-----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, VjRaGcigrq5sfDjdUAIu6uSGjxYcSbbizZUVCjXDTPye+uKtH5ovl8zVVzL8QM/P +W0wq7Kq0RLeT3SD3TgHPg== 0000950144-96-001624.txt : 19960416 0000950144-96-001624.hdr.sgml : 19960416 ACCESSION NUMBER: 0000950144-96-001624 CONFORMED SUBMISSION TYPE: 10KT405 PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19951230 FILED AS OF DATE: 19960412 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: JOHNSTON INDUSTRIES INC CENTRAL INDEX KEY: 0000041017 STANDARD INDUSTRIAL CLASSIFICATION: BROADWOVEN FABRIC MILS, MAN MADE FIBER & SILK [2221] IRS NUMBER: 111749980 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10KT405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-06687 FILM NUMBER: 96546878 BUSINESS ADDRESS: STREET 1: 105 THIRTEENTH ST CITY: COLUMBUS STATE: GA ZIP: 31901 BUSINESS PHONE: 7066413140 MAIL ADDRESS: STREET 2: 105 THIRTEENTH ST CITY: COLUMBUS STATE: GA ZIP: 31901 FORMER COMPANY: FORMER CONFORMED NAME: GI EXPORT CORP DATE OF NAME CHANGE: 19850403 FORMER COMPANY: FORMER CONFORMED NAME: GEON INDUSTRIES INC DATE OF NAME CHANGE: 19770921 FORMER COMPANY: FORMER CONFORMED NAME: GEON TRADING CORP DATE OF NAME CHANGE: 19700915 10KT405 1 JOHNSTON INDUSTRIES, INC., FORM 10KT405 1 FORM 10-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from July 1, 1995 to December 30, 1995 - ---------------------------------------------------------------- Commission file number 1-6687 ------ JOHNSTON INDUSTRIES, INC. ------------------------- (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) Delaware 11-1749980 -------- ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 105 Thirteenth Street, Columbus, Georgia 31901 (Address of principal executive offices) (Zip Code) (706) 641-3140 -------------- (Registrant's telephone number, including area code) Securities registered pursuant to Section 12 (b) of the Act: NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED - ---------------------------- ----------------------- Common Stock, $.10 Par Value New York Stock Exchange Securities registered pursuant to Section 12 (g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes XX No 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 Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K (X). The aggregate market value of the Common Stock of the Registrant held by non-affiliates of the Registrant on March 15, 1996 was $43,828,448. The aggregate market value was computed by reference to the closing price of the stock on the New York Stock Exchange on such date. For purposes of this response, executive officers, directors and Redlaw Industries, Inc. are deemed to be affiliates of the registrant and the holdings by non-affiliates is computed as 5,156,288 shares. The number of shares outstanding of the Registrant's Common Stock as of March 15, 1996 was 10,587,479 shares. 2 DOCUMENTS INCORPORATED BY REFERENCE: None. 2 3 PART I. ITEM 1. BUSINESS General Johnston Industries, Inc. is a consolidated entity which includes its direct wholly owned subsidiaries, Southern Phenix Textiles, Inc. ("Southern Phenix"), Opp and Micolas Mills, Inc. ("Opp and Micolas"), Johnston Industries Composite Reinforcements, Inc. ("JICR") f/k/a Tech Textiles USA ("Tech Textiles"), and Jupiter National, Inc. ("Jupiter") and its indirect wholly owned subsidiary, Wellington Sears Company ("Wellington Sears"). References to "Johnston", "JII" or the "Company" include Johnston Industries, Inc., its predecessor and its direct and indirect subsidiaries, unless the context indicates otherwise. Johnston and its direct wholly owned subsidiaries, Southern Phenix, Opp and Micolas, and JICR and its indirect wholly owned subsidiary, Wellington Sears are diversified manufacturers of woven and non-woven fabrics, principally for the home furnishings, industrial and, to a lesser extent, basic apparel, automotive and other textile markets. On September 22, 1995, the Board of Directors of the Company authorized a change in the Company's fiscal year from a period beginning on July 1 and ending on June 30 to a variable period ending on the Saturday nearest to December 31. Such change was made to make Johnston's year-end consistent with its quarterly accounting periods which, in the case of 52-week years, consist of two four week and one five week periods per quarter ending on a Saturday. In addition to conforming Johnston's yearly and quarterly accounting periods, the change in the Company's fiscal year conforms to an annual reporting period more closely associated with the calendar year and, to the fiscal years utilized by a majority of the public companies in the textile industry. In March 1996, the Company acquired all of the issued and outstanding stock of Jupiter not previously owned by it. In January 1995, the Company had purchased 89,300 shares of Jupiter for approximately $2,300,000 which had increased the Company's ownership interest in the outstanding shares of Jupiter from 49.6% at December 31, 1994 to 54.2%. As a result, Jupiter became a consolidated majority owned subsidiary of the Company in January 1995 and the operating results of Jupiter and the Company were consolidated, in compliance with generally accepted accounting principles, effective January 1, 1995. The Company engages in textile manufacturing through its wholly owned direct and indirect subsidiaries: Southern Phenix; Opp and Micolas; Wellington Sears Company; and JICR, which in the aggregate utilize 4,025,000 square feet of manufacturing, warehouse and administrative facilities. For the six months ended December 30, 1995, approximately 79% of the Company's fabric was manufactured for the home furnishings and industrial segments of the textile market; the balance is for the automotive segment, basic apparel manufacturers (duck and pocketing) and the specialty markets, which currently is composed of mostly sales of yarn, recycled textile fibers and non-crimp fabrics. The following table sets forth the percentage of sales by product type: 3 4
SIX MONTHS ENDED DECEMBER 30, TWELVE MONTHS ENDED JUNE 30, 1995 1995 1994 1993 -------------------- ---------- ---------- ---------- Automotive 2% 6% 10% 10% Industrial 22% 25% 24% 24% Home Furnishing 57% 55% 57% 48% Apparel 3% 4% 7% 14% Specialty Markets 15% 9% -- -- Miscellaneous 1% 1% 2% 4% --- --- --- --- 100% 100% 100% 100% === === === ===
In addition to sales in the United States, the Company also markets its products in Europe, Canada and Mexico on a limited basis. In April 1995, the position of Vice President of International Sales was established and staffed to direct the Company's sales efforts on a global basis. For the six months ended December 30, 1995, the international direct sales volume constituted approximately 3% of sales. Although no assurances can be given that its international expansion will be successful, the Company's goal is to eventually have international sales account for approximately 10% of its total sales revenue. The Company was selected as Textile World's 22nd Annual Model Mill in 1994 and its operating divisions have been selected as "Supplier of the Year" for various customers on numerous occasions. On February 15, 1996, the Company was awarded ATI's ("America's Textiles International") first annual Award for Innovation. THE FOLLOWING DISCUSSION OF ASPECTS OF THE COMPANY'S BUSINESS AND PROPERTIES ALSO CONSTITUTES A CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. The Company wishes to caution readers that the following important factors, among others, in some cases have affected, and in the future could affect, the Company's actual results and could cause the Company's actual consolidated results for the first quarter of 1996, and beyond, to differ materially from those expressed in any forward-looking statements made by, or on behalf of, the Company: Customers and Backlog The Company sells its products to approximately 2,400 customers with net sales to the single largest customer accounting for 6%, 6%, 11% and 10% of total sales for the six months ended December 30, 1995, and the fiscal years ended June 30, 1995, 1994, and 1993, respectively. Note that total sales for the purpose of the foregoing percentage calculation for the fiscal years ended June 30, 1994 and 1993 did not include Wellington Sears as these periods preceded the Company's majority ownership of Jupiter. The Company traditionally manufactures approximately 75% of its production against firm orders with finishing, packaging and other specifications generally determined by its customers. At December 30, 1995, the Company's backlog of orders was approximately $64,399,000 compared to $63,320,000 at June 30, 1995, $45,136,000 at June 30, 1994 and $37,671,000 at June 30, 1993. The Company's backlog of orders at December 30, 1995 and June 30, 1995 include Wellington Sears while June 30, 1994 and June 30, 1993 preceded the Company's majority ownership of Jupiter and appropriately do not include Wellington Sears. The backlog of orders increased only marginally from June 30, 1995 to December 30, 1995, which management believes is a reflection of continued customer resistance to higher raw material costs and weakness in the economy in general. All backlog at year-end is expected to be delivered in the current fiscal year. For the six months ended December 30, 1995, the Company's production facilities operated at approximately 78% of normal capacity. Management believes the Company's production capability is sufficient to accommodate existing and new production orders. 4 5 Products The Company's products include a variety of proprietary and non-proprietary woven and non-woven fabrics for automotive, industrial, home furnishings, apparel and specialty customers. The Company's Southern Phenix operations manufacture woven fabrics from 100% polyester fiber and other synthetic and natural fibers for use in the automotive industry, home furnishings industry, for the coating and laminating trades, industrial applications and by various other fabricators. Its products are used in backing for foam car seat cushions, tufted upholstery and marine coated products, mattress ticking for popularly priced mattresses, and products for soft furniture. The Company's Opp and Micolas operations manufacture more than 464 different styles (in the "greige" state, i.e., unbleached and undyed as taken from the loom) of all cotton fabrics and cotton/polyester blended fabrics and other fabrics for the coating, home furnishings and apparel markets. Opp and Micolas also produces fabrics for the footwear and building supplies industries and for various industrial operations. Its fabrics are used in a broad range of coated products including wall coverings, coated fabrics for autos such as convertible tops, cloth roof coverings and felt window liners, rubber coated products such as automotive V-belts and other belts for industrial machinery, apparel, industrial protective clothing and specialty items, such as tote bags, handbags and shoes. The Company's Wellington Sears operations manufacture cotton and polyester olefin and other blended fiber fabrics for the home furnishings and industrial products markets. Its operations include spinning, weaving, finishing, product testing, waste textile fiber and fabric reclamation and other non-woven production. Its fabrics are used in outdoor furniture, wiper cloths, napery, furniture upholstery, mattress pads, bed linens, and other industrial applications. The Company's JICR operations produces a variety of non-crimp multi-axial fabrics out of fiberglass, carbon and aramid fibers for use in engineered composite materials, including the Company's proprietary VECTORPLY(R) fabrics. JICR fabrics are used in a variety of industrial, transportation, marine and sporting goods applications, from sea walls and roof panels to motor campers and heavy trucks to large yachts and off-shore racing boats to water skis and hockey sticks. The Company also produces a variety of greige, dyed and finished fabrics for specialty markets. Such products are typified by short customized production runs, small lot sizes and quick delivery requirements. Such products often are manufactured to customer furnished proprietary specifications. Manufacturing The company spins its own yarn primarily using Rieter(R) and Schlafhorst(R) open-end automatic rotor spinning machines, Murata(R) air jet spinning machines and some ring spinning equipment. Open-end and air jet are fully automated spinning processes which yield an excellent quality yarn which is produced using highly efficient processes. Fabric is manufactured on a variety of shuttleless looms using rapier, projectile and air jet technologies, as well as a few shuttle looms. Non-woven fabric is made in the Company's Southern Phenix stitchbond facility. The Company's mills have an annual capacity of approximately 230 million linear yards of woven fabric (approximately 117 million pounds), approximately 16 million pounds of sales yarn, and approximately 105 million pounds of non-woven fabric (manufactured through the reclamation of textile waste products). In recent years, the Company has engaged in an extensive capital expenditure program aimed at converting substantially all of its mills to open-end spinning and shuttleless weaving. Certain fabrics, primarily those produced by Opp and Micolas and consisting of greige fabrics, are sold directly to manufacturers which have their own converting departments or finishing facilities and to fabric converters who dye and print unfinished fabrics. 5 6 Capital Improvements and Expansion In an effort to maintain its technological edge, the Company has maintained an aggressive capital improvement program across all of its divisions. Capital investment in operations for the six months ended December 30, 1995 was $17,987,000 compared to $21,983,000 and $12,701,000 for the fiscal years ended June 30, 1995 and June 30, 1994 respectively. Capital investment totals for the six months ended December 30, 1995 and the year ended June 30, 1995 include Wellington Sears. Capital investment for the fiscal year ended June 30, 1994 do not include expenditures by Wellington Sears as such periods preceded the Company's majority ownership of Jupiter. Distribution and Marketing The Company uses in-house sales personnel, commissioned sales agents and independent brokers in the sale of its products. It employs a 30 person in-house sales force and utilizes approximately 33 commissioned sales agents and brokers. The sales force is organized divisionally both geographically and by product lines. For the six months ended December 30, 1995, approximately 77 % of revenues were generated by in-house sales personnel, with 23% generated by commissioned sales agents and independent brokers. Fabrics sold through in-house personnel include home furnishings, abrasive, napery, rubber products, filtration, duck, wipe cloth, reprocessed waste products and various industrial fabrics. Mattress pads and certain of the Company's upholstery fabrics are sold through commissioned sales agents. In addition to its various employed and independent sales people, approximately 38 Company personnel provide support services such as design, technical support, customer services, and coordination of production with the mill. Competition The Company's competition consists principally of about 50 companies, although only approximately 20 companies compete with the Company in a substantial portion (more than fifty percent) of the product groups serviced by the Company. The competing companies in each of its product groups include a number of companies which are larger and have significantly greater resources than the Company. While the Company believes that there are several competitors with greater sales than it in each product group, market shares vary substantially from product to product within a group and there are individual products for which the Company is the market leader as well as others for which it does not have a significant market share. Areas of competition include quality of product and of service -- chiefly the ability to respond and meet customer product requirements expeditiously and reliably -- design, as well as price. Management believes that service is an important positive competitive factor for the Company's operations. Management also believes that competition from domestic manufacturers has intensified over the last several years and will continue to increase in the future. Although management believes that the Company is not, in general, directly affected by foreign competition; there is an indirect effect. As total domestic textile sales volume is reduced as a result of imports, the companies that are directly affected (generally fashion and apparel manufacturers) search for sales volume in other product groups to replace their lost volume. Historically, this has resulted in increased competition and price pressures with respect to certain fabrics, most notably in some of the products in the specialty market. While such heightened competition may have a negative effect on margins for particular orders or products, management does not believe that such competition has had a material adverse effect on the Company's results of operations. Raw Materials The Company utilizes cotton, polyester and other natural and synthetic fibers in its manufacturing operations. Currently, the supplier for most of its polyester fiber is Wellman, Inc., formerly Fiber Industries, Inc. ("Wellman"). The Company does not have a long-term agreement with Wellman and does not maintain long-term supply contracts with Wellman or any other synthetic fiber suppliers. Other potential suppliers of polyester include DuPont and Hoechst-Celanese, as well as a number of other domestic and foreign 6 7 sources. Although the Company has some cotton fiber supply contracts, the Company buys most of its cotton in the open market from approximately ten established domestic cotton merchants with whom it has long time relationships. From time to time, the company may enter various provisional pricing arrangements with its cotton suppliers in connection with cotton purchase contracts. Under such provisional pricing arrangements, the Company accepts delivery of certain quantities of raw cotton and pays an agreed upon "provisional" price for such purchases. The Company may fix the final price at a later date. The Company utilizes such pricing arrangements to mitigate its exposure to changes in raw materials cost. Any gain or loss related to such arrangements is recorded as a component of cost of goods sold. Management believes that adequate supplies of cotton, polyester and its other fiber needs are available in the open market and should supplies of cotton, polyester or other fibers cease to be available from any of the Company's its principal suppliers, management does not expect any significant difficulty in obtaining fibers from one or more other suppliers. Employees As of February 24, 1996, the Company had approximately 3,040 full-time employees, none of whom is covered by collective bargaining agreements. The Company believes its relations with its employees are good. Corporate Organization and History Originally founded in 1948, Johnston Industries, Inc. is a Delaware corporation which became the successor to a New York corporation of the same name on December 31, 1987 through a reincorporation merger. The Company consolidates certain functions of its subsidiaries through Company-wide operations and by entering into a number of joint arrangements and transactions. The cost of certain routine administrative functions, such as the accounts receivable and payable and credit functions, is allocated among Southern Phenix, Opp and Micolas, JICR and Wellington Sears on an equitable basis, according to the work performed for each business unit. Selling expenses incurred in connection with international sales are similarly shared by the Company's subsidiaries according to the volume of international sales generated by each unit. Subsequent to December 30, 1995, the Company acquired all of the outstanding stock of Jupiter. As a result of the Company's acquisition of a majority interest in Jupiter in 1995, the operating results of Jupiter and the Company were consolidated, in compliance with generally accepted accounting principles, effective January 1, 1995. The Company began acquiring its ownership interest in Jupiter in 1986. In November 1992, Jupiter purchased the custom fabrics division of West Point Pepperell (now Wellington Sears) and in September 1993 acquired certain assets of Polylok Corporation (currently being operated as the Tarboro Finishing Division of Wellington Sears). Over time, the Company has increased its investment in Jupiter, particularly in connection with Jupiter's textile acquisitions noted above, and effective March 22, 1996 Jupiter became a wholly owned subsidiary of the Company. Subsequent to December 30, 1995, the Company entered into a letter of intent to acquire the T.J. Beall Company, a textile company whose primary business is the recycling of "gin motes," non-perishable shorter fibers separated from cotton during the ginning process. In 1992, the Company entered into a partnership with an English company to establish Tech Textiles for the joint manufacture and sale of certain specialized textile products. In 1995, the Company completed the purchase of the English company's ownership interest and became the sole owner of Tech Textiles. On December 30, 1995, the operations of Tech Textiles and JI International, Inc. were merged into a new subsidiary, JICR. Investment Activities The investment activities of the Company were acquired in connection with its acquisition of Jupiter and are principally conducted through Jupiter's wholly-owned subsidiary, Greater Washington Investments, Inc. ("GWI"). The Company's business strategy contemplates the gradual divestiture of its non-textile industry investments. GWI is a "small business development company" under the Small Business Investment Act of 1958 ("1958 Act"), which restricts its investment to qualifying small business 7 8 concerns as defined in the 1958 Act. GWI previously invested in companies which were believed by GWI's management to have the potential of above-average capital appreciation as well as a current return on investment. Because of the speculative nature of GWI's investments and the lack of any ready market for most of its investment when purchased, there is minimal liquidity and a significantly greater risk of loss on each investment than is the case with traditional investment companies. The value of the securities shown in the table below are based on the following: (i) securities with readily available market quotations were valued at the current market price; (ii) all other securities were valued at fair value as determined in good faith by Jupiter's Board of Directors using a formal portfolio valuation procedure. In determining "fair value", the Jupiter Board adhered to the standard recommended for investment companies by the American Institute of Certified Public Accountants and the Securities and Exchange Commission. That standard defines "fair value" as the expected realization if the securities were to be disposed of in an orderly distribution over a reasonable period of time. There is no guarantee, however, that GWI would be able to dispose of all or certain of its investments within a reasonable period of time. Disposing of such investments under such circumstances could entail substantial discounts or losses. Following is a list of the investments held by Jupiter and GWI as of December 30, 1995.
VALUE OF INVESTMENT AT DECEMBER 30, 1995(1) PORTFOLIO COMPANY NATURE OF INVESTMENT (IN THOUSANDS) - ------------------------------------------ -------------------------------- -------------------- AEGEAN R & D CORPORATION Herndon, Virginia 10% subordinated note Bioremediation company due 1998 (with warrants) $1,300 AUTOGRAPHIX, INC. Burlington, Massachusetts 12% subordinated note Presentation graphics systems due 1996 (with warrants) 930 CCC DEVELOPMENT CORPORATION Boston, Massachusetts common stock and 9% subordinated Low Income Housing Development note due October 1998 1,100 CENTENNIAL MEDIA CORPORATION convertible preferred stock; Englewood, Colorado convertible subordinated note; Publisher of Denver telephone directory and bank guaranty 250 CUSTOM CAPTIVE CORPORATION Newark, Delaware 11% subordinated note Industrial reclamation service company due 1998 (with warrants) 850 EMC CORPORATION(2) Hopkington, Massachusetts Supplier of intelligent storage and retrieval technology common stock 8,588 FUISZ TECHNOLOGIES, LTD.(3) Chantilly, Virginia Pharmaceutical R&D common stock 2,952 GULF COMPONENTS, INC. Fort Lauderdale, Florida 9% subordinated note Electronic components distributor due 1998 (with warrants) 3,157 MADDEX FARM, L. P. Shepardstown, West Virginia 10% participating 1st Land development mortgage due 2000 1,410 MEDIATECH, INC. Herndon, Virginia 10-12% subordinated note due 1998 (with warrants) 1,700
8 9
Research laboratory media producer METROPOLITAN PERSONNEL SERVICES, INC. 12% subordinated note 400 Washington, D. C. due 1999 (with warrants) Temporary personnel services MONITORING TECHNOLOGY CORPORATION 10% subordinated note 1,000 Fairfax, Virginia due 2004 (with warrants) Predictive maintenance devices NEURALTECH, INC. common stock 500 Fairfax, Virginia Artificial neural services software SENSORMEDICS CORPORATION convertible preferred stock; 1,548 Anaheim, California and common stock Physiological measurement products VIASOFT, INC.(4) common stock and warrants 7,162 Phoenix, Arizona Software products for COBOL re-engineering ZOLL MEDICAL CORPORATION(5) common stock 1,890 Woburn, Massachusetts External cardiac pacemaker/defibrillator ------ 34,737 ======
- -------------------------------------------------------------------------------- (1) Publicly traded securities are valued at the current market price. The value of securities that are restricted in their disposition is based on the Jupiter Board of Directors' good faith determination of "fair value". In determining "fair value," the Board of Directors adheres to the standard recommended for investment companies by the American Institute of Certified Public Accountants and the Securities and Exchange Commission. The standard defines "fair value" as the expected realization if the securities were to be disposed of in an orderly distribution over a reasonable period of time. There is no guarantee, however, that the Company would be able to dispose of all or certain of its investments within a reasonable period of time. Disposing of such investments under such circumstances could entail substantial discounts or losses. (2) Based on a price per share of $15.40, the closing price per share of common stock of EMC Corporation ("EMC") on the New York Stock Exchange on December 29, 1995. As a result of the acquisition of McDATA Corporation by EMC on December 6, 1995, the Company's investment in McDATA was converted into 564,216 shares of common stock of EMC, of which 56,421 shares are to be held in escrow for one year as security for potential indemnification obligations of McDATA. Valuation includes a 10% discount for the 56,421 shares which are subject to a one year sales restriction. As of March 25, 1996, the Company had liquidated $7,807,349 (507,795 shares) of its investment in EMC (based on year end values). A net realized gain of $8,468,000 on this investment with a basis of approximately $337,000 will result in connection with this liquidation. The approximate holding period of this initial investment was 11 years. (3) Based on a price per share of $15.25, the closing price per share of common stock of Fuisz Technologies, Ltd. ("Fuisz") on the NASDAQ National Market System on December 29, 1995. On December 14, 1995, Fuisz completed an underwritten public offering of its common stock at a price of $12.00 per share to the public. As a result of the offering, the Company's investment in Fuisz was converted into 215,080 shares of Fuisz common stock. In connection with the Fuisz offering, the Company agreed not to dispose of its shares of Fuisz common stock for a period of 180 days. Valuation includes a 10% discount for all 215,080 shares which are subject to a 180 day sales restriction. 9 10 (4) Based on a price per share of $11.88, the closing price per share of common stock of Viasoft, Inc. ("Viasoft") on the NASDAQ National Market System on December 29, 1995. As of March 25, 1996, the Company had liquidated $6,743,991 (567,915 shares) of its investment in Viasoft (based on year end values). A net realized gain of $10,015,000 on this investment with a basis of approximately $1,462,000 will result in connection with this liquidation. The approximate holding period of this initial investment was 11 years. (5) Based on a price per share of $9.00, the closing price per share of common stock of Zoll Medical Corporation on the NASDAQ National Market System on December 29, 1995. As of March 25, 1996 the Company had liquidated $90,000 (10,000 shares) of its investment in Zoll (based on year end values). A net realized gain of $114,500 on this investment with a basis of approximately $5,500 will result in connection with this liquidation. The approximate holding period of this initial investment was 15 years. As of March 25, 1996, the Company had liquidated $14,641,339 of its investment portfolio (based on year-end values). GWI's debt consists of subordinated debentures ("Debentures") which are guaranteed by the Small Business Administration ("SBA") and bear an effective weighted-average interest rate of 7.8% at December 30, 1995. Principal payments due on these Debentures are as follows:
YEAR AMOUNT ---- ----------- 1998 $2,500,000 2001 7,000,000 2003 5,000,000 ----------- $14,500,000 ===========
Debentures carry certain restrictions, and GWI may not (1) make any distribution to its shareholder other than periodic payments out of accumulated net realized income or (2) permit its cumulative operating deficit plus any net unrealized appreciation on investments to exceed 50% of its paid-in capital. In addition, the Debentures cannot be prepaid except with SBA approval based upon such exceptional circumstances as license surrender, reorganization and merger, debt restructure for credit or cash-flow reasons, or liquidation of idle funds as a result of large capital gains or anticipated portfolio payments. At December 30, 1995, GWI did not meet requirements for distribution to its shareholder or for the prepayment of its Debentures. RELIANCE ON SENIOR MANAGEMENT The Company believes it has benefitted and continues to benefit substantially from the skills, experience and efforts of its senior management. The loss of the services of members of the Company's senior management could have a material adverse effect on the Company's business and prospects. See Directors and Executive Officers of Johnston Industries, Inc. ADDITIONAL RISK FACTORS AND INVESTMENT CONSIDERATIONS Additional or related factors which could affect the Company's actual results and could cause the Company's actual consolidated results for the first quarter of 1996, and beyond, to differ materially from those expressed in any forward-looking statements made by, or on behalf of, the Company include: Continued or increased pressure to change the selling prices for the Company's products, and the resulting effects on margins, the Company's actions in connection with continued and increasing competition in many product areas, including, but not limited to, price competition and fluctuating demand for certain textile products by one or more textile customers; Difficulties or delays in the development, production, testing and marketing of products, including, but not limited to, a failure to ship new products especially composite fabrics when anticipated, the failure of customers to accept these products or technologies when planned, any defects in products and a failure of manufacturing economies to develop when planned; Occurrences affecting the Company's ability to reduce product and other cost, and to increase productivity; Inability to offset pricing competition with production efficiencies and economies of scale; underutilization of the Company's plants and factories resulting in production inefficiencies and higher costs; start-up expenses and inefficiencies and delays and increased depreciation costs in connection with the start of production in new plants and expansions; The amount, and rate of growth in, the Company's selling, general and administrative expenses, and the impact of unusual items resulting from the Company's ongoing evaluation of its business strategies, asset valuations and organizational structures; The adverse effect of continued high raw material costs or the significant upward fluctuation of raw material costs as specifically experienced in 1995 and difficulties in obtaining raw materials, supplies, power and natural resources and any other items needed for the production of products; The acquisition of fixed assets and other assets, including inventories and receivables, and the making or incurring or any expenditures and expenses, including, but not limited to, depreciation and research and development expenses, any revaluation of assets or related expenses and the amount of, and any changes to, tax rates; Unexpected losses in connection with the disposition of the non-textile related investments formerly made by Jupiter and GWI, unanticipated write down of the value of such investments due to among other things their limited liquidity, and/or an inability to dispose of one or more of such investments due to the nature or character of such investments involving, without limitation, the liquidity of such investment, the lack of a market for such investment, and whether the Company's investment represents a minority interest in such enterprise. The effects of, and changes in, trade, monetary and fiscal policies, laws and regulations, other activities of governments, agencies and similar organizations, and social and economic conditions, such as trade restrictions or prohibitions, inflation and monetary fluctuations, import and other changes or taxes, the ability or inability of the Company to obtain, or hedge against, foreign currency, foreign exchange rates and fluctuations in those rates, loss of international contracts or lower international revenue resulting from increased expenses associated with overseas operations, the impact of foreign labor laws and disputes, adverse effects arising out of political unrest, terrorist activity, nationalizations and unstable governments and legal systems, and intergovernmental disputes. The costs and other effects of legal and administrative cases and proceedings (whether civil, such as environmental and product-related, or criminal), settlements and investigations, claims, and changes in those items, developments or assertions by or against the Company relating to intellectual property rights and intellectual property licenses, adoptions of new, or changes in, accounting policies and practices and the application of such policies and practices; The effects of changes within the Company's organization or in compensation and benefit plans, any activities of parties with which the Company has an agreement or understanding, including any issues affecting any investment or joint venture in which the Company has an investment, the amount, type and cost of the financing which the Company has, and any changes to that financing; and The ability to integrate acquisitions into the Company's existing operations and unexpected difficulties or problems with such acquired entities including inadequate production equipment, inadequate production capacity or quality, outdated or incompatible technologies or an inability to realize anticipated synergies and efficiencies, whether within anticipated time frames or at all. ITEM 2. PROPERTIES The executive offices of the Company are located at 105 13th Street, Columbus, Georgia 31901 in a 20,000 square foot, two story, brick office building, which was purchased August 20, 1993. Its telephone number is (706) 641-3140. The Company owns twelve manufacturing facilities and leases one additional facility. Such facilities are described below. The Company's Southern Phenix operations utilize two manufacturing facilities totaling 708,000 square feet, each of which are located in Phenix City, Alabama. The primary facility houses Southern Phenix's administrative offices, weaving mill and finishing operations on 13 acres of a 124 -- acre tract accessible both by road and rail. The plant, which was one of the first in the United States to make woven goods from 100% polyester, was built in 1968, but its equipment and machinery continue to be extensively modernized. A second facility with 78,000 square feet on 11 acres contains the stitchbond operation. The annualized operating capacity of these facilities is approximately 79 million linear yards of fabric (38 million pounds) and, during the six months ended December 30, 1995, these facilities operated at approximately 65% capacity. The Company's Opp and Micolas operations utilize two manufacturing facilities totaling 781,000 square feet, each of which are located on in Opp, Alabama. The Opp facility encompasses 13 acres and has approximately 340,000 square feet of plant facility located on a major U.S. highway. The Micolas facility, which is located very close to the Opp plant, sits on 19 acres with approximately 441,000 square feet of plant facility. A nearby Company-owned tract of 140 acres is available for future expansion. The plants, which share some basic facilities and services but are equipped to operate independently, are single level facilities which were built in 1922, and have undergone extensive modernization programs from the late 1980's on into the 1990's. 10 11 The annualized operating capacity of the facilities is approximately 106 million linear yards of fabric (49 million pounds), and during the six months ended December 30, 1995, the facilities operated at approximately 85% capacity. Headquarters for the Company's Jupiter subsidiary is located in Rockville, Maryland where it owns and occupies a 3,400 square foot building on approximately three-quarters of an acre of land. The Company's Wellington Sears operations utilize eight manufacturing facilities, including a finishing operation, a U.L. certified testing laboratory, a fabric design center, a retail outlet and a corporate office located just off Interstate I-85 in Valley, Alabama near West Point, Georgia. Two facilities are located in Columbus, Georgia, three are located in Valley, Alabama, and the remaining two facilities located in DeWitt, Iowa and Tarboro, North Carolina, respectively. Together the eight facilities total approximately 2,458,000 square feet of building space sitting on approximately 257 acres of land. The annualized operating capacity of the facilities is approximately 45 million linear yards of fabric (30 million pounds), approximately 16 million pounds of sales yarn, and approximately 95 million pounds of non-woven material. The Wellington Sears' facilities overall operated at approximately 80% capacity for the six months ended December 30, 1995. Wellington Sears also leases a plant located in Lanett, Alabama, which is used for manufacturing non-woven mattress pads. In February 1996, the Company announced that it was closing its Tarboro plant in an effort to realign and consolidate certain operations, concentrate capital resources on more profitable operations and better position itself to achieve its strategic corporate objectives. Such decision was reached after sales during the six months ended December 30, 1995 from the plant were lower than expected which caused continued operating losses and negative cash flows. Operations at the Tarboro Plant are currently scaling down and are expected to conclude around August of 1996. The Company is currently pursuing the sale of the Tarboro facility, as a whole, however management anticipates that a portion of the equipment located at such facility will be moved to the other company locations and the remainder will be sold, with the land and building to then be marketed and sold. The Tarboro operation includes a facility of approximately 479,000 square feet with annualized operating capacity of approximately 6 million linear yards of fabric (6 million pounds). Management believes the shutdown of the Tarboro facility will not have a material adverse impact on the Company's production capacity. For further discussion of the disposition of the Tarboro facility and of the impact of such shutdown on the Company's results of operations, see "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Note 8 of the Financial Statements set forth elsewhere in this Report. The Company's JICR operations are located in Phenix City, Alabama in a facility leased from Southern Phenix and include approximately 39,000 square feet of the 78,000 square foot facility which houses the Southern Phenix stitchbond operation. The operating capacity of JICR was approximately 10 million pounds and JICR operated at approximately 54% of capacity during the six months ended December 30, 1995. Environmental The Company is subject to regulation under federal, state, and local laws and regulations governing pollution and protection of human health and the environment, including air emissions, water discharges, management and cleanup of solid and hazardous substances and wastes. The Company believes that its facilities and operations are in material compliance with all existing applicable laws and regulations. The Company cannot, at this time, estimate the impact of any future laws or regulations on its future operations or future capital expenditure requirements. The Company is not aware of any pending federal or state legislation that would have a material impact on the Company's financial position, results of operations or capital expenditure requirements. The Company is currently involved in litigation relating to claimed remediation costs associated with a former subsidiary facility. See "Legal Proceedings". 11 12 ITEM 3. LEGAL PROCEEDINGS Johnston Industries, Inc. In 1981, a subsidiary of the Company closed a steel fabricating facility in Pennsylvania which it had operated before its closing. The facility was purchased from the Company and again operated as a steel fabricating facility by the new owner for approximately two years and thereafter was purchased by the present owner who also operated it as a steel fabricating facility for about three years. Since that time, the facility has been closed. In February 1994, the operators of the facility filed a complaint in the United States District Court, Eastern District of Pennsylvania, Bethlehem Iron Works, Inc. and Steel Structures Corp. vs. Lewis Industries, Inc., Charles P. Lewis and Johnston Industries, Inc. No. 94-CV-0752, against previous owners and operators of the facility including the Company claiming contamination by a former Johnston subsidiary which had operated at the facility before its close in 1981. The complaint seeks to hold predecessors in title and former operators at the site responsible for costs alleged to have been incurred to remediate the plant site by the present owners. Such costs are alleged to be $3.5 million, however, the Company disputes that such costs were incurred for response and believes that it has presented meritorious defenses against the imposition of such costs. A non-jury trial began in the United States District Court for the Eastern District of Pennsylvania on July 20, 1995 and was concluded on August 25, 1995. Briefs by all the parties have been filed. The Court is expected to render a decision during the quarter ending June 29, 1996. In June 1995, the Company established a reserve of $1,000,000 for costs which it believed could be incurred to resolve the dispute. Based upon subsequent events, including the trial and the discovery that certain co-defendants had no assets or had been through bankruptcy proceedings, and based upon the fact that the Court has not dismissed the plaintiff's claims, the Company's management determined to accrue an additional $1,000,000 in the three months ended December 30, 1995, thereby increasing the reserve to $2,000,000 as of December 30, 1995. Management continues to dispute the apportionment of any of these costs against the Company. The loss provision is included in Other-net in the Statement of Operations. In addition, the Company has established a reserve in the amount of $200,000 as an estimate of potential additional legal costs and other costs to be incurred subsequent to December 30, 1995, in connection with the defense of this matter. Although management believes that the accruals described above are reasonable based upon the available facts as of the respective balance sheet dates, and that the accrual as of December 30, 1995 is sufficient to cover the estimated costs of such matter, the ultimate outcome of the litigation cannot presently be determined. Jupiter Litigation The purchase of the assets of Polylok Corporation ("Polylok") which comprises Wellington Sears' Tarboro facility ("Tarboro") produced significant litigation among Jupiter, Wellington Sears, Polylok, and Daniel Duhl ("Duhl"), Polylok's principal shareholder. The first action, styled Jupiter National, Inc. vs. Daniel Duhl, Polylok Corporation and Polylok Finishing Corporation, No. 93-468-CIV-5-F (E.D.N.C.), which was settled in August 1994, involved assertions against Polylok and Duhl of misrepresentations made in connection with the purchase of Polylok's assets. Subsequently, in March 1995, Polylok and Duhl commenced an action against Jupiter and Wellington Sears, in the United States District Court, Eastern District of North Carolina, Daniel Duhl and Polylok Corporation vs. Jupiter National, Inc. and Wellington Sears Company, No. 5:95-CV-171-F(1), which action asserted a breach of contract relating to installment payments due to Duhl pursuant to a $1,600,000 purchase money note. Jupiter and Wellington Sears filed counterclaims against Polylok and Duhl for breach of Duhl's consultancy agreement and breech of the prior August 1994 settlement. On October 18, 1995, the breech of contract claim asserted by Polylok and Duhl and the counterclaim by Jupiter and Wellington Sears for breach of consultancy agreement and the August 1994 settlement were resolved. 12 13 On October 25, 1995, approximately $541,000 was placed in an escrow account to settle all obligations for Duhl's consultancy agreement. In further litigation, Polylok and Duhl took legal action against Jupiter and Wellington Sears, styled Polylok Corporation and Polylok Finishing Corporation vs. Jupiter National, Inc. and Wellington Sears Company, No. 4:95-CV-105-F (E.D.N.C.), regarding withdrawal of funds set aside in an escrow account, from the August 1994 settlement, providing for remediation of environmental contamination at the Tarboro plant. Subsequent to the August 1994 settlement, Jupiter paid environmental expenses, later reimbursed from the escrow account, incurred before the settlement. Polylok and Duhl took the position these expenses were of a non-environmental nature. However, Jupiter took the position these expenses relate directly to environmental concerns and in light of the 1994 settlement the reimbursement of funds from the escrow account was proper. On January 5, 1996, the parties reached a settlement for this case whereby Duhl received $296,000 out of the escrow account and whereby the parties agreed to mutual general releases. The Company is periodically involved in legal proceedings arising out of the ordinary conduct of its business. Management does not expect that any of these legal proceedings have a material adverse effect on the Company's consolidated financial position or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matter was submitted to a vote of the Company's security holders during the six months ended December 30, 1995. 13 14 PART II. ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS The Company's common stock has traded on the New York Stock Exchange under the symbol "JII" since December 1987. The following table indicates the high and low closing sales prices for the common stock as quoted on the New York Stock Exchange composite tape for the periods indicated below. All sales prices and dividend payments have been adjusted for a three-for-two stock split effective January 24, 1994. Price Range - ------------------------------------------------------------------------------ High Low - ------------------------------------------------------------------------------ Quarter Ended: December 30, 1995 9 1/8 7 3/8 September 30, 1995 9 5/8 7 7/8 June 30, 1995 10 3/8 7 7/8 March 31, 1995 12 10 December 31, 1994 11 8 1/4 September 20, 1994 9 7/8 8 1/4 June 30, 1994 11 8 7/8 March 31, 1994 11 3/4 9 3/4 December 31, 1993 13 11 1/8 September 30, 1993 11 5/8 9 3/8
Holders of common stock are entitled to such dividends as may be declared and paid our of funds legally available for payment of dividends. The Company's bank credit agreement permits the Company to pay dividends on its Common Stock provided it is in compliance with various covenants and provisions contained therein, which among other things limits dividends and restricts investments to the lesser of (x) 20% of total assets of the Company, on a fully consolidated basis, as of the date of determination thereof, or (y) $5,000,000 for the period commencing on January 1, 1996 and ending on December 31, 1996 or (z) $5,000,000 plus 50% of cumulative consolidated net income for the period commencing on January 1, 1997, minus 100% of cumulative consolidated net loss for the consolidated entities for such period, as calculated on a cumulative basis as of the end of each fiscal quarter of the consolidated entities with reference to the financial statements for such quarter. Future determination as to the payment of dividends is subject to the discretion of the Board of Directors and will depend upon a number of factors, including future earnings, capital requirements, financial condition, and the existence or absence of any contractual limitation on the payment of dividends. Regular quarterly dividends have been paid since September 28, 1990. The current quarterly dividend is $.10 a share. This rate has been in effect since February 1995. From April 1994 to January 1995, the rate was $.095 a share. From October 1992 to March 1994, the rate was $.083 a share. From February 1992 to September 1992, the rate was $.66 a share. Prior to February 1992, the rate was $.055 a share. The number of shareholders of record at December 30, 1995 was approximately 700. 14 15 ITEM 6. SELECTED FINANCIAL DATA The following table sets forth selected consolidated financial data for the transition period and for each of the full fiscal years in the five year period ended June 30, 1995. The income statement data for the transition period and for the fiscal years ended June 30, 1995, 1994 and 1993 and the balance sheet data as of December 30, 1995 and June 30, 1995, 1994 and 1993 have been derived from the Company's consolidated financial statements included elsewhere in this report. This data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations," the consolidated financial statements and the notes thereto. (In thousands, except per share data)
Six Months Six Months Ended Ended Fiscal Year Ended June 30, Dec. 30, Dec. 31, 1995 (1) 1994 1995 (2) 1994 1993 1992 1991 ---------- ---------- -------- --------- --------- --------- -------- STATEMENT OF OPERATIONS: Net Sales $150,023 $ 84,970 $263,327 $159,904 $154,074 $138,272 $117,315 Income (Loss) from Operations (10,640) 7,441 17,891 15,135 11,400 10,325 1,846 Pre-tax Income (Loss) (14,832) 6,761 16,658 10,559 13,599 10,231 (1,301) Net Income (Loss) (6,190) 4,196 7,875 6,495 8,414 6,689 (1,028) Earnings (Loss) Per Share (.59) .39 .74 .60 .77 .62 .10 Income (Loss) from Operations to Sales % (7.09)% 8.76% 6.79% 9.47% 7.40% 7.47% 1.57% Net Income (Loss) to Sales % (4.13)% 4.94% 2.99% 4.06% 5.46% 4.84% (.88)% BALANCE SHEET DATA: Total Assets 263,549 143,463 255,101 140,194 136,071 127,885 111,558 Long Term Debt 125,941 36,195 98,834 36,216 22,500 30,000 25,000 Stockholders' Equity 55,179 61,248 63,427 59,808 60,173 57,213 52,644 OTHER DATA: Equity Per Share 5.22 5.73 5.93 5.51 5.50 5.26 4.91 Dividends Per Share .200 .173 .390 .345 .320 .240 .220 Depreciation and Amortization 9,007 5,645 13,939 10,202 9,761 9,304 8,081 Capital Expenditures 17,987 5,818 21,983 12,701 10,381 9,405 18,030 Return on Beginning Assets (2.43)% 2.99% 5.62% 4.79% 6.58% 6.00% (1.02)% Return on Beginning Equity (9.76)% 7.02% 13.17% 10.79% 14.71% 12.71% (1.81)%
(1) Effective September 1995, Johnston's year end closing date was changed to the Saturday closest to December 31. Therefore, Johnston's transition period 1995 ended on December 30, 1995. (2) The operations of Jupiter, a majority-owned subsidiary, for the periods beginning January 1, 1995 have been included in the consolidated financial statements since that date. Subsequent to December 30, 1995, Jupiter became a wholly owned subsidiary of the Company. 15 16 Note: See Notes 2, 4, 8 and 23 of the consolidated financial statements and Management's Discussion and Analysis of Financial Condition and Results of Operations for discussion of certain transactions impacting the three months ended December 30, 1995. 16 17 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL Johnston Industries, Inc. ("Johnston") is a consolidated entity which includes its direct wholly owned operating subsidiaries, Southern Phenix Textiles, Inc. ("Southern Phenix"), Opp and Micolas Mills, Inc. ("Opp and Micolas"), Johnston Industries Composite Reinforcements, Inc. ("JICR") (formerly Tech Textiles, USA), and Jupiter National, Inc. ("Jupiter"), and its indirect wholly owned subsidiaries, Wellington Sears Company ("Wellington"), Pay Telephone America, Ltd., and Greater Washington Investments, Inc. ("GWI") (collectively, the "Company"). Johnston and its direct wholly owned subsidiaries, Southern Phenix, Opp and Micolas, and JICR and its indirect wholly owned subsidiary, Wellington, are diversified manufacturers of woven and non-woven fabrics primarily for the home furnishings, industrial and, to a lesser extent, basic apparel, automotive and other textile markets. Jupiter is a holding company for Greater Washington Investments, Inc. ("GWI"), a small business development company under the Small Business Investment Act of 1958, as amended. GWI previously invested in companies which were believed by GWI's management to have the potential of above-average capital appreciation as well as a current return on investment. Total assets as of December 30, 1995 attributable to the textile operations and to the portfolio investment activities are approximately $223.2 million and $40.4 million, respectively. On August 16, 1995, Johnston jointly announced with Jupiter an agreement and plan of merger under which the public shareholders of Jupiter would receive cash from Johnston for each outstanding Jupiter share. The merger was approved by Jupiter's shareholders on March 12, 1996, and was consummated March 28, 1996. The final price was $33.97 per share. Purchase consideration of approximately $39,000,000 included payments to stockholders and certain holders of all outstanding options to purchase common stock, and approximately $2,800,000 paid for expenses related to the transaction. In January 1995, Johnston purchased an additional 89,300 shares of Jupiter for approximately $2,300,000 which increased Johnston's ownership interest in the outstanding shares of Jupiter from 49.6% at December 31, 1994 to 54.2%. As a result, Jupiter became a consolidated, majority owned subsidiary of Johnston in January 1995. Therefore, financial data for the six months ended December 30, 1995 and fiscal year ended June 30, 1995, except net income and net income (loss) per share, is not directly comparable to prior period data. During 1992, the Company entered into a 50%/50% partnership with an English company to establish JICR for the joint manufacture and sale of certain specialized textile products. During September 1995, the Company began consolidating the financial statements of JICR, as the Company purchased the remaining 50% interest for a total cost of $655,000. On January 22, 1996, Johnston's Board of Directors agreed to buy the outstanding common shares of T.J. Beall Company, a cotton by-products processor located in WestPoint, Georgia effective March 25, 1996. This acquisition has been financed through the issuance of 325,000 shares of one cent ($.01) par value, nonvoting preferred stock of the Company, which has an estimated value of $3,250,000. Dividends shall accrue and be payable quarterly at a rate of $.125 per share per quarter. The preferred stock issued has been designated as Johnston Industries, Inc. preferred stock, Series 1996 and is convertible into shares of ten cent ($.10) par value voting common stock. Each share of preferred stock may be converted into one share of voting common stock with the shareholder having the right (but not the obligation) to convert up to one-third of preferred stock twelve months after closing, one-third twenty-four months after closing, and the final one-third thirty-six months after closing. Management believes the positive impact of Johnston's acquisition of Jupiter, combined with the tactical acquisitions described above, the strategy of product innovation, capital investment, and aggressive marketing at all operating divisions will result in synergies and enhance growth and performance potential in the future. On September 22, 1995, the Board of Directors of Johnston authorized a change in the fiscal year from a period beginning July 1 and ending June 30 to a variable period ending on the Saturday nearest to December 31. Therefore, Johnston's fiscal period 1995 ended on December 30, 1995. Such change will make Johnston's year-end consistent with its quarterly accounting periods which, in the case of 52-week years, consist of two four week and one five week period per quarter ending on a Saturday. Additionally, the change in the Company's fiscal year conforms to an annual reporting period more closely associated with the calendar year and, to the fiscal years utilized by a majority of the public companies in the textile industry. 17 18 RESULTS OF OPERATIONS Six Months Ended December 30, 1995 Compared with Six Months Ended December 31, 1994 Net sales for the six months ended December 30, 1995 were $150,023,000 compared to $84,970,000 for the prior comparable period, an increase of $65,053,000 or 77%. This increase was primarily due to sales of $68,386,000 from Wellington for the six months ended December 30, 1995 reflecting the consolidation of Jupiter with Johnston effective January 1, 1995. Additionally, net sales of $4,493,000 for JICR were recorded during the six months ended December 30, 1995 reflecting the consolidation of JICR into Johnston during this period. These increases were partially offset by decreases in two product types (automotive and apparel) during the six months ended December 30, 1995. Net sales to the automotive sector, which is cyclical in nature, decreased in the six months ended December 30, 1995 to $2,395,000 from $6,727,000 in the comparable 1994 period. This 65% decrease was due to lower demand in the six months ended December 30, 1995. While no assurances can be given, management anticipates net sales of automotive fabrics will rebound at such time that sales of vehicles by the principal domestic automobile manufacturers increase. The extent and timing of any increase in sales of automotive fabrics currently cannot be predicted with any certainty. The apparel market continues to decrease but represents only 3% of the Company's sales for the six months ended December 30, 1995 which reflects management's decreased emphasis in this low margin business. To offset these decreases, management will continue to place greater emphasis on the high margin products and designs in the decorative fabrics sector of the home furnishings market. Home furnishings represented 57% or approximately $85,513,000 of net sales during the six months ended December 30, 1995. Sales backlog of the Company was $64,399,000 and $63,320,000 at December 30, 1995 and June 30, 1995, respectively. The marginal increase in backlog at December 30, 1995 from June 30, 1995 was the result of continued resistance to higher raw material costs and general weakness in the marketplace. Cost of sales increased in the six months ended December 30, 1995 to $128,914,000 versus $65,118,000 for the comparable 1994 period primarily as a result of cost of $62,417,000 related to Wellington for the six months ended December 30, 1995. The gross margin was approximately 14% for the six months ended December 30, 1995 compared to approximately 23% for the six months ended December 31, 1994. This decrease was mainly the result of three factors. First, raw material costs increased significantly during the six months ended December 30, 1995 compared to the 1994 period generally without the ability to pass on such price increases to customers. Second, although Wellington added net sales of $68,386,000 for the six months ended December 30, 1995, the Wellington margin for the period was only 9%. Historically, Wellington's margins have been lower than Southern Phenix and Opp and Micolas margins. Third, margins were negatively impacted by the decreased sales volume in certain products types (principally automotive) which did not allow the Company increased productivity through higher utilization of plant and equipment. Selling, general, and administrative expenses increased from $6,766,000 for the six months ended December 31, 1994 to $16,210,000 for the six months ended December 30, 1995, a 140% increase. This increase was mainly due to the Jupiter selling, general, and administrative expenses of $6,088,000 for the six months ended December 30, 1995. The remainder of the increase primarily relates to significant operating expenses incurred as a direct or indirect result of the anticipated merger of Johnston and Jupiter which was consummated during March 1996. As a result, selling, general, and administrative expenses as a percentage of sales was 11% in the six months ended December 30, 1995 and 8% in the comparable 1994 period. Management is optimistic that in time as the integration of Johnston and Jupiter operations is effected, selling, general and administrative expenses as a percentage of sales will return to lower levels as experienced in periods prior to the inception of the Jupiter acquisition based upon synergies expected to be achieved. 18 19 In February, 1996, the Company announced that it was closing its Tarboro plant in an effort to realign and consolidate certain operations, concentrate capital resources on more profitable operations and better position itself to achieve its strategic corporate objections. Such decision was reached after sales during the six months ended December 31, 1995 from the plant were lower than expected which caused continued operating losses and negative cash flows. As a result of closing this facility, Wellington recorded a $6,532,000 non-recurring charge to operations in December 1995 resulting from the write-down of property, plant, and equipment at Wellington's Tarboro plant due to impairment. (See Note 8 of the consolidated financial statements for further discussion.) Once the Tarboro facility ceases operations, certain costs associated with maintaining and holding the Tarboro facility for disposition are expected to continue and to be recorded on a month to month basis during 1996 until disposal of the facility is completed. Depreciation and amortization was $9,007,000 for the six months ended December 30, 1995 versus $5,645,000 for the comparable 1994 period. This 60% increase includes depreciation and amortization expense of $2,844,000 for Jupiter for the six months ended December 30, 1995. In addition, the increase reflects the continued investments in capital expenditures. In the last three and one-half years, the Company has invested $63,052,000 in continuing efforts to upgrade machinery and equipment to state-of-the-art levels, and to move into new more profitable markets. Net interest expense was up $2,673,000 for the six months ended December 30, 1995 to $4,451,000 from the comparable 1994 period of $1,778,000. This increase was mainly due to the consolidation of Jupiter with Johnston which entailed recording substantial Jupiter debt levels, thus resulting in $2,374,000 of additional net interest expense for the six months ended December 30, 1995. Other expenses - net includes a negative effect on the six months ended December 30, 1995 net income caused by an additional charge of $1,000,000 for estimated environmental cleanup costs related to a property sold by Johnston in 1982. Johnston has been unable to amicably resolve litigation concerning responsibility for clean-up costs associated with this site. Such litigation is in process, and the ultimate outcome of the litigation cannot presently be determined. (See Note 4 of the consolidated financial statements for further discussion.) Additionally, other expenses for the six months ended December 30, 1995 includes a charge of approximately $1,000,000 related to transaction costs such as professional fees incurred for the Johnston and Jupiter merger. These expenses are nonrecurring in nature. The consolidation of Jupiter also resulted in the separate reporting of income or loss activity of the investment portfolio. (See Note 2 to the consolidated financial statements for further explanation.) From January 1, 1995 through June 30, 1995, the Company's equity in earnings/loss of equity investments included only the Company's then 50% interest in JICR, whereas prior to January 1, 1995, the equity in earnings/loss included Johnston's proportionate interest in its equity investment in Jupiter and JICR. Therefore, for the six months ended December 30, 1995, the equity in earnings of equity investments is not applicable. The realized and unrealized investment portfolio gain of Jupiter for the six months ended December 30, 1995 was $3,767,000. In connection with the acquisition of McDATA Corporation by EMC on December 6, 1995, the Company's investment in McDATA was converted into 564,216 shares of common stock of EMC, of which 56,421 shares are to be held in escrow for one year as security for potential indemnification obligations of McDATA. As a result, Jupiter recorded an unrealized gain of $3,863,000 in the quarter ended December 30, 1995. On December 14, 1995, Fuisz completed an underwritten public offering of its common stock at a price of $12.00 per share. Therefore, the Company's investment in Fuisz was converted into 215,080 shares of Fuisz common stock and Jupiter recorded an unrealized gain of $593,000 in the quarter ended December 30, 1995. An additional unrealized gain of $45,000 was recorded during the six months ended December 30, 1995 related to Jupiter's investment in Viasoft, Inc. These unrealized gains were offset by unrealized depreciation of $734,000 related to Jupiter's investment in Zoll Medical Corporation. As of March 28, 1996, the Company had liquidated $14,671,000 of its investment portfolio (based on year-end values). (See Note 2 to the consolidated financial statements and see Liquidity and Capital Resources for further discussion). 19 20 Jupiter carries its portfolio investments at market or fair value. Minority interest is recorded for the minority shareholders' proportionate share of the equity and earnings of Jupiter. The benefit related to income taxes was at an effective rate of 43% for the six months ended December 30, 1995 versus a provision for income taxes with an effective rate of 38% in the comparable 1994 period. The increased rate is mainly due to taxes related to equity in income of Johnston's majority owned subsidiary, Jupiter, as of December 30, 1995. Fiscal 1995 Compared with Fiscal 1994 Net sales for fiscal 1995 were $263,327,000 compared to $159,904,000 for the prior year, an increase of $103,423,000 or 65%. The majority of this increase was primarily due to sales of $84,299,000 from Wellington for the period January 1, 1995 to June 30, 1995 reflecting the consolidation of Jupiter with Johnston effective Jnuary 1, 1995. The remaining increase was primarily the result of higher unit sales and changes in product mix. Sales in the upholstery and furniture markets were up approximately $14,235,000 in fiscal 1995, an increase of 20% over fiscal 1994. Additionally, improved sales in the home products markets have increased fiscal 1995 sales. Management has continued to place greater emphasis on these high margin products and designs in the decorative fabrics sector of the home furnishings market. These increases have been partially offset by a 3% reduction in the apparel market sales at Opp and Micolas. The reduction in the apparel marketplace is the result of management's decreased emphasis in this low margin business. Additionally, net sales to the automotive sector, which is cyclical in nature, decreased in fiscal 1995 to $15,015,000 from $16,950,000 in fiscal 1994, an 11% decrease, due to lower demand especially in the quarter ended June 30, 1995. Sales backlog of Johnston and Jupiter on a consolidated basis was $61,847,000 and $67,508,000 at June 30, 1995 and 1994, respectively. The decrease in backlog at June 30, 1995 from June 30, 1994 was the result of decrease in orders due to resistance to higher raw material costs and weaknesses in the marketplace in general. These conditions have resulted in weak sales during the period subsequent to June 30, 1995. Cost of sales increased in fiscal 1995 to $209,598,000 compared to fiscal 1994 of $121,261,000 primarily as a result of $71,812,000 related to Wellington from January 1, 1995 to June 30, 1995. Sharply escalating raw material costs -- especially cotton and polyester -- took a considerable toll on margins. These steep raw material increases generally could not be passed on to customers which was a major reason for lower margins in fiscal 1995 compared to fiscal 1994. Significant LIFO adjustments of $2,724,000, or 12 cents a share, for the quarter ended June 30, 1995 and $4,349,000, or 20 cents a share, for fiscal 1995 substantially reduced the Company's margins. Margins were positively impacted by the increased sales volume which continued to allow the Company to maintain an increased level of productivity through higher utilization of plant and equipment. The increased volume, coupled with certain price increases, has enabled the Company to partially offset increases in raw material costs. Selling, general, and administrative expenses increased from $13,306,000 for fiscal 1994 to $21,899,000 for fiscal 1995, a 65% increase. This increase was mainly due to the Jupiter selling, general, and administrative expenses of $8,309,000 for the period January 1, 1995 to June 30, 1995. Selling, general, and administrative expenses as a percentage of sales was 8% in fiscal 1995 and fiscal 1994. Depreciation and amortization was up $3,737,000 in fiscal 1995 to $13,939,000 compared to fiscal 1994 of $10,202,000. This 37% increase included depreciation and amortization expense of $2,589,000 for Jupiter for the period January 1, 1995 to June 30, 1995. In addition, the increase represents the continued investments in capital expenditures. In the last three years, the Company has invested $45,065,000 in continuing efforts to upgrade machinery and equipment to state-of-the-art levels, and to move into more profitable markets. Net interest expense was up $3,070,000 in fiscal 1995 to $5,915,000 from fiscal 1994 of $2,845,000. This increase was mainly due to two factors. First, the consolidation of Jupiter with Johnston entailed recording substantial Jupiter debt levels, thus resulting in $2,214,000 of additional net interest expense for the period January 1, 1995 to June 30, 1995. Second, effective January 1995, Johnston restructured its revolving debt agreements and increased its borrowings under the revolving credit loan from $35,000,000 to $45,000,000. Other expenses - net includes a negative effect on both the quarter ended June 30, 1995 and fiscal 1995 net income caused by a charge of $1,000,000 to establish a reserve for estimated environmental cleanup costs related to a property sold by Johnston in 1982. This steel fabrication operation, sold by Johnston 13 years ago, has no relationship to today's operations. Johnston has been unable to amicably resolve litigation concerning responsibility for clean-up costs associated with this site. Such litigation is in process, and the ultimate outcome of the litigation cannot presently be determined. (See Note 4 of the consolidated financial statements for further discussion.) The consolidation of Jupiter also resulted in the separate reporting of income or loss activity of the investment portfolio. (See Note 2 to the consolidated financial statements for further explanation.) Hence, beginning January 1, 1995, the Company's equity in earnings/loss of equity investments included only the Company's then 50% interest in Tech Textiles, whereas prior to January 1, 1995, the equity in earnings/loss also included Johnston's proportionate interest in its equity investment in Jupiter. The equity loss in Tech Textiles was $308,000 for fiscal 1995 compared to $980,000 in the prior year period. The Company estimated Tech Textiles to have a three-year start-up phase and at June 30, 1995 it is performing to the Company's expectations. During September 1995, Johnston purchased the remaining 50% interest in Tech Textiles for a total cost of $655,000. Thus Tech Textiles is a consolidated wholly owned subsidiary of Johnston effective September 1995. The realized and unrealized investment portfolio gain of Jupiter for the period January 1, 1995 to June 30, 1995 was $5,191,000. (See Note 2 to the consolidated financial statements for further explanation.) This gain reflects increases in the market value of Jupiter's investment in Viasoft, Inc. of $2,602,000 and McData Corporation of $2,300,000 for the period January 1, 1995 to June 30, 1995. For the quarter ended June 30, 1995, the increase in the market value of Jupiter's investment in Viasoft, Inc. and McData Corporation was $2,452,000 and $2,300,000, respectively. Viasoft, Inc. is a company with publicly traded stock, thus the market value increase is determined in the public marketplace. McData Corporation's increase in market value was estimated by Jupiter's Board of Directors in the absence of readily available market values. For the six months ended December 31, 1994, and for the year ended June 30, 1994, Johnston's equity in the changes in net assets of Jupiter was $1,308,000 and ($161,000), respectively. For the six months ended December 31, 1994, the market price of Jupiter's investment in Zoll Medical increased $588,000. In fiscal 1994, Jupiter's investment in Zoll Medical had a substantial decrease in value, which exceeded total increases in Jupiter's remaining investments. Jupiter carries its portfolio investments at market or fair value. Minority interest is recorded for the minority shareholders' proportionate share of the equity and earnings of Jupiter. The provision for income taxes was an effective rate of 43% in fiscal 1995 versus and effective rate of 38% in fiscal 1994. The increased rate is mainly due to taxes related to equity in income of its majority owned subsidiary, Jupiter. Fiscal 1994 Compared With Fiscal 1993 Net sales for fiscal 1994 were $159,904,000 compared to $154,074,000 for the prior year, an increase of 4%. This increase was primarily the result of a 24% improvement in sales of upholstery and furniture products by Opp and Micolas and Southern Phenix offset by a 46% reduction in apparel market sales at Opp and Micolas. The decrease in the low margin apparel market sales reflects management's decision to significantly reduce its involvement in this market. Apparel market sales represent only 13% of the Opp and Micolas total business, and the increase in upholstery and furniture market products produced significantly higher gross margins. In addition, Johnston placed greater emphasis on the development of new high margin products and designs in the decorative fabrics sector of the home furnishings market. Although net sales for fiscal 1994 increased 4% from fiscal 1993, Johnston's operating income increased approximately 33%. Cost of sales as a percentage of sales made a significant improvement in 1994. Gross profit was 22% in 1993 and improved to 24% in 1994. Improved sales volumes, especially in upholstery and furniture fabrics at Southern Phenix, have significantly increased productivity through higher utilization of plant and equipment. This improvement also reflects decreased costs resulting from utilization of newer machinery and equipment purchased over the past several years. Selling, general, and administrative expenses increased 11% in fiscal 1994 compared to fiscal 1993. In fiscal 1994, approximately one-half of the increase was in selling expenses (personnel, samples, and commissions) at Southern Phenix directly related to the new line of decorative fabrics introduced in the upholstery and furniture markets. There were also small increases in support expenses in administrative functions to support the sales effort. While the absolute dollars of fiscal 1994 selling, general, and administrative expenses were higher than fiscal 1993, such expenses as a percentage of sales increased only 1/2 of 1%. In addition, increased expenses due to the development of new, value added products, were offset and substantially exceeded by increased profitability. In fiscal 1993, Johnston wrote off $736,000 related to accounts receivable. The majority of this write off was related to a bankrupt customer; however, the amount written off was previously reserved. 20 21 No such substantial write offs of accounts receivable occurred in fiscal 1994. Depreciation and amortization were up 5% in fiscal 1994 to $10,202,000 compared to $9,761,000 in fiscal 1993, reflecting the recent increased level of capital expenditures. Over the past three years, Johnston has invested $32,487,000 to continue its effort to upgrade machinery and equipment to state-of-the-art levels, and move into new more profitable markets. Net interest expense was up 18% in fiscal 1994 to $2,845,000 from fiscal 1993 of $2,403,000. This change was primarily due to a $379,000 reduction in interest income in 1994 because of the payment of a note receivable in July 1993. The average interest rate increased slightly from 6-1/4% to 6-1/2%, and the total bank debt increased $1,800,000. Other expenses - net increased in fiscal 1994 compared to fiscal 1993. The increase in 1994 relates to the liability for Johnston's former steel fabrication operations which are discussed in Note 4 in the financial statements. This liability represents costs related to health insurance and death benefits and is stated at the actuarially determined discounted present value. In fiscal 1994, there was a loss of $980,000 from the operations of Tech Textiles, compared to a loss of $889,000 in fiscal 1993. These amounts reflect the start-up nature of this new business and are consistent with Johnston's expectations and original business plan. As of June 30, 1994 and 1993, Johnston held a 49% and 40% interest in Jupiter, respectively, and accounted for such investment using the equity method. In fiscal 1993, the net asset value of Jupiter continued to increase because of the market value of the investment portfolio and the operating profits of Wellington, a major manufacturing acquisition by Jupiter in that fiscal year. In fiscal 1994, the market value of one of the portfolio companies in which Jupiter has a financial interest decreased significantly in value, which exceeded other increases in portfolio investments of Jupiter and the operating profit generated by Wellington. Consequently, for the last two years, Johnston recognized a loss of $106,000 for fiscal 1994 and income from Jupiter of $6,163,000 for fiscal 1993. Because of these factors, Jupiter has reported volatility in its earnings for the last two years and will continue to potentially show such volatility dependent on the value of its portfolio investments due to market conditions and the profit generated from the operations of Wellington. The provision for income taxes in fiscal 1994 remained consistent with 1993 at an effective 38% rate. In February 1992, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 109 ("SFAS 109"), Accounting for Income Taxes. Effective July 1, 1993, the Company adopted SFAS 109 retroactively, and restated all prior years presented. The effect of the retroactive restatement on shareholders equity at July 1, 1992 was a reduction of $418,000. The restatement impact of applying SFAS 109 on net income was a $352,000 reduction and a reduction of $.03 on earnings per share in fiscal 1993. 21 22 EFFECTS OF INFLATION Management does not believe that inflation has had a material impact on the results of operations for the periods presented, except as discussed above, related to sharply escalating raw material costs in fiscal 1995 and, the six months ended December 30, 1995. These increases in raw material costs had a significant impact on the Company and the industry. However, management believes that the raw material costs have stabilized and to the extent general inflation affects its costs in the future, the Company can generally offset inflation by increasing prices if competitive conditions permit. LIQUIDITY AND CAPITAL RESOURCES The Company's primary needs for capital resources are to be funded from a new debt agreement. This new funding was used to finance the purchase of the outstanding public shares of Jupiter as discussed above, to refinance certain indebtedness, to pay related fees and expenses, and will be used as needed to finance accounts receivable, inventories and capital expenditures in the future. The agreement signed on March 28, 1996 is comprised of two term loan facilities ("A" and "B") and a revolving credit facility. Term loan facility A is a $40 million facility with a final maturity date of March 2001. Principal is repayable for the Company's year ending as follows: 1996 - $0, 1997 - $0, 1998 - $8 million, 1999 - $10 million, 2000 - $10 million, and 2001 - $12 million. The interest rate on these borrowings is 8% at March 28, 1996 which is based on a Base Rate, defined as the greater of the Federal Funds Rate plus 1/2 of 1%, or the prime commercial lending rate, plus 1 1/4% and is subject to change at the Company's option upon the bank's receipt of annual audited financial statements or 60 days to a rate based on the London Interbank Offered Rate ("LIBOR") plus 2 1/2%. Thereafter, the rate is based upon a ratio with the range as follows: Base rate plus 0 - 1 1/4% or LIBOR plus 1% - 2 1/2%. Term facility B is a $40 million facility with a final maturity date of March 2003. Principal is repayable for the Company's year ending as follows: 1996 - $0, 1997 - $0, 1998-2001 - $500,000 each year, and 2002-2003 - $19 million each year. The interest rate on these borrowings is 8.5% at March 28, 1996 based on a Base Rate, as defined, plus 1 3/4% and is subject to change at the Company's option to a rate based on LIBOR, plus 3%. The revolving credit facility provides up to $80 million in borrowings, with a final maturity date of March 2001. Principal amounts outstanding are due and payable at final maturity. The interest rate on these borrowings is 8% at March 28, 1996 which is based on a Base Rate, as defined, plus 1 1/4%, and is subject to change at the Company's option, upon the bank's receipt of the annual audited financial statements or 60 days to a rate based on LIBOR plus 2 1/2%. Thereafter, the rate is based upon a ratio with the range as follows: Base rate plus 1 1/4% or LIBOR plus 1% - 2 1/2%. Commitment fees are payable at 1/2%, based on the unused portion of the facility until the date of the receipt of the audited financial statements by the bank. Substantially all assets are pledged as collateral for the borrowings under these facilities. This agreement requires the Company to maintain certain financial ratios and specified levels of tangible net worth. The agreement places a limit on the Company's level of capital expenditures and type of mergers or acquisitions. Additionally, the agreement permits the Company to pay dividends on its Common Stock provided it is in compliance with various covenants and provisions contained therein, which among other things limits dividends and restricts investments to the lesser of (x) 20% of total assets of the Company, on a fully consolidated basis, as of the date of determination thereof, or (y) $5,000,000 for the period commencing on January 1, 1996 and ending on December 31, 1996 or (z) $5,000,000 plus 50% of cumulative consolidated net income for the period commencing on January 1, 1997, minus 100% of cumulative consolidated net loss for the consolidated entities for such period, as calculated on a cumulative basis as of the end of each fiscal quarter of the consolidated entities with reference to the financial statements for such quarter. In March 1996, the Company borrowed $144,028,000 under these facilities and liquidated the Johnston line-of credit and revolving credit loans, and the Wellington revolving credit loans, term loans, and equipment loans. Management will use the proceeds generated from liquidated portfolio investments to pay down outstanding debt under this new agreement. Johnston Purchase Money Mortgage Loan - A decision was made by Johnston in fiscal 1993 to move the executive office to Columbus, Georgia. In that regard, in fiscal 1994, a building was purchased and renovated, and Johnston obtained a Purchase Money Mortgage Loan of $1,325,000. As of December 30, 1995, $1,174,000 was outstanding on this loan. 22 23 Jupiter Subordinated Debentures - The subordinated debentures with an outstanding balance of $14,500,000 at December 30, 1995 are payable to the Small Business Administration. COVENANTS AND RESTRICTIONS The Johnston revolving credit agreement that provided for the line-of-credit borrowings and the revolving credit loans and the Wellington revolving credit, term loan, and equipment loan agreement (which have both been refinanced as noted above) required the manintenance of certain financial ratios, specified levels of certain balances, and certain other restrictions. At certain times during the six months ended December 30, 1995, Johnston and Wellington were in technical noncompliance with certain of their covenants. At certain times during the years ended June 30, 1995 and 1994, Wellington was in technical noncompliance with certain of its covenants. All of these events of noncompliance were waived by the lending institutions. As of December 30, 1995, Johnston and Wellington were in technical noncompliance with certain of their covenants. However, all of these covenants have been replaced in conjunction with the Company's refinancing. (See Note 12 of the consolidated financial statements for an expanded discussion of financing agreements.) The net cash used in operating activities for the six months ended was $3,871,000 primarily the result of the net loss of $6,190,000 for the period. The net cash provided by operating activities of $17,069,000 in fiscal 1995 was $3,984,000 higher than the fiscal 1994 amount of $13,085,000. This significant increase is largely due to management of the Wellington inventory levels from January 1995 (the date of consolidation) to June 1995, which was not a factor in the prior year. Capital expenditures for the six months ended December 30, 1995 were $17,987,000 compared to $5,818,000 in the comparable 1994 period, an increase of $12,169,000. This increase is due to $7,348,000 of capital expenditures at Wellington for the six months ended December 30, 1995, which were not included in the consolidated amounts of the prior year. In addition, Johnston invested $10,639,000 which was primarily for the replacement of existing equipment with the latest technology and the implementation of new manufacturing processes. Management believes that funds generated from operations and funds available under the new financing agreements will be sufficient to meet the needs of the Company's current operations for at least the next 12 months. NEW ACCOUNTING STANDARD Statement of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based Compensation," establishes financial accounting and reporting standards for stock-based compensation plans. SFAS 123 is effective for fiscal years beginning after December 15, 1995 and includes fair value recognition provisions for stock-based compensation which will be elective for employee arrangements and required for nonemployee transactions. For the employee arrangements, management will continue with the accounting prescribed by APB No. 25 and, accordingly, will make pro forma disclosures of net income and earnings per share as if the fair value method of accounting defined in SFAS 123 has been applied. For the nonemployee arrangements, the Company does not expect the adoption of SFAS 123 to have a material impact on the financial statements. 23 24 OTHER MATTERS Jupiter's purchase of the assets of Polylok Corporation ("Polylok") which comprises Wellington's Tarboro facility ("Tarboro") resulted in significant litigation among Jupiter, Wellington, Polylok, and Daniel Duhl ("Duhl"), Polylok's principal shareholder. The first action, which was settled in August 1994, involved assertions against Polylok and Duhl of misrepresentations made in connection with the purchase of Polylok's assets. Subsequently, in March 1995, Polylok and Duhl commenced an action against Jupiter and Wellington, which action asserted a breach of contract relating to installment payments due Duhl pursuant to a $1,600,000 purchase money note. Jupiter and Wellington filed counterclaims against Polylok and Duhl for breach of Duhl's consultancy agreement and breach of the prior August 1994 settlement. On October 18, 1995, the breach of contract claim asserted by Polylok and Duhl and the counter claim by Jupiter and Wellington for breach of consultancy agreement and the August 1994 settlement were resolved. On October 25, 1995, approximately $541,000 was placed in an escrow account to settle all obligations for Mr. Duhl's consultancy agreement. In further litigation in the United States District Court, Eastern District of North Carolina, Polylok Corporation and Polylok Finishing Corporation vs. Jupiter National, Inc. and Wellington Sears Company, No. 4:95-CV-105-H(2), Polylok and Duhl have taken legal action against Jupiter and Wellington regarding withdrawal of monies set aside in an escrow account, from the August 1994 settlement, providing for remediation of environmental contamination at the Tarboro plant. On January 5, 1995, the parties reached a settlement for this case whereby Duhl received $296,000 from an escrow account. At December 30, 1995, Wellington has accrued $1,610,000 as additional purchase consideration in connection with Wellington's original purchase of assets from WestPoint Pepperell, Inc. ("WestPoint"). The additional purchase price has been allocated to property, plant, and equipment and was based upon Wellington exceeding a cumulative earnings threshold, as defined by the purchase agreement, during the three-year period ended November 28, 1995. While the amount recorded by Wellington represents management's best estimate of consideration owed, the amount is currently being disputed. Ultimately, the disagreement may be settled through arbitration as provided by the purchase agreement. The ultimate resolution of this matter could result in a payment of an amount different from the accrued amount. Any adjustment to the accrual will increase or decrease the purchase price allocated to property, plant, and equipment. The Company is periodically involved in legal proceedings arising out of the ordinary conduct of business. Management does not expect that they will have a material adverse effect on the Company's consolidated financial position or results of operations. 24 25 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Company's consolidated balance sheets as of December 30, 1995, June 30, 1995 and 1994, the related consolidated statements of operations, stockholders' equity and cash flows for the six months ended December 30, 1995 and each of the three years in the period ended June 30, 1995, unaudited consolidated statements of operations and cash flows for the six months ended December 30, 1994, notes thereto and Independent Auditors' Report are reproduced in Exhibit 13(a). Supplementary Data under the caption "Quarterly Information" is reproduced in Exhibit 13(b). ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 25 26 PART III. ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF JOHNSTON INDUSTRIES, INC. The Directors and Executive Officers of Johnston Industries, Inc. are as follows: DAVID L. CHANDLER has served as Chairman of the Board of Johnston Industries, Inc. since 1981 and served as Chief Executive Officer from January 1990 until December 1, 1995. Mr. Chandler has been a Director since 1981. He had also served as President of Johnston from January 1990 to October 1992. Mr. Chandler is 69 years old. Mr. Chandler has been Chairman of the Board of Redlaw Industries, Inc. ("Redlaw") (a former manufacturer of automotive and transportation products) and its wholly-owned subsidiary, GRM Industries, Inc., which owns approximately 41% of the Common Shares of Johnston for more than five years. He has been Chairman of the Board of Galtaco, Inc. (a former ferrous casting products manufacturer) for more than five years. Mr. Chandler is also Chairman of the Board and Chief Executive Office of Jupiter. On October 27, 1994, Mr. Chandler, in an administrative proceeding, without admitting or denying the findings or undertaking to pay any fine or penalty, consented to the issuance of a cease and desist order and findings of the Securities and Exchange Commission in connection with certain incorrect or late filings of Forms 3, 4 and 5 and Schedules 13D required to be filed with respect to Johnston and Redlaw. Under the order, Mr. Chandler may not commit or cause any violation of Section 13(d) and 16(a) of the Securities Exchange Act of 1934 and Rules 13d-1, 13d-2, 16a-2 and 16a-3 promulgated thereunder. GERALD B. ANDREWS has served as President and Chief Operating Officer since October 1992 and since December 1, 1995, Mr. Andrews has served as Chief Executive Officer. Mr. Andrews has been a Director since 1993. Prior to that time, he had served in a variety of senior management positions at West Point Pepperell, over a period of 38 years, most recently as Executive Vice President of Merchandising. Mr. Andrews is 58 years old. J. REID BINGHAM has been a Director of the Company since 1991. Mr. Bingham has been a partner of Concepcion, Sexton, Bingham & Urdaneta (formerly Bingham & Castilla) (attorneys) since May 1994. Prior to that time, he was a partner of Kirkpatrick & Lockhart since 1989, prior thereto he was a partner of Hughes, Hubbard & Reed since 1987, and prior thereto he was a partner of Sage, Gray, Todd & Sims for more than five years. Mr. Bingham is 50 years old. JOHN A. FRIEDMAN was elected as a Director on January 18, 1996. For the past three years has been engaged in the private practice of law. Prior to his entering private practice, he was a partner in the law firm of Kaye, Scholer, Fierman, Hayes and Handler for 20 years. Mr. Friedman is 60 years old. LARRY L. GALBRAITH has served as Executive Vice President of the Company since November 1, 1992 and as President and Chief Executive Officer of Southern Phenix since July 1989. Prior to that time he had served as Vice President for engineering, purchasing and finishing at Southern Phenix for more than five years. Mr. Galbraith is 56 years old. ROGER J. GILMARTIN has served as Executive Vice President of the Company since November 1, 1992 and as Chairman and Chief Executive Officer of Opp and Micolas since January 1990. Prior to that time, Mr. Gilmartin was Senior Vice President and Director for more than five years of Werner International, Inc., management consultants to the textile industry. Mr. Gilmartin is 51 years old. Mr. Gilmartin has informed the Company of his plans to leave the Company effective in mid April 1996. WILLIAM J. HART has been a Director of the Company since 1981. He has been a partner of Farrington & Curtis (attorneys) for more than five years. Mr. Hart is 55 years old. WILLIAM I. HENRY has served as Vice President of Product and Operations Planning since January 1, 1993, and for more than five years prior had served as Vice President, Operations of Southern Phenix. Mr. Henry is 56 years old. 26 27 L. ALLEN HINKLE has been President and Chief Operating Officer of Wellington Sears since its formation in November 1992. Prior to that he was the Vice President of Manufacturing of the Custom Fabrics Division of West Point Pepperell and was promoted to the Position of President of that same Division. Mr. Hinkle is 52 years old. GAINES R. JEFFCOAT has been a director of the Company since 1986. Prior to Mr. Jeffcoat's retirement on June 30, 1990, he had served as Vice President of the Company since January 1, 1988 and as Chairman of the Board of Opp and Micolas, a subsidiary of the Company, from January 1, 1988 to December 31, 1989. He was President of Opp and Micolas for more than five years prior to that time. Mr. Jeffcoat is a Director of Jupiter. Mr. Jeffcoat is 73 years old. JOHN W. JOHNSON has served as Vice President and Chief Financial Officer since September 1, 1994. Mr. Johnson had been Treasurer and Secretary of the Company from January 1, 1992 until September 1, 1994. From July 1991 to December 1991 he was Assistant Secretary-Treasurer of the Company and for more than five years prior was Vice President, Finance of Southern Phenix. Mr. Johnson is 59 years old. C.J. KJORLIEN has been a Director of the Company since 1989. Mr. Kjorlien is a director of Fieldcrest Cannon, Inc., of Service America Corp. (a food service company), and of Jupiter. From June 1974 to May 1989, he was a director of West Point Pepperell, Inc. (a textile manufacturer). For five years prior to December 1986 he was President and Chief Operating Officer of West Point Pepperell, Inc. Mr. Kjorlien is 79 years old. CHARLES F. FAZIO has served as Vice President of International Sales since March 1995. Prior to that time, he had served in a variety of international sales positions with several textile companies, most recently for more than five years as Vice President International Products Division, Bibb Company. Mr. Fazio is 51 years old. F. FERRELL WALTON has served as Secretary and Treasurer since September 1, 1994. Mr. Walton had been Director of Financial Operations for the Company from April 1, 1993 to September 1, 1994 and for more than five years prior to that time was Vice President, Finance of Opp and Micolas. Mr. Walton is 51 years old. The Directors of Johnston Industries, Inc. are elected for a one year term by the Company's Stockholders at the Annual Meeting of Stockholders. The officers of Johnston Industries, Inc. are elected for a one year term by the Board of Directors at the Annual Meeting of the Board held following the Annual Meeting of Stockholders. Section 16(a) of the Securities Exchange act of 1934 requires the Company's Directors and Executive Officers, and persons who beneficially own more than 10% of the Company's Common Stock, to file with the Commission and the NYSE, reports of beneficial ownership and changes in beneficial ownership of Common Stock. Officers, Directors and greater than 10% stockholders are required by Commission regulations to furnish the Company with copies of all Section 16(a) forms they file. Based solely on a review of the copies of such reports furnished to the Company or written representations that no other reports were required, the Company believes that, during the transition period ended December 30, 1995, all filing requirements applicable to its Directors, Executive Officers and 10% stockholders were fully complied with. 27 28 ITEM 11. EXECUTIVE COMPENSATION EXECUTIVE COMPENSATION AND RELATED MATTERS The following table sets forth information concerning the compensation for the Company's transition period and its last three completed fiscal years with respect to its chief executive officer and the four other most highly compensated executive officers, ("Named Executive Officers") who served as such at December 30, 1995. SUMMARY COMPENSATION TABLE
LONG TERM ANNUAL COMPENSATION COMPENSATION ------------------------------- --------------- NAME AND OTHER ANNUAL ALL OTHER PRINCIPAL POSITION PERIOD (1) SALARY BONUS COMPENSATION OPTIONS/SAR'S COMPENSATION (2) - ---------------------------- ----------- -------- ------- ------------ --------------- -------------------- David L. Chandler (3) SY 1995 $272,500 -- -- -- $100,856 Chairman of the Board (4) FY 1995 467,500 213,000 46,138 (5) 44,444 118,391 FY 1994 390,000 176,788 47,296 (5) -- 12,718 FY 1993 390,000 135,758 48,449 (5) -- -- Gerald B. Andrews SY 1995 185,000 -- -- -- 14,161 President, Chief Executive FY 1995 370,000 200,000 -- -- 15,306 Officer and Chief Operating FY 1994 361,945 185,000 -- -- 3,321 Officer FY 1993 256,572 105,000 -- 150,000 sh (6) 666 Roger J. Gilmartin SY 1995 148,750 -- -- -- 7,486 Executive Vice President; FY 1995 285,000 138,053 -- -- 7,761 Chairman of Opp and FY 1994 285,000 142,643 -- -- 1,514 Micolas Mills FY 1993 260,000 94,000 -- 63,750 sh (6) 924 Larry L. Galbraith SY 1995 122,500 -- -- -- 9,496 Executive Vice President; FY 1995 245,000 35,648 -- -- 15,561 President of Southern FY 1994 235,000 55,695 -- -- 3,297 Phenix Textiles FY 1993 235,000 23,500 -- -- 255 L. Allen Hinkle SY 1995 100,000 27,528 -- -- -- President and (7) FY 1995 100,000 25,850 -- -- -- Chief Operating Officer FY 1994 -- -- -- -- -- Wellington Sears Company (8) FY 1993 -- -- -- -- --
(1) The Company has changed its year end from June 30 to the Saturday closest to December 31 effective for the period ended December 31, 1995. Periods shown as SY 1995 refer to the six months ended December 30, 1995. Periods using FY refer to fiscal years ended June 30 of the period indicated. (2) Except as described herein, all payments relate to the stock purchase plan described below under the heading Stock Purchase Plan. All other compensation for SY95 also includes $18,000 representing a partial payment of premiums under a "split dollar" life insurance program. Such program was terminated as of December 30, 1995. (3) Mr. Chandler also received compensation for his services as Chief Executive Officer of Jupiter, which became a majority owned subsidiary of the Company during January 1995. Accordingly, the amounts shown in the table for SY 1995 include compensation paid to Mr. Chandler by Jupiter for the six months ended December 30, 1995, as follows: salary of $77,500 and all other compensation of $37,500 contributed by Jupiter to a deferred compensation trust in which Mr. Chandler is the sole participant. Because Jupiter was not a subsidiary of the Company prior to January 1995, the table does not reflect compensation paid to Mr. Chandler by Jupiter during those periods. 28 29 (4) Mr. Chandler also received compensation for his services as Chief Executive Officer of Jupiter, which became a majority owned subsidiary of the Company during January 1995. Accordingly, the amounts shown in the table for fiscal 1995 include compensation paid to Mr. Chandler by Jupiter for the six months ended June 30, 1995, as follows: salary of $77,500; bonus of $25,000; 44,444 shares underlying options grants; and all other compensation of $37,500 contributed by Jupiter to a deferred compensation trust in which Mr. Chandler is the sole participant. Because Jupiter was not a subsidiary of the Company prior to January 1995, the table does not reflect compensation paid to Mr. Chandler by Jupiter during those periods. (5) Present value of consulting payments as described below under the heading Employment Agreements. (6) Option awards. (7) Mr. Hinkle is deemed to have become an executive officer of the Company upon the Company's acquisition of majority ownership of Jupiter in January 1995. Amounts shown for FY 1995 represent only that compensation beyond December 31, 1994. (8) Wellington Sears Company was a majority owned subsidiary of the Company at December 30, 1995 and became a wholly owned indirect subsidiary on March 28, 1996. STOCK INCENTIVE PLAN GENERAL. The Amended and Restated Stock Incentive Plan for Key Employees of Johnston Industries, Inc. and its Subsidiaries (the "Incentive Plan"), approved by shareholders in December 1988, authorizes the grant of awards in the form of Incentive Stock Options ("ISO's"), within the meaning of Section 422A of the Internal Revenue Code of 1986, as amended (the "Code"), Non-Qualified Stock Options ("NQSO's"), Stock Appreciation Rights ("SAR's"), Restricted Stock or a combination of these forms of awards. All officers and key employees of the Company and its subsidiaries who are in positions which enable them to make significant contributions to the long-term performance and growth of the Company are eligible to receive awards. The Incentive Plan is administered by the Stock Option Committee (the "Committee") of the Board of Directors. Members of the Committee are not eligible to participate. INCENTIVE STOCK OPTIONS. The exercise price of an ISO may not be less than 100% of the fair market value on the date of the grant and the aggregate exercise price of all shares that become exercisable by an individual optionee in a single calendar year for options granted after January 1, 1987 may not exceed $100,000, plus any unused limit carryover to such year within the meaning of Section 422A of the Code. Additional restrictions apply to ISO's granted to a 10 percent stockholder (as defined in Section 422A(b)(6) of the Code). An ISO may be exercised in whole or in part throughout the period of the ISO with the exercise price to be paid in cash or in such alternate form as the Committee may authorize. An ISO terminates upon termination of the optionee's employment, subject, in the case of termination of employment by reason of death or disability, to the right to exercise within 12 months after such termination, unless the expiration date of the ISO occurs sooner. NON-QUALIFIED STOCK OPTIONS. NQSO's granted under the Incentive Plan (a) may be for such (i) number of shares, (ii) purchase price and (iii) term (up to 10 years) as the Committee, in its sole discretion, may determine and (b) become exercisable six months after date of grant (or later if the Committee so determines). An NQSO terminates upon termination of the optionee's employment, unless the Committee in its sole discretion determines otherwise, subject in the case of termination by reason of retirement at or after age 65, disability, or death, to the right to exercise within three months after retirement or disability or one year after death, unless the expiration date of the NQSO occurs sooner. 29 30 STOCK APPRECIATION RIGHTS. Pursuant to the terms of the Incentive Plan, SAR's are granted only (i) in conjunction with the granting of options, (ii) in an amount not in excess of the number of Shares granted in the related option and (iii) on terms providing that the exercise of an option for a given number of Shares terminates the related SAR for that number of Shares (so that the total number of Shares for which an option and the related SAR may be exercised cannot exceed the number of Shares granted in the option). SAR's provide the participant with an amount equal to the difference between the fair market value of the Shares on the date the SAR is exercised and the exercise price of the option. Each SAR is subject to the same conditions on termination of employment as the related option. RESTRICTED STOCK. The Committee may make awards entitling the recipient to receive shares at no out-of-pocket costs or at such price as the Committee determines, the shares purchased to be subject to the restrictions set by the Committee and which lapse or may be waived as determined by it. The following table provides information concerning options granted, options exercised, and year-end option values for the transition period with respect to the Company's Named Executive Officers. OPTION/SAR GRANTS IN LAST FISCAL YEAR No options nor SAR's were granted by Johnston or Jupiter during the transition period ended December 30, 1995 to the Company's Named Executive Officers. AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND SY-END OPTION/SAR VALUES
VALUE OF UNEXERCISED NUMBER OF UNEXERCISED IN-THE-MONEY SHARES ACQUIRED VALUE OPTIONS/SAR/S AT SY-END OPTIONS/SAR'S AT SY-END NAME ON EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE - ---- --------------- -------- ------------------------- ------------------------- David L. Chandler Company Options -- -- 180,000/0 $462,600/$0 Jupiter Options -- -- 144,444/0 (1) $2,384,966/$0 Gerald B. Andrews Company Options -- -- 150,000/0 $181,200/$0 Jupiter Options -- -- -- -- Roger J. Gilmartin Company Options -- -- 48,750/15,000 -- Jupiter Options -- -- -- --
(1) The Board of Directors initially authorized a transaction whereby, upon completion of the proposed merger between Johnston and Jupiter , Mr. Chandler was to be able to choose to forego receiving the difference between the exercise price of his Jupiter options and the purchase price of $32.50 for shares of Jupiter common stock specified in the Merger Agreement, and in return would receive options to purchase Johnston common stock equivalent in value to 74,444 of his Jupiter options as well as a cash payment of $2,616,487.73 (sufficient to provide Mr. Chandler with $30.00 per share after taxes for each of his remaining 70,000 options). If the merger was not consummated, for any reason whatsoever, the Board had approved the possible purchase of up to 70,000 shares of Jupiter common stock from Mr. Chandler at a purchase price of $30.00 per share. Such arrangements were modified subsequent to year end. For a description of the current arrangements between the Company and Mr. Chandler concerning his employment agreement with Jupiter and his Jupiter stock options, see Employment Agreements below under Item 11 Executive Compensation. 30 31 STOCK PURCHASE PLAN The Company has a stock purchase plan (the "Plan") under which the Company may assist selected key employees and directors of the Company and its subsidiaries in the purchase of shares of its Common Stock; as amended by the Board to date, an aggregate of 976,284 shares are covered by the Plan. The Plan is administered by a committee of directors (members of which are not eligible to participate in the Plan while serving on the committee). The committee determines the eligible key employees and directors who will be granted participation in the Plan, the number of shares which a participant may purchase, the purchase price thereof, the manner in which such purchase will be effected, any provisions for loans to be arranged to enable Plan participants to pay for their shares, any provisions for the payment of cash bonuses to reimburse Plan participants for any interest payable on their loans not covered by the dividends paid on their shares, any provisions for Company guarantee of such loans, and other terms and conditions consistent with the provisions of the Plan. The Plan authorizes the Company to guarantee loans arranged by the committee for the purchase of shares under the Plan up to a maximum of $9,000,000 in aggregate outstanding principal amount of loans. The shares purchased may consist of authorized but unissued shares, or treasury shares, or shares purchased in the open market on behalf of the participants under arrangements approved by the committee. The Company has furnished the participants with guarantees of loans for the purchase price of the shares (which bear interest at rates of 1/2% under or 1/2% above the prime lending rate of the lending bank). The committee also authorized the payment of additional compensation to the Plan participants who have purchased the 976,284 shares in the form of quarterly cash bonuses in amounts that will equal the excess of the interest payable on their loans over the dividends paid on their shares. Under the terms of the stock purchase agreements entered into between the Plan participants and the Company, the Company's obligation to pay such cash bonuses terminates upon the termination of employment of the Plan participant by the Company or any of its subsidiaries for any reason. The Plan is neither qualified under Section 401(a) of the Internal Revenue Code of 1986 nor subject to the provisions of the Employee Retirement Income Security Act of 1974. The amount of any cash bonus received under the Plan must be treated as compensation income by the employee and the Company will be entitled to a corresponding tax deduction in the same amount which the employee is required to treat as compensation income (subject to appropriate withholding of taxes). HOURLY EMPLOYEES' PENSION PLAN The Company maintains a non-contributory Hourly Employees' Pension Plan (the "Hourly Plan") which covers substantially all hourly employees who have been employed on a full-time basis for at least one year. An employee may elect to receive distribution of benefits under the Hourly Plan upon retirement in one of several annuity forms including single life, ten years certain and life or joint and survivor. Effective July 1, 1989, accrued benefits under this plan become vested proportionately (20% per year) after an employee has been credited with three years of service under the Pension Plan. Employees attain 100% vesting of accrued benefits after seven years of credited service. If an employee participates in the Hourly Plan until normal retirement date (age 65, 66 or 67, based on the year of birth), and, if he elects to receive his distribution in the form of a single life annuity, the amount of the annual benefit upon retirement will be the sum of (a) and (b), where (a) is $96 times the number of years of service to 1992 and (b) is $192 times the number of years of service thereafter. The Hourly Plan provides that if an employee's employment terminates prior to normal retirement date, payments at normal retirement date will be reduced to reflect the early termination of his employment; if his employment terminates later than normal retirement date, payments will be equal to the benefits which are actuarially equivalent to the benefits otherwise payable at normal retirement date, but not less than the accrued benefit determined at date of retirement; and if he elects a method of distribution of benefits other than a single life annuity, payments will be adjusted to provide benefits which are actuarially equivalent to the benefits to which he would be entitled if he had elected the single life annuity method. 31 32 SALARIED EMPLOYEES' PENSION PLAN The Company maintains a non-contributory Salaried Employees' Pension Plan (the "Pension Plan") which covers substantially all salaried employees who have been employed on a full-time basis for at least one year. An employee may elect to receive distribution of benefits under the Pension Plan upon retirement in one of several annuity forms, including single life, ten years certain and life or joint and survivor. Effective July 1, 1987, accrued benefits under this plan become vested proportionately (20% per year) after an employee has been credited with three years of service under the Pension Plan. Employees attain 100% vesting of accrued benefits after seven years of credited service. If an employee participates in the Pension Plan until normal retirement date (age 65, 66 or 67, based on the year of birth), and, if he elects to receive his distribution in the form of a single life annuity, the amount of his annual benefit upon retirement will be the sum of (a) and (b), where (a) is 36% (assuming 20 or more years of service) of average annual earnings and (b) is 26.25% (assuming 35 or more years of service) of the net amount of average annual earnings less Social Security average wages. (Average annual earnings means the annual average of the employee's earnings for the ten highest consecutive calendar years of benefit service immediately preceding his normal retirement date. Social Security average wages means the average of the maximum amount of wages subject to Social Security tax for the 35 years preceding the participant's Social Security normal retirement date.) The maximum annualized benefit is $120,000 at normal retirement date for participants whose normal retirement dates fall during the plan year ending December 31, 1995. The following table sets forth the estimated annual normal retirement benefits (assuming Social Security Average wages of $45,000 per year) for various combinations of preretirement remuneration and years of benefit service:
YEARS OF BENEFIT SERVICE AVERAGE ANNUAL SALARY ------------------------ LAST 10 YEARS (OR LESS WHERE APPLICABLE) 5 10 15 20 25 30 35 - -------------------------- - -- -- -- -- -- -- 125,000 14,250 28,500 42,750 57,000 60,000 63,000 66,000 175,000 17,438 34,875 52,313 69,750 73,688 77,625 81,563 225,000 17,438 34,875 52,313 69,750 73,688 77,625 81,563 275,000 17,438 34,875 52,313 69,750 73,688 77,625 81,563 325,000 17,438 34,875 52,313 69,750 73,688 77,625 81,563 375,000 17,438 34,875 52,313 69,750 73,688 77,625 81,563 425,000 17,438 34,875 52,313 69,750 73,688 77,625 81,563 475,000 17,438 34,875 52,313 69,750 73,688 77,625 81,563 525,000 17,438 34,875 52,313 69,750 73,688 77,625 81,563 575,000 17,438 34,875 52,313 69,750 73,688 77,625 81,563
The years of benefit service under the plan as of December 31, 1995, for Messrs. Galbraith, Chandler, Gilmartin, Andrews and Hinkle were 24, 22, 5, 3 and 0, respectively. The Pension Plan provides that if an employee's employment terminates prior to normal retirement date, payments at normal retirement date will be reduced to reflect the early termination of his employment; if his employment terminates later than normal retirement date, payments will be adjusted to provide benefits which are actuarially equivalent to the benefits otherwise payable at the normal retirement date, but not less than the accrued benefit determined at date of retirement; and if he elects a method of distribution of benefits other than a single life annuity, payments will be adjusted to provide benefits which are actuarially equivalent to the benefits to which he would be entitled if he had elected the single life annuity method. 32 33 EXECUTIVE INSURANCE PLAN The Company has maintained a contributory Executive Insurance Plan (the "Executive Plan") covering selected executives of the Company and its subsidiaries, administered by an Administrative Committee consisting of the Chief Executive Officer, the Vice President/Finance and the Secretary/Treasurer and providing for life insurance coverage of participants in the Executive Plan in an amount equal to approximately three times annual compensation up to a maximum annual salary of $100,000. The Executive Plan provides for benefits to the executive or his beneficiaries in the event of death before retirement, termination of employment, disability, termination of the Executive Plan or retirement. The Company is reimbursed for all premiums paid if the executive dies prior to retirement or if such policy is fully assigned to the executive. In January 1989, the Company determined to "freeze" the Executive Plan by neither extending benefits to persons not already participants nor changing the coverage for those persons who were already participants. It was also determined to commence benefits for participants at age 65 with the participants to elect either to purchase the insurance contract at age 65 or take payout of their benefits over a 10-year certain period commencing at that age. Participants who had already reached age 65 received payments equivalent to the amounts they would have received had their payments begun at age 65. EMPLOYMENT AGREEMENTS The Company has an employment agreement with Mr. Chandler which continues until December 31, 1996. The agreement commits Mr. Chandler to serve as chief executive officer and entitles him to a base salary of not less than $350,000, an annual bonus equal to 1 1/2% of consolidated pre-tax earnings (as defined in the agreement and net of any consolidated pretax losses for prior years) and, upon the conclusion of his employment, to a monthly consultancy fee of $8,333 for a term equal to the number of months of his employment under the new agreement from January 1, 1990 forward. The agreement permits Mr. Chandler to terminate his employment under it at any time on six months' notice and gives him the option to terminate his employment within 30 days of the Company's merger or consolidation with or sale of all its assets to another company. The Company and Mr. Chandler are also parties to an agreement with a trustee bank establishing a trust to which payments on account of bonus and consultancy fees may be made. At the option of the Company (whose authority in this regard has been delegated by the Board of Directors to a committee of Messrs. Hart, Jeffcoat and Kjorlien) it may make the quarterly estimated bonus payment to the trust rather than to Mr. Chandler directly and may satisfy its obligations with respect to future consultancy fees by paying to the trust quarterly their current actuarial equivalent. Jupiter has entered into an employment agreement with Mr. Chandler providing for his continued employment as a senior executive of Jupiter until December 31, 1996. Under his employment agreement, Mr. Chandler is entitled to receive an annual salary of at least $125,000, plus such bonuses or other compensation as Jupiter may determine. At the conclusion of his employment, Mr. Chandler is also entitled to receive a consulting fee of $6,250 per month until the earlier of (i) the completion of a term equal to the number of months during which he was employed by Jupiter under the employment agreement (beginning with January 1991), or (ii) his death. In the event that Mr. Chandler dies prior to the completion of the term described in clause (i) of the preceding sentence, his wife will be entitled to receive $3,125 per month for that period. The Company has entered into an agreement with Mr. Chandler pursuant to which, upon the effectiveness of the acquisition of the minority interest in Jupiter by the Company, the employment agreement between Jupiter and Mr. Chandler was terminated and in lieu of a cash payment of $2,616,487.73 to be made to Mr. Chandler in satisfaction of his Jupiter stock options and in settlement of his Jupiter employment agreement, the Company agreed to: (i) make a lump sum payment to Mr. Chandler of approximately $407,598, (ii) convert respectively 70,000 and 30,000 Jupiter incentive stock options held by Mr. Chandler into options to purchase 287,360 and 123,154 shares of the Common Stock of the Company, (iii) convert 44,444 Jupiter non-qualified stock options into options to purchase 99,816 shares of Common stock with an exercise price of $2.50 per share and (iv) repurchase of $2,150,000 worth of Common Stock (259,819 shares) from GRM, $300,000 of such amount was paid at the time of the agreement. The number of new shares issuable pursuant to options was based on an exchange ratio equal to $33.97 divided by the average market price of the Company's Common Stock for a five day period, the midpoint of which was the date of the Jupiter merger; which was the same price at which Common stock was repurchased from GRM. The amount of the lump sum to be paid to Mr. Chandler was equal to the present value (based on a discount rate of 7.5%) of the remaining salary and consulting fees which Mr. Chandler would otherwise have been entitled to receive under the terms of the employment agreement. Under the agreement, the Jupiter stock options held by Mr. Chandler became options to acquire Johnston Common Stock subject to the same terms and conditions except that (x) the incentive options became exerciseable for that number of shares of the Company's common stock equal to the number of shares of Jupiter common stock covered by the Jupiter stock options multiplied by the exchange ratio, and (y) the per share exercise for the shares of common stock issuable upon exercise of the options will be the exercise price for the Jupiter stock options divided by the exchange ratio. The number of shares issuable pursuant to conversion of non-qualified stock options and the exercise price thereof are, in each case, less than the number that would have been received by application of the Exchange Ratio as described above, although such arrangement is intended to result in the same total "spread" Mr. Chandler would have received, based on the Exchange Ratio. See Certain Relationships and Related Transactions. 33 34 Mr. Andrews' employment agreement provides for his employment as President of the Company until October 1996. He is entitled to a base salary of not less than $280,000, to payments to a deferred benefit trust of $70,000 minimum each year and to annual incentive compensation in accordance with the terms of an incentive compensation plan--which may also be paid into the deferred benefit trust. Mr. Gilmartin's employment agreement provides for his employment as Chairman and Chief Executive Officer of Opp and Micolas Mills, Inc. until December 31, 1998 and entitles him to a base salary of not less than $285,000 a year and such additional compensation as is determined by the Chief Executive Officer. Mr. Galbraith's employment agreement provides for his employment as President and Chief Executive Officer of Southern Phenix Textiles, Inc. until June 30, 1998, and entitles him to a base salary of not less than $245,000 a year and such additional compensation as is determined by the Chief Executive Officer. Mr. Hinkle's employment agreement provides for his employment as President and Chief Operating Officer of Wellington Sears Company until July 25, 1998. The employment agreement provides for successive one year renewal terms thereafter and entitles Mr. Hinkle to a base salary of not less than $200,000 a year and such additional compensation as is determined by the Chief Executive Officer. In connection with the execution of the Merger Agreement, Jupiter, Wellington Sears and GWI entered into a termination agreement with Rainer H. Bosselmann pursuant to which Mr. Bosselmann resigned, effective August 16, 1995, as an officer and director of those companies, and Johnston entered into a severance agreement whereby Mr. Bosselmann resigned, effective August 16, 1995, as an officer and director of Johnston and its affiliates. Pursuant to the termination agreement, Jupiter paid Mr. Bosselmann a lump sum severance payment of $250,000. The termination agreement also provides that, upon consummation of the Merger, any unexercised stock options held by Mr. Bosselmann will be canceled in exchange for a cash payment equal to the excess of the Merger Consideration over the option exercise price. In addition, under the termination agreement, Mr. Bosselmann will continue to be employed by Jupiter at an annual salary of $25,000 and will remain eligible for benefits for a period for one year from the date of his resignation. Under the severance agreement with Johnston and its affiliates, Mr. Bosselmann received a lump sum severance payment of $75,000, and agreed to various standstill provisions for a period of eighteen months following the agreement. DIRECTORS' COMPENSATION All directors are reimbursed for expenses incurred in attending Board and committee meetings. Each Director and Executive Committee Member who is not an officer of, or a consultant to, the Company receives a Director's fee of $12,000 per year plus $1,000 for each Board or Committee meeting attended during the fiscal year. 34 35 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT PRINCIPAL STOCKHOLDERS The following table sets forth, as of March 22, 1995, certain information with respect to each person (other than directors and executive officers) who, to the knowledge of the Company, may be deemed the beneficial owner of more than 5% of the shares of Company's outstanding common stock (the "Johnston Shares"), its only class of equity securities. Unless otherwise indicated, these shareholders have sole dispositive and voting power for their respective shares as shown below:
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER OF SHARES BENEFICIALLY OWNED PERCENT OF CLASS - -------------------------------------------------------------------------------------------------------------------- Redlaw Industries, Inc. (1) 4,249,368 40.1% 174 Stanley Street Brantford, Ontario Canada N3S 7S3 Dimensional Fund Advisors, Inc. (2) 689,773 6.5% 1299 Ocean Avenue Santa Monica, California 90401
(1) These Johnston Shares are owned by GRM Industries, Inc., a Tennessee corporation and wholly-owned subsidiary of Redlaw. Redlaw is a holding company incorporated in Ontario, Canada, and its stock is traded on the American Stock Exchange. Galtaco, a holding company incorporated in Ontario, Canada, owns approximately 8.0% of the outstanding shares of common stock of Redlaw (40.6% if Galtaco were to exercise its warrants to acquire Redlaw shares). Galtaco's stock is traded on the Toronto Stock Exchange. David L. Chandler, Chairman and Chief Executive Officer of the Company, owns approximately 35.9% of the outstanding stock of Redlaw and may be deemed to be the beneficial owner of the Shares owned by Redlaw. (2) The following information is based on a Schedule 13G dated as of February 7, 1996. Dimensional Fund Advisors, Inc. ("Dimensional") reports it has sole voting and dispositive power with respect to 449,786 shares of Common Stock and sole dispositive power with respect to an additional 239,987 shares of Common Stock, in each case, as of December 31, 1995. Dimensional reports it is a registered investment advisor and that all such shares are held in portfolios of DFA Investment Dimensions Group, Inc., a registered open-end investment company, or in a series of the DFA Investment Trust Company, a Delaware business trust, or the DFA Group Trust and DFA Participation Group Trust, investment vehicles for qualified employee benefit plans, all of which Dimensional serves as investment manager. Dimensional disclaims beneficial ownership of all such shares. The following table sets forth, as of March 22, 1995, with respect to the beneficial ownership of shares of common stock of the Company by each director of the Company, by each Named Executive Officer, and by all directors and executive officers of the Company as a group.
JOHNSTON COMMON STOCK ------------------------------------ NUMBER OF SHARES NAME OWNED BENEFICIALLY PERCENT OF CLASS - -------------------- ------------------ ---------------- Gerald B. Andrews 232,525 (1) 02.2% J. Reid Bingham 10,500 * David L. Chandler 4,747,943 (2) 44.8% Larry L. Galbraith 78,338 * Roger J. Gilmartin 98,250 (3) * William J. Hart 18,007 * Gaines R. Jeffcoat 26,434 * John W. Johnston 62,889 -- C.J. Kjorlien 47,075 * All directors and executive officers as a group (Fourteen Persons) 5,431,191 (4) 51.3% - -------------------------------------------------------------------------------------------------------------------
* Less than 1%. 35 36 (1) Of the Johnston Shares held by Mr. Andrews 150,000 Shares are subject to stock options. (2) Includes Johnston Shares owned by Redlaw and its wholly owned subsidiary GRM Industries, Inc., as set forth in the preceding table. Mr. Chandler may be deemed to be a beneficial owner of those Shares by virtue of his relationship with Redlaw as set forth in Note 1 of the preceding table. Of the Johnston Shares held by Mr. Chandler, 180,000 Shares are subject to stock options. (3) 63,760 shares issuable pursuant to options exercisable within 60 days. (4) 393,750 shares issuable pursuant to options exercisable within 60 days. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Johnston and Jupiter (or certain of their respective subsidiaries) have entered into a number of joint arrangements and transactions. Wellington Sears received approximately $623,000 and $715,000 from Johnston for finishing services rendered to Opp and Micolas and Southern Phenix during the six months ended December 30, 1995, and the year ended June 30, 1995 respectively. In addition, Wellington Sears paid approximately $1,019,000 and $1,718,000 to Johnston to purchase cloth and raw materials and administrative and credit services from Johnston during the six months ended December 30, 1995, and the year ended June 30, 1995 respectively. Wellington Sears' trade receivables from Johnston were approximately $167,000 and $146,000 respectively, at December 30, 1995 and June 30, 1995. Amounts payable to Johnston by Wellington Sears at December 30, 1995 and June 30, 1995 were approximately $555,000 and $116,000 respectively. Redlaw acts as a Canadian Broker and/or distributor for a number of subsidiaries of both Johnston and Jupiter and, in that capacity, earns commissions from the Company. Redlaw received approximate commissions for sales into Canada as follows:
AFFILIATE SY 1995 FY 1995 - ---------------------- ------- ------- Johnston Subsidiaries: Southern Phenix $37,301 $80,010 Opp and Micolas 3,261 13,510 JICR 5,353 6,225 Jupiter Subsidiaries: Wellington Sears 29,613 52,590
For a description of the agreement between the Company and Mr. Chandler concerning his employment agreement with Jupiter and his Jupiter stock options and the repurchase of shares from GRM, see Item 11 Executive Compensation. 36 37 PART IV. ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a)(1) Consolidated Financial Statements The consolidated financial statements are filed herewith within Exhibit 13(a), as provided in Item 8 hereof: - Consolidated Balance Sheets as of December 30, 1995, June 30, 1995 and 1994. - Consolidated Statements of Operations for the six months ended December 30, 1995 and the fiscal years ended June 30, 1995, 1994 and 1993, and (Unaudited) Consolidated Statement of Operations for the six months ended December 31, 1994. - Consolidated Statements of Stockholders' Equity for the six months ended December 30, 1995 and the fiscal years ended June 30, 1995, 1994, and 1993. - Consolidated Statements of Cash Flows for the six months ended December 30, 1995 and for the fiscal years ended June 30, 1995, 1994 and 1993, and (Unaudited) Consolidated Statement of Cash Flows for the six months ended December 31, 1994. - Notes to Consolidated Financial Statements. (a)(2) Financial Statement Schedules The following report and consolidated financial statement schedules are filed herewith as Exhibit 13(a). - Independent Auditors' Report - Schedule I - Condensed Financial Information of Registrant - Schedule II - Valuation and Qualifying Accounts All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission have been omitted because such schedules are not required under the related instructions or are inapplicable or because the information required is included in the Consolidated Financial Statements or notes thereto. (a)(3) Reports on Form 8-K There were no reports on Form 8-K during the last quarter of the transition period ended December 30, 1995. (a)(4) Listing of Exhibits The exhibits listed below are filed with or incorporated by reference into this annual report on Form 10-K.
EXHIBIT NO. DESCRIPTION OF EXHIBIT ----------- ----------------------------------------------------------- 3.1(a) Certificate of Incorporation of Registrant(7).
37 38 (b) Certificate of Amendment of Registrant's Certificate of Incorporation dated December 20, 1993(7). 3.2 By-Laws of Registrant(7). 10.2 Third Amended and Restated Credit and Security Agreement dated as of January 31, 1995 among Johnston Industries, Inc., Southern Phenix Textiles, Inc., Opp and Micolas Mills, Inc., The Chase Manhattan Bank, N. A., NationsBank of North Carolina, N. A. and Comerica Bank [Exhibit 10](6). +10.3 Registrant's Executive Insurance Plan, as amended and restated effective May 21, 1984(7). +10.4 Letter to Participants dated March 1, 1989 in Registrant's Executive Insurance Plan setting forth revisions thereto [Exhibit 10.3(b)](7). +10.5 Registrant's Salaried Employees, Pension Plan, as amended and restated effective July 1 1989 [Exhibit 10.4](2). +10.6 Amended and Restated Stock Incentive Plan for Key Employees of the Registrant and its Subsidiaries(7). +10.7 Employee Stock Purchase Plan effective October 15, 1990 (with 1991 and 1992 amendments) [Exhibit 10.5(b)(i)](3). +10.8 Amendment dated October 29, 1992 to Employee Stock Purchase Plan [Exhibit 10.5(b)(ii)](4). +10.9 Amendment dated December 17, 1993 to Employee Stock Purchase Plan [Exhibit 10.9(b)(iii)](7). +10.10 Amendment dated January 24, 1995 to Employee Stock Purchase Plan [Exhibit 10.9(b)(iii)](7). +10.11 Employment Agreement with Gerald B. Andrews dated as of October 17, 1992 [Exhibit 10.6(b)](4). +11.12 Employment Agreement with David L. Chandler effective as of January 1, 1990 [Exhibit 10.6(d) (1)](3). +10.13 Trust Agreement dated as of February 12, 1991, with Chemical Bank & Trust Company and David L. Chandler [Exhibit 10.6(d)(2)](3). +10.14 Employment Agreement with Roger J. Gilmartin dated April 22, 1993 [Exhibit 10.6(d)](4) +10.16 Employment Agreement with W. I. Henry dated as of January 1, 1993 [Exhibit 10.6(f)](4). +10.17 Employment Agreement with John W. Johnson dated January 27, 1993 [Exhibit 10.6(g)](4). 38 39 +10.18 Johnston Industries, Inc. Deferred Payment Plan Trust Agreement dated as of October 17, 1992 with First Alabama Bank & Trust Company [Exhibit 10.7](4). +10.19 Employment Agreement with Larry L. Galbraith dated May 31, 1995. +10.20 Employment Agreement with L. Allen Hinkle dated May 26, 1995. 10.21 Agreement and Plan of Merger, dated August 16, 1995, among and between Johnston Industries, Inc., JI Acquisition Corp., and Jupiter National, Inc. [Exhibit 99.3](8). 10.22 Bank Credit Agreement among Johnston Industries, Inc., Wellington Sears Company, Southern Phenix Textiles, Inc., Opp and Micolas Mills, Inc., Johnston Industries Composite Reinforcements, Inc., T.J. Beall Company and the banks named therein, The Chase Manhattan Bank, N.A as Administrative Agent, Chase Securities, Inc. as Arranger, and Nationsbank, N.A. as Syndication Agent. 11 Statement of Computation of Per Share Earnings for the years ended December 30, 1995 and June 30, 1995, 1994 and 1993. 13(a) Consolidated balance sheets as of December 30, 1995, June 30, 1995 and 1994, the related consolidated statements of operations, stockholders' equity and cash flows for the six months ended December 30, 1995 and each of the three years in the period ended June 30, 1995, unaudited consolidated statements of operations and cash flows for the six months ended December 30, 1994, notes thereto and Independent Auditors' Report and related financial statement schedules. (b) Supplementary Data captioned "Quarterly Information". 21 List of Subsidiaries of Registrant. 23 Consent of Deloitte & Touche LLP. 27 Financial Data Schedule (for SEC use only) - -------------------- (1) Previously filed with the Company's Annual Report on Form 10-K for the year ended June 30, 1990. (2) Previously filed with the Company's Annual Report on Form 10-K for the year ended June 30, 1991. (3) Previously filed with the Company's Annual Report on Form 10-K for the year ended June 30, 1992. (4) Previously filed with the Company's Annual Report on Form 10-K for the year ended June 30, 1993. (5) Previously filed with the Company's Annual Report on Form 10-K for the year ended June 30, 1994. (6) Previously filed with the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1995. 39 40 (7) Previously filed with the Company's Annual Report on Form 10-K for the year ended June 30, 1995. (8) Previously filed with the Company's Form 8-K on August 21, 1995. + Management contract or compensatory plan or arrangement required to be filed as an exhibit to Form 10-K pursuant to Item 14(c). 40 41 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. JOHNSTON INDUSTRIES, INC. Date: April 12, 1996 By: /s/ David L. Chandler -------------------------- David L. Chandler Chairman Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE - ---------------------- ------------------------------ -------------- /s/ David L. Chandler Chairman of the Board and April 12, 1996 - --------------------- Director David L. Chandler /s/ Gerald B. Andrews President and April 12, 1996 - --------------------- Chief Executive Officer and Gerald B. Andrews Chief Operating Officer and Director (Principle Executive Officer) /s/ J. Reid Bingham Director April 12, 1996 - ------------------- J. Reid Bingham /s/ John A. Friedman Director April 12, 1996 - -------------------- John A. Friedman /s/ William J. Hart Director April 12, 1996 - ------------------- William J. Hart /s/ Gaines R. Jeffcoat Director and April 12, 1996 - ---------------------- Retired Vice President Gaines R. Jeffcoat /s/ John W. Johnson Chief Financial Officer April 12, 1996 - ------------------- (Principal Accounting Officer) John W. Johnson /s/ C.J. Kjorlien Director April 12, 1996 - ----------------- C. J. Kjorlien
41 EX-10.19 2 EMPLOYMENT AGREEMENT 5/31/95 1 EXHIBIT 10.19 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT ("Agreement"), made this 31st day of May, 1995 by and between SOUTHERN PHENIX TEXTILES, INC., an Alabama corporation (hereinafter referred to as "Employer"), and LARRY L. GALBRAITH (hereinafter referred to as "Employee"). WITNESSETH THAT: WHEREAS, Employee has been employed by Employer pursuant to an Employment Agreement dated June 1, 1989, which Employment Agreement expires on July 1, 1995; and WHEREAS, Employer and Employee have agreed that Employee shall continue to be employed by Employer for the period commencing on June 1, 1995, for the term and under the provisions and conditions hereinafter set forth. NOW, THEREFORE, in consideration of the mutual promises herein set forth, it is agreed as follows: 1. Employer hereby employs Employee as a senior executive officer for the period commencing June 1, 1995, and ending on June 30, 1988, or such earlier or later date within a week of said June 30, 1998, on which Employer's fiscal year shall end. Unless either Employer or Employee, by written notice to the other on or before April 1, 1998, elects not to extend this Agreement, and if this Agreement has not been terminated in accordance with the terms set forth hereinbelow, it shall be extended automatically for an additional period of three (3) years ending on June 30, 2001, or such earlier or later date within a week of said June 30, 2001, on which Employer's fiscal year shall end. Employee shall have such executive duties as may be assigned to him by Employer to be rendered on behalf of Employer or its parent corporation, Johnston Industries, Inc. ("Johnston"), or any of Johnston's affiliates or subsidiaries, subject to supervision, change of duties, direction and control by the Chief Executive Officer or Chief Operating Officer of Johnston. Employee accepts such employment and agrees to perform his duties in connection therewith to the best of his ability and to devote his full working time thereto. Employee, at the request of Employer, agrees to serve as a Director or other officer of Employer or of any affiliated or subsidiary corporation of Employer, without any additional compensation for such service. Employee agrees during the term of this Agreement not to have or acquire any ownership interest, directly or indirectly, in, or be employed by, any person, firm or corporation which is engaged in a business competitive with any of the businesses now or hereafter engaged in by Employer or Johnston or 2 by any of Employer's or Johnston's affiliates or subsidiaries or which is a supplier or customer of Employer or Johnston or of any of Employer's or Johnston's affiliates or subsidiaries, except that Employee may acquire or own securities listed on any recognized public exchange. Employee acknowledges that he is knowledgeable of the businesses now engaged in by Employer and Johnston and by Employer's and Johnston's affiliates and subsidiaries and is knowledgeable of the principal customers and suppliers of Employer and Johnston and of Employer's and Johnston's affiliates and subsidiaries. If Employee shall violate the provisions of this paragraph or fail or refuse to perform adequately the duties assigned to him, then, in any such event, Employer may terminate this Agreement and Employee's employment hereunder immediately upon the giving of written notice of such termination to Employee, and in such event, Employee shall be entitled to receive only the salary and other compensation and benefits provided for hereunder which have accrued to the date of such termination, prorated on a per diem basis. 2. As full compensation for all Employee's services, employer agrees to pay to Employee a base salary in the amount of $245,000.00 per year, payable in equal monthly installments on the last day of each month as long as this Agreement shall be in effect. During the term of this Agreement, Employee's base salary may be adjusted from time to time and in such amounts as shall be mutually agreed upon by Employer and Employee. 3. Employer may at any time and from time to time pay to Employee such bonus or other additional compensation, in addition to the base salary provided for hereinabove, as Employer may determine in Employer's sole discretion. Employee shall be eligible to participate in such employee benefits as from time to time are provided for executive employees of Employer generally, such as group life insurance and medical and pension benefits, subject to the provisions of such benefit plans as may be in effect from time to time during the term of this Agreement. Employer shall not be obligated to adopt or maintain any particular employee benefits or plans therefor, such adoption or maintenance to be within the sole discretion of Employer. 4. This Agreement may be transferred or assigned by Employer to Johnston or to any of Johnston's affiliates or subsidiaries or to any other corporation with or into which either Employer or Johnston or any such assignee shall merge or consolidate, or to which either Employer or Johnston shall transfer all or substantially all of its assets, and such assignee or successor corporation shall thereupon be obligated to perform the terms and provisions hereof pertaining to Employer (and such successor shall 2 3 thereupon be deemed Employer hereunder). In the event of any such assignment or transfer by Employer, Employee shall continue to be bound by the terms and provisions of this Agreement. 5. If Employee shall become incapacitated during the period of his employment hereunder to such an extent that in the judgment of Employer he is unable to perform his duties hereunder, and such incapacity shall continue for at least six successive calendar months, Employer may, at any time after the end of such period of six consecutive calendar months and during the continuance of such incapacity, give notice to Employee of the termination of his employment hereunder on a date stated in such notice, which shall not be less than thirty (30) days after the date of the giving of such notice, and in such event, notwithstanding the foregoing provisions of paragraph 1 hereof, Employee's employment hereunder shall terminate on such date, and Employee's rights to the base salary provided for herein and any other compensation and benefits provided for hereunder shall terminate on such date. 6. Should Employee terminate his employment with Employer during the term of this Agreement, then Employee shall only be entitled to receive the base salary and other compensation and benefits provided for hereunder which shall have accrued to the date of such termination, prorated on a per diem basis. 7. Employer and Employee hereby agree that the aforedescribed previous Employment Agreement dated June 1, 1989 shall terminate, effective at midnight on May 31, 1995, immediately prior to the effective date of this Agreement. 8. This Agreement constitutes the entire agreement between the parties herto with regard to the subject matter hereof and may not be altered or amended except by written agreement of the parties. IN WITNESS WHEREOF, Employer has caused this Agreement to be executed by one of its officers thereunto duly authorized, and Employee has hereto subscribed his name as of the day and year first above written. SOUTHERN PHENIX TEXTILES, INC. /s/ John W. Johnson By: /s/ Gerald B. Andrews - ------------------- -------------------------- Witness: Title: President "Employer" /s/ Wayne Merritt /s/ Larry L. Galbraith (L.S.) - ------------------- -------------------------- Witness: LARRY L. GALBRAITH "Employee" 3 EX-10.20 3 EMPLOYMENT AGREEMENT 5/26/95 1 EXHIBIT 10.20 AMENDED AND RESTATED EMPLOYMENT AGREEMENT THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the "Agreement") is an amendment and restatement of the Employment Agreement dated November 19, 1992 ("Original Employment Agreement") and is made and entered into as of this 26th day of July, 1995, by and between L. ALLEN HINKLE, an individual resident of the State of Alabama ("Executive"), and WELLINGTON SEARS COMPANY, a Delaware corporation ("Company"). W I T N E S S E T H WHEREAS, Company desires to employ Executive, and Executive desires to be employed by Company on the terms and conditions contained herein; WHEREAS, the Board of Directors has determined in its business judgment that the continued employment of Executive is necessary to maintain the value of Wellington Sears Company; NOW, THEREFORE, in consideration of the mutual promises and agreements contained herein and 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: SECTION 1. EMPLOYMENT 1.1 DUTIES. Subject to the terms contained herein, Company hereby employs Executive, and Executive hereby accepts such employment. Executive shall serve as President and Chief Operating Officer. In his capacity as President and Chief Operating Officer, Executive shall (i) report to the Chairman, Vice Chairman, President and the Board of Directors and (ii) assume and perform such further reasonable responsibilities and duties assigned to him by the Board of Directors of the Company. Executive shall devote his full business time (except for periods of illness and incapacity) and best efforts to rendering services on behalf of Company. Nothing in this Agreement shall preclude Executive from engaging, so long as, in the reasonable determination of such Board of Directors, such activities do not interfere with his duties and responsibilities hereunder, in charitable and community affairs, from managing any passive investment made by him or from serving, subject to the prior approval of such Board of Directors, as a member of the Board of Directors or as a trustee of any other corporation, association or entity. 1.2 DIRECTORSHIP. If elected or appointed, Executive shall serve as a member of the Board of Directors of the Company without any additional compensation. 1.3 LOCATION. Company agrees that Executive shall remain in the East Alabama/West Georgia area during the term of this Agreement. SECTION 2. TERM The employment of Executive hereunder commenced as of the date of the Original Agreement and shall continue for a period of three (3) years (the "Initial Employment Term"). Following the Initial Employment Term, this Agreement shall continue in force for another eighteen (18) month term (the "Second Employment Term"). Following the Second Employment Term, this Agreement shall continue in force for successive one (1) year terms (each, a "Renewal Term") unless either the 2 Wellington Sears Company Employment Agreement Company or the Executive provides not less than one (1) year's prior written notice to the other that this Agreement shall terminate at the end of the Second Employment Term. During any Renewal Term, either the Company or the Executive may terminate this Agreement effective at the end of such Renewal Term by giving the other party not less than one year's prior written notice of such termination. For the avoidance of doubt, the parties specifically agree that the intent of the foregoing provisions is that, if a Renewal Term ends on December 31 of a given year, the Executive must be given notice of termination on or before January 1 of the following year in order for the termination to be effective on the next December 31. SECTION 3. COMPENSATION: EXPENSES 3.1 SALARY. During the Employment Term, the Second Employment Term and any Renewal Term, Executive shall be paid a salary by Company at the annual rate of not less than Two Hundred Thousand Dollars ($200,000) (as from time-to-time increased in accordance with the terms of this Agreement, the "Salary"); however, the Salary shall be reviewed by the Board of Directors of the Company on an annual basis and the Salary may be increased based on the performance of Executive. The Salary shall be paid to Executive in equal monthly installments, less all applicable withholding taxes in the same manner as other executive officers of the Company. 3.2 BONUSES. In addition to the Salary, Executive shall be paid, subject to conditions set forth herein, an annual bonus ("Bonus") during the Employment Term, the Second Employment Term and any Renewal Term in respect of each fiscal year of the Company commencing on or after December 31, 1994. The amount of Executive's bonus payable under this subsection 3.2 in each such fiscal year shall be based upon the attainment of performance targets to be established and mutually agreed upon by Executive and the Board of Directors. The Bonus shall be paid in cash when bonuses are paid generally to other senior executives of the Company for the relevant fiscal year, and in a manner in accordance with the ordinary payroll practices of the Company. 3.3 OTHER REMUNERATION. Executive shall be entitled to such other remuneration as the Board of Directors of the Company may hereafter from time-to-time approve for payment to Executive. 3.4 EXPENSES. Executive is authorized to incur reasonable and necessary expenses in carrying out his duties and responsibilities under this Agreement, including, without limitation, expenses for travel and similar items related to such duties and responsibilities. The Company will reimburse Executive for all such expenses upon presentation by Executive from time-to-time of appropriately itemized and approved (consistent with Company's policy) accounts of such expenditures. SECTION 4. ADDITIONAL EMPLOYMENT BENEFITS During the Employment Term, the Second Employment Term and any Renewal Term, Company shall provide Executive with the following fringe benefits (collectively, the "Benefits"): 2 3 Wellington Sears Company Employment Agreement 4.1 MEDICAL INSURANCE. Executive shall be entitled to participate in such medical, dental, disability, hospitalization, life insurance and other benefit plans (such as pension and profit sharing plans) as shall be made available to similarly situated officers of the Company on the terms and subject to the conditions set forth in such plans. 4.2 VACATION. Executive shall receive four (4) weeks of paid vacation time each fiscal year during the Employment Term, the Second Employment Term and any Renewal Term. In the event that this Agreement is terminated by the Company other than for cause or by Executive pursuant to Subsection 5.3, Executive shall be paid for each unused vacation day at the rate of 1/365th of the Salary in effect during the year in which the vacation day accrued. 4.3 OTHER. In addition to the foregoing, Executive shall be entitled to the prerequisites and other fringe benefits made available to senior executives of the Company. SECTION 5. TERMINATION The following provisions relate solely to termination of the Executive's employment during the Employment Term, the Second Employment Term and any Renewal Term: 5.1 DEATH OR DISABILITY. (a) Subject to Section 7 below, this Agreement shall terminate automatically upon the Executive's death. (b) Subject to Section 7 below, the Company shall at all times have the right to terminate the Executive's employment hereunder at any time after the Employee shall be absent from his employment, for whatever cause, including but not limited to mental or physical incapacity, illness or disability (collectively "Disability") for a continuous period of more than twenty-six (26) weeks. 5.2 CAUSE. The Company may terminate the Executive's employment for "Cause." For purposes of this Agreement, Cause means (i) if Executive is convicted by a court of competent jurisdiction of a felony, (ii) if Executive engages in illegal or other wrongful conduct substantially detrimental to the business or the reputation of the Company, or (iii) repeated violations by the Executive of the Executive's obligations under Sections 1.1 or 1.2 of this Agreement unless Executive corrects such violation within ten (10) days after written notice from the Company of such violation or if, having once received such notice of violation and having so corrected such violation, Executive at any time thereafter again violates Executive's obligations under Sections 1.1 or 1.2 of this Agreement. 5.3 WITHOUT CAUSE. Upon the occurrence of any of the following, the Executive shall have the right to terminate his employment by resignation on not less than ninety (90) days' prior written notice: (a) the making of any material change by the Company or the "Successor" (as defined below) in the Executive's function, duties or responsibilities with the Company or the Successor, as the case may be, that would cause the Executive's position to become of less dignity, responsibility, importance or scope; (b) the relocation of the place of Executive's employment from the East Alabama/West Georgia area; or (c) the occurrence of any material breach of this Agreement. 4 Wellington Sears Company Employment Agreement "Successor" means the person, or group of persons that (i) owns or operates all or substantially all of the company's business; or (ii) that survives a merger or consolidation of the company. SECTION 6. NOTICE OF TERMINATION Any termination by the Company for Cause shall be communicated in writing to the Executive and if the termination date is other than the date of receipt, the notice shall specify the termination date. SECTION 7. OBLIGATIONS OF THE COMPANY UPON TERMINATION The following provisions apply only in the event the Executive's employment hereunder is terminated. 7.1 DEATH. If the Executive's employment is terminated by reason of the Executive's death, the Company shall pay, in addition to any accrued benefits payable hereunder, the salary to the Executive's legal representatives for a period of one year subsequent to such termination. The Salary may be paid, at the option of the Company, either in a lump sum or in equal monthly installments. The Executive's family shall also be entitled to receive benefits at least equal to those provided by the Company to surviving families of executives of the Company in comparable positions under such plans, programs and policies relating to family death benefits, if any. 7.2 DISABILITY. If the Executive's employment is terminated by reason of the Executive's Disability, the Executive shall be entitled to receive, in addition to any accrued benefits payable hereunder, the Salary for a period of one (1) year subsequent to such termination. The Salary may be paid, at the option of the Company, either in a lump sum or in equal monthly installments. The Executive shall also be entitled to receive benefits at least equal to those provided by the Company to disabled employees of the Company in accordance with such plans, programs and policies relating to disability, if any. 7.3 CAUSE. If the Executive's employment shall be terminated for Cause, the Company shall pay the Executive his Salary through the date of termination at the rate in effect at the time notice of termination is given and shall have no further obligation to the Executive under this Agreement. 7.4 TERMINATION WITHOUT CAUSE. If the Company shall terminate the Executive's employment with the Company without Cause or if the Executive shall terminate his employment with the Company pursuant to Subsection 5.3: (a) The Company shall pay to the Executive at the time such payments would otherwise be payable hereunder, the Salary for the remaining term of this Agreement (including any Renewal Term to which the Executive would be entitled by reason of the Company's failure to provide the termination notice required by Section 2 of this Agreement). The Executive shall also be entitled to a bonus equal to the product of the prior year's bonus multiplied by a fraction, the numerator of which is the number of months Executive was employed during the year of termination and the denominator of which is twelve (12); 4 5 Wellington Sears Company Employment Agreement (b) The Company shall, promptly upon submission by the Executive of supporting documentation, pay or reimburse, or cause to be paid or reimbursed, to the Executive any business related costs and expenses paid or incurred by the Executive on or before the date of termination which would have been payable if the Executive's employment had not terminated; and (c) until the first anniversary of the Executive's termination, the Company shall continue benefits (or equivalent coverage) to the Executive and/or the Executive's family at least equal to those which would have been provided to them in accordance with the plans, programs and policies described in effect as of the date of termination. SECTION 8. NON-COMPETITION. At all times during Executive's employment with the Company and (i) if Executive is terminated without cause, during that period which Executive is still being compensated by the Company in accordance with Section 7.4 hereof (in any event not to exceed two (2) years) or (ii) if Executive resigns, is terminated for cause or disability, for a period of two (2) years subsequent to such termination, Executive shall not anywhere in the United States, directly or indirectly, engage in any business, enterprise or employment, whether as owner, operator, shareholder, director, partner, financial backer, creditor, consultant, agent, executive or any capacity whatsoever that is directly or indirectly competitive with the business of the Company; provided, however, that the foregoing shall not be deemed to prohibit the Executive from acquiring, solely as an investment and through market purchases, securities of any issuer that are registered under Section 12(b) or 12(g) of the Securities Exchange Act of 1934, as amended, and that are listed or admitted for trading on any United States national securities exchange or that are quoted on the National Association of Securities Dealers Automated Quotations System or any similar system of automated dissemination of quotations of securities prices in common use, so long as the Executive is not a member of any control group (within the meaning of the rules and regulations of the Securities and Exchange Commission) of any such issuer. For purposes of this Section 8, a business shall be deemed to be in competition with the Company if it is involved in the design, manufacture and sale of any products designed, manufactured or sold by the Company. SECTION 9. NON-SOLICITATION OF EMPLOYEES AND CUSTOMERS. The Executive shall not at any time during his employment hereunder and for a period of two years after the date his employment is terminated for any reason, directly or indirectly, for himself or for any other person, firm, corporation, partnership, association or other entity, (i) attempt to employ, employ or enter into any contractual arrangement with any employee or former employee of the Company, its affiliates, or predecessors-in-interest, unless such employee or former employee has not been employed by the Company, its affiliates, or predecessors-in-interest for a period in excess of six months; and/or (ii) call on or solicit any of the actual or targeted prospective customers or suppliers of the Company or its predecessor-in-interest with respect to any matters, related to or competitive with the business of the company, nor shall the Executive make known the names or addresses of such customers or suppliers or any information relating in any manner to the Company's trade or business relationships with such customers or suppliers. 5 6 Wellington Sears Company Employment Agreement SECTION 10. NON-DISCLOSURE Except as expressly permitted by the Company, or in connection with the performance of his duties hereunder, the Executive shall not at any time during or subsequent to his employment by the Company, disclose, directly or indirectly to any person, firm, corporation, partnership, association or other entity any proprietary or confidential information relating to the Company or any information concerning the Company's financial condition or prospects, the Company's customers or suppliers, the Company's sources of leads and methods of obtaining new business, the design, development, manufacture or selling of the Company's products or the Company's methods of doing and operating its business (collectively, "Confidential Information") except when required to do so by a court of competent jurisdiction, by any governmental agency having supervisory authority over the business of the Company or, as the case may be, an affiliate of the Company or by any administrative body or legislative body (including a committee thereof) with jurisdiction to order Executive to divulge, disclose or make accessible such information. Confidential Information shall not include information which, at the time of disclosure, is known or available to the general public by publication or otherwise through no act or failure to act on the part of the Executive. The Executive acknowledges and agrees that the Confidential Information is a valuable, special and unique asset of the Company's business. SECTION 11. BOOKS AND RECORDS. All books, records and accounts relating in any manner to the Company's customers or suppliers, whether prepared by the Executive or otherwise coming into the Executive's possession, and all copies thereof in the Executive's possession, shall be the exclusive property of the Company and shall be returned immediately to the Company upon termination of the Executive's employment hereunder or upon the Company's request at any time. SECTION 12. INJUNCTION. Executive acknowledges that if he were to breach any of the provisions of Section 8, 9 or 10 or 11, it should result in immediate and irreparable injury to the Company which cannot be adequately or reasonably compensated at law. Therefore, Executive agrees that the Company shall be entitled, if any such breach shall occur or be threatened or attempted, if it so elects, to a decree of specific performance and to a temporary and permanent injunction, without being required to post a bond, enjoining and restraining such breach by the Executive, his associates, his partners or agents, either directly or indirectly, and that such right to injunction shall be cumulative to whatever remedies or actual damages the Company may possess. SECTION 13. MISCELLANEOUS 13.1 BINDING EFFECT. This Agreement shall inure to the benefit of and shall be binding upon Executive and his executor, administrator, heirs, personal representatives and assigns, and Company and its respective successors and assigns, provided, however, that Executive shall not be entitled to assign or delegate any of his rights or obligations hereunder without the prior written consent of the Company. 6 7 Wellington Sears Company Employment Agreement 13.2 GOVERNING LAW. This Agreement shall be deemed to be made in, and in all respects shall be interpreted, construed and governed by and in accordance with, the laws of the State of Georgia (without giving effect to the conflicts of law principles thereof). No provision of this Agreement or any related document shall be construed against or interpreted to the disadvantage of any party hereto by any court or other governmental or judicial authority by reason of such party having or being deemed to have structured or drafted such provision. 13.3 HEADINGS. The section and paragraph headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. 13.4 NOTICES. Unless otherwise agreed to in writing by the parties hereto, all communications provided for hereunder shall be in writing and shall be deemed to be given when delivered in person (by courier service or otherwise) or seven days after being deposited in the United States mail, first class, registered or certified, return receipt requested, with proper postage prepaid, and addressed as follows: (a) If to Company: Rainer Bosselmann Jupiter National, Inc. 39 West Montgomery Avenue Rockville, Maryland 20850 with a copy to: Arthur Bill, Esq. Freedman, Levy, Kroll & Simonds 1050 Connecticut Avenue, NW, Suite 825 Washington, D.C. 20036 (b) If to Executive, addressed to: L. Allen Hinkle 1724 Spring Road Lanett, AL 36863 with a copy to: Philip Theodore, Esq. King & Spalding 191 Peachtree Street Atlanta, Georgia 30303 7 8 Wellington Sears Company Employment Agreement 13.5 COUNTERPARTS. This Agreement may be executed in two (2) counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument. 13.6 ENTIRE AGREEMENT. This Agreement is intended by the parties hereto to be the final expression of their agreement with respect to the subject matter hereof and is the complete and exclusive statement of the terms thereof, notwithstanding any representations, statements or agreement to the contrary heretofore made. This Agreement may be modified only by a written instrument signed by each of the parties hereto. IN WITNESS WHEREOF, the parties hereto have executed this Agreement under seal as of the date first above written. WELLINGTON SEARS COMPANY By /s/ Rainer H. Bosselmann ----------------------------------- Rainer H. Bosselmann, Chairman, Chief Executive Officer EXECUTIVE /s/ L. Allen Hinkle ------------------- L. Allen Hinkle, President, Chief Operating Officer 8 EX-10.22 4 BANK CREDIT AGREEMENT 1 EXHIBIT 10.22 US$160,000,000 CREDIT AGREEMENT Dated as of March 28, 1996 among JOHNSTON INDUSTRIES, INC. WELLINGTON SEARS COMPANY SOUTHERN PHENIX TEXTILES, INC. OPP AND MICOLAS MILLS, INC. JOHNSTON INDUSTRIES COMPOSITE REINFORCEMENTS, INC. T.J. BEALL COMPANY -and- THE BANKS NAMED HEREIN, THE CHASE MANHATTAN BANK, N.A. as Administrative Agent, CHASE SECURITIES, INC. as Arranger and NATIONSBANK, N.A. as Syndication Agent 2 TABLE OF CONTENTS
Page ---- ARTICLE I CERTAIN DEFINITIONS AND ACCOUNTING TERMS SECTION 1.01. Certain Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 SECTION 1.02. Computation of Time Periods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 SECTION 1.03. Accounting Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 SECTION 1.04. Payments on a Day Other Than a Business Day . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 ARTICLE II THE CREDIT SECTION 2.01. The Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 SECTION 2.02. Making the Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 SECTION 2.03. The Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 SECTION 2.04. Interest; Conversion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 SECTION 2.05. Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 SECTION 2.06. Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 SECTION 2.07. Mandatory Prepayment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 SECTION 2.08. Changes of Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 SECTION 2.09. Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 SECTION 2.10. Late Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 SECTION 2.11. Payments and Computations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 SECTION 2.12. Application of Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 SECTION 2.13. Reserves; Additional Costs; Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 ARTICLE III THE LETTERS OF CREDIT SECTION 3.01. Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 SECTION 3.02. Purposes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 SECTION 3.03. Procedures for Issuance of Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 SECTION 3.04. Participating Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 SECTION 3.05. Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 SECTION 3.06. Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 SECTION 3.07. Obligations Absolute . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 SECTION 3.08. Cash Collateral Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 SECTION 3.09. Letter of Credit Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
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Page ---- ARTICLE IV SECURITY SECTION 4.01. Security Agreements; Collateral Assignment; Mortgages; Pledge Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 ARTICLE V CONDITIONS OF LENDING SECTION 5.01. Conditions Precedent to the Initial Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 SECTION 5.02. Conditions Precedent to Each Revolving Credit Loan or Letter of Credit . . . . . . . . . . . . . . . . . . . . . . . . . 44 SECTION 5.03. Deemed Representations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 ARTICLE VI REPRESENTATIONS AND WARRANTIES OF BORROWERS SECTION 6.01. Representations and Warranties of Borrowers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 ARTICLE VII COVENANTS OF THE BORROWERS SECTION 7.01. Affirmative Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 SECTION 7.02. Negative Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 SECTION 7.03. Financial Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 ARTICLE VIII EVENTS OF DEFAULT SECTION 8.01. Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72 SECTION 8.02. Setoff . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 ARTICLE IX REMEDIES AFTER DEFAULT SECTION 9.01. Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 SECTION 9.02. No Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 SECTION 9.03. Application of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76 SECTION 9.04. Attorneys-in-Fact . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
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Page ---- ARTICLE X THE AGENT SECTION 10.01. Appointment, Powers and Immunities . . . . . . . . . . . . . . . . . . . . . . .. . . . . . 77 SECTION 10.02. Reliance by Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78 SECTION 10.03. Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . 79 SECTION 10.04. Rights as a Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79 SECTION 10.05. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . 79 SECTION 10.06. Non-Reliance on Agent and Other Banks . . . . . . . . . . . . . . . . . . . . . . . . . . 80 SECTION 10.07. Failure to Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . 80 SECTION 10.08. Resignation or Removal of Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80 SECTION 10.09. Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . 81 SECTION 10.10. Amendments Concerning Agency Function . . . . . . . . . . . . . . . . . . . . . . . . . . 81 SECTION 10.11. Liability of Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 81 SECTION 10.12. Transfer of Agency Function . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81 SECTION 10.13. Non-Receipt of Funds by the Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82 SECTION 10.14. Withholding Taxes . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . 82 ARTICLE XI RELATIONS AMONG THE BANKS AND THE BORROWERS . . . . . . . . . . . . . . . . . 83 SECTION 11.01. Obligations and Rights of Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83 SECTION 11.02. Pro Rata Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83 SECTION 11.03. Sharing of Recoveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83 SECTION 11.04. Security Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84 SECTION 11.05. Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84 SECTION 11.06. Amendment of ARTICLES X and XI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85 ARTICLE XII THE ARRANGER . . . . . . . . . . . . . . . . . . . . . . . . . 85 SECTION 12.01. The Arranger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85 SECTION 12.02. Exculpatory Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85 SECTION 12.03. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86 SECTION 12.04. Arranger in its Individual Capacity . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86 SECTION 12.05. Non-Reliance on Arranger and Other Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86 ARTICLE XIII THE SYNDICATION AGENT . . . . . . . . . . . . . . . . . . . . . . 87 SECTION 13.01. The Syndication Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87 SECTION 13.02. Exculpatory Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87 SECTION 13.03. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87 SECTION 13.04. Rights as a Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88 SECTION 13.05. Non-Reliance on Syndication Agent and Other Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
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Page ---- ARTICLE XIV MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . 89 SECTION 14.01. Amendments, Waivers, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89 SECTION 14.02. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90 SECTION 14.03. No Waiver, Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90 SECTION 14.04. Costs, Expenses, Taxes, Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90 SECTION 14.05. Limitation on Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91 SECTION 14.06. Severability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91 SECTION 14.07. Binding Effect; Governing Law; Consent to Jurisdiction; Waiver of Jury Trial; Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91 SECTION 14.08. Assignment; Participations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92 SECTION 14.09. Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93 EXHIBITS Exhibit A-1 Revolving Credit Note Exhibit A-2 Term Note A Exhibit A-3 Term Note B Exhibit B-1 Notice of Borrowing Exhibit B-2 Notice of Letter of Credit Exhibit C Borrowers' Security Agreement Exhibit D Intellectual Property Security Agreement Exhibit E Collateral Assignment Exhibit F Form of Mortgage Exhibit G Environmental Indemnity Exhibit H Stock Pledge Agreement Exhibit I-1 Form of Legal Opinion of Fried, Frank, Harris, Shriver & Jacobson Exhibit I-2 Form of Legal Opinion of Page & Scrantom Exhibit J Borrowing Base Certificate Exhibit K Solvency Certificate Exhibit L Environmental Work SCHEDULES Schedule I Bank Commitments Schedule II List of Mortgages and Description of Real Property to which such Mortgages Relate Schedule III Environmental Reports Schedule 6.01(a) List of Subsidiaries and % Ownership Schedule 6.01(e) Disclosure of Liens
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Page ---- Schedule 6.01(g) Disclosure of Existing Guaranties, Contingent Obligations, Unfunded Vested Liabilities, Secured Guaranties, Credit Agreements and Arrangements, Purchase Agreements, Capital Leases and Material Investments Schedule 6.01(i) List of Intellectual Property Schedule 7.01(n) Tarboro Plant Machinery & Equipment and List of Other Investment Securities of Jupiter Schedule 7.02(a)(ii) Permitted Debt Schedule 7.02(d)(x) Permitted Liens Schedule 7.02(q) List of Existing Operating Accounts
-v- 7 CREDIT AGREEMENT dated as of March 28, 1996 among Johnston Industries, Inc., a Delaware corporation ("Johnston"), WELLINGTON SEARS COMPANY, an Alabama corporation ("Wellington"), SOUTHERN PHENIX TEXTILES, INC., an Alabama corporation ("Phenix"), OPP AND MICOLAS MILLS, INC., an Alabama corporation ("Opp"), JOHNSTON INDUSTRIES COMPOSITE REINFORCEMENTS, INC., an Alabama corporation ("JICR") and T.J. Beall Company, a Georgia corporation ("TJB") (Johnston, Wellington, Phenix, Opp, JICR and TJB hereinafter individually referred to as the "Borrower" and collectively as the "Borrowers"), the several banks parties hereto or which shall become a party hereto from time to time (individually a "Bank" and collectively the "Banks"), THE CHASE MANHATTAN BANK, N.A. ("Chase"), as administrative agent for the Banks ("Agent"), NATIONSBANK, N.A. ("NationsBank"), as syndication agent for the Banks ("Syndication Agent") and CHASE SECURITIES, INC., as arranger ("Arranger"). W I T N E S S E T H: WHEREAS, the Borrowers wish to arrange a credit facility in an aggregate amount of up to $160,000,000, the proceeds of which will be used to repay existing indebtedness, finance the acquisition of the remaining issued and outstanding capital stock of Jupiter National, Inc. ("Jupiter") and for general working capital purposes; and WHEREAS, the Borrowers are all affiliated entities engaged in strategically related businesses and, consequently, each will derive substantial economic benefit from the making of the credit facility; and WHEREAS, the Banks are willing to provide the Borrowers with the credit facility on the terms and conditions set forth herein. NOW, THEREFORE, the Banks, the Agent, the Arranger, the Syndication Agent, and each Borrower, jointly and severally, hereby agree as follows: ARTICLE I CERTAIN DEFINITIONS AND ACCOUNTING TERMS SECTION 1.01. Certain Defined Terms. As used in this Agreement and unless otherwise expressly indicated, the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined): 8 "Acceptable Acquisition" shall mean (x) any Acquisition (a) which has been either approved by the Board of Directors of the corporation which is the subject of such Acquisition or recommended by such Board to the shareholders of such corporation, and (b) the acquired entity of which is in the textile or textile-related business, and (c) which, after considering the pro forma position of the Consolidated Entities after giving effect to such Acquisition, the Borrowers remain in compliance with all the covenants contained in ARTICLE VII; or (y) any investment by a Consolidated Entity in any partnership or joint venture which is or is intended to be engaged in the textile or textile-related business, provided that after considering the pro forma position of the Consolidated Entities subsequent to such investment, the Borrowers remain in compliance with the covenants contained in ARTICLE VII. "Acquisition" shall mean any transaction pursuant to which a Consolidated Entity shall (a) acquire equity securities (or warrants, options or other rights to acquire such securities) of any Person other than a Consolidated Entity, or (b) make any Person a Subsidiary of any Consolidated Entity or cause any Person to be merged into any Consolidated Entity, in any case pursuant to a merger, purchase of assets or any reorganization providing for the delivery or issuance to the holders of such Person's then outstanding securities, in exchange for such securities, of cash or securities of any Consolidated Entity, or a combination thereof, or (c) purchase all or substantially all of the business or assets of any Person. "Affiliate" means any Person: (a) which directly or indirectly controls, or is controlled by, or is under common control with, any Consolidated Entity; (b) which directly or indirectly beneficially owns or holds 15% or more of any class of voting stock of any Consolidated Entity; or (c) 15% or more of the voting stock of which is directly or indirectly beneficially owned or held by any Consolidated Entity. The term "control" means the direct or indirect ability to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract, or otherwise, alone or as part of a group. "Agent" shall mean Chase, as administrative agent for the Banks, appointed pursuant to ARTICLE X and its successors, if any, in such capacity. "Agreement" means this Credit Agreement, as it may be amended, supplemented, restated or otherwise modified from time to time. "Applicable Margin" shall mean, [1] with respect to Revolving Credit Loans and Term Loan A: (a) if such Loan is a Eurodollar Loan made at any time after the Closing Date until the Initial Repricing Date, two hundred and fifty (250) basis points -2- 9 (2.5%); (b) if such Loan is a Base Rate Loan made at any time after the Closing Date until the Initial Repricing Date, one hundred twenty-five (125) basis points (1.25%); and (c) if such Loan is made at any time after the Initial Repricing Date, the Applicable Margins shall mean for each Loan, the amount calculated by reference to the Debt Ratio as at the last day of the most recently ended fiscal quarter of Johnston ("Testing Date"), which, if such Debt Ratio shall fall within any of the ranges set forth in the table below, then the "Applicable Margin" shall be the respective basis points set forth opposite such range in the table below during the period commencing on the Margin Change Date (as defined below) for such Testing Date to but not including the Margin Change Date for the next succeeding Testing Date:
- -------------------------------------------------------------------------------------------------------------------- DEBT RATIO: LESS THAN OR GREATER THAN 2:00:1, GREATER THAN 2:75:1 GREATER THAN 4:25:1 OR EQUAL TO BUT LESS THAN OR BUT LESS THAN OR 3:50:1 BUT LESS GREATER 2:00:1 EQUAL TO 2:75:1 EQUAL TO 3:50:1 THAN OR EQUAL TO 4:25:1 - -------------------------------------------------------------------------------------------------------------------- EURODOLLAR 100.00 bp 125.00 bp 150.00 bp 200.00 bp 250.00 bp LOAN: - -------------------------------------------------------------------------------------------------------------------- BASE RATE 0 0 25.00 bp 75.00 bp 125.00 bp LOAN: - --------------------------------------------------------------------------------------------------------------------
* bp = basis points For purposes of this definition, "Margin Change Date" shall mean, for any Testing Date, ten days after the Agent receives the Borrower's Financial Statements pursuant to SECTION 7.01(b)(i) or (ii) hereof for such Testing Date (except that for any Testing Date that is a fiscal year end, for purposes of determining the Applicable Margin, the Borrowers may deliver a statement setting forth a calculation of the Debt Ratio for such fiscal year, certified by the treasurer or a senior financial officer of Johnston and the Applicable Margin shall be adjusted accordingly in the event that the Debt Ratio as set forth in any such statement differs from the Debt Ratio calculated based on the applicable audited Financial Statements for such fiscal year). [2] with respect to Term Loan B: (a) if such Loan is a Eurodollar Loan, three hundred (300) basis points (3.00%), and (b) if such Loan is a Base Rate Loan, one hundred seventy-five (175) basis points (1.75%). "Arranger" shall mean Chase Securities, Inc., as the arranger for this credit facility, appointed pursuant to ARTICLE XII, and its successors, if any, in such capacity. "Authority" means any nation or government, any state or other political subdivision thereof and any entity, including, without limitation, the Board of Governors of the Federal Reserve System, exercising executive, legislative, regulatory or adminis- -3- 10 trative functions of or pertaining to a government having jurisdiction with respect to loans hereunder. "Base Rate" shall mean, for all applicable Interest Payment Dates, the greater of (i) the Federal Funds Rate from time to time in effect plus 1/2 of 1%, or (ii) the Prime Rate from time to time in effect. "Base Rate Loan" shall mean any Loan at such time as interest thereon accrues at a rate of interest based upon the Base Rate. "Borrowing Base" means, at any date of determination thereof, an amount determined by the Agent, with reference to the most recent Borrowing Base Certificate, to be equal to the sum of (a) 85% of Eligible Receivables, plus (b) the permitted percentages of each category of Eligible Inventory as specified on the Schedules to Exhibit J, plus (c) (i) for the period commencing on the Closing Date and ending on February 28, 1997, up to 25% of the appraised orderly liquidation value of all plant and equipment of the Borrowers on a consolidated basis currently equal to $117,299,775 (for purposes of this definition, the "Appraised OLV") and (ii) for all times thereafter, up to 20% of the Appraised OLV; provided, however, that during the Sale Period, the Borrowing Base shall be reduced by the Restricted Revolver Amount. "Borrowing Base Certificate" means the borrowing base certificate substantially in the form of Exhibit J (including all Schedules annexed to said Exhibit) to be delivered by the Borrowers under the terms of this Agreement. "Business Day" means any day of the year on which commercial banks are not required or authorized to be closed in New York City, and whenever such day relates to a Eurodollar Loan, a day on which dealings in Dollar deposits are also carried out in the London interbank market. "Capital Expenditure" means, with respect to any Person, any expenditure made or obligation incurred by such Person to purchase, acquire or construct fixed assets, plant and equipment (including renewals, improvements, replacements and incurrence of obligations under Capital Leases), but excluding expenditures made or obligations incurred to consummate the Jupiter Acquisition. "Capital Lease" means any lease which has been or should be capitalized on the books of the lessee in accordance with GAAP. "Change of Control" shall mean the occurrence, without the prior consent of the Required Banks, of: (a) (i) an acquisition resulting in beneficial ownership (within the meaning -4- 11 of Rule 13d-3 promulgated under the Securities Exchange Act of 1934 and referred to in this definition as "Beneficial Ownership") of more than 25% of the outstanding voting securities of Johnston (for purposes of this definition, the "Voting Shares") by any Person (other than David L. Chandler, a Subsidiary of Johnston or an employee benefit plan or trust forming a part thereof maintained by Johnston or any of its Subsidiaries) that is deemed to be a "person" under Sections 13(d)(3) and 14(d)(2) of the Securities Exchange Act of 1934, as amended, and (ii) a percentage of the combined voting power of Johnston's then outstanding Voting Shares greater than that Beneficially Owned by David L. Chandler; provided, however, that a Change of Control shall not be deemed to occur solely because any Person acquired effective control of more than 25% of the then outstanding Voting Shares as a result of the acquisition by Johnston of any of its Voting Shares which has the effect of reducing the number of Voting Shares then outstanding and increasing the proportional number of shares owned by such Person, so long as a Change of Control would not have otherwise occurred but for such acquisition by Johnston of its Voting Shares; or (b) the individuals who, as of the Closing Date, are members of the Board of Directors of Johnston cease for any reason to constitute a majority of the members of said Board, unless the election or nomination for election by Johnston's common stockholders of any new director is approved by a vote of a least a majority of the individuals constituting at the time of such election or nomination at least a majority of the Board of Directors of Johnston. "Closing Date" means the date upon which the initial borrowing of a Loan occurs hereunder. "Code" means the Internal Revenue Code of 1986, as amended from time to time. "Collateral" shall mean all property and assets with respect to which a Lien is or may be granted pursuant to the Collateral Security Documents. "Collateral Assignment" has the meaning assigned to that term in SECTION 4.01. "Collateral Security Documents" has the meaning assigned to that term in SECTION 4.01. "Commitment" shall mean, in the case of any Bank, its Revolving Credit Commitment, Term Loan A Commitment or Term Loan B Commitment, and the Revolving Credit Commitments, Term Loan A Commitments and Term Loan B Commitments of all the Banks are referred to collectively herein as the "Commitments". "Consolidated Capital Expenditures" means, with respect to any fiscal period, the aggregate amount of Capital -5- 12 Expenditures made by the Consolidated Entities for such period, as determined on a consolidated basis in accordance with GAAP. "Consolidated Current Assets" means, at any date of determination thereof, all assets of the Consolidated Entities treated as current assets, as determined on a consolidated basis in accordance with GAAP. "Consolidated Current Liabilities" means, at any date at which the amount thereof is to be determined, all liabilities of the Consolidated Entities which are or should be classified as current liabilities in accordance with GAAP, excluding the current portion (in accordance with GAAP) of Consolidated Debt having maturities in excess of one year from the date of determination. "Consolidated Debt" means, at any date of determination thereof, the aggregate amount of Debt of the Consolidated Entities as determined on a consolidated basis in accordance with GAAP. "Consolidated EBIT" means, with respect to any fiscal period, the sum of (a) Consolidated Net Income for such period, plus (b) the aggregate amount of (i) income taxes and (ii) Consolidated Interest Expense, to the extent that such aggregate amount was deducted in the computation of Consolidated Net Income for such period. "Consolidated EBITA" means, with respect to any fiscal period, the sum of (a) Consolidated EBIT for such period, plus (b) the aggregate amount of amortization, to the extent that such aggregate amount was deducted in the computation of Consolidated EBIT for such period. "Consolidated EBITDA" means, with respect to any fiscal period, the sum of (a) Consolidated EBITA for such period, plus (b) the aggregate amount of depreciation, to the extent that such aggregate amount was deducted in the computation of Consolidated EBITA for such period. "Consolidated Entities" means, collectively, each Borrower, and each Subsidiary of each Borrower whose accounts are or are required to be consolidated or included with the accounts of Johnston in accordance with GAAP. "Consolidated Funded Debt" means, at any date of determination thereof, the result of (a) the aggregate amount of Consolidated Debt minus (b) the aggregate amount of Consolidated Debt that (i) is payable on demand or within one year of the creation thereof other than any such Debt that, although payable within one year, constitutes payments required to be made on account of principal of indebtedness expressed to mature more than one year from the date of creation thereof, and (ii) would -6- 13 constitute a guaranty of Debt of the type permitted to be outstanding pursuant to SECTION 7.02(i) hereof. "Consolidated Interest Expense" means, for any period, all amounts deducted for interest expense (including payments with respect to Capital Leases and Operating Leases to the extent properly classifiable as interest) of the Consolidated Entities for such period, on a consolidated basis determined in accordance with GAAP. "Consolidated Net Income (or Loss)" for any period, shall mean the amount of net income (or loss) of the Consolidated Entities for such period on a consolidated basis, determined in accordance with GAAP, excluding (i) net equity on the earnings of the unconsolidated Subsidiaries of the Borrowers, (ii) extraordinary or nonrecurring gains or losses and (iii) unrealized investment gains or losses. "Consolidated Tangible Net Worth" shall mean, as of any date of determination thereof, the amount by which (a) total assets of the Consolidated Entities, on a consolidated basis, less the book amount of Intangible Assets, exceeds (b) total liabilities of the Consolidated Entities, on a consolidated basis in accordance with GAAP. "Credit Arrangements" has the meaning assigned to that term in SECTION 6.01(p). "Current Ratio" shall mean, for any period, the ratio of (a) Consolidated Current Assets for such period to (b) Consolidated Current Liabilities for such period. "Debt" of any Person shall mean at any time, (i) all obligations of such Person for borrowed money, (ii) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (iii) all obligations of such Person to pay the deferred purchase price of property or services, except trade accounts payable that arise in the ordinary course of business but only if and so long as the same are payable on customary trade terms, (iv) all obligations of such Person as lessee under Capital Leases, (v) all obligations of such Person to reimburse any other Person in respect of the face amounts under outstanding letters of credit or similar instruments, (vi) all obligations with respect to Unfunded Vested Liabilities of such Person, (vii) all Debt secured by (or for which the holder of such Debt has an existing right, contingent or otherwise, to be secured by) a Lien on any asset of such Person, whether or not such Debt is assumed by such Person, and (viii) all obligations of others guaranteed or endorsed by such Person (other than for collection in the ordinary course of business) and other contingent obligations not in the ordinary course of business to purchase, provide funds for payment, supply funds to invest in any Person, or otherwise to assure a Person against loss. -7- 14 "Debt Ratio" shall mean the ratio of (a) Consolidated Funded Debt as indicated on the pro forma balance sheet of the Consolidated Entities as at February 24, 1996, to (b) Consolidated EBITDA, calculated for the 12-month period ended December 31, 1995, and for each fiscal quarter thereafter, the ratio of (c) Consolidated Funded Debt to (d) Consolidated EBITDA calculated for the twelve month period consisting of such fiscal quarter and the three preceding fiscal quarters. "Default" shall mean any Event of Default and any event or circumstance which, with the lapse of time or the giving of notice, or both, could become an Event of Default. "Default Rate" means a floating rate of interest equal to the Interest Rate from time to time in effect plus two (2%) percent per annum. "Dollars" and the sign "$" shall mean lawful money of the United States of America. "Eligible Inventory" means, as of any date of determination thereof, all Inventory of the Borrowers as to which the Agent holds a first priority perfected security interest, provided that such Inventory: (a) is located in the United States; (b) does not include unsalable goods returned or rejected by a customer of any Borrower; (c) does not include goods to be returned to any Borrower's suppliers; (d) does not include any chemicals, dyes or supplies; (e) does not include any inventory aged over six months ("Slow Moving Inventory"); and (f) does not include any LIFO reserves. "Eligible Receivables" means, as of any date of determination thereof, all Receivables of the Borrowers as to which the Agent holds a first priority perfected security interest, provided that such Receivables: (a) arose in the ordinary course of business of any Borrower; (b) do not represent amounts owed to any Borrower for goods shipped on a consignment basis; (c) represent amounts owed for goods sold or leased or services rendered to a customer of any Borrower; (d) are payable in Dollars; (e) do not include any amount which is not due or has not been paid within 60 days of the due date; (f) do not have as the customer a Person that is the subject of any proceeding under any bankruptcy, reorganization, arrangement, readjustment of debt, dissolution or liquidation law; (g) do not have as the customer any Affiliate, except for Receivables due from any Affiliate that are incurred in the ordinary course of business and in an arm's-length transaction so long as the aggregate amount of such Receivables does not exceed 5% of the aggregate unpaid principal balance of all Eligible Receivables due from all customers; (h) do not have as the customer a Person located outside the United States unless the Receivable is supported by a letter of credit, FICA insurance, other appropriate credit support or as specifically described in Schedule B to Exhibit L; -8- 15 (i) do not include any portion of a Receivable as to which the customer has asserted any defense; (j) do not include that portion of any Receivable as to which any offset or counterclaim has been asserted by any distributor for any promotional, advertising or other expense; (k) do not include the amount by which the aggregate unpaid principal balance of all Eligible Receivables due from any single customer exceeds 25% of the aggregate unpaid principal balance of all Receivables due from all customers; (l) do not include any Receivable due from a customer if 35% or more of the aggregate Receivables due from that customer have not been paid within 60 days of the due date; and (m) do not include any Receivable (or portion thereof) that the Agent, in the exercise of its good faith business judgment, has deemed ineligible because of the impairment of the collateral value thereof to the Banks, the inability of the Banks to realize such value thereof or the significant uncertainty as to the ability of the customer to make payment thereunder. "Environmental Indemnity" has the meaning assigned to that term in SECTION 4.01. "Environmental Laws" means any and all applicable federal, state, local and foreign statutes, laws, regulations, ordinances, rules, judgments, orders, decrees, permits, licenses, agreements or other governmental restrictions relating to the environment or to emissions, discharges, releases or threatened releases of pollutants, contaminants, chemicals, or industrial, toxic or hazardous substances or wastes into the environment including, without limitation, ambient air, surface water, ground water, or land, or otherwise relating to the manufacture, processing distribution, use, treatment, storage, disposal, transport, or handling of pollutants, contaminants, chemicals, or industrial, toxic or hazardous substances or wastes. "Environmental Reports" shall mean the Phase I Environmental Assessments and such other reports as described on Schedule III annexed hereto. "Environmental Work" means all action, practices, procedures, arrangements and work (including, without limitation, all testing, sampling, removal, disposal, remediation and other such work and all maintenance and prevention work) described on Exhibit L hereof, together with all work necessary to remediate any contamination or unsafe environmental conditions disclosed in the course of, or caused by, the foregoing Environmental Work (the latter work being referred to as the "Supplemental Environmental Work") "Environmental Work Deadline" means (i) the date which is specified for each portion of Environmental Work on Exhibit L and (ii) in the case of the Supplemental Environmental Work, the date which is six months from the Environmental Work Deadline for -9- 16 the portion of the Environmental Work which gave rise to the Supplemental Environmental Work. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time, including any rules and regulations promulgated thereunder. "ERISA Affiliate" means any corporation or trade or business which is a member of any group of organizations (i) described in Section 414(b) or (c) of the Code of which any Consolidated Entity is a member, or (ii) solely for purposes of potential liability under Section 302(c)(11) of ERISA and Section 41 2(c)(11) of the Code and the lien created under Section 302(f) of ERISA and Section 412(n) of the Code, described in Section 414(m) or (o) of the Code of which any Consolidated Entity is a member. "Eurodollar Loan" means a Loan at such time as interest thereon accrues at a fixed rate of interest based upon the LIBO Rate and to which a single Interest Period applies. "Events of Default" has the meaning assigned to that term in SECTION 8.01. "Excess Cash Flow" means, with respect to any fiscal year of the Consolidated Entities, Consolidated EBITDA for such fiscal year plus, without duplication, the result of (a) the sum of (i) non-cash charges, extraordinary or nonrecurring non-cash losses incurred during such fiscal year (to the extent taken into account in determining Consolidated EBITDA) and (ii) any decrease in Working Investment for such fiscal year, minus, without duplication, (b) the sum of (i) extraordinary or nonrecurring non-cash gains realized during such fiscal year (to the extent taken into account in determining Consolidated EBITDA), plus (ii) the aggregate of all principal payments made during such fiscal year (other than any mandatory payments made pursuant to SECTION 2.07(b)) on, or with respect to, Consolidated Debt, plus (iii) the aggregate amount of Consolidated Interest Expense paid during such fiscal year, plus (iv) income taxes paid by the Consolidated Entities during such fiscal year, plus (v) dividends declared or paid to the extent permitted in ARTICLE VII, plus (vi) Consolidated Capital Expenditures made during such fiscal year not otherwise deducted from Consolidated EBITDA (to the extent that such Consolidated Capital Expenditures were permitted hereunder), plus (vii) any increase in Working Investment for such fiscal year, plus (viii) net gains on asset sales during such fiscal year (to the extent included in determining Consolidated EBITDA). "Federal Funds Rate" shall mean the rate per annum equal to the weighted average of the rates on overnight federal funds transactions as published by the Federal Reserve Bank of New York for any day of determination thereof. -10- 17 "Financial Statements" has the meaning assigned to that term in SECTION 5.01. "Fixed Charge Coverage Ratio" means, at any date of determination thereof, the ratio of (a) the result of (i) Consolidated EBITDA for the Relevant Quarter or Relevant Period (as said terms are defined below) minus (ii) the aggregate amount of Consolidated Capital Expenditures during such Relevant Quarter or Relevant Period to (b) the sum of (i) all scheduled payments of principal due during such Relevant Quarter or Relevant Period (excluding any mandatory payments pursuant to SECTION 2.07) on, or with respect to, Consolidated Debt (including, without limitation, imputed principal on Capital Leases), plus (ii) Consolidated Interest Expense during such Relevant Quarter or Relevant Period, plus (iii) all dividend payments. For purposes hereof, "Relevant Quarter" means (1) for the period from the Closing Date to the fiscal quarter ending June 30, 1996, the two most recent fiscal quarters ended June 30, 1996, (2) for the period after June 30, 1996 to September 30, 1996, the three most recent fiscal quarters ended September 30, 1996, (3) for the period after September 30, 1996 to December 31, 1996, the four most recent fiscal quarters ended December 31, 1996, and (4) for all times thereafter, the Relevant Period, which for the purposes hereof, shall mean the four most recently ended fiscal quarters of the Consolidated Entities. "FUNB" shall mean First Union National Bank of Georgia. "GAAP" shall mean generally accepted accounting principles in the United States of America as in effect on the date hereof, applied on a basis consistent with those used in the preparation of Financial Statements (except for changes concurred in by the Borrowers' independent public accountants). "GWI" means Greater Washington Investments, Inc., a Delaware corporation and wholly-owned subsidiary of Jupiter. "Hazardous Materials" means any and all pollutants, contaminants, toxic or hazardous wastes or any other substances, the removal of which is required or the generation, manufacture, refining, production, processing, treatment, storage, handling, transportation, transfer, use, disposal, release, discharge, spillage, seepage, or filtration of which is restricted, prohibited or penalized by any applicable Environmental Law. "Initial Repricing Date" shall mean the first date after the Closing Date on which the Agent shall receive annual audited Financial Statements of the Consolidated Entities. "Intangible Assets" shall mean the book amount of all intangible assets of the Consolidated Entities, on a consolidated basis, which are or should be classified as intangibles in accordance with GAAP, including, without limitation, goodwill, -11- 18 trademarks, trade names, copyrights, patents, licenses, treasury stock, customer lists, non-compete contracts, any excess of costs over book carrying value of any assets, organizational or research and development expenses; provided, however, that Intangible Assets shall not include any assets, recorded as intangible assets in accordance with GAAP, that are associated with any Plan. "Intercreditor" shall mean that certain Intercreditor Agreement among Chase, NationsBank, Comerica Bank and FUNB dated as of January 14, 1994, as amended, supplemented or modified from time to time. "Interest Coverage Ratio" shall mean the ratio of (a) Consolidated EBIT for the Relevant Quarter or Relevant Period (as said terms are defined below) to (b) Consolidated Interest Expense during such Relevant Quarter or Relevant Period. For purposes hereof, "Relevant Quarter" means (1) for the period from the Closing Date to the fiscal quarter ending June 30, 1996, the two most recent fiscal quarters ended June 30, 1996, (2) for the period after June 30, 1996 to September 30, 1996, the three most recent fiscal quarters ended September 30, 1996, (3) for the period after September 30, 1996 to December 31, 1996, the four most recent fiscal quarters ended December 31, 1996, and (4) for all times thereafter, the Relevant Period, which for the purposes hereof shall mean the four most recently ended fiscal quarters of the Consolidated Entities. "Interest Payment Date" shall mean (i) with respect to each Eurodollar Loan, the last day of the Interest Period for such Eurodollar Loan; provided, however, that in the case of Interest Periods in excess of three months, interest shall be payable on the last day of the third month of such Interest Period, on each integral multiple thereof during such Interest Period and on the last day of such Interest Period, and (ii) with respect to each Base Rate Loan, [June 30, 1996] and the last day of each consecutive calendar quarter thereafter. "Interest Period" means with respect to any Eurodollar Loan and subject to availability: (1) initially, the period commencing on, as the case may be, the borrowing or conversion date with respect to a Eurodollar Loan and ending one month, three months or six months thereafter as selected by the Borrowers; and (2) thereafter, each period commencing on the last day of the next preceding Interest Period applicable to such Eurodollar Loan and ending one month, three months or six months as selected by the Borrowers by irrevocable notice to the Agent not less than three (3) Working Days prior to the last day of the then current Interest Period with respect to such Eurodollar Loan if the Borrowers elect that the Eurodollar Loan -12- 19 is to be maintained as such; provided, however, that all of the foregoing provisions relating to Interest Periods are subject to the following: (A) if any Interest Period in respect of a Eurodollar Loan would otherwise end on a day which is not a Working Day, that Interest Period shall be extended to the next succeeding Working Day unless the result of such extension would be to carry such Interest Period into another calendar month in which event such Interest Period shall end on the immediately preceding Working Day; (B) no Interest Period which would extend beyond the Revolving Credit Termination Date, Term Loan A Termination Date or Term Loan B Termination Date for any portion of a Eurodollar Loan shall be available; (C) any Interest Period pertaining to a Eurodollar Loan that begins on the last Working Day of a calendar month (or on a day for which there is no numerically corresponding day in any calendar month any part of which commences during such Interest Period) shall end on the last Working Day of a calendar month; (D) if the Borrowers shall fail to give notice as to the Interest Rate desired prior to the end of the Interest Period with respect to any Eurodollar Loan as provided in this Agreement, the Borrowers shall be deemed to have elected to convert the affected Eurodollar Loan to a Base Rate Loan; (E) for purposes of determining the availability of Interest Periods in respect of a Eurodollar Loan, such Interest Periods shall be deemed available if the applicable Bank is offered a rate as provided in the definition of LIBO Rate. If a requested Interest Period shall be unavailable in accordance with the foregoing sentence, the Agent may, at its sole option, either select an alternative Interest Period, or, if no alternative Interest Period is chosen by the Agent, the Borrowers shall be deemed to have requested a Base Rate Loan; and (F) no change in the Applicable Margin in effect for a Eurodollar Loan shall be permitted until the expiration of the Interest Period to which such Loan relates, notwithstanding a determination of Debt Ratio which would warrant a change in the Applicable Margin for such Loan prior to the expiration of the relevant Interest Period. "Interest Rate" means (a) for all Base Rate Loans, the Base Rate plus the Applicable Margin, or (b) for all Eurodollar Loans, the LIBO Rate for the applicable Interest Period plus the Applicable Margin. -13- 20 "Inventory" shall mean all inventory (as determined in accordance with GAAP) of the Consolidated Entities including, without limitation, all goods intended for sale, raw materials, work in process and finished goods, together with all materials and supplies of any kind, nature or description with respect to such goods and all documents of title or documents representing the same and any other assets which are or should be classified as inventory in accordance with GAAP. "Interest Rate Protection Agreement" means, with respect to any Person, an interest rate swap, cap or collar agreement or similar arrangement between one or more financial institutions (including, without limitation, the Banks) and such Person providing for the transfer or mitigation of interest risks either generally or under specific contingencies. "Issuing Bank" means Chase, acting in its capacity as a Bank hereunder. "Jupiter Acquisition" shall mean the acquisition by Johnston of the balance of the issued and outstanding capital stock of Jupiter pursuant to the terms of the Jupiter Acquisition Documents. "Jupiter Acquisition Documents" means (a) the Amended and Restated Agreement and Plan of Merger dated as of January 26, 1996 among Johnston, Jupiter and J1 Acquisition Corp. and (b) the certificate of merger to be executed at the closing of the Jupiter Acquisition. "Jupiter Premises" shall mean the premises located at 39 West Montgomery Avenue, Rockville, Maryland and owned by Jupiter. "Lending Office" shall mean the lending office of the Agent and each Bank designated as such for each type of Loan on the signature page hereof, or such other office of the Agent and each Bank as the Agent and each Bank may from time to time specify to the Borrowers as the office by which its Loans of each type are to be made and maintained. "Letter of Credit Availability" means, at any date of determination thereof, the amount by which (a) the lesser of (i) the result of (A) the aggregate amount of the Revolving Credit Commitments or the Borrowing Base as of such date, whichever is less, minus (B) the unpaid aggregate principal amount of the Revolving Credit Loans and Letter of Credit Obligations then outstanding and (ii) $8,000,000 exceeds (b) the aggregate amount of the Letter of Credit Obligations at such date. "Letter of Credit Funding" shall have the meaning assigned to such term in SECTION 3.05(b) hereof. -14- 21 "Letter of Credit Obligations" means, at any date of determination thereof, all liabilities of the Borrowers with respect to Letters of Credit, whether or not any liability is contingent, including (without limitation) the sum (without duplication) of (a) the aggregate amount available to be drawn under the Letters of Credit then outstanding plus (b) the aggregate amount of all unpaid Reimbursement Obligations. "Letters of Credit" shall have the meaning assigned to such term in SECTION 3.01(a) hereof. "Leverage Ratio" shall mean, as of any date of determination thereof, the ratio of (a) Consolidated Debt to (b) Consolidated Tangible Net Worth. "LIBO Rate" means with respect to each Interest Period, the rate per annum equal to the quotient of (a) the rate at which the principal London branch of the Reference Bank's Lending Office is offered Dollar deposits three (3) Working Days prior to the beginning of such Interest Period in the interbank eurodollar market where the foreign currency and exchange operations of the Lending Office are customarily conducted at or about 10:00 a.m., New York City time, for delivery on the first day of such Interest Period for the number of days therein and in an amount comparable to the amount of the Eurodollar Loan to be outstanding during such Interest Period divided by (b) a number equal to 1.00 minus the aggregate (without duplication) of the rates (expressed as a decimal) of reserve requirements current on the date three (3) Working Days prior to the beginning of such Interest Period (including, without limitation, basic, supplemental, marginal and emergency reserves under any regulations of any and all Authorities as now and from time to time hereafter in effect, dealing with reserve requirements prescribed for eurocurrency funding (currently referred to as "Eurocurrency liabilities" in Regulation D of the Board of Governors of the Federal Reserve System ("System")) maintained by a member bank of such System (such LIBO Rate to be adjusted to the next higher 1/100 of one percent). The foregoing shall not in any way limit or affect any indemnification by the Borrowers contained in this Agreement. "Lien" shall mean, with respect to any asset, (a) any mortgage, lien, pledge, charge, security interest, encumbrance or preference, priority or other security arrangement of any kind or nature in respect of such asset, (b) the interest of a vendor or lessor under any conditional sale agreement, financing lease or other title retention agreement relating to such asset or (c) the filing of any financing statement under the UCC or comparable law with respect to such asset. "Loan" means any Loan made by a Bank pursuant to SECTION 2.01. -15- 22 "Loan Documents" shall mean, collectively, this Agreement, the Notes, the Collateral Security Documents, the Environmental Indemnity, the Letters of Credit and the Interest Rate Protection Agreements with any Bank, each as may be amended, modified or restated from time to time. "Long Term Debt" shall mean, as at any date which the amount thereof is determined, the aggregate Debt of the Consolidated Entities, determined on a consolidated basis, which is not included within the definition of Consolidated Current Liabilities. "Material Adverse Effect" means any material adverse effect on (a) the business, properties or condition of the Consolidated Entities, taken as a whole, (b) the ability of any Consolidated Entity to perform any of its material obligations under each of the Loan Documents to which it is a party, (c) the binding nature, validity or enforceability of any of the Loan Documents or (d) the validity, perfection, priority or enforceability of the Liens in favor of the Agent securing the obligations hereunder, which, in each case, arises from, or reasonably could be expected to arise from, any action or omission of action on the part of any Consolidated Entity or the occurrence of any event or the existence of any fact or condition in respect of any Consolidated Entity or any of their respective properties. "Mortgages" means, collectively, the mortgages which are listed and described on Schedule II hereto issued by certain of the Borrowers with respect to the Real Property, as same may be amended, supplemented, restated or otherwise modified from time to time. "Multiemployer Plan" shall mean a Plan defined as such in Section 3(37) of ERISA to which contributions have been made by any Consolidated Subsidiary or any ERISA Affiliate and which is covered by Title IV of ERISA. "Notes" mean, collectively, the Revolving Credit Notes, the Term A Notes and the Term B Notes. "Notice of Borrowing" shall have the meaning assigned to that term in SECTION 2.02. "Notice of Letter of Credit" shall mean the irrevocable, written notice of the Borrowers requesting the issuance of a Letter of Credit pursuant to ARTICLE III of this Agreement in the form annexed hereto as Exhibit B-2. "Operating Lease" shall mean any lease of real or personal property other than a Capital Lease. -16- 23 "PBGC" shall mean the Pension Benefit Guaranty Corporation and any entity succeeding to any or all of its functions under ERISA. "Participating Interest" means, with respect to each Letter of Credit, each Bank's undivided participating interest in such Letter of Credit. "Patent Security Agreement" has the meaning assigned to that term in SECTION 4.01. "Permitted Debt" shall mean the Debt described in Schedule 7.02(a)(ii) attached hereto. "Person" shall mean an individual, partnership, corporation, business trust, joint stock company, trust, unincorporated association, joint venture, governmental authority or political subdivision or agency thereof or other entity of whatever nature. "Plan" shall mean any employee benefit or other plan established or maintained, or to which contributions have been made, by any Consolidated Entity or any ERISA Affiliate and which is covered by Title IV of ERISA or to which Section 412 of the Code applies. "Pledge Agreement" has the meaning assigned to that term in SECTION 4.01. "Premises" shall mean, collectively, the Real Property and all improvements thereon encumbered by any of the Mortgages. "Prime Rate" shall mean the fluctuating rate of interest from time to time announced by Chase at its principal office presently located at 1 Chase Manhattan Plaza, New York, New York 10081 as its prime commercial lending rate. "Prohibited Transaction" means any transaction set forth in Section 406 of ERISA or Section 4975 of the Code. "PTA" shall mean Pay Telephone America, Ltd., a Mississippi corporation, all of whose capital stock is owned by Jupiter. "Purchase Money Lien" means a Lien on any property acquired by any Consolidated Entity (including property acquired pursuant to an Acceptable Acquisition) or placed on any property in order to finance the acquisition of such property, or the assumption of any Lien on property existing at the time of the acquisition of such property or of the Person holding such property or a Lien in connection with any conditional sale or other title retention agreement or a Capital Lease. -17- 24 "Real Property" shall mean all real property listed and described on Schedule II attached hereto. "Receivables" means all of each Consolidated Entity's accounts, contract rights, instruments, documents, chattel paper, general intangibles relating to accounts, drafts and acceptances, and all other forms of obligations owing to such Consolidated Entity arising out of or in connection with the sale or lease of Inventory, goods, equipment or other property or for services rendered, all guarantees and other security therefor, whether secured or unsecured, now existing or hereafter created, and whether or not specifically sold or assigned to the Agent under the Security Agreement or under any other Collateral Security Document. "Reference Bank" shall mean Chase. "Regulatory Change" means, with respect to any Bank, any change after the date of this Agreement in United States federal, state, municipal or foreign laws or regulations (including without limitation Regulation D of the Board of Governors of the Federal Reserve System) or the adoption or making after such date of any written interpretations, directives or requests applying to a class of banks of which such Bank is a member, of or under any United States, federal, state, municipal or foreign laws or regulations (whether or not having the force of law) by any court or governmental or monetary authority charged with the interpretation or administration thereof. "Reimbursement Obligation" means the obligation of the Borrowers to reimburse the Issuing Bank in accordance with the terms of this Agreement for the payment made by the Issuing Bank under any Letter of Credit. "Reportable Event" shall mean any of the events set forth in Section 4043(b) of ERISA as to which events the PBGC, by regulation, has not waived the requirement of Section 4043(a) of ERISA that it be notified within 30 days of the occurrence of such event, provided that a failure to meet the minimum funding standard of Section 412 of the Code or Section 302 of ERISA shall be a Reportable Event regardless of any waivers given under Section 412(d) of the Code. **** "Required Banks" shall mean, at any time, the Banks having at least 66 2/3% of the aggregate amount of all Commitments, or upon termination of the Commitments, the Banks holding at least 66 2/3% of the aggregate principal amount of the outstanding Loans. "Reserve Requirement" means for any Eurodollar Loan for any Interest Period therefor, the average maximum rate (expressed as a decimal) at which reserves (including any marginal, supplemental or emergency reserves) are required to be maintained -18- 25 during such Interest Period under Regulation D by member banks of the Federal Reserve System in New York City with deposits exceeding $1,000,000,000 against "Eurocurrency liabilities" (as such term is used in Regulation D). Without limiting the effect of the foregoing, the Reserve Requirement shall reflect any other reserves required to be maintained by such member banks by reason of any Regulatory Change against (i) any category of liabilities which includes deposits by reference to which the LIBO Rate for Eurodollar Loans is to be determined as provided in the definition of "LIBO Rate" in this SECTION 1.01 or (ii) any category of extensions of credit or other assets which include Eurodollar Loans. "Restricted Investments" shall have the meaning assigned to that term in SECTION 7.02(f). "Restricted Revolver Amount" means $6,000,000 plus all net proceeds received from the sale, transfer or other disposition by Jupiter and/or GWI of any of their assets from and after the Closing Date until the expiration of the Sale Period, which Restricted Revolver Amount may, at the Borrower's option, be applied during the Sale Period to reduce the principal amounts outstanding under any Revolving Credit Loans. "Revolving Credit Borrowing Date" has the meaning assigned to that term in SECTION 2.02. "Revolving Credit Commitment" means, with respect to each Bank, the obligation of such Bank to make Revolving Credit Loans hereunder in the aggregate principal amount set forth in Schedule I, as such amount may be reduced or otherwise modified from time to time. "Revolving Credit Commitment Fee" has the meaning assigned to that term in SECTION 2.05. "Revolving Credit Commitment Percentage" means, as to any Bank at any date of determination thereof, the percentage of the aggregate Revolving Credit Commitments constituted by such Bank's Revolving Credit Commitment at such date. "Revolving Credit Facility" shall mean the Revolving Credit Loans made available to the Borrowers hereunder in an aggregate principal amount not to exceed at any one time outstanding $80,000,000. "Revolving Credit Loan" shall have the meaning assigned to such term in SECTION 2.01 (a) hereof. "Revolving Credit Note" means the promissory note issued by the Borrowers pursuant to SECTION 2.03 evidencing the Revolving Credit Loans made by a Bank hereunder and all promis- -19- 26 sory notes delivered in substitution or exchange therefor, as amended or supplemented from time to time. "Revolving Credit Termination Date" means the fifth anniversary of the Closing Date. "Sale Period" has the meaning assigned to that term in Section 2.07(a). "SBA Loans" shall mean the debentures issued by GWI in an amount equal to $14,500,000 in the aggregate, which have been funded by the formation of a pool of such debentures and similar securities against which the U.S. Small Business Administration ("SBA") has issued SBA-guaranteed participation certificates. "SBA Sale" has the meaning assigned to that term in Section 2.07(a). "Secured Guaranties" shall mean the guaranties issued by Johnston in favor of FUNB to secure certain loans made by FUNB to certain employees, officers and directors of the Borrowers or Guarantor, which guaranties are secured as described in the Intercreditor, in an amount of up to $8,500,000 in the aggregate. "Security Agreement" has the meaning assigned to that term in SECTION 4.01. "Senior Facilities" shall mean the collective reference to the Lines of Credit and the Revolving Credit Facility (as such terms are defined in the Amended Agreement referred to below) made available to Johnston, Phenix and Opp pursuant to that certain Third Amended and Restated Credit and Security Agreement dated as of January 31, 1995 among the aforesaid obligors and Chase, NationsBank and Comerica Bank ("Amended Agreement"). "Solvency Certificate" means the consolidated solvency certificate substantially in the form of Exhibit K to be delivered by Johnston under the terms of this Agreement. "Subsidiaries" shall mean the collective reference to any corporation, association or business entity, the majority of the voting control of which is owned or controlled, directly or indirectly, by any of the Borrowers; and "Subsidiary" shall mean any one of them. "Syndication Agent" shall mean NationsBank, as syndication agent for the Banks, appointed pursuant to ARTICLE XIII, and its successors, if any, in such capacity. "Tarboro Plant" shall mean the Tarboro Plant of Polylock located at Tarboro, North Carolina and owned by Wellington and the machinery, equipment and other assets located -20- 27 thereon, including the assets described in Schedule 7.01(n) annexed hereto. "Term Loan A" shall mean the five year term loan made available to the Borrowers hereunder in an aggregate principal amount not to exceed $40,000,000, amortized in accordance with SECTION 2.01(b) and for which Term Loan A Commitments have been made. "Term Loan A Commitment" means, with respect to each Bank, the obligation of such Bank to make a Term Loan A under this Agreement in the aggregate principal amount set forth in Schedule I. "Term Loan A Note" means the promissory note issued by the Borrowers pursuant to SECTION 2.03 evidencing the Term Loan A made by a Bank hereunder and all promissory notes delivered in substitute or exchange therefor, as amended or supplemented from time to time. "Term Loan A Termination Date" means the fifth anniversary of the Closing Date. "Term Loan B" shall mean the seven year term loan made available to the Borrowers hereunder in an aggregate principal amount not to exceed $40,000,000, amortized in accordance with SECTION 2.01(b) and for which Term Loan B Commitments have been made. "Term Loan B Commitment" means, with respect to each Bank, the obligation of such Bank to make a Term Loan B under this Agreement in the aggregate principal amount set forth in Schedule I. "Term Loan B Notes" means the promissory note issued by the Borrowers pursuant to SECTION 2.03 evidencing the Term Loan B made by a Bank hereunder and all promissory notes delivered in substitution or exchange therefor, as amended or supplemented from time to time. "Term Loan B Termination Date" means the seventh anniversary of the Closing Date. "Term Loan Percentage" means, as to any Bank at any date of determination thereof, the percentage of the aggregate outstanding principal amount of Term Loans constituted by the outstanding principal amount of such Lender's Term Loan A and/or Term Loan B at such date. "Term Loans" means, collectively, all Term Loans A and Term Loans B. -21- 28 "Term Notes" means, collectively, all Term Loan A Notes and Term Loan B Notes. "Total Costs" has the meaning assigned to that term in SECTION 14.04. "Total Loan Commitment" means the aggregate of the Revolving Loan Commitment, the Term Loan A Commitment and the Term Loan B Commitment in a maximum aggregate amount not to exceed at any one time outstanding $160,000,000. "UCC" shall mean the Uniform Commercial Code as in effect in the State of New York or in such other State in which the Collateral is located, as same may be amended or modified from time to time. "UCP" shall mean the Uniform Customs and Practice for Documentary Credits (1993 Revision), International Chamber of Commerce, Publication No. 500. "Unfunded Vested Liabilities" shall mean, with respect to any Plan, the amount (if any) by which the present value of all vested benefits under the Plan exceeds the fair market value of all Plan assets allocable to such benefits, as determined on the most recent valuation date of the Plan. "Unrestricted Subsidiary" shall mean any Subsidiary of the Borrowers that is (i) not incorporated in nor has its principal place of business and substantially all of its owned operating property located in the United States, Canada or Puerto Rico, (ii) not in the textile business, (iii) not a Consolidated Entity or (iv) designated by the Required Banks as an Unrestricted Subsidiary. "Wellington Facilities" shall mean, collectively, the outstanding credit facilities made available to Wellington by Fleet Capital Corporation and First Alabama Bank in an aggregate outstanding amount equal to $[_________________]. "Working Investment" shall mean, at any time of determination thereof, the sum of (i) all accounts receivable and inventory (as determined in accordance with GAAP) of the Consolidated Entities, minus (ii) accounts payable and accrued expenses (as determined in accordance with GAAP) of the Consolidated Entities. "Working Day" shall mean any day on which dealings in foreign currencies and exchange are carried on in London, England and in New York, New York. SECTION 1.02. Computation of Time Periods. Unless otherwise provided, in the computation of periods of time from a specified date to a later specified date herein, the word "from" -22- 29 means "from and including" and the words "to" and "until" each means "to but excluding." SECTION 1.03. Accounting Terms. All accounting terms not specifically defined herein shall be construed in accordance with GAAP. In connection therewith, any references to, or terms, provisions or conditions in connection with, "the Borrowers and their respective Consolidated Subsidiaries", hereunder or under any of the Loan Documents, unless the context otherwise requires, shall be deemed to refer to each of the Borrowers hereunder and their respective Consolidated Subsidiaries taken as a cumulative whole, on a fully consolidated basis. SECTION 1.04. Payments on a Day Other Than a Business Day. Whenever any payment or other obligation hereunder or under the Loan Documents shall be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day (or, if such next succeeding Business Day falls in the next calendar month, the preceding Business Day in the appropriate calendar month). ARTICLE II THE CREDIT SECTION 2.01. The Loans. (a) Subject to the terms and conditions of this Agreement, each of the Banks severally agrees to make revolving credit loans (the "Revolving Credit Loans") to the Borrowers from time to time from the Closing Date to the Revolving Credit Termination Date, in such amounts that the aggregate principal amount of such Bank's Revolving Credit Loan(s) at any one time outstanding does not exceed the amount of its Revolving Credit Commitment. The aggregate amount of the Revolving Credit Loans outstanding at any time shall never exceed the lesser of (A) the Borrowing Base then in effect and (B) the Revolving Credit Facility minus the aggregate amount of Letter of Credit Obligations outstanding at such time. The Revolving Credit Loans shall be due and payable on the Revolving Credit Termination Date. Prior to the Revolving Credit Termination Date, Borrowers may use the Revolving Credit Facility by borrowing, prepaying in whole or in part, and reborrowing the Revolving Credit Loans, all in accordance with the terms and conditions of this Agreement; provided, however, that no portion of the Restricted Revolver Amount shall be borrowed or reborrowed at any time prior to the Expiration of the Sale Period. Each Revolving Credit Loan made by a Bank hereunder shall be made and maintained at such Bank's Lending Office for such type of Loan. (b) Subject to the terms and conditions of this Agreement, each of the Banks severally agrees to make a Term Loan A and/or a Term Loan B to the Borrowers on the Closing Date, in an amount equal to the amount of its Term Loan A Commitment -23- 30 and/or Term Loan B Commitment. The Term Loans shall be repaid in annual installments, each such installment to be payable on each anniversary of the Closing Date until and including the Term Loan A Termination Date and Term Loan B Termination Date, respectively, in the aggregate amounts set forth below, such that on each such payment date, each Bank shall be paid an amount equal to such Bank's pro rata share of Term Loan A or Term Loan B, as the case may be (calculated based on its Term Loan Percentage), of the amounts set forth below:
AGGREGATE ANNUAL AMOUNT OF PAYMENT DATE INSTALLMENT ------------ ----------- TERM LOAN A YEAR 1 - 0 - YEAR 2 $ 8,000,000 YEAR 3 $10,000,000 YEAR 4 $10,000,000 YEAR 5 $12,000,000 TERM LOAN B YEAR 1 - 0 - YEAR 2 $ 500,000 YEAR 3 $ 500,000 YEAR 4 $ 500,000 YEAR 5 $ 500,000 YEAR 6 $19,000,000 YEAR 7 $19,000,000
Each type of Term Loan made by a Bank hereunder shall be made and maintained at such Bank's Lending Office for such type of Loan. SECTION 2.02. Making the Loans. (a) Each Borrower agrees to give to the Agent at least one (1) Business Day's prior, irrevocable written notice duly completed substantially in the form of Exhibit B annexed hereto (a "Notice of Borrowing") for a Base Rate Loan and at least three (3) Working Days' prior, irrevocable written notice, by a duly completed Notice of Borrowing, for a Eurodollar Loan of its intention to borrow under this ARTICLE II specifying: (i) the proposed revolving credit borrowing date ("Revolving Credit Borrowing Date"), (ii) the principal amount of the Revolving Credit Loan to be made on such date, which shall be in an amount of not less than $500,000 or an integral multiple of $50,000 in excess thereof for Base Rate Loans or in an amount of not less than $3,000,000 or an integral multiple of $250,000 in excess thereof for Eurodollar Loans, and (iii) whether the Revolving Credit Loan is to be a Base Rate Loan -24- 31 or a Eurodollar Loan and, if the Loan is a Eurodollar Loan, the Interest Period; provided, however, that no Eurodollar Loans shall be made or available to the Borrowers until the 60th day after the Closing Date. The Agent shall promptly deliver to each Bank by telefax any such Notice of Borrowing received from a Borrower. If any borrowing under this SECTION 2.02 occurs upon the execution and delivery of this Agreement, the Notice of Borrowing may be delivered to the Agent by no later than 12:00 noon on such date, and each Bank with a Revolving Credit Commitment shall, through the Lending Office of the Agent and subject to the conditions of this Agreement, make the amount of the Revolving Credit Loan to be made by it in accordance with its Revolving Credit Commitment available to the Borrowers by 1:00 p.m. on such day in immediately available funds, provided, however, that no Revolving Credit Loan shall be made unless the Notice of Borrowing shall have been received by the Agent by 12:00 noon on such day. Each Notice of Borrowing shall be made by written instructions signed by a person authorized by the Borrowers to execute and deliver such Notice of Borrowing (an "Authorized Signatory"). (b) Subject to the terms of this Agreement, funding of any Loan by the Banks shall be made by crediting an account of such Borrower maintained with the Agent, in accordance with the instructions set forth in the Notice of Borrowing. (c) The obligations of the Borrowers hereunder shall be joint and several and each Loan made to any one of the Borrowers shall be deemed to be a Loan made to all of the Borrowers hereunder. SECTION 2.03. The Notes. On or prior to the Closing Date, each Borrower shall duly issue and deliver to the Agent for each Bank in accordance with its Revolving Credit Commitment, Term Loan A Commitment and/or Term Loan B Commitment, a Revolving Credit Note, Term Loan A Note and/or Term Loan B Note in the forms of Exhibits A-1, A-2 and A-3, respectively, annexed hereto, payable to the order of each Bank, dated the Closing Date, in the principal amount of each Bank's Commitment. Each Bank is hereby authorized by the Borrowers to enter on the schedule attached to its Revolving Credit Note the amount of each Revolving Credit Loan made by such Bank hereunder, each payment thereon, and the other information provided for on such schedule; provided, however, that the failure to make any such entry or any error in making any such entry with respect to any Revolving Credit Loan shall not limit or otherwise affect the joint and several obligations of the Borrowers hereunder or under any Revolving Credit Note, and, in all events, the principal amount jointly and severally owing by the Borrowers in respect of the Notes shall be the aggregate of all Loans made by the Banks less all payments of principal thereon made by the Borrowers. In the event that such schedule shall be filled, each Bank may attach an additional schedule or schedules thereto. The Agent will maintain on its -25- 32 books accounts showing the aggregate principal amount of all Loans made from time to time by the Banks hereunder, interest accrued hereunder from time to time and all payments and prepayments with respect thereto made from time to time by the Borrowers hereunder, and the entries made in such accounts shall be prima facie evidence of the existence and amount of the obligations of the Borrowers therein recorded. In case of discrepancy between the entries in the Agent's books, and any Bank's, such Bank's account shall be considered correct in the absence of manifest error. Each Revolving Credit Note shall mature on the Termination Date; each Term Loan A Note shall mature on the Term Loan A Termination Date and each Term Loan B Note shall mature on the Term Loan B Termination Date. SECTION 2.04. Interest; Conversion. (a) Interest shall accrue on the outstanding and unpaid principal amount of each Loan for the period from the date of such Loan to the date such Loan is due at the applicable Interest Rate for such Loan. If an Event of Default shall exist, interest shall accrue on the outstanding principal amount of any Loan and any other amount payable by the Borrowers hereunder, under any Note or under any other Loan Document to the fullest extent permitted by law from such due date to the date such amount is paid in full or such Event of Default is cured or waived at the Default Rate. Interest on each Loan shall be calculated on the basis of a year of 360 days for the actual number of days elapsed. Promptly after the determination by Agent of any Interest Rate provided for herein or any change therein (including the Applicable Margin thereof), the Agent shall notify the Borrowers and the Banks in writing of such determination. (b) Each change in the rate of interest payable on the Notes due to a change in the Federal Funds Rate or the Prime Rate shall be effective as of the effective date of such change in the applicable rate. (c) With respect to Eurodollar Loans and to conversions from Eurodollar Loans to Base Rate Loans or from Base Rate Loans to Eurodollar Loans: (i) Interest on a Eurodollar Loan shall be payable on the first Interest Payment Date following the Closing Date and each Interest Payment Date thereafter, and at maturity, until and including the date the principal amount of each Revolving Credit Note or Term Note is paid in full. (ii) The Borrowers may elect from time to time to convert a Loan from a Eurodollar Loan to a Base Rate Loan by giving the Agent irrevocable written notice at least three (3) Working Days prior to the last day of the Interest Period for such Eurodollar Loan. If the Borrowers shall fail to give such notice as provided above, the Borrowers shall be deemed to have -26- 33 elected to convert the affected Eurodollar Loan to a Base Rate Loan. (iii) The Borrowers may elect from time to time to (A) convert a Loan from a Base Rate Loan to a Eurodollar Loan and (B) may elect to continue a Loan as a Eurodollar Loan as such upon the expiration of the then current Interest Period with respect to such Eurodollar Loan, in each case by giving the Agent irrevocable written notice at least three (3) Working Days prior to, in the case of conversion, the conversion date, or, in the case of a continuation, the last day of the then current Interest Period with respect to such Eurodollar Loan. The Agent shall promptly notify each Bank of a Borrower's election pursuant to any such notice. With respect to any of the foregoing, such notice shall specify the amount to be converted to or continued as a Eurodollar Loan and the selected Interest Period. If any default in payment under this Agreement or any of the Notes shall have occurred and be continuing, then no Eurodollar Loan may be continued as such, but shall be automatically converted to a Base Rate Loan on the last day of the last Interest Period for which a LIBO Rate was determined by the Reference Bank on or prior to such Bank's obtaining knowledge of such default; in addition no Base Rate Loan may be converted to a Eurodollar Loan when any such default has occurred and is continuing. (iv) A Eurodollar Loan shall have only one (1) Interest Period. A Eurodollar Loan may have an Interest Period of one month, three months or six months, but no combination thereof. No more than five Interest Periods may be outstanding at any one time. (v) In the event that the Reference Bank shall have determined (which determination shall be conclusive and binding upon the Borrowers) that (A) by reason of circumstances affecting the interbank eurodollar market, adequate and reasonable means do not exist for ascertaining the LIBO Rate for any requested Interest Period or (B) the LIBO Rate determined pursuant to this SECTION 2.04 for such Interest Period does not accurately reflect the cost to such Bank of making or maintaining a LIBO Rate Loan during such Interest Period, with respect to (1) a proposed Loan that the Borrowers have requested be made as a Eurodollar Loan, (2) a Eurodollar Loan that will result from the requested conversion of a Base Rate Loan to a Eurodollar Loan or (3) the continuation of a Eurodollar Loan beyond the expiration of the then current Interest Period with respect thereto, in each case the Agent, at the direction of the Reference Bank, shall forthwith give notice by telephone of such determination, confirmed in writing, to the Borrowers and at least one day prior to, as the case may be, the requested date for such Eurodollar Loan, the conversion date of such Base Rate Loan or the last day of such Interest Period. If such notice is given, (x) any requested Eurodollar Loan shall be made as a Base Rate Loan, (y) any Base Rate Loan that was to have been converted to a -27- 34 Eurodollar Loan shall be continued as a Base Rate Loan and (z) any outstanding Eurodollar Loan shall be converted, on the last day of the then current Interest Period with respect thereto, to a Base Rate Loan. Until such notice has been withdrawn by the Agent, at the direction of the Reference Bank, no further Eurodollar Loans shall be made nor shall the Borrowers have the right to convert a Base Rate Loan to a Eurodollar Loan. (vi) With respect to Eurodollar Loans, all payments made by the Borrowers hereunder shall be made free and clear of, and without reduction for or on account of future income, stamp or other taxes, levies, imposts, duties, charges, fees, deductions, reserves or withholdings hereafter imposed, levied, collected, withheld or assessed by any Authority (collectively, "Foreign Taxes"), excluding income and franchise taxes of the United States of America or any political subdivision or taxing authority thereof or therein (including Puerto Rico), and the county in which the applicable Bank's Lending Office may be located or any political subdivision or taxing authority thereof or therein. If any Foreign Taxes are required to be withheld from any amounts payable to a Bank hereunder, the amounts so payable to such Bank shall be increased to the extent necessary to yield to such Bank (after payment of all Foreign Taxes) interest or any such other amounts payable hereunder at the rate or in the amounts specified hereunder. Whenever any Foreign Tax is payable pursuant to applicable law by the Borrowers, as promptly as possible thereafter, such Borrower shall send to the applicable Bank an original official receipt, if available, or certified copy thereof showing payment of such Foreign Tax. The Borrowers hereby jointly and severally indemnify the Banks for any incremental taxes, interest or penalties that may become payable by any of the Banks which may result from any failure by the Borrowers to pay any such Foreign Tax when due to the appropriate taxing authority or failure to remit to the Banks the required receipts or other required documentary evidence. (vii) Notwithstanding any other provisions herein, if any law, treaty, rule or regulation or determination of an arbitrator or a court or other Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject ("Requirement of Law") or any change therein or in the interpretation or application thereof, shall hereafter make it unlawful for any of the Banks to make or maintain a Eurodollar Loan as contemplated hereunder, (A) the commitment of the Banks hereunder to convert Base Rate Loans to Eurodollar Loans shall be cancelled forthwith, and (B) any outstanding Eurodollar Loan shall be converted automatically to a Base Rate Loan on the next succeeding Interest Payment Date or within such earlier period as required by any such law. The Borrowers hereby agree promptly to pay the Banks, upon demand, any additional amounts necessary to compensate the Banks for any costs incurred by the Banks in making any such conversion in accordance with this Agreement, -28- 35 including, but not limited to, any interest or fees payable by the Banks to lenders of funds obtained by it in order to make or maintain its Eurodollar Loans hereunder. A Bank's notice of such costs, as certified to the Borrowers, shall be conclusive absent manifest error. (viii) In the event that any Requirement of Law or any change therein or in the interpretation or application thereof or compliance by any Bank with any request or directive (whether or not having the force of law) from any central bank or other Authority: (A) does or shall hereafter subject a Bank to any tax of any kind whatsoever with respect to this Agreement, the Notes or any Loans made by such Bank, or change the basis of taxation of payments to such Bank of principal, commitment fee, interest or any other amount payable hereunder (except for changes in the rate of tax on the overall net income of a Bank); (B) does or shall hereafter impose, modify or hold applicable any reserve, special deposit, compulsory loan or similar requirement against assets held by, or deposits or other liabilities in or for the account of, advances or loans by, or other credit extended by, or any other acquisition of funds by, any office of a Bank which is not otherwise included in the determination of the LIBO Rate hereunder; (C) does or shall hereafter have the effect of reducing the rate of return on a Bank's capital as a consequence of its obligations hereunder to a level below that which such Bank could have achieved but for such adoption, change or compliance (taking into consideration such Bank's policies with respect to capital adequacy) by any amount deemed by such Bank to be material; or (D) does or shall hereafter impose on a Bank any other condition; and the result of any of the foregoing is to increase the cost to such Bank of making, renewing or maintaining advances or extensions of credit or to reduce any amount receivable hereunder, then, absent manifest error by any such Bank, in any such case, the Borrowers shall promptly pay such Bank, upon its demand, any additional amounts necessary to compensate such Bank for such additional cost or reduced amount receivable which such Bank deems to be material as determined by such Bank. If a Bank becomes entitled to claim any additional amounts pursuant to this paragraph, it shall notify the Borrowers promptly of the event by reason of which it has become so entitled. A certificate as to any additional amounts payable pursuant to the foregoing sentence submitted by such Bank to the Borrowers and to the Agent shall be -29- 36 conclusive in the absence of manifest error. This provision shall survive payment of the Note and payment of all obligations under this Agreement. (ix) The Borrowers agree to jointly and severally indemnify the Banks and to hold the Banks harmless from any loss or expense which any of the Banks may sustain or incur as a consequence of (A) default by the Borrowers in payment of the principal of or interest on any Eurodollar Loans, including, but not limited to, any such loss or expense arising from interest or fees payable by any Bank to lenders of funds obtained by it in order to maintain its Eurodollar Loans hereunder, (B) default by the Borrowers in making a borrowing or conversion after the Borrowers have given a notice in accordance with this Agreement, including, but not limited to, any such loss or expense arising from interest or fees payable by any Bank to lenders of funds obtained by it in order to make or maintain its Eurodollar Loans hereunder, and (C) any prepayment of Eurodollar Loans on a day that is not the last day of an Interest Period with respect thereto, including, but not limited to, any such loss or expense arising from interest or fees payable by any Bank to lenders of funds obtained by it in order to maintain its Eurodollar Loans hereunder. This provision shall survive payment of the Notes in full and the satisfaction of all obligations of the Borrowers under this Agreement and the Loan Documents. SECTION 2.05. Fees. (a) In order to induce the Banks to enter into this Agreement, the Borrowers shall pay to the Agent for the account of each Bank, in arrears, a commitment fee (the "Revolving Credit Commitment Fee") on the daily average unborrowed amount of the Revolving Credit Facility then available for the period commencing on the Closing Date to the Repricing Date at the rate of fifty (50) basis points (1/2 of 1%), computed on the basis of a 360-day year for the actual number of days elapsed. Thereafter, the Revolving Credit Commitment Fee shall be payable upon any reduction or termination of the Revolving Credit Facility and quarterly, in arrears, commencing on the first Measurement Date after the Repricing Date at a rate of twenty-five (25) basis points (1/4 of 1%) if the Debt Ratio during the 3-month period ended on such Measurement Date is less than 2.00:1; thirty-seven and one-half (37.50) basis points (.375%) if the Debt Ratio during the 3-month period ended on a Measurement Date is greater than 2.00:1 but less than or equal to 3.50:1; and fifty (50) basis points (1/2 of 1%) if the Debt Ratio during the 3-month period ended on a Measurement Date is greater than 3.50:1. (b) The Borrowers shall pay to the Agent and the Arranger, respectively, for each of their own accounts, the fees set forth in the fee letter between the Borrowers and the Agent on the Closing Date or as otherwise set forth in such fee letter. SECTION 2.06. Prepayments. (a) Upon at least three (3) Business Days' or Working Days', as the case may be, prior -30- 37 written notice to the Agent specifying the amount and the date of prepayment, the Borrowers shall have the right to prepay the principal amount of the Term Notes in whole or in part from time to time, in principal amounts equal to at least $500,000, or in any larger amount provided said amount is an integral multiple of $50,000, or the remaining balance, if less, in all cases without premium or penalty, subject to clause (b) herein. All such prepayments shall be applied pro rata to the principal installments of the Term Loans in inverse order of their maturities, and in accordance with the Banks' respective Commitments. (b) The Borrowers shall have the right to make prepayments of the principal amount of any Eurodollar Loan without penalty or premium (other than compensation payable in accordance with SECTION 2.13) at any time or from time to time, provided that the Borrowers give the Agent prior written notice of each such prepayment as provided in clause (a) above, and such Eurodollar Loans are prepaid only on the last day of an Interest Period for such Loans, unless the Borrowers agree to provide to the Agent, for the account of each Bank, compensation in accordance with SECTION 2.13 and subject to SECTION 2.04(c). SECTION 2.07. Mandatory Prepayment. (a) If, at any time, any Consolidated Entity sells or otherwise disposes of all or any substantial part of its assets (other than in the ordinary course of business) ("Sale"), then, (i) with respect to the Restricted Revolver Amount, 100% of such proceeds shall be applied to the SBA Loans after six (6) months from the Closing Date (the "Sale Period") if GWI has failed, by the end of such Sale Period, to sell, transfer or otherwise dispose of the SBA Loans, whether as a separate asset or as part of the sale of GWI as a going concern ("SBA Sale"); (ii) with respect to the Restricted Revolver Amount in the event that the SBA Sale has occurred prior to the end of the Sale Period, 100% of such proceeds shall be applied (x) first, to the principal installments of the Term Loans in inverse order of their maturities until the Term Loans shall have been paid in full, and (y) second, to the Revolving Credit Loans until the Revolving Credit Loans shall have been paid in full; (iii) with respect to any proceeds received from Sales in an amount in excess of the Restricted Revolver Amount but less than or equal to $20,000,000 on or prior to the first anniversary of the Closing Date, 100% of such proceeds (net of taxes and transaction expenses, including commissions) shall be applied to the principal installments of the Term Loans in inverse order of their maturities until the Term Loans shall have been paid in full; (iv) with respect to proceeds received from Sales in an amount in excess of $20,000,000 on or prior to the first anniversary of the Closing Date, 100% of the cash consideration received (net of taxes and transaction expenses, including commissions), shall be applied, at the Borrowers' option, to the principal installments of the Term Loans in inverse order of their maturities until the Term Loans shall have been paid in full, or to the Revolving Credit Loans until the -31- 38 Revolving Credit Loans shall have been paid in full; and (v) with respect to proceeds received from Sales after the first anniversary of the Closing Date, 100% of the cash consideration shall be applied (x) first, to the principal installments of the Term Loans in inverse order of their maturities until the Term Loans shall have been paid in full, and (y) second, to the Revolving Credit Loans until the Revolving Credit Loans shall have been paid in full. (b) Not later than 5 days after receipt by the Agent of the Consolidated Entities' audited fiscal year-end Financial Statements, commencing with the year ending December 31, 1996, the Borrowers shall make mandatory prepayments in an aggregate amount equal to (i) 75% of the Excess Cash Flow for each fiscal year, (ii) 100% of the insurance proceeds recovered by any Consolidated Entity, but which are not applied, within a reasonable time after receipt thereof, toward repair, replacement or substitution of damaged or lost property for which such proceeds were recovered ("Insurance"), and (iii) 100% of the net proceeds of any issuance by any Consolidated Entity of Debt or equity ("Debt Issuance"), other than Debt Issuances which are a result of any intercompany loans made by one Borrower to another or the exercise of any stock options by any employee of any Borrower, in either case, if otherwise permissible under this Agreement. In each case, such Insurance or Debt Issuance proceeds, or Excess Cash Flow, whenever received, shall be applied (x) first to the principal installments of the Term Loans in inverse order of their maturities until the Term Loans shall have been paid in full, and (y) second, to the Revolving Credit Loans until the Revolving Credit Loans shall have been paid in full. (c) If any time prior to the Revolving Credit Termination Date, the aggregate amount of all Revolving Credit Loans shall exceed the result of (i) the lesser of (A) the Borrowing Base and (B) the aggregate amount of the Revolving Credit Facility minus (ii) the aggregate amount of Letter of Credit Obligations outstanding at such time, the Borrowers shall repay the Banks forthwith such amounts as may be necessary to eliminate such excess. (d) The Borrowers shall make all mandatory prepayments due hereunder to the Agent, for the account of the Banks, in amount(s) due within five (5) days after the occurrence of an event triggering the mandatory prepayment hereunder. All applications of such mandatory prepayments as set forth in clauses (a) and (b) hereof shall be made on a pro rata basis, in accordance with the Banks' respective Commitments. SECTION 2.08. Changes of Commitments. The Borrowers shall have the right to reduce or terminate the pro rata amount of unused Commitments at any time or from time to time, computed on the basis of each Bank's Commitment, provided that the Borrowers shall have given three (3) Business Days' prior, irrevocable, -32- 39 written notice of each such reduction or termination to the Agent (who will notify the Banks promptly of the receipt of such notice) specifying the amount of the Commitment to be reduced or terminated. Each partial reduction shall be in an aggregate amount at least equal to $500,000. The Commitments, once reduced or terminated, may not be reinstated. SECTION 2.09. Use of Proceeds. The proceeds of all borrowings made by Borrowers hereunder shall be used by the Borrowers solely (i) to finance the Jupiter Acquisition; (ii) to finance working capital requirements; (iii) for general corporate purposes in connection with the Borrowers' ordinary business affairs as currently conducted; (iv) to repay existing indebtedness of the Consolidated Entities (other than existing indebtedness of TJB, unless and until all liens, encumbrances and other security interests of any creditor of TJB existing as of the Closing Date including, without limitation, the Liens listed on Schedule 7.02(d)(X) as temporarily Permitted Liens of TJB, shall be terminated or otherwise satisfied to the satisfaction of the Agent within 15 Business Days from the Closing Date; (v) to finance certain joint projects between or among Consolidated Entities; provided, however, that no more than $41,000,000 of the aggregate amount of the proceeds of the Loans advanced on the Closing Date shall be used to finance the Jupiter Acquisition, and the proceeds of any Loans made hereunder shall not be used for the purpose, whether immediate, incidental or ultimate, of (x) purchasing or carrying margin stock or margin securities within the meaning of Regulations U, G, T and X of the Board of Governors of the Federal Reserve, or (y) financing the activities, working capital requirements or expenditures, of any nature, of GWI; and (vi) to finance the repurchase by Johnston of its common stock in an amount not to exceed $2,150,000, provided such repurchase occurs contemporaneously with the closing of this Agreement. SECTION 2.10. Late Payments. If any payment is not made when due hereunder or under the Notes, whether at maturity, by acceleration or otherwise, and with respect to late payments of interest, after notice of default has been given and the expiration of any applicable grace period pursuant to SECTION 8.01(a) hereof, interest on the total of the unpaid principal amounts then due and on all other amounts due thereunder shall accrue at a rate per annum equal to the Default Rate from the due date thereof until paid in full and the unpaid principal amount of the Notes, plus interest and all amounts due thereunder shall immediately be due and payable. SECTION 2.11. Payments and Computations. (a) The Borrowers shall make each payment due hereunder and under the Notes not later than 1:00 P.M. (New York City time) on the date when due, in same day funds to the account of the Agent at its Lending Office or as otherwise directed by the Agent. -33- 40 (b) The Borrowers hereby authorize the Agent, if and to the extent payment owed to the Banks is not made when due hereunder or under the Notes, to apply any amount available under the Commitment or any credit balance to which Borrowers are entitled on any account of Borrowers with the Agent in satisfaction of any sums due and payable from Borrowers hereunder but unpaid. The Agent shall not be obligated to exercise any right given to it by this SECTION 2.11. The failure or delay of the Agent in exercising any such right shall not be deemed a waiver thereof and the rights available to the Agent under this SECTION 2.11 are in addition to any other rights available to the Agent hereunder, at law or in equity. (c) All computations of interest and fees hereunder shall be made by the Agent on the basis of a year of 360 days, in each case for the actual number of days elapsed (including the first day but excluding the last day) occurring in the period for which such interest is payable. Each determination by the Agent of the Interest Rate hereunder shall be conclusive and binding for all purposes. SECTION 2.12. Application of Payments. Except as otherwise provided in this Agreement, the Agent shall have the absolute right to determine the order in which payments received under this Agreement and the Notes shall be applied to the amounts which are then due and payable hereunder, regardless of any application designated by the Borrowers; provided, however, that unless and until the occurrence of an Event of Default hereunder, all payments, including all prepayments, shall be applied first against any fees or expenses due and payable under this Agreement and the Notes or any other Loan Document, second against interest due under the Notes and third, against the principal amount of the Notes then due and payable, pro rata to each Bank's Commitment. SECTION 2.13. Reserves; Additional Costs; Taxes. In the event that any applicable law, regulation or guideline or any interpretation thereof by any governmental authority charged with administration thereof, or any change therein, subjects any Bank to any tax of any kind whatsoever with respect to any Loan hereunder, or changes the basis of taxation of payments to any Bank of principal or interest payable on such Loans (except for the changes in the rate of tax based solely on the overall net income of the Banks) or imposes, modifies or deems applicable any reserve, special deposit or similar requirement against assets held by or deposits or other liabilities in or for the account of, or Loans made by, any Bank or imposes on any Bank, directly or indirectly, any of the conditions affecting such Loans or the cost of U.S. dollar deposits obtained by any Bank in the interbank market, and the result of any of the foregoing is to increase the cost to any Bank of making or maintaining such Loans by an amount which such Bank deems to be material, then Borrowers will pay to the Agent, for the account of such Bank, upon its demand, the -34- 41 additional amount necessary to compensate such Bank for such additional cost. Absent manifest error, the Bank's statement shall be conclusive as to any additional amount to be paid. Borrowers shall pay to the Agent all principal of and interest on any such Loans free and clear of any and all present and future taxes, levies, imposts, duties, deductions, withholdings, fees, liabilities and similar charges. In the event Borrowers are or may become required to pay any such costs, Borrowers may elect to prepay any outstanding Loans, together with any such costs and any additional costs associated with such prepayment including, without limitation, any losses associated with redeployment of prepaid amounts at rates different from that borne by such prepaid Loans. ARTICLE III THE LETTERS OF CREDIT SECTION 3.01. Letters of Credit. (a) Subject to the terms and conditions of this Agreement, the Issuing Bank, on behalf of the Banks, and in reliance on the agreement of the Banks set forth in SECTION 3.04, agrees to issue on any Business Day prior to the Revolving Credit Termination Date, for the account of any Borrower, irrevocable standby and documentary letters of credit in such form as may from time to time be approved by the Issuing Bank (together with the applications therefor, the "Letters of Credit"); provided that on the date of the issuance of any Letter of Credit, and after giving effect to such issuance, the Letter of Credit Obligations shall not exceed the Letter of Credit Availability. (b) Each Letter of Credit shall (i) have an expiry date no later than the earlier of (A) one year from the date of issuance and (B) the Revolving Credit Termination Date, (ii) be denominated in Dollars, (iii) be in a minimum face amount of $100,000 and (iv) provide for the payment of sight drafts when presented for honor thereunder in accordance with the terms thereof and when accompanied by the documents described or when such documents are presented, as the case may be. SECTION 3.02. Purposes. The Borrowers shall use the Letters of Credit for working capital and general corporate purposes. SECTION 3.03. Procedures for Issuance of Letters of Credit. The Borrowers may from time to time request that the Issuing Bank issue a Letter of Credit by delivering to the Issuing Bank at its address for notices specified herein a Notice of Letter of Credit and an application for the Letter of Credit in such form as may from time to time be approved by the Issuing Bank, completed to the reasonable satisfaction of the Issuing Bank, and such other certificates, documents and other papers and information as the -35- 42 Issuing Bank may reasonably request. Upon receipt of any such application, the Issuing Bank will process such application and the certificates, documents and other papers and information delivered to it in connection therewith in accordance with its customary procedures and shall promptly issue the Letter of Credit, in such customized form as may reasonably be requested by such Borrower (but in no event shall the Issuing Bank issue any Letter of Credit later than three Business Days after receipt of the application therefor and all such other certificates, documents and other papers and information relating thereto in fulfillment of all conditions), by issuing the original of such Letter of Credit to the beneficiary thereof or as otherwise may be agreed by the Issuing Bank and such Borrower. The Issuing Bank shall furnish a copy of such Letter of Credit to such Borrower and the Agent promptly following the issuance thereof. SECTION 3.04. Participating Interests. In the case of each Letter of Credit, effective as of the date of the issuance thereof, the Issuing Bank agrees to allot and does allot to each other Bank with a Revolving Credit Commitment, and each such Bank severally and irrevocably agrees to take and does take a Participating Interest in such Letter of Credit in a percentage equal to such Bank's pro rata share of the Letter of Credit Obligations (calculated based on its Revolving Credit Commitment Percentage). SECTION 3.05. Payments. (a) In order to induce the Issuing Bank to issue the Letters of Credit, the Borrowers, jointly and severally, agree to reimburse the Issuing Bank, for the account of the Banks, by not later than 1:00 p.m., New York City time, on each date that the Borrowers have been notified by the Issuing Bank that any draft presented under any Letter of Credit is to be paid by the Issuing Bank, for (i) the amount of the draft to be paid by the Issuing Bank and (ii) the amount of any taxes, fees, charges or other reasonable costs or expenses whatsoever incurred by the Issuing Bank or any other Bank in connection with any payment made by the Issuing Bank under, or with respect to, such Letter of Credit. Each such payment shall, subject to the next sentence hereof, be made to the Issuing Bank at its Lending Office therefor, in lawful money of the United States and in immediately available funds by not later than 1:00 p.m., New York City time, on the day that payment is made by the Issuing Bank (or, if such drawing occurs after 1:00 p.m. New York City time, on the next succeeding Business Day). If such payment is not made in full, all amounts remaining unpaid by any Borrower under this SECTION 3.05 shall, to the extent otherwise permitted hereunder, automatically be deemed to be a borrowing as Revolving Credit Loans bearing interest at the Base Rate plus the Applicable Margin. Except as otherwise permitted by the preceding sentence, interest on any and all amounts remaining unpaid by the Borrowers under this SECTION 3.05 at any time from the date such amounts become payable (whether at stated maturity, by acceleration or otherwise) until payment in full, shall be payable to the Issuing Bank on demand at the Default Rate. -36- 43 (b) In the event that the Issuing Bank makes a payment (a "Letter of Credit Funding") under any Letter of Credit and is not reimbursed in full therefor on or before the date of such Letter of Credit Funding in accordance with the terms hereof, the Issuing Bank will promptly, through the Agent, notify each Bank with a Participating Interest in such Letter of Credit. No later than the close of business on the date any such notice is given, each such Bank will transfer to the Agent, for the account of the Issuing Bank, in immediately available funds, an amount equal to such Bank's pro rata share of the unreimbursed portion of such Letter of Credit Funding (calculated based on its Revolving Credit Commitment Percentage), together with interest, if any, accrued thereon from and including the date of such transfer at a rate per annum equal to the Federal Funds Rate. (c) Whenever, at any time after the Issuing Bank has made a Letter of Credit Funding and has received from any Bank such Bank's pro rata share of the unreimbursed portion of such Letter of Credit Funding, the Issuing Bank receives any reimbursement on account of such unreimbursed portion or any payment of interest on account thereof, the Issuing Bank will distribute to the Agent, for the account of each such Bank, its pro rata share thereof; provided, however, that in the event that the receipt by the Issuing Bank of such reimbursement or such payment of interest (as the case may be) is required to be returned, such Bank will promptly return to the Agent, for the account of the Issuing Bank, any portion thereof previously distributed by the Issuing Bank to it. SECTION 3.06. Further Assurances. The Borrowers hereby agree to do and perform any and all acts and to execute any and all further instruments from time to time reasonably requested by the Issuing Bank more fully to effect the purposes of this Agreement and the issuance of the Letters of Credit hereunder. SECTION 3.07. Obligations Absolute. The payment obligations of the Borrowers under SECTION 3.05 shall be joint and several, unconditional and irrevocable and shall be paid strictly in accordance with the terms of this Agreement under all circumstances, including, without limitation, the following circumstances: (a) the existence of any claim, set-off, defense or other right which any Borrower may have at any time against any beneficiary, or any transferee, of any Letter of Credit (or any Persons for whom any such beneficiary or any such transferee may be acting), the Issuing Bank or any Bank, or any other Person, whether in connection with this Agreement, any other Loan Document, the transactions contemplated herein, or any unrelated transaction; (b) any statement or any other document presented under any Letter of Credit proves to be forged, fraudulent, in- -37- 44 valid or insufficient in any respect or any statement therein is untrue or inaccurate in any respect; (c) payment by the Issuing Bank under any Letter of Credit against presentation of a draft or certificate which does not comply with the terms of such Letter of Credit; or (d) any other circumstances or happening whatsoever, whether or not similar to any of the foregoing, provided that this subparagraph (d) shall not relieve the Issuing Bank of any liability determined to have resulted from (i) the gross negligence or willful misconduct of the Issuing Bank or (ii) violations of the standards set forth in the UCP. SECTION 3.08. Cash Collateral Account. If the Commitments are duly terminated and all amounts owing under this Agreement, the Notes and the Letters of Credit become due and payable pursuant to the terms of this Agreement, the Borrowers shall deposit with the Agent, on the date such obligations become due and payable, an amount in cash or cash equivalents equal to the Letter of Credit Obligations as of such date and the Letter of Credit fees in accordance with SECTION 3.09. Such amount shall be deposited in a cash collateral account to be established by the Agent, for the benefit of the Issuing Bank and the Banks with Participating Interests, and shall constitute collateral security for the Letter of Credit Obligations and other amounts owing hereunder. All amounts in such cash collateral account shall be maintained pursuant to a cash collateral account agreement which shall grant to the Agent a security interest in all such funds and in any investments made therewith or proceeds thereof to secure payment to the Agent of Reimbursement Obligations with respect to outstanding Letters of Credit. In the event that the Agent pays any drawing under a Letter of Credit, the Agent may withdraw funds on deposit to make reimbursement of such drawing, in an amount equal to such drawing. Upon payment by the Borrowers of all Reimbursement Obligations with respect to Letters of Credit or the termination or other expiration of all Letters of Credit, remaining funds on deposit in the cash collateral account shall be returned promptly to the Borrowers. SECTION 3.09. Letter of Credit Fees. (a) The Borrowers agree to pay the Agent a nonrefundable facility fee for the account of the Issuing Bank equal to one-quarter of one percent per annum, and a letter of credit fee for the account of the Banks computed at the rate of two percent per annum, in each case, calculated on the aggregate amount available for drawing under all Letters of Credit, calculated on the basis of a year of 360 days for the actual number of days elapsed, payable on the last Business Day of each fiscal quarter, commencing on June 30, 1996. (b) The Borrower agrees to pay the Issuing Bank, for its own account, its normal and customary administration, amend- -38- 45 ment, transfer, payment and negotiation fees charged in connection with its issuance and administration of letters of credit. ARTICLE IV SECURITY SECTION 4.01. Security Agreements; Collateral Assignment; Mortgages; Pledge Agreement. (a) To secure the payment to the Banks of all sums due or to become due under this Agreement and under each Term Note, Revolving Credit Note, Letter of Credit and Interest Rate Protection Agreement, and the fulfillment of all other obligations of the Borrowers to the Banks and the Agent hereunder and under each Term Note, Revolving Credit Note, Letter of Credit, Interest Rate Protection Agreement and the other Loan Documents, the Agent shall receive from the Borrowers on or prior to the Closing Date the following documents (collectively, the "Collateral Security Documents"): (i) a security agreement executed by each of the Borrowers substantially in the form of Exhibit C annexed hereto (the "Security Agreement"), granting to the Agent, for and on behalf of the Banks, a first priority lien and security interest in all assets and fixtures owned by the Borrowers including, without limitation, all Inventory and Receivables, accompanied by evidence satisfactory to the Agent that all UCC-1 financing statements or other recordable instruments have been filed and all other steps required to perfect the Lien thereunder have been taken; (ii) a security agreement executed by each of the Borrowers substantially in the form of Exhibit D annexed hereto (the "Intellectual Property Security Agreement"), covering the patents, trademarks, tradenames, copyrights and other intellectual property described therein, owned or to be owned by any Borrower, accompanied by evidence satisfactory to the Agent that all appropriate filings (including any UCC-1 financing statements) have been made with the U.S. Patent and Trademark Office or such other applicable Authority and all other steps required to perfect the Lien of the Agent thereunder have been taken; (iii) collateral assignment agreement substantially in the form of Exhibit E annexed hereto, executed by each Borrower (the "Collateral Assignment"), assigning to the Agent for and on behalf of the Banks, all of the Borrowers' respective rights and interests in all contracts, leases, licenses and agreements (including, without limitation, any Interest Rate Protection Agreement), accompanied by evidence satisfactory to the Agent that all UCC-1 financing statements have been filed and all other -39- 46 steps required to perfect the Lien of the Agent thereunder have been taken; (iv) the Mortgages substantially in the form of Exhibit F annexed hereto and related documents granting to the Agent, for and behalf of the Banks, a first mortgage lien on and security interest in the Real Property including, without limitation, title insurance, opinions regarding title, surveys and UCC financing statements; together with an environmental indemnity executed by each Borrower substantially in the form of Exhibit G annexed hereto (the "Environmental Indemnity") covering the Real Property; and (v) a stock pledge agreement (the "Pledge Agreement") executed by Johnston substantially in the form of Exhibit H annexed hereto accompanied by stock certificates representing all of the outstanding capital stock of each of Johnston's Subsidiaries held by Johnston (other than as specified in such Pledge Agreement) and stock powers in connection therewith undated and duly endorsed in blank. (b) The Borrowers shall each maintain, at their expense, books and records pertaining to the Collateral in such detail, form and scope as the Agent shall, from time to time, reasonably require. Borrowers shall mark their respective records with appropriate notations satisfactory to the Agent disclosing that the Banks have been granted a security interest in the Collateral. Borrowers shall permit the Agent, and its respective employees, agents and representatives, access to the books and records of each Borrower at reasonable intervals and upon reasonable advance notice and, further, to make copies thereof during business hours as may be necessary for the Agent to monitor compliance with the terms of this Agreement. (c) The liens, security interests, encumbrances and assignments granted, created or conveyed pursuant to any of the Collateral Security Documents or any other document shall be security for the payment and performance of any and all obligations, joint and several, of each of the Borrowers to the Banks. ARTICLE V CONDITIONS OF LENDING SECTION 5.01. Conditions Precedent to the Initial Loans. The obligation of the Banks to make the initial Loans and/or issue the initial Letters of Credit is subject to the conditions precedent that on or prior to the Closing Date, the Agent shall have received the following, in form and substance satisfactory to the Agent: -40- 47 (a) The Notes, each duly executed by each of the Borrowers; (b) Each of the Collateral Security Documents duly executed by each Borrower; (c) Legal opinions from counsel to the Borrowers dated the Closing Date, substantially in the form of Exhibits I-1 and I-2 annexed hereto; (d) Such consents or acknowledgments, with respect to such of the transactions hereunder, from such Persons as the Agent or its counsel may determine to be necessary or appropriate; (e) Executed copies of the UCC termination statements (UCC-3) to be filed in order to terminate the security interests of other Persons (other than Persons having Liens permitted hereunder) in and to the collateral covered by the Collateral Security Documents and evidence of the termination of all assignments to other Persons in and to the collateral purported to be covered by the Patent Security Agreement; (f) Certificates of the Secretary or Assistant Secretary of each Borrower dated the Closing Date, (i) attesting to all corporate action taken by each such Person, including resolutions of its Boards of Directors authorizing the execution, delivery and performance of each of the Loan Documents to which it is a party and each other document to be delivered pursuant to this Agreement, (ii) certifying the names and true signatures of the officers of each such Person authorized to sign the Loan Documents to which it is a party and the other documents to be delivered by it under this Agreement and (iii) verifying that the charter and by-laws of each such Person attached thereto are true, correct and complete as of the date thereof; (g) A certificate of a duly authorized officer of each Borrower, dated the Closing Date, stating that (i) the representations and warranties in ARTICLE VI are true and correct on such date as though made on and as of such date (provided that any representations and warranties which speak to a specific date shall remain true and correct in all material respects as of such specific date), (ii) all agreements and conditions required to be performed and complied with by such date have been performed and complied with, (iii) no Default has occurred, and (iv) the Borrowers have no Subsidiaries other than those listed on Schedule 6.01(a) attached hereto; (h) Good standing certificates and certified copies of all charter documents with respect to each -41- 48 Borrower certified by the Secretary of State of its respective jurisdictions of incorporation, and evidence that each is qualified as a foreign corporation in every other jurisdiction in which it does business and in which the failure to qualify could be expected to have a Material Adverse Effect; (i) Evidence that the Jupiter Acquisition shall have been consummated (or will be consummated contemporaneously with the making of the initial Loans hereunder) in accordance with the Jupiter Acquisition Documents, including evidence that the Certificate of Merger, in recordable form, shall have been executed by the parties thereto, and counterparts thereof have been (or upon the making of the initial Loans, will be) presented for filing with the Secretary of State of the State of Delaware; (j) A certificate of a duly authorized officer of Johnston, dated the Closing Date, attaching true and correct copies of (i) all material consents under any indenture, agreement, lease or instrument obtained in connection with the Jupiter Acquisition, (ii) all consents and authorizations required in connection with the Jupiter Acquisition under any law, rule or regulation, and (iii) all certificates of merger, certificates of incorporation and other corporate documentation, evidencing the merger of J1 Acquisition Corp. into Jupiter, all as certified by the Secretary of State of the jurisdiction in which such merger occurs. (k) Certified complete and correct copies of the Jupiter Acquisition Documents, including minutes of the meeting of the shareholders approving the Jupiter Acquisition (and all exhibits, schedules and disclosure letters referred to in the Jupiter Acquisition Documents or delivered pursuant thereto, if any); (l) An initial Notice of Borrowing relating to the Loans to be made on the Closing Date together with a funding letter from the Borrowers containing wire transfer instructions and account information relating to the disposition of the funds to be made available by the Banks to the Borrowers on the Closing Date; (m) A Borrowing Base Certificate as of February 24, 1996; (n) Evidence of the repayment in full of all indebtedness owed under the Senior Facilities and the Wellington Facilities and payment of all fees, commissions and expenses payable in connection with such repayment; -42- 49 (o) Evidence that all collateral security securing the Secured Guaranties has been released by FUNB; (p) Evidence that the Intercreditor has been terminated; (q) Payment with respect to all fees due hereunder; (r) Payment with respect to all of the Total Costs; (s) Audited consolidated financial statements as at June 30, 1995 and for the period then ended, unaudited consolidated and consolidating financial statements as at December 31, 1995 and for the periods then ended, pro forma balance sheet of the Consolidated Entities as at February 24, 1996 and the interim combined balance sheet of the Consolidated Entities for the period from January 1, 1996 to February 24, 1996 and the related combined income statements and combined statement of cash flow for the 2-month period then ended, in each case including notes, comments, schedules and supplemental data thereto (collectively, the "Financial Statements"), all of which shall have been prepared from the books and records of the Consolidated Entities, on a consolidated basis, in accordance with GAAP consistently applied and maintained throughout the periods indicated and which fairly present the financial condition of each Borrower on a consolidating basis and of the Consolidated Entities, taken as a whole on a consolidated basis, as at their respective dates and the results of their respective operations for the periods covered thereby; (t) Certificates or other evidence that each Consolidated Entity is insured against loss or damage under such policies of insurance, with such insurance companies and covering such risks as the Required Banks shall deem necessary or advisable, including, without limitation, general liability, public liability, business interruption and workers' compensation insurance, together with evidence that the Agent, for and on behalf of the Banks, shall have been named as loss payee under such policies (other than policies for workers' compensation insurance); (u) Certificates or other evidence of casualty insurance policies covering all of the Real Property subject to the Lien of the Agent under the Collateral Security Documents with appropriate loss payable endorsements indicating assignment of proceeds thereunder to the Agent and certificates or other evidence of liability insurance with appropriate endorsements indicating the coverage of the Agent as an additional insured; -43- 50 (v) Each Bank shall have completed a due diligence review with respect to the Borrowers' financial condition and business operations, which review shall have been deemed satisfactory to such Bank; (w) Audited financial statements of Jupiter for the years ended 1995, 1994, 1993 and 1992, together with notes, comments, schedules and supplemental data thereto, all of which shall have been prepared from the books and records of Jupiter in accordance with GAAP, consistently applied and maintained throughout the periods indicated and which fairly present the financial condition of Jupiter, on an unconsolidated basis, as at their respective dates and the results of its operations for the periods covered thereby; (x) A report prepared by a Person acceptable to the Agent providing an audit of the Receivables and Inventory of the Consolidated Entities, dated no more than 90 days prior to the Closing Date; (y) Appraisals of the plant and equipment and Real Property of the Consolidated Entities, prepared by a Person acceptable to the Agent; (aa) Evidence that, as of the Closing Date, the total Consolidated Debt hereunder will not, after giving effect to the Loans made available hereunder, exceed $174,500,000; (bb) Evidence that, as of the Closing Date, the Consolidated Entities will have a Consolidated Tangible Net Worth of no less than $50,000,000; (cc) There shall have been no material adverse change, as determined by the Required Banks in their reasonable discretion, in the financial condition or business condition of the Consolidated Entities taken as a whole, or in the Collateral; (dd) Solvency Certificate issued by a duly authorized officer of Johnston; (ee) No suit, action, investigation, inquiry or other proceeding (including, without limitation, the enactment or promulgation of a statute or rule) by or before any arbitrator or any government, state or political subdivision thereof or any entity or agency shall be pending and no preliminary or permanent injunction or order by a state or federal court shall have been entered (i) in connection with this Agreement, the Notes or any Loan Document or any of the transactions contemplated hereby or thereby or (ii) which, -44- 51 in any such case, in the judgment of the Required Banks, could have a Material Adverse Effect; (ff) The Environmental Reports; and (gg) The Agent or its counsel shall have received such other and further approvals, opinions and documents as it or its counsel may have reasonably requested and all legal matters incident to this Agreement and the making of the Loans shall be satisfactory to the Agent or its counsel. SECTION 5.02. Conditions Precedent to Each Revolving Credit Loan or Letter of Credit. The obligation of the Banks to make any Loans or issue any Letters of Credit on or after the initial borrowing hereunder shall be subject to the Agent having received from each Borrower not less than one (1) Business Day's prior written notice of such borrowing for a Base Rate Loan and three (3) Working Days prior written notice of such borrowing for a Eurodollar Loan, and to the fulfillment of the following conditions precedent: (a) The Agent shall have timely received a Notice of Borrowing with respect to such Loan, and with respect to any Revolving Credit Loan requested therein, the aggregate amount of all outstanding Revolving Credit Loans shall not, after giving effect to such Revolving Credit Loan, exceed the lesser of the (i) Borrowing Base then in effect, or (ii) Revolving Credit Facility; (b) The representations and warranties contained in this Agreement and the Loan Documents shall be true in all material respects on and as of the date of such Loan as though made on and as of such date, no Default hereunder or thereunder shall have occurred and be continuing; no material adverse change in the condition, affairs or operations (financial or otherwise) of any Consolidated Entity, or the value of the Collateral shall have occurred, and Borrowers shall have complied and shall then be in compliance in all respects with all of the terms, covenants and conditions of this Agreement, the Notes and any Loan Document which is binding on them; (c) If the Agent shall have so requested by notice to the Borrowers, the Agent shall have received from Borrowers' counsel an opinion dated the date of such Loan, addressed to the Agent and the Banks to the effect that there has been no material change in the opinion rendered to the Agent pursuant to SECTION 5.01(c) of this Agreement; (d) The Agent shall have received payment of all of the Total Costs; and -45- 52 (e) The Agent shall have received such other and further approvals, opinions and documents as may be reasonably requested by the Agent or its counsel and all legal matters incident to this Agreement and the making of such Loan shall be satisfactory to the Agent or its counsel. SECTION 5.03. Deemed Representations. Each and every Notice of Borrowing with respect to a Loan hereunder, each request for a Letter of Credit and/or any acceptance by a Borrower of the proceeds of any Loan made hereunder shall constitute a representation and warranty that the statements made in SECTIONS 5.01 and 5.02 are true and correct in all material respects on and as of the date of such Notice of Borrowing, as though made on and as of such date (except as may be otherwise permitted in this Agreement). ARTICLE VI REPRESENTATIONS AND WARRANTIES OF BORROWERS SECTION 6.01. Representations and Warranties of Borrowers. Further in order to induce the Banks to enter into this Agreement, Borrowers hereby each represent and warrant to the Banks and to the Agent as of the Closing Date as follows: (a) Incorporation, Good Standing and Due Qualification. Each of the Consolidated Entities is duly incorporated, validly existing and in good standing under the laws of the jurisdiction of its incorporation, has the corporate power and authority to own its assets and to transact the business in which it is now engaged or proposed to be engaged, and is duly qualified as a foreign corporation and in good standing under the laws of each other jurisdiction in which such qualification is required (with the exception of Wellington in the State of North Carolina, Ohio and New Jersey and Phenix in the State of New Jersey, such qualifications to be obtained within 30 days of the Closing Date), except where the failure to qualify could not reasonably be expected to have a Material Adverse Effect. Schedule 6.01(a) contains a complete and accurate list of each Subsidiary of each Borrower, such Subsidiary's jurisdiction of incorporation and percentage of such Borrower's ownership of the outstanding stock (or other interest) of each such Subsidiary. (b) Corporate Power and Authority; No Conflicts. The execution, delivery and performance by each of the Consolidated Entities of the Loan Documents to which it is a party and the borrowings hereunder have been duly authorized by all necessary corporate action and do not and will not: (a) require any consent or approval of its stockholders; (b) contravene its charter or by-laws; (c) violate any provision -46- 53 of, or require any filing (other than the filing of the financing statements and assignments required pursuant to the terms of the Collateral Security Documents), registration, consent or approval under, any law, rule or regulation (including, without limitation, Regulations G, T, U and X of the Federal Reserve Board) or any order, writ, judgment, injunction, decree, determination or award presently in effect having applicability to any Consolidated Entity; (d) result in a breach of or constitute a default or require any consent under any indenture or loan or credit agreement or any other agreement, lease or instrument to which any Consolidated Entity is a party or by which it or its properties may be bound or affected; (e) result in, or require, the creation or imposition of any Lien (other than as created under the Collateral Security Documents), upon or with respect to any of the assets now owned or hereafter acquired by the Consolidated Entities; or (f) cause the Consolidated Entities to be in default under any such law, rule, regulation, order, writ, judgment, injunction, decree, determination or award or any such indenture, agreement, lease or instrument. (c) Legally Enforceable Agreements. Each Loan Document to which any Consolidated Entity is a party is, or when delivered under this Agreement will be, a legal, valid and binding obligation of such Consolidated Entity enforceable against it in accordance with its terms, except to the extent that such enforcement may be limited by applicable bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors' rights generally and general principles of equity (regardless of whether such enforceability is considered in a proceeding at law or in equity). The Collateral Security Documents, when executed and delivered in accordance with this Agreement, will create in favor of the Agent, on behalf of the Banks, valid, continuing first liens on substantially all of the assets, real and personal, and the fixtures owned by each Borrower; and when financing statements, mortgages or other recordable documents have been filed and recorded and other steps required to perfect the Banks' liens thereunder have been taken, they will create in favor of the Banks valid, fully perfected liens on the Collateral, except in each case as enforceability may be limited by equitable principles and by bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors' rights generally. (d) Litigation. No litigation or administrative proceeding of or before any court or governmental body or agency is now pending, nor, to the knowledge of any Consolidated Entity, is any such litigation or proceeding now threatened against any Consolidated Entity or any of their properties, which, if adversely determined, would have a Material Adverse Effect, nor, to the best of any of their -47- 54 knowledge, is there a valid basis for the initiation of any such litigation or proceeding. (e) Ownership and Liens. Except as otherwise disclosed in Schedule 6.01(e) attached hereto or in the Financial Statements, the Consolidated Entities have good and marketable title to all their respective properties and assets, real and personal, subject to no mortgage, security interest, pledge, Lien, charge, encumbrance or title retention or other security agreement or arrangement of any nature whatsoever (other than as created under the Collateral Security Documents), except for bill and hold arrangements made in the ordinary course of business and Permitted Liens. (f) Defaults. To the best of their knowledge based upon a good faith investigation, none of the Consolidated Entities is in default in the payment or performance of any of their obligations for the payment of money or under any material lease, franchise, indenture, mortgage, deed of trust, material agreement or other instrument to which they are a party or by which any of them or any of their properties may be bound. (g) Guaranties. Except as otherwise disclosed in the Financial Statements and on Schedule 6.01(g) attached hereto, there are no outstanding material contracts of guaranty or suretyship made by any of the Consolidated Entities nor are any of the Consolidated Entities subject to any other material contingent liability or obligation, except for the endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business. (h) Taxes. Each Consolidated Entity has filed all federal and state and local and foreign tax returns which are required to be filed and has paid, or made adequate provision for the payment of, all taxes which have or may become due pursuant to said returns or to assessments received by a Consolidated Entity, except for taxes which are being contested in good faith and for which adequate reserves have been set aside, and each Consolidated Entity has made adequate provision for all current taxes. (i) Licenses, Patents, Trademarks. Each Borrower possesses or has the right to use all of its patents, patent rights or licenses, trademarks, trademark rights, trade names, trade name rights, and permits which are required to conduct its business as now conducted and Schedule 6.01(i) sets forth a complete and correct list of (i) all United States patents, patent applications, trade names, trademarks, trademark registrations and applications, service mark registrations and applications, and licenses -48- 55 presently owned, possessed, used or held by each Borrower and required to conduct its respective businesses as now conducted and, unless otherwise indicated in such Schedule, each Borrower owns the entire right, title and interest in and to the same free and clear of all Liens (other than as created under the Collateral Security Documents), and none of the Borrowers has received notice of any claims alleging violation of, infringement of or interest in any of same and (ii) all licenses granted to any Borrower by others and to others by any Borrower. The trademarks, service marks and trade names listed on Schedule 6.01(i) are subsisting in good standing (with respect to those registered) and have never been declared invalid by a final judgment of a court or tribunal of competent jurisdiction, have not been disclaimed or dedicated to the public and have not expired. Each patent listed on Schedule 6.01(i) is valid and enforceable. (j) ERISA. Each of the Consolidated Entities is in compliance in all material respects with all applicable provisions of ERISA. Neither a Reportable Event nor a Prohibited Transaction has occurred with respect to any Plan; no notice of intent to terminate a Plan has been filed nor has any Plan been terminated; no circumstance exists which constitutes grounds under Section 4042 of ERISA entitling the PBGC to institute proceedings to terminate, or appoint a trustee to administer, a Plan, nor has the PBGC instituted any such proceedings; none of the Consolidated Entities nor any ERISA Affiliate has completely or partially withdrawn under Sections 4201 or 4204 of ERISA from a Multiemployer Plan; each of the Consolidated Entities and each of their ERISA Affiliates has met its minimum funding requirements under ERISA with respect to all of its Plans; and none of the Consolidated Entities nor any ERISA Affiliate has incurred any liability to the PBGC under ERISA. (k) Financial Statements. (i) The Financial Statements of the Consolidated Entities which have been delivered to the Agent on or prior to the Closing Date present fairly the financial condition of each Consolidated Entity, and of all the Consolidated Entities, taken as a cumulative whole, on a consolidated basis, as of the dates and for the periods set forth therein. As of the Closing Date, none of the Consolidated Entities have had contingent or fixed liabilities other than as indicated in such Financial Statements which may be material to the ability of any Consolidated Entity to perform any of their obligations under the Loan Documents. All of such Financial Statements, including the notes relating thereto, have been prepared in accordance with GAAP consistently applied through the period involved. Such Financial Statements and related notes are correct and complete in all material respects and fairly present the consolidated financial position and results of -49- 56 operations and changes in financial position of the Consolidated Entities as of the respective dates thereof and for the periods indicated and disclose all material liabilities of the Consolidated Entities as of the respective dates thereof. Since February 24, 1996 there has been no material adverse change in the business or financial condition of any Consolidated Entity. (ii) The projected balance sheet of the Consolidated Entities as of the Closing Date, a true and correct copy of which has heretofore been delivered to the Agent, for the current and subsequent fiscal years of the Consolidated Entities and their operating plan for such fiscal years, including budget, personnel, facilities and Capital Expenditure projections on a monthly basis, and projected income and cash flows statements for each such fiscal year on a monthly basis, have been prepared as of the date thereof in good faith and are based on reasonable forecasts for the operating performance of the Consolidated Entities on and after such date. (l) Margin Stock. None of the Consolidated Entities is engaged in the business of extending credit for the purpose of purchasing or carrying any margin stock or margin securities (within the meaning of Regulations G, T, U and X issued by the Board of Governors of the Federal Reserve System), and no proceeds of any of the Loans will be used, directly or indirectly, to purchase or carry any margin stock or margin securities or to extend credit to others for the purpose of purchasing or carrying any margin stock or margin securities. None of the transactions contemplated by this Agreement will violate or result in a violation of Section 7 of the Securities Exchange Act of 1934, as amended. (m) Representations and Warranties. The representations and warranties of Borrowers in this Agreement and in each of the Loan Documents are true, complete and correct in all material respects, and each Borrower hereby confirms each such representation and warranty as being true, complete and correct in all material respects with the same effect as if set forth in its entirety herein. (n) Investment Company. Other than GWI, none of the Consolidated Entities is an "investment company" within the meaning of the Investment Company Act of 1940, or a company "controlled by an investment company" that is required to register under such Act as amended. Other than GWI, none of the Consolidated Entities is subject to regulation under any federal or state statute or regulation which limits their respective ability to incur Debt. -50- 57 (o) Insurance. The original or duplicate policies of insurance or certificates of insurers furnished by the Borrowers to the Agent concurrently with or prior to the Closing Date evidence (i) the general public liability insurance in force against claims for bodily injury, death or property damage occurring on, in or about the Borrowers' properties in connection with their respective businesses and (ii) insurance with respect to the assets of each Borrower, including, without limitation, any Real Property, against loss or damage by fire, lightning, flood and other risks from time to time included under "extended coverage" policies in amounts as are customary for companies engaged in similar businesses and owning and operating similar properties similarly situated. (p) Credit Arrangements. Schedule 6.01(g) is a complete and correct list of all Unfunded Vested Liabilities, all Secured Guaranties issued as of the Closing Date, and each material credit agreement, indenture, purchase agreement, guaranty, Capital Lease and other investment, agreement and arrangement (collectively, the "Credit Arrangements") presently in effect (other than Credit Arrangements which represent liabilities or obligations of the Consolidated Entities in an amount less than $250,000 in the aggregate) and which provides for or relates to extensions of credit (including agreements and arrangements for the issuance of letters of credit or for acceptance financing) in respect of which any Consolidated Entity is, in any manner, directly or contingently obligated; and the maximum principal or face amounts of the credit in question, outstanding and which can be outstanding, are correctly stated, and all Liens of any nature given or agreed to be given as security therefor are correctly described or indicated in such Schedule or in Schedule 6.01(e). (q) Hazardous Materials. Each of the Consolidated Entities is in compliance in all material respects with all Environmental Laws in effect in each jurisdiction where it is presently doing business. No Consolidated Entity is subject to any material liability under any Environmental Law. As of the Closing Date, no Consolidated Entity has received any (i) notice from any Governmental Authority by which any of its present or previously-owned or leased Real Property has been designated, listed, or identified in any manner by any Governmental Authority charged with administering or enforcing any Environmental Law as a Hazardous Material disposal or removal site, "Super Fund" clean-up site, or candidate for removal or closure pursuant to any Environmental Law, (ii) notice of any Lien arising under or in connection with any Environmental Law that has attached to any revenues of, or to, any of its owned or leased Real Property, or (iii) summons, citation, notice, directive, letter, or other written communication from any -51- 58 Governmental Authority concerning any intentional or unintentional action or omission by such Consolidated Entity in connection with its ownership or leasing of any Real Property resulting in the releasing, spilling, leaking, pumping, pouring, emitting, emptying, dumping, or otherwise disposing of any Hazardous Material into the environment resulting in any violation of any Environmental Law, except, in each case, as is specifically disclosed in the Environmental Reports. (r) Labor Disputes and Acts of God. Neither the business nor the properties of any Consolidated Entity have been affected by any fire, explosion, accident, strike, lockout or other labor dispute, drought, storm, hail, earthquake, embargo, act of God or of the public enemy or other casualty (whether or not covered by insurance), in each case which could reasonably be expected to have a Material Adverse Effect. (s) Solvency. The assets of the Consolidated Entities, taken as a whole, do not constitute unreasonably small capital for the Consolidated Entities to carry out their businesses as now conducted and as proposed to be conducted. The Consolidated Entities do not intend to, nor do they believe that they will, incur debts beyond their ability to pay such debts as they mature (taking into account the timing and amounts of cash to be received by the Consolidated Entities, on a consolidated basis, and of amounts to be payable on or in respect of Debt of such Consolidated Entities, on a consolidated basis). The cash available to the Consolidated Entities, taken as a whole, after taking into account all other anticipated uses of the cash of such Consolidated Entities, on a consolidated basis, is anticipated to be sufficient to pay all such amounts on or in respect of Debt of the Consolidated Entities, on a consolidated basis, when such amounts are required to be paid. (t) Representations and Warranties in the Jupiter Acquisition Documents. The Agent has received a complete and correct copy of the Jupiter Acquisition Documents (including all exhibits, schedules and disclosure letters referred to therein or delivered pursuant thereto, if any) and all amendments thereto, waivers relating thereto and other side letters or agreements affecting the terms thereof. The Jupiter Acquisition Documents have been duly executed and delivered by the parties thereto and are in full force and effect. Each of the representations and warranties set forth in each of the Jupiter Acquisition Documents is, to the best of Johnston's knowledge, true and correct in all material respects as of the Closing Date. Each Jupiter Acquisition Document is a legal, valid and binding obligation of Johnston, enforceable against it in accordance with -52- 59 its terms, except to the extent that such enforcement may be limited by applicable bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors' rights generally and general principles of equity (regardless of whether such enforceability is considered in a proceeding at law or in equity). All transactions contemplated by the Jupiter Acquisition Documents to be consummated on or prior to the Closing Date have been consummated without any material amendment, waiver or modification of the terms thereof. Other than as set forth in Schedule 6.01(e) hereto, there is no outstanding indebtedness owed by Jupiter to any Person, after giving effect to the Jupiter Acquisition. (u) Statements and Information. All statements contained in this Agreement and all information, reports and other papers and data furnished to the Banks by or on behalf of the Consolidated Entities in connection with this Agreement are accurate, correct and complete in all material respects. Notwithstanding the foregoing, all projections prepared or to be prepared by or on behalf of the Borrowers contained in any documents or materials furnished by the Borrowers to the Agent, or any Bank (including the pro forma financial statements and the budgets to be furnished hereunder) have been or will be prepared in good faith on the basis of reasonable assumptions, it being acknowledged and agreed, however, that the Borrowers make no representation or warranty as to the attainability or accuracy of such projections. ARTICLE VII COVENANTS OF THE BORROWERS SECTION 7.01. Affirmative Covenants. Each Borrower covenants and agrees that from and after the date of execution hereof and so long as any amount may be borrowed hereunder or remains unpaid on account of any Note or Letter of Credit, or the Borrowers shall have any obligation to the Banks hereunder or pursuant hereto, Borrowers shall each comply, and cause each Consolidated Entity to comply, with each of the following obligations: (a) Payments. The Borrowers shall, jointly and severally, duly and punctually pay the principal and interest on each Revolving Credit Note, Term Note A, Term Note B, Letter of Credit, the Revolving Credit Commitment Fee and any other fees and amounts due under this Agreement, any fee letter(s) or any other Loan Document. (b) Reporting Requirements. Borrowers shall furnish to the Agent: -53- 60 (i) within 90 days after the end of each fiscal year of the Consolidated Entities, a consolidated balance sheet and income statement and consolidated statement of cash flows of the Consolidated Entities on a fully consolidated basis, and a consolidating balance sheet and income statement and consolidating statement of cash flows of each of the Consolidated Entities for such fiscal year, setting forth the corresponding figures of the previous annual audit in comparative form, all in reasonable detail and all prepared in accordance with GAAP, audited and certified by Deloitte & Touche or other independent accountants of national standing selected by the Borrowers and acceptable to the Agent, each of which shall be accompanied by a certificate of the chief financial officer of Johnston calculating the Consolidated Tangible Net Worth, Fixed Charge Coverage Ratio, Current Ratio, Leverage Ratio, Interest Coverage Ratio, Debt Ratio and Consolidated Capital Expenditures as of the end of each fiscal year of the Consolidated Entities; (ii) within 45 days after the end of each of the first three quarters of each fiscal year of the Consolidated Entities, a consolidated balance sheet as of the end of such quarter and consolidated year-to-date income statement and consolidated year-to-date statement of cash flows of all of the Consolidated Entities, on a fully consolidated basis, and consolidating balance sheet as of the end of such quarter and consolidating year-to-date income statement and consolidating year-to-date statement of cash flows of each of the Consolidated Entities, all in reasonable detail and setting forth in comparative form the corresponding figures of the previous fiscal year, prepared in accordance with GAAP and certified by the chief financial officer of each Consolidated Entity, and a certificate of the chief financial officer of Johnston calculating the Consolidated Tangible Net Worth, Fixed Charge Coverage Ratio, Current Ratio, Leverage Ratio, Interest Coverage Ratio, Debt Ratio and Consolidated Capital Expenditures for the preceding fiscal quarter then ended; (iii) within 30 days after the end of each calendar month, a certificate of the chief financial officer of Johnston setting forth, with respect to each Consolidated Entity (i) the changes in Capital Expenditure proposals and/or projections of each Consolidated Entity, and Consolidated Capital Expenditures, (ii) a statement of backlog position of each Consolidated Entity, and of all the Consolidated Entities on a fully consolidated basis, setting forth comparative figures or corresponding dates for the previous fiscal year, -54- 61 and (iii) management (internal) financial statements for each Consolidated Entity, and for all the Consolidated Entities on a fully consolidated basis, in form reasonably satisfactory to the Agent; (iv) within 20 days after the end of each calendar month, a Borrowing Base Certificate executed by the chief financial officer of Johnston; (v) within 30 days after the end of each quarter of each fiscal year of the Borrowers, a detailed aged Receivables and Inventory report as at the end of such quarter in form reasonably satisfactory to the Agent; (vi) simultaneously with the delivery of the financial statements referred to in SECTIONS 7.01(b)(i) and (ii) above, a certificate of the chief financial officer of Johnston certifying that to the best of his knowledge, no Default or Event of Default has occurred and is continuing or, if a Default or Event of Default has occurred and is continuing, a statement as to the nature thereof and the action which is proposed to be taken with respect thereto, and at all other times, prompt notice in writing to each Bank and the Agent of the occurrence of any Default or Event of Default with any such notice being deemed a Notice of Default for purposes of this Agreement; (vii) within 30 days from the Closing Date, audited consolidated financial statements of the Consolidated Entities as at December 30, 1995; (viii) if requested by the Agent, at the direction of the Required Banks, simultaneously with the delivery of the annual financial statements referred to in SECTION 7.01(b)(i), a certificate of the independent public accountants who audited such statements to the effect that, in making the examination necessary for the audit of such statements, they have obtained no knowledge of any condition or event which constitutes a Default or Event of Default, or if such accountants shall have obtained knowledge of any such condition or event, specifying in such certificate each such condition or event of which they have knowledge and the nature and status thereof; (ix) promptly after the commencement thereof, notice of all actions, suits, and proceedings before any court or governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, affecting any of the Consolidated Entities -55- 62 which, if determined adversely, could have a Material Adverse Effect; (x) promptly after the filing or receiving thereof and if requested by the Agent, copies of all reports and notices which the Consolidated Entities file with or receive from the PBGC or the U.S. Department of Labor under ERISA, except that the annual reports that the Consolidated Entities file with the PBGC or the U.S. Department of Labor under ERISA shall always be delivered, and each certificate of the chief financial officer to be delivered under SECTION 7.01(b)(ii) shall include a statement that no Reportable Event or Prohibited Transaction has occurred with respect to any Plan; and as soon as possible and in any event within 10 days after any Consolidated Entity knows or has reason to know that any Reportable Event or Prohibited Transaction has occurred with respect to any Plan or that the PBGC or any Consolidated Entity has instituted or will institute proceedings under Title IV of ERISA to terminate any Plan, the Borrowers will deliver to each Bank and the Agent a certificate of the chief financial officer of each Borrower setting forth details as to such Reportable Event or Prohibited Transaction or Plan termination and the action the Borrowers propose to take with respect thereto; (xi) promptly after the execution thereof, copies of any loan or credit or similar agreement other than those which, in the aggregate, represent liabilities or obligations of the Borrowers less than $100,000, not otherwise required to be furnished to the Agent pursuant to any other clause of this SECTION 7.01; (xii) promptly after the sending or filing thereof, copies of all proxy statements, financial statements and reports which any Consolidated Entity sends to its stockholders, and copies of all regular, periodic and special reports, including, without limitation, annual budgets, management letters and shareholder reports and all registration or other statements which any Consolidated Entity files with, or receives from any Person related to any Consolidated Entity with respect to, the Securities and Exchange Commission or any Authority which may be substituted therefor; (xiii) within 90 days upon the Agent's request (but not more frequently than once in any calendar year), a current appraisal of the plant, Real Property and equipment of the Consolidated Entities, in form and -56- 63 substance and prepared by Persons satisfactory to the Agent and the Required Banks; (xiv) within 90 days upon the Agent's Request, a current audit of the Receivables and Inventory of the Consolidated Entities, in form and substance and prepared by Persons satisfactory to the Agent and the Required Banks; and (xv) such other information respecting the condition or operations, financial or otherwise, of each Consolidated Entity as the Agent from time to time, at the direction of the Required Banks, may reasonably request. (c) Taxes. Borrowers shall each, and shall cause each Consolidated Entity to, pay and discharge, in the ordinary course of business, all of their respective obligations and liabilities (including, without limitation, tax liabilities and other governmental charges other than such taxes or charges being contested in good faith and for which adequate reserves have been set aside, but excluding intercompany obligations and liabilities unless the failure to pay and discharge such obligations or liabilities would have a Material Adverse Effect), and maintain in accordance with GAAP appropriate accruals for any of the same. (d) Corporate Existence. Each Borrower shall, and shall cause each Consolidated Entity to, maintain its respective corporate existence, rights and franchises necessary to continue their respective businesses in the manner historically conducted and to comply with all laws and regulations and agreements applicable to them and their property and operations, the non-compliance with which could have a Material Adverse Effect, and maintain the properties used or useful in their respective businesses in good working order and condition, reasonable wear and tear excepted; provided however, that any Consolidated Entity may be liquidated, dissolved, merged or disposed of if permitted by SECTION 7.02(b). (e) Inspection of Property. Borrowers shall, and shall cause each Consolidated Entity to, permit any authorized representative designated by the Agent and any Bank to visit and inspect the properties of the Borrowers including their respective books of account, and to discuss their affairs, finances and accounts with appropriate officers, at reasonable intervals and upon reasonable advance notice, at such reasonable times during normal business hours and as often as may be reasonably requested by such Bank or the Agent. -57- 64 (f) Insurance. Borrowers shall, and cause each Consolidated Entity to, keep their assets which are of an insurable character insured by financially sound and reputable insurers against loss or damage by fire, extended coverage and explosion in amounts sufficient to prevent a Consolidated Entity from becoming a co-insurer and not in any event less than for full coverage (i.e. not replacement) value, and maintain with financially sound and reputable insurers, or state or other governmentally operated insurance funds, comprehensive general liability insurance against other hazards and risks and liability to persons and property to the extent and in amounts as are customarily carried by Persons of comparable size engaged in the same or similar business. Borrowers shall cause the Agent to be named as co-insured and the loss payee, on behalf of the Banks, on any such property insurance. (g) Books and Records. Borrowers shall, and shall cause each Consolidated Entity to, keep accurate records and books of account in which full, accurate and correct entries will be made of all dealings or transactions in relation to their respective businesses and affairs. (h) Compliance with Laws. Borrowers shall, and shall cause each Consolidated Entity to, duly comply in all material respects with all laws applicable to them and their respective properties, operations, business and employees, unless Borrowers are, in good faith, contesting such laws. (i) Indemnification. Each Borrower jointly and severally agrees to pay, protect, indemnify and save harmless each of the Banks, the Agent, the Arranger and the Syndication Agent and, in their respective capacity as such, their respective officers, directors, shareholders, controlling persons, employees, agents and servants (each referred to for purposes of this clause (i) individually as an "Indemnified Party" or collectively as the "Indemnified Parties") from and against, all liabilities, losses, claims, damages, penalties, causes of action, suits, judgments, costs, expenses or disbursements (including, without limitation, reasonable attorneys' fees and expenses) of any kind whatsoever which may at any time be imposed on, incurred by or asserted against the Indemnified Parties in any way relating to or arising out of this Agreement, the Notes, Collateral Security Documents, any other Loan Documents or any documents contemplated by or referred to therein or the transactions contemplated thereby, provided that Borrowers will not be liable to the Indemnified Parties for such liabilities, losses, claims, damages, penalties, causes of action, suits, judgments, costs, expenses or disbursements (including, without limitation, attorneys' fees) or judgments arising from the gross negligence or willful misconduct of any Indemnified Party. The Banks, the Agent, the -58- 65 Arranger and the Syndication Agent agree that with respect to any action, suit or proceeding against any of them, or any of their respective officers, directors, shareholders, controlling persons, employees, agents and servants, in respect of which indemnity may be sought hereunder, they will give written notice of the commencement of such action to Borrowers within seven (7) Business Days after any of them is made a party to such action. Upon receipt of any such notice, Borrowers shall be entitled to assume the defense of such action, including the employment of counsel and the payment of all expenses in connection with such defense, and shall have the right to negotiate and consent to settlement. Any Indemnified Party shall have the right to employ separate counsel in any such action against it and to participate in the defense thereof, and the fees and expenses of such counsel shall be at the expense of such Indemnified Party. Notwithstanding the foregoing, Borrowers shall not have the right to defend the Indemnified Party in any action or proceeding if such Indemnified Party has been advised by its own counsel that there are legal defenses available to such Indemnified Party which are different from, additional to or conflict with the defenses available to Borrowers, in which case, the fees and expenses of such separate counsel to such Indemnified Party shall be at the expense of the Borrowers. Borrowers shall not be liable for any settlement of any such action effected without its consent; but if any such action is settled with the consent of Borrowers or if there be a final judgment for the plaintiff in any such action, Borrowers shall indemnify and hold harmless each Indemnified Party from and against any losses, claims, damages, liabilities or expenses incurred or suffered by reason of such settlement of judgment, except as otherwise set forth herein. The provisions of this SECTION 7.01(i) shall survive the repayment in full of the Notes and the satisfaction of all obligations of the Borrowers under this Agreement, the Collateral Security Documents and other Loan Documents. (j) Change in Ownership. Borrowers shall notify the Agent of any acquisition or disposition of the equity ownership of Johnston which is reported under Section 13(d) of the Securities and Exchange Act of 1934, as amended, promptly after actual knowledge thereof. (k) Collateral Security Documents. Each Borrower hereby agrees to perform all covenants contained in each of the Collateral Security Documents to which it is a party (including, without limitation, maintaining the first priority position of the Agent, on behalf of the Banks, with respect to the Liens granted thereunder) with the same effect as if set forth in its entirety herein. -59- 66 (l) Violation of Loan Documents. The Borrowers hereby each agree that none of them shall fail to perform any acts or omit any action or steps which would cause any of the Borrowers to be in violation of any of the covenants, terms and conditions of this Agreement or of any of the Loan Documents. (m) GWI Investments. Each Borrower hereby agrees that, to the extent any investment securities, equities and similar assets currently held by, or in the name of, GWI, have not been sold, transferred, assigned or otherwise disposed of within 12 months of the Closing Date, Borrowers shall (i) immediately grant or cause GWI to grant to the Agent, on behalf of the Banks, a first priority lien on and security interest in any such asset (subject to the interest of the Small Business Administration in the SBA Loans) and take or cause to be taken such other steps (including, without limitation, transferring the asset to a segregated custody account designated by the Agent, endorsing or otherwise transferring the asset over to the Agent, and filing UCC financing statements) and execute or cause to be executed such agreements or documents necessary to record and perfect the Lien of the Agent thereunder, and (ii) pledge or cause to be pledged all of the outstanding and issued capital stock of GWI held by any Borrower and shall immediately transfer or cause to be transferred into the Agent's possession the stock certificates representing such stock. (n) Jupiter Investments. Each Borrower hereby agrees that, to the extent that any investment securities, equities and similar assets described below and which are currently held by, or in the name of, Jupiter, are not sold, transferred, assigned or otherwise disposed of within the time periods specified therefor, the Borrowers shall immediately grant or cause Jupiter to grant to the Agent, on behalf of the Banks, a first priority lien on and security interest in such asset and take or cause to be taken any and all steps and execute or cause to be executed such agreements or documents as shall be necessary to record and perfect the Lien of the Agent thereunder (including, without limitation, pledging or causing Jupiter to pledge all of the outstanding and issued capital stock of PTA held by Jupiter or any Borrower and transferring, or cause the transfer into the Agent's possession of the stock certificates representing such stock, executing and delivering or causing to be executed and delivered appropriate mortgages in favor of the Agent with respect to the Jupiter Premises and Tarboro Plant, together with related documents such as title insurance, surveys, appraisals and environmental indemnities and filing or causing to be filed UCC-1 financing statements). -60- 67
Type of Asset: Time Period: ------------- ----------- 100% of the capital Within 12 months stock of PTA of the Closing Date Jupiter Premises Within 14 months of the Closing Date Tarboro Plant Within 18 months of the Closing Date All other investment securities, equities Within 12 months and similar assets as of the Closing Date. set forth in Schedule 7.01(n) annexed hereto.
(o) Surveys. The Borrowers shall, at its own expense, within 45 days from the Closing Date: (i) deliver to the Agent a survey of each of the Premises, each of which shall: (v) be dated no earlier than the Closing Date hereof, (w) be certified to the Agent, for itself and as Agent for the Banks, and Lawyers Title Insurance Corporation ("LTIC") and their respective successors and assigns in substantially the form of the certification annexed hereto as Schedule 7.01(o), and otherwise in form and substance satisfactory to the Agent and LTIC, by an independent surveyor reasonably satisfactory to the Agent, (x) be made in accordance with the current ALTA/ACSM minimum standard detail requirements for land title surveys, (y) show (1) the locations of all buildings and other structures, if any, on the Real Property and the established building setback lines, (2) all easements and other encumbrances affecting the Real Property, whether recorded, apparent from a physical inspection of the Real Property or otherwise known to the surveyor, (3) any encroachments on any adjoining property by the building, structures and improvements on the Real Property, and (4) and certify that no portion of the Premises lies within a designated Flood Plain Area as defined by the Federal Insurance Administration or a flood hazard zone as established by the Federal Emergency Management Agency, and (z) not disclose or contain any matter inconsistent with any policy of title insurance insuring the Agent's interest in the Mortgages; (ii) cause to be recorded modifications to the Mortgages in form and substance acceptable to the Agent, at Borrowers' expense, replacing the description of the Real Property contained in each Mortgage as of the date hereof with the description of such Real Property contained and certified in the surveys; and (iii) deliver or cause to be delivered to the Agent an endorsement to the aforesaid title insurance policies which (v) removes the general survey exception and all other sur- -61- 68 vey exceptions from such policies and insures the survey descriptions as part of the Agent's insured estate, (w) down dates such policies to the date that LTIC shall have removed the general survey exception from the policies and insured the survey descriptions, (x) raises no additional exceptions to the coverages afforded by such policies other than those which the Agent approve in its sole discretion in writing, (y) adds to such policies (1) a so-called ALTA 9 or comprehensive endorsement, (2) a land-same-as-survey endorsement, (3) a zoning endorsement (ALTA Form 3.1), (4) a contiguity endorsement with respect to all contiguous parcels, and (5) such other affirmative insurance and endorsements as the Agent shall require as a result of any matter contained in or disclosed by any such survey, and (z) is otherwise in form and substance acceptable to the Agent. (p) Interest Rate Protection Agreements. The Borrowers shall procure, within 60 days of the Closing Date and thereafter, so long as the aggregate principal amount of the Term Loans is in excess of $40,000,000, and maintain in full force and effect at all times Interest Rate Protection Agreements which may be with one or more of the Banks to protect itself against fluctuations of interest rates on a notional principal amount of not less than 50% of the aggregate principal amount of the then outstanding Term Loans on terms and conditions reasonably acceptable to the Agent (provided that the term of such Interest Rate Protection Agreements may be as short as three years subject to renewal for subsequent two year terms or such shorter term as may coincide with the remaining period in which the principal amount of the Term Loans (taking into account scheduled repayments hereunder) will exceed $40,000,000. The Borrowers shall, at its sole expense, take all actions necessary to ensure that the Agent, for the benefit of the Banks, shall have a perfected first priority security interest in Borrowers' rights under the Interest Rate Protection Agreements. (q) Merger or Consolidation of Certain Borrowers. The Borrowers acknowledge and agree that it is their intention to cause Phenix, Wellington and Jupiter to consolidate with or merge into Opp within 60 days from the Closing Date, and covenant that, as a result of any such merger or consolidation: (w) Opp or any other successor Borrower shall succeed to all the assets of Phenix, Wellington and Jupiter such that the Liens and security interests provided to the Agent pursuant to this Agreement and the Collateral Security Documents will continue to be perfected, first priority Liens on and security interests in the Collateral; (x) the Agent shall be immediately furnished with the certificates of merger, merger or consolidation agreements and such other documents evidencing the consummation of the merger or consolidation and the recording of -62- 69 same with the appropriate Authorities, to the satisfaction of the Agent; (y) there shall not occur any Material Adverse Effect; and (z) the surviving Borrowers, after giving effect to such consolidation or merger, shall be in compliance with all the covenants contained in ARTICLE VII. In connection with any such consolidation or merger, the Borrowers acknowledge that the Loans made or Letters of Credit issued hereunder are viewed by the Agent and the Banks as Loans made on a consolidated basis to the Borrowers as a consolidated group of entities. (r) Environmental Work. On or before each Environmental Work Deadline (i) the portion of the Environmental Work to which each such Environmental Work Deadline relates shall be performed and completed, and (ii) evidence satisfactory to Agent demonstrating the performance and completion of such portion of the Environmental Work (which evidence may include, without limitation, at the Agent's discretion, copies of testing and sampling results, certifications and other documents from independent supervising engineers acceptable to Agent and certified copies of all approvals, permits certifications and other documents required by or available pursuant to any Environmental Laws in connection with such Environmental Work) shall be furnished to Agent. All of the Environmental Work shall be performed and completed at all times in compliance with all Environmental Laws and the terms and provisions of this Agreement and all of the other Loan Documents. (s) TJB Mortgages. The Borrowers shall, at their own expense, within 45 days from the Closing Date, deliver to the Agent mortgages, in form and substance satisfactory to the Agent and an independent title company acceptable to the Agent, together with all related documents deemed necessary and appropriate by the Agent to grant to the Agent, for the benefit of the Banks, a first mortgage lien on and security interest in the Real Property owned by TJB including, without limitation, title insurance, opinions regarding title, surveys and UCC financing statements, and environmental indemnities in the form of Exhibit G annexed hereto with respect to such Real Property, in each case to the satisfaction of the Agent and its counsel. SECTION 7.02. Negative Covenants. Each Borrower covenants and agrees that from and after the date of execution hereof and so long as any amount may be borrowed hereunder or remains unpaid on account of any Note or Letter of Credit, or Borrowers shall have any obligation to the Banks hereunder or pursuant hereto, Borrowers shall not, and shall not permit any Consolidated Subsidiary to, without the prior written consent of the Required Banks in each instance: -63- 70 (a) Restriction on Debt. Incur, create, assume, guarantee or suffer to exist, or become or remain liable, directly or indirectly, for or on account of any Debt except: (i) Debt to the Banks hereunder, under the Notes, any Letter of Credit and under any Interest Rate Protection Agreement with any Bank; (ii) Permitted Debt as set forth on Schedule 7.02(a)(ii) hereof, including all renewals, extensions or refinancings thereof, provided that the principal amount thereof does not increase; (iii) Debt of any of the Consolidated Entities, which is secured by Purchase Money Liens permitted under SECTION 7.02(d); (iv) Debt of the Consolidated Entities to one another or to any Subsidiary, of any Subsidiary to a Consolidated Entity, or of any Subsidiary to any other Subsidiary; (v) Debt permitted under SECTION 7.02(i); and (vi) Increases in existing Unfunded Vested Liabilities, provided that such increases do not result from benefit increases voluntarily granted by a Consolidated Entity (it being understood that there shall in all events be permitted such increases as may result from any requirements for continued qualification of the subject Plan, or from reasonable modifications agreed to by Borrowers' consulting actuary based on computations or actuarial assumptions). (b) Merger and Sale of Substantially All Assets. Merge or consolidate with any other Person, or sell, lease or otherwise transfer to any Person all or substantially all of its assets, except for (i) transfer of assets, consolidations or mergers among the Borrowers, or (ii) transfers of assets to, consolidations with, or mergers into, any Person whose business is related to the textile industry, provided that the transferee or surviving entity (as the case may be) is, or, as a result of such transaction becomes, a Borrower. (c) Collateral. Sell, assign, discount or otherwise dispose of all or any portion of the Collateral, other than in the ordinary course of business, or permit anything to be done to any Collateral that materially impairs the value of any Collateral or the security interest -64- 71 intended to be afforded by this Agreement and/or any Collateral Security Document. (d) Liens. Create, assume, incur or suffer to exist any lien, charge, mortgage, deed of trust, pledge, security interest or other encumbrance with respect to any Collateral and on any of the Consolidated Entities' assets, other than: (i) Liens securing the Loans hereunder, any Interest Rate Protection Agreement with any Bank, or any other Liens granted in favor of the Agent, on behalf of the Banks; (ii) Liens for taxes or assessments or other government charges or levies if not yet due and payable or, if due and payable, if they are being contested in good faith by appropriate proceedings and for which appropriate reserves are maintained; (iii) Liens arising by operation of law, such as mechanic's, materialmen's, landlord's, warehousemen's, carrier's and other similar Liens, securing obligations incurred in the ordinary course of business which are not past due for more than 30 days, or which are being contested in good faith by appropriate proceedings and for which appropriate reserves have been established; (iv) Liens under workmen's compensation, unemployment insurance, social security or similar legislation (other than ERISA); (v) Liens, deposits or pledges to secure the performance of bids, tenders, contracts (other than contracts for the payment of money), leases (to the extent permitted under the terms of this Agreement), public or statutory obligations, surety, stay, appeal, indemnity, performance or other similar bonds, or other similar obligations arising in the ordinary course of business; (vi) Judgment and other similar Liens arising in connection with court proceedings; provided that the execution or other enforcement of such Liens is effectively stayed and the claims secured thereby are being actively contested in good faith and by appropriate proceedings; (vii) Easements, rights-of-way, restrictions and other similar encumbrances which, in the aggregate, do not materially interfere with the occupation, use and enjoyment by any Consolidated Entity of the -65- 72 property or assets encumbered thereby in the normal course of their business or materially impair the value of the property subject thereto; (viii) Liens securing obligations of one Consolidated Entity to another, or of a Consolidated Entity to a Subsidiary, or of a Subsidiary to another Subsidiary; (ix) Purchase Money Liens on any property hereafter acquired, provided that: (1) any property subject to such Purchase Money Lien is acquired by a Consolidated Entity in the ordinary course of its business and the Lien on any such property is created contemporaneously with such acquisition; (2) the obligation secured by any Lien so created, assumed or existing shall not exceed 100% of the lesser of cost or fair market value as of the time of acquisition of the property covered thereby to any Consolidated Entity acquiring the same; (3) each such Lien shall attach only to the property so acquired and fixed improvements thereon; (4) the obligations secured by such Lien are permitted by the provisions of SECTION 7.02(a). (x) Liens existing on the date hereof and set forth on Schedule 7.02(d)(x) hereto, provided that there are no renewals of such Liens or extensions of such Liens to property other than property now subject to such Liens, or to secure amounts of Debt greater than such amounts as existing on the date hereof, as such Debt is set forth in Schedule 7.02(a)(ii) hereto; (xi) the Lien of FUNB in a certain office building in Columbus, Georgia pursuant to a Deed to Secure Debt and Assignment of Rent issued by Johnston to FUNB in the principal amount of $1,325,000 dated as of August 20, 1993; and (xii) other Liens not exceeding, in the aggregate, $1,000,000 at any one time outstanding for the Consolidated Entities taken as a whole. (e) Leases. Create, incur, assume or suffer to exist, or permit any Consolidated Entity to create, incur, -66- 73 assume or suffer to exist, any obligation as lessee for the rental or hire of any real or personal property, except: (i) leases (inclusive of Capital Leases and Operating Leases) existing on the date of this Agreement and any extensions or renewals thereof; (ii) leases (other than Capital Leases) which do not in the aggregate require the Consolidated Entities, on a consolidated basis, to make payments (including taxes, insurance, maintenance and similar expenses required under the terms of any lease) in any fiscal year of the Consolidated Entities in excess of $2,000,000; and (iii) Capital Leases permitted by SECTION 7.02(a). (f) Investments. Make, or permit any Consolidated Entity to make any loan or advance or capital contribution to, or guaranty directly or otherwise, on a contingent or any other basis, the Debt of, any Person (including any Affiliate or Unrestricted Subsidiary) or purchase, exercise an option to purchase or otherwise acquire, or permit any such Consolidated Entity to purchase, exercise an option to purchase or otherwise acquire, any capital stock, assets, obligations or other securities of, or otherwise invest in, or acquire any interest in, or pay cash dividends (whether regular or extraordinary) from the Closing Date and thereafter, or purchase or redeem stock of, any Person, Affiliate or Unrestricted Subsidiary (any such loan, advance, capital contribution, guaranty, purchase, investment or dividend payment hereinafter collectively referred to as the "Restricted Investments"), except: (i) direct obligations of the United States of America or any agency thereof with maturities of one year or less from the date of acquisition; (ii) commercial paper of a domestic issuer rated at least "A-1" by Standard & Poor's Corporation or "P-1" by Moody's Investors Service, Inc.; (iii) certificates of deposit with maturities of one year or less from the date of acquisition, repurchase agreements and bankers acceptances issued or purchased by any commercial bank operating within the United States of America having capital and surplus in excess of $200,000,000; (iv) capital stock, obligations or securities received in settlement of debts (created in the ordinary course of business) owing to any Consolidated Entity; (v) intercompany transactions among the Consolidated Entities; (vi) Acceptable Acquisitions, (vii) the Jupiter Acquisition and (viii) $2,150,000, provided such amount is used in accordance with SECTION 2.09(vi) (the aforesaid investments in clauses (i) - (viii), collectively referred to as the "Permitted Investments"); provided, however, that the Consolidated Entities may make such Restricted Investments or otherwise invest in or acquire any interest in any Person, so long as the Consolidated Entities are otherwise in compliance with the covenants contained in ARTICLE VII after giving effect to the Restricted Investment, and the aggregate investments at any time made pur- -67- 74 suant to this SECTION 7.02(f), excluding the Permitted Investments, do not, at any time, exceed the following amount (the "Aggregate Restrictive Investment Amount"): an amount which is the lesser of (x) 20% of total assets of the Consolidated Entities, on a fully consolidated basis, as of the date of determination thereof, or (y) $5,000,000.00 for the period commencing on January 1, 1996 and ending on December 31, 1996 , or (z) $5,000,000.00, plus 50% of cumulative Consolidated Net Income for the period commencing on January 1, 1997, minus 100% of cumulative Consolidated Net Loss for the Consolidated Entities for such period, as calculated on a cumulative basis as of the end of each fiscal quarter of the Consolidated Entities with reference to the Financial Statements for such quarter. For the purposes of this SECTION 7.02(f), any purchase money obligation owing to a Consolidated Entity created upon any sale permitted under this Agreement shall not be deemed to be a Restricted Investment. (g) Sale of Assets. Except in the ordinary course of business, sell, lease, assign, transfer or otherwise dispose of, or permit any Consolidated Entity to sell, lease, assign, transfer or otherwise dispose of, any of its now owned or hereafter acquired assets (including, without limitation, shares of stock and indebtedness of such Consolidated Entity, Receivables and leasehold interests) except: (i) the sale or other disposition of assets no longer used or useful in the conduct of its business; (ii) that any Borrower may sell, lease, assign, or otherwise transfer its assets to any other Borrower; and (iii) the sale or other disposition of assets to a partnership or joint venture in connection with an Acceptable Acquisition as defined in clause (y) of the definition of Acceptable Acquisition. (h) Acquisitions. Make any Acquisition other than an Acceptable Acquisition or the Jupiter Acquisition. (i) Obligations of Third Persons. Guarantee, endorse or otherwise in any way be or become responsible or permit any Consolidated Entity to guarantee, endorse or be or become responsible, in any way, for obligations of any Person, whether by agreement to purchase Debt, or agreement for furnishing funds through the purchase of goods, supplies or services (or by way of stock purchase, capital contribution, advance or loan) for the purpose of paying or discharging any Debt or obligation of any other Person, or agreement to maintain minimum working capital or net worth of any Person, or otherwise, except (i) guaranties by endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business; (ii) guaranties issued by Johnston, on an unsecured basis, to secure loans made by FUNB and certain other -68- 75 banks to certain employees, officers and directors of the Borrowers in an aggregate amount of up to $8,500,000; (iii) other guaranties not otherwise expressly permitted herein arising in the ordinary course of business which do not exceed $500,000 in the aggregate at any one time outstanding for the Consolidated Entities taken as a whole; (iv) any guaranty existing on the date hereof and any renewals thereof and which are permitted under SECTION 7.02(f) hereof; and (v) any other guarantee, not otherwise allowed pursuant to this SECTION 7.02(i), provided that (x) no Default has occurred hereunder or shall occur as a result of such guarantee and (y) the obligations created by such guarantees are subordinated in a manner satisfactory to the Agent to existing Debt of the Consolidated Entities, as appropriate, and, with respect to each Borrower, to amounts owed hereunder, by agreements in form and substance satisfactory to the Agent. (j) Stock. Declare or pay cash dividends on any shares of any class of its capital stock, or apply any of its property or assets to the purchase, redemption or other retirement of, or set apart any sum for the payment of dividends on, or for the purchase, redemption or other retirement of, or make any other distribution by reduction of capital stock or otherwise in respect of, any shares of any class of its capital stock, except (i) dividends on the common stock of any of the Consolidated Entities payable to any of the Borrowers, (ii) Johnston may declare and deliver dividends and purchase or redeem common stock or make distributions as aforesaid in accordance with SECTION 7.02(f) hereof, up to an amount which does not, in the aggregate, exceed the Aggregate Restrictive Investment Amount, and (iii) each Borrower may purchase or otherwise acquire shares of its capital stock by exchange for or out of proceeds received from a substantially concurrent issue of new shares of its capital stock. (k) Affiliates. Enter into or permit any Consolidated Entity to enter into any transaction (including without limitation, the purchase, sale or exchange of securities or other property or the rendering of any service) with any Affiliate, except in the ordinary course of and pursuant to the reasonable requirements of its business upon fair and reasonable terms no less favorable to it as it would obtain in an arm's length transaction with a Person not an Affiliate, and which would not otherwise violate SECTION 7.02(f) hereof. (l) Use, Operation, etc. of Collateral. Use, service, repair, operate or locate (or cause to be used, serviced, repaired or operated) any of the Collateral (i) in violation of any law, rule, regulation, order, or ordinance of any Person having jurisdiction of the Collateral, and -69- 76 (ii) in any area excluded from insurance coverage as required by the terms of this Agreement. (m) Change of Ownership. Undergo a change in equity ownership of any Borrower other than Johnston, except as otherwise permitted by this Agreement. (n) Use of Proceeds. Use the proceeds of the Loans for any purpose other than as set forth in SECTION 2.09. (o) Nature of Business. Make any material change in the nature or scope of any of the Consolidated Entities' respective businesses, including, without limitation, material changes in accounting policies and practices and changes in the fiscal year of any of the Consolidated Entities. (p) Change in Management. Gerald Andrews shall have ceased to continue to serve in the operational and managerial capacities in which he now serves or in enhanced operational or managerial capacities with Johnston and a successor shall not be appointed within 90 days thereafter upon the approval of the board of directors, after prior consultation with the Required Banks. (q) Operating Accounts. Open or maintain any operating account(s) for or in the name of any Consolidated Entity with any bank or financial institution, other than (i) such accounts which are existing as of the Closing Date and disclosed in Schedule 7.02(q) annexed hereto, and (ii) such accounts opened at any Bank after the Closing Date, provided that any such Bank shall act as collateral agent on behalf of all the Banks with respect to all monies held in any such accounts and shall execute such agreements as the Agent shall deem necessary or appropriate to evidence the security interest of the Agent, for the benefit of the Banks, in such accounts. SECTION 7.03. Financial Covenants. Each Borrower covenants and agrees that from and after the date of execution hereof and so long as any amount may be borrowed hereunder or remains unpaid on account of any Note or Letter of Credit, or Borrowers shall have any obligation to the Banks hereunder or pursuant hereto, Borrowers shall not, and shall not permit any Consolidated Entity to, without the prior written consent of the number of Banks as indicated in SECTION 14.01 herein, in each instance: (a) Total Loan Commitment. Permit the Total Loan Commitment under this credit facility to exceed $160,000,000 at any one time outstanding. -70- 77 (b) Capital Expenditures. Permit Consolidated Capital Expenditures to exceed the lesser of (i) $24,000,000 for the fiscal year ending December 31, 1996 and $25,000,000 for the fiscal year ending December 31, 1997 and at all times thereafter, or (ii) 110% of the depreciation amount set forth in the Consolidated Entities' Financial Statements for the previous fiscal year, provided that, amounts of Consolidated Capital Expenditures permitted hereunder but not utilized in any fiscal year may be carried forward and utilized in the following fiscal year, so long as, after giving effect to such carry-forward, the Borrowers remain in compliance with all covenants contained in ARTICLE VII. (c) Consolidated Funded Debt. Incur or permit Consolidated Funded Debt to exceed $177,140,000 at any time. (d) Consolidated Tangible Net Worth. Permit its Consolidated Tangible Net Worth, at all times during the periods set forth below, to be less than the amount set forth opposite such period:
Period: Amount: ------ ------ Closing Date - 3/31/97 $50,000,000 4/1/97 - 9/30/97 $55,000,000 10/1/97 - 12/31/97 $60,000,000 1/1/98 - 9/30/98 $75,000,000 10/1/98 and all times thereafter $80,000,000
(e) Leverage Ratio. Permit the Leverage Ratio, as determined at the end of each fiscal quarter, to be greater than the ratio set forth opposite the following periods:
Period: Ratio: ------ ----- Closing Date - 6/30/96 4.50:1.00 7/1/96 - 9/30/96 4.25:1.00 10/1/96 - 3/31/97 4.00:1.00 4/1/97 - 9/30/97 3.50:1.00 10/1/97 - 3/31/98 3.25:1.00 4/1/98 - 9/30/98 3.00:1.00 10/1/98 - 9/30/99 2.50:1.00 10/1/99 and all times thereafter 2.00:1.00
(f) Current Ratio. Permit the Current Ratio, as determined at the end of each fiscal quarter, to be less than 2.00:1.00 at any time for the period commencing on the Closing Date and at all times thereafter. -71- 78 (g) Interest Coverage Ratio. Permit the Interest Coverage Ratio, as determined at the end of each fiscal quarter, to be less than the ratio set forth opposite the following periods:
Period: Ratio: ------ ----- Closing Date - 12/31/96 1.50:1.00 1/1/97 and all times thereafter 2.50:1.00
(h) Fixed Charge Coverage Ratio. Permit the Fixed Charge Coverage Ratio, as determined at the end of each fiscal quarter, to be less than the ratio set forth opposite the following periods:
Period: Ratio: ------ ----- Closing Date - 6/30/97 1.00:1.00 7/1/97 - 9/30/97 1.10:1.00 10/1/97 - 12/31/97 1.25:1.00 1/1/98 and all times thereafter 1.50:1.00
(i) Debt Ratio. Permit the Debt Ratio, as determined at the end of each fiscal quarter, to be less than the ratio set forth opposite the following periods:
Period: Ratio: ------ ----- As of the Closing Date 6.75:1.00 From and after the Closing Date to 6/30/96 6.00:1.00 7/1/96 - 9/30/96 4.75:1.00 10/1/96 - 6/30/97 3.50:1.00 7/1/97 and all times thereafter 3.00:1.00
ARTICLE VIII EVENTS OF DEFAULT SECTION 8.01. Events of Default. If any of the following events ("Events of Default") shall occur and be continuing: (a) Borrowers shall fail to pay any amounts due (including principal, interest and fees) hereunder, under or in respect of any of the Notes, any Letter of Credit or under any Loan Document when due (whether by maturity, acceleration or otherwise), provided that, any such failure of the Borrowers to pay interest under any Note shall not constitute an Event of Default hereunder unless such failure is not cured by the Borrowers within five (5) days of the due date thereof; -72- 79 (b) Any event of default shall have occurred under any Collateral Security Documents; (c) Any representation, warranty or opinion made or given in this Agreement or in any certificate, opinion, financial or other statement delivered pursuant to or in connection with this Agreement or by Borrowers in any Loan Document shall prove to have been untrue, false or misleading in any material respect on or as of (as the case may be) the date as of which made; (d) Without affecting or limiting the Events of Default in clause (a), (b) and (c) herein, Borrowers shall fail in the observance or performance of any of the covenants and agreements contained in (i) SECTIONS 7.01(a), (i), (k), (m), (n) and (o), 7.02 and 7.03 of this Agreement, or (ii) any other covenant or agreement contained in this Agreement, or Borrowers or any Consolidated Entity shall fail in the observance or performance of any covenant or agreement contained in any of the Collateral Security Documents or Loan Documents and the continuance of the same for 30 days after receipt by Borrowers of notice of such default from the Agent; (e) The occurrence of any event or circumstance, and continuation thereof unremedied for any applicable grace period, under any agreement, guaranty or evidence of Debt relating to any obligation of a Consolidated Entity for borrowed money, other than the Debt evidenced by this Agreement, which would give the holder thereof or any other Person the right to declare such obligation due and payable, assuming that any required notice had been given at the time of such occurrence and, with respect to a default in the payment of principal or interest on such Debt, which Debt has an outstanding principal amount in excess of $1,500,000 in the aggregate for the Consolidated Entities; (f) The entry of a decree or order for relief by a court having jurisdiction in the premises in respect of any Borrower or any Consolidated Entity in an involuntary case under the federal bankruptcy laws, as now or hereafter constituted, or any other applicable federal or state bankruptcy, insolvency or other similar law, or appointing a receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar official) of any of the Borrowers or any Consolidated Entity, or for any substantial part of any of their property, or ordering the winding-up or liquidation of any of their affairs and the continuance of any such decree or order unstayed and in effect for a period of 60 consecutive days; (g) The commencement by any Borrower or any Consolidated Entity of a voluntary case under the federal bankruptcy laws, as now constituted or hereafter amended, or any other applicable federal or state bankruptcy, insolvency or other -73- 80 similar laws, or the consent by any of them to the appointment of or taking possession by a receiver, liquidator, assignee, trustee, custodian, sequestrator (or other similar official) of the Borrowers or any Consolidated Entity, or for any substantial part of any of their property, or the making by any of them of any assignment for the benefit of creditors, or the failure of any Borrower or any Consolidated Entity generally to pay their debts as such debts become due, or the taking of corporate or other action by any Borrower or any Consolidated Entity in furtherance of any of the foregoing; (h) The entry of any judgments against any Borrower or any Consolidated Entity aggregating more than $500,000 or any attachments or other levy against the property of any Borrower or any Consolidated Entity with respect to claims aggregating in excess of $500,000, if the same remain unpaid, unappealed, undischarged, unbonded, unstayed or undismissed, for a period of 60 days; (i) This Agreement, any Note or any Loan Document shall, at any time after their respective execution and delivery and for any reason, cease to be in full force and effect or shall be declared to be null and void, or the validity or enforceability thereof shall be contested by any Borrower, or any Borrower shall deny that they have any or further liability or obligation under this Agreement, the Notes or any Loan Document to which such Person is a party; and (j) A Change of Control shall have occurred which, in the good faith opinion of the Required Banks, results in a Material Adverse Effect; (k) Any material adverse change in the condition, affairs or operations (financial or otherwise) of any Borrower or any Consolidated Entity, or the value of the Collateral, determined in the sole good faith discretion of the Required Banks; and (l) Borrowers shall fail, within 15 Business Days of the Closing Date, to terminate all liens, encumbrances or security interests (other than the Liens granted to the Agent hereunder) existing as of the Closing Date with respect to TJB including, without limitation, the Liens listed as temporarily Permitted Liens on Schedule 7.02(d)(x) hereof to the satisfaction of the Agent; then, in the case of any of the events specified in paragraphs (f) and (g), the Commitment shall be immediately terminated and each Note and all other amounts payable by Borrowers to the Banks, the Agent, the Arranger and the Syndication Agent under this Agreement, the Notes and the other Loan Documents shall be immediately due and payable without any action on the part of the Agent, the Arranger, the Syndication Agent, any of the Banks, -74- 81 Borrowers or any other Person, and, in the case of any of the other events specified above, the Agent, at the direction of the Required Banks (i) upon written notice to any Borrower, may immediately terminate the then unused portion of the Commitment and/or declare the Notes to be immediately due and payable, whereupon the Commitment shall be immediately terminated and/or the unpaid principal balance of the Notes, together with accrued interest thereon, shall become immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived, and (ii) shall have the right to first set off without demand or notice upon any and all accounts of any Borrower at the Agent to the extent necessary to cure said Event of Default before exercising any other remedy under this ARTICLE VIII or ARTICLE IX, provided, however, that the Agent shall give the Borrowers notice after any exercise of such right of setoff. SECTION 8.02. Setoff. This Agreement shall not limit any rights which the Agent or any of the Banks or any agent of the Agent have by law to set off and apply deposits held by the Agent or any of the Banks at any of their respective offices to or for the credit or the account of any Borrower against any and all of the obligations of the Borrowers then due and payable under this Agreement, the Notes, any Collateral Security Document or any other Loan Document. ARTICLE IX REMEDIES AFTER DEFAULT SECTION 9.01. Remedies. Upon maturity of the Notes, whether by acceleration or otherwise, unless Borrowers shall have paid in full all amounts due thereunder and under this Agreement and the Collateral Security Documents, the Agent may, pursuant to the direction of the Required Banks in accordance with ARTICLE X, and in addition to any rights it may have at law, in equity or pursuant to any of the Collateral Security Documents: (a) notify the mortgagors, obligors, lessees or other parties interested in the Collateral of their respective interests therein and of any action proposed to be taken with respect thereto, and inform any such parties that all payments otherwise payable to Borrowers with respect thereto shall thereafter be made to the Agent: (b) receive and retain all payments and all other distributions of any kind upon any and all of the Collateral; (c) exercise any rights of consent pertaining to any item of Collateral to the same extent as if the Agent were the owner thereof, or cause any item of the Collateral to be transferred to its own name and have such transfer recorded in -75- 82 any place or places deemed appropriate by the Agent; provided, however, that the Agent agrees that if it takes title to the Collateral, it shall proceed in a commercially reasonable manner to realize on such Collateral and apply the proceeds of the sale of the Collateral in the same manner provided in this ARTICLE IX; (d) take such action with respect to the foreclosure, sale, assignment and delivery of the whole of, or from time to time any part of, the Collateral, including, without limitation, sell, assign and deliver the whole of, or from time to time any part of, the Collateral at any broker's board or at any private sale, or at public auction, after advertisement of the time and place of sale, for cash, for credit or for other property, for immediate or future delivery, and for such price or prices as the Agent shall determine, and the Agent may bid for and purchase the whole or any part of the Collateral on account of the Banks so sold free from any right or equity of redemption; adjourn any such sale or cause the same to be adjourned from time to time to a subsequent time and place announced at the time and place fixed for the sale; carry out any agreement to sell any item or items of Collateral in accordance with the terms of such agreement, notwithstanding the fact that after the Agent shall have entered into such an agreement, the Notes and other indebtedness due under this Agreement may have been paid in full, unless the Agent is able to terminate or cancel such Agreement to its satisfaction without any liability to any Person; and (e) in addition to, and not by way of limitation of, any of the rights specified above, exercise any and all rights and remedies afforded to it, as a secured party (and as Agent for the Banks hereunder) in possession of Collateral or otherwise, under any and all applicable provisions of law. SECTION 9.02. No Liability. Neither the Agent nor any Bank nor the Arranger, nor the Syndication Agent, nor any of their respective officers, directors, shareholders, employees, counsel and agents shall incur any liability as a result of the sale of the Collateral, or any part thereof, in accordance with applicable law and the provisions of this Agreement or any Collateral Security Document, for the failure to sell or offer for sale the Collateral, or any part thereof, or for any other reason whatsoever. Borrowers waive any claims against the Agent, Arranger, Syndication Agent, each Bank and any of their respective officers, directors, shareholders, employees, counsel and agents arising with respect to the price at which the Collateral, or any part thereof, may have been sold by reason of the fact that such price was less than the aggregate amount of the indebtedness due under the Notes, this Agreement and the other Loan Documents. SECTION 9.03. Application of Proceeds. (a) Subject to SECTION 11.02, the Agent shall apply the proceeds received from any sale or other disposition of the Collateral or from any -76- 83 other source, together with any other monies at the time held by the Agent under the provisions of this Agreement or any Collateral Security Document, after deducting all costs and expenses incurred by the Agent, Arranger, Syndication Agent, and each Bank in connection with such collection and sale (including, without limitation, reasonable counsel fees, brokers' fees and expenses), as follows and in the following order: (i) to the payment of any fees, disbursements and other amounts then due and owing to the Agent, Arranger, Syndication Agent, and each of the Banks hereunder or under any of the Loan Documents; (ii) to payment in full of the amounts due under the Notes, this Agreement and any other Loan Document, first, to payment of interest due on the Term Notes in inverse order of their maturities and on the Revolving Credit Notes and second, to repayment of the outstanding principal amount of the Term Notes in inverse order of their maturities and on the Revolving Credit Notes (in each case on a pro rata basis in accordance with ARTICLE XI); (iii) to a cash reserve account for payment of outstanding Letter of Credit Obligations until all Letters of Credit have either expired undrawn or have been drawn and terminated; and (iv) the remainder, if any, shall be paid to Borrowers, as their interests may appear, or Borrowers' designee(s). (b) If the amount of all proceeds received in liquidation of the Collateral which shall be applied to payment of the indebtedness due in respect of this Agreement, the Notes and the Collateral Security Documents shall be insufficient to pay all such indebtedness or obligations in full, Borrowers acknowledge that they shall remain jointly and severally liable for any deficiency, together with interest thereon and costs of collection thereof (including reasonable counsel fees and legal expenses). SECTION 9.04. Attorneys-in-Fact. Borrowers hereby jointly and severally make, constitute and appoint the Agent, and its respective agents and designees, the true and lawful agent and attorney-in-fact of each Borrower, with full power of substitution, to take any or all of the following actions upon the occurrence of an Event of Default: (i) to receive, open and dispose of all mail addressed to any Borrower relating to the Collateral, (ii) to notify and direct the United States Post Office authorities by notice given in the name of any Borrower and signed on its behalf, to change the address for delivery of all mail addressed to such Borrower relating to the Collateral to an address to be designated by the Agent, and to cause such mail to -77- 84 be delivered to such designated address where the Agent may open all such mail and remove therefrom any notes, checks, acceptances, drafts, money orders or other instruments in payment of the Collateral in which the Banks have a security interest hereunder and any documents relative thereto, with full power to endorse the name of any Borrower upon any such notes, checks, acceptances, drafts, money orders or other form of payment or on Collateral or security of any kind and to effect the deposit and collection thereof, and the Agent shall have the further right and power to endorse the name of each Borrower on any documents otherwise relating to such Collateral, and (iii) to do any and all other things necessary or proper to carry out the intent of this Agreement and to perfect and protect the Liens and rights of the Banks created under this Agreement, including, without limitation, to claim, bring suit, settle or adjust any insurance proceeds claims relating to the Collateral. After taking any of the aforesaid actions, the Agent shall provide the Borrowers with notice thereof. For purposes of this SECTION 9.04, Borrowers agree that neither the Agent nor any of its respective officers, directors, shareholders, employees, counsel, agents, designees or attorneys-in-fact will be liable for any acts of commission or omission, or for any error of judgment or mistake of fact or law, except for any acts of gross negligence or willful misconduct. The powers granted hereunder are coupled with an interest and shall be irrevocable during the term hereof. ARTICLE X THE AGENT SECTION 10.01. Appointment, Powers and Immunities. Each Bank hereby irrevocably appoints and authorizes Chase to act as its agent hereunder and under the other Loan Documents with such powers as are specifically delegated to the Agent by the terms of this Agreement and the other Loan Documents, together with such other powers as are reasonably incidental thereto. The Agent (which term as used in this Agreement shall include reference to its Affiliates and its own and its Affiliates' officers, directors, employees and agents): (a) shall have no duties or responsibilities except those expressly set forth in this Agreement and in the other Loan Documents and shall not by reason of this Agreement or any other Loan Document be a trustee for any Bank; (b) shall not be responsible to the Banks for any recitals, statements, representations or warranties contained in this Agreement or in any other Loan Document, or in any certificate or other document referred to or provided for in, or received by any of them under, this Agreement or any other Loan Document, or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement, the Notes or any other Loan Document or any other document referred to or provided for herein or therein or for any failure by the Borrowers or any other Person to perform any of its obligations hereunder or thereunder -78- 85 or for the perfection or priority of any collateral security for the Loans; (c) shall not be required to initiate or conduct any litigation or collection proceedings hereunder or under any other Loan Document other than in accordance with this Agreement including, without limitation, SECTIONS 10.03 and 10.05; (d) shall not be responsible for any action taken or omitted to be taken by it hereunder or under any other Loan Document or under any other document or instrument referred to or provided for herein or therein or in connection herewith or therewith, except for its own gross negligence or willful misconduct; and (e) shall not, in its capacity as Agent, be responsible to the Borrowers or the Banks for any funding or other obligations of a Bank hereunder nor for (i) determining whether or not any of the transactions contemplated hereby qualifies as a highly leveraged transaction ("HLT") as defined by any bank regulatory authority, (ii) notifying the Banks regarding the HLT status of any transaction contemplated hereby or of any change in that status or (iii) the correctness of any determination as to HLT status. The Agent may employ agents and attorneys-in-fact and shall not be responsible for the negligence or misconduct of any such agents or attorneys-in-fact, so long as the Agent was not grossly negligent in selecting such agents or attorneys-in-fact. SECTION 10.02. Reliance by Agent. The Agent shall be entitled to rely upon any certification, notice or other communication (including, without limitation, any thereof by telephone, telecopy, telex, telegram or cable) believed by it to be genuine and correct and to have been signed or sent by or on behalf of the proper Person or Persons, and upon advice and statements of legal counsel, independent accountants and other experts selected by the Agent. The Agent may deem and treat each Bank as the holder of the Commitments attributable to it for all purposes hereof unless and until a notice of the assignment or transfer thereof satisfactory to the Agent signed by such Bank shall have been furnished to the Agent but the Agent shall not be required to deal with any Person who has acquired a participation in any Commitments from a Bank. As to any matters not expressly provided for by this Agreement or any other Loan Document, the Agent shall in all cases be fully protected in acting, or in refraining from acting, hereunder or thereunder in accordance with instructions given by the Required Banks or, if provided herein, in accordance with the instructions given by all of the Banks as is required in such circumstance, and such instructions and any action taken or failure to act pursuant thereto shall be binding on all of the Banks. SECTION 10.03. Defaults. The Agent shall not be deemed to have knowledge or notice of the occurrence of a Default (other than the non-payment of principal of or interest on the Loans and the Revolving Credit Commitment Fee) unless the Agent has received notice from a Bank or a Borrower specifying such Default and stating that such notice is a "Notice of Default". In the event that the Agent receives such a notice of the -79- 86 occurrence of a Default, the Agent shall give prompt notice thereof to the Banks (and shall give each Bank prompt notice of each such non-payment). The Agent shall (subject to SECTION 10.07 hereof) take such action with respect to such Default as shall be directed by the Required Banks, provided that, unless and until the Agent shall have received such directions, the Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default as it shall deem advisable in the best interests of the Banks, except that the Agent shall not be required to take any action which it determines to be contrary to law. SECTION 10.04. Rights as a Bank. With respect to its Commitments and the Loans made by it, the Agent, in its capacity as a Bank hereunder, shall have the same rights and powers hereunder as any other Bank and may exercise the same as though it were not acting as the Agent, and the term "Bank" or "Banks" shall, unless the context otherwise indicates, include the Agent in its individual capacity. The Agent and its Affiliates may (without having to account therefor to any Bank) accept deposits from, lend money to, make investments in and generally engage in any kind of banking, trust or other business with the Borrowers and any Consolidated Entity or Affiliate as if it were not acting as the Agent, and the Agent and its Affiliates may accept fees and other consideration from any Consolidated Entity for services in connection with this Agreement or otherwise without having to account for the same to the Banks. Although the Agent and its Affiliates may in the course of such relationships and relationships with other Persons acquire information about any Consolidated Entity or any Affiliate, the Agent shall have no duty to disclose such information to the Banks. SECTION 10.05. Indemnification. The Banks agree to indemnify the Agent (to the extent not reimbursed under SECTION 7.01(i) hereof, but without limiting the obligations of the Borrowers under said SECTION 7.01(i)) ratably in accordance with the aggregate principal amount of the Loans held by the Banks, for any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind and nature whatsoever that may be imposed on, incurred by or asserted against the Agent (including by any Bank) arising out of or by reason of any investigation in or in any way relating to or arising out of this Agreement, the Notes or any other Loan Document or any other documents contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby (including, without limitation, the costs and expenses that the Borrowers are obligated to pay under SECTION 14.04 hereof), or the enforcement of any of the terms hereof or thereof or of any such other documents; provided that no Bank shall be liable for any of the foregoing to the extent they arise from the gross negligence or willful misconduct of the party to be indemnified. -80- 87 SECTION 10.06. Non-Reliance on Agent and Other Banks. Each Bank agrees that it has, independently and without reliance on the Agent or any other Bank, and based on such documents and information as it has deemed appropriate, made its own credit analysis of each Consolidated Entity and decision to enter into this Agreement and that it will, independently and without reliance upon the Agent or any other Bank, and based on such documents and information as it shall deem appropriate at the time, continue to make its own analysis and decisions in taking or not taking action under this Agreement. The Agent shall not be required to keep itself informed as to the performance or observance by the Borrowers of this Agreement or any of the other Loan Documents or any other document referred to or provided for herein or therein or to inspect the properties or books of any Consolidated Entity. Except for notices, reports and other documents and information expressly required to be furnished to the Banks by the Agent hereunder, the Agent shall not have any duty or responsibility to provide any Bank with any credit or other information concerning the affairs, financial condition or business of any Consolidated Entity (or any of their Affiliates) that may come into the possession of the Agent or any of its Affiliates. SECTION 10.07. Failure to Act. Except for action expressly required of the Agent hereunder and under the other Loan Documents, the Agent shall in all cases be fully justified in failing or refusing to act hereunder and thereunder unless it shall receive further assurances to its satisfaction from the Banks of their indemnification obligations under SECTION 10.05 hereof against any and all liability and expense that may be incurred by it by reason of taking or continuing to take any such action. SECTION 10.08. Resignation or Removal of Agent. Subject to the appointment and acceptance of a successor Agent as provided below, the Agent may resign at any time by giving notice thereof to the Banks and the Borrowers, and the Agent may be removed at any time with or without cause by the Required Banks. Upon any such resignation or removal, the Required Banks shall have the right to appoint a successor Agent. If no successor Agent shall have been so appointed by the Required Banks and shall have accepted such appointment within 30 days after the retiring Agent's giving of notice of resignation or the Required Banks' removal of the retiring Agent, then the retiring Agent may, on behalf of the Banks, appoint a successor Agent, that shall be a bank with a combined capital and surplus of at least $100,000,000. Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations as Agent hereunder. After any retiring Agent's resignation or removal hereunder as Agent, the provisions of this -81- 88 ARTICLE X shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as the Agent. SECTION 10.09. Documents. The Agent will forward to each Bank, promptly after the Agent's receipt thereof, a copy of each report, notice or other document required by this Agreement or any other Loan Document to be delivered to the Agent, including, without limitation, any and all Financial Statements, reports or other documents required to be delivered under SECTION 7.01(b). The Agent shall additionally make requests for information, reports, documents and such other matters to which it is entitled under this Agreement or any Loan Document, on behalf and at the express request of, the Required Banks, acting as a group. SECTION 10.10. Amendments Concerning Agency Function. The Agent shall not be bound by any waiver, amendment, supplement or modification of this Agreement or any other Loan Document which affects its duties hereunder or thereunder unless it shall have given its prior written consent thereto. SECTION 10.11. Liability of Agent. The Agent shall not have any liabilities or responsibilities to any Consolidated Entity on account of the failure of any Bank to perform its obligations hereunder, except with respect to any claim arising out of the gross negligence or willful misconduct of the Agent, or to any Bank on account of the failure of any Consolidated Entity to perform its obligations hereunder or under any other Loan Document. SECTION 10.12. Transfer of Agency Function. Without the consent of the Borrowers or any Bank, the Agent may at any time or from time to time transfer its functions as Agent hereunder to any of its offices wherever located, provided that the Agent shall promptly notify the Borrowers and the Banks thereof and such transfer shall not impose any additional costs on the Borrowers. SECTION 10.13. Non-Receipt of Funds by the Agent. Unless the Agent shall have been notified by a Bank or the Borrowers (any one of them as appropriate being the "Payor") prior to the date on which such Bank is to make payment hereunder to the Agent of the proceeds of a Loan or the Borrowers are to make payment to the Agent, as the case may be (either such payment being a "Required Payment"), which notice shall be effective upon receipt, that the Payor does not intend to make the Required Payment to the Agent, the Agent may assume that the Required Payment has been made and may, in reliance upon such assumption (but shall not be required to), make the amount thereof available to the intended recipient on such date and, if the Payor has not in fact made the Required Payment to the Agent, the recipient of such payment (and, if such recipient is a Borrower and the Payor Bank fails to pay the amount thereof to -82- 89 the Agent forthwith upon demand, a Borrower) shall, on demand, repay to the Agent the amount made available to it together with interest thereon for the period from the date such amount was so made available by the Agent until the date the Agent recovers such amount at a rate per annum equal to the average daily Federal Funds Rate for such period. If the Agent fails to pay any Bank its pro rata share of any payment due such Bank and which payment has been actually received by the Agent from a Borrower, within two Business Days of receipt thereof, the Agent shall pay to each Bank its pro rata share of such payment (if any) together with interest thereon from the date such amount was actually received by the Agent until the date paid to such Bank at a rate per annum equal to the average daily Federal Funds Rate for such period. SECTION 10.14. Withholding Taxes. Each Bank represents to the Agent and each Borrower that it is entitled to receive any payments to be made to it hereunder without the withholding of any tax and will furnish, prior to becoming a Bank hereunder, one copy to each Borrower and one copy to the Agent such forms, certifications, statements and other documents as the Agent or the Borrowers may request from time to time to evidence such Lender's exemption from the withholding of any tax imposed by any jurisdiction or to enable the Agent or the Borrowers to comply with any applicable laws or regulations relating thereto. Without limiting the effect of the foregoing, if any Bank is not created or organized under the laws of the United States of America or any state thereof, in the event that the payment of interest by the Borrowers is treated for U.S. income tax purposes as derived in whole or in part from sources from within the U.S., such Bank will furnish to the Agent Form 4224 or Form 1001 of the Internal Revenue Service, or such other forms, certifications, statements or documents, duly executed and completed by such Bank as evidence of such Bank's exemption from the withholding of U.S. tax with respect thereto. Until such Bank shall have furnished to the Agent and the Borrowers any requested form, certification, statement or document, the Agent or the Borrowers may withhold taxes from any payment to such Bank at applicable rates. ARTICLE XI RELATIONS AMONG THE BANKS AND THE BORROWERS SECTION 11.01. Obligations and Rights of Banks. The failure of any Bank to make any Loan to be made by it on the date specified therefor shall not relieve any other Bank of its obligation to make its Loan on such date, but no Bank shall be responsible for the failure of any other Bank to make a Loan to be made by such other Bank. The amounts payable at any time hereunder to each Bank shall be a separate and independent debt, and each Bank shall be entitled to protect and enforce its rights arising out of this Agreement, and it shall not be necessary for -83- 90 any other Bank to be joined as an additional party in any proceeding for such purpose, subject to the provisions of ARTICLE X. SECTION 11.02. Pro Rata Treatment. Except to the extent otherwise provided herein, (a) each borrowing under SECTION 2.02 shall be made from the Banks pro rata in accordance with their respective Commitments, (b) each payment of principal, including any prepayments pursuant to SECTIONS 2.06 and 2.07, shall be made to the Agent for the Account of the Banks pro rata in accordance with the respective principal amounts then outstanding, (c) each payment of interest on Loans, commitment fees or Total Costs shall be made to the Agent for the account of the Banks pro rata in accordance with their respective amounts thereof then due and payable, (d) each reduction in the Commitments shall be applied to the Commitments pro rata in accordance with the Banks' respective Commitments; and (e) each repayment and payment of fees under ARTICLE III hereof and the Letter of Credit Obligations shall be made to the Agent for the account of the Issuing Bank and the Banks with Participating Interests pro rata in accordance with the pro rata share of such Banks in the Letter of Credit Obligations held by each of them. SECTION 11.03. Sharing of Recoveries. Each Bank agrees that, if, as a result of (a) the exercise of any right of counterclaim, setoff, banker's lien or similar right, (b) its receipt of a secured claim under any applicable bankruptcy, insolvency or other similar law, (c) the allocation of payments by the Borrowers in a manner contrary to the provisions hereunder or (d) any other reason, such Bank receives payment of a proportion of the aggregate amount due and payable to it hereunder and under its Notes as principal, interest or commitment fees that is greater than the proportion received by any other Bank in respect of the aggregate of such amounts due and payable, proratably, to such other Bank hereunder and under its Notes, then the Bank receiving such proportionately greater payment shall purchase participations (which it shall be deemed to have done simultaneously upon the receipt of such payment) in the rights of the other Bank hereunder and under its Notes so that all such recoveries with respect to such amounts due and payable hereunder and under all the Notes held by the Banks shall be pro rata in accordance with the unpaid amount of principal and interest on the Loans and Letters of Credit held by each of them; provided that if all or part of such proportionately greater payment received by the purchasing Bank is thereafter recovered by or on behalf of any Borrower from such Bank, such purchases shall be rescinded and the purchase prices paid for such participations shall be returned to such Bank to the extent of such recovery, but without interest (unless the purchasing Bank is required to pay interest on the amount recovered to the Person recovering such amount, in which case the selling Bank shall be required to pay interest at a like rate); provided further that nothing in this SECTION 11.03 shall impair the right of any Bank to exercise any right of setoff or counterclaim it may have and to apply the -84- 91 amount subject to such exercise to the payment of Debt of any Borrower. The Borrowers expressly consent to the foregoing arrangements and agree that any holder of a participation in any rights hereunder so purchased or acquired pursuant to this SECTION 11.03 shall, with respect to such participation, be entitled to all of the rights of a Bank hereunder and may exercise any and all rights of setoff with respect to such participation as fully as if the Borrowers were directly indebted to the holder of such participation for Loans in the amount of such participation. SECTION 11.04. Security Documents. Subject to the foregoing provisions of this ARTICLE XI, the Agent shall, on behalf of the Banks: (a) execute any and all of the Collateral Security Documents on behalf of the Banks; (b) hold and apply any and all Collateral, and the proceeds thereof, at any time received by it, in accordance with the provisions of the Collateral Security Documents and this Agreement; (c) exercise any and all rights, powers and remedies of the Banks under this Agreement or any of the Collateral Security Documents, including the giving of any consent or waiver or the entering into of any amendment, subject to the provisions of SECTION 14.01; (d) execute, deliver and file financing statements, mortgages, deeds of trust, lease assignments and other such agreements, and possess instruments on behalf of any or all of the Banks; and (e) in the event of acceleration of the Borrowers' obligations hereunder, use its best efforts to sell or otherwise liquidate or dispose of the Collateral and otherwise exercise the rights of the Banks thereunder upon the direction of the Required Banks. SECTION 11.05. Collateral. Notwithstanding SECTION 11.04, the Agent and the other Banks agree, as among themselves, that the Agent shall not, without the consent of the Required Banks, make any sale or disposition of the Collateral pursuant to any of the Collateral Security Documents. The Agent acknowledges to the other Banks that it is acting in an agency capacity hereunder and that the security interest in the Collateral granted under the Collateral Security Documents secures the obligations held by all of the Banks. In the event of any Default or Event of Default, the Agent will apply and/or pay over to the Banks any net proceeds derived from the Collateral pro rata on the basis of the aggregate unpaid principal amount of the outstanding Loans held by the Banks. The Agent will be reimbursed or properly indemnified by the Banks in the event the Agent is requested by the Banks to take or omit to take any action with respect to the Collateral (any such reimbursement or indemnification to be provided in SECTION 10.05). The Agent shall have the right to retain counsel to advise it as to any action or decision with respect to the Collateral and shall be reimbursed by the other Banks for the cost of the same (to the extent the Agent is not reimbursed by the Borrowers) prior to distributing any of the Collateral or any proceeds thereof (any such reimbursement to be pro rata as aforesaid). -85- 92 SECTION 11.06. Amendment of ARTICLES X and XI. The Borrowers hereby agree that the foregoing provisions of ARTICLES X and XI constitute an agreement among the Agent and the Banks and that any and all of the provisions of ARTICLES X and XI, other than SECTION 10.08, SECTION 10.11, SECTION 10.12, SECTION 10.14 or any other provision the amendment of which would adversely affect the rights and interests of the Borrowers, may be amended at any time by the Required Banks without the consent or approval of, or notice to, the Borrowers. ARTICLE XII THE ARRANGER SECTION 12.01. The Arranger. The Borrowers and the Banks hereby confirm the appointment of and designate Chase Securities, Inc. as Arranger under this Agreement. The Arranger assumes no responsibility or obligation hereunder for servicing, enforcement or collection of the Loans, nor any duties as agent for the Banks. The title "Arranger" implies no fiduciary responsibility on the part of the Arranger to the Agent, Syndication Agent, the Banks or the Borrowers, and the use of such title does not impose on the Arranger any duties or obligations under this Agreement, except as may be expressly set forth herein. SECTION 12.02. Exculpatory Provisions. Neither the Arranger nor any of its officers, directors, employees, agents, attorneys-in-fact or affiliates shall be (a) liable for any action lawfully taken or omitted to be taken by them under or in connection with this Agreement (except for such Person's own gross negligence or willful misconduct), or (b) responsible in any manner to any of the Banks for any recitals, statements, representations or warranties made by the Borrowers or any officer thereof contained in this Agreement or in any certificate, report, statement or other document referred to or provided for in, or received by the Arranger under or in connection with, this Agreement or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement, the Notes or any of the Loan Documents or for any failure of the Borrowers to perform their obligations hereunder or thereunder. SECTION 12.03. Indemnification. The Banks agree to indemnify the Arranger in its capacity as such (to the extent not reimbursed by the Borrowers and without limiting the obligation of the Borrowers to do so pursuant to SECTION 7.01(i)), ratably according to the respective amounts of their Commitments in effect on the day indemnification is sought under this SECTION 12.03 (or, if the indemnification is sought after the date upon which the Commitments shall have terminated and the obligations shall have been paid in full, ratably in accordance with their respective Commitments immediately prior to such date) from and -86- 93 against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind whatsoever which may at any time (including, without limitation, at any time following the payment of the Loans) be imposed on, incurred by or assessed against the Arranger in connection with this Agreement; provided that no Bank shall be liable for the payment of any arrangement fees or any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements to the extent it results from the Arranger's gross negligence or willful misconduct. The agreements in this SECTION 12.03 shall survive the payment of the Loans. SECTION 12.04. Arranger in its Individual Capacity. The Arranger and its affiliates may arrange loans for and generally engage in any kind of business with the Borrowers as though the Arranger were not the Arranger hereunder. SECTION 12.05. Non-Reliance on Arranger and Other Banks. Each Bank expressly acknowledges that neither the Arranger nor any of its officers, directors, employees, agents, attorneys-in-fact or affiliates has made any representations or warranties to it and that no act by the Arranger hereinafter taken, including any review of the affairs of the Consolidated Entities, shall be deemed to constitute any representation or warranty by the Arranger to any Bank. Each Bank represents to the Arranger that it has, independently and without reliance upon the Arranger or any other Bank, and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, operations, property, financial and other condition and creditworthiness of the Consolidated Entities and made its own decision to make its loans hereunder and enter into this Agreement. Each Bank also represents that it will, independently and without reliance upon the Arranger or any other Bank, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement, and to make such investigations as it deems necessary to inform itself as to the business, operations, property, financial and other condition and creditworthiness of the Consolidated Entities. The Arranger shall not have any duty or responsibility to provide any Bank with any information concerning the business, operations, property, financial and other condition or creditworthiness of the Consolidated Entities which may come into its possession or any of its officers, directors, employees, agents, attorneys-in-fact or Affiliates. ARTICLE XIII THE SYNDICATION AGENT -87- 94 SECTION 13.01. The Syndication Agent. The Borrowers and the Banks hereby confirm the appointment of and designate NationsBank, N.A. as Syndication Agent under this Agreement. The Syndication Agent assumes no responsibility or obligation hereunder for servicing, enforcement or collection of the Loans, nor any duties as agent for the Banks. The title "Syndication Agent" implies no fiduciary responsibility on the part of the Syndication Agent to the Agent, the Arranger, the Banks or the Borrowers, and the use of such title does not impose on the Syndication Agent any duties or obligations under this Agreement, except as may be expressly set forth herein. SECTION 13.02. Exculpatory Provisions. Neither the Syndication Agent nor any of its officers, directors, employees, agents, attorneys-in-fact or affiliates shall be (a) liable for any action lawfully taken or omitted to be taken by them under or in connection with this Agreement (except for such Person's own gross negligence or willful misconduct), or (b) responsible in any manner to any of the Banks for any recitals, statements, representations or warranties made by the Borrowers or any officer thereof contained in this Agreement or in any certificate, report, statement or other document referred to or provided for in, or received by the Syndication Agent under or in connection with, this Agreement or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement, the Notes or any of the Loan Documents or for any failure of the Borrowers to perform their obligations hereunder or thereunder. SECTION 13.03. Indemnification. The Banks agree to indemnify the Syndication Agent in its capacity as such (to the extent not reimbursed by the Borrowers and without limiting the obligation of the Borrowers to do so pursuant to SECTION 7.01(i)), ratably according to the respective amounts of their Commitments in effect on the day indemnification is sought under this SECTION 13.03 (or, if the indemnification is sought after the date upon which the Commitments shall have terminated and the Loans shall have been paid in full, ratably in accordance with their respective Commitments immediately prior to such date) from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind whatsoever which may at any time (including without limitation at any time following the payment of the Loans) be imposed on, incurred by or assessed against the Syndication Agent in connection with this Agreement; provided that no Bank shall be liable for the payment of any syndication agent fees or any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements to the extent it results from the Syndication Agent's gross negligence or willful misconduct. The agreements in this SECTION 13.03 shall survive the payment of the Loans. -88- 95 SECTION 13.04. Rights as a Bank. With respect to its Commitments and the Loans made by it, the Syndication Agent, in its capacity as a Bank hereunder, shall have the same rights and powers hereunder as any other Bank and may exercise the same as though it were not acting as the Syndication Agent, and the term "Bank" or "Banks" shall, unless the context otherwise indicates, include the Syndication Agent in its individual capacity. The Syndication Agent and its Affiliates may (without having to account therefor to any Bank) accept deposits from, lend money to, make investments in and generally engage in any kind of banking, trust or other business with the Borrowers and any Consolidated Entity or Affiliate as if it were not acting as the Syndication Agent, and the Syndication Agent and its Affiliates may accept fees and other consideration from any Consolidated Entity for services in connection with this Agreement or otherwise without having to account for the same to the Banks. Although the Syndication Agent and its Affiliates may in the course of such relationships and relationships with other Persons acquire information about any Consolidated Entity or any Affiliate, the Syndication Agent shall have no duty to disclose such information to the Banks. SECTION 13.05. Non-Reliance on Syndication Agent and Other Banks. Each Bank expressly acknowledges that neither the Syndication Agent nor any of its officers, directors, employees, agents, attorneys-in-fact or affiliates has made any representations or warranties to it and that no act by the Syndication Agent hereinafter taken, including any review of the affairs of the Consolidated Entities, shall be deemed to constitute any representation or warranty by the Syndication Agent to any Bank. Each Bank represents to the Syndication Agent that it has, independently and without reliance upon the Syndication Agent or any other Bank, and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, operations, property, financial and other condition and creditworthiness of the Consolidated Entities and made its own decision to make its loans hereunder and enter into this Agreement. Each Bank also represents that it will, independently and without reliance upon the Syndication Agent or any other Bank, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement, and to make such investigations as it deems necessary to inform itself as to the business, operations, property, financial and other condition and creditworthiness of the Consolidated Entities. The Syndication Agent shall not have any duty or responsibility to provide any Bank with any information concerning the business, operations, property, financial and other condition or creditworthiness of the Consolidated Entities which may come into its possession or any of its officers, directors, employees, agents, attorneys-in-fact or Affiliates. -89- 96 ARTICLE XIV MISCELLANEOUS SECTION 14.01. Amendments, Waivers, Etc. Except as otherwise provided herein, the Agent may, with the prior written consent of the Required Banks (but not otherwise), consent to any amendment, modification, supplement or waiver under this Agreement or any of the Loan Documents, provided that, without the prior written consent of each Bank, the Agent shall not (except as provided herein): (a) increase or extend the term, or extend the time or waive any requirement for the reduction or termination, of the Commitments; (b) extend the date fixed for the payment of principal of or interest on any Loan, any Letter of Credit Obligation or any fee or other amounts payable hereunder; (c) reduce the amount of any payment of principal payable hereunder or the rate at which interest is payable thereon or any fee or other amounts payable hereunder, (d) alter the terms of this SECTION 14.01; (e) amend the definition of the term "Required Banks"; (f) waive any of the conditions precedent set forth in ARTICLE VI hereof; (g) discharge the Borrowers from the mandatory prepayment obligations set forth in ARTICLE II hereof; or (h) release all or any part of the Collateral other than pursuant to a disposition of property permitted hereunder or release any Borrower from any of its payment obligations hereunder; and provided, further, that any amendment of ARTICLE XI hereof or any amendment which increases the obligations of the Agent hereunder shall require the consent of the Agent. No failure on the part of the Agent or any Bank to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof or preclude any other or further exercise thereof or the exercise of any other right. Subject to the foregoing, no such amendment, modification, supplement or waiver shall in any event be effective unless the same shall be in writing and signed by the Required Banks or each Bank, as the case may be, and each Borrower, and then such amendment, modification, supplement, waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. SECTION 14.02. Notices. Unless the party to be notified otherwise notifies the other parties in writing as provided in this SECTION 14.02, and except as otherwise provided in this Agreement, notices shall be given to the Agent in writing, by telex, telecopy or other writing or by telephone, confirmed by telex, telecopy or other writing, and to the Banks and to the Borrowers by ordinary mail, hand delivery, overnight courier or telecopier addressed to such party at its address on the signature page of this Agreement. Notices shall be effective: (a) if given by mail, 72 hours after deposit in the mails with first class postage prepaid, addressed as aforesaid; and (b) if given by telecopier, when confirmation of delivery of the telecopy to the telecopier number as aforesaid is transmitted. -90- 97 SECTION 14.03. No Waiver, Remedies. No failure on the part of the Agent or any Bank to exercise, and no delay in exercising, any right hereunder or under any Note or any of the Collateral Security Documents shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder or under any Note or any of the Collateral Security Documents preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. SECTION 14.04. Costs, Expenses, Taxes, Investments. Borrowers jointly and severally agree to pay on demand all costs and expenses together with any taxes thereon incurred by the Agent, the Arranger, the Syndication Agent and the Banks in connection with the preparation, execution and delivery of this Agreement, the Notes, or any of the Collateral Security Documents, Loan Documents and any other documents to be delivered hereunder or thereunder, including, without limitation, all reasonable fees and expenses incurred with respect to valuation and accounting, and the reasonable fees and out-of-pocket expenses of counsel of and for the Agent, the Arranger, the Syndication Agent and the Banks with respect thereto and with respect to advising the Agent, the Arranger, the Syndication Agent and the Banks as to their rights and responsibilities under this Agreement and such other documents, and all costs and expenses, if any (including, without limitation, reasonable fees and out-of-pocket expenses of counsel), in connection with any collateral agent agreement entered into with respect to any operating accounts referred to in SECTION 7.02(q), and with the enforcement of this Agreement, the Notes, the Collateral Security Agreements, the Loan Documents and any other documents to be delivered hereunder or thereunder; in addition, Borrowers shall pay any and all stamp and other taxes payable or determined to be payable in connection with the execution and delivery of, or any borrowings or reborrowings under, this Agreement, the Notes, the Collateral Security Agreements, the Loan Documents and any other documents to be delivered hereunder or thereunder and any fees due under SECTIONS 2.05 and 3.09 hereunder (all of the foregoing being referred to herein collectively as the "Total Costs") and agree to hold the Agent, the Arranger, the Syndication Agent and the Banks harmless from and against any and all liabilities with respect to or resulting from any delay in paying or omission to pay such taxes. The Agent, the Arranger, the Syndication Agent and the Banks shall not be responsible for any costs or expenses of any kind whatsoever incurred by Borrowers and/or any Person on behalf of Borrowers in connection with the preparation of this Agreement, the Notes, the Collateral Security Agreements, the Loan Documents or any other documents to be delivered hereunder or thereunder. SECTION 14.05. Limitation on Interest. No provision of this Agreement or the Notes shall require the payment or -91- 98 permit the collection of interest in excess of the maximum rate permitted by applicable law. SECTION 14.06. Severability. Every provision of this Agreement is intended to be severable, and if any term or provision hereof shall be invalid, illegal, or unenforceable for any reason, the validity, legality, and enforceability of the remaining provisions hereof shall not be affected or impaired thereby, and any invalidity, illegality, or unenforceability in any jurisdiction shall not affect the validity, legality, or enforceability of any such term or provision in any other jurisdiction. SECTION 14.07. Binding Effect; Governing Law; Consent to Jurisdiction; Waiver of Jury Trial; Construction. This Agreement shall become effective when it shall have been executed and delivered by each Borrower, the Agent, the Arranger, the Syndication Agent and each Bank and thereafter shall be binding upon and inure to the benefit of each of their respective successors and assigns. This Agreement, the Notes and the Loan Documents shall be governed by, and construed in accordance with, the laws of the State of New York without regard to the principles of conflicts of laws, except only to the extent that the validity or perfection of the security interest hereunder, in respect of any particular Collateral, are governed by the laws of a jurisdiction other than the State of New York. EACH BORROWER, THE AGENT, THE ARRANGER, THE SYNDICATION AGENT AND THE BANKS HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY NEW YORK STATE OR UNITED STATES FEDERAL COURT SITTING IN NEW YORK COUNTY OVER ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, ANY NOTE OR ANY OTHER LOAN DOCUMENT, AND EACH BORROWER, THE AGENT, THE ARRANGER, THE SYNDICATION AGENT AND THE BANKS HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH NEW YORK STATE OR FEDERAL COURT. EACH BORROWER, THE AGENT, THE ARRANGER, THE SYNDICATION AGENT AND THE BANKS IRREVOCABLY CONSENTS TO THE SERVICE OF ANY AND ALL PROCESS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES OF SUCH PROCESS TO SUCH PERSON AT ITS ADDRESS SPECIFIED ON THE SIGNATURE PAGES HEREOF. EACH BORROWER, THE AGENT, THE ARRANGER, THE SYNDICATION AGENT AND THE BANKS AGREE THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. EACH BORROWER, THE AGENT, THE ARRANGER, THE SYNDICATION AGENT AND THE BANKS FURTHER WAIVE ANY OBJECTION TO VENUE IN SUCH STATE AND ANY OBJECTION TO AN ACTION OR PROCEEDING IN SUCH STATE ON THE BASIS OF FORUM NON CONVENIENS. EACH BORROWER FURTHER AGREES THAT ANY ACTION OR PROCEEDING BROUGHT AGAINST THE AGENT, THE ARRANGER, THE SYNDICATION AGENT OR ANY BANK SHALL BE BROUGHT ONLY IN NEW YORK STATE OR UNITED STATES FEDERAL COURT SITTING IN NEW YORK COUNTY. EACH BORROWER, THE -92- 99 AGENT, THE ARRANGER, THE SYNDICATION AGENT AND THE BANKS WAIVES ANY RIGHT IT MAY HAVE TO JURY TRIAL. SECTION 14.08. Assignment; Participations. (a) This Agreement shall be binding upon, and shall inure to the benefit of, the Borrowers, the Agent, the Syndication Agent, the Arranger, the Banks and their respective successors and assigns, except that the Borrowers may not assign or transfer their rights or obligations hereunder. Each Bank may assign or sell participations in all of its rights and obligations hereunder or any part of its rights and obligations hereunder to: [A] any other Bank without limitation or restriction, and [B] to another bank or other financial institution provided, however, that each such assignment or participation shall be in a minimum amount equal to $5,000,000 and provided further that (i) in the case of an assignment, upon notice thereof by the Bank to the Borrowers with a copy to the Agent, the assignee shall have, to the extent of such assignment (unless otherwise provided therein), the same rights, benefits and obligations as it would have if it were a Bank hereunder; and (ii) in the case of a participation, the participant shall have no rights under the Loan Documents and all amounts payable by the Borrowers under the Loan Documents, including, without limitation, under SECTION 2.05, shall be determined as if such Bank had not sold such participation. The agreement executed by such Bank in favor of the participant shall not give the participant the right to require such Bank to take or omit to take any action hereunder except action directly relating to (i) the extension of a payment date with respect to any portion of the principal of or interest on any amount outstanding hereunder allocated to such participant, (ii) the reduction of the principal amount outstanding hereunder allocated to such participant or (iii) the reduction of the rate of interest payable on such amount or any amount of fees payable hereunder to a rate or amount, as the case may be, below that which the participant is entitled to receive under its agreement with such Bank. Such Bank may furnish any information concerning any Consolidated Entity or any of their respective Affiliates in the possession of such Bank from time to time to assignees and participants (including prospective assignees and participants); provided that such Bank shall require any such prospective assignee or such participant (prospective or otherwise) to agree in writing to maintain the confidentiality of such information. In connection with any assignment or sale of a participation interest pursuant to this paragraph (a), the assigning or selling Bank shall pay the Agent an administrative fee for processing such assignment or participation in the amount of $2,500. (b) In addition to the assignments and participations permitted under paragraph (a) above, any Bank may assign and pledge all or any portion of the Commitments held by it to (i) any affiliate of such Bank or (ii) any Federal Reserve Bank as -93- 100 collateral security pursuant to Regulation A of the Board of Governors of the Federal Reserve System and any Operating Circular issued by such Federal Reserve Bank. No such assignment shall release the assigning Bank from its obligations hereunder. (c) The assignor Bank shall be solely responsible for obtaining from any participant or assignee and providing to the Agent and Borrowers all forms required under this SECTION 14.08. If, pursuant to this SECTION 14.08, any interest in this Agreement is transferred to any assignee that is organized under the laws of any jurisdiction other than the United States or any state thereof, the Bank transferring such interest (the "Transferor Bank") shall cause such assignee concurrently with the effectiveness of such transfer, (a) to represent to the Transferor Bank (for the benefit of the Transferor Bank, the Agent and the Borrowers) that it is either (i) entitled to the benefits of an income tax treaty with the United States that provides for an exemption from United States withholding tax on interest and other payments which may be made by the Borrowers under this Agreement; or (ii) is engaged in the trade or business within the United States and such Loan is effectively connected with such trade or business, (b) to furnish to the Transferor Bank, the Agent and the Borrowers either Internal Revenue Service Form 4224 or Internal Revenue Service Form 1001 (wherein such assignee claims entitlement to complete exemption from federal withholding tax of the United States of America on all payments hereunder) and (c) to agree (for the benefit of the Transferor Bank, the Agent and the Borrowers) to provide to the Transferor Bank, Agent and Borrowers such forms or documentation as may be required from time to time, including a new Form 4224 or Form 1001 upon the obsolescence of any previously delivered form, in accordance with applicable laws and regulations of the United States of America establishing the current status of such assignee with regard to continued entitlement to such complete withholding tax exemption. SECTION 14.09. Entire Agreement. This Agreement contains the entire understanding of, and supersedes all prior agreements, written and verbal, among, the Banks, the Agent, the -94- 101 Arranger, the Syndication Agent and the Borrowers with respect to the subject matter hereof and shall not be modified except in writing executed by the parties hereto. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written.
THE ADMINISTRATIVE AGENT: THE ARRANGER: - ------------------------ ------------ THE CHASE MANHATTAN BANK, N.A. CHASE SECURITIES, INC. By: /s/ Jo Zalon Meer By: /s/ Jo Zalon Meer ---------------------------- ---------------------------- Name: Jo Zalon Meer Name: Jo Zalon Meer Title: Vice President Title: Vice President Address: The Chase Manhattan Bank, Address: One Chase Manhattan Plaza N.A., New York Agency 8th Flr. 4 Chase Metrotech Center New York, NY 10081 13th Flr. Attn: Sandra P. Anton Brooklyn, NY 11245 Telephone: (212) 552-1249 Attn: Lucy D'Orazio Telefax: (212) 552-7536 Telephone: (718) 242-6909 Telefax: -------------------- THE SYNDICATION AGENT: --------------------- NATIONSBANK, N.A. By:/s/ J. Lance Walton --------------------------- Name: J. Lance Walton Title: Senior Vice President Address: NationsBank Corporation Center NC1-077-08-11 100 N. Tyron Street Charlotte, NC 28255 Attn: Lance Walton, SVP Telephone: 704-386-6744 Telefax: 704-386-1270
102
THE BORROWERS: WELLINGTON SEARS COMPANY JOHNSTON INDUSTRIES, INC. By: /s/ John W. Johnson By: /s/ John W. Johnson ---------------------------- --------------------------- Name: John W. Johnson Name: John W. Johnson ----------------------- ---------------------- Title: Vice President Title: Vice President ---------------------- --------------------- Address: 105 Thirteenth Street Address: 105 Thirteenth Street Columbus, GA 31901 Columbus, GA 31901 ----------------------- ---------------------- Attn: John W. Johnson Attn: John W. Johnson ----------------------- ---------------------- Telephone: (706) 641-3148 Telephone: (706) 641-3148 -------------------- ------------------- Telefax: (706) 641-3159 Telefax: (706) 641-3159 -------------------- ------------------- OPP AND MICOLAS MILLS, INC. T.J. BEALL COMPANY By: /s/ John W. Johnson By: /s/ John W. Johnson ---------------------------- --------------------------- Name: John W. Johnson Name: John W. Johnson ----------------------- ---------------------- Title: Vice President Title: Vice President ---------------------- --------------------- Address: 105 Thirteenth St. Address: 105 Thirteenth St. Columbus, GA 31901 Columbus, GA 31901 ----------------------- ---------------------- Attn: John W. Johnson Attn: John W. Johnson ----------------------- ---------------------- Telephone: (706) 641-3148 Telephone: (706) 641-3148 -------------------- ------------------- Telefax: (706) 641-3159 Telefax: (706) 641-3159 -------------------- --------------------- SOUTHERN PHENIX TEXTILES, INC. JOHNSTON INDUSTRIES COMPOSITE REINFORCEMENTS, INC. By: /s/ John W. Johnson By: /s/ John W. Johnson ---------------------------- --------------------------- Name: John W. Johnson Name: John W. Johnson ----------------------- ---------------------- Title: Vice President Title: Vice President ---------------------- --------------------- Address: 105 Thirteenth St. Address: 105 Thirteenth St. Columbus, GA 31901 Columbus, GA 31901 ----------------------- ----------------------- Attn: John W. Johnson Attn: John W.Johnson ----------------------- ---------------------- Telephone: (706) 641-3148 Telephone: (706) 641-3148 -------------------- ------------------- Telefax: (706) 641-3159 Telefax: (706) 641-3159 -------------------- ----------------------
103
THE BANKS: - --------- THE CHASE MANHATTAN BANK, N.A. By: /s/ Jo Zalon Meer --------------------------- Name: Jo Zalon Meer Title: Vice President Lending Office and Address for Notices: Textile and Apparel Division 1411 Broadway, 5th Floor New York, New York 10018 Attention: Ms. Jo Zalon Meer, Vice President Telecopier No.: (212) 391-7118 NATIONSBANK, N.A. By: /s/ Lance Walton --------------------------- Name: Lance Walton Title: Sr. Vice President Lending Office and Address for Notices: NationsBank, N.A. NationsBank Corporation Center NC1-007-08-11 100 N. Tryon Street Charlotte, NC 28255 Attention: Lance Walton Telecopier No.: (704) 386-1270 FIRST ALABAMA BANK By: /s/ Dennis Schuett --------------------------- Name: Dennis Schuett Title: Senior Vice President Lending Office and Address for Notices: First Alabama Bank P.O. Box 1377 Columbus, GA 31702 Attention: Dennis D. Schuett Telecopier No.: (706) 660-3790
104
COMERICA BANK By: /s/ Bradley A. Terryn --------------------------- Name: Bradley A. Terryn Title: Vice President Lending Office and Address for Notices: Comerica Bank 500 Woodward Avenue, 9th Flr, M/C 3280 Detroit, MI 48226 Attention: Bradley A. Terryn Telecopier No.: (313) 222-6231 VAN KAMPEN AMERICAN CAPITAL By: /s/ Jeffrey Maillet --------------------------- Name: Jeffrey Maillet Title: Sr. Vice President Lending Office and Address for Notices: Van Campen American Capital State Street Bank & Trust One Parkview Plaza Corporate Trust Department Oakbrook Terrace, IL 60181 P.O. Box 778 Attention: Brian Murphy Boston, MA 02102 Telecopier No.: (708) 684-6740 Attention: Laura Magazu Telecopier No.: (617) 664-5366
-98- 105
CORESTATES FINANCIAL CORP. By: /s/ Marcus F. Brown -------------------------- Name: Marcus F. Brown Title: Vice President Lending Office and Address for Notices: Corestates Bank, N.A. F.C. 1-8-4-12 1339 Chestnut Street Philadelphia, PA 19107-3579 Attention: Marcus F. Brown Telecopier No.: (215) 973-6680 THE SUMITOMO BANK, LIMITED By: /s/ Roger N. Arsham By: /s/ Sybil H. Weldon -------------------------- ---------------------------- Name: Roger N. Arsham Name: Sybil H. Weldon Title: Vice President Title: Vice President & Manager Address for Notices: Lending Office: The Sumitomo Bank, Limited The Sumitomo Bank, Limited 303 Peachtree St., N.E. 233 South Wacker Drive Suite 4420 Chicago, IL 60606 Atlanta, GA 30308 Attention: Diane Rhoades Telecopier No.: (404) 523-7983 WACHOVIA BANK OF GEORGIA, N.A. By:/s/ Elspeth G. England -------------------------- Name: Elpseth G. England Title: Senior Vice President Lending Office and Address for Notices: Wachovia Bank of Georgia, N.A. 191 Peachtree St., N.E., 30th Flr. Atlanta, GA 30303-1751 Attention: Douglas W. Strickland Telecopier No.: (404) 332-6920
106 CREDIT AGREEMENT- SCHEDULE I BANK COMMITMENTS
RC RC TLA TLA Institution Allocation Percent Allocation Percent ----------- ---------- ------- ---------- ------- Chase 17,512,437.81 21.89055% 8,756,218.91 21.89055% NationsBank 17,512,437.81 21.89055% 8,756,218.91 21.89055% Regions Financial 13,681,592.04 17.10199% 6,840,796.02 17.10199% Comerica 10,945,273.63 13.68159% 5,472,636.82 13.68159% VKM 0.00 0.00000% 0.00 0.00000% CoreStates Financial 8,208,955.22 10.26119% 4,104,477.61 10.26119% Sumitomo 6,666,666.67 8.33333% 3,333,333.33 8.33333% Wachovia 5,472,636.82 6.84080% 2,736,318.41 6.84080% Total 80,000,000.00 100.00000% 40,000,000.00 100.00000% TLB TLB Total Total Institution Allocation Percent Allocation Percent ----------- ---------- ------- ---------- ------- Chase 5,731,343.28 14.32836% 32,000,000.00 20.0000% NationsBank 5,731,343.28 14.32836% 32,000,000.00 20.0000% Regions Financial 4,477,611.94 11.19403% 25,000,000.00 15.6250% Comerica 3,582,089.55 8.95522% 20,000,000.00 12.5000% VKM 16,000,000.00 40.00000% 16,000,000.00 10.0000% CoreStates Financial 2,686,567.16 6.71642% 15,000,000.00 9.3750% Sumitomo 0.00 0.00000% 10,000,000.00 6.2500% Wachovia 1,791,044.78 4.47761% 10,000,000.00 6.2500% Total 40,000,000.00 100.00000% 160,000,000.00 100.0000%
EX-11 5 STATEMENT OF COMPUTATION 1 JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES EXHIBIT 11 - STATEMENT OF COMPUTATION OF PER SHARE EARNINGS The weighted average number of common and common share equivalents on a primary and full-diluted basis are as follows: Primary
For the For the ------- ------- Six Months Year ---------- ---- Ended Ended ----- ----- December 30, June 30, ------------ -------- 1995 1995 1994 1993 ---- ---- ---- ---- Weighted average common shares outstanding 10,564,979 10,599,242 10,714,651 10,794,81 Shares issued from assumed exercise of incentive stock options -- -- 1,174 26,473 Shares issued from assumed exercise of nonqualified stock options(1) -- 98,097 134,316 110,487 ----------- ---------- ---------- ---------- Weighted average number of shares outstanding, as adjusted 10,564,979 10,697,339 10,850,141 10,931,781 =========== ========== ========== ========== Net Income (Loss) ($6,190,000) $7,875,000 $6,495,000 $8,414,000 =========== ========== ========== ========== Earnings (Loss) per share $ (.59) $ .74 $ .60 $ .77 =========== ========== ========== ==========
(1) Shares issued from assumed exercise of options included the number of incremental shares which result from applying the "treasury stock method" for options. Note: Fully diluted earnings per share are not presented because the difference from primary earnings per share is insignificant for all periods presented. EX-13.(A) 6 1995 ANNUAL REPORT 1 Exhibit 13a JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES TABLE OF CONTENTS - --------------------------------------------------------------------------------
PAGE INDEPENDENT AUDITORS' REPORT F-1 CONSOLIDATED FINANCIAL STATEMENTS: Consolidated Balance Sheets, December 30, 1995, June 30, 1995 and 1994 F-3 Consolidated Statements of Operations, Six Months Ended December 30, 1995, Fiscal Years Ended June 30, 1995, 1994, and 1993, and (Unaudited) Six Months Ended December 31, 1994 F-4 Consolidated Statements of Stockholders' Equity, Six Months Ended December 30, 1995 and Fiscal Years Ended June 30, 1995, 1994, and 1993 F-5 Consolidated Statements of Cash Flows, Six Months Ended December 30, 1995, Fiscal Years Ended June 30, 1995, 1994, and 1993, and (Unaudited) Six Months Ended December 31, 1994 Notes to Consolidated Financial Statements F-8 FINANCIAL STATEMENT SCHEDULES Johnston Industries, Inc. and Subsidiaries Schedule I - Condensed Financial Information of Registrant S-1 to S-4 Schedule II - Valuation and Qualifying Accounts S-5
2 INDEPENDENT AUDITORS' REPORT Board of Directors and Stockholders Johnston Industries, Inc.: We have audited the accompanying consolidated balance sheets of Johnston Industries, Inc. and subsidiaries (the "Company") at December 30, 1995, June 30, 1995 and 1994 and the related consolidated statements of operations, stockholders' equity, and cash flows for the six months ended December 30, 1995 and for each of the three years in the period ended June 30, 1995. Our audits also included the financial statement schedules listed in the Index at Item 14. These financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Johnston Industries, Inc. and subsidiaries at December 30, 1995, June 30, 1995 and 1994, and the results of their operations and their cash flows for the six months ended December 30, 1995 and for each of the three years in the period ended June 30, 1995 in conformity with generally accepted accounting principles. Also, in our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein. As discussed in Note 2 to the consolidated financial statements, through December 31, 1994, the consolidated financial statements include the Company's investment in and equity in earnings of its affiliate, Jupiter National, Inc. ("Jupiter"). In January 1995, the Company increased its ownership interest in Jupiter from 49.6% at December 31, 1994 to 54.2%. As a result, Jupiter became a consolidated, majority owned subsidiary of the Company in January 1995. As discussed in Note 23 to the financial statements, on March 28, 1996, the Company consummated its purchase of the remaining outstanding shares of Jupiter. As of December 30, 1995 and June 30, 1995, $14,145,000 and $19,892,000, respectively, of the Company's investments are recorded at their estimated fair market value based on estimates by Jupiter's Board of Directors in the absence of readily ascertainable market values. Earnings related to these investments for the six months ended December 30, 1995 and the year ended June 30, 1995 were $-0- and $2,455,000, respectively. The Company's equity in the net assets of Jupiter at June 30, 1994 was $18,701,000, which included $9,074,000 of security values determined by Jupiter's Board of Directors. For the years 3 ended June 30, 1994 and 1993, $1,091,000 and $(582,000), respectively, of the Company's equity in Jupiter's changes in net assets was derived from net unrealized appreciation (depreciation) of investments whose values have been estimated by Jupiter's Board of Directors. We have reviewed the procedures used in arriving at the estimates of value of such securities and have inspected underlying documentation and, in the circumstances, we believe the procedures are reasonable and the documentation appropriate. However, because of the inherent uncertainty of valuation, those estimated values may differ significantly from the values that would have been used had a ready market for Jupiter's investments existed, and the difference could be material to the Company's consolidated financial statements. As discussed in Note 1 to the consolidated financial statements, effective July 1, 1995, the Company changed its method of accounting for the impairment of long-lived assets and long-lived assets to be disposed of to conform with Statement of Financial Accounting Standards No. 121. /s/ DELOITTE & TOUCHE LLP - ---------------------------- DELOITTE & TOUCHE LLP March 28, 1996 F-2 4 JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 30, 1995, JUNE 30, 1995 AND 1994 - --------------------------------------------------------------------------------
DECEMBER 30, JUNE 30, JUNE 30, ASSETS 1995 1995 1994 CURRENT ASSETS: Cash and cash equivalents (restricted: $3,458,000, $5,025,000, and $-0-, respectively) $ 4,912,000 $ 9,456,000 $ 3,914,000 Marketable securities, at fair value 20,592,000 9,741,000 Investments - at estimated fair market value as determined by Jupiter's directors 14,145,000 Accounts and notes receivable, net of allowance of $1,772,000, $1,113,000, and $368,000 42,326,000 43,333,000 18,152,000 Income taxes receivable 835,000 Inventories 53,112,000 46,389,000 25,438,000 Prepaid expenses and other 1,899,000 1,892,000 1,330,000 Assets held for sale 5,462,000 ------------ ------------ ----------- Total current assets 143,283,000 110,811,000 48,834,000 INVESTMENTS - At estimated fair market value as determined by Jupiter's directors 19,892,000 INVESTMENTS - At equity 4,174,000 21,036,000 PROPERTY, PLANT, AND EQUIPMENT - Net 112,007,000 114,309,000 65,354,000 INTANGIBLE ASSET - Pension 2,464,000 2,675,000 2,874,000 OTHER ASSETS 5,795,000 3,240,000 2,096,000 ------------ ------------ ------------ $263,549,000 $255,101,000 $140,194,000 ============ ============ ============
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DECEMBER 30, JUNE 30, JUNE 30, LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1995 1994 CURRENT LIABILITIES: Short-term borrowings $ 6,800,000 $ 2,500,000 Current maturities of long-term debt $ 1,942,000 5,894,000 5,087,000 Accounts payable 28,812,000 19,692,000 6,410,000 Accrued expenses 13,321,000 13,084,000 7,372,000 Income taxes payable 1,219,000 806,000 Deferred income taxes 4,320,000 2,947,000 1,164,000 ------------ ------------ ------------ Total current liabilities 48,395,000 49,636,000 23,339,000 ------------ ------------ ------------ LONG-TERM DEBT 125,941,000 98,834,000 36,216,000 ------------ ------------ ------------ OTHER LIABILITIES 14,091,000 14,023,000 16,876,000 ------------ ------------ ------------ DEFERRED INCOME TAXES 1,975,000 9,012,000 3,955,000 ------------ ------------ ------------ COMMITMENTS AND CONTINGENCIES MINORITY INTEREST 17,968,000 20,169,000 ------------ ------------ STOCKHOLDERS' EQUITY: Preferred stock, par value $.01 per share; authorized, 3,000,000 shares; none issued Common stock, par value $.10 per share; authorized, 20,000,000 shares; issued 12,426,891, 12,426,891, 1,243,000 1,243,000 1,241,000 and 12,411,891 Additional paid-in capital 17,293,000 17,258,000 17,107,000 Retained earnings 46,505,000 54,808,000 51,065,000 ------------ ------------ ------------ Total 65,041,000 73,309,000 69,413,000 Less treasury stock: 1,861,912, 1,861,912, and 1,682,112 shares at cost (8,108,000) (8,108,000) (6,407,000) Less minimum pension liability adjustment, net of tax benefit (1,754,000) (1,774,000) (3,198,000) ------------ ------------ ------------ Stockholders' equity 55,179,000 63,427,000 59,808,000 ------------ ------------ ------------ $263,549,000 $255,101,000 $140,194,000 ============ ============ ============
See notes to consolidated financial statements. F-3 5 JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS SIX MONTHS ENDED DECEMBER 30, 1995 AND FISCAL YEARS ENDED JUNE 30, 1995, 1994, AND 1993 AND (UNAUDITED) SIX MONTHS ENDED DECEMBER 31, 1994 - -------------------------------------------------------------------------------
SIX MONTHS SIX MONTHS ENDED ENDED YEAR ENDED JUNE 30, DECEMBER 30, DECEMBER 31, ------------------------------------------ 1995 1994 1995 1994 1993 (UNAUDITED) NET SALES $150,023,000 $84,970,000 $263,327,000 $159,904,000 $154,074,000 ------------ ----------- ------------ ------------ ------------ COSTS AND EXPENSES: Cost of sales, excluding depreciation and amortization 128,914,000 65,118,000 209,598,000 121,261,000 120,933,000 Selling, general, and administrative 16,210,000 6,766,000 21,899,000 13,306,000 11,980,000 Loss on impairment of assets 6,532,000 Depreciation and amortization 9,007,000 5,645,000 13,939,000 10,202,000 9,761,000 ------------ ----------- ------------ ------------ ------------ Total costs and expenses 160,663,000 77,529,000 245,436,000 144,769,000 142,674,000 ------------ ----------- ------------ ------------ ------------ INCOME (LOSS) FROM OPERATIONS (10,640,000) 7,441,000 17,891,000 15,135,000 11,400,000 OTHER EXPENSE (INCOME): Interest income (531,000) (52,000) (1,583,000) (103,000) (482,000) Interest expense 4,982,000 1,830,000 7,498,000 2,948,000 2,885,000 Other - net 3,508,000 (58,000) 1,509,000 590,000 491,000 ------------ ----------- ------------ ------------ ------------ Total other expense (income) - net 7,959,000 1,720,000 7,424,000 3,435,000 2,894,000 ------------ ----------- ------------ ------------ ------------ EQUITY IN EARNINGS (LOSSES) OF EQUITY INVESTMENTS 1,040,000 1,000,000 (1,141,000) 5,093,000 NET REALIZED AND UNREALIZED INVESTMENT PORTFOLIO GAIN 3,767,000 5,191,000 ------------ ----------- ------------ ------------ ------------ INCOME (LOSS) BEFORE PROVISION (BENEFIT) FOR INCOME TAXES AND MINORITY INTEREST (14,832,000) 6,761,000 16,658,000 10,559,000 13,599,000 PROVISION (BENEFIT) FOR INCOME TAXES (6,346,000) 2,565,000 7,083,000 4,064,000 5,185,000 ------------ ----------- ------------ ------------ ------------ INCOME (LOSS) BEFORE MINORITY INTEREST (8,486,000) 4,196,000 9,575,000 6,495,000 8,414,000 MINORITY INTEREST IN INCOME (LOSS) OF CONSOLIDATED SUBSIDIARY (2,296,000) 1,700,000 ------------ ----------- ------------ ------------ ------------ NET INCOME (LOSS) $ (6,190,000) $ 4,196,000 $ 7,875,000 $ 6,495,000 $ 8,414,000 ============ =========== ============ ============ ============ EARNINGS (LOSS) PER SHARE $ (0.59) $ 0.39 $ 0.74 $ 0.60 $ 0.77 ============ =========== ============ ============ ============ DIVIDENDS PER SHARE $ 0.20 $ 0.19 $ 0.39 $ 0.35 $ 0.32 ============ =========== ============ ============ ============ WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING 10,564,979 10,726,234 10,697,339 10,850,141 10,931,781 ============ =========== ============ ============ ============
See notes to consolidated financial statements. F-4 6 JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY SIX MONTHS ENDED DECEMBER 30, 1995 AND FISCAL YEARS ENDED JUNE 30, 1995, 1994, AND 1993 - --------------------------------------------------------------------------------
COMMON STOCK ADDITIONAL TREASURY STOCK ----------------------- PAID-IN RETAINED ---------------------- SHARES AMOUNT CAPITAL EARNINGS SHARES AMOUNT BALANCE, JUNE 30, 1992 12,178,422 $1,219,000 $15,938,000 $43,262,000 1,328,062 $(3,366,000) Exercise of stock options 159,823 16,000 795,000 Purchase of treasury stock 322,350 (2,693,000) Net income 8,414,000 Dividends paid ($.32 per share) (3,412,000) ---------- --------- ----------- ----------- ---------- ----------- BALANCE, JUNE 30, 1993 12,338,245 1,235,000 16,733,000 48,264,000 1,650,412 (6,059,000) Exercise of stock options 73,742 6,000 376,000 Purchase of fractional shares (96) (2,000) Purchase of treasury stock 31,700 (348,000) Net income 6,495,000 Dividends paid ($.35 per share) (3,694,000) Minimum pension liability adjustment, net of tax benefit of $1,957,000 ---------- --------- ----------- ----------- ---------- ----------- BALANCE, JUNE 30, 1994 12,411,891 1,241,000 17,107,000 51,065,000 1,682,112 (6,407,000) Exercise of stock options 15,000 2,000 151,000 Purchase of treasury stock 179,800 (1,701,000) Net income 7,875,000 Dividends paid ($.39 per share) (4,132,000) Minimum pension liability adjustment, net of taxes of $871,000 ---------- --------- ----------- ----------- ---------- ----------- BALANCE, JUNE 30, 1995 12,426,891 1,243,000 17,258,000 54,808,000 1,861,912 (8,108,000) Net loss (6,190,000) Dividends paid ($.20 per share) (2,113,000) Other 35,000 Minimum pension liability adjustment, net of taxes of $12,000 ---------- ---------- ----------- ----------- ---------- ----------- BALANCE, DECEMBER 30, 1995 12,426,891 $1,243,000 $17,293,000 $46,505,000 1,861,912 $(8,108,000) ========== ========== =========== =========== ========== =========== MINIMUM PENSION LIABILITY ADJUSTMENT TOTAL BALANCE, JUNE 30, 1992 $57,053,000 Exercise of stock options 811,000 Purchase of treasury stock (2,693,000) Net income 8,414,000 Dividends paid ($.32 per share) (3,412,000) ----------- BALANCE, JUNE 30, 1993 60,173,000 Exercise of stock options 382,000 Purchase of fractional shares (2,000) Purchase of treasury stock (348,000) Net income 6,495,000 Dividends paid ($.35 per share) (3,694,000) Minimum pension liability adjustment, net of tax benefit of $1,957,000 $(3,198,000) (3,198,000) ----------- ----------- BALANCE, JUNE 30, 1994 (3,198,000) 59,808,000 Exercise of stock options 153,000 Purchase of treasury stock (1,701,000) Net income 7,875,000 Dividends paid ($.39 per share) (4,132,000) Minimum pension liability adjustment, net of taxes of $871,000 1,424,000 1,424,000 ----------- ----------- BALANCE, JUNE 30, 1995 (1,774,000) 63,427,000 Net loss (6,190,000) Dividends paid ($.20 per share) (2,113,000) Other 35,000 Minimum pension liability adjustment, net of taxes of $12,000 20,000 20,000 ----------- ----------- BALANCE, DECEMBER 30, 1995 $(1,754,000) $55,179,000 =========== ===========
See notes to consolidated financial statements. F-5 7 JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS SIX MONTHS ENDED DECEMBER 30, 1995 AND FISCAL YEARS ENDED JUNE 30, 1995, 1994, AND 1993 AND (UNAUDITED) SIX MONTHS ENDED DECEMBER 31, 1994 - --------------------------------------------------------------------------------
SIX MONTHS SIX MONTHS ENDED ENDED DECEMBER 30, DECEMBER 31, 1995 1994 (UNAUDITED) OPERATING ACTIVITIES: Net income (loss) $(6,190,000) $4,196,000 ----------- ---------- Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 9,007,000 5,645,000 Loss on impairment of assets 6,532,000 Provision for bad debts 791,000 81,000 Net realized and unrealized gain on portfolio investment (3,767,000) (Gain) loss on disposal of fixed assets 428,000 Undistributed (income) losses in investments (1,040,000) Minority interest in (income) loss of consolidated subsidiary (2,296,000) Changes in assets and liabilities, net of effect of acquisitions: Accounts and notes receivable 1,451,000 1,240,000 Inventories (5,501,000) (2,863,000) Deferred income taxes 1,373,000 (68,000) Prepaid expenses and other assets (2,020,000) 285,000 Accounts payable 4,636,000 (785,000) Accrued expenses 138,000 (469,000) Income taxes payable (2,019,000) (46,000) Other liabilities (6,625,000) 271,000 Other, net 191,000 57,000 ----------- ---------- Total adjustments 2,319,000 2,308,000 ----------- ----------- Net cash provided by (used in) operating activities (3,871,000) 6,504,000 ----------- ----------- INVESTING ACTIVITIES: Additions to property, plant, and equipment (17,987,000) (5,818,000) Nonoperating accounts payable 4,254,000 1,189,000 Investments: Purchases (1,189,000) (1,173,000) Sales 7,000 Repayments of loans by stockholders Purchase of majority interest in Jupiter, net of cash acquired ------------ ----------- Net cash used in investing activities (14,915,000) (5,802,000) YEAR ENDED JUNE 30, --------------------------------------- 1995 1994 1993 OPERATING ACTIVITIES: Net income (loss) $ 7,875,000 $ 6,495,000 $ 8,414,000 ----------- ----------- ----------- Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 13,939,000 10,202,000 9,761,000 Loss on impairment of assets Provision for bad debts 89,000 151,000 383,000 Net realized and unrealized gain on portfolio investment (5,191,000) (Gain) loss on disposal of fixed assets (42,000) 4,000 48,000 Undistributed (income) losses in investments (1,000,000) 1,141,000 (5,093,000) Minority interest in (income) loss of consolidated subsidiary 1,700,000 Changes in assets and liabilities, net of effect of acquisitions: Accounts and notes receivable (9,140,000) (2,563,000) (375,000) Inventories 7,432,000 (2,244,000) (309,000) Deferred income taxes 1,783,000 (50,000) (21,000) Prepaid expenses and other assets 287,000 (566,000) 264,000 Accounts payable (1,014,000) (2,157,000) (4,133,000) Accrued expenses 47,000 794,000 (27,000) Income taxes payable (551,000) 168,000 113,000 Other liabilities 847,000 1,683,000 2,222,000 Other, net 8,000 27,000 124,000 ----------- ----------- ----------- Total adjustments 9,194,000 6,590,000 2,957,000 ----------- ----------- ----------- Net cash provided by (used in) operating activities 17,069,000 13,085,000 11,371,000 INVESTING ACTIVITIES: Additions to property, plant, and equipment (21,983,000) (12,701,000) (10,381,000) Nonoperating accounts payable 5,784,000 482,000 2,767,000 Investments: Purchases (4,347,000) (4,578,000) (2,034,000) Sales 1,093,000 Repayments of loans by stockholders 5,383,000 341,000 Purchase of majority interest in Jupiter, net of cash acquired 3,758,000 ------------ ------------ ----------- Net cash used in investing activities (15,695,000) (11,414,000) (9,307,000) ------------ ------------ -----------
(Continued) F-6 8 JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS SIX MONTHS ENDED DECEMBER 30, 1995 AND FISCAL YEARS ENDED JUNE 30, 1995, 1994, AND 1993 AND (UNAUDITED) SIX MONTHS ENDED DECEMBER 31, 1994 - --------------------------------------------------------------------------------
SIX MONTHS SIX MONTHS ENDED ENDED DECEMBER 30, DECEMBER 31, 1995 1994 (UNAUDITED) FINANCING ACTIVITIES: Principal payments of debt $(2,827,000) $(1,021,000) Proceeds from issuance of long-term debt 12,732,000 Borrowings under line-of-credit agreements 12,450,000 7,000,000 Repayments under line-of-credit agreements (6,000,000) (3,750,000) Purchase of treasury stock (1,521,000) Proceeds from employee stock ownership plan Proceeds from issuance of common stock Dividends paid (2,113,000) (2,019,000) ----------- ----------- Net cash provided by (used in) financing activities 14,242,000 (1,311,000) ----------- ----------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (4,544,000) (609,000) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 9,456,000 3,914,000 ----------- ----------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 4,912,000 $ 3,305,000 =========== =========== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the year for: Interest $ 4,571,000 $ 1,809,000 Income taxes $ 1,315,000 $ 1,829,000
YEAR ENDED JUNE 30, ---------------------------------------- 1995 1994 1993 FINANCING ACTIVITIES: Principal payments of debt $ (5,086,000) $ (4,022,000) $(2,000,000) Proceeds from issuance of long-term debt 12,634,000 13,325,000 Borrowings under line-of-credit agreements 17,275,000 11,750,000 8,000,000 Repayments under line-of-credit agreements (14,975,000) (19,250,000) (4,000,000) Purchase of treasury stock (1,701,000) (348,000) (2,693,000) Proceeds from employee stock ownership plan 1,454,000 Proceeds from issuance of common stock 153,000 380,000 811,000 Dividends paid (4,132,000) (3,694,000) (3,412,000) ------------ ------------ ----------- Net cash provided by (used in) financing activities 4,168,000 (1,859,000) (1,840,000) ------------ ------------ ----------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 5,542,000 (188,000) 224,000 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 3,914,000 4,102,000 3,878,000 ------------ ------------ ----------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 9,456,000 $ 3,914,000 $ 4,102,000 ============ ============ =========== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the year for: Interest $ 6,720,000 $ 2,962,000 $ 2,861,000 Income taxes $ 3,932,000 $ 2,908,000 $ 2,472,000
See notes to consolidated financial statements. (Concluded) F-7 9 JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 1. SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES Organization and Operations - The consolidated financial statements include the accounts of Johnston Industries, Inc. ("Johnston"), its wholly owned subsidiaries, Southern Phenix Textiles, Inc. ("Southern Phenix"), Opp and Micolas Mills, Inc. ("Opp and Micolas"), and Johnston Industries Composite Reinforcements, Inc. ("JICR") (formerly, Tech Textiles, USA), its majority owned subsidiary, Jupiter National, Inc. ("Jupiter") and Jupiter's wholly owned subsidiaries, Wellington Sears Company ("Wellington"), Pay Telephone America, Ltd., and Greater Washington Investments, Inc. ("GWI") (collectively, the "Company") (see Note 23). All significant intercompany accounts and transactions have been eliminated. Johnston and its wholly owned subsidiaries and Wellington are diversified manufacturers of woven and nonwoven fabrics used principally for home furnishings, industrial, and to a lesser extent, basic apparel, automotive, and other textile markets. The markets for these products are located principally throughout the continental United States. Jupiter holds venture capital portfolio investments in new and developing companies that offer long-term growth prospects. GWI is a small business investment company licensed under the Small Business Investment Act of 1958. Under applicable Small Business Administration regulations, GWI is restricted to investing only in qualified small business concerns contemplated by the 1958 Act, as amended, and such regulations. Fiscal Year-End - Prior to December 30, 1995, Johnston had a fiscal year-end of June 30. However, the operating subsidiaries had fiscal year-ends based on a 52/53 week reporting period that ended on the Saturday closest to June 30. For the fiscal years ended on June 30, 1995 and 1994, such operating subsidiaries' fiscal years ended on July 1, 1995 and July 2, 1994, respectively. On September 22, 1995, Johnston's Board of Directors authorized a change in the fiscal year from a period beginning July 1 and ending June 30 to a variable period ending on the Saturday nearest to December 31. Therefore, Johnston's fiscal period 1995 ended on December 30, 1995. Such change will make Johnston's year-end consistent with its quarterly accounting periods which, in the case of 52-week years, consist of two four-week periods and one five-week period per quarter ending on a Saturday. The unaudited financial information for the six months ended December 31, 1994 is presented for comparative purposes and includes all adjustments (consisting of only normal, recurring adjustments) which are, in the opinion of management, necessary for a fair presentation. Cash Equivalents - The Company classifies all highly liquid investments with a maturity of three months or less as cash equivalents. Cash equivalents held by GWI are required to be invested in securities guaranteed by the U.S. Government until such time as GWI invests such funds in qualified small business concerns. Inventories - The Company's inventories of finished goods, work-in-process, and raw materials are generally stated at the lower of cost (using the last-in, first-out cost flow assumption) or market. However, JICR's inventories and all of the Company's parts and supplies are stated at cost determined on the first-in, first-out basis. Property, Plant, and Equipment - Property, plant, and equipment is stated at cost. Depreciation and amortization are computed principal- ly by the use of the straight-line method over the estimated useful service lives of 20-40 years for buildings, 20 years for improvements, and 3-20 years for machinery and equipment. F-8 10 Revenue Recognition - Revenue is generally recognized as products are shipped to customers. When customers, under the terms of specific orders, request that the Company manufacture and invoice goods on a bill and hold basis, the Company recognizes revenue based on the completion date required in the order and actual completion of the manufacturing process, because at that time, the customer is invoiced and title and risks of ownership are transferred to the customer pursuant to the terms of the sales contract. Those terms provide that merchandise invoiced and held at any location by the Company, for whatever reason, shall be at the buyer's risk, and the Company may charge for insurance and storage at prevailing rates. Accounts receivable included bill and hold receivables of $9,984,000, $9,150,000 and $3,736,000 at December 30, 1995 and June 30, 1995 and 1994, respectively. Concentration of Credit Risk - The Company's accounts receivable are generally unsecured and are liquidated based on cash flows generated by its customers' operations. Valuation of Investments - Portfolio investments held by Jupiter in publicly traded entities are stated at fair value as determined by quoted market prices and are reflected as marketable securities in the accompanying balance sheets. Other portfolio investments held by Jupiter are recorded at estimated fair values as determined in good faith by Jupiter's Board of Directors. Such marketable securities and portfolio investments that have been sold or are expected to be sold within the next twelve months are classified as current assets (see Note 2). Unrealized appreciation (depreciation) is included as a component of net income. Because of the inherent uncertainty of valuation, values for Board-valued portfolio investments may differ significantly from the values that would have been used had a ready market for Jupiter's investments existed, and the difference could be material to the Company's consolidated financial statements. Investments in companies and joint ventures in which the Company had a 20% to 50% interest are accounted for under the equity method. The investments are recorded at cost and adjusted for the Company's share of earnings or losses and cash distributions. Gains or Losses on Securities Sold - Sales of securities by Jupiter are recorded on the trade date (date the order to sell is executed). The cost of securities sold is reported on the average cost basis for financial statement purposes. Realized losses are recognized for securities whose value is considered permanently impaired. Earnings (Loss) Per Share - Earnings per share are calculated based on the weighted average number of common and common equivalent shares outstanding during each respective fiscal year. Loss per share for the six months ended December 30, 1995 excluded stock options from the weighted average number of shares outstanding due to the fact that they would be anti-dilutive. Fully diluted earnings per share are not presented because the difference from primary earnings per share is insignificant for all periods presented. F-9 11 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. Actual results could differ from those estimates. Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of - On July 1, 1995, the Company adopted the provisions of Statement of Financial Accounting Standards No. 121 ("SFAS 121"), "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of." Under this method, the Company is required to review long-lived assets and certain identifiable intangibles to be held and used for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. All long-lived assets to be disposed of are reported at the lower of carrying amount or fair value less cost to sell. No cumulative effect on the Company's results of operations from adopting SFAS 121 was recorded because there was no impact as of July 1, 1995. Stock Based Compensation - Statement of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based Compensation," establishes financial accounting and reporting standards for stock-based compensation plans. SFAS 123 is effective for fiscal years beginning after December 15, 1995 and includes fair value recognition provisions for stock-based compensation which will be elective for employee arrangements and required for nonemployee transactions. For the employee arrangements, management will continue with the accounting prescribed by APB No. 25 and, accordingly, will make pro forma disclosures of net income and earnings per share as if the fair value method of accounting defined in SFAS 123 had been applied. For the nonemployee arrangements, the Company does not expect the adoption of SFAS 123 to have a material impact on the financial statements. Reclassifications - Certain prior year and prior period amounts have been reclassified to conform to the current year presentation. 2. JUPITER NATIONAL, INC. In January 1995, the Company purchased an additional 89,300 shares of Jupiter for approximately $2,300,000 which increased the Company's ownership interest in the outstanding shares of Jupiter from 49.6% at December 31, 1994 to 54.2%. As a result, Jupiter became a consolidated, majority owned subsidiary of the Company in January 1995. Minority interest is recorded for the minority shareholders' proportionate share of the equity and earnings (losses) of Jupiter. F-10 12 The following represents the results of operations on a pro forma basis assuming Johnston had owned 54.2% of Jupiter as of July 1, 1993. This pro forma information is provided for informational purposes only. Such pro forma information is based on historical information and is not necessarily indicative of the actual results that would have been achieved had Johnston purchased the additional shares of Jupiter on July 1, 1993, nor is it necessarily indicative of future results of operations (see Note 23).
YEAR ENDED JUNE 30, --------------------------- 1995 1994 Net sales $333,873,000 $290,572,000 Net income 8,117,000 6,371,000 Earnings per share 0.76 0.59
The Company accounted for its investment in Jupiter using the equity method through December 31, 1994. For the six months ended December 31, 1994 and for the years ended June 30, 1994 and 1993, Johnston recorded equity in the changes in net assets of Jupiter of $1,308,000, $(161,000), and $5,982,000, respectively. As of December 30, 1995 and June 30, 1995, $14,145,000 and $19,892,000, respectively, of the Company's investments are recorded at their estimated fair market value based on estimates by Jupiter's Board of Directors. Earnings related to these investments for the six months ended December 30, 1995 and the year ended June 30, 1995 were $-0- and $2,455,000, respectively. Effective January 1995, the Company's proportionate share of the unrealized appreciation (depreciation) of Jupiter's portfolio companies is included as a separate line item in the Company's income statement. The Company's equity in the net assets of Jupiter at June 30, 1994 was $18,701,000, which include $9,074,000 of security values determined by Jupiter's Board of Directors. For the years ended June 30, 1994 and 1993, $1,091,000 and $(582,000), respectively, of the Company's equity in Jupiter's changes in net assets was derived from net unrealized appreciation (depreciation) of investments whose values have been estimated by Jupiter's Board of Directors. Two significant portfolio investment transactions occurred during the three months ended December 30, 1995. First, as a result of the acquisition of McDATA Corporation ("McDATA") by EMC Corporation ("EMC") on December 6, 1995, Jupiter's investment in McDATA was converted into 564,216 shares of common stock of EMC, of which 56,421 shares are to be held in escrow for one year as security for potential indemnification obligations of McDATA. As a result, Jupiter recorded an unrealized gain of $3,863,000 in the quarter ended December 30, 1995. Second, on December 14, 1995, Fuisz Technologies, Ltd. ("Fuisz") completed an underwritten public offering of its common stock at a price of $12.00 per share. As a result of the offering, Jupiter's investment in Fuisz was converted into 215,080 shares of Fuisz common stock, and Jupiter recorded an unrealized gain of $593,000 in the quarter ended December 30, 1995. In connection with the Fuisz offering, the Company agreed not to dispose of its shares of Fuisz for a period of 180 days. Jupiter's investments in EMC and Fuisz were transferred from the investments determined by Jupiter's Board of Directors to marketable securities. As of March 28, 1996, the Company had liquidated $14,641,000 of the Jupiter investment portfolio (based on year-end values). The quoted market value of the Company's investment in Jupiter was approximately $20,148,000 on June 30, 1994. F-11 13 Summarized financial information of Jupiter as of June 30, 1994 and for the years ended June 30, 1994 and 1993 is as follows: FINANCIAL POSITION
1994 Net current assets $ 27,186,000 Investments 22,218,000 Total assets 111,610,000 Long-term debt (including current portion) 54,766,000 Net assets 38,099,000
RESULTS OF OPERATIONS
1994 1993 Net sales $130,688,000 $77,499,000 Operating income 5,210,000 3,508,000 Net income 233,000 15,917,000
Through November 30, 1994, Jupiter was considered a closed-end venture capital investment company that used specialized accounting policies required for investment companies to determine the net asset value of its portfolio of investments. Under these policies, securities with readily available market quotations were valued at the current market price, and all other investments were valued at fair value as determined in good faith by Jupiter's Board of Directors using a formal portfolio valuation procedure. Effective December 1, 1994, Jupiter received approval from the Securities and Exchange Commission to withdraw its election as a business development company under the Investment Act of 1940. As a result, majority owned operating companies are required to be recorded at historical cost. This change to the historical cost basis for such operating companies was effected through a retroactive change in accounting method that resulted in a restatement of Johnston's and Jupiter's prior financial statements through December 31, 1994. This retroactive change did not have a material impact on Johnston's financial position or results of operations. Jupiter's remaining portfolio of investments require periodic valuation of each investment to determine net asset value as described above. F-12 14 The following summarizes the aggregate cost and market or fair value of the portfolio investments:
MARKET OR COST FAIR VALUE AS OF DECEMBER 30, 1995: Marketable securities $ 4,059,000 $20,592,000 =========== =========== Portfolio investments - current $14,279,000 $14,145,000 =========== =========== AS OF JUNE 30, 1995: Marketable securities $ 1,575,000 $ 9,741,000 =========== =========== Portfolio investments - long-term $15,426,000 $19,892,000 =========== ===========
These investments are principally comprised of subordinated notes, preferred stock, and common stock of new and developing companies. 3. GREATER WASHINGTON INVESTMENTS, INC. As discussed in Note 1, GWI is a small business investment company licensed under the Small Business Investment Act of 1958. Summary financial information for GWI consists of the following: STATEMENTS OF FINANCIAL POSITION
DECEMBER 30, JUNE 30, 1995 1995 Current assets $ 4,536,000 $ 5,933,000 Portfolio investments, at fair value 29,780,000 23,951,000 Other assets 44,000 44,000 ----------- ----------- Total assets $34,360,000 $29,928,000 =========== =========== Current liabilities $ 327,000 $ 325,000 Subordinated debentures 14,500,000 14,500,000 Deferred income taxes 4,204,000 2,677,000 ----------- ----------- Total liabilities 19,031,000 17,502,000 Shareholder's equity 15,329,000 12,426,000 ----------- ----------- Total liabilities and shareholder's equity $34,360,000 $29,928,000 =========== ===========
F-13 15 STATEMENTS OF OPERATIONS
SIX MONTHS YEAR ENDED ENDED DECEMBER JUNE 30, 1995 1995 Operating income $ 488,000 $ 1,485,000 Operating expenses (3,000) Interest expense (582,000) (1,155,000) ----------- ----------- Net operating income (loss) (94,000) 327,000 Realized gain on sale of investments 0 392,000 ----------- ----------- Net realized gain (loss) (94,000) 719,000 Increase in unrealized appreciation of investments 4,492,000 6,253,000 Provision for income taxes (1,495,000) (2,371,000) ----------- ----------- Results of operations $ 2,903,000 $ 4,601,000 =========== ===========
4. STEEL FABRICATION OPERATIONS The accompanying balance sheets at December 30, 1995, June 30, 1995 and 1994 include accruals of $9,380,000, $8,363,000 and $7,903,000, respectively, for the remaining costs expected to be incurred in phasing out the Company's steel fabrication operations (see Notes 11 and 13). These costs are principally related to health insurance and death benefits for former employees and are stated at the actuarially determined discounted present value. These operations were discontinued in 1981. In February 1994, the operators of the facility filed a complaint against previous owners and operators of the facility including the Company claiming contamination by a former Johnston subsidiary which had operated at the facility before its close in 1981. The complaint seeks to hold predecessors in title and former operators at the site responsible for costs alleged to have been incurred to remediate the plant site by the present owners. Such costs are alleged to be $3.5 million; however, the Company disputes that such costs were incurred for response and believes that it has presented meritorious defenses against the imposition of such costs. A nonjury trial began in the United States District Court for the Eastern District of Pennsylvania on July 20, 1995 and was concluded on August 25, 1995. Briefs by all the parties have been filed. The Court is expected to render a decision during the quarter ending June 29, 1996. In June 1995, the Company established a reserve of $1,000,000 for costs which it believed could be incurred to resolve the dispute. Based upon subsequent events, including the trial and the discovery that certain co-defendants had no assets or had been through bankruptcy proceedings, and based upon the fact that the Court has not dismissed the plaintiff's claims, the Company's management determined to accrue an additional $1,000,000 in the three months ended December 30, 1995 and to increase the reserve to $2,000,000 as of December 30, 1995. Management continues to dispute the apportionment of any of these costs against the Company. The loss provision is included in Other - net in the Statement of Operations. In addition, the Company has established a reserve in the amount of $200,000 as an estimate of potential additional legal costs and other costs to be incurred subsequent to December 30, 1995, in connection with the defense of this matter. Although management believes that the accruals described above are reasonable based upon the available facts as of the respective balance sheet dates and that the accrual as of December 30, 1995 is sufficient to cover the estimated costs of such matter, the ultimate outcome of the litigation cannot presently be determined. F-14 16 5. RELATED PARTY TRANSACTIONS In May 1994, Redlaw Industries, Inc. ("Redlaw"), a stockholder, became the commissioned sales agent in Canada for sales of textile products manufactured by the Company. The Company paid Redlaw approximately $76,000 and $152,000 related to Redlaw's commissioned sales business for the six months ended December 30, 1995 and the fiscal year ended June 30, 1995, respectively. During 1992 and 1993, the Company made secured revolving loans to Redlaw. As of June 30, 1993, $5,524,000 was outstanding. In July 1993, principal and interest was paid in full. An additional loan of $1,300,000 was made to Redlaw in October 1993 and interest and principal was paid in full in December 1993. All loans bore interest at the Company's interest rate on its revolving credit loan plus 1/2 of 1%. 6. NOTES RECEIVABLE In September 1995, Wellington entered into a financing agreement with T.J. Beall Company ("TJB") whereby Wellington purchases from and resells to TJB cotton gin by-products for an amount not exceeding $4,000,000. Wellington's selling price, as defined by the agreement, is cost plus 1 1/2% above Wellington's revolving debt interest rate which was 11% at December 30, 1995. The inventory is pledged as collateral for the receivable. At December 30, 1995, the note receivable was $3,346,000 (See Note 23). 7. INVENTORIES Inventories consisted of the following:
JUNE 30, DECEMBER 30, ---------------------------- 1995 1995 1994 Finished goods $22,982,000 $18,191,000 $11,585,000 Work-in-process 15,595,000 15,288,000 6,897,000 Raw materials and supplies 14,535,000 12,910,000 6,956,000 ----------- ----------- ----------- 53,112,000 46,389,000 25,438,000 Difference between LIFO carrying value and current replacement cost 5,674,000 4,107,000 (838,000) ----------- ----------- ----------- Current replacement cost $58,786,000 $50,496,000 $24,600,000 =========== =========== ===========
Although current replacement cost for inventories at June 30, 1994 was less than last-in, first-out carrying value, the carrying value was recovered through subsequent sales which yielded normal profit margins. F-15 17 8. IMPAIRMENT OF ASSETS In February, 1996, the Company announced that it was closing Wellington's Tarboro Facility ("Tarboro") in an effort to realign and consolidate certain operations, concentrate capital resources on more profitable operations and better position itself to achieve its strategic corporate objectives. Such decision was reached after sales during the six months ended December 30, 1995 from the plant were lower than expected which caused continued operating losses and negative cash flows. Management evaluated the carrying value of the Tarboro plant and wrote down the value of such property, plant, and equipment by $6,532,000 in December 1995 due to impairment in accordance with SFAS 121. The carrying value of such assets prior to the write-down was approximately $12 million. The Tarboro plant revenues and operating loss (exclusive of the impairment of assets) for the six months ended December 30, 1995 were approximately $5,983,000 and $2,571,000, respectively. Management anticipates that although some of the equipment may be moved to other Company locations, the majority of such assets will be marketed and sold. Assets to be disposed of through future sale were written down to their estimated fair values and are classified on the Company's year-end balance sheet as assets held for sale. The values ascribed to such assets held for sale is based on management's best estimates of their fair value. While the estimates are based on management's analysis of the property, including valuations by independent appraisers, the amounts the Company might ultimately realize could vary from the estimated values ascribed to such assets. In addition to the above impairment, it is anticipated that certain inventory will be sold, certain accounts receivable will be settled, and severance costs will be incurred in connection with the Tarboro plant closing that will result in restructuring charges to be recorded during fiscal year 1996. 9. JOHNSTON INDUSTRIES COMPOSITE REINFORCEMENTS, INC. During 1992, the Company entered into a 50%/50% partnership with an English company to establish JICR for the joint manufacture and sale of certain specialized textile products. During September 1995, the Company began consolidating the financial statements of JICR, as the Company purchased the remaining 50% interest for a total cost of $655,000. The Company's investment in this entity was $4,174,000 and $2,335,000 at June 30, 1995 and 1994, respectively. Summarized financial information of JICR as of June 30, 1995 and 1994 and for each of the three years in the period ended June 30, 1995 is as follows: FINANCIAL POSITION
JUNE 30, ----------------------- 1995 1994 Net current assets $2,365,000 $ 593,000 Total assets 4,559,000 2,662,000 Net assets 4,174,000 2,335,000
F-16 18 RESULTS OF OPERATIONS
1995 1994 1993 Net sales $4,027,000 $2,016,000 $ 402,000 Operating income (loss) 448,000 (147,000) (246,000) Net loss (308,000) (980,000) (889,000)
10. PROPERTY, PLANT, AND EQUIPMENT Property, plant, and equipment consisted of the following:
JUNE 30, DECEMBER 30, ---------------------------- 1995 1995 1994 Land $ 1,373,000 $ 1,373,000 $ 555,000 Buildings and improvements 27,881,000 33,671,000 19,422,000 Machinery and equipment 169,214,000 159,741,000 106,871,000 ------------ ------------ ------------ 198,468,000 194,785,000 126,848,000 Less accumulated depreciation and amortization (86,461,000) (80,476,000) (61,494,000) ------------ ------------ ------------ Property, plant, and equipment - net $112,007,000 $114,309,000 $ 65,354,000 ============ ============ ============
11. ACCRUED EXPENSES Accrued expenses consisted of the following:
JUNE 30, DECEMBER 30, ------------------------- 1995 1995 1994 Salaries, wages, and employee benefits $ 4,539,000 $ 5,100,000 $2,821,000 Pension costs 2,410,000 2,148,000 1,697,000 Taxes, other than income taxes 750,000 1,459,000 1,276,000 Interest expense 1,168,000 507,000 41,000 Current estimated phase-out costs of steel fabrication operations 3,000,000 2,000,000 1,000,000 Other 1,454,000 1,870,000 537,000 ----------- ----------- ---------- $13,321,000 $13,084,000 $7,372,000 =========== =========== ==========
F-17 19 12. LONG-TERM FINANCING AND SHORT-TERM BORROWINGS Long-term debt and short-term borrowings consisted of the following:
JUNE 30, DECEMBER 30, ---------------------------- 1995 1995 1994 JOHNSTON Short-term borrowings $ 6,800,000 $ 2,500,000 ============ =========== Line-of-credit borrowings $ 13,250,000 Revolving credit loans 45,000,000 $ 45,000,000 $35,000,000 Term notes payable 5,000,000 Purchase money mortgage loan 1,174,000 1,217,000 1,303,000 ------------ ------------ ----------- 59,424,000 46,217,000 41,303,000 JUPITER Subordinated debentures 14,500,000 14,500,000 Securities loans 1,540,000 1,191,000 Other debt 879,000 933,000 ------------ ------------ 16,919,000 16,624,000 WELLINGTON SEARS Revolving credit loans 27,471,000 17,361,000 Term loan 18,594,000 19,687,000 Equipment loans 4,806,000 2,768,000 Industrial Development Bond (net of unamortized discount) 590,000 Amounts due former affiliates of Polylok 13,000 1,434,000 Installment and other loans 66,000 637,000 ------------ ------------ 51,540,000 41,887,000 ------------ ------------ ----------- Total 127,883,000 104,728,000 41,303,000 Less current maturities (1,942,000) (5,894,000) (5,087,000) ------------ ------------ ----------- $125,941,000 $ 98,834,000 $36,216,000 ============ ============ ===========
The estimated fair value of long-term debt (including current maturities) is $130,321,000 and $107,086,000 at December 30, 1995 and June 30, 1995, respectively. Interest rates that are currently available to the Company for issuance of debt with similar terms, credit characteristics, and remaining maturities were used to estimate fair value of long-term debt. REFINANCING On March 28, 1996, the Company signed an agreement with a syndicate of banks (the "Credit Agreement") to provide financing required to consummate the merger with Jupiter (see Note 23), to refinance certain existing indebtedness, to pay related fees and expenses, and to finance the ongoing working capital requirements of the Company. This agreement also provides for the consolidation of the Company's outstanding debt. F-18 20 The Credit Agreement is comprised of two term loan facilities ("A" and "B") and a revolving credit facility. Term loan facility A is a $40 million facility with a final maturity date of March 2001. Principal is repayable for the Company's year ending as follows: 1996 - $0, 1997 - $0, 1998 - $8 million, 1999 - $10 million, 2000 - $10 million, and 2001 - $12 million. The interest rate on these borrowings is 8% at March 28, 1996 which is based on a Base Rate, defined as the greater of the Federal Funds Rate plus 1/2 of 1%, or the prime commercial lending rate, plus 1 1/4% and is subject to change at the Company's option upon the bank's receipt of annual audited financial statements or 60 days to a rate based on the London Interbank Offered Rate ("LIBOR") plus 2 1/2%. Thereafter, the rate is based upon a ratio with the range as follows: Base Rate plus 1 1/4% or LIBOR plus 1-2 1/2%. Term facility B is a $40 million facility with a final maturity date of March 2003. Principal is repayable for the Company's year ending as follows: 1996 - $0, 1997 - $0, 1998-2001 - $500,000 each year, and 2002-2003 - $19 million each year. The interest rate on these borrowings is 8.5% at March 28, 1996 based on a Base Rate, as defined, plus 1 3/4% and is subject to change at the Company's option to a rate based on LIBOR, plus 3%. The revolving credit facility provides up to $80 million in borrowings, with a final maturity date of March 2001. Principal amounts outstanding are due and payable at final maturity. The interest rate on these borrowings is 8% at March 28, 1996 which is based on a Base Rate, as defined, plus 1 1/4%, and is subject to change at the Company's option upon the bank's receipt of the annual audited financial statements or 60 days to a rate based on LIBOR plus 2 1/2%. Thereafter, the rate is based upon a ratio with the range as follows: Base Rate plus 1 1/4% basis points or LIBOR plus 1-2 1/2%. Commitment fees are payable at 1/2 of 1%, based on the unused portion of the facility until the date of the receipt of the audited financial statements by the bank. Substantially all assets are pledged as collateral for the borrowings under these facilities. This agreement requires the Company to maintain certain financial ratios and specified levels of tangible net worth. The agreement places a limit on the Company's level of capital expenditures and type of mergers or acquisitions. The Credit Agreement permits the Company to pay dividends on its Common Stock provided it is in compliance with various covenants and provisions contained therein, which among other things limits dividends and restricts investments to the lesser of (x) 20% of total assets of the consolidated entities, on a fully consolidated basis, as of the date of determination thereof, or (y) $5,000,000 for the period commencing on January 1, 1996 and ending on December 31, 1996 or (z) $5,000,000 plus 50% of cumulative consolidated net income for the period commencing on January 1, 1997, minus 100% of cumulative consolidated net loss for the consolidated entities for such period, as calculated on a cumulative basis as of the end of each fiscal quarter of the consolidated entities with reference to the financial statements for such quarter. In March 1996, the Company borrowed $144,028,000 under these facilities and used a portion of such borrowings to liquidate the Johnston line-of-credit borrowings and revolving credit loans, and the Wellington revolving credit loans, term loans, and equipment loans. The interest rate as of December 30, 1995 on the Johnston line- of-credit borrowings and revolving credit loans was 8%. The interest rate as of December 30, 1995 on the Wellington revolving credit loans, term loans, and equipment loans was 9 1/2%. The following discussion relates to the Johnston, Jupiter, and Wellington debt outstanding as of December 30, 1995 that was not be refinanced by borrowings under the Credit Agreement. JOHNSTON Purchase Money Mortgage Loan - In connection with the purchase of a new office building during 1994, Johnston obtained a Purchase Money Mortgage Loan of $1,325,000. As of December 30, 1995 and June 30, 1995 and 1994, borrowings outstanding under this loan were $1,174,000, $1,217,000, and $1,303,000, respectively. Borrowings under this loan accrue interest at the lesser of: (1) 30-day adjustable, 60-day adjustable, or 90-day adjustable LIBOR rate plus 2.70% or (2) the prime rate. The interest rate on this loan was 8.75% at June 30, 1995. Beginning on March 31, 1994, Johnston was obligated to make 58 consecutive quarterly payments of principal of $21,667 plus interest, with all remaining principal and interest due on December 31, 2008. F-19 21 The new office building in Columbus, Georgia is pledged as collateral under this loan agreement. JUPITER Subordinated Debentures - The subordinated debentures, which relate to GWI, are payable to the Small Business Administration ("SBA") and bear interest at an effective weighted rate of 7.80% at December 30, 1995. Principal payments are due as follows:
YEAR ENDING DECEMBER 30, AMOUNT 1998 $ 2,500,000 2001 7,000,000 2003 5,000,000 ----------- $14,500,000 ===========
The subordinated debentures contain restrictions on prepayments, distributions to shareholders, and certain operating results. At December 30, 1995, GWI did not have available funds for distribution (equity of $15,329,000) to its shareholder nor funds for the prepayment of its debentures. Securities Loans - At December 30, 1995, Jupiter had borrowed $1,540,000 under a brokerage margin account with average interest rates of 10%. WELLINGTON Industrial Development Bond - In October 1995, Wellington entered into an Industrial Development Bond with the County of Chambers, Alabama, the proceeds of which were used to purchase a building. The original principal amount is repayable in equal annual installments of $100,000 beginning December 31, 1996 through December 31, 2004. At December 30, 1995, the unamortized discount on the note was $310,000 (discount based on an imputed interest rate of 10%). Amounts Due Former Affiliates of Polylok Corporation ("Polylok") - At July 1, 1995, amounts due former affiliates were comprised of $1,434,000 due under a note payable agreement and deferred compensation agreement with the former owner and a former member of management of Polylok. In October 1995, the outstanding balance owed to the former owner was paid in full. At December 30, 1995, $13,000 is owed to the former member of management. Amounts are payable in equal monthly installments of $833 through April 1997. Installment and Other Loans - At December 30, 1995 and July 1, 1995, installment and other loans were comprised of $527,000 for the purchase of certain machinery and equipment, and $66,000 and $110,000, respectively, borrowed to finance the construction of a new roof in one of the Company's facilities. The principal under the roof loan is payable in installments of $7,340 through September 1996. Both loans are noninterest-bearing, and the Company did not record any imputed interest. F-20 22 COVENANTS AND RESTRICTIONS The Johnston revolving credit agreement that provided for the line-of-credit borrowings and the revolving credit loans and the Wellington revolving credit, term loan, and equipment loan agreement (which have both been refinanced as noted above) required the maintenance of certain financial ratios, specified levels of certain balances, and certain other restrictions. At certain times during the six months ended December 30, 1995, Johnston and Wellington were in technical noncompliance with certain of their covenants. At certain times during the years ended June 30, 1995 and 1994, Wellington was in technical noncompliance with certain of its covenants. All of these events of noncompliance were waived by the lending institutions. As of December 30, 1995, Johnston and Wellington were in technical noncompliance with certain of their covenants. However, all of these covenants have been replaced in conjunction with the Company's refinancing. DEBT MATURITIES - Aggregate scheduled repayments of long-term debt comprehending the new debt in connection with the refinancing and other debt outstanding as of December 30, 1995 that was not refinanced are summarized as follows:
YEAR ENDING DECEMBER 30, AMOUNT 1996 $ 1,942,000 1997 182,000 1998 11,161,000 1999 11,200,000 2000 and thereafter 136,155,000 ------------ $160,640,000 ============
13. OTHER LIABILITIES Other liabilities consisted of the following:
JUNE 30, DECEMBER 30, ---------------------------- 1995 1995 1994 Long-term portion of estimated phase-out costs of steel fabrication operations $ 6,380,000 $ 6,363,000 $ 6,903,000 Additional pension liability (see Note 19) 5,429,000 5,534,000 8,029,000 Other 2,282,000 2,126,000 1,944,000 ----------- ----------- ----------- $14,091,000 $14,023,000 $16,876,000 =========== =========== ===========
14. COMMON STOCK On November 1, 1993, the Board of Directors approved a three-for-two stock split, whereby shareholders of record on January 4, 1994 were entitled to one additional share of common stock for every two shares held, payable on January 24, 1994. Stock options, treasury stock, outstanding common stock, and per share data have been retroactively adjusted to reflect the split. F-21 23 On February 1, 1993, Johnston purchased 294,000 shares of its stock at $8.50 per share from GRM Industries, Inc., a subsidiary of Redlaw. 15. STOCK OPTION PLANS Employees' Stock Incentive Plan - Johnston has a Stock Incentive Plan for Key Employees under which Johnston may grant incentive stock options, nonqualified stock options, stock appreciation rights, and restricted stock. Stock appreciation rights may only be granted in conjunction with nonqualified stock options. The maximum number of common shares which could be issued upon exercise of options or through awards granted under this plan is 2,358,450. Incentive stock options granted under the plan are exercisable, on a cumulative basis, at a rate of 25% each year, beginning one year after the date of grant. Nonqualified stock options are exercisable beginning six months after the date of grant. A summary of employee stock option activity is as follows:
NON- INCENTIVE QUALIFIED STOCK EXERCISE OPTIONS OPTIONS TOTAL PRICE Options outstanding at June 30, 1992 371,362 57,204 428,566 $2.37 - $ 5.55 Options granted 213,750 213,750 6.85 - 10.17 Options exercised (107,438) (52,386) (159,824) 2.37 - 3.22 -------- ------- -------- Options outstanding at June 30, 1993 477,674 4,818 482,492 3.22 - 10.17 Options exercised (68,924) (4,818) (73,742) 2.37 - 3.22 -------- ------- -------- Options outstanding at June 30, 1994 408,750 - 408,750 2.37 - 10.17 Options exercised (15,000) (15,000) 3.22 -------- ------- -------- Options outstanding at June 30, 1995 and December 30, 1995 393,750 - 393,750 5.55 - 10.17 ======== ======= ======== Options available for grant at December 30, 1995 855,000 ========
No stock option activity occurred during the six months ended December 30, 1995. At December 30, 1995, 378,750 of the outstanding options are exercisable. Other Stock Option Agreement - During 1991, Johnston entered into a nonqualified stock option agreement with a director under which the director was granted options to purchase a maximum of 22,500 shares of Johnston's common stock. The options are exercisable at $3.22 per share. Jupiter Stock Option Plans - Jupiter has an employee stock option plan and a director stock option plan under which options have been granted to purchase 428,220 shares of Jupiter common stock at prices ranging from $3.62 to $28.75. At December 30, 1995, 424,109 of the options were exercisable. In connection with Johnston's acquisition of the remaining outstanding shares of Jupiter (see Note 23), these options were purchased by Johnston. F-22 24 16. EMPLOYEE STOCK PURCHASE PLAN On October 15, 1990, the Company adopted an Employee Stock Purchase Plan under which eligible key employees and directors of the Company may purchase shares of the Company's common stock through loans guaranteed by the Company. Under the plan, as of December 30, 1995, 31 key employees and directors currently have loans outstanding for the purchase of a total of 976,284 shares of the Company's common stock at market prices. To purchase stock, participants generally execute five-year full recourse demand promissory notes with a third- party lender. The notes generally bear interest only during the term of the loan, at prime plus 1/4%. The third-party lender has the right to recover the loan proceeds from the participant's personal assets, including the purchased stock in the event of default. The participants may not sell their shares until they have made arrangements to pay off their loans with the proceeds from the sale of the stock or by settling the loans with other personal assets. In the event of default, the Company's exposure is limited to the amount by which a participant's loan balance exceeds the market value of the underlying stock less any proceeds recovered by the lender from the participant's personal assets. As of December 30, 1995 and June 30, 1995 and 1994, the market value of the purchased stock was $7,932,000, $7,089,000, and $7,038,000, respectively. The Company has no obligation to repurchase the stock from the participant or lender. The Company has the discretion to reimburse the participants for their payments of interest under the plan in excess of dividends paid on the Company's common stock in any given year. The Company treats these payments as compensation expense and income to the participants. Compensation expense relating to interest payments under the plan was $154,000, $226,000, and $70,000 for the six months ended December 30, 1995 and the fiscal years ended June 30, 1995 and 1994, respectively. At December 30, 1995, June 30, 1995, and June 30, 1994, the Company had guaranteed plan participants' borrowings totaling approximately $7,657,000, $6,978,000, and $5,004,000, respectively. Prior to December 30, 1995, the Company had never made any payments under the guarantee. Subsequent to December 30, 1995, the Company made a payment of approximately $198,000 to a third party lender in connection with a default on a participant's loan. The Company believes it will be successful in collecting the full amount from the participant's assets including the stock. Additionally, this default is not expected to be indicative of the status of the overall plan. 17. INCOME TAXES The Company adopted SFAS 109 effective July 1, 1993 and has applied the provisions of such statement retroactively to July 1, 1988. Accordingly, the consolidated financial statements have been restated to comply with the provisions of SFAS 109. The effect of the retroactive restatement on stockholders' equity at July 1, 1991 was a reduction of $418,000. The impact of applying SFAS 109 on net income and earnings per share for the year ended June 30, 1993 was a reduction of $352,000 and $.03, respectively. F-23 25 The provision (benefit) for income taxes is comprised of the following:
YEAR ENDED SIX MONTHS ENDED JUNE 30, DECEMBER 30, ------------------------------------------- 1995 1995 1994 1993 Federal: Current $ 56,000 $ 2,834,000 $ 2,604,000 $ 2,185,000 Deferred (5,837,000) 3,276,000 810,000 2,191,000 ----------- ----------- ----------- ----------- (5,781,000) 6,110,000 3,414,000 4,376,000 ----------- ----------- ----------- ----------- State: Current (85,000) 552,000 689,000 392,000 Deferred (480,000) 421,000 (39,000) 417,000 ----------- ----------- ----------- ----------- (565,000) 973,000 650,000 809,000 ----------- ----------- ----------- ----------- Provision (benefit) for income taxes $(6,346,000) $ 7,083,000 $ 4,064,000 $ 5,185,000 =========== =========== =========== ===========
The significant components of deferred income tax assets and liabilities are as follows:
JUNE 30, DECEMBER 30, ------------------------------ 1995 1995 1994 Deferred tax assets: Estimated phase-out costs of steel fabrication operations $ 3,561,000 $ 3,174,000 $ 3,000,000 Alternative minimum tax 4,406,000 1,949,000 678,000 Additional pension liabilities 1,073,000 1,086,000 1,957,000 Other - net 3,254,000 2,413,000 1,570,000 ------------ ------------ ------------ 12,294,000 8,622,000 7,205,000 ------------ ------------ ------------ Deferred tax liabilities: Unrealized appreciation - investments (6,232,000) (5,012,000) Inventories (2,114,000) (2,365,000) (2,235,000) Investments - at equity (in consolidated affiliates) (1,827,000) (2,916,000) (1,742,000) Property, plant, and equipment (8,416,000) (10,288,000) (8,347,000) ------------ ------------ ------------ (18,589,000) (20,581,000) (12,324,000) ------------ ------------ ------------ Net deferred tax liability $ (6,295,000) $(11,959,000) $ (5,119,000) ============ ============ ============ Net current deferred tax liability $ (4,320,000) $ (2,947,000) $ (1,164,000) Net long-term deferred tax liability (1,975,000) (9,012,000) (3,955,000) ------------ ------------ ------------ $ (6,295,000) $(11,959,000) $ (5,119,000) ============ ============ ============
Net deferred tax liabilities are classified in the financial statements as current or long-term depending upon the classification of the temporary difference to which they relate. Management believes it is more likely than not that future taxable income will be sufficient to realize fully the benefits of deferred tax assets. F-24 26 The reconciliation of the Company's effective income tax rate to the federal statutory rate of 34% follows:
YEAR ENDED SIX MONTHS ENDED JUNE 30, DECEMBER 30, ----------------------------------------------- 1995 1995 1994 1993 Federal income taxes at statutory rate $(5,042,000) $ 5,664,000 $ 3,590,000 $ 4,624,000 State income taxes, net of federal tax benefit (359,000) 746,000 429,000 533,000 Equity in income of majority owned subsidiary (942,000) 607,000 Impact of purchase accounting adjustments (61,000) Other, net (3,000) 66,000 45,000 89,000 ----------- ----------- ----------- ----------- $(6,346,000) $ 7,083,000 $ 4,064,000 $ 5,185,000 =========== =========== =========== =========== Effective tax rate 42.8% 42.5 % 38.5 % 38.1 % =========== =========== =========== ===========
At December 30, 1995, the Company has alternative minimum tax credit carryforwards of approximately $4,406,000 which have been used as a basis for recording tax assets and are included in the long-term deferred taxes payable account. The Company presently believes that realization of these carryforwards is more likely than not and as such has not established any valuation allowance against these assets. 18. COMMITMENTS AND CONTINGENCIES Litigation - Jupiter's purchase of the assets of Polylok which represents Tarboro resulted in significant litigation among Jupiter, Wellington, Polylok, and Daniel Duhl ("Duhl"), Polylok's principal shareholder. The first action, which was settled in August 1994, involved assertions against Polylok and Duhl of misrepresentations made in connection with the purchase of Polylok's assets. Subsequently, in March 1995, Polylok and Duhl commenced an action against Jupiter and Wellington, which action asserted a breach of contract relating to installment payments due Duhl pursuant to a $1,600,000 purchase money note. Jupiter and Wellington filed counterclaims against Polylok and Duhl for breach of Duhl's consultancy agreement and breach of the prior August 1994 settlement. On October 18, 1995, the breach of contract claim asserted by Polylok and Duhl and the counterclaim by Jupiter and Wellington for breach of consultancy agreement and the August 1994 settlement were resolved. On October 25, 1995, approximately $541,000 was placed in an escrow account to settle all obligations for Duhl's consultancy agreement. In further litigation in the United States District Court, Eastern District of North Carolina, Polylok Corporation and Polylok Finishing Corporation vs. Jupiter National, Inc. and Wellington Sears Company, No. 4:95-CV-105-H(2), Polylok and Duhl have taken legal action against Jupiter and Wellington regarding withdrawal of monies set aside in an escrow account, from the August 1994 settlement, providing for remediation of environmental contamination at the Tarboro plant. On January 5, 1996, the parties reached a settlement for this case whereby Duhl received $296,000 from an escrow account. Disputed Purchase Consideration - At December 30, 1995, Wellington has accrued $1,610,000 as additional purchase consideration in connection with Wellington's original purchase of assets from WestPoint Pepperell, Inc. ("WestPoint"). The additional purchase price has been F-25 27 allocated to property, plant, and equipment and was based upon Wellington exceeding a cumulative earnings threshold, as defined by the purchase agreement, during the three-year period ended November 28, 1995. While the amount recorded by Wellington represents management's best estimate of consideration owed, the amount is currently being disputed. Ultimately, the disagreement may be settled through arbitration as provided by the purchase agreement. The ultimate resolution of this matter could result in a payment of an amount different from the accrued amount. Any adjustment to the accrual will increase or decrease the purchase price allocated to property, plant, and equipment. The Company is periodically involved in legal proceedings arising out of the ordinary conduct of its business. Management does not expect that they will have a material adverse effect on the Company's consolidated financial position or results of operations. Provisional Cotton Pricing Arrangements - During the six months ended December 30, 1995, Opp and Micolas entered into various provisional pricing arrangements with its cotton vendors in connection with existing cotton purchase contracts. Under such provisional pricing arrangements, Opp and Micolas accepts delivery of certain quantities of raw cotton bales and pays an arranged "provisional" price for such purchases. However, Opp and Micolas has not "fixed" the price of such cotton purchases due to the expectation that cotton prices will decrease in the future, at which time such contracted prices will be fixed enabling Opp and Micolas to manage its exposure to the current perceived high raw material costs. As of December 30, 1995, 5,193,570 pounds of cotton are subject to provisional pricing arrangements with a total provisional price of approximately $4,409,000. As of March 28, 1996, the price had been fixed at $.8399 per pound for 4,548,885 pounds of cotton resulting in a gain of $46,000. Any gain or loss related to this arrangement is recorded as a component of inventory. Upon the sale of such inventory, the gain or loss is recorded as a component of cost of goods sold. Lease Commitments - Rent expense under operating leases covering production equipment and office facilities was $542,000 for the six months ended December 30, 1995, $791,000 in fiscal 1995, $785,000 in fiscal 1994, and $1,100,000 in fiscal 1993. At December 30, 1995, the Company is committed to pay the following minimum rental payments on noncancelable operating leases:
YEAR ENDING DECEMBER 30, AMOUNT 1996 $ 703,000 1997 462,000 1998 203,000 1999 112,000 2000 and thereafter 40,000 ---------- $1,520,000 ==========
Other Commitments - The Company has employment contracts with certain of its employees extending through 1998 aggregating $4,994,000. As of December 30, 1995, the Company has purchase commitments with terms in excess of one year with several vendors to buy inventory totaling approximately $8,140,000. F-26 28 The Company also has capital commitments with terms extending over one year as of December 30, 1995 with several vendors for the purchase of machinery and equipment aggregating approximately $800,000. 19. EMPLOYEE BENEFIT PLANS Defined Benefit Pension Plans - Johnston has two noncontributory qualified defined benefit pension plans covering substantially all hourly and salaried employees. The plan covering salaried employees provides benefit payments based on years of service and the employees' final average ten years' earnings. The plan covering hourly employees generally provides benefits of stated amounts for each year of service. Johnston's current policy is to fund retirement plans in an amount that falls between the minimum contribution required by ERISA and the maximum tax deductible contribution. Plan assets consist primarily of government and agency obligations, corporate bonds, common stocks, mutual funds, cash equivalents, and unallocated insurance contracts. Effective July 1, 1995, Johnston adopted a noncontributory, nonqualified defined benefit plan covering the five senior executives of Johnston ("SRP") designed to provide supplemental retirement benefits. The provisions of Statement of Financial Accounting Standards No. 87 ("SFAS 87"), "Employers' Accounting for Pensions" require recognition in the balance sheet of an additional minimum liability and related intangible asset for pension plans with accumulated benefits in excess of plan assets. At December 30, 1995, June 30, 1995 and 1994, an additional liability of $5,429,000, $5,534,000 and $8,029,000, respectively, is reflected in the consolidated balance sheets. At December 30, 1995, June 30, 1995 and 1994, the liability exceeded the unrecognized prior service cost resulting in a minimum pension liability, net of taxes, of $1,754,000, $1,774,000 and $3,198,000, respectively, recorded as a reduction of the Company's equity. Net periodic pension cost included the following components:
YEAR ENDED SIX MONTHS ENDED JUNE 30, DECEMBER 30, -------------------------------------------- 1995 1995 1994 1993 Service cost $ 564,000 $ 953,000 $ 1,010,000 $ 824,000 Interest cost 1,056,000 1,999,000 1,829,000 1,729,000 Actual (return) loss on assets (1,731,000) (2,460,000) 395,000 (1,202,000) Net amortization and deferral 1,347,000 1,850,000 (1,029,000) 464,000 ----------- ----------- ----------- ----------- Net periodic pension cost $ 1,236,000 $ 2,342,000 $ 2,205,000 $ 1,815,000 =========== =========== =========== ===========
F-27 29 The following sets forth the funded status of the plans:
JUNE 30, DECEMBER 30, ---------------------------- 1995 1995 1994 Actuarial present value of benefit obligations: Vested benefit obligation $27,460,000 $25,280,000 $24,784,000 Nonvested benefit obligation 629,000 729,000 464,000 ----------- ----------- ----------- Accumulated benefit obligation $28,089,000 $26,009,000 $25,248,000 =========== =========== =========== Projected benefit obligation $30,273,000 $27,798,000 $27,048,000 Plan assets at fair value 21,062,000 19,013,000 15,769,000 ----------- ----------- ----------- Projected benefit obligation in excess of plan assets $ 9,211,000 $ 8,785,000 $11,279,000 =========== =========== =========== Unrecognized prior service cost $ 902,000 $ 590,000 $ 491,000 Unrecognized net loss 4,794,000 4,649,000 6,956,000 Unrecognized net liability at date of initial adoption 1,935,000 2,084,000 2,382,000 Pension liability recognized 1,580,000 1,462,000 1,450,000 ----------- ----------- ----------- Total $ 9,211,000 $ 8,785,000 $11,279,000 =========== =========== ===========
For the salaried and hourly plans, the weighted average discount rate used in determining the projected benefit obligation was 7.5% for the six months ended December 30, 1995, 8% in fiscal 1995 and 7.5% in fiscal 1994, and the rate of increase in future compensation levels was graded by age from 7.50% to an ultimate rate of 4.0% for the six months ended December 30, 1995 and for fiscal 1995 and was a flat rate of 6% for fiscal 1994. The expected long-term rate of return on plan assets was 8% for the six months ended December 30, 1995 and for fiscal 1995 and 1994 for both plans. For the six months ended December 30, 1995, the weighted average discount rate used in determining the projected benefit obligation for the SRP was 7.50% and the rate of increase in future compensation levels was graded by age from 7.50% to 4.0%. This plan has no assets; therefore, there is no applicable long-term rate of return. Defined Contribution Plans - Through December 31, 1994, Jupiter maintained a defined contribution employee pension plan for substantially all employees to which it made annual contributions of 10% of compensation, subject to a $30,000 individual annual limitation. A portion of the plan's assets was invested in Jupiter's common stock. At June 30, 1995, 7,554 Jupiter shares were owned by the plan. During August 1995, Jupiter received a favorable determination letter from the Internal Revenue Service to terminate the plan, effective December 31, 1994. Accordingly, the plan assets were distributed to the participants during August 1995. Wellington has a defined contribution savings plan that covers substantially all full-time Wellington employees who qualify as to age and length of service. Wellington may make discretionary contributions to the plan. Wellington made contributions of $154,000 and $286,000 for the six months ended December 30, 1995 and for the year ended June 30, 1995. F-28 30 20. MAJOR CUSTOMERS Net sales to a major customer of the Company comprised 5%, 6%, 11%, and 10% of net sales for the six months ended December 30, 1995 and for the years ended June 30, 1995, 1994, and 1993, respectively. 21. TRUST AGREEMENTS During 1991 and 1993, the Company entered into trust agreements with officers to transfer assets to trusts in lieu of paying annual bonuses and consulting fees. These trust assets, which are included in "Other Assets" on the consolidated balance sheets and are recorded at the fair market value of the underlying assets, include corporate stocks including equity securities of affiliated companies, corporate bonds including debt securities of affiliated companies, and short-term investments. The compensation to the officers is determined in accordance with the employment agreements. Upon termination of the officers' employment with the Company, the trust assets will be distributed to the officers. If the Company becomes insolvent at any time before the assets of the trust are distributed to the officers, the trust assets may be used to satisfy the claims of the Company's creditors. As of December 30, 1995 and June 30, 1995 and 1994, the trust assets and corresponding liabilities, which are included in "Other Liabilities" on the consolidated balance sheets, each totaled $1,269,000, $1,061,000, and $1,005,000, respectively. 22. SEGMENT INFORMATION The Company has two major segments for financial reporting purposes which are: Textile operations consisting of the operations of Johnston, Southern Phenix, Opp and Micolas, Wellington, and JICR, and portfolio investment activities consisting principally of the activities of Jupiter including GWI (in thousands):
SIX MONTHS ENDED DECEMBER 30, 1995 FISCAL YEAR ENDED JUNE 30, 1995 -------------------------------------- -------------------------------------- PORTFOLIO PORTFOLIO TEXTILE INVESTMENT TEXTILE INVESTMENT OPERATIONS ACTIVITIES TOTAL OPERATIONS ACTIVITIES TOTAL Net sales $148,773 $ 1,250 $150,023 $262,279 $ 1,048 $263,327 Income (loss) from operations (8,087) (2,553) (10,640) 19,179 (1,288) 17,891 Realized and unrealized investment portfolio gain 3,767 3,767 5,191 5,191 Identifiable assets 223,179 40,370 263,549 216,764 38,337 255,101 Capital expenditures 17,781 206 17,987 21,448 535 21,983 Depreciation and amortization 8,874 133 9,007 13,766 173 13,939
Income (loss) from operations for each segment is net sales less operating expenses (see Note 8 for discussion of $6,532,000 charge which is included in Textile Operations for the six months ended December 30, 1995). In computing such amount for each segment, the corporate expenses of Johnston have been allocated to the textile operations, and the corporate expenses of Jupiter have been allocated to the portfolio investment activities. The following items have not been added or deducted: interest expense, interest income, other - net expense, and income taxes. Identifiable assets are those assets used in each segment's operations. F-29 31 Corporate assets of Johnston are allocated to the textile operations and corporate assets of Jupiter are allocated to the investment portfolio activities. 23. SUBSEQUENT EVENTS On August 16, 1995, Johnston jointly announced with Jupiter an agreement and plan of merger under which the public shareholders of Jupiter would receive cash from Johnston for each outstanding Jupiter share. The merger was approved by Jupiter's shareholders on March 12, 1996, and was consummated on March 28, 1996. The final price was $33.97 per share. Purchase consideration of approximately $39,000,000 included payments to stockholders and certain holders of all outstanding options to purchase common stock, and approximately $2,800,000 paid for expenses related to the transaction. In connection with the completion of the merger of Johnston and Jupiter, the Company repurchased from GRM Industries, Inc., a stockholder, 259,819 shares of Johnston's common stock having an aggregate value of $2,150,000. On January 22, 1996, Johnston's Board of Directors agreed to buy all of the outstanding common stock of T.J. Beall Company, a cotton by-products processor located in WestPoint, Georgia effective March 25, 1996 (see Note 6). This acquisition has been financed through the issuance of 325,000 shares of one cent ($.01) par value, nonvoting convertible preferred stock of the Company, which has an estimated value of $3,250,000. Dividends shall accrue and be payable quarterly at the rate of $.125 per share per quarter. The preferred stock issued has been designated as "Johnston Industries, Inc. Preferred Stock, Series 1996" and is convertible into shares of ten cent ($.10) par value voting common stock. Each share of preferred stock may be converted into one share of voting common stock with the shareholder having the right (but not the obligation) to convert up to one-third of preferred stock twelve months after closing, one-third twenty-four months after closing, and the final one-third thirty-six months after closing. Both of the above acquisitions will be accounted for under the purchase method of accounting. F-30 32 JOHNSTON INDUSTRIES, INC. (PARENT COMPANY) SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT BALANCE SHEETS DECEMBER 30, 1995, JUNE 30, 1995 AND 1994
ASSETS December 30, June 30, June 30, 1995 1995 1994 ------------ ------------ ------------- CURRENT ASSETS: Cash and cash equivalents $ 847,000 $ 2,979,000 $ 3,681,000 Prepaid expenses and other 465,000 469,000 522,000 Intercompany receivable 7,798,000 Income taxes receivable 971,000 Deferred income taxes 1,279,000 788,000 ------------ ----------- ------------ Total current assets 11,360,000 4,236,000 4,203,000 INVESTMENT IN WHOLLY OWNED CONSOLIDATED SUBSIDIARIES - At equity 92,150,000 95,705,000 92,116,000 INVESTMENTS IN MAJORITY OWNED SUBSIDIARY AND IN UNCONSOLIDATED AFFILIATES - At equity 22,026,000 29,067,000 21,036,000 PROPERTY, PLANT, AND EQUIPMENT - Net 1,891,000 2,739,000 2,331,000 INTANGIBLE ASSET - PENSION 2,464,000 2,675,000 2,874,000 OTHER ASSETS 4,075,000 1,721,000 7,127,000 LONG-TERM DEFERRED INCOME TAXES 6,393,000 4,859,000 5,933,000 ------------ ------------ ------------- $140,359,000 $141,002,000 $ 135,620,000 ============ ============ ============= LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1994 CURRENT LIABILITIES: Short-term borrowings $ -- $ 6,800,000 $ 2,500,000 Current maturities of long-term debt 87,000 87,000 5,087,000 Accounts payable 808,000 856,000 280,000 Accrued expenses 4,725,000 3,012,000 2,037,000 Intercompany payables 7,019,000 7,541,000 11,030,000 Income taxes payable 656,000 Deferred income taxes 1,731,000 ------------ ------------ ------------- Total current liabilities 12,639,000 18,296,000 23,321,000 LONG-TERM DEBT 59,337,000 46,130,000 36,216,000 ------------ ------------- OTHER LIABILITIES 13,204,000 13,149,000 16,275,000 ------------ ------------ ------------- COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Common stock, par value $.10 per share; authorized, 20,000,000 shares; issued 12,426,891, 12,426,891 and 12,411,891 1,243,000 1,243,000 1,241,000 Additional paid-in capital 17,293,000 17,258,000 17,107,000 Retained earnings 46,505,000 54,808,000 51,065,000 ------------ ------------ ------------- Total 65,041,000 73,309,000 69,413,000 Less treasury stock: 1,861,912, 1,861,912 and 1,682,112 shares at cost (8,108,000) (8,108,000) (6,407,000) Less minimum pension liability adjustment, net of tax benefit (1,754,000) (1,774,000) (3,198,000) ------------ ------------ ------------- Stockholders' equity 55,179,000 63,427,000 59,808,000 ------------ ------------ ------------- $140,359,000 $141,002,000 $ 135,620,000 ============ ============ =============
S - 1 33 JOHNSTON INDUSTRIES, INC. (PARENT COMPANY) SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT STATEMENTS OF OPERATIONS SIX MONTHS ENDED DECEMBER 30, 1995 AND FISCAL YEARS ENDED JUNE 30, 1995, 1994, AND 1993
Six Months Ended Year Ended June 30, December 30, ------------------------------------------- 1995 1995 1994 1993 NET SALES $ - $ - $ - $ - COSTS AND EXPENSES: Selling, general, and administrative 476,000 (53,000) (310,000) 93,000 Depreciation and amortization 94,000 250,000 243,000) (156,000) ----------- ----------- ----------- ----------- Total costs and expenses 570,000 197,000 (67,000) (63,000) ----------- ----------- ----------- ----------- INCOME (LOSS) FROM OPERATIONS (570,000) (197,000) 67,000 63,000 OTHER EXPENSE: Interest expense - net 2,089,000 3,776,000 2,984,000 2,504,000 Other - net 1,407,000 1,717,000 619,000 1,095,000 ----------- ----------- ----------- ----------- Total other expenses 3,496,000 5,493,000 3,603,000 3,599,000 ----------- ----------- ----------- ----------- EQUITY IN EARNINGS (LOSSES) OF EQUITY INVESTMENTS (2,771,000) 2,784,000 (1,141,000) 5,093,000 ----------- ----------- ----------- ----------- INCOME (LOSS) BEFORE PROVISION (BENEFIT) FOR INCOME TAXES AND INCOME FROM SUBSIDIARIES (6,837,000) (2,906,000) (4,677,000) 1,557,000 PROVISION (BENEFIT) FOR INCOME TAXES (2,461,000) (926,000) (1,606,000) 512,000 ----------- ----------- ----------- ----------- NET INCOME (LOSS) BEFORE INCOME OF SUBSIDIARIES (4,376,000) (1,980,000) (3,071,000) 1,045,000 INCOME FROM OPERATIONS OF SUBSIDIARIES (1,814,000) 9,855,000 9,566,000 7,369,000 ----------- ----------- ----------- ----------- NET INCOME (LOSS) $(6,190,000) $ 7,875,000 $ 6,495,000 $ 8,414,000 =========== =========== =========== ===========
S - 2 34 JOHNSTON INDUSTRIES, INC. (PARENT COMPANY) SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT STATEMENTS OF CASH FLOWS SIX MONTHS ENDED DECEMBER 30, 1995 AND FISCAL YEARS ENDED JUNE 30, 1995, 1994, AND 1993
Six Months Ended Year Ended June 30, December 30, ------------------------------------------------- 1995 1995 1994 1993 OPERATING ACTIVITIES: Net income (loss) $(6,190,000) $ 7,875,000 $ 6,495,000 $ 8,414,000 ----------- ----------- ----------- ----------- Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 94,000 255,000 (240,000) (252,000) Undistributed income from operations of 1,814,000 (9,855,000) (9,566,000) (7,369,000) subsidiaries Undistributed income of affiliates 2,771,000 (2,784,000) 1,141,000 (5,093,000) Changes in assets and liabilities: Deferred income taxes (488,000) (359,000) (161,000) 507,000 Prepaid expenses and other assets (2,647,000) (299,000) (198,000) 324,000 Accounts payable 215,000 715,000 222,000 (36,000) Accrued expenses 1,714,000 975,000 (18,000) (94,000) Income taxes payable (991,000) (687,000) (9,000) 152,000 Intercompany accounts (3,791,000) (9,441,000) (10,752,000) (8,019,000) Other liabilities (1,427,000) (568,000) 487,000 1,060,000 Other, net 234,000 4,000 124,000 124,000 ----------- ----------- ----------- ----------- Total adjustments (2,502,000) (22,044,000) (18,970,000) (18,696,000) ----------- ----------- ----------- ----------- Net cash used in operating activities (8,692,000) (14,169,000) (12,475,000) (10,282,000) ----------- ----------- ----------- ----------- INVESTING ACTIVITIES: Additions to property, plant, and equipment (15,000) (720,000) (1,997,000) (200,000) Increase in investments (5,247,000) (4,578,000) (2,034,000) Repayments of loans by stockholders 5,383,000 341,000 ----------- ----------- ----------- ----------- Net cash used in investing activities (15,000) (5,967,000) (1,192,000) (1,893,000) ----------- ----------- ----------- ----------- FINANCING ACTIVITIES: Principal payments of debt (46,000) (5,086,000) (4,022,000) (2,000,000) Proceeds from issuance of long-term debt 10,000,000 13,325,000 Borrowings under line-of-credit agreements 12,450,000 17,275,000 11,750,000) 8,000,000 Repayments under line-of-credit agreements (6,000,000) (14,975,000) (19,250,000) (4,000,000) Purchase of treasury stock - (1,701,000) (348,000) (2,693,000) Proceeds from employee stock ownership plan 1,454,000 Proceeds from issuance of common stock - 101,000 380,000 811,000 Payments from consolidated subsidiaries 2,284,000 15,952,000 15,818,000 16,749,000 Dividends paid (2,113,000) (4,132,000) (3,694,000) (3,412,000) ----------- ----------- ----------- ----------- Net cash provided by financing activities 6,575,000 19,434,000 13,959,000 14,909,000 ----------- ----------- ----------- ----------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (2,132,000) (702,000) 292,000 2,734,000 CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 2,979,000 3,681,000 3,389,000 655,000 ----------- ----------- ----------- ----------- CASH AND CASH EQUIVALENTS, END OF YEAR $ 847,000 $ 2,979,000 $ 3,681,000 $ 3,389,000 =========== =========== =========== =========== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the year for: Interest paid $ 1,885,000 $ 3,673,000 $ 2,962,000 $ 2,861,000 =========== =========== =========== =========== Income taxes paid - $ 3,168,000 $ 2,401,000 $ 2,052,000 =========== =========== =========== ===========
S - 3 35 JOHNSTON INDUSTRIES, INC. (PARENT COMPANY) SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT NOTES TO CONDENSED FINANCIAL STATEMENTS Johnston Industries, Inc. and subsidiaries (the "Company") publish consolidated financial statements that are its primary financial statements. Therefore, these parent company condensed financial statements are not intended to be the primary financial statements of the Company, and should be read in conjunction with the consolidated financial statements and notes thereto of the Company. S - 4 36 JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
BALANCE AT ADDITIONS BEGINNING CHARGED TO OTHER BALANCE AT DESCRIPTION OF YEAR OPERATIONS ACCOUNTS DEDUCTIONS END OF YEAR ALLOWANCE FOR DOUBTFUL ACCOUNTS Six months ended December 30, 1995 $1,113,000 $ 791,000 $ 45,000(3) $ (177,000)(1) $ 1,772,000 ========== ========= ========= ========== ============ Fiscal year ended June 30, 1995 $ 368,000 $ 89,000 $ 838,000(2) $ (182,000)(1) $ 1,113,000 ========== ========= ========= ========== ============ Fiscal year ended June 30, 1994 $ 314,000 $ 151,000 $ (97,000)(1) $ 368,000 ========== ========= ========= ========== ============ Fiscal year ended June 30, 1993 $ 667,000 $ 383,000 $ (736,000)(1) $ 314,000 ========== ========= ========= ========== ============
(1) Amounts written off, net of recoveries. (2) Additional amount added during the year is from the consolidation of Jupiter in January 1995 representing the balance at the date of consolidation. (3) Additional amount added during the year is from the purchase of the 50% partnership interest from Tech Textiles Limited in September. S - 5 EX-13.(B) 7 QUARTERLY INFORMATION (UNAUDITED) 1 JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES EXHIBIT 13(b) - QUARTERLY INFORMATION (UNAUDITED) (In Thousands, Except Per Share Data) The following summarizes the unaudited quarterly results of operations for the six months ended December 30, 1995 and the years ended June 30, 1995 and 1994.
Three Months Ended ----------------------------------------------------------------------------- TRANSITION PERIOD 1995 (1) Sept. 30 Dec. 30 ----------------------------------------------------------------------------- Net Sales $73,524 $76,499 Gross Margin 11,161 9,948 Net Loss (1,862) (4,328) Loss Per Share (.18) (.41) Weighted Average Shares Outstanding 10,565 10,565 Three Months Ended ----------------------------------------------------------------------------- FISCAL YEAR 1995 Sept. 30 Dec. 31 March 31 June 30 ----------------------------------------------------------------------------- Net Sales $40,773 $44,197 $91,002 $87,355 Gross Margin 9,815 10,037 18,194 15,683 Net Income (3) 1,682 2,514 2,633 1,046 Earnings Per Share(3) .16 .24 .25 .10 Weighted Average Shares Outstanding 10,766 10,687 10,682 10,654
Three Months Ended - ------------------------------------------------------------------------------- FISCAL YEAR 1994 Sept. 30 Dec. 31 March 31 June 30 - ------------------------------------------------------------------------------- Net Sales $33,695 $38,295 $42,595 $43,319 Gross Margin 7,709 8,858 10,602 11,474 Net Income (3) 2,146 1,046 2,429 874 Earnings Per Share(2)(3) .20 .10 .22 .08 Weighted Average Shares Outstanding(2) 10,844 10,860 10,863 10,832
- ------------------------------------------------------------------------------- (1) Effective September 1995, Johnston's year end closing date was changed to the Saturday closest to December 31. Therefore, Johnston's transition period 1995 ended on December 30, 1995. (2) Restated to reflect the three-for-two stock split effective January 4, 1994. (3) Restated to reflect the equity in earnings of Jupiter National, Inc. on an operating company basis effective December 1994. Note: See Notes 2, 4, 8 and 23 of the consolidated financial statements and Management's Discussion and Analysis of Financial Condition and Results of Operations for discussion of certain transactions impacting the three months ended December 30, 1995. EX-21 8 LIST OF SUBSIDIARIES 1 JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES EXHIBIT 21 - LIST OF SUBSIDIARIES OF JOHNSTON INDUSTRIES, INC. 1. Southern Phenix Textiles, Inc. State of Incorporation: Alabama 2. Opp and Micolas Mills, Inc. State of Incorporation: Alabama 3. Johnston Industries Composite Reinforcements, Inc. State of Incorporation: Alabama 4. Jupiter National, Inc. State of Incorporation: Delaware 5. Wellington Sears Company State of Incorporation: Alabama 6. Greater Washington Investments, Inc. State of Incorporation: Delaware 7. Pay Telephone America, LTD. State of Incorporation: Mississippi EX-23 9 CONSENT OF DELIOTTE TOUCHE LLP 1 EXHIBIT 23 INDEPENDENT AUDITORS' CONSENT Johnston Industries, Inc.: We consent to the incorporation by reference in Registration Statements No. 33-86414, No. 33-38359, No. 33-44669, No. 33-50100, and No. 33-73268 of Johnston Industries, Inc. (the "Company") on Form S-8 of our report dated March 28, 1996 appearing in the Transition Report on Form 10-K of the Company for the period July 1, 1995 to December 30, 1995. /s/ DELOITTE & TOUCHE LLP - ------------------------- DELOITTE & TOUCHE LLP Atlanta, Georgia April 12, 1996 EX-27 10 FINANCIAL DATA SCHEDULE
5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES FINANCIAL STATEMENTS AS OF DECEMBER 30, 1995 AND FOR THE SIX MONTHS THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 6-MOS JUN-30-1995 DEC-30-1995 4,912,000 34,737,000 42,326,000 1,772,000 53,112,000 143,283,000 198,468,000 86,461,000 263,549,000 48,395,000 125,941,000 0 0 1,243,000 53,936,000 263,549,000 150,023,000 150,023,000 128,914,000 160,663,000 3,508,000 791,000 4,982,000 (14,832,000) (6,346,000) (6,190,000) 0 0 0 (6,190,000) (.59) 0
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