)), rent, utilities, deposits and other like items included in the Assumed Liabilities shall be prorated between Seller and Purchaser on the basis of the number of days of the calendar year or service period which has elapsed as of the close of business on the day immediately preceding the Closing Date and shall be appropriately reflected on the Closing Statement. (b) Seller and Purchaser shall equally share the cost of all sales and transfer taxes, including without limitation real estate transfer and recording fees, if any, imposed upon the sales and transfers provided for in this Agreement. (c) If the amount of the payments and prorations required pursuant to this Section 2.06 cannot be ascertained prior to the adjustment of the Purchase Price pursuant to Section 2.04 hereof, such payments and prorations shall be made based upon the best estimates of the parties and adjusted, if necessary, as soon as possible thereafter. ARTICLE III REPRESENTATIONS-AND WARRANTIES 3.01. Representations and Warranties of Seller. Simultaneously with the execution and delivery of this Agreement, Seller is delivering to Purchaser a Disclosure Schedule consisting of the Schedules referred to in this Agreement (the "Disclosure Schedule"). Except as and to the extent set forth in the Disclosure Schedule, Seller represents and warrants to Purchaser as follows and acknowledges and confirms that Purchaser is relying upon such representations and warranties in connection with the execution, delivery and performance of this Agreement, notwithstanding any investigation made by Purchaser or on its behalf. (a) Organization and Standing. Seller is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation and is qualified to transact business as a foreign corporation in the jurisdictions (which are listed on Schedule 3.01(a) hereto) where it is required to qualify in order to conduct the Business as presently conducted; except where the failure so to qualify would not have a Material Adverse Effect (as hereinafter defined). As used in this Agreement, "Material Adverse Effect" means a material effect on the operations, financial condition, results of operations, assets or liabilities of the Business taken as a whole or the Purchased Assets taken as a whole. Seller has the power and authority to own, lease and operate its properties, to carry on the Business as it is now being conducted and to enter into this Agreement. 8 12 (b) Consents, Authorizations and Binding Effect. Seller may execute, deliver and perform this Agreement without the necessity of obtaining any consent, approval, authorization or waiver or giving any notice, except for such consents, approvals, authorizations or waivers (collectively, "Consents") which have been obtained and are unconditional and such notices which have been duly given (including, without limitation, any such consents or notices delivered pursuant to Section 1.03 of this Agreement) in connection with the execution, delivery and performance of this Agreement. This Agreement has been duly authorized, executed and delivered by Seller and, assuming execution and delivery thereof by Purchaser, constitutes its legal, valid and binding obligation, enforceable against it in accordance with its terms, except as may be limited by bankruptcy, reorganization, insolvency, fraudulent conveyance, moratorium or other similar laws of general application relating to or affecting the enforcement of rights of creditors and by general principles of equity (whether considered in an action at law or in equity). The execution, delivery and performance of this Agreement by Seller will not: (i) constitute a violation of its respective Certificate or Articles of Incorporation or By-Laws, (ii) conflict with, result in the breach of or constitute a default, or give any other person the right to terminate and/or to accelerate any obligation, under any contract, agreement commitment, undertaking, restriction or other instrument to which Seller is a party or by which Seller is bound or to which any of the Purchased Assets may be bound or affected, and which could reasonably be expected to result in a Material Adverse Effect, or (iii) constitute a violation of any statute, judgment, order, decree, regulation or rule of any court, governmental authority or arbitrator applicable or relating to or binding upon Seller, the Purchased Assets or the Business, or (iv) result in the creation of any Lien (as defined in Section 3.01(d)) upon any of the Purchased Assets. No consent, approval or authorization of, waiver from or notice to any other person is required to maintain in full force and effect for the benefit of Purchaser the Company Contracts, other than such consents and waivers which have been obtained and are unconditional and in full force and effect and such notices which have been duly given. For all purposes of this Agreement, all references to this Agreement shall be deemed to include the documents, agreements and instruments executed and delivered by Seller pursuant to or in connection with this Agreement, unless the context clearly requires otherwise. 9 13 (c) Financial Statements and Financial Condition. Seller has maintained its books of account in accordance with applicable laws, rules and regulations and with GAAP. Seller has previously provided to Purchaser the following financial statements: (i) the (x) unaudited balance sheet of the Business as of October 28, 1995 (the "October 28 Balance Sheet") and (y) an income statement of the Business for the year ended October 28, 1995 (collectively, the "Annual Financial Statements") and (ii) the unaudited (x) balance sheet of the Business as of July 27, 1996 (the "Interim Balance Sheet") and (y) income statements of the Business for the ten months then ended (the "Interim Financial Statements" and, together with the Annual Financial Statements, sometimes collectively referred to herein as the "Financial Statements"). Copies of the Interim Financial Statements are included on Schedule 3.01(c). The Annual Financial Statements have been prepared in conformity with GAAP, and, except as set forth on Schedule 3.01(c), present fairly the financial position of Seller as of the dates of such statements and the results of operations for the periods covered by such statements. The Annual Financial Statements furnished the basis (without further material adjustment) for the preparation of the audited financial statements of JPS Textile Group, Inc. for the corresponding date or fiscal period, insofar as such audited statements relate to Seller or their operations. To Seller's knowledge, as of the date hereof, Seller has no material liabilities related to the Business other than: (i) those set forth or reserved against in the Interim Balance Sheet, (ii) those incurred since the date of the Interim Balance Sheet in the ordinary course of business in arms' length transactions and consistent in nature, amount and scope with past practice ("Ordinary Course"), (iii) obligations under contracts, agreements and leases to be assumed by Purchaser pursuant to Section 1.01(f) hereof, and (iv) those described on Schedule 3.01(c)(ii) hereto. (d) Title and Condition of Purchased Assets. Seller has, and pursuant to this Agreement will convey, sell, transfer and assign to Purchaser on the Closing Date, good and marketable title to the Purchased Assets, free and clear of liens, encumbrances, claims, security interests, mortgages, pledges, agreements and rights of others (individually a "Lien" and 10 14 collectively "Liens"), other than Permissible Liens (as hereinafter defined) and Liens described on Schedule 3.01(d)(i) hereto, none of which affects the marketability of the title to such assets or the use or enjoyment thereof in the Ordinary Course of the Business or materially detracts from the value of such assets. The improvements, fixtures and appurtenances on or to the real property included in the Purchased Assets (the "Owned Real Property") or on or to any real property the subject of any lease included in the Purchased Assets (the "Leased Real Property"), and the tangible assets included in the Purchased Assets or the subject of any lease included in the Purchased Assets, are in good operating condition, order and repair, subject to ordinary wear and tear, and are suitable for the purposes of the Business as presently operated. Except as set forth on Schedule 3.01(d)(i) and in Exhibit A hereto, the Purchased Assets constitute all of the assets used in the operation of the Business as presently conducted. Schedule 3.01(d)(ii) hereto includes a summary description of material tangible personal property in the nature of machinery and equipment owned or leased by Seller and used in connection with the Business. "Permissible Liens" means, with respect to any Purchased Asset, (i) any minor imperfection of title with-respect to such asset which does not materially affect the full use and enjoyment of such asset for the purposes for which it is currently used or detract from its value, (ii) the exceptions to title set forth on the title policies (or title commitments) identified on Schedule 3.01(d)(ii) hereto and obtained by Purchaser in connection with the acquisition of the Owned Real Property and the Leased Real Property, (iii) Taxes not yet due and payable, (iv) such matters as are set forth on the surveys (if any) delivered by Seller to Purchaser with respect to the Owned Real Property and the Leased Real Property and (v) mechanics, liens for maintenance or other work that has been performed on any of the Purchased Assets and with respect to which obligations and liabilities arising from such maintenance or other work have been paid or included on the Closing Statement. (e) Real Estate. Schedule 3.01(e)(i) hereto contains a true and complete list of all real property owned or leased by Seller and used in the conduct of its Business. Except as listed on Schedule 3.01(e)(i) and except for Permissible Liens, Seller has good and marketable title in fee simple to the real property listed on Schedule 3.01(e)(i) as owned by Seller. (f) Inventories. Except as described on Schedule 3.01(f), Seller is not under any material liability or obligation with respect to the return of inventory or merchandise used in connection with its Business or in the possession of wholesalers, distributors, retailers or other customers. Except as described on Schedule 3.01(f), no inventory is on consignment. (g) Receivables. The trade accounts and other receivables of Seller with respect to its Business are bona fide receivables and arose out of arms-length transactions. 11 15 (h) Insurance. Schedule 3.01(h)(i) hereto contains a list of all policies of insurance maintained by or on behalf of Seller with respect to its Business, including insurance providing benefits for employees, in effect on the date hereof and generally describing the coverage thereby. Except as set forth in Schedule 3.01(h) (ii) and except for claims with respect to employee benefits, there are no claims pending or, to the knowledge of Seller, threatened under any of said policies or disputes with underwriters, and all premiums due and payable have been paid and all such policies are in full force and effect in accordance with their respective terms. To Seller's knowledge, Seller has not been denied insurance, or been offered insurance only at a commercially prohibitive premium, with respect to its Business - Nothing in this Section 3.01(h) shall be deemed to be an express or implied representation or warranty of Seller as to the adequacy of any policies of insurance or the assignability thereof to Purchaser. (i) Litigation and other Proceedings. Except as described on Schedule 3.01(i) hereof, and whether or not covered by insurance, there are no actions, suits, liens, claims or proceedings, whether in law or equity, or governmental or administrative investigations pending or, to Seller's knowledge, threatened against Seller, and no requests for environmental cleanup actions, cost reimbursement or contribution by any federal, state or local agencies or by any private parties pending or, to Seller's knowledge, threatened against Seller, in connection with the Business or with respect to any of the Purchased Assets or any asset or property of others leased or used by such Seller or the.subject of any contract, lease or agreement to be assigned to Purchaser pursuant to this Agreement, or which questions or challenges the validity of this Agreement or any action taken or to be taken pursuant to this Agreement. (j) Compliance. Except as described in Schedule 3.01(j) (i): (i) Seller is in compliance with, and no default or violation exists under, laws, rules, regulations, decrees and orders applicable to its Business, employees and properties, except where such non-compliance could not reasonably be expected to result in a Material Adverse Effect; (ii) to Seller's knowledge, neither Seller, the Purchased Assets nor the transactions contemplated under this Agreement are subject to any judgment, order or decree entered in any lawsuit or governmental or legal proceeding, and no material investigations have been conducted during the two (2) years prior to the date of this Agreement, in connection with the ownership, operation or use by Seller of the Purchased Assets or the operations of the Business; and (iii) to Seller's knowledge, Seller has duly filed all reports and returns required to be filed by each of them with governmental authorities and obtained all governmental or regulatory permits and licenses and other governmental consents which are required in connection with the Business. To Seller's knowledge, such permits, licenses and consents are in full force and effect, no proceedings for the suspension or cancellation of any of them is pending or threatened, and none will lapse, 12 16 terminate or otherwise become ineffective upon the consummation of this Agreement and all have been or will be transferred to Purchaser in connection with this Agreement. Schedule 3.01 (j) (ii) contains a complete list of permits, licenses and consents referred to in clause (iii) above, as well as other permits, licenses and consents obtained or issued to Seller during the past three (3) years relating to the ownership, use and operation of the Business and the Purchased Assets. To Seller's knowledge, except as specified in Schedule 3.01 (j) (ii), no application for any such permits, licenses or consents within such three (3) year period has been denied. (k) Environment, Health and Safety. Except as specified in Schedule 3.01(k): (i) To Seller's knowledge, Seller has complied with, and Seller's operations are in compliance with, all Environmental Laws (as hereinafter defined) in all material respects. No charge, complaint, action, suit, proceeding, hearing, investigation, claim, demand or notice has been filed or commenced, or to the knowledge of Seller, threatened, against any of them alleging any failure to comply with any such law or regulation. (ii) Seller has not released or is not releasing (as defined in the Comprehensive Environmental Response, Compensation and Liability Act of 1980 ("CERCLA"), "Released") and to its knowledge no prior owners, occupants or any other persons have Released, any Hazardous Substances on, upon, into, over or from any real property owned, operated or leased by Seller. To Seller's knowledge, no oral or written notification of a Release or threat of Release of a Hazardous Substance has been filed by or on behalf of Seller or in relation to the real property or any property owned, operated or leased by Seller within five (5) years prior to the Closing Date. (iii) Seller has obtained all material environmental permits that are required under applicable laws. All such environmental permits are listed in Schedule 3.01(k) (iii) hereto. To Seller's knowledge, except as listed in Schedule 3.01(k) and heretofore provided to Purchaser, within three (3) years prior to Closing Date there have been no environmental inspections, investigations, studies, audits, tests, reviews or other analyses conducted in relation to the Business or the Purchased Assets. (iv) There have been no private or governmental claims, citations, complaints, notices of violation or requests for information, demands or notices, letters made, issued to or, to the knowledge of Seller, threatened against Seller or any Affiliate of Seller by any governmental entity or private or other party within five (5) years prior to the date of this 13 17 Agreement for the impairment or diminution of, or damage, injury or other adverse effects to, the environment or public health resulting, in whole or in part, from the ownership, use or operation of the Purchased Assets, Excluded Assets or the operation of the Business or the off-site transport or disposal or Release of any Hazardous Substances. Schedule 3.01(k)(ii) sets forth a description of locations used by Seller prior to the date of this Agreement for the treatment, storage, transportation or disposal of "Hazardous Substances," or to Seller's knowledge, used by any other person in connection with the operations of the Business. (l) Taxes and Other Payments. Purchaser will not incur or assume and Seller shall indemnify and hold Purchaser and Purchaser's Affiliates (as hereinafter defined) harmless against any liability or obligation with respect to any liability or obligation, direct or indirect, absolute or contingent, of Seller or any of its Affiliates for any Retained Taxes for any period up to and including the Closing Date. As used in this Agreement, "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. Except for Taxes to be allocated on the Closing Balance Sheet in accordance with this Agreement, to the knowledge of Seller with respect to any tax which is not a Retained Tax, Seller has paid or will adequately accrue on the Closing Statement all Taxes, other than Retained Taxes, for all periods up to and including the Closing Date in respect of the Business and the employees of the Business, and is not in default in payment of any such tax or tax related obligation, and Seller has duly filed or will file or cause to be filed in a timely fashion all tax reports and returns required for all periods up to and including the Closing Date, and all such reports and returns are correct and complete as filed in all material respects. Except as described in Schedule 3.01(l), Seller has not received notice of any tax deficiency outstanding other than with respect to Retained Taxes, proposed or assessed against it in connection with the Business, nor has it executed any waiver of any statute of limitations on the assessment or collection of any tax or tax related obligation. Except as disclosed in Schedule 3.01(l) there are no powers of attorney executed by Seller with respect to taxes other than with respect to Retained 14 18 Taxes owed to or by such Seller. Schedule 3.01(l) lists all such deficiencies asserted in connection with the Business within the last five calendar years other than with respect to Retained Taxes. (m) Customers and Suppliers. Schedule 3.01(m) sets forth a list (i) of the 20 largest customers and (ii) of the 20 largest suppliers, of the Business, in terms of sales and purchases, as the case may be, during the years ended October 28, 1995 and 1994, and the ten months ended August 31, 1996. To the knowledge of Seller, there has been no loss nor has it received written notice of any threatened loss, and there is no acquisition pending or announced, of any customer, supplier or account of Seller listed on Schedule 3.01(m), or any loss of a customer, supplier or account which would be material to the Business, except to the extent specifically disclosed in Schedule 3.01(m). For purposes of this Section 3.01(m), the term "material" with respect to any customer or account means any customer or account that accounted for net sales in excess of $200,000 during the years ended October 28, 1995 or 1994 or $150,000 for the nine-month period ended July 31, 1996, and with respect to any supplier means any supplier that accounted for purchases in excess of $100,000 during the years ended October 28, 1995 or 1994 or $75,000 for the nine-month period ended July 31, 1996. Nothing in this Section 3.01(m) shall be deemed to be an express or implied representation or warranty of Seller as to continued sales to customers or as to the continued availability of products and services from suppliers. (n) Patents, Trademarks, Trade Secrets, Etc. Schedule 3.01(n)(i) hereto contains a list and description of: (i) all patents, patent applications, trademarks, trademark registrations, applications for trademark registration, trade names and copyright registrations and applications therefor in which Seller has any ownership interest and is used currently or was used in any material respect during the last two years in connection with the Business; (ii) computer software and programming in which Seller or any of Seller's Affiliates has any ownership interest or which Seller is developing and is used currently or was used in any material respect during the last two years in connection with the Business; and (iii) all license agreements (except "shrink wrap" software license agreements) with respect to any of the types of Intellectual Property to which reference is made in clauses (i) and (ii) of this Section 3.01(n) as to which Seller is a licensor or licensee. To Seller's knowledge, no patents, trademarks, trade names or copyright registrations not described on Schedule 3.01(n)(i), or trade secrets or proprietary secrets not included in the 15 19 Purchased Assets, are necessary in connection with the conduct of the Business in the manner presently operated by Seller. Except as described on Schedule 3.01(n)(ii) hereto, there are no pending or to Seller's knowledge threatened claims against Seller by any person with respect to any of the items, or their use, listed on Schedule 3.01(n)(i) and, to Seller's knowledge no valid basis exists for any such claim. Seller owns and the Business has the right to use free of the claims of any third parties Seller's wide-width slitting technology currently used in the Business. For purposes of this Agreement, the term Affiliate means and includes any entity controlling, controlled by or under common control with Seller (as "control" is used in the Securities Exchange Act of 1934, as amended), including without limitation any direct or indirect parent corporation or subsidiary of Seller (an "Affiliate"); provided, however, that Odyssey Partners, L.P., and its Affiliates (other than Seller, JPS Textile Group, Inc., JPS Carpet Corp. and JPS Converter and Industrial Corp.) shall not be deemed Affiliates of Seller. (o) Employees. Schedule 3.01(o) hereto contains a list of all persons who work in the Business receiving compensation from Seller in excess of $50,000 per annum and a description of the compensation and the components thereof to which each such person presently is or in the future will be entitled. (p) Pension and-other Employee Plans and Contracts. (i) The only employee pension benefit plans (as defined in Section 3(2) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), welfare benefit plans (as defined in Section 3(i) of ERISA), bonus, stock purchase, stock ownership, stock option, deferred compensation, incentive, severance, termination or other compensation plan or arrangement, and other employee fringe benefit plans maintained by, or contributed to by Seller or any Affiliate of Seller with respect to Seller's employees within the past five years are those listed in Schedule 3.01(p) (the "Benefit Plans"). For purposes of this Section 3.01(p), all references to Seller shall include any other employer that is or was at any time, together with Seller, treated as a "single employer" under section 414(b), 414(c) or 414(m) of the Code. (ii) Seller and each of the Benefit Plans, is in compliance with the terms of the Benefit Plans, the applicable provisions of ERISA, and those provisions of the Code applicable to the Benefit Plans, except for any noncompliance that would not have any adverse effect on Purchaser or the Purchaser 401(k) Plans, as defined in Section 6.03. (iii) Each of the Benefit Plans from which Seller will make "eligible rollover distributions" as described in Section 6.03(a) has received a 16 20 determination letter from the Internal Revenue Service ("IRS") to the effect that such plan is qualified and exempt from federal income taxes under sections 401(a) and 501(a), respectively, of the Code; and no determination letter with respect to any such Benefit Plan has been revoked nor, to the knowledge of Seller, has revocation been threatened, nor has anything occurred with respect to any such Benefit Plan since the date of its most recent determination letter which would adversely affect its qualification. (q) Company Contracts. All Company Contracts (as hereinafter defined) are valid and in full force and effect, constitute the legal, valid and binding obligations of Seller and, to Seller's knowledge, the other parties thereto. There are no existing defaults by Seller or, to Seller's knowledge, by any other party under the Company Contracts and, to the knowledge of Seller, no event, act or omission (including without limitation after giving effect to the Closing contemplated under this Agreement) has occurred which (with or without notice, lapse of time or the happening or occurrence of any other event) would result in a default thereunder. To Seller's knowledge, no other party to any Company Contract has asserted in writing the right to renegotiate the terms or conditions of any Company Contract. For purposes of this Agreement, the term "Company Contracts" means and includes those items listed on Schedule 3.01(q) hereto, and all other contracts, mortgages, debt instruments, security agreements, licenses, commitments, guarantees, leases, charters, franchises, powers of attorney and agency and other agreements (i) relating to or affecting any of the Purchased Assets or (ii) to which Seller or any Affiliate of Seller is a party or is bound and which relate in part or whole to or affect the Business, but excluding the Fourth Amended and Restated Credit Agreement, dated as of June 24, 1994, as amended, restated, supplemented or modified from time to time, among JPS Textile Group, Inc., JPS Carpet Corp., JPS Converter and Industrial Corp, Seller, the financial institutions party thereto (the "Senior Lenders"), Citibank, N.A., as agent and administrative agent for the Senior Lenders, and General Electric Capital Corporation, in its capacity as co-agent and collateral agent or the Senior Lenders (the "Seller Credit Agreement"). Schedule 3.01(q) lists all Company Contracts that: (i) involve or would involve the payment of in excess of $50,000 during any fiscal year or in excess of $50,000 in the aggregate during the remaining term of such contract, or are otherwise material to the Business, (ii) relate to the design of any products sold by Seller or relate to the payment of royalties with respect thereto, 17 21 (iii) guarantee, indemnify or otherwise cause Seller to be liable for the obligations or liabilities of another, (iv) involve the borrowing or lending of money, (v) involve an agreement with any bank, finance company or similar organization for the sale of products on credit, (vi) involve the sale of products on consignment, (vii) are or contain a power of attorney, (viii) contain any renegotiation or redetermination provision, (ix) restrict Seller from carrying on its business anywhere in the world, (x) involve as a party (A) any officer or director of Seller or any Affiliate of Seller or any associate of any such person, as the term "associate" is defined in the rules and regulations of the Securities and Exchange Commission ("Associate") or (B) any corporation (other than Seller), firm or individual in which any such person has any material interest, or with whom such person has any relation by blood or marriage, direct or indirect, (xi) require or are otherwise contingent upon the payment of commissions or compensation to any person not a party to such Contract, or (xii) is a collective bargaining agreement. True and complete copies of all Company Contracts listed on Schedule 3.01(q) have heretofore been furnished to Purchaser. The contracts, mortgages, debt instruments, security agreements, licenses, commitments, guarantees, leases, charters, franchises, powers of attorney, agency and other agreements to which Seller is a party, which relate to the Business and which are being assigned to and assumed by Purchaser under this Agreement and which are not listed on Schedule 3.01(q) will not involve the payment by Purchaser thereunder in the aggregate under all such contracts of more than $150,000. The bills of sale and other instruments of transfer delivered at the Closing effectively transfer and vest in Purchaser all the rights and benefits to which, immediately prior to the Closing, Seller was entitled under each Company Contract. (r) Conflicts; Intercompany Relations. To Seller's knowledge, Seller has not engaged in any transaction, or entered into any material contract, or conducted any business with any present officer or director of Seller, or with any Affiliate of 18 22 Seller, with respect to the Business except on terms and conditions no less favorable to the Business than obtainable from independent third parties. (s) Labor. Except as set forth on Schedule 3.01(s), (a) there is no unfair labor practice complaint against Seller pending or, to the knowledge of Seller, threatened before the National Labor Relations Board or other similar forum, or to the knowledge of Seller, efforts to organize with respect to employees of Seller; (b) there is not now, nor has there been within the last three years, any labor strike, slowdown or stoppage actually pending or threatened against Seller; (c) no grievance which would have a material adverse effect on the Business nor any arbitration proceeding arising out of or under any collective bargaining agreement is pending and no claim therefor exists. True and complete copies of all collective bargaining or union contracts or agreements have been provided by Seller to Purchaser and are listed in Schedule 3.01(s). (t) Product Liability Claims. Except as listed in Schedule 3.01(t), there are no material product liability or material service liability claims pending or to Seller's knowledge, threatened against Seller or against any other party with respect to the products or services of the Business. Schedule 3.01(t) lists all pending product and service liability claims seeking damages in excess of $10,000 in respect of which Seller or any Affiliate of Seller has received notice with respect to the products or services of the Business during the last five years; such claims not listed on such Schedule do not aggregate more than $50,000. Seller has not experienced any unusual or excessive product or service liability claims during the last three years with respect to the products or services of the Business. (u) Warranties and Returns. Schedule 3.01(u)(i) sets forth a summary of the present practices and policies followed by Seller with respect to guarantees, warranties, servicing or repairs of any products sold and services rendered by the Business, whether such practices are oral or in writing or are deemed to be legally enforceable. To Seller's knowledge, except as set forth in Schedule 3.01(u) (ii), there is not presently, nor has there been within the last two years, any failure of a product sold by Seller such as to require a general recall or replacement campaign with respect to such product or a reformulation or change of such product, nor has there been any acceptance of returns of defective goods of in excess of five percent (5%) of any such product sold by Seller during either of the years ended October 28, 1995 and October 28, 1994 or the nine-month period ended July 31, 1996. (v) Absence of Certain Changes. Except as set forth on Schedule 3.01(v), since October 28, 1995 there have been no changes in the Business, assets or liabilities of Seller which individually or in the aggregate have had a Material Adverse Effect, except for such changes as have affected others engaged 19 23 in the same business as Seller in a similar way. Since October 28, 1995, except as set forth in Schedule 3.01(v), (i) the Business has been operated in the ordinary Course of business consistent with past practice, (ii) Seller has not entered into, or agreed to enter into, any transaction not in the Ordinary Course of business and (iii) Seller has not made any changes in its accounting principles. Without limiting the generality of the foregoing, Seller has not: (i) increased or experienced any adverse change in any assumption underlying any method of calculating bad debts, contingencies or other reserves from that reflected in the financial statements as at June 30, 1996, (ii) since August 31, 1996, cancelled or waived any claim or right of substantial value or sold, transferred, distributed or otherwise disposed of any of its assets, except for a fair consideration in the Ordinary Course of business, (iii) since June 30, 1996, written down the value of any inventory having an aggregate value in excess of $50,000 or written off as uncollectible notes, trade accounts or other receivables having an aggregate value in excess of $50,000, (iv) made any commitment that remains unfulfilled for additions to property, plant or equipment having an aggregate cost in excess of $100,000, (v) since June 30, 1996, experienced any damage, destruction or loss, whether or not covered by insurance, in excess of $100,000, (vi) since June 30, 1996, made or agreed to make any increase in the compensation payable to any of its employees, other than in accordance with continuing obligations disclosed in the Schedules, (vii) since October 25, 1995, lost any key employees or key salespersons, (viii) since August 31, 1996, entered into or amended any bonus, incentive, compensation, deferred compensation, or any employment or consulting agreement, (ix) since June 30, 1996, sold or disposed of any of its assets, except dispositions of Inventory in the Ordinary Course of business, (x) since June 30, 1996, entered into any transaction or contract, or amended or terminated any transaction or contract, with respect to the Business, 20 24 except normal transactions or contracts consistent in nature and scope with prior practices and entered into in the Ordinary Course of business in arm's length transactions, none of which transactions or contracts, or amendments or terminations thereof, could reasonably be expected to have a Material Adverse Effect upon the Purchased Assets or the Business, or the financial condition or prospects thereof, acquired by Purchaser pursuant to this Agreement, or (xi) since the applicable date set forth above, agreed, whether in writing or not, to do any of the foregoing. (w) Other Information. The representations and warranties of Seller set forth in this Agreement or in any certificate furnished pursuant hereto are correct and complete in all material respects, and do not contain any untrue statement of a fact or omit to state any fact necessary in order to make the statements and information contained therein not materially misleading. (x) 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 understandings made by or on behalf of Seller. As used in this Agreement, "Person" shall mean any individual, corporation, partnership, limited liability company, association, joint stock company, trust, unincorporated organization or a government or political subdivision thereof. (y) Solvency. Based upon information presently known to Seller and assuming the accuracy of Purchaser's representations and warranties contained in this Agreement, Seller has adequate capital and is able to satisfy its known and reasonably probable liabilities as they come due in the ordinary course of business, and the fair salable value of the assets of Seller exceeds such liabilities. For purposes of this Agreement, references to the "knowledge of Seller", "Seller's knowledge" or "Seller's awareness" or words of similar import shall mean and include the actual knowledge of the officers and directors of Seller, after due inquiry of the officers and personnel listed on Schedule 3.01(y) with respect to the indicated matters. 3.02. Representations and Warranties of Purchaser. Purchaser represents and warrants to Seller as follows, and acknowledges and confirms that Seller is relying upon such representations and warranties in connection with the execution, delivery and performance of this Agreement, notwithstanding any investigation made by Seller or any of its Affiliates. 21 25 (a) Due Organization. Purchaser is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation and is qualified to transact business as a foreign corporation in the jurisdictions (listed on Schedule 3.02(a) hereto) where it is required to qualify in order to conduct the Business as presently conducted, except where the failure so to qualify would not have a Material Adverse Effect. Purchaser has the power and authority to own, lease and operate its properties, to carry on its business as it is now being conducted and to enter into this Agreement. (b) Consents, Authorizations and Binding Effect. Purchaser may execute, deliver and perform this Agreement without the necessity of Purchaser obtaining any consent, approval, authorization or waiver or giving any notice, except for such consents, approvals, authorizations or waivers which have been obtained and are unconditional and in full force and effect and such notices which have been given. This Agreement has been duly authorized, executed and delivered by Purchaser and constitutes the legal, valid and binding obligation of Purchaser, enforceable against it in accordance with its terms, except as may be limited by bankruptcy, reorganization, insolvency, fraudulent conveyance, moratorium or other similar laws of general application relating to or affecting the enforcement of rights of creditors and by general principles of equity (whether considered in an action at law or in equity) . The execution, delivery and performance of this Agreement will not: (i) constitute a violation of the Certificate of Incorporation or the By-laws of Purchaser, or (ii) conflict with, result in the breach of, or constitute a default, or give any other person the right to terminate and/or to accelerate any obligation, under, any restriction or other instrument to which Purchaser is a party or by which Purchaser may be bound or affected, or (iii) constitute a violation of any statute, order, decree, regulation or rule of any court, government authority or arbitrator which may be applicable to the Purchaser or its parent company or shareholders. (c) Financing Arrangements. On the Closing Date, Purchaser will have sufficient funds available to comply with Purchaser's obligations under Article IV and to consummate the transactions contemplated in this Agreement. (d) Disputes. There is no litigation pending or, to Purchaser's knowledge, threatened, against Purchaser which would materially impair the ability of Purchaser to consummate the transactions contemplated by this Agreement. 22 26 (e) Brokers. 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 on agreements, arrangements or understandings made by or on behalf of Purchaser. (f) Solvency. Immediately following the Closing, and after giving effect to any financing obtained by Purchaser in connection with the financing and the consummation of the transactions contemplated under this Agreement, based upon information presently known to Purchaser regarding future operations of the Business and assuming the accuracy of Seller's representations and warranties contained in this Agreement, Purchaser will have adequate capital and will be able to satisfy its known and reasonably probable liabilities as they come due in the ordinary course of business, and the fair salable value of the assets of Purchaser will exceed such liabilities. ARTICLE IV CLOSING AND CONDITIONS OF CLOSING 4.01. Closing. The closing of the transactions contemplated by this Agreement is taking place at the offices of Dechert Price & Rhoads in New York, New York commencing at 9:00 a.m. local time on the date of this Agreement (the "Closing Date"), or at such other location, or at such other time, as the parties hereto shall agree. The Closing shall be deemed to be effective as of the opening of business on the date of this Agreement, which shall be the "Closing" or the "Closing Date" for the purposes of this Agreement or any instrument or document delivered in connection herewith. 4.02. Conditions of Obligations of Purchaser. The obligations of Purchaser to consummate the sale and purchase under this Agreement are subject to the satisfaction of the following conditions, each of which may be waived by Purchaser. (a) Representations and Warranties; Performance of Obligations. The representations and warranties of Seller set forth in this Agreement shall be true and correct in all material respects. Seller shall have performed in all material respects the obligations necessary to be performed by it under this Agreement prior to the Closing Date. Purchaser shall have received certificates, dated as of the Closing Date, signed by the President and Secretary of Seller with respect to the foregoing. (b) Authorization of Agreement. All action necessary to authorize the execution, delivery and performance of this Agreement by Seller shall have been duly and validly taken by the Board of Directors, Seller and the stockholders of Seller, and 23 27 Seller shall have full power and right to consummate the transactions contemplated hereby on the terms provided herein. (c) Transfer of Assets. Seller shall have delivered to Purchaser the Purchased Assets and such warranty deeds, bills of sale with covenants of warranty, endorsements, assignments, and other good and sufficient instruments of transfer and conveyance, and opinions and documents of further assurance, in form and substance reasonably satisfactory to Purchaser and its counsel, as shall be effective to vest in Purchaser, and evidence the vesting in Purchaser of, good and valid title to the Purchased Assets as provided for, and subject to the limitations and exceptions set forth, in this Agreement. (d) Consents. Subject to Section 1.03, Purchaser shall have received evidence, in form and substance reasonably satisfactory to Purchaser, that any licenses, trademarks, trade names, patents, permits, consents, registrations, authorizations and/or orders of governmental authorities and parties to contracts with Seller as are necessary to the consummation of the transactions contemplated by this Agreement, and for Purchaser to operate the Business, have been obtained. All governmental authorizations, consents, approvals, exemptions, or other actions required to consummate the transactions contemplated by this Agreement shall have been obtained and shall be in full force and effect. (e) Surveys and Title Insurance Policies. Purchaser shall have received surveys (certified to Purchaser and its lender(s) and prepared at Seller's expense) and preliminary title insurance binders (obtained at Purchaser's expense) in form and substance reasonably satisfactory to counsel to Purchaser, showing good and marketable title in fee simple, as warranted in Section 3.01(e), to the real property vested in Seller, title to which is to be transferred to Purchaser pursuant to Section 1.01. (f) Security Interests, Encumbrances, Liens, etc. Purchaser shall have received written advice (which shall be obtained at Purchaser's expense and updated as of the Closing Date), in form and substance reasonably satisfactory to counsel to Purchaser, to the effect that a search of the public records has disclosed that no Liens, other than those reflected in Schedule 3.01(d) or being released at Closing, have been filed or recorded with respect to the Business or the Purchased Assets. (g) Opinion of Counsel to Seller. Purchaser shall have received the favorable opinion of Weil, Gotshal & Manges LLP, counsel to Seller, dated as of the Closing Date. (h) Suits or Proceedings. No suit, proceeding or investigation shall have been commenced or, to Seller's knowledge, threatened by any governmental authority or private person on any grounds to restrain, enjoin or hinder, or to seek material damages on account of, the consummation of the transactions herein contemplated. 24 28 (i) Financial Statements. Seller shall have delivered to Purchaser the management reports of the Business as at the end of each calendar month prior to the Closing Date commencing with the month ending November 30, 1995, through August 31, 1996. (j) Agreements. Seller shall have entered into a Trademarks Agreement providing for the transfer of certain rights in certain Intellectual Property not being conveyed as part of the Purchased Assets (the "License Agreement"), a sublease with respect to the lease of the Business's Westfield, North Carolina real property (the "Sublease") and a services agreement with respect to the provision by Seller of certain services by Seller to Purchaser (the "Services Agreement"). 4.03. Conditions of Obligations of Seller. The obligations of Seller to consummate the sale and purchase under this Agreement are subject to the satisfaction of the following conditions, each of which may be waived by Seller: (a) Representations and Warranties; Performance of Obligations. The representations and warranties of Purchaser set forth in this Agreement shall be true and correct in all material respects. Purchaser shall have performed the obligations necessary to be performed by it under this Agreement prior to the Closing Date. Seller shall have received the certificates, dated as of the Closing Date, signed by the Chairman and the Secretary of Purchaser with respect to the foregoing. (b) Authorization of Agreement. All action necessary to authorize the execution, delivery and performance of this Agreement by Purchaser shall have been duly and validly taken by the Board of Directors of Purchaser and the stockholders of Purchaser and Purchaser shall have full power and right to consummate the transactions contemplated hereby on the terms provided herein. (c) Opinion of Counsel to Purchaser. Seller shall have received the opinion of Messrs. Dechert Price & Rhoads, counsel to Purchaser dated as of the Closing Date. (d) Purchase Price. Purchaser shall have delivered to Seller the Estimated Purchase Price. (e) Assumption of Liabilities and Certain Contracts. Purchaser shall have executed and delivered to Seller an agreement of assumption, assuming and agreeing to pay and perform, and covenanting with Seller that Purchaser will pay and perform the Assumed Liabilities. (f) Suits or Proceedings. No suit, proceeding or investigation shall have been commenced or, to Purchaser's knowledge, threatened by any governmental authority or private person on any grounds to restrain, enjoin or hinder, or to seek material damages on account of, the consummation of the transactions herein contemplated. 25 29 (g) Consents. All governmental and third party authorizations, consents, approvals, exemptions, lien releases, or other actions required to consummate the transactions contemplated by this Agreement shall have been obtained and shall be in full force and effect, including without limitation any consents pursuant to the Seller Credit Agreement. ARTICLE V INDEMNIFICATION 5.01. Indemnification of Purchaser. Subject to the terms and conditions of this Article V, Seller shall defend, at its own expense, and shall indemnify Purchaser, its Affiliates and their respective directors, officers, employees, shareholders and agents (collectively, "Purchaser's Indemnified Persons") against, and hold Purchaser's Indemnified Persons harmless from, any and all loss, damage or liability, and all expenses (including without limitation legal fees and costs of investigation, remediation or other response action and other costs) (the "Damages"), asserted against or incurred by Purchaser's Indemnified Persons resulting from or arising out of: (i) any breach of the representations and warranties made by Seller in or pursuant to this Agreement or by Seller or any Affiliate of Seller in any certificate or other instrument or agreement furnished or to be furnished to Purchaser hereunder; and (ii) the non-fulfillment of any agreement or covenant made by Seller in or pursuant to this Agreement or by Seller or any Affiliate of Seller in any certificate or other instrument or agreement furnished or to be furnished to Purchaser hereunder; (iii) the Retained Liabilities; and (iv) the litigation, claims and proceedings identified in Schedule 3.01(i). 5.02. Indemnification of Seller. Subject to the terms and conditions of this Article V, Purchaser shall defend, at its own expense, and shall indemnify Seller, its Affiliates and their respective directors, officers, employees, shareholders and agents against, and hold Seller and its directors, officers, employees, shareholders and agents harmless from, any and all Damages incurred by Seller and its directors, officers, employees, shareholders and agents, resulting from or arising out of: (i) any breach of the representations and warranties made by Purchaser in or pursuant to this Agreement or by Purchaser or any Affiliate of Purchaser 26 30 in any certificate or other instrument furnished or to be furnished to Seller hereunder; (ii) the non-fulfillment of any agreement or covenant made by Purchaser in or pursuant to this Agreement, or by Purchaser or any Affiliate of Purchaser in any certificate or other instrument or agreement furnished or to be furnished to Seller hereunder; and (iii) the Assumed Liabilities. 5.03. Claims. (a) General. 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 otherwise 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. If the indemnifying party advises the indemnified party in writing that it is assuming the defense of such Action and responsibility for any judgments or settlements resulting therefrom, 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 reasonably 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 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 or shall not be diligently defending 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 (plus appropriate local counsel) for all such 27 31 indemnified parties. 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 does not include an unconditional release of the party seeking indemnification from all liabilities with respect to such claim. (b) Other Claims. In the event one party hereunder should have a claim for indemnification that does not involve a claim or demand being asserted by a third party, the party seeking indemnification shall promptly send notice of such claim to the party from whom indemnification is sought. If the latter does not dispute such claim, the latter shall pay such claim in full within 10 Business days. If the latter disputes such claim, such dispute shall be resolved by agreement of the parties or in any other manner available under law. (c) Limitations on Indemnification. Notwithstanding any other provision of this Agreement, with respect to any Damages resulting from a breach of any of the representations and warranties by either party hereto, the other party hereto (an "Indemnitee") shall be entitled to indemnification for only those Damages which arise out of such breach and are in excess of $150,000 in the aggregate (it being agreed that such Indemnitee shall bear the first $150,000 of Damages arising from such breaches or alleged breaches); Provided, however, that such limitations in this paragraph (c) shall not apply to Damages resulting from a breach of Sections 3.01(b), the first sentence of 3.01(d), 3.01(x), 3.02(b) or 3.02(e) or from the breach of any covenant, agreement or undertaking made in or pursuant to 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 the sum of the Purchase Price, as adjusted pursuant to Section 2.04, plus $2,597,328. (d) Subject to the provisions of Section 6.02 and 7.08, 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 Article Five. (e) In calculating any amounts payable pursuant to this Article Five by the Seller or the Purchaser, as the case may be, such amounts shall be reduced by (i) any tax benefit actually realized by the Indemnified Party, after taking into account any tax burden realized by the Indemnified Party, as a result of the facts giving rise to the claim for indemnification and receipt of the indemnification payment, and (ii) any insurance recoveries received by the Indemnified Party. All amounts paid pursuant to this Article five by one party to another party shall be treated 28 32 by such parties as an adjustment to the Purchase Price for the Purchased Assets. ARTICLE VI CERTAIN POST CLOSING MATTERS 6.01. Allocation of Purchase Price. Seller and Purchaser acknowledge and agree that the allocation of the Purchase Price provided for by Schedule 2.05 hereto, and the following undertaking with respect to tax reporting, have been specifically negotiated by the parties at arms's length, and are part of the basis of this Agreement. Seller and Purchaser covenant and agree that each shall execute such tax forms and schedules as may be necessary or appropriate with respect to this transaction and such allocation and each shall prepare its Federal, state and local income tax returns employing the allocation of the Purchase Price set forth on Schedule 2.05 and will not take a contrary position with respect to such allocation in any tax proceeding or audit provided, however, that nothing contained herein shall require Seller or Purchaser to contest any proposed deficiency or adjustment by any taxing authority or agency; exhaust administrative remedies; or litigate before any court with respect to such allocation of the Purchase Price. 6.02. Non-Competition and Confidentiality. (a) Seller agrees that, without the prior written consent of Purchaser, neither it nor any of its Affiliates shall, for a period of two years after the Closing Date, directly or indirectly, (i) be retained by, render consulting or advisory services to, or be a proprietor, director, partner or shareholder of, or operate, any enterprise that competes directly with Purchaser in the Business (as conducted as of the Closing Date) in such geographical areas as Seller manufactures, distributes and sells as of the date hereof or as to which it has developed any plans or proposals to manufacture, distribute or sell; (ii) disrupt any then existing relationship, contractual or otherwise, between Purchaser and any of the customers or clients of Purchaser or the Business or other persons with whom Purchaser deals with respect to the Business in a manner that could reasonably be expected to have an adverse effect on Purchaser; or (iii) solicit for employment or assist any other entity in soliciting for employment any employee or executive employed by Seller and hired by Purchaser on the Closing Date. (b) Without the specific prior written consent of Purchaser, Seller shall not, directly or indirectly, and Seller shall cause its Affiliates not to, divulge to any person, firm, corporation or association, or use for its own benefit, any trade 29 33 secrets, proprietary secrets and any other confidential information concerning the Business, affairs, customers or clients of Seller relating to the Business or any data or statistical information of Seller relating to the Business, acquired by Purchaser pursuant to this Agreement, it being the intent of this Agreement to restrict Seller and its Affiliates and their officers and employees from disseminating or using any data or information which is included in the Purchased Assets and which is at the time of such use or dissemination unpublished and not readily available or generally known to persons involved or engaged in any businesses competitive with 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 to enable Purchaser to attempt to obtain a protective order, or (ii) disclosing such information to the extent necessary to the Senior Lenders under the Seller Credit Agreement and their counsel and advisors, or as may be required by any law or the rules of any securities exchange, 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. In addition, Seller shall advise the respective officers and employees of Seller and its Affiliates of the obligations of Seller and such Affiliates under this paragraph (b), that such trade secrets, proprietary secrets and other confidential information have been conveyed to Purchaser and that such officers and employees are not entitled to use or disclose to any other person any of such secrets or confidential information and that Purchaser may enforce directly against such officers and employees whatever rights Purchaser may have with respect to such secrets and confidential information. (c) Although the restrictions contained in Section 6.02(a) hereof are considered by the parties hereto to be fair and reasonable in the circumstances, if any of such restrictions shall be adjudged to be void or unenforceable for whatever reason, but would be valid if part of the wording thereof were deleted, or the period thereof reduced or the area dealt with thereby reduced in scope, the restrictions contained in Section 6.03(a) shall apply, at the election of Purchaser, with such modifications as may be necessary to make them valid, effective and enforceable in the particular jurisdiction in which such restrictions are adjudged to be void or unenforceable. (d) If a violation of any covenant contained in this Section 6.02 occurs or is threatened, Seller acknowledges that such violation or threatened violation will cause irreparable injury to Purchaser and the remedy at law for any such violation or threatened violation will be inadequate, and Purchaser shall be entitled to temporary and permanent injunctive relief without the necessity of proving actual damages. (e) The covenants contained in this Section 6.02 shall inure to the benefit of Purchaser and its successors and assigns. 30 34 6.03. Certain Employee and Employee Benefits Matters. (a) As soon as practical after the Closing Date, Purchaser shall establish two (2) qualified defined contribution plans, that include a qualified cash or deferred arrangement under Section 401(k) of the Code ("Purchaser 401(k) Plans"), one for hourly employees and one for salaried employees, copies of which plans have been furnished or made available to Seller. The Purchaser 401(k) Plans shall cover each employee eligible to participate ("Participating Employee") under the Savings, Investment, and Profit-Sharing Plan of JPS Textile Group ("Seller 401(k) Plan") who becomes an employee of Purchaser as of 12:01 a.m. on the day following the Closing Date and who was eligible to participate in the Seller 401(k) Plan as of the Closing Date. To the extent allowed by law, Seller shall cause all distributions from the Seller 401(k) Plan on or following the Closing Date to qualify as "eligible rollover distributions" and shall timely provide the "section 402(f) notice" to participants under the Seller 401(k) Plan or shall notify Purchaser in writing whether and to what extent distributions from the Seller 401(k) Plan do not qualify as "eligible rollover distributions." Purchaser shall cause the Purchaser 401(k) Plans to allow acceptance of "eligible rollover distributions" and the transfer of any outstanding participant loans from the Seller 401(k) Plan. The Purchaser 401(k) Plans shall recognize for all Plan purposes all service recognized by the Seller 401(k) Plan on the Closing Date with respect to all employees of the Purchaser. (b) Purchaser and Seller shall cooperate with one another and take, or cause to be taken, such action as may be necessary or desirable to accomplish the actions described in this Section 6.03. Purchaser and Seller agree to provide each other with such records, information and assistance as they may reasonably request including any such information necessary to carry out their respective obligations under this Section 6.03. (c) No employee of Purchaser, nor his spouse, former spouse or other beneficiary under the Seller 401(k) Plan, the Purchaser 401(k) Plans, or any other plan of Seller or Purchaser shall be entitled to assert any claim, as a third party beneficiary or otherwise, under any provision of this Agreement (including, but not limited to, this Section 6.03). (d) Seller shall be liable for any and all claims for health, medical, dental, drug or similar benefits for employees of Seller (and their beneficiaries) with respect to which expenses were incurred on or prior to midnight of the Closing Date including, but not limited to, any such claims which were incurred but not reported) ("Pre-Closing Health Benefits"); provided, however, that with respect to any employee listed on Schedule 6.04(b) (or any eligible dependents thereof), Seller shall be liable for all such claims and benefits incurred on or prior to his or her respective Employment Date (as defined in Section 6.04(b) herein). Purchaser shall establish a group health plan ("Purchaser's Health Plan") which shall provide 31 35 coverage for medical, dental and drug benefits substantially similar to that provided by Seller and shall apply with respect to claims by persons who become employees of Purchaser as of 12:01 a.m. on the day following the Closing Date ("Purchaser Employees") (and their beneficiaries) with respect to which the covered expenses were incurred after 12:01 a.m. on the day following the Closing Date. Purchaser's Health Plan will waive eligibility waiting periods, pre-existing conditions and "actively at work" requirements with respect to Purchaser Employees to the extent such eligibility waiting periods, preexisting conditions and "actively at work" requirements were satisfied by the Purchaser Employees under Seller's group health plan as of the Closing Date, provided however, that Purchaser's Health Plan will give credit for employment service with Seller to the extent that any recent hires of Seller have earned service credit with Seller toward their eligibility waiting periods, and which will credit any health or medical service expenses incurred during the 1996 plan year and on or before the Closing Date for purposes of applying the deductible and out of pocket limits under Purchaser's Plans for all Purchaser Employees. Notwithstanding the foregoing, Seller shall be liable for any and all claims for health, medical, dental, drug or similar benefits for persons who retired from employment with Seller (and their beneficiaries) and do not become employees of Purchaser following the Closing Date, without regard to whether expenses were incurred before, on or after the Closing Date ("Retiree Health Benefits"). (e) Seller shall be liable for any and all long-term disability benefits under the terms of its insured long term disability plan, payable to all current and former employees of Seller who become entitled to such benefits on or prior to the Closing Date and whose covered disability continues after the Closing Date ("Seller's Disability Obligations"). Purchaser will provide a long-term disability insurance plan for all salaried persons who become employees of Purchaser effective as of 12:01 a.m. on the day following the Closing Date. (f) Purchaser shall provide severance benefits to such persons hired as employees by Purchaser following the Closing Date and thereafter terminated by Purchaser in accordance with Purchaser's own severance plan or policy; provided, however, that Purchaser shall reimburse Seller for any severance expense incurred by Seller with respect to any such employee terminated within 150 days after such employee's Employment Date (as defined in Section 6.04(b) herein). Except as provided above, Purchaser shall not assume nor be liable for any severance obligation under any severance plans, agreements, and policies of Seller with respect to any current or former employee of Seller, including without limitation any severance obligation arising as a result of the transactions contemplated by this Agreement ("Pre-Closing Severance Benefits"). (g) Effective as of the day following the Closing Date, Purchaser will establish a Code Section 125 flexible 32 36 benefits program ("Purchaser's FSA") substantially identical to the JPS Textile Group, Inc. Flexible Benefits Program ("Seller's FSA") for the benefit of the Employees (as defined in Section 6.04(a) herein). Seller will retain all obligations and liabilities under Seller's FSA through the Closing Date. (h) Purchaser shall credit each employee who accepts Purchaser's offer of employment in accordance with Section 6.04(b) herein with his or her credited service with Seller for all purposes (other than benefit accruals) under Purchaser's employee benefit plans, arrangements and payroll practices applicable to such employee. (i) Seller shall be liable for any and all claims for employees of Seller for workers, compensation benefits arising out of or with respect to conditions or states of fact existing or events occurring on or prior to the Closing Date ("Pre-Closing Workers' Compensation Benefits"). Purchaser shall provide workers' compensation coverage and benefits with respect to employees of Seller hired by Purchaser following the Closing Date. (j) Seller shall be liable for any and all claims for employees of Seller for life insurance benefits arising out of or with respect to events occurring on or prior to the Closing Date. Purchaser shall provide life insurance coverage and benefits with respect to employees of Seller hired by Purchaser following the Closing Date. 6.04. Offers of Employment. (a) Schedules 3.01(o) and 6.04(a) list the name, job title, current base salary or hourly wage, annual bonus opportunity, and assigned location of all salaried employees actively employed by Seller in connection with the Business, as well as three individuals designated as "inactive" thereon, together with a listing by name and job title of Seller's Hourly Employees. All individuals included on Schedule 6.04(a) are herein referred to as the "Employees." Except as set forth on Schedules 6.04(a) and 6.04(b), there are no other inactive employees of Seller. (b) Effective as of the Closing, Purchaser shall offer employment with Purchaser (or its designee) beginning as of the day after the Closing Date to all of the Employees (other than those three inactive individuals listed on Schedule 6.04(b)) as of the Closing Date. In addition, Purchaser (or its designee) shall offer employment with Purchaser to the individuals who are listed on Schedule 6.04(b) if such individual reports for active employment with Purchaser (or its designee) upon release by his or her physician to return to active employment from a medical leave or the expiration of an approved leave; provided, however, no individual shall be offered employment under this provision after six months from the Closing Date or after the expiration of any applicable federal or state law period, if later. Such employment offers shall include salary or wages (including, as applicable, shift differentials, incentives and premiums) and 33 37 employee benefits on such terms as Purchaser has disclosed to Seller; provided, further, that nothing set forth herein shall prevent Purchaser from altering in any way it deems advisable the salary or wages or employee benefits offered by Purchaser to its employees after the Closing Date. Those Employees who accept Purchaser's employment offers and become employees actively at work with Purchaser as of the Closing (or at any time within 30 days thereafter) and those three inactive individuals listed on Schedule 6.04 (a) are the "Affected Employees," and the day following the Closing Date is the "Employment Date" of the Affected Employees. Purchaser may terminate no more than 20 Employees who accept Purchaser's offer of employment for 60 days immediately following the Closing Date. 6.05. Product Returns. Seller shall be responsible for the repair and/or replacement of products sold or shipped by the Business prior to the Closing Date to the extent (i) such product is Defective (as defined herein); (ii) a valid claim in respect of such product is received within 9 months after the Closing Date and (iii) the cost of such repair or replacement, when aggregated with all other repairs and replacements in respect of products sold or shipped prior to the Closing Date exceeds the reserve for such items on the Closing Statement (the "Retained Warranty Obligations"). As used in this paragraph, "Defective" shall mean, with respect to a product, (i) a product which fails to perform to or meet established internal specifications of the Business, (ii) a product which fails to perform to or meet established standards or (iii) a product which fails to perform to or meet customer requirements known by Seller at time of sale. Purchaser will regularly advise Seller of its receipt of its claims promptly after they have been received, will permit Seller to have duplicate samples with respect to product subject to such claims and will permit Seller to observe Buyer's internal testing of such product in order to determine if a product is Defective. Purchaser shall use its reasonable efforts to repair and resell any Defective products; any sums received therefrom are referred to herein as the "Resale Amounts." Subject to the foregoing, if Seller requests Purchaser to repair and/or replace products sold or shipped prior to the Closing Date which are Retained Warranty Obligations, Purchaser will use all reasonable efforts to do so. Seller will promptly reimburse Purchaser for such repair or replacement in an amount equal to the excess of (x) reasonable costs incurred by Purchaser for such repair or replacement, over (y) the sum of (i) the remaining reserve for such items on the Closing Statement, and (ii) any Resale Amounts received by Purchaser. At the end of the nine-month period described above, Purchaser shall promptly pay Seller an amount equal to the remaining reserve on the Closing Statement for the repair and replacement of Defective products. 6.06. Access to Records After Closing. (a) Following the Closing, Purchaser shall give to Seller, without charge, reasonable access, during normal business hours and on reasonable prior advance notice, to (and the right to make copies at the expense of Seller of) the books, files, records and tax returns 34 38 of or applicable to the Business to the extent that such relate to the business and operations of the Business on or prior to the Closing Date and are in the Business's possession on the Closing Date or subsequently come into the Business's possession, but any access pursuant to this Section shall be conducted by Seller in good faith, with a reasonable and legitimate business purpose and in such manner as not to interfere unreasonably with the operations of the Business following the Closing. For a period of six years after the Closing, Purchaser shall maintain such books, files, records and tax returns and thereafter, prior to destroying or disposing of any of them, Purchaser shall give 30 days' advance notice to Seller of the intended destruction or disposition, and during such 30-day period Seller shall have the right to take possession of the same or to make copies of the same, all at Seller's expense. (b) Following the Closing, Seller shall give to Purchaser, without charge, reasonable access, during normal business hours and on reasonable prior advance notice, to (and the right to make copies at the expense of Purchaser of) the books, files, records and tax returns of the Seller to the extent that such relate to the business and operations of the Business on or prior to the Closing Date and are in Seller's possession on the Closing Date or subsequently come into Seller's possession, but any access pursuant to this Section shall be conducted by Purchaser in good faith, with a reasonable and legitimate business purpose and in such manner as not to interfere unreasonably with the operations of Seller following the Closing. For a period of six years after the Closing, Seller shall maintain such books, files, records and tax returns and thereafter, prior to destroying or disposing of any of them, Seller shall give 30 days' advance notice to Purchaser of the intended destruction or disposition, and during such 30-day period Purchaser shall have the right to take possession of the same or to make copies of the same, all at Purchaser's expense. 6.07. 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 return, elections, consents, certificates or other documents required to be prepared or 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, document, 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. Purchaser will retain copies of all Tax returns, supporting work schedules and other records relating to Tax 35 39 periods or portions thereof ending prior to or on the Closing Date. (b) Any sales, recording, 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 shared equally by Seller and Purchaser. At the Closing, Purchaser shall deliver to Seller 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. (c) All real and personal property Taxes, state and local ad valorem Taxes and assessments applicable to the Business or the Purchased Assets for the taxable year in which the Closing takes place shall be prorated on a "closing of the books" basis by the parties as of the Closing Date, and all such Taxes applicable to the portion of such taxable period prior to the Closing Date shall be the sole obligation, responsibility and expense of Seller. All such assessments and Taxes applicable to periods on or after the Closing Date shall be the sole obligation, responsibility and expense of Purchaser. (d) Following the Closing, Purchaser and Seller shall reach agreement as to whether they shall use the "Alternative Procedure" provided in Section 5 of Revenue Procedure 84-77 with respect to filing and furnishing Internal Revenue Service Forms W-2, W-3 and 941 for the 1996 calendar year. If Purchaser and Seller so agree, under such "Alternative Procedure" (i) Seller and Purchaser each shall report on a predecessor-successor basis as set forth in such Revenue Procedure, (ii) Seller shall be relieved from furnishing Forms W-2 to employees of Seller that become employees of Purchaser, (iii) Purchaser shall assume the obligations of Seller to furnish such Forms W-2 to such employees for the full 1996 calendar year, (iv) Purchaser shall use such similar procedures and make similar elections under state or local Tax laws and (v) Purchaser shall be responsible for filing and furnishing Internal Revenue Service Forms W-2, W-3 and 941 for the 1996 calendar year. 6.08. Accounts Payable. Following the Closing, Purchaser shall perform and discharge as and when due, all debts, claims, liabilities, obligations and expenses incurred by Purchaser with respect to accounts payable to third parties, subject to any defenses or claimed offsets asserted in good faith against the obligee to which such debts, claims, liabilities, obligations and expenses are owed. ARTICLE VII MISCELLANEOUS 7.01. Further Actions. From time to time, as and when requested by either Party hereto (the "Requesting Party"), the other Party hereto shall execute and deliver, or cause to be executed and delivered, all such documents and instruments and 36 40 shall take, or cause to be taken, all such further or other actions as the Requesting Party may reasonably deem necessary or desirable to carry out the intent and purposes of this Agreement, to convey, transfer, assign and deliver on the Closing Date to Purchaser, and its successors and assigns, the Purchased Assets (or to evidence the foregoing) and to consummate the other transactions contemplated hereby. 7.02. Expenses. Whether or not the transactions contemplated by this Agreement are consummated, each of Purchaser and Seller shall pay their respective expenses in connection with the negotiation, execution, delivery and performance of this Agreement. 7.03. Entire Agreement. This Agreement, which includes the Schedules and Exhibits hereto and the other documents, agreements and instruments executed and delivered pursuant to or in connection with this Agreement, contains the entire agreement between Purchaser and Seller with respect to the transactions contemplated by this Agreement and supersedes all prior arrangements or understandings with respect thereto. 7.04. Descriptive Headings. The descriptive headings of this Agreement are for convenience only and shall not control or affect the meaning or construction of any provision of this Agreement. 7.05. Notices. All notices or other communications which are required or permitted hereunder shall be in writing and sufficient if delivered by hand, overnight receipted overnight or express delivery service, facsimile transmission, or by registered or certified mail, postage prepaid, addressed as follows: If to Seller: JPS Textile Group, Inc. 555 N. Pleasantburg Drive Greenville, South Carolina 29607 Attention: David H. Taylor Fax: (864) 271-9939 and to: JPS Elastomerics Corp. 9 Sullivan Road Holyoke, Massachusetts 01040 Attention: Bruce R. Wilby Fax: (413) 552-1185 with copies to: Weil, Gotshal & Manges LLP 767 Fifth Avenue New York, New York 10153 37 41 Attention: Simeon Gold, Esq. Fax: (212) 310-8007 If to Purchaser: Elastomer Technologies Group, Inc. 4854 O'Hear Avenue North Charleston, South Carolina 29405-4972 Attention: Don Hildebrand Fax: (803) 740-0178 with copies to: Stephen A. Magida 105 Harbor Drive - Suite 125 Stamford, Connecticut 06902 Fax: (203) 348-6790 and to: Dechert Price & Rhoads 477 Madison Avenue New York, New York 10022 Attn: Paul Gluck, Esq. Fax: (212) 308-2041 Any party may by notice change the address to which notice or other communications to it are to be delivered or mailed. 7.06. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York applicable to transactions to be performed solely within its borders. 7.07. Assignability. This Agreement shall not be assignable otherwise than by operation of law by either party without the prior written consent of the other party, and any purported assignment by any party without the prior written consent of the other party shall be void, except that: (i) Purchaser may designate one or more direct or indirect wholly owned subsidiaries of Purchaser to purchase a portion of the Purchased Assets to be purchased by Purchaser pursuant to Section 1.01 hereof, and to assume a portion of the liabilities or obligations assumed by Purchaser pursuant to Section 1.02; (ii) Purchaser may assign to one or more direct or indirect wholly owned subsidiaries of Purchaser any or all rights of Purchaser to receive the performance of the obligations of Seller hereunder; 38 42 (iii) Purchaser may assign to any financial institution providing financing or extending credit to Purchaser any or all of its rights under this Agreement; and (iv) Seller may assign to its lender(s) under the Seller Credit Agreement any or all of its rights under this Agreement; but any assignee of such rights under clause (i), (ii) or (iii) shall take such rights subject to any defenses, counterclaims and set-offs to which Seller may be entitled under this Agreement and any assignee of such rights under clause (iv) shall take such rights subject to any defenses, counterclaims and set-offs to which Purchaser may be entitled under this Agreement. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors and permitted assigns. Notwithstanding the foregoing, however, no assignment otherwise permitted hereunder shall, without the prior written consent of the non-assigning party, relieve the assigning party from any of its obligations hereunder. 7.08. Remedies. The parties hereto acknowledge that the remedy at law for any breach of the obligations undertaken by the parties hereto is and will be insufficient and inadequate and that the parties hereto shall be entitled to equitable relief, in addition to remedies at law. 7.09. Survival. All representations and warranties contained herein or made pursuant hereto, whether by Seller or Purchaser, shall survive the Closing hereunder for a period of eighteen (18) months, and the covenants and agreements of the parties shall survive without limitation as to time, except that: (i) the representations and warranties of Seller contained in or made pursuant to the first sentence of Section 3.01(d) and 3.01(x) hereof shall survive the closing hereunder without any limitation as to time, and (ii) the representations and warranties of Seller contained in or made pursuant to Section 3.01(l) and 3.01(p) hereof shall survive the closing hereunder for a period of three years, and (iii) the representations and warranties of Purchaser contained in or made pursuant to Section 3.02(e) shall survive the closing hereunder without any limitation as to time. The expiration of any representation and warranty hereunder shall not affect any claim made, by the giving of written notice by a party to the other in the manner provided by this Agreement, prior to the date of such expiration. 39 43 7.10. Waivers and Amendments. Any waiver of any term or condition, or any amendment or supplementation, of this Agreement shall be effective only if in writing. A waiver of any breach of any of the terms or conditions of this Agreement shall not in any way be construed as a waiver of any subsequent breach. 7.11. Third Party Rights. Except as otherwise provided in Sections 5.01 and 5.02 with respect to the indemnification obligations of Seller and Purchaser for the benefit of the directors, officers, employees, shareholders and agents of the Purchaser and Seller, as the case may be, this Agreement shall be effective only as between the parties hereto, their successors and permitted assigns. 7.12. Illegality. In the event that any one or more of the provisions contained in this Agreement, other than Article II, shall be determined to be invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision in any other respect and the remaining provisions of this Agreement shall not be in any way impaired. 7.13. Insurance. At the request and expense of Purchaser, Seller will maintain all "claims made" policies of insurance listed in the Disclosure Schedule in full force and effect for a period of three years following the Closing Date. No assumption by Purchaser of any Assumed Liability shall release, or shall be deemed to release, any insurer or indemnitor of any such Assumed Liability, and Purchaser shall be entitled to the proceeds, and the rights thereto, of any insurance or indemnification (regardless of whether or not the applicable policies of insurance or contracts of indemnity are assignable, or assigned, to Purchaser) maintained by, or existing for the benefit of Seller as of or at any time prior to the Closing which might be available to cover any Assumed Liabilities. 7.14. Bulk Transfer Laws. Purchaser and Seller acknowledge that the parties will not be complying with the provisions of any bulk transfer laws of any jurisdiction in connection with the transactions contemplated by this Purchase Agreement. 40 44 IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first above written. ELASTOMER TECHNOLOGIES GROUP, INC. By: /s/ Charles E. Ball ---------------------------------- Name: Charles E. Ball Title: Chairman JPS ELASTOMERICS CORP. By: /s/ David H. Taylor ---------------------------------- Name: David H. Taylor Title: Vice President 41 EX-10.36 4 RECEIVABLES PURCHASE AGREEMENT 1 EXHIBIT 10.36 RECEIVABLES PURCHASE AGREEMENT RECEIVABLES PURCHASE AGREEMENT dated as of the 30th day of September, 1996 (this "Agreement") between THE BANK OF NEW YORK COMMERCIAL CORPORATION, a New York corporation ("Purchaser") and JPS ELASTOMERICS CORP., a Delaware corporation ("Seller"). Seller is engaged through its Rubber Products Group (the "Rubber Products Group") in the production and marketing of [rubber and synthetic elastic used in apparel products, diaper products and specialty applications]. On the date hereof (the "Closing Date"), Seller is divesting the Rubber Products Group pursuant to an Assets Purchase Agreement (the "Assets Purchase Agreement") between Elastomer Technologies Group, Inc. ("Elastomer") and Seller. Seller desires to sell to Purchaser, and Purchaser desires to purchase from Seller, all the accounts receivable of the Rubber Products Group existing on the date hereof, upon the terms and conditions hereinafter set forth. NOW, THEREFORE, in consideration of the mutual benefits to be derived and the representations and warranties, conditions and promises herein contained, and intending to be legally bound hereby, Purchaser and Seller hereby agree as follows: 1. Sale and Purchase of Transferred Receivables. Seller hereby unconditionally conveys, sells, transfers, assigns and delivers to Purchaser, and its successors and assigns forever, and Purchaser hereby purchases, all of the right, title and interest of Seller in and to all its unpaid existing accounts receivable as of the date hereof, arising out of or in connection with the sale or lease of goods or the rendering of services by the Rubber Products Group, including, without limitation, the accounts receivable set forth on Schedule 1 hereto (the "Transferred Receivables"). 2. Purchase Price. The purchase price for the Transferred Receivables being acquired by Purchaser pursuant to this Agreement shall be an amount equal to $2,597,328 (the "Purchase Price"), such amount representing 100% of the face value of the Transferred Receivables, less an agreed upon allowance for doubtful accounts 3. Representations and Warranties. (a) Seller hereby represents and warrants that: it has full power, authority and legal right to enter into this Agreement and to perform all its respective obligations hereunder; the execution, delivery and performance of this Agreement are within its corporate powers, have been duly authorized, are not in contravention of law or the terms of its by-laws or certificate of incorporation; it is duly incorporated and in good standing under the laws of the state of its organization and is qualified to do business and is in good 2 standing in all states in which qualification and good standing are necessary for it to conduct its business and own its property and where the failure to so qualify could have a material adverse effect on Seller; Seller is not in violation of any applicable statute, regulation or ordinance in any respect which could have a material adverse effect on Seller, nor is Seller in violation of any order of any court, governmental authority or arbitration board or tribunal which could have a material adverse effect on the business conducted by the Rubber Products Group; and no provision of any mortgage, indenture, contract, agreement, judgment, decree or order binding on Seller conflicts with, or requires any consent which has not already been obtained, or would in any way prevent the execution, delivery or performance of the terms of this Agreement. (b) Seller hereby represents and warrants that: each Transferred Receivable is based on an actual and bona fide sale and delivery of goods or rendition of services to customers made by it in the ordinary course of its business; the goods and inventory sold by it and the Transferred Receivables created thereby are its exclusive property and are not and subject to an lien, consignment arrangement, encumbrance, security interest or financing statement whatsoever; and any taxes or fees relating to the Transferred Receivables are solely the responsibility of Seller. 4. Books and Records. Seller agrees to make its records, files and books of account in any way relating to the Transferred Receivables available to Purchaser or its designee on request and that Purchaser may visit the premises of Seller during normal business hours to examine such records, files and books of account and to make copies of extracts thereof and to conduct such examinations thereof as Purchaser reasonably deems necessary. 5. Collection; Receipt of Payment. (a) As owner and assignee of the Transferred Receivables, Purchaser shall have the right to collect the Transferred Receivables and to bring suit in the name of Seller or Purchaser or through the representatives and agents of Purchaser, including Elastomer, and generally shall have all other rights of an owner of the Transferred Receivables including without limitation the right to: accelerate or extend the time of payment, settle, compromise, release in whole or in part any amounts owing on any Transferred Receivables and issue credits in the name of Seller or Purchaser. Any checks, cash, notes or other instruments or property received by Seller with respect to any Transferred Receivables shall be held by it in trust for Purchaser, separate from its own property and funds, and immediately turned over to Purchaser with proper assignments or endorsements. Purchaser may endorse or sign the name of Seller or Purchaser on any checks or other instruments with respect to Transferred Receivables or the goods covered thereby. - 2 - 3 (b) In the event that subsequent to the Closing Date Seller shall receive any payment with respect to a Transferred Receivable, including, without limitation, payment under the letters of credit listed in Exhibit A hereto, Seller shall hold such payments in trust and promptly pay over and deliver to Purchaser such payment and endorse to the order of Purchaser any check received. Purchaser shall not have any obligation or liability with respect to any account debtor by reason of this Agreement or be obligated to perform any of the obligations or duties of Seller with respect thereto. 6. Further Actions. From time to time, as and when requested by Purchaser, Seller shall execute and deliver, or cause to be executed and delivered, all such documents and instruments and shall take, or cause to be taken, all such further or other actions, as Purchaser may reasonably deem necessary or desirable to carry out the intent and purposes of this Agreement, to convey, transfer, assign and deliver on the date hereof to Purchaser, and its successors and assigns, the Transferred Receivables (or to evidence the foregoing) and to consummate the other transactions contemplated hereby. 7. Entire Agreement. This Agreement contains the entire agreement between Purchaser and Seller with respect to the transactions contemplated by this Agreement and supersedes all prior arrangements or understandings with respect thereto. 8. Descriptive Headings. The descriptive headings of this Agreement are for convenience only and shall not control or affect the meaning or construction of any provision of this Agreement. 9. Guaranty, Inducement and Cooperation Agreement. It is a condition precedent to the effectiveness of this Agreement that on the date hereof Elastomer executes and delivers a guaranty in favor of the Purchaser guaranteeing payment of the Transferred Receivables in an amount at least equal to the Purchase Price. 10. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York applicable to transactions to be performed solely within it borders. 11. Assignability. Seller shall not sell, assign or otherwise transfer all or any of its rights or obligations hereunder without the consent of Purchaser, except as required the Fourth Amended and Restated Credit Agreement dated as of June 24, 1994, as amended, among JPS Textile Group, Inc., Seller, JPS Converter and Industrial Corp., General Electric Capital Corporation, Citibank, N.A. and the other lenders named therein. Purchaser may at any time sell, assign or otherwise transfer all - 3 - 4 or any of its rights or obligations hereunder. No assignment by Seller or Purchaser shall relieve Seller or Purchaser of its obligations hereunder. 12. Counterparts. This Agreement may be executed in multiple counterparts, each of which shall be deemed an original but all of which taken together shall constitute one and the same instrument. 13. Headings. Headings are for reference purposes only and shall not in any manner affect the meaning or interpretation of this Agreement. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed in their respective corporate names by their respective duly authorized officers, all as of the day and year first above written. THE BANK OF NEW YORK COMMERCIAL CORPORATION By: /s/ Robert Love ---------------------------------- Name: Robert Love Title: Assistant Vice President JPS ELASTOMERICS CORP. By: /s/ David H. Taylor ---------------------------------- Name: David H. Taylor Title: Vice President - 4 - 5 EXHIBIT A Letters of Credit 1. Letter of credit issued by Banco Internacional del Peru on behalf of Mimo, for the benefit of JPS Elastomerics dated 07/17/95 2. Letter of credit issued by Banco Santander on behalf of Fabricas Hollywood for the benefit of JPS Elastomerics dated 07/12/96 3. Letter of credit issued by ABN AMRO Bank N.V. on behalf of Sagrin for the benefit of JPS Elastomerics dated 09/16/96 4. Letter of credit issued by Standard Bank of South Africa on behalf of Ninian and Lester for the benefit of JPS Elastomerics dated 09/03/96 5. Letter of credit issued by Bank International Indonesia on behalf of PT The Univenus Company for the benefit of JPS Elastomerics dated 06/21/96 6. Letter of credit issued by Standard Bank of South Africa on behalf of Ninian and Lester for the benefit of JPS Elastomerics dated 07/08/96 EX-27.1 5 FINANCIAL DATA SCHEDULE
5 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. 1,000 YEAR NOV-02-1996 NOV-02-1996 1,460 0 77,677 2,511 48,374 126,967 241,646 117,642 335,927 384,833 4,226 32,676 250 10 (109,246) 335,927 448,824 448,824 397,804 397,804 0 0 40,510 (66,236) (300) (65,936) (1,500) 0 0 (67,436) (71.94) (71.94)
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