-----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, Pgv1BX8kM4bVNPf02A6suB2HoUbL/+rCdft9pMl38X319SyUGZOkFKhIlkc2S/Z8 LzRSpg3b0IDI9nrZGYTfjQ== 0000950144-98-000747.txt : 19980202 0000950144-98-000747.hdr.sgml : 19980202 ACCESSION NUMBER: 0000950144-98-000747 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19971101 FILED AS OF DATE: 19980130 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: SEC FILE NUMBER: 033-27038 FILM NUMBER: 98518083 BUSINESS ADDRESS: STREET 1: 555 N PLEASANTBURG DR STE 202 CITY: GREENVILLE STATE: SC ZIP: 29607 BUSINESS PHONE: 8642393900 MAIL ADDRESS: STREET 1: 555 N PLEASANTBURG DR STREET 2: 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 1, 1997 [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from _____ to _____. Commission File Number: 33-27038 JPS TEXTILE GROUP, INC. (Exact name of registrant as specified in its charter) Delaware 57-0868166 (STATE OF OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 555 North Pleasantburg Drive, Suite 202, Greenville, SC 29607 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) Registrant's telephone number, including area code: (864) 239-3900 Securities registered pursuant to Section 12(b) of the Act: None. Securities registered pursuant to Section 12(g) of the Act: Common Stock, Par Value $.01 per share, 22,000,000 shares authorized; 10,000,000 shares issued and outstanding Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: [X] Indicate by check mark if disclosure of delinquent filers, pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K: [X] As of January 30, 1998, there were 8,019,176 shares of the registrant's Common Stock, $.01 par value per share, held by non-affiliates of the registrant. Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court: [X] As of the date hereof, 10,000,000 of the registrant's Common Stock $.01 par value per share, were issued and outstanding. 2 JPS TEXTILE GROUP, INC. Table of Contents PART I Item 1. BUSINESS........................................................................................... 3 Item 2. PROPERTIES......................................................................................... 11 Item 3. LEGAL PROCEEDINGS.................................................................................. 11 Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS................................................. 11 PART II Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS........................................................................ 12 Item 6. SELECTED HISTORICAL FINANCIAL DATA................................................................. 13 Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.......................................................................... 15 Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA........................................................ 24 Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE................................................................ 60 PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT................................................. 60 Item 11. EXECUTIVE COMPENSATION............................................................................. 63 Item 12. SECURITY OWNERSHIP OF PRINCIPAL SHAREHOLDERS AND MANAGEMENT........................................ 69 Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..................................................... 71 PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K..................................... 71 SIGNATURES......................................................................................... 77
3 PART I ITEM 1. BUSINESS JPS Textile Group, Inc. is a Delaware corporation incorporated in December 1986, with its principal executive offices located at 555 North Pleasantburg Drive, Suite 202, Greenville, South Carolina 29607; telephone number (864) 239-3900. Unless the context otherwise requires, the terms "JPS" and the "Company" as used in this Form 10-K means JPS Textile Group, Inc. and JPS Textile Group, Inc. together with its subsidiaries, respectively. THE 1988 ACQUISITION On May 9, 1988, the Company acquired substantially all the assets of certain operating divisions of J.P. Stevens & Co., Inc. ("J.P. Stevens") in exchange for approximately $527 million in cash and reorganized the newly acquired divisions into wholly-owned subsidiaries. At that time, JPS raised $100 million by issuing certain public debt and equity securities in order to partially finance the acquisition. In June 1989, JPS raised $323.6 million by issuing certain public debt and equity securities to refinance certain outstanding notes and a portion of the indebtedness incurred in connection with the acquisition. Due to prevailing market conditions, the securities were priced for sale at higher rates than JPS anticipated would be necessary at the time of the acquisition. As a result of the high interest rates and a weak business environment for certain of its subsidiaries, JPS realized lower than expected operating earnings and cash flow which, in turn, materially impaired its ability to service its outstanding debt and fund capital expenditures. THE 1991 RESTRUCTURING In 1990, JPS negotiated the terms of a recapitalization proposal with a steering committee comprised of institutional holders of a substantial amount of the then-outstanding securities, which culminated in JPS's prepetition solicitation of votes to accept or reject a plan of reorganization under chapter 11, title 11 of the United States Code (the "Bankruptcy Code"). The plan was overwhelmingly accepted. On February 7, 1991, JPS filed a petition for relief under the Bankruptcy Code, and approximately 42 days thereafter, JPS's plan was confirmed by the bankruptcy court and JPS emerged from chapter 11 on April 2, 1991. Pursuant to that plan, in exchange for JPS's outstanding debt securities and JPS's equity securities, JPS issued (i) $100 million in principal amount of senior secured notes due June 1, 1995 and June 1, 1996 (all of which were redeemed in 1994), (ii) $151.1 million in principal amount of 10.85% Senior Subordinated Discount Notes due June 1, 1999 (the "10.85% Notes"), (iii) $125 million in principal amount of 10.25% Senior Subordinated Notes due June 1, 1999 (the "10.25% Notes"), (iv) $75 million in principal amount of 7% Subordinated Debentures due May 15, 2000 (the "7% Subordinated Debentures"), (v) 390,719 shares of Series A Senior Preferred Stock (the "Old Senior Preferred Stock"), (vi) 10,000 shares of Series B Junior Preferred Stock (the "Old Junior Preferred Stock"), (vii) 490,000 shares of class A common stock, par value $0.01 per share (the "Class A Common Stock") and (viii) 510,000 shares of class B common stock, par value $0.01 per share (the "Class B Common Stock" and, together with the Class A Common Stock, the "Old Common Stock"). The 1991 restructuring did not significantly reduce the amount of JPS's outstanding indebtedness. DISPOSITIONS OF ASSETS; PLANT CLOSING Subsequent to the 1991 restructuring, JPS adopted and implemented various strategies aimed at improving and realizing value in its operating subsidiaries. These strategies included, among other things, the exit, through asset sales or otherwise, of certain product lines. -3- 4 The Automotive Asset Sale. On June 28, 1994, the Company sold the businesses and assets of JPS Auto, Inc. ("Auto") and the synthetic industrial fabrics division of JPS Converter and Industrial Corp. ("C&I") and JPS's investment in common stock of the managing general partner of Cramerton Automotive Products, L.P. (an 80% owned joint venture) for approximately $283 million. The Carpet Asset Sale. On November 16, 1995, JPS and JPS Carpet Corp. ("Carpet") transferred substantially all the assets of Carpet used in the business of designing and manufacturing tufted carpets for sale to residential, commercial and hospitality markets (the "Carpet Business") to Gulistan Holdings Inc. ("Gulistan Holdings") and Gulistan Carpet Inc., a wholly-owned subsidiary of Gulistan Holdings Inc. ("Gulistan Carpet" and, together with Gulistan Holdings, "Gulistan"), for approximately $19 million in cash, a promissory note due November 2001 issued by Gulistan Holdings in the original principal amount of $10 million and payable to the order of Carpet, $5 million of preferred stock of Gulistan Holdings, and warrants to purchase 25% of the common stock of Gulistan Holdings (collectively, the "Gulistan Securities"). On August 28, 1997, the Company sold the Gulistan Securities to Gulistan for $2 million in cash. Plant Closing. On August 28, 1996, the Company implemented a plan to close its Dunean plant in Greenville, South Carolina, as a result of management's determination that a permanent decline in the Company's spun apparel business had occurred. This plant had been operating on a reduced schedule due to poor market conditions and financial projections indicated it would continue to do so. This plant was closed on October 28, 1996 and sold on August 14, 1997 for approximately $1.2 million in cash. The Rubber Products Group Sale. On September 30, 1996, JPS Elastomerics Corp. ("Elastomerics") sold substantially all the assets of the Company's rubber products division, a business engaged in the manufacture and sale of natural and synthetic elastic for use in apparel products, diaper products and specialty industrial applications to Elastomer Technologies Group, Inc. for approximately $5.1 million in cash. THE 1997 RESTRUCTURING As a result of the continued downturn in the apparel fabrics market and various other factors, JPS determined that it would be unable to meet certain debt obligations on its public bonds that would become due commencing in June, 1997. Accordingly, on May 15, 1997, JPS, JPS Capital Corp., a wholly owned subsidiary of JPS ("JPS Capital") and an unofficial committee (the "Unofficial Bondholder Committee") comprised of institutions that owned, or represented owners that beneficially owned, approximately 60% of the 10.85% Notes, the 10.25% Notes and the 7% Subordinated Debentures (the "Old Debt Securities") reached an agreement in principle on the terms of a restructuring to be accomplished under chapter 11 of the Bankruptcy Code which culminated in a Joint Plan of Reorganization (as amended, the "Plan of Reorganization") proposed by JPS and JPS Capital under chapter 11 of the Bankruptcy Code. Pursuant to a disclosure statement, dated June 25, 1997 (the "Disclosure Statement"), on June 26, 1997, JPS and JPS Capital commenced a prepetition solicitation of votes by the holders of Old Debt Securities and Old Senior Preferred Stock to accept or reject the Plan of Reorganization. Under the Plan of Reorganization, the holders of Old Debt Securities and Old Senior Preferred Stock were the only holders of impaired claims and impaired equity interests entitled to receive a distribution, and therefore, pursuant to section 1126 of the Bankruptcy Code, were the only holders entitled to vote on the Plan of Reorganization. At the conclusion of the 32-day solicitation period, the Plan of Reorganization had been accepted by holders of more than 99% of the Old Debt Securities that voted on the Plan of Reorganization and by holders of 100% of the Old Senior Preferred Stock that voted on the Plan of Reorganization. -4- 5 On August 1, 1997, JPS commenced its voluntary reorganization case under chapter 11 of the Bankruptcy Code in the Bankruptcy Court for the Southern District of New York (the "Bankruptcy Court"), and filed the Plan of Reorganization and the Disclosure Statement. None of JPS's subsidiaries, including JPS Capital which was a co-proponent of the Plan of Reorganization, commenced a case under the Bankruptcy Code. Pursuant to orders of the Bankruptcy Court entered on September 9, 1997, the Bankruptcy Court (i) approved the Disclosure Statement and the solicitation of votes on the Plan of Reorganization and (ii) confirmed the Plan of Reorganization. The Plan of Reorganization became effective on October 9, 1997 (the "Effective Date") resulting in, among other things, the cancellation of the Old Senior Preferred Stock, Old Junior Preferred Stock, and Old Common Stock, and the issuance of 10,000,000 shares of common stock, $.01 par value per share (the "Common Stock"). Through the implementation of the Plan of Reorganization as of the Effective Date, JPS's most significant financial obligations were restructured: $240,091,318 in face amount of outstanding Old Debt Securities were converted to, among other things, $14 million in cash, 99.25% of the shares of Common Stock and $34 million in aggregate principal amount (subject to adjustment on the maturity date) of contingent payment notes issued by JPS Capital (the "Contingent Notes"); the Old Senior Preferred Stock, the Old Junior Preferred Stock and the Old Common Stock were cancelled; warrants to purchase up to 5% of the common stock of JPS (the "New Warrants") with an initial purchase price of $98.76 per share were issued in respect of the Old Senior Preferred Stock; and the obligations of JPS under its former working capital facility were satisfied and the Revolving Credit Facility was obtained. JPS's senior management received approximately 0.75% of the Common Stock in lieu of payment under their contractual retention bonus agreements. As a result of the restructuring, JPS's only significant debt obligation is its guaranty of the obligations of its operating subsidiaries under the Revolving Credit Facility. GENERAL The Company is one of the largest domestic manufacturers of textile and textile-related products for the apparel, industrial and home fashion markets. The Company conducts its operations from ten manufacturing plants in five states and employs approximately 3,700 people. 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. 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. -5- 6 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 various 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. SUBSIDIARIES JPS's wholly-owned operating subsidiaries include Elastomerics and C&I. JPS's other wholly-owned subsidiaries do not have any significant operations: JPS Capital, International Fabrics, Inc. ("Fabrics"), Auto and Carpet. The operating subsidiaries each have independent administrative, manufacturing, and marketing capabilities for all material aspects of their operations, including product design, customer service, purchasing, and collections. JPS provides all finance and strategic planning services and handles the legal, tax, and regulatory affairs for its subsidiaries. JPS Capital was formed in 1994 as a special purpose subsidiary to hold (and invest) $39.5 million, representing a portion of the proceeds received from the sale of the assets of JPS's automotive division in June 1994, including the assets of Auto. These funds were set aside to satisfy possible contingent tax liabilities incurred in connection with that sale, and will serve as the primary source of payment of any such liabilities. Prior to the Effective Date, the funds held by JPS Capital aggregated approximately $48 million, of which $14 million was distributed on the Effective Date pursuant to the Plan of Reorganization to holders of certain issues of Old Debt Securities on the Effective Date. The funds held by JPS Capital currently aggregate approximately $34 million. In connection with the implementation of the Plan of Reorganization, approximately $34 million in aggregate principal amount (subject to adjustment on the maturity date thereof) of Contingent Notes were issued by JPS Capital on the Effective Date to holders of certain issues of Old Debt Securities. Auto and Carpet formerly owned and operated JPS's automotive products and carpet businesses, respectively. The assets of those businesses were sold in 1994 and 1995, respectively. See "--Disposition of Assets; Plant Closing." In addition to its direct ownership interest in the foregoing domestic corporations, JPS has an indirect ownership interest in a foreign corporation. Specifically, in 1996, JPS's wholly-owned subsidiary, Fabrics, acquired a 50% ownership interest in the Mexican corporation, Ingenieria Textil Mexicana, S.A. de C.V. ("ITM"), which is engaged in the manufacture and sale of textile products for the apparel industry in Mexico. -6- 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 has an aggressive capital spending plan to expand capacity in certain segments and improve productivity in other segments, as described in "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in Item 7 herein. The Company believes that its manufacturing facilities and capital spending plan are sufficient for its production requirements. RAW MATERIALS The Company maintains good relationships with its suppliers and has, where possible, diversified its supplier base so as to avoid a disruption of supply. In most cases, the Company's raw materials are staple goods that are readily available from numerous domestic fiber and chemical manufacturers. For several products, however, branded goods or other circumstances prevent such a diversification, and an interruption of the supply of these raw materials could have a significant negative impact on the Company's ability to produce certain products. The 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. 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 -7- 8 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. 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. 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 -8- 9 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 $73.3 million at November 1, 1997 and $52.6 million at November 2, 1996. 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 1, 1997 will be filled in the 52-week period ending October 31, 1998 ("Fiscal 1998"). Unfilled open orders, which the Company believes are firm, were approximately $62.9 million at December 31, 1997 compared to $60.8 million at December 31, 1996. The increase in open orders at December 31, 1997 as compared to December 31, 1996 is primarily due to an increase 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 3,700 employees of which approximately 3,200 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. ENVIRONMENTAL AND REGULATORY MATTERS The Company is subject to various federal, state and local government laws and regulations concerning, among other things, the discharge, storage, handling and disposal of a variety of hazardous and non-hazardous substances and wastes. The Company's plants generate small quantities of hazardous waste that are either recycled or disposed of off-site by or at licensed disposal or treatment facilities. The Company believes that it is in substantial compliance with all existing environmental laws and regulations to which it is subject. In addition, the Company is subject to liability under environmental laws relating to the past release or disposal of hazardous materials. To date, and in management's belief for the foreseeable future, liability under and compliance with existing environmental laws has not had and will not have a material adverse effect on the Company's financial or competitive positions. No representation or assurance can be made, however, that any change in federal, state or local requirements or the discovery of unknown problems or conditions will not require substantial expenditures by the Company. -9- 10 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 1998 and beyond to differ materially from those expressed in any such forward-looking statements. These factors include, without limitation, the general economic and business conditions affecting the textile industry, the Company's ability to meet its debt service obligations, competition from a variety of large textile mills and foreign textile manufacturers which export to the U.S., the seasonality of the Company's sales, the volatility of the Company's raw materials cost, and the Company's dependence on key personnel. -10- 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. 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 ---------------------------- ------------------------------- Laurens, SC 475,000 Kingsport, TN 625,000 Greenville, SC 460,000 Slater, SC 433,000 Stanley, NC 338,000 Westfield, NC 237,000 S. Boston, VA 286,000 Easthampton, MA 50,000 Rocky Mount, VA 81,000 Home Fashion Textiles All Segments --------------------- ------------ Lincolnton, NC 387,000 New York, NY(1) 10,000
(1) The New York, NY facility is leased by the Company under a lease agreement which expires on May 30, 1999. 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 or the conclusion of JPS's chapter 11 case. 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 1997 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 1997. -11- 12 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS. To date, there has been only sporadic trading of the Common Stock in the over-the-counter market. Based upon limited information available, the Company believes that over-the-counter trades of Common Stock have been in the range of $10.50 to $14.50 per share. The Common Stock of the Company has been approved for listing and trading on the Nasdaq National Market System effective January 30, 1998. As of January 7, 1998, there were approximately 11 holders of record of the Company's Common Stock. The Company presently intends to retain earnings to fund working capital and for general corporate purposes, and, therefore, does not intend to pay cash dividends on shares of the Common Stock in the foreseeable future. The payment of future cash dividends, if any, would be made only from assets legally available therefor, and would also depend on the Company's financial condition, results of operations, current and anticipated capital requirements, restrictions under then existing indebtedness (including, without limitation, indebtedness evidenced by the Revolving Credit Facility (as defined below) and refundings and refinancings thereof) and other factors deemed relevant by JPS's Board of Directors. The Company's ability to pay cash dividends is dependent on its earnings and cash flow. The subsidiaries that are borrowers under certain credit agreements are restricted from paying cash dividends to JPS with respect to their capital stock unless, among other things, JPS and its subsidiaries satisfy certain specified financial tests. On October 9, 1997 (the Effective Date of the Plan of Reorganization proposed by JPS and JPS Capital and confirmed by order of the Bankruptcy Court entered on September 9, 1997), 10,000,000 shares of Common Stock, par value of $.01 per share, of JPS and warrants to purchase up to 526,316 shares of common stock of JPS at an initial purchase price of $98.76 per share were issued by JPS and distributed pursuant to the Plan of Reorganization. -12- 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 selected historical financial data for each of the five years ended November 2, 1996, the period from November 3, 1996 to October 9, 1997 and the period from October 10, 1997 to November 1, 1997 has been derived from the Consolidated Financial Statements of the Company for such periods, which have been audited. The presentation of certain previously reported amounts has been reclassified to conform to the current presentation and to reflect discontinued operations of the automotive assets (sold in 1994) and the Carpet Business (sold on November 16, 1995) as discussed in Note 5 to the Consolidated Financial Statements of the Company at Item 8 in this Form 10-K. The financial statements for the period from October 10, 1997 to November 1, 1997 reflect the Company's emergence from chapter 11 and were prepared utilizing the principles of fresh start accounting contained in the American Institute of Certified Public Accountants' Statement of Position 90-7, "Financial Reporting by Entities in Reorganization Under the Bankruptcy Code". As a result of the implementation of fresh start accounting, certain of the selected financial data for the period from October 10, 1997 to November 1, 1997 is not comparable to the selected financial data of prior periods. Therefore, selected financial data for the "Reorganized Company" has been separately identified from that of the "Predecessor Company". The selected unaudited pro forma financial data for the fiscal year ended November 1, 1997 gives effect to the Plan of Reorganization and adoption of fresh start reporting as if they had occurred on November 3, 1996. This pro forma information is provided for informational purposes only and should not be construed to be indicative of the results of operations of the Company had the transaction been consummated on the date indicated and is not intended to be predictive of the results of operations of the Company for any future period. The following information should be read in conjunction with the Consolidated Financial Statements of the Company and Notes thereto, and "Management's Discussion and Analysis of Financial Conditions and Results of Operations" presented elsewhere herein.
Predecessor Company Reorganized Pro Forma ------------------------------------------------------------------| Company ----------- Fiscal Year Ended | ----------- (Unaudited) ---------------------------------------------------- Period from| Period from Fiscal Year 10/30/93 10/29/94 10/28/95 11/2/96 11/3/96 | 10/10/97 Ended INCOME STATEMENT DATA: (52 Weeks) (52 Weeks) (52 Weeks) (53 Weeks) to 10/9/97| to 11/1/97 11/1/97 ---------- ---------- ---------- ---------- ----------| ----------- ----------- | Net sales $457,552 $461,871 $472,565 $448,824 $379,643 | $ 38,728 $418,371 Cost of sales 396,160 397,921 406,070 397,804 327,667 | 31,058 349,844 -------- -------- -------- -------- -------- | -------- -------- Gross profit 61,392 63,950 66,495 51,020 51,976 | 7,670 68,527 Selling, general and | administrative expenses 39,023 39,805 39,586 40,579 37,146 | 2,466 40,744 Other income (expense), net (1,236) (2,914) (6,248) (2,498) (622)| 11 (611) Charges for plant closing, loss on | sale of certain operations and | writedown of certain | long-lived assets -- -- -- (30,028) 574 | -- 574 -------- -------- -------- -------- -------- | -------- -------- Operating profit (loss) 21,133 21,231 20,661 (22,085) 14,782 | 5,215 27,746 Valuation allowance on | Gulistan securities -- -- -- (4,242) (5,070)| -- -- Interest income 48 749 2,821 2,856 2,744 | 93 1,192 Interest expense (60,407) (55,570) (39,946) (40,510) (32,164)| (584) (8,676) -------- -------- -------- -------- -------- | -------- -------- Income (loss) before | reorganization items, income | taxes, discontinued operations, | extraordinary items and | cumulative effects of | accounting changes (3) (39,226) (33,590) (16,464) (63,981) (19,708)| 4,724 20,262 Reorganization items: | Fair-value adjustments -- -- -- -- (4,651)| -- -- Professional fees and | expenses -- -- -- (2,255) (8,420)| -- -- -------- -------- -------- -------- -------- | -------- --------
-13- 14
Predecessor Company Reorganized Pro Forma ----------------------------------------------------------------| Company ----------- Fiscal Year Ended | ----------- (Unaudited) -------------------------------------------------- Period from| Period from Fiscal Year 10/30/93 10/29/94 10/28/95 11/2/96 11/3/96 | 10/10/97 Ended (52 Weeks) (52 Weeks) (52 Weeks) (53 Weeks) to 10/9/97 | to 11/1/97 11/1/97 ---------- ---------- ---------- ---------- -----------| ----------- ----------- | Income (loss) before income taxes, | discontinued operations, | extraordinary items and | cumulative effects of | accounting changes (39,226) (33,590) (16,464) (66,236) (32,779)| 4,724 20,262 Income taxes (benefit) 1,782 2,800 1,200 (300) (8,822)| 2,007 8,643 -------- --------- -------- -------- --------- | ----------- ----------- Income (loss) before discontinued | operations, extraordinary | items and cumulative effects | of accounting changes (41,008) (36,390) (17,664) (65,936) (23,957)| 2,717 11,619 Discontinued operations, | net of taxes: | Income (loss) from | discontinued operations 24,165 23,628 (7,079) -- -- | -- -- Net gain (loss) on sale of | discontinued operations -- 132,966 (26,241) (1,500) -- | -- -- Extraordinary gain (loss) on | early extinguishment of debt -- (7,410) 20,120 -- 100,235 | -- -- Cumulative effects of accounting | changes, net of taxes (4,988) (708) -- -- -- | -- -- -------- --------- -------- -------- --------- | ----------- ----------- Net income (loss) $(21,831) $ 112,086 $(30,864) $(67,436) $ 76,278 | $ 2,717 $ 11,619 ======== ========= ======== ======== ========= | =========== =========== Weighted average number | of shares outstanding (1) | 10,000,000 10,000,000 | =========== =========== Net income (loss) per common | share (1) | $ 0.27 $ 1.16 | =========== ===========
BALANCE SHEET DATA: 10/30/93 10/29/94 10/28/95 11/2/96 11/1/97 --------- --------- --------- ------------- -------- Working capital, excluding net assets held for sale $ 63,821 $ 65,855 $ 72,670 $(257,866)(2) $ 82,132 Total assets 532,608 452,811 412,822 335,927 322,381 Total long-term debt, less current portion 522,947 335,472 327,668 4,226 (2) 94,891 Senior redeemable preferred stock 21,007 24,340 28,171 32,676 -- Shareholders' equity (deficit) (111,103) (2,350) (37,045) (108,986) 126,047
(1) Share and per share data are not meaningful on or prior to October 9, 1997 due to the significant change in the capital structure in connection with the Plan of Reorganization. (2) All of the Company's senior credit facility revolving line of credit and all of the Company's subordinated notes and debentures are classified as current liabilities as of November 2, 1996. (3) The following non-cash charges have been included in the determination of income (loss) before reorganization items, income taxes, discontinued operations, extraordinary items and cumulative effects of accounting changes for the periods shown above:
Pro Forma Predecessor Company Reorganized ----------- --------------------------------------------------------------- Company (Unaudited) Fiscal Year Ended | ----------- Fiscal Year ------------------------------------------------ Period from| Period from Ended 10/30/93 10/29/94 10/28/95 11/2/96 11/3/96 | 10/10/97 ----------- (52 Weeks) (52 Weeks) (52 Weeks) (53 Weeks) to 10/9/97| to 11/1/97 11/1/97 ---------- ---------- ---------- ---------- -----------| ----------- ----------- | Certain non-cash charges to income: | Depreciation $19,799 $22,242 $20,820 $21,756 $16,986 | $ 681 $ 9,230 Amortization of goodwill | and other 969 964 965 983 894 | 165 2,313 Product liability charge -- -- 5,000 -- -- | -- -- Plant closing, loss on sale of | certain operations and | writedown of certain | long-lived assets -- -- -- 17,554 -- | -- -- Early retirement offer -- -- -- 1,125 -- | -- -- Valuation allowance on | Gulistan securities -- -- -- 4,242 5,070 | -- -- Other non-cash charges to income 1,957 131 371 -- -- | -- -- Non-cash interest 11,729 11,161 8,818 10,088 7,303 | 20 385 ------- ------- ------- ------- ------- | ------- ------- $34,454 $34,498 $35,974 $55,748 $30,253 | $ 866 $11,928 ======= ======= ======= ======= ======= | ======= =======
-14- 15 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. On October 9, 1997, JPS consummated a Plan of Reorganization as discussed in Item 1 herein under the caption "The 1997 Restructuring". The following discussion should be read in conjunction with Item 1 and with the Consolidated Financial Statements of the Company and the Notes thereto included in Item 8 herein.
Reorganized Predecessor Company Company (3) PRO FORMA (4) ---------------------------------------------- ----------- ---------------------------- | (UNAUDITED) Fiscal Year Ended Period from| Period from FISCAL YEAR ENDED ------------------------- 11/3/96 | 10/10/97 ---------------------------- 10/28/95 11/2/96 to 10/9/97 | to 11/1/97 11/2/96 11/1/97 --------- --------- -----------| ----------- --------- --------- | NET SALES | Apparel fabrics and | products $ 247,846 $ 221,799 $ 167,070 | $ 18,590 $ 221,799 $ 185,660 Industrial fabrics and | products 191,985 193,001 179,434 | 17,847 193,001 197,281 Home fashion textiles 32,734 34,024 33,139 | 2,291 34,024 35,430 --------- --------- --------- | --------- --------- --------- $ 472,565 $ 448,824 $ 379,643 | $ 38,728 $ 448,824 $ 418,371 ========= ========= ========= | ========= ========= ========= OPERATING PROFIT | (LOSS) | Apparel fabrics and | products $ 16,667 $ (22,422)(1) $ 1,210 | $ 2,201 $ (15,063)(1) $ 9,253 Industrial fabrics and | products 7,590 5,947 (2) 16,748 | 2,652 8,752 (2) 21,241 Home fashion textiles 1,749 647 976 | 693 1,791 2,980 Indirect corporate expenses, | net (5,345) (6,257) (4,152)| (331) (7,611) (5,728) --------- --------- --------- | --------- --------- --------- | Operating Profit (Loss) 20,661 (22,085) 14,782 | 5,215 (12,131) 27,746 | Valuation allowance on | Gulistan securities -- (4,242) (5,070)| -- -- -- Interest income 2,821 2,856 2,744 | 93 1,130 1,192 Interest expense (39,946) (40,510) (32,164)| (584) (8,561) (8,676) --------- --------- --------- | --------- --------- --------- | Income (loss) before | reorganization items, | income taxes, | discontinued operations | and extraordinary items $ (16,464) $ (63,981) $ (19,708)| $ 4,724 $ (19,562) $ 20,262 ========= ========= ========= | ========= ========= =========
(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. (3) The financial statements for the period from October 10, 1997 to November 1, 1997 reflect the Company's emergence from chapter 11 and were prepared utilizing the principles of fresh start reporting contained in the American Institute of Certified Public Accountants' Statement of Position 90-7, "Financial Reporting by Entities in Reorganization Under the Bankruptcy Code." As a result of the implementation of fresh start accounting, the financial information for the period from October 10, 1997 to November 1, 1997 is not comparable to the financial information of prior periods. -15- 16 (4) The pro forma financial information was prepared for comparison purposes and gives effect to the Plan of Reorganization as if the transactions had occurred on October 29, 1995 (for Fiscal 1996) and November 3, 1996 (for Fiscal 1997). The unaudited pro forma financial information was derived by adjusting the historical consolidated financial statements of the Company for the effects of fresh start accounting as described in Notes 2 and 3 to the Consolidated Financial Statements included in Item 8 herein. Such adjustments primarily relate to decreased depreciation expense resulting from revaluation of the Company's fixed assets, decreased interest expense resulting from extinguishment of Old Debt Securities in the reorganization, increased amortization resulting from reorganization value in excess of amounts allocable to identifiable assets and the elimination of reorganization items, and their related tax effects. This pro forma information is provided for informational purposes only and should not be construed to be indicative of the results of operations of the Company had the transactions been consummated on the respective dates indicated and are not intended to be predictive of the results of operations of the Company for any future period. RESULTS OF OPERATIONS FISCAL 1997 (PRO FORMA) COMPARED TO FISCAL 1996 (PRO FORMA) The financial statements for the period subsequent to the consummation of the Plan of Reorganization (period from October 10, 1997 to November 1, 1997) were prepared under the principles of fresh-start reporting for companies emerging from a plan of reorganization and are not comparable to prior periods. The Company believes that the most meaningful comparisons are made using the pro forma financial information and therefore this discussion addresses such pro forma information. Consolidated net sales declined $30.4 million (6.8%) from $448.8 million in Fiscal 1996 to $418.4 million in Fiscal 1997. Pro forma operating profit (loss) increased $39.8 million from a pro forma operating loss of $12.1 million in Fiscal 1996 to a pro forma operating profit of $27.7 million in Fiscal 1997. Fiscal 1996 results included charges for plant closings, loss on sale of certain operations, and charges for writedown of certain long-lived assets which totaled $30 million. Excluding such charges for comparative purposes, pro forma operating profit in Fiscal 1996 was $17.9 million. All segments reported improved earnings in Fiscal 1997 compared to Fiscal 1996. Net sales in Fiscal 1997 in the apparel fabrics and products segment, which includes unfinished woven apparel fabrics (greige goods) and yarn primarily for women's wear declined $36.1 million (16.3%) from $221.8 million in Fiscal 1996 to $185.7 million in Fiscal 1997. Much of this decline in net sales was expected as a result of the Company's actions in Fiscal 1996 to exit certain product lines which included plant closings and asset sales. Net sales in Fiscal 1996 included $12.8 million of apparel elastics sales. As discussed below, the Company sold its rubber products business, which produced these elastic products, in September 1996. Apparel fabric sales declined $20.5 million in Fiscal 1997 primarily as a result of the Company's decision in Fiscal 1996 to close one of its facilities in Greenville, South Carolina and cease production of certain commodity-type apparel fabrics which, due to competitive pressures from abroad, carried very weak margins. 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 continually works to develop new fabric constructions and styles in an effort to improve the profitability of its product mix. During Fiscal -16- 17 1997, the market conditions for certain of the Company's apparel fabrics improved slightly as a result of the exit of certain domestic competitors. Pro forma operating profit (loss) in Fiscal 1997 for the apparel fabrics and products segment increased by $24.4 million from a $15.1 million pro forma loss to a pro forma operating profit of $9.3 million. Fiscal 1996 included charges of approximately $20.4 million for plant closing and loss on sale of certain operations. Pro forma operating profit before such charges increased by $4.0 million from $5.3 million in Fiscal 1996 to $9.3 million in Fiscal 1997. The improvement is the result of several factors. Fiscal 1997 results were not adversely affected by the negative operating margins associated with the product lines exited during Fiscal 1996. In addition, manufacturing efficiency and productivity have improved as a result of certain capital projects completed during Fiscal 1997. The Company expects to realize further improvements in its cost structure in Fiscal 1998 as a result of these capital expenditures. Net sales in Fiscal 1997 in the industrial fabrics and products segment, which includes single-ply roofing and environmental membrane, woven fabrics constructed of cotton, synthetics and fiberglass for lamination, insulation, and filtration applications, and extruded urethane products increased $4.3 million (2.2%) to $197.3 million from $193.0 million in Fiscal 1996. Net sales in Fiscal 1996 included $4.0 million of industrial elastic sales. The Company sold its rubber products business, which produced these elastic products, in September 1996 and therefore Fiscal 1997 includes no industrial elastic sales. Sales of fiberglass fabrics increased $5.0 million in Fiscal 1997 primarily as a result of the continued growth in demand for fabrics used in the manufacture of electrical circuit boards. The Company expects that the global demand for electronic products which has fueled the growth in demand for fiberglass fabric will continue for the foreseeable future. Therefore, the Company has expanded and enhanced its productive capacity and expects to continue to invest in additional machinery and equipment in order to satisfy customer demand and improve product quality. Sales of roofing membrane increased $1.4 million from Fiscal 1996. The Company's "Hi-Tuff/EP" line of roofing products have enjoyed success in recent years as a result of the membrane's competitive price and outstanding performance characteristics. The Company expects its roofing sales to continue to grow as the Company capitalizes on the market enthusiasm for its line of roofing products. Sales of urethane products increased $3.7 million from Fiscal 1996 primarily as a result of stronger demand for certain of the Company's products used in the manufacture of athletic footwear. The Company has been successful in developing a variety of urethane film and sheet products for specific customer requirements. The Company's capital plan involves investments in Fiscal 1998 to increase productive capacity in this area which is expected to allow further sales growth for urethane products. Sales of cotton industrial fabrics increased $3.7 million from Fiscal 1996 due to improved unit volumes and selling prices. Sales of other industrial fabrics declined $5.5 million primarily as a result of the exit of certain low margin products and redirecting such weaving capacity toward more profitable goods. Pro forma operating profit in Fiscal 1997 for the industrial fabrics and products segment increased by $12.5 million from $8.8 million in Fiscal 1996 to $21.2 million in Fiscal 1997. Included in the Fiscal 1996 pro forma operating profit are charges of approximately $9.6 million for writedown of certain long-lived assets and loss on sale of operations. Adjusting for such charges, pro forma operating profit in Fiscal 1997 increased by $2.8 million (15.2%) from Fiscal 1996. The increases in sales as described above, and the exit of certain low margin product lines, combined with improved operating efficiencies, increased pro forma operating income in Fiscal 1997. Net sales in Fiscal 1997 in the home fashion textiles segment, which includes woven drapery fabrics and yarns for the home furnishings industry, increased $1.4 million (4.1%) to $35.4 million in Fiscal 1997 from $34.0 million in Fiscal 1996 primarily as a result of new product development and styling which has resulted in higher unit volumes and selling prices. -17- 18 Pro forma operating profit in Fiscal 1997 for the home fashion textiles segment increased $1.2 million (67%) to $3.0 million from $1.8 million in Fiscal 1996. The aforementioned volume and product mix enhancements were the primary causes for improved operating results. Substantially all of such improvement in pro forma operating increase occurred during the first half of Fiscal 1997. Indirect corporate expenses (pro forma) declined by $1.9 million from $7.6 million in Fiscal 1996 to $5.7 million in Fiscal 1997. Fiscal 1996 pro forma expenses included a $1.1 million charge resulting from an early retirement offer extended to certain salaried employees. Fiscal 1996 also included an expense of $1.0 million for management services provided by a former shareholder pursuant to a management services agreement. Pursuant to the Plan of Reorganization on the Effective Date, such agreement was cancelled and rejected and claims for rejection damages were waived. Accordingly, no such expense was incurred in Fiscal 1997. Offsetting such decreases were slightly higher employee compensation costs and insurance costs. Reorganization-related fees and expenses incurred in Fiscal 1997 totaled $8.4 million. These fees and expenses totaled $2.3 million in Fiscal 1996. Such fees and expenses, which represent fees and expenses of the Company's financial advisor, legal counsel and other professionals associated with the Company's financial restructuring and the financial advisor and legal counsel for the holders of a substantial majority of the Company's old outstanding bonds, have been excluded from the pro forma financial statements. During Fiscal 1997, the Company sold its debt and equity securities of Gulistan Holdings consisting of a $10 million Promissory Note due in November 2001, $5 million of preferred stocks redeemable in November 2005 and warrants to purchase up to 25% of the common stock of Gulistan Holdings. Proceeds from the sale were $2 million. The writedown of the carrying value of the Gulistan securities to $2 million was reported in the period from November 3, 1996 to October 9, 1997. Such writedown, which totaled $4.2 million in Fiscal 1996 and $5.1 million in Fiscal 1997, has been excluded from the pro forma financial statements. As a result of the application of fresh start accounting as required by Statement of Position 90-7 ("SOP 90-7") of the American Institute of Certified Public Accountants, entitled "Financial Reporting by Entities in Reorganization Under the Bankruptcy Code", a gain on early extinguishment of debt of approximately $100.2 million and reorganization items of approximately $13.1 million were recorded as of the Effective Date. The reorganization items include professional fees and expenses of approximately $8.4 million (discussed above) and fair value adjustments of approximately $4.7 million. These items have been excluded from the pro forma financial information. 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 for Fiscal 1996 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. Net sales in Fiscal 1996 in the apparel fabrics and products segment 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. -18- 19 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 was 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. 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. 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 in Fiscal 1995. 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 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. 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. 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 $7.9 million (105%) to $15.5 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. -19- 20 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, was 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 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 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 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. -20- 21 LIQUIDITY AND CAPITAL RESOURCES The Company's principal sources of liquidity for operations and expansion are funds generated internally and borrowings under its Revolving Credit Facility (as defined below). On the Effective Date, Elastomerics and C&I (the "Borrowing Subsidiaries") and JPS entered into the Credit Facility Agreement, dated as of the Effective Date (the "Credit Agreement"), by and among the financial institutions party thereto, Citibank, as agent, and NationsBank, N.A., as co-agent. The Credit Agreement provides for a revolving credit loan facility and letters of credit (the "Revolving Credit Facility") in a maximum principal amount equal to the lesser of (a) $135 million and (b) a specified borrowing base (the "Borrowing Base"), which is based upon eligible receivables, eligible inventory and a specified dollar amount ($55,000,000 (subject to reduction) based on fixed assets of the Borrowing Subsidiaries), except that (i) no Borrowing Subsidiary may borrow an amount greater than the Borrowing Base attributable to it (less any reserves as specified in the Credit Agreement) and (ii) letters of credit may not exceed $20 million in the aggregate. The maturity date of the Revolving Credit Facility is October 9, 2002. Until the delivery of the Company's certificate with respect to its compliance with the terms of the Credit Agreement during its second fiscal quarter of 1998 (the date of such delivery being the "Delivery Date"), all loans outstanding under the Revolving Credit Facility bear interest at either (i) the Eurodollar Rate (as defined in the Credit Agreement) plus 1.5% per annum or (ii) the Base Rate (as defined in the Credit Agreement) and, thereafter, will bear interest at the Base Rate or the Eurodollar Rate plus an applicable margin (the "Applicable Margin") based upon the Company's consolidated leverage ratio (which margin will not exceed .25% for Base Rate borrowings and 1.75% for Eurodollar Rate borrowings). The weighted average interest rate at November 1, 1997 is approximately 7.33%. The Company currently pays (i) a fee of .375% per annum on the average unused commitments under the Revolving Credit Facility until the Delivery Date and thereafter such fees will be reduced to .25% per annum if a specified leverage ratio is satisfied and (ii) a letter of credit fee equal to the Applicable Margin for Eurodollar Rate borrowings. Borrowings under the Revolving Credit Facility are made or repaid on a daily basis in amounts equal to the net cash requirements or proceeds for that business day. As of November 1, 1997, unused and outstanding letters of credit totaled $2,040,000. The outstanding letters of credit reduce the funds available under the Revolving Credit Facility. At November 1, 1997, the Company had approximately $40.7 million available for borrowing under the Revolving Credit Facility. The Credit Agreement contains restrictions on investments, acquisitions and dividends unless, among other things, the Company satisfies a specified pro forma fixed charge coverage ratio and maintains a specified minimum availability under the Revolving Credit Facility for a stated period of time, and no default exists under the Credit Agreement. The Credit Agreement also restricts, among other things, indebtedness, liens, affiliate transactions, operating leases, fundamental changes and asset sales other than the sale of up to $35 million of fixed assets, subject to the satisfaction of certain conditions. The Credit Agreement contains financial covenants relating to minimum levels of EBITDA, minimum interest coverage ratio, minimum fixed charge coverage ratio and maximum capital expenditures. As of November 1, 1997, the Company was in compliance with these restrictions and all financial covenants. Net cash provided by operations increased by approximately $2.0 million in the combined periods from November 3, 1996 to October 9, 1997 and October 10, 1997 to November 1, 1997 (Fiscal 1997) compared to Fiscal 1996 primarily due to a decrease in interest payments associated with the Old Debt Securities offset by the payment of $14.0 million to holders of the 10.85% Notes and 10.25% Notes as part of the Plan of Reorganization. Working capital at November 1, 1997 was $82.1 million compared to a deficit of $257.9 million at November 2, 1996. This increase of $340.0 million is primarily due to the effects of the consummation of the Plan of Reorganization including the conversion of approximately $271.1 million of Old Debt Securities and the reclassification of the borrowings under the Revolving Credit Facility from current liabilities to long-term debt. -21- 22 The Company expects that its planned capital expenditures in Fiscal 1998 of approximately $25 million will be funded by cash from operations, bank and other equipment financing sources. At November 1, 1997, the Company had commitments for capital expenditures of approximately $1.5 million. The Company has reviewed Year 2000 issues related to its management information systems. The Company does not believe that Year 2000 issues are likely to materially affect the Company's business, operations or financial condition. Based upon the Company's ability to generate working capital through its operations and its Revolving Credit Facility, the Company believes that it has the financial resources necessary to pay its capital obligations and implement its business plan. 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. For the period from October 10, 1997 to November 1, 1997, the Company recorded a tax expense of $2.0 million. The tax expense includes the utilization of a portion of the deferred tax asset, described below, which was recorded as of the Effective Date of the Plan of Reorganization of the Company. The effective tax rate exceeds the statutory federal income tax rate due to the impact of items not deductible for federal income tax purposes and because of state income taxes. See Note 11 to the Consolidated Financial Statements for additional information. The Company recorded a tax benefit for the period ending October 9, 1997 of approximately $8.8 million. This consists of a benefit from the implementation of the Plan of Reorganization net of state taxes on subsidiary operations that could not be offset by operating loss carryovers or current year losses of JPS or its subsidiaries. The benefit arose as consummation of the Plan of Reorganization substantially deleveraged JPS. Accordingly, the reserve established against the deferred tax assets that was required due to the operating history was significantly reduced. However, the deferred tax asset attributable to the net operating loss carryforwards was also reduced as a result of the reduction in net operating loss carryforwards that is required for reorganizations such as that provided in the Plan of Reorganization. The reduction in reserves and reduction in deferred tax liabilities exceeded the reduction in the gross deferred tax asset by a net amount of $9.7 million thus resulting in a deferred tax benefit. The recording of the tax benefit and the net deferred tax asset reflects the Company's determination that it is more likely than not that these deferred tax assets, net of the valuation allowance, will be realized based on current income tax laws and expectations of future taxable income stemming from the reversal of deferred tax liabilities or operations. Uncertainties surrounding income tax law changes, shifts in operations between state taxing jurisdictions and future operating income levels may, however, affect the ultimate realization of all or some portion of these deferred income tax assets. The Internal Revenue Code (the "Code") provides that there are no taxes payable on gains such as the extraordinary gain on early extinguishment of debt that was realized on the reorganization of the Company in the period from November 3, 1996 to October 9, 1997. However, the Company is required under provisions of the Code to reduce certain net operating loss carryforwards and certain other tax attributes as a result of such gain. The Company estimates that beginning net operating loss carryovers will be reduced by approximately $60 million. In addition, alternative minimum tax credit carryovers will be reduced by approximately $0.7 million. As a result of valuation allowances on these assets, there is no tax expense attributable to such reductions. In addition to attribute reduction, any remaining net operating loss carryforwards and certain other tax attributes are subject to the limitations imposed by Section 382 of the -22- 23 Code. The effect of these limitations is to limit the utilization of the approximately $28 million in remaining net operating loss carryovers and certain other attributes to an annual amount equal to the value of the Company immediately after the ownership change (subject to certain adjustments) multiplied by the Federal long-term tax exempt rate as of the date of reorganization. The Company recorded a net $0.3 million income tax benefit on continuing operations in Fiscal 1996. The Company had a $0.5 million deferred state tax benefit from the charge for the plant closing and writedown of certain long-lived assets. While no tax expense resulted from applying the statutory tax rate to the loss before income taxes, the Company was not able to fully offset subsidiary income in all tax jurisdictions with net operating losses of the Company or other subsidiaries or operating loss carryovers. As a result, $0.2 million current year provision for state income taxes was required. In Fiscal 1995, the Company recorded $0.6 million in tax liabilities resulting from the gain on the open market purchases of certain of its debt securities. Such amount was recorded as a reduction of the extraordinary gain from early extinguishment of debt. The loss recorded on the disposition of the Carpet Business was not currently recognizable for tax purposes. The Company recorded no net tax benefit in its financial statements due to uncertainties surrounding the Company's ability to utilize such losses in the future. During Fiscal 1994, the Company utilized approximately $141 million of net operating loss carryforwards to offset the gain on sale of the automotive assets. Income tax expense incident to the sale was reduced by approximately $49 million as a result of such utilization. Federal alternative minimum and state taxes of approximately $2.8 million were recognized as a result of the sale. Although the Company believes use of its net operating loss carryforwards 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 Section 382 of the Code have not been issued. Therefore, in accordance with provisions of the indentures governing the Old Debt Securities, the Company set aside, in a special-purpose subsidiary, a portion ($39.5 million) of the net proceeds from the sale of the automotive assets to satisfy, if necessary, these possible contingent tax liabilities. As of November 1, 1997 and November 2, 1996, the aggregate fair value of the investments was approximately $34.6 million and $46.2 million, respectively. Under the terms of the Plan of Reorganization, the holders of the 10.25% and 10.85% Notes received $14 million in cash from these investments and Contingent Notes with an aggregate principal amount of $34 million (subject to adjustment on the maturity date), payable from these investments upon the occurrence of certain events. The respective amounts of the cash distribution and the initial principal amount of the Contingent Notes were determined based on the assumptions used to determine the original amount set aside for contingent tax liabilities related to the 1994 sale of the Company's automotive business with adjustments for certain events arising subsequent to the sale and such original determination. A current liability in an amount equal to the approximate aggregate fair value of invested funds is recorded in the Company's Consolidated Balance Sheet as of November 1, 1997. Even before giving effect to the previously described limitations on use of net operating loss carryforwards occurring under the Plan of Reorganization, due to the Company's operating history, it was uncertain that it would be able to utilize all deferred tax assets. Therefore, for years ending prior to November 1, 1997, a valuation allowance had been provided equal to the deferred tax assets remaining after deducting all deferred tax liabilities, exclusive of those related to certain deferred state tax liabilities. As described above, a portion of the valuation allowance was reversed and a tax benefit recognized upon the Effective Date of the Plan of Reorganization. In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard No. 128 "Earnings Per Share", which will be effective during Fiscal 1998. The Company does not believe that the adoption of SFAS No. 128 will have a significant effect on its earnings per share disclosure. -23- 24 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 1, 1997 (Reorganized Company consolidated balance sheet) and November 2, 1996 (Predecessor Company consolidated balance sheet), and the related consolidated statements of operations and shareholders' equity and of cash flows for the period from October 10, 1997 to November 1, 1997 (Reorganized Company consolidated operations), and the consolidated statements of operations, senior redeemable preferred stock and shareholders' equity (deficit) and of cash flows for the period from November 3, 1996 to October 9, 1997 and each of the two years in the period ended November 2, 1996 (Predecessor Company consolidated operations). Our audits also included the financial statement schedule listed in the index at page S-1. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. As discussed in Note 1 to the consolidated financial statements, on September 9, 1997, the Bankruptcy Court entered an order confirming the plan of reorganization which became effective after the close of business on October 9, 1997. The accompanying consolidated financial statements as of November 1, 1997 and for the period from October 10, 1997 to November 1, 1997 have been prepared in conformity with AICPA Statement of Position 90-7, "Financial Reporting for Entities in Reorganization Under the Bankruptcy Code". Accordingly, the Reorganized Company is a new entity with assets, liabilities, and a capital structure having carrying values not comparable with prior periods as described in Note 1. In our opinion, the Reorganized Company consolidated financial statements present fairly, in all material respects, the financial position of the Company at November 1, 1997, and the results of its operations and its cash flows for the period from October 10, 1997 to November 1, 1997 in conformity with generally accepted accounting principles. Further, in our opinion, the Predecessor Company consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Predecessor Company as of November 2, 1996 and the results of its operations and its cash flows for the period from November 3, 1996 to October 9, 1997 and each of the two 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. DELOITTE & TOUCHE LLP Greenville, South Carolina December 18, 1997 -24- 25 JPS TEXTILE GROUP, INC. CONSOLIDATED BALANCE SHEETS (In Thousands)
Predecessor Reorganized Company Company ----------- ----------- November 2, November 1, 1996 1997 ----------- ----------- ASSETS CURRENT ASSETS: Cash $ 1,460 $ 3,888 Accounts receivable, less allowance of $2,511 in 1996 and $1,053 in 1997 (Note 9) 75,166 79,569 Inventories (Notes 2, 7, and 9) 48,374 44,770 Prepaid expenses and other (Notes 7, 8 and 9) 1,967 37,085 -------- -------- Total current assets 126,967 165,312 PROPERTY, PLANT AND EQUIPMENT, net 124,004 104,554 (Notes 2, 7, and 9) REORGANIZATION VALUE IN EXCESS OF AMOUNTS ALLOCABLE TO IDENTIFIABLE ASSETS, less accumulated amortization of $164 in 1997 (Note 2) -- 45,690 EXCESS OF COST OVER FAIR VALUE OF NET ASSETS ACQUIRED, less accumulated amortization of $7,860 in 1996 30,506 -- OTHER ASSETS (Notes 2, 7 and 8) 54,450 6,825 -------- -------- Total assets $335,927 $322,381 ======== ========
-25- 26
Predecessor Reorganized Company Company ----------- ----------- November 2, November 1, 1996 1997 ----------- ----------- LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) CURRENT LIABILITIES: Accounts payable $ 24,708 $ 24,353 Accrued interest 9,608 421 Accrued salaries, benefits and withholdings (Note 12) 10,440 9,148 Other accrued expenses (Notes 7, 12 and 14) 13,987 13,182 Senior credit facility, revolving line of credit (Notes 1, 2 and 9) 85,639 -- Current portion of long-term debt (Note 9) 240,451 36,076 --------- -------- Total current liabilities 384,833 83,180 LONG-TERM DEBT (Notes 1, 2 and 9) 4,226 94,891 DEFERRED INCOME TAXES (Notes 2 and 11) 3,665 -- OTHER LONG-TERM LIABILITIES (Notes 2, 7 and 12) 19,513 18,263 --------- -------- Total liabilities 412,237 196,334 --------- -------- COMMITMENTS AND CONTINGENCIES (Notes 9, 11 and 12) SENIOR REDEEMABLE PREFERRED STOCK, redemption value of $54,520 in 1996 (Notes 1, 2 and 10) 32,676 -- --------- -------- SHAREHOLDERS' EQUITY (DEFICIT) (Note 10): Junior preferred stock 250 -- Common stock: Common stock - Reorganized Company -- 100 Common stock - Predecessor Company 10 -- Additional paid-in capital 25,108 123,230 Retained earnings (deficit) (134,354) 2,717 --------- -------- Total shareholders' equity (deficit) (108,986) 126,047 --------- -------- Total liabilities and shareholders' equity $ 335,927 $322,381 ========= ========
See notes to consolidated financial statements. -26- 27 JPS TEXTILE GROUP, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in Thousands Except Per Share Data)
Predecessor Company Reorganized ------------------------------------------------------| Company Year Ended | ------------------- ------------------------------- Period from | Period from October 28, November 2, November 3, 1996 | October 10, 1997 1995 1996 to October 9, 1997| to November 1, 1997 ----------- ----------- ------------------| ------------------- | Net sales $ 472,565 $ 448,824 $ 379,643 | $ 38,728 Cost of sales 406,070 397,804 327,667 | 31,058 --------- --------- --------- | -------- Gross profit 66,495 51,020 51,976 | 7,670 Selling, general and administrative | expenses (Note 12) 39,586 40,579 37,146 | 2,466 Other income (expense), net (Note 12) (6,248) (2,498) (622) | 11 Charges for plant closing, loss | on sale of certain operations | and writedown of certain | long-lived assets (Note 6) -- (30,028) 574 | -- --------- --------- --------- | -------- Operating profit (loss) 20,661 (22,085) 14,782 | 5,215 Valuation allowance on Gulistan | securities (Note 5) -- (4,242) (5,070) | -- Interest income 2,821 2,856 2,744 | 93 Interest expense (Note 9) (39,946) (40,510) (32,164) | (584) --------- --------- --------- | -------- Income (loss) before reorganization | items, income taxes, discontinued | operations and extraordinary items (16,464) (63,981) (19,708) | 4,724 Reorganization items (Notes 1 and 2): | Fair-value adjustments -- -- (4,651) | -- Professional fees and expenses -- (2,255) (8,420) | -- --------- --------- --------- | -------- Income (loss) before income taxes, | discontinued operations and | extraordinary items (16,464) (66,236) (32,779) | 4,724 Provision (benefit) for income | taxes (Note 11) 1,200 (300) (8,822) | 2,007 --------- --------- --------- | -------- Income (loss) before discontinued | operations and extraordinary | items (17,664) (65,936) (23,957) | 2,717 Discontinued operations (Note 5): | Loss from discontinued operations (7,079) -- -- | -- Loss on sale of discontinued | operations, net of taxes of | $100 in 1995 and $0 in 1996 (26,241) (1,500) -- | -- --------- --------- --------- | -------- Income (loss) before extraordinary | items (50,984) (67,436) (23,957) | 2,717
-27- 28 CONSOLIDATED STATEMENTS OF OPERATIONS (Continued)
Predecessor Company Reorganized ------------------------------------------------------| Company Year Ended | ------------------- ------------------------------- Period from | Period from October 28, November 2, November 3, 1996 | October 10, 1997 1995 1996 to October 9, 1997| to November 1, 1997 ----------- ----------- ------------------| ------------------- | Extraordinary gain on early | extinguishment of debt, net of | taxes of $600 in 1995 and | $0 in 1997 (Notes 1 and 9) 20,120 -- 100,235 | -- ------------ ------------ ------------ | ----------- Net income (loss) $ (30,864) $ (67,436) $ 76,278 | $ 2,717 ============ ============ ============ | =========== | Weighted average number of | common shares outstanding (A) | 10,000,000 | Net income per common share (A) | $ 0.27 ===========
(A) Share and per share data are not meaningful on or prior to October 9, 1997 due to the significant change in the capital structure in connection with the Plan of Reorganization. See notes to consolidated financial statements. -28- 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 Retained Preferred Common Preferred Paid-In Earnings Stock Stock Stock Capital (Deficit) ---------- ------- --------- ---------- --------- Predecessor Company 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) Net income for the period from November 3, 1996 to October 9, 1997 76,278 Preferred stock-in-kind dividends and discount accretion 3,827 (3,827) Fresh start adjustments (36,503) 90 (250) 101,949 58,076 -------- ------- ----- -------- --------- Reorganized Company Balance - October 9, 1997 0 100 0 123,230 0 Net income for the period from October 10, 1997 to November 1, 1997 2,717 -------- ------- ----- -------- --------- Balance - November 1, 1997 $ 0 $ 100 $ 0 $123,230 $ 2,717 ======== ======= ===== ======== =========
See notes to consolidated financial statements. -29- 30 JPS TEXTILE GROUP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in Thousands)
Predecessor Company Reorganized ----------------------------------------------------| Company Year Ended | ------------------- ------------------------------ Period from | Period from October 28, November 2, November 3, 1996 | October 10, 1997 1995 1996 to October 9, 1997| to November 1, 1997 ---------- ----------- ------------------| ------------------- | CASH FLOWS FROM | OPERATING ACTIVITIES | Net income (loss) $(30,864) $(67,436) $ 76,278 | $ 2,717 -------- -------- --------- | -------- 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 (574) | -- Loss from discontinued | operations 7,079 -- -- | -- Loss on sale of | discontinued operations 26,241 1,500 -- | -- Extraordinary gain on | early extinguishment of debt (20,120) -- (100,235) | -- Depreciation and amortization, | except amounts included | in interest expense 21,785 22,739 17,880 | 846 Interest accretion and debt | issuance cost amortization 8,818 10,088 7,303 | 20 Reorganization charges -- -- 5,581 | -- Tax benefit from reduction | of valuation allowance -- -- (9,745) | -- Product liability charge 5,000 -- -- | -- Deferred income tax | provision (benefit) -- (500) -- | 1,256 Valuation allowance on | Gulistan securities -- 4,242 5,070 | -- Other, net (498) (3,163) (3,229) | (295) Changes in assets and liabilities: | Accounts receivable (1,086) 10,372 10,599 | (15,002) Inventories (685) (2,635) (6,920) | 9,664 Prepaid expenses and other | assets (2,505) (2,348) (18,565) | 816 Accounts payable (911) (3,983) 1,243 | (1,599) Accrued expenses and other | liabilities (7,202) (1,688) 15,432 | 650 -------- -------- --------- | -------- Total adjustments 35,916 64,652 (76,160) | (3,644) -------- -------- --------- | -------- Net cash provided by (used in) | operating activities 5,052 (2,784) 118 | (927) -------- -------- --------- | --------
-30- 31 CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Reorganized Predecessor Company Company ----------------------------------------------------| ------------------- Year Ended | ------------------------------ Period from | Period from October 28, November 2, November 3, 1996 | October 10, 1997 1995 1996 to October 9, 1997| to November 1, 1997 ----------- ----------- ------------------| ------------------- | CASH FLOWS FROM | INVESTING ACTIVITIES | Property and equipment additions (18,811) (9,834) (14,467) | (1,618) Receipts from discontinued | operations, net 3,453 -- -- | -- Proceeds from sale of | discontinued operations, net 4,415 17,077 -- | -- Proceeds from sale of certain | operations -- 5,113 988 | -- Proceeds from sale of long-term | investments -- -- 49,500 | -- Purchase of investments -- -- (33,500) | -- -------- -------- -------- | ------- Net cash provided by (used in) | investing activities (10,943) 12,356 2,521 | (1,618) -------- -------- -------- | ------- | CASH FLOWS FROM | FINANCING ACTIVITIES | Financing costs incurred (25) (614) (1,465) | (66) Proceeds from issuance of | long-term debt 5,000 29 -- | -- Revolving credit facility | borrowings (repayments), net 41,808 (6,087) 3,361 | 3,245 Purchases and repayment of other | long-term debt, net (41,384) (2,792) (2,655) | (86) -------- -------- -------- | ------- Net cash provided by (used in) | financing activities 5,399 (9,464) (759) | 3,093 -------- -------- -------- | ------- | NET INCREASE (DECREASE) | IN CASH (492) 108 1,880 | 548 Cash at beginning of period 1,844 1,352 1,460 | 3,340 -------- -------- -------- | ------- Cash at end of period $ 1,352 $ 1,460 $ 3,340 | $ 3,888 ======== ======== ======== | ======= | SUPPLEMENTAL INFORMATION | ON CASH FLOWS FROM | CONTINUING OPERATIONS: | Interest paid $ 33,681 $ 30,709 $ 7,944 | $ 24 Income taxes paid (received), net 3,314 693 (46) | (8) Non-cash financing activities: | Senior redeemable preferred | stock dividends-in-kind 2,936 3,114 -- | --
See notes to consolidated financial statements. -31- 32 JPS TEXTILE GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. BUSINESS AND BASIS OF PRESENTATION Unless the context otherwise requires, the terms "JPS" and the "Company" as used in these Consolidated Financial Statements mean JPS Textile Group, Inc. and JPS Textile Group, Inc. together with its subsidiaries, respectively. The 1988 Acquisition - JPS purchased from J.P. Stevens & Co., Inc. ("J.P. Stevens") substantially all of the property, plant and equipment, inventories, certain other assets and the business of five former divisions of J.P. Stevens (the "Predecessor Stevens Divisions") on May 9, 1988 (the "Acquisition"). The purchase was financed through long-term borrowings and the sale of preferred and common stock. The Company operates principally as a manufacturer of 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 5 and 6, certain of the acquired businesses and operations have been subsequently sold. The 1991 Restructuring - In 1990, JPS negotiated the terms of a recapitalization proposal with a steering committee comprised of institutional holders of a substantial amount of the then-outstanding securities, which culminated in JPS's prepetition solicitation of votes to accept or reject a chapter 11 plan of reorganization. The plan was overwhelmingly accepted. On February 7, 1991, JPS filed a petition for relief under the Bankruptcy Code, and approximately 42 days thereafter, JPS's plan was confirmed by the bankruptcy court and JPS emerged from chapter 11 on April 2, 1991. Pursuant to that plan, in exchange for JPS's outstanding debt securities and JPS's equity securities, JPS issued (i) $100 million in principal amount of senior secured notes due June 1, 1995 and June 1, 1996 (all of which were redeemed in 1994), (ii) $151.1 million in principal amount of 10.85% Senior Subordinated Discount Notes due June 1, 1999 (the "10.85% Notes"), (iii) $125 million in principal amount of 10.25% Senior Subordinated Notes due June 1, 1999 (the "10.25% Notes"), (iv) $75 million in principal amount of 7% Subordinated Debentures due May 15, 2000 (the "7% Subordinated Debentures"), (v) 390,719 shares of Series A Senior Preferred Stock (the "Old Senior Preferred Stock"), (vi) 10,000 shares of Series B Junior Preferred Stock (the "Old Junior Preferred Stock"), (vii) 490,000 shares of class A common stock, par value $0.01 per share (the "Class A Common Stock") and (viii) 510,000 shares of class B common stock, par value $0.01 per share (the "Class B Common Stock" and, together with the Class A Common Stock, the "Old Common Stock"). Since this reorganization did not meet the criteria for "fresh-start" accounting, the primary adjustment to historical carrying values as a result of the reorganization was to state the new long-term debt and senior redeemable preferred stock at present values of amounts to be paid determined at appropriate current interest rates as of April 2, 1991, the effective date of the plan. The resulting present value discount was amortized as interest expense or dividends over the life of the related debt or senior redeemable preferred stock instrument using the interest method. The 1997 Restructuring - In 1996, JPS, and JPS Capital Corp., a wholly-owned subsidiary of JPS ("JPS Capital") commenced negotiations with an unofficial committee (the "Unofficial Bondholder Committee") comprised of institutions that owned, or represented holders that beneficially owned, approximately 60% of the 10.85% Notes, the 10.25% Notes and the 7% Subordinated Debentures (the "Old Debt Securities"). On May 15, 1997, the parties reached an agreement in principle on the terms of a restructuring to be accomplished under chapter 11 of the Bankruptcy Code which culminated in -32- 33 a Joint Plan of Reorganization (as amended the "Plan of Reorganization") proposed by JPS and JPS Capital under the Bankruptcy Code. Pursuant to a disclosure statement, dated June 25, 1997 (the "Disclosure Statement"), on June 26, 1997, JPS and JPS Capital commenced a prepetition solicitation of votes by the holders of Old Debt Securities and Old Senior Preferred Stock to accept or reject the Plan of Reorganization. Under the Plan of Reorganization, the holders of Old Debt Securities and Old Senior Preferred Stock were the only holders of impaired claims and impaired equity interests entitled to receive a distribution, and therefore, pursuant to section 1126 of the Bankruptcy Code, were the only holders entitled to vote on the Plan of Reorganization. At the conclusion of the 32-day solicitation period, the Plan of Reorganization had been accepted by holders of more than 99% of the Old Debt Securities that voted on the Plan of Reorganization and by holders of 100% of the Old Senior Preferred Stock that voted on the Plan of Reorganization. On August 1, 1997, JPS commenced its voluntary reorganization case under chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Southern District of New York (the "Bankruptcy Court"), and filed the Plan of Reorganization and the Disclosure Statement. None of JPS's subsidiaries, including JPS Capital which was a co-proponent of the Plan of Reorganization, commenced a case under the Bankruptcy Code. Pursuant to orders of the Bankruptcy Court entered on September 9, 1997, the Bankruptcy Court (i) approved the Disclosure Statement and the solicitation of votes on the Plan of Reorganization and (ii) confirmed the Plan of Reorganization. The Plan of Reorganization became effective on October 9, 1997 (the "Effective Date") resulting in, among other things, the cancellation of the Old Senior Preferred Stock, Old Junior Preferred Stock, and Old Common Stock, and the issuance of 10 million shares of $.01 par value new common stock (the "Common Stock"). Through the implementation of the Plan of Reorganization as of the Effective Date, JPS's most significant financial obligations were restructured: $240,091,318 in face amount of outstanding Old Debt Securities were converted to, among other things, $14 million in cash, 99.25% of the shares of Common Stock and approximately $34 million in aggregate principal amount (subject to adjustment on the maturity date) of contingent payment notes issued by JPS Capital (the "Contingent Notes"); the Old Senior Preferred Stock, the Old Junior Preferred Stock and the Old Common Stock were cancelled; warrants to purchase up to 5% of the common stock of JPS (the "New Warrants") with an initial purchase price of $98.76 per share were issued in respect of the Old Senior Preferred Stock; and the obligations of JPS under its former working capital facility were satisfied and the Revolving Credit Facility was obtained. JPS's senior management received approximately 0.75% of the Common Stock in lieu of payment under their contractual retention bonus agreements. 2. FRESH START REPORTING The Plan of Reorganization was accounted for pursuant to Statement of Position 90-7 ("SOP 90-7") of the American Institute of Certified Public Accountants, entitled "Financial Reporting by Entities in Reorganization under the Bankruptcy Code." The accompanying consolidated financial statements reflect the use of "fresh start" reporting as required by SOP 90-7, in which assets and liabilities were adjusted to their fair values and resulted in the creation of a new reporting entity (the "Company" or the "Reorganized Company") with no retained earnings or accumulated deficit as of October 9, 1997. Accordingly, the consolidated financial statements for the periods prior to October 9, 1997 (the "Predecessor Company") are not comparable to consolidated financial statements presented subsequent to October 9, 1997. A black line has been drawn on the accompanying consolidated financial statements and notes thereto to distinguish between the Reorganized Company and Predecessor Company balances. -33- 34 The total reorganization value assigned to the Company's assets was determined, by independent valuation, by calculating projected cash flows before debt service requirements, for a three-year period, plus an estimated terminal value of the Company (calculated using a multiple of projected EBITDA), each discounted back to its present value using a discount rate of 10% (estimating the after-tax weighted average cost of capital). The above calculations resulted in an estimated reorganization value attributable to the common stock of approximately $123.3 million of which the Excess Reorganization Value was approximately $45.9 million. The Excess Reorganization Value will be amortized over twenty years. As a result of the restructuring and the application of fresh start accounting as required by SOP 90-7, a gain on early extinguishment of debt of approximately $100.2 million and reorganization items of approximately $13.1 million were recorded in the Predecessor Company period ending October 9, 1997. The effect of the Plan of Reorganization and the implementation of fresh start accounting on the Company's consolidated balance sheet as of October 9, 1997 was as follows (in thousands) (unaudited):
Pre-Fresh Start Fresh Start Balance Sheet Reorganization Fresh Start Balance Sheet October 9, 1997 Adjustments (a) Adjustments (b) October 9, 1997 --------------- --------------- --------------- --------------- Current assets $ 125,176 $ (861) $124,315 Property, plant and equipment, net 121,299 (17,682) 103,617 Reorganization value in excess of amounts allocable to identifiable assets 45,854 45,854 Excess of cost over fair value of net assets acquired 29,612 (29,612) -- Other assets 54,254 $ (6,555) (3,637) 44,062 --------- --------- --------- -------- Total $ 330,341 $ (6,555) $ (5,938) $317,848 ========= ========= ========= ======== Current liabilities excluding current portion of long-term debt $ 48,070 $ 49 $ 48,119 Long-term debt including current portion 91,408 36,400 127,808 Deferred income taxes 3,665 (3,665) -- Other long-term liabilities 19,878 $ (1,287) 18,591 Liabilities subject to compromise 271,082 (271,082) -- Senior redeemable preferred stock 36,503 (36,503) -- Capital stock 21,540 101,790 123,330 Accumulated deficit (161,805) 166,456 (4,651) -- --------- --------- --------- -------- Total $ 330,341 $ (6,555) $ (5,938) $317,848 ========= ========= ========= ========
- ------------------------------------ (a) To record the transactions associated with the Plan of Reorganization as described in Note 1 and eliminate the deficit in retained earnings. (b) To record the adjustments to assets and liabilities to reflect their estimated fair value, including the establishment of reorganization value in excess of amounts allocable to identifiable assets. -34- 35 3. PRO FORMA FINANCIAL INFORMATION (Unaudited) The following unaudited pro forma consolidated statement of operations combines the period from November 3, 1996 to October 9, 1997 and the period from October 10, 1997 to November 1, 1997 and reflects the financial results of the Company as if the Plan of Reorganization had been effective November 3, 1996 (in thousands except share and per share data). The pro forma information does not purport to be indicative of the results that actually would have been obtained had such transactions been completed as of the beginning of the period presented or that may be obtained in the future.
Year Ended November 1, 1997 ---------------------------------------------------------------------------------------- Predecessor Company Reorganized Company ------------------| -------------------------------------------------------------------- Period from | Period from November 3, 1996 | October 10, 1997 Pro forma to October 9, 1997| to November 1, 1997 Total Adjustments Pro forma ------------------| ------------------- --------- ----------- ----------- | Net sales $ 379,643 | $ 38,728 $ 418,371 $ 418,371 Cost of sales 327,667 | 31,058 358,725 $ (8,881)(a) 349,844 --------- | -------- --------- --------- ----------- Gross profit 51,976 | 7,670 59,646 8,881 68,527 Selling, general and | administrative expenses 37,146 | 2,466 39,612 1,132 (b) 40,744 Other income (expense), net (48) | 11 (37) (37) --------- | -------- --------- --------- ----------- Operating profit (loss) 14,782 | 5,215 19,997 7,749 27,746 Valuation allowance on | Gulistan securities (5,070) | -- (5,070) 5,070 (c) -- Interest income 2,744 | 93 2,837 (1,645)(d) 1,192 Interest expense (32,164) | (584) (32,748) 24,072 (e) (8,676) --------- | -------- --------- --------- ----------- Income (loss) before | reorganization items, | income taxes and | extraordinary items (19,708) | 4,724 (14,984) 35,246 20,262 Reorganization items: | Fair-value adjustments (4,651) | -- (4,651) 4,651 (f) -- Professional fees and expenses (8,420) | -- (8,420) 8,420 (f) -- --------- | -------- --------- --------- ----------- Income (loss) before income | taxes and extraordinary | items (32,779) | 4,724 (28,055) 48,317 20,262 Provision (benefit) for income | taxes (8,822) | 2,007 (6,815) 15,458(g) 8,643 --------- | -------- --------- --------- ----------- Income (loss) before | extraordinary items (23,957) | 2,717 (21,240) 32,859 11,619 Extraordinary gain on early | extinguishment of debt 100,235 | -- 100,235 (100,235)(h) -- --------- | -------- --------- --------- ----------- Net income (loss) $ 76,278 | $ 2,717 $ 78,995 $ (67,376) $ 11,619 ========= | ======== ========= ========= =========== | Weighted average number of | common shares outstanding | 10,000,000 | =========== | Net income per common share | $ 1.16 ===========
- ------------------------------------ -35- 36 (a) The following table details the net adjustment to cost of goods sold related to fresh start accounting: Decrease in depreciation expense reflecting revaluation of the Company's property, plant and equipment $ (8,530) Net decrease in pension and post-retirement expense reflecting the full recognition of unamortized gains and losses on the Effective Date (351) ----------- $ (8,881) ===========
(b) The following table details the net adjustment to selling, general and administrative expenses: Decrease in depreciation expense reflecting revaluation of the Company's property, plant and equipment $ (123) Elimination of goodwill amortization (953) Addition of amortization of reorganization value in excess of amounts allocable to identifiable assets 2,208 ----------- $ 1,132 ===========
(c) Reflects the elimination of the valuation allowance on Gulistan Securities since these assets were sold in connection with the reorganization. (d) Reflects the elimination of interest income on the $14 million cash distribution to the holders of 10.25% Notes and 10.85% Notes. (e) The following table details the net adjustment to interest expense related to the reorganization: Decrease in interest expense due to exchange of JPS's 10.25% Notes, 10.85% Notes and 7% Subordinated Debentures $ 25,617 Elimination of amortization of deferred financing costs of the former revolving Credit Facility 297 Amortization of deferred financing costs of the new Credit Agreement (344) Increase in interest expense resulting from additional borrowings under the new Credit Agreement (489) Interest expense on the Contingent Notes (1,009) ----------- $ 24,072 ===========
(f) Reflects the elimination of reorganization items. (g) Reflects the estimated income tax effects reflecting the reorganization and the application of fresh start accounting. Pro forma income tax expense is calculated using a 38% effective tax rate times taxable income before amortization of excess reorganization value. Cash tax expense is calculated after giving effect to certain differences in taxable income for tax purposes including the amortization of excess reorganization value and differences in depreciation expense and pension expense. (h) Reflects the elimination of the gain on early extinguishment of debt. -36- 37 4. SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation - The consolidated financial statements include JPS Textile Group, Inc. and its direct subsidiaries, all of which are wholly owned. Significant intercompany transactions and accounts have been eliminated. Use of Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company's most significant financial statement estimates include the estimate of the allowance for doubtful accounts, reserve for self-insurance liabilities and the reserve for certain defective roofing products sold by the Predecessor Stevens Division operations (discussed in Note 12). Management determines its estimate of the allowance for doubtful accounts considering a number of factors, including historical experience, aging of the accounts and the current creditworthiness of its customers. The Company self-insures, with various insured stop-loss limitations, its workers' compensation, general liability and health claims. Management determines its estimate of the reserve for self-insurance considering a number of factors, including historical experience and third party claims administrator and actuarial assessment of the liabilities for reported claims and claims incurred but not reported. Management believes that its estimates provided in the financial statements, including those for the above-described items, are reasonable and adequate. However, actual results could differ from those estimates. Inventories - Inventories are stated at the lower of cost or market. Cost, which includes labor, material and factory overhead, is determined on the first-in, first-out basis. Investments - At November 1, 1997, all debt and equity securities are classified as held-for-sale and reported at fair value as determined based on market prices or dealer quotes. At November 2, 1996, all debt and equity securities were classified as held-to-maturity and carried at amortized cost, adjusted for amortization of premiums and accretion of discounts to maturity. Property, Plant and Equipment - As a result of the adoption of fresh start accounting as described in Note 2, property, plant and equipment was adjusted to estimated fair value as of October 9, 1997 and historical accumulated depreciation was eliminated. Property, plant and equipment is recorded at cost and depreciation is recorded using the straight-line method for financial reporting purposes. The estimated useful lives used in the computation of depreciation are as follows: 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 was being amortized on a straight-line basis over a period of forty years. As a result of the implementation of fresh start accounting as described in Note 2, the excess of cost over fair value of net assets acquired was written off as of October 9, 1997. -37- 38 Reorganization Value in Excess of Amounts Allocable to Identifiable Assets - Reorganization value in excess of amounts allocable to identifiable assets results from the application of "fresh start" reporting, as discussed in Note 2, which requires the Predecessor Company's unidentified intangibles, net of amortization, to be reduced to zero and a new amount to be recorded equaling the excess of the fair value of the Company over the fair value allocated to its identifiable assets. This excess is classified as reorganization value in excess of amounts allocable to identifiable assets and is being amortized over a twenty-year period. 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 13 for a further description of the accounting for postretirement benefits. Postemployment Benefits - The Company accounts for postemployment benefits using the principles of SFAS No. 112, "Employers' Accounting for Postemployment Benefits". SFAS No. 112 requires that the cost of benefits provided to former or inactive employees after employment but before retirement be recognized on the accrual basis of accounting. See Note 13 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. 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 $1,355,000 and $1,967,000 in Fiscal 1995 and 1996, respectively, and $1,947,000 and $122,000 in the period from November 3, 1996 to October 9, 1997 and the period from October 10, 1997 to November 1, 1997, respectively. 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. -38- 39 Earnings Per Share - Earnings per share is computed by dividing earnings applicable to common stock by the weighted average number of shares of common stock outstanding during the period. In the period from October 10, 1997 to November 1, 1997, the inclusion of additional shares assuming the exercise of stock options and warrants was antidilutive. Therefore, primary and fully diluted earnings per share are the same. In February 1997, the Financial Accounting Standards Board issued SFAS No. 128 "Earnings Per Share", which will be effective during Fiscal 1998. The Company does not believe that the adoption of SFAS No. 128 will have a significant effect on its earnings per share disclosure. 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. Fiscal 1995 consisted of fifty-two weeks and Fiscal 1996 had fifty-three weeks. The 1997 fiscal year consisted of fifty-two weeks including the period from November 3, 1996 to October 9, 1997 (Predecessor Company) and the period from October 10, 1997 to November 1, 1997 (Reorganized Company). Reclassifications - Certain Fiscal 1995 and 1996 amounts have been reclassified to conform to the 1997 presentation. 5. SALE OF DISCONTINUED OPERATIONS Carpet Business - On November 16, 1995, pursuant to the terms of an Asset Transfer Agreement dated as of November 16, 1995, by and among JPS, JPS Carpet Corp. ("Carpet"), a wholly-owned subsidiary of JPS, Gulistan Holdings Inc. and Gulistan Carpet Inc., a wholly-owned subsidiary of Gulistan Holdings Inc. (collectively, "Gulistan"), the Company and Carpet consummated the sale of substantially all of the assets of Carpet used in the business of designing and manufacturing tufted carpets for sale to residential, commercial and hospitality markets (the "Carpet Business"). 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 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 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 loss on the sale was not currently recognizable for tax purposes and the Company 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 $120.1 million in Fiscal 1995. -39- 40 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 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). The Company did not record interest income on any of the Gulistan securities held by the Company because of net losses reported by Gulistan since the date of sale. Also, in accordance with relevant accounting literature, the Company recorded a valuation allowance against its investment in Gulistan securities and corresponding charges to income of approximately $4.2 million in Fiscal 1996 and $2.1 million in the period from November 3, 1996 to October 9, 1997 as a result of the net losses incurred by Gulistan. On August 28, 1997, the Company sold its investment in the Gulistan securities to Gulistan for $2.0 million in cash resulting in an additional charge of approximately $3.0 million. Automotive Businesses - On June 28, 1994, pursuant to the terms of an Asset Purchase Agreement dated May 25, 1994 (the "Asset Purchase Agreement"), by and among JPS, JPS Auto Inc., a wholly-owned subsidiary of JPS ("Auto"), JPS Converter and Industrial Corp., a wholly-owned subsidiary of JPS ("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 to the Purchaser. The sale price for the automotive assets was approximately $283 million, consisting of $264 million of cash paid at closing and $15 million of assumed debt as of June 28, 1994. In addition, certain post-closing adjustments which resulted in a gain of $4.4 million, net of $0.1 million of taxes, were recognized in Fiscal 1995. 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 portion was approximately $1.6 million in Fiscal 1995. 6. 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 $20.7 million and $16.8 million in Fiscal 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 -40- 41 and was used to reduce the Company's outstanding indebtedness. In April 1997, the Company paid $0.3 million to Elastomer as final settlement for certain post-closing adjustments based on the audited amount of net assets transferred. On August 28, 1996, the Company implemented a plan to close its Dunean plant in Greenville, South Carolina, as a result of management's determination that a permanent decline in the Company's spun apparel business had occurred. This plant had been operating on a reduced schedule due to poor market conditions and financial projections indicated it would continue to do so. As a result of the plant closing, the accompanying Consolidated Statement of Operations includes a "charge for plant closing" of approximately $14.2 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. The plant closing was completed on October 28, 1996 and the plant was sold on August 14, 1997 for approximately $1.2 million in cash. Also, in connection with the Company's review of present and expected conditions in the markets it serves, management determined that its plant in Kingsport, Tennessee, which manufactures cotton fabrics, was impaired under the criteria of SFAS No. 121 because expected future cash flows from the operation of the plant were less than the carrying value of the plant assets. The accompanying Consolidated Statement of Operations for Fiscal 1996 includes a "writedown of certain long-lived assets" of $8.1 million for the excess of the carrying value of the plant over its estimated fair value. Estimated fair value was determined based on an independent appraisal of the plant's property, plant and equipment. -41- 42 7. BALANCE SHEET COMPONENTS The components of certain balance sheet accounts are (in thousands):
Predecessor Reorganized Company Company ----------- ----------- November 2, November 1, 1996 1997 ----------- ----------- Inventories: Raw materials and supplies $ 13,155 $ 12,508 Work-in-process 16,912 17,168 Finished goods 18,307 15,094 --------- --------- $ 48,374 $ 44,770 ========= ========= Prepaid expenses and other: Investments $ -- $ 34,597 Deferred current tax -- 867 Prepaid insurance 620 555 Other 1,347 1,066 --------- --------- $ 1,967 $ 37,085 ========= ========= Property, plant and equipment, net: Land and improvements $ 5,921 $ 4,187 Buildings and improvements 42,775 13,548 Machinery and equipment 183,320 81,108 Furniture, fixtures and other 8,116 1,069 --------- --------- 240,132 99,912 Less accumulated depreciation (117,642) (681) --------- --------- 122,490 99,231 Construction in progress 1,514 5,323 --------- --------- $ 124,004 $ 104,554 ========= ========= Other noncurrent assets: Unamortized debt issuance costs $ 351 $ 1,438 Prepaid pension costs 1,055 2,043 Deferred income tax -- 3,344 Investments 52,986 -- Other 58 -- --------- --------- $ 54,450 $ 6,825 ========= ========= Other accrued expenses: Roofing product liability costs $ 3,000 $ 1,500 Taxes payable other than income taxes 1,250 1,090 Income taxes 2,150 3,292 Other 7,587 7,300 --------- --------- $ 13,987 $ 13,182 ========= ========= Other long-term liabilities: Roofing product liability costs and deferred warranty income $ 14,361 $ 14,744 Accrued postretirement benefit plan liability 4,808 3,393 Other 344 126 --------- --------- $ 19,513 $ 18,263 ========= =========
-42- 43 8. INVESTMENTS In connection with the sale of the Automotive Assets in June 1994, the Company invested $39.5 million of the sale proceeds in long-term securities. During 1997, the original investments matured and were reinvested as detailed below. The following table details the original and reinvested amounts at November 2, 1996 and November 1, 1997 (in thousands):
1996 -------------------------------------------------------------- Held to Maturity: Adjusted Cost Gross Unrealized Gains Fair Value ----------------- ------------- ---------------------- ----------- U.S. Treasury obligations $ 45,257 $ 437 $ 45,694 Other 464 - 464 ---------- ------- ----------- $ 45,721 $ 437 $ 46,158 ========== ======= ===========
1997 -------------------------------------------------------------- Held for Sale: Adjusted Cost Gross Unrealized Gains Fair Value ------------------- ------------- ---------------------- ----------- U.S. Treasury obligations $ 28,553 - $ 28,553 Corporate obligations 5,938 - 5,938 Other 106 - 106 ---------- ------- ----------- $ 34,597 - $ 34,597 ========== ======= ===========
At November 2, 1996, the investments are included in other assets and classified as long-term. At November 1, 1997, the investments are included in other current assets because, as discussed in Note 9, the Company expects to use these investments to satisfy certain contingent liabilities in 1998. All investment securities at November 1, 1997 have a contractual maturity of less than one year. 9. LONG-TERM DEBT Long-term debt consists of (in thousands):
Predecessor Reorganized Company Company ----------- ----------- November 2, November 1, 1996 1997 ----------- ----------- Senior credit facility, revolving line of credit $ 85,639 $ 92,246 10.85% Notes (including interest due at maturity of $6,002) 115,249 -- 10.25% Notes (including interest due at maturity of $5,609) 82,382 -- 7% Subordinated Debentures 54,071 -- Contingent Notes -- 34,540 Equipment financing 7,016 4,181 --------- --------- Total 344,357 130,967 Less reorganization discount: 10.85% Notes (3,308) -- 10.25% Notes (2,694) -- 7% Debentures (8,039) -- --------- --------- Total long-term debt 330,316 130,967 Less current portion (326,090) (36,076) --------- --------- Long-term portion $ 4,226 $ 94,891 ========= =========
-43- 44 Senior Credit Facility - Until the Effective Date, JPS and its operating subsidiaries (being hereinafter collectively referred to as the "Borrowing Subsidiaries") were 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 provided for a revolving credit loan facility and letters of credit (the "Old Revolving Credit Facility") in a maximum principal amount equal to the lesser of (a) $118 million and (b) a specified borrowing base, which was based upon eligible receivables and inventory of the Borrowing Subsidiaries (the "Borrowing Base"), except that (i) no Borrowing Subsidiary could borrow an amount greater than the Borrowing Base attributable to it, (ii) letters of credit could not exceed $15 million in the aggregate, and (iii) $20 million of the Old Revolving Credit Facility was 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 did not exceed the lesser of (A) $118 million and (B) the sum of the Borrowing Base plus $25 million (subject to certain reductions). Borrowings under the Restated Credit Agreement bore interest at a Base Rate (as defined) plus 1.0% per annum or at the Eurodollar Rate (as defined) plus 2.5% per annum. A fee of 1/2 of 1% per annum was paid on the unused line of credit. During the first quarter of Fiscal 1995, the Company borrowed $36,607,000 under the Restated Credit Agreement 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. On the Effective Date, JPS and the Borrowing Subsidiaries entered into the Credit Facility Agreement, dated as of the Effective Date (the "Credit Agreement"), by and among the financial institutions party thereto, Citibank, as agent, and NationsBank, N.A., as co-agent. The Credit Agreement provides for a revolving credit loan facility and letters of credit (the "Revolving Credit Facility") in a maximum principal amount equal to the lesser of (a) $135 million and (b) a specified borrowing base (the "Borrowing Base"), which is based upon eligible receivables, eligible inventory and a specified dollar amount ($55,000,000 (subject to reduction) based on fixed assets of the Borrowing Subsidiaries), except that (i) no Borrowing Subsidiary may borrow an amount greater than the Borrowing Base attributable to it (less any reserves as specified in the Credit Agreement) and (ii) letters of credit may not exceed $20 million in the aggregate. The maturity date of the Revolving Credit Facility is October 9, 2002. Until delivery of the Company's certificate with respect to its compliance with the terms of the Credit Agreement during the second fiscal quarter of 1998 (the date of such delivery being the "Delivery Date"), all borrowings under the Revolving Credit Facility bear interest at either (i) the Eurodollar Rate (as defined in the Credit Agreement) plus 1.5% per annum or (ii) the Base Rate (as defined in the Credit Agreement) and, thereafter, will bear interest at the Base Rate or the Eurodollar Rate plus an applicable margin (the "Applicable Margin") based upon the Company's consolidated leverage ratio (which margin will not exceed .25% for Base Rate borrowings and 1.75% for Eurodollar Rate borrowings). The weighted average interest rate at November 1, 1997 is approximately 7.33%. The Company currently pays (i) a fee of .375% per annum on the average unused commitments under the Revolving Credit Facility until the Delivery Date and thereafter such fees will be reduced to .25% per annum if a specified leverage ratio is satisfied and (ii) a letter of credit fee equal to the Applicable Margin for Eurodollar Rate borrowings. As of November 1, 1997, unused and outstanding letters of credit totaled $2,040,000. The outstanding letters of credit reduce the funds available under the Revolving Credit Facility. At November 1, 1997, the Company had $40,714,000 available for borrowing under the Revolving Credit Facility. -44- 45 The Credit Agreement contains restrictions on investments, acquisitions and dividends unless, among other things, the Company satisfies a specified pro forma fixed charge coverage ratio and maintains a specified minimum availability under the Revolving Credit Facility for a stated period of time, and no default exists under the Credit Agreement. The Credit Agreement also restricts, among other things, indebtedness, liens, affiliate transactions, operating leases, fundamental changes and asset sales other than the sale of up to $35 million of fixed assets, subject to the satisfaction of certain conditions. The Credit Agreement contains financial covenants relating to minimum levels of EBITDA (as defined), minimum interest coverage ratio, minimum fixed charge coverage ratio and maximum capital expenditures. As of November 1, 1997, the Company was in compliance with these restrictions and all financial covenants. The loans and extensions of credit to the Borrowing Subsidiaries under the Credit Agreement are guaranteed by JPS and its other existing subsidiaries other than JPS Capital, and are secured by the assets of JPS (excluding the stock of JPS Capital) and its existing subsidiaries other than JPS Capital. 10.85% Notes - The Company issued the 10.85% Notes in the 1991 reorganization. The 10.85% 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 compounded semi-annually at the annual rate of 10.85%. In connection with the 1991 reorganization, the carrying value of the 10.85% Notes was reduced to its estimated net present value using an effective interest rate of 13%. As discussed in Note 1, under the terms of the Plan of Reorganization, the discount notes were converted to cash, Common Stock and Contingent Notes as of the Effective Date. 10.25% Notes - The Company issued the 10.25% Notes in the 1991 reorganization. The 10.25% Notes began accruing interest June 1, 1992 at 10.25% with 9.25% paid semi-annually and 1% payable at maturity. Interest payable at maturity compounded 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%. As discussed in Note 1, under the terms of the Plan of Reorganization, the 10.25% Notes were converted to cash, Common Stock and Contingent Notes as of the Effective Date. 7% Subordinated Debentures - 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%. The subordinated debentures accrued interest at 7%, payable semi-annually. As discussed in Note 1, under the terms of the Plan of Reorganization, the 7% Subordinated Debentures were converted to Common Stock as of the Effective Date. Contingent Notes - As discussed in Note 1, on the Effective Date, under the terms of the Plan of Reorganization, JPS Capital, the Company and First Trust National Association, as trustee, entered into an indenture, dated as of the Effective Date (the "Contingent Note Indenture"), pursuant to which JPS Capital issued the Contingent Notes in an initial principal amount of approximately $34 million, subject to adjustment as set forth below. The Contingent Notes are unsecured obligations of JPS Capital and are contingent as to timing and amount of payments. The timing and amount of payments due pursuant to the Contingent Notes will depend upon the amount of cash on hand at JPS Capital at maturity, which in turn will depend on the ultimate resolution of certain possible contingent tax liabilities of the Company. JPS Capital was established in 1994 at the time of the Company's sale of its automotive assets. During fiscal year 1994, the Company utilized approximately $141 million of tax net operating loss carryforwards to offset the gain -45- 46 recognized on such sale. Although the Company believes that the use of such carryforwards to offset such gain more likely than not will be sustained under existing tax laws, uncertainty existed at the time of such sale and continues to exist. Therefore, in accordance with provisions of the Old Debt Securities, the Company set aside in JPS Capital a portion of the net proceeds from such sale to satisfy, if necessary, these possible contingent tax liabilities. Such amounts were invested in United States Treasury Securities and subsequently reinvested in United States Treasury Securities and corporate obligations by JPS Capital. As of the Effective Date, JPS Capital held funds of approximately $34 million. Pursuant to the Plan of Reorganization, JPS Capital will continue to hold those funds on behalf of the JPS tax affiliates, and following the final resolution of such possible contingent tax liabilities, provide to them from such funds the amounts with which they will satisfy their finally determined liabilities. In the event the aggregate funds held by JPS Capital are less than $34 million following the date on which the possible contingent tax liability in respect of the Company's 1994 fiscal year is finally resolved, and to the extent of any such liability, satisfied, the aggregate principal amount of the Contingent Notes will be reduced to equal the aggregate funds held by JPS Capital. The Contingent Notes will mature and be payable on the forty-fifth day following the date on which the possible contingent tax liability in respect of fiscal year 1994 is finally resolved, and to the extent of any such liability satisfied. No interest is payable on the Contingent Notes prior to maturity. However, on the maturity date thereof, as provided above, interest will be payable on the Contingent Notes to the extent the aggregate funds held by JPS Capital on such date exceeds $34 million. If, on such date, the aggregate principal amount, reduced as provided above, is zero or less, the Contingent Notes will be deemed automatically cancelled and no longer an obligation of JPS Capital. The Contingent Note Indenture prohibits redemption by JPS Capital of any portion of the Contingent Notes prior to maturity other than with funds contributed to it by the Company in the Company's sole discretion. No acceleration of obligations under the Contingent Notes may occur prior to maturity. Except as specifically provided in the Contingent Note Indenture, neither JPS Capital, JPS, nor the trustee under the Contingent Note Indenture may amend or waive compliance by JPS Capital or reorganized JPS with any provision of the Contingent Notes or the Contingent Note Indenture without the requisite consent of the holders of the Contingent Notes and a final order of the Bankruptcy Court. In addition, prior to maturity, the Restated Certificate of Incorporation of JPS Capital (i) restricts the Company from transferring, pledging or otherwise disposing of any shares of capital stock of JPS Capital, and (ii) prohibits JPS Capital from declaring any dividends, making any distributions to JPS or any other entity, incurring any obligations or liens, or making any transfer or disposition of property not permitted by JPS Capital's Restated Certificate of Incorporation. Due to the uncertainties in connection with the contingent tax liabilities described above, the Company has not assigned a fair value to the Contingent Notes. Equipment Financing - The Company has financed a portion of its equipment purchases with loans from a finance company and certain equipment vendors at fixed interest rates ranging from 7.6% to 9.7%. Monthly principal payments are due in various amounts as determined by the terms of the loans which have final maturity dates through December 2001. Other - Substantially all of the Company's assets are pledged as collateral for the Credit Agreement and the equipment financing. -46- 47 Interest expense includes $8,818,000 in Fiscal 1995, $10,088,000 in Fiscal 1996, $7,303,000 in the period from November 3, 1996 to October 9, 1997 and $19,000 in the period from October 10, 1997 to November 1, 1997, representing amortization of debt issuance expenses and accretion of interest on the discounted notes and accrued product liability costs (see Note 12). Maturities - Aggregate principal maturities of all long-term debt are as follows (in thousands):
Fiscal Year Ending ------------------ 1998 $ 36,076 1999 689 2000 638 2001 639 2002 92,925 ----------- $ 130,967 ===========
10. EQUITY SECURITIES AND SENIOR REDEEMABLE PREFERRED STOCK Through the implementation of the Plan of Reorganization as of the Effective Date, approximately $240 million in face amount of outstanding debt securities were converted to, among other things, $14 million in cash, 9,924,623 shares of Common Stock and approximately $34 million in aggregate principal amount of Contingent Notes. The Old Senior Preferred Stock, Old Junior Preferred Stock and Old Common Stock were cancelled. Warrants to purchase up to 5% of the Common Stock exercisable until October 9, 2000 with an initial purchase price of $98.76 per share were issued in respect of the Old Senior Preferred Stock. Senior management received 75,377 shares of Common Stock on the Effective Date in lieu of payment under their contractual retention bonus arrangements. Certain information on equity securities and senior redeemable preferred stock at November 2, 1996 and November 1, 1997 is as follows:
Shares Issued and Outstanding ----------------------------- Par Value November 2, November 1, Per Share Authorized 1996 1997 --------- ------------- ------------- ----------- Old Series A Senior Redeemable Preferred Stock $ .01 700,000(1) 538,176 -- Old Series B Junior Preferred Stock .01 700,000(1) 10,000 -- Old Class A Common Stock .01 700,000 490,000 -- Old Class B Common Stock .01 700,000 510,000 -- New Common Stock .01 22,000,000 -- 10,000,000
(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. Until the Effective Date, the Old Senior Preferred Stock was redeemable, prior to its maturity date of May 15, 2003, at 103% of the liquidation preference of $100 per share. Dividends were cumulative and calculated based on an annual rate of 6% of the liquidation preference. Under the terms of various credit agreements, dividends had to be in the form of additional shares until 1998. In connection with the 1991 restructuring, the Old Senior Preferred Stock was discounted to its estimated net present value with the net discount of $23,351,000 reflected as an adjustment of additional paid-in capital. -47- 48 The difference between the net carrying amount of the Old Senior Preferred Stock and its mandatory value was amortized using the interest method of amortization over the life of the shares by charges to additional paid-in capital or, if available, by charges to retained earnings. The unamortized discount was approximately $21,844,000 at November 2, 1996. The Company did not issue first, second or third quarter Fiscal 1997 dividends on its senior redeemable preferred stock. Such cumulative dividends that had not been declared or issued totaled $3,827,000 at October 9, 1997. 1997 Incentive and Capital Accumulation Plan As of the Effective Date, the Company adopted the 1997 Incentive and Capital Accumulation Plan (the "Incentive Plan") which provides certain key employees and non-employee directors of the Company the right to acquire shares of Common Stock or monetary payments based on the value of such shares. Pursuant to the Incentive Plan, approximately 853,000 shares of Common Stock were reserved for issuance to the participants in the form of stock options, stock appreciation rights, stock awards, performance awards, and stock units that may be granted by the compensation committee comprised of certain members of the Company's Board of Directors. The Incentive Plan will terminate ten years from the date of adoption. On October 30, 1997, options to acquire approximately 569,000 shares of the shares reserved pursuant to the Incentive Plan were granted to senior management of the Company. These options include a combination of time vesting options which vest solely on the lapse of time and performance options which vest upon achievement of specified corporate performance goals and the lapse of time. These options are according to specific vesting schedules as set forth in individual participant's grant letters. In addition, on the Effective Date, each non-employee director (except one, who waived his right to receive such options) received options to purchase 25,000 shares of Common Stock. These options vest equally in amounts of 5,000 shares per director, on the Effective Date and the first, second, third and fourth anniversaries of the Effective Date. A summary of the activity in the Company's stock options for the period from the Effective Date to November 1, 1997 is presented below:
Number of Shares Exercise Price ---------------- -------------- Options granted on the Effective Date 100,000 $ 12.33 Options granted during the period from the Effective Date to November 1, 1997 568,990 12.33 Options exercised -- -- Options cancelled -- -- ------- ------- Outstanding at November 1, 1997 668,990 $ 12.33 ======= ======= Exercisable at November 1, 1997 20,000 $ 12.33 ======= ======= Weighted average remaining contractual life (years) 10 =======
The Company applies the principles of APB Opinion 25 in accounting for employee stock option plans. Had compensation cost been determined on the basis of SFAS No. 123, "Accounting for Stock-Based Compensation", compensation expense would have been recorded based on the estimated fair value of stock options granted during the period from the Effective Date to November 1, 1997. The total fair value of stock options granted for the period from October 10, 1997 to November 1, 1997 was estimated at $3,266,000, based upon the Black-Scholes option pricing model. The following weighted-average assumptions were used in the Black-Scholes option pricing model for stock options granted during the period from the Effective Date to November 1, 1997 (i) risk-free interest rates of approximately 5.7%, (ii) a weighted average expected life of approximately 4.4 years from the grant date, and (iii) 38% volatility. The expected life of the stock options granted and the stock price -48- 49 volatility during the expected life of the options were estimated based upon historical information from public textile companies and management's expectations. Had compensation cost for the Company's stock option plans been determined based on the estimated fair value at the grant dates for awards under those plans consistent with the method of SFAS 123, the Company's income and earnings per share would have been decreased by approximately $70,000 and $0.01 respectively, for the period from October 10, 1997 to November 1, 1997. 11. INCOME TAXES The provision (benefit) for income taxes on continuing operations included in the consolidated statements of operations consists of the following (in thousands):
Reorganized Predecessor Company Company -------------------------------------------| ------------------- Period from | Period from Fiscal Fiscal November 3, 1996 | October 10, 1997 1995 1996 to October 9, 1997| to November 1, 1997 ------ ------ ------------------| ------------------- | Current state provision (benefit) $1,200 $ 200 $ 923 | $ (17) Deferred federal provision (benefit) -- -- (6,080) | 1,714 Deferred state provision (benefit) -- (500) (3,665) | 310 ------ ----- ------- | ------- Provision (benefit) for income | taxes $1,200 $(300) $(8,822) | $ 2,007 ====== ===== ======= | =======
There is no current 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 1995 and 1996, the period from November 3, 1996 to October 9, 1997 and the period from October 10, 1997 to November 1, 1997 is as follows (in thousands):
Reorganized Predecessor Company Company --------------------------------------------------| ------------------- Period from | Period from Fiscal Fiscal November 3, 1996 | October 10, 1997 1995 1996 to October 9, 1997| to November 1, 1997 ------- -------- ------------------| ------------------- | Income tax provision (benefit) | at Federal statutory rate $(5,762) $(23,183) $(11,473) | $1,653 Increase (decrease) in income | taxes arising from effect of: | State and local income taxes 1,200 (300) (2,742) | 293 Non-deductible reorganization | costs -- -- 2,947 | -- Amortization of goodwill | or excess reorganization | value 316 344 312 | 57 Losses not resulting in tax benefits -- -- 8,158 | -- Change in valuation reserve 5,234 22,730 (6,080) | -- Other 212 109 56 | 4 ------- -------- -------- | ------ Provision (benefit) for income | taxes $ 1,200 $ (300) $ (8,822) | $2,007 ======= ======== ======== | ======
-49- 50 Presented below are the elements which comprise deferred tax assets and liabilities (in thousands):
Predecessor Reorganized Company Company ----------- ----------- November 2, November 1, 1996 1997 ----------- ----------- Gross deferred assets: Estimated allowance for doubtful accounts $ 412 $ 1,035 Excess of tax over financial statement basis of inventory 647 580 Accruals deductible for tax purposes when paid 2,497 2,275 Deferred compensation deductible for tax purposes when paid 157 -- Postretirement benefits deductible for tax purposes when paid 2,141 1,562 Miscellaneous 83 120 Alternative minimum tax credit carryforward available 2,564 1,827 Deferred financial statement income recognized for tax purposes when received 6,489 5,013 Excess of tax over financial statement carrying value of investment in discontinued operation 13,474 -- Excess of tax basis of intangibles over financial statement basis 8,817 10,406 Net operating loss carryforward 33,291 11,880 Less valuation allowance (53,578) (28,444) -------- -------- Gross deferred assets 16,994 6,254 -------- -------- Gross deferred liabilities: Pension asset recognized for book purposes (411) (776) Excess of financial statement over tax basis of property, plant, and equipment (11,898) (1,267) Excess of tax over financial statement basis of debt instruments (net of deferred financing fees) (4,685) -- Deferred state taxes resulting from filing separate subsidiary returns in some jurisdictions (3,665) -- -------- -------- Gross deferred liabilities (20,659) (2,043) -------- -------- Net deferred tax (liability) asset $ (3,665) $ 4,211 ======== ======== Recognized in the accompanying consolidated balance sheets as follows: Non-current deferred income tax liability $ (3,665) Prepaid expenses and other -- $ 867 Other non-current assets -- 3,344 -------- -------- $ (3,665) $ 4,211 ======== ========
The Company recorded a tax benefit for the period ending October 9, 1997 of approximately $8.8 million. This consists of a benefit from the implementation of the Plan of Reorganization net of state taxes on subsidiary operations that could not be offset by operating loss carryovers or current year losses of JPS or its subsidiaries. The benefit arose as consummation of the Plan of Reorganization substantially deleveraged JPS. The deferred tax asset attributable to the net operating loss carryforwards was reduced as a result of the reduction in net operating loss carryforwards that is required for reorganizations such as that provided in the Plan of Reorganization, and the reserve established against the deferred tax assets that was required due to the operating history was also significantly reduced. The reduction in reserves and reduction in deferred tax liabilities during the period ended October 9, 1997 results in a deferred tax benefit of $9.7 million. The recording of the tax benefit and the net deferred tax asset reflects the Company's determination that it is more likely -50- 51 than not that these deferred tax assets, net of the valuation allowance, will be realized based on current income tax laws and expectations of future taxable income stemming from operations or the reversal of deferred tax liabilities. Uncertainties surrounding income tax law changes, shifts in operations between state taxing jurisdictions and future operating income levels may, however, affect the ultimate realization of all or some portion of these deferred income tax assets. At November 1, 1997, the Company had regular federal net operating loss carryforwards for tax purposes of approximately $28 million. The net operating loss carryforwards expire in years 2004 through 2011. The Company also has federal alternative minimum tax net operating loss carryforwards of approximately $22 million which expire in 2005 through 2012. Alternative minimum tax credits can be carried forward indefinitely and used as a credit against regular federal taxes, subject to limitation. During 1997, the Company reduced net operating loss carryforwards by approximately $60 million due to the provisions of the Code requiring attribute reduction in certain reorganizations, such as the Plan of Reorganization. The Company was also required to reduce alternative minimum tax credit carryforwards by approximately $737,000 as a result of these provisions. The Company utilized approximately $2 million of net operating losses during the period from October 10, 1997 to November 1, 1997. The Company's future ability to utilize its net operating loss carryforwards is limited under the income tax laws as a result of the change in the ownership of the Company's stock occurring as a part of the reorganization. The effect of such an ownership change is to limit the annual utilization of the net operating loss carryforwards to an amount equal to the value of the Company immediately after the time of the change (subject to certain adjustments) multiplied by the Federal long-term tax exempt rate. Due to the Company's operating history, it is uncertain that it will be able to utilize all deferred tax assets. Therefore, a valuation allowance has been provided. 12. COMMITMENTS AND CONTINGENCIES The Company leases office facilities, machinery and computer equipment under noncancellable operating leases. Rent expense was approximately, $3,411,000, $5,158,000, $5,178,000 and $399,000 in Fiscal 1995, Fiscal 1996, the period from November 3, 1996 to October 9, 1997 and the period from October 10, 1997 to November 1, 1997, respectively. 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 1, 1997 (in thousands):
Fiscal Year Ending ------------------ 1998 $ 4,096 1999 3,605 2000 2,878 2001 1,165 2002 197 --------- $ 11,941 =========
The Company has planned expenditures of approximately $25.0 million for property, plant and equipment additions in Fiscal 1998. At November 1, 1997, the Company had commitments for capital expenditures of approximately $1.5 million. -51- 52 On the Effective Date, the Company entered into employment agreements with certain of its executives and key employees. These agreements have three-year terms and are automatically extended on an annual basis after the third year unless the Company or the participant elects in advance not to extend the employment period. The employment agreements provide specific salary levels and bonus eligibility for each participant. In addition, the agreements provide severance benefits if the Company terminates the participant's employment for reasons other than for cause (as defined). Under the terms of the employment agreements, on the Effective Date, the participants received, in the aggregate, a retention grant cash payment of $588,000 and 75,377 shares of Common Stock. The Company has provided for all estimated future costs associated with certain 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. 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. 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 $4,040,000, $3,111,000, $1,815,000 and $521,000 in Fiscal 1995, Fiscal 1996, the period from November 3, 1996 to October 9, 1997 and the period from October 10, 1997 to November 1, 1997, 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. 13. RETIREMENT PLANS Defined Benefit Pension Plan - Substantially all of the Company's employees are covered by a Company-sponsored defined benefit pension plan. The plan also provides benefits to individuals employed by the automotive businesses which were sold by the Company on June 28, 1994, the Carpet Business sold on November 16, 1995 and the Rubber Products Business sold on September 30, 1996. The benefits of these former employees were "frozen" at the respective dates of sale of the businesses. Accordingly, these former employees will retain benefits earned through the respective disposal dates, however, they will not accrue additional benefits. In addition, the plan provides benefits to individuals employed by the Dunean plant which was closed effective October 28, 1996. Benefits for employees who were terminated as a result of the plant closing were also "frozen" as of October 28, 1996 and no additional benefits will accrue subsequent to that date. The plan provides pension benefits that are based on the employees' compensation during the last ten years of employment. The Company's policy is to fund the annual contribution required by applicable regulations. Assets of the pension plan are invested in common and preferred stocks, government and corporate bonds, real estate and various short-term investments. -52- 53 A reconciliation as of the most recent measurement date (November 1, 1996) of the funded status of the plan with amounts reported in the Company's Consolidated Balance Sheets follows (in thousands):
Predecessor Reorganized Company Company ----------- ----------- November 2, November 1, 1996 1997 ----------- ----------- Actuarial present value of benefit obligations: Vested $ 88,983 $90,574 Non-vested 377 197 -------- ------- Accumulated benefit obligation 89,360 90,771 Provision for future pay increases 6,755 5,528 -------- ------- Total projected benefit obligation 96,115 96,299 Plan assets at fair value 89,410 97,312 -------- ------- Projected benefit obligation (greater than) less than plan assets (6,705) 1,013 Unrecognized net loss 4,212 1,030 Prior service cost not yet recognized in net periodic pension cost 3,548 -- -------- ------- Pension asset in accompanying Consolidated Balance Sheets $ 1,055 $ 2,043 ======== =======
Predecessor Company Reorganized Company ------------------------------------------------| -------------------- Period from | Period from Fiscal Fiscal November 3, 1996 | October 10, 1997 1995 1996 to October 9, 1997 | to November 1, 1997 -------- ------- ------------------ | -------------------- | Components of net periodic | pension cost: | Service cost-benefits earned | during the period $ 2,483 $ 2,378 $ 2,026 | $ 136 Interest cost on projected | benefit obligation 7,131 7,048 6,683 | 449 Return on plan assets (15,628) (7,674) (7,184) | (483) Net amortization and deferral 8,478 451 330 | -- -------- ------- ------- | ----- Net periodic pension cost 2,464 2,203 1,855 | 102 Cost allocated to | discontinued operations 444 -- -- | -- -------- ------- ------- | ----- Net periodic pension cost for | continuing operations $ 2,020 $ 2,203 $ 1,855 | $ 102 ======== ======= ======= | =====
As a result of the application of fresh start accounting as described in Note 2, all unamortized prior service costs and unrecognized gains were immediately recognized as of October 9, 1997 and included in reorganization items for the period then ended. On February 15, 1996, the Company offered special early retirement benefits to approximately fifty salaried employees who met certain criteria. Approximately $2.2 million of pension benefits were paid in lump-sums by the plan to twenty-eight employees who accepted the offer. In Fiscal 1996 a charge of $1,125,000 representing the actuarial cost to the plan of the early retirement offer as accepted by the employees is included in other expense in the accompanying Consolidated Statement of Operations. -53- 54 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 November 2, 1996 and November 1, 1997 was 7.8%. The expected long-term rate of return on assets was 9% at November 2, 1996 and November 1, 1997. The assumed rate of increase in compensation levels was based on age-related tables at November 2, 1996 and November 1, 1997. 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. 401(k) Savings Plan - The Company also has a savings, investment and profit-sharing plan available to employees meeting eligibility requirements. The plan is a tax qualified plan under Section 401(k) of the Internal Revenue Code. The Company makes a matching contribution of 25% of each participant's contribution with a maximum matching contribution of 1-1/2% of the participant's base compensation. Company contributions were approximately $589,000 in Fiscal 1995, $587,000 in Fiscal 1996, $523,000 in the period from November 3, 1996 to October 9, 1997 and $47,000 in the period from October 10, 1997 to November 1, 1997. 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):
Predecessor Reorganized Company Company ----------- ----------- November 2, November 1, 1996 1997 ----------- ----------- Retirees $1,721 $1,444 Fully eligible active plan participants 1,075 1,130 Other active plan participants 914 807 Unrecognized gain 1,098 12 ------ ------ Accrued postretirement benefit plan liability $4,808 $3,393 ====== ======
-54- 55 Net periodic postretirement benefit expense included the following components (in thousands):
Reorganized Predecessor Company Company ----------------------------------------| ------------------- Period from | Period from Fiscal Fiscal November 3, 1996 | October 10, 1997 1995 1996 to October 9, 1997 | to November 1, 1997 ------ ------ ------------------ | ------------------- | Service cost for benefits earned $ 1 $ 5 $ 5 | $ 6 Interest cost on APBO 357 297 229 | 16 ------ ------ ------- | ------- Net periodic postretirement cost $ 358 $ 302 $ 234 | $ 32 ====== ====== ======= | =======
As a result of the application of fresh start accounting as described in Note 1, all unamortized gains were fully recognized as of October 9, 1997 and included in reorganization items for the period then ended. In Fiscal 1996, the Company recognized a curtailment gain of approximately $347,000 related to the sale of the Rubber Products Business and the Dunean plant closing, and related termination of participation in the plans of these employees. Since the Company has capped its annual liability per person and all future cost increases will be passed on to retirees, the annual rate of increase in health care costs does not affect the postretirement benefit obligation. The weighted-average discount rate used in determining the accumulated postretirement benefit obligation was 7.8% as of November 2, 1996 and November 1, 1997. Postemployment Benefits - The Company provides certain benefits to former or inactive employees after employment but before retirement. In accordance with SFAS No. 112, these benefits are recognized on the accrual basis of accounting. The liability for postemployment benefits at November 2, 1996 and November 1, 1997 is included in other long-term liabilities in the accompanying consolidated financial statements. 14. RELATED PARTIES The Company incurred fees of $1,000,000 in each of Fiscal 1995 and 1996 for management services provided by a former shareholder pursuant to a management services agreement. The accompanying Consolidated Balance Sheet as of November 2, 1996 includes accrued fees of $1,000,000 in other accrued expenses. On the Effective Date, the agreement was cancelled and rejected and rejection damage claims were waived by the shareholders. Accordingly, no amount was accrued for the period from November 3, 1996 to October 9, 1997. 15. 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 -55- 56 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. -56- 57 Industry segment information (in thousands):
Reorganized Predecessor Company Company --------------------------------------------------------------------------- Year Ended | -------------------------------- Period from | Period from October 28, November 2, November 3, 1996 | October 10, 1997 1995 1996 to October 9, 1997 | to November 1, 1997 -------------------------------- ------------------- |-------------------- | Net sales: | Apparel fabrics and products $ 247,846 $ 221,799 $ 167,070 | $ 18,590 Industrial fabrics and products 191,985 193,001 179,434 | 17,847 Home fashion textiles 32,734 34,024 33,139 | 2,291 --------- --------- --------- | -------- $ 472,565 $ 448,824 $ 379,643 | $ 38,728 ========= ========= ========= | ======== Operating profit (loss): | Apparel fabrics and products $ 16,667 $ (22,422) $ 1,210 | $ 2,201 Industrial fabrics and products 7,590 5,947 16,748 | 2,652 Home fashion textiles 1,749 647 976 | 693 Indirect corporate expenses, net (5,345) (6,257) (4,152) | (331) --------- --------- --------- | -------- | Operating profit (loss) 20,661 (22,085) 14,782 | 5,215 | Valuation allowance of | Gulistan Securities -- (4,242) (5,070) | -- Interest income 2,821 2,856 2,744 | 93 Interest expense (39,946) (40,510) (32,164) | (584) Restructuring fees and expenses -- (2,255) (13,071) | -- --------- --------- --------- | -------- | Loss before income taxes, | discontinued operations and | extraordinary items $ (16,464) $ (66,236) $ (32,779) | $ 4,724 ========= ========= ========= | ======== | Depreciation and amortization | expense: | Apparel fabrics and products $ 12,722 $ 12,946 $ 9,410 | $ 297 Industrial fabrics and products 5,690 6,282 5,032 | 283 Home fashion textiles 2,394 2,517 2,537 | 100 --------- --------- --------- | -------- Total segments 20,806 21,745 16,979 | 680 Corporate and other 979 994 901 | 166 --------- --------- --------- | -------- $ 21,785 $ 22,739 $ 17,880 | $ 846 ========= ========= ========= | ======== Capital expenditures: | Apparel fabrics and products $ 8,852 $ 4,389 $ 10,473 | $ 472 Industrial fabrics and products 9,312 4,545 3,636 | 1,130 Home fashion textiles 643 899 353 | 16 --------- --------- --------- | -------- Total segments 18,807 9,833 14,462 | 1,618 Corporate and other 4 1 5 | -- --------- --------- --------- | -------- $ 18,811 $ 9,834 $ 14,467 | $ 1,618 ========= ========= ========= | ========
-57- 58 Industry segment information (in thousands) (Continued):
Reorganized Predecessor Company Company ---------------------------- ------------- October 28, November 2, November 1, 1995 1996 1997 ------------- ----------- ------------- Identifiable assets: Apparel fabrics and products $ 165,622 $ 127,909 $ 110,891 Industrial fabrics and products 115,710 101,376 100,140 Home fashion textiles 20,731 21,333 21,028 ----------- ----------- ------------ Total segments 302,063 250,618 232,059 Corporate and other 81,827 85,309 90,322 ----------- ----------- ------------ 383,890 335,927 322,381 Net assets held for sale 28,932 -- -- ----------- ----------- ------------ $ 412,822 $ 335,927 $ 322,381 =========== =========== ============
Unaudited interim financial data (in thousands): The results for each quarter include all adjustments which are, in the opinion of management, necessary for a fair presentation of the results for interim periods. The consolidated financial results on an interim basis are not necessarily indicative of future financial results on either an interim or annual basis. Selected consolidated financial data for each quarter within Fiscal 1996 and Fiscal 1997 are as follows:
Predecessor Company ----------------------------------------------------------- First Second Third Fourth Year Ended November 2, 1996: Quarter Quarter Quarter Quarter ----------- ----------- ----------- ------------ Net sales $ 98,741 $ 124,437 $ 110,266 $ 115,380 Cost of sales 88,846 109,881 95,908 103,169 ----------- ----------- ----------- ----------- Gross profit 9,895 14,556 14,358 12,211 Selling, general and administrative expenses 9,875 10,838 9,888 9,978 Other income (expense), net (241) (1,708) (129) (420) Charges for plant closing, loss on sale of certain operations and writedown of certain long-lived assets -- -- (30,055) 27 ----------- ----------- ----------- ----------- Operating profit (loss) (221) 2,010 (25,714) 1,840 Valuation allowance on Gulistan Securities (1,500) (2,568) (1,395) 1,221 Interest income 695 693 714 754 Interest expense (9,737) (9,828) (10,082) (10,863) Debt restructuring fees and expenses -- (175) (727) (1,353) ----------- ----------- ----------- ----------- Loss before income taxes and discontinued operations (10,763) (9,868) (37,204) (8,401) Income taxes 70 138 (582) 74 ----------- ----------- ----------- ----------- Loss before discontinued operations (10,833) (10,006) (36,622) (8,475) Loss on sale of discontinued operations, net of taxes -- (1,500) -- -- ----------- ----------- ----------- ----------- Net loss $ (10,833) $ (11,506) $ (36,622) $ (8,475) =========== =========== =========== ===========
-58- 59
Reorganized Predecessor Company Company ---------------------------------------------------------------------------- Period from | Period from First Second Third August 3, 1997 | October 10, 1997 Year Ended November 1, 1997: Quarter Quarter Quarter to October 9, 1997 | to November 1, 1997 ------- ------- ------- ------------------ | ------------------- | Net sales $ 97,167 $ 108,138 $ 95,883 $ 78,455 | $ 38,728 Cost of sales 84,934 93,038 80,682 69,013 | 31,058 -------- --------- ---------- ----------- | ----------- Gross profit 12,233 15,100 15,201 9,442 | 7,670 Selling, general and | administrative expenses 9,314 10,293 10,256 7,283 | 2,466 Other income (expense), net (6) (377) (102) 437 | 11 -------- --------- ---------- ----------- | ----------- Operating profit (loss) 2,913 4,430 4,843 2,596 | 5,215 Valuation allowance on | Gulistan securities (1,299) (789) (2,982) -- | -- Interest income 737 734 761 512 | 93 Interest expense (10,174) (10,049) (10,086) (1,855) | (584) -------- --------- ---------- ----------- | ----------- Income (loss) before | reorganization items, income | taxes and extraordinary items (7,823) (5,674) (7,464) 1,253 | 4,724 Reorganization items: | Fair-value adjustments -- -- -- (4,651) | -- Professional fees and | expenses (1,162) (1,982) (3,332) (1,944) | -- -------- --------- ---------- ----------- | ----------- Income (loss) before income | taxes and extraordinary items (8,985) (7,656) (10,796) (5,342) | 4,724 Provision (benefit) for | income taxes 157 252 275 (9,506) | 2,007 -------- --------- ---------- ----------- | ----------- Income (loss) before | extraordinary items (9,142) (7,908) (11,071) 4,164 | 2,717 Extraordinary gain on early | extinguishment of debt -- -- -- 100,235 | -- -------- --------- ---------- ----------- | ----------- Net income (loss) $ (9,142) $ (7,908) $ (11,071) $ 104,399 | $ 2,717 ======== ========= ========== =========== | =========== | Net income per common share | $ 0.27 | ===========
Net income (loss) per share on or prior to October 9, 1997 are not meaningful due to the significant change in the capital structure in connection with the Plan of Reorganization. During the second quarter of Fiscal 1996, the Company finalized the selling price for the assets and operations of the Carpet business which resulted in loss on sale of discontinued operations of $1.5 million. During the period from August 3, 1997 to October 9, 1997, the Company consummated its Plan of Reorganization, as described in Notes 1, 2 and 3. Accordingly, the results of operations subsequent to October 9, 1997 are not comparable to results of operations for periods preceding that date. -59- 60 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 JPS. Each director took office as of the Effective Date and will serve until a successor is elected and qualified or until his earlier resignation or removal.
Name Age Position(s) Held ---- --- ---------------- Robert J. Capozzi 33 Director Jeffrey S. Deutschman 40 Director Nicholas P. DiPaolo 56 Director Michael L. Fulbright 47 Director Jerry E. Hunter 60 Chairman of the Board, Director, Chief Executive Officer and President John M. Sullivan, Jr. 51 Director David H. Taylor 42 Director, Executive Vice President-- Finance and Secretary
The business experience of each of the directors and executive officers during the past five years is as follows: Mr. Capozzi became a director of JPS on the Effective Date and is a Managing Director of Magten Asset Management Corp. ("Magten"), an investment advisory firm established in 1978. Magten, a registered investment adviser under the Investment Advisers Act of 1940, as amended, beneficially owns approximately 19.05% of the Common Stock of JPS as of December 3, 1997. See "Security Ownership of Principal Shareholders and Management." Mr. Capozzi has been with Magten since 1986. Currently, Mr. Capozzi serves as a member of the Board of Directors of Magten Offshore Fund Ltd. Mr. Deutschman became a director of JPS on the Effective Date and is a private investor and merchant banker. From 1992 to 1995, he was a Managing Director with Aurora Capital Partners, L.P. Prior to that, he was a Managing Director and principal of Deutschman Clayton & Company. Mr. Deutschman has been Co- Chairman of the Board of Directors of The Cherokee Group, a designer, manufacturer, and marketer of casual apparel, and an officer and director of Fair Holdings Corporation and Fair Lanes, Inc., a manager and operator of bowling centers. -60- 61 Mr. DiPaolo became a director of JPS on the Effective Date and was Chairman of the Board, President and Chief Executive Officer of Salant Corporation, a diversified apparel company listed on the New York Stock Exchange from March 1991 until his retirement in May 1997. Prior to that, Mr. DiPaolo served as President and Chief Operating Officer of Salant Corporation since June 1988. From 1985 to 1988, Mr. DiPaolo served as President and Chief Operating Officer of Manhattan Industries, which was merged into Salant Corporation in 1988. Prior to that he was Chairman and Chief Executive Officer of the Villager, a women's sportswear company, from 1979 to 1985. Mr. DiPaolo has served on the Board of Directors of Manhattan Far East, a trading company based in Hong Kong. He is also a member of the Board of Directors of the American Apparel Manufacturers Association and other industry associations. Mr. Fulbright became a director of JPS on the Effective Date and has served as President and Chief Executive Officer of The Bibb Company, a diversified textile company, since August 1996. Prior to that, he served as President of the Denim Division of Cone Mills, Inc. from December 1994 to August 1996. Prior to that, Mr. Fulbright was employed with Springs Industries, serving as President of the Greige Manufacturing Division from August 1992 to November 1994, as President of Wamsutta/Pacific Home Products from July 1986 to July 1992, and as Executive Vice President of Wamsutta/Pacific Home Products from December 1985 to July 1986. Prior to that, Mr. Fulbright was employed by M. Lowenstein Corporation and WestPoint Pepperell. Mr. Hunter was appointed as a director of JPS on April 6, 1993 and as Chief Executive Officer of JPS on November 29, 1994. Mr. Hunter has served as President of JPS since September 1988. Prior to that time, from May 1988 to September 1988, he was Executive Vice-President--Operations. In addition, on January 18, 1994, Mr. Hunter was appointed as Chief Operating Officer of JPS Converter and Industrial Corp., a wholly-owned subsidiary of JPS, and he also serves as a Vice-President of each of JPS'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 21 years. Mr. Sullivan became a director of JPS on the Effective Date and has served as President of American Silk Mills Corp. since 1985, as President and Chief Executive Officer of Gerli & Co., Inc. since 1987, as President of International Silk Association (USA), N.Y., N.Y. since 1988, and as Co-Chairman of the Home Furnishings Committee, I.S.A., Lyons France, since 1995. From 1987 to 1991, Mr. Sullivan served as President of Cheney Brothers Inc. Prior to that, he served as Executive Vice President (Merchandising, Marketing & Sales) of Gerli & Co., Inc. from 1984 to 1987. Prior to that, Mr. Sullivan served as President of A.H. Rice Company Inc., Pittsfield, Massachusetts from 1982 to 1989, as Vice President of Marketing and Sales for Gerli & Co., Inc. from 1979-1982, and as Sales Manager of American Silk Mills Corp. from 1974 to 1979. Mr. Taylor was appointed as a director of JPS on April 15, 1993. Mr. Taylor has served as Executive Vice- President--Finance and Secretary of JPS since June 1991, and prior thereto he was Controller and Assistant Secretary of JPS 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 JPS's subsidiaries. None of the directors or executive officers listed herein is related to any other such director or executive officer. -61- 62 Committees of the Board of Directors The Board of Directors has established an Audit Committee and a Compensation Committee. The Audit Committee, which consists of Messrs. Deutschman and Sullivan, makes recommendations to the Board of Directors regarding the independent auditors to be nominated for ratification by the shareholders, reviews the independence of such auditors, approves the scope of the annual activities of the independent auditors and reviews audit results. Prior to the Effective Date, the Compensation Committee consisted of certain members of the Board of Directors of JPS who, as of the Effective Date, were replaced by the current Board of Directors of JPS. The Compensation Committee, which consists of Messrs. Capozzi, DiPaolo and Fulbright, recommends to the Board of Directors compensation plans and arrangements with respect to the Company's executive officers and key personnel. -62- 63 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 1997. SUMMARY COMPENSATION TABLE
Long-Term Compensation ----------------------- Awards ----------- Securities Annual Compensation Underlying Name and ------------------- Options/ All Other Principal Position Year Salary ($) Bonus SAR's Payouts Compensation(2) - ------------------ ---- ---------- ----- ----- ------- --------------- Jerry E. Hunter 1997 $ 361,218 $ 137,052 115,000 $ 9,059 Chairman of the Board, 1996 332,025 -- 3,371 President and Chief 1995 306,075 195,902 3,228 Executive Officer Carl Rosen 1997 267,650 43,195 30,000 3,178 President, JPS Converter & 1996 251,875 -- 3,131 Industrial Corp.(1) 1995 243,750 83,000 3,046 David H. Taylor 1997 209,973 79,566 75,000 8,025 Executive Vice President - 1996 204,783 -- 2,291 Finance and Secretary 1995 196,350 118,139 2,238 Monnie L. Broome 1997 167,040 63,272 30,000 8,016 Vice President-Human 1996 162,775 -- 2,295 Resources 1995 155,925 91,822 2,250 Bruce R. Wilby 1997 165,000 78,779 30,000 $ 27,751 6,205 President, JPS Elastomerics 1996 161,474 57,761 6,040 Corp. (1) 1995 140,359 -- 5,591 Heyward D. Maddox 1997 133,883 66,857 30,000 1,798 Vice President-Sales and 1996 124,813 93,249 2,258 Marketing, JPS Converter & 1995 119,242 -- 1,724 Industrial Corp.(1)
(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. -63- 64 Agreements with Executive Officers On the Effective Date, JPS entered into an employment agreement with Jerry E. Hunter. The agreement, which provides that Mr. Hunter will serve as President and Chief Executive Officer of JPS until the third anniversary of the Effective Date (the "Termination Date"), shall automatically be extended on an annual basis following the Termination Date unless either party elects in advance not to extend the employment period. The initial base salary under the agreement is $380,000 and may be increased but not reduced over the term of the agreement. In addition, under the new employment agreement, on the Effective Date Mr. Hunter received a retention grant cash payment of $256,274 and 32,852 shares of Common Stock. Mr. Hunter is eligible for an annual bonus up to 50% of base salary based upon the Company's attainment of certain performance goals specified in the 1997 Management Incentive Bonus Plan. If JPS terminates Mr. Hunter's employment for reasons other than for cause (as defined in the agreement), he will be entitled to severance benefits equal to (i) his annual base salary continued through the Termination Date or for one year from the date of termination, if later, (ii) his target annual bonus continued through the Termination Date or for one year, if greater and (iii) continuation of all health and life insurance benefits for up to twenty-four months following the termination of employment. In the event JPS reduces Mr. Hunter's base salary or bonus, materially changes the requirements of his position or requires that he relocate his principal residence, or in the event Mr. Hunter elects to terminate his employment no earlier than six months following a change in control (as defined in the agreement), Mr. Hunter may voluntarily terminate his employment with JPS with such termination being treated, for purposes of severance benefits, as a termination by JPS. On the Effective Date, JPS entered into substantially similar employment agreements with David H. Taylor and Monnie L. Broome, with Mr. Taylor serving as Executive Vice President--Finance and Secretary of JPS and Mr. Broome serving as Vice President--Human Resources of JPS. Under the agreements, base salary for Mr. Taylor is $225,000 and for Mr. Broome is $180,000. In addition, under the new employment agreements, Mr. Taylor received a retention grant cash payment of $163,694 and 20,984 shares of Common Stock and Mr. Broome received a retention grant cash payment of $115,531 and 14,810 shares of Common Stock. Each of Mr. Taylor and Mr. Broome is also eligible for an annual bonus of up to 50% of his salary based upon the Company's attainment of certain performance goals specified in the 1997 Management Incentive Bonus Plan. The new employment agreements of Mr. Taylor and Mr. Broome do not provide that within six months following a change in control, Mr. Taylor or Mr. Broome (as the case may be) may voluntarily terminate their employment with JPS, with such termination being treated, for purposes of severance benefits, as a termination by JPS. 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 30, 1998, 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. -64- 65 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 $19,863 $26,484 $33,104 $39,725 $46,346 150,000 24,362 32,483 40,604 48,725 56,846 160,000 and above 26,162 34,884 43,604 52,325 61,046
* Assumes individual retires at age 65 in 1997 with the indicated years of service and compensation. The social security integration level of such individuals would be $29,304. The social security integration level is adjusted annually. Credited years of service for benefit accrual under the Pension Plan as of November 1, 1997 for the following executive officers are: Jerry E. Hunter 11 years Carl Rosen 6 years David H. Taylor 9 years Monnie L. Broome 9 years Bruce R. Wilby 22 years Heyward D. Maddox 29 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 $29,304 in 1997) 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 55. -65- 66 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 an adjusted maximum of $160,000 per individual for the plan year beginning November 1, 1997. 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. 1997 Management Incentive Bonus Plan The Company's 1997 Management Incentive Bonus Plan provides incentives for key management employees of the Company and its subsidiaries based upon the financial performance of the Company. The plan is designed to provide incentives to maximize operating earnings while minimizing the net assets required to generate those earnings. Targets are set annually for operating earnings (defined as EBITDA before bonus expense and restructuring and reorganization expenses) and net assets employed (defined as average total assets less average current liabilities other than debt-related liabilities such as accrued interest) for each fiscal year and for each operating subsidiary. If actual operating earnings and net assets employed are equal to the targets, a targeted bonus is paid to each participant. To the extent actual operating earnings are greater than the target, amounts in excess of the targeted bonuses are paid to each participant. Likewise, operating earnings lower than target result in a bonus payment that is less then the targeted bonus. A participant's bonus is reduced to zero if actual operating earnings are 80% of target or less. The operating earnings target is adjusted up or down by 12.5% of the excess or deficiency of actual net assets employed compared to the target for net assets employed. Targeted bonus amounts expressed as a percentage of salary for participants in the plan range from 15% to 50%. Individuals listed on the Summary Compensation Table have targeted bonus amounts equal to 50% of salary. 1997 Incentive and Capital Accumulation Plan The Company's Incentive and Capital Accumulation Plan (the "Incentive Plan") is intended to provide incentives that will attract, retain, and motivate highly competent individuals as key employees of the Company and its subsidiaries, by providing them with opportunities to acquire shares of Common Stock or monetary payments based on the value of such shares. Pursuant to the Incentive Plan, 853,485 shares of Common Stock are reserved for issuance to salaried key employees and non-employee directors of the Company pursuant to benefits in the form of stock options, stock appreciation rights, stock awards, performance awards, and stock units that may be granted by the compensation committee comprised of disinterested members of the Company's Board of Directors. The Incentive Plan will terminate on the tenth anniversary of its adoption. -66- 67 On October 30, 1997, options to acquire approximately 569,000 shares of the shares reserved pursuant to the Incentive Plan were granted to senior management of the Company. These options include a combination of time vesting options which vest solely on the lapse of time and performance options which vest upon achievement of specified corporate performance goals. These options are according to specific vesting schedules set forth in individual participant's grant letters. In addition, on the Effective Date, each non-employee director (except one, who waived his right to receive options) received options to purchase 25,000 shares of Common Stock. In the event the employment of any of Jerry E. Hunter, David H. Taylor or Monnie L. Broome, is terminated by the Company without "cause" or by such employee for "good reason" (as such terms are defined in each such employee's employment agreement), such employee's rights immediately will be fully vested in 100% of the shares granted to him. The following table contains information about stock options granted in 1997 to the executive officers:
Potential Realizable Value at Assumed Annual Rates of Stock Price Appreciation Individual Grants for Option Term (3) - -------------------------------------------------------------------------------- ------------------------------- Percent Number of of Total Securities Options/ Underlying SARs Options/ Granted to Exercise SARs Employees or Base Granted in Fiscal Price Expiration Name (#) Year ($/Sh) (1) Date (2) 5% ($) 10% ($) - --------------------- ----------- ----------- ----------- ----------- ------------- ------------- Jerry E. Hunter 115,000 20.21% $12.33 10/30/2007 $ 891,741 $ 2,259,847 Carl Rosen 30,000 5.27% $12.33 10/30/2007 $ 232,628 $ 589,525 David H. Taylor 75,000 13.18% $12.33 10/30/2007 $ 581,570 $ 1,473,813 Monnie L. Broome 30,000 5.27% $12.33 10/30/2007 $ 232,628 $ 589,525 Bruce R. Wilby 30,000 5.27% $12.33 10/30/2007 $ 232,628 $ 589,525 Heyward D. Maddox 30,000 5.27% $12.33 10/30/2007 $ 232,628 $ 589,525
(1) The exercise price (the price that the executive officer must pay to purchase each share of common stock that is subject to option) is equal to the fair market value of the stock on the date of grant of the option. All options shown were granted on October 30, 1997. (2) One-half of options granted become exercisable ratably over three years from the fiscal year end. The remaining one-half of options granted are subject to the Company meeting certain performance goals in addition to the time requirements applicable to the other options. All options expire 10 years from grant. Vesting accelerates in the event of death, disability, involuntary termination, and in certain other events at the discretion of the compensation committee of the Board of Directors. (3) The potential realizable value shown for the executive officers is net of the option exercise price. The dollar gains under these columns result from calculations assuming 5% and 10% growth rates in stock price as prescribed by the Securities and Exchange Commission and achievement of performance of goals, and are not intended to forecast future price appreciation of JPS Textile Group, Inc. common stock. The gains reflect a future value based upon growth at these prescribed rates. It is important to note that options have value to the executive officers and to other option recipients only if the stock price advances beyond the grant date price shown in the Table during the effective option period. -67- 68 Compensation of Directors Each director who is not an employee of the Company will be paid $20,000 annually for his services as a director, $1,200 for attendance at each meeting of the Board of Directors and each committee meeting which does not occur in conjunction with a directors' meeting, and $1,000 annually for his or her services as the chairman of any committee. In addition, each non-employee director received on the Effective Date a grant of options to purchase 25,000 shares of common stock of JPS (other than Robert J. Capozzi who has waived his right to receive such options) at an exercise price based on the per share price of the Common Stock as of the Effective Date (which was $12.33 per share). With respect to the options granted to each non-employee director on the Effective Date, options to purchase 5,000 shares of common stock of JPS vested on the Effective Date and with respect to the balance of the options so granted, options to purchase 5,000 shares of common stock of JPS will vest on each of the first, second, third and fourth anniversaries of the Effective Date. Moreover, non-employee directors are eligible to participate in the Incentive Plan. Under the Incentive Plan each non-employee director appointed subsequent to the Effective Date will receive on the date such director is appointed (the "Appointment Date") a grant of options to purchase 25,000 shares of common stock of JPS at an exercise price based on the per share price of the common stock of JPS as of the Appointment Date. With respect to the options granted to each non-employee director appointed subsequent to the Effective Date, options to purchase 5,000 shares of common stock of JPS will vest on the applicable Appointment Date and with respect to the balance of the options so granted, options to purchase 5,000 shares of common stock of JPS will vest on each of the first, second, third and fourth anniversaries of such Appointment Date. -68- 69 Item 12. SECURITY OWNERSHIP OF PRINCIPAL SHAREHOLDERS AND MANAGEMENT. Based upon information known to JPS as of January 7, 1998, the following table sets forth the ownership of the shares of Common Stock issued and outstanding as of such date by (a) each person or group that is the beneficial owner of more than 5% of such shares on such date, (b) each director of JPS on such date and (c) all directors of JPS as a group on such date.
Common Stock (1) ---------------- Name and Address of Beneficial Owners Number of Shares Percent of Class ------------------------------------- ---------------- ---------------- Magten Asset Management Corp.(2) 1,905,435 18.07% 35 East 21st Street New York, New York 10010 Northeast Investors Trust 1,038,823 9.85% 50 Congress Street, 10th Floor Boston, Massachusetts 02109 TCW Shared Opportunity Fund II, L.P.(3) 568,376 5.39% 11100 Santa Monica Boulevard Suite 2000 Los Angeles, California 90025 Swiss Bank Corporation, London Branch 1,027,214 9.74% 222 Broadway New York, New York 10038 Merrill Lynch, Pierce, Fenner & Smith, Incorporated 925,685 8.78% 250 Vesey Street World Financial Center-North Tower New York, New York 10281 Daystar L.L.C. 1,679,360 15.92% 411 Theodore Fremd Avenue Rye, New York 10580 Robert J. Capozzi(5) 1,905,435 18.07% Magten Asset Management Corp. 35 East 21st Street New York, New York 10010 Jeffrey S. Deutschman 5,000 (4) 0.05% 10519 Ashton Avenue Los Angeles, California 90024 Nicholas P. DiPaolo 5,000 (4) 0.05% 4 Powder Hill Saddle River, New Jersey 07458 Michael L. Fulbright 5,000 (4) 0.05% 1940 Dinsmore Road Alpharetta, Georgia 30201
-69- 70
Common Stock (1) ---------------- Name and Address of Beneficial Owners Number of Shares Percent of Class ------------------------------------- ---------------- ---------------- Jerry E. Hunter 32,852 0.31% JPS Textile Group, Inc. 555 North Pleasantburg Drive Suite 202 Greenville, South Carolina 29607 John M. Sullivan 5,000 (4) 0.05% American Silk Mills Corp. 41 Madison Avenue 41st Floor New York, New York 10010 David H. Taylor 20,984 0.20% JPS Textile Group, Inc. 555 North Pleasantburg Drive Suite 202 Greenville, South Carolina 29607 Directors and executive officers as a group 1,979,271 (6) 18.77%
(1) After giving effect to (i) the exercise in full of the New Warrants issued on the Effective Date and (ii) the exercise in full of all options to purchase shares of common stock of JPS which became vested on the Effective Date. (2) Includes shares of the Common Stock held by Magten in accounts managed by Magten on behalf of various investment advisory clients, including the City of Los Angeles Fire and Police Pension Systems (719,411 shares, or 6.82%, of the Common Stock) and Hughes Retirement Plans Trust (575,617 shares, or 5.46%, of the Common Stock). Certain of such shares are held for the benefit of family interests of Talton R. Embry, the Chairman, a director and controlling shareholder of Magten, or in employee plans with respect to which Mr. Embry serves as a trustee. Magten has shared voting and investment power over all of such 1,905,447 shares. (3) The general partner and investment advisor of TCW Shared Opportunity Fund II, L.P. ("SHOP II") is TCW Investment Management Company ("TIMCO"). Messrs. Mark L. Attanasio, Robert D. Beyer, Jean-Marc Chapus and Mark L. Gold are portfolio managers of SHOP II and exercise voting and dispositive power on its behalf. Messrs. Attanasio, Beyer, Chapus and Gold disclaim any beneficial ownership of the capital stock of JPS. (4) Represents options granted to non-employee directors of JPS (other than Robert J. Capozzi) on the Effective Date. See "EXECUTIVE COMPENSATION--Compensation of Directors." (5) By virtue of 1,905,435 shares of Common Stock of JPS beneficially owned by Magten, of which Mr. Capozzi is Managing Director. Mr. Capozzi disclaims beneficial ownership of all of these shares. Mr. Capozzi has informed JPS that he has waived his entitlement to receive any options to purchase shares of common stock of JPS to which each non-employee director will be entitled on the Effective Date. See "EXECUTIVE COMPENSATION--Compensation of Directors." (6) Includes 1,905,435 shares of Common Stock of JPS beneficially owned by Magten. See Note 5. -70- 71 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 1, 1997 (Reorganized Company) and November 2, 1996 (Predecessor Company). (iii) Consolidated Statements of Operations for the periods from October 10, 1997 to November 1, 1997 (Reorganized Company) and November 3, 1996 to October 9, 1997 (Predecessor Company) and the fiscal years ended November 2, 1996 and October 28, 1995 (Predecessor Company). (iv) Consolidated Statements of Senior Redeemable Preferred Stock and Shareholders' Equity (Deficit) for the periods from October 10, 1997 to November 1, 1997 (Reorganized Company) and November 3, 1996 to October 9, 1997 (Predecessor Company) and the fiscal years ended November 2, 1996 and October 28, 1995 (Predecessor Company). (v) Consolidated Statements of Cash Flows for the periods from October 10, 1997 to November 1, 1997 (Reorganized Company) and November 3, 1996 to October 9, 1997 (Predecessor Company) and the fiscal years ended November 2, 1996 and October 28, 1995 (Predecessor Company). (vi) Notes to Consolidated Financial Statements. The registrant is primarily a holding company and all direct subsidiaries are wholly owned. (2) The financial statement schedule required by Item 8 is listed on Index to Financial Statement Schedule, starting at page S-1 of this report. (3) The exhibits required by Item 601 of Regulation S-K are listed in the accompanying Index to Exhibits. Registrant will furnish to any securityholder, upon written request, any exhibit listed in the accompanying Index to Exhibits upon payment by such securityholder of registrant's reasonable expenses in furnishing any such exhibit. (b) No reports on Form 8-K were filed during the quarter ended November 1, 1997. (c) Reference is made to Item 14(a)(3) above. (d) Reference is made to Item 14(a)(2) above. -71- 72 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) Joint Plan of Reorganization for JPS Textile Group, Inc., a Delaware corporation ("JPS"), proposed by JPS and JPS Capital Corp., a Delaware corporation, pursuant to chapter 11 of title 11 United States Code (the "Bankruptcy Code"), dated August 1, 1997 (as amended, the "Plan").(K) 2.1(ii) Revised Technical and Conforming Amendment to the Plan, dated September 4, 1997.(L) 3.1 Restated Certificate of Incorporation of JPS, filed with the Secretary of State of the State of Delaware on October 9, 1997.(P) 3.2 Amended and Restated By-laws of JPS.(P) 4.1 Indenture, dated as of October 9, 1997 (the "Contingent Note Indenture"), between JPS Capital Corp. ("Capital") and First Trust National Association ("First Trust"), as Trustee, relating to Capital's Contingent Notes (the "Contingent Notes").(K) 4.2 Form of Contingent Note, incorporated by reference to Exhibit A to the Contingent Note Indenture.(K) 10.1 Loan and Security Agreement, dated as of October 30, 1991, (the "CIT Loan Agreement"), between JPS Converter and Industrial Corp., a Delaware corporation ("JCIC") and The CIT Group/Equipment Financing, Inc. ("CIT").(A) 10.2 First Amendment to the CIT Loan Agreement, dated as of June 26, 1992, by and between JCIC and CIT.(A) 10.3 Second Amendment to the CIT Loan Agreement, dated as of December 22, 1992, by and between JCIC and CIT.(A) 10.4 Agreement of Lease, dated as of June 1, 1988, by and between 1185 Avenue of the Americas Associates ("1185 Associates") and JCIC.(A) 10.5 Lease Modification and Extension Agreement, dated as of April 2, 1991, by and between 1185 Associates and JCIC.(A) 10.6 Third Amendment to the CIT Loan Agreement, dated as of August 6, 1993, by and between JCIC and CIT.(B) 10.7 Trademark License Agreement, dated as of May 9, 1988, by and between J.P. Stevens and JPS Acquisition Corp. (predecessor to the Company.)(B) -72- 73 Exhibit Number Description - ------- ----------- 10.8 Omnibus Real Estate Closing Agreement, dated as of May 9, 1988, by and among J.P. Stevens, JPS Acquisition Corp., JPS Acquisition Automotive Products Corp., JPS Acquisition Carpet Corp., JPS Acquisition Industrial Fabrics Corp., JPS Acquisition Converter and Yarn Corp. and JPS Acquisition Elastomerics Corp.(B) 10.9 Purchase Agreement, dated as of April 24, 1988, by and among JPS Holding Corp., the Company, Odyssey Partners, West Point-Pepperell, Inc., STN Holdings Inc., Magnolia Partners, L.P. and J.P. Stevens.(B) 10.10 Asset Purchase Agreement, dated as of May 25, 1994, by and among the Company, JAPC, JCIC, JPS Auto Inc., a Delaware corporation, and Foamex International Inc., a Delaware corporation.(C) 10.11 Fourth Amended and Restated Credit Agreement (the "Existing Credit Agreement"), dated as of June 24, 1994, by and among the Company, JCIC, JPS Elastomerics Corp., a Delaware corporation ("JEC"), JPS Carpet Corp., a Delaware corporation ("JCC"), the financial institutions listed on the signature pages thereof, Citibank, N.A. ("Citibank") as Agent and Administrative Agent, and General Electric Capital Corporation ("GECC") as Co-Agent and Collateral Agent.(D) 10.12 First Amendment to the Existing Credit Agreement, dated as of November 4, 1994, by and among the Company, JCIC, JEC, JCC, the financial institutions listed on the signature pages thereof, Citibank, as Agent and Administrative Agent, and GECC, as Co-Agent and Collateral Agent.(E) 10.13 Second Amendment to the Existing Credit Agreement, dated as of December 21, 1994, by and among the Company, JCIC, JEC, JCC, the financial institutions listed on the signature pages thereof, Citibank, as Agent and Administrative Agent, and GECC as Co-Agent and Collateral Agent.(E) 10.14 Fourth Amendment to CIT Loan Agreement, dated as of December 29, 1994, by and between JCIC and CIT.(E) 10.15 Lease Modification and Extension Agreement, dated as of April 30, 1993, by and between 1185 Associates and JCIC.(E) 10.16 Third Amendment to Existing Credit Agreement, dated as of May 31, 1995 by and among the Company, JCIC, JEC, JCC, the financial institutions listed on the signature pages thereof, Citibank, as Agent and Administrative Agent, and GECC, as Co-Agent and Collateral Agent.(F) 10.17 Fourth Amendment to Existing Credit Agreement, dated as of October 28, 1995 by and among the Company, JCIC, JEC, JCC, the financial institutions listed on the signature pages thereof, Citibank, as Agent and Administrative Agent, and GECC, as Co-Agent and Collateral Agent.(G) 10.18 Lease Modification and Extension Agreement, dated as of November 17, 1994, by and between 1185 Associates and JCIC.(G) -73- 74 Exhibit Number Description - ------- ----------- 10.19 Asset Transfer Agreement, dated as of November 16, 1995, by and among the Company, JPS Carpet Corp., a Delaware corporation, Gulistan Holdings Inc. ("GHI"), a Delaware corporation and Gulistan Carpet Inc., a Delaware Corporation and wholly-owned subsidiary of GHI.(H) 10.20 Fifth Amendment to the Fourth Amended & Restated Credit Agreement, dated as of May 6, 1996, by and among the Company, JPS Elastomerics Corp., JPS Converter and Industrial Corp., JPS Auto Inc., JPS Carpet Corp., International Fabrics, Inc., the financial institutions listed on the signature pages thereof, Citibank, N.A. as agent and Administrative Agent and General Electric Capital Corporation as Co-Agent and Collateral Agent.(I) 10.21 Sixth Amendment to the Fourth Amended & Restated Credit Agreement, dated as of May 15, 1996, by and among the Company, JPS Elastomerics Corp., JPS Converter and Industrial Corp., JPS Auto Inc., JPS Carpet Corp., International Fabrics, Inc., the financial institutions listed on the signature pages thereof, Citibank, N.A. as agent and Administrative Agent and General Electric Capital Corporation as Co-Agent and Collateral Agent.(I) 10.22 Seventh Amendment to the Fourth Amended and Restated Credit Agreement, dated as of July 22, 1996, by and among the Company, JPS Elastomerics Corp., JPS Converter and Industrial Corp., JPS Auto Inc., JPS Carpet Corp., International Fabrics, Inc., the financial institutions listed on the signature pages thereof, Citibank, N.A. as agent and Administrative Agent and General Electric Capital Corporation as Co-Agent and Collateral Agent.(J) 10.23 Eighth Amendment to the Fourth Amended and Restated Credit Agreement, dated as of September 6, 1996, by and among the Company, JPS Elastomerics Corp., JPS Converter and Industrial Corp., JPS Auto Inc., JPS Carpet Corp., International Fabrics, Inc., the financial institutions listed on the signature pages thereof, Citibank, N.A. as agent and Administrative Agent and General Electric Capital Corporation as Co-Agent and Collateral Agent.(J) 10.24 Employment Agreement dated October 9, 1997, between the Company and Jerry E. Hunter. (P) 10.25 Employment Agreement dated October 9, 1997, between the Company and David H. Taylor. (P) 10.26 Employment Agreement dated October 9, 1997, between the Company and Monnie L. Broome.(P) 10.27 Employment Agreement, dated May 1, 1993 and amended September 11, 1995 between the Company and Carl Rosen.(J) 10.28 Employment Agreement, dated December 23, 1991 and amended August 20, 1996 and December 23, 1996 between the Company and Bruce Wilby.(G) 10.29 Asset Purchase Agreement, dated as of September 30, 1996 between Elastomer Technologies Group, Inc. a Delaware Corporation, and JPS Elastomerics Corp., a Delaware Corporation and wholly-owned subsidiary of the Company.(G) -74- 75 Exhibit Number Description - -------- ----------- 10.30 Receivables Purchase Agreement dated as of September 30, 1996 between The Bank of New York Commercial Corporation, a New York Corporation and JPS Elastomerics Corp., a Delaware Corporation and wholly-owned subsidiary of the Company.(G) 10.31 Registration Rights Agreement, dated as of October 9, 1997, by and among JPS and the holders of JPS's Common Stock.(P) 10.32 Ninth Amendment to Existing Credit Agreement, dated as of February 21, 1997, by and among JPS, JCIC, JEC, JCC, the financial institutions listed on the signature pages thereof, Citibank, as agent and Administrative Agent and GECC as Co-Agent and Collateral Agent.(N) 10.33 Tenth Amendment to the Existing Credit Agreement, dated as of April 29, 1997, by and among JPS, JCIC, JEC, JCC, the financial institutions listed on the signature pages thereof, Citibank, as agent and Administrative Agent and GECC as Co-Agent and Collateral Agent.(O) 10.34 Eleventh Amendment to the Existing Credit Agreement, dated as of May 15, 1997, by and among JPS, JCIC, JEC, JCC, the financial institutions listed on the signature pages thereof, Citibank, as agent and Administrative Agent and GECC as Co-Agent and Collateral Agent.(O) 10.35 Credit Facility Agreement, dated as of October 9, 1997, by and among JPS, C&I, Elastomerics, the financial institutions listed on the signature pages thereto, and the agent and co-agent party thereto.(M) 10.36 1997 Incentive and Capital Accumulation Plan dated as of October 9, 1997.(P) 10.37 Warrant Agreement dated as of October 9, 1997.(P) 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) 24.1 Power of Attorney relating to JPS (included as part of the signature page hereof).(M) 27.1 Financial data schedule.(P) - ------------------------------------ (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. -75- 76 (C) Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended April 30, 1994. (D) Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended July 30, 1994. (E) Previously filed as an exhibit to the Company's Annual Report on Form 10-K for the year ended October 29, 1994. (F) Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended April 29, 1995. (G) Previously filed as an exhibit to the Company's Annual Report on Form 10-K for the year ended November 2, 1996. (H) Previously filed as an exhibit to the Company's Current Report on Form 8-K dated December 1, 1995. (I) Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended April 27, 1996. (J) Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended July 27, 1996. (K) Previously filed as an exhibit to JPS's Current Report on Form 8-K dated July 2, 1997. (L) Previously filed as an exhibit JPS's Registration Statement on Form 8-A filed on September 8, 1997. (M) Previously filed. (N) Previously filed as an exhibit to JPS's Quarterly Report on Form 10-Q for the quarter ended February 1, 1997. (O) Previously filed as an exhibit to JPS's Quarterly Report on Form 10-Q for the quarter ended May 3, 1997. (P) Filed herewith. -76- 77 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 30, 1998 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 30, 1998 - --------------------------------- President and Chief Executive Officer Jerry E. Hunter /s/ David H. Taylor Director, Executive January 30, 1998 - --------------------------------- Vice President-Finance, David H. Taylor Principal Financial Officer and Secretary /s/ Robert J. Capozzi Director January 30, 1998 - --------------------------------- Robert J. Capozzi /s/ Jeffrey S. Deutschman Director January 30, 1998 - --------------------------------- Jeffrey S. Deutschman /s/ Nicholas P. DiPaolo Director January 30, 1998 - --------------------------------- Nicholas P. DiPaolo /s/ Michael J. Fulbright Director January 30, 1998 - --------------------------------- Michael L. Fulbright /s/ John M. Sullivan. Jr. Director January 30, 1998 - --------------------------------- John M. Sullivan, Jr. /s/ L. Allen Ollis Controller January 30, 1998 - --------------------------------- L. Allen Ollis
-77- 78 JPS TEXTILE GROUP, INC. INDEX TO SCHEDULE INDEX TO FINANCIAL STATEMENT SCHEDULE For the Fiscal Years Ended October 28, 1995, November 2, 1996 and the periods from November 3, 1996 to October 9, 1997 and from October 10, 1997 to November 1, 1997. 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 79 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 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 ========= ======== ========= ======= ======== For the Period From November 3, 1996 to October 9, 1997 Allowance for doubtful accounts $ 2,348 $ 781 $ (1,258) $ 24 $ 1,847 Claims, returns and other allowances 163 -- 164 179 148 --------- -------- --------- ------- -------- $ 2,511 $ 781 $ (1,094) $ 203 $ 1,995 ========= ======== ========= ======= ======== For the Period From October 10, 1997 to November 1, 1997 Allowance for doubtful accounts $ 1,847 $ -- $ (945) $ -- $ 902 Claims, returns and other allowances 148 -- 7 4 151 --------- -------- --------- ------- -------- $ 1,995 $ -- $ (938) $ 4 $ 1,053 ========= ======== ========= ======= ========
(a) Change in various reserves charged to net sales. (b) Uncollected receivables written off, net of recoveries. S-2 EX-3.1 2 RESTATED CERTIFICATE OF INCORPORATION 1 EXHIBIT 3.1 RESTATED CERTIFICATE OF INCORPORATION OF JPS TEXTILE GROUP, INC. 1. The name of the Corporation is JPS Textile Group, Inc. 2. The original Certificate of Incorporation was filed with the Secretary of State of the State of Delaware on December 31, 1986 under the name Grambling, Inc. IV and was amended by Certificates of Amendment filed with the Secretary of State on March 14, 1988, April 7, 1988 and May 12, 1988. In addition, a Restated Certificate of Incorporation was filed with the Secretary of State on April 1, 1991 and a Certificate of Correction was filed with the Secretary of State on April 2, 1991. 3. This Restated Certificate of Incorporation, which restates and further amends the Restated Certificate of Incorporation as currently in effect, is made and filed pursuant to the order, dated September 9, 1997, of the United States Bankruptcy Court (the "Bankruptcy Court"), Southern District of New York in (In re JPS Textile Group, Inc., No. 97-45133(CB), and the Plan of Reorganization filed on August 1, 1997 confirmed therein (the "Plan of Reorganization") in connection with the reorganization of the Corporation under Title 11 of the United States Code and in accordance with Sections 103, 245 and 303 of the General Corporation Law of the State of Delaware. 4. This Restated Certificate of Incorporation shall become effective at 9:00 a.m. on October 9, 1997. 5. The Corporation's Restated Certificate of Incorporation, as currently in effect, is hereby restated and further amended so as to read in its entirety as follows: FIRST: The name of the Corporation is: JPS TEXTILE GROUP, INC. SECOND: The address of the Corporation's registered office in the State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County of New Castle. The name of its registered agent at such address is The Corporation Trust Company. THIRD: The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware, as from time to time amended. FOURTH: (a) The total number of shares of capital stock which the Corporation shall have authority to issue is 25,000,000 shares. Of these, (i) 22,000,000 shares shall be shares of Common Stock having a par value of $0.01 per share (the "Common Stock"), and (ii) 3,000,000 shares shall be shares of Preferred Stock, having a par value of $0.01 per share (the "Preferred Stock"). Except as otherwise provided by law, the shares of capital stock of the Corporation regardless of class, may be issued by the Corporation from time to time in such amounts, for such lawful consideration and for such corporate purpose(s) as the Board of Directors may from time to time determine. 2 (b) Preferred Stock may be issued in one or more series as may be determined from time to time by the Board of Directors. Authority is hereby expressly granted to the Board of Directors to authorize the issuance of one or more series of Preferred Stock, and, subject to Article FIFTH, to fix by resolution or resolutions providing for the issue of each such series the voting powers, designations, preferences, and relative, participating, optional, redemption, conversion, exchange or other special rights, qualifications, limitations or restrictions of such series, and the number of shares in each series, to the full extent now or hereafter permitted by law. FIFTH: The Corporation shall not create, designate, authorize or cause to be issued any class or series of nonvoting stock. For purposes of this Article FIFTH, any class or series of stock, including any series of Preferred Stock, that has only such voting rights as are mandated by the General Corporation Law of the State of Delaware, shall be deemed to be nonvoting stock subject to the restrictions of this Article FIFTH. SIXTH: In furtherance and not in limitation of the powers conferred by law, subject to any limitations contained elsewhere in this Restated Certificate, by-laws of the Corporation may be adopted, amended or repealed by a majority of the board of directors of the Corporation, but any by-laws adopted by the board of directors may also be amended or repealed by the stockholders entitled to vote thereon. Election of directors need not be by written ballot. SEVENTH: (a) Without the approval of the Board of Directors and the approval, given by written consent or by vote at any regular or special meeting of stockholders, of the holders of record of not less than 100% of the shares of Common Stock at the time outstanding, voting together as a single class, the Corporation shall not enter into any single transaction or series of related transactions, or take any other action that would have the effect of, whether directly or indirectly, prohibiting, restricting, delaying or otherwise hindering the payment of any and all amounts due under the Contingent Notes (as defined below) issued by JPS Capital Corp. ("Capital") in accordance with the terms thereof. Notwithstanding the foregoing, nothing contained in this Restated Certificate of Incorporation shall restrict (i) the actions taken by the Corporation or its Tax Affiliates (as defined below) in connection with the resolution of their liabilities (if any) for Taxes (as defined below) or (ii) a sale of the Corporation. (b) Until after the occurrence of the later of (i) the Maturity Date (as defined below), and (ii) the payment in full of the obligations of Capital arising under the Contingent Notes, the Corporation shall not Transfer (as defined below) or permit the Transfer of all or any portion of the outstanding shares of capital stock of Capital owned by the Corporation to any person or entity. (c) For purposes of this Restated Certificate of Incorporation, the following terms are defined as follows: (i) "Contingent Note Indenture" means the indenture, dated as of October 9, 1997, among Capital, the Corporation and First Trust National Association as trustee (the "Trustee"); (ii) "Contingent Notes" means the Contingent Payment Notes due on the Maturity Date issued pursuant to the Contingent Note Indenture; (iii) "Maturity Date," "Tax Affiliate," and "Taxes" have the meanings ascribed to such terms in the Contingent Note Indenture; and (iv) "Transfer" means (A) any direct or indirect, whether voluntary or involuntary, knowing or unknowing, by operation of law or otherwise, disposition of any assets or property, whether by sale, exchange, merger, consolidation, transfer, conveyance, distribution, inheritance, gift or otherwise, or (B) any consensual 2 3 security interest in, pledge or assignment of, mortgage of, encumbrance upon, lien in or any other preferential arrangement with respect to, any assets or property. Notwithstanding any understandings or agreements to which a holder of Capital's capital stock is a party, any arrangement, the effect of which is to Transfer any or all of the rights arising from ownership of Capital's capital stock, shall be treated as a Transfer of such capital stock for purposes of this Article SEVENTH. EIGHTH: (a) A director of the Corporation shall not be personally liable either to the Corporation or to any of its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability for (i) any breach of the director's duty of loyalty to the Corporation or its stockholders, or (ii) acts or omissions which are not in good faith or which involve intentional misconduct or knowing violation of the law, or (iii) any matter in respect of which such director shall be liable under Section 174 of Title 8 of the General Corporation Law of the State of Delaware or any amendment thereto or successor provision thereto, or (iv) any transaction from which the director shall have derived an improper personal benefit. Neither amendment nor repeal of this paragraph (a) nor the adoption of any provision of the Restated Certificate of Incorporation inconsistent with this paragraph (a) shall eliminate or reduce the effect of this paragraph (a) in respect of any matter occurring, or any cause of action, suit or claim that, but for this paragraph (a) of this Article EIGHTH, would accrue or arise, prior to such amendment, repeal or adoption of an inconsistent provision. If the General Corporation Law of Delaware is hereafter amended to permit further elimination or limitation of the personal liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the General Corporation Law of Delaware as so amended. (b) The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to, or testifies in, any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter, a "proceeding"), other than an action by or in the right of the Corporation, by reason of the fact that such person is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, employee benefit plan, trust or other enterprise (hereinafter, an "indemnitee"), whether the basis of such proceeding is alleged action in an official capacity as a director, officer, employee or agent or in any other capacity while serving as such a director, officer, employee or agent. The indemnitee shall be indemnified and held harmless by the Corporation to the full extent authorized by the General Corporation Law of Delaware, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than said law permitted the Corporation to provide prior to such amendment), or by other applicable law as then in effect, against all expense, liability and loss (including attorneys' fees, judgments, fines, excise taxes under the Employee Retirement Income Security Act of 1974, as amended from time to time ("ERISA"), penalties and amounts to be paid in settlement) actually and reasonably incurred or suffered by such indemnitee in connection therewith. The Corporation may adopt By-laws or enter into agreements with any such person for the purpose of providing for such indemnification. (c) The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to, or testifies in, any proceeding by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that such person is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, employee benefit plan, trust or other enterprise against expenses (including attorneys' fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Corporation, provided that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the Court of 3 4 Chancery of the State of Delaware or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper. (d) Any indemnification under this Article EIGHTH (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the present or former director, officer, employee or agent is proper in the circumstances because he or she has met the applicable standard of conduct set forth in the General Corporation Law of Delaware, as the same exists or hereafter may be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than said law permitted the Corporation to provide prior to such amendment). Such determination shall be made with respect to a person who is a director or officer at the time of such determination (A) by a majority vote of the directors who were not parties to such action, suit or proceeding (the "Disinterested Directors"), even though less than a quorum, or (B) by a committee of Disinterested Directors designated by a majority vote of such directors, even though less than a quorum or (C) if there are no Disinterested Directors or if the Disinterested Directors so direct, by independent legal counsel in a written opinion, or (D) by the stockholders. (e) Costs, charges and expenses (including attorneys' fees) incurred by a director, officer, employee or agent of the Corporation in defending a civil or criminal action, suit or proceeding shall be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of the director, officer, employee or agent to repay all amounts so advanced in the event that it shall ultimately be determined that such director, officer, employee or agent is not entitled to be indemnified by the Corporation as authorized in this Article EIGHTH. The majority of the Disinterested Directors may, in the manner set forth above, and upon approval of such director, officer, employee or agent of the Corporation, authorize the Corporation's counsel to represent such person, in any action, suit or proceeding, whether or not the Corporation is a party to such action, suit or proceeding. (f) Any indemnification or advance of costs, charges and expenses under this Article EIGHTH shall be made promptly, and in any event within 60 days upon the written request of the director, officer, employee or agent. The right to indemnification or advances as granted by this Article EIGHTH shall be enforceable by the director, officer, employee or agent, as the case may be, in any court of competent jurisdiction, if the Corporation denies such request, in whole or in part, or if no disposition thereof is made within 60 days. Such person's costs and expenses incurred in connection with successfully establishing his or her right to indemnification, in whole or in part, in any such action shall also be indemnified by the Corporation. It shall be a defense to any such action (other than an action brought to enforce a claim for the advance of costs, charges and expenses under this Article EIGHTH where the required undertaking has been received by the Corporation) that the claimant has not met the standard of conduct set forth in the General Corporation Law of Delaware, as the same exists or hereafter may be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than said law permitted the Corporation to provide prior to such amendment), but the burden of proving such defense shall be on the Corporation. Neither the failure of the Corporation (including its Board of Directors, its independent legal counsel and its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he or she has met the applicable standard of conduct set forth in the General Corporation Law of Delaware, as the same exists or hereafter may be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than said law permitted the Corporation to provide prior to such amendment), nor the fact that there has been an actual determination by the Corporation (including its Board of Directors, its independent legal counsel and its stockholders) that the claimant has not met 4 5 such applicable standard of conduct, shall be a defense to the action or create a presumption that the claimant has not met the applicable standard of conduct. (g) The indemnification and advancement of expenses provided by this Article EIGHTH shall not be deemed exclusive of any other rights to which a person seeking indemnification or advancement of expenses may be entitled under any law (common or statutory), by-law, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his or her official capacity and as to action in another capacity while holding office or while employed by or acting as agent for the Corporation, and shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the estate, heirs, executors and administrators of such person. All rights to indemnification under this Article EIGHTH shall be deemed to be a contract between the Corporation and each director, officer, employee or agent of the Corporation who serves or served in such capacity at any time while this Article EIGHTH is in effect. Any repeal or modification of this Article EIGHTH shall not in any way diminish any rights to indemnification of such director, officer, employee or agent or the obligations of the Corporation arising hereunder with respect to any action, suit or proceeding arising out of, or relating to, any actions, transactions or facts occurring prior to the final adoption of such modification or repeal. For the purposes of this Article EIGHTH, references to "the Corporation" include all constituent corporations absorbed in a consolidation or merger as well as the resulting or surviving corporation, so that any person who is or was a director, officer, employee or agent of such a constituent corporation or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise shall stand in the same position under the provisions of this Article EIGHTH, with respect to the resulting or surviving corporation, as he or she would if he or she had served the resulting or surviving corporation in the same capacity. (h) The Corporation shall have the power to purchase and maintain insurance on behalf of any person who is or was or has agreed to become a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him or her and incurred by him or her or on his or her behalf in any such capacity, or arising out of his or her status as such, whether or not the Corporation would have the power to indemnify him or her against such liability under the provisions of this Article EIGHTH, provided, however, that such insurance is available on acceptable terms, which determination shall be made by a vote of a majority of the Board of Directors. (i) If this Article EIGHTH or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Corporation shall nevertheless indemnify each person entitled to indemnification under the first paragraph of this Article EIGHTH as to all expense, liability and loss (including attorneys' fees, judgments, fines, ERISA excise taxes, penalties and amounts to be paid in settlement) actually and reasonably incurred or suffered by such person and for which indemnification is available to such person pursuant to this Article EIGHTH to the full extent permitted by any applicable portion of this Article EIGHTH that shall not have been invalidated and to the full extent permitted by applicable law. NINTH: The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Restated Certificate of Incorporation in the manner now or hereafter prescribed by statute, and all rights conferred by the stockholders herein are granted subject to this reservation. Notwithstanding the foregoing, none of the provisions of Article SEVENTH of this Restated Certificate of Incorporation or this sentence of Article NINTH may be amended, altered, changed or repealed without the prior approval of the Bankruptcy Court pursuant to a Final Order (as defined in the Plan of Reorganization). 5 6 TENTH: The Corporation expressly elects not to be governed by Section 203 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, JPS Textile Group, Inc. has caused this Restated Certificate of Incorporation to be signed by David H. Taylor, its Executive Vice President - Finance and Secretary, and attested by Jerry E. Hunter, its Chairman of the Board, President and Chief Executive Officer, this 9th day of October, 1997. JPS TEXTILE GROUP, INC. By /s/ David H. Taylor ------------------------------------- Name: David H. Taylor Title: Executive Vice President - Finance and Secretary ATTEST: By /s/ Jerry E. Hunter ------------------------------------------ Name: Jerry E. Hunter Title: Chairman of the Board, President and Chief Executive Officer 6 EX-3.2 3 AMENDED & RESTATED BY-LAWS 1 EXHIBIT 3.2 AMENDED AND RESTATED BY-LAWS OF JPS TEXTILE GROUP, INC. (a Delaware corporation) ARTICLE I STOCKHOLDERS SECTION 1. Fixing Date for Determination of Stockholders of Record. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion, or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors and which record date: (1) in the case of determination of stockholders entitled to vote at any meeting of stockholders or adjournment thereof, shall, unless otherwise required by law, not be more than sixty nor less than ten days before the date of such meeting; (2) in the case of determination of stockholders entitled to express consent to corporate action in writing without a meeting, shall not be more than ten days after the date upon which the resolution fixing the record date is adopted by the Board of Directors; and (3) in the case of any other action, shall not be more than sixty days prior to such other action. If no record date is fixed: (1) the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held; (2) the record date for determining stockholders entitled to express consent to corporate action in writing without a meeting, when no prior action of the Board of Directors is required by law, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the corporation in accordance with applicable law, or, if prior action by the Board of Directors is required by law, shall be at the close of business on the day on which the Board of Directors adopts the resolution taking such prior action; and (3) the record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. SECTION 2. Annual Meetings. The annual meeting of stockholders for the election of directors and for the transaction of such other business as may properly come before the meeting shall be held each year at such date and time, and at such place within or without the State of Delaware, as shall be designated by the Board of Directors and set forth in the notice or in a duly executed waiver of notice thereof. SECTION 3. Special Meetings. Special meetings of stockholders for the transaction of such business as may properly come before the meeting may be called by order of the Board of Directors or by stockholders holding together at least 25% in voting power of all the shares of the Corporation entitled to vote at the meeting, and shall be held at such date and time, and at such place within or without the State of Delaware, as may be specified in the notice or in a duly executed waiver of notice of such meeting. Whenever the directors shall fail to fix such 1 2 place, the meeting shall be held at the principal executive office of the Corporation. Only such business as is stated in the written notice of special meeting may be acted upon thereat. SECTION 4. Notice of Meetings. Except as otherwise provided by law, written notice of all meetings of the stockholders, stating the place, date and hour of the meeting and the place within the city or other municipality or community at which the list of stockholders may be examined, shall be mailed or delivered to each stockholder not less than 10 nor more than 60 days prior to the meeting. Notice of any special meeting shall state in general terms the purpose or purposes for which the meeting is to be held. If mailed, such notice shall be deemed to be given when deposited in the United States mail, postage prepaid, directed to the stockholder at such stockholder's address as it appears on the records of the Corporation. If, prior to the time of mailing, the Secretary shall have received from any stockholder entitled to vote a written request that notices intended for such stockholder are to be mailed to an address other than the address that appears on the records of the Corporation, notices intended for such stockholder shall be mailed to the address designated in such request. Notice of a special meeting may be given by the person or persons calling the meeting, or, upon the written request of such person or persons, by the Secretary of the Corporation on behalf of such person or persons. If the person or persons calling a special meeting of stockholders gives notice thereof, such person or persons shall forward a copy thereof to the Secretary. Every request to the Secretary for the giving of notice of a special meeting of stockholders shall state the purpose or purposes of such meeting. SECTION 5. Waiver of Notice. Notice of any annual or special meeting of stockholders need not be given to any stockholder entitled to vote at such meeting who files a written waiver of notice with the Secretary, duly executed by the person entitled to notice, whether before or after the meeting. Neither the business to be transacted at, nor the purpose of, any meeting of stockholders need be specified in any written waiver of notice. Attendance of a stockholder at a meeting, in person or by proxy, shall constitute a waiver of notice of such meeting, except as provided by law. SECTION 6. Adjournments. When a meeting is adjourned to another date, hour or place, notice need not be given of the adjourned meeting if the date, hour and place thereof are announced at the meeting at which the adjournment is taken. If the adjournment is for more than 30 calendar days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the adjourned meeting. At the adjourned meeting any business may be transacted which might have been transacted at the original meeting. When any meeting is convened the presiding officer may adjourn the meeting if (a) no quorum is present for the transaction of business or (b) the Board of Directors determines that adjournment is necessary or appropriate to enable the stockholders (i) to consider fully information which the Board of Directors determines has not been made sufficiently or timely available to stockholders or (ii) otherwise to exercise effectively their voting rights. SECTION 7. Stockholder Lists. The officer who has charge of the stock ledger of the Corporation shall prepare and make, at least 10 days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. 2 3 The stock ledger shall be the only evidence as to who are the stockholders entitled to examine the stock ledger, the list required by this section or the books of the Corporation, or to vote in person or by proxy at any meeting of stockholders. SECTION 8. Quorum. Except as otherwise provided by law or the Corporation's Restated Certificate of Incorporation, a quorum for the transaction of business at any meeting of stockholders shall consist of the holders of record of a majority in voting power of the issued and outstanding shares of the capital stock of the Corporation entitled to vote at the meeting, present in person or by proxy. If there be no such quorum, the holders of a majority in voting power of such shares so present or represented may adjourn the meeting from time to time, without further notice, until a quorum shall have been obtained. When a quorum is once present it is not broken by the subsequent withdrawal of any stockholder. SECTION 9. Organization. Meetings of stockholders shall be presided over by the Chairman, if any, or if none or in the Chairman's absence the Vice-Chairman, if any, or if none or in the Vice-Chairman's absence the President, if any, or if none or in the President's absence a Vice-President, or, if none of the foregoing is present, by a chairman to be chosen by the stockholders entitled to vote who are present in person or by proxy at the meeting. The Secretary of the Corporation, or in the Secretary's absence an Assistant Secretary, shall act as secretary of every meeting, but if neither the Secretary nor an Assistant Secretary is present, the presiding officer of the meeting shall appoint any person present to act as secretary of the meeting. SECTION 10. Voting; Proxies; Required Vote. (a) At each meeting of stockholders, every stockholder shall be entitled to vote in person or by proxy (but no such proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period), and, unless the Restated Certificate of Incorporation provides otherwise, shall have one vote for each share of stock entitled to vote registered in the name of such stockholder on the books of the Corporation on the applicable record date fixed pursuant to these By-laws. At all elections of directors the voting may but need not be by ballot. Except as otherwise required by law or the Restated Certificate of Incorporation, any action other than the election of directors shall be authorized by a majority in voting power of the shares present in person or represented by proxy at the meeting. (b) Any action required or permitted to be taken at any meeting of stockholders may, except as otherwise required by law or the Restated Certificate of Incorporation, be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of record of the issued and outstanding capital stock of the Corporation having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted, and the writing or writings are filed with the permanent records of the Corporation. Prompt notice of the taking of corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. (c) Where a separate vote by a class or classes, present in person or represented by proxy, is required by law or the Restated Certificate of Incorporation, the affirmative vote of the majority in voting power of shares of such class or classes present in person or represented by proxy at the meeting shall be the act of such class, unless otherwise provided in the Corporation's Restated Certificate of Incorporation. SECTION 11. Inspectors. The Board of Directors, in advance of any meeting, may, but need not, unless required by law, appoint one or more inspectors of election to act at the meeting or any adjournment thereof. If an inspector or inspectors are not so appointed, the person presiding at the meeting may, but need not, unless required by law, appoint one or more inspectors. In case any person who may be appointed as an inspector fails to appear or act, the vacancy may be filled by appointment made by the directors in advance of the meeting or at 3 4 the meeting by the person presiding thereat. Each inspector, if any, before entering upon the discharge of his or her duties, shall take and sign an oath faithfully to execute the duties of inspector at such meeting with strict impartiality and according to the best of his ability. The inspectors, if any, shall determine the number of shares of stock outstanding and the voting power of each, the shares of stock represented at the meeting, the existence of a quorum, and the validity and effect of proxies, and shall receive votes, ballots or consents, hear and determine all challenges and questions arising in connection with the right to vote, count and tabulate all votes, ballots or consents, determine the result, and do such acts as are proper to conduct the election or vote with fairness to all stockholders. On request of the person presiding at the meeting, the inspector or inspectors, if any, shall make a report in writing of any challenge, question or matter determined by such inspector or inspectors and execute a certificate of any fact found by such inspector or inspectors. ARTICLE II BOARD OF DIRECTORS SECTION 1. General Powers. The business, property and affairs of the Corporation shall be managed by, or under the direction of, the Board of Directors, which may exercise all such powers of the Corporation and do all such lawful acts and things as are not by law or by the Restated Certificate of Incorporation directed or required to be exercised or done by the stockholders. SECTION 2. Qualification; Number; Term; Remuneration. (a) Each director shall be at least 18 years of age. A director need not be a stockholder, a citizen of the United States, or a resident of the State of Delaware. The number of directors constituting the entire Board shall initially consist of 7 members and henceforward shall consist of not less than 3 nor more than 10 members, the exact number of which shall be fixed from time to time by action of the Board of Directors, one of whom may be selected by the Board of Directors to be its Chairman. The use of the phrase "entire Board" herein refers to the total number of directors which the Corporation would have if there were no vacancies or unfilled newly created directorships. Except as provided in Section 11 of this Article II, directors shall be elected by a plurality of the votes cast at annual meetings of stockholders, and each director so elected shall hold office as provided by the Restated Certificate of Incorporation. None of the directors need be stockholders of the Corporation. (b) Directors who are elected at an annual meeting of stockholders, and directors who are elected in the interim to fill vacancies and newly created directorships, shall hold office until the next annual meeting of stockholders and until their successors are elected and qualified or until their earlier resignation or removal. (c) Directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors and may be paid a fixed sum for attendance at each meeting of the Board of Directors or a stated salary as director. No such payment shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for attending committee meetings. SECTION 3. Quorum and Manner of Voting. Except as otherwise provided by law, a majority of the entire Board shall constitute a quorum. A majority of the directors present, whether or not a quorum is present, may adjourn a meeting from time to time to another time and place without notice. The vote of the majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors. 4 5 SECTION 4. Places of Meetings. Meetings of the Board of Directors may be held at any place within or without the State of Delaware, as may from time to time be fixed by resolution of the Board of Directors, or as may be specified in the notice of meeting. SECTION 5. Annual Meeting. Following the annual meeting of stockholders, the newly elected Board of Directors shall meet for the purpose of the election of officers and the transaction of such other business as may properly come before the meeting. Such meeting may be held without notice immediately after the annual meeting of stockholders at the same place at which such stockholders' meeting is held. SECTION 6. Regular Meetings. Regular meetings of the Board of Directors shall be held at such times and places as the Board of Directors shall from time to time by resolution determine. Notice need not be given of regular meetings of the Board of Directors held at times and places fixed by resolution of the Board of Directors. SECTION 7. Special Meetings. Special meetings of the Board of Directors shall be held whenever called by the Chairman of the Board, President, Vice-Chairman or a majority of the directors then in office. SECTION 8. Notice of Special Meetings. A notice of the place, date and time and the purpose or purposes of each special meeting of the Board of Directors shall be given to each director by mailing the same at least two days before the special meeting, or by telegraphing or telephoning the same or by delivering the same personally not later than the day before the day of the meeting. SECTION 9. Organization. At all meetings of the Board of Directors, the Chairman, if any, or if none or in the Chairman's absence or inability to act the President, or in the President's absence or inability to act any Vice-President who is a member of the Board of Directors, or in such Vice-President's absence or inability to act a chairman chosen by the directors, shall preside. The Secretary of the Corporation shall act as secretary at all meetings of the Board of Directors when present, and, in the Secretary's absence, the presiding officer may appoint any person to act as secretary. SECTION 10. Resignation. Any director may resign at any time upon written notice to the Corporation and such resignation shall take effect upon receipt thereof by the President or Secretary, unless otherwise specified in the resignation. Any or all of the directors may be removed, with or without cause, by the holders of a majority in voting power of the shares of stock outstanding and entitled to vote for the election of directors. SECTION 11. Vacancies. Unless otherwise provided in these By-laws, vacancies on the Board of Directors, whether caused by resignation, death, disqualification, removal, an increase in the authorized number of directors or otherwise, may be filled by the affirmative vote of a majority of the remaining directors, although less than a quorum, or by a sole remaining director, or at a special meeting of the stockholders, by the holders of shares entitled to vote for the election of directors. SECTION 12. Action by Written Consent. Any action required or permitted to be taken at any meeting of the Board of Directors may be taken without a meeting if all the directors consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board of Directors. SECTION 13. Meetings by Conference Telephone, etc. Any one or more members of the Board of Directors, or of any committee thereof, may participate in a meeting of the Board of Directors, or of such committee, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting by such means shall constitute presence in person at such meeting. 5 6 ARTICLE III COMMITTEES SECTION 1. Appointment. From time to time the Board of Directors by resolution may appoint any committee or committees for any purpose or purposes, to the extent lawful, which shall have powers as shall be determined and specified by the Board of Directors in the resolution of appointment. In the absence or disqualification of a member of a committee, the member or members present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. SECTION 2. Procedures, Quorum and Manner of Acting. Each committee shall fix its own rules of procedure and shall meet where and as provided by such rules or by resolution of the Board of Directors. Except as otherwise provided by law, the presence of a majority of the then appointed members of a committee shall constitute a quorum for the transaction of business by that committee, and in every case where a quorum is present the affirmative vote of a majority of the members of the committee present shall be the act of the committee. Each committee shall keep minutes of its proceedings, and actions taken by a committee shall be reported to the Board of Directors. SECTION 3. Action by Written Consent. Any action required or permitted to be taken at any meeting of any committee of the Board of Directors may be taken without a meeting if all the members of the committee consent thereto in writing and the writing or writings are filed with the minutes of proceedings of the committee. SECTION 4. Term; Termination. In the event any person shall cease to be a director of the Corporation, such person shall simultaneously therewith cease to be a member of any committee appointed by the Board of Directors. ARTICLE IV OFFICERS SECTION 1. Election and Qualifications. The Board of Directors shall elect the officers of the Corporation, which shall include a President and a Secretary, and may include, by election or appointment, one or more Vice- Presidents (any one or more of whom may be given an additional designation of rank or function), a Treasurer and such Assistant Secretaries, such Assistant Treasurers and such other officers as the Board of Directors may from time to time deem proper. Each officer shall have such powers and duties as may be prescribed by these Bylaws and as may be assigned by the Board of Directors or the President. Any two or more offices may be held by the same person except the offices of President and Secretary. SECTION 2. Term of Office and Remuneration. The term of office of all officers shall be one year and until their respective successors have been elected and qualified, but any officer may be removed from office, either with or without cause, at any time by the Board of Directors. Any vacancy in any office arising from any cause may be filled for the unexpired portion of the term by the Board of Directors. The remuneration of all officers of the Corporation may be fixed by the Board of Directors or in such manner as the Board of Directors shall provide. 6 7 SECTION 3. Resignation; Removal. Any officer may resign at any time upon written notice to the Corporation and such resignation shall take effect upon receipt thereof by the President or Secretary, unless otherwise specified in the resignation. Any officer shall be subject to removal, with or without cause, at any time by vote of a majority of the entire Board of Directors. SECTION 4. Chairman of the Board. The Chairman of the Board of Directors, if there be one, shall preside at all meetings of the Board of Directors and shall have such other powers and duties as may from time to time be assigned by the Board of Directors. SECTION 5. President. The President shall have general management and supervision of the property, business and affairs of the Corporation and over its other officers; may appoint and remove assistant officers and other agents and employees, other than any Vice-President, the Secretary, the Treasurer, any Assistant Secretaries or Assistant Treasurers or any officers which the Board of Directors may from time to time appoint; and may execute and deliver in the name of the Corporation powers of attorney, contracts, bonds and other obligations and instruments. SECTION 6. Vice-President. A Vice-President may execute and deliver in the name of the Corporation contracts and other obligations and instruments pertaining to the regular course of the duties of said office, and shall have such other authority as from time to time may be assigned by the Board of Directors or the President. SECTION 7. Treasurer. The Treasurer shall in general have all duties incident to the position of Treasurer and such other duties as may be assigned by the Board of Directors or the President. SECTION 8. Secretary. The Secretary shall in general have all the duties incident to the office of Secretary and such other duties as may be assigned by the Board of Directors or the President. SECTION 9. Assistant Officers. Any assistant officer shall have such powers and duties of the officer such assistant officer assists as such officer or the Board of Directors shall from time to time prescribe. ARTICLE V BOOKS AND RECORDS SECTION 1. Location. The books and records of the Corporation may be kept at such place or places within or outside the State of Delaware as the Board of Directors or the respective officers in charge thereof may from time to time determine. The record books containing the names and addresses of all stockholders, the number and class of shares of stock held by each and the dates when they respectively became the owners of record thereof shall be kept by the Secretary as prescribed in the By-laws and by such officer or agent as shall be designated by the Board of Directors. SECTION 2. Addresses of Stockholders. Notices of meetings and all other corporate notices may be delivered personally or mailed to each stockholder at the stockholder's address as it appears on the records of the Corporation. 7 8 ARTICLE VI CERTIFICATES REPRESENTING STOCK SECTION 1. Certificates; Signatures. The shares of the Corporation shall be represented by certificates, provided that the Board of Directors of the Corporation may provide by resolution or resolutions that some or all of any or all classes or series of its stock shall be uncertificated shares. Any such resolution shall not apply to shares represented by a certificate until such certificate is surrendered to the Corporation. Notwithstanding the adoption of such a resolution by the Board of Directors, every holder of stock represented by certificates and upon request every holder of uncertificated shares shall be entitled to have a certificate, signed by or in the name of the Corporation by the Chairman or Vice-Chairman of the Board of Directors, or the President or Vice-President, and by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary of the Corporation, representing the number of shares registered in certificate form. Any and all signatures on any such certificate may be facsimiles. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue. The name of the holder of record of the shares represented thereby, with the number of such shares and the date of issue, shall be entered on the books of the Corporation. SECTION 2. Transfers of Stock. Upon compliance with contractual or other provisions, if any, restricting the transfer or registration of transfer of shares of stock, shares of capital stock shall be transferable on the books of the Corporation only by the holder of record thereof in person, or by duly authorized attorney, upon surrender and cancellation of certificates for a like number of shares, properly endorsed, and the payment of all taxes due thereon. SECTION 3. Fractional Shares. The Corporation may, but shall not be required to, issue certificates for fractions of a share where necessary to effect authorized transactions, or the Corporation may pay in cash the fair value of fractions of a share as of the time when those entitled to receive such fractions are determined, or it may issue scrip in registered or bearer form over the manual or facsimile signature of an officer of the Corporation or of its agent, exchangeable as therein provided for full shares, but such scrip shall not entitle the holder to any rights of a stockholder except as therein provided. The Board of Directors shall have power and authority to make all such rules and regulations as it may deem expedient concerning the issue, transfer and registration of certificates representing shares of the Corporation. SECTION 4. Lost, Stolen or Destroyed Certificates. The Corporation may issue a new certificate of stock in place of any certificate theretofore issued by it alleged to have been lost, stolen or destroyed, and the Board of Directors may require the owner of any lost, stolen or destroyed certificate, or his legal representative, to give the Corporation a bond sufficient to indemnify the Corporation against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of any such new certificate. 8 9 ARTICLE VII DIVIDENDS SECTION 1. Dividends. Subject to the provisions of applicable law and the Corporation's Restated Certificate of Incorporation, dividends upon the shares of capital stock of the Corporation may be declared by the Board of Directors at any regular or special meeting. Dividends may be paid in cash, in property or in shares of stock of the Corporation, unless otherwise provided by applicable law or the Corporation's Restated Certificate of Incorporation. SECTION 2. Reserves. Before payment of any dividend, there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the Board of Directors may, from time to time, in its absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation or for such other purpose as the Board of Directors may think conducive to the interests of the Corporation. The Board of Directors may modify or abolish any such reserve in the manner in which it was created. ARTICLE VIII INDEMNIFICATION OF DIRECTORS AND OFFICERS SECTION 1. Nature of Indemnity. (a) To the fullest extent permitted by applicable law, including the provisions of the General Corporation Law of the State of Delaware, the Corporation shall indemnify any person who was or is a party or is threatened to be made a party to, or testifies in, any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a "proceeding"), other than an action by or in the right of the Corporation, by reason of the fact that such person is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, employee benefit plan, trust or other enterprise (hereinafter an "indemnitee"), whether the basis of such proceeding is alleged action in an official capacity as a director, officer, employee or agent or in any other capacity while serving as such a director, officer, employee or agent. The indemnitee shall be indemnified and held harmless by the Corporation to the full extent authorized by the General Corporation Law of Delaware, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent such amendment permits the Corporation to provide broader indemnification rights than said law permitted the Corporation to provide prior to such amendment), or by other applicable law as then in effect, against all expense, liability and loss (including attorneys' fees, judgments, fines, excise taxes under the Employee Retirement Income Security Act of 1974, as amended from time to time ("ERISA"), penalties and amounts to be paid in settlement) actually and reasonably incurred or suffered by such indemnitee in connection therewith. (b) The Corporation shall indemnify any person who was or is a party to or is threatened to be made a party to, or testifies in, any proceeding by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that such person is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, employee benefit plan, trust or other enterprise against expenses (including attorneys' fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Corporation, provided that no indemnification shall be made in respect of any claim, 9 10 issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the Court of Chancery of the State of Delaware or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper. SECTION 2. Procedure. Any indemnification under this Article VIII (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the present or former director, officer, employee or agent is proper in the circumstances because he or she has met the applicable standard of conduct set forth in the General Corporation Law of Delaware, as the same exists or hereafter may be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than said law permitted the Corporation to provide prior to such amendment). Such determination shall be made with respect to a person who is a director or officer at the time of such determination (A) by a majority vote of the directors who were not parties to such action, suit or proceeding (the "Disinterested Directors"), even though less than a quorum, or (B) by a committee of Disinterested Directors designated by a majority vote of such directors, even though less than a quorum, or (C) if there are no Disinterested Directors or if the Disinterested Directors so direct, by independent legal counsel in a written opinion, or (D) by the stockholders. SECTION 3. Advances for Expenses. Costs, charges and expenses (including attorneys' fees) incurred by a director, officer, employee or agent of the Corporation in defending a civil or criminal action, suit or proceeding shall be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of the director, officer, employee or agent to repay all amounts so advanced in the event that it shall ultimately be determined that such director, officer, employee or agent is not entitled to be indemnified by the Corporation as authorized in this Article VIII. The majority of the Disinterested Directors may, in the manner set forth above, and upon approval of such director, officer, employee or agent of the Corporation, authorize the Corporation's counsel to represent such person, in any action, suit or proceeding, whether or not the Corporation is a party to such action, suit or proceeding. SECTION 4. Procedure for Indemnification. Any indemnification or advance of costs, charges and expenses under this Article VIII shall be made promptly, and in any event within 60 days upon the written request of the director, officer, employee or agent. The right to indemnification or advances as granted by this Article VIII shall be enforceable by the director, officer, employee or agent, as the case may be, in any court of competent jurisdiction, if the Corporation denies such request, in whole or in part, or if no disposition thereof is made within 60 days. Such person's costs and expenses incurred in connection with successfully establishing his or her right to indemnification, in whole or in part, in any such action shall also be indemnified by the Corporation. It shall be a defense to any such action (other than an action brought to enforce a claim for the advance of costs, charges and expenses under this Article VIII where the required undertaking has been received by the Corporation) that the claimant has not met the standard of conduct set forth in the General Corporation Law of Delaware, as the same exists or hereafter may be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than said law permitted the Corporation to provide prior to such amendment), but the burden of proving such defense shall be on the Corporation. Neither the failure of the Corporation (including its Board of Directors, its independent legal counsel and its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he or she has met the applicable standard of conduct set forth in the General Corporation Law of Delaware, as the same exists or hereafter may be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights that said law permitted the Corporation to provide prior to such amendment), nor the fact 10 11 that there has been an actual determination by the Corporation (including its Board of Directors, its independent legal counsel and its stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that the claimant has not met the applicable standard of conduct. SECTION 5. Other Rights; Continuation of Right to Indemnification. The indemnification and advancement of expenses provided by this Article VIII shall not be deemed exclusive of any other rights to which a person seeking indemnification or advancement of expenses may be entitled under any law (common or statutory), by-law, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his or her official capacity and as to action in another capacity while holding office or while employed by or acting as agent for the Corporation, and shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the estate, heirs, executors and administers of such person. All rights to indemnification under this Article VIII shall be deemed to be a contract between the Corporation and each director, officer, employee or agent of the Corporation who serves or served in such capacity at any time while this Article VIII is in effect. Any repeal or modification of this Article VIII shall not in any way diminish any rights to indemnification of such director, officer, employee or agent or the obligations of the Corporation arising hereunder with respect to any action, suit or proceeding arising out of, or relating to, any actions, transactions or facts occurring prior to the final adoption of such modification or repeal. For purposes of this Article VIII, references to "the Corporation" include all constituent corporations absorbed in a consolidation or merger as well as the resulting or surviving corporation, so that any person who is or was a director, officer, employee or agent of such a constituent corporation or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise shall stand in the same position under the provisions of this Article VIII, with respect to the resulting or surviving corporation, as he or she would if he or she had served the resulting or surviving corporation in the same capacity. SECTION 6. Insurance. The Corporation shall have power to purchase and maintain insurance on behalf of any person who is or was or has agreed to become a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him or her and incurred by him or her or on his or her behalf in any such capacity, or arising out of his or her status as such, whether or not the Corporation would have the power to indemnify him or her against such liability under the provisions of this Article VIII, provided, however, that such insurance is available on acceptable terms, which determination shall be made by a vote of a majority of the Board of Directors. SECTION 7. Savings Clause. If this Article VIII or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Corporation shall nevertheless indemnify each person entitled to indemnification under the first paragraph of this Article VIII as to all expense, liability and loss (including attorneys' fees, judgments, fines, ERISA excise taxes, penalties and amounts to be paid in settlement) actually and reasonably incurred or suffered by such person and for which indemnification is available to such person pursuant to this Article VIII to the full extent permitted by any applicable portion of this Article VIII that shall not have been invalidated and to the full extent permitted by applicable law. 11 12 ARTICLE IX CORPORATE SEAL The corporate seal shall have inscribed thereon the name of the Corporation and the year of its incorporation and shall be in such form and contain such other words and/or figures as the Board of Directors shall determine. The corporate seal may be used by printing, engraving, lithographing, stamping or otherwise making, placing or affixing, or causing to be printed, engraved, lithographed, stamped or otherwise made, placed or affixed, upon any paper or document, by any process whatsoever, an impression, facsimile or other reproduction of said corporate seal. ARTICLE X FISCAL YEAR The fiscal year of the Corporation shall be fixed, and shall be subject to change, by the Board of Directors. ARTICLE XI WAIVER OF NOTICE Whenever notice is required to be given by these By-laws or by the Restated Certificate of Incorporation or by law, a written waiver thereof, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent to notice. ARTICLE XII BANK ACCOUNTS, DRAFTS, CONTRACTS, ACTIVITIES, ETC. SECTION 1. Bank Accounts and Drafts. In addition to such bank accounts as may be authorized by the Board of Directors, the primary financial officer or any person designated by said primary financial officer, whether or not an employee of the Corporation, may authorize such bank accounts to be opened or maintained in the name and on behalf of the Corporation as he or she may deem necessary or appropriate, payments from such bank accounts to be made upon and according to the check of the Corporation in accordance with the written instructions of said primary financial officer, or other person so designated by the Treasurer. SECTION 2. Contracts. The Board of Directors may authorize any person or persons, in the name and on behalf of the Corporation, to enter into or execute and deliver any and all deeds, bonds, mortgages, contracts and other obligations or instruments, and such authority may be general or confined to specific instances. SECTION 3. Proxies; Powers of Attorney; Other Instruments. The Chairman, the President or any other person designated by either of them shall have the power and authority to execute and deliver proxies, powers of attorney and other instruments on behalf of the Corporation in connection with the rights and powers incident to the ownership of stock by the Corporation. The Chairman, the President or any other person authorized by proxy or power of attorney executed and delivered by either of them on behalf of the Corporation may attend and vote 12 13 at any meeting of stockholders of any company in which the Corporation may hold stock, and may exercise on behalf of the Corporation any and all of the rights and powers incident to the ownership of such stock at any such meeting, or otherwise as specified in the proxy or power of attorney so authorizing any such person. The Board of Directors, from time to time, may confer like powers upon any other person. SECTION 4. Financial Reports. The Board of Directors may appoint the primary financial officer or other fiscal officer and/or the Secretary or any other officer to cause to be prepared and furnished to stockholders entitled thereto any special financial notice and/or financial statement, as the case may be, which may be required by any provision of law. ARTICLE XIII AMENDMENTS The Board of Directors shall have power to adopt, amend or repeal By-laws. By-laws adopted by the Board of Directors may be repealed or changed, and new By-laws made, by the stockholders. 13 EX-10.24 4 EMPLOYMENT AGREEMENT - JERRY E. HUNTER 1 EXHIBIT 10.24 JPS TEXTILE GROUP, INC. 555 NORTH PLEASANTBURG DRIVE, SUITE 202 GREENVILLE, SOUTH CAROLINA 29607 October 9, 1997 Mr. Jerry E. Hunter 111 Sanderling Drive Greenville, South Carolina 29607 Dear Jerry: We are writing with respect to your employment by JPS Textile Group, Inc. (the "Company") as President and Chief Executive Officer of the Company. The Company acknowledges and recognizes the value of your experience and abilities to the Company since the beginning of your employment with the Company, and desires to continue to retain and make secure for itself such experience and abilities on the terms and subject to the conditions set forth in this agreement (the "Agreement"). 1. Employment. The Company agrees to employ you and you agree to be employed by the Company commencing on the consummation of the Joint Plan of Reorganization of the Company and its wholly owned subsidiary, JPS Capital Corp., dated October 9, 1997 (the "Effective Date") and ending on the third anniversary thereof (unless sooner terminated as hereinafter provided) (the "Employment Period"), on the terms and subject to the conditions set forth in this Agreement; provided, however, that commencing on the third anniversary of the Effective Date and each anniversary thereafter, the Employment Period shall automatically be extended for one additional year (the "Extended Employment Period") unless not later than the end of the Employment Period or the Extended Employment Period, as the case may be, the Company or you shall have given written notice to the other not to extend the Employment Period or any Extended Employment Period. Unless specifically provided to the contrary, the Employment Period shall be deemed to include any Extended Employment Period. 2. Duties. (a) You shall continue to be nominated as a director of the Company, subject to your election thereto by the Board of Directors of the Company (the "Board") or the stockholders of the Company. In addition, you shall be employed as the President and Chief Executive Officer of the Company. In such capacities, you shall serve as a senior executive officer of the Company and shall have the duties and responsibilities prescribed for such positions by the By-Laws of the Company, and shall have such other duties and responsibilities as may from time to time be prescribed by the Board and are customarily performed by someone in your position, provided that such duties and responsibilities are consistent with your positions as President and Chief Executive Officer of the Company. In the performance of your duties, you shall be subject to the supervision and direction of the Board. (b) Subject to the terms of your employment hereunder, you shall devote such time as is reasonably necessary to the proper performance of your duties and responsibilities as President and Chief Executive Officer of the Company. You hereby represent and warrant to the Company that, except as described above, you have no obligations under any existing employment or service agreement and that your performance of the services required of you hereunder will not conflict with your other existing obligations described above. 3. Compensation. (a) (i) Base Salary. During the term of your employment hereunder, the Company shall pay you, and you shall accept from the Company for your services, a salary at the rate of not less than $380,000 per year (the 2 Mr. Jerry E. Hunter Page 2 "Base Salary"), payable in accordance with the Company's policy with respect to the compensation of executives. The Board shall annually review your performance and determine, in its sole discretion, whether or not to increase your Base Salary and, if so, the amount of such increase. (ii) Bonus. In addition to your Base Salary, unless you voluntarily terminate your employment for other than Good Reason (as hereinafter defined), or are terminated by the Company for Cause (as hereinafter defined), you will be eligible to participate in the 1997 Management Incentive Bonus Plan (the "1997 Bonus Plan") and receive a bonus in an amount and based upon the attainment of the performance goals specified therein. The Board shall establish a performance-based annual bonus program for senior executives of the Company including you for fiscal years after 1997 (a "Future Bonus Plan") and award you an annual bonus opportunity thereunder which is not less favorable than the opportunity provided pursuant to the 1997 Bonus Plan without restricting the discretion of the Board to set reasonable targets and criteria for such incentive compensation. (iii) Retention Grant. In addition to your Base Salary, you will receive on the Effective Date a cash payment in the amount of $256,274 and 32,852 shares of common stock of the Company. (iv) Incentive Compensation and Other Plans. During the term of your employment hereunder, you shall participate in any incentive compensation (including stock options, restricted stock and/or other long-term incentive compensation), deferred compensation, savings and retirement plans, practices, policies and programs as adopted and approved by the Board from time to time. (b) Reimbursement of Expenses. During your employment, you will be entitled to receive prompt reimbursement for all reasonable expenses incurred by you in performing your services hereunder, provided that you properly account therefor in accordance with Company policy. 4. Vacations. During your employment, you shall be entitled to reasonable vacations from time to time in accordance with the regular procedures of the Company governing senior executives. You shall also be entitled to all paid holidays given by the Company to its senior executives. 5. Participation in Benefit Plans; Automobile. (a) Benefit Plans. You shall be entitled to participate in and to receive benefits under all the Company's employee benefit plans and arrangements in effect on the date hereof, and you shall also be entitled to participate in or receive benefits under any pension or retirement plan, savings plan, or health-and-accident plan made available by the Company in the future to its senior executives and other key management employees, subject to and on a basis consistent with the terms, conditions and overall administration of such plans and arrangements and provided that you meet the eligibility requirements thereof. (b) Automobile. You shall be entitled to the use of an automobile supplied by the Company. If you choose to use such automobile, the cost of insurance, repair and maintenance shall be borne by the Company. If you elect not to accept a Company automobile, you shall receive an annual payment of Five Thousand Six Hundred Dollars ($5,600) in lieu of such automobile. 6. Other Offices. You further agree to serve without additional compensation, if elected or appointed thereto, as an officer or director of any of the Company's subsidiaries or affiliates. 7. Termination. (a) Death. Your employment hereunder shall terminate upon your death. 3 Mr. Jerry E. Hunter Page 3 (b) Disability. In the event of your permanent disability (as hereinafter defined) during the term of your employment hereunder, the Company shall have the right, upon written notice to you, to terminate your employment hereunder, effective upon the giving of such notice. For the purposes hereof, "permanent disability" shall be defined as any physical or mental disability or incapacity which renders you incapable of fully performing the services required of you in accordance with your obligations hereunder for a period of 150 consecutive days or for shorter periods aggregating 150 days during any period of twelve (12) consecutive months. (c) Cause. The Company may terminate your employment hereunder for "Cause." For purposes hereof, termination for "Cause" shall mean termination after: (i) your violation of any of the provisions of paragraph 9 hereof; (ii) your commission of an intentional act of fraud, embezzlement, theft or dishonesty against the Company or its affiliates; (iii) your conviction of (or pleading by you of nolo contendere to) any crime which constitutes a felony or misdemeanor involving moral turpitude or which might, in the reasonable opinion of the Company, cause embarrassment to the Company; or (iv) the gross neglect or willful failure by you to perform your duties and responsibilities in all material respects as set forth in paragraph 2 hereof, if such breach of duty is not cured within 30 days after written notice thereof to you by the Board. For purposes of clause (iv), no act, or failure to act, on your part shall be deemed "willful" unless done, or omitted to be done, by you not in good faith and without reasonable belief that your act, or failure to act, was in the best interest of the Company. (d) Termination by You. You may terminate your employment hereunder for Good Reason. For purposes of this Agreement, "Good Reason" shall mean (A) any assignment to you of any duties (other than incident to a promotion) materially different than or in addition to those contemplated by, or any limitation of your powers in any respect not contemplated by, paragraph 2 hereof, provided that you first deliver written notice thereof to the Board and the Company shall have failed to cure such non-permitted assignment or limitation within thirty (30) days after receipt of such written notice, (B) a reduction in your rate of base salary or the failure to maintain incentive bonus arrangements substantially similar in earnings potential to those in effect on the Effective Date, or a material reduction in your fringe benefits or any other material failure by the Company to comply with paragraphs 3 through 5 hereof, provided that you first deliver written notice thereof to the Board and the Company shall have failed to cure such reduction or failure within thirty (30) days after receipt of such written notice, (C) your being required to relocate your principal residence from its existing location without your consent, or (D) you elect to terminate your employment no earlier than six months following a Change in Control (as hereinafter defined), provided that you first deliver written notice thereof to the Board. For purposes of this Agreement, a "Change in Control" means the occurrence of any one of the following events following the Effective Date (other than the consummation of the Joint Plan of Reorganization of the Company and its wholly owned subsidiary, JPS Capital Corp.): (a) any person or other entity (other than any of the Company's subsidiaries), including any person as defined in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), becoming the beneficial owner, as defined in Rule 13d-3 of the Exchange Act, directly or indirectly, of more than fifty percent (50%) of the total combined voting power of all classes of capital stock of the Company ordinarily entitled to vote for the election of directors of the Company, (b) the sale of all or substantially all of the property or assets of the Company (other than a sale to any of the Company's subsidiaries), (c) the consolidation or merger of the 4 Mr. Jerry E. Hunter Page 4 Company with another corporation (other than with any of the Company's subsidiaries or in which the Company is the surviving corporation), the consummation of which would result in the shareholders of the Company immediately before the occurrence of the consolidation or merger owning, in the aggregate, less than 50% of the voting stock of the surviving entity immediately following the occurrence of such consolidation or merger, or (d) a change in the Board occurring with the result that the members of the Board on the Effective Date (the "Incumbent Directors") no longer constitute a majority of such Board, provided that any person becoming a director whose election or nomination for election was supported by a majority of the Incumbent Directors (other than you if you are a Director) shall be considered an Incumbent Director for purposes hereof. (e) Notice. Any termination by the Company pursuant to paragraphs 7(b) or 7(c) above or by you pursuant to paragraph 7(d) above shall be communicated by written Notice of Termination to the other party hereto. For the purposes hereof, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of your employment under the provision so indicated. (f) Date of Termination. "Date of Termination" shall mean (i) if your employment is terminated by your death, the date of your death, and (ii) if your employment is terminated for any other reason, the date on which a Notice of Termination is given. 8. Compensation Upon Termination of Employment or During Disability. Subject to paragraph 8(f) below: (a) Death. If your employment shall be terminated by reason of your death, the Company shall pay or grant, to such person as you shall designate in a notice filed with the Company, or, if no such person shall be designated, to your estate as a lump sum death benefit, (i) an amount equal to any accrued but unpaid Base Salary at the time of your death, plus an additional payment equal to your Base Salary for the period from such date through the end of the month following the month in which you die, (ii) an amount equal to any accrued but unpaid bonus under the 1997 Bonus Plan or any bonus payable pursuant to any Future Bonus Plans, to the extent earned but not paid with respect to any year prior to the year in which your death occurs, and (iii) a pro rata portion (based on the number of days worked) of the bonus payable under the 1997 Bonus Plan or any Future Bonus Plan in effect for the year in which your death occurs based upon the assumption that the performance goals established under the applicable program with respect to the entire year in which your death occurs are met. In addition, you shall retain all stock options that are vested in accordance with the terms of the stock option plan and grant letter controlling such stock options, with such options remaining exercisable for six months from the date of your death and you shall receive such additional benefits as may be provided by the then existing plans, programs and/or arrangements of the Company. This amount and these benefits shall be exclusive of and in addition to any payments your widow, beneficiaries or estate may be entitled to receive pursuant to any pension or employee benefit plan maintained by the Company. Your designated beneficiary or the executor of your estate, as the case may be, shall accept the payment provided for in this paragraph 8 in full discharge and release of the Company of and from any further obligations under this Agreement. (b) Disability. During any period that you fail to perform your duties hereunder as a result of incapacity due to physical or mental illness, you shall continue to receive your full Base Salary until your employment is terminated pursuant to paragraph 7(b) hereof. If your employment is terminated by the Company pursuant to paragraph 7(b), the Company shall pay to you in a lump sum payment, an amount equal to (i) any accrued but unpaid bonus under the 1997 Bonus Plan or any bonus payable pursuant to any Future Bonus Plans, to the extent earned but not paid with respect to any year prior to the year in which your disability occurs; and (ii) a pro rata portion (based on the number of days worked) of the bonus payable under the 1997 Bonus Plan or any Future 5 Mr. Jerry E. Hunter Page 5 Bonus Plan in effect for the year in which your disability occurs based upon the assumption that the performance goals established under the applicable program with respect to the entire year in which your disability occurs are met. In addition, you shall retain all stock options that are vested in accordance with the terms of the stock option plan and grant letter controlling such stock options, with such options remaining exercisable for six months from the date of your disability and you shall receive such additional benefits as may be provided by the then existing plans, programs and/or arrangements of the Company. During any such period and thereafter you shall continue to bear the obligations provided for in paragraph 9 below in accordance with the terms of such paragraph 9. (c) Cause or Other Than Good Reason. If your employment shall be terminated for Cause or you shall terminate your employment other than for Good Reason, the Company shall be discharged and released of and from any further obligations under this Agreement except for any Base Salary through the Date of Termination or the date on which you terminate your employment at the rate in effect at the time Notice of Termination is given or the date on which you terminate your employment, to the extent required by law. Thereafter you shall continue to have the obligations provided for in paragraph 9 below. Nothing contained herein shall be deemed to be a waiver by the Company of any rights that it may have against you in respect of your actions which gave rise to the termination of your employment for Cause or for any reason other than for Good Reason. (d) Other Than for Cause or For Good Reason. If the Company shall terminate your employment other than pursuant to paragraphs 7(b) or 7(c) hereof or if you shall terminate your employment for Good Reason, then: (i) The Company shall continue to pay you your Base Salary, at the rate in effect at the time that the Notice of Termination is given in accordance with paragraph 7(e) hereof, without interest through the later of (A) the third anniversary of the Effective Date and (B) one year from the Date of Termination, in accordance with normal payroll practices; provided, however, that in the event of your death prior to the expiration of payment hereunder your estate or beneficiary shall receive the remaining amount hereunder in a lump sum payment; (ii) The Company shall pay you an amount equal to the sum of (A) any bonus earned as of the Date of Termination under the 1997 Bonus Plan or any Future Bonus Plan for a fiscal year ending prior to the Date of Termination but not paid as of such date, (B) a pro rata portion (based on the number of days worked) of the target bonus (not in excess of fifty percent (50%) of your Base Salary) payable under the 1997 Bonus Plan or any Future Bonus Plan in effect for the fiscal year in which your Date of Termination occurs (determined without regard to whether the performance goals established under the applicable program are met) and (C) an amount equal to your target bonus (not in excess of fifty percent (50%) of your Base Salary) under the 1997 Bonus Plan or any Future Bonus Plan in effect for the fiscal year in which your Date of Termination occurs (determined without regard to whether the performance goals established under the applicable program are met), multiplied by (1) if the Date of Termination is during the initial three year Employment Period, the greater of (x) the number (not in excess of three) of years and fractions of years remaining in the initial three year Employment Period or (y) one or (2) if the Date of Termination is during any Extended Employment Period, one; (iii) You shall become fully vested in any stock options, with such options remaining exercisable for six months from the date of your termination of employment; and (iv) The Company shall maintain in full force and effect, for your continued benefit for twenty-four months after termination of employment, all employee benefit plans and programs providing health and/or life insurance benefits in which you were entitled to participate immediately prior to the Date of Termination provided that your continued participation is possible under the general terms and provisions of such plans and programs. In the event that your participation in any such plan or program is barred, the Company shall provide you with comparable benefits under a mirror benefit plan. Notwithstanding the above, if you are 6 Mr. Jerry E. Hunter Page 6 employed by a new employer and are eligible to receive comparable coverage from such employer (including the waiver of any pre-existing condition limitation) at a comparable cost to you, you shall no longer be eligible to receive coverage under this paragraph. (e) Pension Eligible Retirement. If during the initial three year Employment Period with the prior written consent of the Board or at any time after such Employment Period you retire and are eligible to receive an immediate benefit under the Retirement Pension Plan for Employees of JPS Textile Group, Inc., the Company shall pay to you as a lump sum payment, (i) an amount equal to any accrued but unpaid Base Salary at the time of your retirement, (ii) an amount equal to any accrued but unpaid bonus under the 1997 Bonus Plan or any bonus payable pursuant to any Future Bonus Plans, to the extent earned but not paid with respect to any year prior to the year in which your retirement occurs; (iii) a pro rata portion (based on the number of days worked) of the bonus payable under the 1997 Bonus Plan or any Future Bonus Plan in effect for the year in which your retirement occurs based upon the assumption that the performance goals established under the applicable program with respect to the entire year of your retirement occurs are met; and (iv) the Company shall maintain in full force and effect, for your continued benefit for twenty-four months after termination of employment, all employee benefit plans and programs providing health and/or life insurance benefits in which you were entitled to participate immediately prior to the Date of Termination provided that your continued participation is possible under the general terms and provisions of such plans and programs; provided, that in the event that your participation in any such plan or program is barred, the Company shall provide you with comparable benefits under a mirror benefit plan. In addition, you shall retain any stock options vested, such vesting having been determined as a ratio the numerator of which is the time elapsed from the Effective Date through the date of your retirement and the denominator of which is three (3) years, with such options remaining exercisable for six months from the date of your retirement and you shall receive such additional benefits as may be provided by the then existing plans, programs and/or arrangements of the Company. (f) Parachute Payment. Notwithstanding anything herein to the contrary, if any of the payments or benefits received or to be received by you in connection with a Change in Control or your termination of employment (whether such payments or benefits are provided pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Company, any person whose actions result in a Change in Control or any person affiliated with the Company or such person) (such payments or benefits being hereinafter referred to as the "Total Payments") would be subject to the excise tax (the "Excise Tax") imposed under Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), then the payments under this paragraph 8 hereof shall be reduced (by the minimal amount necessary) so that no portion of the Total Payments is subject to the Excise Tax. For purposes of determining whether any of the Total Payments will be subject to the Excise Tax and the amount of such Excise Tax, (i) all of the Total Payments shall be treated as "parachute payments" (within the meaning of Section 280G(b)(2) of the Code) unless, in the opinion of tax counsel (the "Tax Counsel") selected by the Company and reasonably acceptable by you, such payments or benefits (in whole or in part) do not constitute parachute payments, including by reason of Section 280G(b)(4)(A) of the Code, (ii) all "excess parachute payments" within the meaning of Section 280G(b)(1) of the Code shall be treated as subject to the Excise Tax unless, in the opinion of Tax Counsel, such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered (within the meaning of Section 280G(b)(4)(B) of the Code) in excess of the "base amount" (as defined in Section 280G(b)(3) of the Code) allocable to such payment, or are otherwise not subject to the Excise Tax, and (iii) the value of any noncash benefits or any deferred payment or benefit shall be determined by Tax Counsel in accordance with the principles of Sections 280G(d)(3) and (4) of the Code. 9. Restrictive Covenants and Confidentiality; Injunctive Relief. 7 Mr. Jerry E. Hunter Page 7 (a) You agree, as a condition to the performance by the Company of its obligations hereunder, particularly its obligations under paragraph 3 hereof, that during the term of your employment, except for a termination of employment without Cause or for Good Reason, hereunder and during the further period of one (1) year after the termination of such employment, you shall not, without the prior written approval of the Board, directly or indirectly through any other person, firm or corporation: (i) Solicit, raid, entice or induce any person, firm or corporation that presently is or at any time during the term of your employment hereunder shall be a customer of the Company, or any of its subsidiary companies, to become a customer of any other person, firm or corporation, and you shall not approach any such person, firm or corporation for such purpose or authorize or knowingly approve the taking of such actions by any other person; (ii) Solicit, raid, entice or induce any person that presently is or at any time during the term of your employment hereunder shall be an employee of the Company, or any of its subsidiary companies, to become employed by any person, firm or corporation, and you shall not approach any such employee for such purpose or authorize or knowingly approve the taking of such actions by any other person; or (iii) Engage, participate, make any financial investment in, or become employed by any person, firm, corporation or other business enterprise in the United States which is engaged, directly or indirectly, during the term of your employment or at the time of your termination of employment, as the case may be, which (x) derives in excess of 20% of its gross revenues from the sale of products substantially the same as the products of the Company and/or any of its subsidiary companies or (y) has substantially the same customer base for the same products as the Company and/or any of its subsidiary companies. The foregoing covenant shall not be construed to preclude you from making any investments in the securities of any company, whether or not engaged in competition with the Company and/or any of its subsidiary companies, to the extent that such securities are actively traded on a national securities exchange or in the over-the-counter market in the United States or any foreign securities exchange and, after giving effect to such investment, you do not beneficially own securities representing more than 5% of the combined voting power of the voting securities of such company. (b) Recognizing that the knowledge, information and relationship with customers, suppliers, and agents, and the knowledge of the Company's and its subsidiary companies' business methods, systems, plans and policies which you shall hereafter establish, receive or obtain as an employee of the Company or its subsidiary companies, are valuable and unique assets of the respective businesses of the Company and its subsidiary companies, you agree that, during and after the term of your employment hereunder, you shall not (otherwise than pursuant to your duties hereunder) disclose or use, without the prior written approval of the Board, any such knowledge or information pertaining to the Company or any of its subsidiary companies, their business, personnel or policies, to any person, firm, corporation or other entity, for any reason or purpose whatsoever. The provisions of this paragraph 9 shall not apply to information which is or shall become generally known to the public or the trade (except by reason of your breach of your obligations hereunder), information which is or shall become available in trade or other publications, information known to you prior to entering the employ of the Company, and information which you are required to disclose by law or an order of a court of competent jurisdiction (provided that prior to your disclosure of any such information you shall provide the Company with reasonable notice and a reasonable opportunity to seek a protective order to prevent such disclosure). (c) The provisions of paragraph 9(b) above shall survive the termination of your employment hereunder, irrespective of the reason therefor. (d) You acknowledge that the services to be rendered by you are of a special, unique and extraordinary character and, in connection with such services, you will have access to confidential information vital to the 8 Mr. Jerry E. Hunter Page 8 Company's and its subsidiary companies' businesses. By reason of this, you consent and agree that if you violate any of the provisions of this Agreement with respect to diversion of the Company's or its subsidiary companies' customers or employees, or confidentiality, the Company and its subsidiary companies would sustain irreparable harm and, therefore, in addition to any other remedies which the Company may have under this Agreement or otherwise, the Company shall be entitled to an injunction restraining you from committing or continuing any such violation of this Agreement. 10. Deductions and Withholdings. The Company shall be entitled to withhold any amounts payable under this Agreement on account of payroll taxes and similar matters as are required by applicable law, rule or regulation of appropriate governmental authorities. 11. Successors; Binding Agreement. (a) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company, by agreement in form and substance reasonably satisfactory to you, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle you to compensation from the Company in the same amount and on the same terms as you would be entitled to hereunder if you terminated your employment for Good Reason, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. As used in this Agreement, "Company" shall include any successor to the Company's business and/or assets as aforesaid which executes and delivers the agreement provided for in this paragraph 11 or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law. (b) This Agreement and all your rights hereunder shall inure to the benefit of and be enforceable by your personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If you should die while any amounts would still be payable to you hereunder if you had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to your devisee, legatee, or other designee or, if there be no such designee, to your estate. Your obligations hereunder may not be delegated, and except as otherwise provided herein relating to the designation of a devisee, legatee or other designee, you may not assign, transfer, pledge, encumber, hypothecate or otherwise dispose of this Agreement or any of your rights hereunder, and any such attempted delegation or disposition shall be null and void and without effect. 12. Notice. For purposes of this Agreement, notices and all other communications provided for shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to you: Mr. Jerry E. Hunter 111 Sanderling Drive Greenville, South Carolina 29607 9 Mr. Jerry E. Hunter Page 9 If to the Company: JPS Textile Group, Inc. 555 North Pleasantburg Drive, Suite 202 Greenville, South Carolina 29607 Attention: Board of Directors or to such other address as any party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. 13. Miscellaneous. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by you and by the Company. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. This Agreement constitutes the complete understanding between the parties with respect to your employment and supersedes any other prior oral or written agreements, arrangements or understandings between you and the Company. This Agreement amends, restates and supersedes any existing employment, retention, severance and change-in-control agreements (collectively, the "Prior Agreements") between you and the Company and/or any of its subsidiary companies upon the Effective Date, and any and all claims under or in respect of the Prior Agreements that you may have or assert shall, as of the Effective Date, be governed by, and completely satisfied and discharged in accordance with, the terms and conditions of this Agreement. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement. This Agreement may not be changed or terminated orally but only by an agreement in writing signed by the parties hereto. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of South Carolina. 14. Arbitration. All differences, claims or matters in dispute arising out of this Agreement, the breach hereof or otherwise arising between the Company or any of its affiliates and you shall, at the election of either party, by notice to the other, be submitted to arbitration by the American Arbitration Association or its successor, in Greenville, South Carolina. Such arbitration shall be governed by the then existing rules of the American Arbitration Association and the laws of the State of South Carolina as then in effect. The expenses, including your reasonable attorneys' fees, in connection with such arbitration shall be borne by the Company. 15. Validity; Effectiveness. The invalidity or unenforceability of any provision or provisions of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 16. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 10 Mr. Jerry E. Hunter Page 10 If the foregoing is satisfactory, please so indicate by signing and returning to the Company the enclosed copy of this letter whereupon this will constitute our agreement on the subject. JPS TEXTILE GROUP, INC. By: /s/ David H. Taylor ---------------------------- David H. Taylor Executive Vice President- Finance and Secretary ACCEPTED AND AGREED TO: /s/ Jerry E. Hunter - ------------------------------------ Jerry E. Hunter EX-10.25 5 EMPLOYMENT AGREEMENT - DAVID H. TAYLOR 1 EXHIBIT 10.25 JPS TEXTILE GROUP, INC. 555 NORTH PLEASANTBURG DRIVE, SUITE 202 GREENVILLE, SOUTH CAROLINA 29607 October 9, 1997 Mr. David H. Taylor 105 Holbrook Trail Greenville, South Carolina 29605 Dear David: We are writing with respect to your employment by JPS Textile Group, Inc. (the "Company") as Executive Vice President--Finance and Secretary of the Company. The Company acknowledges and recognizes the value of your experience and abilities to the Company since the beginning of your employment with the Company, and desires to continue to retain and make secure for itself such experience and abilities on the terms and subject to the conditions set forth in this agreement (the "Agreement"). 1. Employment. The Company agrees to employ you and you agree to be employed by the Company commencing on the consummation of the Joint Plan of Reorganization of the Company and its wholly owned subsidiary, JPS Capital Corp., dated October 9, 1997 (the "Effective Date") and ending on the third anniversary thereof (unless sooner terminated as hereinafter provided) (the "Employment Period"), on the terms and subject to the conditions set forth in this Agreement; provided, however, that commencing on the third anniversary of the Effective Date and each anniversary thereafter, the Employment Period shall automatically be extended for one additional year (the "Extended Employment Period") unless not later than the end of the Employment Period or the Extended Employment Period, as the case may be, the Company or you shall have given written notice to the other not to extend the Employment Period or any Extended Employment Period. Unless specifically provided to the contrary, the Employment Period shall be deemed to include any Extended Employment Period. 2. Duties. (a) You shall continue to be nominated as a director of the Company, subject to your election thereto by the Board of Directors of the Company (the "Board") or the stockholders of the Company. In addition, you shall be employed as the Executive Vice President--Finance and Secretary of the Company. In such capacities, you shall serve as a senior executive officer of the Company and shall have the duties and responsibilities prescribed for such positions by the By-Laws of the Company, and shall have such other duties and responsibilities as may from time to time be prescribed by the Board and are customarily performed by someone in your position, provided that such duties and responsibilities are consistent with your positions as Executive Vice President--Finance and Secretary of the Company. In the performance of your duties, you shall be subject to the supervision and direction of the Chief Executive Officer of the Company. (b) Subject to the terms of your employment hereunder, you shall devote such time as is reasonably necessary to the proper performance of your duties and responsibilities as Executive Vice President--Finance and Secretary of the Company. You hereby represent and warrant to the Company that, except as described above, you have no obligations under any existing employment or service agreement and that your performance of the services required of you hereunder will not conflict with your other existing obligations described above. 3. Compensation. (a) (i) Base Salary. During the term of your employment hereunder, the Company shall pay you, and you shall accept from the Company for your services, a salary at the rate of not less than $225,000 per year (the "Base Salary"), payable in accordance with the Company's policy with respect to the compensation of executives. 2 Mr. David H. Taylor Page 2 The Board shall annually review your performance and determine, in its sole discretion, whether or not to increase your Base Salary and, if so, the amount of such increase. (ii) Bonus. In addition to your Base Salary, unless you voluntarily terminate your employment for other than Good Reason (as hereinafter defined), or are terminated by the Company for Cause (as hereinafter defined), you will be eligible to participate in the 1997 Management Incentive Bonus Plan (the "1997 Bonus Plan") and receive a bonus in an amount and based upon the attainment of the performance goals specified therein. The Board shall establish a performance-based annual bonus program for senior executives of the Company including you for fiscal years after 1997 (a "Future Bonus Plan") and award you an annual bonus opportunity thereunder which is not less favorable than the opportunity provided pursuant to the 1997 Bonus Plan without restricting the discretion of the Board to set reasonable targets and criteria for such incentive compensation. (iii) Retention Grant. In addition to your Base Salary, you will receive on the Effective Date a cash payment in the amount of $163,694 and 20,984 shares of common stock of the Company. (iv) Incentive Compensation and Other Plans. During the term of your employment hereunder, you shall participate in any incentive compensation (including stock options, restricted stock and/or other long-term incentive compensation), deferred compensation, savings and retirement plans, practices, policies and programs as adopted and approved by the Board from time to time. (b) Reimbursement of Expenses. During your employment, you will be entitled to receive prompt reimbursement for all reasonable expenses incurred by you in performing your services hereunder, provided that you properly account therefor in accordance with Company policy. 4. Vacations. During your employment, you shall be entitled to reasonable vacations from time to time in accordance with the regular procedures of the Company governing senior executives. You shall also be entitled to all paid holidays given by the Company to its senior executives. 5. Participation in Benefit Plans; Automobile. (a) Benefit Plans. You shall be entitled to participate in and to receive benefits under all the Company's employee benefit plans and arrangements in effect on the date hereof, and you shall also be entitled to participate in or receive benefits under any pension or retirement plan, savings plan, or health-and-accident plan made available by the Company in the future to its senior executives and other key management employees, subject to and on a basis consistent with the terms, conditions and overall administration of such plans and arrangements and provided that you meet the eligibility requirements thereof. (b) Automobile. You shall be entitled to the use of an automobile supplied by the Company. If you choose to use such automobile, the cost of insurance, repair and maintenance shall be borne by the Company. If you elect not to accept a Company automobile, you shall receive an annual payment of Five Thousand Six Hundred Dollars ($5,600) in lieu of such automobile. 6. Other Offices. You further agree to serve without additional compensation, if elected or appointed thereto, as an officer or director of any of the Company's subsidiaries or affiliates. 3 Mr. David H. Taylor Page 3 7. Termination. (a) Death. Your employment hereunder shall terminate upon your death. (b) Disability. In the event of your permanent disability (as hereinafter defined) during the term of your employment hereunder, the Company shall have the right, upon written notice to you, to terminate your employment hereunder, effective upon the giving of such notice. For purposes hereof, "permanent disability" shall be defined as any physical or mental disability or incapacity which renders you incapable of fully performing the services required of you in accordance with your obligations hereunder for a period of 150 consecutive days or for shorter periods aggregating 150 days during any period of twelve (12) consecutive months. (c) Cause. The Company may terminate your employment hereunder for "Cause." For purposes hereof, termination for "Cause" shall mean termination after: (i) your violation of any of the provisions of paragraph 9 hereof; (ii) your commission of an intentional act of fraud, embezzlement, theft or dishonesty against the Company or its affiliates; (iii) your conviction of (or pleading by you of nolo contendere to) any crime which constitutes a felony or misdemeanor involving moral turpitude or which might, in the reasonable opinion of the Company, cause embarrassment to the Company; or (iv) the gross neglect or willful failure by you to perform your duties and responsibilities in all material respects as set forth in Paragraph 2 thereof, if such breach of duty is not cured within 30 days after written notice thereof to you by the Board. For purposes of clause (iv), no act, or failure to act, on your part shall be deemed "willful" unless done, or omitted to be done, by you not in good faith and without reasonable belief that your act, or failure to act, was in the best interest of the Company. (d) Termination by You. You may terminate your employment hereunder for Good Reason. For purposes of this Agreement, "Good Reason" shall mean (A) any assignment to you of any duties (other than incident to a promotion) materially different than or in addition to those contemplated by, or any limitation of your powers in any respect not contemplated by, paragraph 2 hereof, provided that you first deliver written notice thereof to the Chairman of the Board and the Company shall have failed to cure such non-permitted assignment or limitation within thirty (30) days after receipt of such written notice, (B) a reduction in your rate of base salary or the failure to maintain incentive bonus arrangements substantially similar in earnings potential to those in effect on the Effective Date, or a material reduction in your fringe benefits or any other material failure by the Company to comply with paragraphs 3 through 5 hereof, provided that you first deliver written notice thereof to the Chairman of the Board and the Company shall have failed to cure such reduction or failure within thirty (30) days after receipt of such written notice, (C) your being required to relocate your principal residence from its existing location without your consent, or (D) upon notice by the Company as set forth in paragraph 1 hereof not to extend the Employment Period. For purposes of this Agreement, a "Change in Control" means the occurrence of any one of the following events following the Effective Date (other than the consummation of the Joint Plan of Reorganization of the Company and its wholly owned subsidiary, JPS Capital Corp.): (a) any person or other entity (other than any of the Company's subsidiaries), including any person as defined in Section 13(d)(3) of the Securities 4 Mr. David H. Taylor Page 4 Exchange Act of 1934, as amended (the "Exchange Act"), becoming the beneficial owner, as defined in Rule 13d-3 of the Exchange Act, directly or indirectly, of more than fifty percent (50%) of the total combined voting power of all classes of capital stock of the Company ordinarily entitled to vote for the election of directors of the Company, (b) the sale of all or substantially all of the property or assets of the Company (other than a sale to any of the Company's subsidiaries), (c) the consolidation or merger of the Company with another corporation (other than with any of the Company's subsidiaries or in which the Company is the surviving corporation), the consummation of which would result in the shareholders of the Company immediately before the occurrence of the consolidation or merger owning, in the aggregate, less than 50% of the voting stock of the surviving entity immediately following the occurrence of such consolidation or merger, or (d) a change in the Board occurring with the result that the members of the Board on the Effective Date (the "Incumbent Directors") no longer constitute a majority of such Board, provided that any person becoming a director whose election or nomination for election was supported by a majority of the Incumbent Directors (other than you if you are a Director) shall be considered an Incumbent Director for purposes hereof. (e) Notice. Any termination by the Company pursuant to paragraphs 7(b) or 7(c) above or by you pursuant to paragraph 7(d) above shall be communicated by written Notice of Termination to the other party hereto. For the purposes hereof, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of your employment under the provision so indicated. (f) Date of Termination. "Date of Termination" shall mean (i) if your employment is terminated by your death, the date of your death, and (ii) if your employment is terminated for any other reason, the date on which a Notice of Termination is given. 8. Compensation Upon Termination of Employment or During Disability. Subject to paragraph 8(e) below: (a) Death. If your employment shall be terminated by reason of your death, the Company shall pay or grant, to such person as you shall designate in a notice filed with the Company, or, if no such person shall be designated, to your estate as a lump sum death benefit, (i) an amount equal to any accrued but unpaid Base Salary at the time of your death, plus an additional payment equal to your Base Salary for the period from such date through the end of the month following the month in which you die, (ii) an amount equal to any accrued but unpaid bonus under the 1997 Bonus Plan or any bonus payable pursuant to any Future Bonus Plans, to the extent earned but not paid with respect to any year prior to the year in which your death occurs, and (iii) a pro rata portion (based on the number of days worked) of the bonus payable under the 1997 Bonus Plan or any Future Bonus Plan in effect for the year in which your death occurs based upon the assumption that the performance goals established under the applicable program with respect to the entire year in which your death occurs are met. In addition, you shall retain all stock options that are vested in accordance with the terms of the stock option plan and grant letter controlling such stock options, with such options remaining exercisable for six months from the date of your death and you shall receive such additional benefits as may be provided by the then existing plans, programs and/or arrangements of the Company. This amount and these benefits shall be exclusive of and in addition to any payments your widow, beneficiaries or estate may be entitled to receive pursuant to any pension or employee benefit plan maintained by the Company. Your designated beneficiary or the executor of your estate, as the case may be, shall accept the payment provided for in this paragraph 8 in full discharge and release of the Company of and from any further obligations under this Agreement. 5 Mr. David H. Taylor Page 5 (b) Disability. During any period that you fail to perform your duties hereunder as a result of incapacity due to physical or mental illness, you shall continue to receive your full Base Salary until your employment is terminated pursuant to paragraph 7(b) hereof. If your employment is terminated by the Company pursuant to paragraph 7(b), the Company shall pay to you in a lump sum payment, an amount equal to (i) any accrued but unpaid bonus under the 1997 Bonus Plan or any bonus payable pursuant to any Future Bonus Plans, to the extent earned but not paid with respect to any year prior to the year in which your disability occurs; and (ii) a pro rata portion (based on the number of days worked) of the bonus payable under the 1997 Bonus Plan or any Future Bonus Plan in effect for the year in which your disability occurs based upon the assumption that the performance goals established under the applicable program with respect to the entire year in which your disability occurs are met. In addition, you shall retain all stock options that are vested in accordance with the terms of the stock option plan and grant letter controlling such stock options, with such options remaining exercisable for six months from the date of your disability and you shall receive such additional benefits as may be provided by the then existing plans, programs and/or arrangements of the Company. During any such period and thereafter you shall continue to bear the obligations provided for in paragraph 9 below in accordance with the terms of such paragraph 9. (c) Cause or Other Than Good Reason. If your employment shall be terminated for Cause or you shall terminate your employment other than for Good Reason, the Company shall be discharged and released of and from any further obligations under this Agreement except for any Base Salary through the Date of Termination or the date on which you terminate your employment at the rate in effect at the time Notice of Termination is given or the date on which you terminate your employment, to the extent required by law. Thereafter you shall continue to have the obligations provided for in paragraph 9 below. Nothing contained herein shall be deemed to be a waiver by the Company of any rights that it may have against you in respect of your actions which gave rise to the termination of your employment for Cause or for any reason other than for Good Reason. (d) Other Than for Cause or For Good Reason. If the Company shall terminate your employment other than pursuant to paragraphs 7(b) or 7(c) hereof or if you shall terminate your employment for Good Reason, then: (i) The Company shall continue to pay you your Base Salary, at the rate in effect at the time that the Notice of Termination is given in accordance with paragraph 7(e) hereof, without interest through the later of (A) the third anniversary of the Effective Date and (B) one year from the Date of Termination, in accordance with normal payroll practices; provided, however, that in the event of your death prior to the expiration of payment hereunder your estate or beneficiary shall receive the remaining amount hereunder in a lump sum payment; (ii) The Company shall pay you an amount equal to the sum of (A) any bonus earned as of the Date of Termination under the 1997 Bonus Plan or any Future Bonus Plan for a fiscal year ending prior to the Date of Termination but not paid as of such date, (B) a pro rata portion (based on the number of days worked) of the target bonus (not in excess of fifty percent (50%) of your Base Salary) payable under the 1997 Bonus Plan or any Future Bonus Plan in effect for the fiscal year in which your Date of Termination occurs (determined without regard to whether the performance goals established under the applicable program are met) and (C) an amount equal to your target bonus (not in excess of fifty percent (50%) of your Base Salary) under the 1997 Bonus Plan or any Future Bonus Plan in effect for the fiscal year in which your Date of Termination occurs (determined without regard to whether the performance goals established under the applicable program are met), multiplied by (1) if the Date of Termination is during the initial three year Employment Period, the greater of (x) the number (not in excess of three) of years and fractions of years remaining in the initial three year Employment Period or (y) one or (2) if the Date of Termination is during any Extended Employment Period, one; 6 Mr. David H. Taylor Page 6 (iii) You shall become fully vested in any stock options, with such options remaining exercisable for six months from the date of your termination of employment; and (iv) The Company shall maintain in full force and effect, for your continued benefit for twenty-four months after termination of employment, all employee benefit plans and programs providing health and/or life insurance benefits in which you were entitled to participate immediately prior to the Date of Termination provided that your continued participation is possible under the general terms and provisions of such plans and programs. In the event that your participation in any such plan or program is barred, the Company shall provide you with comparable benefits under a mirror benefit plan. Notwithstanding the above, if you are employed by a new employer and are eligible to receive comparable coverage from such employer (including the waiver of any pre-existing condition limitation) at a comparable cost to you, you shall no longer be eligible to receive coverage under this paragraph. (e) Parachute Payment. Notwithstanding anything herein to the contrary, if any of the payments or benefits received or to be received by you in connection with a Change in Control or your termination of employment (whether such payments or benefits are provided pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Company, any person whose actions result in a Change in Control or any person affiliated with the Company or such person) (such payments or benefits being hereinafter referred to as the "Total Payments") would be subject to the excise tax (the "Excise Tax") imposed under Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), then the payments under this paragraph 8 hereof shall be reduced (by the minimal amount necessary) so that no portion of the Total Payments is subject to the Excise Tax. For purposes of determining whether any of the Total Payments will be subject to the Excise Tax and the amount of such Excise Tax, (i) all of the Total Payments shall be treated as "parachute payments" (within the meaning of Section 280G(b)(2) of the Code) unless, in the opinion of tax counsel (the "Tax Counsel") selected by the Company and reasonably acceptable by you, such payments or benefits (in whole or in part) do not constitute parachute payments, including by reason of Section 280G(b)(4)(A) of the Code, (ii) all "excess parachute payments" within the meaning of Section 280G(b)(1) of the Code shall be treated as subject to the Excise Tax unless, in the opinion of Tax Counsel, such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered (within the meaning of Section 280G(b)(4)(B) of the Code) in excess of the "base amount" (as defined in Section 280G(b)(3) of the Code) allocable to such payment, or are otherwise not subject to the Excise Tax, and (iii) the value of any noncash benefits or any deferred payment or benefit shall be determined by Tax Counsel in accordance with the principles of Sections 280G(d)(3) and (4) of the Code. 9. Restrictive Covenants and Confidentiality; Injunctive Relief. (a) You agree, as a condition to the performance by the Company of its obligations hereunder, particularly its obligations under paragraph 3 hereof, that during the term of your employment, except for a termination of employment without Cause or for Good Reason, hereunder and during the further period of one (1) year after the termination of such employment, you shall not, without the prior written approval of the Board, directly or indirectly through any other person, firm or corporation: (i) Solicit, raid, entice or induce any person, firm or corporation that presently is or at any time during the term of your employment hereunder shall be a customer of the Company, or any of its subsidiary companies, to become a customer of any other person, firm or corporation, and you shall not approach any such person, firm or corporation for such purpose or authorize or knowingly approve the taking of such actions by any other person; 7 Mr. David H. Taylor Page 7 (ii) Solicit, raid, entice or induce any person that presently is or at any time during the term of your employment hereunder shall be an employee of the Company, or any of its subsidiary companies, to become employed by any person, firm or corporation, and you shall not approach any such employee for such purpose or authorize or knowingly approve the taking of such actions by any other person; or (iii) Engage, participate, make any financial investment in, or become employed by any person, firm, corporation or other business enterprise in the United States which is engaged, directly or indirectly, during the term of your employment or at the time of your termination of employment, as the case may be, which (x) derives in excess of 20% of its gross revenues from the sale of products substantially the same as the products of the Company and/or any of its subsidiary companies or (y) has substantially the same customer base for the same products as the Company and/or any of its subsidiary companies. The foregoing covenant shall not be construed to preclude you from making any investments in the securities of any company, whether or not engaged in competition with the Company and/or any of its subsidiary companies, to the extent that such securities are actively traded on a national securities exchange or in the over-the-counter market in the United States or any foreign securities exchange and, after giving effect to such investment, you do not beneficially own securities representing more than 5% of the combined voting power of the voting securities of such company. (b) Recognizing that the knowledge, information and relationship with customers, suppliers, and agents, and the knowledge of the Company's and its subsidiary companies' business methods, systems, plans and policies which you shall hereafter establish, receive or obtain as an employee of the Company or its subsidiary companies, are valuable and unique assets of the respective businesses of the Company and its subsidiary companies, you agree that, during and after the term of your employment hereunder, you shall not (otherwise than pursuant to your duties hereunder) disclose or use, without the prior written approval of the Board, any such knowledge or information pertaining to the Company or any of its subsidiary companies, their business, personnel or policies, to any person, firm, corporation or other entity, for any reason or purpose whatsoever. The provisions of this paragraph 9 shall not apply to information which is or shall become generally known to the public or the trade (except by reason of your breach of your obligations hereunder), information which is or shall become available in trade or other publications, information known to you prior to entering the employ of the Company, and information which you are required to disclose by law or an order of a court of competent jurisdiction (provided that prior to your disclosure of any such information you shall provide the Company with reasonable notice and a reasonable opportunity to seek a protective order to prevent such disclosure). (c) The provisions of paragraph 9(b) above shall survive the termination of your employment hereunder, irrespective of the reason therefor. (d) You acknowledge that the services to be rendered by you are of a special, unique and extraordinary character and, in connection with such services, you will have access to confidential information vital to the Company's and its subsidiary companies' businesses. By reason of this, you consent and agree that if you violate any of the provisions of this Agreement with respect to diversion of the Company's or its subsidiary companies' customers or employees, or confidentiality, the Company and its subsidiary companies would sustain irreparable harm and, therefore, in addition to any other remedies which the Company may have under this Agreement or otherwise, the Company shall be entitled to an injunction restraining you from committing or continuing any such violation of this Agreement. 10. Deductions and Withholdings. The Company shall be entitled to withhold any amounts payable under this Agreement on account of payroll taxes and similar matters as are required by applicable law, rule or regulation of appropriate governmental authorities. 8 Mr. David H. Taylor Page 8 11. Successors; Binding Agreement. (a) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company, by agreement in form and substance reasonably satisfactory to you, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle you to compensation from the Company in the same amount and on the same terms as you would be entitled to hereunder if you terminated your employment for Good Reason, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. As used in this Agreement, "Company" shall include any successor to the Company's business and/or assets as aforesaid which executes and delivers the agreement provided for in this paragraph 11 or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law. (b) This Agreement and all your rights hereunder shall inure to the benefit of and be enforceable by your personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If you should die while any amounts would still be payable to you hereunder if you had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to your devisee, legatee, or other designee or, if there be no such designee, to your estate. Your obligations hereunder may not be delegated, and except as otherwise provided herein relating to the designation of a devisee, legatee or other designee, you may not assign, transfer, pledge, encumber, hypothecate or otherwise dispose of this Agreement or any of your rights hereunder, and any such attempted delegation or disposition shall be null and void and without effect. 12. Notice. For purposes of this Agreement, notices and all other communications provided for shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to you: Mr. David H. Taylor 105 Holbrook Trail Greenville, South Carolina 29605 If to the Company: JPS Textile Group, Inc. 555 North Pleasantburg Drive, Suite 202 Greenville, South Carolina 29607 Attention: Chairman of the Board or to such other address as any party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. 13. Miscellaneous. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by you and by the Company. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar 9 Mr. David H. Taylor Page 9 provisions or conditions at the same or at any prior or subsequent time. This Agreement constitutes the complete understanding between the parties with respect to your employment and supersedes any other prior oral or written agreements, arrangements or understandings between you and the Company. This Agreement amends, restates and supersedes any existing employment, retention, severance and change-in-control agreements (collectively, the "Prior Agreements") between you and the Company and/or any of its subsidiary companies upon the Effective Date, and any and all claims under or in respect of the Prior Agreements that you may have or assert shall, as of the Effective Date, be governed by, and completely satisfied and discharged in accordance with, the terms and conditions of this Agreement. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement. This Agreement may not be changed or terminated orally but only by an agreement in writing signed by the parties hereto. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of South Carolina. 14. Arbitration. All differences, claims or matters in dispute arising out of this Agreement, the breach hereof or otherwise arising between the Company or any of its affiliates and you shall, at the election of either party, by notice to the other, be submitted to arbitration by the American Arbitration Association or its successor, in Greenville, South Carolina. Such arbitration shall be governed by the then existing rules of the American Arbitration Association and the laws of the State of South Carolina as then in effect. The expenses, including your reasonable attorneys' fees, in connection with such arbitration shall be borne by the Company. 15. Validity; Effectiveness. The invalidity or unenforceability of any provision or provisions of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 16. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. If the foregoing is satisfactory, please so indicate by signing and returning to the Company the enclosed copy of this letter whereupon this will constitute our agreement on the subject. JPS TEXTILE GROUP, INC. By: /s/ Jerry E. Hunter -------------------------------- Name: Jerry E. Hunter Title: Chief Executive Officer ACCEPTED AND AGREED TO: /s/ David H. Taylor - --------------------------------- David H. Taylor EX-10.26 6 EMPLOYMENT AGREEMENT - MONNIE L. BROOME 1 EXHIBIT 10.26 JPS TEXTILE GROUP, INC. 555 NORTH PLEASANTBURG DRIVE, SUITE 202 GREENVILLE, SOUTH CAROLINA 29607 October 9, 1997 Mr. Monnie L. Broome 11 Doyle Drive Greenville, South Carolina 29615 Dear Monnie: We are writing with respect to your employment by JPS Textile Group, Inc. (the "Company") as Vice President--Human Resources of the Company. The Company acknowledges and recognizes the value of your experience and abilities to the Company since the beginning of your employment with the Company, and desires to continue to retain and make secure for itself such experience and abilities on the terms and subject to the conditions set forth in this agreement (the "Agreement"). 1. Employment. The Company agrees to employ you and you agree to be employed by the Company commencing on the consummation of the Joint Plan of Reorganization of the Company and its wholly owned subsidiary, JPS Capital Corp., dated October 9, 1997 (the "Effective Date") and ending on the third anniversary thereof (unless sooner terminated as hereinafter provided) (the "Employment Period"), on the terms and subject to the conditions set forth in this Agreement; provided, however, that commencing on the third anniversary of the Effective Date and each anniversary thereafter, the Employment Period shall automatically be extended for one additional year (the "Extended Employment Period") unless not later than the end of the Employment Period or the Extended Employment Period, as the case may be, the Company or you shall have given written notice to the other not to extend the Employment Period or any Extended Employment Period. Unless specifically provided to the contrary, Employment Period shall be deemed to include any Extended Employment Period. 2. Duties. (a) You shall be employed as the Vice President--Human Resources of the Company. In such capacity, you shall serve as a senior executive officer of the Company and shall have the duties and responsibilities prescribed for such position by the By-Laws of the Company, and shall have such other duties and responsibilities as may from time to time be prescribed by the Board and are customarily performed by someone in your position, provided that such duties and responsibilities are consistent with your position as Vice President--Human Resources of the Company. In the performance of your duties, you shall be subject to the supervision and direction of the Chief Executive Officer of the Company. (b) Subject to the terms of your employment hereunder, you shall devote such time as is reasonably necessary to the proper performance of your duties and responsibilities as Vice President--Human Resources of the Company. You hereby represent and warrant to the Company that, except as described above, you have no obligations under any existing employment or service agreement and that your performance of the services required of you hereunder will not conflict with your other existing obligations described above. 2 Mr. Monnie L. Broome Page 2 3. Compensation. (a) (i) Base Salary. During the term of your employment hereunder, the Company shall pay you, and you shall accept from the Company for your services, a salary at the rate of not less than $180,000 per year (the "Base Salary"), payable in accordance with the Company's policy with respect to the compensation of executives. The Board shall annually review your performance and determine, in its sole discretion, whether or not to increase your Base Salary and, if so, the amount of such increase. (ii) Bonus. In addition to your Base Salary, unless you voluntarily terminate your employment for other than Good Reason (as hereinafter defined), or are terminated by the Company for Cause (as hereinafter defined), you will be eligible to participate in the 1997 Management Incentive Bonus Plan (the "1997 Bonus Plan") and receive a bonus in an amount and based upon the attainment of the performance goals specified therein. The Board shall establish a performance-based annual bonus program for senior executives of the Company including you for fiscal years after 1997 (a "Future Bonus Plan") and award you an annual bonus opportunity thereunder which is not less favorable than the opportunity provided pursuant to the 1997 Bonus Plan without restricting the discretion of the Board to set reasonable targets and criteria for such incentive compensation. (iii) Retention Grant. In addition to your Base Salary, you will receive on the Effective Date a cash payment in the amount of $115,531 and 14,810 shares of common stock of the Company. (iv) Incentive Compensation and Other Plans. During the term of your employment hereunder, you shall participate in any incentive compensation (including stock options, restricted stock and/or other long-term incentive compensation), deferred compensation, savings and retirement plans, practices, policies and programs as adopted and approved by the Board from time to time. (b) Reimbursement of Expenses. During your employment, you will be entitled to receive prompt reimbursement for all reasonable expenses incurred by you in performing your services hereunder, provided that you properly account therefor in accordance with Company policy. 4. Vacations. During your employment, you shall be entitled to reasonable vacations from time to time in accordance with the regular procedures of the Company governing senior executives. You shall also be entitled to all paid holidays given by the Company to its senior executives. 5. Participation in Benefit Plans; Automobile. (a) Benefit Plans. You shall be entitled to participate in and to receive benefits under all the Company's employee benefit plans and arrangements in effect on the date hereof, and you shall also be entitled to participate in or receive benefits under any pension or retirement plan, savings plan, or health-and-accident plan made available by the Company in the future to its senior executives and other key management employees, subject to and on a basis consistent with the terms, conditions and overall administration of such plans and arrangements and provided that you meet the eligibility requirements thereof. (b) Automobile. You shall be entitled to the use of an automobile supplied by the Company. If you choose to use such automobile, the cost of insurance, repair and maintenance shall be borne by the Company. If you elect not to accept a Company automobile, you shall receive an annual payment of Five Thousand Six Hundred Dollars ($5,600) in lieu of such automobile. 3 Mr. Monnie L. Broome Page 3 6. Other Offices. You further agree to serve without additional compensation, if elected or appointed thereto, as an officer or director of any of the Company's subsidiaries or affiliates. 7. Termination. (a) Death. Your employment hereunder shall terminate upon your death. (b) Disability. In the event of your permanent disability (as hereinafter defined) during the term of your employment hereunder, the Company shall have the right, upon written notice to you, to terminate your employment hereunder, effective upon the giving of such notice. For purposes hereof, "permanent disability" shall be defined as any physical or mental disability or incapacity which renders you incapable of fully performing the services required of you in accordance with your obligations hereunder for a period of 150 consecutive days or for shorter periods aggregating 150 days during any period of twelve (12) consecutive months. (c) Cause. The Company may terminate your employment hereunder for "Cause." For purposes hereof, termination for "Cause" shall mean termination after: (i) your violation of any of the provisions of paragraph 9 hereof; (ii) your commission of an intentional act of fraud, embezzlement, theft or dishonesty against the Company or its affiliates; (iii) your conviction of (or pleading by you of nolo contendere to) any crime which constitutes a felony or misdemeanor involving moral turpitude or which might, in the reasonable opinion of the Company, cause embarrassment to the Company; or (iv) the gross neglect or willful failure by you to perform your duties and responsibilities in all material respects as set forth in paragraph 2 hereof, if such breach of duty is not cured within 30 days after written notice thereof to you by the Board. For purposes of clause (iv), no act, or failure to act, on your part shall be deemed "willful" unless done, or omitted to be done, by you not in good faith and without reasonable belief that your act, or failure to act, was in the best interest of the Company. (d) Termination by You. You may terminate your employment hereunder for Good Reason. For purposes of this Agreement, "Good Reason" shall mean (A) any assignment to you of any duties (other than incident to a promotion) materially different than or in addition to those contemplated by, or any limitation of your powers in any respect not contemplated by, paragraph 2 hereof, provided that you first deliver written notice thereof to the Chairman of the Board and the Company shall have failed to cure such non-permitted assignment or limitation within thirty (30) days after receipt of such written notice, (B) a reduction in your rate of base salary or the failure to maintain incentive bonus arrangements substantially similar in earnings potential to those in effect on the Effective Date, or a material reduction in your fringe benefits or any other material failure by the Company to comply with paragraphs 3 through 5 hereof, provided that you first deliver written notice thereof to the Chairman of the Board and the Company shall have failed to cure such reduction or failure within thirty (30) days after receipt of such written notice, (C) your being required to relocate your principal residence from its existing location without your consent, or (D) upon notice by the Company as set forth in paragraph 1 hereof not to extend the Employment Period. 4 Mr. Monnie L. Broome Page 4 For purposes of this Agreement, a "Change in Control" means the occurrence of any one of the following events following the Effective Date (other than the consummation of the Joint Plan of Reorganization of the Company and its wholly owned subsidiary, JPS Capital Corp.): (a) any person or other entity (other than any of the Company's subsidiaries), including any person as defined in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), becoming the beneficial owner, as defined in Rule 13d-3 of the Exchange Act, directly or indirectly, of more than fifty percent (50%) of the total combined voting power of all classes of capital stock of the Company ordinarily entitled to vote for the election of directors of the Company, (b) the sale of all or substantially all of the property or assets of the Company (other than a sale to any of the Company's subsidiaries), (c) the consolidation or merger of the Company with another corporation (other than with any of the Company's subsidiaries or in which the Company is the surviving corporation), the consummation of which would result in the shareholders of the Company immediately before the occurrence of the consolidation or merger owning, in the aggregate, less than 50% of the voting stock of the surviving entity immediately following the occurrence of such consolidation or merger, or (d) a change in the Board occurring with the result that the members of the Board on the Effective Date (the "Incumbent Directors") no longer constitute a majority of such Board, provided that any person becoming a director whose election or nomination for election was supported by a majority of the Incumbent Directors (other than you if you are a Director) shall be considered an Incumbent Director for purposes hereof. (e) Notice. Any termination by the Company pursuant to paragraphs 7(b) or 7(c) above or by you pursuant to paragraph 7(d) above shall be communicated by written Notice of Termination to the other party hereto. For the purposes hereof, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of your employment under the provision so indicated. (f) Date of Termination. "Date of Termination" shall mean (i) if your employment is terminated by your death, the date of your death, and (ii) if your employment is terminated for any other reason, the date on which a Notice of Termination is given. 8. Compensation Upon Termination of Employment or During Disability. Subject to paragraph 8(e) below: (a) Death. If your employment shall be terminated by reason of your death, the Company shall pay or grant, to such person as you shall designate in a notice filed with the Company, or, if no such person shall be designated, to your estate as a lump sum death benefit, (i) an amount equal to any accrued but unpaid Base Salary at the time of your death, plus an additional payment equal to your Base Salary for the period from such date through the end of the month following the month in which you die, (ii) an amount equal to any accrued but unpaid bonus under the 1997 Bonus Plan or any bonus payable pursuant to any Future Bonus Plans, to the extent earned but not paid with respect to any year prior to the year in which your death occurs; and (iii) a pro rata portion (based on the number of days worked) of the bonus payable under the 1997 Bonus Plan or any Future Bonus Plan in effect for the year in which your death occurs based upon the assumption that the performance goals established under the applicable program with respect to the entire year in which your death occurs are met. In addition, you shall retain all stock options that are vested in accordance with the terms of the stock option plan and grant letter controlling such stock options, with such options remaining exercisable for six months from the date of your death and you shall receive such additional benefits as may be provided by the then existing plans, programs and/or arrangements of the Company. This amount and these benefits shall be exclusive of and in addition to any payments your widow, beneficiaries or estate may be entitled to receive pursuant to any pension or employee benefit plan maintained by the Company. Your designated beneficiary or the executor of your estate, as 5 Mr. Monnie L. Broome Page 5 the case may be, shall accept the payment provided for in this paragraph 8 in full discharge and release of the Company of and from any further obligations under this Agreement. (b) Disability. During any period that you fail to perform your duties hereunder as a result of incapacity due to physical or mental illness, you shall continue to receive your full Base Salary until your employment is terminated pursuant to paragraph 7(b) hereof. If your employment is terminated by the Company pursuant to paragraph 7(b), the Company shall pay to you in a lump sum payment, an amount equal to (i) any accrued but unpaid bonus under the 1997 Bonus Plan or any bonus payable pursuant to any Future Bonus Plans, to the extent earned but not paid with respect to any year prior to the year in which your disability occurs; and (ii) a pro rata portion (based on the number of days worked) of the bonus payable under the 1997 Bonus Plan or any Future Bonus Plan in effect for the year in which your disability occurs based upon the assumption that the performance goals established under the applicable program with respect to the entire year in which your disability occurs are met. In addition, you shall retain all stock options that are vested in accordance with the terms of the stock option plan and grant letter controlling such stock options, with such options remaining exercisable for six months from the date of your disability and you shall receive such additional benefits as may be provided by the then existing plans, programs and/or arrangements of the Company. During any such period and thereafter you shall continue to bear the obligations provided for in paragraph 9 below in accordance with the terms of such paragraph 9. (c) Cause or Other Than Good Reason. If your employment shall be terminated for Cause or you shall terminate your employment other than for Good Reason, the Company shall be discharged and released of and from any further obligations under this Agreement except for any Base Salary through the Date of Termination or the date on which you terminate your employment at the rate in effect at the time Notice of Termination is given or the date on which you terminate your employment, to the extent required by law. Thereafter you shall continue to have the obligations provided for in paragraph 9 below. Nothing contained herein shall be deemed to be a waiver by the Company of any rights that it may have against you in respect of your actions which gave rise to the termination of your employment for Cause or for any reason other than for Good Reason. (d) Other Than for Cause or For Good Reason. If the Company shall terminate your employment other than pursuant to paragraphs 7(b) or 7(c) hereof or if you shall terminate your employment for Good Reason, then: (i) The Company shall continue to pay you your Base Salary, at the rate in effect at the time that the Notice of Termination is given in accordance with paragraph 7(e) hereof, without interest through the later of (A) the third anniversary of the Effective Date and (B) one year from the Date of Termination, in accordance with normal payroll practices; provided, however, that in the event of your death prior to the expiration of payment hereunder your estate or beneficiary shall receive the remaining amount hereunder in a lump sum payment; (ii) The Company shall pay you an amount equal to the sum of (A) any bonus earned as of the Date of Termination under the 1997 Bonus Plan or any Future Bonus Plan for a fiscal year ending prior to the Date of Termination but not paid as of such date, (B) a pro rata portion (based on the number of days worked) of the target bonus (not in excess of fifty percent (50%) of your Base Salary) payable under the 1997 Bonus Plan or any Future Bonus Plan in effect for the fiscal year in which your Date of Termination occurs (determined without regard to whether the performance goals established under the applicable program are met) and (C) an amount equal to your target bonus (not in excess of fifty percent (50%) of your Base Salary) under the 1997 Bonus Plan or any Future Bonus Plan in effect for the fiscal year in which your Date of Termination occurs (determined without regard to whether the performance goals established under the applicable program are met), multiplied by (1) if the Date of Termination is during the initial three year Employment Period, the greater of (x) the number (not in excess of three) of years and fractions of years 6 Mr. Monnie L. Broome Page 6 remaining in the initial three year Employment Period or (y) one or (2) if the Date of Termination is during any Extended Employment Period, one; (iii) You shall become fully vested in any stock options, with such options remaining exercisable for six months from the date of your termination of employment; and (iv) The Company shall maintain in full force and effect, for your continued benefit for twenty-four months after termination of employment, all employee benefit plans and programs providing health and/or life insurance benefits in which you were entitled to participate immediately prior to the Date of Termination provided that your continued participation is possible under the general terms and provisions of such plans and programs. In the event that your participation in any such plan or program is barred, the Company shall provide you with comparable benefits under a mirror benefit plan. Notwithstanding the above, if you are employed by a new employer and are eligible to receive comparable coverage from such employer (including the waiver of any pre-existing condition limitation) at a comparable cost to you, you shall no longer be eligible to receive coverage under this paragraph. (e) Parachute Payment. Notwithstanding anything herein to the contrary, if any of the payments or benefits received or to be received by you in connection with a Change in Control or your termination of employment (whether such payments or benefits are provided pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Company, any person whose actions result in a Change in Control or any person affiliated with the Company or such person) (such payments or benefits being hereinafter referred to as the "Total Payments") would be subject to the excise tax (the "Excise Tax") imposed under Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), then the payments under this paragraph 8 hereof shall be reduced (by the minimal amount necessary) so that no portion of the Total Payments is subject to the Excise Tax. For purposes of determining whether any of the Total Payments will be subject to the Excise Tax and the amount of such Excise Tax, (i) all of the Total Payments shall be treated as "parachute payments" (within the meaning of Section 280G(b)(2) of the Code) unless, in the opinion of tax counsel (the "Tax Counsel") selected by the Company and reasonably acceptable by you, such payments or benefits (in whole or in part) do not constitute parachute payments, including by reason of Section 280G(b)(4)(A) of the Code, (ii) all "excess parachute payments" within the meaning of Section 280G(b)(1) of the Code shall be treated as subject to the Excise Tax unless, in the opinion of Tax Counsel, such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered (within the meaning of Section 280G(b)(4)(B) of the Code) in excess of the "base amount" (as defined in Section 280G(b)(3) of the Code) allocable to such payment, or are otherwise not subject to the Excise Tax, and (iii) the value of any noncash benefits or any deferred payment or benefit shall be determined by Tax Counsel in accordance with the principles of Sections 280G(d)(3) and (4) of the Code. 9. Restrictive Covenants and Confidentiality; Injunctive Relief. (a) You agree, as a condition to the performance by the Company of its obligations hereunder, particularly its obligations under paragraph 3 hereof, that during the term of your employment, except for a termination of employment without Cause or for Good Reason, hereunder and during the further period of one (1) year after the termination of such employment, you shall not, without the prior written approval of the Board, directly or indirectly through any other person, firm or corporation: (i) Solicit, raid, entice or induce any person, firm or corporation that presently is or at any time during the term of your employment hereunder shall be a customer of the Company, or any of its subsidiary companies, to become a customer of any other person, firm or corporation, and you shall not approach any 7 Mr. Monnie L. Broome Page 7 such person, firm or corporation for such purpose or authorize or knowingly approve the taking of such actions by any other person; (ii) Solicit, raid, entice or induce any person that presently is or at any time during the term of your employment hereunder shall be an employee of the Company, or any of its subsidiary companies, to become employed by any person, firm or corporation, and you shall not approach any such employee for such purpose or authorize or knowingly approve the taking of such actions by any other person; or (iii) Engage, participate, make any financial investment in, or become employed by any person, firm, corporation or other business enterprise in the United States which is engaged, directly or indirectly, during the term of your employment or at the time of your termination of employment, as the case may be, which (x) derives in excess of 20% of its gross revenues from the sale of products substantially the same as the products of the Company and/or any of its subsidiary companies or (y) has substantially the same customer base for the same products as the Company and/or any of its subsidiary companies. The foregoing covenant shall not be construed to preclude you from making any investments in the securities of any company, whether or not engaged in competition with the Company and/or any of its subsidiary companies, to the extent that such securities are actively traded on a national securities exchange or in the over-the-counter market in the United States or any foreign securities exchange and, after giving effect to such investment, you do not beneficially own securities representing more than 5% of the combined voting power of the voting securities of such company. (b) Recognizing that the knowledge, information and relationship with customers, suppliers, and agents, and the knowledge of the Company's and its subsidiary companies' business methods, systems, plans and policies which you shall hereafter establish, receive or obtain as an employee of the Company or its subsidiary companies, are valuable and unique assets of the respective businesses of the Company and its subsidiary companies, you agree that, during and after the term of your employment hereunder, you shall not (otherwise than pursuant to your duties hereunder) disclose or use, without the prior written approval of the Board, any such knowledge or information pertaining to the Company or any of its subsidiary companies, their business, personnel or policies, to any person, firm, corporation or other entity, for any reason or purpose whatsoever. The provisions of this paragraph 9 shall not apply to information which is or shall become generally known to the public or the trade (except by reason of your breach of your obligations hereunder), information which is or shall become available in trade or other publications, information known to you prior to entering the employ of the Company, and information which you are required to disclose by law or an order of a court of competent jurisdiction (provided that prior to your disclosure of any such information you shall provide the Company with reasonable notice and a reasonable opportunity to seek a protective order to prevent such disclosure). (c) The provisions of paragraph 9(b) above shall survive the termination of your employment hereunder, irrespective of the reason therefor. (d) You acknowledge that the services to be rendered by you are of a special, unique and extraordinary character and, in connection with such services, you will have access to confidential information vital to the Company's and its subsidiary companies' businesses. By reason of this, you consent and agree that if you violate any of the provisions of this Agreement with respect to diversion of the Company's or its subsidiary companies' customers or employees, or confidentiality, the Company and its subsidiary companies would sustain irreparable harm and, therefore, in addition to any other remedies which the Company may have under this Agreement or otherwise, the Company shall be entitled to an injunction restraining you from committing or continuing any such violation of this Agreement. 8 Mr. Monnie L. Broome Page 8 10. Deductions and Withholdings. The Company shall be entitled to withhold any amounts payable under this Agreement on account of payroll taxes and similar matters as are required by applicable law, rule or regulation of appropriate governmental authorities. 11. Successors; Binding Agreement. (a) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company, by agreement in form and substance reasonably satisfactory to you, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle you to compensation from the Company in the same amount and on the same terms as you would be entitled to hereunder if you terminated your employment for Good Reason, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. As used in this Agreement, "Company" shall include any successor to the Company's business and/or assets as aforesaid which executes and delivers the agreement provided for in this paragraph 11 or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law. (b) This Agreement and all your rights hereunder shall inure to the benefit of and be enforceable by your personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If you should die while any amounts would still be payable to you hereunder if you had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to your devisee, legatee, or other designee or, if there be no such designee, to your estate. Your obligations hereunder may not be delegated, and except as otherwise provided herein relating to the designation of a devisee, legatee or other designee, you may not assign, transfer, pledge, encumber, hypothecate or otherwise dispose of this Agreement or any of your rights hereunder, and any such attempted delegation or disposition shall be null and void and without effect. 12. Notice. For purposes of this Agreement, notices and all other communications provided for shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to you: Mr. Monnie L. Broome 11 Doyle Drive Greenville, South Carolina 29615 If to the Company: JPS Textile Group, Inc. 555 North Pleasantburg Drive, Suite 202 Greenville, South Carolina 29607 Attention: Chairman of the Board or to such other address as any party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. 9 Mr. Monnie L. Broome Page 9 13. Miscellaneous. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by you and by the Company. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. This Agreement constitutes the complete understanding between the parties with respect to your employment and supersedes any other prior oral or written agreements, arrangements or understandings between you and the Company. This Agreement amends, restates and supersedes any existing employment, retention, severance and change-in-control agreements (collectively, the "Prior Agreements") between you and the Company and/or any of its subsidiary companies upon the Effective Date, and any and all claims under or in respect of the Prior Agreements that you may have or assert shall, as of the Effective Date, be governed by, and completely satisfied and discharged in accordance with, the terms and conditions of this Agreement. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement. This Agreement may not be changed or terminated orally but only by an agreement in writing signed by the parties hereto. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of South Carolina. 14. Arbitration. All differences, claims or matters in dispute arising out of this Agreement, the breach hereof or otherwise arising between the Company or any of its affiliates and you shall, at the election of either party, by notice to the other, be submitted to arbitration by the American Arbitration Association or its successor, in Greenville, South Carolina. Such arbitration shall be governed by the then existing rules of the American Arbitration Association and the laws of the State of South Carolina as then in effect. The expenses, including your reasonable attorneys' fees, in connection with such arbitration shall be borne by the Company. 15. Validity; Effectiveness. The invalidity or unenforceability of any provision or provisions of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 16. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. If the foregoing is satisfactory, please so indicate by signing and returning to the Company the enclosed copy of this letter whereupon this will constitute our agreement on the subject. JPS TEXTILE GROUP, INC. By: /s/ Jerry E. Hunter ------------------------------------ Name: Jerry E. Hunter Title: Chief Executive Officer ACCEPTED AND AGREED TO: /s/ Monnie L. Broome - ----------------------------------- Monnie L. Broome EX-10.31 7 REGISTRATION RIGHTS AGREEMENT 1 EXHIBIT 10.31 REGISTRATION RIGHTS AGREEMENT, dated as of October 9, 1997, by and among JPS TEXTILE GROUP, INC., a Delaware corporation (the "Company"), and the other parties listed on the signature pages hereto (the "Initial Holders"). This Agreement is being entered into pursuant to Article IV of the Joint Plan of Reorganization of the Company and JPS Capital Corp. under Chapter 11 of the Bankruptcy Code (the "Plan of Reorganization"). The Plan of Reorganization provides for the issuance of Common Stock (as hereinafter defined). The parties hereto desire to provide certain registration rights to the Initial Holders with respect to the shares of Common Stock. Accordingly, the parties hereto agree as follows: 1. Definitions As used herein, unless the context otherwise requires, the following terms have the following respective meanings: "Commission" means the Securities and Exchange Commission or any other federal agency at the time administering the Securities Act. "Common Stock" means any shares of Common Stock, par value $.01 per share, of the Company now or hereafter authorized to be issued, and any and all securities of any kind whatsoever of the Company which may be issued on or after the date hereof in respect of, or in exchange for, shares of Common Stock pursuant to a merger, consolidation, stock split, stock dividend, recapitalization of the Company or otherwise. "Exchange Act" means the Securities Exchange Act of 1934, as amended, or any similar federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. Reference to a particular section of the Exchange Act shall include a reference to the comparable section, if any, of any such similar Federal statute. "Holder" means a registered holder of Registrable Common Stock. "Initial Holders" has the meaning assigned to it in the preamble hereof. "Material Disclosure Event" means any pending or imminent event relating to the Company which, based on (i) the good faith, reasonable opinion of the Board of Directors of the Company and (ii) the advice of competent outside counsel to the Board of Directors of the Company, (x) requires disclosure of material, non-public information relating to such event in the Shelf Registration so that such registration statement would not be materially misleading, (y) is otherwise not required to be publicly disclosed at that time (e.g., on Form 8-K or Form 10-Q) under applicable federal or state securities laws, and (z) if publicly disclosed at the time of such event, would have a material adverse effect on the business and financial condition of the Company. "Other Holder" means any person or entity to whom the Company has granted or does grant registration rights. "Other Holder Registrable Common Stock" means the shares of Common Stock held by any Other Holder. "Person" means a corporation, an association, a partnership, an organization, a business, a trust, an individual, or any other entity or organization, including a government or political subdivision or an instrumentality or agency thereof. "Registrable Common Stock" means (i) the shares of Common Stock issued to an Initial Holder pursuant to the Plan of Reorganization or (ii) any Common Stock issued with respect to the Common Stock referred to in clause (i) hereof by way of a stock dividend, stock split or reverse stock split or in connection with a combination of shares, recapitalization, merger, consolidation or otherwise. As to any particular Registrable Common Stock, such securities shall cease to be Registrable Common Stock when (i) a registration statement with respect to the sale of such securities shall have become effective under the Securities Act and such securities shall have been disposed of in accordance with such registration statement, (ii) they shall have been distributed to the public pursuant to Rule 144 (or any successor 2 provision) under the Securities Act, (iii) they shall have been otherwise transferred, new certificates for them not bearing a legend restricting further transfer shall have been delivered by the Company and subsequent disposition of them shall not require the registration under the Securities Act, or (iv) they shall have ceased to be outstanding. "Registration Expenses" means all expenses incident to the registration and disposition of the Registrable Common Stock pursuant to Section 2 hereof, including, without limitation, all registration, filing and applicable national securities exchange fees; all fees and expenses of complying with state securities or blue sky laws (including fees and disbursements of counsel to the underwriters or the Holders in connection with "blue sky" qualification of the Registrable Common Stock and determination of their eligibility for investment under the laws of the various jurisdictions); all duplicating and printing expenses; all messenger and delivery expenses; the fees and disbursements of counsel for the Company and of its independent public accountants, including the expenses of "cold comfort" letters or, in connection with a registration pursuant to Section 2.3 only, any special audits required by, or incident to, such registration; all fees and disbursements of underwriters (other than underwriting discounts and commissions); all transfer taxes; and the reasonable fees and expenses of one counsel to the Holders; provided, however, that Registration Expenses shall exclude and the Holders shall pay underwriting discounts and commissions in respect of the Registrable Common Stock being registered. "Securities Act" means the Securities Act of 1933, as amended, or any similar Federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. References to a particular section of the Securities Act shall include a reference to the comparable section, if any, of any such similar federal statute. 2. Shelf Registration; Registration Under Securities Act, Etc. 2.1 Shelf Registration Within 5 days following the date hereof, the Company shall file with the Commission, at the Company's expense, a "shelf" registration statement on any appropriate form pursuant to Rule 415 under the Securities Act covering all Registrable Common Stock (the "Shelf Registration"). The Company shall use its reasonable commercial efforts to have the Shelf Registration declared effective as promptly as practicable after such filing (but not later than 65 days after the date hereof) and to keep the Shelf Registration continuously effective three years following the date on which the Shelf Registration is declared effective (subject to Suspension Periods (as hereinafter defined) and extensions coincident with the length of such Suspension Periods) (the "Shelf Registration Period"). The Company shall, to the extent necessary, supplement or amend the Shelf Registration (in each case, at the Company's expense) to keep the Shelf Registration effective during the Shelf Registration Period. The Company further agrees to supplement or amend any Shelf Registration, as required by the registration form utilized by the Company, by the instructions applicable to such registration form or by the Securities Act or the rules and regulations thereunder or as reasonably requested by any Holder. The Company shall furnish to the Holders copies, in substantially the form proposed to be used and/or filed, of any such supplement or amendment at least 30 days prior to its being used and/or filed with the Commission. The Company hereby consents to the use (in compliance with applicable law) of the prospectus or any amendment or supplement thereto by each of the selling Holders of Registrable Common Stock in connection with the offering and sale of the Registrable Common Stock covered by the prospectus or any amendment or supplement thereto. The Company shall pay all Registration Expenses incurred in connection with the Shelf Registration, whether or not it becomes effective. In no event shalthan Registrable Common Stock, unless the Holders of all Registrable Common Stock consent to such inclusion. Nothing herein shall obligate the Company to incur or pay for fees and disbursements of underwriters in connection with a distribution under the Shelf Registration. For purposes hereof, "Suspension Period" shall mean a period of time commencing on the date on which the Company provides notice that the Shelf Registration is no longer effective, that the prospectus included in the Shelf Registration no longer complies with the requirements therefor prescribed by Section 10(a) of the Securities Act, or there is a Material Disclosure Event and the Board of Directors of the Company has elected (in its good faith reasonable judgment) to require the suspension of the sale by the Holder of Registrable Common Stock pursuant to the Shelf Registration, and shall end on the date when the Holder either receives copies of the supplemented or amended prospectus contemplated by Section 2.4(g) or such earlier time that the Holder is otherwise advised in writing by the Company that use of the prospectus may be resumed. The Holder agrees that it will not sell any Registrable Common Stock pursuant to the Shelf Registration during any Suspension Period. The Company agrees (i) that the Company will use its best efforts to ensure that there is not more than one Suspension Period in any 12-month period, (ii) to cause each Suspension Period to end as soon as reasonably practicable and (iii) that no Suspension Period shall exceed 30 consecutive days. The Company further agrees that no other holder of any shares of the Company's capital stock will be 3 permitted to sell any such shares of the Company's capital stock pursuant to a registration statement during a Suspension Period. If one or more Suspension Periods occur, the Shelf Registration Period shall be extended by such number of days coincident with the aggregate number of days included in all Suspension Periods. 2.2 Registration on Request (a) Request Subject to the provisions of Section 2.2(h) below, (i) if the Shelf Registration remains continuously effective during the Shelf Registration Period in accordance with the terms hereof, at any time or from time to time after the expiration of the Shelf Registration Period and until the fifth anniversary hereof, or (ii) if for any reason the Shelf Registration does not become effective within 65 days after the date hereof or ceases to be effective at any time prior to the expiration of the Shelf Registration Period, at any time or from time to time after the date which is 65 days from the date hereof (if the Shelf Registration fails to become effective) or the date on which the Shelf Registration ceases to be effective, as the case may be, and until the fifth anniversary hereof, the Holders, individually and jointly, of more than 10% of issued and outstanding shares of Common Stock (the "Initiating Holders") shall have the right to require the Company to effect the registration under the Securities Act of all or part of the Registrable Common Stock held by such Initiating Holders, by delivering a written request therefor to the Company specifying the number of shares of Registrable Common Stock and the intended method of distribution. The Company shall promptly give written notice of such requested registration to all other Holders, and thereupon the Company shall, as expeditiously as possible, use its best efforts to (A) effect the registration under the Securities Act (including by means of a shelf registration pursuant to Rule 415 under the Securities Act if so requested in such request and if the Company is then eligible to use such a registration) of the Registrable Common Stock which the Company has been so requested to register by the Initiating Holders, and all other Registrable Common Stock which the Company has been requested to register by any other Holder (together with the Initiating Holders, the "Selling Holders") by written request given to the Company within tice by the Company, all to the extent necessary to permit distribution in accordance with the intended method of distribution set forth in the written request or requests delivered by the Selling Holders, and (B) if requested by the Selling Holders, obtain acceleration of the effective date of the registration statement relating to such registration. (b) Registration of Other Securities Whenever the Company shall effect a registration pursuant to this Section 2.2, no securities (other than Registrable Common Stock) shall be included among the securities covered by such registration (i) if, in connection with an underwritten offering by any Selling Holders of Registrable Common Stock, the managing underwriter of such offering shall have advised the Company and the Selling Holders in writing that the inclusion of such other securities would adversely affect such offering or (ii), if such offering is not an underwritten offering, unless the Selling Holders of not less than 5% of the Registrable Common Stock to be covered by such registration shall have consented (which consent shall not be unreasonably withheld or delayed) in writing to the inclusion of such other securities. (c) Registration Statement Form Registrations under this Section 2.2 shall be on such appropriate registration form of the Commission as shall be selected by the Company and as shall be reasonably acceptable to the Selling Holders. The Company agrees to include in any such registration statement all information which, in the opinion of counsel to the Selling Holders and counsel to the Company, is required to be included. (d) Expenses The Company shall pay all Registration Expenses in connection with any registration requested pursuant to this Section 2.2. (e) Effective Registration Statement A registration requested pursuant to this Section 2.2 shall not be deemed to have been effected (including for purposes of paragraph (h) of this Section 2.2) (i) unless a registration statement with respect thereto has become effective and has been kept continuously effective for a period of at least 120 days (or such shorter period which shall terminate when all the Registrable Common Stock covered by such registration statement have been sold pursuant thereto), (ii) if after it has become effective, such registration is interfered with by any stop order, injunction or other order or requirement of the Commission or other governmental agency or court for any reason not attributable to the 4 Selling Holders and has not thereafter become effective, or (iii) if the conditions to closing specified in the underwriting agreement, if any, entered into in connection with such registration are not satisfied for any reason not attributable to the Selling Holders or waived. (f) Selection of Underwriters The underwriters of each underwritten offering of the Registrable Common Stock to be registered shall be selected by the Selling Holders and shall be reasonably satisfactory to the Company. (g) Priority in Requested Registration If the managing underwriter of any underwritten offering shall advise the Company in writing (with a copy to each Selling Holder) that, in its opinion, the number of shares of Registrable Common Stock requested to be included in such registration exceeds the number of shares which can be sold in such offering within a price range acceptable to the Selling Holders of Registrable Common Stock, the Company will include in such registration that number of shares of Registrable Common Stock which the Company is so advised can be sold in such offering. The Registrable Common Stock requested to be included in such registration shall be reduced pro rata among the Selling Holders requesting such registration of Registrable Common Stock on the basis of the percentage of Registrable Common Stock of such Selling Holders requesting such registration. In connection with any such registration to which this Section 2.2(g) is applicable, no securities other than Registrable Common Stock shall be covered by such registration. (h) Limitations on Registration on Request Notwithstanding anything to the contrary contained herein, the registration rights granted to the Holders in Section 2.2(a) are subject to the following limitations: (i) the Holders shall be entitled to require the Company to, and the Company shall be required to, effect no more than three registrations pursuant to Section 2.2(a)(i) hereof and no more than four registrations pursuant to Section 2.2(a)(ii) hereof, (ii) the Company shall not be required to effect a registration pursuant to Section 2.2(a) if, with respect thereto, the managing underwriter, the Commission, the Securities Act or the rules and regulations thereunder, or the form on which the registration statement is to be filed, would require the conduct of an audit other than the regular audit conducted by the Company at the end of its fiscal year, but rather the filing may be delayed until the completion of such regular audit (unless the Holders agree to pay the expenses of the Company in connection with such an audit other than the regular audit) and (iii) the Holders shall not be entitled to require the Company to, and the Company shall not be required to, effect a registration pursuant to Section 2.2(a) within three (3) months following the effective date of another registration pursuant to Section 2.2(a). (i) Postponement The Company shall be entitled once in any 12-month period to postpone for a reasonable period of time (but not exceeding 45 days) (the "Postponement Period") the filing of any registration statement required to be prepared and filed by it pursuant to this Section 2.2 if the Company determines, in its reasonable judgment, that such registration and offering would materially interfere with any material financing, corporate reorganization or other material transaction involving the Company or any subsidiary, or would require premature disclosure thereof, and promptly gives the Selling Holders written notice of such determination, containing a general statement of the reasons for such postponement and an approximation of the anticipated delay. If the Company shall so postpone the filing of a registration statement, the Selling Holders of not less than 50% of the shares of Registrable Common Stock to be registered shall have the right to withdraw the request for registration in respect of the Registrable Common Stock by giving written notice to the Company at any time and, in the event of any such withdrawal, such request shall not be counted for purposes of the requests for registration to which the Holders are entitled pursuant to this Section 2.2. 2.3 Incidental Registration (a) Right to Include Registrable Common Stock If the Company at any time prior to the expiration of the Holders' right to request the registration of Registrable Common Stock pursuant to Section 2.2(a) hereof proposes to register any of its securities under the Securities Act by registration on Form S-1, S-2 or S-3 or any successor or similar form(s) (except registrations on such Form or similar form(s) solely for registration of securities in connection with an employee stock option, stock purchase, stock bonus or similar plan, pursuant to a dividend reinvestment plan, pursuant to a merger, exchange, offer or transaction of the type specified in Rule 145(a) under the Securities Act or pursuant to a "shelf" registration), whether or not for sale for its 5 own account, it will each such time give prompt written notice to the Holders of its intention to do so and of the Holders' rights under this Section 2.3 and the Holders shall be entitled to include, subject to the provisions of this Agreement, Registrable Common Stock on the same terms and conditions (if any) as apply to other comparable securities of the Company sold in connection with such registration. Upon the written request of any Holder (a "Requesting Holder"), specifying the maximum number of shares of Registrable Common Stock intended to be disposed of by such Requesting Holder, made as promptly as practicable and in any event within 15 days after the receipt of any such notice, the Company shall use its best efforts to effect the registration under the Securities Act of all Registrable Common Stock which the Company has been so requested to register by the Requesting Holders; provided, however, that if, at any time after giving written notice of its intention to register any securities and prior to the effective date of the registration statement filed in connection with such registration, the Company shall determine for any reason not to register or to delay registration of such securities, the Company shall give written notice of such determination and its reasons therefor to the Holders and (i) in the case of a determination not to register, shall be relieved of its obligation under this Section 2.3 to register any Registrable Common Stock in connection with such registration (but not from any obligation of the Company to nnection therewith), without prejudice, however, to the rights of the Holders to request that such registration be effected as a registration under Section 2.2, and (ii) in the case of a determination to delay registering, shall be permitted to delay registering any Registrable Common Stock, for the same period as the delay in registering such other securities. No registration effected under this Section 2.3 shall relieve the Company of its obligation to effect any registration upon request under Section 2.2. The Company will pay all Registration Expenses in connection with any registration of Registrable Common Stock requested pursuant to this Section 2.3. (b) Right to Withdraw Any Requesting Holder shall have the right to withdraw its request for inclusion of Registrable Common Stock in any registration statement pursuant to this Section 2.3 at any time by giving written notice to the Company of its request to withdraw. (c) Priority in Incidental Registrations If the managing underwriter of any underwritten offering shall inform the Company by letter of its opinion that the number of shares of Registrable Common Stock and Other Holder Registrable Common Stock when added to the number of other securities to be offered in such registration, would materially adversely affect such offering, then the Company shall include in such registration that number of shares of Registrable Common Stock and Other Holder Registrable Common Stock which the Company is so advised by the managing underwriter can be sold in (or during the time of) such offering without materially adversely affecting such offering in the following order of priority: First: the holder or holders of securities (including the Company in the case of a primary offering) originally requesting such registration shall be entitled to participate in accordance with the relative priorities, if any, that shall exist among them; and then Second: the holder or holders of Registrable Common Stock shall be entitled to participate in such offering, pro rata among themselves in accordance with the number of shares of Registrable Common Stock which each such holder shall have requested be registered; and then Third: all other holders (including the Company, if such registration shall have been originally requested by a person other than the Company) of securities having the right to include shares of Common Stock in such registration shall be entitled to participate pro rata in accordance with the number of shares proposed to be registered by them. (d) Plan of Distribution Any participation by the Holders in a registration by the Company shall be in accordance with the Company's plan of distribution. 2.4 Registration Procedures If and whenever the Company is required to use its best efforts to effect the registration of any Registrable Common Stock under the Securities Act as provided in Sections 2.1, 2.2 and 2.3 hereof, the Company shall as expeditiously as possible: 6 (a) prepare and file with the Commission as soon as practicable the requisite registration statement to effect such registration (and shall include all financial statements required by the Commission to be filed therewith) and thereafter use its best efforts to cause such registration statement to become effective; provided, however, that before filing such registration statement (including all exhibits) or any amendment or supplement thereto or comparable statements under securities or blue sky laws of any jurisdiction, the Company shall furnish such documents to each Holder selling Registrable Common Stock covered by such registration statement and each underwriter, if any, participating in the offering of the Registrable Common Stock and their respective counsel, which documents will be subject to the review and comments of each such Holder, each underwriter and their respective counsel; and provided further, that (i) as to registration pursuant to Section 2.1 or 2.2 hereof, the Company may discontinue any registration of its securities which are not Registrable Common Stock and (ii) as to registration pursuant to Section 2.3 hereof, the Company may discontinue any registration of its securities, in each case, at any time prior to the effective date of the registration statement relating thereto; (b) notify each Holder selling Registrable Common Stock covered by such registration statement of the Commission's requests for amending or supplementing the registration statement and the prospectus, and prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective and to comply with the provisions of the Securities Act with respect to the disposition of all Registrable Common Stock covered by such registration statement for such period as shall be required for the disposition of all of such Registrable Common Stock in accordance with the intended method of distribution thereof; provided that, except with respect to the Shelf Registration and any other such registration statement filed pursuant to Rule 415 under the Securities Act, such period need not exceed 120 days; (c) furnish, without charge, to each Holder selling Registrable Common Stock covered by such registration statement and each underwriter such number of conformed copies of such registration statement and of each such amendment and supplement thereto (in each case including all exhibits), such number of copies of the prospectus contained in such registration statement (including each preliminary prospectus and any summary prospectus) and any other prospectus filed under Rule 424 under the Securities Act, in conformity with the requirements of the Securities Act, and such other documents, as such Holders and such underwriters may reasonably request; (d) use its best efforts (i) to register or qualify all Registrable Common Stock and other securities covered by such registration statement under such securities or blue sky laws of such States of the United States of America where an exemption is not available and as any Holder or Holders selling Registrable Common Stock covered by such registration statement or any managing underwriter shall reasonably request, (ii) to keep such registration or qualification in effect for so long as such registration statement remains in effect, and (iii) to take any other action which may be reasonably necessary or advisable to enable the Holders to consummate the disposition in such jurisdictions of the securities to be sold by such Holder or Holders; provided, however, that the Company shall not for any purpose be required to execute a general consent to service of process or to qualify to do business as a foreign corporation in any jurisdiction where it is not so qualified; (e) use its best efforts to cause all Registrable Common Stock covered by such registration statement to be registered with or approved by such other Federal or state governmental agencies or authorities as may be necessary in the opinion of counsel to the Company and counsel to any Holder or Holders selling Registrable Common Stock covered by such registration statement to consummate the disposition of such Registrable Common Stock; (f) furnish to each Holder selling Registrable Common Stock covered by such registration statement and each underwriter, if any, participating in the offering of the securities covered by such registration statement, a signed counterpart of (i) an opinion of counsel for the Company, and (ii) a "comfort" letter signed by the independent public accountants who have certified the Company's financial statements included or incorporated by reference in such registration statement, covering substantially the same matters with respect to such registration statement (and the prospectus included therein) and, in the case of the accountants' comfort letter, with respect to events subsequent to the date of such financial statements, as are customarily covered in opinions of issuer's counsel and in accountants' comfort letters delivered to the underwriters in underwritten public offerings of securities (and dated the dates such opinions and comfort letters are customarily dated) and, in the case of the legal opinion, such other legal matters, and, in the case of the accountants' comfort letter, such other financial matters, as such Holder or Holders, or the underwriters, may reasonably request; 7 (g) immediately notify the Holders selling Registrable Common Stock covered by such registration statement and each managing underwriter, if any, participating in the offering of the securities covered by such registration statement (i) when such registration statement, any pre-effective amendment, the prospectus or any prospectus supplement related thereto or post-effective amendment to such registration statement has been filed, and, with respect to such registration statement or any post-effective amendment, when the same has become effective; (ii) of any request by the Commission for amendments or supplements to such registration statement or the prospectus related thereto or for additional information; (iii) of the issuance by the Commission of any stop order suspending the effectiveness of such registration statement or the initiation of any proceedings for that purpose; (iv) of the receipt by the Company of any notification with respect to the suspension of the qualification of any of the Registrable Common Stock for sale under the securities or blue sky laws of any jurisdiction or the initiation of any proceeding for such purpose; and (v) at any time when a prospectus relating thereto is required to be delivered under the Securities Act or, in the case of the Shelf Registration, at any time during the Shelf Registration Period, upon discovery that, or upon the happening of any event as a result of which, the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading, in the light of the circumstances under which they were made, and in the case of this clause (v), at the request of any Holder or Holders selling Registrable Common Stock covered by such registration statement promptly prepare and furnish to such Holder or Holders and each managing underwriter, if any, participating in the offering of the Registrable Common Stock, a reasonable number of copies of a supplement to or an amendment of such prospectus as may be necessary so that, as thereafter delivered to the purchasers of such securities, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances under which they were made. (h) otherwise comply with all applicable rules and regulations of the Commission, and make available to its security holders, as soon as reasonably practicable, an earnings statement covering the period of at least twelve months beginning with the first full calendar month after the effective date of such registration statement, which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act and Rule 158 promulgated thereunder, and promptly furnish to the Holders a copy of any amendment or supplement to such registration statement or prospectus; (i) cause to be maintained a transfer agent and registrar (which, in each case, may be the Company) for the Common Stock from and after the date of such registration; (j) use its commercially reasonable efforts to cause all Registrable Common Stock covered by such registration statement to be quoted on the National Market System ("National Market System") of the National Association of Securities Dealers, Inc. Automated Quotation System ("NASDAQ") within the meaning of Rule 11Aa2-1 of the Commission if the quoting of such Registrable Common Stock is then permitted under NASDAQ rules; or (ii) if no similar securities of the Company are then so quoted, use its best efforts to (x) secure designation of all such Registrable Common Stock as a NASDAQ National Market System security or (y) failing that, cause all such Registrable Common Stock to be listed on a national securities exchange or (z) failing that, to secure NASDAQ authorization for such shares and, without limiting the generality of the foregoing, to arrange for at least two market makers to register as such with respect to such shares with the National Association of Securities Dealers, Inc.; (k) deliver promptly to counsel to the Holders selling Registrable Common Stock covered by such registration statement and each underwriter, if any, participating in the offering of the Registrable Common Stock, copies of all correspondence between the Commission and the Company, its counsel or auditors and all memoranda relating to discussions with the Commission or its staff with respect to such registration statement; (l) use its best efforts to obtain the withdrawal of any order suspending the effectiveness of the registration statement; (m) provide a CUSIP number for all Registrable Common Stock, no later than the effective date of the registration statement; (n) make available its employees and personnel and otherwise provide reasonable assistance to the underwriters (taking into account the needs of the Company's businesses) in their marketing of Registrable Common Stock; and 8 (o) in the case of a Shelf Registration, upon the occurrence of any event or the discovery of any facts, each as contemplated by Section 2.4(g)(v) hereof, use its best efforts to prepare a supplement or post-effective amendment to the registration statement or the related prospectus or any document incorporated therein by reference or file any other required documents so that, thereafter, such prospectus will not contain at the time of such delivery any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. The Company may require the Holders selling Registrable Common Stock covered by such registration statement to furnish the Company such information regarding the Holders and the distribution of the Registrable Common Stock as the Company may from time to time reasonably request in writing. In the event of a registration effected pursuant to Section 2.1, 2.2(a) or 2.3(a) hereof, if a Holder fails to provide such information and the failure by such Holder to furnish such information would prevent or unreasonably delay the registration statement relating to such registration from being declared effective by the Commission, the Company may exclude such Holder's Registrable Common Stock from such registration, which right of the Company shall, in the case of a registration effected pursuant to Section 2.1 or 2.2(a) hereof, be subject to the consent of the Holders of not less than 50% of the shares of Registrable Common Stock to be included in such registration (other than such Holder's Registrable Common Stock). The Holders agree that upon receipt of any notice from the Company of the happening of any event of the kind described in paragraph (g)(iii) or (v) of this Section 2.4, each of the Holders will discontinue its disposition of Registrable Common Stock pursuant to the registration statement relating to such Registrable Common Stock until, in the case of paragraph (g)(v) of this Section 2.4, its receipt of the copies of the supplemented or amended prospectus contemplated by paragraph (g)(v) of this Section 2.4 and, if so directed by the Company, will deliver to the Company (at the Company's expense) all copies, other than permanent file copies, then in its possession, of the prospectus relating to such Registrable Common Stock current at the time of receipt of such notice. If the disposition by the Holders of their securities is discontinued pursuant to the foregoing sentence, the Company shall extend the period of effectiveness of the registration statement by the number of days during the period from and including the date of the giving of notice to and including the date when the Holders shall have received copies of the supplemented or amended prospectus contemplated by paragraph (g)(v) of this Section 2.4; and, if the Company shall not so extend such period, the Holders' request pursuant to which such registration statement was filed shall not be counted for purposes of the requests for registration to which the Holders are entitled pursuant to Section 2.2 hereof. 2.5 Underwritten Offerings (a) Requested Underwritten Offerings If requested by the underwriters for any underwritten offering by the Selling Holders pursuant to a registration requested under Section 2.1 or 2.2, the Company shall enter into a customary underwriting agreement with such underwriter or underwriters. Such underwriting agreement shall be reasonably satisfactory in form and substance to the Selling Holders and shall contain such representations and warranties by, and such other agreements on the part of, the Company and such other terms as are generally prevailing in agreements of that type, including, without limitation, such customary provisions relating to indemnification and contribution by the Company. The Selling Holders shall be parties to such underwriting agreement and may, at their option, require that any or all of the representations and warranties by, and the other agreements on the part of, the Company to and for the benefit of such underwriters shall also be made to and for the benefit of the Selling Holders and that any or all of the conditions precedent to the obligations of such underwriters under such underwriting agreement be conditions precedent to the obligations of the Selling Holders. No Selling Holder shall be required to make any representations or warranties to or agreements with the Company or the underwriters other than representations, warranties or agreements regarding such Selling Holder, its ownership of and title to the Registrable Common Stock, and its intended method of distribution; and any liability of any Selling Holder to any underwriter or other Person under such underwriting agreement shall be limited to liability arising from misstatements in or omissions from its representations and warranties and shall be limited to an amount equal to the net proceeds that it derives from such registration. (b) Incidental Underwritten Offerings In the case of a registration pursuant to Section 2.3 hereof, if the Company shall have determined to enter into any underwriting agreements in connection therewith, all of the Requesting Holders' Registrable Common Stock to be included in such registration shall be subject to such underwriting agreements. The Requesting Holders may, at their option, require that any or all of the representations and warranties by, and the other agreements on the part of, the Company to and for the benefit of such underwriters shall also be made to and for the benefit of the Requesting Holders 9 and that any or all of the conditions precedent to the obligations of such underwriters under such underwriting agreement be conditions precedent to the obligations of the Requesting Holders. No Requesting Holder shall be required to make any representations or warranties to or agreements with the Company or the underwriters other than representations, warranties or agreements regarding such Requesting Holder, its ownership of and title to the Registrable Common Stock, and its intended method of distribution; and any liability of any Requesting Holder to any underwriter or other Person under such underwriting agreement shall be limited to liability arising from misstatements in or omissions from its representations and warranties and shall be limited to an amount equal to the net proceeds that it derives from such registration. 2.6 Preparation; Reasonable Investigation In connection with the preparation and filing of each registration statement under the Securities Act pursuant to this Agreement, the Company will give the participating Holders, their underwriters, if any, and their respective counsel, accountants and other representatives and agents the opportunity to participate in the preparation of such registration statement, each prospectus included therein or filed with the Commission, and, to the extent practicable, each amendment thereof or supplement thereto, and give each of them such access to its books and records and such opportunities to discuss the business of the Company with its officers and employees and the independent public accountants who have certified its financial statements, and supply all other information reasonably requested by each of them, as shall be necessary or appropriate, in the opinion of the participating Holders' and such underwriters' respective counsel, to conduct a reasonable investigation within the meaning of the Securities Act. 2.7 Indemnification (a) Indemnification by the Company The Company agrees that in the event of any registration of any securities of the Company under the Securities Act, the Company shall, and hereby does, indemnify and hold harmless each Holder, its respective directors, officers, partners, agents and affiliates and each other Person who participates as an underwriter in the offering or sale of such securities and each other Person, if any, who controls such Holder or any such underwriter within the meaning of the Securities Act, against any losses, claims, damages, or liabilities, joint or several, to which such Holder or any such director, officer, partner, agent or affiliate or underwriter or controlling Person may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities, joint or several (or actions or proceedings, whether commenced or threatened, in respect thereof), arise out of or are based upon (i) any untrue statement or alleged untrue statement of any material fact contained in any registration statement under which such securities were registered under the Securities Act, any preliminary prospectus, final prospectus or summary prospectus contained therein, or any amendment or supplement thereto, (ii) any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein in light of the circumstances in which they were made not misleading, or (iii) any violation by the Company of any federal, state or common law rule or regulation applicable to the Company and relating to action required of or inaction by the Company in connection with any such registration, and the Company shall reimburse such Holder and each such director, officer, partner, agent or affiliate, underwriter and controlling Person for any legal or any other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, liability, action or proceeding; provided that the Company shall not be liablet that any such loss, claim, damage, liability (or action or proceeding in respect thereof) or expense arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in such registration statement, any such preliminary prospectus, final prospectus, summary prospectus, amendment or supplement in reliance upon and in conformity with written information furnished to the Company through an instrument duly executed by or on behalf of the Holders or underwriter, as the case may be, specifically stating that it is for use in the preparation thereof; and provided, further, that the Company shall not be liable to any Person who participates as an underwriter in the offering or sale of Registrable Common Stock or any other Person, if any, who controls such underwriter within the meaning of the Securities Act, in any such case to the extent that any such loss, claim, damage, liability (or action or proceeding in respect thereof) or expense arises out of such Person's failure to send or give a copy of the final prospectus, as the same may be then supplemented or amended, to the Person asserting an untrue statement or alleged untrue statement or omission or alleged omission at or prior to the written confirmation of the sale of Registrable Common Stock to such Person if such statement or omission was corrected in such final prospectus. Such indemnity shall remain in full force regardless of any investigation made by or on behalf of either Holder or any such director, officer, partner, agent or affiliate or controlling Person and shall survive the transfer of such securities by such Holder. (b) Indemnification by the Holders 10 As a condition to including any Registrable Common Stock in any registration statement, the Company shall have received an undertaking reasonably satisfactory to it from each Holder so including any Registrable Common Stock to indemnify and hold harmless (in the same manner and to the same extent as set forth in paragraph (a) of this Section 2.7) the Company, and each director of the Company, each officer of the Company and each other Person, if any, who controls the Company within the meaning of the Securities Act, with respect to any statement or alleged statement in or omission or alleged omission from such registration statement, any preliminary prospectus, final prospectus or summary prospectus contained therein, or any amendment or supplement thereto, but only to the extent such statement or alleged statement or omission or alleged omission was made in reliance upon and in conformity with written information furnished to the Company through an instrument duly executed by such Holder specifically stating that it is for use in the preparation of such registration statement, preliminary prospectus, final prospectus, summary prospectus, amendment or supplement; provided, however, that the liability of such indemnifying party under this Section 2.7(b) shall be limited to the amount of net proceeds received by such indemnifying party in the offering giving rise to such liability. Such indemnity shall remain in full force and effect, regardless of any investigation made by or on behalf of the Company or any such director, officer or controlling Person and shall survive the transfer of such securities by such Holder. (c) Notices of Claims, Etc. Promptly after receipt by an indemnified party of notice of the commencement of any action or proceeding involving a claim referred to in the preceding subsections of this Section 2.7, such indemnified party shall, if a claim in respect thereof is to be made against an indemnifying party, give written notice to the latter of the commencement of such action or proceeding; provided, however, that the failure of any indemnified party to give notice as provided herein shall not relieve the indemnifying party of its obligations under the preceding subsections of this Section 2.7, except to the extent that the indemnifying party is actually prejudiced by such failure to give notice, and shall not relieve the indemnifying party from any liability which it may have to the indemnified party otherwise than under this Section 2.7. In case any such action or proceeding is brought against an indemnified party, the indemnifying party shall be entitled to participate therein and, unless in the opinion of outside counsel to the indemnified party a conflict of interest between such indemnified and indemnifying parties may exist in respect of such claim, to assume the defense thereof, jointly with any other indemnifying party similarly notified to the extent that it may wish, with counsel reasonably satisfactory to such indemnified party; provided, however, that if the defendants in any such action or proceeding include both the indemnified party and the indemnifying party and if in the opinion of outside counsel to the indemnified party there may be legal defenses available to such indemnified party and/or other indemnified parties which are different from or in addition to those available to the indemnifying party, the indemnified party or parties shall have the right to select separate counsel to defend such action or proceeding on behalf of such indemnified party or parties and the indemnifying party shall be obligated to pay the fees and expenses of such separate counsel or counsels. Afarty to such indemnified party of its election so to assume the defense thereof and approval by the indemnified party of such counsel, the indemnifying party shall not be liable to such indemnified party for any legal expenses subsequently incurred by the latter in connection with the defense thereof other than reasonable costs of investigation (unless the proviso in the preceding sentence shall be applicable). No indemnifying party shall be liable for any settlement of any action or proceeding effected without its written consent which shall not be unreasonably withheld. No indemnifying party shall, without the consent of the indemnified party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release from all liability in respect to such claim or litigation. (d) Contribution If the indemnification provided for in this Section 2.7 shall for any reason be held by a court to be unavailable to an indemnified party under subsection (a) or (b) hereof in respect of any loss, claim, damage or liability, or any action in respect thereof, then, in lieu of the amount paid or payable under subsection (a) or (b) hereof, the indemnified party and the indemnifying party under subsection (a) or (b) hereof shall contribute to the aggregate losses, claims, damages and liabilities (including legal or other expenses reasonably incurred in connection with investigating the same), (i) in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand, and the indemnified party on the other, which resulted in such loss, claim, damage or liability, or action in respect thereof, with respect to the statements or omissions which resulted in such loss, claim, damage or liability, or action in respect thereof, as well as any other relevant equitable considerations, or (ii) if the allocation provided by clause (i) above is not permitted by applicable law or if the allocation provided in this clause (ii) provides a greater amount to the indemnified party than clause (i) above, in such proportion as shall be appropriate to reflect not only the relative fault but also the relative benefits received by the indemnifying party and the indemnified party from the offering of the securities covered by such registration statement as well as any other relevant equitable considerations. The parties hereto agree that it 11 would not be just and equitable if contributions pursuant to this Section 2.7(d) were to be determined by pro rata allocation or by any other method of allocation which does not take into account the equitable considerations referred to in the preceding sentence of this Section 2.7(d). No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Persoch fraudulent misrepresentation. The Holders' obligations to contribute as provided in this subsection (d) are several and not joint and shall be in proportion to the relative value of their respective Registrable Common Stock covered by such registration statement. In addition, no Person shall be obligated to contribute hereunder any amounts in payment for any settlement of any action or claim effected without such Person's consent, which consent shall not be unreasonably withheld. Notwithstanding anything in this subsection (d) to the contrary, no indemnifying party (other than the Company) shall be required to contribute any amount in excess of the net proceeds received by such party from the sale of the Registrable Common Stock in the offering to which the losses, claims, damages or liabilities of the indemnified parties relate. (e) Other Indemnification Indemnification and contribution similar to that specified in the preceding subsections of this Section 2.7 (with appropriate modifications) shall be given by the Company and the Holders with respect to any required registration or other qualification of securities under any federal, state or blue sky law or regulation of any governmental authority other than the Securities Act. The indemnification agreements contained in this Section 2.7 shall be in addition to any other rights to indemnification or contribution which any indemnified party may have pursuant to law or contract and shall remain operative and in full force and effect regardless of any investigation made by or on behalf of any indemnified party and shall survive the transfer of any of the Registrable Common Stock by any of the Holders. (f) Indemnification Payments The indemnification and contribution required by this Section 2.7 shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as and when bills are received or expense, loss, damage or liability is incurred; provided, however, that such periodic payments shall only be made upon delivery to the indemnifying party of an agreement by the indemnified party to repay the amounts advanced to the extent it is ultimately determined that the indemnified party is not entitled to indemnification pursuant to this Section 2.7 or otherwise. The parties hereto agree that for each of them such agreement shall be deemed to be contained herein. 2.8 Limitation on Sale of Securities If any registration of Registrable Common Stock or Other Holder Registrable Common Stock shall be in connection with an underwritten public offering, each of the Holders or the Other Holders, as the case may be, and the Company agrees (x) not to effect any public sale or distribution of any issue of the same class or series as the Registrable Common Stock or Other Holder Registrable Common Stock being registered in an underwritten public offering (other than pursuant to an employee stock option, stock purchase or similar plan, pursuant to a dividend reinvestment plan, pursuant to a merger, exchange offer or a transaction of the type specified in Rule 145(a) under the Securities Act), any securities of the Company similar to any such issue or any securities of the Company or of any security convertible into or exchangeable or exercisable for any such issue of the Company during the 15 days prior to, and during the 45 day period (or such longer period, not in excess of 90 days, as may be reasonably requested by the underwriter of such offering) beginning on the effective date of such registration statement (except as part of such registration) and (y) that any agreement entered into after the date of this Agreement pursuant to which the Company issues or agrees to issue any privately placed securities shall contain a provision under which holders of such securities agree not to effect any public sale or distribution of any such securities during the period referred to in the foregoing clause (x), including any sale pursuant to Rule 144 under the Securities Act (except as part of such registration, if permitted). 2.9 No Required Sale Nothing in this Agreement shall be deemed to create an independent obligation on the part of any of the Holders to sell any Registrable Common Stock pursuant to any effective registration statement. 3. Rule 144 The Company shall take all actions reasonably necessary to enable holders of Registrable Common Stock to sell such securities without registration under the Securities Act within the limitation of the exemptions provided by (a) Rule 144, or (b) any similar rule or regulation hereafter adopted by the Commission including, without limiting the generality of the foregoing, filing on a timely basis all reports required to be filed by the Exchange Act. Upon the request of any 12 Holder, the Company will deliver to such holder a written statement as to whether it has complied with such requirements. 4. Amendments and Waivers This Agreement may not be modified or amended, or any of the provisions hereof waived, temporarily or permanently, except pursuant to the written consent of the Holders of not less than 50% of the shares of Registrable Common Stock and the Company. 5. Adjustments In the event of any change in the capitalization of the Company as a result of any stock split, stock dividend, reverse split, combination, recapitalization, merger, consolidation, or otherwise, the provisions of this Agreement shall be appropriately adjusted. 6. Notice All notices and other communications hereunder shall be in writing and, unless otherwise provided herein, shall be deemed to have been given when received by the party to whom such notice is to be given at its address set forth below, or such other address for the party as shall be specified by notice given pursuant hereto: (a) If to any Holder, the address of such Holder set forth on Annex A attached hereto; (b) If to the Company, to it at: JPS Textile Group, Inc. 555 North Pleasantburg Drive, Suite 202 Greenville, South Carolina 29607 Attn: David H. Taylor 7. Assignment This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors and permitted assigns. This Agreement may not be assigned by the Company. Any Holder may, at its election, at any time or from time to time, assign its rights under this Agreement, in whole or in part, to any transferee of Registrable Common Stock. 8. Remedies The parties hereto agree that money damages or any other remedy at law would not be sufficient or adequate remedy for any breach or violation of, or a default under, this Agreement by them and that, in addition to all other remedies available to them, each of them shall be entitled to an injunction restraining such breach, violation or default or threatened breach, violation or default and to any other equitable relief, including, without limitation, specific performance, without bond or other security being required. In any action or proceeding brought to enforce any provision of this Agreement (including the indemnification provisions thereof), the successful party shall be entitled to recover reasonable attorneys' fees in addition to its costs and expenses and any other available remedy. 9. No Inconsistent Agreements The Company will not, on or after the date of this Agreement, enter into any agreement with respect to its securities which is inconsistent with the rights granted to the Holders in this Agreement or otherwise conflicts with the provisions hereof, other than any customary lock-up agreement with the underwriters in connection with any registration and offering by the Company of its securities to the public (an "Offering") effected hereunder, pursuant to which the Company shall agree not to register for sale, and the Company shall agree not to sell or otherwise dispose of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock, as applicable, for a specified period following such Offering. The Company hereby represents and warrants that the rights granted to the Holders hereunder do not in any way conflict with and are not inconsistent with any other agreements to which the Company is a party or by which it is bound. The Company further agrees that if any other registration rights agreement entered into after the date of this Agreement with respect to any of its securities contains terms which are more favorable to, or less 13 restrictive on, the other party thereto than the terms and conditions contained in this Agreement are (insofar as they are applicable) to the Holders, then the terms and conditions of this Agreement shall immediately be deemed to have been amended without further action by the Company or the Holders so that the Holders shall be entitled to the benefit of any such more favorable or less restrictive terms or conditions. 10. Headings Headings of the sections and paragraphs of this Agreement are for convenience only and shall be given no substantive or interpretive effect whatsoever. 11. Governing Law; Jurisdiction (a) This Agreement shall be construed and enforced in accordance with and governed by the laws of the State of New York, without giving effect to the conflicts of law principles thereof. (b) Each of the parties hereto irrevocably and unconditionally consents to the jurisdiction of the federal courts and courts of the state of New York situated in New York County, New York in respect of the interpretation and enforcement of the provisions of this Agreement, and hereby agrees that service of process in any such action, suit or proceeding against the other party with respect to this Agreement may be made upon it in any manner permitted by the laws of New York or the federal laws of the United States. 12. Counterparts This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all such counterparts shall together constitute one and the same instrument. 13. Invalidity of Provision The invalidity or unenforceability of any provision of this Agreement in any jurisdiction shall not affect the validity or enforceability of the remainder of this Agreement in that jurisdiction or the validity or enforceability of this Agreement, including that provision, in any other jurisdiction. If any restriction or provision of this Agreement is held unreasonable, unlawful or unenforceable in any respect, such restriction or provision shall be interpreted, revised or applied in a manner that renders it lawful and enforceable to the fullest extent possible under law. 14. Further Assurances Each party hereto shall do and perform or cause to be done and performed all further acts and things and shall execute and deliver all other agreements, certificates, instruments, and documents as any other party hereto reasonably may request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby. 15. Entire Agreement; Effectiveness This Agreement and the other writings referred to herein or delivered in connection herewith contain the entire agreement among the parties with respect to the subject matter hereof and supersede all prior and contemporaneous arrangements or understandings with respect thereto. 14 IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first above written. JPS TEXTILE GROUP, INC. By:/s/ David H. Taylor ------------------------------------ Name: David H. Taylor Title: EVP-Finance & Secretary JPS TEXTILE GROUP, INC., AS ATTORNEY IN FACT FOR THE HOLDERS OF REGISTRABLE COMMON STOCK By:/s/ David H. Taylor ------------------------------------ Name: David H. Taylor Title: EVP-Finance & Secretary MAGTEN ASSET MANAGEMENT CORP., as agent on behalf of those investment advisory clients listed on Schedule I hereto By:/s/ Robert Capozzi ------------------------------------ Name: Robert Capozzi Title: Managing Director TCW SHARED OPPORTUNITY FUND II, L.P. By: TCW Investment Management Company, its Investment Advisor By: /s/ Mark L. Attanasio ------------------------------------ Name: Mark L. Attanasio Title: Group Managing Director CREDIT SUISSE FIRST BOSTON By: /s/ Dixon Yee ------------------------------------ Dixon Yee Vice President 15 MERRILL LYNCH, PIERCE, FENNER & SMITH, INCORPORATED By: ------------------------------------ John Engelen Managing Director 16 SCHEDULE I ---------- H. Allen & Leslie Lurray Neil Ambach - IRA The Bakal Company Limited Partnership Ellen P. Leary 1954 Trust Anne K.S. Embry & Julie Kammerer Katherine Hennenberger Hughes Master Retirement Trust Josh E. Fidler Ellen's Trust U/W J.H. Pearlstone L.A. Fire & Police Pension Systems - Fund 2525 Robert S. Lemle and Roni S. Kohen-Lemle Levi Family Trust Ocean Assets LLC Lawrence M. Macks Magten Offshore Fund Ltd. Magten Partners, L.P. Magten Group Trust Martha Macks Morton J. Macks Charles J. Nabit Trust Dorothy E. Nabit Trust Nevy Exchange Service Command Retirement Trust Peggy Meyerhoff Pearlstone Foundation R.L. Pearlstone Personal Richard L. Pearlstone 1954 Trust Robert C. Sachs Madelaine K. Sachs H. Sandra Luray Western Union Pension Trust Westport Investment Group EX-10.36 8 1997 INCENTIVE & CAPITAL ACCUMULATION PLAN 1 EXHIBIT 10.36 JPS TEXTILE GROUP, INC. 1997 INCENTIVE AND CAPITAL ACCUMULATION PLAN 1. Purpose. The JPS Textile Group, Inc. 1997 Incentive and Capital Accumulation Plan (the "Plan") is intended to align the interests of the Company's key employees and non-employee directors to those of its stockholders. The Incentive Plan is also intended to provide incentives which will attract, retain and motivate highly competent persons as key employees of JPS Textile Group, Inc. (the "Company") and of any subsidiary corporation now existing or hereafter formed or acquired, by providing them opportunities to acquire shares of the common stock, par value $1.00 per share, of the Company ("Common Stock") or to receive monetary payments based on the value of such shares pursuant to the Benefits (as defined below) described herein. 2. Administration. (a) The Plan will be administered by a committee of the Board of Directors of the Company (the "Board") or a subcommittee of a committee of the Board (which may be the Company's Compensation Committee), appointed by the Board from among its members (the "Committee"), and shall be comprised solely of not less than two members who shall be (i) "Non-Employee Directors" within the meaning of Rule 16b-3(b)(3) (or any successor rule) promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act") and (ii) unless otherwise determined by the Board of Directors, "outside directors" within the meaning of Treasury Regulation Section 1.162-27(e)(3) under Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"). The Committee is authorized, subject to the provisions of the Plan, to establish such rules and regulations as it deems necessary for the proper administration of the Plan and to make such determinations and interpretations and to take such action in connection with the Plan and any Benefits (as defined below) granted hereunder as it deems necessary or advisable. All determinations and interpretations made by the Committee shall be binding and conclusive on all participants and their legal representatives. No member of the Board of Directors, no member of the Committee and no employee of the Company shall be liable for any act or failure to act hereunder, except in circumstances involving his or her bad faith, gross negligence or willful misconduct, or for any act or failure to act hereunder by any other member or employee or by any agent to whom duties in connection with the administration of this Plan have been delegated. The Company shall indemnify members of the Committee and any agent of the Committee who is an employee of the Company against any and all liabilities or expenses to which they may be subjected by reason of any act or failure to act with respect to their duties on behalf of the Plan, except in circumstances involving such person's bad faith, gross negligence or willful misconduct. (b) The Committee may delegate to one or more of its members, or to one or more agents, such administrative duties as it may deem advisable, and the Committee, or any person to whom it has delegated duties as aforesaid, may employ one or more persons to render advice with respect to any responsibility the Committee or such person may have under the Plan. The Committee may employ such legal or other counsel, consultants and agents as it may deem desirable for the administration of the Plan and may rely upon any opinion or computation received from any such counsel, consultant or agent. Expenses incurred by the Committee in the engagement of such counsel, consultant or agent shall be paid by the Company, or the subsidiary or affiliate whose employees or non-employee directors have benefitted from the Plan, as determined by the Committee. 3. Participants. Participants will consist of such key employees and non-employee directors of the Company and any subsidiary corporation of the Company as the Committee in its sole discretion determines to be in a position to 2 impact the success and future growth and profitability of the Company and whom the Committee may designate from time to time to receive Benefits under the Plan. Designation of a participant in any year shall not require the Committee to designate such person to receive a Benefit in any other year or, once designated, to receive the same type or amount of Benefit as granted to the participant in any other year. The Committee shall consider such factors as it deems pertinent in selecting participants and in determining the type and amount of their respective Benefits. 4. Type of Benefits; Vesting. Benefits under the Plan may be granted in any one or a combination of (a) Stock Options, (b) Stock Appreciation Rights, (c) Stock Awards, (d) Performance Awards, and (e) Stock Units (each as described below, and collectively, the "Benefits"). Stock Awards, Performance Awards, and Stock Units may, as determined by the Committee in its discretion, constitute Performance-Based Awards, as described in Section 11 hereof. Benefits shall be evidenced by agreements (which need not be identical) in such forms as the Committee may from time to time approve (the "Agreements"); provided, however, that in the event of any conflict between the provisions of the Plan and any such agreements, the provisions of the Plan shall prevail. To the extent not otherwise provided for in a participant's Agreement and subject to provisions and limitations to the contrary contained herein, at the Committee's discretion, Benefits may vest based upon the achievement of performance-related goals, elapsed time or a combination of the achievement of performance-related goals and elapsed time. 5. Common Stock Available Under the Plan. The aggregate number of shares of Common Stock that may be subject to Benefits, including Stock Options, granted under this Plan shall be 853,485 shares of Common Stock, which may be authorized and unissued or treasury shares, subject to any adjustments made in accordance with Section 12 hereof. The maximum number of shares of Common Stock with respect to which Benefits may be granted or measured to any individual participant under the Plan during the term of the Plan shall not exceed 853,485, provided, however, that the maximum number of shares of Common Stock with respect to which Stock Options and Stock Appreciation Rights may be granted to an individual participant under the Plan during the term of the Plan shall not exceed 325,000 (in each case, subject to adjustments made in accordance with Section 12 hereof). Other than those shares of Common Stock subject to Benefits that are cancelled or terminated as a result of the Committee's exercise of its discretion with respect to Performance-Based Awards as provided for in Section 11 hereof, any shares of Common Stock subject to a Stock Option or Stock Appreciation Right which for any reason is cancelled or terminated without having been exercised, any shares subject to Stock Awards, Performance Awards or Stock Units which are forfeited, any shares subject to Performance Awards settled in cash or any shares delivered to the Company as part or full payment for the exercise of a Stock Option or Stock Appreciation Right shall again be available for Benefits under the Plan. The preceding sentence shall apply only for purposes of determining the aggregate number of shares of Common Stock subject to Benefits but shall not apply for purposes of determining the maximum number of shares of Common Stock with respect to which Benefits (including the maximum number of shares of Common Stock subject to Stock Options and Stock Appreciation Rights) that may be granted to any individual participant under the Plan. 6. Stock Options. Stock Options will consist of awards from the Company that will enable the holder to purchase a specific number of shares of Common Stock, at set terms and at a fixed purchase price. Stock Options may be "incentive stock options" ("Incentive Stock Options"), within the meaning of Section 422 of the Code, or Stock Options which do not constitute Incentive Stock Options ("Nonqualified Stock Options"). The Committee will have the authority to grant to any participant one or more Incentive Stock Options, Nonqualified Stock Options, or both types of Stock Options (in each case with or without Stock Appreciation Rights). Each Stock Option shall be subject to such terms and conditions consistent with the Plan as the Committee may impose from time to time, subject to the following limitations: 3 (a) Exercise Price. Each Stock Option granted hereunder shall have such per-share exercise price as the Committee may determine at the date of grant; provided, however, subject to subsection (d) below, that the per-share exercise price shall not be less than 100% of the Fair Market Value (as defined below) of the Common Stock on the date the option is granted. (b) Payment of Exercise Price. The option exercise price may be paid in cash or, in the discretion of the Committee determined at the date of grant, by the delivery of shares of Common Stock of the Company then owned by the participant, by delivering to the Company an executed promissory note (or such other form of indebtedness) on such terms and conditions as the Committee shall determine in its sole discretion at the date of grant, or by a combination of these methods. In the discretion of the Committee determined at the date of grant, payment may also be made by delivering a properly executed exercise notice to the Company together with a copy of irrevocable instructions to a broker to deliver promptly to the Company the amount of sale or loan proceeds to pay the exercise price. To facilitate the foregoing, the Company may enter into agreements for coordinated procedures with one or more brokerage firms. The Committee may prescribe any other method of paying the exercise price that it determines to be consistent with applicable law and the purpose of the Plan, including, without limitation, in lieu of the exercise of a Stock Option by delivery of shares of Common Stock of the Company then owned by a participant, providing the Company with a notarized statement attesting to the number of shares owned, where, upon verification by the Company, the Company would issue to the participant only the number of incremental shares to which the participant is entitled upon exercise of the Stock Option. In determining which methods a participant may utilize to pay the exercise price, the Committee may consider such factors as it determines are appropriate. (c) Exercise Period. Stock Options granted under the Plan shall be exercisable at such time or times and subject to such terms and conditions as shall be determined by the Committee; provided, however, that no Stock Option shall be exercisable later than ten years after the date it is granted. All Stock Options shall terminate at such earlier times and upon such conditions or circumstances as the Committee shall in its discretion set forth in such option agreement at the date of grant. (d) Limitations on Incentive Stock Options. Incentive Stock Options may be granted only to participants who are employees of the Company or any subsidiary corporation of the Company at the date of grant. The aggregate market value (determined as of the time the option is granted) of the Common Stock with respect to which Incentive Stock Options are exercisable for the first time by a participant during any calendar year (under all option plans of the Company) shall not exceed $100,000. For purposes of the preceding sentence, Incentive Stock Options will be taken into account in the order in which they are granted. Incentive Stock Options may not be granted to any participant who, at the time of grant, owns stock possessing (after the application of the attribution rules of Section 424(d) of the Code) more than 10% of the total combined voting power of all outstanding classes of stock of the Company or any subsidiary corporation of the Company, unless the option price is fixed at not less than 110% of the Fair Market Value of the Common Stock on the date of grant and the exercise of such option is prohibited by its terms after the expiration of five years from the date of grant of such option. Notwithstanding anything to the contrary contained herein, no Incentive Stock Option may be exercised later than ten years after the date it is granted. In addition, no Incentive Stock Option shall be issued to a participant in tandem with a Nonqualified Stock Option. 7. Stock Appreciation Rights. The Committee may, in its discretion, grant Stock Appreciation Rights to the holders of any Stock Options granted hereunder. In addition, Stock Appreciation Rights may be granted independently of, and without relation to, options. A Stock Appreciation Right means a right to receive a payment, in cash, Common Stock or a combination thereof, in an amount equal to the excess of (x) the Fair Market Value, or other specified valuation, of a specified number of shares of Common Stock on the date the right is exercised over (y) the Fair Market Value, or other specified valuation (which shall be no less than the Fair Market Value), of such shares of Common 4 Stock on the date the right is granted, all as determined by the Committee. Each Stock Appreciation Right shall be subject to such terms and conditions as the Committee shall impose from time to time. 8. Stock Awards. The Committee may, in its discretion, grant Stock Awards (which may include mandatory payment of bonus incentive compensation in stock) consisting of Common Stock issued or transferred to participants with or without other payments therefor as additional compensation for services to the Company. Stock Awards may be subject to such terms and conditions as the Committee determines appropriate, including, without limitation, restrictions on the sale or other disposition of such shares, the right of the Company to re-acquire such shares for no consideration upon termination of the participant's employment or directorship within specified periods, and may constitute Performance-Based Awards, as described below. The Committee may require the participant to deliver a duly signed stock power, endorsed in blank, relating to the Common Stock covered by such an award. The Committee may also require that the stock certificates evidencing such shares be held in custody or bear restrictive legends until the restrictions thereon shall have lapsed. The Stock Award shall specify whether the participant shall have, with respect to the shares of Common Stock subject to a Stock Award, all of the rights of a holder of shares of Common Stock of the Company, including the right to receive dividends and to vote the shares. The participant may elect to defer, or the Committee may require or permit the deferral of, the receipt of Stock Awards upon such terms as the Committee deems appropriate. 9. Performance Awards. (a) Performance Awards may be granted to participants at any time and from time to time, as shall be determined by the Committee. Performance Awards may, as determined by the Committee in its sole discretion, constitute Performance-Based Awards. The Committee shall have complete discretion in determining the number, amount and timing of awards granted to each participant. Such Performance Awards may be in the form of shares of Common Stock or Stock Units. Performance Awards may be awarded as short-term or long-term incentives. With respect to those Performance Awards that are intended to constitute Performance-Based Awards, the Committee shall set performance targets at its discretion which, depending on the extent to which they are met, will determine the number and/or value of Performance Awards that will be paid out to the participants, and may attach to such Performance Awards one or more restrictions. Performance targets may be based upon, without limitation, Company-wide, divisional and/or individual performance. (b) With respect to those Performance Awards that are not intended to constitute Performance-Based Awards, the Committee shall have the authority at any time to make adjustments to performance targets for any outstanding Performance Awards which the Committee deems necessary or desirable unless at the time of establishment of goals the Committee shall have precluded its authority to make such adjustments. (c) Payment of earned Performance Awards shall be made in accordance with terms and conditions prescribed or authorized by the Committee. The participant may elect to defer, or the Committee may require or permit the deferral of, the receipt of Performance Awards upon such terms as the Committee deems appropriate. 10. Stock Units. (a) The Committee may, in its discretion, grant Stock Units to participants hereunder. Stock Units may, as determined by the Committee in its sole discretion, constitute Performance-Based Awards. The Committee shall determine the criteria for the vesting of Stock Units. A Stock Unit granted by the Committee shall provide payment in shares of Common Stock at such time as the award agreement shall specify. Shares of Common Stock issued pursuant to this Section 10 may be issued with or without other payments therefor as may be required by applicable law or such 5 other consideration as may be determined by the Committee. The Committee shall determine whether a participant granted a Stock Unit shall be entitled to a Dividend Equivalent Right (as defined below). (b) Upon vesting of a Stock Unit, unless the Committee has determined to defer payment with respect to such unit or a participant has elected to defer payment under subsection (c) below, shares of Common Stock representing the Stock Units shall be distributed to the participant unless the Committee provides for the payment of the Stock Units in cash or partly in cash and partly in shares of Common Stock equal to the value of the shares of Common Stock which would otherwise be distributed to the participant. (c) Prior to the year with respect to which a Stock Unit may vest, the participant may elect not to receive Common Stock upon the vesting of such Stock Unit and for the Company to continue to maintain the Stock Unit on its books of account. In such event, the value of a Stock Unit shall be payable in shares of Common Stock pursuant to the agreement of deferral. (d) A "Stock Unit" means a notational account representing one share of Common Stock. A "Dividend Equivalent Right" means the right to receive the amount of any dividend paid on the share of Common Stock underlying a Stock Unit, which shall be payable in cash or in the form of additional Stock Units. 11. Performance-Based Awards. Certain Benefits granted under the Plan may be granted in a manner such that the Benefits qualify for the performance-based compensation exemption of Section 162(m) of the Code ("Performance-Based Awards"). As determined by the Committee in its sole discretion, either the granting or vesting of such Performance-Based Awards are to be based upon one or more of the following factors: net sales, pre-tax income before allocation of corporate overhead and bonus, budget, earnings per share, net income, return on stockholders' equity, return on assets, appreciation in and/or maintenance of the price of the Common Stock or any other publicly-traded securities of the Company, market share, gross profits, earnings before interest and taxes, earnings before interest, taxes, depreciation and amortization, and comparisons with various stock market indices, reductions in costs or any combination of the foregoing. With respect to Performance-Based Awards, (i) the Committee shall establish in writing (x) the objective performance-based goals applicable to a given period and (y) the individual employees or class of employees to which such performance-based goals apply no later than 90 days after the commencement of such period (but in no event after 25% of such period has elapsed) and (ii) no Performance-Based Awards shall be payable to or vest with respect to, as the case may be, any participant for a given period until the Committee certifies in writing that the objective performance goals (and any other material terms) applicable to such period have been satisfied. With respect to any Benefits intended to qualify as Performance-Based Awards, after establishment of a performance goal, the Committee shall not revise such performance goal or increase the amount of compensation payable thereunder (as determined in accordance with Section 162(m) of the Code) upon the attainment of such performance goal. Notwithstanding the preceding sentence, the Committee may reduce or eliminate the number of shares of Common Stock or cash granted or the number of shares of Common Stock vested upon the attainment of such performance goal. 12. Adjustment Provisions; Change in Control. (a) If there shall be any change in the Common Stock of the Company, through merger, consolidation, reorganization, recapitalization, stock dividend, stock split, reverse stock split, split up, spinoff, combination of shares, exchange of shares, dividend in kind or other like change in capital structure or distribution (other than normal cash dividends) to stockholders of the Company, an adjustment shall be made to each outstanding Stock Option and Stock Appreciation Right such that each such Stock Option and Stock Appreciation Right shall thereafter be exercisable for such securities, cash and/or other property as the holder of such Stock Option or Stock Appreciation Right would have had immediately after such change or distribution had such Stock Option or Stock Appreciation Right been exercised in full immediately prior to such change or distribution, and such an adjustment shall be made successively each time any 6 such change shall occur. In addition, in the event of any such change or distribution, in order to prevent dilution or enlargement of participants' rights under the Plan, the Committee will have authority to adjust, in an equitable manner, the number and kind of shares that may be issued under the Plan, the exercisability and vesting pensions of such Benefits, the number and kind of shares subject to outstanding Benefits, the exercise price applicable to outstanding Benefits, and the Fair Market Value of the Common Stock and other value determinations applicable to outstanding Benefits. Appropriate adjustments may also be made by the Committee in the terms of any Benefits under the Plan to reflect such changes or distributions and to modify any other terms of outstanding Benefits on an equitable basis, including modifications of performance targets and changes in the length of performance periods. In addition, other than with respect to Stock Options, Stock Appreciation Rights and other awards intended to constitute Performance-Based Awards, the Committee is authorized to make adjustments to the terms and conditions of, and the criteria included in, Benefits in recognition of unusual or nonrecurring events affecting the Company or the financial statements of the Company, or in response to changes in applicable laws, regulations, or accounting principles. Notwithstanding the foregoing, (i) any adjustment with respect to an Incentive Stock Option shall comply with the rules of Section 424(a) of the Code, and (ii) in no event shall any adjustment be made which would render any Incentive Stock Option granted hereunder other than an incentive stock option for purposes of Section 422 of the Code. (b) In the event of a Change in Control (as defined below), the Committee, in its discretion, may take such actions as it deems appropriate with respect to outstanding Benefits, including, without limitation, accelerating the exercisability or vesting of such Benefits. The Committee, in its discretion, may determine that, upon the occurrence of a Change in Control of the Company, each Stock Option and Stock Appreciation Right outstanding hereunder shall terminate within a specified number of days after notice to the holder, and such holder shall receive, with respect to each share of Common Stock subject to such Stock Option or Stock Appreciation Right, an amount equal to the excess of the Fair Market Value of such shares of Common Stock immediately prior to the occurrence of such Change in Control over the exercise price per share of such Stock Option or Stock Appreciation Right; such amount to be payable in cash, in one or more kinds of property (including the property, if any, payable in the transaction) or in a combination thereof, as the Committee, in its discretion, shall determine. For purposes of this Section 12(b), unless otherwise provided for in a participant's Agreement, a "Change in Control" of the Company shall be deemed to have occurred upon any of the following events: (A) Any person or other entity (other than any of the Company's subsidiaries), including any person as defined in Section 13(d)(3) of the Exchange Act, becoming the beneficial owner, as defined in Rule 13d-3 of the Exchange Act, directly or indirectly, of more than fifty percent (50%) of the total combined voting power of all classes of capital stock of the Company ordinarily entitled to vote for the election of directors of the Company; or (B) A change in the Board occurring with the result that the members of the Board on the date of consummation of the confirmed Joint Plan of Reorganization of the Company and its wholly owned subsidiary JPS Capital Corp. under Chapter 11 of the Bankruptcy Code (the "Incumbent Directors") no longer constitute a majority of such Board, provided that any person becoming a director whose election or nomination for election was supported by a majority of the Incumbent Directors shall be considered an Incumbent Director for purposes hereof; or (C) The sale of all or substantially all of the property or assets of the Company (other than a sale to any of the Company's subsidiaries); or (D) The consolidation or merger of the Company with another corporation (other than with any of the Company's subsidiaries or in which the Company is the surviving corporation), the consummation of which would 7 result in the shareholders of the Company immediately before the occurrence of the consolidation or merger owning, in the aggregate, less than 50% of the voting stock of the surviving entity immediately following the occurrence of such consolidation or merger. 13. Transferability. Each Benefit granted under the Plan to a participant (other than a Benefit that is no longer subject to any restrictions, including vesting, and that has been exercised or otherwise is wholly-owned by a participant) shall not be transferable otherwise than by will or the laws of descent and distribution, and shall be exercisable, during the participant's lifetime, only by the participant. In the event of the death of a participant, each Stock Option or Stock Appreciation Right theretofore granted to him or her shall be exercisable during such period after his or her death as the Committee shall in its discretion set forth in such option or right at the date of grant and then only by the executor or administrator of the estate of the deceased participant or the person or persons to whom the deceased participant's rights under the Stock Option or Stock Appreciation Right shall pass by will or the laws of descent and distribution. Notwithstanding the foregoing, at the discretion of the Committee, an award of a Benefit other than an Incentive Stock Option may permit the transferability of a Benefit by a participant solely to the participant's spouse, siblings, parents, children and grandchildren or trusts for the benefit of such persons. 14. Other Provisions. The award of any Benefit under the Plan may also be subject to such other provisions (whether or not applicable to the Benefit awarded to any other participant) as the Committee determines, at the date of grant, appropriate, including, without limitation, for the installment purchase of Common Stock under Stock Options, for the installment exercise of Stock Appreciation Rights, to assist the participant in financing the acquisition of Common Stock, for the forfeiture of, or restrictions on resale or other disposition of, Common Stock acquired under any form of Benefit, for the acceleration of exercisability or vesting of Benefits in the event of a change in control of the Company, for the payment of the value of Benefits to participants in the event of a change in control of the Company, or to comply with federal and state securities laws, or understandings or conditions as to the participant's employment or directorship in addition to those specifically provided for under the Plan. 15. Fair Market Value. For purposes of this Plan and any Benefits awarded hereunder, Fair Market Value shall be the closing price of the Company's Common Stock on the date of calculation (or on the last preceding trading date if Common Stock was not traded on such date) if the Company's Common Stock is readily tradeable on a national securities exchange or other market system, and if the Company's Common Stock is not readily tradeable, Fair Market Value shall mean the amount determined in good faith by the Committee as the fair market value of the Common Stock of the Company. 16. Withholding. All payments or distributions of Benefits made pursuant to the Plan shall be net of any amounts required to be withheld pursuant to applicable federal, state and local tax withholding requirements. If the Company proposes or is required to distribute Common Stock pursuant to the Plan, it may require the recipient to remit to it or to the corporation that employs such recipient an amount sufficient to satisfy such tax withholding requirements prior to the delivery of any certificates for such Common Stock. In lieu thereof, the Company or the employing corporation shall have the right to withhold the amount of such taxes from any other sums due or to become due from such corporation to the recipient as the Committee shall prescribe. The Committee may, in its discretion and subject to such rules as it may adopt (including any as may be required to satisfy applicable tax and/or non-tax regulatory requirements), permit an optionee or award or right holder to pay all or a portion of the federal, state and local withholding taxes arising in connection with any Benefit consisting of shares of Common Stock by electing to have the Company withhold shares of Common Stock having a Fair Market Value equal to the amount of tax to be withheld, such tax calculated at rates required by statute or regulation. 17. Tenure. A participant's right, if any, to continue to serve the Company as a director, officer, employee, or otherwise, shall not be enlarged or otherwise affected by his or her designation as a participant under the Plan. 8 18. Unfunded Plan. Participants shall have no right, title, or interest whatsoever in or to any investments which the Company may make to aid it in meeting its obligations under the Plan. Nothing contained in the Plan, and no action taken pursuant to its provisions, shall create or be construed to create a trust of any kind, or a fiduciary relationship between the Company and any participant, beneficiary, legal representative or any other person. To the extent that any person acquires a right to receive payments from the Company under the Plan, such right shall be no greater than the right of an unsecured general creditor of the Company. All payments to be made hereunder shall be paid from the general funds of the Company and no special or separate fund shall be established and no segregation of assets shall be made to assure payment of such amounts except as expressly set forth in the Plan. The Plan is not intended to be subject to the Employee Retirement Income Security Act of 1974, as amended. 19. No Fractional Shares. No fractional shares of Common Stock shall be issued or delivered pursuant to the Plan or any Benefit. The Committee shall determine whether cash, or Benefits, or other property shall be issued or paid in lieu of fractional shares or whether such fractional shares or any rights thereto shall be forfeited or otherwise eliminated. 20. Duration, Amendment and Termination. No Benefit shall be granted more than ten years after the Effective Date; provided, however, that the terms and conditions applicable to any Benefit granted prior to such date may thereafter be amended or modified by mutual agreement between the Company and the participant or such other persons as may then have an interest therein. The Committee may amend the Plan from time to time or suspend or terminate the Plan at any time. However, no action authorized by this Section 20 shall reduce the amount of any existing Benefit or change the terms and conditions thereof without the participant's consent. No amendment of the Plan shall, without approval of the stockholders of the Company, (i) increase the total number of shares which may be issued under the Plan or the maximum number of shares with respect to Stock Options, Stock Appreciation Rights and other Benefits that may be granted to any individual under the Plan or (ii) modify the requirements as to eligibility for Benefits under the Plan; provided, however, that no amendment may be made without approval of the stockholders of the Company if the amendment will disqualify any Incentive Stock Options granted hereunder. 21. Governing Law. This Plan, Benefits granted hereunder and actions taken in connection herewith shall be governed and construed in accordance with the laws of the State of Delaware (regardless of the law that might otherwise govern under applicable Delaware principles of conflict of laws). 22. Effective Date. (a) The Plan shall be effective on the date on which it is adopted by the Board (the "Effective Date") without further corporate action by the Board or any of its subsidiaries or the holders of Common Stock. The Committee shall not grant any Benefits under the Plan until the date of consummation of the confirmed Joint Plan of Reorganization of the Company and its wholly owned subsidiary, JPS Capital Corp., under chapter 11 of the Bankruptcy Code. (b) This Plan shall terminate on the ten-year anniversary of the Effective Date (unless sooner terminated by the Committee). EX-10.37 9 WARRANT AGREEMENT 1 EXHIBIT 10.37 - -------------------------------------------------------------------------------- JPS TEXTILE GROUP, INC. AND AMERICAN STOCK TRANSFER AND TRUST COMPANY AS WARRANT AGENT ----------------- WARRANTS TO PURCHASE UP TO 526,316 SHARES OF COMMON STOCK ----------------- WARRANT AGREEMENT DATED AS OF OCTOBER 9, 1997 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- 2 TABLE OF CONTENTS
PAGE ---- 1. DEFINITIONS........................................................................................... 1 2. APPOINTMENT OF WARRANT AGENT.......................................................................... 3 2.1. Appointment..................................................................................... 3 3. REGISTRATION, FORM AND EXECUTION OF WARRANTS.......................................................... 3 3.1. Registration.................................................................................... 3 3.2. Form of Warrant................................................................................. 3 3.3. Countersignature of Warrants.................................................................... 4 4. EXERCISE OF WARRANTS.................................................................................. 4 4.1. Manner of Exercise.............................................................................. 4 4.2. Payment of Taxes................................................................................ 4 4.3. Fractional Shares............................................................................... 4 5. TRANSFER, DIVISION AND COMBINATION.................................................................... 5 5.1. Transfer........................................................................................ 5 5.2. Division and Combination........................................................................ 5 5.3. Maintenance of Books............................................................................ 5 6. ADJUSTMENTS........................................................................................... 5 6.1. Stock Dividends, Subdivisions and Combinations.................................................. 5 6.2. Reorganization, Reclassification, Merger or Consolidation....................................... 6 6.3. Certain Limitations............................................................................. 6 7. NOTICES TO WARRANT HOLDERS............................................................................ 6 7.1. Notice of Adjustments........................................................................... 6 7.2. Notice of Corporate Action...................................................................... 6 8. NO IMPAIRMENT......................................................................................... 7 9. RESERVATION AND AUTHORIZATION OF COMMON STOCK; REGISTRATION WITH OR APPROVAL OF ANY GOVERNMENTAL AUTHORITY........................................................ 7 10. STOCK AND WARRANT TRANSFER BOOKS...................................................................... 7 11. LOSS OR MUTILATION.................................................................................... 8 12. OFFICE OF COMPANY..................................................................................... 8 13. REPURCHASE BY COMPANY OF WARRANTS..................................................................... 8 13.1 Option to Repurchase Warrants................................................................... 8 13.2 Payment of Repurchase Price..................................................................... 8 14. WARRANT AGENT......................................................................................... 8 14.1 Merger or Consolidation or Change of Name of Warrant Agent...................................... 8 14.2 Certain Terms and Conditions Concerning the Warrant Agent....................................... 9 14.3 Change of Warrant Agent......................................................................... 10 14.4 Disposition of Proceeds on Exercise of Warrants, Inspection of Warrant Agreement................ 11
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PAGE ---- 15. MISCELLANEOUS......................................................................................... 11 15.1 Notice Generally................................................................................ 11 15.2 Successors and Assigns.......................................................................... 12 15.3 Amendment....................................................................................... 12 15.4 Third-Party Beneficiaries....................................................................... 12 15.5 Severability.................................................................................... 12 15.6 Headings........................................................................................ 12 15.7 Governing Law................................................................................... 12 15.8 Counterparts.................................................................................... 12
EXHIBITS Exhibit A--Form of Warrant Certificate Exhibit B--Warrant Agent Fees 4 THIS WARRANT AGREEMENT (the "Warrant Agreement"), dated as of October 9, 1997, is made by and between JPS Textile Group, Inc., a Delaware corporation (the "Company"), and American Stock Transfer and Trust Company, a New York corporation, as warrant agent (the "Warrant Agent"). W I T N E S S E T H: WHEREAS, the Company proposes to issue, to holders of allowed equity interests in class 8, warrants, as hereinafter described (the "Warrants"), to purchase up to an aggregate of 526,316 shares of its Common Stock pursuant to Section III.D.8 of the Plan, as confirmed by the United States Bankruptcy Court for the Southern District of New York (the "Court"), by order entered September 9, 1997, under title 11 of the United States Code; and WHEREAS, the Company has requested the Warrant Agent to act on behalf of the Company, and the Warrant Agent is willing so to act, in connection with the issuance, division, transfer, exchange and exercise of Warrants; NOW, THEREFORE, in consideration of the foregoing and for the purpose of defining the terms and provisions of the Warrants and the respective rights and obligations thereunder and hereunder of the Company, the Warrant Agent, and the Holders, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged and affirmed, the Company and the Warrant Agent hereby agree as follows: 1. Definitions As used in this Warrant Agreement, the following terms have the respective meanings set forth below: "Additional Shares of Common Stock" shall mean all shares of Common Stock issued by the Company after the Effective Date, other than Warrant Stock. "Book Value" shall mean, in respect of any share of Common Stock on any date herein specified, the consolidated book value of the Company as of the last day of any month immediately preceding such date, divided by the number of Fully Diluted Outstanding shares of Common Stock as determined in accordance with GAAP as consistently applied by the Company in the preparation of its financial statements. "Business Day" shall mean any day that is not a Saturday or Sunday or a day on which banks are required or permitted to be closed in the State of New York. "Common Stock" shall mean (except where the context otherwise indicates) the Common Stock, $.01 par value per share, of the Company as constituted on the Effective Date, and any capital stock into which such Common Stock may thereafter be changed, and shall also include (1) capital stock of the Company of any other class (regardless of how denominated) issued to the holders of shares of Common Stock upon any reclassification thereof which is also not preferred as to dividends or assets over any other class of stock of the Company and which is not subject to redemption and (2) shares of common stock of any successor or acquiring corporation received by or distributed to the holders of Common Stock of the Company in the circumstances contemplated by Section 6.2. "Company" shall have the meaning assigned to such term in the first paragraph of this Warrant Agreement. "Court" shall have the meaning assigned to such term in the recitals to this Warrant Agreement. 5 "Current Warrant Price" shall mean, in respect of a share of Common Stock at any date herein specified, the price at which a share of Common Stock may be purchased pursuant to this Warrant Agreement on such date. The initial Current Warrant Price is $98.76, as specified in the second paragraph of the Warrant Certificate. "Daily Market Price" shall mean, in respect of any share of Common Stock on any Trading Day, (1) the last sale price on such day on the principal stock exchange on which such Common Stock is then listed or admitted to trading or (2) if no sale takes place on such day on any such exchange, the average of the last reported closing bid and asked prices on such day as officially quoted on any such exchange. If the Common Stock is not then listed or admitted to trading on any stock exchange, the Daily Market Price shall be the average of the last reported closing bid and asked prices on such day in the over-the-counter market, as furnished by the National Association of Securities Dealers Automatic Quotation System or the National Quotation Bureau, Inc.; provided, that if neither such corporation at the time is engaged in the business of reporting such prices, the Daily Market Price shall be as furnished by any similar firm then engaged in such business, or if there is no such firm, as furnished by any member of the NASD selected mutually by the Majority Holders and the Company or, if they cannot agree upon such selection, as selected by two such members of the NASD, one of which shall be selected by the Majority Holders and one of which shall be selected by the Company. If the Common Stock is not reported in the over-the-counter market and no member of the NASD selected pursuant to the preceding sentence will furnish the Daily Market Price, then the Daily Market Price shall be the Book Value per share of Common Stock at such date. "Effective Date" shall have the meaning set forth in the Plan. "Expiration Date" shall mean October 9, 2000. "Fully Diluted Outstanding" shall mean, when used with reference to Common Stock, at any date as of which the number of shares thereof is to be determined, all shares of Common Stock Outstanding at such date and all shares of Common Stock issuable in respect of any Warrants and any other options or warrants to purchase, or securities convertible into or exchangeable for, shares of Common Stock outstanding on such date. "GAAP" shall mean generally accepted accounting principles in the United States of America as from time to time in effect. "Holder" shall mean the Person in whose name a Warrant is registered in the warrant register of the Company maintained by or on behalf of the Company for such purpose. "Majority Holders" shall mean the Holders of Warrants exercisable for in excess of 50% of the aggregate number of shares of Common Stock then purchasable upon exercise of all Warrants. "NASD" shall mean the National Association of Securities Dealers, Inc., or any successor corporation thereto. "Other Property" shall have the meaning set forth in Section 6.2. "Outstanding" shall mean, when used with reference to Common Stock, at any date as of which the number of shares thereof is to be determined, all issued shares of Common Stock, except shares then owned or held by or for the account of the Company or any subsidiary thereof, and shall include all shares issuable in respect of outstanding scrip or any certificates representing fractional interests in shares of Common Stock. "Person" shall mean any individual, sole proprietorship, partnership, joint venture, trust, incorporated organization, association, corporation, limited liability company, limited liability partnership, institution, public benefit corporation, entity or government (whether federal, state, county, city, municipal or otherwise, including, without limitation, any instrumentality, division, agency, body or department thereof). 2 6 "Plan" shall mean the Company's and JPS Capital Corp.'s Joint Plan of Reorganization Under Chapter 11 of the United States Bankruptcy Code, as it may be amended or modified. "Pricing Period" shall have the meaning set forth in Section 13.1. "Repurchase Price" shall have the meaning set forth in Section 13.1. "Trading Day" shall mean any day on which the principal stock exchange on which the Common Stock is listed or admitted to trading is open or, if the Common Stock is not then listed or admitted to trading on any stock exchange, any day on which the National Association of Securities Dealers Automatic Quotation System or the National Quotation Bureau Inc. reports prices in respect of securities or, if neither such corporation is then engaged in such business, any day on which the member of the NASD selected as specified in the proviso set forth in the definition of "Daily Market Price" furnishes prices for securities. "Warrant Agent" shall have the meaning assigned to such term in the first paragraph of this Warrant Agreement and shall include any successor Warrant Agent hereunder. "Warrant Agent's Principal Office" shall mean the principal office of the Warrant Agent in New York City, New York (or such other office of the Warrant Agent or any successor thereto hereunder acceptable to the Company as set forth in a written notice provided to the Company and the Holders). "Warrant Agreement" shall have the meaning assigned to such term in the first paragraph of this Warrant Agreement. "Warrant Price" shall mean an amount equal to (1) the number of shares of Common Stock being purchased upon exercise of a Warrant pursuant to Section 4.1, multiplied by (2) the Current Warrant Price as of the date of such exercise. "Warrant Stock" shall mean the shares of Common Stock purchased by the Holders of the Warrants upon the exercise thereof. "Warrants" shall have the meaning assigned to such term in the recitals to this Warrant Agreement, and shall include all warrants issued upon transfer, division or combination of, or in substitution for, any thereof. All Warrants shall at all times be identical as to terms and conditions and date, except as to the number of shares of Common Stock for which they may be exercised. 2. Appointment of Warrant Agent 2.1. Appointment. The Company hereby appoints the Warrant Agent to act as agent for the Company in accordance with the instructions set forth in this Warrant Agreement, and the Warrant Agent hereby accepts such appointment. 3. Registration, Form and Execution of Warrants 3.1. Registration. All Warrants shall be numbered and shall be registered in a warrant register maintained at the Warrant Agent's Principal Office by the Warrant Agent as they are issued. The Company and the Warrant Agent shall be entitled to treat a Holder as the owner in fact for all purposes whatsoever of each Warrant registered in such Holder's name. 3 7 3.2. Form of Warrant. The text of each Warrant and of the Election to Purchase Form and Assignment Form shall be substantially as set forth in Exhibit A attached hereto. Each Warrant shall be executed on behalf of the Company by its President or one of its Vice Presidents, under its corporate seal reproduced thereon or facsimile thereof attested by its Secretary or an Assistant Secretary. The signature of any of such officers on the Warrants may be manual or facsimile. Warrants bearing the manual or facsimile signatures of individuals who were at any time the proper officers of the Company shall bind the Company, notwithstanding that such individuals or any one of them shall have ceased to hold such offices prior to the delivery of such Warrants or did not hold such offices on the date of this Warrant Agreement. Warrants shall be dated as of the date of countersignature thereof by the Warrant Agent either upon initial issuance or upon division, exchange, substitution or transfer. 3.3. Countersignature of Warrants. Each Warrant shall be manually countersigned by the Warrant Agent (or any successor to the Warrant Agent then acting as warrant agent under this Warrant Agreement) and shall not be valid for any purpose unless so countersigned. Warrants may be countersigned, however, by the Warrant Agent (or by its successor as warrant agent hereunder) and may be delivered by the Warrant Agent, notwithstanding that the persons whose manual signatures appear thereon as proper officers of the Company shall have ceased to be such officers at the time of such countersignature, issuance or delivery. The Warrant Agent shall, upon written instructions of the President, a Vice President, the Secretary, or an Assistant Secretary of the Company, countersign, issue and deliver Warrants entitling the Holders thereof to purchase not more than 526,316 shares of Common Stock (subject to adjustment as set forth herein) and shall countersign and deliver Warrants as otherwise provided in this Warrant Agreement. 4. Exercise of Warrants 4.1 Manner of Exercise. From and after the Effective Date and until 5:00 p.m., New York City time, on the Expiration Date, a Holder may exercise any of its Warrants, on any Business Day, for all or any part of the number of shares of Common Stock purchasable thereunder. In order to exercise a Warrant, in whole or in part, a Holder shall deliver to the Company at the Warrant Agent's Principal Office, (1) a written notice of such Holder's election to exercise such Warrant, which notice shall include the number of shares of Common Stock to be purchased, (2) payment of the Warrant Price for the account of the Company and (3) such Warrant. Such notice shall be substantially in the form of the Election to Purchase Form set forth on the reverse side of the form of Warrant Certificate attached as Exhibit A hereto, duly executed by such Holder or its agent or attorney. Upon receipt thereof, the Warrant Agent shall, as promptly as practicable, and in any event within five Business Days thereafter, deliver or cause to be delivered to such Holder an executed certificate or certificates representing the aggregate number of full shares of Common Stock issuable upon such exercise. The stock certificate or certificates so delivered shall be, to the extent possible, in such denomination or denominations as such Holder shall request in the notice and shall be registered in the name of such Holder or such other name as shall be designated in such notice. A Warrant shall be deemed to have been exercised and such certificate or certificates shall be deemed to have been issued, and such Holder or any other Person so designated to be named therein shall be deemed to have become a holder of record of such shares for all purposes, as of the date such notice, together with the check or checks and such Warrant, is received by the Warrant Agent as described above and all taxes required to be paid by such Holder, if any, pursuant to Section 4.2 prior to the issuance of such shares have been paid. If any Warrant shall have been exercised in part, the Warrant Agent shall, at the time of delivery of the certificate or certificates representing Warrant Stock, deliver to the Holder a new Warrant evidencing the rights of such Holder to purchase the unpurchased shares of Common Stock called for by such Warrant, which new Warrant shall in all other respects be identical with the Warrant 4 8 exercised in part, or, at the request of such Holder, appropriate notation may be made on such exercised Warrant and the same returned to such Holder. Notwithstanding any provision herein to the contrary, the Warrant Agent shall not be required to register shares in the name of any Person who acquired a Warrant (or part thereof) or any Warrant Stock otherwise than in accordance with such Warrant and this Warrant Agreement. Payment of the Warrant Price shall be made at the option of the Holder by certified or official bank check or any combination thereof, duly executed by such Holder or by such Holder's attorney duly authorized in writing. 4.2. Payment of Taxes. All shares of Common Stock issuable upon the exercise of any Warrant pursuant to the terms hereof shall be validly issued, fully paid and nonassessable and without any preemptive rights. The Holder shall pay all expenses in connection with, and all taxes and other governmental charges that may be imposed with respect to, the issuance or delivery thereof. 4.3. Fractional Shares. The Company shall not be required to issue a fractional share of Common Stock upon exercise of any Warrant. Whenever any distribution of Warrants exercisable into fractional shares of Common Stock would otherwise be called for, the actual distribution thereof will reflect a rounding up to the next whole number of Common Stock. 5. Transfer, Division, and Combination 5.1 Transfer. Transfer of any Warrant and all rights hereunder, in whole or in part, shall be registered in the warrant register of the Company to be maintained for such purpose at the Warrant Agent's Principal Office, upon surrender of such Warrant at the Warrant Agent's Principal Office, together with a written assignment of such Warrant substantially in the form set forth on the reverse side of the form of Warrant Certificate attached as Exhibit A hereto duly executed by the Holder or its agent or attorney and payment of all funds sufficient to pay any taxes payable upon the making of such transfer. Upon such surrender and, if required, such payment, and subject to Section 9, the Company shall execute and the Warrant Agent shall countersign and deliver a new Warrant or Warrants in the name of the assignee or assignees and in the denomination specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of such Warrant not so assigned, and the surrendered Warrant shall promptly be cancelled. A Warrant, if properly assigned, may be exercised by a new Holder for the purchase of shares of Common Stock without having a new Warrant issued. 5.2. Division and Combination. Any Warrant may be divided or combined with other Warrants upon presentation thereof at the Warrant Agent's Principal Office, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed by the Holder or its agent or attorney. Subject to compliance with Section 5.1, as to any transfer which may be involved in such division or combination, the Company shall execute and the Warrant Agent shall countersign and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with such notice. 5.3. Maintenance of Books. The Warrant Agent agrees to maintain, at the Warrant Agent's Principal Office, the warrant register for the registration of warrants and the registration of transfer of the Warrants. 6. Adjustments The number of shares of Common Stock for which a Warrant is exercisable, and the price at which such shares may be purchased upon exercise of a Warrant, shall be subject to adjustment from time to time as set forth in this Section 6. 6.1. Stock Dividends, Subdivisions, and Combinations. If at any time the Company shall: 5 9 (a) take a record of the holders of its Common Stock for the purpose of entitling them to receive a dividend payable in, or other distribution of, Additional Shares of Common Stock, (b) subdivide its outstanding shares of Common Stock into a larger number of shares of Common Stock, or (c) combine its outstanding shares of Common Stock into a smaller number of shares of Common Stock, then (i) the number of shares of Common Stock for which a Warrant is exercisable immediately after the occurrence of any such event shall be adjusted to equal the number of shares of Common Stock that a record holder of the same number of shares of Common Stock for which a Warrant is exercisable immediately prior to the occurrence of such event would own or be entitled to receive after the happening of such event, and (ii) the Current Warrant Price shall be adjusted to equal (A) the Current Warrant Price multiplied by the number of shares of Common Stock for which a Warrant is exercisable immediately prior to the adjustment divided by (B) the number of shares for which a Warrant is exercisable immediately after such adjustment. 6.2. Reorganization, Reclassification, Merger or Consolidation. In case the Company shall reorganize its capital, reclassify its capital stock, consolidate or merge with or into another corporation (where the Company is not the surviving corporation or where there is a change in or distribution with respect to the Common Stock of the Company), and, pursuant to the terms of such reorganization, reclassification, merger or consolidation, shares of common stock of the successor or acquiring corporation, or any cash, shares of stock or other securities or property of any nature whatsoever (including warrants or other subscription or purchase rights) in addition to or in lieu of common stock of the successor or acquiring corporation (" Other Property"), are to be received by or distributed to the holders of Common Stock of the Company, then each Holder shall have the right thereafter to receive, upon exercise of a Warrant, the number of shares of common stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and Other Property receivable upon or as a result of such reorganization, reclassification, merger or consolidation by a holder of the number of shares of Common Stock for which a Warrant is exercisable immediately prior to such event. In case of any such reorganization, reclassification, merger or consolidation, the successor or acquiring corporation (if other than the Company) shall expressly assume the due and punctual observance and performance of each and every covenant and condition of this Warrant Agreement and the Warrants to be performed and observed by the Company and all the obligations and liabilities hereunder, subject to such modifications as may be deemed appropriate (as determined by resolution of the Board of Directors of the Company) in order to provide for adjustments of shares of the Common Stock for which a Warrant is exercisable which shall be as nearly equivalent as practicable to the adjustments provided for in this Section 6. For purposes of this Section 6.2, "common stock of the successor or acquiring corporation" shall include stock of such corporation of any class which is not preferred as to dividends or assets over any other class of stock of such corporation and which is not subject to redemption and shall also include any evidences of indebtedness, shares of stock or other securities which are convertible into or exchangeable for any such stock, either immediately or upon the arrival of a specified date or the happening of a specified event and any warrants or other rights to subscribe for or purchase any such stock. The foregoing provisions of this Section 6.2 shall similarly apply to successive reorganizations, reclassifications, mergers or consolidations. 6.3. Certain Limitations. Notwithstanding anything herein to the contrary, the Company agrees not to enter into any transaction which, by reason of any adjustment hereunder, would cause the Current Warrant Price to be less than the par value per share of Common Stock. 7. Notices to Warrant Holders 6 10 7.1. Notice of Adjustments. Whenever the number of shares of Common Stock for which a Warrant is exercisable, or whenever the price at which a share of such Common Stock may be purchased upon exercise of the Warrants, shall be adjusted pursuant to Section 6, the Company shall forthwith prepare a certificate to be executed by the chief financial officer of the Company setting forth, in reasonable detail, the event requiring the adjustment and the method by which such adjustment was calculated, specifying the number of shares of Common Stock for which a Warrant is exercisable and describing the number and kind of any other shares of stock or Other Property for which a Warrant is exercisable, and any change in the purchase price or prices thereof, after giving effect to such adjustment or change. The Company shall promptly cause a signed copy of such certificate to be delivered to each Holder in accordance with Section 15.1. The Company shall keep at its office or agency designated by the Company pursuant to Section 12 copies of all such certificates and cause the same to be available for inspection at said office during normal business hours by any Holder or any prospective purchaser of a Warrant designated by a Holder thereof. 7.2. Notice of Corporate Action. If at any time (a) The Company shall take a record of the holders of its Common Stock for the purpose of entitling them to receive a dividend (other than a cash dividend payable out of earnings or earned surplus legally available for the payment of dividends under the laws of the jurisdiction of incorporation of the Company) or other distribution of Additional Shares of Common Stock, or (b) there shall be any capital reorganization of the Company, any reclassification or recapitalization of the capital stock of the Company or any consolidation or merger of the Company with, or any sale, transfer or other disposition of all or substantially all the property, assets or business of the Company to another corporation, or (c) there shall be a voluntary or involuntary dissolution, liquidation or winding up of the Company, then, in any one or more of such cases, the Company shall give to each Holder (i) prompt written notice of the date on which a record date shall be selected for such dividend, distribution or right or for determining rights to vote in respect of any such reorganization, reclassification, merger, consolidation, sale, transfer, disposition, dissolution, liquidation or winding up, and (ii) in the case of any such reorganization, reclassification, merger, consolidation, sale, transfer, disposition, dissolution, liquidation or winding up, prior written notice of the date when the same shall take place. Such notice in accordance with the foregoing clause also shall specify (i) the date on which any such record is taken for the purpose of such dividend, distribution or right, the date on which the holders of Common Stock shall be entitled to any such dividend, distribution or right, and the amount and character thereof, and (ii) the date and time on which any such reorganization, reclassification, merger, consolidation, sale, transfer, disposition, dissolution, liquidation or winding up takes place. Each such written notice shall be sufficiently given if addressed to such Holder at the last address of such Holder appearing on the books of the Company and delivered in accordance with Section 15.1. 8. No Impairment The Company shall not by any action, including, without limitation, amending its certificate of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant Agreement or any Warrant. Without limiting the generality of the foregoing, the Company will (1) not increase the par value of any shares of Common Stock receivable upon the exercise of a Warrant above the amount payable therefor upon such exercise immediately prior to such increase in par value and (2) take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of Common Stock upon the exercise of any Warrant. 7 11 9. Reservation and Authorization of Common Stock; Registration with or Approval of any Governmental Authority From and after the Effective Date, the Company shall at all times reserve and keep available for issue upon the exercise of Warrants such number of its authorized but unissued shares of Common Stock as will be sufficient to permit the exercise in full of all outstanding Warrants. All shares of Common Stock which shall be so issuable, when issued upon exercise of any Warrant and payment therefor in accordance with the terms of this Warrant Agreement and such Warrant, shall be duly and validly issued and fully paid and nonassessable, and not subject to preemptive rights. Before taking any action which would cause an adjustment reducing the Current Warrant Price below the then par value, if any, of the shares of Common Stock issuable upon exercise of the Warrants, the Company shall take any corporate action which may be necessary in order that the Company may validly and legally issue fully paid and nonassessable shares of such Common Stock at such adjusted Current Warrant Price. 10. Stock and Warrant Transfer Books The Company will not at any time, except upon dissolution, liquidation or winding up of the Company, close its stock transfer books or Warrant transfer books so as to result in preventing or delaying the exercise or transfer of any Warrant. 11. Loss or Mutilation Upon receipt by the Company and the Warrant Agent from any Holder of evidence reasonably satisfactory to them of the ownership of and the loss, theft, destruction or mutilation of such Holder's Warrant and indemnity reasonably satisfactory to them, and in case of mutilation upon surrender and cancellation thereof, the Company will execute and the Warrant Agent will countersign and deliver in lieu hereof a new Warrant of like tenor to such Holder; provided, in the case of mutilation, no indemnity shall be required if such Warrant in identifiable form is surrendered to the Company or the Warrant Agent for cancellation. 12. Office of Company As long as any of the Warrants remain outstanding, the Company shall maintain an office or agency (which may be the principal executive offices of the Company) where the Warrants may be presented for exercise, registration of transfer, division or combination as provided in this Warrant Agreement. The Company shall initially maintain such an agency at the Warrant Agent's Principal Offices. 13. Repurchase by Company of Warrants 13.1. Option to Repurchase Warrants. If the Daily Market Price for Common Stock has been at least 140% of the Current Warrant Price on each of the 30 consecutive Trading Days ending on the third Business Day prior to the date on which notice of the repurchase is given (the "Pricing Period"), the Company shall have the right, upon prior written notice to any Holder to repurchase from such Holder, from any source of funds legally available therefor, on the 10th day following delivery of such notice (or, if such day is not a Business Day, the next succeeding Business Day) and in the manner set forth in Section 13.2 below, each Warrant then held by such Holder for an amount equal to one dollar ($1.00) (the "Repurchase Price"); provided, however, that nothing 8 12 herein shall preclude the exercise by such Holder of any portion of such Warrant exercisable at any time prior to such repurchase. 13.2. Payment of Repurchase Price. On the date of any repurchase of Warrants pursuant to this Section 13, each Holder shall assign to Company such Holder's Warrant being repurchased, without any representation or warranty, by the surrender of such Holder's Warrant to the Company at the Warrant Agent's Principal Office against payment therefor of the Repurchase Price by check issued by the Company. 14. Warrant Agent 14.1. Merger or Consolidation or Change of Name of Warrant Agent. Any corporation into which the Warrant Agent may be merged or with which it may be consolidated, or any corporation resulting from any merger or consolidation to which the Warrant Agent shall be a party, or any corporation succeeding to the corporate trust business of the Warrant Agent, shall be the successor to the Warrant Agent hereunder without the execution or filing of any paper or any further act on the part of any of the parties hereto; provided that such corporation must be eligible for appointment as a successor Warrant Agent under the provisions of Section 14.3 hereof. If at the time such successor to the Warrant Agent shall succeed to the agency created by this Warrant Agreement any of the Warrants shall have been countersigned but not delivered, any such successor to the Warrant Agent may adopt the countersignature of the predecessor Warrant Agent and deliver such Warrants so countersigned; and if at that time any of the Warrants shall not have been countersigned, any successor to the Warrant Agent may countersign such Warrants either in the name of the predecessor Warrant Agent or in the name of the successor Warrant Agent; and in all such cases Warrants shall have the full force provided in the Warrants and in this Warrant Agreement. If at any time the name of the Warrant Agent shall be changed and at such time any of the Warrants shall have been countersigned but not delivered, the Warrant Agent may adopt the countersignatures under its prior name and deliver such Warrants so countersigned; and if at that time any of the Warrants shall not have been countersigned, the Warrant Agent may countersign such Warrants either in its prior name or in its changed name; and in all such cases such Warrants shall have the full force provided in the Warrants and in this Warrant Agreement. 14.2. Certain Terms and Conditions Concerning the Warrant Agent. The Warrant Agent undertakes the duties and obligations imposed by this Warrant Agreement upon the following terms and conditions, by all of which the Company and the Holders, by their acceptance of Warrants, shall be bound: (a) Correctness of Statements. The statements contained herein and in the Warrants shall be taken as statements of the Company and the Warrant Agent assumes no responsibility for the correctness of any of the same except such as describe the Warrant Agent or action taken by it. The Warrant Agent assumes no responsibility with respect to the distribution of the Warrants except as herein otherwise provided. (b) Breach of Covenants. The Warrant Agent shall not be responsible for any failure of the Company to comply with any of the covenants contained in this Warrant Agreement or in the Warrants to be complied with specifically by the Company. (c) Performance of Duties. The Warrant Agent may execute and exercise any of the rights or powers hereby vested in it or perform any duty hereunder either itself or by or through its attorneys or agents (which shall not include its employees) and shall not be responsible for the misconduct or negligence of any agent appointed with due care. (d) Reliance on Counsel. The Warrant Agent may consult at any time with legal counsel satisfactory to it (who may be counsel for the Company) and the Warrant Agent shall incur no liability or responsibility to the Company or to any Holder in respect of any action taken, suffered or omitted by it hereunder in good faith and in 9 13 accordance with the opinion or the advice of such counsel provided that such counsel shall have been selected with due care. (e) Proof of Actions Taken. Whenever in the performance of its duties under this Warrant Agreement the Warrant Agent shall deem it necessary or desirable that any fact or matter be proved or established by the Company prior to taking or suffering any action hereunder, such fact or matter (unless other evidence in respect thereof be herein specifically prescribed) may be deemed conclusively to be proved and established by a certificate signed by the President, a Vice President, the Secretary or an Assistant Secretary of the Company and delivered to the Warrant Agent; and such certificate shall be full authorization to the Warrant Agent for any action taken or suffered in good faith by it under the provisions of this Warrant Agreement in reliance upon such certificate. (f) Compensation. The Company agrees to pay the Warrant Agent reasonable compensation as set forth in the fee schedule attached hereto as Exhibit B for all services rendered by the Warrant Agent in the performance of its duties under this Warrant Agreement, to reimburse the Warrant Agent for all expenses, taxes and governmental charges and other charges of any kind and nature incurred by the Warrant Agent in the performance of its duties under this Warrant Agreement, and to indemnify the Warrant Agent and save it harmless against any and all liabilities, including judgments, costs and counsel fees, for anything done or omitted by the Warrant Agent in the performance of its duties under this Warrant Agreement except as a result of the Warrant Agent's negligence or bad faith. (g) Legal Proceedings. The Warrant Agent shall be under no obligation to institute any action, suit or legal proceeding or to take any other action likely to involve expense unless the Company or one or more Holders shall furnish the Warrant Agent with reasonable security and indemnity for any costs and expenses that may be incurred, but this provision shall not affect the power of the Warrant Agent to take such action as the Warrant Agent may consider proper, whether with or without any such security or indemnity. All rights of action under this Warrant Agreement or under any of the Warrants may be enforced by the Warrant Agent without the possession of any of the Warrants or the production thereof at any trial or other proceeding relative thereto, and any such action, suit or proceeding instituted by the Warrant Agent shall be brought in its name as Warrant Agent, and any recovery of judgment shall be for the ratable benefit of the Holders, as their respective rights or interests may appear. (h) Other Transactions in Securities of the Company. The Warrant Agent and any stockholder, director, officer or employee of the Warrant Agent may buy, sell or deal in any of the Warrants or other securities of the Company or become pecuniarily interested in any transaction in which the Company may be interested, or contract with or lend money to the Company or otherwise act as fully and freely as though it were not Warrant Agent under this Warrant Agreement. Nothing herein shall preclude the Warrant Agent from acting in any other capacity for the Company or for any other legal entity. (i) Liability of Warrant Agent. The Warrant Agent shall act hereunder solely as agent, and its duties shall be determined solely by the provisions hereof. The Warrant Agent shall not be liable for anything that it may do or refrain from doing in connection with this Warrant Agreement except for its own negligence or bad faith. (j) Reliance on Documents. The Warrant Agent will not incur any liability or responsibility to the Company or to any Holder for any action taken in reliance on any notice, resolution, waiver, consent, order, certificate, or other paper, document or instrument reasonably believed by it to be genuine and to have been signed, sent or presented by the proper party or parties. (k) Validity of Agreements. The Warrant Agent shall not be under any responsibility in respect of the validity of this Warrant Agreement or the execution and delivery hereof (except the due execution and delivery hereof by the Warrant Agent) or in respect of the validity or execution of any Warrant (except its countersignature and delivery thereof); nor shall the Warrant Agent by any act hereunder be deemed to make any representation or 10 14 warranty as to the authorization or reservation of any Warrant Stock (or other stock) to be issued pursuant to this Warrant Agreement or any Warrant, or as to whether any Warrant Stock (or other stock) will, when issued, be validly issued, fully paid and nonassessable, or as to the Warrant Price or the number or amount of Warrant Stock or other securities or other property issued upon exercise of any Warrant. (l) Instructions from Company. The Warrant Agent is hereby authorized and directed to accept instructions with respect to the performance of its duties hereunder from the President, a Vice President, the Secretary or any Assistant Secretary of the Company, and to apply to such officers for advice or instructions in connection with its duties, and shall not be liable for any action taken or suffered to be taken by it in good faith in accordance with instructions of any such officer or officers. 14.3 Change of Warrant Agent. The Warrant Agent may resign and be discharged from its duties under this Warrant Agreement by giving to the Company 30 days' advance notice in writing. The Warrant Agent may be removed by like notice to the Warrant Agent from the Company. If the Warrant Agent shall resign or be removed or shall otherwise become incapable of acting, the Company shall appoint a successor to the Warrant Agent. If the Company shall fail to make such appointment within a period of 30 days after such removal or after it has been notified in writing of such resignation or incapacity by the resigning or incapacitated Warrant Agent, then any Holder may apply to the Court for the appointment of a successor to the Warrant Agent. Pending the appointment of the successor warrant agent, the Company shall perform the duties of the Warrant Agent. Any successor warrant agent, whether appointed by the Company or the Court, shall be a bank or trust company, in good standing, incorporated under the laws of the United States of America or any state thereof and having at the time of its appointment as warrant agent a combined capital and surplus of at least $50,000,000. After appointment, the successor warrant agent shall be vested with the same powers, rights, duties and responsibilities as if it had been originally named as Warrant Agent without further act or deed; but the former Warrant Agent shall deliver and transfer to the successor warrant agent any property at the time held by it hereunder, and execute and deliver any further assurance, conveyance, act or deed necessary for the purpose. Failure to file any notice provided for in this Section 14.3, however, or any defect therein, shall not affect the legality or validity of the resignation or removal of the Warrant Agent or the appointment of the successor warrant agent, as the case may be. In the event of such resignation or removal, the successor warrant agent shall mail, first class, to each Holder, written notice of such removal or resignation and the name and address of such successor warrant agent. 14.4. Disposition of Proceeds on Exercise of Warrants; Inspection of Warrant Agreement. The Warrant Agent shall account promptly to the Company with respect to Warrants exercised and concurrently pay to the Company all immediately available funds received by the Warrant Agent for the purchase of the Warrant Stock through the exercise of such Warrants. The Warrant Agent shall, upon request of the Company from time to time, deliver to the Company such complete reports of registered ownership of the Warrants and such complete records or transactions with respect to the Warrants and the shares of Common Stock as the Company may request. The Warrant Agent shall also make available to the Company for inspection by the Company's agents or employees, from time to time as the Company may request, such original books of accounts and records maintained by the Warrant Agent in connection with the issuance and exercise of Warrants hereunder, such inspections to occur at the Warrant Agent's Principal Office. The Warrant Agent shall keep copies of this Warrant Agreement and any notices given or received hereunder available for inspection by the Company or the Holders at the Warrant Agent's Principal Office. The Company shall supply the Warrant Agent from time to time with such numbers of copies of this Warrant Agreement as the Warrant Agent may request. 15. Miscellaneous 15.1. Notice Generally. Any notice, demand, request, consent, approval, declaration, delivery or other communication hereunder to be made pursuant to the provisions of this Warrant Agreement shall be sufficiently given or made if in writing and either delivered in person with receipt acknowledged or sent by registered or 11 15 certified mail, return receipt requested, postage prepaid or by telecopy and confirmed by telecopy answerback, addressed as follows: (a) If to any Holder or holder of Warrant Stock, at its last known address appearing on the warrant register of the Company maintained for such purpose. (b) If to the Company at JPS Textile Group, Inc. 555 North Pleasantburg Drive, Suite 202 Greenville, South Carolina 29607 Attention: David H. Taylor Telecopy Number: (864) 271-9939 (c) If to the Warrant Agent at American Stock Transfer and Trust Company 40 Wall Street New York, New York 10005 Attention: Shareholder Services Telecopy Number: (718) 236-2641 or at such other address as may be substituted by notice given as herein provided. The giving of any notice required hereunder may be waived in writing by the party entitled to receive such notice. Every notice, demand, request, consent, approval, declaration, delivery or other communication hereunder shall be deemed to have been duly given or served on the date on which personally delivered, with receipt acknowledged, telecopied and confirmed by telecopy answerback or three Business Days after the same shall have been deposited in the United States mail, whichever is earlier. Failure or delay in delivering copies of any notice, demand, request, approval, declaration, delivery or other communication to the Person designated above to receive a copy shall in no way adversely affect the effectiveness of such notice, demand, request, approval, declaration, delivery or other communication. 15.2. Successors and Assigns. All covenants and provisions of this Warrant Agreement by or for the benefit of the Company or the Warrant Agent shall bind and inure to the benefit of their respective successors and assigns hereunder. 15.3. Amendment. This Warrant Agreement and the Warrants may only be modified or amended or the provisions hereof and thereof waived with the written consent of the Company, at least 90% of the holders of the then issued and outstanding Common Stock, the Warrant Agent and the Majority Holders, provided that no Warrant may be modified or amended to reduce the number of shares of Common Stock for which such Warrant is exercisable or to increase the price at which such shares may be purchased upon exercise of such Warrant (before giving effect to any adjustment as provided herein and therein) without the prior written consent of the Holder thereof. 15.4. Third-Party Beneficiaries. All covenants and provisions of this Warrant Agreement shall inure to the benefit of each holder from time to time of Common Stock. 15.5. Severability. Wherever possible, each provision of this Warrant Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such 12 16 prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Warrant Agreement. 15.6. Headings. The headings used in this Warrant Agreement are for the convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant Agreement. 15.7. Governing Law. This Warrant Agreement and the Warrants shall be governed by the laws of the State of New York, without regard to the provisions thereof relating to conflict of laws. 15.8. Counterparts. This Warrant Agreement may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument. IN WITNESS WHEREOF, each of the Company and the Warrant Agent has caused this Warrant Agreement to be duly executed by its duly authorized officers as of the date first above written. JPS TEXTILE GROUP, INC. By: /s/ David H. Taylor ------------------------------------ Name: David H. Taylor Title: EVP-Finance & Secretary AMERICAN STOCK TRANSFER AND TRUST COMPANY, as Warrant Agent By: /s/ Carolyn B. O'Neill ------------------------------------ Name: Carolyn B. O'Neill Title: Vice President 13 17 EXHIBIT A JPS TEXTILE GROUP, INC. WARRANT TO PURCHASE COMMON STOCK, PAR VALUE $0.01 PER SHARE, OF JPS TEXTILE GROUP, INC. Warrant Certificate No.: Number of Warrants: CUSIP No. 46624E116 SEE REVERSE FOR CERTAIN DEFINITIONS Exercisable from and after October 9, 1997, until 5:00 p.m., New York City time on October 9, 2000. This Warrant Certificate certifies that , or registered assigns, is the registered holder of the number of Warrants set forth above expiring at 5:00 p.m., New York City time, on October 9, 2000 or, if such date is not a business day, the next succeeding business day (the "Warrants") to purchase Common Stock, par value $0.01 per share (the "Common Stock"), of JPS Textile Group, Inc., a Delaware corporation (the "Company"). The Common Stock issuable upon exercise of Warrants is hereinafter referred to as the "Warrant Stock." Subject to the immediately succeeding paragraph, each Warrant entitles the holder upon exercise to purchase from the Company on or before 5:00 p.m., New York City time, on October 9, 2000 or, if such date is not a business day, the next succeeding business day, one share of Common Stock, subject to adjustment as set forth herein and in the Warrant Agreement dated as of October 9, 1997 (the "Warrant Agreement") by and between the Company and American Stock Transfer and Trust Company, a New York corporation, as warrant agent (the "Warrant Agent"), in whole or in part, at the initial purchase price of $98.76 per share, on and subject to the terms and conditions set forth herein and in the Warrant Agreement. Such purchase shall be payable in lawful money of the United States of America by certified or official bank check or any combination thereof to the order of the Warrant Agent for the account of the Company at the principal office of the Warrant Agent, but only subject to the conditions set forth herein and in the Warrant Agreement. The number of shares of Common Stock for which each Warrant is exercisable, and the price at which such shares may be purchased upon exercise of each Warrant, are subject to adjustment upon the occurrence of certain events as set forth in the Warrant Agreement. Whenever the number of shares of Common Stock for which a Warrant is exercisable, or the price at which a share of such Common Stock may be purchased upon exercise of the Warrants, is adjusted pursuant to the Warrant Agreement, the Company shall cause to be given to each of the registered holders of the Warrants at such holders' addresses appearing on the Warrant register written notice of such adjustment by first class mail postage pre-paid. No Warrant may be exercised before 9:00 a.m., New York City time, on October 9, 1997 or after 5:00 p.m., New York City time, on October 9, 2000 or, if such date is not a business day, the next succeeding business day, and to the extent not exercised by such time such Warrants shall become void. Reference is hereby made to the further provisions of this Warrant Certificate set forth on the reverse side hereof and such further provisions shall for all purposes have the same effect as though fully set forth at this place. This Warrant Certificate shall not be valid unless countersigned by the Warrant Agent. 14 18 THIS WARRANT CERTIFICATE SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE PROVISIONS THEREOF RELATING TO CONFLICT OF LAWS. IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be signed by its President and has caused its corporate seal to be affixed hereunto or imprinted hereon. Dated: (SEAL) Attest: JPS TEXTILE GROUP, INC. By: - ----------------------------- ------------------------------------ Name: Name: Title: Secretary Title: COUNTERSIGNED: American Stock Transfer and Trust Company, as Warrant Agent By: ------------------------------------ Name: Title: 15 19 [FORM OF REVERSE OF WARRANT CERTIFICATE] The Warrants evidenced by this Warrant Certificate are part of a duly authorized issue of up to 526,316 Warrants expiring at 5:00 p.m., New York City time, on October 9, 2000 or, if such date is not a business day, the next succeeding business day, entitling the holder on exercise to purchase shares of Common Stock, par value $0.01 per share, of the Company, and are issued or to be issued pursuant to the Warrant Agreement, which Warrant Agreement is hereby incorporated by reference in and made a part of this instrument and is hereby referred to for a description of the rights, limitation of rights, obligations, duties and immunities thereunder of the Warrant Agent, the Company and the Holders (the words "Holders" or "Holder" meaning the registered holders or registered holder of the Warrants). A copy of the Warrant Agreement may be obtained by the Holder hereof upon written request to the Company. Warrants may be exercised at any time on and after 9:00 a.m., New York City time, on October 9, 1997, and on or before 5:00 p.m., New York City time, on October 9, 2000 or, if such date is not a business day, the next succeeding business day. The Holder of Warrants evidenced by this Warrant Certificate may exercise them by surrendering this Warrant Certificate, with the form of election to purchase set forth hereon properly completed and executed, together with payment of the purchase price by certified or official bank check or any combination thereof to the order of the Warrant Agent for the account of the Company and the other required documentation. In the event that upon any exercise of Warrants evidenced hereby the number of Warrants exercised shall be less than the total number of Warrants evidenced hereby, there shall be issued to the Holder hereof or his assignee a new Warrant Certificate evidencing the number of Warrants not exercised. The Warrant Agreement provides that the number of shares of Common Stock for which each Warrant is exercisable, and the price at which such shares may be purchased upon exercise of each Warrant, are subject to adjustment upon the occurrence of certain events as set forth in the Warrant Agreement. The Company shall not be required to issue any fractional share of Common Stock upon the exercise of any Warrant, but the Company shall round up or down to the nearest share of Common Stock as provided in the Warrant Agreement. Warrant Certificates, when surrendered at the office of the Warrant Agent by the registered Holder thereof in person or by legal representative or attorney duly authorized in writing, may be exchanged, in the manner and subject to the limitations provided in the Warrant Agreement, but without payment of any service charge, for another Warrant Certificate or Warrant Certificates of like tenor evidencing in the aggregate a like number of Warrants. Upon due presentation for registration of transfer of this Warrant Certificate at the office of the Warrant Agent a new Warrant Certificate or Warrant Certificates of like tenor and evidencing in the aggregate a like number of Warrants shall be issued to the transferee in exchange for this Warrant Certificate, subject to the limitations provided in the Warrant Agreement without charge except for any tax imposed in connection therewith. 16 20 [ELECTION TO PURCHASE FORM] [TO BE EXECUTED ONLY UPON EXERCISE OF WARRANT] The undersigned registered owner of this Warrant irrevocably exercises this Warrant for the purchase of Shares of Common Stock of JPS TEXTILE GROUP, INC. and herewith makes payment therefor, all at the price and on the terms and conditions specified in this Warrant and the Warrant Agreement and requests that certificates for the shares of Common Stock hereby purchased (and any securities or other property issuable upon such exercise) be issued in the name of and delivered to whose address is and, if such shares of Common Stock shall not include all of the shares of Common Stock issuable as provided in this Warrant, that a new Warrant of like tenor and date for the balance of the shares of Common Stock issuable hereunder be delivered to the undersigned. ------------------------------------ (Name of Registered Owner) ------------------------------------ (Signature of Registered Owner) ------------------------------------ (Street Address) ------------------------------------ (City) (State)(Zip Code) NOTICE: The signature on this election to purchase must correspond with the name as written upon the face of the within Warrant in every particular, without alteration or enlargement or any change whatsoever. 17 21 [ASSIGNMENT FORM] FOR VALUE RECEIVED the undersigned registered owner of this Warrant hereby sells, assigns and transfers unto the Assignee named below all of the rights of the undersigned under this Warrant, with respect to the number of shares of Common Stock set forth below: NAME AND ADDRESS OF ASSIGNEE NO. OF SHARES OF COMMON - ---------------------------- ----------------------- STOCK - ----- and does hereby irrevocably constitute and appoint attorney-in-fact to register such transfer on the books of JPS TEXTILE GROUP, INC. maintained for the purpose, with full power of substitution in the premises. Dated: Print Name: ----------------------------- ----------------------------- Signature: ------------------------------ Witness: -------------------------------- NOTICE: THE SIGNATURE ON THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF THE WITHIN WARRANT IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER. 18 22 EXHIBIT B AMERICAN STOCK TRANSFER AND TRUST COMPANY AS WARRANT AGENT SCHEDULE OF FEES $375.00 per month 19 EX-27.1 10 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-01-1997 NOV-01-1997 3,888 0 80,622 1,053 44,770 165,312 105,235 681 322,381 83,180 94,891 0 0 100 125,947 322,381 379,643 379,643 327,667 327,667 0 0 32,164 (32,779) (8,822) (23,957) 0 100,235 0 76,278 0 0 JPS Textile Group, Inc. implemented a Plan of Reorganization in Fiscal 1997. Accordingly, the income statement of the Company was presented separately for the Predecessor Company period from November 3, 1996 to October 9, 1997 and the Reorganized Company period from October 10, 1997 to November 1, 1997. The income statement data in this Schedule is for the Predecessor Company period.
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