<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
---------------------
Date of Report (date of earliest event reported): August 1, 1997
--------------------------
SPEIZMAN INDUSTRIES, INC.
(Exact Name of Registrant as Specified in Its Charter)
North Carolina 0-8544 56-0901212
(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
508 West 5th Street, Charlotte, North Carolina 28202
(Address of Principal Executive Offices) (ZIP Code)
(704) 372-3751
(Registrant's Telephone Number, Including Area Code)
(Former Name of Former Address, if Changed Since Last Report)
<PAGE>
ITEM 2. Acquisition or Disposition of Assets
On August 1, 1997 (the "Closing Date"), Speizman Industries, Inc., a
Delaware Corp., ("Buyer") purchased all of the outstanding common stock of Wink
Davis Equipment Co., Inc. ("Wink Davis"), a Georgia corporation, from the eight
individual shareholders of Wink Davis (the "Sellers"), pursuant to a Stock
Purchase Agreement dated July 31, 1997 by and among Buyer and Sellers. Wink
Davis distributes laundry equipment and parts, principally in the southeastern
United States, as well as in the Chicago, Illinois area. In accordance with the
Stock Purchase Agreement, the Buyer paid $ 9,500,000 (the "Purchase Price") to
the Sellers in cash. There is a possible additional conditional payment of up to
$ 1.5 million in cash over a five-year period based on certain pre-tax earnings
calculations.
Assets acquired included cash and cash equivalents, accounts and notes
receivable, inventories, cash surrender value of life insurance, automobiles and
trucks, machinery and equipment, furniture and fixtures, leasehold improvements
and certain exclusive dealer distribution rights. All of such assets were used
in the operations of Wink Davis. The Buyer intends to continue the operations of
Wink Davis and the same use of such assets.
The Stock Purchase Agreement provides that the Purchase Price is
subject to adjustments for changes, among other things, in the book value of the
business since December 31, 1996. Such an adjustment will be determined after
completion of a closing balance sheet of the Business as at the Closing Date
which will be audited by Seller's auditors. Such closing balance sheet must be
delivered by Seller to Buyer within 60 days of the Closing Date (or such longer
period of time as may be reasonably required). As with any other dispute among
the parties with respect to the Stock Purchase Agreement, any unresolved dispute
concerning possible adjustment to the Purchase Price will be subject to
arbitration.
On the Closing Date, the Sellers entered in to various agreements with
the Buyer pursuant to the Stock Purchase Agreement, including (a) a
noncompetition agreement prohibiting a former shareholder from competing with
the Buyer; and (b) subleases of certain properties to Buyer.
The consideration for the acquisition was determined by arms-length
negotiations between the Buyer and the Sellers. Speizman Industries, Inc.'s
source of funds was borrowings under the Amended and Restated Loan Agreement
(the "Loan Agreement") with NationsBank, N.A. entered into on August 1, 1997.
This Loan Agreement provides up to $ 37.0 million comprised of (a) a $ 7.0
million term loan with quarterly principal payments of $ 250,000 beginning
December 31, 1997, the balance due July 31, 2000; and (b) up to $ 30.0 million
including a maximum of $ 8.5 million for direct borrowings with the balance
available for the issuance of documentary letters of credit. This line of credit
expires July 31, 2000.
A copy of a press release issued by the Buyer on August 1, 1997 with
respect to the transaction is attached hereto as Exhibit 1 and is incorporated
herein by reference.
<PAGE>
ITEM 7. Financial Statements and Exhibits
(a) Financial Statements of Business Acquired. The financial
statements for Wink Davis for the periods ended December 31,
1996 and 1995, as required by Item 7(a) of Form 8-K are filed
herewith as Exhibit 2 and are incorporated herein by
reference. It is impracticable to provide the interim
financial statements for Wink Davis for the interim period
ended on July 31, 1997 at the time of this Report. The
required financial statements will be filed as an amendment to
this Report as soon as practicable, but no later than 60 days
after the date this report is required to be filed.
(b) Pro Forma Financial Information. It is impracticable to
provide the required pro forma financial information for Wink
Davis at the time of this Report. The required pro forma
financial information will be filed as an amendment to this
Report as soon as practicable, but no later than 60 days after
the date this report is required to be filed.
(c) Exhibits:
(1) Press release issued by the Buyer on August 1, 1997.
(2) Wink Davis Equipment Company, Inc. Financial
Statements for December 31, 1996 and 1995.
(3) Stock Purchase Agreement, dated as of July 31, 1997,
by and among Speizman Industries, Inc. and Wink
Davis, Jr., C. Alexander Davis, Wingfield Austin
Davis III, Taylor Ferrell Davis, Allison Davis
Jabaley, Matthew Worley Davis, Amy Butler Davis and
Kyle Alexander Davis.
(4) Consent of Auditors relative to Item 7(c)(2) above.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
SPEIZMAN INDUSTRIES, INC.
Date: August 14, 1997 By: /s/ Robert S. Speizman
--------------------------------------
Robert S. Speizman, President
Date: August 14, 1997 By: /s/ Josef Sklut
--------------------------------------
Josef Sklut, Vice President-Finance
<PAGE>
EXHIBIT INDEX
EXHIBIT NUMBER
DESCRIPTION
1 Press release issued by the Buyer on August 1, 1997.
2 Wink Davis Equipment Company, Inc. Financial Statements
for December 31, 1996 and 1995.
3 Stock Purchase Agreement, dated as of July 31, 1997, by and
among Speizman Industries, Inc. and Wink Davis, Jr., C.
Alexander Davis, Wingfield Austin Davis III, Taylor Ferrell
Davis, Allison Davis Jabaley, Matthew Worley Davis, Amy
Butler Davis and Kyle Alexander Davis.
4 Consent of Auditors relative to Item 7(c)(2) above.
<PAGE>
EXHIBIT 1
SPEIZMAN INDUSTRIES, INC.
508 WEST FIFTH STREET (BULLET) P.O. BOX 31215 (BULLET) CHARLOTTE, NC 28231
704-372-3751 (BULLET) TELEX 575299 (BULLET) FAX NO. 704-376-3153
PRESS RELEASE NASDAQ Symbol: SPZN
Contact: Josef Sklut
Vice President-Finance
SPEIZMAN INDUSTRIES ANNOUNCES CLOSING OF TRANSACTION
WITH WINK DAVIS EQUIPMENT CO., INC.
Charlotte, NC -- August 1, 1997 -- Speizman Industries, Inc. today announced
that pursuant to the previously announced letter of intent with Wink Davis
Equipment Co., Inc. ("Wink Davis"), the Company consummated the acquisition of
all of the outstanding capital stock of Wink Davis. Wink Davis distributes
laundry equipment and parts, principally in the southeastern United States, as
well as in the Chicago, Illinois area.
In payment of the purchase price, the Company paid the stockholders of Wink
Davis $9.5 million in cash for all of the outstanding capital stock. The Company
also assumed certain liabilities generated in the ordinary course of business by
Wink Davis. The Company financed the cash portion of the purchase price with
borrowed funds. There is a possible additional conditional payment of up to $1.5
million in cash over a five-year period based on certain pre-tax earnings
calculations.
Robert Speizman, President of Speizman Industries, said, "We are excited about
working with the employees of Wink Davis Equipment Company and enhancing their
position as a major distributor of laundry equipment. Alex Davis will become
President of Wink Davis, succeeding Wink Davis, Jr. who will retire."
Speizman Industries, Inc. distributes, in the United States, Canada and Mexico,
new sock knitting machines, new dyeing and finishing equipment, and new
processing equipment for the jeans industry. It distributes new knitting
machines for outerwear fabrics and underwear in the United States and Canada. In
addition, it sells new and used textile equipment and parts and components on a
world-wide basis. The Company's common stock trades on The Nasdaq Stock Market
under the symbol: SPZN.
<PAGE>
EXHIBIT 2
WINK DAVIS EQUIPMENT COMPANY, INC.
FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
<PAGE>
WINK DAVIS EQUIPMENT COMPANY, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Independent auditors' report 1
Financial statements:
Balance sheets 2
Statements of income and retained earnings 3
Statements of cash flows 4
Notes to financial statements 5 - 10
</TABLE>
<PAGE>
[HABIF, AROGETI & WYNNE, P.C. LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
of Wink Davis Equipment Company, Inc.
We have audited the accompanying balance sheets of WINK DAVIS EQUPMENT COMPANY,
INC. [a Georgia S-corporation] as of December 31, 1996 and 1995, and the related
statements of income and retained earnings, and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements 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, the financial statements referred to above present fairly, in
all material respects, the financial position of WINK DAVIS EQUIPMENT COMPANY,
INC. as of December 31, 1996 and 1995, and the results of its operations and its
cash flows for the years then ended in conformity with generally accepted
accounting principles.
/s/ Habif, Arogeti & Wynne, P.C.
Atlanta, Georgia
June 2, 1997
<PAGE>
WINK DAVIS EQUIPMENT COMPANY, INC.
BALANCE SHEETS
DECEMBER 31,
<TABLE>
<CAPTION>
ASSETS
As Restated
1 9 9 6 1 9 9 5
------------- -----------
<S> <C> <C>
Current assets
Cash and cash equivalents $ 706,472 $ 456,489
Accounts receivable, net of allowance
for doubtful accounts of $196,689 for 1996
and $177,661 for 1995 3,357,530 3,327,148
Current portion of notes receivable 138,770 160,542
Inventories 2,385,391 1,982,068
Prepaid expenses 338,593 329,539
---------- ----------
Total current assets 6,926,756 6,255,786
--------- ---------
Property and equipment, at cost
Automobiles and trucks 968,081 799,469
Machinery and equipment 661,076 663,294
Furniture and fixtures 123,804 115,510
Leasehold improvements 457,918 430,554
---------- ----------
2,210,879 2,008,827
Less accumulated depreciation [1,521,966] [1,287,296]
---------- ----------
688,913 721,531
---------- ----------
Other assets
Marketable securities 22,110 17,820
Notes receivable, net of current portion 36,095 171,841
Cash surrender value of life insurance 533,301 454,312
Non-compete agreement, net of amortization
of $8,681 for 1996 and $2,917 for 1995 16,319 22,083
----------- -----------
607,825 666,056
---------- ----------
$ 8,223,494 $ 7,643,373
========= =========
<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY
As Restated
1 9 9 6 1 9 9 5
------------- -----------
Current liabilities
Accounts payable $ 807,050 $ 922,408
Accrued commissions 318,175 211,509
Accrued retirement plan contributions 355,673 211,187
Accrued expenses 349,406 128,442
Customer deposits 1,040,056 620,416
Current portion of note payable 10,178 8,679
Current portion of deferred expense 6,460 6,460
------------ ------------
Total current liabilities 2,886,998 2,109,101
--------- ---------
Long-term liabilities
Note payable, net of current portion 32,979 43,974
Deferred expenses, net of current portion 21,881 28,340
----------- -----------
54,860 72,314
----------- -----------
Stockholders' equity
Common stock, $10 par value, 1,660 shares
authorized, issued, and outstanding 16,600 16,600
Unrealized gain on marketable securities 5,527 1,237
Retained earnings 5,259,509 5,444,121
--------- ---------
5,281,636 5,461,958
--------- ---------
$8,223,494 $7,643,373
========== ==========
See auditors' report and accompanying notes
-2-
<PAGE>
WINK DAVIS EQUIPMENT COMPANY, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR THE YEARS ENDED DECEMBER 31,
As Restated
1 9 9 6 1 9 9 5
---------- -----------
<S> <C> <C>
Sales $ 35,940,558 $ 28,149,774
Cost of goods sold, net of purchase discounts
of $303,625 in 1996 and $198,401 in 1995 29,541,239 22,604,375
---------- ----------
Gross profit 6,399,319 5,545,399
Operating expenses 6,235,602 5,099,242
----------- -----------
Income from operations 163,717 446,157
Other income [expense] 132,651 124,178
------------ ------------
Net income (Note I) 296,368 570,335
Retained earnings, beginning of year
as previously reported 5,444,121 5,130,332
Prior period adjustment -0- 88,334
------------ ------------
Retained earnings, beginning of year as restated 5,444,121 5,218,666
Distributions to shareholders [ 480,980] [ 344,880]
------------- ------------
Retained earnings, end of year $ 5,259,509 $ 5,444,121
=========== ===========
</TABLE>
See auditors' report and accompanying notes
-3-
<PAGE>
WINK DAVIS EQUIPMENT COMPANY, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
Increase [Decrease] In Cash and Cash Equivalents
<TABLE>
<CAPTION>
As Restated
1 9 9 6 1 9 9 5
<S> <C> <C>
Cash flows from operating activities
Net income $ 296,368 $ 570,335
---------- ----------
Adjustments to reconcile net income to cash
provided by operating activities
Depreciation and amortization 316,487 228,299
Loss on disposal of property and equipment 10,494 21,924
Allowance for doubtful accounts 19,028 11,519
Cash surrender value of life insurance [ 78,989] [ 64,662]
Changes in assets and liabilities
Decrease [Increase] in accounts receivable [ 49,410] 1,438,330
Payments [Issuance] of notes receivable 157,518 [ 275,551]
Increase in inventory [ 403,323] [ 312,749]
Increase in prepaid expenses [ 2,594] [ 7,014]
Increase [Decrease] in accounts payable [ 115,358] 606,147
Increase [Decrease] in accrued commissions 106,666 [ 28,068]
Increase [Decrease] in accrued retirement plan 144,486 [ 111,105]
Increase [Decrease] in accrued expense 220,964 [ 198,865]
Increase [Decrease] in customer deposits 419,640 [ 407,699]
---------- ----------
Total adjustments 745,609 900,506
---------- ----------
Net cash provided by operating activities 1,041,977 1,470,841
--------- ---------
Cash flows from investing activities
Acquisition of property and equipment [ 305,243] [ 596,087]
Proceeds from sale of property and equipment 3,725 31,317
Increase in non-compete agreement -0- [ 25,000]
Acquisition of marketable securities -0- [ 17,820]
-------------- -----------
Net cash used by investing activities [ 301,518] [ 607,590]
---------- ----------
Cash flows from financing activities
Proceeds from issuance of note payable -0- 54,173
Payments on line-of-credit -0- [ 850,000]
Payments on notes payable [ 9,496] [ 17,540]
Distributions to shareholder [ 480,980] [ 344,880]
--------- ----------
Net cash used by financing activities [ 490,476] [1,158,247]
Net increase [decrease] in cash and cash
equivalents 249,983 [ 294,996]
Cash and cash equivalents, beginning of year 456,489 751,485
--------- ----------
Cash and cash equivalents, end of year $ 706,472 $ 456,489
========= ==========
SUPPLEMENTAL DISCLSOURES OF CASH FLOW INFORMATION
Cash paid during the years for
Interest $ 8,078 $ 16,515
</TABLE>
See auditors' report and accompanying notes
-4-
<PAGE>
WINK DAVIS EQUIPMENT COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Nature of Operations:
The Company is a Georgia corporation, organized on August 1, 1946, to act
as a distributor of industrial washing and drying equipment. In 1995, the
Company acquired the inventory, fixed assets, and customer lists of
Commercial Kitchens, Inc. The division services, installs, and repairs
commercial kitchens facilities.
Inventories:
Inventories are valued at the lower-of-cost or market with cost determined
on the last-in, first-out method for machinery inventory and the first-in,
first-out method for parts inventory.
Investment in Marketable Securities:
Marketable securities are classified as "available for sale" and are
carried at fair value. Unrealized holding gains are reported as a separate
component of stockholders' equity.
Property and Equipment:
Property and equipment is carried at cost. Expenditures for maintenance and
repairs are expensed currently, while renewals and betterments that
materially extend the life of an asset are capitalized. The cost of assets
sold, retired, or otherwise disposed of, and the related allowance for
depreciation, are eliminated from the accounts, and any resulting gain or
loss is included in operations.
Depreciation is provided using both straight-line and accelerated methods
over the estimated useful lives of the assets which are as follows:
Automobiles and trucks 3 - 7 years
Machinery and equipment 3 - 12.5 years
Furniture and fixtures 5 - 8 years
Leasehold improvements 5 - 10 years
Cash Equivalents:
For purposes of financial statement presentation, the Company considers all
highly liquid short-term investments with maturities of three months or
less to be cash equivalents.
Concentration of Risk:
The Company maintains operating funds located in various institutions. The
amount on deposit in one institution exceeds the insured limit of $100,000
by approximately $687,000.
-5-
<PAGE>
WINK DAVIS EQUIPMENT COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS [CONTINUED]
DECEMBER 31, 1996 AND 1995
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: [Continued]
Reclassifications:
Certain amounts in the 1995 financial statements have been reclassified to
conform with the 1996 presentation.
Non-Compete Agreement:
A non-compete agreement entered into by the Company during 1995, at a cost
of $25,000, is being amortized over the 3 year life of the agreement.
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.
B. ACCOUNTS RECEIVABLE:
Accounts receivable consist of the following:
<TABLE>
<CAPTION>
As Restated
1 9 9 6 1 9 9 5
------------ -----------
<S> <C> <C>
Trade $ 3,548,181 $ 3,497,180
Employees 6,038 7,629
------------ ------------
3,554,219 3,504,809
Less allowance for doubtful accounts [ 196,689] [ 177,661]
---------- ----------
$ 3,357,530 $ 3,327,148
========= =========
</TABLE>
The maximum accounting loss from the credit risk associated with accounts
receivable is the face amount of the receivable less the allowance for
doubtful accounts recorded.
C. NOTES RECEIVABLE:
The Company enters into agreements to finance certain customer purchases.
Notes receivable balances are reflected net of unearned interest of $15,073
and $50,649 for 1996 and 1995, respectively, which is recognized ratably
over the terms of the notes.
-6-
<PAGE>
WINK DAVIS EQUIPMENT COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS [CONTINUED]
DECEMBER 31, 1996 AND 1995
C. NOTES RECEIVABLE:
Interest rates on the notes range from 15% to 22%. Note terms are from 12
to 60 months. Future maturities of these notes are as follows:
Current
1997 $138,770
1998 36,095
--------
$174,865
========
D. INVENTORIES:
Machinery inventory has been stated at the lower-of-cost or market, using
the last-in, first-out method [LIFO]. Parts and other inventories have been
stated at the lower-of-cost or market, using the first-in, first-out method
[FIFO]. At December 31, inventories were as follows:
As Restated
1 9 9 6 1 9 9 5
---------- -----------
Machinery inventory LIFO $1,271,249 $ 926,183
Parts and other inventories FIFO 1,114,142 1,055,885
--------- ---------
$2,385,391 $1,982,068
========= =========
E. NOTE PAYABLE:
Note payable as of December 31 consists of the following:
<TABLE>
<CAPTION>
Collateral 1 9 9 6 1 9 9 5
----------- --------- --------
<S> <C> <C> <C>
BMW Financial Services - installment
note payable in the original amount
of $54,713, which bears interest at
6.95% per annum, monthly principal
and interest payment of $1,071,
maturity date December 8, 2000. Automobile $43,157 $52,653
Less current portion 10,178 8,679
------ -------
Net long-term portion of note
payable $32,979 $43,974
====== ======
</TABLE>
-7-
<PAGE>
WINK DAVIS EQUIPMENT COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS [CONTINUED]
DECEMBER 31, 1996 AND 1995
E. NOTE PAYABLE: [Continued]
The aggregate of the note payable is due as follows:
1997 $10,178
1998 10,845
1999 11,623
2000 10,511
------
$43,157
F. LINE-OF-CREDIT AGREEMENT:
The Company has an unsecured line-of-credit which provides for borrowings
up to $2,000,000 with an outstanding balance of $-0- at December 31, 1996
and 1995. Advances under this line-of-credit bear interest at the current
prime rate less one-eighth of a point.
G. COMMITMENTS:
The Company has entered into an agreement with its two largest stockholders
to repurchase their shares upon their deaths at a price which is determined
annually. Based on the latest determined price per share, the purchase
price of the common stock of either of the Company's two largest
stockholders would be approximately $2,000,000. At December 31, 1996 and
1995, the Company owned life insurance policies which provide coverage of
$2,000,000 for each of the stockholders.
The Company also has an agreement to purchase all of the stock of the
children of the two principal stockholders at the attainment of their
twenty-seventh birthday if they are not an employee of the Company. As of
December 31, 1996 and 1995, no shares have been purchased under this
agreement.
The Company entered into an agreement to guarantee the repayment of a
mortgage note with a balance of approximately $1,134,000 and $834,000 as of
December 31, 1996 and 1995, from the Wachovia Bank of Georgia to Davis
Brothers Ventures. Davis Brothers Ventures, a partnership consisting of the
Company's stockholders, used the proceeds of the loan for acquisition and
construction of new office and warehouse facilities which are leased to the
Company and others.
H. OPERATING LEASES:
The Company leases a vehicle and office and warehouse space for its five
locations under non-cancelable operating leases. Four of the locations are
leased from partnerships comprised of stockholders of the Company. Total
rent expense for the years ended December 31, 1996 and 1995 were
approximately $273,055 and $236,786, respectively. The Company paid
$312,000 during the years ended December 31, 1996 and 1995 to related party
lessors.
-8-
<PAGE>
WINK DAVIS EQUIPMENT COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS [CONTINUED]
DECEMBER 31, 1996 AND 1995
H. OPERATING LEASES: [Continued]
Total minimum future rental commitments under non-cancelable leases are as
follows:
December 31, Amount
------------ ---------
1997 $275,854
1998 275,854
1999 165,054
2000 5,454
---------
$722,216
=========
I. OFFICER COMPENSATION:
The Company paid additional compensation to the President and Vice
President of $850,000 in 1996 and $450,000 in 1995.
J. RETIREMENT PLAN:
The Company has a qualified profit-sharing plan for substantially all
employees. Contributions to a maximum of 15% of eligible participants'
compensation are discretionary and are determined by the Board of
Directors. For the years ended December 31, 1996 and 1995, contributions to
the plan were $355,673 and $211,187, respectively.
The Company sponsors a 401(k) savings plan under which eligible employees
may choose to save up to 9% of salary income on a pre-tax basis, subject to
certain IRS limits. The plan allows for a discretionary matching
contribution equal to a percentage of the amount of the salary reduction
elected by the employees. There was no employer matching contribution made
for 1996 or 1995.
K. INCOME TAXES:
Effective July 1, 1990, the Company, with unanimous consent of its
shareholders, elected to be treated under the Subchapter "S" regulations of
the Internal Revenue Code for income tax purposes. Under those provisions,
the Company will not pay corporate income taxes on its taxable income.
Instead, the stockholders are liable for their percentage ownership portion
of the Company's taxable income and will be required to reflect the income
on their individual income tax returns.
L. MAJOR SUPPLIER:
The Company acquired approximately 50% of its machinery and parts cost from
one major supplier in 1996 and 1995, respectively. The Company does not
expect any changes in this long-standing business relationship with the
supplier.
-9-
<PAGE>
WINK DAVIS EQUIPMENT COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS [CONTINUED]
DECEMBER 31, 1996 AND 1995
M. PRIOR PERIOD ADJUSTMENT:
Retained earnings at the beginning of 1995 has been adjusted to correct an
error in the accumulation of depreciation made in a prior year. The error
had no effect on net income for 1995.
In addition, the accompanying financial statements for 1995 have been
restated to correct errors in various accruals not posted to the proper
period made in 1995 or prior. The effect of the restatement was to decrease
net income by approximately $111,000 for 1995. Retained earnings at the
beginning of 1995 has been adjusted for the effects of the restatements on
prior years.
N. SUBSEQUENT EVENTS:
In April 1997, the Company entered into a non-binding letter of intent with
Speizman Industries wherein Speizman will acquire the outstanding stock of
the Company. It is anticipated that the sale will be consummate on or
around June 30, 1997.
-10-
<PAGE>
Exhibit 3
STOCK PURCHASE AGREEMENT
BETWEEN
SPEIZMAN INDUSTRIES, INC.
AND
WINK A. DAVIS, JR., C. ALEXANDER DAVIS, WINGFIELD
AUSTIN DAVIS III, TAYLOR FERRELL DAVIS, ALLISON
DAVIS JABALEY, MATTHEW WORLEY DAVIS, AMY
BUTLER DAVIS AND KYLE ALEXANDER DAVIS
DATED JULY 31, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
1. DEFINITIONS................................................................................... 2
2. SALE AND TRANSFER OF SHARES; CLOSING.......................................................... 9
2.1 SHARES............................................................................... 9
2.2 PURCHASE PRICE....................................................................... 10
2.3 CLOSING.............................................................................. 11
2.4 CLOSING OBLIGATIONS.................................................................. 11
2.5 CLOSING DATE FINANCIAL STATEMENTS.................................................... 12
3. REPRESENTATIONS AND WARRANTIES OF SELLERS..................................................... 13
3.1 ORGANIZATION AND GOOD STANDING....................................................... 13
3.2 AUTHORITY; NO CONFLICT............................................................... 14
3.3 CAPITALIZATION....................................................................... 15
3.4 FINANCIAL STATEMENTS................................................................. 15
3.5 BOOKS AND RECORDS.................................................................... 16
3.6 TITLE TO PROPERTIES; ENCUMBRANCES.................................................... 16
3.7 CONDITION AND SUFFICIENCY OF ASSETS.................................................. 16
3.8 ACCOUNTS RECEIVABLE.................................................................. 17
3.9 INVENTORY............................................................................ 17
3.10 NO UNDISCLOSED LIABILITIES........................................................... 17
3.11 TAXES................................................................................ 17
3.12 NO MATERIAL ADVERSE CHANGE........................................................... 18
3.13 EMPLOYEE BENEFITS.................................................................... 18
3.14 COMPLIANCE WITH LEGAL REQUIREMENTS; GOVERNMENTAL
AUTHORIZATIONS................................................................................ 23
3.15 LEGAL PROCEEDINGS; ORDERS............................................................ 25
3.16 ABSENCE OF CERTAIN CHANGES AND EVENTS................................................ 26
3.17 CONTRACTS; NO DEFAULTS............................................................... 27
3.18 INSURANCE............................................................................ 30
3.19 ENVIRONMENTAL MATTERS................................................................ 32
3.20 EMPLOYEES............................................................................ 34
3.21 LABOR RELATIONS; COMPLIANCE.......................................................... 34
3.22 INTELLECTUAL PROPERTY................................................................ 35
3.23 CERTAIN PAYMENTS..................................................................... 36
3.24 RELATIONSHIPS WITH RELATED PERSONS................................................... 36
3.25 BROKERS OR FINDERS................................................................... 37
4. REPRESENTATIONS AND WARRANTIES OF BUYER....................................................... 37
4.1 ORGANIZATION AND GOOD STANDING....................................................... 37
4.2 AUTHORITY; NO CONFLICT............................................................... 37
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4.3 INVESTMENT INTENT.................................................................... 38
4.4 CERTAIN PROCEEDINGS.................................................................. 38
4.5 BROKERS OR FINDERS................................................................... 38
5. CERTAIN COVENANTS............................................................................. 38
5.1 TAXES................................................................................ 38
5.2 WINK A. DAVIS, SR. COMMISSIONS....................................................... 38
6. INDEMNIFICATION; REMEDIES..................................................................... 38
6.1 SURVIVAL; RIGHT TO INDEMNIFICATION NOT AFFECTED BY
KNOWLEDGE..................................................................................... 38
6.2 INDEMNIFICATION AND PAYMENT OF DAMAGES BY
SELLERS....................................................................................... 39
6.3 INDEMNIFICATION AND PAYMENT OF DAMAGES BY BUYER...................................... 39
6.4 TIME LIMITATIONS..................................................................... 39
6.5 LIMITATIONS ON AMOUNT--SELLERS....................................................... 40
6.6 LIMITATIONS ON AMOUNT--BUYER......................................................... 40
6.7 PROCEDURE FOR INDEMNIFICATION--THIRD PARTY CLAIMS.................................... 40
6.8 PROCEDURE FOR INDEMNIFICATION--OTHER CLAIMS.......................................... 41
6.9 REDUCTION BY INSURANCE PROCEEDS...................................................... 42
6.10 BUYER OBLIGATIONS EXCEPTED........................................................... 42
7. GENERAL PROVISIONS............................................................................ 42
7.1 EXPENSES............................................................................. 42
7.2 PUBLIC ANNOUNCEMENTS................................................................. 42
7.3 PROFIT-SHARING PLAN CONTRIBUTION..................................................... 42
7.4 CONFIDENTIALITY...................................................................... 42
7.5 NOTICES.............................................................................. 43
7.6 SELLERS' REPRESENTATIVES............................................................. 44
7.7 JURISDICTION; SERVICE OF PROCESS..................................................... 44
7.8 FURTHER ASSURANCES................................................................... 44
7.9 WAIVER............................................................................... 45
7.10 ENTIRE AGREEMENT AND MODIFICATION.................................................... 45
7.11 DISCLOSURE LETTER.................................................................... 45
7.12 ASSIGNMENTS, SUCCESSORS, AND NO THIRD-PARTY
RIGHTS........................................................................................ 45
7.13 SEVERABILITY......................................................................... 46
7.14 SECTION HEADINGS, CONSTRUCTION....................................................... 46
7.15 TIME OF ESSENCE...................................................................... 46
7.16 GOVERNING LAW........................................................................ 46
7.17 COUNTERPARTS......................................................................... 46
EXHIBITS
Exhibit 2.4(a)(ii) Sellers' Releases
Exhibit 2.4(a)(iii)(A) Employment Agreement - C. Alexander Davis
Exhibit 2.4(a)(iii)(B) Employment Agreement - Wingfield Austin Davis, III
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Exhibit 2.4(a)(iii)(C) Employment Agreement - Fred C. Quarles
Exhibit 2.4(a)(iv) Noncompetition Agreement
Exhibit 2.4(a)(v) Earnout Agreement
Exhibit 2.4(a)(vi) Womble Carlyle Sandridge & Rice, PLLC Opinion
Exhibit 2.4(b)(vi) Kilpatrick Stockton LLP Opinion
Exhibit 2.4(C) Escrow Agreement
SCHEDULES
Schedule A Sellers' Shares Owned, Percentages & Amounts Payable
Schedule B Reserved Assets and Commercial Kitchens Investment
Schedule 4.2 Buyer Conflicts and Required Consents
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STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement ("Agreement") is made as of July 31,
1997, by Speizman Industries, Inc., a Delaware corporation ("Buyer"), and the
persons identified on SCHEDULE A hereto ("Sellers").
RECITALS
Sellers desire to sell, and Buyer desires to purchase, all of the
issued and outstanding shares (the "Shares") of capital stock of Wink Davis
Equipment Co., Inc., a Georgia corporation (the "Company"), for the
consideration and on the terms set forth in this Agreement.
AGREEMENT
The parties, intending to be legally bound, agree as follows:
1. DEFINITIONS. For purposes of this Agreement, the following terms
have the meanings specified or referred to in this Section 1:
"AD"--C. Alexander Davis.
"AD SHAREHOLDERS"--the persons identified on SCHEDULE A hereto as the
AD Shareholders.
"APPLICABLE CONTRACT"--any Contract (a) under which the Company has or
may acquire any rights, (b) under which the Company has or may become subject to
any obligation or liability, or (c) by which the Company or any of the assets
owned or used by it is or may become bound but excluding individual purchase
orders of amounts less than $25,000 and contracts which are not material to the
business of the Company.
"BALANCE SHEET"--as defined in Section 3.4.
"BREACH"--a "Breach" of a representation, warranty, covenant,
obligation, or other provision of this Agreement or any instrument delivered
pursuant to this Agreement will be deemed to have occurred if there is or has
been (a) any inaccuracy in or breach of, or any failure to perform or comply
with, such representation, warranty, covenant, obligation, or other provision,
or (b) any claim (by any Person) or other occurrence or circumstance that is or
was inconsistent with such representation, warranty, covenant, obligation, or
other provision, and the term "Breach" means any such inaccuracy, breach,
failure, claim, occurrence, or circumstance.
"BUYER"--as defined in the first paragraph of this Agreement.
<PAGE>
"CLOSING"--as defined in Section 2.3.
"CLOSING DATE"--the date and time as of which the Closing actually
takes place.
"CLOSING DATE BALANCE SHEET"--as defined in Section 2.5.
"CLOSING DATE FINANCIAL STATEMENTS"--as defined in Section 2.5.
"CLOSING DATE INCOME STATEMENT"--as defined in Section 2.5.
"COMPANY"--as defined in the Recitals of this Agreement.
"CONSENT"--any approval, consent, ratification, waiver, or other
authorization (including any Governmental Authorization).
"CONTEMPLATED TRANSACTIONS"--all of the transactions contemplated by
this Agreement, including:
(a) the sale of the Shares by Sellers to Buyer;
(b) the execution, delivery, and performance of the Employment
Agreements, the Noncompetition Agreement, the Earn-out
Agreement, the Sellers' Releases, and the Escrow Agreement;
(c) the performance by Buyer and Sellers of their respective
covenants and obligations under this Agreement; and
(d) Buyer's acquisition and ownership of the Shares and
exercise of control over the Company.
"CONTRACT"--any agreement, contract, obligation, promise, or
undertaking (whether written or oral and whether express or implied) that is
legally binding and is material to the business of the Company.
"DAMAGES"--as defined in Section 6.2.
"DISCLOSURE LETTER"--the disclosure letter delivered by Sellers to
Buyer concurrently with the execution and delivery of this Agreement.
"EARNOUT AGREEMENT"--as defined in Section 2.4(a)(v).
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"EMPLOYMENT AGREEMENTS"--as defined in Section 2.4(a)(iii).
"ENCUMBRANCE"--any charge, claim, community property interest,
condition, equitable interest, lien, option, pledge, security interest, right of
first refusal, or restriction of any kind, including any restriction on use,
voting, transfer, receipt of income, or exercise of any other attribute of
ownership.
"ENVIRONMENT"--soil, land surface or subsurface strata, surface waters
(including navigable waters, ocean waters, streams, ponds, drainage basins, and
wetlands), groundwaters, drinking water supply, stream sediments, ambient air
(including indoor air), plant and animal life, and any other environmental
medium or natural resource.
"ENVIRONMENTAL, HEALTH, AND SAFETY LIABILITIES"--any cost, damages,
expense, liability, obligation, or other responsibility arising from or under
Environmental Law or Occupational Safety and Health Law and consisting of or
relating to:
(a) any environmental, health, or safety matters or conditions
(including on-site or off-site contamination, occupational
safety and health, and regulation of chemical substances or
products);
(b) fines, penalties, judgments, awards, settlements, legal or
administrative proceedings, damages, losses, claims, demands
and response, investigative, remedial, or inspection costs and
expenses arising under Environmental Law or Occupational
Safety and Health Law;
(c) financial responsibility under Environmental Law or
Occupational Safety and Health Law for cleanup costs or
corrective action, including any investigation, cleanup,
removal, containment, or other remediation or response actions
("Cleanup") required by applicable Environmental Law or
Occupational Safety and Health Law (whether or not such
Cleanup has been required or requested by any Governmental
Body or any other Person) and for any natural resource
damages; or
(d) any other compliance, corrective, investigative, or
remedial measures required under Environmental Law or
Occupational Safety and Health Law.
The terms "removal," "remedial," and "response action," include the
types of activities covered by the United States Comprehensive Environmental
Response, Compensation, and Liability Act, 42 U.S.C. ss. 9601 et seq., as
amended ("CERCLA").
"ENVIRONMENTAL LAW"--any Legal Requirement that requires or relates to:
3
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(a) advising appropriate authorities, employees, and the
public of intended or actual releases of pollutants or
hazardous substances or materials, violations of discharge
limits, or other prohibitions and of the commencements of
activities, such as resource extraction or construction, that
could have significant impact on the Environment;
(b) preventing or reducing to acceptable levels the release of
pollutants or hazardous substances or materials into the
Environment;
(c) reducing the quantities, preventing the release, or
minimizing the hazardous characteristics of wastes that are
generated;
(d) protecting resources, species, or ecological amenities;
(e) reducing to acceptable levels the risks inherent in the
transportation of hazardous substances, pollutants, oil, or
other potentially harmful substances;
(f) cleaning up pollutants that have been released, preventing
the threat of release, or paying the costs of such clean up or
prevention; or
(g) making responsible parties pay appointed representatives
of the public interest to recover for injuries done to public
assets.
"ERISA"--the Employee Retirement Income Security Act of 1974 or any
successor law, and regulations and rules issued pursuant to that Act or any
successor law.
"ESCROW AGREEMENT"--as defined in Section 2.4.
"FACILITIES"--any real property, leaseholds, or other interests
currently or formerly owned or operated by any the Company and any buildings,
plants, structures, or equipment (including motor vehicles and rolling stock)
currently or formerly owned or operated by the Company.
"GAAP"--generally accepted United States accounting principles, applied
on a basis consistent with the basis on which the Balance Sheet and the other
financial statements referred to in Section 3.4 were prepared.
"GOVERNMENTAL AUTHORIZATION"--any approval, consent, license, permit,
waiver, or other authorization issued, granted, given, or otherwise made
available by or under the authority of any Governmental Body or pursuant to any
Legal Requirement.
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"GOVERNMENTAL BODY"--any federal, state, local, municipal, foreign, or
other government or governmental or quasi-governmental authority of any nature.
"HAZARDOUS ACTIVITY"--the distribution, generation, handling,
importing, management, manufacturing, processing, production, refinement,
Release, storage, transfer, transportation, treatment, or use (including any
withdrawal or other use of groundwater) of Hazardous Materials in, on, under,
about, or from the Facilities or any part thereof into the Environment and
regulated, controlled or restricted under or pursuant to any Environmental Law.
"HAZARDOUS MATERIALS"--any waste or other substance that is listed,
defined, designated, or classified as hazardous, radioactive, or toxic or a
pollutant or a contaminant under or pursuant to any Environmental Law, including
any admixture or solution thereof, and specifically including petroleum and all
derivatives thereof or synthetic substitutes therefor and asbestos or
asbestos-containing materials.
"INTELLECTUAL PROPERTY ASSETS" --as defined in Section 3.22.
"INTERIM BALANCE SHEET"--as defined in Section 3.4.
"IRC"--the Internal Revenue Code of 1986, as amended, or any successor
law, and regulations issued by the IRS pursuant to the Internal Revenue Code or
any successor law.
"IRS"--the United States Internal Revenue Service or any successor
agency, and, to the extent relevant, the United States Department of the
Treasury.
"KNOWLEDGE"--an individual will be deemed to have "Knowledge" of a
particular fact or other matter if such individual is actually aware of such
fact or other matter.
A Person (other than an individual) will be deemed to have "Knowledge"
of a particular fact or other matter if any individual who is serving, or who
has at any time served, as a director, officer, partner, executor, or trustee of
such Person (or in any similar capacity) has, or at any time had, Knowledge of
such fact or other matter; provided, however, in the case of the Company, the
Company will be deemed to have "knowledge" of a particular fact or other matter
only if Wink A. Davis, Sr., Wink A. Davis, Jr. or C. Alexander Davis has, or at
any time had, knowledge of such fact or other matter.
"LEGAL REQUIREMENT"--any federal, state, local, municipal, foreign,
international, multinational, or other administrative order, constitution, law,
ordinance, principle of common law, regulation, statute, or treaty.
5
<PAGE>
"1997 PERIOD EBT"--the net income of the Company before any provision
is made for taxes for the period beginning January 1, 1997 and ending July 31,
1997, determined in accordance with GAAP.
"NONCOMPETITION AGREEMENT"--as defined in Section 2.4(a)(iv).
"OCCUPATIONAL SAFETY AND HEALTH LAW"--any Legal Requirement designed to
provide safe and healthful working conditions and to reduce occupational safety
and health hazards, and any program, whether governmental or private (including
those promulgated or sponsored by industry associations and insurance
companies), designed to provide safe and healthful working conditions.
"ORDER"--any award, decision, injunction, judgment, order, ruling,
subpoena, or verdict entered, issued, made, or rendered by any court,
administrative agency, or other Governmental Body or by any arbitrator.
"ORDINARY COURSE OF BUSINESS"--an action taken by a Person will be
deemed to have been taken in the "Ordinary Course of Business" only if:
(a) such action is consistent with the past practices of such
Person and is taken in the ordinary course of the normal
day-to-day operations of such Person and;
(b) such action is not required to be authorized by the board
of directors of such Person (or by any Person or group of
Persons exercising similar authority).
"ORGANIZATIONAL DOCUMENTS"--(a) the articles or certificate of
incorporation and the bylaws of a corporation; (b) the partnership agreement and
any statement of partnership of a general partnership; (c) the limited
partnership agreement and the certificate of limited partnership of a limited
partnership; (d) any charter or similar document adopted or filed in connection
with the creation, formation, or organization of a Person; and (e) any amendment
to any of the foregoing.
"PERSON"--any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, labor union, or other entity
or Governmental Body.
"PLAN"--as defined in Section 3.13.
6
<PAGE>
"PROCEEDING"--any action, arbitration, audit, hearing, investigation,
litigation, or suit (whether civil, criminal, administrative, investigative, or
informal) commenced, brought, conducted, or heard by or before, or otherwise
involving, any Governmental Body or arbitrator.
"RELATED PERSON"--with respect to a particular individual:
(a) each other member of such individual's Family;
(b) any Person that is directly or indirectly controlled by
such individual or one or more members of such individual's
Family;
(c) any Person in which such individual or members of such
individual's Family hold (individually or in the aggregate) a
Material Interest; and
(d) any Person with respect to which such individual or one or
more members of such individual's Family serves as a director,
officer, partner, executor, or trustee (or in a similar
capacity).
With respect to a specified Person other than an individual:
(a) any Person that directly or indirectly controls, is
directly or indirectly controlled by, or is directly or
indirectly under common control with such specified Person;
(b) any Person that holds a Material Interest in such
specified Person;
(c) each Person that serves as a director, officer, partner,
executor, or trustee of such specified Person (or in a similar
capacity);
(d) any Person in which such specified Person holds a Material
Interest;
(e) any Person with respect to which such specified Person
serves as a general partner or a trustee (or in a similar
capacity); and
(f) any Related Person of any individual described in clause
(b) or (c).
For purposes of this definition, (a) the "Family" of an individual
includes (i) the individual, (ii) the individual's spouse, (iii) any other
natural person who is related to the individual or the individual's spouse
within the second degree, and (iv) any other natural person who resides with
such individual, and (b) "Material Interest" means direct or indirect beneficial
ownership (as defined in Rule 13d-3 under the Securities Exchange Act
7
<PAGE>
of 1934) of voting securities or other voting interests representing at least
10% of the outstanding voting power of a Person or equity securities or other
equity interests representing at least 10% of the outstanding equity securities
or equity interests in a Person.
"RELEASE"--any spilling, leaking, emitting, discharging, depositing,
escaping, leaching, dumping, or other releasing into the Environment, whether
intentional or unintentional.
"REPRESENTATIVE"--with respect to a particular Person, any director,
officer, employee, agent, consultant, advisor, or other representative of such
Person, including legal counsel, accountants, and financial advisors.
"SECURITIES ACT"--the Securities Act of 1933 or any successor law, and
regulations and rules issued pursuant to that Act or any successor law.
"SELLERS"--as defined in the first paragraph of this Agreement.
"SELLERS' RELEASES"--as defined in Section 2.4.
"SHARES"--as defined in the Recitals of this Agreement.
"TANGIBLE NET WORTH"--the stockholders' equity of the Company, as
reflected on the Closing Date Balance Sheet prepared in accordance with GAAP,
less the sum of the value, as reflected on such balance sheet of (i) all assets
which would be treated as intangible assets for balance sheet presentation
purposes under GAAP, including without limitation goodwill, trademarks,
tradenames, copyrights, patents and technologies, and unamortized debt discount
and expense, (ii) any surplus resulting from any write-ups of assets subsequent
to January 1, 1997, other than write-ups of assets resulting from the proper
application of purchase accounting methods in accordance with GAAP, (iii) loans
or advances to stockholders, directors, officers or employees, and (iv) to the
extent not included in (i) above, deferred expenses.
"THREAT OF RELEASE"--a substantial likelihood of a Release that may
require action in order to prevent or mitigate damage to the Environment that
may result from such Release.
"THREATENED"--a claim, Proceeding, dispute, action, or other matter
will be deemed to have been "Threatened" if any demand or statement has been
made (orally or in writing) or any notice has been given (orally or in writing),
or if any other event has occurred or any other circumstances exist, that would
lead a prudent Person to conclude
8
<PAGE>
that such a claim, Proceeding, dispute, action, or other matter is likely to be
asserted, commenced, taken, or otherwise pursued in the future.
"WDJ"--Wink A. Davis, Jr.
"WDJ SHAREHOLDERS"--the persons identified on SCHEDULE A as the WDJ
Shareholders.
2. SALE AND TRANSFER OF SHARES; CLOSING.
2.1 SHARES. Subject to the terms and conditions of this
Agreement, at the Closing, Sellers will sell and transfer the Shares to Buyer,
and Buyer will purchase the Shares from Sellers.
Sellers and Buyer shall timely file jointly an election under IRC
Section 338(h)(10) with respect to the purchase of the Shares. The Purchase
Price for the Shares (together with the aggregate amount of liabilities of the
Company as of the Closing and any amounts payable to the AD Shareholders (in
proportion to their Share ownership) under the Earnout Agreement) shall be
allocated among the assets of the Company by the Buyer with the reasonable
approval of Sellers, and Buyer and Sellers agree to use such allocation in
preparing their respective IRS Forms 8594 and all other reports to, and tax
returns filed with, all governmental entities. Each of the parties hereto agrees
to provide the other parties with a copy of the Form 8594 filed by such party in
connection with the transaction contemplated hereby within 10 days of the filing
of such Form. In addition, Sellers and Buyer shall attach a copy of the Internal
Revenue Service Form 8023-A to their respective federal income tax returns for
the taxable year that included the Closing. With respect to the joint election
made under IRC Section 338(h)(10), Buyer and Sellers agree that the sum of the
Purchase Price and the aggregate amount of liabilities of the Company as of the
Closing (together with any amounts payable to the AD Shareholders (in proportion
to their Share ownership) under the Earnout Agreement) reflect the fair market
value of the assets of the Company deemed sold pursuant to the election, and
that such sum shall be allocated among the assets as described herein.
2.2 PURCHASE PRICE. The purchase price (the "Purchase Price")
for the Shares payable by Buyer will be:
(a) $5,500,000 payable to Wink A. Davis, Jr. ("WDJ")
and the Sellers who are immediate family members of WDJ (the
"WDJ Shareholders"), in cash at the Closing (by bank cashier's
checks, certified checks or wired funds), in the amounts for
each WDJ Shareholder set forth on SCHEDULE A;
9
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(b) $4,000,000 payable to C. Alexander Davis ("AD")
and the Sellers who are immediate family members of AD (the
"AD Shareholders"), in cash at the Closing (by bank cashier's
checks, certified checks or wired funds), in the amounts for
each AD Shareholder set forth on SCHEDULE A, LESS a $500,000
escrow (the "Escrow") securing (x) the collectability of
certain receivables of the Company and (y) the value of the
Commercial Kitchens Investments as set forth in SCHEDULE B and
in the Escrow Agreement; provided, however, to the extent any
of the monies described in SCHEDULE B are collected by the
Company prior to Closing (the "Collected Sums"), the amount of
the $500,000 escrow shall be reduced by the amount of the
Collected Sums and the amount of the Purchase Price payable to
the AD Shareholders under this Section 2.2(b) shall be
increased by the amount of the Collected Sums (but such
increase shall not exceed $500,000); provided further,
however, that such payment to the AD Shareholders shall be
subject to a post-Closing adjustment if the Company's tangible
net worth as of the Closing Date is less than $5,200,000 as
reflected in the Closing Date Balance Sheet, as set forth in
Section 2.5(b);
(c) $1,500,000 payable to the AD shareholders and
additional sums payable to AD individually, all subject to the
contingencies and terms as set forth in the Earnout Agreement;
and
(d) 70% of the 1997 Period EBT will be paid to
Sellers, with each Seller to receive the percentage of such
total payment which his or her Shares bears to the total
number of Shares as set forth on SCHEDULE A. Such payment
shall be made within 10 days following the final determination
of 1997 Period EBT pursuant to Section 2.5.
2.3 CLOSING. The purchase and sale (the "Closing") provided
for in this Agreement will take place at the offices of Buyer's counsel at Suite
3500, One First Union Center, Charlotte, North Carolina, at 10:00 a.m. (local
time) on July 31, 1997 or at such other time and place as the parties may agree.
2.4 CLOSING OBLIGATIONS. At the Closing:
(a) Sellers will deliver to Buyer:
(i) certificates representing the Shares,
duly endorsed (or accompanied by duly executed stock
powers), with signatures guaranteed by a commercial
bank or by a member firm of the New York Stock
Exchange, for transfer to Buyer;
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(ii) releases in the form of EXHIBIT
2.4(A)(II) executed by Sellers (collectively,
"Sellers' Releases");
(iii) employment agreements in the forms of
EXHIBITS 2.4(A)(III)(A), (B) AND (C), executed by C.
Alexander Davis, W. Austin Davis and Fred C. Quarles,
respectively ("Employment Agreements");
(iv) a noncompetition agreement in the form
of EXHIBIT 2.4(A)(IV), executed by Wink A. Davis, Jr.
(the "Noncompetition Agreement");
(v) an earnout agreement in the form of
EXHIBIT 2.4(A)(V), executed by Buyer and the AD
Shareholders (the "Earnout Agreement");
(vi) an opinion of Womble, Carlyle,
Sandridge & Rice, PLLC, dated the Closing Date, in
the form of EXHIBIT 2.4(A)(VI); and
(vii) such other certificates and documents
as Buyer shall reasonably request.
(b) Buyer will deliver to Sellers:
(i) the amounts specified on SCHEDULE A, as
adjusted in accordance with Section 2.2(b)
hereinabove, by bank cashier's or certified check
payable to the order of or by wire transfer to
accounts specified by the persons specified on
SCHEDULE A;
(ii) the sum of $500,000.00, as adjusted in
accordance with Section 2.2(b) hereinabove, to the
escrow agent referred to in Section 2.4(c) by bank
cashier's or certified check or wire transfer;
(iii) the Employment Agreements, executed by
the Company.
(iv) the Noncompetition Agreement, executed
by the Company;
(v) the Earnout Agreement, executed by the
Company;
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(vi) an opinion of Kilpatrick Stockton LLP
dated the Closing Date, in the form of EXHIBIT
2.4(B)(VI); and
(vii) such other certificates and documents
as Sellers shall reasonably request.
(c) Buyer and Sellers will enter into an escrow
agreement in the form of EXHIBIT 2.4(C) (the "Escrow
Agreement") with Colonial Bank.
2.5 CLOSING DATE FINANCIAL STATEMENTS.
(a) The Company's accountants, Habif, Arogeti &
Wynne, P.C., will prepare a balance sheet of the Company
("Closing Date Balance Sheet") as of the Closing Date and a
statement of income of the Company ("Closing Date Income
Statement") for the period from the date of the Balance Sheet
through the Closing Date (such Closing Date Balance Sheet and
Closing Date Income Statement being herein referred to as the
"Closing Date Financial Statements"). Buyer's accountants, BDO
Seidman, LLP, will be given the opportunity to review the work
papers and to consult with the Company's accountants prior to
the completion of the Closing Date Financial Statements. The
Closing Date Financial Statements will be delivered to Buyer
within 60 days after the Closing Date. If within 30 days
following such delivery of the Closing Date Financial
Statements, Buyer has not given notice of objection to the
Closing Date Financial Statements (which notice must contain a
statement of reasonable basis of objection), then (i) the
Tangible Net Worth of the Company reflected in the Closing
Date Balance Sheet will be used to determine whether any
adjustment should be made to the Purchase Price payable to the
AD Shareholders under Section 2.2(b), and (ii) the 1997 Period
EBT reflected in the Closing Date Income Statement will be
used to determine the amount payable to Sellers under Section
2.2(d). If Buyer gives notice of objection within such 30-day
period, the issues in dispute will be submitted to KPMG Peat
Marwick LLP, certified public accountants (the "Accountants"),
for resolution. If the issues in dispute are submitted to the
Accountants for resolution, (i) each party will furnish to the
Accountants such workpapers and other documents and
information relating to the disputed issues as the Accountants
may request and are available to that party (or its
independent public accountants), and will be afforded the
opportunity to present to the Accountants any material
relating to the determination and to discuss the determination
with the Accountants; (ii) the determination by the
Accountants, as set forth in a notice delivered to both
parties by the Accountants, will be binding and conclusive on
the parties; and (iii) Buyer
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and Sellers will each bear 50% of the fees of the Accountants
for such determination.
(b) If the Tangible Net Worth of the Company as of
the Closing Date is less than $5,200,000, the difference
between $5,200,000 and the Closing Date tangible net worth
will be paid by the AD Shareholders to the Company on the
tenth business day following the final determination of the
Closing Date Financial Statements. Each AD Shareholder will be
obligated to pay his or her percentage as set forth on
SCHEDULE A.
3. REPRESENTATIONS AND WARRANTIES OF SELLERS. Each of Sellers
severally represents and warrants to Buyer as follows:
3.1 ORGANIZATION AND GOOD STANDING.
(a) The Company is a corporation duly organized,
validly existing, and in good standing under the laws of its
jurisdiction of incorporation, with full corporate power and
authority to conduct its business as it is now being
conducted, to own or use the properties and assets that it
purports to own or use, and to perform all its obligations
under Applicable Contracts. The Company is duly qualified to
do business as a foreign corporation and is in good standing
under the laws of each state in which either the ownership or
use of the properties owned or used by it, or the nature of
the activities conducted by it, requires such qualification.
Part 3.1 of the Disclosure Letter contains a complete and
accurate list of each state in which the Company is authorized
to do business.
(b) Sellers have delivered to Buyer copies of the
Organizational Documents of the Company, as currently in
effect.
3.2 AUTHORITY; NO CONFLICT.
(a) This Agreement constitutes the legal, valid, and
binding obligation of Sellers, enforceable against Sellers in
accordance with its terms except that enforceability thereof
may be limited by bankruptcy, insolvency, reorganization or
other similar laws affecting creditors' rights generally and
principles of equity regarding the availability of remedies.
Upon the execution and delivery by Sellers of the Escrow
Agreement, the Employment Agreements, the Sellers' Releases,
the Noncompetition Agreement and the Earnout Agreement
(collectively, the "Sellers' Closing Documents"), the Sellers'
Closing Documents will constitute the legal, valid, and
binding obligations of Sellers, enforceable against Sellers in
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accordance with their respective terms except that
enforceability thereof may be limited by bankruptcy,
insolvency, reorganization or other similar laws affecting
creditors' rights generally and principles of equity regarding
the availability of remedies. Sellers have the absolute and
unrestricted right, power, authority, and capacity to execute
and deliver this Agreement and the Sellers' Closing Documents
and to perform their obligations under this Agreement and the
Sellers' Closing Documents.
(b) Except as set forth in Part 3.2(b) of the
Disclosure Letter, neither the execution and delivery of this
Agreement nor the consummation or performance of any of the
Contemplated Transactions will, directly or indirectly (with
or without notice or lapse of time):
(i) contravene, conflict with, or result in
a violation of (A) any provision of the
Organizational Documents of the Company, or (B) any
resolution adopted by the board of directors or the
stockholders of the Company;
(ii) to each Seller's Knowledge, contravene,
conflict with, or result in a violation of, or give
any Governmental Body or other Person the right to
challenge any of the Contemplated Transactions or to
exercise any remedy or obtain any relief under, any
Legal Requirement or any Order to which the Company
or any Seller, or any of the assets owned or used by
the Company, may be subject;
(iii) to each Seller's Knowledge,
contravene, conflict with, or result in a violation
of any of the terms or requirements of, or give any
Governmental Body the right to revoke, withdraw,
suspend, cancel, terminate, or modify, any
Governmental Authorization that is held by the
Company or that otherwise relates to the business of,
or any of the assets owned or used by, the Company;
(iv) to each Seller's Knowledge, contravene,
conflict with, or result in a violation or breach of
any provision of, or give any Person the right to
declare a default or exercise any remedy under, or to
accelerate the maturity or performance of, or to
cancel, terminate, or modify, any Applicable
Contract; or
(v) to each Seller's Knowledge, result in
the imposition or creation of any Encumbrance upon or
with respect to any of the assets owned or used by
the Company.
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Except as set forth in Part 3.2 of the Disclosure Letter, to each Seller's
Knowledge, no Seller or the Company is or will be required to give any notice to
or obtain any Consent from any Person in connection with the execution and
delivery of this Agreement or the consummation or performance of any of the
Contemplated Transactions.
3.3 CAPITALIZATION. The authorized equity securities of the
Company consist of 1,660 shares of common stock, par value $10.00 per share, of
which 1,660 shares are issued and outstanding and constitute the Shares. Sellers
are and will be on the Closing Date the record and beneficial owners and holders
of the Shares, free and clear of all Encumbrances. The Shares are owned by
Sellers in the manner set forth on SCHEDULE A. Except as set forth in Part 3.3
of the Disclosure Letter, no legend or other reference to any purported
Encumbrance appears upon any certificate representing equity securities of the
Company. All of the outstanding equity securities of the Company have been duly
authorized and validly issued and are fully paid and nonassessable. Except as
set forth in Part 3.3 of the Disclosure Letter, there are no Contracts relating
to the issuance, sale, or transfer of any equity securities or other securities
of the Company. None of the outstanding equity securities or other securities of
the Company was issued in violation of the Securities Act or any other Legal
Requirement. The Company does not own, or have any Contract to acquire, any
equity securities or other securities of any Person or any direct or indirect
equity or ownership interest in any other business.
3.4 FINANCIAL STATEMENTS. Sellers have delivered to Buyer: (a)
audited balance sheets of the Company as at December 31 in each of the years
1995 and 1996 (such December 31, 1996 balance sheet being herein sometimes
referred to as the "Balance Sheet"), and the related audited statements of
income, changes in stockholders' equity, and cash flow for each of the fiscal
years then ended, together with the report thereon of Habif, Arogeti & Wynne,
P.C., independent certified public accountants, and (b) an internally generated
balance sheet of the Company as at June 30, 1997 (the "Interim Balance Sheet")
and the internally generated consolidated statements of income, changes in
stockholders' equity, and cash flow for the six months then ended. To each
Seller's Knowledge, such financial statements and notes fairly present the
financial condition and the results of operations, changes in stockholders'
equity, and cash flow of the Company as at the respective dates of and for the
periods referred to in such financial statements, all in accordance with GAAP,
subject, in the case of interim financial statements, to normal recurring
year-end adjustments (the effect of which will not, individually or in the
aggregate, be materially adverse) and the absence of notes (that, if presented,
would not differ materially from those included in the Balance Sheet); and, to
each Seller's knowledge, the financial statements referred to in this Section
3.4 reflect the consistent application of such accounting principles throughout
the periods involved, except as disclosed in the notes to such financial
statements.
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3.5 BOOKS AND RECORDS. To each Seller's Knowledge, the books
of account, the minute book, and other records of the Company, all of which have
been made available to Buyer, are complete and correct and have been maintained
in accordance with sound business practices. At the Closing, all of those books
and records will be in the possession of the Company.
3.6 TITLE TO PROPERTIES; ENCUMBRANCES. Part 3.6 of the
Disclosure Letter contains a complete and accurate list of all real property,
leaseholds, or other similar interests therein owned by the Company. To each
Seller's Knowledge, the Company owns all the properties and assets (whether
real, personal, or mixed and whether tangible or intangible) that it purports to
own located in the facilities owned or operated by the Company or reflected as
owned in the books and records of the Company, including all of the properties
and assets reflected in the Balance Sheet and the Interim Balance Sheet (except
for assets held under capitalized leases and personal property sold since the
date of the Balance Sheet and the Interim Balance Sheet, as the case may be, in
the Ordinary Course of Business). To each Seller's Knowledge, all material
properties and assets reflected in the Balance Sheet and the Interim Balance
Sheet are free and clear of all Encumbrances except (a) security interests shown
on the Balance Sheet or the Interim Balance Sheet as securing specified
liabilities or obligations, with respect to which no default exists, (b)
security interests incurred in connection with the purchase of assets after the
date of the Interim Balance Sheet (such security interests being limited to the
assets so acquired), with respect to which no default exists, and (c) liens for
current taxes not yet due.
3.7 CONDITION AND SUFFICIENCY OF ASSETS. To each Seller's
Knowledge, the buildings, plants, structures, and equipment of the Company are,
in all material respects, structurally sound, in good operating condition and
repair, and adequate for the uses to which they are being put, and none of such
buildings, plants, structures, or equipment is in need of maintenance or repairs
except for ordinary, routine maintenance and repairs that are not material in
nature or cost. To each Seller's Knowledge, the building, plants, structures,
and equipment, of the Company are sufficient for the continued conduct of the
Company's businesses after the Closing in substantially the same manner as
conducted prior to the Closing.
3.8 ACCOUNTS RECEIVABLE. To each Seller's Knowledge, all
accounts receivable of the Company that are reflected on the Balance Sheet or
the Interim Balance Sheet or on the accounting records of the Company as of the
Closing Date (collectively, the "Accounts Receivable") represent or will
represent valid obligations arising from sales actually made or services
actually performed in the Ordinary Course of Business. To each Seller's
Knowledge, unless paid prior to the Closing Date, the Accounts Receivable are or
will be as of the Closing Date current and collectible, in the Ordinary Course
of Business, net of the respective reserves shown on the Balance Sheet
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or the Interim Balance Sheet or on the accounting records of the Company as of
the Closing Date (which reserves, to each Seller's Knowledge, are adequate and
calculated consistent with past practice). To each Seller's Knowledge, there is
no contest, claim, or right of set-off, other than returns in the Ordinary
Course of Business, under any Contract with any obligor of an Accounts
Receivable relating to the amount or validity of such Accounts Receivable. Part
3.8 of the Disclosure Letter contains a complete and accurate list, in all
material respects, of all Accounts Receivable as of July 29, 1997, which list
sets forth the aging of such Accounts Receivable.
3.9 INVENTORY. To each Seller's Knowledge, all inventory of
the Company, whether or not reflected in the Balance Sheet or the Interim
Balance Sheet, consists, in all material respects, of a quality and quantity
usable and salable in the Ordinary Course of Business, except for obsolete items
and items of below-standard quality which have been written off or written down
to net realizable value.
3.10 NO UNDISCLOSED LIABILITIES. To each Seller's Knowledge,
except as set forth in Part 3.10 and other Parts of the Disclosure Letter, the
Company has no material liabilities or obligations of any nature (whether
absolute, accrued, contingent, or otherwise), which under GAAP would be required
to be set forth in the Balance Sheet and Interim Balance Sheet, except for
liabilities or obligations reflected or reserved against in the Balance Sheet or
the Interim Balance Sheet and current liabilities incurred in the Ordinary
Course of Business since the respective dates thereof.
3.11 TAXES.
(a) The Company has filed or caused to be filed,
within the times and within the manner prescribed by law, all
federal, state, local and foreign tax returns and tax reports
which are required to be filed by, or with respect to, the
Company, and Sellers have delivered, or made available, to
Buyer copies of, and Part 3.11 of the Disclosure Letter
contains a complete and accurate list of, all such returns and
reports filed with respect to the Company's last three (3)
fiscal years. To each Seller's Knowledge, such returns and
reports reflect accurately all liability for taxes of the
Company for the periods covered thereby. To each Seller's
Knowledge, all federal, state, local and foreign income,
profits, franchise, sales, use, occupancy, excise, customs,
withholding and other taxes and assessments (including
interest and penalties) payable by, or due from, the Company
have been fully paid or adequately disclosed and fully
provided for (in accordance with GAAP) on the Balance Sheet
and the Interim Balance Sheet.
(b) To each Seller's Knowledge, no examination of any
tax return of the Company or other tax audit is currently in
progress or is planned. To
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each Seller's Knowledge, (i) there are no outstanding
agreements or waivers extending the statutory period of
limitation applicable to any tax return of the Company, (ii)
none of Sellers or the Company has any tax liability that
could result in any lien being imposed on the capital stock or
the assets of the Company, (iii) the Company is, and has been,
an accrual method taxpayer, (iv) the Company has properly
elected and has maintained its status as a small business
corporation under Subchapter S of the IRC, and (v) the IRC
Section 338(h)(10) election made by Sellers and Buyer with
respect to the purchase of the Shares will not cause the
Company to recognize any built-in gain under IRC section 1374
on which corporate income tax may be imposed. Notwithstanding
anything in this Agreement to the contrary (including the
provisions of Section 6 hereof), if the representation set
forth above in this section 3.11(b)(v) turns out to be
inaccurate and corporate income tax is imposed on the Company,
the Company will be liable for the first $15,000 of such tax
and the Sellers (in proportion to each Seller's percentage of
the Shares sold to Buyer) will be liable for and will
reimburse the Company promptly for the amount of such tax in
excess of $15,000.
3.12 NO MATERIAL ADVERSE CHANGE. Except as set forth in Part
3.12 of the Disclosure Letter, since the date of the Balance Sheet, there has
not been any material adverse change in the business, operations, properties,
prospects, assets, or condition of the Company, and, to each Seller's Knowledge,
no event has occurred or circumstance exists that may result in such a material
adverse change.
3.13 EMPLOYEE BENEFITS.
(a) As used in this Section 3.13, the following terms
have the meanings set forth below.
"COMPANY OTHER BENEFIT OBLIGATION" means an Other
Benefit Obligation owed, adopted, or followed by the Company.
"COMPANY PLAN" means all Plans of which the Company
is or was a Plan Sponsor, or to which the Company otherwise contributes or has
contributed, or in which the Company otherwise participates or has participated.
All references to Plans are to Company Plans unless the context requires
otherwise.
"COMPANY VEBA" means a voluntary employees'
beneficiary association under IRC ss. 501(c)(9) whose members include employees
of the Company.
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"ERISA AFFILIATE" means, with respect to the Company,
any other person that, together with the Company, would be treated as a single
employer under IRC ss. 414.
"MULTI-EMPLOYER PLAN" has the meaning given in ERISA
ss. 3(37)(A).
"OTHER BENEFIT OBLIGATIONS" means all obligations,
arrangements, or customary practices, whether or not legally enforceable, to
provide benefits, other than salary, as compensation for services rendered, to
present or former directors, employees, or agents, other than obligations,
arrangements, and practices that are Plans. Other Benefit Obligations include
consulting agreements under which the compensation paid does not depend upon the
amount of service rendered, severance payment policies, and fringe benefits
within the meaning of IRC ss. 132.
"PENSION PLAN" has the meaning given in ERISA ss.
3(2)(A).
"PLAN" has the meaning given in ERISA ss. 3(3).
"PLAN SPONSOR" has the meaning given in ERISA ss.
3(16)(B).
"QUALIFIED PLAN" means any Plan that meets or
purports to meet the requirements of IRC ss. 401(a).
"TITLE IV PLANS" means all Pension Plans that are
subject to Title IV of ERISA, 29 U.S.C. ss. 1301 et seq., other than
Multi-Employer Plans.
(b) (i) Part 3.13(b)(i) of the Disclosure Letter
contains a complete and accurate list of all Company Plans and
Company Other Benefit Obligations and identifies as such all
Company Plans that are Qualified Plans.
(ii) Part 3.13(b)(ii) of the Disclosure
Letter sets forth the amount of contributions or
payments made by the Company during the preceding
twelve (12) months under any Company Plan or Company
Other Benefit Obligation that is not subject to the
disclosure and reporting requirements of ERISA.
(c) Sellers have delivered to Buyer, or will deliver
to Buyer within ten days of the date of this Agreement:
(i) all documents that set forth the terms
of each Company Plan and Company Other Benefit
Obligation and of any
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related trust, including (A) all plan descriptions
and summary plan descriptions of Company Plans for
which Sellers or the Acquired Companies are required
to prepare, file, and distribute plan descriptions
and summary plan descriptions, and (B) all summaries
and descriptions furnished to participants and
beneficiaries regarding Company Plans and Company
Other Benefit Obligations for which a plan
description or summary plan description is not
required;
(ii) all personnel, payroll, and employment
manuals and policies;
(iii) all collective bargaining agreements
pursuant to which contributions have been made or
obligations incurred (including both pension and
welfare benefits) by the Company, and all collective
bargaining agreements pursuant to which contributions
are being made or obligations are owed by such
entities;
(iv) a written description of any Company
Plan or Company Other Benefit Obligation that is not
otherwise in writing;
(v) all registration statements filed with
respect to any Company Plan;
(vi) all insurance policies purchased by or
to provide benefits under any Company Plan;
(vii) all contracts with third party
administrators, actuaries, investment managers,
consultants, and other independent contractors that
relate to any Company Plan and Company Other Benefit
Obligation;
(viii) all reports submitted within the two
years preceding the date of this Agreement by third
party administrators, actuaries, investment managers,
consultants, or other independent contractors with
respect to any Company Plan or Company Other Benefit
Obligation;
(ix) all notifications to employees of their
rights under ERISA ss. 601 et seq. and IRC ss. 4980B;
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(x) the Form 5500 filed in each of the most
recent three plan years with respect to each Company
Plan, including all schedules thereto and the
opinions of independent accountants;
(xi) all notices that were given by the IRS
or the Department of Labor to the Company or any
Company Plan within the four years preceding the date
of this Agreement; and
(xii) the most recent determination letter
for each Company Plan that is a Qualified Plan.
(d) To each Seller's Knowledge, except as set forth
in Part 3.13(d) of the Disclosure Letter:
(i) no Company Plan is a Title IV Plan.
(ii) the Company has never established,
maintained, or contributed to or otherwise
participated in, or had an obligation to
maintain, contribute to, or otherwise
participate in, any Multi-Employer Plan.
(iii) there are no Company VEBAs.
(iv) there are, and have been, no ERISA
Affiliates.
(v) the Company has substantially performed
all of its respective obligations under all Company
Plans and Company Other Benefit Obligations. The
Company has made appropriate entries in its financial
records and statements for all obligations and
liabilities under such Plans and Obligations that
have accrued but are not due.
(vi) no statement, either written or oral,
has been made by the Company to any Person with
regard to any Plan or Other Benefit Obligation that
was not in accordance with the Plan or Other Benefit
Obligation and that could have a material adverse
economic consequence to the Company or to Buyer.
(vii) the Company, with respect to all
Company Plans and Company Other Benefits Obligations
is, and each Company Plan and Company Other Benefit
Obligation is, in substantial compliance with ERISA,
the IRC, and other applicable Laws including the
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provisions of such Laws expressly mentioned in this
Section 3.13, and with any applicable collective
bargaining agreement.
(A) No transaction prohibited by
ERISA ss. 406 and no "prohibited
transaction" under IRC ss. 4975(c) has
occurred with respect to any Company Plan.
(B) All filings required by ERISA
and the IRC as to each Plan have been timely
filed, and all notices and disclosures to
participants required by either ERISA or the
IRC have been timely provided.
(C) All contributions and payments
made or accrued with respect to all Company
Plans and Company Other Benefit Obligations
are deductible under IRC ss. 162 or ss. 404.
No amount, or any asset of any Company Plan
is subject to tax as unrelated business
taxable income.
(viii) each Company Plan can be terminated
within thirty days, without payment of any additional
contribution or amount and without the vesting or
acceleration of any benefits promised by such Plan,
except as provided by the terms of the Plan or
applicable law.
(ix) no event has occurred or circumstance
exists, to each Seller's Knowledge, that could result
in a material increase in premium costs of Company
Plans and Company Other Benefit Obligations that are
insured, or a material increase in benefit costs of
such Plans and Obligations that are self-insured.
(x) other than claims for benefits submitted
by participants or beneficiaries, no claim against,
or legal proceeding involving, any Company Plan or
Company Other Benefit Obligation is pending or, to
Sellers' Knowledge, is Threatened.
(xi) each Qualified Plan of the Company is
qualified in form and operation under IRC ss. 401(a);
each trust for each such Plan is exempt from federal
income tax under IRC ss. 501(a). No event has
occurred or circumstance exists, to each Seller's
Knowledge, that will or could give rise to
disqualification or loss of tax-exempt status of any
such Plan or trust.
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(xii) except to the extent required under
ERISA ss. 601 et seq. and IRC ss. 4980B, the Company
does not provide health or welfare benefits for any
retired or former employee or is obligated to provide
health or welfare benefits to any active employee
following such employee's retirement or other
termination of service.
(xiii) Sellers and the Company have complied
with the provisions of ERISA ss. 601 et seq. and IRC
ss. 4980B.
(xiv) no payment that is owed or may become
due to any director, officer, employee, or agent of
the Company will be non-deductible to the Company or
subject to tax under IRC ss. 280G or ss. 4999; nor
will the Company be required to "gross up" or
otherwise compensate any such person because of the
imposition of any excise tax on a payment to such
person.
(xv) the consummation of the Contemplated
Transactions will not result in the payment, vesting,
or acceleration of any benefit.
3.14 COMPLIANCE WITH LEGAL REQUIREMENTS; GOVERNMENTAL
AUTHORIZATIONS.
(a) To each Seller's Knowledge, except as set forth
in Part 3.14(a) of the Disclosure Letter:
(i) the Company is, and at all times since
January 1, 1995 has been, in full compliance with
each Legal Requirement that is or was applicable to
it or to the conduct or operation of its business or
the ownership or use of any of its assets;
(ii) since January 1, 1995, no event has
occurred or circumstance exists that (A) may
constitute or result in a violation by the Company
of, or a failure on the part of the Company to comply
with, any Legal Requirement, or (B) may give rise to
any obligation on the part of the Company to
undertake, or to bear all or any portion of the cost
of, any remedial action of any nature; and
(iii) the Company has not received, at any
time since January 1, 1995, any notice or other
communication (whether oral or written) from any
Governmental Body or any other Person regarding (A)
any actual, alleged, possible, or potential violation
of, or failure to comply with, any Legal Requirement,
or (B) any actual, alleged,
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possible, or potential obligation on the part of the
Company to undertake, or to bear all or any portion
of the cost of, any remedial action of any nature.
(b) Part 3.14(b) of the Disclosure Letter contains a
complete and accurate list of each material Governmental
Authorization (and the expiration date thereof) that is held
by the Company or that otherwise relates to the business of,
or to any of the assets owned or used by, the Company. To each
Seller's knowledge, each Governmental Authorization listed or
required to be listed in Part 3.14(b) of the Disclosure Letter
is valid and in full force and effect. To each Seller's
Knowledge, except as set forth in Part 3.14 of the Disclosure
Letter:
(i) the Company is, and at all times since
January 1, 1995 has been, in material compliance with
all of the terms and requirements of each
Governmental Authorization identified in Part 3.14(b)
of the Disclosure Letter;
(ii) since January 1, 1995, no event has
occurred or circumstance exists that may (A)
constitute or result directly or indirectly in a
violation of or a failure to comply with any term or
requirement of any Governmental Authorization listed
in Part 3.14(b) of the Disclosure Letter, or (B)
result directly or indirectly in the revocation,
withdrawal, suspension, cancellation, or termination
of, or any modification to, any Governmental
Authorization listed in Part 3.14(b) of the
Disclosure Letter;
(iii) the Company has not received, at any
time since January 1, 1995, any notice or other
communication (whether oral or written) from any
Governmental Body or any other Person regarding (A)
any actual, alleged, possible, or potential violation
of or failure to comply with any term or requirement
of any Governmental Authorization, or (B) any actual,
proposed, possible, or potential revocation,
withdrawal, suspension, cancellation, termination of,
or modification to any Governmental Authorization;
and
(iv) since January 1, 1995, all applications
required to have been filed for the renewal of the
Governmental Authorizations listed in Part 3.14(b) of
the Disclosure Letter have been duly filed on a
timely basis with the appropriate Governmental Bodies
and all other filings required to have been made with
respect to such
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Governmental Authorizations have been duly made on a
timely basis with the appropriate Governmental
Bodies.
(v) the Governmental Authorizations listed
in Part 3.14(b) of the Disclosure Letter collectively
constitute all of the material Governmental
Authorizations necessary to permit the Company to
lawfully conduct and operate its business in the
manner it currently conducts and operates such
business and to permit the Company to own and use its
assets in the manner in which it currently owns and
uses such assets.
3.15 LEGAL PROCEEDINGS; ORDERS.
(a) Except as set forth in Part 3.15(a) of the
Disclosure Letter, there is no pending Proceeding:
(i) that has been commenced by or against
the Company or that otherwise relates to or may
affect the business of, or any of the assets owned or
used by, the Company; or
(ii) that challenges, or that may have the
effect of preventing, delaying, making illegal, or
otherwise interfering with, any of the Contemplated
Transactions.
Except as set forth in Part 3.15(a), to the Knowledge of each Seller
and the Company, (1) no such Proceeding has been Threatened, and (2) no event
has occurred or circumstance exists that may give rise to or serve as a basis
for the commencement of any such Proceeding. Sellers have delivered to Buyer
copies of all pleadings, correspondence, and other documents relating to each
Proceeding listed in Part 3.15(a) of the Disclosure Letter. To each Seller's
Knowledge, the Proceedings listed in Part 3.15(a) of the Disclosure Letter will
not have a material adverse effect on the business, operations, assets,
condition, or prospects of the Company.
(b) To each Seller's Knowledge, except as set forth
in Part 3.15(b) of the Disclosure Letter:
(i) there is no Order to which the Company,
or any of the assets owned or used by the Company, is
subject;
(ii) Seller is not subject to any Order that
relates to the business of, or any of the assets
owned or used by, the Company; and
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(c) To each Seller's Knowledge, except as set forth
in Part 3.15(c) of the Disclosure Letter:
(i) the Company is, in full compliance with
all of the terms and requirements of each Order to
which it, is subject;
(ii) no event has occurred or circumstance
exists that may constitute or result in a violation
of or failure to comply with any term or requirement
of any Order to which the Company, is subject; and
(iii) since the date of the Balance Sheet,
the Company has not received any notice or other
communication (whether oral or written) from any
Governmental Body or any other Person regarding any
actual, alleged, possible, or potential violation of,
or failure to comply with, any term or requirement of
any Order to which the Company, is subject.
3.16 ABSENCE OF CERTAIN CHANGES AND EVENTS. Except as set
forth in Part 3.16 of the Disclosure Letter, to each Seller's Knowledge, since
the date of the Balance Sheet, the Company has conducted its businesses only in
the Ordinary Course of Business and there has not been any:
(a) change in the Company's authorized or issued
capital stock; grant of any stock option or right to purchase
shares of capital stock of the Company; issuance of any
security convertible into such capital stock; grant of any
registration rights; purchase, redemption, retirement, or
other acquisition by the Company of any shares of any such
capital stock; or declaration or payment of any dividend or
other distribution or payment in respect of shares of capital
stock;
(b) amendment to the Organizational Documents of the
Company;
(c) payment or increase by the Company of any
bonuses, salaries, or other compensation to any stockholder,
director, officer, or (except in the Ordinary Course of
Business) employee or entry into any employment, severance, or
similar Contract with any director, officer, or employee;
(d) adoption of, or increase in the payments to or
benefits under, any profit sharing, bonus, deferred
compensation, savings, insurance,
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pension, retirement, or other employee benefit plan for or
with any employees of the Company;
(e) damage to or destruction or loss of any asset or
property of the Company, whether or not covered by insurance,
materially and adversely affecting the properties, assets,
business, financial condition, or prospects of the Company,
taken as a whole;
(f) entry into, termination of, or receipt of notice
of termination of (i) any license, distributorship, dealer,
sales representative, joint venture, credit, or similar
agreement, or (ii) any Contract or transaction involving a
total remaining commitment by or to any the Company of at
least $25,000 other than purchase orders and contracts for the
sale of inventory entered into in the Ordinary Course of
Business;
(g) sale (other than sales of inventory in the
Ordinary Course of Business), lease, or other disposition of
any asset or property of the Company or mortgage, pledge, or
imposition of any lien or other encumbrance on any material
asset or property of the Company, including the sale, lease,
or other disposition of any of the Intellectual Property
Assets;
(h) cancellation or waiver of any claims or rights
with a value to the Company in excess of $25,000;
(i) material change in the accounting methods used by
the Company; or
(j) agreement, whether oral or written, by the
Company to do any of the foregoing.
3.17 CONTRACTS; NO DEFAULTS.
(a) To each Seller's Knowledge, part 3.17(a) of the
Disclosure Letter contains a complete and accurate list, and
Sellers have delivered to Buyer true and complete copies, of:
(i) each Applicable Contract that involves
performance of services or delivery of goods or
materials by the Company of an amount or value in
excess of $25,000;
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(ii) each Applicable Contract that involves
performance of services or delivery of goods or
materials to the Company of an amount or value in
excess of $25,000;
(iii) each Applicable Contract that was not
entered into in the Ordinary Course of Business and
that involves expenditures or receipts of the Company
in excess of $10,000;
(iv) each lease, rental or occupancy
agreement, license, installment and conditional sale
agreement, and other Applicable Contract affecting
the ownership of, leasing of, title to, use of, or
any leasehold or other interest in, any real or
personal property (except personal property leases
and installment and conditional sales agreements
having a value per item or aggregate payments of less
than $10,000 and with terms of less than one year);
(v) each licensing agreement or other
Applicable Contract with respect to patents,
trademarks, copyrights, or other intellectual
property, including agreements with current or former
employees, consultants, or contractors regarding the
appropriation or the non- disclosure of any of the
Intellectual Property Assets, other than agreements
providing for the use of software and similar
property;
(vi) each collective bargaining agreement
and other Applicable Contract to or with any labor
union or other employee representative of a group of
employees;
(vii) each joint venture, partnership, and
other Applicable Contract (however named) involving a
sharing of profits, losses, costs, or liabilities by
the Company with any other Person;
(viii) each Applicable Contract containing
covenants that in any way purport to restrict the
business activity of the Company or limit the freedom
of the Company to engage in any line of business or
to compete with any Person;
(ix) each Applicable Contract providing for
payments to or by any Person based on sales,
purchases, or profits, other than direct payments for
goods;
(x) each power of attorney that is currently
effective and outstanding;
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(xi) each Applicable Contract entered into
other than in the Ordinary Course of Business that
contains or provides for an express undertaking by
the Company to be responsible for consequential
damages;
(xii) each Applicable Contract for capital
expenditures in excess of $25,000; and
(xiii) each written warranty, guaranty, and
or other similar undertaking with respect to
contractual performance extended by the Company other
than in the Ordinary Course of Business.
(b) To each Seller's Knowledge, except as set forth
in Part 3.17(b) of the Disclosure Letter:
(i) no Seller (nor any Related Person of a
Seller) has or may acquire any rights under, or has
or may become subject to any obligation or liability
under, any Contract that relates to the business of,
or any of the assets owned or used by, the Company;
and
(ii) no officer, director, agent, employee,
consultant, or contractor of the Company is bound by
any Contract that purports to limit the ability of
such officer, director, agent, employee, consultant,
or contractor to (A) engage in or continue any
conduct, activity, or practice relating to the
business of the Company, or (B) assign to the Company
or to any other Person any rights to any invention,
improvement, or discovery.
(c) To each Seller's Knowledge, except as set forth
in Part 3.17(c) of the Disclosure Letter, each Contract
identified or required to be identified in Part 3.17(a) of the
Disclosure Letter is in full force and effect and is valid and
enforceable in accordance with its terms except that
enforceability thereof may be limited by bankruptcy,
insolvency, reorganization or other similar laws affecting
creditors' rights generally and principles of equity regarding
the availability of remedies.
(d) To each Seller's Knowledge, except as set forth
in Part 3.17(d) of the Disclosure Letter:
(i) the Company is, in full compliance with
all applicable terms and requirements of each
Contract under which it has any
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obligation or by which the Company or any of the
assets owned or used by the Company is bound;
(ii) each other Person that has any
obligation under any Contract under which the Company
has any rights is, in full compliance in all material
respects with all applicable terms and requirements
of such Contract;
(iii) no event has occurred or circumstance
exists that (with or without notice or lapse of time)
may contravene, or result in a violation or breach
of, or give the Company or other Person the right to
declare a default or exercise any remedy under, or to
accelerate the maturity or performance of, or to
cancel, terminate, or modify, any Contract; and
(iv) The Company has not given to or
received from any other Person, any notice or other
communication (whether oral or written) regarding any
actual, alleged, or potential violation or breach of,
or default under, any Contract.
(e) Except as set forth in Part 3.17(e) of the
Disclosure Letter, to each Seller's Knowledge, there are no
renegotiations of, attempts to renegotiate, or outstanding
rights to renegotiate any material amounts paid or payable to
the Company under current or completed Contracts with any
Person, and no such Person has made written demand for such
renegotiation.
(f) To each Seller's Knowledge, the Contracts
relating to the sale or provision of products or services by
the Company have been entered into in the Ordinary Course of
Business and have been entered into without the commission of
any act alone or in concert with any other Person, or any
consideration having been paid or promised, that is or would
be in violation of any Legal Requirement.
3.18 INSURANCE.
(a) Sellers have, to each Seller's Knowledge,
delivered to Buyer:
(i) true and complete copies of all policies
of insurance to which the Company is a party or under
which the Company, or any director of the Company, is
or has been covered at any time within the five (5)
years preceding the date of this Agreement; and
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(ii) true and complete copies of all pending
applications for policies of insurance.
(b) Part 3.18(b) of the Disclosure Letter describes:
(i) any self-insurance arrangement by or
affecting the Company, including any reserves
established thereunder;
(ii) any contract or arrangement, other than
a policy of insurance, for the transfer or sharing of
any risk by the Company; and
(iii) all obligations of the Company to
third parties with respect to insurance (including
such obligations under leases and service agreements)
and identifies the policy under which such coverage
is provided.
(c) to each Seller's Knowledge, Part 3.18(c) of the
Disclosure Letter sets forth, a statement describing each
claim for the Company's past three (3) fiscal years under an
insurance policy for an amount in excess of $10,000, and
(d) To each Seller's Knowledge, except as set forth
on Part 3.18(d) of the Disclosure Letter:
(i) all policies to which the Company is a
party or that provide coverage to either Seller, the
Company, or any director or officer of the Company:
(A) are valid, outstanding, and
enforceable;
(B) are issued by an insurer that is
financially sound and reputable;
(C) taken together, provide adequate
insurance coverage for the assets and the
operations of the Company [for all risks
normally insured against by a Person
carrying on the same business or businesses
as the Company;
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(D) are sufficient for compliance
with all Legal Requirements and Contracts to
which the Company is a party or by which it
is bound;
(E) will continue in full force and
effect following the Closing Date; and
(F) do not provide for any
retrospective premium adjustment or other
experienced-based liability on the part of
the Company.
(ii) No Seller or the Company has received
(A) any refusal of coverage or any notice that a
defense will be afforded with reservation of rights,
or (B) any notice of cancellation or any other
indication that any insurance policy is no longer in
full force or effect or will not be renewed or that
the issuer of any policy is not willing or able to
perform its obligations thereunder.
(iii) The Company has paid all premiums due,
and have otherwise performed all of its respective
obligations, under each policy to which the Company
is a party or that provides coverage to the Company
or a director thereof.
(iv) The Company has given notice to the
insurer of all claims that may be insured thereby.
3.19 ENVIRONMENTAL MATTERS. To each Seller's Knowledge, except
as set forth in part 3.19 of the Disclosure Letter:
(a) The Company is, and at all times has been, in
material compliance with, and has not been and is not in
violation of or liable under, any Environmental Law. No Seller
or the Company has any basis to expect, nor has any of them
received, any actual or Threatened order, notice, or other
communication from (i) any Governmental Body or private
citizen acting in the public interest, or (ii) the current or
prior owner or operator of any Facilities, of any actual or
potential violation or failure to comply with any
Environmental Law, or of any actual or Threatened obligation
to undertake or bear the cost of any Environmental, Health,
and Safety Liabilities with respect to any of the Facilities
or any other properties or assets (whether real, personal, or
mixed) in which Sellers or the Company has had an interest, or
with respect to any property or Facility at or to which
Hazardous Materials were generated, manufactured, refined,
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transferred, imported, used, or processed by Sellers, the
Company, or from which Hazardous Materials have been
transported, treated, stored, handled, transferred, disposed,
recycled, or received.
(b) There are no pending or Threatened claims,
Encumbrances, or other restrictions of any nature, resulting
from any Environmental, Health, and Safety Liabilities or
arising under or pursuant to any Environmental Law, with
respect to or affecting any of the Facilities or any other
properties and assets (whether real, personal, or mixed) in
which Sellers or the Company has or had an interest.
(c) No Seller or the Company has any basis to expect,
nor has any of them received, any citation, directive,
inquiry, notice, Order, summons, warning, or other
communication that relates to Hazardous Activity, Hazardous
Materials, or any alleged, actual, or potential violation or
failure to comply with any Environmental Law, or of any
alleged, actual, or potential obligation to undertake or bear
the cost of any Environmental, Health, and Safety Liabilities
with respect to any of the Facilities or any other properties
or assets (whether real, personal, or mixed) in which Sellers
or the Company had an interest, or with respect to any
property or facility to which Hazardous Materials generated,
manufactured, refined, transferred, imported, used, or
processed by Sellers, the Company, or any other Person for
whose conduct they are or may be held responsible, have been
transported, treated, stored, handled, transferred, disposed,
recycled, or received.
(d) No Seller or the Company, has any Environmental,
Health, and Safety Liabilities with respect to the Facilities
or with respect to any other properties and assets (whether
real, personal, or mixed) in which Sellers or the Company (or
any predecessor), has or had an interest, or at any property
geologically or hydrologically adjoining the Facilities or any
such other property or assets.
(e) Except in compliance with applicable
Environmental Laws, there are no Hazardous Materials present
on or in the Environment at the Facilities or at any
geologically or hydrologically adjoining property, including
any Hazardous Materials contained in barrels, above or
underground storage tanks, landfills, land deposits, dumps,
equipment (whether moveable or fixed) or other containers,
either temporary or permanent, and deposited or located in
land, water, sumps, or any other part of the Facilities or
such adjoining property, or incorporated into any structure
therein or thereon. No Seller or the Company has permitted or
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conducted, or is aware of, any Hazardous Activity conducted
with respect to the Facilities or any other properties or
assets (whether real, personal, or mixed) in which Sellers or
the Company has or had an interest [except in full compliance
with all applicable Environmental Laws].
(f) There has been no Release or Threat of Release of
any Hazardous Materials at or from the Facilities or at any
other locations where any Hazardous Materials were generated,
manufactured, refined, transferred, produced, imported, used,
or processed from or by the Facilities, or from or by any
other properties and assets (whether real, personal, or mixed)
in which Sellers or the Company has or had an interest, or any
geologically or hydrologically adjoining property, whether by
Sellers or the Company.
(g) Sellers have delivered to Buyer true and complete
copies and results of any reports, studies, analyses, tests,
or monitoring possessed or initiated by Sellers or the Company
pertaining to Hazardous Materials or Hazardous Activities in,
on, or under the Facilities, or concerning compliance by
Sellers or the Company with Environmental Laws.
3.20 EMPLOYEES.
(a) Part 3.20(a) of the Disclosure Letter contains a
complete and accurate list of the following information for
each employee or director of the Company, name; job title;
current compensation paid or payable and any change in
compensation since January 1, 1996; vacation accrued; and
service credited for purposes of vesting and eligibility to
participate under the Company's pension, retirement,
profit-sharing, thrift-savings, deferred compensation, stock
bonus, stock option, cash bonus, employee stock ownership
(including investment credit or payroll stock ownership),
severance pay, insurance, medical, welfare, or vacation plan,
other Employee Pension Benefit Plan or Employee Welfare
Benefit Plan, or any other employee benefit plan or any
Director Plan.
(b) To each Seller's Knowledge, no employee or
director of the Company is a party to, or is otherwise bound
by, any agreement or arrangement, including any
confidentiality, non-competition, or proprietary rights
agreement, between such employee or director and any other
Person ("Proprietary Rights Agreement") that in any way
adversely affects or will affect (i) the performance of his
duties as an employee or director of the Company, or (ii) the
ability of the Company to conduct its business, including any
Proprietary Rights Agreement with Sellers or the Company by
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any such employee or director. To each Seller's Knowledge, no
director, officer, or other key employee of the Company
intends to terminate his employment with the Company except as
disclosed in Part 3.20(b) of the Disclosure Letter.
(c) Part 3.20(c) of the Disclosure Letter also
contains a complete and accurate list of the following
information for each retired employee or director of the
Company, or their dependents, receiving benefits or scheduled
to receive benefits in the future: name, pension benefit,
pension option election, retiree medical insurance coverage,
retiree life insurance coverage, and other benefits.
3.21 LABOR RELATIONS; COMPLIANCE. The Company has not been or
is a party to any collective bargaining or other labor Contract. There has not
been, there is not presently pending or existing, and to each Seller's Knowledge
there is not Threatened, (a) any strike, slowdown, picketing, work stoppage, or
employee grievance process, (b) any Proceeding against or affecting the Company
relating to the alleged violation of any Legal Requirement pertaining to labor
relations or employment matters, including any charge or complaint filed by an
employee or union with the National Labor Relations Board, the Equal Employment
Opportunity Commission, or any comparable Governmental Body, organizational
activity, or other labor or employment dispute against or affecting any of the
Company or its premises, or (c) any application for certification
of a collective bargaining agent. To each Sellers' Knowledge, no event has
occurred or circumstance exists that could provide the basis for any work
stoppage or other labor dispute. There is no lockout of any employees by the
Company, and no such action is contemplated by the Company. To each Seller's
Knowledge, the Company has complied in all material respects with all Legal
Requirements relating to employment, equal employment opportunity,
nondiscrimination, immigration, wages, hours, benefits, collective bargaining,
the payment of social security and similar taxes, occupational safety and
health, and plant closing. To each Seller's Knowledge, the Company is not liable
for the payment of any compensation, damages, taxes, fines, penalties, or other
amounts, however designated, for failure to comply with any of the foregoing
Legal Requirements.
3.22 INTELLECTUAL PROPERTY.
(a) Intellectual Property Assets--The term
"Intellectual Property Assets" includes:
(i) the Company's name, and all unregistered
trademarks and service marks (collectively, "Marks");
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(ii) all know-how, trade secrets,
confidential information, customer lists, software,
technical information, data, process technology,
plans, drawings, and blue prints (collectively,
"Trade Secrets"); owned, used, or licensed by the
Company as licensee or licensor.
(b) Know-How Necessary for the Business
(i) To each Seller's Knowledge, the
Intellectual Property Assets are all those necessary
for the operation of the Company's businesses as they
are currently conducted. To each Seller's Knowledge,
the Company is the owner of all right, title, and
interest in and to each of the Intellectual Property
Assets, free and clear of all liens, security
interests, charges, encumbrances, equities, and other
adverse claims, and has the right to use without
payment to a third party all of the Intellectual
Property Assets.
(ii) To each Seller's Knowledge, no employee
of the Company has entered into any Contract that
restricts or limits in any way the scope or type of
work in which the employee may be engaged or requires
the employee to transfer, assign, or disclose
information concerning his work to anyone other than
the Company.
(c) Trade Secrets
(i) With respect to each Trade Secret, to
each Seller's Knowledge, the documentation relating
to such Trade Secret is current, accurate, and
sufficient in detail and content to identify and
explain it and to allow its full and proper use
without reliance on the knowledge or memory of any
individual.
(ii) To each Seller's Knowledge, Sellers and
the Company have taken what they consider to be
reasonable precautions to protect the secrecy,
confidentiality, and value of their Trade Secrets.
(iii) To each Seller's Knowledge, the
Company has good title and an absolute (but not
necessarily exclusive) right to use the Trade Secrets
and the Trade Secrets are not part of the public
knowledge or literature, and have not been used,
divulged, or appropriated either for the benefit of
any Person or to the detriment of the Companies and
no Trade Secret is subject to any adverse claim or
has been challenged or threatened in any way.
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3.23 CERTAIN PAYMENTS. To each Seller's Knowledge, neither the
Company nor any director, officer, agent, or employee of the Company, or any
other Person associated with or acting for or on behalf of Company, has directly
or indirectly (a) made any contribution, gift, bribe, rebate, payoff, influence
payment, kickback, or other payment to any Person, private or public, regardless
of form, whether in money, property, or services (i) to obtain favorable
treatment in securing business, (ii) to pay for favorable treatment for business
secured, (iii) to obtain special concessions or for special concessions already
obtained, for or in respect of the Company, or (iv) in violation of any Legal
Requirement, (b) established or maintained any fund or asset that has not been
recorded in the books and records of the Company.
3.24 RELATIONSHIPS WITH RELATED PERSONS. No Seller or any
Related Person of Sellers or of the Company has any interest in any property
(whether real, personal, or mixed and whether tangible or intangible), used in
or pertaining to the Company businesses. No Seller or any Related Person of
Sellers or of the Company is a Person that has (i) had business dealings or a
material financial interest in any transaction with the Company other than
business dealings or transactions conducted in the Ordinary Course of Business
with the Company at substantially prevailing market prices and on substantially
prevailing market terms, or (ii) engaged in competition with the Company with
respect to any line of the products or services of the Company (a "Competing
Business") in any market presently served by the Company. Except as set forth in
Part 3.24 of the Disclosure Letter, no Seller or any Related Person of Sellers
or of the Company is a party to any Contract with, or has any claim or right
against, the Company.
3.25 BROKERS OR FINDERS. Sellers and their agents have
incurred no obligation or liability, contingent or otherwise, for brokerage or
finders' fees or agents' commissions or other similar payment in connection with
this Agreement.
4. REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer represents
and warrants to Sellers as follows:
4.1 ORGANIZATION AND GOOD STANDING. Buyer is a corporation
duly organized, validly existing, and in good standing under the laws of the
State of Delaware.
4.2 AUTHORITY; NO CONFLICT.
(a) This Agreement constitutes the legal, valid, and
binding obligation of Buyer, enforceable against Buyer in
accordance with its terms except that enforceability thereof
may be limited by bankruptcy, insolvency,
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reorganization or other similar laws affecting creditors'
rights generally and principles of equity regarding the
availability of remedies. Upon the execution and delivery by
Buyer of the Escrow Agreement, the Employment Agreements, the
Earnout Agreement and the Noncompetition Agreement
(collectively, the "Buyer's Closing Documents"), the Buyer's
Closing Documents will constitute the legal, valid, and
binding obligations of Buyer, enforceable against Buyer in
accordance with their respective terms. Buyer has the absolute
and unrestricted right, power, and authority to execute and
deliver this Agreement and the Buyer's Closing Documents and
to perform its obligations under this Agreement and the
Buyer's Closing Documents, and the consummation by Buyer of
the transactions contemplated hereby and thereby have been
duly authorized by its Board of Directors (which authorization
has not been modified or rescinded and is in full force and
effect).
(b) Except as set forth in SCHEDULE 4.2, neither the
execution and delivery of this Agreement by Buyer nor the
consummation or performance of any of the Contemplated
Transactions by Buyer will give any Person the right to
prevent, delay, or otherwise interfere with any of the
Contemplated Transactions pursuant to:
(i) any provision of Buyer's Organizational
Documents;
(ii) any resolution adopted by the board of directors
of Buyer;
(iii) any Legal Requirement or Order to which Buyer
may be subject; or
(iv) any Contract to which Buyer is a party or by
which Buyer may be bound.
Except as set forth in SCHEDULE 4.2, Buyer is not and will not be required to
obtain any Consent from any Person in connection with the execution and delivery
of this Agreement or the consummation or performance of any of the Contemplated
Transactions.
4.3 INVESTMENT INTENT. Buyer is acquiring the Shares for its
own account and not with a view to their distribution within the meaning of
Section 2(11) of the Securities Act.
4.4 CERTAIN PROCEEDINGS. There is no pending Proceeding that
has been commenced against Buyer and that challenges, or may have the effect of
preventing, delaying, making illegal, or otherwise interfering with, any of the
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Contemplated Transactions. To Buyer's knowledge, no such Proceeding has been
Threatened.
4.5 BROKERS OR FINDERS. Buyer and its officers and agents have
incurred no obligation or liability, contingent or otherwise, for brokerage or
finders' fees or agents' commissions or other similar payment in connection with
this Agreement and will indemnify and hold Sellers harmless from any such
payment alleged to be due by or through Buyer as a result of the action of Buyer
or its officers or agents.
5. CERTAIN COVENANTS.
5.1 TAXES. Sellers shall be responsible for the payment of,
and shall pay, all taxes for all periods up to and including the Closing Date
assessed against the Company, and Sellers shall indemnify the Company and Buyer
from and against all liability in connection with such taxes.
5.2 WINK A. DAVIS, SR. COMMISSIONS. To the extent, if any,
that sales commissions earned by Wink A. Davis, Sr. on sales of the Company
consummated prior to the Closing Date have not been paid to Wink A. Davis, Sr.
on or prior to the Closing Date, the Buyer will cause the Company to pay the
remaining balance of all of such sales commissions owed to Wink A. Davis, Sr. as
and when they become due and payable.
6. INDEMNIFICATION; REMEDIES.
6.1 SURVIVAL; RIGHT TO INDEMNIFICATION NOT AFFECTED BY
KNOWLEDGE. All representations, warranties, covenants, and obligations in this
Agreement, the Disclosure Letter, and any other certificate or document
delivered pursuant to this Agreement will survive the Closing for a period of
one (1) year after the Closing Date after which they shall be null and void
except for those representations, warranties, covenants and obligations which
are the subject of a claim submitted by an indemnified party to an indemnifying
party in accordance with this Section 6 which shall survive beyond one (1) year
after the Closing Date for the purpose of processing such claim under this
Section 6 until final disposition of such claim under this Section 6. The waiver
of any condition based on the accuracy of any representation or warranty, or on
the performance of or compliance with any covenant or obligation, will not
affect the right to indemnification, payment of Damages, or other remedy based
on such representations, warranties, covenants, and obligations.
6.2 INDEMNIFICATION AND PAYMENT OF DAMAGES BY SELLERS. Subject
to the limitations set forth in Section 6.5, Sellers will indemnify and hold
harmless Buyer, the Company, and their respective Representatives, stockholders,
controlling
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persons, and affiliates (collectively, the "Indemnified Persons")
for, and will pay to the Indemnified Persons the amount of, any loss, liability,
claim, damage or expense (including reasonable costs of investigation and
defense and reasonable attorneys' fees), whether or not involving a third-party
claim (collectively, "Damages"), arising, directly or indirectly, from or in
connection with:
(a) any Breach of any representation or warranty made
by Sellers in this Agreement, the Disclosure Letter, or any
other certificate or document delivered by Sellers pursuant to
this Agreement; or
(b) any Breach by any Seller of any covenant or
obligation of such Seller in this Agreement which is to be
performed after the Closing;
The remedies provided in this Section 6.2 will be exclusive of any other
remedies that may be available to Buyer or the other Indemnified Persons under
this Section 6 and this Agreement; provided, however, that such remedies shall
not be exclusive of, nor shall any provision of this Agreement prohibit, an
action for fraud.
6.3 INDEMNIFICATION AND PAYMENT OF DAMAGES BY BUYER. Buyer
will indemnify and hold harmless Sellers, and their heirs and personal
representatives, and will pay to Sellers the amount of any Damages arising,
directly or indirectly, from or in connection with (a) any Breach of any
representation or warranty made by Buyer in this Agreement or in any certificate
delivered by Buyer pursuant to this Agreement, or (b) any Breach by Buyer of any
covenant or obligation of Buyer in this Agreement which is to be performed by
Buyer after the Closing.
6.4 TIME LIMITATIONS. Sellers will have no liability (for
indemnification or otherwise) with respect to any representation or warranty, or
covenant or obligation unless on or before July 31, 1998, Buyer notifies Sellers
of a claim specifying the factual basis of that claim in reasonable detail to
the extent then known by Buyer. Buyer will have no liability (for
indemnification or otherwise) with respect to any representation or warranty, or
covenant or obligation unless on or before July 31, 1998, Sellers notify Buyer
of a claim specifying the factual basis of that claim in reasonable detail to
the extent then known by Sellers.
6.5 LIMITATIONS ON AMOUNT--SELLERS. Sellers will have no
liability (for indemnification or otherwise) with respect to the matters
described in Section 6.2 (i) until the total of all Damages with respect to such
matters exceeds $25,000 (except for (x) the Sellers' reimbursement obligation
provided in the last sentence of Section 3.11(b) and (y) Sellers' covenant and
tax indemnity provided in Section 5.1, as to which the $25,000 "basket" shall
not apply) or (ii) in excess of an aggregate of $900,000. However, this Section
6.5 will not apply to any liability of any Seller based on fraud. The
indemnification
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obligation of Sellers under Section 6.2 shall be the several, not the joint,
obligation of each Seller proportionate and limited to each Seller's percentage
of the Shares sold hereunder.
6.6 LIMITATIONS ON AMOUNT--BUYER. Buyer will have no liability
(for indemnification or otherwise) with respect to the matters described in
Section 6.3 (i) until the total of all Damages with respect to such matters
exceeds $25,000 or (ii) in excess of an aggregate of $900,000. However, this
Section 6.6 will not apply to any liability of Buyer based on fraud.
6.7 PROCEDURE FOR INDEMNIFICATION--THIRD PARTY CLAIMS.
(a) Promptly after receipt by an indemnified party
under Section 6.2 or 6.3, of notice of the commencement of any
Proceeding against it, such indemnified party will, if a claim
is to be made against an indemnifying party under such
Section, give notice to the indemnifying party of the
commencement of such claim, but the failure to notify the
indemnifying party will not relieve the indemnifying party of
any liability that it may have to any indemnified party,
except to the extent (i) that the indemnifying party
demonstrates that the defense of such action is prejudiced by
the indemnifying party's failure to give such notice or (ii)
notice is given after the time limitation set forth in Section
6.4.
(b) If any Proceeding referred to in Section 6.7(a)
is brought against an indemnified party and it gives notice to
the indemnifying party of the commencement of such Proceeding,
the indemnifying party will be entitled to participate in such
Proceeding and, to the extent that it wishes (unless (i) the
indemnifying party is also a party to such Proceeding and the
indemnified party determines in good faith that joint
representation would be inappropriate, or (ii) the
indemnifying party fails to provide reasonable assurance to
the indemnified party of its financial capacity to defend such
Proceeding and provide indemnification with respect to such
Proceeding), to assume the defense of such Proceeding with
counsel reasonably satisfactory to the indemnified party and,
after notice from the indemnifying party to the indemnified
party of its election to assume the defense of such
Proceeding, the indemnifying party will not, as long as it
diligently conducts such defense, be liable to the indemnified
party under this Section 6 for any fees of other counsel or
any other expenses with respect to the defense of such
Proceeding, in each case subsequently incurred by the
indemnified party in connection with the defense of such
Proceeding, other than reasonable costs of investigation
incurred prior to the indemnifying party assuming control of
such defense. If the indemnifying party assumes the
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defense of a Proceeding, (i) it will be conclusively
established for purposes of this Agreement that the claims
made in that Proceeding are within the scope of and subject to
indemnification and subject to the limitations thereon; (ii)
no compromise or settlement of such claims may be effected by
the indemnifying party without the indemnified party's consent
unless (A) there is no finding or admission of any violation
of Legal Requirements or any violation of the rights of any
Person and no effect on any other claims that may be made
against the indemnified party, and (B) the sole relief
provided is monetary damages that are paid in full by the
indemnifying party; and (iii) the indemnified party will have
no liability with respect to any compromise or settlement of
such claims effected without its consent. If notice is given
to an indemnifying party of the commencement of any Proceeding
and the indemnifying party does not, within ten days after the
indemnified party's notice is given, give notice to the
indemnified party of its election to assume the defense of
such Proceeding, the indemnifying party will be bound in
accordance with the terms of this Section 6 by any
determination made in such Proceeding or any compromise or
settlement effected by the indemnified party.
(c) Notwithstanding the foregoing, if an indemnified
party determines in good faith that there is a reasonable
probability that a Proceeding may adversely affect it or its
affiliates other than as a result of monetary damages for
which it would be entitled to indemnification under this
Agreement, the indemnified party may, by notice to the
indemnifying party, assume the exclusive right to defend,
compromise, or settle such Proceeding, but the indemnifying
party will not be bound by any determination of a Proceeding
so defended or any compromise or settlement effected without
its consent (which may not be unreasonably withheld).
6.8 PROCEDURE FOR INDEMNIFICATION--OTHER CLAIMS. A claim for
indemnification for any matter not involving a third-party claim may be asserted
by notice to the party from whom indemnification is sought.
6.9 REDUCTION BY INSURANCE PROCEEDS. The amount payable by an
indemnifying party under the indemnity obligations under this Section 6 to an
indemnified party entitled to indemnification under Section 6.2 or 6.3 with
respect to Damages shall be reduced by the amount of any insurance proceeds
received by the indemnified party with respect to the Damages, and each of the
parties hereby agrees to use its reasonable efforts to collect any and all
insurance proceeds to which it may be entitled in respect of any Damages.
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6.10 BUYER OBLIGATIONS EXCEPTED. The provisions of Section 6.1
and 6.6 shall not be applicable to the obligations of Buyer under the Earnout
Agreement, the Escrow Agreement, the Noncompetition Agreement or any Employment
Agreement.
7. GENERAL PROVISIONS.
7.1 EXPENSES. Except as otherwise expressly provided in this
Agreement, each party to this Agreement will bear its respective expenses
incurred in connection with the preparation, execution, and performance of this
Agreement and the Contemplated Transactions, including all fees and expenses of
agents, representatives, counsel, and accountants; provided, however, upon the
Closing of the Contemplated Transactions, attorneys' and accountants' fees
incurred by Sellers in connection with the Contemplated Transactions will be
paid by the Company at or before the Closing to the extent such costs are
determined to be reasonable by Sellers and Buyer and are accrued as expenses of
the Company in the calculation of the 1997 Period EBT.
7.2 PUBLIC ANNOUNCEMENTS. Any public announcement or similar
publicity with respect to this Agreement or the Contemplated Transactions will
be issued, if at all, at such time and in such manner as Buyer or the Seller may
mutually determine. Unless consented to by Buyer and Sellers in advance or
required by Legal Requirements, prior to the Closing Buyer and Sellers shall,
and shall cause the Company to, keep this Agreement strictly confidential and
may not make any disclosure of this Agreement to any Person. Sellers and Buyer
will consult with each other concerning the means by which the Company
employees, customers, and suppliers and others having dealings with the Company
will be informed of the Contemplated Transactions, and Buyer will have the right
to be present for any such communication.
7.3 PROFIT-SHARING PLAN CONTRIBUTION. Buyer covenants to cause
the Company to timely contribute to the Company's profit-sharing plan an amount
equal to fifteen percent (15%) of compensation for 1997 consistent with the
Company's past contributions to its profit-sharing plan.
7.4 CONFIDENTIALITY. Between the date of this Agreement and
the Closing Date, Buyer and Sellers will maintain in confidence, and will cause
the directors, officers, employees, agents, and advisors of Buyer and the
Company to maintain in confidence, any written, oral, or other information
obtained in confidence from the Company in connection with this Agreement or the
Contemplated Transactions, unless (a) such information is already known to such
party or to others not bound by a duty of confidentiality or such information
becomes publicly available through no fault of such party, (b) the use of such
information is necessary or appropriate in making any filing or obtaining any
consent or approval required for the consummation of the Contemplated
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Transactions, or (c) the furnishing or use of such information is required by
legal proceedings.
7.5 NOTICES. All notices, consents, waivers, and other
communications under this Agreement must be in writing and will be deemed to
have been duly given when (a) delivered by hand (with written confirmation of
receipt), (b) sent by telecopier (with written confirmation of receipt),
provided that a copy is mailed by registered mail, return receipt requested, or
(c) when received by the addressee, if sent by a nationally recognized overnight
delivery service (receipt requested), in each case to the appropriate addresses
and telecopier numbers set forth below (or to such other addresses and
telecopier numbers as a party may designate by notice to the other parties):
If to Sellers: Wink A. Davis, Jr.
740 Whitemere Court, NW
Atlanta, GA 30327
and
C. Alexander Davis
4130 E. Brookhaven Drive, NE
Atlanta, GA 30319
with a copy to: Womble Carlyle Sandridge & Rice PLLC
1275 Peachtree Street, NE, Suite 700
Atlanta, GA 30309-3574
Attention: G. Donald Johnson
Facsimile No.: (404) 888-7490
44
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If to Buyer: Speizman Industries, Inc.
508 West Fifth Street
Charlotte, NC 28231
Attention: Robert S. Speizman
Facsimile No.: (704) 376-3153
with a copy to: Kilpatrick Stockton LLP
3500 One First Union Center
301 South College Street
Charlotte, NC 28202-6001
Attention: E. Lynwood Mallard
Facsimile No.: (704) 338-5125
7.6 SELLERS' REPRESENTATIVES.
(a) Each of the AD Shareholders hereby appoints C.
Alexander Davis as his or her representative and attorney-in-fact to act in his
or her name and stead on all matters and things relating to this Agreement and
grants him the full power to execute and deliver to Buyer all documents required
to be executed and delivered by the AD Shareholders at the Closing, or otherwise
in connection with this Agreement, including, without limitation, certificates
representing the Shares.
(b) Each of the WDJ Shareholders hereby appoints Wink
A. Davis, Jr. as his or her representative and attorney-in-fact to act in his or
her name and stead on all matters and things relating to this Agreement and
grants him the full power to execute and deliver to Buyer all documents required
to be executed and delivered by the WDJ Shareholders at the Closing, or
otherwise in connection with this Agreement, including, without limitation,
certificates representing the Shares.
7.7 JURISDICTION; SERVICE OF PROCESS. Any action or proceeding
seeking to enforce any provision of, or based on any right arising out of, this
Agreement may be brought against any of the parties in the courts of the State
of North Carolina, County of Mecklenburg, or, if it has or can acquire
jurisdiction, in the United States District Court for the Western District of
North Carolina and each of the parties consents to the jurisdiction of such
courts (and of the appropriate appellate courts) in any such action or
proceeding and waives any objection to venue laid therein. Process in any action
or proceeding referred to in the preceding sentence may be served on any party
anywhere in the world.
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7.8 FURTHER ASSURANCES. The parties agree (a) to furnish upon
request to each other such further information, (b) to execute and deliver to
each other such other documents, and (c) to do such other acts and things, all
as the other party may reasonably request for the purpose of carrying out the
intent of this Agreement and the documents referred to in this Agreement.
7.9 WAIVER. The rights and remedies of the parties to this
Agreement are cumulative and not alternative. Neither the failure nor any delay
by any party in exercising any right, power, or privilege under this Agreement
or the documents referred to in this Agreement will operate as a waiver of such
right, power, or privilege, and no single or partial exercise of any such right,
power, or privilege will preclude any other or further exercise of such right,
power, or privilege or the exercise of any other right, power, or privilege. To
the maximum extent permitted by applicable law, (a) no claim or right arising
out of this Agreement or the documents referred to in this Agreement can be
discharged by one party, in whole or in part, by a waiver or renunciation of the
claim or right unless in writing signed by the other party; (b) no waiver that
may be given by a party will be applicable except in the specific instance for
which it is given; and (c) no notice to or demand on one party will be deemed to
be a waiver of any obligation of such party or of the right of the party giving
such notice or demand to take further action without notice or demand as
provided in this Agreement or the documents referred to in this Agreement.
7.10 ENTIRE AGREEMENT AND MODIFICATION. This Agreement
supersedes all prior agreements between the parties with respect to its subject
matter (including the Letter of Intent between Buyer and Sellers dated April 4,
1997) and constitutes (along with the documents referred to in this Agreement) a
complete and exclusive statement of the terms of the agreement between the
parties with respect to its subject matter. This Agreement may not be amended
except by a written agreement executed by the party to be charged with the
amendment.
7.11 DISCLOSURE LETTER.
(a) Any disclosure or exception by the Company or any
Seller in this Agreement, in any exhibit or schedule hereto,
in the Disclosure Letter or any part thereof, shall be deemed
to be a disclosure and exception with respect to same and any
applicable representation or warranty set forth in Section 3
hereinabove.
(b) In the event of any inconsistency between the
statements in the body of this Agreement and those in the
Disclosure Letter (other than an exception expressly set forth
as such in the Disclosure Letter), the statements in the body
of this Agreement will control.
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7.12 ASSIGNMENTS, SUCCESSORS, AND NO THIRD-PARTY RIGHTS.
Neither party may assign any of its rights under this Agreement without the
prior consent of the other parties except that Buyer may assign any of its
rights under this Agreement to any subsidiary of Buyer. Subject to the preceding
sentence, this Agreement will apply to, be binding in all respects upon, and
inure to the benefit of the successors and permitted assigns of the parties.
Nothing expressed or referred to in this Agreement will be construed to give any
Person other than the parties to this Agreement any legal or equitable right,
remedy, or claim under or with respect to this Agreement or any provision of
this Agreement. This Agreement and all of its provisions and conditions are for
the sole and exclusive benefit of the parties to this Agreement and their
successors and assigns.
7.13 SEVERABILITY. If any provision of this Agreement is held
invalid or unenforceable by any court of competent jurisdiction, the other
provisions of this Agreement will remain in full force and effect. Any provision
of this Agreement held invalid or unenforceable only in part or degree will
remain in full force and effect to the extent not held invalid or unenforceable.
7.14 SECTION HEADINGS, CONSTRUCTION. The headings of Sections
in this Agreement are provided for convenience only and will not affect its
construction or interpretation. All references to "Section" or "Sections" refer
to the corresponding Section or Sections of this Agreement. All words used in
this Agreement will be construed to be of such gender or number as the
circumstances require. Unless otherwise expressly provided, the word "including"
does not limit the preceding words or terms.
7.15 TIME OF ESSENCE. With regard to all dates and time
periods set forth or referred to in this Agreement, time is of the essence.
7.16 GOVERNING LAW. This Agreement will be governed by the
laws of the State of North Carolina without regard to conflicts of laws
principles.
7.17 COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which will be deemed to be an original copy of this
Agreement and all of which, when taken together, will be deemed to constitute
one and the same agreement.
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IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first written above.
BUYER:
SPEIZMAN INDUSTRIES, INC.
By: /s/ Robert S. Speizman
________________________________
Its: President
________________________________
SELLERS:
/s/ Wink A. Davis, Jr.
-------------------------------------
Wink A. Davis, Jr.
/s/ C. Alexander Davis
-------------------------------------
C. Alexander Davis
/s/ C. Alexander Davis, Atty. in Fact
-------------------------------------
Wingfield Austin Davis III
/s/ C. Alexander Davis, Atty. in Fact
-------------------------------------
Taylor Ferrell Davis
/s/ C. Alexander Davis, Atty. in Fact
-------------------------------------
Allison Davis Jabaley
/s/ C. Alexander Davis, Atty. in Fact
-------------------------------------
Matthew Worley Davis
/s/ C. Alexander Davis, Atty. in Fact
-------------------------------------
Amy Butler Davis
/s/ C. Alexander Davis, Atty. in Fact
-------------------------------------
Kyle Alexander Davis
<PAGE>
<PAGE>
EXHIBIT 4
[HABIF, AROGETI & WYNNE, P.C. LETTERHEAD]
August 14, 1997
Speizman Industries, Inc.
508 West 5th Street
Charlotte, NC 28202
We hereby consent to the inclusion of our auditors' report dated June 2, 1997 on
the financial statements of Wink Davis Equipment Company as of December 31, 1996
and 1995 in the Current Report dated August 1, 1997 of Speizman Industries, Inc.
for filing with the Securities and Exchange Commission as required under the
provisions of the Securities Act of 1934.
/s/ Habif, Arogeti & Wynne, P.C.
