-----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, AFQdqjxpLy3wuDP/fRpLQXksyL/Q7BJy0He7cBC2NUbpIcXCDisTaEcm4YpO7ooT QQdE6q/uEpR6BDoRxabFCg== 0000950144-99-001896.txt : 19990217 0000950144-99-001896.hdr.sgml : 19990217 ACCESSION NUMBER: 0000950144-99-001896 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19981031 FILED AS OF DATE: 19990216 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-K SEC ACT: SEC FILE NUMBER: 033-27038 FILM NUMBER: 99541815 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-K 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 October 31, 1998 [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from _____ to _____. Commission File Number: 33-27038 JPS TEXTILE GROUP, INC. (Exact name of registrant as specified in its charter) DELAWARE 57-0868166 (STATE OF OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 555 North Pleasantburg Drive, Suite 202, Greenville, SC 29607 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) Registrant's telephone number, including area code: (864) 239-3900 Securities registered pursuant to Section 12(b) of the Act: None. Securities registered pursuant to Section 12(g) of the Act: Common Stock, Par Value $.01 per share, 22,000,000 shares authorized; 10,000,000 shares issued and outstanding Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: [X] Indicate by check mark if disclosure of delinquent filers, pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K: [ ] As of January 29, 1999, the aggregate market value of the Registrant's Common Stock held by non-affiliates, based upon the closing price of the Common Stock on January 29, 1999, as reported by the Nasdaq National Market, was approximately $34,183,830. Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court: [X] As of the date hereof, 10,000,000 of the registrant's Common Stock $.01 par value per share, were issued and outstanding. The Registrant's Definitive Proxy Statement for the Annual Meeting of Stockholders to be held on March 24, 1999 is incorporated by reference in Part III of this Form 10-K to the extent stated herein. 2 JPS TEXTILE GROUP, INC. Table of Contents PART I
Item 1. BUSINESS........................................................................................... 3 Item 2. PROPERTIES......................................................................................... 13 Item 3. LEGAL PROCEEDINGS.................................................................................. 14 Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS................................................. 14 PART II Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS........................................................................ 14 Item 6. SELECTED HISTORICAL FINANCIAL DATA................................................................. 15 Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.......................................................................... 18 Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.......................................... 29 Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA........................................................ 31 Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE................................................................ 64 PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT................................................. 64 Item 11. EXECUTIVE COMPENSATION............................................................................. 64 Item 12. SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT........................................ 64 Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..................................................... 65 Item 14. EXHIBITS, FINANCIAL SCHEDULE AND REPORTS ON FORM 8-K............................................... 65 INDEX TO EXHIBITS.................................................................................. 66 SIGNATURES......................................................................................... 71
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 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") sold substantially all the assets of Carpet used in the business of designing and manufacturing tufted carpets for sale to residential, commercial and hospitality markets (the "Carpet Business") to Gulistan Holdings Inc. ("Gulistan Holdings") and Gulistan Carpet Inc., a wholly-owned subsidiary of Gulistan Holdings Inc. ("Gulistan Carpet" and, together with Gulistan Holdings, "Gulistan"), for approximately $19 million in cash, a promissory note due November 2001 issued by Gulistan Holdings in the original principal amount of $10 million and payable to the order of Carpet, $5 million of preferred stock of Gulistan Holdings, and warrants to purchase 25% of the common stock of Gulistan Holdings (collectively, the "Gulistan Securities"). Due to Gulistan's recurring losses, on August 28, 1997, the Company sold the Gulistan Securities to Gulistan for $2 million in cash. Plant Closing On August 28, 1996, the Company implemented a plan to close its Dunean plant in Greenville, South Carolina, as a result of management's determination that a permanent decline in the Company's spun apparel business had occurred. This plant had been operating on a reduced schedule due to poor market conditions and financial projections indicated it would continue to do so. This plant was closed on October 28, 1996 and sold on August 14, 1997 for approximately $1.2 million in cash. The Rubber Products Group Sale On September 30, 1996, JPS Elastomerics Corp. ("Elastomerics") sold substantially all the assets of the Company's rubber products division, a business engaged in the manufacture and sale of natural and synthetic elastic for use in apparel products, diaper products and specialty industrial applications to Elastomer Technologies Group, Inc. for approximately $5.1 million in cash. THE 1997 RESTRUCTURING As a result of the continued downturn in the apparel fabrics market and various other factors, JPS determined that it would be unable to meet certain debt obligations on its public bonds that would become due commencing in June, 1997. Accordingly, on May 15, 1997, JPS, JPS Capital Corp., a wholly-owned subsidiary of JPS ("JPS Capital") and an unofficial committee (the "Unofficial Bondholder Committee") comprised of institutions that owned, or represented owners that beneficially owned, approximately 60% of the 10.85% Notes, the 10.25% Notes and the 7% Subordinated Debentures (the "Old Debt Securities") reached an agreement in principle on the terms of a restructuring to be accomplished under chapter 11 of the Bankruptcy Code which culminated in a Joint Plan of Reorganization (as amended, the "Plan of Reorganization") proposed by JPS and JPS Capital under chapter 11 of the Bankruptcy Code. Pursuant to a disclosure statement, dated June 25, 1997 (the "Disclosure Statement"), on June 26, 1997, JPS and JPS Capital commenced a prepetition solicitation of votes by the holders of Old Debt Securities and Old Senior Preferred Stock to accept or reject the Plan of Reorganization. Under the Plan of Reorganization, the holders of Old Debt Securities and Old Senior Preferred Stock were the only holders of impaired claims and impaired equity interests entitled to receive a distribution, and therefore, pursuant to section 1126 of the Bankruptcy Code, were the only holders entitled to vote on the -4- 5 Plan of Reorganization. At the conclusion of the 32-day solicitation period, the Plan of Reorganization had been accepted by holders of more than 99% of the Old Debt Securities that voted on the Plan of Reorganization and by holders of 100% of the Old Senior Preferred Stock that voted on the Plan of Reorganization. On August 1, 1997, JPS commenced its voluntary reorganization case under chapter 11 of the Bankruptcy Code in the Bankruptcy Court for the Southern District of New York (the "Bankruptcy Court"), and filed the Plan of Reorganization and the Disclosure Statement. None of JPS's subsidiaries, including JPS Capital which was a co-proponent of the Plan of Reorganization, commenced a case under the Bankruptcy Code. Pursuant to orders of the Bankruptcy Court entered on September 9, 1997, the Bankruptcy Court (i) approved the Disclosure Statement and the solicitation of votes on the Plan of Reorganization and (ii) confirmed the Plan of Reorganization. The Plan of Reorganization became effective on October 9, 1997 (the "Effective Date") resulting in, among other things, the cancellation of the Old Senior Preferred Stock, Old Junior Preferred Stock, and Old Common Stock, and the issuance of 10,000,000 shares of common stock, $.01 par value per share (the "Common Stock"). Through the implementation of the Plan of Reorganization as of the Effective Date, JPS's most significant financial obligations were restructured: $240,091,318 in face amount of outstanding Old Debt Securities were exchanged for, among other things, $14 million in cash, 99.25% of the shares of Common Stock and $34 million in aggregate principal amount (subject to adjustment on the maturity date) of contingent payment notes issued by JPS Capital (the "Contingent Notes"); the Old Senior Preferred Stock, the Old Junior Preferred Stock and the Old Common Stock were canceled; warrants to purchase up to 5% of the common stock of JPS (the "New Warrants") with an initial purchase price of $98.76 per share were issued in respect of the Old Senior Preferred Stock; and the obligations of JPS under its former working capital facility were satisfied and the Revolving Credit Facility was obtained. JPS's senior management received approximately 0.75% of the Common Stock in lieu of payment under their contractual retention bonus agreements. As a result of the restructuring, JPS's only significant debt obligation is its guaranty of the obligations of its operating subsidiaries under the Revolving Credit Facility. The equipment loan contracts, which are long-term obligations of the operating subsidiaries, are not guaranteed by, or otherwise obligations of, JPS. In August 1998, the Company reduced its long-term debt and related investments by repaying all of the approximately $34 million in principal amount of JPS Capital's Contingent Notes. EVENTS OCCURRING SUBSEQUENT TO OCTOBER 31, 1998 The Boger City Asset Sale (Home Fashion Textiles) Pursuant to an Asset Purchase Agreement dated as of January 11, 1999, as amended, JPS Converter and Industrial Corp. has agreed to sell substantially all of the assets of the Company's Boger City Plant located in Lincolnton, North Carolina. This plant is engaged primarily in the manufacture and sale of home fashion textiles and accounted for sales of $33.6 million, $30.9 million and $22.8 million in Fiscal 1996, 1997 and 1998, respectively. The consideration for the sale will consist of approximately $7.9 million in cash, subject to a post-closing adjustment based upon the amount of inventories transferred. A charge of approximately $12.5 million related principally to the loss on impairment of long-lived assets, including related organization value in excess of amounts allocable to identifiable assets, has been included in the results of operations in Fiscal 1998. See discussion under Item 7, "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS." The net proceeds from the sale will be used to reduce the Company's outstanding indebtedness. The closing of the sale of the Boger City Plant is expected to occur early in the Company's 1999 second fiscal quarter. -5- 6 Plant Closing (Apparel Fabrics) On February 10, 1999, the Company announced a plan to close its Angle Plant located in Rocky Mount, Virginia. This plant was engaged primarily in the manufacture and sale of apparel fabrics constructed of filament yarns. A charge of approximately $4.3 million, related principally to the loss on impairment of long-lived assets, including related reorganization value in excess of amounts allocable to identifiable assets, has been included in the results of operations in Fiscal 1998. The Company expects the plant closing to be substantially complete by the end of its 1999 third fiscal quarter. GENERAL The Company is a major U.S. manufacturer of speciality extruded and woven materials for a number of applications and greige goods (unfinished woven fabrics) and yarn principally used in the manufacture of apparel. JPS products are used in a wide range of applications including: commercial and institutional roofing, reservoir and landfill liners and covers, printed circuit boards, advanced composite materials, tarpaulins, awnings, athletic tapes, wallboard tapes and tile backings, security glazing, athletic shoes, as well as medical, automotive and industrial components and in consumer apparel products. As of October 31, 1998, the Company conducted its operations from ten manufacturing plants in five states and employed approximately 3,400 people. After giving effect to the plant sale and plant closure discussed above, the Company will operate eight plants with approximately 2,900 employees. Following are general comments as they relate to each of the Company's segments: Industrial Products The Company is a well-established manufacturer of scrim-reinforced, heat-weldable, single-ply roofing membrane that is sold globally through a network of roofing distributors. The Company offers two roofing products: a Hypalon(R) (chlorosulfonated polyethylene)-based material and a polypropylene-based material. Both products are sold primarily to the CII (commercial, industrial, institutional) industries and are used in both new and retrofit construction. The Company is also a major manufacturer of Environmental Geomembranes that are sold on a global basis. As with the roofing products, the Company offers two geomembrane products: Hypalon(R)-based material and a polypropylene-based material. Geomembranes are sold to a limited number of fabricators/installers, and are used primarily as floating covers and liners for potable water reservoirs, landfill caps, wastewater liners and floating covers and mining heap leach pads. The Company produces specialty substrates woven from fiberglass and other specialty fibers for a variety of applications such as printed circuit boards, flame-retardancy, filtration products, tarpaulins, awnings, athletic tapes, advanced composite materials, building products, defense, aerospace and general industry sectors. In addition, the Company manufactures polyurethane film, sheet, tubing, cord and profile used in athletic, automotive, medical, industrial and consumer products as well as in security glazing applications. Besides single-ply roofing and geomembranes, the Company is also a producer of substrates used for wallboard tape, tile backing, as well as reinforcement for roofing membranes, geomembranes and synthetic wall surfaces. Apparel Fabrics The Company is a leading manufacturer of greige goods (unfinished woven fabrics) and yarn. The Company's products are used in the manufacture of a broad range of consumer apparel products including blouses, dresses and sportswear. -6- 7 The Company produces fabrics from spun and filament yarns that are used ultimately in the manufacture of apparel such as blouses, dresses and sportswear. Greige goods are produced from a variety of fibers, including flax, rayon, acetate, polyester and cotton yarns, and are primarily sold to other textile manufacturers for use in producing printed and dyed fabrics. The Company produces a variety of rayon and polyester spun yarns for its own use and for sale to manufacturers of knitted apparel. On February 10, 1999, the Company announced that it will close a plant principally engaged in the manufacture and sale of apparel fabric. Production from this facility will be absorbed by the remaining apparel fabric plants. Home Fashion Textiles The Company produces a variety of unfinished and loom finished woven fabrics and yarns for use in the manufacture of draperies, curtain and lampshades and is a major producer of solution-dyed drapery fabrics. As discussed above, subsequent to October 31, 1998, the Company has agreed to sell a plant which accounts for a major portion of the home fashion textiles segment and which produces 100% of the unfinished woven fabrics included in this segment. On and after the closing of the sale of the Boger City Plant, the Company's continuing home fashion textiles business will consist primarily of yarn production. SUBSIDIARIES JPS's wholly-owned operating subsidiaries include Elastomerics and C&I. JPS's other wholly-owned subsidiaries do not have any significant operations: JPS Capital, International Fabrics, Inc. ("Fabrics"), Auto and Carpet. JPS business units are managed in three separate groups: Elastomerics, Industrial Fabrics and Apparel Fabrics. The Elastomerics and Industrial Fabrics units comprise the Industrial Products group. The units are held by JPS's wholly-owned Elastomerics and C&I subsidiaries. Each business unit has independent administrative, manufacturing, and marketing capabilities for all material aspects of their operations, including product design, technical development, customer service, purchasing, and collections. JPS's parent company corporate group is responsible for finance, strategic planning, legal, tax and regulatory affairs for its subsidiaries. JPS Capital was formed in 1994 as a special purpose subsidiary to hold (and invest) $39.5 million, representing a portion of the proceeds received from the sale of the assets of JPS's automotive division in June 1994, including the assets of Auto. Prior to the Effective Date, the funds held by JPS Capital aggregated approximately $48 million, of which $14 million was distributed on the Effective Date pursuant to the Plan of Reorganization to holders of certain issues of Old Debt Securities on the Effective Date. In connection with the implementation of the Plan of Reorganization, approximately $34 million in aggregate principal amount of Contingent Notes were issued by JPS Capital on the Effective Date to holders of certain issues of Old Debt Securities. On August 31, 1998, the Company repaid all of the approximately $34 million in principal amount of Contingent Notes. Auto and Carpet formerly owned and operated JPS's automotive products and carpet businesses, respectively. The assets of those businesses were sold in 1994 and 1995, respectively. See "Disposition of Assets; Plant Closing." MANUFACTURING The Company operates ten facilities and will operate eight facilities after the previously described plant sale and plant closure, in five states boasting state-of-the-art manufacturing equipment. The vast majority of JPS equipment is automated and computer controlled for maximum efficiency, cost control and consistency. Following are comments on manufacturing as they relate to each of the Company's segments: -7- 8 Industrial Products Construction products are produced from raw materials, where they are blended to proprietary specifications along with fire-retardant and UV stabilizers and then calendered on state-of-the-art equipment. Polyurethane is extruded in highly automated, computer controlled, blown film and sheet fed extrusion processes from raw urethane resins. Depending on end-uses, some materials are manufactured in clean zone environments. Other industrial products are produced from substrates of fiberglass and synthetic fibers. Apparel Fabrics and Home Fashion Textiles In the manufacture of woven textile products, the Company purchases synthetic and natural fibers and spins them into yarn or purchases filament yarn for processing. In addition, the Company purchases certain spun yarns. Yarns are then coated, sized or directly woven into unfinished fabric. Upon completion of the weaving process, fabrics are generally shipped to customers who dye, finish, coat and cut those fabrics for resale. The Company has a capital spending plan to lower cost and improve productivity and efficiency, as described in "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" included in Item 7 herein. The Company believes that its manufacturing facilities and capital spending plan are sufficient for its production requirements. RAW MATERIALS The Company maintains good relationships with its suppliers and has, where possible, diversified its supplier base so as to avoid a disruption of supply. In most cases, the Company's raw materials are staple goods that are readily available from numerous domestic fiber and chemical manufacturers. For several products, however, branded goods or other circumstances prevent such a diversification, and an interruption of the supply of these raw materials could have a significant negative impact on the Company's ability to produce certain products. The construction products group has negotiated comprehensive supply agreements for all its polymer, chemical and accessory products, with multiple production sites assuring an uninterrupted supply. The urethane products group purchases under contract from all major thermoplastic polyurethane suppliers. The Company believes that its practice of purchasing such items from large, stable companies minimizes the risk of interrupting the supply of raw materials. MARKETING AND COMPETITION The following is a discussion of marketing and competitive factors as they relate to each of the Company's segments: Industrial Products The commercial roofing industry is highly competitive with a number of major participants in all segments of the industry. Many of the Company's competitors are significantly larger in terms of aggregate sales and financial resources. In the specialty segment of the single-ply market where the Company competes, there are more than ten competitors, with the Company having the largest market share in this segment. Due to the success of the Company's EP product line, launched in 1993, management expects continued growth in this sector. The Company markets it products under the "Stevens" brand name using a push-pull strategy; pushing -8- 9 products through distribution to the roofing contractor and pulling products through the market by creating demand for the products on the part of building owners, architects and specifiers. The Company has approximately twenty field sales staff (domestically), as well as a network of independent representatives, distributors and distributor-representatives as its sales force. In addition, the Company operates a sales office in the United Kingdom. Marketing efforts in the roofing industry include (i) new product development to meet changing market demands, (ii) providing proprietary accessory products, (iii) implementing several contractor-specific programs and (iv) a strong marketing communications effort. On the geomembrane side, the Company markets to only a limited number of fabricators/installers. The Company's marketing efforts are focused exclusively on supporting those companies in a variety of ways. The urethane products group also has a strong marketing and sales effort with both direct sales personnel and a nationwide network of independent representatives. The market for polyurethane film and sheet is fairly focused and thus there are only a few competitors for sales in each product segment -- aliphatic and aromatic film and sheet. None of the Company's products are sold "off the shelf," as each application has specific end-use performance requirements. As with the construction products group, marketing efforts in the urethane group include a variety of new product developments to meet changing market demands and a strong marketing communications effort. Other industrial products are marketed directly to other manufacturers and distributors. The Company believes that price and its ability to meet customer technical specifications are important competitive factors. Apparel Fabrics The textile industry is highly competitive and includes a number of participants with aggregate sales and financial resources greater than the Company's. The Company generally competes on the basis of price, quality, design and customer service. Many companies compete in limited segments of the textile market. In recent years, a large and growing percentage of domestic consumer apparel demand has been met by foreign competitors whose products, both fabrics and garments, are imported into the United States. The Company is well-positioned due to its ability to respond quickly to changing styling and fashion trends. This ability generally provides advantages for domestic textile manufacturers. Although no single company dominates the industry, most market segments are dominated by a small number of competitors. The Company believes it has a significant market share in the market for rayon and acetate apparel fabrics, rayon yarn and solution-dyed satin fabrics. The Company's marketing efforts include the development of new product designs and styles which meet customer needs. The Company's operating units have been established suppliers to each of its markets for many years and are taking advantage of well-established customer relationships to increase product development with its customers. The "J.P. Stevens" trade name, which the Company has a non-exclusive, royalty-free license to use until May 2013 (see "Patents, Licenses and Trademarks" below), is widely recognized. The Company believes that its relatively broad base of manufacturing operations provides it with a competitive advantage in developing new textile products. In addition to its direct marketing capabilities, the Company markets certain of its products through distributors. The Company markets its spun and filament fabrics to converters who finish and/or dye these products prior to shipping to finished apparel manufacturers. The Company has sought to maintain a relatively high proportion of such sales in product areas where its manufacturing flexibility can provide a competitive advantage. -9- 10 Regarding yarn sales, the Company competes with a large number of companies which sell yarn to woven and knit goods manufacturers. Yarns are generally sold on a direct basis, and the Company believes that quality and price are the primary competitive factors. Home Fashion Textiles Effective with the sale of its Boger City Plant as discussed above, the Company will exit a major portion of its home fashion textiles business. The remaining business will consist solely of yarn sales. As discussed above, yarns are generally sold on a direct basis, and the Company believes that quality and price are the primary competitive factors. CUSTOMERS No customer accounts for more than 10% of the Company's sales. However, the loss of certain customers could have a material adverse effect on sales. PRODUCT DEVELOPMENT The following is a discussion of product development as it relates to each of the Company's segments: Industrial Products On-going product development activities include a constant evaluation of new advanced polymers and polymer compounds, as well as the evaluation and analysis of material additives required in the manufacture of commercial roofing products, geomembranes and thermoplastic polyurethane. As appropriate, additives are required to ensure long-term UV stability, fire or chemical resistance or to ensure that a specific product can be used in contact with drinking water. For its roofing products, the Company continues to develop advanced material products that meet fire, wind and other building code requirements on a global basis. Such building codes vary from country to country, even regionally, presenting a challenge to the manufacturer. Geomembranes must also meet stringent code requirements of several countries, particularly when used in potable water reservoirs. Polyurethane film and sheet materials are not available in "off the shelf" configurations. The Company offers both aliphatic and aromatic polyurethane products. Aliphatic, which is used in glass clad polycarbonate laminates for security glazing applications, is extruded in a clean zone environment to ensure maximum product cleanliness. Aromatic materials are extruded by blown film and flat sheet fed technologies. The Company spends a considerable amount of R&D effort to develop material additives that enable end products to be more fire resistant, more breathable, more permeable, etc. In addition, the Company must provide specific surface finishes and textures that may be required for end-use applications. Other industrial R&D efforts include silane finishes for quartz reinforced laminates, alkali resistant meshes for exterior Insulation Facing Systems, and finish additives that enhance the flex life of filtration bags and enable end products to meet higher temperature requirements. In 1998, a new Technical Services Center was established at the Slater facility for renewed emphasis on new products and processes. -10- 11 Apparel Fabrics and Home Fashion Textiles In general, the textile industry expends its efforts on design innovation and capital expenditures for process enhancements rather than on basic research, relying on fiber suppliers or machinery manufacturers for basic research. The Company's research and development activities are directed toward the development of new fabrics and styles which meet specific styling requirements. Significant time is spent by employees in activities such as meeting with stylists, designers, customers, suppliers and machinery manufacturers, as well as producing samples and running trials in order to develop new products and markets. These activities are performed at various levels and at various locations, and their specifically identifiable incremental costs are not material in relation to the Company's total operating costs. BACKLOG Unfilled open orders, which the Company believes are firm, were $38.5 million at October 31, 1998 and $73.3 million at November 1, 1997. The Company generally fills its open orders in the following fiscal year and the Company expects that all of the open orders as of October 31, 1998 will be filled in the 52-week period ending October 30, 1999 ("Fiscal 1999"). Unfilled open orders, which the Company believes are firm, were approximately $38.8 million at December 31, 1998 compared to $62.9 million at December 31, 1997. The decrease in open orders at December 31, 1998 as compared to December 31, 1997 is primarily due to a decrease in customer demand for apparel fabrics and is representative of a change in the timing of orders given to the Company creating shorter lead times from order to delivery due to customers managing their inventory exposure. The Company believes that the amount of backlog provides some indication of the sales volume that can be expected in coming months, although changes in economic conditions may result in deferral or acceleration of orders which may affect sales volume for a period. No significant portion of the Company's business is subject to renegotiation of profits, or termination of contracts or subcontracts at the election of the government. PATENTS, LICENSES AND TRADEMARKS The following is a discussion of patent licenses and trademarks as they relate to each of the Company's segments: Industrial Products Products, such as commercial roofing, geomembranes and polyurethane, are marketed under the "Stevens" brand name. As such, the Company is in the process of securing trademarks for the following names: Stevens Roofing Systems, Stevens EP, Stevens Hypalon, Stevens Walkway Roll, Stevens Geomembranes and Stevens Urethane. In addition, the Company currently holds trademarks on the names Hi-Tuff, Hi-Tuff/EP and Hi-Tuff/Hypalon in Europe and in Asia. In terms of product licensing, the Company is currently involved with two manufacturing licensees: Tsutsunaka Plastics Industries ("TPI") of Japan and Protan A/S of Norway. The Company has licensed roofing technology to Protan for manufacturing and marketing TPO-based roofing products in the Scandinavian countries. In addition, Stevens roofing and geomembrane compound and manufacturing technologies have been licensed to TPI for the production of membranes in Japan. -11- 12 A total of three patents and thirty trademarks are secured or in the process of being secured by the Company on other industrial businesses. These include, but are not limited to: alkali resistant meshes for Exterior Insulation Facing Systems trademarked under the names of Versaflex, Duraflex, Ultraflex and Standardflex; filtration products trademarked under the names AcidGuard and Ultraflex; and substrates meeting high temperature requirements trademarked under the name Tempratex. Apparel Fabrics and Home Fashion Textiles Certain products are sold under registered trademarks which have been licensed royalty-free to the Company from J.P. Stevens until May 2013, including trademarks for certain products using the "J.P. Stevens" name. Patented processes used in the manufacturing process are not a significant part of these segments. The segments do not license their name or products to others except for the licenses of certain trade names granted royalty free to operations that the Company has sold. EMPLOYEES As of October 31, 1998, the Company had approximately 3,400 employees of which approximately 2,900 were hourly and approximately 500 were salaried. After giving effect to the plant sale and plant closure discussed above, the Company will have approximately 2,900 employees of which approximately 2,500 will be hourly and approximately 400 will be salaried. The Company's employees are not represented by unions. The Company believes its relations with its employees to be good and has not had any work stoppages or strikes. ENVIRONMENTAL AND REGULATORY MATTERS The Company is subject to various federal, state and local government laws and regulations concerning, among other things, the discharge, storage, handling and disposal of a variety of hazardous and non-hazardous substances and wastes. The Company's plants generate small quantities of hazardous waste that are either recycled or disposed of off-site by or at licensed disposal or treatment facilities. The Company believes that it is in substantial compliance with all existing environmental laws and regulations to which it is subject. In addition, the Company is subject to liability under environmental laws relating to the past release or disposal of hazardous materials. To date, and in management's belief for the foreseeable future, liability under and compliance with existing environmental laws has not had and will not have a material adverse effect on the Company's financial or competitive positions. No representation or assurance can be made, however, that any change in federal, state or local requirements or the discovery of unknown problems or conditions will not require substantial expenditures by the Company. SEASONALITY Certain portions of the business of the Company are seasonal (principally construction products) and sales of these products tend to decline during winter months in correlation with construction activity. These declines have historically tended to result in lower sales and operating profits in the first and second quarters than in the third and fourth quarters of the Company's fiscal year. An increasing emphasis on export sales has mitigated some of the seasonality in the construction products business. WORKING CAPITAL Information regarding the Company's working capital position and practices is set forth in Item 7 of this Form 10-K under the caption "Liquidity and Capital Resources." -12- 13 Financial information for the Industrial Products, Apparel Fabrics and Home Fashion Textiles industry segments is set forth in Note 13 to the Consolidated Financial Statements included in Item 8 herein. PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 The statements contained in this Item 1 "BUSINESS" and Item 7 "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" that are not historical facts are forward-looking statements subject to the safe harbor created by the Private Securities Litigation Reform Act of 1995. The Company cautions readers of this Annual Report on Form 10-K that a number of important factors could cause the Company's actual results in Fiscal 1999 and beyond to differ materially from those expressed in any such forward-looking statements. These factors include, without limitation, the general economic and business conditions affecting the textile industry, the Company's ability to meet its debt service obligations, competition from a variety of large textile mills and foreign textile manufacturers which export to the U.S., the seasonality of the Company's sales, the volatility of the Company's raw materials cost and the Company's dependence on key personnel. ITEM 2. PROPERTIES. The following table sets forth certain information relating to the Company's principal facilities (segment information relates to principal use). All of the facilities owned or leased by the Company are used for manufacturing, except for the facility in New York, New York, which is used for sales offices. Except as noted, all of the Company's facilities are owned in fee and substantially all owned facilities are pledged as collateral for the Company's bank financing arrangement.
Square Square Location Footage Location Footage -------- ------- -------- ------- Apparel Fabrics Industrial 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 88,000 (1) All Segments Home Fashion Textiles ------------ --------------------- New York, NY (3) 10,000 Lincolnton, NC 387,000 (2)
(1) Subsequent to October 31, 1998, the Company announced it would close this facility in Fiscal 1999. See discussion under Item 7, "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS." (2) Subsequent to October 31, 1998, the Company entered into an agreement to sell this facility. See discussion under Item 7, "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS." (3) The New York, NY facility is leased by the Company under a lease agreement which expires on May 30, 1999. -13- 14 The Company also leases certain other warehouse facilities, various regional sales offices, a subsidiary's corporate office and its corporate headquarters. The Company believes that all of its facilities are suitable and adequate for the current and anticipated conduct of its operations. ITEM 3. LEGAL PROCEEDINGS. The Company is a party to lawsuits in the normal course of its business. The Company believes that it has meritorious defenses in all lawsuits in which the Company or its subsidiaries is a defendant. Except as discussed below, management believes that none of this litigation, if determined unfavorable to the Company, would have a material adverse effect on the financial condition or results of operations of the Company. In June 1997, Sears Roebuck and Co. ("Sears") filed a multi-count complaint, in the Circuit Court of Cook County, Illinois (Case No. 97C8586), against Elastomerics and two other defendants alleging an unspecified amount of damages in connection with the alleged premature deterioration of the Company's roofing membrane installed on approximately 150 Sears stores. No trial date has been established. The Company believes it has meritorious defenses to the claims and intends to defend the lawsuit vigorously. Management, however, cannot determine the outcome of the lawsuit or estimate the range of loss, if any, that may occur. An unfavorable resolution of the actions could have a material adverse effect on the business, results of operations or financial condition of the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS. No matters were submitted to a vote of securityholders during the fourth quarter of Fiscal 1998. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. On October 9, 1997 (the Effective Date of the Plan of Reorganization proposed by JPS and JPS Capital and confirmed by order of the Bankruptcy Court entered on September 9, 1997), 10,000,000 shares of Common Stock, par value of $.01 per share, of JPS and warrants to purchase up to 526,316 shares of common stock of JPS at an initial purchase price of $98.76 per share were issued by JPS and distributed pursuant to the Plan of Reorganization. The Common Stock of the Company was approved for listing and trading on the Nasdaq National Market System under the stock symbol "JPST", effective January 30, 1998. Prior to that time, there was only sporadic trading of the Common Stock in the over-the-counter market. The following table presents the high and low sales prices for the Common Stock for each full quarterly period since the Common Stock became eligible for trading on Nasdaq. FISCAL 1998 HIGH LOW ----------- ---- --- Second Quarter $13 3/8 $11 3/4 Third Quarter 14 1/2 11 1/2 Fourth Quarter 13 3 3/4 As of January 29, 1999, there were approximately nine holders of record of the Company's Common Stock. -14- 15 The Company has never paid a dividend on its Common Stock. The Company presently intends to retain earnings to fund working capital and for general corporate purposes, and, therefore, does not intend to pay cash dividends on shares of the Common Stock in the foreseeable future. The payment of future cash dividends, if any, would be made only from assets legally available therefor, and would also depend on the Company's financial condition, results of operations, current and anticipated capital requirements, restrictions under then existing indebtedness (including, without limitation, indebtedness evidenced by the Revolving Credit Facility (as defined below) and refundings and refinancings thereof) and other factors deemed relevant by JPS's Board of Directors. The Company's ability to pay cash dividends is dependent on its earnings and cash flow. The subsidiaries that are borrowers under certain credit agreements are restricted from paying cash dividends to JPS with respect to their capital stock unless, among other things, JPS and its subsidiaries satisfy certain specified financial tests. ITEM 6. SELECTED HISTORICAL FINANCIAL DATA. (Dollars in Thousands Except Per Share Data) The following table presents selected consolidated historical financial data for the Company as of the dates and for the fiscal years or periods indicated. The selected historical financial data for each of the three years ended November 2, 1996, the period from November 3, 1996 to October 9, 1997, the period from October 10, 1997 to November 1, 1997 and the year ended October 31, 1998 have been derived from the Consolidated Financial Statements of the Company for such periods, which have been audited. The presentation of certain previously reported amounts has been reclassified to conform to the current presentation and to reflect discontinued operations of the automotive assets (sold in 1994) and the Carpet Business (sold on November 16, 1995) as discussed in Note 3 to the Consolidated Financial Statements of the Company at Item 8 in this Form 10-K. The financial statements for the period from October 10, 1997 to November 1, 1997 and for the year ended October 31, 1998 reflect the Company's emergence from chapter 11 and were prepared utilizing the principles of fresh start accounting contained in the American Institute of Certified Public Accountants' Statement of Position 90-7, "Financial Reporting by Entities in Reorganization Under the Bankruptcy Code". As a result of the implementation of fresh start accounting, certain of the selected financial data for the period from October 10, 1997 to November 1, 1997 and for the year ended October 31, 1998 is not comparable to the selected financial data of prior periods. Therefore, selected financial data for the "Reorganized Company" has been separately identified from that of the "Predecessor Company". The following information should be read in conjunction with the Consolidated Financial Statements of the Company and Notes thereto, and "Management's Discussion and Analysis of Financial Conditions and Results of Operations" presented elsewhere herein. -15- 16
Predecessor Company ----------------------------------------------------- Reorganized Company | -------------------------- Fiscal Year Ended | Fiscal Year --------------------------------------- Period from | Period from Ended 10/29/94 10/28/95 11/2/96 11/3/96 | 10/10/97 10/31/98 (52 Weeks) (52 Weeks) (53 Weeks) to 10/9/97 | to 11/1/97 (52 Weeks) ---------- ---------- ---------- ---------- | ---------- ---------- | INCOME STATEMENT DATA: | Net sales $ 461,871 $ 472,565 $ 448,824 $ 379,643 | $ 38,728 $ 389,218 Cost of sales 397,921 406,070 397,804 327,667 | 31,058 331,473 ----------- ----------- ----------- ----------- | ------------ ------------ Gross profit 63,950 66,495 51,020 51,976 | 7,670 57,745 Selling, general and | administrative expenses 39,805 39,586 40,579 37,146 | 2,466 40,190 Other income (expense), net (2,914) (6,248) (2,498) (622)| 11 (54) Charges for plant closing, loss on | sale of certain operations, write- | down of certain long-lived assets | and restructuring costs -- -- (30,028) 574 | -- (19,245) ----------- ----------- ----------- ----------- | ------------ ------------ Operating profit (loss) 21,231 20,661 (22,085) 14,782 | 5,215 (1,744) Valuation allowance on | Gulistan securities -- -- (4,242) (5,070)| -- -- Interest income 749 2,821 2,856 2,744 | 93 1,038 Interest expense (55,570) (39,946) (40,510) (32,164)| (584) (8,592) ----------- ----------- ----------- ----------- | ------------ ------------ Income (loss) before | reorganization items, income | taxes, discontinued operations, | extraordinary items and | cumulative effects of | accounting changes (3) (33,590) (16,464) (63,981) (19,708)| 4,724 (9,298) Reorganization items: | Fair-value adjustments -- -- -- (4,651)| -- -- Professional fees and | expenses -- -- (2,255) (8,420)| -- -- ----------- ----------- ----------- ----------- | ------------ ------------ Income (loss) before income taxes, | discontinued operations, | extraordinary items and | cumulative effects of | accounting changes (33,590) (16,464) (66,236) (32,779)| 4,724 (9,298) Income taxes (benefit) 2,800 1,200 (300) (8,822)| 2,007 1,366 ----------- ----------- ----------- ----------- | ------------ ------------ Income (loss) before discontinued | operations, extraordinary | items and cumulative effects | of accounting changes (36,390) (17,664) (65,936) (23,957)| 2,717 (10,664) Discontinued operations, | net of taxes: | Income (loss) from | discontinued operations 23,628 (7,079) -- -- | -- -- Net gain (loss) on sale of | discontinued operations 132,966 (26,241) (1,500) -- | -- -- Extraordinary gain (loss) on | early extinguishment of debt (7,410) 20,120 -- 100,235 | -- -- Cumulative effects of accounting | changes, net of taxes (708) -- -- -- | -- -- ----------- ----------- ----------- ----------- | ------------ ------------ Net income (loss) $ 112,086 $ (30,864) $ (67,436) $ 76,278 | $ 2,717 $ (10,664) =========== =========== =========== =========== | ============ ============ Income (loss) applicable to | common stock $ 108,753 $ (34,695) $ (71,941) $ 72,451 | $ 2,717 $ (10,664) =========== =========== =========== =========== | ============ ============ Weighted average number | of shares outstanding(1) 1,000,000 1,000,000 1,000,000 1,000,000 | 10,000,000 10,000,000 =========== =========== =========== =========== | ============ ============
-16- 17
Predecessor Company Reorganized Company --------------------------------------------------- | ------------------------ Fiscal Year Ended | Fiscal Year -------------------------------------- Period from | Period from Ended 10/29/94 10/28/95 11/2/96 11/3/96 | 10/10/97 10/31/98 (52 Weeks) (52 Weeks) (53 Weeks) to 10/9/97 | to 11/1/97 (52 Weeks) ---------- ---------- ---------- ----------- | ----------- ----------- | INCOME STATEMENT DATA: | Basic and diluted earnings (loss) | per common share: (1) | Income (loss) before discontinued | operations, extraordinary items | and cumulative effects of | accounting changes $ (39.73) $ (21.50) $ (70.44) $ (27.79) | $ 0.27 $ (1.07) Discontinued operations, net of | taxes: | Income (loss) from discontinued | operations 23.63 (7.08) -- -- | -- -- Net gain (loss) on sale of | discontinued operations 132.97 (26.24) (1.50) -- | -- -- Extraordinary gain (loss), net of | taxes (7.41) 20.12 -- 100.24 | -- -- Cumulative effects of accounting | changes, net of taxes (0.71) -- -- -- | -- -- --------- --------- -------- -------- | ------ ------- Net income (loss) $ 108.75 $ (34.70) $ (71.94) $ 72.45 | $ 0.27 $ (1.07) ========= ========= ======== ======== | ====== =======
10/29/94 10/28/95 11/2/96 11/1/97 10/31/98 -------- -------- ------- ------- -------- BALANCE SHEET DATA: Working capital, excluding net assets held for sale $ 65,855 $ 72,670 $(257,866)(2) $ 82,132 $ 81,177 Total assets 452,811 412,822 335,927 322,381 272,922 Total long-term debt, less current portion 335,472 327,668 4,226 (2) 94,891 99,089 Senior redeemable preferred stock 24,340 28,171 32,676 -- -- Shareholders' equity (deficit) (2,350) (37,045) (108,986) 126,047 109,528
(1) In accordance with the provisions of SFAS No. 128, the presentation of earnings per share data for all periods presented has been restated to conform to SFAS No. 128. (2) All of the Company's senior credit facility revolving line of credit and all of the Company's subordinated notes and debentures are classified as current liabilities as of November 2, 1996. (3) The following non-cash charges have been included in the determination of income (loss) before reorganization items, income taxes, discontinued operations, extraordinary items and cumulative effects of accounting changes for the periods shown above:
Predecessor Company Reorganized Company ------------------------------------------------- | -------------------------------- Fiscal Year Ended | ------------------------------------ Period from | Period from Fiscal Year Ended 10/29/94 10/28/95 11/2/96 11/3/96 | 10/10/97 10/31/98 (52 Weeks) (52 Weeks) (53 Weeks ) to 10/9/97 | to 11/1/97 (52 Weeks) ---------- ---------- ----------- ---------- | ---------- ---------- | Certain non-cash charges to income: | Depreciation $22,242 $20,820 $21,756 $16,986 | $ 681 $10,189 Amortization of goodwill | and other 964 965 983 894 | 165 2,273 Product liability charge -- 5,000 -- -- | -- -- Plant closing, loss on sale of | certain operations, writedown | of certain long-lived assets | and restructuring costs -- -- 17,554 -- | -- 19,245 Early retirement offer -- -- 1,125 -- | -- -- Valuation allowance on | Gulistan securities -- -- 4,242 5,070 | -- -- Other non-cash charges to income 131 371 769 1,092 | 127 533 Non-cash interest 11,161 8,818 10,088 7,303 | 20 329 ------- ------- ------- ------- | ------- ------- $34,498 $35,974 $56,517 $31,345 | $ 993 $32,569 ======= ======= ======= ======= | ======= =======
-17- 18 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. On October 9, 1997, JPS consummated a Plan of Reorganization as discussed in Item 1 herein under the caption "The 1997 Restructuring". The following discussion should be read in conjunction with Item 1 and with the Consolidated Financial Statements of the Company and the Notes thereto included in Item 8 herein.
Pro Forma(9) Predecessor Company | ---------------------------- Reorganized Company(4) ------------------------------- | (Unaudited) ----------------------------- Fiscal Year Period From | Fiscal Year Ended Period from Fiscal Year Ended 11/3/96 | ---------------------------- 10/10/97 Ended 11/2/96 to 10/9/97 | 11/2/96 11/1/97 to 11/1/97 10/31/98 ----------- ----------- | ----------- ----------- ------------ ----------- | NET SALES | Industrial products $ 193,001 $ 179,434 | $ 193,001 $ 197,281 $ 17,847 $ 189,658 Apparel fabrics 221,799 167,070 | 221,799 185,660 18,590 170,877 Home fashion textiles 34,024 33,139 | 34,024 35,430 2,291 28,683 ----------- ----------- | ----------- ----------- ---------- ----------- $ 448,824 $ 379,643 | $ 448,824 $ 418,371 $ 38,728 $ 389,218 =========== =========== | =========== =========== ========== =========== OPERATING PROFIT | (LOSS) | Industrial products $ 5,947 (2) $ 16,748 | $ 8,752 (2) $ 21,241 $ 2,652 $ 16,275 (5) Apparel fabrics (22,422)(3) 1,210 | (15,063)(3) 9,253 2,201 2,274 (6) Home fashion textiles 647 976 | 1,791 2,980 693 (7,689)(7) Indirect corporate | expenses, net (6,257) (4,152)| (7,611) (5,728) (331) (12,604)(8) ----------- ----------- | ----------- ----------- ---------- ----------- Operating Profit (Loss) (22,085) 14,782 | (12,131) 27,746 5,215 (1,744) Valuation allowance on | Gulistan securities (4,242) (5,070)| -- -- -- -- Interest income 2,856 2,744 | 1,130 1,192 93 1,038 Interest expense (40,510) (32,164)| (8,561) (8.676) (584) (8,592) ----------- ----------- | ----------- ----------- ---------- ----------- Income (loss) before | reorganization items, | income taxes, | discontinued operations | and extraordinary | items $ (63,981) $ (19,708)| $ (19,562) $ 20,262 $ 4,724 $ (9,298) =========== =========== | =========== =========== ========== =========== | OTHER DATA | | EBITDA(1) | Industrial products $ 22,207 $ 22,002 | $ 20,890 $ 24,743 $ 2,935 $ 21,307 Apparel fabrics 10,574 10,046 | 12,154 13,151 2,498 11,328 Home fashion textiles 3,164 3,514 | 3,199 4,236 792 845 Indirect corporate | expenses, net (6,393) (11,470)| (4,173) (3,415) (165) (3,517) ----------- ----------- | ----------- ----------- ---------- ----------- Total EBITDA $ 29,552 $ 24,092 | $ 32,070 $ 38,715 $ 6,060 $ 29,963 =========== =========== | =========== =========== ========== ===========
(1) EBITDA represents operating income plus depreciation, amortization and certain other charges (credits) aggregating approximately $30.0 million, ( $0.6 million) and $19.2 million in Fiscal 1996, the period from November 3, 1996 to October 9, 1997, and Fiscal 1998, respectively. These other charges (credits) represent the "plant closing, loss on sale of certain operations, writedown of certain long-lived assets and restructuring costs" as presented separately in the Consolidated Financial Statements of the Company and Notes thereto, and in Item 6, "Selected Historical Financial Data" presented elsewhere herein. EBITDA as determined by the Company may not be comparable to the EBITDA measure as reported by other companies. This presentation of EBITDA is not intended to represent cash flow from operations as defined by GAAP and should not be considered as an indicator of operating performance or an alternative to cash flow or operating income (as measured by GAAP) or as a measure of liquidity. In addition, this measure does not represent -18- 19 funds available for discretionary use. It is included herein to provide additional information with respect to ability of the Company to meet its future debt service, capital expenditures and working capital requirements. (2) The Fiscal 1996 operating profit for industrial products includes charges of approximately $8.1 million for writedown of certain long-lived assets and $1.5 million for loss on sale of certain operations (3) The Fiscal 1996 operating loss for apparel fabrics includes charges of approximately $14.2 million for plant closing and $6.2 million for loss on sale of certain operations. (4) The financial statements for the period from October 10, 1997 to November 1, 1997 and the year ended October 31, 1998 reflect the Company's emergence from chapter 11 and were prepared utilizing the principles of fresh start reporting contained in the American Institute of Certified Public Accountants' Statement of Position 90-7, "Financial Reporting by Entities in Reorganization Under the Bankruptcy Code." As a result of the implementation of fresh start accounting, the financial information for the period from October 10, 1997 to November 1, 1997 and the year ended October 31, 1998 is not comparable to the financial information of prior periods. (5) The Fiscal 1998 operating profit for industrial products includes charges of approximately $0.7 million for writedown of certain long-lived assets. (6) The Fiscal 1998 operating profit for apparel fabrics includes charges of approximately $3.7 million for writedown of certain long-lived assets and approximately $0.7 million for certain restructuring costs. (7) The Fiscal 1998 operating loss for home fashion textiles includes charges of approximately $7.2 million for writedown of certain long-lived assets. (8) The Fiscal 1998 operating loss related to indirect corporate expenses includes charges of approximately $6.9 million for writedown of certain long-lived assets (excess reorganization costs). (9) The pro forma financial information was prepared for comparison purposes and gives effect to the Plan of Reorganization as if the transactions had occurred on October 29, 1995 (for Fiscal 1996) and November 3, 1996 (for Fiscal 1997). The unaudited pro forma financial information was derived by adjusting the historical consolidated financial statements of the Company for the effects of fresh start accounting as described in Note 1 to the Consolidated Financial Statements included in Item 8 herein. Such adjustments primarily relate to decreased depreciation expense resulting from revaluation of the Company's fixed assets, decreased interest expense resulting from extinguishment of Old Debt Securities in the reorganization, increased amortization resulting from reorganization value in excess of amounts allocable to identifiable assets and the elimination of reorganization items, and their related tax effects. This pro forma information is provided for informational purposes only and should not be construed to be indicative of the results of operations of the Company had the transactions been consummated on the respective dates indicated and are not intended to be predictive of the results of operations of the Company for any future period. RESULTS OF OPERATIONS The financial statements for the periods subsequent to the consummation of the Plan of Reorganization (period from October 10, 1997 to November 1, 1997 and Fiscal 1998) were prepared under the principles of fresh start reporting for companies emerging from a plan of reorganization and are not comparable to prior periods. The Company believes that the most meaningful comparisons to Fiscal 1998 are made using the pro forma financial information (for Fiscal 1996 and 1997) and therefore this discussion addresses such pro forma information. GENERAL COMMENTS Fiscal 1998 was a disappointing year financially; however, the Company continued to reposition itself as a diversified industrial and speciality products company. Recently, the Company announced several important actions which should improve profitability in Fiscal 1999 and beyond, and reinforce plans to pursue profitable growth strategies globally in industrial products, while continuing to streamline the apparel and yarn businesses. -19- 20 With sales growth in each of the product segments through the first half of the year and continued implementation of capacity expansion and cost reduction programs in manufacturing facilities, the Company was optimistic that growth targets for the year would be achieved. In the last half of the year, however, global economic issues, adverse market conditions in electronic products and circuit boards and athletic footwear, and the continued negative impact of imported apparel fabrics, contributed to declining sales across all of the segments and margin contraction. Based on a rigorous assessment of product lines, market positions and opportunities for profitable growth, the Company recently announced two strategic initiatives. One is to close the Angle Plant (Apparel Fabrics) and consolidate its operations into the more modern and versatile plant in South Boston, Virginia. The second initiative is to sell the Boger City Plant, which generates a majority of the Company's home fashion textiles business. The sale of the Boger City Plant should close early in the second fiscal quarter of 1999. Additionally, Company-wide cost reduction measures were also implemented at the beginning of Fiscal 1999, which included the elimination of certain jobs at projected annualized savings of $1.3 million. The Company's focus for the remainder of Fiscal 1999 and the next several years remains to continue its leadership position as a manufacturer of industrial products, to continue to improve the efficiency and capacity of manufacturing facilities, to bring to market innovative new products and to expand the industrial products business globally. FISCAL 1998 COMPARED TO FISCAL 1997 (PRO FORMA) Consolidated net sales decreased $29.2 million, or 7.0%, from $418.4 million in Fiscal 1997 to $389.2 million in Fiscal 1998. Operating income (loss) decreased $29.4 million from a pro forma operating profit of $27.7 million in Fiscal 1997 to an operating loss of $1.7 million in Fiscal 1998. Fiscal 1998 results include charges for loss on writedown of certain long-lived assets and certain restructuring charges which totaled approximately $19.2 million. Excluding such charges for comparative purposes, operating profit in Fiscal 1998 was $17.5 million compared to pro forma operating profit of $27.7 million in Fiscal 1997. At the end of Fiscal 1998, the Company implemented cost reduction measures, which included the elimination of certain jobs, resulting in projected future annual savings of approximately $1.3 million. Net sales in Fiscal 1998 in the industrial products segment, which includes single-ply roofing and environmental membrane, woven substrates constructed of cotton, synthetics and fiberglass for lamination, insulation and filtration applications and extruded urethane products decreased $7.6 million, or 3.9%, to $189.7 million from $197.3 million in Fiscal 1997. Sales of fiberglass products decreased $1.9 million in Fiscal 1998. The electronics industry represents the largest customer segment for the Company's fiberglass products. Global consumer demand for electronic products did not meet expectations and, combined with other factors, including the weakness in Asian economies, led to a slowdown in demand for certain fiberglass products used in the manufacture of electrical circuit boards. Management expects that demand for its fiberglass products will recover and continue to grow in the future, but such resumed growth depends, to some extent, on the timing and strength of a recovery of growth in global consumer demand for electronic products. In Fiscal 1998, the Company completed its capacity expansion and modernization program which it believes will contribute to lower costs and higher productivity in the future. In view of this market softness, the Company has taken a number of steps to improve capacity utilization including finalizing arrangements with its largest customers to purchase greater quantities of the Company's production. These aggressive marketing efforts, combined with the Company's reputation for quality and service, have increased the Company's market opportunities and enhanced its prospects for future growth. Net sales of roofing membrane increased $0.3 million in Fiscal 1998. The domestic roofing market in Fiscal 1998 was characterized by intense competition and market consolidation as growth rates receded from the double-digit levels of the mid-1990's. New and aggressive competitors in the Company's market niches have presented additional challenges for growth. The Company is addressing those challenges through aggressive pricing strategies, which are supported by lower -20- 21 manufacturing costs, and strengthening sales management in certain key territories where such threats are most apparent. Sales of urethane products decreased $3.5 million in Fiscal 1998, as a result of the decline in demand for certain of the Company's products used in the manufacture of athletic footwear. The athletic footwear industry has been depressed as a result of shifting consumer preference in casual footwear. However, the Company has initiated an aggressive marketing campaign of new product introduction to help offset the loss of sales of athletic footwear. Sales of liner membrane decreased $1.0 million in Fiscal 1998 due to declining unit volumes. Sales of cotton industrial products decreased $0.4 million in Fiscal 1998 due to declining unit volume and unit selling prices. Operating profit in Fiscal 1998 for the industrial products segment decreased $4.9 million from pro forma operating profit of $21.2 million in Fiscal 1997 to operating profit of $16.3 million in Fiscal 1998. Fiscal 1998 included charges for writedown of certain long-lived assets of approximately $0.7 million. Excluding the effects of such charges, operating profit decreased by $4.2 million. Lower unit prices for fiberglass products and lower unit sales in many of the industrial product groups caused the decline. The Company believes that through a series of customer agreements and other marketing improvements, future sales of industrial products will be improved. However, price pressure is expected to continue in the foreseeable future, but will be mitigated to some degree through improvements in manufacturing efficiencies related to capital expenditures, lower raw material costs and an improved product mix. Net sales of apparel fabrics, which include unfinished woven apparel fabrics (greige goods) and yarn primarily for women's wear, decreased $14.8 million, or 8.0%, from $185.7 million in Fiscal 1997 to $170.9 million in Fiscal 1998. Market conditions for apparel fabrics constructed primarily of filament yarn weakened during Fiscal 1998 producing unit volumes and average reduced selling prices well below prior-year levels. Apparel imports and shifting consumer preference in women's apparel reduced demand for domestically produced fabrics and resulted in an over-produced market. In addition, apparel manufacturers substituted lower cost imported polyester fabrics for acetate-rich fabrics. Sales of fabric constructed primarily of spun yarns exceeded expectations for Fiscal 1998 increasing from $68.4 million in Fiscal 1997 to $72.8 million in Fiscal 1998. The Company is continuing to develop new fabric construction and styles in an effort to improve sales and profitability of its product mix. Operating profit in Fiscal 1998 for the apparel fabrics group decreased $7.0 million from pro forma operating profit of $9.3 million in Fiscal 1997 to operating profit of $2.3 million in Fiscal 1998. Fiscal 1998 included charges of approximately $4.4 million for certain restructuring costs and writedown of certain long-lived assets. Excluding the effects of such charges, operating profit decreased $2.6 million principally due to the lower sales volume, lower unit prices and the effects of production curtailment to manage inventory levels. As a result of the Company's assessment of the market conditions for apparel products constructed primarily of filament yarns, management concluded, subsequent to October 31, 1998, that its Angle Plant located in Rocky Mount, Virginia, should be closed. The plant was primarily engaged in the manufacture and sale of apparel fabric constructed of filament yarns. The results of operations for Fiscal 1998 includes a charge for writedown of certain long-lived assets of approximately $2.7 million related principally to the loss on impairment of the plant in accordance with Statement of Accounting Standard ("SFAS") No. 121, "Accounting for the Impairment of Long- Lived Assets and for Long-Lived Assets to Be Disposed Of." The Company expects to complete the plant closing by the end of its Fiscal 1999 third quarter and expects that the plant closure will result in improved earnings and cash flow from operations in the future. The Company estimates that approximately $1.4 million in plant closing costs will be incurred in Fiscal 1999 relating primarily to employee severance and plant run-out costs. Additionally, in Fiscal 1998, the Company implemented cost reduction measures which included, among other things, personnel reduction and the idling of certain manufacturing equipment. The results of operations in Fiscal 1998 includes charges for writedown of certain long-lived assets of approximately $1.7 million for asset impairment and restructuring costs of approximately $0.7 million for employee severance costs. -21- 22 Net sales in Fiscal 1998 in the home fashions textiles segment, which includes woven drapery fabrics and yarns for the home furnishings industry, decreased $6.7 million from $35.4 million in Fiscal 1997 to $28.7 million in Fiscal 1998. This segment suffered from major changes by prominent retailers and shifting consumer preferences. As a result, the Company's market position deteriorated from the prior year leading to lower unit demand and generally weaker selling prices and margins. Operating profit in Fiscal 1998 for the home fashion textiles segment decreased to an operating loss of $7.7 million from a pro forma operating profit of $3.0 million in Fiscal 1997. Fiscal 1998 included charges of approximately $7.2 million related to a loss on impairment of certain long-lived assets. Excluding the effects of such charges, operating profit decreased $3.5 million due to lower demand, weaker margins and the impact of lower production. Pursuant to the terms of an Asset Purchase Agreement dated as of January 11, 1999, as amended, between JPS Converter and Industrial Corp., a wholly-owned subsidiary of JPS, and Belding Hausman Incorporated, JPS Converter and Industrial Corp. agreed to sell substantially all of the assets of its Boger City Plant located in Lincolnton, North Carolina. This plant is primarily engaged in the manufacture and sale of home fashion textiles and accounted for sales of approximately $33.6 million, $30.9 million and $22.8 million in Fiscal 1996, 1997 and 1998, respectively. The consideration for the sale will consist of approximately $7.9 million in cash, subject to a post-closing adjustment based upon the amount of inventories transferred. The cash proceeds will be used by the Company to reduce outstanding borrowings under its Revolving Credit Facility and an equipment loan. In accordance with SFAS No. 121, the results of operations for Fiscal 1998 includes a charge for writedown of certain long-lived assets of approximately $7.2 million for the excess of the carrying value of the plant over its fair value based on the estimated proceeds from the sale. Indirect corporate expenses increased $6.9 million from $5.7 million (pro forma) in Fiscal 1997 to $12.6 million in Fiscal 1998. In accordance with SFAS No. 121, a portion of the excess reorganization costs arising from the 1997 financial restructuring was allocated to the assets of the plant being sold and the plant being closed as discussed above. The carrying amount of such allocated excess reorganization costs of $6.9 million was charged to operations in Fiscal 1998. Reorganization-related fees and expenses incurred in Fiscal 1997 totaled $8.4 million. Such fees and expenses, which represent fees and expenses of the Company's financial advisor, legal counsel and other professionals associated with the Company's 1997 financial restructuring and the financial advisor and legal counsel for the holders of a substantial majority of the Company's old outstanding bonds, have been excluded from the Fiscal 1997 pro forma financial statements. No such expenses were incurred in Fiscal 1998. Because of Gulistan's recurring losses during Fiscal 1997, the Company sold its debt and equity securities of Gulistan Holdings consisting of a $10 million Promissory Note due in November 2001, $5 million of preferred stocks redeemable in November 2005 and warrants to purchase up to 25% of the common stock of Gulistan Holdings. Proceeds from the sale were $2 million. The writedown of the carrying value of the Gulistan securities to $2 million was reported in the period from November 3, 1996 to October 9, 1997. Such writedown, which totaled $5.1 million in Fiscal 1997, has been excluded from the Fiscal 1997 pro forma financial statements. As a result of the application of fresh start accounting as required by Statement of Position 90-7 ("SOP 90-7") of the American Institute of Certified Public Accountants, entitled "Financial Reporting by Entities in Reorganization Under the Bankruptcy Code", a gain on early extinguishment of debt of approximately $100.2 million and reorganization items of approximately $13.1 million were recorded as of the Effective Date. The reorganization items include professional fees and expenses of approximately $8.4 million (discussed above) and fair value adjustments of approximately $4.7 million. These items have been excluded from the Fiscal 1997 pro forma financial information. -22- 23 Interest income and expense in Fiscal 1998 are consistent with the pro forma Fiscal 1997 amounts. FISCAL 1997 (PRO FORMA) COMPARED TO FISCAL 1996 (PRO FORMA) Consolidated net sales declined $30.4 million, or 6.8%, from $448.8 million in Fiscal 1996 to $418.4 million in Fiscal 1997. Pro forma operating profit (loss) increased $39.8 million from a pro forma operating loss of $12.1 million in Fiscal 1996 to a pro forma operating profit of $27.7 million in Fiscal 1997. Fiscal 1996 results included charges for plant closing, loss on sale of certain operations, and writedown of certain long-lived assets which totaled $30 million. Excluding such charges for comparative purposes, pro forma operating profit in Fiscal 1996 was $17.9 million. All segments reported improved earnings in Fiscal 1997 compared to Fiscal 1996. Net sales in Fiscal 1997 in the industrial products segment increased $4.3 million, or 2.2%, to $197.3 million from $193.0 million in Fiscal 1996. Net sales in Fiscal 1996 included $4.0 million of industrial elastic sales. The Company sold its rubber products business, which produced these elastic products, in September 1996 and therefore Fiscal 1997 includes no industrial elastic sales. Sales of fiberglass products increased $5.0 million in Fiscal 1997 primarily as a result of the continued growth in demand for fabrics used in the manufacture of electrical circuit boards. The Company expanded and enhanced its productive capacity and invested in additional machinery and equipment in order to satisfy customer demand and improve product quality. Sales of roofing membrane increased $1.4 million from Fiscal 1996. The Company's "Hi-Tuff/EP" line of roofing products increased in sales as a result of the membrane's competitive price and outstanding performance characteristics. Sales of urethane products increased $3.7 million from Fiscal 1996 primarily as a result of stronger demand for certain of the Company's products used in the manufacture of athletic footwear. The Company was successful in developing a variety of urethane film and sheet products for specific customer requirements. Sales of cotton industrial products increased $3.7 million from Fiscal 1996 due to improved unit volumes and selling prices. Sales of other industrial products declined $5.5 million primarily as a result of the exit of certain low margin products and redirecting such weaving capacity toward more profitable goods. Pro forma operating profit in Fiscal 1997 for the industrial products segment increased by $12.5 million from $8.8 million in Fiscal 1996 to $21.2 million in Fiscal 1997. Included in the Fiscal 1996 pro forma operating profit are charges of approximately $9.6 million for writedown of certain long-lived assets and loss on sale of operations. Adjusting for such charges, pro forma operating profit in Fiscal 1997 increased by $2.8 million (15.2%) from Fiscal 1996. The increases in sales as described above, and the exit of certain low margin product lines, combined with improved operating efficiencies, increased pro forma operating income in Fiscal 1997. Net sales in Fiscal 1997 in the apparel fabrics segment declined $36.1 million (16.3%) from $221.8 million in Fiscal 1996 to $185.7 million in Fiscal 1997. Much of this decline in net sales was expected as a result of the Company's actions in Fiscal 1996 to exit certain product lines which included plant closings and asset sales. Net sales in Fiscal 1996 included $12.8 million of apparel elastics sales. As discussed below, the Company sold its rubber products business, which produced these elastic products, in September 1996. Apparel fabric sales declined $20.5 million in Fiscal 1997 primarily as a result of the Company's decision in Fiscal 1996 to close one of its facilities in Greenville, South Carolina and cease production of certain commodity-type apparel fabrics which, due to competitive pressures from abroad, carried very weak margins. Pro forma operating profit (loss) in Fiscal 1997 for the apparel fabrics segment increased by $24.4 million from a $15.1 million pro forma loss to a pro forma operating profit of $9.3 million. Fiscal 1996 included charges of approximately $20.4 million for plant closing and loss on sale of certain operations. Pro forma operating profit before such charges increased by $4.0 million from $5.3 million in Fiscal 1996 to $9.3 million in Fiscal 1997. The improvement is the result of several factors. Fiscal 1997 results were not adversely affected by the negative -23- 24 operating margins associated with the product lines exited during Fiscal 1996. In addition, manufacturing efficiency and productivity improved as a result of certain capital projects completed during Fiscal 1997. Net sales in Fiscal 1997 in the home fashion textiles segment, increased $1.4 million (4.1%) to $35.4 million in Fiscal 1997 from $34.0 million in Fiscal 1996 primarily as a result of new product development and styling which resulted in higher unit volumes and selling prices. Pro forma operating profit in Fiscal 1997 for the home fashion textiles segment increased $1.2 million (67%) to $3.0 million from $1.8 million in Fiscal 1996. The aforementioned volume and product mix enhancements were the primary causes for improved operating results. Substantially all of such improvement in pro forma operating increase occurred during the first half of Fiscal 1997. Indirect corporate expenses (pro forma) declined by $1.9 million from $7.6 million in Fiscal 1996 to $5.7 million in Fiscal 1997. Fiscal 1996 pro forma expenses included a $1.1 million charge resulting from an early retirement offer extended to certain salaried employees. Fiscal 1996 also included an expense of $1.0 million for management services provided by a former shareholder pursuant to a management services agreement. Pursuant to the Plan of Reorganization on the Effective Date, such agreement was canceled and rejected and claims for rejection damages were waived. Accordingly, no such expense was incurred in Fiscal 1997. Offsetting such decreases were slightly higher employee compensation costs and insurance costs. Reorganization-related fees and expenses incurred in Fiscal 1997 totaled $8.4 million. These fees and expenses totaled $2.3 million in Fiscal 1996. The writedown of the carrying value of the Gulistan securities totaled $4.2 million in Fiscal 1996 and $5.1 million in Fiscal 1997 and has been excluded from the pro forma financial statements. Pro forma interest income and expense in Fiscal 1997 were consistent with the pro forma amounts in Fiscal 1996. LIQUIDITY AND CAPITAL RESOURCES The Company's principal sources of liquidity for operations and expansion are funds generated internally and borrowings under its Revolving Credit Facility (as defined below). On October 9, 1997, Elastomerics and C&I (the "Borrowing Subsidiaries") and JPS entered into the Credit Facility Agreement, (the "Credit Agreement"), by and among the financial institutions party thereto, Citibank, as agent, and NationsBank, N.A., as co-agent. The Credit Agreement provides for a revolving credit loan facility and letters of credit (the "Revolving Credit Facility") in a maximum principal amount equal to the lesser of (a) $135 million and (b) a specified borrowing base (the "Borrowing Base"), which is based upon eligible receivables, eligible inventory and a specified dollar amount (currently $52,000,000 (subject to reduction) based on fixed assets of the Borrowing Subsidiaries), except that (i) no Borrowing Subsidiary may borrow an amount greater than the Borrowing Base attributable to it (less any reserves as specified in the Credit Agreement) and (ii) letters of credit may not exceed $20 million in the aggregate. The Credit Agreement contains restrictions on investments, acquisitions and dividends unless, among other things, the Company satisfies a specified pro forma fixed charge coverage ratio and maintains a specified minimum availability under the Revolving Credit Facility for a stated period of time, and no default exists under the Credit Agreement. The Credit Agreement also restricts, among other things, indebtedness, liens, affiliate transactions, operating leases, fundamental changes and asset sales other than the sale of up to $35 million of fixed assets, subject to the satisfaction of certain conditions. The Credit Agreement contains financial covenants relating to minimum levels of EBITDA, minimum interest coverage ratio, minimum fixed charge coverage ratio and maximum capital expenditures. The maturity date of the Revolving Credit Facility is October 9, 2002. On October 30, 1998, the Credit Agreement was amended to, among other things (i) modify the financial covenants relating to minimum levels of EBITDA, minimum interest coverage ratio, minimum fixed charge coverage ratio and maximum capital -24- 25 expenditures, (ii) modify the interest rate margin and unused commitment fees and (iii) provide additional reduction of the fixed asset portion of the Borrowing Base. As of October 31, 1998, the Company was in compliance with these restrictions and all financial covenants, as amended. All loans outstanding under the Revolving Credit Facility, as amended, bear interest at either the Eurodollar Rate (as defined in the Credit Agreement) or the Base Rate (as defined in the Credit Agreement) plus an applicable margin (the "Applicable Margin") based upon the Company's fixed charge coverage ratio (which margin will not exceed 2.50% for Eurodollar Rate borrowings and .25% for Base Rate borrowings). The weighted average interest rate at October 31, 1998 is approximately 6.9%. The Company pays a fee of .25% per annum if a specified fixed charge coverage ratio is satisfied and a letter of credit fee equal to the Applicable Margin for Eurodollar Rate borrowings. Borrowings under the Revolving Credit Facility are made or repaid on a daily basis in amounts equal to the net cash requirements or proceeds for that business day. As of October 31, 1998, unused and outstanding letters of credit totaled $1,526,000. The outstanding letters of credit reduce the funds available under the Revolving Credit Facility. At October 31, 1998, the Company had approximately $38.3 million available for borrowing under the Revolving Credit Facility. Net cash provided by operations increased by approximately $16.5 million in Fiscal 1998 compared to the combined periods from November 3, 1996 to October 9, 1997 and October 10, 1997 to November 1, 1997 (Fiscal 1997) primarily due to the fact that Fiscal 1997 included payment of $14.0 million to holders of the 10.85% Notes and 10.25% Notes and certain interest payments associated with the Old Debt Securities. Working capital at October 31, 1998 was approximately $90.8 million compared to $82.1 million at November 1, 1997, principally due to the estimated proceeds from the plant sale discussed above. Accounts receivable decreased by approximately $11.6 million at October 31, 1998 compared to November 1, 1997 due principally to a decrease in sales in Fiscal 1998 and the timing of customer receipts. Inventories increased by approximately $9.8 million in Fiscal 1998 as a result of the lower sales volume. Accounts payable and accrued expenses decreased approximately $4.2 million in Fiscal 1998 principally due to lower operating activity in the later part of the year. The principal use of cash in Fiscal 1998 was for property, plant and equipment expenditures of $22.4 million for upgrade and capacity improvements for the Company's manufacturing operations. As of October 31 1998, the Company had commitments of $1.1 for capital expenditures. The Company anticipates making capital expenditures in Fiscal 1999 of approximately $8.2 million and expects such amounts to be funded by cash from operations, bank and other equipment financing sources. On August 31, 1998, the Company reduced its long-term debt and related investments by repaying all of the approximately $34 million in principal amount of JPS Capital's Contingent Notes. In Fiscal 1998, the Company entered into a seven-year lease agreement (classified as capital lease) for certain machinery and equipment. The total cost of the assets to be covered by the lease is limited to approximately $5.0 million. The total cost of assets under lease at October 31, 1998 was approximately $3.5 million. The lease provides for an early buyout option at the end of six years and includes purchase and renewal options at fair market value at the end of the lease term. Based upon the Company's ability to generate working capital through its operations and its Revolving Credit Facility, the Company believes that it has the financial resources necessary to pay its capital obligations and implement its business plan for at least the next twelve months. INFLATION AND TAX MATTERS The Company is subject to the effects of changing prices. It has generally been able to pass along inflationary increases in its costs by increasing the prices for its products; however, market conditions sometimes preclude this practice. -25- 26 For the fiscal year ending October 31, 1998 the Company recorded a tax expense of $1.4 million. A tax expense was recorded even though the Company had current year losses. This expense was due to the nondeductibility of certain expenses for tax purposes and the recording of an additional valuation allowance on the Company's deferred tax assets. The nondeductible items consist primarily of reorganization value in excess of amounts allocable to identifiable assets. The additional valuation allowance was provided based on management's assessment of the ability to recognize the net deferred tax assets. See Note 9 to the Consolidated Financial Statements for additional information. For the period from October 10, 1997 to November 1, 1997, the Company recorded a tax expense of $2.0 million. The tax expense for the period ending November 1, 1997 includes the utilization of a portion of the deferred tax asset, described below, which was recorded as of the Effective Date of the Plan of Reorganization of the Company. The effective tax rate exceeds the statutory federal income tax rate due to the impact of items not deductible for federal income tax purposes and because of state income taxes. The Company recorded a tax benefit for the period ending October 9, 1997 of approximately $8.8 million. This consists of a benefit from the implementation of the Plan of Reorganization net of state taxes on subsidiary operations that could not be offset by operating loss carryovers or current year losses of JPS or its subsidiaries. The benefit arose as consummation of the Plan of Reorganization substantially deleveraged JPS. Accordingly, the reserve established against the deferred tax assets that was required due to the operating history was significantly reduced. However, the deferred tax asset attributable to the net operating loss carryforwards was also reduced as a result of the reduction in net operating loss carryforwards that is required for reorganizations such as that provided in the Plan of Reorganization. The reduction in reserves and reduction in deferred tax liabilities exceeded the reduction in the gross deferred tax asset by a net amount of $9.7 million thus resulting in a deferred tax benefit. The recording of the tax benefit and the net deferred tax asset reflects the Company's determination that it is more likely than not that these deferred tax assets, net of the valuation allowance, will be realized based on current income tax laws and expectations of future taxable income stemming from the reversal of deferred tax liabilities or operations. Uncertainties surrounding income tax law changes, shifts in operations between state taxing jurisdictions and future operating income levels may, however, affect the ultimate realization of all or some portion of these deferred income tax assets. In addition, the Company evaluates the valuation allowance on quarterly basis to determine whether or not adjustment is required. There was no adjustment to the valuation allowance for the period ending November 1, 1997. The Internal Revenue Code (the "Code") provides that there are no taxes payable on gains such as the extraordinary gain on early extinguishment of debt that was realized on the reorganization of the Company in the period from November 3, 1996 to October 9, 1997. However, the Company was required under provisions of the Code to reduce certain net operating loss carryforwards and certain other tax attributes as a result of such gain. Beginning net operating loss carryovers were reduced by approximately $64 million. In addition, alternative minimum tax credit carryovers were reduced by approximately $0.7 million. As a result of valuation allowances on these assets, there was no tax expense attributable to such reductions. In addition to attribute reduction, any remaining net operating loss carryforwards and certain other tax attributes are subject to the limitations imposed by Section 382 of the Code. The effect of these limitations was to limit the utilization of the approximately $28 million in remaining net operating loss carryovers and certain other attributes to an annual amount of approximately $6.6 million (subject to certain adjustments). The Company recorded a net $0.3 million income tax benefit on continuing operations in Fiscal 1996. The Company had a $0.5 million deferred state tax benefit from the charge for the plant closing and writedown of certain long-lived assets. While no tax expense resulted from applying the statutory tax rate to the loss before income taxes, the Company was not able to fully offset subsidiary income in all tax jurisdictions with net operating losses of the Company or other subsidiaries or operating loss carryovers. As a result, a $0.2 million provision for state income taxes was required in Fiscal 1996. -26- 27 During Fiscal 1994, the Company utilized approximately $141 million of net operating loss carryforwards to offset the gain on sale of the automotive assets. Income tax expense incident to the sale was reduced by approximately $49 million as a result of such utilization. Federal alternative minimum and state taxes of approximately $2.8 million were recognized as a result of the sale. Although the Company believed use of its net operating loss carryforwards to offset the gain on the automotive assets would more likely than not be sustained under existing tax laws, uncertainty existed primarily due to the fact that applicable regulations under Section 382 of the Code had not been issued. Therefore, in accordance with provisions of the indentures governing the Old Debt Securities, the Company set aside, in a special-purpose subsidiary, a portion ($39.5 million) of the net proceeds from the sale of the automotive assets to satisfy, if necessary, these possible contingent tax liabilities. As of November 1, 1997 and November 2, 1996, the aggregate fair value of the investments was approximately $34.6 million and $46.2 million, respectively. Under the terms of the Plan of Reorganization, the holders of the 10.25% and 10.85% Notes received $14 million in cash from these investments and Contingent Notes with an aggregate principal amount of $34 million payable from these investments upon the occurrence of certain events. The respective amounts of the cash distribution and the initial principal amount of the Contingent Notes were determined based on the assumptions used to determine the original amount set aside for contingent tax liabilities related to the 1994 sale of the Company's automotive business with adjustments for certain events arising subsequent to the sale and such original determination. A current liability in an amount equal to the approximate aggregate fair value of invested funds was recorded in the Company's Consolidated Balance Sheet as of November 1, 1997. In accordance with the indenture for the Contingent Notes, during 1998 a determination was made that the Maturity Date (as defined in the indenture) would occur on August 31, 1998. Funds in the amount of $35,536,460 were placed with the paying agent on or before August 28, 1998. On August 31, 1998 the Contingent Notes were no longer deemed outstanding and all rights with respect to such notes ceased, other than the right of the holders thereof to receive the principal amount and accrued interest (as defined) payable under each Contingent Note held by them. Even before giving effect to the previously described limitations on use of net operating loss carryforwards occurring under the Plan of Reorganization, due to the Company's operating history, it was uncertain that it would be able to utilize all deferred tax assets. Therefore, for years ending prior to November 1, 1997, a valuation allowance had been provided equal to the deferred tax assets remaining after deducting all deferred tax liabilities, exclusive of those related to certain deferred state tax liabilities. As described above, a portion of the valuation allowance was reversed and a tax benefit recognized upon the Effective Date of the Plan of Reorganization. YEAR 2000 COMPLIANCE Description of Year 2000 Issue As a result of the existence of computer programs and chips embedded in process control equipment that use two digits rather than four to define the applicable year, a concern commonly known as "Year 2000" has arisen globally. Computer programs and equipment having time-sensitive software or imbedded processors may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in system failures or miscalculations causing disruptions of operations, such as production shutdowns, or a temporary inability to process transactions, send invoices or engage in similar normal business activities. Mission-critical applications which could be impacted include purchasing and inventory management, production control, general ledger accounting, billing, payroll and disbursements. The Company's Plan In Fiscal 1997, the Company conducted a comprehensive review of its computer systems to identify those systems that could be affected by the Year 2000 issue. The Company has developed and is currently implementing its plan to address the Year 2000 issue. Task teams led by senior executives identified six project phases including (i) inventory of systems and process exposure, (ii) risk assessment and prioritization, (iii) remediation of non-compliant -27- 28 systems, (iv) testing and development of compliant systems, (v) maintenance once compliance is achieved and (vi) contingency planning. The Company has completed the inventory and risk assessment phases and is currently in the remediation and testing phases of the project. Remediation involves repair of existing systems and equipment, and, in some cases, complete replacement with purchased systems and equipment that are Year 2000 compliant. Replaced and modified systems are subjected to rigorous testing in a non-production environment in parallel with production data and, once deployed, are continually monitored for compliance. Activities to maintain such compliance include monitoring of reprogrammed systems once back in production, audits of critical systems, vendor compliance certifications and testing of contingency plans. Management has also reviewed production equipment used in its operations and has performed a written survey of its equipment vendors to certify that the systems imbedded in sophisticated production equipment are Year 2000 compliant. In addition, all new equipment purchases are screened for Year 2000 compliance. The Company expects that the remediation phase will be substantially completed by the end of August 1999. However, testing and maintenance will continue throughout 1999. The Company has prepared and mailed letters to vendors and service providers to discern their Year 2000 compliance status and testing procedures. Most of these vendors and service providers supply raw materials and equipment to the Company. The majority of responses have been received and no negative responses have been received. However, many of the responses will require additional follow-up which is to be completed by September 1999. The Company is in the initial steps of developing contingency plans for its mission-critical applications. The contingency plans will address (i) the development of a contingency planning framework, including common approaches and criteria, (ii) clear assignment of accountability for executing the contingency planning framework, (iii) monitoring of results and (iv) testing and validation. It is anticipated the contingency plans will enable the business to continue in the event there are any system interruptions. Costs Associated with Year 2000 Compliance The incremental cost of addressing the Year 2000 issue will be substantially absorbed in the normal budget for improvement in management information systems and by normal costs for administrative and technical employees. The Company, however, retains contract programmers to work on discrete projects and will continue this practice into the foreseeable future. The incremental cost of addressing the Year 2000 issue is estimated at $210,000 with $69,000 having been spent as of October 31, 1998. Most of these expenditures have been for remediation or replacement of existing systems. Management believes that the cost of Year 2000 modifications will not have a material effect on results of operations. The estimated cost of the Year 2000 project and the dates on which the Company believes it will be completed are based on management's best estimate. There can be no assurances that these estimates will not change. Specific factors that could cause material differences with actual results include, but are not limited to, the results of testing and the timeliness and effectiveness of remediation efforts of third parties. Risks Presented by Year 2000 Issues There can be no assurance given that any or all of the Company's systems are or will be Year 2000 compliant. A failure by the Company to resolve a material Year 2000 issue could result in an interruption in, or failure of, normal business operations and could materially and adversely affect the Company's financial condition. In addition, due to the uncertainties inherent in the Year 2000 problem, the Company cannot insure that its most important vendors, customers and service providers will be Year 2000 compliant on time. The failure of critical third parties to timely correct their Year 2000 problems could materially and adversely affect the Company's operations and financial condition, even resulting in an interruption in normal business operations if a critical supplier is unable to meet commitments in a timely manner. However, as a result of the activities described above, and assuming the remaining project phases are completed in satisfactory manner, management believes that the Year 2000 issue will not pose significant operational problems for the Company's computer or process systems. -28- 29 RECENT ACCOUNTING PRONOUNCEMENTS In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130 provides for the disclosure of comprehensive income and its components with the same prominence as net income, in a full set of general purpose financial statements. Comprehensive income is defined as the change in equity of a business enterprise during a period from transactions and other events from nonowner sources. This statement will require additional disclosure but will not have a material impact on the Company's financial position, results of operations or cash flows. The adoption of SFAS No. 130 is effective for the Company in Fiscal 1999. In June 1997, the FASB issued SFAS No. 131, "Disclosure About Segments of an Enterprise and Related Information." SFAS No. 131 requires publicly-held companies to report financial and other information about key revenue-producing segments of the enterprise for which such information is available and is utilized by the chief operating decision maker in allocating resources and assessing performance. Specific information to be reported for individual segments includes profit or loss, certain revenue and expense items and total assets. A reconciliation of segment information to amounts reported in the financial statements is also to be provided. SFAS No. 131 is effective for the Company at the Fiscal 1999 year end, unless adopted earlier. Management of the Company has not yet evaluated the effects of this change on its reporting segments. In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures About Pensions and Other Postretirement Benefits - an Amendment of FASB Statements No. 87, 88 and 106." SFAS No. 132 revises disclosures about pension and other postretirement benefit plans, but it does not change the measurement or recognition of those plans and therefore will not have a significant impact on the Company's financial position, results of operations or cash flows. SFAS No. 132 is effective for the Company in Fiscal 1999. In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." This statement requires companies to record derivatives on the balance sheet as assets or liabilities, measured at fair value. Gains or losses resulting from changes in the values of those derivatives would be accounted for depending on the use of the derivative and whether it qualifies for hedge accounting. SFAS No. 133 will be effective for the Company in Fiscal 2000. Management of the Company has not yet evaluated the effects of this statement on the Company's financial position, results of operations or cash flows. In March 1998, the American Institute of Certified Public Accountants (AICPA) issued Statement of Position (SOP) 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use", which provides guidance on accounting for the costs of computer software developed or obtained for internal use. SOP 98-1 requires external and internal indirect costs of developing or obtaining internal-use software to be capitalized as a long-lived asset and also requires training costs included in the purchase price of computer software and costs associated with research and development to be expensed as incurred. SOP 98-1 will be effective for the Company in Fiscal 1999. Management of the Company has not yet evaluated the effects of this statement on the Company's financial position, results of operations and cash flows. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Interest rate risk. The Company has exposure to interest rate changes primarily relating to interest rate changes under its Revolving Credit Facility. The Company's Revolving Credit Facility bears interest at rates which vary with changes in (i) the London Interbank Offered Rate (LIBOR) or (ii) a rate of interest announced publicly by Citibank in New York, New York. The Company does not speculate on the future direction of interest rates. As of October 31, 1998, approximately $94.1 million of the Company's debt bore interest at variable rates. The Company believes that the effect, if any, of reasonably possible near-term changes in interest rates on the Company's consolidated financial position, results of operations or cash flows would not be significant. -29- 30 Commodity price risk. A portion of the Company's raw materials are staple goods that are affected by commodity pricing and are, therefore, subject to price volatility caused by weather, production problems, delivery difficulties and other factors which are outside the control of the Company. In most cases, essential raw materials are available from several sources. For several raw materials, however, branded goods or other circumstances may prevent such diversification and an interruption of the supply of these raw materials could have a significant impact on the Company's ability to produce certain products. The Company has established long-term relationships with key suppliers and may enter into purchase contracts or commitments of one year or less for certain raw materials. Such agreements generally include a pricing schedule for the period covered by the contract or commitment. The Company believes that any changes in commodity pricing which cannot be adjusted for by changes in its product pricing or other strategies, would not be significant. -30- 31 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. INDEPENDENT AUDITORS' REPORT JPS Textile Group, Inc.: We have audited the accompanying consolidated balance sheets of JPS Textile Group, Inc. and subsidiaries (the "Company") as of October 31, 1998 and November 1, 1997, and the related consolidated statements of operations, shareholders' equity and of cash flows for the year ended October 31, 1998 and for the period from October 10, 1997 to November 1, 1997 (Reorganized Company consolidated operations), and the consolidated statements of operations, senior redeemable preferred stock and shareholders' equity (deficit) and of cash flows for the period from November 3, 1996 to October 9, 1997 and the year ended November 2, 1996 (Predecessor Company consolidated operations). Our audits also included the financial statement schedule listed in the index at page S-1. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. As discussed in Note 1 to the consolidated financial statements, on September 9, 1997, the Bankruptcy Court entered an order confirming the Company's plan of reorganization, which became effective after the close of business on October 9, 1997. The accompanying consolidated financial statements subsequent to October 9, 1997 were prepared in conformity with AICPA Statement of Position 90-7, "Financial Reporting for Entities in Reorganization Under the Bankruptcy Code". Accordingly, the Reorganized Company is a new entity with assets, liabilities, and a capital structure having carrying values not comparable with prior periods as described in Note 1. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company at October 31, 1998 and November 1, 1997, and the results of its operations and its cash flows for the year ended October 31, 1998 and the period from October 10, 1997 to November 1, 1997 (Reorganized Company) and for the period from November 3, 1996 to October 9, 1997 and the year ended November 2, 1996 (Predecessor Company) in conformity with generally accepted accounting principles. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. DELOITTE & TOUCHE LLP Greenville, South Carolina February 1, 1999 -31- 32 JPS TEXTILE GROUP, INC. CONSOLIDATED BALANCE SHEETS (In Thousands)
November 1, October 31, 1997 1998 ----------- ----------- ASSETS (Note 7) CURRENT ASSETS: Cash $ 3,888 $ 1,549 Accounts receivable, less allowance of $1,053 in 1997 and $1,565 in 1998 79,569 67,949 Inventories (Notes 2 and 5) 44,770 51,542 Prepaid expenses and other (Notes 5 and 6) 37,085 4,101 Net assets held for sale (Note 4) -- 9,652 -------- -------- Total current assets 165,312 134,793 PROPERTY, PLANT AND EQUIPMENT, net 104,554 98,456 (Notes 2 and 5) REORGANIZATION VALUE IN EXCESS OF AMOUNTS ALLOCABLE TO IDENTIFIABLE ASSETS, less accumulated amortization of $164 in 1997 and $2,438 in 1998 (Notes 1, 2, and 4) 45,690 36,532 OTHER ASSETS (Note 5) 6,825 3,141 -------- -------- Total assets $322,381 $272,922 ======== ========
-32- 33
November 1, October 31, 1997 1998 ----------- ----------- LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 24,353 $ 22,158 Accrued interest 421 1,055 Accrued salaries, benefits and withholdings (Note 10) 9,148 8,447 Other accrued expenses (Notes 5 and 10) 13,182 11,257 Current portion of long-term debt (Note 7) 36,076 1,047 -------- --------- Total current liabilities 83,180 43,964 LONG-TERM DEBT (Note 7) 94,891 99,089 OTHER LONG-TERM LIABILITIES (Notes 5, 10 and 11) 18,263 20,341 -------- --------- Total liabilities 196,334 163,394 -------- --------- COMMITMENTS AND CONTINGENCIES (Notes 7 and 10) SHAREHOLDERS' EQUITY (Note 8): Common stock 100 100 Additional paid-in capital 123,230 123,230 Additional minimum pension liability adjustment (Note 11) -- (5,855) Retained earnings (deficit) 2,717 (7,947) -------- --------- Total shareholders' equity 126,047 109,528 -------- --------- Total liabilities and shareholders' equity $322,381 $ 272,922 ======== =========
See notes to consolidated financial statements. -33- 34 JPS TEXTILE GROUP, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in Thousands Except Per Share Data)
Predecessor Company Reorganized Company ---------------------------------- | ---------------------------------- Fiscal Year | Fiscal Year Ended Period from | Period from Ended November 2, November 3, 1996 | October 10, 1997 October 31, 1996 to October 9, 1997 | to November 1, 1997 1998 ----------- ------------------ | ------------------- ------------ | Net sales $ 448,824 $ 379,643 | $ 38,728 $ 389,218 Cost of sales 397,804 327,667 | 31,058 331,473 --------- --------- | -------- --------- Gross profit 51,020 51,976 | 7,670 57,745 Selling, general and administrative | expenses (Note 10) 40,579 37,146 | 2,466 40,190 Other income (expense), net (Note 10) (2,498) (622) | 11 (54) Charges for plant closing, loss | on sale of certain operations, | writedown of certain long-lived | assets and restructuring | costs (Notes 2 and 4) (30,028) 574 | -- (19,245) --------- --------- | -------- --------- Operating profit (loss) (22,085) 14,782 | 5,215 (1,744) Valuation allowance on Gulistan | securities (Note 3) (4,242) (5,070) | -- -- Interest income 2,856 2,744 | 93 1,038 Interest expense (Note 7) (40,510) (32,164) | (584) (8,592) --------- --------- | -------- --------- Income (loss) before reorganization | items, income taxes, discontinued | operations and extraordinary items (63,981) (19,708) | 4,724 (9,298) Reorganization items (Note 1): | Fair-value adjustments -- (4,651) | -- -- Professional fees and expenses (2,255) (8,420) | -- -- --------- --------- | -------- --------- Income (loss) before income taxes, | discontinued operations and | extraordinary items (66,236) (32,779) | 4,724 (9,298) Provision (benefit) for income | taxes (Note 9) (300) (8,822) | 2,007 1,366 --------- --------- | -------- --------- Income (loss) before discontinued | operations and extraordinary | items (65,936) (23,957) | 2,717 (10,664) Loss on sale of discontinued | operations, $0 taxes (Note 3) (1,500) -- | -- -- --------- --------- | -------- --------- Income (loss) before extraordinary | items (67,436) (23,957) | 2,717 (10,664)
-34- 35 CONSOLIDATED STATEMENTS OF OPERATIONS (Continued)
Predecessor Company Reorganized Company --------------------------------- | ------------------------------------- Fiscal Year | Fiscal Year Ended Period from | Period from Ended November 2, November 3, 1996 | October 10, 1997 October 31, 1996 to October 9, 1997 | to November 1, 1997 1998 ----------- ------------------ | ------------------- ------------- | | Extraordinary gain on early | extinguishment of debt, | $0 taxes (Notes 1 and 7) -- 100,235 | -- -- ----------- ---------- | ----------- ------------ Net income (loss) (67,436) 76,278 | 2,717 (10,664) | Senior redeemable preferred | stock in-kind dividends | and discount accretion 4,505 3,827 | -- -- ----------- ---------- | ----------- ------------ Income (loss) applicable to | common stock $ (71,941) $ 72,451 | $ 2,717 $ (10,664) =========== ========== | =========== ============ Weighted average number | of common shares | outstanding (A) 1,000,000 1,000,000 | 10,000,000 10,000,000 =========== ========== | =========== ============ Basic and diluted earnings | (loss) per common | share (A): | Income (loss) before | discontinued operations | and extraordinary items $ (70.44) $ (27.79) | $ 0.27 $ (1.07) Net loss on sale of dis- | continued operations (1.50) -- | -- -- Extraordinary gain -- 100.24 | -- -- ------------ ---------- | ----------- ------------ Net income (loss) $ (71.94) $ 72.45 | $ 0.27 $ (1.07) ============ ========== | =========== ============
(A) In accordance with the provisions of Statement of Financial Accounting Standard No. 128 ("SFAS No. 128"') "Earning Per Share", the presentation of earnings per share data for all periods presented has been restated to conform to SFAS no. 128. See notes to consolidated financial statements. -35- 36 JPS TEXTILE GROUP, INC. CONSOLIDATED STATEMENTS OF SENIOR REDEEMABLE PREFERRED STOCK AND SHAREHOLDERS' EQUITY (DEFICIT) (In Thousands)
Shareholders' Equity (Deficit) ----------------------------------------------------------------- Senior Additional Redeemable Junior Minimum Additional Retained Preferred Common Preferred Pension Paid-In Earnings Stock Stock Stock Liability Capital (Deficit) ---------- ------ --------- ----------- ---------- --------- Predecessor Company Balance - October 28, 1995 $ 28,171 $ 10 $ 250 $ 0 $ 29,613 $ (66,918) Net loss for 53 weeks (67,436) Preferred stock-in-kind dividends and discount accretion 4,505 (4,505) -------- ------- ----- --------- -------- --------- Balance - November 2, 1996 32,676 10 250 0 25,108 (134,354) Net income for the period from November 3, 1996 to October 9, 1997 76,278 Preferred stock-in-kind dividends and discount accretion 3,827 (3,827) Fresh start adjustments (36,503) 90 (250) 101,949 58,076 -------- ------- ----- --------- -------- --------- Reorganized Company Balance - October 9, 1997 0 100 0 0 123,230 0 Net income for the period from October 10, 1997 to November 1, 1997 2,717 -------- ------- ----- --------- -------- --------- Balance - November 1, 1997 0 100 0 0 123,230 2,717 Additional minimum pension liability adjustment (5,855) Net loss for 52 weeks (10,664) -------- ------- ----- --------- -------- --------- Balance - October 31, 1998 $ 0 $ 100 $ 0 $ (5,855) $123,230 $ (7,947) ======== ======= ===== ========= ======== =========
See notes to consolidated financial statements. -36- 37 JPS TEXTILE GROUP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in Thousands)
Predecessor Company Reorganized Company ---------------------------------- | ----------------------------------- Fiscal Year | Fiscal Year Ended Period from | Period from Ended November 2, November 3, 1996 | October 10, 1997 October 31, 1996 to October 9, 1997 | to November 1, 1997 1998 ------------ ------------------ | ------------------- ----------- | CASH FLOWS FROM | OPERATING ACTIVITIES | Net income (loss) $ (67,436) $ 76,278 | $ 2,717 $(10,664) --------- -------- | -------- -------- Adjustments to reconcile net | income (loss) to net cash | provided by (used in) operating | activities: | Charges for plant closing, | loss on sale of certain | operations, writedown of | certain long-lived assets and | restructuring costs 30,028 (574) | -- 19,245 Loss on sale of | discontinued operations 1,500 -- | -- -- Extraordinary gain on | early extinguishment of debt -- (100,235) | -- -- Depreciation and amortization, | except amounts included | in interest expense 22,739 17,880 | 846 12,462 Interest accretion and debt | issuance cost amortization 10,088 7,303 | 20 329 Reorganization charges -- 5,581 | -- -- Tax benefit from reduction | of valuation allowance -- (9,745) | -- -- Deferred income tax | provision (benefit) (500) -- | 1,256 (817) Valuation allowance on | Gulistan securities 4,242 5,070 | -- -- Other, net (3,163) (3,229) | (295) (2,294) Changes in assets and liabilities: | Accounts receivable 10,372 10,599 | (15,002) 11,620 Inventories (2,635) (6,920) | 9,664 (9,884) Prepaid expenses and other | assets (2,348) (18,565) | 816 (123) Accounts payable (3,983) 1,243 | (1,599) (1,419) Accrued expenses and other | liabilities (1,688) 15,432 | 650 (2,777) --------- -------- | -------- -------- Total adjustments 64,652 (76,160) | (3,644) 26,342 --------- -------- | -------- -------- Net cash provided by (used in) | operating activities (2,784) 118 | (927) 15,678 --------- -------- | -------- --------
-37- 38 CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Predecessor Company Reorganized Company -------------------------------- | --------------------------------- Fiscal | Fiscal Year Ended Period from | Period from Year Ended November 2, November 3, 1996 | October 10, 1997 October 31, 1996 to October 9,1997 | to November 1, 1997 1998 ---------- ----------------- | ------------------- ---------- | CASH FLOWS FROM | INVESTING ACTIVITIES | Property and equipment additions (9,834) (14,467) | (1,618) (22,423) Proceeds from sale of | discontinued operations, net 17,077 -- | -- -- Proceeds from sale of certain | operations 5,113 988 | -- -- Proceeds from sale of long-term | investments -- 49,500 | -- 35,382 Purchase of investments -- (33,500) | -- -- -------- -------- | ------- -------- Net cash provided by (used in) | investing activities 12,356 2,521 | (1,618) 12,959 -------- -------- | ------- -------- | CASH FLOWS FROM | FINANCING ACTIVITIES | Financing costs incurred (614) (1,465) | (66) (146) Proceeds from issuance of | long-term debt 29 -- | -- -- Revolving credit facility | borrowings (repayments), net (6,087) 3,361 | 3,245 1,849 Purchases and repayment of other | long-term debt, net (2,792) (2,655) | (86) (32,679) -------- -------- | ------- -------- Net cash provided by (used in) | financing activities (9,464) (759) | 3,093 (30,976) -------- -------- | ------- -------- | NET INCREASE (DECREASE) | IN CASH 108 1,880 | 548 (2,339) Cash at beginning of period 1,352 1,460 | 3,340 3,888 -------- -------- | ------- -------- Cash at end of period $ 1,460 $ 3,340 | $ 3,888 $ 1,549 ======== ======== | ======= ======== | SUPPLEMENTAL INFORMATION | ON CASH FLOWS FROM | CONTINUING OPERATIONS: | Interest paid $ 30,709 $ 7,944 | $ 24 $ 7,629 Income taxes paid (received), net 693 (46) | (8) 1,044 Non-cash financing activities: | Capital lease obligation -- -- | -- 3,519 Senior redeemable preferred | stock dividends-in-kind 3,114 -- | -- --
See notes to consolidated financial statements. -38- 39 JPS TEXTILE GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. BUSINESS AND BASIS OF PRESENTATION Unless the context otherwise requires, the terms "JPS" and the "Company" as used in these Consolidated Financial Statements mean JPS Textile Group, Inc. and JPS Textile Group, Inc. together with its subsidiaries, respectively. The 1988 Acquisition - JPS purchased from J.P. Stevens & Co., Inc. ("J.P. Stevens") substantially all of the property, plant and equipment, inventories, certain other assets and the business of five former divisions of J.P. Stevens (the "Predecessor Stevens Divisions") on May 9, 1988 (the "Acquisition"). The purchase was financed through long-term borrowings and the sale of preferred and common stock. The Company operates principally as a manufacturer of industrial products, apparel fabrics and home fashion textiles. These products are sold primarily to the athletic, automotive, medical, construction, electrical, filtration, recreational, composite, defense, aerospace, environmental and domestic clothing industries. As described in Notes 3 and 4, certain of the acquired businesses and operations have been subsequently sold. The 1991 Restructuring - In 1990, JPS negotiated the terms of a recapitalization proposal with a steering committee comprised of institutional holders of a substantial amount of the then-outstanding securities, which culminated in JPS's prepetition solicitation of votes to accept or reject a chapter 11 plan of reorganization. The plan was overwhelmingly accepted. On February 7, 1991, JPS filed a petition for relief under the Bankruptcy Code, and approximately 42 days thereafter, JPS's plan was confirmed by the bankruptcy court and JPS emerged from chapter 11 on April 2, 1991. Pursuant to that plan, in exchange for JPS's outstanding debt securities and JPS's equity securities, JPS issued (i) $100 million in principal amount of senior secured notes due June 1, 1995 and June 1, 1996 (all of which were redeemed in 1994), (ii) $151.1 million in principal amount of 10.85% Senior Subordinated Discount Notes due June 1, 1999 (the "10.85% Notes"), (iii) $125 million in principal amount of 10.25% Senior Subordinated Notes due June 1, 1999 (the "10.25% Notes"), (iv) $75 million in principal amount of 7% Subordinated Debentures due May 15, 2000 (the "7% Subordinated Debentures"), (v) 390,719 shares of Series A Senior Preferred Stock (the "Old Senior Preferred Stock"), (vi) 10,000 shares of Series B Junior Preferred Stock (the "Old Junior Preferred Stock"), (vii) 490,000 shares of class A common stock, par value $0.01 per share (the "Class A Common Stock") and (viii) 510,000 shares of class B common stock, par value $0.01 per share (the "Class B Common Stock" and, together with the Class A Common Stock, the "Old Common Stock"). Since this reorganization did not meet the criteria for "fresh-start" accounting, the primary adjustment to historical carrying values as a result of the reorganization was to state the new long-term debt and senior redeemable preferred stock at present values of amounts to be paid determined at appropriate current interest rates as of April 2, 1991, the effective date of the plan. The resulting present value discount was amortized as interest expense or dividends over the life of the related debt or senior redeemable preferred stock instrument using the interest method. The 1997 Restructuring - In 1996, JPS and JPS Capital Corp., a wholly-owned subsidiary of JPS ("JPS Capital") commenced negotiations with an unofficial committee (the "Unofficial Bondholder Committee") comprised of institutions that owned, or represented holders that beneficially owned, approximately 60% of the 10.85% Notes, the 10.25% Notes and the 7% Subordinated Debentures (the "Old Debt Securities"). On May 15, 1997, the parties reached an agreement in principle on the terms of a restructuring to be accomplished under chapter 11 of the Bankruptcy Code which culminated in a -39- 40 Joint Plan of Reorganization (as amended the "Plan of Reorganization") proposed by JPS and JPS Capital under the Bankruptcy Code. Pursuant to a disclosure statement, dated June 25, 1997 (the "Disclosure Statement"), on June 26, 1997, JPS and JPS Capital commenced a prepetition solicitation of votes by the holders of Old Debt Securities and Old Senior Preferred Stock to accept or reject the Plan of Reorganization. Under the Plan of Reorganization, the holders of Old Debt Securities and Old Senior Preferred Stock were the only holders of impaired claims and impaired equity interests entitled to receive a distribution, and therefore, pursuant to section 1126 of the Bankruptcy Code, were the only holders entitled to vote on the Plan of Reorganization. At the conclusion of the 32-day solicitation period, the Plan of Reorganization had been accepted by holders of more than 99% of the Old Debt Securities that voted on the Plan of Reorganization and by holders of 100% of the Old Senior Preferred Stock that voted on the Plan of Reorganization. On August 1, 1997, JPS commenced its voluntary reorganization case under chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Southern District of New York (the "Bankruptcy Court"), and filed the Plan of Reorganization and the Disclosure Statement. None of JPS's subsidiaries, including JPS Capital which was a co-proponent of the Plan of Reorganization, commenced a case under the Bankruptcy Code. Pursuant to orders of the Bankruptcy Court entered on September 9, 1997, the Bankruptcy Court (i) approved the Disclosure Statement and the solicitation of votes on the Plan of Reorganization and (ii) confirmed the Plan of Reorganization. The Plan of Reorganization became effective on October 9, 1997 (the "Effective Date") resulting in, among other things, the cancellation of the Old Senior Preferred Stock, Old Junior Preferred Stock, and Old Common Stock, and the issuance of 10 million shares of $.01 par value new common stock (the "Common Stock"). Through the implementation of the Plan of Reorganization as of the Effective Date, JPS's most significant financial obligations were restructured: $240,091,318 in face amount of outstanding Old Debt Securities were exchanged for, among other things, $14 million in cash, 99.25% of the shares of Common Stock and approximately $34 million in aggregate principal amount (subject to adjustment on the maturity date) of contingent payment notes issued by JPS Capital (the "Contingent Notes"); the Old Senior Preferred Stock, the Old Junior Preferred Stock and the Old Common Stock were canceled; warrants to purchase up to 5% of the common stock of JPS (the "New Warrants") with an initial purchase price of $98.76 per share were issued in respect of the Old Senior Preferred Stock; and the obligations of JPS under its former working capital facility were satisfied and the Revolving Credit Facility was obtained. JPS's senior management received approximately 0.75% of the Common Stock in lieu of payment under their contractual retention bonus agreements. In August 1998, the Company reduced its long-term debt and related investments by repaying all of the approximately $34 million in principal amount of JPS Capital's Contingent Notes. The Plan of Reorganization was accounted for pursuant to Statement of Position 90-7 ("SOP 90-7") of the American Institute of Certified Public Accountants, entitled "Financial Reporting by Entities in Reorganization under the Bankruptcy Code." The accompanying consolidated financial statements reflect the use of "fresh start" reporting as required by SOP 90-7, in which assets and liabilities were adjusted to their fair values and resulted in the creation of a new reporting entity (the "Company" or the "Reorganized Company") with no retained earnings or accumulated deficit as of October 9, 1997. Accordingly, the consolidated financial statements for the periods prior to October 9, 1997 (the "Predecessor Company") are not comparable to consolidated financial statements presented subsequent to October 9, 1997. A black line has been drawn on the accompanying consolidated financial statements and notes thereto to distinguish between the Reorganized Company and Predecessor Company balances. The total reorganization value assigned to the Company's assets was determined, by independent valuation, by calculating projected cash flows before debt service requirements, for a three-year period, plus an estimated terminal value of the Company (calculated using a multiple of projected EBITDA), -40- 41 each discounted back to its present value using a discount rate of 10% (estimating the after-tax weighted average cost of capital). The above calculations resulted in an estimated reorganization value attributable to the common stock of approximately $123.3 million of which the Excess Reorganization Value was approximately $45.9 million. The Excess Reorganization Value is being amortized over twenty years. As a result of the restructuring and the application of fresh start accounting as required by SOP 90-7, a gain on early extinguishment of debt of approximately $100.2 million and reorganization items of approximately $13.1 million were recorded in the Predecessor Company period ending October 9, 1997. 2. SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation - The consolidated financial statements include JPS Textile Group, Inc. and its direct subsidiaries, all of which are wholly owned. Significant intercompany transactions and accounts have been eliminated. Use of Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company's most significant financial statement estimates include the estimate of the allowance for doubtful accounts, reserve for self-insurance liabilities, and the reserve for roofing products sold under warranties, including those sold by the Predecessor Stevens Division operations (discussed in Note 10). Management determines its estimate of the allowance for doubtful accounts considering a number of factors, including historical experience, aging of the accounts and the current creditworthiness of its customers. The Company self-insures, with various insured stop-loss limitations, its workers' compensation, general liability and health claims. Management determines its estimate of the reserve for self-insurance considering a number of factors, including historical experience and third party claims administrator and actuarial assessment of the liabilities for reported claims and claims incurred but not reported. Management believes that its estimates provided in the financial statements, including those for the above-described items, are reasonable and adequate. However, actual results could differ from those estimates. Inventories - Inventories are stated at the lower of cost or market. Cost, which includes labor, material and factory overhead, is determined on the first-in, first-out basis. Investments - At November 1, 1997, all debt and equity securities are classified as held-for-sale and reported at fair value as determined based on market prices or dealer quotes. In August 1998, all debt and equity securities were sold and the proceeds were used to repay all of the approximately $34 million in principal amount of the Contingent Notes plus accrued interest. Property, Plant and Equipment - As a result of the adoption of fresh start accounting as described in Note 1, property, plant and equipment was adjusted to estimated fair value as of October 9, 1997 and historical accumulated depreciation was eliminated. Property, plant and equipment is recorded at cost and depreciation is recorded using the straight-line method for financial reporting purposes. The estimated useful lives used in the computation of depreciation are as follows: 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
-41- 42 Capital Leases - Assets under capital leases are amortized in accordance with the Company's normal depreciation policy and the charge to earnings is included in depreciation expense in the accompanying consolidated financial statements. Reorganization Value in Excess of Amounts Allocable to Identifiable Assets - Reorganization value in excess of amounts allocable to identifiable assets results from the application of "fresh start" reporting, as discussed in Note 1, which requires the Predecessor Company's unidentified intangibles, net of amortization, to be reduced to zero and a new amount to be recorded equaling the excess of the fair value of the Company over the fair value allocated to its identifiable assets. This excess is classified as reorganization value in excess of amounts allocable to identifiable assets and is being amortized over a twenty-year period. In Fiscal 1998, the Company wrote off approximately $6.9 million of the reorganization value in excess of amounts which was allocable to identifiable assets in relation to the plant sale and plant closure discussed in Note 4. Debt Issuance Costs - Costs incurred in securing and issuing long-term debt are deferred and amortized over the terms of the related debt in amounts which approximate the interest method of amortization. Product Warranties - On certain of its products, the Company provides a warranty against defects in materials and workmanship under separately priced extended warranty contracts generally for a period of ten years. Revenue from such extended warranty contracts is deferred and recognized as income on a straight-line basis over the contract period. The cost of servicing such product warranties is charged to expense as incurred. Postretirement Benefits - The Company accounts for postretirement benefits other than pensions using the principles of Statement of Financial Accounting Standards ("SFAS") No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions". SFAS No. 106 requires that the projected future cost of providing postretirement benefits, such as health care and life insurance, be recognized as an expense as employees render service. See Note 11 for a further description of the accounting for postretirement benefits. Postemployment Benefits - The Company accounts for postemployment benefits using the principles of SFAS No. 112, "Employers' Accounting for Postemployment Benefits". SFAS No. 112 requires that the cost of benefits provided to former or inactive employees after employment but before retirement be recognized on the accrual basis of accounting. See Note 11 for a further description of the accounting for postemployment benefits. Fair Value of Financial Instruments - The carrying amounts of all financial instruments approximate their estimated fair values in the accompanying Balance Sheets. The carrying amounts of cash, accounts receivable, accounts payable and accrued expenses approximate fair value because of the short maturity of these items. The carrying value of debt issued pursuant to the Company's senior credit facility approximates fair value because interest rates on these instruments change with market rates. The carrying value of other debt instruments, including capital lease obligations, approximate fair value because interest rates on such debt approximates rates that are currently available to the Company for issuance of debt with similar terms and remaining maturities. Revenue Recognition - The Company recognizes revenue from product sales when it has shipped the goods or ownership has been transferred to the customer for goods to be held for future shipment at the customer's request. -42- 43 Advertising Costs - The Company defers advertising related costs until the advertising is first run in magazines or other publications or in the case of brochures, until the brochures are printed and available for distribution. Advertising costs expensed were approximately $1,967,000 in Fiscal 1996, $1,947,000 and $122,000 in the period from November 3, 1996 to October 9, 1997 and the period from October 10, 1997 to November 1, 1997, respectively, and $1,581,000 in Fiscal 1998. Income Taxes - The Company accounts for income taxes using the principles of SFAS No. 109, "Accounting for Income Taxes". Under SFAS No. 109, deferred taxes represent the future income tax effect of temporary differences between the book and tax bases of the Company's assets and liabilities, assuming they will be realized and settled at the amount reported in the Company's financial statements. Earnings Per Share - In 1997, the Financial Accounting Standards Board (FASB) issued SFAS No. 128, "Earnings Per Share." SFAS No. 128 replaced the previously required primary and fully diluted earnings per share with basic and diluted earnings per share. Basic earnings per share is computed using the weighted average number of common shares. Diluted earnings per share is computed using the weighted average number of common shares and potentially dilutive common shares outstanding during the period. Potentially dilutive common shares consist primarily of stock options and warrants. In the period from October 10, 1997 to November 1, 1997 and the year ended October 31, 1998, the inclusion of additional shares assuming the exercise of stock options and warrants are antidilutive. Therefore, basic and diluted earnings per share are the same. All earnings per share amounts for all periods have been presented, and where necessary, restated to conform to SFAS No. 128 requirements. Cash Flows - For purposes of reporting cash flows, cash includes cash on hand and in banks. The Company has no investments that are deemed to be cash equivalents. Effects of Recent Accounting Pronouncements - In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130 provides for the disclosure of comprehensive income and its components, with the same prominence as net income in a full set of general purpose financial statements. Comprehensive income is defined as the change in equity of a business enterprise during a period from transactions and other events from nonowner sources. This statement will require additional disclosure but will not have a material impact on the Company's financial position, results of operations or cash flows. The adoption of SFAS No. 130 is effective for the Company in Fiscal 1999. In June 1997, the FASB issued SFAS No. 131, "Disclosure About Segments of an Enterprise and Related Information." SFAS No. 131 requires publicly-held companies to report financial and other information about key revenue-producing segments of the enterprise for which such information is available and is utilized by the chief operating decision maker in allocating resources and assessing performance. Specific information to be reported for individual segments includes profit or loss, certain revenue and expense items and total assets. A reconciliation of segment information to amounts reported in the financial statements is also to be provided. SFAS No. 131 is effective for the Company at the Fiscal 1999 year end, unless adopted earlier. Management of the Company has not yet evaluated the effects of this change on its reporting segments. In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures About Pensions and Other Postretirement Benefits - an Amendment of FASB Statements No. 87, 88 and 106." SFAS No. 132 revises disclosures about pension and other postretirement benefit plans, but it does not change the measurement or recognition of those plans and therefore will not have a significant impact on the Company's financial position, results of operations or cash flows. SFAS No. 132 is effective for the Company in Fiscal 1999. -43- 44 In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." This statement requires companies to record derivatives on the balance sheet as assets or liabilities, measured at fair value. Gains or losses resulting from changes in the values of those derivatives would be accounted for depending on the use of the derivative and whether it qualifies for hedge accounting. SFAS No. 133 will be effective for the Company in Fiscal 2000. Management of the Company has not yet evaluated the effects of this statement on the Company's financial position, results of operations or cash flows. In March 1998, the American Institute of Certified Public Accountants (AICPA) issued Statement of Position (SOP) 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use", which provides guidance on accounting for the costs of computer software developed or obtained for internal use. SOP 98-1 requires external and internal indirect costs of developing or obtaining internal-use software to be capitalized as a long-lived asset and also requires training costs included in the purchase price of computer software and costs associated with research and development to be expensed as incurred. SOP 98-1 will be effective for the Company in Fiscal 1999. Management of the Company has not yet evaluated the effects of this statement on the Company's financial position, results of operations and cash flows. Fiscal Year - The Company's operations are based on a fifty-two or fifty-three week fiscal year ending on the Saturday closest to October 31. Fiscal 1996 had fifty-three weeks. The 1997 fiscal year consisted of fifty-two weeks including the period from November 3, 1996 to October 9, 1997 (Predecessor Company) and the period from October 10, 1997 to November 1, 1997 (Reorganized Company). Fiscal 1998 had fifty-two weeks. Reclassifications - Certain Fiscal 1996 and 1997 amounts have been reclassified to conform to the 1998 presentation. 3. SALE OF DISCONTINUED OPERATIONS Carpet Business - On November 16, 1995, pursuant to the terms of an Asset Transfer Agreement dated as of November 16, 1995, by and among JPS, JPS Carpet Corp. ("Carpet"), a wholly-owned subsidiary of JPS, Gulistan Holdings Inc. and Gulistan Carpet Inc., a wholly-owned subsidiary of Gulistan Holdings Inc. (collectively, "Gulistan"), the Company and Carpet consummated the sale of substantially all of the assets of Carpet used in the business of designing and manufacturing tufted carpets for sale to residential, commercial and hospitality markets (the "Carpet Business"). The consideration for the sale of the Carpet Business consisted of approximately $22.5 million in cash, subject to certain post-closing adjustments based on the audited amount of working capital transferred on November 16, 1995, and other debt and equity securities of Gulistan as follows: a $10 million Promissory Note due in November 2001, $5 million of preferred stock redeemable in November 2005, and warrants to purchase 25% of the common stock of Gulistan. Based on an independent valuation at the asset transfer date, the Company determined the fair value of these debt and equity securities to be approximately $11.3 million. In addition, certain post-closing adjustments, which resulted in a loss of $1.5 million, were recognized in Fiscal 1996 on the sale of discontinued operations. The Company did not record interest income on any of the Gulistan securities held by the Company because of net losses reported by Gulistan since the date of sale. Also, in accordance with relevant accounting literature, the Company recorded a valuation allowance against its investment in Gulistan securities and corresponding charges to income of approximately $4.2 million in Fiscal 1996 and $2.1 million in the period from November 3, 1996 to October 9, 1997 as a result of the net losses incurred -44- 45 by Gulistan. On August 28, 1997, the Company sold its investment in the Gulistan securities to Gulistan for $2.0 million in cash resulting in an additional charge of approximately $3.0 million. Automotive Businesses - On June 28, 1994, the Company sold the business and assets of JPS Auto, Inc. ("Auto") and the synthetic industrial fabrics division of JPS Converter and Industrial Corp., a wholly owned subsidiary of JPS ("C&I"), and JPS' investment in common stock of Cramerton Automotive Products, L.P. (an 80% owned joint venture) for approximately $283 million. 4. SALE OF CERTAIN OPERATIONS, PLANT CLOSING, WRITEDOWN OF CERTAIN LONG- LIVED ASSETS AND RESTRUCTURING COSTS Pursuant to an Asset Purchase Agreement dated September 30, 1996 between JPS Elastomerics Corp. ("Elastomerics"), a wholly-owned subsidiary of the Company, and Elastomer Technologies Group, Inc. ("Elastomer") and a Receivables Purchase Agreement dated September 30, 1996 between Elastomerics and the Bank of New York Commercial Corporation, Elastomerics sold substantially all the assets of its rubber products division, a business engaged in the manufacture and sale of natural and synthetic elastic for use in apparel products, diaper products and specialty industrial applications (the "Rubber Products Business"). The Rubber Products Business had accounted for sales of $16.8 million in Fiscal 1996 (eleven months). Under the terms of the agreement, Elastomer agreed to assume substantially all the liabilities and obligations associated with the Rubber Products Business. The Company and its subsidiaries agreed not to compete directly or indirectly with the business that was sold for a period of two years. The consideration for the Rubber Products Business consisted of approximately $5.1 million in cash, subject to certain post-closing adjustments based on the audited amount of working capital transferred on the closing date, and resulted in a loss of approximately $7.7 million. This loss on sale was charged to operations in Fiscal 1996. The net proceeds from the sale, after fees and expenses, was approximately $4.8 million and was used to reduce the Company's outstanding indebtedness. In April 1997, the Company paid $0.3 million to Elastomer as final settlement for certain post-closing adjustments based on the audited amount of net assets transferred. On August 28, 1996, the Company implemented a plan to close its Dunean plant in Greenville, South Carolina, as a result of management's determination that a permanent decline in the Company's spun apparel business had occurred. This plant had been operating on a reduced schedule due to poor market conditions and financial projections indicated it would continue to do so. As a result of the plant closing, the accompanying Consolidated Statement of Operations includes a "charge for plant closing" of approximately $14.2 million for Fiscal 1996 related principally to the estimated loss on the impairment of long-lived assets in accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of", and employee severance costs. The plant closing was completed on October 28, 1996 and the plant was sold on August 14, 1997 for approximately $1.2 million in cash. Also in 1996, in connection with the Company's review of present and expected conditions in the markets it serves, management determined that its plant in Kingsport, Tennessee, which manufactures cotton fabrics, was impaired under the criteria of SFAS No. 121 because expected future cash flows from the operation of the plant were less than the carrying value of the plant assets. The accompanying Consolidated Statement of Operations for Fiscal 1996 includes a "writedown of certain long-lived assets" of $8.1 million for the excess of the carrying value of the plant over its estimated fair value. Estimated fair value was determined based on an independent appraisal of the plant's property, plant and equipment. -45- 46 Pursuant to an Asset Purchase Agreement dated as of January 11, 1999, as amended, between C&I and Belding Hausman Incorporated, C&I agreed to sell substantially all the assets of its Boger City Plant located in Lincolnton, North Carolina. This plant is primarily engaged in the manufacture and sale of home fashion textiles and accounted for sales of approximately $33.6 million, $30.9 million and $22.8 million in Fiscal 1996, 1997 and 1998, respectively. The consideration for the sale will consist of approximately $7.9 million in cash, subject to a post-closing adjustment based upon the amount of inventories transferred. The cash proceeds will be used by the Company to reduce outstanding borrowings under its credit facility and certain equipment loans. In accordance with SFAS No. 121, the accompanying Fiscal 1998 Consolidated Statement of Operations includes a "charge for writedown of certain long-lived assets" of approximately $12.5 million representing the loss on impairment of assets (approximately $7.2 million) for the excess of the carrying value of the plant over its net realizable value and the writeoff of approximately $5.3 million of related reorganization value in excess of amounts allocable to identifiable assets. This transaction is expected to close early in the Company's second fiscal quarter of Fiscal 1999. On February 10, 1999, the Company announced that it would close its Angle Plant located in Rocky Mount, Virginia, as a result of the Company's assessment of the market conditions for apparel products constructed primarily of filament yarns. As a result of this decision, the accompanying Fiscal 1998 Consolidated Statement of Operations includes a "charge for writedown of certain long-lived assets" of approximately $4.3 million representing the loss on impairment of assets (approximately $2.7 million) for the excess of the carrying value of the plant over its estimated net realizable value (as determined by independent appraisal or quoted prices from used equipment dealers) and the writeoff of approximately $1.6 million of related reorganization value in excess of amounts allocable to identifiable assets in accordance with SFAS No. 121. This plant closing is expected to be completed by the end of the Company's Fiscal 1999 third fiscal quarter. The Company expects to incur approximately $1.4 million in plant closing costs in Fiscal 1999 related principally to employee severance and plant run-out costs. In Fiscal 1998, the Company implemented certain cost reduction measures which included personnel reductions and the idling of certain manufacturing equipment. The accompanying Fiscal 1998 Consolidated Statement of Operations includes a "charge for writedown of certain long-lived assets" of approximately $1.7 million for the impairment of idled assets and a "charge for restructuring costs" of approximately $0.7 million related to employee severance costs. -46- 47 5. BALANCE SHEET COMPONENTS The components of certain balance sheet accounts are (in thousands):
November 1, October 31, 1997 1998 ---------- ---------- Inventories: Raw materials and supplies $ 12,508 $ 10,382 Work-in-process 17,168 16,690 Finished goods 15,094 24,470 --------- --------- $ 44,770 $ 51,542 ========= ========= Prepaid expenses and other: Investments $ 34,597 Deferred current tax 867 $ 1,509 Prepaid insurance 555 883 Other 1,066 1,709 --------- --------- $ 37,085 $ 4,101 ========= ========= Property, plant and equipment, net: Land and improvements $ 4,187 $ 3,667 Buildings and improvements 13,548 12,818 Machinery and equipment 81,108 87,774 Furniture, fixtures and other 1,069 1,355 --------- --------- 99,912 105,614 Less accumulated depreciation (681) (8,692) --------- --------- 99,231 96,922 Construction in progress 5,323 1,534 --------- --------- $ 104,554 $ 98,456 ========= ========= Other noncurrent assets: Unamortized debt issuance costs $ 1,438 $ 1,255 Prepaid pension costs 2,043 -- Deferred income tax 3,344 1,886 --------- --------- $ 6,825 $ 3,141 ========= ========= Other accrued expenses: Roofing product liability costs $ 1,500 $ 2,000 Taxes payable other than income taxes 1,090 1,356 Income taxes 3,292 2,813 Other 7,300 5,088 --------- --------- $ 13,182 $ 11,257 ========= ========= Other long-term liabilities: Roofing product liability costs and deferred warranty income $ 14,744 $ 14,974 Accrued pension costs -- 2,036 Accrued postretirement benefit plan liability 3,393 3,331 Other 126 -- --------- --------- $ 18,263 $ 20,341 ========= =========
-47- 48 6. INVESTMENTS In connection with the sale of the Automotive Assets in June 1994, the Company invested $39.5 million of the sale proceeds in long-term securities. During 1997, the original investments matured and were reinvested as detailed below. As of November 1, 1997, all investment securities had a contractual maturity of less than one year. During 1998, these long-term securities were sold and the proceeds were used to repay all of the approximately $34 million in principal amount plus accrued interest of the Company's Contingent Notes. The following table details the adjusted cost and fair value of the reinvested amounts at November 1, 1997 (in thousands):
Adjusted Cost Held for Sale: and Fair Value -------------- -------------- U.S. Treasury obligations $ 28,553 Corporate obligations 5,938 Other 106 ----------- $ 34,597 ===========
7. LONG-TERM DEBT Long-term debt consists of (in thousands):
November 1, October 31, 1997 1998 ---------- ---------- Senior credit facility, revolving line of credit $ 92,246 $ 94,095 Contingent Notes 34,540 -- Equipment financing 4,181 2,645 Capital lease obligation -- 3,396 --------- --------- Total 130,967 100,136 Less current portion (36,076) (1,047) --------- --------- Long-term portion $ 94,891 $ 99,089 ========= =========
Senior Credit Facility - On October 9, 1997, Elastomerics and C&I (the "Borrowing Subsidiaries") and JPS entered into the Credit Facility Agreement, (the "Credit Agreement"), by and among the financial institutions party thereto, Citibank, as agent, and NationsBank, N.A., as co-agent. The Credit Agreement provides for a revolving credit loan facility and letters of credit (the "Revolving Credit Facility") in a maximum principal amount equal to the lesser of (a) $135 million and (b) a specified borrowing base (the "Borrowing Base"), which is based upon eligible receivables, eligible inventory and a specified dollar amount (currently $52,000,000 (subject to reduction) based on fixed assets of the Borrowing Subsidiaries), except that (i) no Borrowing Subsidiary may borrow an amount greater than the Borrowing Base attributable to it (less any reserves as specified in the Credit Agreement) and (ii) letters of credit may not exceed $20 million in the aggregate. The Credit Agreement contains restrictions on investments, acquisitions and dividends unless, among other things, the Company satisfies a specified pro forma fixed charge coverage ratio and maintains a specified minimum availability under the Revolving Credit Facility for a stated period of time, and no default exists under the Credit Agreement. The Credit Agreement also restricts, among other things, indebtedness, liens, affiliate transactions, operating leases, fundamental changes and asset sales other than the sale of up to $35 million of fixed assets, subject to the satisfaction of certain conditions. The Credit Agreement contains financial covenants relating to minimum levels of EBITDA, minimum interest coverage ratio, minimum fixed charge coverage ratio and maximum capital expenditures. The maturity date of the Revolving Credit Facility is October 9, 2002. On October 30, 1998, the Credit Agreement was amended to, among other things (i) modify the financial covenants relating to minimum levels of EBITDA, minimum interest -48- 49 coverage ratio, minimum fixed charge coverage ratio and maximum capital expenditures, (ii) modify the interest rate margin and unused commitment fees and (iii) provide additional reduction of the fixed asset portion of the Borrowing Base. As of October 31, 1998, the Company was in compliance with these restrictions and all financial covenants, as amended. All loans outstanding under the Revolving Credit Facility, as amended, bear interest at either the Eurodollar Rate (as defined in the Credit Agreement) or the Base Rate (as defined in the Credit Agreement) plus an applicable margin (the "Applicable Margin") based upon the Company's fixed charge coverage ratio (which margin will not exceed 2.50% for Eurodollar Rate borrowings and .25% for Base Rate borrowings). The weighted average interest rate at October 31, 1998 is approximately 6.9%. The Company pays a fee of .25% per annum if a specified fixed charge coverage ratio is satisfied and a letter of credit fee equal to the Applicable Margin for Eurodollar Rate borrowings. Borrowings under the Revolving Credit Facility are made or repaid on a daily basis in amounts equal to the net cash requirements or proceeds for that business day. As of October 31, 1998, unused and outstanding letters of credit totaled $1,526,000. The outstanding letters of credit reduce the funds available under the Revolving Credit Facility. At October 31, 1998, the Company had approximately $38.3 million available for borrowing under the Revolving Credit Facility. The loans and extensions of credit to the Borrowing Subsidiaries under the Credit Agreement are guaranteed by JPS and its other existing subsidiaries other than JPS Capital, and are secured by the assets of JPS (excluding the stock of JPS Capital) and its existing subsidiaries other than JPS Capital. Contingent Notes - As discussed in Note 1, on the Effective Date, under the terms of the Plan of Reorganization, JPS Capital, the Company and First Trust National Association, as trustee, entered into an indenture, dated as of the Effective Date (the "Contingent Note Indenture"), pursuant to which JPS Capital issued the Contingent Notes in an initial principal amount of approximately $34 million. On August 31, 1998, the Company repaid the approximately $34 million in principal amount of Contingent Notes plus accrued interest with the proceeds from the sale of related investments discussed in Note 6. Accordingly, the Company has no further obligation under the Contingent Note Indenture. Equipment Financing - The Company has financed a portion of its equipment purchases with loans from a finance company and certain equipment vendors at fixed interest rates ranging from 7.6% to 9.7%. Monthly principal payments are due in various amounts as determined by the terms of the loans which have final maturity dates through December 2001. Capital Lease Obligation - In Fiscal 1998, the Company entered into a seven-year lease agreement (classified as a capital lease) for certain machinery and equipment. The total cost of the assets to be covered by the lease is limited to approximately $5.0 million. The total costs of assets under lease at October 31, 1998 was approximately $3.5 million. The lease provides for an early buyout option at the end of six years and includes purchase and renewal options at the end of the lease term. The lease has an implied interest rate of approximately 7.4%. See Note 10 for obligations under capital leases. Other - Substantially all of the Company's assets are pledged as collateral for the Credit Agreement and the equipment financing. Interest expense includes $10,088,000 in Fiscal 1996, $7,303,000 in the period from November 3, 1996 to October 9, 1997, $19,000 in the period from October 10, 1997 to November 1, 1997 and $329,000 in Fiscal 1998, representing amortization of debt issuance expenses and accretion of interest on the discounted notes and accrued product liability costs (see Note 10). -49- 50 Maturities - Aggregate principal maturities of all long-term debt, exclusive of the capital lease obligation, are as follows (in thousands):
Fiscal Year Ending ------------------ 1999 $ 688 2000 638 2001 639 2002 94,775 ----------- $ 96,740 ===========
8. EQUITY SECURITIES AND SENIOR REDEEMABLE PREFERRED STOCK Through the implementation of the Plan of Reorganization as of the Effective Date, approximately $240 million in face amount of outstanding debt securities were exchanged for, among other things, $14 million in cash, 9,924,623 shares of Common Stock and approximately $34 million in aggregate principal amount of Contingent Notes. The Old Senior Preferred Stock, Old Junior Preferred Stock and Old Common Stock were canceled. Warrants to purchase up to 5% of the Common Stock exercisable until October 9, 2000 with an initial purchase price of $98.76 per share were issued in respect of the Old Senior Preferred Stock. Senior management received 75,377 shares of Common Stock on the Effective Date in lieu of payment under their contractual retention bonus arrangements. Certain information on equity securities November 1, 1997 and October 31, 1998 is as follows:
Shares Issued and Outstanding -------------------------------- Par Value November 1, October 31, Per Share Authorized 1997 1998 --------- ---------- -------------- --------------- New Common Stock .01 22,000,000 10,000,000 10,000,000
Until the Effective Date, the Old Senior Preferred Stock was redeemable, prior to its maturity date of May 15, 2003, at 103% of the liquidation preference of $100 per share. Dividends were cumulative and calculated based on an annual rate of 6% of the liquidation preference. Under the terms of various credit agreements, dividends had to be in the form of additional shares until 1998. In connection with the 1991 restructuring, the Old Senior Preferred Stock was discounted to its estimated net present value with the net discount of $23,351,000 reflected as an adjustment of additional paid-in capital. The difference between the net carrying amount of the Old Senior Preferred Stock and its mandatory value was amortized using the interest method of amortization over the life of the shares by charges to additional paid-in capital or, if available, by charges to retained earnings. The Company did not issue first, second or third quarter Fiscal 1997 dividends on its senior redeemable preferred stock. Such cumulative dividends that had not been declared or issued totaled $3,827,000 at October 9, 1997. 1997 Incentive and Capital Accumulation Plan As of the Effective Date, the Company adopted the 1997 Incentive and Capital Accumulation Plan (the "Incentive Plan") which provides certain key employees and non-employee directors of the Company the right to acquire shares of Common Stock or monetary payments based on the value of such shares. Pursuant to the Incentive Plan, approximately 853,000 shares of Common Stock were reserved for issuance to the participants in the form of stock options, stock appreciation rights, stock awards, -50- 51 performance awards, and stock units that may be granted by the compensation committee comprised of certain members of the Company's Board of Directors. The Incentive Plan will terminate ten years from the date of adoption. On October 30, 1997, options to acquire approximately 569,000 shares of the shares reserved pursuant to the Incentive Plan were granted to senior management of the Company. These options include a combination of time vesting options which vest solely on the lapse of time and performance options which vest upon achievement of specified corporate performance goals and the lapse of time. These options are according to specific vesting schedules as set forth in individual participant's grant letters. In addition, on the Effective Date, each non-employee director (except one, who waived his right to receive such options) received options to purchase 25,000 shares of Common Stock. These options vest equally in amounts of 5,000 shares per director, on the Effective Date and the first, second, third and fourth anniversaries of the Effective Date. On October 31, 1998, 94,009 options were canceled due to the failure of the Company to meet its specified performance goals for Fiscal 1998. A summary of the activity in the Company's stock options for the year ended October 31, 1998 and the period from the Effective Date to November 1, 1997 is presented below:
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 canceled -- -- -------- ------ Outstanding at November 1, 1997 668,990 12.33 Options granted -- -- Options exercised -- -- Options canceled (94,009) 12.33 -------- ------ Outstanding at October 31, 1998 574,981 $12.33 ======== ====== Exercisable at October 31, 1998 139,009 $12.33 ======== ====== Exercisable at November 1, 1997 20,000 ======== Weighted average remaining contractual life (years) 9 ========
The Company applies the principles of APB Opinion 25 in accounting for employee stock option plans. The time vesting options are fixed as to the number of shares that may be acquired and the amount to be paid by the employee. Under APB Opinion 25, the Company generally recognizes no compensation expense with respect to such awards because the quoted market price and the amount to be paid by the employee are the same on the date of grant. The performance vesting options are variable in nature and the Company measures compensation expense for the difference between the quoted market price on the date on which both the number of shares that may be acquired by an individual employee and the option price are known. In Fiscal 1998, no compensation expense was recognized on the performance options. Had compensation cost been determined on the basis of SFAS No. 123, "Accounting for Stock-Based Compensation", compensation expense would have been recorded based on the estimated fair value of stock options granted during the period from the Effective Date to November 1, 1997. The total fair value of stock options granted for the period from October 10, 1997 to November 1, 1997 was estimated at $3,266,000, based upon the Black-Scholes option pricing model. The following weighted-average assumptions were used in the Black-Scholes option pricing model for stock options granted during the period from the Effective Date to November 1, 1997 (i) risk-free interest rates of approximately 5.7%, (ii) a weighted average expected life of approximately 4.4 years from the grant date and (iii) 38% volatility. The expected life of the stock options granted and the stock price volatility during the -51- 52 expected life of the options were estimated based upon historical information from public textile companies and management's expectations. Had compensation cost for the Company's stock option plans been determined based on the estimated fair value at the grant dates for awards under those plans consistent with the method of SFAS 123, the Company's income and earnings per share would have been reduced to the pro forma amounts shown below (in thousands except per share amounts):
Period from October 10, 1997 Fiscal To November 1, 1997 1998 ------------------- --------- Net income (loss) As reported $2,717 $(10,664) Pro forma $2,647 $(11,242) Earnings per share As reported $ 0.27 $ (1.07) Pro forma $ 0.26 $ (1.12)
9. INCOME TAXES The provision (benefit) for income taxes on continuing operations included in the consolidated statements of operations consists of the following (in thousands):
Predecessor Company Reorganized Company ------------------------------- | ------------------------------- Period from | Period from Fiscal November 3, 1996 | October 10, 1997 Fiscal 1996 to October 9, 1997 | to November 1, 1997 1998 ----- ------------------ | ------------------- ------- | Current state provision (benefit) $ 200 $ 923 | $ (17) $ 550 Deferred federal provision (benefit) -- (6,080) | 1,714 1,041 Deferred state provision (benefit) (500) (3,665) | 310 (225) ----- ------- | ------- ------- Provision (benefit) for income | taxes $(300) $(8,822) | $ 2,007 $ 1,366 ===== ======= | ======= =======
There is no current provision for Federal income taxes. -52- 53 A reconciliation between income taxes at the 35% statutory Federal income tax rate and the provision (benefit) for income taxes for the Fiscal 1996, the period from November 3, 1996 to October 9, 1997, the period from October 10, 1997 to November 1, 1997 and the Fiscal 1998 is as follows (in thousands):
Predecessor Company Reorganized Company ---------------------------------- | ------------------------------- Period from | Period from Fiscal November 3, 1996 | October 10, 1997 Fiscal 1996 to October 9, 1997 | to November 1, 1997 1998 -------- ------------------ | ------------------- ------- | Income tax provision (benefit) | at Federal statutory rate $(23,183) $(11,473) | $1,653 $(3,254) Increase (decrease) in income | taxes arising from effect of: | State and local income taxes (300) (2,742) | 293 325 Non-deductible reorganization | costs -- 2,947 | -- -- Amortization of and | deductions for goodwill or | excess reorganization value 344 312 | 57 3,205 Losses not resulting in tax | benefits -- 8,158 | -- -- Change in valuation reserve 22,730 (6,080) | -- 980 Other 109 56 | 4 110 -------- -------- | ------ ------- Provision (benefit) for income | taxes $ (300) $ (8,822) | $2,007 $ 1,366 ======== ======== | ====== =======
-53- 54 Presented below are the elements which comprise deferred tax assets and liabilities (in thousands):
November 1, October 31, 1997 1998 ---------- ----------- Gross deferred assets: Estimated allowance for doubtful accounts $ 1,035 $ 306 Excess of tax over financial statement basis of inventory 580 798 Accruals deductible for tax purposes when paid 2,275 2,202 Deferred compensation deductible for tax purposes when paid -- 323 Postretirement benefits deductible for tax purposes when paid 1,562 1,477 Pension liability deductible for tax purposes when paid -- 774 Miscellaneous 120 -- Alternative minimum tax credit carryforward available 1,827 1,773 Deferred financial statement income recognized for tax purposes when received 5,013 5,396 Excess of tax over financial statement carrying value of investment in discontinued operation -- 982 Excess of tax basis of intangibles over financial statement basis 10,406 9,926 Net operating loss carryforward 11,880 11,813 Less valuation allowance (28,444) (32,117) -------- -------- Gross deferred assets 6,254 3,653 -------- -------- Gross deferred liabilities: Pension asset recognized for book purposes (776) -- Excess of financial statement over tax basis of property, plant, and equipment (1,267) (258) -------- -------- Gross deferred liabilities (2,043) (258) -------- -------- Net deferred tax asset $ 4,211 $ 3,395 ======== ======== Recognized in the accompanying consolidated balance sheets as follows: Prepaid expenses and other $ 867 $ 1,509 Other non-current assets 3,344 1,886 -------- -------- $ 4,211 $ 3,395 ======== ========
For the Fiscal Year Ended October 31, 1998, the Company recorded a tax expense of approximately $1.4 million. An expense was recorded even though the Company had a loss from operations. This expense is due to the fact that certain deductions taken for financial reporting purposes, principally the amortization and writeoff of a portion of the excess reorganization value, are not allowed for tax purposes. In addition, the Company recorded an additional valuation allowance on its deferred tax assets. This additional allowance was required due to the limitation on asset recognition when, among other factors, there is a history of recent losses. The Company did record a current state tax expense of $0.6 million. The current state tax expense results from filing separate state tax returns in some jurisdictions and the inability to offset income from profitable subsidiaries with losses from other subsidiaries. A deferred tax benefit was also recorded for subsidiary losses that could not be currently utilized. As a result of a valuation allowance, no benefit was recorded on the additional pension liability recorded as an adjustment to equity (see Note 11). For the period from October 10, 1997 to November 1, 1997, the Company recorded a tax expense of $2.0 million. The tax expense for the period ending November 1, 1997 includes the utilization of a portion of the deferred tax asset, described below, which was recorded as of the Effective Date of the Plan of Reorganization of the Company. The effective tax rate exceeds the statutory federal income tax rate due to the impact of items not deductible for federal income tax purposes and because of state income taxes. -54- 55 The Company recorded a tax benefit for the period ending October 9, 1997 of approximately $8.8 million. This consists of a benefit from the implementation of the Plan of Reorganization net of state taxes on subsidiary operations that could not be offset by operating loss carryovers or current year losses of JPS or its subsidiaries. The benefit arose as consummation of the Plan of Reorganization substantially deleveraged JPS. The deferred tax asset attributable to the net operating loss carryforwards was reduced as a result of the reduction in net operating loss carryforwards that is required for reorganizations such as that provided in the Plan of Reorganization, and the reserve established against the deferred tax assets that was required due to the operating history was also significantly reduced. The reduction in reserves and reduction in deferred tax liabilities during the period ended October 9, 1997 resulted in a deferred tax benefit of $9.7 million. The recording of the tax benefit and the net deferred tax asset reflected the Company's determination that it was more likely than not that these deferred tax assets, net of the valuation allowance, would be realized based on current income tax laws and expectations of future taxable income stemming from operations or the reversal of deferred tax liabilities. Uncertainties surrounding income tax law changes, shifts in operations between state taxing jurisdictions and future operating income levels may, however, affect the ultimate realization of all or some portion of these deferred income tax assets. At October 31, 1998, the Company had regular federal net operating loss carryforwards for tax purposes of approximately $26 million. The net operating loss carryforwards expire in years 2004 through 2012. The Company also has federal alternative minimum tax net operating loss carryforwards of approximately $23 million which expire in 2004 through 2013. Alternative minimum tax credits can be carried forward indefinitely and used as a credit against regular federal taxes, subject to limitation. During 1997, the Company reduced beginning net operating loss carryforwards by approximately $64 million due to the provisions of the Code requiring attribute reduction in certain reorganizations, such as the Plan of Reorganization. The Company was also required to reduce alternative minimum tax credit carryforwards by approximately $737,000 as a result of these provisions. The Company's future ability to utilize its net operating loss carryforwards is limited under the income tax laws as a result of the change in the ownership of the Company's stock occurring as a part of the reorganization. The effect of such an ownership change is to limit the annual utilization of the net operating loss carryforwards to an amount equal to the value of the Company immediately after the time of the change (subject to certain adjustments) multiplied by the Federal long-term tax exempt rate. Due to the Company's operating history, it is uncertain that it will be able to utilize all deferred tax assets. Therefore, a valuation allowance has been provided. The Company is required, under accounting guidelines, to reduce reorganization value in excess of amounts allocable to identifiable assets by the amount of any reduction in the valuation allowance established upon completion of the Plan of Reorganization. The amount of valuation allowance subject to such treatment was $28.4 million at both October 31, 1998 and November 1, 1997. 10. COMMITMENTS AND CONTINGENCIES The Company leases office facilities, machinery and computer equipment under noncancellable operating leases and, beginning in Fiscal 1998, certain capital leases. Rent expense was approximately $5,158,000, $5,178,000, $399,000 and $5,862,000 in Fiscal 1996, the period from November 3, 1996 to October 9, 1997, the period from October 10, 1997 to November 1, 1997 and Fiscal 1998, respectively. -55- 56 Future minimum payments, by year and in the aggregate, under the noncancellable capital and operating leases with terms of one year or more consist of the following at October 31, 1998 (in thousands):
Capital Operating Fiscal Year Ending Lease Leases ------------------ ------- ------ 1999 $ 607 $4,005 2000 607 3,190 2001 607 1,277 2002 607 418 2003 607 35 Thereafter 1,353 -- ------ ------ Total future minimum lease payments 4,388 $8,925 ====== Less: amount representing interest 992 ------ Present value of net minimum lease payments (included in long-term debt - see Note 7) $3,396 ======
The Company has planned expenditures of approximately $8.2 million for property, plant and equipment additions in Fiscal 1999. At October 31, 1998, the Company had commitments for capital expenditures of approximately $1.1 million. On the Effective Date, the Company entered into employment agreements with certain of its executives and key employees. These agreements have three-year terms and are automatically extended on an annual basis after the third year unless the Company or the participant elects in advance not to extend the employment period. The employment agreements provide specific salary levels and bonus eligibility for each participant. In addition, the agreements provide severance benefits if the Company terminates the participant's employment for reasons other than for cause (as defined). Under the terms of the employment agreements, on the Effective Date, the participants received, in the aggregate, a retention grant cash payment of $588,000 and 75,377 shares of Common Stock. The Company has provided for all estimated future costs associated with certain roofing products sold by the Predecessor Stevens Division operations. The liability for future costs associated with these roofing products is subject to management's best estimate, including factors such as expected future claims by geographic region and roofing compound applied; expected costs to repair or replace such roofing products; estimated remaining length of time that such claims will be made by customers; and the estimated costs to litigate and settle certain claims now in litigation. Based on warranties that were issued on the roofs, the Company estimates that these roofing product claims will be substantially settled by the year 2000. Management updates its assessment of the adequacy of the remaining reserve for these roofing products quarterly and if it is deemed that an adjustment to the reserve is required, it will be charged to operations in the period in which such determination is made. The Company charges the costs of settling these roofing product claims as a reduction of the recorded liability balance and, accordingly, such costs are not charged against the results of operations. Costs associated with these product liability claims were $3,111,000, $1,815,000, $521,000 and $1,053,000 in Fiscal 1996, the period from November 3, 1996 to October 9, 1997, the period from October 10, 1997 to November 1, 1997 and Fiscal 1998, respectively. Approximately $3.8 million and $2.8 million was accrued for these estimated future costs at November 1, 1997 and October 31, 1998, respectively. The Company is exposed to a number of asserted and unasserted potential claims encountered in the normal course of business. Except as discussed below, management believes that none of this litigation, if determined unfavorable to the Company, would have a material adverse effect on the financial condition or results of operations of the Company. -56- 57 In June 1997, Sears Roebuck and Co. ("Sears") filed a multi-count complaint against Elastomerics and two other defendants alleging an unspecified amount of damages in connection with the alleged premature deterioration of the Company's roofing membrane installed on approximately 150 Sears stores. No trial date has been established. The Company believes it has meritorious defenses to the claims and intends to defend the lawsuit vigorously. Management, however, cannot determine the outcome of the lawsuit or estimate the range of loss, if any, that may occur. Accordingly, no provision has been made for any loss which may result. An unfavorable resolution of the actions could have a material adverse effect on the business, results of operations or financial condition of the Company. 11. RETIREMENT PLANS Defined Benefit Pension Plan - Substantially all of the Company's employees are covered by a Company-sponsored defined benefit pension plan. The plan also provides benefits to individuals employed by the automotive businesses which were sold by the Company on June 28, 1994, the Carpet Business sold on November 16, 1995 and the Rubber Products Business sold on September 30, 1996. The benefits of these former employees were "frozen" at the respective dates of sale of the businesses. Accordingly, these former employees will retain benefits earned through the respective disposal dates, however, they will not accrue additional benefits. In addition, the plan provides benefits to individuals employed by the Dunean plant which was closed effective October 28, 1996. Benefits for employees who were terminated as a result of the plant closing were also "frozen" as of October 28, 1996 and no additional benefits will accrue subsequent to that date. The plan provides pension benefits that are based on the employees' compensation during the last ten years of employment. The Company's policy is to fund the annual contribution required by applicable regulations. Assets of the pension plan are invested in common and preferred stocks, government and corporate bonds, real estate and various short-term investments. A reconciliation as of the most recent measurement date (October 31, 1998) of the funded status of the plan with amounts reported in the Company's Consolidated Balance Sheets follows (in thousands):
November 1, October 31, 1997 1998 ----------- ----------- Actuarial present value of benefit obligations: Vested $90,574 $ 105,595 Non-vested 197 296 ------- --------- Accumulated benefit obligation 90,771 105,891 Provision for future pay increases 5,528 5,731 ------- --------- Total projected benefit obligation 96,299 111,622 Plan assets at fair value 97,312 103,855 ------- --------- Projected benefit obligation (greater than) less than plan assets 1,013 (7,767) Unrecognized net loss 1,030 11,586 Additional minimum liability recognized as a reduction of shareholders' equity -- (5,855) ------- --------- Pension asset (liability) in accompanying Consolidated Balance Sheets $ 2,043 $ (2,036) ======= =========
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Predecessor Company Reorganized Company -------------------------------- | ------------------------------- Period from | Period from Fiscal November 3, 1996 | October 10, 1997 Fiscal 1996 to October 9, 1997 | to November 1, 1997 1998 ------- ------------------ | ------------------- ------- | Components of net periodic | pension cost: | Service cost-benefits earned | during the period $ 2,378 $ 2,026 | $ 136 $ 2,239 Interest cost on projected | benefit obligation 7,048 6,683 | 449 7,505 Return on plan assets (7,674) (7,184) | (483) (8,543) Net amortization and deferral 451 330 | -- -- ------- ------- | ----- ------- Net periodic pension cost $ 2,203 $ 1,855 | $ 102 $ 1,201 ======= ======= | ===== =======
As of October 31, 1998, the Company reduced the weighted-average discount rate used in determining the actuarial present value of the projected benefit obligation from 7.8% to 6.75%, which more closely approximates current interest rates on high-quality long-term obligations. The provisions of SFAS No. 87, "Employers' Accounting for Pensions," required the Company to record an additional minimum pension liability of approximately $5.9 million at October 31, 1998. The liability represents the amount by which the accumulated benefit obligation exceeds the sum of the fair market value of plan assets and accrued amounts previously recorded. This amount is recorded as a reduction to a separate component of shareholders' equity on the accompanying Consolidated Balance Sheet as of October 31, 1998. The assumed rate of increase in compensation levels was based on age-related tables at November 1, 1997 and October 31, 1998. Effective November 1, 1993, the Company amended the benefit formula for salaried employees to provide for an additional benefit based on compensation in excess of the average social security wage base. As a result of the application of fresh start accounting as described in Note 1, all unamortized prior service costs and unrecognized gains were immediately recognized as of October 9, 1997 and included in reorganization items for the period then ended. On February 15, 1996, the Company offered special early retirement benefits to approximately fifty salaried employees who met certain criteria. Approximately $2.2 million of pension benefits were paid in lump-sums by the plan to twenty-eight employees who accepted the offer. In Fiscal 1996, a charge of $1,125,000 representing the actuarial cost to the plan of the early retirement offer as accepted by the employees is included in other expense in the accompanying Consolidated Statement of Operations. Also in Fiscal 1996, the Company recognized losses of approximately $632,000 for pension curtailment and special termination benefits in accordance with SFAS No. 88, "Employees' Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits", which related primarily to the sale of the Rubber Products Business and the Dunean plant closing and related termination of participation in the plan of these employees. 401(k) Savings Plan - The Company also has a savings, investment and profit-sharing plan available to employees meeting eligibility requirements. The plan is a tax qualified plan under Section 401(k) of the Internal Revenue Code. The Company makes a matching contribution of 25% of each participant's contribution with a maximum matching contribution of 1-1/2% of the participant's base compensation. Company contributions were approximately $587,000 in Fiscal 1996, $523,000 in the period from November 3, 1996 to October 9, 1997, $47,000 in the period from October 10, 1997 to November 1, 1997 and $598,000 in Fiscal 1998. -58- 59 Postretirement Benefits - The Company has several unfunded postretirement plans that provide certain health care and life insurance benefits to eligible retirees. The plans are contributory, with retiree contributions adjusted periodically, and contain cost-sharing features such as deductibles and coinsurance. The Company's life insurance plan provides benefits to both active employees and retirees. Active employee contributions in excess of the cost of providing active employee benefits are applied to reduce the cost of retirees' life insurance benefits. The following table sets forth the status of the Company's postretirement plans as recorded in the accompanying Consolidated Balance Sheets (in thousands): Accumulated postretirement benefit obligation (APBO):
November 1, October 31, 1997 1998 ----------- ----------- Retirees $1,444 $ 1,683 Fully eligible active plan participants 1,130 1,076 Other active plan participants 807 965 Unrecognized gain (loss) 12 (393) ------ ------- Accrued postretirement benefit plan liability $3,393 $ 3,331 ====== =======
Net periodic postretirement benefit expense included the following components (in thousands):
Predecessor Company Reorganized Company ------------------------------- | ------------------------------ Period from | Period from Fiscal November. 3, 1996 | October 10, 1997 Fiscal 1996 to October. 9, 1997 | to November 1, 1997 1998 ------ ------------------- | ------------------- ------ | Service cost for benefits earned $ 5 $ 5 | $ 6 $107 Interest cost on APBO 297 229 | 16 267 ---- ---- | --- ---- Net periodic postretirement cost $302 $234 | $22 $374 ==== ==== | === ====
As of October 1, 1998, the Company decreased the discount rate assumption from 7.8% to 6.75%, which more closely approximates current interest rates on high-quality, long-term obligations. The Company estimates that the projected future annual costs of postretirement benefits will increase approximately 12% due to the effects of this change in discount rate assumption. As a result of the application of fresh start accounting as described in Note 1, all unamortized gains were fully recognized as of October 9, 1997 and included in reorganization items for the period then ended. In Fiscal 1996, the Company recognized a curtailment gain of approximately $347,000 related to the sale of the Rubber Products Business and the Dunean plant closing, and related termination of participation in the plans of these employees. Since the Company has capped its annual liability per person and all future cost increases will be passed on to retirees, the annual rate of increase in health care costs does not affect the postretirement benefit obligation. Postemployment Benefits - The Company provides certain benefits to former or inactive employees after employment but before retirement. In accordance with SFAS No. 112, these benefits are recognized on the accrual basis of accounting. The liability for postemployment benefits at November 1, 1997 and October 31, 1998 is included in other long-term liabilities in the accompanying consolidated financial statements. -59- 60 12. RELATED PARTIES The Company incurred fees of $1,000,000 in Fiscal 1996 for management services provided by a former shareholder pursuant to a management services agreement. On the Effective Date, the agreement was canceled and rejected and rejection damage claims were waived by the shareholders. 13. BUSINESS SEGMENTS The Company competes in three industry segments: Industrial Products, Apparel Fabrics and Home Fashion Textiles. The industrial products segment manufactures commercial roofing products made from woven synthetic substrates and rubber-based specialty polymer compounds, other building construction products made from glass and synthetic fibers, various industrial products which generally have insulation or filtration characteristics, and other rubber products and various extruded polyurethane products. The apparel fabrics segment manufactures a broad range of apparel fabrics and apparel related products, including unfinished woven apparel fabrics (greige goods) for men's, women's and children's wear and spun yarns for use in apparel. The home fashion textiles segment manufactures a variety of unfinished woven fabrics and yarns for use in the manufacturing of draperies, curtains and lampshades and is a major producer of solution-dyed drapery fabrics. As discussed in Note 4, the Company has agreed to sell a major portion of its home fashion textiles business. Export sales are approximately 4% of net sales and the Company has no significant foreign operations. Earnings by business segment represent operating profit, excluding net unallocated corporate operating expenses. Identifiable segment assets are those assets used in the operations of the segment. Corporate assets are cash and other assets including reorganization value in excess of amounts allocable to identifiable assets. -60- 61 Industry segment information (in thousands):
Predecessor Company Reorganized Company ------------------------------------- | ------------------------------------- Fiscal Year | Fiscal Year Ended Period from | Period from Ended November 2, November 3, 1996 | October 10, 1997 October 31, 1996 to October 9, 1997 | to November 1, 1997 1998 ----------- ------------------ | ------------------- ----------- | Net sales: | Industrial products $ 193,001 $ 179,434 | $ 17,847 $ 189,658 Apparel fabrics 221,799 167,070 | 18,590 170,877 Home fashion textiles 34,024 33,139 | 2,291 28,683 --------- --------- | --------- --------- $ 448,824 $ 379,643 | $ 38,728 $ 389,218 ========= ========= | ========= ========= Operating profit (loss): | Industrial products $ 5,947 $ 16,748 | $ 2,652 $ 16,275 Apparel fabrics (22,422) 1,210 | 2,201 2,274 Home fashion textiles 647 976 | 693 (7,689) Indirect corporate expenses, net (6,257) (4,152) | (331) (12,604)(1) --------- --------- | --------- --------- | Operating profit (loss) (22,085) 14,782 | 5,215 (1,744) | Valuation allowance on | Gulistan Securities (4,242) (5,070) | -- -- Interest income 2,856 2,744 | 93 1,038 Interest expense (40,510) (32,164) | (584) (8,592) Restructuring fees and expenses (2,255) (13,071) | -- -- --------- --------- | --------- --------- | Income (loss) before income taxes, | discontinued operations and | extraordinary items $ (66,236) $ (32,779) | $ 4,724 $ (9,298) ========= ========= | ========= ========= | Depreciation and amortization | expense: | Industrial products $ 6,282 $ 5,032 | $ 283 $ 4,425 Apparel fabrics 12,946 9,410 | 297 4,533 Home fashion textiles 2,517 2,537 | 100 1,211 --------- --------- | --------- --------- Total segments 21,745 16,979 | 680 10,169 Corporate and other 994 901 | 166 2,293 --------- --------- | --------- --------- $ 22,739 $ 17,880 | $ 846 $ 12,462 ========= ========= | ========= ========= Capital expenditures: | Industrial products $ 4,545 $ 3,636 | $ 1,130 $ 16,420 Apparel fabrics 4,389 10,473 | 472 5,470 Home fashion textiles 899 353 | 16 520 --------- --------- | --------- --------- Total segments 9,833 14,462 | 1,618 22,410 Corporate and other 1 5 | -- 13 --------- --------- | --------- --------- $ 9,834 $ 14,467 | $ 1,618 $ 22,423 ========= ========= | ========= =========
-61- 62 Industry segment information (in thousands) (Continued):
Predecessor Company Reorganized Company ------------ | ------------------------------- November 2, | November 1, October 31, 1996 | 1997 1998 ------------ | ----------- ----------- | Identifiable assets: | Industrial products $101,376 | $100,140 $113,650 Apparel fabrics 127,909 | 110,891 100,950 Home fashion textiles 21,333 | 21,028 15,970 -------- | -------- -------- Total segments 250,618 | 232,059 230,570 Corporate and other 85,309 | 90,322 42,352 -------- | -------- -------- $335,927 | $322,381 $272,922 ======== | ======== ========
(1) Indirect corporate expenses include charges of approximately $6.9 million for writedown of reorganization values in excess of amounts allocable to identifiable assets in relation to the plant sale and plant closing discussed in Note 4. -62- 63 Unaudited interim financial data (in thousands except per share amounts): The results for each quarter include all adjustments which are, in the opinion of management, necessary for a fair presentation of the results for interim periods. The consolidated financial results on an interim basis are not necessarily indicative of future financial results on either an interim or annual basis. Selected consolidated financial data for each quarter within Fiscal 1997 and Fiscal 1998 are as follows:
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 2,913 4,430 4,843 2,596 | 5,215 Valuation allowance on | Gulistan securities (1,299) (789) (2,982) -- | -- Interest income 737 734 761 512 | 93 Interest expense (10,174) (10,049) (10,086) (1,855) | (584) -------- --------- -------- --------- | -------- Income (loss) before | reorganization items, income | taxes and extraordinary items (7,823) (5,674) (7,464) 1,253 | 4,724 Reorganization items: | Fair-value adjustments -- -- -- (4,651) | -- Professional fees and | expenses (1,162) (1,982) (3,332) (1,944) | -- -------- --------- -------- --------- | -------- Income (loss) before income | taxes and extraordinary items (8,985) (7,656) (10,796) (5,342) | 4,724 Provision (benefit) for | income taxes 157 252 275 (9,506) | 2,007 -------- --------- -------- --------- | -------- Income (loss) before | extraordinary items (9,142) (7,908) (11,071) 4,164 | 2,717 Extraordinary gain on early | extinguishment of debt -- -- -- 100,235 | -- -------- --------- -------- --------- | -------- Net income (loss) $ (9,142) $ (7,908) $(11,071) $ 104,399 | $ 2,717 ======== ========= ======== ========= | ======== Income (loss) applicable to | common stock $(10,407) $ (9,185) $(12,356) $ 104,399 | $ 2,717 ======== ========= ======== ========= | ======== Basic earnings (loss) per | common share: | Income (loss) before extra- | ordinary gain on early | extinguishment of debt $ (10.40) $ (9.19) $ (12.36) $ 4.16 | $ 0.27 Extraordinary gain on early | extinguishment of debt -- -- -- 100.24 | -- -------- --------- -------- --------- | -------- Net income (loss) $ (10.40) $ (9.19) $ (12.36) $ 104.40 | $ 0.27 ======== ========= ======== ========= | ========
In accordance with the provision of SFAS No. 128, the presentation of earnings per share data for all periods presented has been restated to conform to SFAS No. 128. -63- 64
Reorganized Company -------------------------------------------------------- First Second Third Fourth Quarter Quarter Quarter Quarter --------- --------- -------- --------- Year Ended October 31, 1998: Net sales $ 100,800 $ 101,348 $ 86,993 $ 100,077 Cost of sales 85,414 84,521 73,473 88,065 --------- --------- -------- --------- Gross profit 15,386 16,827 13,520 12,012 Selling, general and administrative expenses 10,509 9,987 9,632 10,062 Other income (expense), net 24 35 (40) (73) Charges for plant closing, loss on sale of certain operations, writedown of certain long-lived assets and restructuring costs -- -- -- (19,245) --------- --------- -------- --------- Operating profit (loss) 4,901 6,875 3,848 (17,368) Interest income 325 239 324 150 Interest expense (2,284) (2,094) (2,132) (2,082) --------- --------- -------- --------- Income (loss) before income taxes 2,942 5,020 2,040 (19,300) Provision (benefit) for income taxes 1,250 2,150 1,101 (3,135) --------- --------- -------- --------- Net income (loss) $ 1,692 $ 2,870 $ 939 $ (16,165) ========= ========= ======== ========= Net income (loss) per common share $ 0.17 $ 0.29 $ 0.09 $ (1.62) ========= ========= ======== =========
During the period from August 3, 1997 to October 9, 1997, the Company consummated its Plan of Reorganization, as described in Note 1. Accordingly, the results of operations subsequent to October 9, 1997 are not comparable to results of operations for periods preceding that date. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The information required by Item 10 of Form 10-K with respect to identification of directors and executive officers is incorporated by reference from the information contained in the section captioned "Ratification of Directors" in the Company's definitive Proxy Statement for the Annual Meeting of Stockholders to be held March 24, 1999 (the "Proxy Statement"), a copy of which will be filed with the Securities and Exchange Commission before the meeting date. ITEM 11. EXECUTIVE COMPENSATION. The information required by Item 11 of Form 10-K is incorporated by reference from the information contained in the section captioned "Executive Compensation and Other Matters" in the Proxy Statement. ITEM 12. SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT. The information required by Item 12 of Form 10-K is incorporated by reference from the information contained in the section captioned "Security Ownership of Principal Stockholders and Management" in the Proxy Statement. -64- 65 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The information required by Item 13, if any, is incorporated in a section captioned "Certain Relationships and Related Transactions" in the Proxy Statement. ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K. (a) (1) The following financial statements are included in Item 8: (i) Independent Auditors' Report. (ii) Consolidated Balance Sheets as of October 31, 1998 and November 1, 1997. (iii) Consolidated Statements of Operations for the fiscal year ended October 31, 1998 (Reorganized Company), the periods from October 10, 1997 to November 1, 1997 (Reorganized Company) and November 3, 1996 to October 9, 1997 (Predecessor Company) and the fiscal year ended November 2, 1996 (Predecessor Company). (iv) Consolidated Statements of Senior Redeemable Preferred Stock and Shareholders' Equity (Deficit) for the fiscal year ended October 31, 1998 (Reorganized Company), the periods from October 10, 1997 to November 1, 1997 (Reorganized Company) and November 3, 1996 to October 9, 1997 (Predecessor Company) and the fiscal year ended November 2, 1996. (v) Consolidated Statements of Cash Flows for the fiscal year ended October 31, 1998 (Reorganized Company), the periods from October 10, 1997 to November 1, 1997 (Reorganized Company) and November 3, 1996 to October 9, 1997 (Predecessor Company) and the fiscal year ended November 2, 1996 (Predecessor Company). (vi) Notes to Consolidated Financial Statements. The registrant is primarily a holding company and all direct subsidiaries are wholly owned. (2) The financial statement schedule required by Item 8 is listed on Index to Financial Statement Schedule, starting at page S-1 of this report. (3) The exhibits required by Item 601 of Regulation S-K are listed in the accompanying Index to Exhibits. Registrant will furnish to any securityholder, upon written request, any exhibit listed in the accompanying Index to Exhibits upon payment by such securityholder of registrant's reasonable expenses in furnishing any such exhibit. (b) No reports on Form 8-K were filed during the quarter ended October 31, 1998. (c) Reference is made to Item 14(a)(3) above. (d) Reference is made to Item 14(a)(2) above. -65- 66 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)
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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)
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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)
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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) 10.38 First Amendment to the Credit Facility Agreement, dated as of October 30, 1998, by and among JPS, C&I, Elastomerics, the financial institutions listed on the signature pages thereto, and the agent and co-agent party thereto.(Q) 10.39 Asset Purchase Agreement, dated as of January 11, 1999, by and between C&I and Belding Hausman Incorporated.(Q) 10.40 Amendment No. 1 to Asset Purchase Agreement, dated as of February 8, 1999, by and between C&I and Belding Hausman Incorporated. (Q) 10.41 JPS Guaranty Letter, dated as of January 11, 1999, by and between JPS and Belding Hausman Incorporated. (Q) 10.42 Employment Agreement dated November 11, 1999, between the Company and John W. Sanders, Jr. (Q) 11.1 Statement re: Computation of Per Share Earnings - not required since such computation can be clearly determined from the material contained herein. 12.1 Computation of Ratio of Earnings to Fixed Charges - not required for Form 10-K per Item 503(d) of Regulation S-K.
-69- 70
Exhibit Number Description - ------ ----------- 12.2 Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends--not required for Form 10-K per Item 503(d) of Regulation S-K. 21.1 List of Subsidiaries of the Company.(E) 24.1 Power of Attorney relating to JPS (included as part of the signature page hereof).(M) 27.1 Financial data schedule (for SEC use only).(Q)
- ------------------------------------ (A) Previously filed as an exhibit to Registration Statement No. 33-58272 on Form S-1, declared effective by the SEC on July 26, 1993, and incorporated herein by reference. (B) Previously filed as an exhibit to the Company's Annual Report on Form 10-K for the year ended October 30, 1993. (C) Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended April 30, 1994. (D) Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended July 30, 1994. (E) Previously filed as an exhibit to the Company's Annual Report on Form 10-K for the year ended October 29, 1994. (F) Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended April 29, 1995. (G) Previously filed as an exhibit to the Company's Annual Report on Form 10-K for the year ended November 2, 1996. (H) Previously filed as an exhibit to the Company's Current Report on Form 8-K dated December 1, 1995. (I) Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended April 27, 1996. (J) Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended July 27, 1996. (K) Previously filed as an exhibit to JPS's Current Report on Form 8-K dated July 2, 1997. (L) Previously filed as an exhibit JPS's Registration Statement on Form 8-A filed on September 8, 1997. (M) Previously filed. (N) Previously filed as an exhibit to JPS's Quarterly Report on Form 10-Q for the quarter ended February 1, 1997. (O) Previously filed as an exhibit to JPS's Quarterly Report on Form 10-Q for the quarter ended May 3, 1997. (P) Previously filed as an exhibit to JPS's Annual Report on Form 10-K for the year ended November 1, 1997. (Q) Filed herewith. -70- 71 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. JPS TEXTILE GROUP, INC. Date: February 16, 1999 By: /s/ Jerry E. Hunter ------------------------------------ JERRY E. HUNTER Chairman of the Board, President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE - --------- ----- ---- /s/ Jerry E. Hunter Director, Chairman of the Board, February 16, 1999 - --------------------------------- President and Chief Executive Officer JERRY E. HUNTER /s/ John W. Sanders, Jr. Executive Vice President - Finance & February 16, 1999 - --------------------------------- Chief Financial Officer JOHN W. SANDERS, JR. /s/ Robert J. Capozzi Director February 16, 1999 - --------------------------------- ROBERT J. CAPOZZI /s/ Jeffrey S. Deutschman Director February 16, 1999 - --------------------------------- JEFFREY S. DEUTSCHMAN /s/ Nicholas P. DiPaolo Director February 16, 1999 - --------------------------------- NICHOLAS P. DIPAOLO /s/ Michael L. Fulbright Director February 16, 1999 - --------------------------------- MICHAEL L. FULBRIGHT /s/ John M. Sullivan, Jr. Director February 16, 1999 - ---------------------------------- JOHN M. SULLIVAN, JR. /s/ L. Allen Ollis Controller February 16, 1999 - ---------------------------------- L. ALLEN OLLIS
-71- 72 JPS TEXTILE GROUP, INC. INDEX TO SCHEDULE INDEX TO FINANCIAL STATEMENT SCHEDULE For the Fiscal Year Ended November 2, 1996 and the periods from November 3, 1996 to October 9, 1997 (Predecessor) and from October 10, 1997 to November 1, 1997 and for the Fiscal Year Ended October 31, 1998 (Reorganized Company). FINANCIAL STATEMENT SCHEDULE II. Valuation and Qualifying Accounts and Reserves S-2 Note: All other schedules are omitted because they are not applicable or not required, or because the required information is shown either in the consolidated financial statements or in the notes thereto. S-1 73 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: Predecessor Fiscal Year Ended November 2, 1996 (53 Weeks) Allowance for doubtful accounts $ 1,950 $ 72 $ 563 $ 237 $2,348 Claims, returns and other allowances 181 -- 338 356 163 ------- ------- ------- ------ ------ $ 2,131 $ 72 $ 901 $ 593 $2,511 ======= ======= ======= ====== ====== For the Period From November 3, 1996 to October 9, 1997 Allowance for doubtful accounts $ 2,348 $ 781 $(1,258) $ 24 $1,847 Claims, returns and other allowances 163 -- 164 179 148 ------- ------- ------- ------ ------ $ 2,511 $ 781 $(1,094) $ 203 $1,995 ======= ======= ======= ====== ====== Reorganized Company For the Period From October 10, 1997 to November 1, 1997 Allowance for doubtful accounts $ 1,847 $ -- $ (945) $ -- $ 902 Claims, returns and other allowances 148 -- 7 4 151 ------- ------- ------- ------ ------ $ 1,995 $ -- $ (938) $ 4 $1,053 ======= ======= ======= ====== ====== Fiscal Year Ended October 31, 1998 (52 Weeks) Allowance for doubtful accounts $ 902 $ (28) $ 536 $ -- $1,410 Claims, returns and other allowances 151 -- 239 235 155 ------- ------- ------- ------ ------ $ 1,053 $ (28) $ 775 $ 235 $1,565 ======= ======= ======= ====== ======
(a) Change in various reserves charged to net sales. (b) Uncollected receivables written off, net of recoveries. S-2 EX-10.38 2 FIRST AMENDMENT TO CREDIT FACILITY 1 EXHIBIT 10.38 FIRST AMENDMENT TO CREDIT FACILITY AGREEMENT THIS FIRST AMENDMENT TO CREDIT FACILITY AGREEMENT dated as of October 30, 1998 (this "FIRST AMENDMENT" is entered into among JPS Textile Group, Inc. (the "Company"), JPS Elastomerics Corp. and JPS Converter and Industrial Corp. (together, the "BORROWING SUBSIDIARIES"), Citibank, N.A. ("CITIBANK"), as agent and collateral agent (the "AGENT"), NationsBank, N.A., as co-agent (the "CO-AGENT"), and the Lenders, and relates to that certain Credit Facility Agreement dated as of October 9, 1997 (as the same may be amended and restated, supplemented or modified from time to time, the "CREDIT AGREEMENT") among the Company, the Borrowing Subsidiaries, the Agent, the Co-Agent and the Lenders. W I T N E S S E T H: WHEREAS, the Company and the Borrowing Subsidiaries have requested that the Lenders, the Agent and the Co-Agent agree to amend the Credit Agreement as provided for herein; NOW THEREFORE, in consideration of the above premises, the Company, the Borrowing Subsidiaries, the Agent, the Co-Agent and the Lenders agree as follows: 1. DEFINITIONS. Capitalized terms used and not otherwise defined herein have the meanings assigned to them in the Credit Agreement. 2. AMENDMENTS TO THE CREDIT AGREEMENT. Upon the "First Amendment Effective Date" (as defined in Section 4 below), the Credit Agreement is hereby amended as follows: 2.1 SECTION 1.01. Section 1.01 of the Credit Agreement is amended as follows: (a) The definition of "Applicable Margin" is amended to read in full as follows: "APPLICABLE MARGIN" means (x) for all periods ending on or before the end of Fiscal Year 1999, (i) in the case of Base Rate Loans, 0% and (ii) in the case of Eurodollar Rate Loans, 2.00%; and (y) at all times thereafter, (iii) in the case of Base Rate Loans, the applicable rate per annum set forth below under the heading "Base Rate Margin" and (iv) in the case of Eurodollar Rate Loans, the applicable rate per annum set forth below under the heading "Eurodollar Rate Margin": 2
- ------------------------------------------------------------------------- FIXED CHARGE EURODOLLAR RATE COVERAGE RATIO BASE RATE MARGIN MARGIN - -------------- ---------------- --------------- if >=2.50 to 1 0% 1.75% - ------------------------------------------------------------------------- if >=2.00 to 1 but <2.50 to 1 0% 2.00% - ------------------------------------------------------------------------- if >=1.50 to 1 but <2.00 to 1 0% 2.25% - ------------------------------------------------------------------------- if <1.50 to 1 0.25% 2.50% - -------------------------------------------------------------------------
(b) The definition of "Fixed Asset Portion" is amended by adding to the end thereof the following additional provisos: "; and provided, further, however, in addition to the reduction in the Fixed Asset Portion contemplated by the preceding provisos, the Fixed Asset Portion shall be further reduced by $833,000 on the last day of each fiscal month of the Company ending during Fiscal Year 1999 commencing with the fiscal month ending on December 5, 1998; and provided, further, however, in the event that a Borrowing Subsidiary receives any cash proceeds or Net Cash Proceeds referred to in clauses (i) through (iv) above during any fiscal month, the amount of such cash proceeds and Net Cash Proceeds shall, to the extent that the Fixed Asset Portion is reduced by such amount pursuant to said clauses, be deducted from the amount of reductions in the Fixed Asset Portion specified in the two immediately preceding provisos, which deductions from such specified amounts of reductions in said provisos shall be made in the direct order of the dates, beginning in such fiscal month, specified for such reductions in said provisos" (c) The definition of "Unused Commitment Fee Rate" is amended as follows: (i) within the definition of "Unused Commitment Fee Rate", the grid setting forth the Unused Commitment Fee Rate for certain ratio ranges is amended to read in full as follows:
-------------------------------------------- FIXED CHARGE UNUSED COVERAGE RATIO COMMITMENT FEE -------------- -------------- if >=2.5 to 1 0.25% -------------------------------------------- is <2.5 to 1 0.375% --------------------------------------------
(ii) the term "Leverage Ratio", in each place it appears, is replaced with the term "Fixed Charge Coverage Ratio". 2.2 Section 8.01. Section 8.01 of the Credit Agreement is amended to read in full as follows: 8.01. Minimum EBITDA. EBITDA of the Company and its Subsidiaries on a consolidated basis, as determined as of the last day of each fiscal quarter set forth -2- 3 below for the twelve month period ending on such day, shall not be less than the minimum amount set forth opposite such fiscal quarter:
Fiscal Quarter Minimum Amount -------------- -------------- The fourth fiscal quarter of Fiscal Year 1998 27,000,000 The first fiscal quarter of Fiscal Year 1999 24,000,000 The second fiscal quarter of Fiscal Year 1999 23,000,000 The third fiscal quarter of Fiscal Year 1999 23,000,000 The fourth fiscal quarter of Fiscal Year 1999 26,000,000 The first fiscal quarter of Fiscal Year 2000 28,000,000 The second fiscal quarter of Fiscal Year 2000 30,000,000 The third fiscal quarter of Fiscal Year 2000 31,000,000 The fourth fiscal quarter of Fiscal Year 2000 33,000,000 The first fiscal quarter of Fiscal Year 2001 37,000,000 The second fiscal quarter of Fiscal Year 2001 37,000,000 The third fiscal quarter of Fiscal Year 2001 38,000,000 The fourth fiscal quarter of Fiscal Year 2001 39,000,000 The first fiscal quarter of Fiscal Year 2002 40,000,000 The second fiscal quarter of Fiscal Year 2002 41,000,000 The third fiscal quarter of Fiscal Year 2002 42,000,000 and thereafter
2.3 Section 8.02. Section 8.02 of the Credit Agreement is amended to read in full as follows: 8.02. Minimum Interest Coverage Ratio. The Interest Coverage Ratio of the Company and its Subsidiaries on a consolidated basis, as determined as of the last day of each fiscal quarter for the twelve month period ending on such day, shall not be less than the minimum ratio set forth opposite such fiscal quarter:
Fiscal Quarter Minimum Amount -------------- -------------- The fourth fiscal quarter of Fiscal Year 1998 3.5 to 1. The first fiscal quarter of Fiscal Year 1999 3.2 to 1. The second fiscal quarter of Fiscal Year 1999 3.0 to 1. The third fiscal quarter of Fiscal Year 1999 3.0 to 1. The fourth fiscal quarter of Fiscal Year 1999 3.0 to 1. The first fiscal quarter of Fiscal Year 2000 3.0 to 1. The second fiscal quarter of Fiscal Year 2000 3.5 to 1. and thereafter
-3- 4 2.4 Section 8.03. Section 8.03 of the Credit Agreement is amended to read in full as follows: 8.03 Minimum Fixed Charge Coverage Ratio. The Fixed Charge Coverage Ratio of the Company and its Subsidiaries on a consolidated basis, as determined as of the last day of each fiscal quarter set forth below for the twelve month period ending on such day, shall not be less than the minimum ratio set forth opposite such fiscal quarter:
FISCAL QUARTER MINIMUM RATIO - -------------- ------------- The fourth fiscal quarter of Fiscal Year 1998 N/A The first fiscal quarter of Fiscal Year 1999 N/A The second fiscal quarter of Fiscal Year 1999 N/A The third fiscal quarter of Fiscal Year 1999 1.20 to 1 The fourth fiscal quarter of Fiscal Year 1999 1.30 to 1 The first fiscal quarter of Fiscal Year 2000 1.40 to 1 The second fiscal quarter of Fiscal Year 2000 1.40 to 1 The third fiscal quarter of Fiscal Year 2000 1.40 to 1 The fourth fiscal quarter of Fiscal Year 2000 1.40 to 1 The first fiscal quarter of Fiscal Year 2001 1.40 to 1 The second fiscal quarter of Fiscal Year 2001 1.40 to 1 The third fiscal quarter of Fiscal Year 2001 1.40 to 1 The fourth fiscal quarter of Fiscal Year 2001 1.40 to 1 The first fiscal quarter of Fiscal Year 2002 1.50 to 1 The second fiscal quarter of Fiscal Year 2002 1.55 to 1 The third fiscal quarter of Fiscal Year 2002 and thereafter 1.55 to 1
2.5 Section 8.04. Section 8.04 of the Credit Agreement is amended to read in full as follows: 8.04. Maximum Capital Expenditures. Capital Expenditures made or incurred by the Company and its Subsidiaries on a consolidated basis for any Fiscal Year shall not exceed in the aggregate the maximum amount set forth below opposite such Fiscal Year: -4- 5
Fiscal Year Maximum Amount ----------- -------------- 1998 25,000,000 1999 10,000,000 2000 20,000,000 2001 20,000,000 2002 20,000,000
provided, however, if the maximum amount set forth above opposite any Fiscal Year exceeds the amount of Capital Expenditures made or incurred by the Company and its Subsidiaries on a consolidated basis for such Fiscal Year, then Capital Expenditures made or incurred by the Company and its Subsidiaries on a consolidated basis for the next Fiscal Year may exceed the maximum amount set forth above opposite such next Fiscal Year (but not subsequent Fiscal Years) by the amount of such excess from the immediately preceding Fiscal Year; provided further, however, that, notwithstanding anything contained in this Agreement to the contrary, the terms of any external financing (other than any Permitted Financing) incurred after the Effective Date pursuant to Section 7.01(v), the proceeds of which are used by the Company and/or its Subsidiaries to make or incur Capital Expenditures shall be in form and substance satisfactory to the Requisite Lenders. 3. Representations and Warranties. Each of the Borrowers hereby represents and warrants to each Lender, the Agent and the Co-Agent that, as of the First Amendment Effective Date and after giving effect to this First Amendment: (a) Each of the representations and warranties contained in this First Amendment, the Credit Agreement as amended hereby and the other Loan Documents are true and correct in all material respects on and as of the First Amendment Effective Date, as if then made, other than representations and warranties which expressly speak as of a different date; and (b) No Default or Event of Default has occurred and is continuing. 4. First Amendment Effective Date. This First Amendment shall become effective as of the date hereof (the "First Amendment Effective Date") when each of the following conditions shall have been satisfied: (a) The Agent shall have received, by facsimile, counterparts hereof executed by the Company, each Borrowing Subsidiary, the Agent, the Co-Agent and the Requisite Lenders, and acknowledged by each of JCC, JPS Auto and International Fabrics. (b) Each of the representations and warranties contained in this First Amendment, the Credit Agreement as amended hereby and the other Loan Documents shall be true and correct in all material respects on and as of the First Amendment Effective Date, as if -5- 6 then made, other than representations and warranties which expressly speak as of a different rate. (c) No Event of Default or Default shall have occurred and be continuing on the First Amendment Effective Date. 5. Reference to and Effect on the Loan Documents. (a) On and after the First Amendment Effective Date, each reference in the Credit Agreement as amended hereby to "this Agreement", "hereunder", "hereof", or words of like import, and each reference in the other Loan Documents to the Credit Agreement, shall mean and be a reference to the Credit Agreement as amended hereby. (b) Except as specifically amended above, all of the terms of the Credit Agreement and all other Loan Documents shall remain unchanged and in full force and effect. (c) The execution, delivery and effectiveness of this First Amendment shall not, except as expressly provided herein, operate as a waiver of any right, power or remedy of any Lender, the Agent or the Co-Agent under the Credit Agreement or any of the Loan Documents, nor constitute a waiver of any provision of the Credit Agreement or any of the Loan Documents. 6. Costs and Expenses. The Company and the Borrowing Subsidiaries jointly and severally agree to pay upon demand in accordance with the terms of Section 11.03 of the Credit Agreement all reasonable costs and expenses of the Agent in connection with the preparation, reproduction, negotiation, execution and delivery of this First Amendment and all other Loan Documents entered into in connection herewith, including, without limitation, the reasonable fees, expenses and disbursements of Sidley & Austin, counsel for the Agent with respect to any of the foregoing. 7. Miscellaneous. The headings herein are for convenience of reference only and shall not alter or otherwise affect the meaning hereof. 8. Counterparts. This First Amendment may be executed in any number of counterparts and by the different parties hereto in separate counterparts, each of which when so executed and delivered by facsimile shall be an original, but all of which shall together constitute one and the same instrument. 9. GOVERNING LAW. THIS FIRST AMENDMENT SHALL BE INTERPRETED, AND THE RIGHTS AND LIABILITIES OF THE PARTIES HERETO AND TO THE CREDIT AGREEMENT AS AMENDED HEREBY DETERMINED, IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK. -6- 7 IN WITNESS WHEREOF, the Agent, the Co-Agent, the Lenders, the Company and the Borrowing Subsidiaries have caused this First Amendment to be executed by their respective officers thereunto duly authorized as of the date first above written. JPS TEXTILE GROUP, INC. By: /s/ John W. Sanders, Jr. ------------------------------------ Title: Vice President JPS CONVERTER AND INDUSTRIAL CORP. By: /s/ John W. Sanders, Jr. ------------------------------------ Title: Vice President JPS ELASTOMERICS CORP. By: /s/ John W. Sanders, Jr. ------------------------------------ Title: Vice President CITIBANK, N.A., as Agent, as Issuing Bank and as a Lender By: /s/ Brenda M. Cotsen ------------------------------------ Title: Vice President -7- 8 NATIONSBANK, N.A., as Co-Agent and as a Lender By: /s/ Robert J. Dysart, Jr. ----------------------------------- Title: Vice President GENERAL ELECTRIC CAPITAL CORPORATION By: /s/ Charles D. Chiodo ----------------------------------- Title: Duly Authorized Signatory HELLER FINANCIAL, INC. By: /s/ John M. Szwalek ----------------------------------- Title: Vice President BNY FINANCIAL CORPORATION By: /s/ Dan Murray ----------------------------------- Title: SVP BANKBOSTON, N.A. By: /s/ John K. Hood ----------------------------------- Title: Managing Director -8- 9 ACKNOWLEDGMENT Reference is hereby made to (i) the Guaranty dated as of March 18, 1993 executed by JPS Carpet Corp., (ii) the Guaranty dated as of March 18, 1993 executed by JPS Auto Inc., and (iii) the Guaranty dated as of August 5, 1993 executed by International Fabrics, Inc., each as amended as of October 9, 1997 (each, as so amended, a "Guaranty") in favor of the Agent and the Lenders. Each of the undersigned hereby consents to the terms of the foregoing First Amendment to Credit Facility Agreement, and agrees that the terms thereof shall not affect in any way its obligations and liabilities under each such Guaranty or any other Loan Document (as defined therein), all of which obligations and liabilities shall remain in full force and effect and each of which is hereby reaffirmed. JPS CARPET CORP. By: /s/ John W. Sanders, Jr. ----------------------------------- Title: Vice President JPS AUTO INC. By: /s/ John W. Sanders, Jr. ----------------------------------- Title: Vice President INTERNATIONAL FABRICS, INC. By: /s/ John W. Sanders, Jr. ----------------------------------- Title: Vice President -9- EX-10.39 3 ASSET PURCHASE AGREEMENT AS OF JAN 11, 1999 1 EXHIBIT 10.39 ASSET PURCHASE AGREEMENT Dated as of January 11, 1999 by and between JPS CONVERTER AND INDUSTRIAL CORP. as Seller and BELDING HAUSMAN INCORPORATED as Purchaser 2 TABLE OF CONTENTS
Page ---- ARTICLE I DEFINITIONS...................................... 2 1.1 Defined Terms ............................................................. 2 1.2 Terms Defined Elsewhere in the Agreement .................................. 9 1.3 Other Definitional Provisions ............................................. 10 ARTICLE II PURCHASE AND SALE OF ASSETS............................ 10 2.1 Sale of Assets; Assumption of Liabilities ................................. 10 2.2 Purchase Price ............................................................ 11 2.3 Adjustments to Purchase Price ............................................. 11 ARTICLE III CLOSING........................................ 13 3.1 Closing ................................................................... 13 3.2 Conveyances at Closing .................................................... 14 (a) Instruments and Possession ....................................... 14 (b) Form of Instruments .............................................. 15 (c) Consents to Assignment ........................................... 15 3.3 Assumption Documents ...................................................... 16 3.4 Other Deliveries at Closing ............................................... 16 (a) Personal Property Lease Assignment and Assumption Agreement ...... 16 (b) Certificates; Opinions ........................................... 16 (c) Personal Property Leases and Other Third-Party Consents .......... 16 3.5 Certain Business Information .............................................. 17 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF SELLER...................... 17 4.1 Organization .............................................................. 17 4.2 Corporate Authorization ................................................... 17 4.3 Personal Property Leases .................................................. 18 4.4 Title to Owned Real Property .............................................. 18 4.5 Title to Owned Personal Property .......................................... 18 4.6 Contracts and Commitments ................................................. 18 4.7 Litigation, Proceedings and Applicable Law ................................ 19 4.8 Compliance with Law ....................................................... 20 4.9 Taxes ..................................................................... 20 4.10 No Conflict or Violation .................................................. 20
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Page ---- 4.11 Consents and Approvals .................................................... 21 4.12 Insurance ................................................................. 21 4.13 Employee Benefit Plans .................................................... 21 4.14 Labor Relations ........................................................... 22 4.15 Permits ................................................................... 23 4.16 Brokers ................................................................... 23 4.17 Boger City Plant .......................................................... 23 4.18 Environmental Matters ..................................................... 23 4.19 Condition of Fixed Assets ................................................. 24 4.20 Books and Records ......................................................... 24 4.21 Customers ................................................................. 24 4.22 Product Warranties ........................................................ 24 4.23 Absence of Certain Changes ................................................ 24 4.24 Certain Payments .......................................................... 25 4.25 October 31, 1998 and 1997 Statement ....................................... 25 4.26 Form of Purchase Order Confirmation ....................................... 25 ARTICLE V REPRESENTATIONS AND WARRANTIES OF PURCHASER..................... 25 5.1 Organization .............................................................. 25 5.2 Corporate Authorization ................................................... 26 5.3 No Conflict or Violation .................................................. 26 5.4 Consents and Approvals .................................................... 26 5.5 Litigation ................................................................ 27 5.6 Brokers ................................................................... 27 ARTICLE VI COVENANTS OF SELLER AND PURCHASER.......................... 27 6.1 Employees ................................................................. 27 (a) Employment ....................................................... 27 (b) Credited Service ................................................. 28 (c) Severance ........................................................ 28 (d) Health and Medical Plan Coverage ................................. 28 (e) Vacation ......................................................... 28 (f) Pension Benefits ................................................. 29 (g) Savings Plan ..................................................... 29 (h) Flex Plan ........................................................ 29 (i) Transfer of or Access to Records ................................. 30 (j) W-2 Matters ...................................................... 30 6.2 Further Assurances; Cooperation and Assistance ............................ 30 6.3 Nondisclosure ............................................................. 31 6.4 Non-Competition ........................................................... 31 6.5 Sums Received in Respect of Business ...................................... 32 6.6 Maintenance of the Business Prior to Closing .............................. 32 6.7 Consents .................................................................. 34 6.8 Public Announcements ...................................................... 34 6.9 Bill and Hold Insurance ................................................... 34
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Page ---- 6.10 Financing ................................................................. 34 6.11 Pre-Closing Sales Tax Liabilities ......................................... 35 6.12 Testing ................................................................... 35 ARTICLE VII CONDITIONS TO SELLER'S OBLIGATIONS.......................... 35 7.1 Representations, Warranties and Covenants ................................. 35 7.2 Certificates .............................................................. 35 7.3 Corporate Documents ....................................................... 36 7.4 Legal Opinion ............................................................. 36 7.5 Consents .................................................................. 36 7.6 No Governmental Proceedings or Litigation ................................. 36 ARTICLE VIII CONDITIONS TO PURCHASER'S OBLIGATIONS........................ 36 8.1 Representations, Warranties and Covenants ................................. 36 8.2 Certificates .............................................................. 37 8.3 Section 1445 Certificate .................................................. 37 8.4 Corporate Documents ....................................................... 37 8.5 Legal Opinion ............................................................. 37 8.6 Consents .................................................................. 37 8.7 Delivery of Documents ..................................................... 37 8.8 Good Standing Certificates ................................................ 37 8.9 Release of Liens .......................................................... 37 8.10 No Governmental Proceedings or Litigation ................................. 38 8.11 Financing ................................................................. 38 ARTICLE IX CERTAIN ACTIONS BY SELLER AND PURCHASER AFTER THE CLOSING ......................... 38 9.1 Books and Records ......................................................... 38 9.2 Indemnification ........................................................... 38 (a) By Seller ........................................................ 38 (b) By Purchaser ..................................................... 39 (c) Claims by Third Parties .......................................... 39 (d) Limitations on Indemnification ................................... 40 9.3 [Reserved] ................................................................ 44 9.4 Tax Matters ............................................................... 44 9.5 Mail Received After Closing ............................................... 44 ARTICLE X MISCELLANEOUS..................................... 45 10.1 Termination ............................................................... 45 10.2 Survival of Representations and Warranties ................................ 45 10.3 Assignment ................................................................ 46
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Page ---- 10.4 Notices ................................................................... 46 10.5 Choice of Law ............................................................. 47 10.6 Entire Agreement; Amendments and Waivers .................................. 47 10.7 Multiple Counterparts ..................................................... 48 10.8 Expenses .................................................................. 48 10.9 Invalidity ................................................................ 48 10.10 Titles .................................................................... 48 10.11 Confidential Transaction Information ...................................... 48 10.12 Third Parties ............................................................. 49 10.13 Neutral Construction ...................................................... 49 10.14 Revisions to Certain Schedules ............................................ 49
iv 6 EXHIBITS Exhibit A -- Form of Bill of Sale Exhibit B -- Form of Contract Rights Assignment and Assumption Agreement Exhibit C -- Excluded Assets Exhibit D -- October 31, 1998 and 1997 Statement Exhibit E -- Form of Personal Property Lease Assignment and Assumption Agreement Exhibit F -- Form of Purchase Order Confirmation Exhibit G -- Form of Opinion of Jackson Walker L.L.P., Counsel to Purchaser Exhibit H -- Form of Opinion of Weil, Gotshal & Manges LLP, Counsel to Seller SCHEDULES Schedule 1.1(a) - Fixed Assets Schedule 1.1(b) - Exceptions to Title Schedule 3.5(a) - Employees Schedule 3.5(b) - Backlog Schedule 4.3 - Personal Property Leases Schedule 4.4 - Owned Real Property Schedule 4.5 - Exceptions to Title to Owned Personal Property Schedule 4.6 - Contracts Schedule 4.7 - Seller's Legal Proceedings Schedule 4.8 - Exceptions to Seller's Legal Compliance Schedule 4.9 - Taxes Schedule 4.10 - Seller's Conflicts or Violations Schedule 4.11 - Seller's Consents and Approvals Schedule 4.12 - Insurance Schedule 4.13(a) - Employee Benefit Plans Schedule 4.14(a) - Compensation Schedule 4.14(b) - Floyd Clonninger Schedule 4.14(c) - Employee Manuals Schedule 4.14(d) - Labor Relations Schedule 4.15 - Permits Schedule 4.17 - Material Changes Schedule 4.18 - Environmental Matters Schedule 4.19 - Inoperable Fixed Assets Schedule 4.21 - Customers Schedule 4.22 - Product Warranties Schedule 4.23 - Certain Changes Schedule 4.26 - Purchase Orders Schedule 5.3 - Purchaser's Conflicts or Violations Schedule 5.4 - Purchaser's Consents and Approvals Schedule 5.5 - Purchaser's Legal Proceedings v 7 Schedule 5.6 - Brokers Schedule 6.1(c) - Seller's Severance and Layoff Benefits Schedule 6.1(e) - Vacation Policy Schedule 6.4(a) - Non-Compete Schedule 6.4(b) - Key Employees Schedule 6.6(b) - Employees and Business Relationships Schedule 7.5 - Seller's Consents Schedule 8.6 - Purchaser's Consents vi 8 ASSET PURCHASE AGREEMENT This ASSET PURCHASE AGREEMENT (the "Agreement"), dated as of January 11, 1999, is by and between JPS Converter and Industrial Corp., a Delaware corporation ("Seller"), and Belding Hausman Incorporated, a Delaware corporation ("Purchaser"). WITNESSETH: WHEREAS, Seller is engaged in the business of manufacturing a variety of yarns and manufacturing and selling a variety of unfinished woven fabrics at Seller's Boger City Plant (the "Boger City Plant") located in Lincolnton, North Carolina (the "Business"), which fabrics are marketed by Seller to other end users for the manufacture of draperies, curtains, lampshades, bedding and upholstery; and WHEREAS, Seller desires to sell, and Purchaser desires to purchase, substantially all of the properties, rights and assets used by Seller in the conduct of the Business upon the terms and subject to the conditions hereinafter set forth; and WHEREAS, JPS (as defined herein) and Purchaser are simultaneously herewith executing the JPS Agreement (as defined herein), pursuant to which JPS, among other matters, shall guarantee the due and punctual performance and discharge by Seller of all of Seller's obligations under this Agreement; and WHEREAS, Seller and Purchaser are simultaneously herewith executing (i) the Supply Agreement (as defined herein), pursuant to which Seller shall sell to Purchaser and Purchaser shall purchase from Seller Yarn (as defined therein), subject to the terms and conditions contained therein, which shall be effective only upon (a) the Closing (as defined herein) or (b) the termination of this Agreement pursuant to (x) Section 10.1(c) hereof under the circumstances in which all conditions to the obligations of Purchaser to consummate the transactions provided for hereby (other than the conditions contained in Section 8.7 hereof in respect of closing deliveries (provided that Seller shall be willing and able to make such deliveries)) have been satisfied or waived by Purchaser except for the condition set forth in Section 8.11 hereof in respect of financing or (y) Section 10.1(d) hereof and (ii) the Transitional Services Agreement (as defined herein), pursuant to which Seller shall provide certain transitional services to 9 Purchaser, subject to the terms and conditions contained therein, which shall be effective only upon the Closing; NOW, THEREFORE, in consideration of the mutual premises, covenants, representations and warranties contained herein and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound hereby, agree as follows: ARTICLE I DEFINITIONS 1.1 Defined Terms. Unless otherwise defined herein, the following terms as used herein shall have the following respective meanings: "Accounts Receivable" means all accounts and notes receivable, refunds and deposits received from third parties relating solely to the Business together, in each case, with all security and collateral therefor. "Accounts Payable" means all accounts payable relating solely to the Business. "Affiliate" means, with respect to any Person, any Person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, such Person. "Agreement" shall have the meaning set forth in the recitals hereto. "Ancillary Agreements" means the other agreements, instruments and documents executed or to be executed by Seller or Purchaser or their respective Affiliates, as the case may be, in connection with this Agreement, including, without limitation, the special warranty deed, the Bills of Sale, the Personal Property Lease Assignment and Assumption Agreement, the Contract Rights Assignment and Assumption Agreement, the Transitional Services Agreement and the Supply Agreement. "Assets" means all of Seller's rights, title and interests in and to all of the properties, assets and rights constituting the Business (other than the Excluded Assets) on the Closing Date, consisting of the following: (a) all Accounts Receivable; 2 10 (b) all Contract Rights; (c) all Owned Real Property; (d) all Fixed Assets; (e) all of Seller's rights and obligations under the Personal Property Leases; (f) all Inventory; (g) to the extent transferable, all Permits; and (h) all Books and Records, including books of account, records, files, invoices, manuals, sales, marketing and advertising materials, customer and supplier files, personnel files, equipment maintenance records, equipment warranty information, material, specifications and drawings, equipment drawings, customer specifications, sales, distribution and purchase correspondence, trade association memberships and all other similar data, manuals and property, in each case relating solely to the Business; provided, however, that the Assets shall also include all other assets located at the Boger City Plant as of the Closing Date (other than the Excluded Assets). "Assumed Liabilities" shall mean the following liabilities and obligations of Seller: (i) all duties and obligations under the contracts and commitments set forth on Schedule 4.6 to the extent that such duties and obligations accrue after the Closing Date, (ii) Accounts Payable, together with any interest accrued thereon (A) in an amount not to exceed $900,000 in the aggregate and (B) which, in respect of each Account Payable, is not more than 30 days from the invoice date, (iii) liabilities described in Section 6.1 hereof in respect of the Transferred Employees and (iv) all Environmental Costs and Liabilities at the Boger City Plant not attributable to Seller or any prior owner or operator of the Business or which were not violations of Environmental Laws in effect as of or prior to the Closing. "Bills of Sale" means one or more Bills of Sale made as of the Closing Date by Seller in the form of Exhibit A hereto. "Boger City Plant" shall have the meaning set forth in the recitals hereto. 3 11 "Books and Records" means all books and records relating solely to the Business or relating solely to the Assets and the customers and suppliers thereof. "Business" shall have the meaning set forth in the recitals hereto. "Closing Date" means the date which is the fifth business day after all the conditions to Closing set forth in Articles VII and VIII have been satisfied or waived, or such other date as Purchaser and Seller shall mutually agree. "Closing Statement" means the audited statement which shall set forth Accounts Receivable and Inventory as of the Closing Date, net of appropriate reserves and allowances, calculated in accordance with GAAP and on a basis consistent with the October 31, 1998 and 1997 Statement. "Code" means the Internal Revenue Code of 1986, as amended. "Contract Rights" means all of the rights, duties and obligations of Seller under the contracts and commitments set forth on Schedule 4.6 hereto and all of Seller's right, title and interest in and to all contracts, agreements, leases, notes, purchase orders, sales orders and other commitments of Seller relating solely to the Business. "Contract Rights Assignment and Assumption Agreement" means that certain agreement dated as of the Closing Date by and between Seller and Purchaser in the form of Exhibit B hereto. "Employees" means all persons who are employed as current employees of the Business on the Closing Date (or, for purposes of Section 3.5 only, on the dates specified therein), including but not limited to, all Employees on vacation, a leave of absence, layoff or receiving benefits under any disability plan of Seller; provided, however, that Employees shall not include (i) the employees performing services for the Business who are located in New York, New York and (ii) Emmett Eagle, the director of technical services of Seller. "Encumbrance" means any lien, mortgage, pledge, security interest, charge or encumbrance of any nature whatsoever or any right or interest whatsoever of any third party, including, without limitation, a lien, claim or other 4 12 interest of a Governmental Agency or municipality for Taxes, assessments and other such charges. "Environmental Costs and Liabilities" means any and all losses, liabilities, obligations, damages, fines, penalties, judgments, actions, claims, costs and expenses (including, without limitation, fees, disbursements and expenses of legal counsel, experts, engineers and consultants and the costs of investigation and feasibility studies, monitoring or other studies or the costs to cleanup, removal or otherwise treat any Hazardous Material) arising from or under any Environmental Law or order. "Environmental Laws" means all applicable federal, state, local or foreign laws (including common law), statute, rule, regulation or other legal requirement relating to the environment, natural resources or employee health and safety including, without limitation, the Comprehensive Environmental Resource, Compensation, and Liability Act (42 U.S.C. ss. 9601 et seq.) ("CERCLA"), the Hazardous Material Transportation Act (49 U.S.C. ss. 1801 et seq.) ("RCRA"), the Clean Water Act (33 U.S.C. ss. 1251 et seq.), the Clean Air Act (42 U.S.C. ss. 7401 et seq.), the Toxic Substances Control Act, as amended (15 U.S.C. ss. 2601 et seq.), the Federal Insecticide, Fungicide, and Rodenticide Act (7 U.S.C. ss. 136 et seq.), the Emergency Planning and Community Right-to-Know Act (42 U.S.C. ss. 11001 et seq.), the Safe Drinking Water Act (42 U.S.C. ss. 201 and ss. 300f et seq.), the Oil Pollution Act (33 U.S.C. ss. 2701 et seq.) and the Occupational Safety and Health Act (29 U.S.C. ss. 651 et seq.), as such laws have been amended or supplemented from time to time, and all regulations, rules or ordinances duly promulgated pursuant thereto and any analogous state, local or foreign laws, in each case as in effect as of the date hereof and as of the Closing Date. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. "Excluded Assets" means the properties and assets of the Business listed on Exhibit C hereto and which are not being acquired by Purchaser hereunder. "Excluded Liabilities" means all liabilities of Seller other than the Assumed Liabilities. "Fixed Assets" means all of the furniture, fixtures, furnishings, machinery, tools, equipment and other personal property owned by Seller and used in connection with the Business, and located in, at or upon the Owned Real 5 13 Property as of the Closing Date and which are necessary to the Business, including all warranties and licenses received from manufacturers and sellers of the aforesaid items to the extent assignable by Seller to Purchaser and any related claims, credits and rights of recovery with respect to such items, as set forth on Schedule 1.1(a) attached hereto, and four (4) ply-twisters from the Seller's Stanley, North Carolina plant. "GAAP" means U.S. generally accepted accounting principles applicable to financial statements which omit complete footnotes and schedules, consistently applied throughout the periods involved. "Governmental Agency" means (a) any international, foreign, federal, state, county, local or municipal government or administrative agency or political subdivision thereof, (b) any governmental agency, authority, board, bureau, commission, department or instrumentality, (c) any court or administrative tribunal, (d) any non-governmental agency, tribunal or entity that is vested by a governmental agency with applicable jurisdiction, or (e) any arbitration tribunal or other non-governmental authority with applicable jurisdiction. "Hazardous Material" means any substance, material or waste whether in a solid, liquid or gaseous state which is classified, regulated or otherwise characterized by any Governmental Agency as hazardous, toxic, contaminant, or pollutant or words of similar meaning or regulatory effect, including, but not limited to, petroleum, petroleum products, asbestos, urea, formaldehyde and polychlorinated biphenyls. "Inventory" means all of (i) the inventory relating solely to the Business held for sale to customers in the ordinary course of the Business as of the Closing Date, (ii) the raw materials, work in process, finished products, wrapping, supply and packaging items, and similar items, other than tray packs, relating solely to the Business as of the Closing Date and (iii) related claims and rights of recovery with respect to the items listed in clauses (i) and (ii) hereto to the extent assignable. "JPS" means JPS Textile Group, Inc., a Delaware corporation. "JPS Agreement" means that certain letter agreement of even date herewith, by and between Purchaser and JPS. 6 14 "Knowledge of Seller" shall mean the actual knowledge of any of the following individuals: Jerry E. Hunter, the Chairman and Chief Executive Officer, John Sanders, the Chief Financial Officer and Monnie L. Broome, the Vice President - Human Resources (solely in respect of human resources and employee benefit matters) of JPS or James H. Gully, the Executive Vice President of Operations, Reid A. McCarter, the Business Manager, Charles O'Mahoney, the Chief Financial Officer and Carl Rosen, the President of Seller or Floyd Clonninger, the Plant Manager of the Boger City Plant. "Material Adverse Effect" means any event, change, effect, occurrence or state of facts that has had or is reasonably expected to have a material adverse effect on the business, results of operations or the financial condition of the Business taken as a whole; provided, however, that any adverse effect arising out of or resulting from (a) an event or series of events or circumstances affecting (i) the textiles industry generally in the United States or (ii) the United States economy generally or (b) the entering into of this Agreement, shall not, in and of itself, constitute a Material Adverse Effect. "October 31, 1998 and 1997 Statement" means that certain unaudited statement of Seller's Household Furnishing Division as of October 31, 1998 and November 1, 1997 which is attached hereto as Exhibit D. "Owned Real Property" means the real property relating solely to the Business and owned by Seller, as listed on Schedule 4.4. "Permissible Liens" means, with respect to any Asset, (i) the exceptions to title identified on Schedule 1.1(b) hereto, (ii) taxes not yet due and payable as set forth on Schedule 1.1(b), (iii) such matters as set forth on the surveys (if any) delivered by Seller to Purchaser with respect to the Owned Real Property, (iv) laws and governmental regulations that affect the use and maintenance of the Owned Real Property, provided that they are not violated by the buildings and improvements constituting the Owned Real Property, (v) the consents for the erection of any structures on, under or above any streets on which the Owned Real Property abuts as set forth on Schedule 1.1(b), (vi) the notices of violation of law or municipal ordinances, orders or requirements issued by any Governmental Agency as set forth on Schedule 1.1(b), (vii) liens for Taxes, assessments, water and sewer rents not yet due and payable as set forth on Schedule 1.1(b) and (viii) 7 15 utility lines, sewer lines and railroad rights of way affecting the Owned Real Property as set forth on Schedule 1.1(b). "Permits" means all of Seller's licenses, permits, certificates and other public, governmental and private third party authorizations and approvals reasonably necessary to carry on the Business as presently conducted, in each case relating solely to the Business, as listed on Schedule 4.15. "Person" means any individual, corporation, partnership, association, joint-stock company, trust, unincorporated organization or a government or political subdivision thereof. "Personal Property Lease Assignment and Assumption Agreement" means that certain agreement dated as of the Closing Date by and between Seller and Purchaser in the form of Exhibit E hereto. "Personal Property Leases" means all of the leases of personal property relating solely to the Business listed on Schedule 4.3 hereto. "Purchaser" shall have the meaning set forth in the recitals hereto. "Release" means any release, spill, emission, leaking, pumping, emptying, dumping, injection, abandonment, deposit, disposal, discharge, dispersal, leaching or migration on or into the indoor or outdoor environment or on, into, above or beneath any property. "Seller" shall have the meaning set forth in the recitals hereto. "Seller Credit Agreement" means the Credit Facility Agreement, dated as of October 9, 1997, as amended, supplemented, modified, restated or refinanced from time to time, among JPS, Seller, JPS Elastomerics Corp., the financial institutions party thereto (the "Lenders"), Citibank, N.A., in its capacity as agent and collateral agent for the Lenders, and NationsBank, N.A., in its capacity as co-agent for the Lenders, and all guarantees, collateral or security agreements and related agreements entered into in connection therewith and pursuant thereto. 8 16 "Supply Agreement" means that certain Supply Agreement of even date herewith by and between Seller and Purchaser. "Taxes" means all federal, state, local and foreign taxes, charges, fees, levies, imposts, duties or other assessments, including, without limitation, income, gross receipts, excise, employment, sales, use, transfer, license, payroll, franchise, severance, stamp, occupation, windfall profits, environmental (including taxes under Code Section 59A), premium, federal highway use, commercial rent, customs duties, capital stock, paid up capital, profits, withholding, Social Security, single business and unemployment, disability, real property, personal property, registration, ad valorem, value-added, alternative or add-on minimum, estimated, or other tax or governmental fee of any kind whatsoever, imposed or required to be withheld by the United States or any state, local, foreign government or subdivision or agency thereof, including any interest penalties or additions thereto. "Transferred Employees" means all Employees who commence employment with Purchaser pursuant to Section 6.1(a) hereof. "Transitional Services Agreement" means that certain Transitional Services Agreement of even herewith by and between Seller and Purchaser. 1.2 Terms Defined Elsewhere in the Agreement. For purposes of this Agreement, the following terms have the meanings set forth in the sections indicated:
Term Section ---- ------- Action 9.2(c) Asset Transfer Date 6.1(g) Arbitrator 2.3(c) Cash Compensation 4.14(a) CIT Agreement 6.6(g) Closing 3.1 Collateral Agent 10.3 Consenting Party 3.4(c) Contracts 4.6 Damages 9.2(a) Dispute Notice 2.3(c) Employees Policies and 4.14(c) Procedures JPS Flex Plan 6.1(h) Pension Plan 6.1(f)
9 17 Plans 4.13(a) Purchase Order Confirmation 4.26 Purchase Price 2.2 Purchaser Flex Plan 6.1(h) Purchaser's Savings Plan 6.1(g) Seller's Savings Plan 6.1(g) 1.3 Other Definitional Provisions. (a) The words "hereof", "herein", and "hereunder" and words of similar import, when used in this Agreement, shall refer to this Agreement as a whole and not to any particular provision of this Agreement. (b) Terms defined in the singular shall have a comparable meaning when used in the plural, and vice versa. (c) The terms "dollars" and "$" shall mean United States dollars. ARTICLE II PURCHASE AND SALE OF ASSETS 2.1 Sale of Assets; Assumption of Liabilities. On the Closing Date, in reliance upon the covenants, representations and warranties contained herein and subject to the terms and conditions hereof: (a) Seller hereby agrees to sell, convey, transfer, assign, and deliver to Purchaser, and Purchaser hereby agrees to purchase from Seller, the Assets. (b) Purchaser hereby agrees to assume and pay, perform and discharge as and when due the Assumed Liabilities. Purchaser expressly shall not assume or pay for the Excluded Liabilities, including, without limitation, liabilities relating to (A) the Excluded Assets, (B) income or franchise Taxes imposed on net income or sales or real property taxes incurred by Seller or relating to the Assets for any taxable period ending on or prior to the Closing Date, (C) any liability for purchase money debt, debt for borrowed money or a guaranty in respect thereof, except to the extent such liabilities are reflected on the Closing Statement, and (D) (1) liabilities assumed by Seller pursuant to Section 6.1 hereof and (2) liabilities incurred or accrued prior to the Closing Date under any employee benefit plan, policy and arrangement covering or providing benefits to the Employees. 10 18 2.2 Purchase Price. (a) On the Closing Date, as consideration for the sale, conveyance, transfer, assignment and delivery of the Assets (i) Purchaser shall pay to Seller in cash an amount equal to $11,400,000 (the "Purchase Price"), subject to adjustment as provided in Section 2.3 hereof; and (ii) Purchaser shall assume the Assumed Liabilities. (b) At the election of Seller, the Purchase Price shall be paid at the Closing by either (i) wire transfer of immediately available funds to an account designated in writing by Seller or (ii) federal funds check. (c) Prior to the Closing, Seller shall prepare and deliver to Purchaser a schedule which shall set forth the allocation of the Purchase Price among the Assets. Such allocation shall be subject to Purchaser's approval (which shall not be unreasonably withheld). Subject to the requirements of any applicable Tax law, all Tax returns filed by Purchaser and Seller shall be prepared consistently with such allocation and with the treatment of the transaction pursuant to this Agreement as a purchase and sale of the Assets. In the event of any Purchase Price adjustment pursuant to Section 2.3 hereof, Purchaser and Seller agree to adjust such allocation to reflect such Purchase Price adjustment and, subject to the requirements of any applicable Tax laws, to file consistently any Tax returns required as a result of such Purchase Price adjustment. In the event no such agreement is reached, the parties hereto shall resolve such disagreement pursuant to the provisions provided for under Section 2.3(c) of this Agreement. 2.3 Adjustments to Purchase Price. (a) The Purchase Price shall be increased or decreased (on a dollar for dollar basis), as the case may be, for any increase or decrease in Accounts Receivable and Inventory as set forth on the Closing Statement, if the aggregate value of Accounts Receivable and Inventory as of the Closing Date (net of appropriate reserves and allowances, calculated in accordance with GAAP and on a basis consistent with the October 31, 1998 and 1997 Statement) is: (A) greater than $7,538,000, then Purchaser shall pay to Seller the amount of such excess; (B) less than $7,538,000, then Seller shall pay to Purchaser the amount of such difference; or (C) equal to $7,538,000, then neither Seller nor Purchaser shall owe any amount to the other pursuant to this Section 2.3(a). 11 19 (b) As soon as is reasonably practicable following the Closing Date (but no later than 45 days following the Closing Date), Seller shall prepare and deliver to Purchaser the Closing Statement which shall set forth the Purchase Price adjustments to be made, if any, in accordance with Section 2.3(a). In connection with the preparation of the Closing Statement, Purchaser shall grant Seller and its accountants, counsel and other representatives, full and complete access to all of the books and records of the Business. The Closing Statement shall be audited by Seller's accountants and shall include a schedule reviewed by such accountants showing the computation of Accounts Receivable and Inventory as of the Closing Date (net of appropriate reserves and allowances, calculated in accordance with GAAP and on a basis consistent with the October 31, 1998 and 1997 Statement), computed in accordance with the definitions of such terms set forth herein. Concurrently with their delivery of the Closing Statement to Purchaser, Seller shall cause reasonable access to be granted to Purchaser to the work papers, schedules and other documents prepared or used by Seller and its accountants in connection with the preparation of the Closing Statement. Seller shall pay all fees and expenses of its accountants in connection with the preparation of the Closing Statement and the computation of Accounts Receivable and Inventory as of the Closing Date. (c) Unless Purchaser, within 30 days after receipt of the Closing Statement, gives Seller a notice (the "Dispute Notice") (i) objecting in good faith to the Closing Statement, (ii) setting forth in reasonable detail the items being disputed and the reasons therefor, and (iii) specifying that Purchaser's calculation of Accounts Receivable and Inventory as of the Closing Date is in an amount which differs from that reflected in such Closing Statement (the entire amount of such difference being hereinafter referred to as the "Adjusted Amount"), the Accounts Receivable and Inventory as of the Closing Date as set forth in the Closing Statement and the Purchase Price adjustment set forth therein shall be binding and final upon the parties. If a Dispute Notice is given by Purchaser, the parties shall negotiate in good faith with a view to agreeing upon the Accounts Receivable and Inventory as of the Closing Date and the corresponding amount of the adjustment required by paragraph (a) of this Section 2.3. If negotiations between Purchaser and Seller fail to resolve all disputed items within 30 days after the Dispute Notice was given to Seller, the remaining disputed items shall be submitted to KPMG Peat Marwick LLP (the "Arbitrator"). After affording each of Seller and Purchaser and their 12 20 accountants the opportunity to present its position as to such determination (which opportunity shall not extend for more than 30 days from the date the independent public accountants are retained), the accounting firm selected pursuant to this paragraph shall determine the adjustment pursuant to paragraph (a) of this Section 2.3 and such determination shall be final and binding. Each party shall pay its own costs and expenses in connection with the foregoing. The fees, costs and expenses of the Arbitrator shall be borne equally by Seller and Purchaser. (d) The amount of any Purchase Price adjustment required under this Section 2.3 shall be delivered to Seller or Purchaser, as the case may be, with interest thereon (calculated on the basis of a 360-day year comprised of twelve 30-day months), from and including the Closing Date until paid at an annual rate equal to the base rate of interest of Citibank, N.A. (as such base rate is publicly announced from time to time as the base rate of such bank), at such place in the United States as the party receiving such amount shall designate in writing to the other party and shall be paid in immediately available funds within 30 days after the final determination of such Purchase Price adjustment. (e) At the Closing (or after the Closing, to the extent the necessary calculations cannot be made at the Closing), real property taxes, water charges, sewer rents and other utility charges in respect of the Business shall be prorated as of the Closing Date with Seller being responsible for such items relative to periods prior to the Closing Date and Purchaser being responsible for such items relative to periods commencing on or subsequent to the Closing Date. If the Closing shall occur before a new tax rate is fixed, the apportionment of real property taxes shall be upon the basis of the old tax rate for the preceding period applied to the latest assessed valuation. ARTICLE III CLOSING 3.1 Closing. The Closing of the transactions contemplated hereby (the "Closing") shall be held at 10:00 a.m. local time on the Closing Date at the New York offices of Weil, Gotshal & Manges LLP, New York, New York, or at such other time, date or place as the parties hereto may otherwise agree; provided, however, that the conditions to the obligations of Seller and Purchaser to consummate the 13 21 transactions contemplated hereby shall have been at such time satisfied or waived. 3.2 Conveyances at Closing. (a) Instruments and Possession. To effect the sale referred to in Section 2.1 hereof, Seller shall, on the Closing Date, execute and deliver to Purchaser, in such form as to transfer to Purchaser, good title to the Assets, subject to no Encumbrances, imperfections of title, covenants, restrictions, easements, encroachments or any state of facts which would be reflected on a current ALTA survey, other than, in the case of Owned Real Property, Permissible Liens: (i) a special warranty deed, in proper form for recording and mutually and reasonably acceptable to Purchaser and Seller, conveying good title (other than Permissible Liens) to all Owned Real Property included in the Assets; (ii) one or more Bills of Sale, conveying all of the owned personal property included in the Assets; (iii) subject to Section 3.2(c), the Personal Property Lease Assignment and Assumption Agreement with respect to the assignment of the Personal Property Leases hereunder; (iv) subject to Section 3.2(c), the Contract Rights Assignment and Assumption Agreement with respect to the assignment of all Contract Rights included in the Assets; (v) such other instruments as shall be reasonably requested by Purchaser to vest in Purchaser good title (other than, in the case of Owned Real Property, Permissible Liens) in and to the Assets in accordance with the provisions hereof; (vi) such affidavits, certificates or filings as may be required to convey the Assets to Purchaser or as may be reasonably requested by Purchaser's title company and agreed to by Seller in connection with the issuance of the title policies with respect to the Owned Real Property, all costs, charges and premiums of which, shall be paid by Purchaser; (vii) an affidavit, in a form reasonably satisfactory to Purchaser, of Seller stating under 14 22 penalties of perjury Seller's United States taxpayer identification number and that Seller is not a foreign person within the meaning of Section 1445(b)(2) of the Code; and (viii) physical possession and control of the Assets. (b) Form of Instruments. All of the foregoing instruments shall be in form and substance, and shall be executed and delivered in a manner, reasonably satisfactory to Purchaser. (c) Consents to Assignment. Anything in this Agreement to the contrary notwithstanding, and subject to the provisions concerning Personal Property Leases set forth in Section 3.4(c) hereof, this Agreement shall not constitute an assignment of, or an agreement to assign, Assets, consisting of any claim, contract, license, lease commitment, sales order, purchase order or any claim or right or any benefit arising thereunder or resulting therefrom if an attempted assignment thereof, without the consent of the other party thereto, would constitute a breach thereof; provided, however, that if Seller fails to obtain any consent set forth in Part II of Schedule 8.6 on or prior to the Closing Date, Purchaser shall, in accordance with Article 8 hereof, be under no obligation to consummate the transactions provided for hereby. If such consent is not obtained, or if an attempted assignment thereof would be ineffective or would affect the rights thereunder so that Purchaser would not receive all such rights, then, in accordance with Section 3.4(c) hereof, Seller will thereafter take all reasonable actions in order to provide to Purchaser the benefits under any such claim, contract, license, lease commitment, sales order or purchase order, including, without limitation, enforcement for the benefit of Purchaser (at Seller's expense) of any and all rights of Seller against such other party thereto arising out of the breach or cancellation by such other party or otherwise; and any transfer or assignment to Purchaser of any property or property rights or any contract or agreement which shall require the consent or approval of any such other party shall be made subject to such consent or approval being obtained; provided, further, however, that if Seller fails to obtain any consent set forth in Part II of Schedule 8.6 on or prior to the Closing Date, Purchaser shall, in accordance with Article 8 hereof, be under no obligation to consummate the transactions provided for hereby. Nothing contained in this Section 3.2(c) shall be deemed to require Seller to make any payments to obtain a consent or approval 15 23 from any third party to the assignment by Seller to Purchaser. In addition, Seller shall not obtain any consent that will affect Purchaser to its economic detriment unless Purchaser expressly approves the obtaining of such consent. 3.3 Assumption Documents. Upon the terms and subject to the conditions contained herein, on the Closing Date, Purchaser shall deliver to Seller instruments of assumption evidencing Purchaser's assumption, pursuant to Section 2.1(b) hereof, of the Assumed Liabilities. All such instruments shall be in form and substance, and executed in a manner, reasonably satisfactory to Seller. 3.4 Other Deliveries at Closing. In addition to the foregoing matters, at the Closing: (a) Personal Property Lease Assignment and Assumption Agreement. Purchaser agrees to assume the Personal Property Leases assigned hereunder by joining with Seller in the execution of the Personal Property Lease Assignment and Assumption Agreement. (b) Certificates; Opinions. Purchaser and Seller shall deliver the certificates, opinions and other instruments described in Articles VII and VIII hereof. (c) Personal Property Leases and Other Third- Party Consents. To the extent any of the Personal Property Leases or any other Contract Right may not be assigned by Seller without the written consent of any lender or other third party (collectively, a "Consenting Party"), Seller shall use its reasonable efforts to secure and deliver the required consents to Purchaser within 90 days after the Closing Date; provided, however, that no modification of any such Personal Property Leases or Contract Right shall be made without Purchaser's prior written consent, which consent shall not be unreasonably withheld; provided, further, however, that to the extent such consents are not obtained within 90 days of the Closing Date then Seller shall have no further obligations hereunder and such Personal Property Leases or Contract Rights shall be deemed to not be a part of the Assets; provided, further, however, that if Seller fails to obtain any consent set forth in Part II of Schedule 8.6 on or prior to the Closing Date, Purchaser shall, in accordance with Article 8 hereof, be under no obligation to consummate the transactions provided for hereby. Purchaser shall cooperate as reasonably necessary or desirable to secure the consent of any Consenting Party, including, without limitation, providing to such Consenting Party financial information, operating 16 24 history and information regarding Purchaser's intended use or disposition of any Asset. 3.5 Certain Business Information. Attached hereto (a) as Schedule 3.5(a) is a true and correct list of the Employees as of the date hereof (which list shall, in respect of each Employee, contain the information set forth in Section 4.14(a) hereof) and (b) as Schedule 3.5(b) is a true and correct list of the backlog of the Business as of the date hereof, derived from Seller's internal records of backlog of unfilled firm orders for products sold by Seller in respect of the Business. No earlier than five (5) business days prior to the Closing, Seller shall provide Purchaser with (x) updated versions of the lists described in (a) and (b) above and (y) a list of standard prices of the Business and any applicable discounts by customer name, in each case certified by an officer of Seller as being true and correct in all material respects as of the date delivered to Purchaser. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF SELLER Seller hereby represents and warrants to Purchaser (as of the date hereof and as of the Closing Date as if made on the Closing Date) as follows: 4.1 Organization. Seller is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has full corporate power and authority to carry on its business as it is now being conducted and to own and lease all of its properties and assets. Seller is duly qualified to do business and is in good standing in each jurisdiction in which the ownership of its properties or the conduct of its business requires such qualification, except where the failure so to qualify would not be material. 4.2 Corporate Authorization. Seller has all necessary corporate power and authority and has taken all corporate action necessary to enter into this Agreement and the Ancillary Agreements, to consummate the transactions contemplated on its part hereby and thereby and to perform its obligations hereunder and thereunder. This Agreement and the Ancillary Agreements have been duly executed and delivered by Seller and, assuming the due execution and delivery thereof by Purchaser, each is a valid and binding obligation of Seller, enforceable against Seller in accordance with its terms, except as such enforceability may 17 25 be limited by bankruptcy, insolvency, reorganization, fraudulent conveyance, moratoriums or other similar laws now or hereafter in effect relating to creditors' rights generally and by general principles of equity (whether considered in an action at law or in equity) and the discretion of the court before which any proceeding therefor may be brought. 4.3 Personal Property Leases. Schedule 4.3 hereto contains a complete and correct list of all Personal Property Leases relating to the Business. Each Personal Property Lease listed on Schedule 4.3 is in full force and effect. There are no asserted or unasserted defaults thereunder, except for (i) defaults which would not, individually or in the aggregate, have a Material Adverse Effect or (ii) defaults of a party to any such Personal Property Lease which have been consented to or waived in writing by the other party thereto. 4.4 Title to Owned Real Property. Schedule 4.4 hereto contains a complete and correct list of all Owned Real Property. Except as set forth on Schedule 4.4, Seller has good, valid and indefeasible fee title to all Owned Real Property, free and clear of any and all Encumbrances, imperfections of title, covenants, restrictions, easements or encroachments except for Permissible Liens. Upon the consummation of the transactions contemplated hereby, Purchaser shall receive good, valid and insurable title to such Owned Real Property, free and clear of all Encumbrances except for Permissible Liens. Other than Permissible Liens or as set forth on Schedule 4.4, Seller has not granted any purchase options or rights of first refusal or first offer with respect to the Owned Real Property and the Owned Real Property is not subject to any such options or rights. 4.5 Title to Owned Personal Property. Except as set forth on Schedule 4.5 hereto, Seller has good title to all of the personal property owned by Seller and included in the Assets, free and clear of any and all Encumbrances, except for Permissible Liens. Upon the consummation of the transactions contemplated hereby, Purchaser shall receive good and valid title to such Owned Personal Property, free and clear of all Encumbrances. 4.6 Contracts and Commitments. Schedule 4.6 hereto lists all of the contracts, commitments, arrangements and understandings, both oral and written, which pertain or relate primarily to the conduct, operations and prospects of 18 26 the Business, except for those contracts included in the Excluded Assets (collectively, the "Contracts"). To the Knowledge of Seller, there are no existing defaults, events of default or events, occurrences, acts or omissions that, with the giving of notice or lapse of time or both, would constitute defaults by Seller thereunder, and, except as described on Schedule 4.6, no penalties have been incurred nor, to the Knowledge of Seller, are any amendments pending with respect to the Contracts. Each Contract is in full force and effect and, assuming the due authorization, execution and delivery thereof by the other party thereto, each is a valid and binding obligation of Seller, enforceable against Seller in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, fraudulent conveyance, moratoriums or other similar laws now or hereafter in effect relating to creditors' rights generally and by general principles of equity (whether considered in an action at law or in equity) and the discretion of the court before which any proceeding therefor may be brought, and no defenses, off-sets or counterclaims have been asserted or, to the Knowledge of Seller, may be made by any party thereto, nor has Seller waived any material rights thereunder, except as described in Schedule 4.6. Since September 1, 1998, Seller has not received written notice of any default with respect to any Contract. Except as contemplated hereby, Seller has not received notice of any plan or intention of any other party to any Contract to exercise any right to cancel or terminate any Contract, and, to the Knowledge of Seller, no fact that would justify the exercise of such a right exists. Except as listed in Schedule 4.6, none of the customers or suppliers of Seller has refused, or communicated that it will or may refuse, to purchase or supply goods or services, as the case may be, or has communicated that it will or may substantially reduce the amounts of goods or services that it is willing to purchase from, or sell to, Seller. 4.7 Litigation, Proceedings and Applicable Law. Except as set forth on Schedule 4.7 hereto, there are no claims, actions, suits or proceedings pending or, to the Knowledge of Seller, threatened, against or affecting the Business which would have, individually or in the aggregate, an adverse effect on the Business or the Assets or impair Seller's ability to consummate the transactions contemplated hereby, or which question or challenge the validity of this Agreement or any actions to be taken by Seller hereunder or in connection with any of the transactions contemplated hereby. Except as set forth on Schedule 4.7 hereto, Seller is not subject to any judgment, order, writ, injunction or 19 27 decree of any court or Governmental Agency, and there are no unsatisfied judgments against Seller or the Business. 4.8 Compliance with Law. Except as set forth on Schedule 4.8 hereto, the Business has been operated in compliance with all applicable laws, statutes, rules, regulations, ordinances, codes, orders, licenses, permits or authorizations, as such now apply to the Business. 4.9 Taxes. Except as set forth on Schedule 4.9 hereto: (a) None of the Assets is: (1) property which Purchaser or Seller are or will be required to treat as owned by another person pursuant to the provisions of Section 168(f) of the Internal Revenue Code of 1954 (as in effect immediately prior to the Tax Reform Act of 1986); (2) "Tax-exempt use property" within the meaning of Section 168(h)(1) of the Code; or (3) "Tax-exempt bond financed property" within the meaning of Section 168(g)(5) of the Code. (b) Seller is not a foreign person within the meaning of Section 1445(b)(2) of the Code. 4.10 No Conflict or Violation. Except as set forth on Schedule 4.10 hereto, neither the execution, delivery nor performance of this Agreement or the Ancillary Agreements or any of the transactions contemplated hereby or thereby will (a) violate or conflict with any provision of the Certificate of Incorporation or By-laws of Seller, (b) conflict with or result in a breach of or default (or an event which, with notice, lapse of time or both, would constitute a breach or default) under, result in the termination of, accelerate the performance required by, cause the acceleration of the maturity of any debt or obligation pursuant to, or result in the creation or imposition of any lien or encumbrance on any of the Assets under any provision of any contract, agreement, lease, commitment, license, franchise, permit, authorization or concession to which Seller is a party or bound and to which the Assets or the Business is subject, (c) result in a violation by Seller of, or conflict with, any statute, rule, regulation, ordinance, code, order, judgment, writ, injunction, decree, or award (or an event which with notice, lapse of time, or both, would result in any such violation) or (d) result in the creation of a lien or encumbrance on the Assets other than a Permissible Lien. 20 28 4.11 Consents and Approvals. Except as set forth on Schedule 4.11 hereto and other than real property recording and filing documents normally required in connection with the conveyance of title, no notice to, consent, approval or authorization of, or declaration, filing or registration with, any Governmental Agency or any other person or entity, is required to be made or obtained by Seller in connection with the execution, delivery and performance of this Agreement or the Ancillary Agreements and the consummation of the transactions contemplated hereby and thereby. 4.12 Insurance. (a) Schedule 4.12 hereto contains a list of all policies of title, liability, fire, workers' compensation and other forms of insurance insuring the products, properties, assets and operations of the Business. At Purchaser's request, Seller will provide Purchaser with true, correct and complete copies of all such insurance policies. Except as set forth in Schedule 4.12, all such policies are in full force and effect. (b) To the Knowledge of Seller, no notice of cancellation, termination or reduction in coverage has been received by Seller with respect to any policy listed in Schedule 4.12 hereto. 4.13 Employee Benefit Plans. (a) Schedule 4.13(a) sets forth a list of each employee benefit plan, policy and arrangement which covers or provides benefits to the Employees (the "Plans"), including a summary of the material terms of such Plans. (b) Seller has complied in all material respects with the terms of each Plan, and with any applicable provisions of ERISA and the Code. (c) With respect to the Amended and Restated Savings, Investment and Profit Sharing Plan of JPS Textile Group, Inc., Seller has received a favorable determination letter from the Internal Revenue Service that such plan is qualified within the meaning of Section 401(a) of the Code and the trust related thereto is exempt from tax under Section 501(a) of the Code, and no proceedings exist or, to the Knowledge of Seller, have been threatened which could reasonably be expected to result in the revocation of such favorable determination letter. 21 29 4.14 Labor Relations. (a) Schedule 4.14(a) contains a complete and accurate list of the names, titles and cash compensation, including without limitation wages, salaries, bonuses (discretionary and formula) and other cash compensation (the "Cash Compensation") of all Employees who are currently compensated at a rate in excess of $40,000 per year. In addition, Schedule 4.14(a) contains a complete and accurate description of (i) all increases in Cash Compensation of Employees during the current fiscal year of Seller and (ii) any scheduled increases in Cash Compensation of Employees that have not yet been effected. (b) Other than with respect to Floyd Clonninger, none of the Employees are covered by or participate in any Seller sponsored deferred compensation, incentive, bonus or performance awards, and stock ownership or stock options. A summary of the terms of any such arrangements covering Mr. Clonninger are set forth on Schedule 4.14(b). There are no employment agreements to which Seller is a party with respect to the Employees. (c) Schedule 4.14(c) contains a complete and accurate list of all employee manuals and all other material policies, procedures and work-related rules (the "Employee Policies and Procedures") that apply to Employees. Seller has provided Purchaser with a copy of all such Employee Policies and Procedures. (d) With respect to the Employees, except as set forth in Schedule 4.14(d), (i) Seller has been and is in compliance with all laws, rules, regulations and ordinances respecting employment and employment practices, terms and conditions of employment and wages and hours, and Seller has no liability for any arrears of wages or penalties for failure to comply with any of the foregoing, and (ii) there are no (A) unfair labor practice charges or complaints or racial, color, religious, sex, national origin, age or handicap discrimination charges or complaints pending or, to the Knowledge of Seller, threatened against Seller before any federal, state or local court, board, department, commission or agency nor, to the Knowledge of Seller, does any basis therefor exist or (B) existing or, to the Knowledge of Seller, threatened labor strikes, disputes, grievances, controversies or other labor troubles affecting Seller, nor to the Knowledge of Seller, does any basis therefor exist, any of which could result in any material liability. (e) With respect to the Employees, Seller has never been a party to any agreement with any union, labor 22 30 organization or collective bargaining unit, no employees are represented by any union, labor organization or collective bargaining unit and, to the Knowledge of Seller, the Employees have not threatened to organize or join a union, labor organization or collective bargaining unit. (f) To the Knowledge of Seller, all Employees are citizens of, or are authorized to be employed in, the United States. 4.15 Permits. Schedule 4.15 hereto sets forth a list of all Permits required to conduct the Business (including, without limitation, environmental permits required to construct, occupy, operate or use the Assets), the dates such Permits were obtained, the date of renewals thereof and the status of each Permit. Except as set forth on Schedule 4.15 there are no administrative or judicial proceedings pending or, to the Knowledge of Seller, threatened which seek to revoke, cancel or declare such Permits invalid in any respect. 4.16 Brokers. No Person has acted directly or indirectly as a broker, finder or financial advisor for Seller in connection with the negotiations relating to or the transactions contemplated by this Agreement and no Person is entitled to any fee or commission or like payment in respect thereof based in any way on agreements, arrangements or understanding made by or on behalf of Seller. 4.17 Boger City Plant. Except as set forth on Schedule 4.17 hereof, there have been no material changes to the plant and equipment at the Boger City Plant since October 31, 1998. 4.18 Environmental Matters. Except as disclosed on Schedule 4.18 or in the environmental reports delivered to Purchaser prior to the Closing, (a) the Business and the Assets are in compliance with all Environmental Laws and any historic incidents of non-compliance have been corrected and any required reports have been submitted by Seller to the appropriate governmental authority; (b) there are no pending or, to the Knowledge of Seller, threatened, investigations, inquiries or proceedings against the Assets by any governmental authority under Environmental Laws; (c) neither the Business nor the Assets are subject to any obligation to remediate contamination from Hazardous Materials under any Environmental Laws; and (d) to the Knowledge of Seller, none of the Assets are included on any federal or state 23 31 "Superfund" list or subject to any liens imposed pursuant to Environmental Laws. 4.19 Condition of Fixed Assets. Except as set forth on Schedule 4.19, to the Knowledge of Seller, all of the plants, structures and equipment included in the Assets are in good condition and repair for their intended use in the ordinary course or business, subject to ordinary wear and tear, and conform in all material respects with all applicable ordinances, regulations and other laws. 4.20 Books and Records. The Books and Records of the Business have been kept materially accurately by Seller in the ordinary course of business, the transactions entered therein represent bona fide transactions and the revenues, expenses, assets and liabilities of the Business have been properly recorded in such Books and Records. 4.21 Customers. Schedule 4.21 contains a complete and accurate list of the 20 largest non-intercompany customers of the Business in terms of sales for each of the last three fiscal years and the current fiscal year to date, showing, with respect to each such customer, the name and address of such customer. 4.22 Product Warranties. Except as set forth on Schedule 4.22, there is no claim against or liability of Seller on account of product warranties or with respect to the manufacture, sale or rental of defective products of the Business and, to the Knowledge of Seller, there is no basis for any such claim on account of defective products manufactured, sold or rented by Seller in respect of the Business since September 1, 1998 that is not fully covered by insurance. 4.23 Absence of Certain Changes. Except as set forth on Schedule 4.23, since October 31, 1998, Seller has not, in respect of the Business (a) suffered any material adverse change, whether or not caused by any deliberate act or omission of Seller, in the condition (financial or otherwise), operations, assets or liabilities of the Business, (b) contracted for the purchase of any capital asset having a cost in excess of $100,000 or paid any capital expenditures in excess of $100,000, (c) suffered any damage or destruction to or loss of any Asset (whether or not covered by insurance) that has materially and adversely affected, or could materially and adversely affect, the Business, (d) acquired or disposed of any Asset except in the ordinary course of business, (e) written up or written down the carrying value of any Asset, (f) changed the 24 32 costing system or depreciation methods of accounting for the Assets, (g) increased the compensation of any Employee except in the ordinary course of business, (h) entered into any other commitment or transaction or experienced any other event that is materially adverse to this Agreement or to any of the Ancillary Agreements or the transactions contemplated hereby or thereby, or that has materially and adversely affected, or could materially and adversely affect, the condition (financial or otherwise), operations, assets or liabilities of the Business. 4.24 Certain Payments. To the Knowledge of Seller, with respect to the Business, neither Seller nor any director, officer or employee of Seller has paid or caused to be paid, directly or indirectly, to any government or agency thereof or any agent of any supplier or customer any bribe, kick-back or other similar payment. 4.25 October 31, 1998 and 1997 Statement. To the Knowledge of Seller, the October 31, 1998 and 1997 Statement has been prepared in accordance with the books and records of Seller on a consistent basis with Seller's preparation of the same information for prior periods. 4.26 Form of Purchase Order Confirmation. The form of Seller's purchase order confirmation attached hereto as Exhibit D (the "Purchase Order Confirmation") is the form of agreement used by Seller in connection with the purchase orders referenced in Part F of Schedule 4.6 and, except as set forth on Schedule 4.26 hereto, such purchase orders do not contain or incorporate by reference any material contractual terms which are not contained in the Purchase Order Confirmation (other than in respect of product, price, quantity and delivery terms). ARTICLE V REPRESENTATIONS AND WARRANTIES OF PURCHASER Purchaser hereby represents and warrants to Seller (as of the date hereof and as of the Closing Date as if made on the Closing Date) as follows: 5.1 Organization. Purchaser is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware; Purchaser has full corporate power and authority to conduct the Business as it is now being conducted and to own and lease the Assets. 25 33 5.2 Corporate Authorization. Purchaser has all necessary corporate power and authority to enter into this Agreement and the Ancillary Agreements to which it is a party, to consummate the transactions contemplated hereby and thereby and to perform its obligations hereunder and thereunder. The execution, delivery and performance of this Agreement and the Ancillary Agreements and the consummation of the transactions described herein and therein by Purchaser have been duly authorized by all requisite corporate action. This Agreement and the Ancillary Agreements have been duly executed and delivered by Purchaser and, assuming the due execution and delivery thereof by Seller, each is a valid and binding obligation of Purchaser, enforceable against Purchaser in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, moratorium, fraudulent conveyance, reorganization and other similar laws now or hereafter in effect relating to creditors' rights generally and by general principles of equity (whether considered in an action at law or in equity) and the discretion of the court before which any proceeding therefor may be brought. 5.3 No Conflict or Violation. Except as set forth on Schedule 5.3 hereto, neither the execution, delivery nor performance of this Agreement or any of the transactions contemplated hereby will (a) violate or conflict with any provision of the Certificate of Incorporation or By laws of Purchaser, (b) result in a breach of or a default under any provision of any contract, agreement, lease, commitment, license, franchise, permit, authorization or concession to which either Purchaser is a party or bound or to which any property or asset of either Purchaser is subject or an event which with notice, lapse of time, or both, would result in any such breach or default, or (c) result in a violation by Purchaser of any statute, rule, regulation, ordinance, code, order, judgment, writ, injunction, decree, or award, or an event which with notice, lapse of time, or both, would result in any such violation, which breach, default or violation would have a material adverse effect on Purchaser's ability to consummate the transactions contemplated hereby. 5.4 Consents and Approvals. Except as set forth on Schedule 5.4, no consent, approval or authorization or declaration, filing or registration with any Governmental Agency, or any other person or entity, is required to be made or obtained by Purchaser in connection with the execution, delivery and performance of this Agreement or the Ancillary Agreements and the consummation of the transactions contemplated hereby and thereby. 26 34 5.5 Litigation. There is no claim, action, suit, proceeding or governmental investigation against Purchaser or any of Purchaser's subsidiaries which (i) seeks to restrain or enjoin the consummation of the transactions contemplated hereby or (ii) if adversely determined, could be expected to have a material adverse effect on the ability of Purchaser to consummate the transactions contemplated by this Agreement. Purchaser is not in violation of any term of any judgment, decree, injunction or order outstanding against it, which violation could reasonably be expected to have a material adverse effect on the ability of Purchaser to consummate the transactions contemplated hereby. 5.6 Brokers. Except as set forth on Schedule 5.6, no Person has acted directly or indirectly as a broker, finder or financial advisor for Purchaser in connection with the negotiations relating to or the transactions contemplated by this Agreement and no Person is entitled to any fee or commission or like payment in respect thereof based in any way or agreements, arrangements or understandings made by or on behalf of Purchaser. ARTICLE VI COVENANTS OF SELLER AND PURCHASER Seller and Purchaser each covenant with the other as follows: 6.1 Employees. (a) Employment. Effective as of the Closing Date, Purchaser shall offer employment to the Employees (other than those Employees on layoff, but subject to any recall rights). For a period of at least ninety (90) days from the Closing Date, Purchaser shall provide the Transferred Employees with a comparable position and at the same level of wages and/or salary and substantially similar benefits (other than with respect to benefits provided under the Retirement Pension Plan for Employees of JPS Textile Group, Inc. and the Group Medical Benefits for Retired Employees of JPS Textile Group, Inc.) as provided by Seller immediately prior to the Closing Date as set forth on Schedule 4.13(a), unless any such employee is terminated by Purchaser in the ordinary course of business (provided that such terminations are limited to not more than 40 such employees); provided, however, that Purchaser shall specifically offer Transferred Employees the medical option under the Partners National Health Plans of North Carolina, Inc. currently offered to such employees if such coverage is 27 35 reasonably available; and provided, further, however, that Purchaser may terminate for cause the employment of any Transferred Employee during the ninety (90) days immediately following the Closing Date. (b) Credited Service. The Transferred Employees shall be given full credit by Purchaser for their years of service recognized under Seller's benefit plans and vacation policy for purposes of eligibility and vesting in all employee benefit plans of Purchaser and for purposes of calculating benefits under severance and vacation policies of Purchaser. (c) Severance. For one (1) year from the Closing Date, Purchaser shall maintain severance or layoff benefits no less favorable in the aggregate than those severance or layoff benefits maintained by Seller for the salaried Employees immediately prior to the Closing (the terms of which are set forth on Schedule 6.1(c)) and Purchaser shall indemnify Seller with respect to any such severance or layoff liability for any Employee terminated after the Closing Date. Seller shall not be responsible and shall not pay severance or layoff or any other similar arrangement with respect to any Employee terminated after the Closing Date. (d) Health and Medical Plan Coverage. Effective as of the Closing Date, Purchaser shall provide Transferred Employees and their beneficiaries with group health and medical coverage that contains no (i) pre-existing condition exclusions or limitations or (ii) eligibility waiting periods, applicable to Transferred Employees other than any limitations or waiting periods that are already in effect and have not been satisfied with respect to such employees. With respect to such plans, Purchaser shall give each Transferred Employee credit toward applicable deductibles and annual out-of-pocket limits for expenses incurred prior to the Closing Date during the applicable plan year. If an event causing a Transferred Employee to be eligible for health care benefits under Part 6 of Title I of ERISA, 29 U.S.C.ss.ss.1161 et. seq., as amended, occurs after the Closing Date, Purchaser will be obligated to provide such health care benefits. Purchaser shall not be responsible for any costs or expenses incurred prior to the Closing with respect to Seller's health and welfare plans. (e) Vacation. Purchaser shall pay each Transferred Employee the vacation pay earned by such Transferred Employee in 1998 in accordance with the terms, including both timing and amount of pay earned, of Seller's 28 36 vacation policy, which vacation payments are described in Schedule 6.1(e); provided, however, that Seller shall reimburse Purchaser for the cost of such vacation pay upon reasonable notice of actual payment(s) made to such Transferred Employees. For calendar year 1999, Purchaser shall provide a vacation policy and entitlement for Transferred Employees (based such employees' years of service with Seller), the terms of which are set forth on Schedule 6.1(e). (f) Pension Benefits. Seller shall cause the Retirement Pension Plan for Employees of JPS Textile Group, Inc. (the "Pension Plan") to be amended to provide Transferred Employees with full vesting as of the Closing Date. (g) Savings Plan. Seller shall cause the accounts of the Transferred Employees who participate in the Amended and Restated Savings, Investment and Profit Sharing Plan of JPS Textile Group, Inc. ("Seller's Savings Plan") to be valued as of a specified valuation date as soon as practicable following the Closing (the "Asset Transfer Date"). As of the Asset Transfer Date, assets equal in value to the amount credited to each such employee's account under Seller's Savings Plan will be transferred to a trust maintained pursuant to a qualified 401(k) plan maintained by Purchaser ("Purchaser's Savings Plan"); provided, however, that Purchaser provide to Seller a determination letter or an opinion of counsel reasonably acceptable to Seller that such trust and each plan associated therewith is qualified as to form under Sections 401(a) and 501(a) of the Code. Such asset transfer shall include any outstanding participant loans. As of the Asset Transfer Date, Purchaser shall be liable for the payment of the benefits accrued by and transferred in respect of any Transferred Employee who participated in Seller's Savings Plan and who was effected by such transfer. Purchaser shall provide Transferred Employees who participate in Purchaser's Savings Plan with matching contributions and discretionary contributions at the same rate as Purchaser provides to its other Employees. (h) Flex Plan. Effective as of the Closing Date, Purchaser shall recognize salary reduction elections made by Transferred Employees under the JPS Textile Group, Inc. Flexible Benefits Program ("JPS Flex Plan") as elections made under Purchaser's Code Section 125 flexible benefits program ("Purchaser Flex Plan") and no new benefit elections for 1999 will be allowed to the Transferred Employees except as otherwise provided by the Purchaser Flex Plan in the event of a change in family status. Effective as of the 29 37 Closing Date, Purchaser shall assume all obligations to pay all unpaid claims incurred in 1999 of the Transferred Employees participating in the Purchaser Flex Plan as of the Closing Date. As soon as practicable following the Closing, Seller shall transfer to Purchaser assets equal to the aggregate amount of 1999 salary reductions related to Transferred Employees' elections under the JPS Flex Plan withheld through the Closing Date (less the aggregate claims paid under the JPS Flex Plan to Transferred Employees from January 1, 1999 through the Closing Date). (i) Transfer of or Access to Records. Purchaser shall, at Seller's request, allow Seller reasonable access to all personnel and other records reasonably related to any Transferred Employee. (j) W-2 Matters. Pursuant to the alternate procedure prescribed by Revenue Procedure 96-60, Purchaser shall assume Seller's entire obligation to furnish Forms W-2 for the calendar year ending December 31, 1999 to Transferred Employees. Seller shall provide Purchaser any information not available to Purchaser relating to periods ending on the Closing Date necessary for Purchaser to prepare and distribute Forms W-2 to Transferred Employees for the year ending December 31, 1999, which Forms W-2 shall include all remuneration earned by Transferred Employees from both Seller and Purchaser during the year ending December 31, 1999, and Purchaser shall prepare and distribute such Forms. 6.2 Further Assurances; Cooperation and Assistance. From time to time from and after the Closing Date, at Purchaser's reasonable request, Seller will (and will cause its officers, directors, employees, affiliates and agents to) execute and deliver such other instruments of conveyance and transfer and take such other actions as Purchaser may reasonably request in order to (i) perfect and record, if necessary, the sale, assignment, conveyance, transfer, and delivery to Purchaser of the Assets and (ii) convey, transfer to and vest in Purchaser and to put Purchaser in possession and operating control of all or any part of the Assets, including, without limitation, cooperating with and assisting Purchaser in the prosecution of any claims and in the collection or reduction to possession of accounts receivable and all the other Assets. Seller hereby agrees that all out-of-pocket expenses incurred in connection with the matters set forth in clause (ii) above shall be borne by it, and all other costs incurred in clauses (i) and (ii) shall be borne by Purchaser. 30 38 6.3 Nondisclosure. (a) From and after the Closing Date, Seller will not use, divulge, furnish or make accessible to anyone any knowledge or information with respect to confidential or secret processes, inventions, discoveries, improvements, formulae, plans, material, devices or ideas or know-how, whether patentable or not, with respect to any proprietary, material non-public, confidential or secret aspects of the Business, in each case relating solely to the Business (including, without limitation, customer lists, supplier lists and pricing and marketing arrangements with customers or suppliers) and Seller will cooperate reasonably with Purchaser in preserving such proprietary, confidential or secret aspects of the Business, in each case relating solely to the Business; provided, however, that nothing herein shall prohibit Seller from (i) complying with any order or decree of any court of competent jurisdiction or governmental authority, but Seller will give Purchaser timely notice of the receipt of any such order or decree, or (ii) disclosing such information to the extent necessary to any lenders under any of their credit documentation, as it relates to the Business, and provided, further, that the foregoing provision shall not apply to any information which is or becomes generally available to the public through no breach of this Agreement. 6.4 Non-Competition. (a) Except as set forth in Schedule 6.4(a), Seller (on behalf of itself and its subsidiaries) agrees that for three (3) years from and after the Closing Date, it shall not engage, directly or indirectly, or render any consulting or advisory services to any person, firm or corporation that engages, in the United States in the manufacturing and selling of woven fabrics for use in the manufacture of draperies, curtains, lampshades, bedding and upholstery and which directly compete with the Business, or own stock or otherwise have an interest in or be affiliated with, any person, corporation, firm, partnership or other entity engaged in such business (except as a stockholder holding less than 10% of the stock of a publicly-owned corporation); provided, however, that it shall not be a violation of this Section 6.4(a) for Seller to (i) resell returned goods received from customers of the Business (whether received by Seller before or after the Closing Date) or (ii) sell yarn (other than solution-dyed rayon yarn) to third parties for the use in the manufacture of woven fabrics for use in the home furnishing industry. (b) Seller (on behalf of itself and its subsidiaries) shall not (i) for a period of three (3) years from the Closing Date with respect to any Employees listed 31 39 as "Key Employees" in Schedule 6.4(b) and (ii) for a period of one (1) year from the Closing Date with respect to any other salaried Employee, hire any such Employee, without the prior written consent of Purchaser, except as otherwise required by court order or unless as otherwise agreed between the parties. (c) Seller (on behalf of itself and its subsidiaries) agrees that a violation of Section 6.4(a) or 6.4(b) will cause irreparable injury to Purchaser, and Purchaser will be entitled, in addition to any other rights and remedies it may have at law or in equity, to apply for an injunction enjoining and restraining Seller from doing or continuing to do any such act and any other violations or threatened violations of this Section 6.4. (d) Seller (on behalf of itself and its subsidiaries) acknowledges and agrees that the covenants set forth in this Section 6.4 are reasonable and valid in geographical and temporal scope and in all other respects. If any of such covenants are found to be invalid or unenforceable by a final determination of a court of competent jurisdiction (i) the remaining terms and provisions hereof shall be unimpaired and (ii) the invalid or unenforceable term or provision shall be deemed replaced by a term or provision that is valid and enforceable and that comes closest to expressing the intention of the invalid or unenforceable term or provision. In the event that, notwithstanding the first sentence of this paragraph (d), any of the provisions of this Section 6.4 relating to the geographic or temporal scope of the covenants contained therein or the nature of the business restricted thereby shall be declared by a court of competent jurisdiction to exceed the maximum restrictiveness such court deems enforceable, such provision shall be deemed to be replaced herein by the maximum restriction deemed enforceable by such court. 6.5 Sums Received in Respect of Business. Seller shall pay or cause to be paid over to Purchaser, promptly after the receipt thereof after the Closing Date, all sums received in respect or on account of the Assets other than the consideration received by Seller as set forth in Section 2.2 hereof. 6.6 Maintenance of the Business Prior to Closing. Unless otherwise consented to by Purchaser, from the date hereof until the Closing, Seller shall: 32 40 (a) carry on the Business in the ordinary course in accordance with past practice and not take any action inconsistent therewith or with the consummation of the transactions contemplated hereby; (b) except as set forth on Schedule 6.6(b), use its best efforts to keep available generally the services of the present employees of the Business, and preserve generally the present relationships with persons having business dealings with the Business; (c) maintain all of the Assets in good repair, order and condition (except for ordinary wear and tear and equipment breakdowns of a type normally occurring which do not materially interfere with the operation of the Business); (d) maintain the books, accounts and records in the ordinary course consistent with past practice, and comply, in all material respects, with all laws applicable to the conduct of the Business; (e) not materially change or enter into any agreement to materially change the character of the Business; (f) not enter into any employment contract with any employee of the Business or make any loan to, or enter into any material transaction of any other nature with, any employee of the Business; (g) other than in accordance with the Seller Credit Agreement and/or the Loan and Security Agreement, by and between JPS Converter and Industrial Corp. and The CIT Group/Equipment Financing, Inc., dated as of October 31, 1991, as amended (the "CIT Agreement"), not sell or transfer any of the Assets, except Inventory and Fixed Assets in the ordinary course of business, and maintain Inventory at levels consistent with past practice; (h) not terminate or modify any lease, license, Permit, Contract or other agreement included in the Assets in a manner materially adverse to the Business; (i) other than in accordance with the Seller Credit Agreement and/or the CIT Agreement, not release, waive, sell or assign any debts, claims, rights or other intangible rights included in the Assets; and 33 41 (j) maintain insurance coverage in the usual manner consistent with prior practices If, in accordance with the terms of the Seller Credit Agreement or the CIT Agreement, any of the events described in (g) and (i) above occur, then Seller shall promptly provide Purchaser with written notice of such occurrence. 6.7 Consents. Purchaser and Seller, as applicable, will take all reasonable action required hereunder to obtain all applicable Permits, consents, approvals and agreements of, and to give all notices and make all filings with, public and governmental authorities and third parties (at such time as the parties mutually determine) as may be necessary to authorize, approve or permit the full and complete sale, conveyance, assignment and transfer of the Assets to Purchaser; provided, however, that nothing contained in this Section 6.7 shall be deemed to require Seller to make any payments to obtain a consent or approval from any third party. 6.8 Public Announcements. Neither Seller (nor any of its affiliates) nor Purchaser (nor any of its affiliates) shall make any public statement, including, without limitation, any press release, with respect to this Agreement and the transactions contemplated hereby, without the prior written consent of the other party (which consent may not be unreasonably withheld or delayed), except as may be required by law, regulation, legal process or stock exchange rules, and except that following the issuance of press releases by the parties hereto with respect to the transactions contemplated hereby the parties may continue routine communications (including discussions regarding the transactions contemplated hereby) with investors and analysts. 6.9 Bill and Hold Insurance. From and after the Closing Date, Seller shall (a) maintain insurance coverage in respect of all bill and hold goods and (b) pay any processing fees in relation thereto at current rates (i.e., $1.00 per bale for all goods received and/or shipped out or from the Boger City Plant and $.75 per carton per month) for all goods stored at the Boger City Plant until all such goods are shipped to customers. 6.10 Financing. Purchaser shall use its reasonable best efforts to (a) enter into financing arrangements providing for financing sufficient to complete the transactions contemplated by this Agreement, on terms 34 42 and conditions reasonably satisfactory to Purchaser, and (b) obtain a commitment letter in respect of such financing, on terms satisfactory to Purchaser but with conditions reasonably satisfactory to Seller (and deliver a facsimile of an executed copy thereof to Seller) no later than January 22, 1999. 6.11 Pre-Closing Sales Tax Liabilities. Seller shall be responsible for all sales taxes applicable to sales of merchandise made by the Business prior to the Closing Date. 6.12 Testing. From time to time, from and after the Closing Date, Seller shall provide Purchaser reasonable ingress and egress to and from the non-contiguous parcel of land located in Lincolnton, North Carolina relating to the Business not being transferred to Purchaser hereunder in order for Purchaser to comply with the terms of the Lincolnton Discharge Permit being transferred to Purchaser as part of the Assets, with which Purchaser agrees to comply; provided, however, that such permit has been transferred; provided, further, however, that Seller shall not sell or otherwise transfer such non-contiguous parcel to a third party unless the such third party shall agree to be bound by the provisions of this Section 6.12. ARTICLE VII CONDITIONS TO SELLER'S OBLIGATIONS The obligations of Seller to consummate the transactions provided for hereby are subject to the satisfaction, on or prior to the Closing Date, of each of the following conditions, any and all of which may be waived in whole or in part by Seller: 7.1 Representations, Warranties and Covenants. All representations and warranties of Purchaser contained in this Agreement shall be true and correct in all material respects on and as of the Closing Date with the same force and effect as though made on and as of the Closing Date, except as affected by the transactions contemplated hereby, and Purchaser shall have performed in all material respects all covenants and conditions contained in this Agreement to be performed or complied with by it prior to or on the Closing Date. 7.2 Certificates. Purchaser shall have furnished Seller with such certificates, dated the Closing Date, of Purchaser's officers, directors and others to evidence 35 43 compliance with the conditions set forth in this Article VII as may be reasonably requested by Seller. 7.3 Corporate Documents. Seller shall have received from Purchaser certified copies of the resolutions duly adopted by the board of directors of Purchaser approving the execution and delivery of this Agreement and the Ancillary Agreements and the consummation of the transactions contemplated hereby and thereby, and such resolutions shall be in full force and effect as of the Closing Date. 7.4 Legal Opinion. Seller shall have received the opinion of Jackson Walker L.L.P. counsel to Purchaser, in the form of Exhibit G hereto. 7.5 Consents. All consents listed on Schedule 7.5 hereto shall have been obtained. 7.6 No Governmental Proceedings or Litigation. No suit, action, investigation or other proceeding by any governmental authority or other person or any other legal or administrative proceeding shall have been instituted or threatened which would make illegal, or prevent, or question the validity or legality of, the transactions contemplated hereby or which seeks material damages in respect thereof. ARTICLE VIII CONDITIONS TO PURCHASER'S OBLIGATIONS The obligations of Purchaser to consummate the transactions provided for hereby are subject to the satisfaction, on or prior to the Closing Date, of each of the following conditions, any or all of which may be waived in whole or in part by Purchaser: 8.1 Representations, Warranties and Covenants. The representations and warranties of Seller contained in this Agreement shall be true and correct in all material respects on and as of the Closing Date with the same force and effect as though made on and as of the Closing Date, and Seller shall have performed in all material respects all covenants and conditions contained in this Agreement to be performed or complied with by them prior to or on the Closing Date. 36 44 8.2 Certificates. Seller shall have furnished Purchaser with such certificates, dated the Closing Date, of Seller's officers, directors and others to evidence compliance with the conditions set forth in this Article VIII as may be reasonably requested by Purchaser. 8.3 Section 1445 Certificate. Seller shall have furnished Purchaser with a certificate that such Seller is not a foreign person within the meaning of Section 1445 of the Code, which certificate shall set forth all information required by, and otherwise be executed in accordance with, Treasury Regulation Section 1.1445-2(b). 8.4 Corporate Documents. Purchaser shall have received from Seller certified copies of the resolutions duly adopted by the boards of directors of Seller and JPS approving the execution and delivery of this Agreement and the Ancillary Agreements and the JPS Agreement and the consummation of the transactions contemplated hereby and thereby. 8.5 Legal Opinion. Purchaser shall have received the opinion of Weil, Gotshal & Manges LLP, counsel for Seller, in the form of Exhibit H hereto. 8.6 Consents. All consents listed on Schedule 8.6 hereto shall have been obtained. 8.7 Delivery of Documents. Seller shall have executed and delivered to Purchaser at the Closing the Ancillary Agreements (other than the Supply Agreement and the Transitional Services Agreement) and executed and/or delivered the other documents listed in Sections 3.2, 3.3, 3.4 and 3.5 hereof. 8.8 Good Standing Certificates. Purchaser shall have received (i) a certificate of the Secretary of State of the State of Delaware as to Seller's good standing and legal existence dated as close as practicable to the Closing Date and a bring-down notice dated as of the Closing Date as to Seller's good standing and (ii) a certificate of the Secretary of State of the State of North Carolina as to Seller's authority to do business in such state dated as close as practicable to the Closing Date. 8.9 Release of Liens. Purchaser shall have received evidence reasonably satisfactory to it that all liens of third parties in respect of the Assets, other than Permitted Liens, shall have been released as of the Closing Date. 37 45 8.10 No Governmental Proceedings or Litigation. No suit, action, investigation or other proceeding by any governmental authority or other person or any other legal or administrative proceeding shall have been instituted or threatened which would make illegal, or prevents, or questions the validity or legality of, the transactions contemplated hereby or which seeks material damages in respect thereof. 8.11 Financing. Purchaser shall have entered into financing arrangements providing for financing sufficient to complete the transactions contemplated by this Agreement, on terms and conditions reasonably satisfactory to Purchaser. ARTICLE IX CERTAIN ACTIONS BY SELLER AND PURCHASER AFTER THE CLOSING 9.1 Books and Records. Each party agrees that it will cooperate with and make available to the other party, subject to Section 10.11 hereof, during normal business hours, all Books and Records, information and employees (without substantial disruption of employment) retained and remaining in existence after the Closing Date which are necessary or useful in connection with any Tax inquiry, investigation or dispute, any litigation or investigation or any other matter requiring any such Books and Records, information or employees for any reasonable business purpose. The party requesting any such Books and Records, information or employees shall bear all of the out-of-pocket costs and expenses (including, without limitation, attorneys' fees) reasonably incurred in connection with providing such Books and Records, information or employees. Seller may require certain financial information relating to the Business for periods prior to the Closing Date for the purpose of filing federal, state, local and foreign tax returns and other governmental reports, and Purchaser agrees to furnish such information to Seller at reasonable request. 9.2 Indemnification. (a) By Seller. Seller shall indemnify and hold harmless Purchaser, its directors, officers, employees and each of their respective successors and assigns from and against any and all demands, claims, actions or causes of action, assessments, deficiencies, damages, losses, liabilities and expenses (including, without limitation, reasonable expenses of investigation and attorneys' fees and 38 46 expenses in connection with any action, suit or proceeding or investigation brought against Purchaser) (herein, the "Damages"), incurred in connection with or arising out of or resulting from (i) any breach of or inaccuracy in any representation or warranty made by Seller pursuant to this Agreement and/or the Ancillary Agreements; (ii) the failure of Seller to comply with any of the covenants contained in this Agreement or the Ancillary Agreements which are required to be performed by Seller; (iii) any Excluded Liability; (iv) any Taxes which result in a claim against Purchaser for any taxable period ending on or prior to the Closing Date (other than taxes assumed by Purchaser hereunder); (v) any product claim or warranty relating to products sold prior to the Closing and all general liability claims arising out of events occurring prior to the Closing (other than claims or warranties assumed by Purchaser hereunder); (vi) the non-compliance by Seller with applicable bulk sales statutes; and (vii) the operation of the Business (other than with respect to any liabilities arising on or prior to the Closing Date which are Assumed Liabilities) on or prior to the Closing Date. (b) By Purchaser. Purchaser shall indemnify and hold harmless Seller, its directors, officers and employees and each of their respective successors and assigns from and against any and all Damages incurred in connection with or arising out of or resulting from (i) any breach of or inaccuracy in any representation or warranty made by Purchaser pursuant to this Agreement and/or the Ancillary Agreements; (ii) the failure of Purchaser to comply with any of the covenants contained in this Agreement or in any of the Ancillary Agreements which are required to be performed by Purchaser; (iii) any Assumed Liability; and (iv) the operation of the Business (other than with respect to the Excluded Assets or any liabilities arising on or prior to the Closing Date and which are not Assumed Liabilities) from and after the Closing Date, including, without limitation, any claim, liability, obligation or commitment of any nature in respect of any Permits operated by Seller for the benefit of Purchaser from and after the Closing Date pursuant to Section 3.2 hereof. (c) Claims by Third Parties. Promptly after receipt by an indemnified party of written notice of the commencement of any investigation, claim, proceeding or other action in respect of which indemnity may be sought from the indemnitor (an "Action"), such indemnified party shall notify the indemnitor in writing of the commencement of such Action; but the omission to so notify the indemnitor shall not relieve it from any liability that it may other- 39 47 wise have to such indemnified party, except to the extent that the indemnitor is materially prejudiced or forfeits substantive rights or defenses as a result of such failure. In connection with any Action in which indemnitor and any indemnified party are parties, the indemnitor shall be entitled to participate therein, and may assume the defense thereof. Notwithstanding the assumption of the defense of any such Action by the indemnitor, each indemnified party shall have the right to employ separate counsel and to participate in the defense of such Action, and the indemnitor shall bear the reasonable fees, costs and expenses of such separate counsel to such indemnified party if: (a) the indemnitor shall have agreed to the retention of such separate counsel, (b) the indemnified party shall have concluded that representation of such indemnified party and the indemnitor by the same counsel would be inappropriate due to actual or, as reasonably determined by such indemnified party's counsel, potential differing interests between them in the conduct of the defense of such Action, or if there may be legal defenses available to such indemnified party that are different from or additional to those available to the other indemnified party or to the indemnitor, or (c) the indemnitor shall have failed to employ counsel reasonably satisfactory to such indemnified party within a reasonable period of time after notice of the institution of such Action. If such indemnified party retains separate counsel in cases other than as described in clauses (a), (b) or (c) above, such counsel shall be retained at the expense of such indemnified party. Except as provided above, it is hereby agreed and understood that the indemnitor shall not, in connection with any Action in the same jurisdiction, be liable for the fees and expenses of more than one counsel for all such indemnified parties (together with appropriate local counsel). The party from whom indemnification is sought shall not, without the written consent of the party seeking indemnification (which consent shall not be unreasonably withheld), settle or compromise any claim or consent to entry of any judgment that involves more than the payment of money or that does not include an unconditional release of the party seeking indemnification from all liabilities with respect to such claim. (d) Limitations on Indemnification. Notwithstanding any other provision of this Agreement, none of the parties hereto shall be entitled to indemnification pursuant to this Section 9.2 for any Damages arising out of the breach of any representation or warranty made by the other party in this Agreement except as follows: (i) with respect to any Damages resulting from a breach of any of the 40 48 representations and warranties by either party, the other party shall be entitled to indemnification for only those Damages which arise out of such breach and are in excess of $400,000 in the aggregate (it being agreed that such other party shall bear the first $400,000 of Damages arising from such breaches or alleged breaches); and (ii) unless the party seeking such indemnification shall make its claim therefor on or prior to the date on which the relevant representation or warranty shall expire pursuant to Section 10.2, except that if a claim arises under a representation or warranty and a notice of such claim is given prior to the expiration of the survival period, then such representation or warranty shall not terminate with respect to such claim until indemnification thereof (if any is owing) shall have been made in accordance with the provisions of this Agreement. In no event will either party be liable under or with respect to this Agreement for any Damages or any portion of any Damages arising out of the breach of any representation or warranty in excess of $4,000,000 in the aggregate; provided, however, that the foregoing limitations on liability for Damages arising out of the breach of any representation or warranty shall not apply to claims of Purchaser relating to the Excluded Liabilities or claims of Seller relating to the Assumed Liabilities or to the representations or warranties set forth in Section 4.2 or 5.2. (e) Each party hereto acknowledges and agrees that, after the Closing Date, its sole and exclusive legal remedy with respect to any and all claims relating to or arising out of a breach of any representation, warranty, covenant or agreement made by the other party in this Agreement shall be pursuant to the indemnification provisions set forth in this Section 9.2, except in the case of actual fraud. (f) In calculating any amounts payable pursuant to this Section 9.2 or Section 9.4 by Seller or Purchaser, as the case may be, such amounts shall be reduced by (i) any tax benefit actually realized by the Indemnified Party as a result of the facts giving rise to the claim for indemnification and (ii) any insurance recoveries received by the Indemnified Party. All amounts paid pursuant to this Section 9.2 or Section 9.4 by one party to another party shall be treated by such parties as an adjustment to the Purchase Price for the Assets. (g) With respect to Remedial Activities for which Seller must indemnify Purchaser: 41 49 (i) Purchaser shall notify Seller of any condition requiring Remedial Activities for which Seller is responsible within 30 days of becoming aware that Remedial Activities are required. Purchaser shall identify the conditions and the asserted grounds for indemnification. Seller shall have 60 days from receipt of such notice to commence an appropriate response, which may include investigation, remediation, or response to and negotiation with regulatory authorities, but need not involve actual Remedial Activities. Seller shall promptly and diligently, consistent with clause (iii) below, ascertain and complete all Remedial Activities required by Environmental Laws and the governmental authorities responsible for implementing those laws. (ii) Claims by third parties alleging personal injury or property damage arising out of Hazardous Materials which do not arise out of and will not involve Remedial Activities shall be governed by subsection 9.2(c) of this section. (iii) Seller and Purchaser shall reasonably cooperate in all decisions and activities related to Remedial Activities, including without limitation, the timing, scope of work, choice of consultant, choice of contractors, and remedy selected; provided, however, that (a) Seller shall ensure that all Remedial Activities are undertaken in a manner that does not prevent or materially impair Purchaser from using the Boger City Plant in a reasonable manner, (b) Seller shall comply with all applicable laws and with all requirements imposed by governmental authorities with responsiblity for implementing Environmental Laws, and (c) Seller may use the least stringent criteria applicable to industrial property if such criteria are acceptable to governmental authorities with jurisdiction over the Remedial Activities. Seller shall provide Purchaser with a written scope of work and the anticipated timeframe for completion not less than 20 days before the commencement of work. Purchaser shall have the right to review and to consult with Seller with respect to finalization and implementation of such plan and Seller, shall where reasonable, incorporate Purchaser's comments to such plan. (iv) Purchaser shall provide Seller and its agents and representatives, including its environmental consultants and contractors, with access to the Boger 42 50 City Plant and any portion thereof on which Remedial Activities are to be performed, and to water, telephone lines, electricity and other readily available utilities. Purchaser shall cooperate with and assist Seller in procuring required environmental permits and authorizations and making required reports and filings. Purchaser shall not be required to incur any out-of-pocket expenses or extraordinary personnel or operating costs in connection with such cooperation and assistance without reasonable compensation. (v) If Seller fails for any reason to commence and complete all required Remedial Activities in accordance with this Agreement, then Purchaser shall, after reasonable notice, have the right, but not the obligation, to perform such activities as Purchaser, in its sole discretion, believes are required to obtain compliance with Environmental Laws and Seller shall be responsible under Section 9.2(a) for reimbursing all of Purchaser's reasonable costs; provided, however, that Purchaser shall use the least stringent clean-up criteria applicable to industrial property. (vi) For purposes of this Section 9.2(g), Remedial Activities means any actions specifically required by Environmental Laws to cleanup, remove, treat, or in any other way address Hazardous Materials located in, on or under the soil or groundwater at the Boger City Plant at concentrations exceeding those allowed by Environmental Laws. Remedial Activities shall not include any action voluntarily undertaken to investigate or remediate Hazardous Materials. (h) (i) Omissions, conduct or conditions that were not violations of Environmental Laws in effect on the Closing Date, but which subsequently become violations due to a change in law, shall be Assumed Liabilities, and omissions, conduct or conditions that would have been violations of Environmental Laws in effect on the Closing Date (had all of the facts and circumstances been known) shall be Excluded Liabilities. (ii) Conditions existing on or before Closing for which Remedial Activities (as defined in Section 9.2(g)(vi)) were not required under Environmental Laws in effect on the Closing Date, but which subsequently become subject to a remedial requirement due to a change in law, shall be Assumed Liabilities, and all other conditions existing on or before Closing for which Remedial Activities would have been 43 51 required under Environmental Laws in effect on the Closing Date (had all of the facts and circumstances been known) shall be Excluded Liabilities. 9.3 [Reserved]. 9.4 Tax Matters. (a) Seller and Purchaser shall cooperate fully with each other and make available or cause to be made available to each other in a timely fashion such Tax data, prior Tax returns and filings and other information as may be reasonably required for the preparation by Purchaser or Seller of any Tax returns, elections, consents or certificates required to be prepared and filed by Purchaser or Seller and any audit or other examination by any taxing authority, or judicial or administrative proceeding relating to liability for Taxes. Purchaser and Seller will each retain and provide to the other party all records and other information which may be relevant to any such Tax return, audit or examination, proceeding or determination, and will each provide the other party with any final determination of any such audit or examination, proceeding or determination that affects any amount required to be shown on any Tax return of the other party for any period. Each of Purchaser and Seller will retain copies of all Tax returns, supporting work schedules and other records relating to Tax periods or portions thereof ending prior to or on the Closing Date. (b) Notwithstanding the provisions of Section 2.3(e) hereof (i) any recording or other similar Taxes or fees imposed as a result of the sale of the Owned Real Property to Purchaser pursuant to this Agreement shall be paid by Purchaser and (ii) any sales, transfer, use or other similar Taxes or fees imposed as a result of the sale of the Business to Purchaser pursuant to this Agreement shall be paid by Seller. At the Closing, Seller and Purchaser shall deliver to each other such properly completed resale exemption certificates and other similar certificates or instruments as are necessary to claim available exemptions from the payment of sales, transfer, use or other similar Taxes under applicable law. 9.5 Mail Received After Closing. (a) Following the Closing, Purchaser may receive and open all mail and other communications addressed to Seller and deal with the contents thereof in its discretion to the extent that such mail relates to the Business; provided that Purchaser shall have no right to deal with the contents of any mail or other communication to the extent that the same are not in respect of the Assets or the Business and Purchaser shall promptly 44 52 notify Seller as to the receipt thereof and make appropriate arrangements to deliver such materials promptly to Seller. (b) Following the Closing, Seller shall promptly notify Purchaser of all mail and other communications relating solely to the Business addressed to Seller and received by Seller, and shall make appropriate arrangements to deliver such materials promptly to Purchaser. ARTICLE X MISCELLANEOUS 10.1 Termination. This Agreement may be terminated: (a) by the written agreement of Seller and Purchaser; (b) by either Seller or Purchaser if there shall be in effect a non-appealable order of a court of competent jurisdiction permanently prohibiting the consummation of the transactions contemplated hereby; (c) by either Seller or Purchaser if the Closing shall not have occurred on or before March 1, 1999; (d) by Seller if Purchaser shall not have obtained the commitment letter described in Section 6.10(b) hereof by February 8, 1999; and (e) by Purchaser if there is a material occurrence of an event described in Sections 6.6 (g) or 6.6 (i) or a material change in any schedule pursuant to Section 10.14. Upon any termination of this Agreement pursuant to this Section 10.1, no party hereto shall thereafter have any further liability or obligation hereunder, other than for liabilities to the extent arising from a willful breach of this Agreement prior to the date of such termination. 10.2 Survival of Representations and Warranties. The respective representations and warranties made by Seller and Purchaser in this Agreement (including those made in the Exhibits and Schedules hereto) or in any Ancillary Agreement shall not be deemed waived or otherwise affected by any investigation made by any party hereto. Each and every such representation and warranty of Seller and Purchaser shall expire with, and be terminated and extinguished on, the first anniversary of the Closing Date (other than in respect of the representations and warranties set forth in (i) Sections 4.9, 4.13 and 4.18, which shall survive for a period of three (3) years after the Closing Date or (ii) Sections 4.2 or 5.2, which shall survive for a period equal to the applicable statute of limitations) or the termination of this Agreement pursuant to Section 10.1 hereof or otherwise. 45 53 10.3 Assignment. Neither this Agreement nor any right or obligation hereunder or part hereof may be assigned by any party hereto without the prior written consent of the other party hereto (and any attempt to do so will be void). Notwithstanding the foregoing, (i) Purchaser hereby acknowledges and agrees that Seller may collaterally assign its rights, title and interest to any payments under this Agreement to Citibank, N.A., as collateral agent pursuant to the Seller Credit Agreement, or to any successor collateral agent thereunder (Citibank, N.A., in such capacity, or any such successor being the "Collateral Agent"), and Purchaser hereby consents to such assignment and (ii) Seller hereby acknowledges and agrees that Purchaser may collaterally assign its rights, title and interest to any payments under this Agreement to any financial institution providing financing to Purchaser in connection with the transactions contemplated by this Agreement. Furthermore, Purchaser hereby acknowledges and agrees that upon receipt of written notice from the Collateral Agent that an "Event of Default" has occurred pursuant to the Seller Credit Agreement, Purchaser will tender any payments due under this Agreement to the Collateral Agent in accordance with the instructions set forth in such notice; provided, however, in the event that Purchaser tenders payment to Seller, such payment shall be a complete discharge of Purchaser's obligation to the Collateral Agent and Purchaser shall thereafter have no further liability to the Collateral Agent with respect to such payment. 10.4 Notices. Unless otherwise provided herein, any notice, request, instruction or other document to be given hereunder by either party to the other shall be in writing and shall be deemed to have been duly given if delivered by hand or sent by facsimile (with confirmation by facsimile answer back) or mailed by certified or registered mail, postage prepaid, return receipt requested (such mailed notice to be effective on the date such receipt is acknowledged), as follows: If to Seller, addressed to: JPS Textile Group, Inc. 555 N. Pleasantburg Drive, Suite 202 Greenville, South Carolina 29607 Attention: Jerry E. Hunter, Chairman & CEO Facsimile No.: (864) 271-9939 46 54 With a copy to: Weil, Gotshal & Manges LLP 767 Fifth Avenue New York, New York 10153 Attention: Simeon Gold, Esq. Facsimile No.: (212) 310-8007 If to Purchaser, addressed to: Belding Hausman Incorporated 70 West 36th Street Fifth Floor New York, New York 10018 Attention: Nancy Zarin, President & CEO Facsimile No: (212) 239-8696 With a copy to: Jackson Walker L.L.P. 901 Main Street, Suite 6000 Dallas, Texas 75202 Attention: Richard F. Dahlson, Esq. Facsimile No: (214) 953-5822 or to such other place with such other copies as either party may designate as to itself by written notice to the others. 10.5 Choice of Law. The Agreement shall be construed and interpreted, and the rights of the parties determined, in accordance with the laws of the State of Delaware (without reference to the choice of law provisions of Delaware law). 10.6 Entire Agreement; Amendments and Waivers. This Agreement and the Ancillary Agreements, together with all Exhibits and Schedules hereto and thereto, constitute the entire Agreement among the parties pertaining to the subject matter hereof and supersedes all prior agreements, understandings, negotiations and discussions, whether oral or written, of the parties with respect to the subject matter hereof. No supplement, modification or waiver of this Agreement shall be binding unless executed in writing by the party to be bound thereby. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provision hereof (whether or not similar), nor shall such waiver constitute a continuing waiver unless otherwise expressly provided. No act, delay or omission or course of dealing on the part of 47 55 either party in exercising any right, power or remedy under this Agreement or at law or in equity shall operate as a waiver thereof or otherwise prejudice any of such party's rights, powers and remedies. All remedies, whether at law or in equity, shall be cumulative and the election of any one or more shall not constitute a waiver of the right to pursue other available remedies. 10.7 Multiple Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 10.8 Expenses. Except as otherwise specified herein, each party hereto shall pay its own legal, accounting, out-of-pocket and other expenses incident to this Agreement; provided, however, with respect to costs, fees or expenses paid in connection with transferring Permits or obtaining new Permits to enable Purchaser to operate and continue to operate the Business, such costs shall be borne solely by Purchaser. 10.9 Invalidity. In the event that any one or more of the provisions contained in this Agreement or in any other instrument referred to herein, shall, for any reason, be held to be invalid, illegal or unenforceable in any respect, then to the maximum extent permitted by law, such invalidity, illegality or unenforceability shall not affect any other provision of this Agreement or any other such instrument and, in lieu of any such provision held to be invalid, illegal or unenforceable, the parties shall agree to amend the Agreement to include a similar provision that is valid, legal and enforceable. 10.10 Titles. The titles, captions or headings of the Articles and Sections herein are inserted for convenience of reference only and are not intended to be a part of or to affect the meaning or interpretation of this Agreement. 10.11 Confidential Transaction Information. The parties acknowledge that the transactions described herein are of a confidential nature and shall not be disclosed except as provided herein or as required by law, regulations, legal process or stock exchange rules. Neither Seller, Purchaser nor their respective Affiliates shall make any public disclosure of the specific terms of this Agreement without the prior written consent of the other parties hereto, except as required by law or stock exchange rules or to bankers, attorneys, accountants and other 48 56 professional advisors. In connection with the performance of obligations hereunder, each party acknowledges that it will have access to confidential information relating to the other parties. Each party hereto shall treat such information as confidential, preserve the confidentiality thereof and not duplicate or disclose such information in connection with the transactions contemplated hereby, except to advisors, lenders, consultants and affiliates who also agree to treat such information as confidential. Seller, at a time and in a manner which it reasonably determines and after prior notice to and consultation with Purchaser, may notify employees, unions, bargaining agents and the public at large of the fact of the subject transaction. 10.12 Third Parties. Except as set forth in Section 10.3 hereof, nothing expressed or implied herein is intended or shall be construed to confer upon or give to any person or entity other than the parties hereto, and their successors or permitted assigns, any rights or remedies under or by reason of this Agreement (but in no event shall any of the Employees have any such rights). 10.13 Neutral Construction. All of the parties to this Agreement were represented by counsel, or had the opportunity to consult with counsel. No party may rely on any drafts of this Agreement in any interpretation of this Agreement. Each party to this Agreement has reviewed this Agreement and has participated in its drafting and, accordingly, no party shall attempt to invoke the normal rule of construction to the effect that ambiguities are to be resolved against the drafting party in any interpretation of this Agreement. 10.14 Revisions to Certain Schedules. Notwithstanding anything to the contrary in this Agreement, Seller may revise the schedules to this Agreement (or the schedules to any exhibit to this Agreement) to reflect operations of the Business in the ordinary course of business, as contemplated by this Agreement, subject to the consent of Purchaser, which consent may not be unreasonably withheld. Seller shall deliver to Purchaser any such revised schedules prior to the Closing Date. [SIGNATURE PAGE FOLLOWS] 49 57 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed on their respective behalf, by their respective officers thereunto duly authorized, in multiple originals, all as of the day and year first above written. JPS CONVERTER AND INDUSTRIAL CORP. By /s/ John Sanders --------------------------------- Name: John Sanders Title: Vice President and Assistant Secretary BELDING HAUSMAN INCORPORATED By /s/ Nancy Zarin --------------------------------- Name: Nancy Zarin Title: President and CEO 50 58 Exhibit D JPS CONVERTER & INDUSTRIAL CORP. ('000) SUMMARY OF OPERATIONS - HOME FURNISHINGS 12 MONTHS ENDED
11/01/97 10/31/98 LINE Y-T-D Y-T-D NO. ITEM TOTAL TOTAL - ------------------------------------------------------------------- ('000) 1 WEEKS 52 52 2 BILLINGS 3 1ST QUALITY 4 TRADE 23,115 17,830 5 INT'DIV 0 0 6 TOTAL 23,115 17,830 7 2ND QUALITY 8 TRADE 1,032 759 9 INT'DIV 0 0 10 TOTAL 1,032 759 11 RETURNS (401) (154) 12 ALLOWANCES (10) (2) 13 ------- ------- 14 TOTAL BILLINGS 23,736 18,233 15 16 PROFIT 17 1ST QUALITY 18 TRADE 3,208 1,748 19 INT'DIV 0 0 20 TOTAL 3,208 1,748 21 2ND QUALITY 22 TRADE (365) (448) 23 INT'DIV 0 0 24 TOTAL (365) (448) 25 ------- ------- 26 TOTAL PROFIT 2,843 1,300 27 28 SAMPLES (2) (2) 29 RESERVE 1ST QUAL (15) 10 30 RESERVE 2ND QUAL (4) (2) 31 DEGREE OF OPERATIONS 0 0 32 PLANT VARIANCE 14 (153) 33 ------- ------- 34 TOTAL GROSS MARGIN 2,836 1,157 35 % GROSS MARGIN 11.95% 6.35% 36 37 FACTORING EXPENSE (105) (81) 38 SELLING EXPENSE (946) (998) 39 G & A (652) (679) 40 DISTRIBUTION (120) (67) 41 ------- ------- 42 TOTAL SG&A (1,823) (1,825) 43 44 PROJECT EXPENSE (4) 0 45 ------- ------- 46 OPERATING P/L 1,009 (668) 47 % OPERATING P/L BILLINGS 4.25% (3.66)% 48 49 I.B.I.T.D. 2,698 227 50 % I.B.I.T.D. 11.37% 1.24% 51 52 CAPITAL EXPENDITURES 242 280 53 DEPRECIATION 1,689 895 54 PROFIT 1ST @ STD 13.88 9.61 55 PROFIT 2ND @ STD (35.37) (59.03) 56 % SEC BILLED 4.27 4.13 57 % RETURN & ALLOW (1.70) (0.85) 58 INVENTORY TURN 7.05 4.51 59 RAW MATERIAL INVENTORY 622 475 60 WORK IN PROCESS INVENTORY 1,214 1,241 61 GOODS IN PROCESS INVENTORY 102 105 62 FINISHED GOODS INVENTORY 1,394 2,188 63 SALABLE WASTE & SUPPLIES 36 33 64 TOTAL INVENTORIES 3,368 4,042 65 RECEIVABLES 4,729 3,541 66 NET FIXED ASSETS 9,937 7,198 67 TOTAL INVESTMENT 18,034 14,781 68 RETURN ON INVESTMENT 5.59 (4.52) 69 BILL & / INVEST 1.32 1.23 70 % SELL OR BILL 3.99 5.47 71 % G&A OF BILL 2.75 3.72 72 73 UNITS PACKED 18,222 13,508 74 UNITS BILLED 17,619 13,345 75 AVERAGE SALES PRICE 1.3472 1.3663 76 BILL & HOLD 1,988 1,603
EX-10.40 4 AMENDMENT NO. 1 TO ASSET PURCHASE AGREEMENT 1 EXHIBIT 10.40 AMENDMENT NO. 1 AMENDMENT NO. 1 (this "Amendment"), dated as of February 8, 1999, to the Asset Purchase Agreement (the "Agreement"), dated as of January 11, 1999, is by and between JPS Converter and Industrial Corp. ("Seller") and Belding Hausman Incorporated ("Purchaser"). RECITALS WHEREAS, Seller and Purchaser have agreed to amend the Agreement upon the terms and conditions contained herein; WHEREAS, capitalized terms used herein which are not otherwise defined herein shall have the respective meanings ascribed thereto in the Agreement. NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto agree as follows: 1. Amendment to the Agreement. On and after the date first written above (the "Effective Date"), the Agreement is hereby amended in its entirety as follows: (a) Definitions. Section 1.1 of the Agreement is hereby amended as follows: (i) the definition of "Assets" is amended to read in its entirety as follows: "Assets" means all of Seller's rights, title and interests in and to all of the properties, assets and rights constituting the Business (other than the Excluded Assets) on the Closing Date, consisting of the following: (a) all Contract Rights; (b) all Owned Real Property; (c) all Fixed Assets; (d) all of Seller's rights and obligations under the Personal Property Leases; (e) all Inventory; 2 (f) to the extent transferable, all Permits; and (g) all Books and Records, including books of account, records, files, invoices, manuals, sales, marketing and advertising materials, customer and supplier files, personnel files, equipment maintenance records, equipment warranty information, material, specifications and drawings, equipment drawings, customer specifications, sales, distribution and purchase correspondence, trade association memberships and all other similar data, manuals and property, in each case relating solely to the Business; provided, however, that the Assets shall also include all other assets located at the Boger City Plant as of the Closing Date (other than the Excluded Assets). (ii) the definition of "Assumed Liabilities" is amended in its entirety as follows: ""Assumed Liabilities" shall mean the following liabilities and obligations of Seller: (i) all duties and obligations under the contracts and commitments set forth on Schedule 4.6 to the extent that such duties and obligations accrue after the Closing Date, (ii) liabilities described in Section 6.1 hereof in respect of the Transferred Employees and (iii) all Environmental Costs and Liabilities at the Boger City Plant not attributable to Seller or any prior owner or operator of the Business or which were not violations of Environmental Laws in effect as of or prior to the Closing." (iii) the definition of "Closing Statement" is amended in its entirety as follows: "Closing Statement" means the audited statement which shall set forth Inventory as of the Closing Date, net of appropriate reserves, calculated in accordance with GAAP and on a basis consistent with the October 31, 1998 and 1997 Statement. (b) Section 2.1(b) of the Agreement is hereby amended in its entirety as follows: "Purchaser hereby agrees to assume and pay, perform and discharge as and when due the Assumed Liabilities. Purchaser expressly shall not assume or pay for the Excluded Liabilities, including, without limitation, liabilities relating to (A) the Excluded Assets, (B) income or franchise Taxes imposed on net income or sales or real property taxes incurred by Seller or relating to the Assets for any taxable period ending on or prior to the Closing Date, (C) any liability for purchase money debt, debt for borrowed money or a guaranty in respect thereof, except to the extent such liabilities are reflected on the Closing Statement, (D) (1) liabilities assumed by Seller pursuant to Section 6.1 hereof and (2) liabilities incurred or accrued prior to the Closing Date under any employee benefit plan, policy and arrangement covering or providing benefits to the Employees and (E) all Accounts Payable." 2 3 (c) Section 2.2(a) of the Agreement is hereby amended in its entirety as follows: "(a) On the Closing Date, as consideration for the sale, conveyance, transfer, assignment and delivery of the Assets (i) Purchaser shall pay to Seller in cash an amount equal to $8,391,037 (which amount includes an amount equal to $900,000 of Accounts Payable to be paid by Seller) (the "Purchase Price"), subject to adjustment as provided in Section 2.3 hereof; and (ii) Purchaser shall assume the Assumed Liabilities." (d) Section 2.2 of the Agreement is hereby amended to add a new Section (d) as follows: "(d) Within fifteen (15) days after the Closing, Seller shall deliver to Purchaser (i) an invoice for an amount equal to the net lost opportunity cost incurred by (A) Seller on the one hand, as a result of Seller retaining Accounts Receivable as of the Closing Date, and (B) Purchaser on the other hand, as a result of Seller retaining the Accounts Payable in an amount equal to the lesser of (i) $900,000, or Accounts payable within 30 days of invoice date, in each case calculated in accordance with the methodology set forth in Annex 1 hereto) (the "Net Lost Opportunity Price") and (ii) a list of Accounts Receivable as of the Closing Date. Within five (5) business days after receipt of such invoice, Purchaser shall pay to Seller in cash an amount equal to the Net Lost Opportunity Price, in accordance with Section 2.2(b) hereof. Absent manifest error in Seller's calculation of the Net Lost Opportunity Price, the Net Lost Opportunity Price shall be binding upon Purchaser." (e) Section 2.3 of the Agreement is hereby amended to read in its entirety as follows: "(a) The Purchase Price shall be increased or decreased (on a dollar for dollar basis), as the case may be, for any increase or decrease in Inventory as set forth on the Closing Statement, if the aggregate value of Inventory as of the Closing Date (net of appropriate reserves, calculated in accordance with GAAP and on a basis consistent with the October 31, 1998 and 1997 3 4 Statement) is: (A) greater than $3,629,541 then Purchaser shall pay to Seller the amount of such excess; (B) less than $3,629,541 then Seller shall pay to Purchaser the amount of such difference; or (C) equal to $3,629,541 then neither Seller nor Purchaser shall owe any amount to the other pursuant to this Section 2.3(a). (b) As soon as is reasonably practicable following the Closing Date (but no later than 45 days following the Closing Date), Seller shall prepare and deliver to Purchaser the Closing Statement which shall set forth the Purchase Price adjustments to be made, if any, in accordance with Section 2.3(a). In connection with the preparation of the Closing Statement, Purchaser shall grant Seller and its accountants, counsel and other representatives, full and complete access to all of the books and records of the Business. The Closing Statement shall be audited by Seller's accountants and shall include a schedule reviewed by such accountants showing the computation of Inventory as of the Closing Date (net of appropriate reserves, calculated in accordance with GAAP and on a basis consistent with the October 31, 1998 and 1997 Statement), computed in accordance with the definitions of such terms set forth herein. Concurrently with their delivery of the Closing Statement to Purchaser, Seller shall cause reasonable access to be granted to Purchaser to the work papers, schedules and other documents prepared or used by Seller and its accountants in connection with the preparation of the Closing Statement. Seller shall pay all fees and expenses of its accountants in connection with the preparation of the Closing Statement and the computation of Inventory as of the Closing Date. (c) Unless Purchaser, within 30 days after receipt of the Closing Statement, gives Seller a notice (the "Dispute Notice") (i) objecting in good faith to the Closing Statement, (ii) setting forth in reasonable detail the items being disputed and the reasons therefor, and (iii) specifying that Purchaser's calculation of Inventory as of the Closing Date is in an amount which differs from that reflected in such Closing 4 5 Statement (the entire amount of such difference being hereinafter referred to as the "Adjusted Amount"), the Inventory as of the Closing Date as set forth in the Closing Statement and the Purchase Price adjustment set forth therein shall be binding and final upon the parties. If a Dispute Notice is given by Purchaser, the parties shall negotiate in good faith with a view to agreeing upon the Inventory as of the Closing Date and the corresponding amount of the adjustment required by paragraph (a) of this Section 2.3. If negotiations between Purchaser and Seller fail to resolve all disputed items within 30 days after the Dispute Notice was given to Seller, the remaining disputed items shall be submitted to KPMG Peat Marwick LLP (the "Arbitrator"). After affording each of Seller and Purchaser and their accountants the opportunity to present its position as to such determination (which opportunity shall not extend for more than 30 days from the date the independent public accountants are retained), the accounting firm selected pursuant to this paragraph shall determine the adjustment pursuant to paragraph (a) of this Section 2.3 and such determination shall be final and binding. Each party shall pay its own costs and expenses in connection with the foregoing. The fees, costs and expenses of the Arbitrator shall be borne equally by Seller and Purchaser. (d) The amount of any Purchase Price adjustment required under this Section 2.3 shall be delivered to Seller or Purchaser, as the case may be, with interest thereon (calculated on the basis of a 360-day year comprised of twelve 30-day months), from and including the Closing Date until paid at an annual rate equal to the base rate of interest of Citibank, N.A. (as such base rate is publicly announced from time to time as the base rate of such bank), at such place in the United States as the party receiving such amount shall designate in writing to the other party and shall be paid in immediately available funds within 30 days after the final determination of such Purchase Price adjustment. 5 6 (e) At the Closing (or after the Closing, to the extent the necessary calculations cannot be made at the Closing), real property taxes, water charges, sewer rents and other utility charges in respect of the Business shall be prorated as of the Closing Date with Seller being responsible for such items relative to periods prior to the Closing Date and Purchaser being responsible for such items relative to periods commencing on or subsequent to the Closing Date. If the Closing shall occur before a new tax rate is fixed, the apportionment of real property taxes shall be upon the basis of the old tax rate for the preceding period applied to the latest assessed valuation." (f) Section 10.1(d) of the Agreement is hereby amended in its entirety as follows: "(d) by Seller if Purchaser shall not have obtained the commitment letter described in Section 6.10(b) hereof by February 10, 1999;" (g) Exhibit C to the Agreement is hereby amended by adding the defined term "Accounts Receivable" to Schedule 1 thereto. (h) The Agreement is hereby amended by adding a new Annex 1 to the Agreement in the form attached as Exhibit A hereto. 2. Choice of Law. This Amendment shall be construed and interpreted, and the rights of the parties determined, in accordance with the laws of the State of Delaware (without reference to the choice of law provisions of Delaware law). 3. Multiple Counterparts. This Amendment may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 4. Effect of Amendment. Except as specifically amended hereby, the Agreement remains in full force and effect in accordance with its terms. [SIGNATURE PAGE FOLLOWS] 6 7 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed on their respective behalf, by their respective officers thereunto duly authorized, in multiple originals, all as of the day and year first above written. JPS CONVERTER AND INDUSTRIAL CORP. By /s/ John Sanders ---------------------------------------------- Name: John Sanders Title: Vice President and Assistant Secretary BELDING HAUSMAN INCORPORATED By /s/ Nancy Zarin ---------------------------------------------- Name: Nancy Zarin Title: President and CEO ACKNOWLEDGED: JPS Textile Group, Inc. By: /s/ John Sanders -------------------------------------------- Name: John Sanders Title: Executive Vice President - Finance and Chief Financial Officer 7 8 Exhibit A ANNEX 1 Calculation of Net Lost Opportunity Price The Net Lost Opportunity Price shall be calculated in accordance with the following methodology: Accounts Receivable: 30/360 x .07 x $3,908,963 = $22,802.28 less Accounts Payable: 30/360 x .07 x $900,000 = $ 5,250 Net Lost Opportunity Price: $17,552.28 Note that the referenced level of accounts receivable ($3,908,963) is as of October 31, 1998 and is used in this Annex 1 for illustrative purposes only. The Net Lost Opportunity Price shall be calculated using accounts receivable as of the Closing Date. Net Lost Opportunity Price shall be calculated using the lesser of (x) the referenced level of accounts payable ($900,000) or (y) accounts payable within 30 days of invoice date as of the Closing Date. Assumptions: 1. Accounts receivable are 30 days from invoice date. 2. Accounts payable are 30 days from invoice date. 3. The interest rate is 7%. 8 EX-10.41 5 JPS TEXTILE GROUP INC GUARANTY LETTER 1 EXHIBIT 10.41 January 11, 1999 JPS Textile Group, Inc. 555 N. Pleasantburg Drive Suite 202 Greenville, South Carolina 29607 Ladies and Gentlemen: Reference is made to that certain Asset Purchase Agreement, dated as of January 11, 1999 (the "Agreement"), by and between JPS Converter and Industrial Corp. ("Seller") and Belding Hausman Incorporated ("Purchaser"). As inducement for Purchaser to enter into the Agreement, you agree as follows: 1. You (on your own behalf and on behalf of your subsidiaries other than Seller) hereby agree to be bound by the provisions of Section 6.4 of the Agreement. 2. You hereby absolutely and unconditionally (except as provided in the next sentence) guarantee the due and punctual performance and discharge by Seller of all of its obligations under the Agreement, and further agree that if Seller shall fail to perform and discharge any such obligation in accordance with the terms of the Agreement, you shall forthwith perform and discharge any such obligation, as such performance and discharge is required to be made or done by Seller. Notwithstanding the foregoing, you shall have the benefit of any defenses, offsets, setoffs and counter-claims available to Seller. 3. Your liability under this letter agreement shall in no manner be impaired, affected or released by the insolvency, bankruptcy, making of an assignment for the benefit of creditors, arrangement, compensation, composition or readjustment of Seller, or any proceeding affecting the status, existence or assets of Seller or other similar proceedings instituted by or against Seller and affecting the assets of Seller. This letter agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. This letter agreement shall be 2 construed and interpreted, and the rights of the parties determined, in accordance with the laws of the State of Delaware (without reference to the choice of law provisions of Delaware law). Kindly confirm your agreement to the foregoing by signing the enclosed copy of this letter, whereupon it shall be deemed to be a binding agreement between us. Very truly yours, BELDING HAUSMAN INCORPORATED By: /s/ Nancy Zarin ------------------------------- Name: Nancy Zarin Title: President & CEO ACCEPTED AND AGREED TO: JPS TEXTILE GROUP, INC. By: /s/ John Sanders ---------------------------------- Name: John Sanders Title: Executive Vice President - Finance and Chief Financial Officer 2 EX-10.42 6 EMPLOYMENT AGREEMENT DATED NOVEMBER 11, 1998 1 EXHIBIT 10.42 JPS TEXTILE GROUP, INC. 555 NORTH PLEASANTBURG DRIVE, SUITE 202 GREENVILLE, SOUTH CAROLINA 29607 November 11, 1998 Mr. John W. Sanders, Jr. 102 Lytle Street Greer, SC 29650 Dear John: We are writing with respect to your employment by JPS Textile Group, Inc. (The "Company") as Executive V.P. Finance and Chief Financial Officer of the Company. The Company acknowledges and recognizes the value of your experience and abilities to the Company since the beginning of your employment with the Company, and desires to continue to retain and make secure for itself such experience and abilities on the terms and subject to the conditions set forth in this agreement (the "Agreement"). 1. Employment. The Company agrees to employ you and you agree to be employed by the Company and its wholly owned subsidiary, JPS Capital Corp, dated November 11, 1998 (the "Effective Date") and ending on the first anniversary thereof (unless sooner terminated as hereinafter provided) (the "Employment Period"), on the terms and subject to the conditions set forth in this Agreement; provided, however, that commencing on the first anniversary of the Effective Date and each anniversary thereafter, the Employment Period shall automatically be extended for one additional year (the "Extended Employment Period") unless not later than the end of the Employment Period or the Extended Employment Period, as the case may be, the Company or you shall have given written notice to the other not to extend the Employment Period or any Extended Employment Period. Unless specifically provided to the contrary, the Employment Period shall be deemed to include any Extended Employment Period. 2. Duties. (a) You shall be employed as Executive V.P. Finance and Chief Financial Officer of the Company. In such capacity, you shall serve as a senior executive officer of the Company and shall have the duties and responsibilities prescribed for such position by the By-Laws of the Company, and shall have such other duties and responsibilities as may from time to time be prescribed by the Board and are customarily performed by someone in your position, provided that such duties and responsibilities are consistent with your position as Executive V.P. Finance and CFO of the Company. In the performance of your duties, you shall be subject to the supervision and direction of the Chief Executive Officer of the Company. (b) Subject to the terms of your employment hereunder, you shall devote such time as is reasonably necessary to the proper performance of your duties and responsibilities as Executive V.P. Finance and Chief Financial Officer of the Company. You hereby represent and warrant to the Company that, except as described above, you have no obligations under any existing employment or service agreement and that your performance of the services required of you hereunder will not conflict with your other existing obligations described above. 3. Compensation. (a) (i) Base Salary. During the term of your employment hereunder, the Company shall pay you, and you shall accept from the Company for your services, a salary at the rate of not less than $225,000 per year (the "Base Salary"), payable in accordance with the Company's policy with respect to the compensation of executives. The Board shall annually review your performance and determine, in its sole discretion, whether or not to increase your Base Salary and, if so, the amount of such increase. 2 Mr. John W. Sanders, Jr. Page 2 (ii)Bonus. In addition to your Base Salary, unless you voluntarily terminate your employment for other than Good Reason (as hereinafter defined), or are terminated by the Company for Cause (as hereinafter defined), you will be eligible to participate in the 1999 Management Incentive Bonus Plan (the "1999 Bonus Plan") and receive a bonus in an amount and based upon the attainment of the performance goals specified therein. The Board shall establish a performance-based annual bonus program for senior executives of the Company including you for fiscal years after 1998 (a "Future Bonus Plan") and award you an annual bonus opportunity thereunder which is not less favorable than the opportunity provided pursuant to the 1998 Bonus Plan without restricting the discretion of the Board to set reasonable targets and criteria for such incentive compensation. (iii) Incentive Compensation and Other Plans. During the term of your employment hereunder, you shall participate in any incentive compensation (including stock options, restricted stock and/or other long-term incentive compensation), deferred compensation, savings and retirement plans, practices, policies and programs as adopted and approved by the Board from time to time. (b) Reimbursement of Expenses. During your employment, you will be entitled to receive prompt reimbursement for all reasonable expenses incurred by you in performing your services hereunder, provided that you properly account therefor in accordance with Company policy. 4. Vacations. During your employment, you shall be entitled to reasonable vacations from time to time in accordance with the regular procedures of the Company governing senior executives. You shall also be entitled to all paid holidays given by the Company to its senior executives. 5. Participation in Benefit Plans. You shall be entitled to participate in and to receive benefits under all the Company's employee benefit plans and arrangements in effect on the date hereof, and you shall be entitled to participate in or receive benefits under any pension or retirement plan, savings plan, or health-and-accident plan made available by the Company in the future to its senior executives and other key management employees, subject to and on a basis consistent with the terms, conditions and overall administration of such plans and arrangements and provided that you meet the eligibility requirements thereof. 6. Other Offices. You further agree to serve without additional compensation, if elected or appointed thereto, as an officer or director of any of the Company's subsidiaries or affiliates. 7. Termination. (a) Death. Your employment hereunder shall terminate upon your death. (b) Disability. In the event of your permanent disability (as hereinafter defined) during the term of your employment hereunder, the Company shall have the right, upon written notice to you, to terminate your employment hereunder, effective upon the giving of such notice. For purposes hereof, "permanent disability" shall be defined as any physical or mental disability or incapacity which renders you incapable of fully performing the services required of you in accordance with your obligations hereunder for a period of 150 consecutive days or for shorter periods aggregating 150 days during any period of twelve (12) consecutive months. (c) Cause. The Company may terminate your employment hereunder for "Cause." For purposes hereof, termination for "Cause" shall mean termination after: 3 Mr. John W. Sanders, Jr. Page 3 (i) your violation of any of the provisions of paragraph 9 hereof; (ii) your commission of an intentional act of fraud, embezzlement, theft or dishonesty against the Company or its affiliates; (iii) your conviction of (or pleading by you of nolo contendere to) any crime which constitutes a felony or misdemeanor involving moral turpitude or which might, in the reasonable opinion of the Company, cause embarrassment to the Company; or (iv) the gross neglect or willful failure by you to perform your duties and responsibilities in all material respects as set forth in paragraph 2 hereof, if such breach of duty is not cured within 30 days after written notice thereof to you by the Board. For purposes of clause (iv), no act, or failure to act, on your part shall be deemed "willful" unless done, or omitted to be done, by you not in good faith and without reasonable belief that your act, or failure to act, was in the best interest of the Company. (d) Termination by You. You may terminate your employment hereunder for Good Reason. For purposes of this Agreement,"Good Reason" shall mean (A) any assignment to you of any duties (other than incident to a promotion) materially different than or in addition to those contemplated by, or any limitation of your powers or in any respect not contemplated by, paragraph 2 hereof, provided that you first deliver written notice thereof to the Chairman of the Board and the Company shall have failed to cure such non-permitted assignment or limitation within thirty (30) days after receipt of such written notice, (B) a reduction in your rate of base salary or the failure to maintain incentive bonus arrangements substantially similar in earnings potential to those in effect on the Effective Date, or a material reduction in your fringe benefits or any other material failure by the Company to comply with paragraphs 3 through 5 hereof, provided that you first deliver written notice thereof to the Chairman of the Board and the Company shall have failed to cure such reduction or failure within thirty (30) days after receipt of such written notice, (C) your being required to relocate your principal residence from its existing location without your consent, or (D) upon notice by the Company as set forth in paragraph 1 hereof not to extend the Employment Period. (e) Notice. Any termination by the Company pursuant to paragraphs 7(b) or 7(c) above or by you pursuant to paragraph 7(d) above shall be communicated by written Notice of Termination to the other party hereto. For purposes hereof, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of your employment under the provision so indicated. (f) Date of Termination. "Date of Termination" shall mean (i) if your employment is terminated by your death, the date of your death, and (ii) if your employment is terminated for any other reason, the date on which a Notice of Termination is given. 8. Compensation Upon Termination of Employment or During Disability. Subject to paragraph 8(e) below: (a) Death. If your employment shall be terminated by reason of your death, the Company shall pay or grant, to such person as you shall designate in a notice filed with the Company, or, if no such person shall be designated, to your estate as a lump sum death benefit, (i) an amount equal to any accrued but unpaid Base Salary at the time of your death, 4 Mr. John W. Sanders, Jr. Page 4 plus an additional payment equal to your Base Salary for the period from such date through the end of the month following the month in which you die, (ii) an amount equal to any accrued but unpaid bonus under the 1999 Bonus Plan or any bonus payable pursuant to any Future Bonus Plans, to the extent earned but not paid with respect to any year prior to the year in which your death occurs; and (iii) a pro rata portion (based on the number of days worked) of the bonus payable under the 1999 Bonus Plan or any Future Bonus Plan in effect for the year in which your death occurs based upon the assumption that the performance goals established under the applicable program with respect to the entire year in which your death occurs are met. In addition, you shall retain all stock options that are vested in accordance with the terms of the stock option plan and grant letter controlling such stock options, with such options remaining exercisable for six months from the date of your death and you shall receive such additional benefits as may be provided by the then existing plans, programs and/or arrangements of the Company. This amount and these benefits shall be exclusive of and in addition to any payments your widow, beneficiaries or estate may be entitled to receive pursuant to any pension or employee benefit plan maintained by the Company. Your designated beneficiary or the executor of your estate, as the case may be, shall accept the payment provided for in this paragraph 8 in full discharge and release of the Company of and from any further obligations under this Agreement. (b) Disability. During any period that you fail to perform your duties hereunder as a result of incapacity due to physical or mental illness, you shall continue to receive your full Base Salary until your employment is terminated pursuant to paragraph 7(b) hereof. If your employment is terminated by the Company pursuant to paragraph 7(b), the Company shall pay to you in a lump sum payment, an amount equal to (i) any accrued but unpaid bonus under the 1999 Bonus Plan or any bonus payable pursuant to any Future Bonus Plans, to the extent earned but not paid with respect to any year prior to the year in which your disability occurs; and (ii) a pro rata portion (based on the number of days worked) of the bonus payable under the 1999 Bonus Plan or any Future Bonus Plan in effect for the year in which your disability occurs based upon the assumption that the performance goals established under the applicable program with respect to the entire year in which your disability occurs are met. In addition, you shall retain all stock options that are vested in accordance with the terms of the stock option plan and grant letter controlling such stock options, with such options remaining exercisable for six months from the date of your disability and you shall receive such additional benefits as may be provided by the then existing plans, programs and/or arrangements of the Company. During any such period and thereafter you shall continue to bear the obligations provided for in paragraph 9 below in accordance with the terms of such paragraph 9. (c) Cause or Other Good Reason. If your employment shall be terminated for Cause or you shall terminate your employment other than for Good Reason, the Company shall be discharged and released of and from any further obligations under this Agreement except for any Base Salary through the Date of Termination or the date on which you terminate your employment at the rate in effect at the time Notice of Termination is given or the date on which you terminate your employment, to the extent required by law. Thereafter you shall continue to have the obligations provided for in paragraph 9 below. Nothing contained herein shall be deemed to be a waiver by the Company of any rights that it may have against you in respect of your actions which gave rise to the termination of your employment for Cause or for any reason other than for Good Reason. (d) Other Than for Cause or For Good Reason. If the Company shall terminate your employment other than pursuant to paragraphs 7(b) or 7(c) hereof or if you shall terminate your employment for Good Reason, then: (i) The Company shall continue to pay you your Base Salary, at the rate in effect at the time that the Notice of Termination is given in accordance with paragraph 7(e) hereof, without interest for one year from the Date of Termination, in accordance with normal payroll practices; provided, however, that in the event of your death prior to the expiration of payment hereunder your estate or beneficiary shall receive the remaining amount hereunder in a lump sum payment; 5 Mr. John W. Sanders, Jr. Page 5 (ii) The Company shall pay you an amount equal to the sum of (A) any bonus earned as of the Date of Termination under the 1999 Bonus Plan or any Future Bonus Plan for a fiscal year ending prior to the Date of Termination but not paid as of such date, (B) a pro rata portion (based on the number of days worked) of the target bonus (not in excess of fifty percent (50%) of your Base Salary) payable under the 1999 Bonus Plan or any Future Bonus Plan in effect for the fiscal year in which your Date of Termination occurs (determined without regard to whether the performance goals established under the applicable program are met) and (C) an amount equal to your target bonus (not in excess of fifty percent (50%) of your Base Salary) under the 1999 Bonus Plan or any Future Bonus Plan in effect for the fiscal year in which your Date of Termination occurs (determined without regard to whether the performance goals established under the applicable program are met), multiplied by one if the Date of Termination is during any Extended Employment Period, (iii)You shall become fully vested in any stock options, with such options remaining exercisable for six months from the date of your termination of employment; and (iv) The Company shall maintain in full force and effect, for your continued benefit for twenty-four months after termination of employment, all employee benefit plans and programs providing health and/or life insurance benefits in which you were entitled to participate immediately prior to the Date of Termination provided that your continued participation is possible under the general terms and provisions of such plans and programs. In the event that your participation in any such plan or program is barred, the Company shall provide you with comparable benefits under a mirror benefit plan. Notwithstanding the above, if you are employed by a new employer and are eligible to receive comparable coverage from such employer (including the waiver of any pre-existing condition limitation) at a comparable cost to you, you shall no longer be eligible to receive coverage under this paragraph. (e) Parachute Payment. Notwithstanding anything herein to the contrary, if any of the payments or benefits received or to be received by you in connection with a Change in Control or your termination of employment (whether such payments or benefits are provided pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Company, any person whose actions result in a Change in Control or any person affiliated with the Company or such person) (such payments or benefits being hereinafter referred to as the "Total Payments") would be subject to the excise tax (The "Excise Tax") imposed under Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), then the payments under this paragraph 8 hereof shall be reduced (by the minimal amount necessary) so that no portion of the Total Payments is subject to the Excise Tax. For purposes of determining whether any of the Total Payments will be subject to the Excise Tax and the amount of such Excise Tax, (i) all of the total Payments shall be treated as "parachute payments" (within the meaning of Section 280G(b)(2) of the Code) unless, in the opinion of tax counsel (the "Tax Counsel") selected by the Company and reasonably acceptable by you, such payments or benefits (in whole or in part) do not constitute parachute payments, including by reason of Section 280G(b)(4)(A) of the Code, (ii) all "excess parachute payments" within the meaning of Section 280G(b)(1) of the Code shall be treated as subject to the Excise Tax unless, in the opinion of Tax Counsel, such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered (within the meaning of Section 280G(b)(4)(B) of the Code) in excess of the "base amount" (as defined in Section 280G(b)(3) of the Code) allocable to such payment, or are otherwise not subject to the Excise Tax, and (iii) the value of any noncash benefits or any deferred payment or benefit shall be determined by Tax Counsel in accordance with the principles of Sections 280G(d)(3) and (4) of the Code. 6 Mr. John W. Sanders, Jr. Page 6 9. Restrictive Covenants and Confidentiality; Injunctive Relief. (a) You agree, as a condition to the performance by the Company of its obligations hereunder, particularly its obligations under paragraph 3 hereof, that during the term of your employment, except for a termination of employment without Cause or for Good Reason, hereunder and during the further period of one (1) year after the termination of such employment, you shall not, without the prior written approval of the Board, directly or indirectly through any other person, firm or corporation: (i) Solicit, raid, entice or induce any person, firm or corporation that presently is or at any time during the term of your employment hereunder shall be a customer of the Company, or any of its subsidiary companies, to become a customer of any other person, firm or corporation, and you shall not approach any such person, firm or corporation for such purpose or authorize or knowingly approve the taking of such actions by any other person; (ii) Solicit, raid, entice or induce any person that presently is or at any time during the term of your employment hereunder shall be an employee of the Company, or any of its subsidiary companies, to become employed by any person, firm or corporation, and you shall not approach any such employee for such purpose or authorize or knowingly approve the taking of such actions by any other person; or (iii)Engage, participate, make any financial investment in, or become employed by any person, firm, corporation or other business enterprise in the United States which is engaged, directly or indirectly, during the term of your employment or at the time of your termination of employment, as the case may be, which (x) derives in excess of 20% of its gross revenues from the sale of products substantially the same as the products of the Company and/or any of its subsidiary companies or (y) has substantially the same customer base for the same products as the Company and/or any of its subsidiary companies. The foregoing covenant shall not be construed to preclude you from making any investments in the securities of any company, whether or not engaged in competition with the Company and/or any of its subsidiary companies, to the extent that such securities are actively traded on a national securities exchange or in the over-the-counter market in the United States or any foreign securities exchange and, after giving effect to such investment, you do not beneficially own securities representing more than 5% of the combined voting power of the voting securities of such company. (b) Recognizing that the knowledge, information and relationship with customers, suppliers, and agents, and the knowledge of the Company's and its subsidiary companies' business methods, systems, plans and policies which you shall hereafter establish, receive or obtain as an employee of the Company or its subsidiary companies, are valuable and unique assets of the respective businesses of the Company and its subsidiary companies, you agree that, during and after the term of your employment hereunder, you shall not (otherwise than pursuant to your duties hereunder) disclose or use, without the prior written approval of the Board, any such knowledge or information pertaining to the Company or any of its subsidiary companies, their business, personnel or policies, to any person, firm, corporation or other entity, for any reason or purpose whatsoever. The provisions of this paragraph 9 shall not apply to information which is or shall become generally known to the public or the trade (except by reason of your breach of your obligations hereunder), information which is or shall become available in trade or other publications, information known to you prior to entering the employ of the Company, and information which you are required to disclose by law or an order of a court of competent jurisdiction (provided that prior to your disclosure of any such information you shall provide the Company with reasonable notice and a reasonable opportunity to seek a protective order to prevent such disclosure). (c) The provisions of paragraph 9(b) above shall survive the termination of your employment hereunder, irrespective of the reason therefor. 7 Mr. John W. Sanders, Jr. Page 7 (d) You acknowledge that the services to be rendered by you are of a special, unique and extraordinary character and, in connection with such services, you will have access to confidential information vital to the Company's and its subsidiary companies' businesses. By reason of this, you consent and agree that if you violate any of the provisions of this Agreement with respect to diversion of the Company's or its subsidiary companies' customers or employees, or confidentiality, the Company and its subsidiary companies would sustain irreparable harm and, therefore, in addition to any other remedies which the Company may have under this Agreement or otherwise, the Company shall be entitled to an injunction restraining you from committing or continuing any such violation of this Agreement. (10)Deductions and Withholdings. The Company shall be entitled to withhold any amounts payable under this Agreement on account of payroll taxes and similar matters as are required by applicable law, rule or regulation of appropriate governmental authorities. (11)Successors; Binding Agreement. (a) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company, by agreement in form and substance reasonably satisfactory to you, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle you to compensation from the Company in the same amount and on the same terms as you would be entitled to hereunder if you terminated your employment for Good Reason, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. As used in this Agreement, "Company" shall include any successor to the Company's business and/or assets as aforesaid which executes and delivers the agreement provided for in this paragraph 11 or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law. (b) This Agreement and all your rights hereunder shall inure to the benefit of and be enforceable by your personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If you should die while any amounts would still be payable to you hereunder if you had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to your devisee, legatee, or other designee or, if there be no such designee, to your estate. Your obligations hereunder may not be delegated and except as otherwise provided herein relating to the designation of a devisee, legatee or other designee, you may not assign, transfer, pledge, encumber, hypothecate or otherwise dispose of this Agreement or any of your rights hereunder, and any such attempted delegation or disposition shall be null and void and without effect. 12. Notice. For purposes of this Agreement, notices and all other communications provided for shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to you: Mr. John W. Sanders, Jr. 102 Lytle Street Greer, SC 29650 8 Mr. John W. Sanders, Jr. Page 8 If to the Company: JPS Textile Group, Inc. 555 North Pleasantburg Drive, Suite 202 Greenville, South Carolina 29607 Attention: Chairman of the Board or to such other address as any party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. 13. Miscellaneous. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by you and by the Company. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. This Agreement constitutes the complete understanding between the parties with respect to your employment and supersedes any other prior oral or written agreements, arrangements or understandings between you and the Company. This Agreement amends, restates and supersedes any existing employment, retention, severance and change-in-control agreements (collectively, the "Prior Agreements") between you and the Company and/or any of its subsidiary companies upon the Effective Date, and any and all claims under or in respect of the Prior Agreements that you may have or assert shall, as of the Effective Date, be governed by and completely satisfied and discharged in accordance with, the terms and conditions of this Agreement. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement. This Agreement may not be changed or terminated orally but only by an agreement in writing signed by the parties hereto. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of South Carolina. 14. Arbitration. All differences, claims or matters in dispute arising out of this Agreement, the breach hereof or otherwise arising between the Company or any of its affiliates and you shall, at the election of either party, by notice to the other, be submitted to arbitration by the American Arbitration Association or its successor, in Greenville, South Carolina. Such arbitration shall be governed by the then existing rules of the American Arbitration Association and the laws of the State of South Carolina as then in effect. The expenses, including your reasonable attorneys' fees, in connection with such arbitration shall be borne by the Company. 15. Validity; Effectiveness. The invalidity or unenforceability of any provision or provisions of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 16. Counterparts.This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 9 Mr. John W. Sanders, Jr. Page 9 If the foregoing is satisfactory, please so indicate by signing and returning to the Company the enclosed copy of this letter whereupon this will constitute our agreement on the subject. JPS TEXTILE GROUP, INC. By: /s/ Jerry E. Hunter ------------------------------------- Name: Jerry E. Hunter Title: Chief Executive Officer ACCEPTED AND AGREED TO: /s/ John W. Sanders, Jr. - --------------------------- John W. Sanders, Jr. EX-27.1 7 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 OCT-31-1998 OCT-31-1998 1,549 0 69,514 1,565 51,542 134,793 107,148 8,692 272,922 43,964 99,089 0 0 100 109,428 272,922 389,218 389,218 331,473 331,473 (19,245) 0 8,592 (9,298) 1,366 (10,664) 0 0 0 (10,664) (1.07) (1.07)
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