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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
[Fee Required]
For the fiscal year ended June 27, 1998
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
[NO FEE REQUIRED]
For the transition period from __________________ to _____________________
COMMISSION FILE NO. 0-8544
SPEIZMAN INDUSTRIES, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 56-0901212
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
508 West Fifth Street, Charlotte,
North Carolina 28202
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(Address of principal executives offices) (Zip Code)
Registrant's telephone number, including area code: (704) 372-3751
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.10 Par Value
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to filing such
requirements for the past 90 days.
Yes |X| No |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment of this
Form 10-K. |_|
The aggregate market value of the voting stock held by non-affiliates of
the registrant as of September 11, 1998, was $12,864,248 based on the last sale
price of $3.88 per share reported by the NASDAQ National Market System on that
date.
As of September 11, 1998, there were 3,319,806 shares of the registrant's
Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Proxy Statement for its Annual Meeting of
Stockholders to be held on November 18, 1998 are incorporated herein by
reference into Part III.
<PAGE>
PART I
ITEM 1. BUSINESS.
GENERAL
Speizman Industries, Inc. and subsidiaries (collectively the "Company") is a
major distributor operating through three companies: Speizman Industries, Inc.
("Speizman" or "Speizman Industries"), Wink Davis Equipment Co., Inc. ("Wink
Davis") and Todd Motion Controls, Inc. ("TMC"). Speizman distributes sock
knitting machines, other knitting equipment and related parts. Wink Davis sells
commercial and industrial laundry equipment, including the distribution of
machines and parts as well as installation and after sales service. TMC
manufactures automated boarding, finishing and packaging equipment used in the
sock knitting industry. TMC's products are sold through Speizman's distribution
network.
ALL REFERENCES HEREIN ARE TO THE COMPANY'S 52-OR-53 WEEK FISCAL YEAR ENDING
ON THE SATURDAY CLOSEST TO JUNE 30. THE FISCAL YEARS 1994 THROUGH 1998 EACH
CONTAINED 52 WEEKS AND ENDED ON JUNE 27, 1998, JUNE 28, 1997, JUNE 29, 1996,
JULY, 1, 1995 AND JULY 2, 1994.
SPEIZMAN INDUSTRIES
Speizman Industries is the leading distributor of new sock knitting machines
in the United States. It distributes technologically advanced sock knitting
machines manufactured by Lonati, S.p.A., Brescia, Italy ("Lonati"), which
Speizman Industries believes is the world's largest manufacturer of hosiery
knitting equipment. It also distributes Lonati sock and sheer hosiery knitting
machines in Canada. In addition, through sales arrangements with other European
textile machinery manufacturers, Speizman distributes other sock knitting
machines, knitting machines for underwear and other knitted fabrics and other
equipment related to the manufacture of socks, sheer hosiery and other textile
products, principally in the United States and Canada. Speizman sells textile
machine parts and used textile equipment in the United States and in a number of
foreign countries.
Speizman Industries and Lonati entered into their present agreement for the
sale of Lonati machines in the United States in January 1992 (the "Lonati
Agreement"). Speizman and Lonati also entered into a similar agreement relating
to Speizman Industries' distribution of Lonati sock and sheer hosiery knitting
machines in Canada in January 1992 and in Mexico in 1997. Speizman Industries
has distributed Lonati double cylinder machines in the United States
continuously since 1982. Speizman began distributing Lonati single cylinder
machines in 1989.
Pursuant to the Lonati Agreement, Lonati has appointed Speizman Industries as
Lonati's exclusive agent in the United States for the sale of its range of
single and double cylinder sock knitting machines and related spare parts. Under
the Lonati Agreement, Speizman Industries also serves as the distributor of such
equipment in the United States. Although the Lonati Agreement does not establish
Speizman Industries as the exclusive distributor of Lonati sock machines in the
United States, Speizman in fact has exclusively distributed Lonati double
cylinder sock machines continuously since 1982 and Lonati single cylinder sock
knitting machines since 1989. The Lonati Agreement extended to December 31, 1995
and continues from year to year thereafter, although it may be terminated on 90
days written notice at any year end or without notice in the event of a breach.
Speizman and Lonati also entered into a similar agreement relating to Speizman
Industries' distribution of Lonati sock and sheer hosiery knitting machines in
Canada in January 1992.
The Lonati Agreement contains certain covenants and conditions relating to
Speizman Industries' sale of Lonati machines, including, among others,
requirements that Speizman Industries, at its own expense, promote the sale of
Lonati machines and assist Lonati in maintaining its competitive position,
maintain an efficient sales staff, provide for the proper installation and
servicing of the machines, maintain an adequate inventory of parts and pay for
all costs of advertising the machines. Speizman is prohibited during the term of
the Lonati Agreement from distributing any machines or parts that compete with
Lonati machines and parts. Speizman believes that it is and will remain in
compliance in all material respects with such covenants. The cost to Speizman of
Lonati machines, as well as the delivery schedule of these machines, are totally
at the discretion of Lonati. The Lonati Agreement allows Lonati to sell
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machines directly to the sock manufacturer with any resulting commission paid to
Speizman determined on a case by case basis.
The Lonati single cylinder machines distributed by Speizman Industries are
for the knitting of athletic socks. The Lonati double cylinder machines are for
the knitting of dress and casual socks. The Lonati machines are electronic,
high-speed, and have computerized controls. Lonati single cylinder machines are
capable of knitting pouch heel and toe, reciprocated heel and toe and tube
socks. These and other features allow the rapid change of sock design, style and
size, result in increased production volume and efficiency and simplify the
servicing of the machines. Speizman Industries distributes these sock knitting
machines as well as Lonati sheer hosiery knitting machines in Canada and in
Mexico. In addition, Speizman distributes the knitting machines, described
below, manufactured by Santoni, S.r.l. Brescia, Italy ("Santoni"), one of
Lonati's subsidiaries, in the United States, Canada and Mexico. Sales by
Speizman Industries in the United States, Canada and Mexico of new machines
manufactured by Lonati, S.p.A., generated the following percentages of
Speizman's net revenues: 41.1% in fiscal 1998, 60.1% in fiscal 1997 and 46.2% in
fiscal 1996. In addition, sales of Santoni machines in the United States, Canada
and Mexico generated 5.3%, 7.0% and 4.8% of Speizman Industries' net revenues in
fiscal 1998, 1997 and 1996, respectively.
In addition to the Lonati machines, Speizman Industries distributes new
knitting and other machines and equipment under written agreements and other
arrangements with the manufacturers. The following table sets forth certain
information concerning certain of these additional distribution arrangements:
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MANUFACTURER MACHINE TERRITORY
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Santoni, S.r.l., Circular knitting machines United States, Canada
Brescia, Italy for underwear, men's socks and Mexico
and women's sheer hosiery
and surgical support hose
Conti Complett, S.p.A., Sock toe closing machines United States and
Milan, Italy and sock turning devices Canada
Dinema, Data collection United States and
Brescia, Italy Canada
Marchisio, Fabric knitting machines United States and
Brescia, Italy Canada
Mecmor, Fabric knitting machines United States and
Varese, Italy Canada
Vignoni, Fabric knitting machines United States and
Cividino, Italy Canada
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There can be no assurance that Speizman will not encounter significant
difficulties in any attempt to enforce any provisions of the agreements with
foreign manufacturers, or any agreement that may arise in connection with the
placement and confirmation of orders for the machines manufactured by foreign
manufacturer or obtain an adequate remedy for a breach of any such provision,
due principally to the fact that they are foreign companies.
Speizman Industries sells used machinery and parts to the textile industry.
Speizman Industries carries significant amounts of machinery and parts
inventories to meet customers' requirements and to assure itself of an adequate
supply of used machinery. Speizman acts as a liquidator of textile mills and as
a broker in the purchase and sale of such mills.
MARKETING AND SALES
Speizman Industries markets and sells knitting machines and related equipment
primarily by maintaining frequent contacts with customers and understanding of
its customers' individual business needs. Salespersons will set up competitive
trials in a customer's plant and allow the customer to use Speizman's machine in
its own work
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environment alongside competing machines for two weeks to three months. Speizman
Industries also offers customers the opportunity to send their employees to
Speizman Industries for training courses on the operation and service of the
machines and, depending on the number of machines purchased and the number of
employees to train, may offer such training courses at the customer's facility.
In addition, Speizman Industries exhibits its equipment at trade shows and uses
its private showroom to demonstrate new machines. These marketing strategies are
complemented by Speizman's commitment to service and continuing education.
Speizman Industries also produces, at its own expense, training videos for its
major lines of equipment. At September 11, 1998, Speizman employed approximately
10 salespersons and 28 technical representatives. In addition to its sales
staff, Speizman Industries uses over 40 commission sales agents in a number of
foreign countries in connection with its sales of used machines.
The terms of new machine sales generally are individually negotiated
including the purchase price, payment terms and delivery schedule. Speizman
Industries is usually required to purchase imported machines with a letter of
credit in favor of the manufacturer delivered not less than about 15 days prior
to the machine's shipment to the customer's plant. Generally, the letter of
credit must be payable 60 days or longer from the date of the on-board bill of
lading and upon presentation of the bill of lading. The period from shipment by
the manufacturer to installation in the customer's plant is generally 30-60
days.
Speizman encourages trade-ins of older equipment, which reduces the
customer's initial capital outlay. Speizman Industries believes that its
trade-in policy has increased sales of certain of Speizman Industries' new
equipment lines.
Substantially all of the new machines sold by Speizman Industries are
drop-shipped from the foreign manufacturer by container or air freight directly
to the customer's plant using Speizman's freight forwarder to coordinate
shipment. Title is taken at the European port, and Speizman insures the machines
for 110% of cost.
Because a substantial portion of Speizman Industries' revenues are derived
from sales of machines and equipment imported from abroad, these sales may be
subject to import controls, duty and currency fluctuations. The majority of
Speizman Industries' purchases of Italian machines for sale in the United States
are denominated in Italian lira. Generally, Speizman has been able to adjust
sales prices or purchase lira hedging contracts to compensate for anticipated
dollar fluctuations. However, international currency fluctuations that result in
substantial price level changes could impede import sales and substantially
impact profits. Speizman is not able to assess the quantitative effect such
international price level changes could have upon Speizman Industries'
operations. All of Speizman Industries' export sales originating from the United
States are made in U.S. dollars.
Speizman Industries also markets used machines through its employees and
outside commission salespersons. Speizman Industries markets its used machines
in the United States and in a number of foreign countries. Speizman uses trade
advertising extensively and frequently distributes lists throughout the industry
of used machines that Speizman Industries has for sale. Additionally, Speizman
updates its Internet web site listing used machines available for sale.
Speizman Industries exports certain new and used machines and parts for sale
in Canada, Mexico and a number of other foreign countries. See Note 1 of Notes
to Consolidated Financial Statements for certain financial information
concerning Speizman Industries' foreign sales in fiscal 1998, 1997 and 1996.
CUSTOMERS
Speizman Industries' customers consist primarily of the major sock
manufacturers in the United States and Canada. In fiscal 1998, Speizman
Industries' two largest customers, Manufactuier De Bas Iris Hosiery, Inc.
(Canada) and Renfro Corporation, accounted for 11.7% and 3.8%, respectively, of
the Company's revenues. In fiscal 1997, Speizman Industries' two largest
customers, Manufactuier De Bas Iris Hosiery, Inc. (Canada) and Sara Lee Company,
accounted for 10.5% and 9.9%, respectively, of Speizman Industries' revenues. In
fiscal 1996, Speizman Industries' two largest customers, Renfro Corporation and
Manufacturier De Bas Iris Hosiery, Inc. (Canada), accounted for 8.8% and 5.8%,
respectively, of Speizman Industries' revenues. Generally, the customers
contributing the most to Speizman Industries' net revenues vary from year to
year. Speizman Industries believes that the loss of any principal customer could
have a material adverse effect on Speizman Industries.
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COMPETITION
The sock knitting machine industry is competitive. Lonati single cylinder
machines compete primarily with machines manufactured by an Italian and a Czech
company and Lonati double cylinder machines compete primarily with machines
manufactured by an Italian company acquired in 1993 by Lonati but not
represented by Speizman Industries. Lonati machines compete, to a lesser extent,
with machines manufactured by a number of other foreign companies of varying
sizes and with companies selling used machines. The principal competitive
factors in the distribution of sock knitting machines are technology, price,
service, and allowance of trade-ins and delivery. Management believes that its
competitive advantages are the technological advantages of the Lonati machines,
Speizman Industries' commitment to customer service and Speizman Industries'
allowance of trade-ins of used machines on new Lonati machines. Management
believes that it is at a short term competitive disadvantage if a potential
customer's decision will be based primarily on price since, generally, the
purchase price of Lonati machines is higher than that of competing machines.
In its sale of new equipment in addition to Lonati machines, Speizman
Industries competes with a number of foreign and domestic manufacturers and
distributors of new and used machines. In its sale of such other machines and
equipment, certain of Speizman Industries' competitors may have substantially
greater resources than Speizman Industries.
Domestic and foreign sales of used sock and sheer hosiery knitting machines
is fragmented and highly competitive. Speizman Industries competes with a number
of domestic and foreign companies that sell used machines as well as domestic
and foreign manufacturers that have used machines for sale as a result of
trade-ins. In the United States, Speizman Industries has one primary competitor
in its sale of used sock knitting machines. The principal competitive factors in
Speizman Industries' domestic and foreign sales of used machines are price and
availability of machines that are in demand. Although Speizman Industries is the
exclusive distributor of parts for a number of the machines it distributes, it
competes with firms that manufacture and distribute duplicates of such parts. In
addition, Speizman Industries competes with a number of distributors and
manufacturers in its other parts sales.
WINK DAVIS
Wink Davis, based in Atlanta, Georgia, distributes commercial laundry
equipment and parts and provides related service. Wink Davis was acquired by
Speizman on August 1, 1997. Wink Davis sells to a wide variety of customers. A
large share of these customers maintain on premise laundries ("OPL's"). OPL's
are commonly found in hotels, nursing homes and other institutions that perform
their laundry services in-house. Some larger installations of equipment are
found in hospitals, prisons and linen processing plants. The largest portion of
Wink Davis' sales are generated from its distributorships of both
Pellerin-Milnor (washer extractor equipment manufacturers based in Kenner, La.)
and Chicago Dryer (commercial ironer/folder manufacturers based in Chicago, IL).
Wink Davis represents both of these companies for the southeastern United States
and Chicago, Illinois areas. Specifically, Wink Davis' territories include
Georgia, South Carolina, North Carolina, Virginia, middle and eastern Tennessee,
Maryland, Washington, D.C., northern and central Florida, and the Chicago,
Illinois areas.
The Pellerin-Milnor agreement appoints Wink Davis as the exclusive agent
within its territories. In some instances, a customer's purchase order may be
taken in one agent's territory, but the equipment is actually delivered to a
territory served by a different Pellerin-Milnor agent. In these instances,
Pellerin-Milnor grants the sale to the territory in which the purchase order was
taken. The dealer servicing the territory in which the equipment is installed
receives a commission for which that dealer must assume responsibility for
installing the equipment. Historically, these sales involving two separate
Pellerin-Milnor dealers have been infrequent and management feels this issue
does not significantly improve or hurt its operations. The Chicago Dryer
agreement does not appoint Wink Davis as the exclusive agent within its
territories. Both the Pellerin-Milnor and Chicago Dryer agreements are renewed
on an annual basis and may be terminated in the event of a breach. Wink Davis
has continuously represented both manufacturers for most of its current
territories since 1972. Since 1980, Pellerin-Milnor has presented its annual top
distributor award to Wink Davis for all but three years. There can be no
assurance that the loss of one or both of these distributorships would not have
a materially adverse impact to Wink Davis' operations.
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The Pellerin Milnor and Chicago Dryer agreements contain certain covenants
and conditions relating to Wink Davis' sales of these products, including, among
other things, that Wink Davis, at its own expense, promote the sale of the
manufacturers' machines and assist the manufacturers in maintaining their
competitive positions, maintain an efficient sales staff, provide for the proper
installation, maintenance and servicing of the machines, maintain adequate
inventory of parts and pay for all costs of advertising the machines. Wink Davis
believes that it is and will remain in compliance in all material respects with
such covenants.
Additionally, Wink Davis, under written agreements and other arrangements with
original equipment manufacturers ("OEMs"), distributes other laundry related
equipment. The following table sets forth certain information concerning the
additional distribution agreements:
<TABLE>
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<S> <C>
MANUFACTURER MACHINE TERRITORY
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Ajax Manufacturing, Laundry and Dry Cleaning Southeastern U.S. & Chicago, IL areas
Cincinnati, OH Presses
American Dryer, Commercial Dryers Southeastern U.S. & Chicago, IL areas
Fall River, MA
Cissell Manufacturing, Commercial Dryers, Southeastern U.S. & Chicago, IL areas
Louisville, KY laundry and dry
cleaning pressing
equipment
Consolidated Laundry Commercial Dryers Southeastern U.S. & Chicago, IL areas
Machinery,
Los Angeles, CA
Energenics Corp., Lint collectors and Southeastern U.S. & Chicago, IL areas
Naples, FL automatic cart
wash systems
Forenta, Inc., Laundry and Dry Cleaning Southeastern U.S. & Chicago, IL areas
Morrisville, TN Presses
Huebsch Originators, Commercial Dryers Southeastern U.S. & Chicago, IL areas
Ripon, WI
Unipress, Inc., Laundry and Dry Cleaning Southeastern U.S. & Chicago, IL areas
Tampa, FL Presses
VIC Manufacturing, Dry Cleaning Equipment Southeastern U.S. & Chicago, IL areas
Minneapolis, MN
</TABLE>
MARKETING AND SALES
Wink Davis' primary products include washers, dryers, ironers and other
finishing equipment. Some of the larger installations include continuous batch
washers ("CBW's"), large dryers, pressing and folding equipment and conveyor
systems resulting in the laundering process being substantially automated. The
majority of the sales consist of washers, with less than 165 pound capacity per
load, and corresponding dryers. CBW systems or tunnels are highly customized
with a variety of features depending on the unique needs and constraints of each
customer. Sales orders are generated through a variety of methods including
repeat business referrals, cold calls and unsolicited telephone orders. Typical
sales terms on larger contracts require 15% down with the balance due 10 days
after delivery. At September 11, 1998, Wink Davis employed approximately 15
sales persons and 32 technical representatives.
Most used equipment in smaller facilities has little value and there is
little demand for that type of used laundry equipment. Accordingly, Wink Davis
rarely accepts trade-ins of low capacity used equipment, nor do they purchase
used equipment of that nature. Some used CBW units can be rebuilt at a
substantial reduction in price to new units. Wink Davis does occasionally find
sales opportunities of this type. Many large orders, especially those at new
construction sites, require newly designed or modified electrical, plumbing,
construction or other work at the customer site. Wink Davis often subcontracts
these tasks for the customer in conjunction with the sale. Wink Davis has a
staff of CAD operators, and service personnel who assist and support outside
contractors to ensure that the facilities are
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properly prepared prior to the delivery of equipment. Wink Davis personnel
install the equipment and provide training for the customers' operators. Smaller
white sales generally require less support and frequently consist of matching
the specifications of the newly ordered machine to the existing site.
Additionally, Wink Davis provides repair and maintenance services to OPL
facilities. Customers' OPL facilities are typically operated and managed by the
property, maintenance or janitorial staffs. These staffs are often small with
broad areas of responsibilities and limited technical expertise, especially for
specific maintenance and repair issues of the laundry equipment. Accordingly,
Wink Davis provides a full range of repair and maintenance services. Each sales
office is staffed by four or more technicians. Each technician travels to the
customer's site in a maintenance van, fully stocked with the most commonly
needed parts. Upon notification, Wink Davis will dispatch and commonly have a
technician addressing the problem within 24 hours. If additional parts are
required, they may be ordered from the main Atlanta warehouse or shipped
directly from the manufacturer.
CUSTOMERS
Wink Davis has over 4,000 customers ranging in size from single washing
machine facilities to large laundry systems in hospitals or linen supply houses.
Customers purchasing laundry machines typically continue their association with
Wink Davis through purchase of repair parts or through service calls for
equipment repairs. No customer represents more than 10% of Wink Davis' business.
Accordingly, the loss of any single customer will not materially affect the
operations of Wink Davis.
COMPETITION
The laundry equipment business is very competitive. Wink Davis competes
directly with several other distributors representing other OEMs. Wink Davis
believes the products they represent are of equal quality. In some instances,
Wink Davis may be at a price disadvantage when a customer considers price only.
Many sales of white machines are price sensitive, however this varies by region.
The purchase decision on larger installations is less price sensitive as these
customers are more concerned about production output and quality, and the
seller's ability to efficiently service the machines being purchased. Wink Davis
maintains a well-trained staff of technicians covering all geographic areas of
distribution. Management believes this staff is more comprehensive than any
maintained by the competition.
TMC
TMC assembles automated boarding and finishing equipment for the sock
manufacturing industry. Management believes significant potential exists for
automating finishing operations in mills that specialize in high volume
production which is sold through large discount retail chains. Typically, this
denotes athletic socks, but may also include single-color, casual dress socks.
The current technology for athletic sock knitting operations is considered
highly automated and capital intensive. Raw material on yarn cones directly
feeds a machine which knits the entire product. A second off line operation
closes the toe using automated turners and toe closing equipment. Finishing
processes, unlike knitting operations, are significantly labor intensive.
Through a series of steps, socks are boarded, trimmed, paired and bagged.
TMC's machine significantly automates this process. In addition to boarding,
trimming, pairing and bagging, the equipment can also insert j-hooks (a small
plastic hanger for a display case), transfer print and board.
PRODUCTION
The production process is basically assembly. Many of the electronic,
pneumatic, and structural parts are standard items available from various
distributors. A significant portion of the hardware and structural components
are custom designed and ordered. As of September 11, 1998, TMC employed 15
direct assemblers, 8 indirect laborers, and 9 persons in research and
development. All assembly is done at TMC's leased facility on Patterson Avenue
in Winston-Salem, N.C. Since the acquisition by Speizman Industries on February
6, 1998 through September 11, 1998, TMC has shipped approximately 33 machines.
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Historically, most of the products have been built to order based on unique
customer specifications. Currently, research and development, together with
manufacturing, are designing a modularization project. The modularization
project will transform the product from a custom ordered machine to standardized
configurations. Customers will have the opportunity to select the most commonly
requested features for addition to the standard product. Management believes
that this will continue to meet virtually all of the potential customers' needs.
However, by creating modular components, management hopes to improve production
efficiencies. Management also hopes to reduce cycle time between receiving the
customer order and delivery of the equipment.
RESEARCH AND DEVELOPMENT
TMC has 9 employees in research and development, including William Todd, the
former owner and current Vice President. Key components of the product have been
patented and several other patents are pending. Currently, the research and
development staff is developing equipment for additional hosiery manufacturing
functions and other packaging applications, possibly outside the hosiery
industry.
SALES AND MARKETING
TMC was acquired by Speizman on February 6, 1998. Prior to the acquisition,
equipment was sold directly through TMC's sales force. After the acquisition,
all sales are now made through Speizman Industries' sales force. The customer
base for TMC's product significantly overlaps with the customer base for hosiery
knitting machinery.
COMPETITION
Competition consists of domestic and foreign manufacturers of similar
equipment. Such competitors consist of both large and small firms, many of which
compete intensely with TMC.
REGULATORY MATTERS
The Company is subject to various federal, state and local statutes and
regulations relating to the protection of the environment and safety in the work
place. The failure by the Company to comply with any of such statutes or
regulations could result in significant monetary penalties, the cessation of
certain of its operations, or both. Management believes that the Company's
current operations are in compliance with applicable environmental and work
place safety statutes and regulations in all material respects. The Company's
compliance with these statutes and regulations has not materially affected its
business; however, the Company cannot predict the future effects of compliance
with such statutes or regulations.
EMPLOYEES
As of September 11, 1998, the Company had 231 full-time employees. The
Company's employees are not represented by a labor union, and the Company has
never suffered an interruption of business as a result of a labor dispute. The
Company considers its relations with its employees to be good.
BACKLOG
The Company's backlog of unfilled orders for new and used machines was $24.5
million, $16.8 million and $19.3 million at June 27, 1998, June 28, 1997 and
June 29, 1996, respectively. Management believes that all Speizman Industries'
unfilled orders at June 27, 1998 will be filled by the end of fiscal 1999. The
period of time required to fill orders varies depending on the machine ordered.
RECEIPT OF MARZOLI AND VOUK PRODUCT LINES
On August 1, 1998, the Company was granted the exclusive United States and
Canadian distribution rights of the Marzoli product line manufactured by
Fratelli Marzoli & C. SpA, an Italian corporation. Lonati has an ownership
interest in Fratelli Marzoli & C. Spa. Operations of this product line are being
conducted through a new, wholly-owned subsidiary of the Company, Speizman Yarn
Equipment, Inc. As part of its agreement with Fratelli Marzoli & C.
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SpA, the Company will assume the operations of the current offices, showrooms
and personnel. Fratelli Marzoli & C. SpA manufactures equipment used in the yarn
processing industry. Prior to the Company's receipt of distribution rights,
Fratelli Marzoli & Co. SpA distributed their products in the United States
through its wholly-owned subsidiary, Marzoli International, Inc., a domestic
corporation based in Spartanburg, South Carolina. Revenues of Marzoli
International, Inc. for the twelve months ended December 31, 1997 were
approximately $13.9 million.
On August 1, 1998, the Company was granted the exclusive United States and
Canadian distribution rights of the Vouk product line manufactured by Vouk SpA
Officine Meccanotessili, an Italian corporation in which Lonati has an ownership
interest. Vouk SpA Officine Meccanotessili manufactures equipment used in the
yarn processing industry. Operations of this product line are being conducted
through Speizman Yarn Equipment, Inc. Prior to the Company's receipt of the
distribution rights, Vouk SpA Officine Meccanotessili sold directly in the
United States and Canada through several agents.
ITEM 2. PROPERTIES.
The Company leases all of its real property. Significant leases are
summarized in the table below:
<TABLE>
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<S> <C>
APPROXIMATE
LEASE LEASE TERM MONTHLY RENTAL SQUARE
USE LOCATION ORIGINATION DATE (MONTHS) RENTAL RATE FOOTAGE
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Properties used primarily by Speizman:
Current executive, administrative,
machinery rebuilding and warehousing Charlotte, NC April 1, 1998 12 $ 29,669 89,000 (a)
Future executive, administrative, machinery
rebuilding and warehousing Charlotte, NC October 1, 1997 180 $ 54,923 122,052 (b)
Warehousing Charlotte, NC March 1, 1998 9 $ 9,375 45,000
Warehousing Charlotte, NC - Monthly $ 9,654 41,000
Warehousing Charlotte, NC - Monthly $ 4,000 20,000
Sales office and warehouse Glendale, NY August 1, 1998 24 $ 2,314 3,641
Properties used primarily by Wink Davis:
Administrative, sales office and warehouse Atlanta, GA July 30, 1997 24 $ 7,651 23,700 (c)
Sales office and warehouse Wooddale, IL July 30, 1997 24 $ 6,099 6,500 (c)
Sales office and warehouse Charlotte, NC July 30, 1997 24 $ 2,012 6,045 (c)
Sales office and warehouse Chester, VA July 30, 1997 24 $ 1,982 6,000 (c)
Properties used primarily by TMC:
Research and development and administration Winston-Salem, NC February 6, 1998 24 $ 2,120 6,000 (d)
Machine assembly Winston-Salem, NC September 1, 1996 24 $ 4,417 35,340
</TABLE>
(a)The Company's headquarters are leased from a partnership owned by Robert S.
Speizman and his brother. The City of Charlotte has designated this building
an "historic landmark" and, as a result, modifications to the building
require prior approval of the Charlotte-Mecklenburg Historic Landmark
Commission.
(b)This property is leased from a corporation owned by Robert S. Speizman, his
wife and their children. The Company plans to relocate its executive,
administrative, machinery rebuilding and a substantial portion of its
warehousing to this location in the spring of 1999. Currently, this location
is being upfitted to support these functions.
(c)These properties are leased from a partnership owned by C. Alexander Davis,
a former shareholder and current President of Wink Davis, and his brother.
(d)This property is leased from William H. Todd, a former shareholder and
current VP-Research and Development of TMC, and his wife.
8
<PAGE>
ITEM 3. LEGAL PROCEEDINGS.
Speizman Industries, Inc. is presently the Defendant in a lawsuit filed by
Mr. Boyd A. McClure, a former employee of the Company who lost his job in
mid-1997, pursuant to a reduction in workforce. The lawsuit presently pending in
the United States District Court for the Western District of North Carolina,
Charlotte Division, is entitled BOYD A. MCCLURE V. SPEIZMAN INDUSTRIES, INC.,
Case No. 3:98-CV-195-MU.
In this lawsuit, Mr. McClure asserts three (3) claims against Speizman
Industries, Inc.: (1) he alleges that he was discharged from his employment
because of a physical disability in violation of The Americans With Disabilities
Act; (2) he alleges he was discharged from his employment because of his age in
violation of The Age Discrimination In Employment Act; and (3) he alleges he was
the victim of "wrongful discharge", a tort claim recognized under the State of
North Carolina which basically encompasses the substance of the two
above-mentioned federal law claims.
At the present time, both Plaintiff and Speizman Industries, Inc. are engaged
in discovery processes including depositions, and it is the Company's unwavering
position that it will defend vigorously against all claims brought by Mr.
McClure through trial, if necessary. At this early juncture, there is too much
subjectivity inherent in an assessment of the likelihood of Mr. McClure's
success to accurately quantify or qualify the underlying merits of this case.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of the Company's security holders during
the fourth quarter of fiscal 1997.
EXECUTIVE OFFICERS OF REGISTRANT
The following table sets forth certain information regarding the executive
officers of the Company:
<TABLE>
<CAPTION>
<S> <C>
NAME AGE POSITIONS WITH THE COMPANY
---- --- --------------------------
Robert S. Speizman... 58 Chairman of the Board, President and Director
Josef Sklut.......... 69 Vice President-Finance, Secretary,
Treasurer and Director
C. Alexander Davis... 50 President, Wink Davis Equipment Company, Inc.
Bryan D. Speizman ... 33 Senior Vice President, Non-Hosiery
Mark A. Speizman .... 27 Senior Vice President, Hosiery
</TABLE>
Robert S. Speizman has served as President of the Company since November
1976. From 1969 to October 1976, Mr. Speizman served as Executive Vice President
of the Company. Mr. Speizman has been a director of the Company since 1967 and
Chairman of the Board of Directors since July 1987.
Josef Sklut has served as Vice President-Finance of the Company since 1978,
as Secretary of the Company since 1977, as Treasurer of the Company since 1969
and as a director of the Company since 1977.
C. Alexander Davis has served as President, Wink Davis Equipment Company,
Inc., since August 1, 1997, as Executive Vice President, Wink Davis Equipment
Co., Inc., from 1973 to July 31, 1997 and as a director of Wink Davis Equipment
Company, Inc., from 1973 to July 31, 1997.
Bryan D. Speizman, son of Robert S. Speizman, began serving as Senior Vice
President, Non-Hosiery in fiscal 1998.
Mark A. Speizman, son of Robert S. Speizman, began serving as Senior Vice
President, Hosiery in fiscal 1998.
9
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock has been included for quotation on the NASDAQ
National Market System under the NASDAQ symbol "SPZN" since October 1993. The
following table sets forth, for the periods indicated, the high and low sale
prices as reported by the NASDAQ National Market System.
FISCAL 1997 HIGH LOW
---- ---
First Quarter (ended September 28, 1996) ............ 5.75 3.75
Second Quarter (ended December 28, 1996)............. 6.88 4.38
Third Quarter (ended March 29, 1997)................. 7.13 4.50
Fourth Quarter (ended June 28, 1997)................. 6.25 3.88
FISCAL 1998
First Quarter (ended September 27, 1997) ............ 9.50 4.88
Second Quarter (ended December 27, 1997)............. 9.19 5.38
Third Quarter (ended March 28, 1998)................. 7.25 5.38
Fourth Quarter (ended June 27, 1998)................. 7.13 5.00
As of June 27, 1998, there were approximately 241 stockholders of record of
the Common Stock.
The Company has never declared or paid any dividends on its Common Stock.
Future cash dividends, if any, will be at the discretion of the Company's
Board of Directors and will depend upon, among other things, future earnings,
operations, capital requirements, surplus, restrictive covenants in agreements
to which the Company may be subject, general business conditions and such other
factors as the Board of Directors may deem relevant. The Company's present
credit facility contains certain financial and other covenants that could limit
the Company's ability to pay cash dividends on its capital stock.
10
<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA.
<TABLE>
<CAPTION>
<S> <C>
Fiscal Year Ended
------------------------------------------------------
June 27, June 28, June 29, July 1, July 2,
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT NET INCOME PER SHARE DATA)
STATEMENT OF INCOME DATA:
Net revenues.................................$ 90,886 $79,103 $46,280 $61,597 $69,526
Cost of sales................................ 74,034 65,935 40,547 53,986 60,004
------ ------ ------ ------ ------
Gross profit................................. 16,852 13,168 5,733 7,611 9,522
Selling, general and administrative expenses 12,855 8,855 6,577 5,478 4,350
------ ------ ------ ------ ------
Operating income (loss)...................... 3,997 4,313 (844) 2,133 5,172
Interest (income) expense, net. 791 (18) (43) (15) 6
------ ------ ------ ------ ------
Income (loss) before taxes on income 3,206 4,331 (801) 2,148 5,166
Taxes (benefit) on income ................... 1,273 1,645 (228) 854 1,869
------ ------ ------ ------ ------
Net income (loss)............................ 1,933 2,686 (573) 1,294 3,297
Preferred stock dividends.................... - - - - 41
------ ------ ------ ------ ------
Net income (loss) applicable to common stock $1,933 $ 2,686 $ (573) $ 1,294 $ 3,256
====== ======= ======= ======== ========
PER SHARE DATA:
Basic earnings (loss) per share $ 0.59 $ 0.83 $ (0.18) $ 0.40 $ 1.16
Diluted earnings (loss) per share 0.56 0.80 (0.18) 0.40 1.10
Weighted average shares outstanding - basic 3,284 3,229 3,209 3,209 2,805
Weighted average shares outstanding -
diluted ........................................ 3,426 3,353 3,209 3,272 2,949
BALANCE SHEET DATA:
Working capital.............................. $20,216 $18,741 $16,313 $17,613 $16,579
Total assets................................. 50,034 43,174 36,149 35,704 30,160
Short-term debt.............................. 4,000 - - - -
Long-term debt, including current maturity 7,670 112 148 147 293
Stockholders' equity......................... 23,207 20,938 18,203 18,782 17,483
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
GENERAL
The Company's revenues are generated primarily from its distribution of
textile equipment (principally knitting equipment and, to a lessor extent, from
the sale of parts used in such equipment and the sale of used equipment) and
commercial laundry equipment and services (principally commercial washers and
dryers and, to a lessor extent, the sale of parts used in such equipment and
related services). The Company began operating in the laundry equipment and
services segment with the purchase of Wink Davis on August 1, 1997.
RESULTS OF OPERATIONS
YEAR ENDED JUNE 27, 1998 COMPARED TO YEAR ENDED JUNE 28, 1997
NET REVENUES. Net revenues in fiscal 1998 were $90.9 million as compared to
$79.1 million in fiscal 1997, an increase of $11.8 million or 14.9%. This
increase is primarily due to the acquisition of Wink Davis on August 1, 1997.
Wink Davis recognized revenues in fiscal 1997 of $23.7 million. Additional
components of the increase include $2.0 million increase from sales of TMC
products (acquired on February 6, 1998) and an increase of $0.7 million in parts
sales, offset by an $10.8 million decrease in hosiery related equipment, a $1.6
million decrease in knitted fabric equipment and a decrease of $2.2 million in
products no longer represented, including sweater, and garment wet processing
equipment.
COST OF SALES. In fiscal 1998 cost of sales were $74.0 million an increase of
$8.1million from $65.9 million in fiscal 1997. Cost of sales as a percentage of
revenues decrease to 81.5% in fiscal 1998 as compared to 83.3% in fiscal 1997.
This decrease results from higher margins on hosiery related parts and equipment
and the exclusion of lower margin
11
<PAGE>
liquidations of products discontinued in 1997. This decrease in cost of sales as
a percentage of revenues was slightly offset by lower margins on Wink Davis
sales.
SELLING EXPENSES. Selling expenses increased to $6.9 million in fiscal 1998
as compared to $5.8 million in fiscal 1997. This net increase of $1.1 million
results from increased selling expenses of $1.8 million at Wink Davis and TMC,
offset by decreases of $443,000 in textile equipment related salaries and
commissions and other decreases in letter of credit expenses, professional fees,
advertising and other expense decreases generally related to lower overall sales
volume of textile machinery.
GENERAL AND ADMINISTRATIVE. General and administrative expense increased in
fiscal 1998 to $5.9 million from $3.0 million in fiscal 1997. This increase
results primarily from additional administrative expenses of $1.7 million of
Wink Davis and TMC, amortization expenses of $405,000 and rental expense of the
new facility of $324,000.
INTEREST EXPENSE. Interest expense is expressed net of interest income. In
fiscal 1998, net interest expense was $791,000. This significant increase in
interest expense is related directly to the debt funded acquisitions of Wink
Davis and TMC.
TAXES (BENEFIT) ON INCOME (LOSS). The provision for income taxes in fiscal
1998 is $1,273,000 or 39.7% of income before taxes. The provision for income
taxes in fiscal 1997 is $1,645,000 or 38.0% of income before taxes.
NET INCOME (LOSS). Net income for fiscal 1998 decreased to $1.9 million
compared to net income of $2.7 million for fiscal 1997. Basic earnings per share
decreased to $0.59 and diluted earnings per share decreased to $0.56. In fiscal
1997, basic earnings per share was $0.83 and diluted earnings per share was
$0.80.
YEAR ENDED JUNE 28, 1997 COMPARED TO YEAR ENDED JUNE 29, 1996
NET REVENUES. Net revenues in fiscal 1997 were $79.1 million as compared to
$46.3 million in fiscal 1996, an increase of $32.8 million or 70.9%. This
increase is due to a combination of price and volume increases. This increase
reflects a $32.2 million increase in sales of hosiery equipment, a $0.7 million
increase in sales of dyeing and finishing equipment, a $0.6 million increase in
sales of garment wet processing equipment, a $1.2 million increase in parts and
other sales activities partially offset by a $1.9 million decrease in sales of
sweater manufacturing and related equipment. The market for hosiery equipment is
influenced by the retail sector, changes in technology and general economic
conditions affecting the Company's customers.
COST OF SALES. In fiscal 1997, cost of sales was $65.9 million as compared to
$40.5 million in fiscal 1996, an increase of $25.4 million or 62.6%. Cost of
sales as a percent of revenue decreased to 83.4% in fiscal 1997 from 87.6% in
fiscal 1996. This decrease results from increased demand for hosiery equipment
resulting in increased sales prices and increased field service efficiency
arising from increased volume.
SELLING EXPENSES. Selling expenses increased to $5.8 million in fiscal 1997
from $4.7 million in fiscal 1996, an increase of 23.6%. The increase results
from overall increased selling activity, including salaries, sales commissions,
exhibition expenses and letter of credit expenses. These increases are partially
offset by elimination of expenses of the CopyGuard division, which was disposed
in fiscal 1996.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses for
fiscal 1997 totaled $3.0 million, an increase of $1.1 million from $1.9 million
in fiscal 1996. The increase results primarily from additional salaries and
management bonuses.
INTEREST INCOME. Interest income is expressed net of interest expense. In
fiscal 1997, interest income exceeded interest expense by $18,000. Net interest
income was $43,000 in fiscal 1996.
TAXES (BENEFIT) ON INCOME (LOSS). The provision for income taxes in fiscal
1997 is $1,645,000 or 38.0% of income before taxes. In fiscal 1996 the provision
for income taxes is a tax benefit of $228,000 or 28.5% of loss before taxes. The
higher effective tax rate in fiscal 1997 results from the combined effects of
non-deductible entertainment and life insurance expenses and U.S.
profits taxed at rates higher than foreign tax rates.
12
<PAGE>
NET INCOME (LOSS). Net income for fiscal 1997 increased to $2.7 million
compared to a net loss of $0.6 million for fiscal 1996. Basic earnings per share
increased to$0.83 and diluted earnings per share increased to $0.80 in fiscal
1997. In fiscal 1996, basic and diluted loss per share was $0.18.
LIQUIDITY AND CAPITAL RESOURCES
The Company has a credit facility with NationsBank, opened on August 1, 1997,
in conjunction with the purchase of Wink Davis, amended on February 6, 1998, in
conjunction with the purchase of TMC and expiring on July 31, 2000. This
facility furnished term loan financing for these acquisitions and also provides
a line of credit for direct borrowings and issuance of documentary letters of
credit. The line of credit provides up to $38.3 million, subject to current
collateral balances, including up to a maximum of $8.5 million for direct
borrowings, with the balance available for documentary letters of credit and
term debt. Amounts outstanding under the line of credit bear interest at the
greater of prime plus 1.0% or the Federal Funds Rate plus 1.5% for base rate
loans and the Eurodollar Rate plus 2.0% for Eurodollar loans. In connection with
this line of credit, the Company granted a security interest in accounts
receivable and inventory, as defined in the loan agreement.
Working capital at June 27, 1998 was $20.2 million as compared to $18.7
million at June 28, 1997, an increase of $1.5 million. Operating activities in
fiscal 1998 used $1.3 million. In fiscal 1997 operating activities used $3.4
million. Significant funds were used in investing activities, primarily the
purchases of Wink Davis and TMC for $9.5 million and $1.8 million respectively.
Funds for these acquisitions were provided from financing activities, primarily
through the issuance of $8.3 million in long term notes and $4.0 million of
borrowings on the revolving line of credit. Cash flows from investing and
financing activities in fiscal 1997 were significantly less.
SEASONALITY AND OTHER FACTORS
There are certain seasonal factors that may affect the Company's business.
Traditionally, manufacturing businesses in Italy close for the month of August,
and the Company's hosiery customers close for one week in July. Consequently, no
shipments or deliveries, as the case may be, of machines distributed by the
Company that are manufactured in Italy are made during these periods which fall
in the Company's first quarter. In addition, manufacturing businesses in Italy
generally close for two weeks in December, during the Company's second quarter.
Fluctuations of customer orders or other factors may result in quarterly
variations in net revenues from year to year.
EFFECTS OF INFLATION AND CHANGING PRICES
Management believes that inflation has not had a material effect on the
Company's operations.
DISCLOSURE ABOUT FOREIGN CURRENCY RISK
Generally, the Company's purchases of foreign manufactured machinery for
resale are denominated in Italian lira. In the ordinary course of business, the
Company enters into foreign exchange forward contracts to mitigate the effect of
foreign currency movements between the Italian lira and the U.S. dollar from the
time of placing the Company's purchase order until final payment for the
purchase is made. The contracts have maturity dates that do not generally exceed
12 months. Substantially all of the increase or decrease of the lira denominated
purchase price is offset by the gains and losses of the foreign exchange
contract. The unrealized gains and losses on these contracts are deferred and
recognized in the results of operations in the period in which the hedged
transaction is consummated.
A substantial portion of the Company's textile machine and spare part
purchases are denominated and payable in Italian lira. Currency fluctuations of
the lira could result in substantial price level changes and therefore impede or
promote import/export sales and substantially impact profits. However, to reduce
exposure to adverse foreign currency fluctuations during the period from
customer orders to payment for goods sold, the Company enters into forward
exchange contracts. The Company is not able to assess the quantitative effect
that such currency fluctuations could have upon the Company's operations. There
can be no assurance that fluctuations in foreign currency exchange rates will
not have a significant adverse effect on future operations.
13
<PAGE>
At June 27, 1998, the Company had contracts maturing through March 1999 to
purchase approximately 24.3 billion Lira for approximately $13.7 million, which
approximates the spot rate on that date.
NOTE REGARDING PRIVATE SECURITIES LITIGATION REFORM ACT
Statements made by the Company which are not historical facts are forward
looking statements that involve risks and uncertainties. Actual results could
differ materially from those expressed or implied in forward looking statements.
All such forward looking statements are subject to the safe harbor created by
the Private Securities Litigation Reform Act of 1995. Important factors that
could cause financial performance to differ materially from past results and
from those expressed and implied in this document include, without limitation,
the risks of acquisition of businesses (including limited knowledge of the
businesses acquired and misrepresentations by sellers) availability of
financing, competition, management's ability to manage growth, loss of
customers, and a variety of other factors.
YEAR 2000 COMPLIANCE
The Company has reviewed its computer and business systems to identify those
areas that could be adversely affected by Year 2000 software failures. The
primary information system used by both Speizman Industries and TMC has been
reviewed and all known issues related to the Year 2000 issues have been
resolved. Costs incurred were not significant. The primary information system
used by Wink Davis is not Year 2000 compliant. In conjunction with the purchase
of Wink Davis on August 1, 1997, management planned to integrate Wink Davis'
information into the existing system used by Speizman Industries. The
integration project, which was not accelerated due to the Year 2000 issue, is
scheduled to be completed in December 1998. The estimated project cost of
integrating Wink Davis' information system is approximately $100,000.
A substantial portion of the equipment distributed by the Company has
computerized controls and features. However, to the Company's knowledge, no
operating features of the equipment are dependent on any time or date
information, such as the Year 2000 issue.
The Company is aware of one subsidiary's voice mail system and there may be
other computer-based systems which may require upgrading to ensure operational
continuity beyond December 31, 1999. The Company has substantially completed
identification of all such systems and believes that all significant systems
will be compliant in time to ensure no disruption to the Company's operations.
The cost of bringing these minor systems into compliance is not anticipated to
be material.
Currently, the Company cannot predict the effect of the Year 2000 problem on
entities with which it transacts business and there can be no assurance it will
not have a material adverse effect on the Company's business, financial
condition, results of operations or cash flows. The Company will be formulating
a contingency plan to address the possible effects of any of its customers
experiencing Year 2000 problems.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, REPORTING COMPREHENSIVE INCOME (SFAS
130), which establishes standards for reporting and display of comprehensive
income, its components and accumulated balances. Comprehensive income is defined
to include all changes in equity except those resulting from investments by
owners and distributions to owners. Among other disclosures, SFAS 130 requires
that all items that are required to be recognized under current accounting
standards as components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other financial
statements.
SFAS 130 is effective for financial statements for periods beginning after
December 15, 1997 and requires comparative information for earlier years to be
restated. Because of the recent issuance of this standard, management has been
unable to fully evaluate the impact, if any, the standard may have on future
financial statement disclosures. Results of operations and financial position,
however, will be unaffected by implementations of this standard.
14
<PAGE>
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
Disclosures about SEGMENTS OF AN ENTERPRISE and RELATED INFORMATION, (SFAS 131)
which supersedes SFAS No. 14, FINANCIAL REPORTING FOR SEGMENTS OF A BUSINESS
ENTERPRISE. SFAS 131 establishes standards for the way that public companies
report information about operating segments in annual financial statements and
requires reporting of selected information about operating segments in interim
financial statements issued to the public. It also establishes standards for
disclosures regarding products and services, geographic areas and major
customers. SFAS 131 defines operating segments as components of a company about
which separate financial information is available that is evaluated regularly by
the chief operating decision maker in deciding how to allocate resources and in
assessing performance.
SFAS 131 is effective for financial statements for periods beginning after
December 15, 1997 and requires comparative information for earlier years to be
restated. Because of the recent issuance of this standard, management has been
unable to fully evaluate the impact, if any, it may have on future financial
statement disclosures. Results of operations and financial position, however,
will be unaffected by implementation of this standard.
Statement of Financial Accounting Standards No. 133 Accounting for Derivative
Instruments and Hedging Activities (SFAS No. 133) establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. This
statement is effective for all fiscal quarters of fiscal years beginning after
June 15, 1999. Management is presently assessing the impact of the adoption of
SFAS No. 133, on its consolidated financial statements.
In May, 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-5, Reporting on the Costs at Start-Up Activities. SOP
98-5 requires that entities expense start-up costs and organization costs as
they are incurred. SOP 98-5 is effective for fiscal years beginning after
December 15, 1998. Management does not anticipate SOP 98-5 having a material
impact on its consolidated financial statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements and supplementary data required by this Item 8
appear on Pages F-1 through F-16 and S-1 through S-2 of this Annual Report on
Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The response to this Item 10 is set forth in part under the caption
"Executive Officers of the Registrant" in Part I of this Annual Report on Form
10-K and the remainder is set forth in the Company's Proxy Statement for the
Annual Meeting of Stockholders to be held November 18, 1998 (the "1998 Proxy
Statement") under the sections captioned "Election of Directors," "Certain
Information Regarding the Board of Directors" and "Compliance with Section 16(a)
of the Securities Exchange Act of 1934," which sections are incorporated herein
by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The response to this Item 11 is set forth in the 1998 Proxy Statement under
the section captioned "Executive Compensation and Related Information," which
section, other than the subsections captioned "Report of the Compensation
Committee and the Stock Option Committee on Executive Compensation" and
"Comparative Performance Graph," is incorporated herein by reference.
15
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The response to this Item 12 is set forth in the 1998 Proxy Statement under
the section captioned "Stock Ownership of Certain Beneficial Owners and
Management," which section is incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The response to this Item 13 is set forth in the 1998 Proxy Statement under
the section captioned "Certain Transactions," which section is incorporated
herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a)The following documents are included as part of the Annual Report on Form
10-K:
1. FINANCIAL STATEMENTS:
Page
Report of Independent Certified Public Accountants ................ F-1
Consolidated Balance Sheets - June 27, 1998 and June 28, 1997...... F-2
Consolidated Financial Statements for each of the three years in
the periods ended June 27, 1998,
June 28, 1997 and June 29, 1996:
Consolidated Statements of Operations ......................... F-3
Consolidated Statements of Stockholders' Equity ............... F-4
Consolidated Statements of Cash Flows ......................... F-5
Summary of Accounting Policies .................................... F-6
Notes to Consolidated Financial Statements ........................ F-8
2. FINANCIAL STATEMENT SCHEDULES:
Report of Independent Certified Public Accountants................. S-1
Schedule II - Valuation and Qualifying Accounts.................... S-2
16
<PAGE>
3. EXHIBITS:
The Exhibits filed as part of this Annual Report on Form 10-K are listed on
the Exhibit Index immediately preceding such Exhibits, and are incorporated
herein by reference.
(b) Reports on Form 8-K
On April 6, 1998, the Company filed a Current Report on Form 8-K pursuant
to Item 5 thereof reporting that on March 31, 1998, the Company announced a plan
to repurchase up to $500,000 of its currently outstanding common stock.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 131 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
SPEIZMAN INDUSTRIES, INC.
Date: September 25, 1998
By: /s/ Robert S. Speizman
----------------------
Robert S. Speizman, President
Pursuant to the requirements of the Securities Act of 1933, this has been
signed by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C>
Signatures Title Date
---------- ----- ----
/s/ Robert S. Speizman President and Director September 25, 1998
- -------------------------- (Principal Executive Officer)
Robert S. Speizman
/s/ Josef Sklut Vice President-Finance, Secretary, September 25, 1998
- -------------------------- Treasurer and Director
Josef Sklut (Principal Financial Officer and
Principal Accounting Officer)
/s/ Steven P. Berkowitz Director September 24, 1998
- --------------------------
Steven P. Berkowitz
/s/ William Gorelick Director September 23, 1998
- --------------------------
William Gorelick
/s/ Scott C. Lea Director September 23, 1998
- --------------------------
Scott C. Lea
</TABLE>
17
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
Speizman Industries, Inc.
We have audited the accompanying consolidated balance sheets of SPEIZMAN
INDUSTRIES, INC. AND SUBSIDIARIES as of June 27, 1998 and June 28, 1997,
and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended June
27, 1998. 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
SPEIZMAN INDUSTRIES, INC. AND SUBSIDIARIES at June 27, 1998 and June 28,
1997, and the results of their operations and their cash flows for each of
the three years in the period ended June 27, 1998, in conformity with
generally accepted accounting principles.
Charlotte, North Carolina BDO Seidman, LLP
August 27, 1998
F-1
<PAGE>
SPEIZMAN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
<S> <C>
June 27, June 28,
1998 1997
----------- ------------
ASSETS
Current:
Cash and cash equivalents...................... $ 2,193,329 $ 3,832,534
Accounts receivable (Notes 1, 2 and 7).......... 19,817,834 21,075,138
Inventories (Notes 3 and 7)..................... 15,934,745 12,970,134
Prepaid expenses and other current assets....... 3,372,266 2,988,786
----------- ------------
TOTAL CURRENT ASSETS.......................... 41,318,174 40,866,592
----------- ------------
Property and Equipment: (Note 7)
Leasehold improvements.......................... 552,655 750,140
Machinery and equipment......................... 1,825,959 1,770,886
Furniture, fixtures and transportation equipment 1,341,728 1,078,429
----------- ------------
3,720,342 3,599,455
Less accumulated depreciation and amortization.. (1,632,367) (1,811,183)
----------- ------------
NET PROPERTY AND EQUIPMENT.................... 2,087,975 1,788,272
----------- ------------
Other long-term assets............................. 517,352 518,957
Intangibles, net of accumulated amortization
(Note 4)........................................ 6,110,410 -
----------- ------------
$50,033,911 $ 43,173,821
=========== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current:
Note payable - bank line of credit (Note 7) .... $ 4,000,000 $ -
Accounts payable................................ 10,809,976 19,075,766
Customers' deposits............................. 2,158,512 1,380,621
Accrued expenses................................ 2,188,557 1,667,621
Current maturities of long-term debt (Note 8)... 1,945,000 1,769
----------- ------------
TOTAL CURRENT LIABILITIES..................... 21,102,045 22,125,777
Long-Term Debt (Note 8)............................ 5,725,000 110,344
----------- ------------
TOTAL LIABILITIES............................. $26,827,045 $ 22,236,121
=========== =============
Commitments and Contingencies (Notes 5, 10, 11, 12 and 13)
Stockholders' Equity (Notes 9 and 10):
Common Stock - par value $.10; authorized
20,000,000 shares, issued 3,357,406,
outstanding 335,741 3,319,806; and
issued 3,262,866, outstanding 3,235,266,
respectively .................................. 335,741 326,287
Additional paid-in capital........................12,889,546 12,512,299
Retained earnings.................................10,143,226 8,209,911
Foreign currency translation adjustment.......... - (11,000)
----------- ------------
Total...........................................23,368,513 21,037,497
Treasury stock, at cost, 37,600 shares and
27,600 shares................................... (161,647) (99,797)
----------- ------------
TOTAL STOCKHOLDERS' EQUITY......................23,206,866 20,937,700
----------- ------------
$50,033,911 $ 43,173,821
=========== =============
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
F-2
<PAGE>
SPEIZMAN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
<S> <C>
Year Ended
------------------------------------------
June 27, June 28, June 29,
1998 1997 1996
------------ ----------- -----------
NET REVENUES (Note 1)................... $ 90,886,285 $79,103,225 $46,279,969
------------ ----------- -----------
COSTS AND EXPENSES:
Cost of sales......................... 74,033,817 65,934,696 40,546,962
Selling expenses...................... 6,944,079 5,810,360 4,699,280
General and administrative expenses.... 5,911,007 3,045,269 1,878,193
------------ ----------- -----------
Total costs and expenses........... 86,888,903 74,790,325 47,124,435
------------ ----------- -----------
3,997,382 4,312,900 (844,466)
INTEREST (INCOME) EXPENSE, net of
interest income of $102,968, $113,137 and
$126,522 ................................. 791,067 (17,651) (43,400)
------------ ----------- -----------
NET INCOME (LOSS) BEFORE TAXES........... 3,206,315 4,330,551 (801,066)
TAXES (BENEFIT) ON INCOME (Note 6)....... 1,273,000 1,645,000 (228,000)
------------ ----------- -----------
NET INCOME (LOSS)....................... $ 1,933,315 $ 2,685,551 (573,066)
============ ============ ========
Earnings (loss) per share:
Basic ................................. 0.59 0.83 (0.18)
Diluted ............................... 0.56 0.80 (0.18)
Weighted average shares outstanding:
Basic ................................ 3,284,278 3,228,745 3,208,599
Diluted .............................. 3,425,899 3,353,419 3,208,599
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
F-3
<PAGE>
SPEIZMAN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
<S> <C>
Foreign
Additional Currency
Common Common Paid-In Retained Translation Treasury Stockholders'
Shares Stock Capital Earnings Adjustment Stock Equity
--------- --------- ------------ ------------ ---------- --------- --------------
BALANCE, JULY 2, 1995 3,236,199 $323,620 $ 12,459,965 $ 6,097,426 $ 731 $(99,797) $ 18,781,945
Net loss.................... - - - (573,066) - - (573,066)
Foreign currency translation
adjustment............... - - - - (5,954) - (5,954)
--------- -------- ----------- ----------- -------- ---------- -----------
BALANCE, JUNE 29, 1996 3,236,199 323,620 12,459,965 5,524,360 (5,223) (99,797) 18,202,925
Net income................. - - - 2,685,551 - - 2,685,551
Exercise of stock options 26,667 2,667 52,334 - - - 55,001
Foreign currency translation
adjustment............... - - - - (5,777) - (5,777)
--------- -------- ----------- ----------- -------- ---------- -----------
BALANCE, JUNE 28, 1997 3,262,866 326,287 12,512,299 8,209,911 (11,000) (99,797) 20,937,700
Net income................. - - - 1,933,315 - - 1,933,315
Exercise of stock options 94,540 9,454 275,547 - - - 285,001
Purchase of treasury stock - - - - - (61,850) (61,850)
Foreign currency translation
adjustment............... - - - - 11,000 - 11,000
Tax effect of exercise of
stock options............ - - 101,700 - - - 101,700
--------- -------- ----------- ----------- -------- ---------- -----------
BALANCE, JUNE 27, 1998 3,357,406 $335,741 $12,889,546 $10,143,226 $ - $ (161,647) $23,206,866
========= ======== =========== =========== ======== ========== ===========
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
F-4
<PAGE>
SPEIZMAN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
<S> <C>
Year Ended
---------------------------------------------
June 27, June 28, June 29,
1988 1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ...................... $ 1,933,315 $ 2,685,551 $ (573,066)
Adjustments to reconcile net income to
net cash provided by (used in) operating
activities:
Gain on disposal of fixed assets ....... (4,980) - -
Depreciation and amortization .......... 1,184,724 484,152 173,336
Provision for losses on accounts
receivable.............................. 189,545 214,521 113,500
Provision for inventory obsolescence.... 275,000 154,133 139,436
Provision for deferred income taxes..... (187,000) (121,000) (58,000)
Provision for deferred compensation..... 379 (25,220) 6,782
Foreign currency translation adjustment. 11,000 (5,777) (5,954)
(Increase) decrease in:
Accounts receivable................... 5,304,947 (9,129,210) 3,804,734
Inventories........................... (337,132) (1,484,715) 1,649,026
Prepaid expenses...................... 22,717 (701,675) 159,244
Other assets.......................... 590,564 229,728 (69,076)
Increase (decrease) in:
Accounts payable...................... (9,302,942) 4,211,199 (192,360)
Accrued expenses and customers'
deposits............................. (985,393) 114,895 1,214,580
---------- --------- --------
Net cash provided by (used in)
operating activities.................... (1,305,256) (3,373,418) 6,362,182
---------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Wink Davis Equipment
Company, Inc. ............................ (9,467,677) - -
Acquisition of Todd Motion Controls,
Inc.................................... (1,841,304) - -
Capital expenditures.................... (470,221) (846,845) (1,159,659)
Proceeds from property and equipment
disposals............................... 76,304 27,125 347,557
---------- --------- --------
Net cash used in investing activities... (11,702,898) (819,720) (812,102)
---------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings on line of credit
agreement ................................ 4,000,000 - -
Principal payments on long term debt... (1,154,202) (11,052) (5,216)
Issuance of common stock upon exercise
of stock options........................ 285,001 55,001 -
Purchase of treasury stock ............. (61,850) - -
Proceeds from issuance of long term
notes due to bank ...................... 8,300,000 - -
---------- --------- --------
Net cash provided by (used in)
financing activities................. 11,368,949 43,949 (5,216)
---------- --------- --------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS...................... (1,639,205) (4,149,189) 5,544,864
CASH AND CASH EQUIVALENTS, at beginning
of year.................................. 3,832,534 7,981,723 2,436,859
---------- --------- --------
CASH AND CASH EQUIVALENTS, at end of year. $ 2,193,329 $ 3,832,534 $ 7,981,723
========== ========== ==========
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
F-5
<PAGE>
SPEIZMAN INDUSTRIES, INC. AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements of Speizman Industries, Inc. and
subsidiaries (collectively the "Company") include all of its subsidiaries, all
of which are wholly owned. All material intercompany transactions (domestic and
foreign) have been eliminated. The financial statements of the Company's United
Kingdom subsidiary were translated from pounds sterling to U.S. dollars in
accordance with generally accepted accounting principles. The United Kingdom
subsidiary was liquidated on June 28, 1997. Wink Davis Equipment Company, Inc.
("Wink Davis") was acquired on August 1, 1997. Todd Motion Controls, Inc.
("TMC") was acquired on February 6, 1998.
REVENUE RECOGNITION
The major portion of the Company's revenues consists of sales and
commissions on sales of machinery and equipment. The profit derived therefrom is
recognized in full at the time of shipment.
CASH AND CASH EQUIVALENTS
For purposes of the statements of cash flows, the Company considers all
highly liquid debt instruments with an original maturity of three months or less
to be cash equivalents. The carrying amount of cash equivalents approximates
fair value due to the short-term maturity of these instruments.
INVENTORIES
Inventories are carried at the lower of cost or market. Cost is computed,
in the case of machines, on an identified cost basis and, in the case of other
inventories, on an average cost basis.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed over
the estimated useful lives of the assets by the straight-line method for
financial reporting purposes and by accelerated methods for income tax purposes.
FOREIGN EXCHANGE CONTRACTS
The Company enters into foreign currency contracts to reduce the foreign
currency exchange risks. Foreign currency hedging contracts obligate the Company
to buy a specified amount of a foreign currency at a fixed price in specific
future periods. Realized and unrealized gains and losses are recognized in net
income in the period of the underlying transaction. As of June 27, 1998, the
Company had contracts maturing through March 1999 to purchase approximately 24.3
billion Lira for approximately $13.7 million, which approximates the spot rate
on that date.
TAXES ON INCOME
The Company has adopted the SFAS Statement No. 109, "Accounting for Income
Taxes." Accordingly, deferred tax assets or liabilities at the end of each
period are determined using the tax rate expected to be in effect when taxes are
actually paid or recovered. Income tax expense will increase or decrease in the
same period in which a change in tax rates is enacted.
INCOME PER SHARE
The Company has adopted SFAS Statement no. 128, "Earnings per Share."
Accordingly, basic net income per share includes no dilution and is calculated
by dividing net income by the weighted average number of common shares
outstanding for the period. Diluted net income per share reflects the potential
dilution of securities that could share in the net income of the Company which
consists of stock options (using the treasury stock method).
FISCAL YEAR
The Company maintains its accounting records on a 52-53 week fiscal year.
The fiscal year ends on the Saturday closest to June 30. Years ending June 27,
1998, June 28, 1997 and June 29, 1996 included 52 weeks.
ADVERTISING
The Company expenses advertising costs as incurred. Total advertising
expense approximated $97,000, $95,000 and $80,000 for fiscal years 1998, 1997
and 1996, respectively.
F-6
<PAGE>
SPEIZMAN INDUSTRIES, INC. AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES - (CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial instruments of the Company include long-term debt and line of
credit agreements. Based upon the current borrowing rates available to the
Company, estimated fair values of these financial instruments approximate their
recorded carrying amounts.
USE OF ESTIMATES IN PREPARING FINANCIAL STATEMENTS
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.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, REPORTING COMPREHENSIVE INCOME (SFAS
130), which establishes standards for reporting and display of comprehensive
income, its components and accumulated balances. Comprehensive income is defined
to include all changes in equity except those resulting from investments by
owners and distributions to owners. Among other disclosures, SFAS 130 requires
that all items that are required to be recognized under current accounting
standards as components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other financial
statements.
SFAS 130 is effective for financial statements for periods beginning
after December 15, 1997 and requires comparative information for earlier years
to be restated. Because of the recent issuance of this standard, management has
been unable to fully evaluate the impact, if any, the standard may have on
future financial statement disclosures. Results of operations and financial
position, however, will be unaffected by implementations of this standard.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
Disclosures about SEGMENTS OF AN ENTERPRISE and RELATED INFORMATION, (SFAS 131)
which supersedes SFAS No. 14, FINANCIAL REPORTING FOR SEGMENTS OF A BUSINESS
ENTERPRISE. SFAS 131 establishes standards for the way that public companies
report information about operating segments in annual financial statements and
requires reporting of selected information about operating segments in interim
financial statements issued to the public. It also establishes standards for
disclosures regarding products and services, geographic areas and major
customers. SFAS 131 defines operating segments as components of a company about
which separate financial information is available that is evaluated regularly by
the chief operating decision maker in deciding how to allocate resources and in
assessing performance.
SFAS 131 is effective for financial statements for periods beginning
after December 15, 1997 and requires comparative information for earlier years
to be restated. Because of the recent issuance of this standard, management has
been unable to fully evaluate the impact, if any, it may have on future
financial statement disclosures. Results of operations and financial position,
however, will be unaffected by implementation of this standard.
Statement of Financial Accounting Standards No. 133, Accounting for
Derivative Instruments and Hedging Activities (SFAS No. 133) establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities.
This statement is effective for all fiscal quarters of fiscal years beginning
after June 15, 1999. Management is presently assessing the impact of the
adoption of SFAS No. 133 on its consolidated financial statements.
In May, 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-5, Reporting on the Costs at Start-Up Activities. SOP
98-5 requires that entities expense start-up costs and organization costs as
they are incurred. SOP 98-5 is effective for fiscal years beginning after
December 15, 1998. Management does not anticipate SOP 98-5 having a material
impact on its consolidated financial statements.
F-7
<PAGE>
SPEIZMAN INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- BUSINESS AND CREDIT RISK CONCENTRATION
The Company is engaged in the distribution of machinery for the textile and
commercial laundry industries. With operations in the United States, Canada,
Mexico and formerly the United Kingdom, the Company primarily sells to customers
located within the United States. Export sales from the United States were
approximately $15,992,000, $12,433,000 and $7,196,000 during fiscal 1998, 1997
and 1996, respectively. There were no export sales by the Canadian operations or
the commercial laundry operations.
Financial instruments which potentially subject the Company to credit risk
consist principally of temporary cash investments and trade receivables. The
Company places its temporary cash investments with high credit quality financial
institutions and, by policy, limits the amount of credit exposure to any one
financial institution.
The Company reviews a customer's credit history before extending credit. An
allowance for doubtful accounts is established based upon factors surrounding
the credit risk of specific customers, historical trends and other information.
To reduce credit risk the Company generally requires a down payment on large
equipment orders.
A substantial amount of the Company's revenues are generated from the sale
of sock knitting and other machines manufactured by Lonati, S.p.A. and one of
its wholly owned subsidiaries (Santoni). Sales by the Company in the United
States and Canada of machines manufactured by Lonati, S.p.A., generated the
following percentages of the Company's net revenues: 41.1% in 1998, 60.1% in
1997 and 46.2% in 1996. In addition, sales of Santoni machines in the United
States and Canada generated 5.3%, 7.0% and 4.8% of the Company's net revenues in
fiscal 1998, 1997 and 1996, respectively. In 1998, approximately 12% and 4% of
revenues consisted of sales to the Company's two largest customers. In 1997,
approximately 11% and 10% of revenues consisted of sales to the Company's two
largest customers. In 1996, approximately 9% and 6% of revenues consisted of
sales to the Company's two largest customers. Generally, the customers
contributing the most to the Company's net revenues vary from year to year.
NOTE 2 -- ACCOUNTS RECEIVABLE
Accounts receivable are summarized as follows:
June 27, June 28,
1998 1997
------------ -----------
Trade receivables............................ $ 20,671,045 $21,549,615
Less allowance for doubtful accounts......... (853,211) (474,477)
------------ -----------
Net accounts receivable...................... $ 19,817,834 $21,075,138
============ ===========
NOTE 3 -- INVENTORIES
Inventories are summarized as follows:
June 27, June 28,
1998 1997
------------ -----------
Machines
New....................................... $ 3,051,280 $3,961,362
Used...................................... 6,414,845 4,807,479
Parts and supplies........................... 6,468,620 4,201,293
------------ -----------
Total........................................ $15,934,745 $12,970,134
============ ===========
NOTE 4 - INTANGIBLES
Goodwill is calculated as the excess of the cost of purchased businesses
over the value of their underlying net assets and is amortized on a
straight-line basis over fifteen years. Goodwill is net of accumulated
amortization of $327,500 at June 27, 1998.
F-8
<PAGE>
SPEIZMAN INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
NOTE 5 -- LEASES
The Company conducts its operations from leased real properties which
include offices, warehouses and manufacturing facilities. The primary operating
facility of the textile operations and corporate offices is leased from a
partnership in which Mr. Robert S. Speizman, the Company's President, has a 50%
interest. The lease extends through March 1999. Lease payments to the
partnership approximated $356,000, $356,000 and $323,000 in fiscal years 1998,
1997 and 1996, respectively.
The Company plans to consolidate several textile machinery warehouses and
the corporate offices into a single location. After renovating this new
facility, the Company plans to complete this consolidation in the spring of
1999. This new facility is leased from a corporation owned by Robert S.
Speizman, his wife and their children. This lease extends through September
2012. Lease payments to the corporation, net of sublease payments received from
the former lessor, approximated $307,000 in fiscal 1998.
The primary operating facility and certain sales offices of the laundry
equipment and services operations are leased from a partnership in which Mr. C.
Alexander Davis, President of Wink Davis, has a 50% interest. The leases extend
through July 1999. Lease payments to the partnership approximated $128,000 in
fiscal 1998.
As of June 27, 1998, future minimum rental payments required under
operating leases that have initial or remaining noncancelable terms in excess of
one year are as follows:
Operating
Leases
------
1999 ........................................ $ 1,239,816
2000 ........................................ 920,929
2001 ........................................ 744,327
2002 ........................................ 684,179
2003 ....................................... 664,012
Beyond....................................... 6,101,389
-----------
Total minimum lease payments ............. $10,354,652
===========
Total rent expense for operating leases approximated $1,566,000, $1,021,600
and $791,400 for fiscal years 1998, 1997 and 1996, respectively.
NOTE 6-- TAXES ON INCOME
Provisions for federal and state income taxes in the consolidated
statements of operations are made up of the following components:
1998 1997 1996
---- ---- ----
Current:
Federal.......................$ 1,206,000 $1,482,000 $ (70,000)
State.......................... 251,000 282,000 (15,000)
Foreign........................ 3,000 2,000 (85,000)
--------- --------- ----------
1,460,000 1,766,000 (170,000)
--------- --------- ----------
Deferred:
Federal........................ (152,000) (87,000) (50,000)
State.......................... (35,000) (34,000) (8,000)
--------- --------- ---------
(187,000) (121,000) (58,000)
--------- --------- ---------
Total taxes (benefit) on income..$ 1,273,000 $1,645,000 $ (228,000)
=========== ========== ===========
F-9
<PAGE>
SPEIZMAN INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Deferred tax benefits and liabilities are provided for the temporary
differences between the book and tax bases of assets and liabilities. Deferred
tax assets (liabilities) are reflected in the consolidated balance sheets as
follows:
June 27, June 28,
1998 1997
----------- ---------
Net current assets........................... $ 647,000 $ 383,000
Net noncurrent assets........................ 147,000 152,000
----------- ---------
$ 794,000 $ 535,000
=========== =========
Principal items making up the deferred income tax assets (liabilities) are
as follows:
Year Ended
---------------------
June 27, June 28,
1998 1997
---------- --------
Inventory valuation reserves.............. $ 195,000 $162,000
Depreciation.............................. (110,000) (107,000)
Deferred charges.......................... 161,000 107,000
Inventory capitalization ................. 224,000 191,000
Accounts receivable reserves.............. 324,000 182,000
---------- --------
Net deferred tax asset................. $ 794,000 $535,000
========== ========
The Company's effective income tax rates are different than the U.S.
Federal statutory tax rate for the following reasons:
1998 1997 1996
---- ---- ----
U.S. Federal statutory tax rate.............. 34.0% 34.0% 34.0%
State income taxes, net of federal income tax
benefit...................................... 5.1 4.3 3.6
Non-deductible expenses...................... 1.2 1.5 (5.3)
Foreign tax rates............................ - (0.8) (4.9)
Net tax effect of prior year adjustments..... - - 2.5
Other........................................ (0.6) (1.0) (1.4)
----- ----- ----
Effective tax rate........................... 39.7% 38.0% 28.5%
===== ==== ====
NOTE 7 -- LINE OF CREDIT
The Company has a credit facility with NationsBank, opened on August 1,
1997, in conjunction with the purchase of Wink Davis, amended on February 6,
1998, in conjunction with the purchase of TMC and expiring on July 31, 2000.
This facility furnished term loan financing for these acquisitions and also
provides a line of credit for direct borrowings and issuance of documentary
letters of credit. The line of credit provides up to $38.3 million, subject to
current collateral balances, including up to a maximum of $8.5 million for
direct borrowings, with the balance available for documentary letters of credit
and term debt. Amounts outstanding under the line of credit bear interest at the
greater of prime plus 1.0% or the Federal Funds Rate plus 1.5% for base rate
loans and the Eurodollar Rate plus 2.0% for Eurodollar loans. At June 27, 1998,
the interest rate on the line of credit was 9.50%. In connection with this line
of credit, the Company granted a security interest in accounts receivable and
inventory, as defined in the loan agreement. (See Note 8)
This credit facility contains certain covenants that require, among other
things, the Company to maintain levels of current assets to current liabilities,
gross borrowings to EBITDA, working capital, tangible net worth, restrictions on
dividends, and certain fixed charge coverage. As of June 27, 1998, the Company
was in compliance with such covenants.
F-10
<PAGE>
SPEIZMAN INDUSTRIES INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
NOTE 8 -- LONG-TERM DEBT
Long-term debt consists primarily of a term loan with NationsBank which
provided $8.3 million used for financing the acquisitions of Wink Davis and TMC.
The repayment schedule requires quarterly principal payments of $380,000, a
single annual prepayment calculated as a percentage of the prior year's adjusted
earnings, and the balance due on the loan's expiration date, July 31, 2000.
The term loan agreement permits the Company to select either a base
interest rate or a Eurodollar interest rate plus 2.0%. The base interest is the
greater of prime plus 1.0% or the Federal Funds Effective Rate plus 1.5%. At
June 27, 1998, $7,250,000 of the term loan was borrowed under the Eurodollar
selection bearing interest at 7.625% and the balance of $420,000 was borrowed
under the base rate selection bearing interest at 9.5%.
The term loan agreement requires that the Company enter an interest rate
swap agreement for a portion of the outstanding principal. The swap agreement is
an interest rate hedge which, in effect, converts the interest rate from a
variable to a fixed rate over a three-month period. At June 27, 1998, $7,250,000
was fixed at an interest rate of 7.625% through August 15, 1998.
Long-term debt consists of:
June 27, 1998 June 28, 1997
------------- -------------
Total Total
-------------- -------------
Term loan........................ $ 7,670,000 $ -
Other............................ - 112,113
------------- -----------
Total............................ 7,670,000 112,113
Current maturities............... (1,945,000) (1,769)
------------- -----------
$ 5,725,000 $ 110,344
============= ===========
Annual maturities of long-term debt are 1999, $1,945,000; 2000,
$1,520,000; and 2001, $4,205,000.
NOTE 9 -- STOCK OPTIONS
The Company has reserved 125,000, 250,000 and 450,000 shares of Common
Stock under employee stock plans adopted in 1981, 1991 and 1995, respectively.
As of June 27, 1998, options to purchase 4,000, 85,385 and 371,000 were
outstanding under the 1981, 1991 and 1995 Plans, respectively. Currently,
outstanding options become exercisable in two to four years from the grant date.
All options, subject to certain exceptions with regard to termination of
employment and the percentage of outstanding shares of common stock owned, must
be exercised within ten (10) years of the grant date. The option price under the
1981 and 1991 Plans, subject to certain exceptions, may not be less than 100% of
the fair market value per share of Common Stock on the date of the grant of the
option or 110% of such value for persons who control 10% or more of the voting
power of the Company's stock on the date of the grant. The option price under
the 1995 Plan is not limited and may be less than 100% of the fair market value
on the date of the grant. A summary of employee stock option transactions and
other information for 1998, 1997, and 1996 follows:
F-11
<PAGE>
SPEIZMAN INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
<TABLE>
<CAPTION>
<S> <C>
Year Ended
------------------------------------------------------------
Weighted Weighted Weighted
June 27, Average June 28, Average June 29, Average
1998 Price/Sh 1997 Price/Sh. 1996 Price/Sh
-------- -------- --------
Shares under option,
beginning of year.......... 466,925 $4.17 334,092 $3.13 150,429 $3.15
Options granted............ 88,000 6.31 159,500 6.00 183,663 3.10
Options exercised.......... (94,540) 3.01 (26,667) 2.06 - -
Options expired............ - - - - - -
-------- ----- ------- ----- ------- -----
Shares under option, end
of year.....................460,385 $4.81 466,925 $4.17 334,092 $3.13
======== ===== ======= ===== ======= =====
Options exercisable.........236,410 141,668 117,086
======== ======= =======
Prices of options $.75 to
exercised................. $5.50 $2.063 -
Prices of options $.75 to $.75 to $.75 to
outstanding, end of year...$6.31 $6.00 $5.50
</TABLE>
The Company has reserved 15,000 shares of Common Stock under a
non-employee directors stock option plan adopted in 1995. Each option granted
under the Plan becomes exercisable in cumulative increments of 50% and 100% on
the first and second anniversaries of the date of the grant, respectively, and
subject to certain exceptions must be exercised within ten (10) years from the
date of the grant. The option price equals the fair market value per share of
Common Stock on the date of the grant. Options to purchase 9,000 shares were
granted and outstanding at the end of the year at a price of $2.88 to $6.13.
A summary of non-employee directors stock option and other information for
1998, 1997 and 1996 follows:
<TABLE>
<CAPTION>
<S> <C>
Year Ended
--------------------------------------------------------
Weighted Weighted Weighted
June 27, Average June 28, Average June 29, Average
1998 Price/Sh 1997 Price/Sh 1996 Price/Sh.
-------- -------- -------- -------- -------- ---------
Shares under option,
beginning of year............6,000 $ 4.16 3,000 $ 2.88 - $ -
Options granted..............3,000 6.13 3,000 5.44 3,000 2.88
Options exercised............ - - - - - -
Options expired.............. - - - - - -
----- ------ ----- ------- ----- ------
Shares under option, end
of year..................... 9,000 $ 4.81 6,000 $ 4.16 3,000 $ 2.88
===== ======= ===== ======= ===== ======
Options exercisable......... 4,500 1,500 -
===== ===== =====
Prices of options
exercised................... - - -
Prices of options $2.88 to $2.88 to
outstanding, end of year....$6.13 $5.44 $2.88
</TABLE>
The Company has adopted the disclosure only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation." Accordingly, no compensation cost has been recognized for the
stock option plans. The fair value of each option grant is estimated on the date
of grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions for grants: expected lives of 10.0 years, expected
volatility of 0.574, risk-free interest rate of 6.5% and dividend yield of 0.0%.
The Black-Scholes option valuation model was developed for estimating the
fair value of traded options that have no vesting restrictions and are fully
transferable. Because option valuation models require the use of subjective
assumptions and changes in these assumptions can materially impact the fair
value of the options and the Company's options do not have the characteristics
of traded options, the option valuation models do not necessarily provide a
reliable measure of the fair value of its options. The estimated fair value of
stock options granted during fiscal 1998 and 1997 was $4.69 and $4.46 per share,
respectively.
F-12
<PAGE>
SPEIZMAN INDUSTRIES INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options vesting period. Had
compensation cost for the Company's stock option plans been determined based on
the fair value at the grant date for awards consistent with the provisions of
SFAS No. 123, the Company's net earnings and earnings per share would have been
changed to the pro forma amounts indicated below:
Year Ended Year Ended
June 27, 1998 June 28, 1997
------------- -------------
Pro forma net income ............ $ 1,480,353 $ 2,512,366
Pro forma basic earnings per
share ............................ $ 0.45 $ 0.78
Pro forma diluted earnings per
share ............................ 0.43 0.75
The following table summarizes information about stock options outstanding
at June 27, 1998:
Range of exercise prices $0.75 to $6.31
------------------------ --------------
Outstanding options
Number outstanding........................ 469,385
Weighted average remaining contractual
life (years)............................... 7.2
Weighted average exercise price............ $ 4.81
Exercisable options
Number outstanding......................... 264,609
Weighted average exercise price............ $ 4.07
NOTE 10 -- STOCK REDEMPTION AGREEMENTS
The Company has an agreement with its principal stockholder whereby, upon
his death, the Company is obligated to redeem a portion of the stock in the
Company held by the estate. The redemption price for common stock is to be the
fair market value of common stock, less 5%, plus any accrued dividends. In no
case will the Company pay out more than the amount of life insurance proceeds
received by the Company as a result of the death of the stockholder, nor will
the Company redeem a number of shares that would reduce the principal holder's
estate's percentage of the outstanding common stock of the Company to less than
16%.
At June 27, 1998, there were 673,475 common shares covered by the above
agreement. The face value of life insurance carried by the Company under this
agreement amounts to $1,150,000.
NOTE 11 -- DEFERRED COMPENSATION PLANS
The Company has deferred compensation agreements with two employees
providing for payments amounting to $2,056,680 upon retirement and from
$1,546,740 to $2,181,600 upon death prior to retirement. One agreement, as
modified, has been in effect since 1972 and the second agreement was effective
October 1989. Both agreements provide for monthly payments on retirement or
death benefits over fifteen year periods. Both agreements are funded under trust
agreements whereby the Company pays to the trust amounts necessary to pay
premiums on life insurance policies carried to meet the obligations under the
deferred compensation agreements.
Charges to operations applicable to those agreements were approximately
$50,362, $48,885 and $53,885 for the fiscal years 1998, 1997 and 1996,
respectively.
F-13
<PAGE>
SPEIZMAN INDUSTRIES INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
NOTE 12 -- EMPLOYEES' RETIREMENT PLAN
The Company adopted a 401(k) retirement plan, effective October 1, 1989,
for all qualified employees of the Company to participate in the plan. Employees
may contribute a percentage of their pretax eligible compensation to the plan,
and the Company matches 50% (25% prior to September 13, 1996) of each employee's
contribution up to 4% of pretax eligible compensation. The Company's matching
contributions totaled approximately $107,000, $47,000 and $21,000 in fiscal
years 1998, 1997 and 1996, respectively.
NOTE 13 -- COMMITMENTS AND CONTINGENCIES
The Company had outstanding commitments backed by letters of credit of
approximately $8,220,000 and $16,631,000 at June 27, 1998 and June 28, 1997,
respectively, relating to the purchase of machine inventory for delivery to
customers.
The Company is presently the Defendant in a lawsuit filed by a former
employee of the Company who lost his job in 1997, pursuant to a reduction in
workforce. At the present time, both Plaintiff and the Company are engaged in
discovery processes including depositions, and it is the Company's position that
it will defend vigorously against all claims brought by this former employee
through trial, if necessary.
While the amount claimed may be substantial, the ultimate liability cannot
now be determined because of a number of considerable uncertainties, both
factual and legal, that presently exist. Therefore, it is possible that results
of operations in a particular period could be materially affected. Based on
facts currently available, management believes that the disposition of this
matter will not have a materially adverse effect on the financial position of
the Company.
NOTE 14 - SUBSEQUENT EVENT
On August 1, 1998, the Company was granted the exclusive United States and
Canadian distribution rights of the Marzoli product line manufactured by
Fratelli Marzoli & C. spa, an Italian corporation. As part of its agreement with
Fratelli Marzoli & C. SpA, the Company will assume the operations of the current
offices, showrooms and personnel. Fratelli Marzoli & C. SpA manufactures
equipment used in the yarn processing industry. Prior to the Company's receipt
of distribution rights, Fratelli Marzoli & Co. SpA distributed its products in
the United States through its wholly-owned subsidiary, Marzoli International,
Inc., a domestic corporation based in Spartanburg, South Carolina. Revenues of
Marzoli International, Inc. for the twelve months ended December 31, 1997 were
approximately $13.9 million.
NOTE 15 - BUSINESS ACQUISITIONS
On August 1, 1997, the Company acquired all of the outstanding stock of
Wink Davis, a Georgia corporation. For financial statement purposes, the
acquisition was accounted for as a purchase and accordingly, Wink Davis' results
for the eleven months since the date of acquisition are included in the
consolidated financial statements. The aggregate purchase price was
approximately $9,467,677. 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. These contingent payments, if any, will be capitalized as
increases to the original purchase price and amortized accordingly. The
aggregate purchase price, which was financed through available cash resources,
borrowings on the revolving line of credit and issuance of a term loan, has been
allocated to the assets based upon their respective fair market values. The
excess of the purchase price over assets acquired (Goodwill) approximated
$4,343,662 and is being amortized over fifteen years.
F-14
<PAGE>
SPEIZMAN INDUSTRIES INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
On February 6, 1998, the Company acquired all of the outstanding stock of
TMC, a North Carolina corporation. For financial statement purposes the
acquisition was accounted for as a purchase and, accordingly, TMC's results are
included in the consolidated financial statements since the date of acquisition.
The aggregate purchase price was approximately $1,841,304. The aggregate
purchase price, which was financed through available cash resources, borrowings
on the revolving line of credit and issuance of a term loan, has been allocated
to the assets based upon their respective fair market values. The excess of the
purchase price over assets acquired (Goodwill) approximated $2,094,247 and is
being amortized over fifteen years.
The following unaudited pro forma consolidated results of operations for
fiscal 1997 have been prepared as if the acquisition of Wink Davis occurred as
of the beginning of fiscal 1997. Pro forma operating results for fiscal 1998 as
though the enterprises had been combined as of the beginning of the fiscal year
would not differ materially from actual results for fiscal 1998. The acquisition
of Wink Davis occurred early in fiscal 1998, and, accordingly, operating results
for the incremental period of approximately one month would not be significant.
The incremental operating results of TMC for fiscal 1997 and incremental period
of approximately seven months in fiscal 1998 would not be significant.
Pro Forma Results for the
Year Ended June 28, 1997
------------------------
Net sales $ 111,739,000
Net income $ 2,589,000
Net income per share - basic $ 0.80
Net income per share - diluted $ 0.77
The pro forma consolidated results do not purport to be indicative of
results that would have occurred had the acquisitions been in effect for the
period presented, nor do they purport to be indicative of the results that will
be obtained in the future.
NOTE 16 - SEGMENT INFORMATION
The Company operates primarily in two segments of business, textile
equipment and laundry equipment and services. Prior to the acquisition of Wink
Davis on August 1, 1997, the Company operated only in the textile segment. TMC
is included in the textile equipment classification. The table below summarizes
financial data by segment.
Total revenues
Textile equipment $ 67,229,741
Laundry equipment and services 23,656,544
----------
$ 90,886,285
============
Total assets
Textile equipment $ 38,744,098
Laundry equipment and services 11,289,813
----------
$ 50,033,911
============
Income before interest and taxes
Textile equipment $ 3,915,662
Laundry equipment and services 81,720
----------
$ 3,997,382
============
F-15
<PAGE>
SPEIZMAN INDUSTRIES INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
NOTE 17 -- SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Year Ended
------------------------------------
June 27, June 28, June 29,
1998 1997 1996
---- ---- ----
Cash paid during year for:
Interest................................$ 776,544 $ 101,315 $ 81,578
Income taxes............................1,381,196 1,440,696 120,086
F-16
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
SPEIZMAN INDUSTRIES, INC.
The audits referred to in our report dated August 27, 1998, relating to the
consolidated financial statements of Speizman Industries, Inc. and subsidiaries
which is contained in Item 8 of this Form 10-K included the audit of the
financial statement schedule listed in the accompanying index. This financial
statement schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion on this financial statement schedule
based upon our audits.
In our opinion, such consolidated financial statement schedule presents fairly,
in all material respects, the information set forth therein.
Charlotte, North Carolina BDO Seidman, LLP
August 27, 1998
S-1
<PAGE>
SPEIZMAN INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
<S> <C>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
- -------- -------- -------- -------- -------- --------
BALANCE AT CHARGED TO CHARGED TO DEDUCTIONS BALANCE
BEGINNING COSTS AND OTHER FROM AT END
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS RESERVES OF PERIOD
- ----------- --------- -------- -------- -------- ---------
Fiscal year ended June 29, 1996:
Reserve for doubtful accounts........ $207,158 $113,500 $ - $ 60,702 $259,956
-------- -------- --------- --------- --------
Reserve for inventory obsolescence... $595,990 $139,436 $ - $ 226,456 $508,970
-------- -------- --------- --------- --------
Fiscal year ended June 28, 1997:
Reserve for doubtful accounts........ $259,956 $233,671 $ - $ 19,150 $474,477
-------- -------- --------- --------- --------
Reserve for inventory obsolescence... $508,970 $154,133 $ - $ 241,629 $421,474
-------- -------- --------- --------- --------
Fiscal year ended June 27, 1998:
Reserve for doubtful accounts........ $474,477 $247,631 $ 189,189 $ 58,086 $853,211
-------- -------- --------- --------- --------
Reserve for inventory obsolescence... $421,474 $275,000 $ - $ 189,288 $507,186
-------- -------- --------- --------- --------
</TABLE>
S-2
<PAGE>
SPEIZMAN INDUSTRIES, INC.
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------ ----------------------
3.1 Certificate of Incorporation of Speizman Industries, Inc. (the
"Company"). (Incorporated by reference to Exhibit 3.1 contained in the
Company's Registration Statement on Form S-1 (the "1993 Form S-1"),
registration number 33-69748, filed with the Securities and Exchange
Commission (the "Commission") on September 30, 1993, and amendments
thereto.)
3.2 Certificate of Amendment to Certificate of Incorporation of the
Company, dated December 4, 1978. (Incorporated by reference to Exhibit
3.2 contained in the 1993 Form S-1.)
3.3 Certificate of Amendment to Certificate of Incorporation of the
Company, dated February 8, 1993. (Incorporated by reference to Exhibit
3.3 contained in the 1993 Form S-1.)
3.4 Certificate of Amendment of Certificate of Incorporation of the
Company, dated January 31, 1997.
3.5 Bylaws of the Company, as amended November 7, 1978. (Incorporated by
reference to Exhibit 3.6 contained in the 1993 Form S-1.)
4.1 Certificate of Incorporation of the Company as currently in effect
(included as Exhibits 3.1 through 3.5). (Incorporated by reference to
Exhibit 4.1 contained in the 1993 Form S-1.)
4.2 Bylaws of the Company, as amended November 7, 1978. (Incorporated by
reference to Exhibit 4.2 contained in the 1993 Form S-1.)
4.3 Specimen Common Stock Certificate. (Incorporated by reference to
Exhibit 4.3 contained in the 1993 Form S-1.)
10.1 Agency Agreement between the Company and Lonati, S.r.l., Brescia,
Italy ("Lonati"), dated January 2, 1992, relating to the Company's
distribution of machines in the United States. (Incorporated by
reference to Exhibit 10.1 contained in the 1993 Form S-1.)
10.2 Agency Agreement between the Company and Lonati, dated January 2,
1992, relating to the Company's distribution of machines in Canada.
(Incorporated by reference to Exhibit 10.2 contained in the 1993 Form
S-1.)
10.3 Distribution Agreement by and between Company and Lonati, dated
January 2, 1997, relating to the Company's distribution of circular
knitting machines, ladies and men in Mexico.
10.4 Agency Agreement between the Company and Santoni, S.r.l., Brescia,
Italy ("Santoni"), dated January 2, 1992 ("Santoni Agreement").
(Incorporated by reference to Exhibit 10.3 contained in the 1993 Form
S-1.)
10.5 Letter from Santoni relating to the Santoni Agreement, dated June 8,
1992. (Incorporated by reference to Exhibit 10.4 contained in the 1993
Form S-1.)
10.6 Letter Agreement between the Company and Santoni relating to the
Santoni Agreement, dated July 21, 1993. (Incorporated by reference to
Exhibit 10.5 contained in the 1993 Form S-1.)
10.7 Distributorship Agreement between the Company and Conti Complett,
S.p.A., Milan, Italy, dated October 2, 1989. (Incorporated by
reference to Exhibit 10.8 contained in the Company's Annual Report on
Form 10-K for the fiscal year ended July 2, 1994, File No. 0-8544,
filed with the Commission on September 30, 1994 (the "1994 Form
10-K").)
10.8 Letter from Orizio Paolo, S.p.A., Brescia, Italy, dated July 18, 1995,
appointing Company as its exclusive distributor. (Incorporated by
reference to Exhibit 10.15 contained in the Company's Annual Report on
Form 10-K for the fiscal year ended July 1, 1995, File No. 0-8544,
filed with the Commission on September 29, 1995 (the "1995 Form
10-K").)
10.9 Independent Distributor Agreement between the Company and Orizio
Paolo, S.p.A., dated August 1, 1995. (Incorporated by reference to
Exhibit 10.15.1 contained in the Company's Annual Report on Form 10-K
for fiscal year ended June 29, 1996, File No. 0-8544, filed with the
Commission on September 25, 1996 (the "1996 Form 10-K").)
10.10 Termination Agreement (fax) of Distributor Agreement between the
Company and Orizio Paola, S.p.A. dated as of April 1998.
10.11 Split Dollar Insurance Agreement, dated January 15, 1992, between the
Company and Richard A. Bigger, Jr., Successor Trustee of the Robert S.
Speizman Irrevocable Insurance Trust. (Incorporated by reference to
Exhibit 10.13 contained in the 1993 Form S-1.)
10.12 First Amendment to Split Dollar Insurance Agreement, dated September
4, 1996, between the Company and Richard A. Bigger, Jr., Successor
Trustee of the Robert S. Speizman Irrevocable Insurance Trust.
(Incorporated by reference to Exhibit 10.16.1 contained in the
Company's 1996 Form 10-K.)
<PAGE>
10.13 Lease Agreement between the Company and Speizman Brothers Partnership,
dated as of December 12, 1990. (Incorporated by reference to Exhibit
10.14 contained in the 1993 Form S-1.)
10.14 Lease Amendment and Extension Agreement between the Company and
Speizman Brothers Partnership dated April 1, 1995. (Incorporated by
reference to Exhibit 10.18 contained in the Company's 1995 Form 10-K.)
10.15 Second Lease Amendment and Extension Agreement between the Company and
Speizman Brothers Fifth Street Partnership (formerly Speizman Brothers
Partnership), dated April 1, 1996. (Incorporated by reference to
Exhibit 10.18.1 contained in the Company's 1996 Form 10-K.)
10.16 Third Lease Amendment and Extension Agreement between the Company and
Speizman Brothers Fifth Street Partnership, dated April 1, 1998.
10.17 Lease Agreement by and between The Speizman LLC and Speizman
Industries, Inc., dated as of October 29, 1997.
10.18 First Amendment to Lease Agreement by and between The Speizman LLC and
Speizman Industries, Inc., dated as of October 29, 1997, and executed
July 22, 1998.
10.19 Deed of Lease between Speizman Canada, Inc., and Metro II & III,
undated, as renewed by letter agreement, dated February 17, 1992.
(Incorporated by reference to Exhibit 10.19 contained in the 1993 Form
S-1.)
10.20 Letter Agreement extending lease between Speizman Canada, Inc., and
Metro II & III, dated October 21, 1994. (Incorporated by reference to
Exhibit 10.20 contained in the Company's 1995 Form 10-K.)
10.21 Memorandum of Agreement of Extension of Lease between Speizman Canada,
Inc., and Metro II & III, dated November 21, 1995. (Incorporated by
reference to Exhibit 10.20.1 contained in the Company's 1996 Form
10-K.)
10.22 Memorandum of Agreement of Extension of Lease between Speizman Canada,
Inc., and Metro II & III, dated January 29, 1997. (Incorporated by
reference to Exhibit 10.17 contained in the Company's Annual Report on
Form 10-K for fiscal year ended June 27, 1997, File No. 0-8544, filed
with the Commission on September 26, 1997 (the "1997 Form 10-K").)
10.23 Memorandum of Agreement of Extension of Lease between Speizman Canada,
Inc., and Metro II & III, dated September 23, 1997.
10.24 Agreement of Lease between the Company and LBA Properties, Inc., dated
June 2, 1994. (Incorporated by reference to Exhibit 10.17.1 contained
in the Company's 1994 Form 10-K.)
10.25 Lease Agreement between the Company and B.F. Knott, dated May 12,
1993. (Incorporated by reference to Exhibit 10.18 contained in the
Company's 1994 Form 10-K.)
10.26 Modification and Extension of Lease between the Company and B.F.
Knott, dated March 29, 1994. (Incorporated by reference to Exhibit
10.18.1 contained in the Company's 1994 Form 10-K.)
10.27 Modification and Extension of Lease between the Company and B.F.
Knott, dated October 17, 1994. (Incorporated by reference to Exhibit
10.24 contained in the Company's 1995 Form 10-K.)
10.28 Modification and Extension of Lease between the Company and B.F.
Knott, dated February 13, 1995. (Incorporated by reference to Exhibit
10.25 contained in the Company's 1995 Form 10-K.)
10.29 Lease Agreement between the Company and Daniel H. Porter, dated August
17, 1995. (Incorporated by reference to Exhibit 10.26 contained in the
Company's 1995 Form 10-K.)
10.30 Extension of Lease Agreement between the Company and Daniel H. Porter,
dated May 14, 1997. (Incorporated by reference to Exhibit 10.25
contained in the Company's 1997 Form 10-K.)
10.31 Lease Agreement between the Company and Kathryn B. Godley, dated March
5, 1996. (Incorporated by reference to Exhibit 10.27 contained in the
Company's 1996 Form 10-K.)
10.32 Lease Agreement between the Company and Hans L. Lengers, LLC, dated
February 15, 1996. (Incorporated by reference to Exhibit 10.28
contained in the Company's 1996 Form 10-K.)
10.33* 1981 Incentive Stock Option Plan of the Company. (Incorporated by
reference to Exhibit 10.19 contained in the 1993 Form S-1.)
10.34* 1991 Incentive Stock Option Plan and Amendment to 1981 Incentive Stock
Option Plan of the Company. (Incorporated by reference to Exhibit
10.20 contained in the 1993 Form S-1.)
10.35* 1991 Incentive Stock Option Plan, as Amended and Restated Effective
September 20, 1993, of the Company. (Incorporated by reference to
Exhibit 10.21 contained in the 1993 Form S-1.)
10.36* Speizman Industries, Inc. 1995 Stock Option Plan. (Incorporated by
reference to Exhibit 4 to the Company's Registration Statement on Form
S-8, registration number 333-06287, filed with the Commission on June
19, 1996.)
10.37* Speizman Industries, Inc. Nonqualified Stock Option Plan as amended on
October 4, 1996. (Incorporated by reference to Exhibit 99.1 to the
Company's Registration Statement on Form S-8, registration no.
333-23503, filed with the Commission on March 18, 1997.)
<PAGE>
10.38* Speizman Industries, Inc. Nonqualified Stock Option Plan as amended on
September 29, 1997. (Incorporated by reference to Exhibit 99.1 to the
Company's Registration Statement on Form S-8, registration no.
333-46769, filed with the Commission on February 24, 1998.)
10.39* Restated Deferred Compensation Agreement, dated May 22, 1989, between
the Company and Josef Sklut, as amended by Amendment to Deferred
Compensation Agreement, dated December 30, 1992 (the "Deferred
Compensation Agreement"). (Incorporated by reference to Exhibit 10.27
contained in the 1993 Form S-1.)
10.40* Restated Trust Agreement, dated May 22, 1989, between the Company and
First Citizens Bank and Trust Company, as amended by First Amendment
to Trust Agreement dated December 30, 1992, relating to the Deferred
Compensation Agreement. (Incorporated by reference to Exhibit 10.28
contained in the 1993 Form S-1.)
10.41* Executive Bonus Plan of the Company, adopted February 2, 1990, as
amended March 5, 1990. (Incorporated by reference to Exhibit 10.29
contained in the 1993 Form S-1.)
10.42* Executive Bonus Plan of the Company, adopted July 20, 1993.
(Incorporated by reference to Exhibit 10.30 contained in the 1993 Form
S-1.)
10.43* Resolutions of the Company's Board of Directors dated November 15,
1995, extending Executive Bonus Plan adopted July 20, 1993.
(Incorporated by reference to Exhibit 10.34 contained in the Company's
1995 Form 10-K.)
10.44 Redemption Agreement between the Company and Robert S. Speizman, dated
May 31, 1974, as amended by Modified Redemption Agreement, dated April
14, 1987, Second Modified Redemption Agreement, dated September 30,
1991, and Third Modified Redemption Agreement, dated as of July 14,
1993. (Incorporated by reference to Exhibit 10.34 contained in the
1993 Form S-1.)
10.45 Fourth Modified Redemption Agreement between the Company and Robert S.
Speizman, dated September 14, 1994. (Incorporated by reference to
Exhibit 10.36 contained in the Company's 1995 Form 10-K).
10.46 NationsBank of North Carolina, National Association $12,000,000 Credit
Facility for Speizman Industries, Inc., dated April 19, 1994.
(Incorporated by reference to Exhibit 10.45 contained in the 1994 Form
10-K.)
10.47 1995 Consolidated Amendment Agreement to Loan Agreement and Related
Documents dated May, 1995. (Incorporated by reference to Exhibit 10.38
contained in the Company's 1995 Form 10-K).
10.48 1995 Second Consolidated Amendment Agreement to Loan Agreement and
Related Documents, dated September 1, 1995. (Incorporated by reference
to Exhibit 10.43 contained in the Company's 1996 Form 10-K.)
10.49 1995 Third Consolidated Amendment Agreement to Loan Agreement and
Related Documents, dated October 31, 1995. (Incorporated by reference
to Exhibit 10.44 contained in the Company's 1996 Form 10-K.)
10.50 1996 First Consolidated Amendment Agreement to Loan Agreement and
Related Documents, dated May 15, 1996. (Incorporated by reference to
Exhibit 10.45 contained in the Company's 1996 Form 10-K.)
10.51 1996 Second Consolidated Amendment Agreement to Loan Agreement and
Related Documents, dated June 26, 1996. (Incorporated by reference to
Exhibit 10.46 contained in the Company's 1996 Form 10-K.)
10.52 1996 Third Consolidated Amendment Agreement to Loan Agreement and
Related Documents, dated August 26, 1996. (Incorporated by reference
to Exhibit 10.47 contained in the Company's 1996 Form 10-K.)
10.53 NationsBank $25,000,000 Amended and Restated Credit Facility, dated
December 19, 1996. (Incorporated by reference to Exhibit 10.47
contained in the Company's 1997 Form 10-K.)
10.54 NationsBank $37,000,000 Amended and Restated Credit Facility, dated
July 31, 1997. (Incorporated by reference to Exhibit 10.48 contained
in the Company's 1997 Form 10-K.)
10.55 NationsBank Letter increasing Term Loan by $1.3 million, dated
February 4, 1998.
10.56 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 IIII, Taylor Ferrell Davis, Allison Davis
Jabaley, Matthew Worley Davis, Amy Butler Davis and Kyle Alexander
Davis. (Incorporated by reference to Exhibit 3 contained in the
Company's Current Report on Form 8-K, File No. 0-8544, filed on August
14, 1997.)
10.57 Dealer Agreement by and between Pellerin Milnor Corporation and Wink
Davis Equipment Company, Inc. ("Wink Davis"), dated July 1, 1989,
relating to the Company's distribution of machines primarily in the
southeastern United States and the Chicago, Illinois area.
(Incorporated by reference to Exhibit 10.50 contained in the Company's
1997 Form 10-K.)
10.58 Distributor Agreement by and between Chicago Dryer Corporation ("CDC")
and Wink Davis, dated January 1, 1994, relating to the distribution of
certain items of CDC's commercial laundry equipment. (Incorporated by
reference to Exhibit 10.51 contained in the Company's 1997 Form 10-K.)
10.59 Atlanta Commercial Board of Realtors Standard Commercial Lease
Agreement by and among Davis Brothers Venture and Wink Davis, dated
July 31, 1997 relating to the Atlanta, Georgia area. (Incorporated by
reference to Exhibit 10.52 contained in the Company's 1997 Form 10-K.)
<PAGE>
10.60 Atlanta Commercial Board of Realtors Standard Commercial Lease
Agreement by and among Davis Brothers Venture and Wink Davis, dated
July 31, 1997 relating to the Charlotte, North Carolina area.
(Incorporated by reference to Exhibit 10.53 contained in the Company's
1997 Form 10-K.)
10.61 Atlanta Commercial Board of Realtors Standard Commercial Lease
Agreement by and among Davis Brothers Venture and Wink Davis, dated
July 31, 1997 relating to the Wooddale, Illinois area. (Incorporated
by reference to Exhibit 10.54 contained in the Company's 1997 Form
10-K.)
10.62 Atlanta Commercial Board of Realtors Standard Commercial Lease
Agreement by and among Davis Brothers Venture and Wink Davis, dated
July 31, 1997 relating to the Chester, Virginia area. (Incorporated by
reference to Exhibit 10.55 contained in the Company's 1997 Form 10-K.)
10.63 Earnout Agreement by and among Speizman Industries, Inc. and C.
Alexander Davis, Amy Butler Davis, Taylor Ferrell Davis and Kyle
Alexander Davis, dated July 31, 1997. (Incorporated by reference to
Exhibit 10.56 contained in the Company's 1997 Form 10-K.)
10.64 Stock Purchase Agreement, dated as of February 6, 1998, by and among
Speizman Industries, Inc. and William H. Todd, Leon Locklear, Marion
C. Todd and Joseph L. Collins.
10.65 Lease Agreement by and between William H. Todd and wife, Jo Anne Todd
and Todd Motion Controls, Inc., dated February 6, 1998, for the
Reynolda facility.
10.66 Agreement to Lease between Todd Motion Controls, Inc. and Douglas I.
Cook, et al., dated September 1, 1996, for the Patterson Avenue
facility.
21 List of Subsidiaries
23 Consent of BDO Seidman
27 Financial Data Schedule
- -------------------------
* Represents a management contract or compensatory plan or arrangement
of the Registrant.
- --------------------------------------------------------------------------------
FAX
- --------------------------------------------------------------------------------
Speizman Industries, Inc.
P O Box 31215
508 West 5th Street
Charlotte, NC 28231
Phones: (704) 372-3751 o Fax: (704) 376-3153
o Export Sales Fax: (704) 372-0315
<TABLE>
<CAPTION>
<S> <C> <C>
COMPANY: Orizio Paolo, S.p.A. No. of Pages: 1
------------------------------------- -------------------
LOCATION: Italy Fax No. EXP/ 2880-G /98
------------------------------------- ------------
----------------------------
ATTENTION: Massimo Conforti If you do not receive the
------------------------------------- number of pages indicated,
please contact us at:
FROM: C. Paisley Gordon (704) 372-3751
------------------------------------- ----------------------------
DATE: April 29, 1998
-------------------------------------
YOUR FAX 1309 DATED APRIL 15,
SUBJECT: 1998...FAX OF 29 APRIL 1998
-------------------------------------
cc: Robert Speizman, Bryan Speizman, Josef Sklut, DR, File
</TABLE>
- --------------------------------------------------------------------------------
Dear Massimo:
We are in agreement with you to terminate our distributor agreement the end
of April, 1998. We have enjoyed our relationship and feel as though we moved
a number of machines but, due to pricing, we were unable to make any money
representing Orizio. Thank you for all your help over the past years. It has
been enjoyable working with you.
Would you please advise your new representative in the United States that we
have a number of new Orizio machines in stock and a large number of Orizio
spare parts. Following is a list of the Orizio machinery and spare parts we
have on hand.
Thank you again for your help. I hope to see you again in the near future.
Please advise if you have any questions.
Yours truly,
C. Paisley Gordon
Vice President
Knitted Fabric Division
CPG/lb
STATE OF NORTH CAROLINA
THIRD LEASE AMENDMENT
COUNTY OF MECKLENBURG AND EXTENSION AGREEMENT
-----------------------
This THIRD LEASE AMENDMENT AND EXTENSION AGREEMENT (the "Agreement"), is
made effective the first day of April, 1998, by and between SPEIZMAN BROTHERS
FIFTH STREET PARTNERSHIP (formerly SPEIZMAN BROTHERS PARTNERSHIP) ("Lessor") and
SPEIZMAN INDUSTRIES, INC. ("Tenant").
STATEMENT OF PURPOSE
--------------------
A. Lessor entered into a written Lease Agreement with Tenant dated
December 12, 1990 (the "Lease"), pursuant to which Lessor leased to Tenant and
the Tenant leased from Lessor the Leased Premises described therein which are
located at 508 West Fifth Street, Charlotte, North Carolina.
B. The parties entered into a First Lease Amendment and Extension
Agreement effective April 1, 1995.
C. The parties entered into a Second Lease Amendment and Extension
Agreement effective April 1, 1996, and the parties now wish to further amend the
Lease to extend the lease term and modify the rents payable thereunder.
NOW, THEREFORE, in consideration of the Statement of Purpose (which by
this reference is made a substantive part of this Lease Amendment and Extension
Agreement) and other valuable consideration exchanged, the adequacy, sufficiency
and delivery of which are acknowledged by the parties, Lessor and Tenant
mutually agree:
1. INCORPORATION OF STATEMENT OF PURPOSE. The parties hereto ratify and
incorporate by reference the Statement of Purpose set forth above.
2. ADDITIONAL TERM. Lessor hereby leases and demises to Tenant and Tenant
hereby rents and takes from Lessor the Leased Premises for an additional term of
nine months commencing at midnight on the first day of April, 1998 and ending on
December 31, 1998, upon the same terms and conditions as set forth in the Lease,
except as herein modified. Should Tenant wish to renew the Lease, it must give
written notice to Lessor at least 90 days prior to the end of the term. If such
notice is not received, the Lease will automatically renew for an additional six
(6) month period unless Tenant provides Lessor of written notice to the contrary
at least 30 days prior to the end of any term.
3. RENTAL DURING ADDITIONAL TERM. The rent amount during each year of the
Additional Term will be the sum of Three Hundred Fifty-Six Thousand Twenty-Two
and 86/100 Dollars ($356,022.86), payable in equal monthly installments of
Twenty-Nine
<PAGE>
Thousand Six Hundred Sixty-Eight and 57/100 Dollars ($29,668.57), payable on the
first business day of each month during the term hereof, commencing on the first
day of April, 1998. Lessor reserves the right to reasonably adjust the rent if
such renewals are made.
4. RATIFICATION OF LEASE. Except as herein amended and extended, the
parties ratify and confirm the Lease. Further, as of the date of this Agreement,
Tenant hereby certifies to Lessor that: (a) the Lease, as amended, is in full
force and effect; (b) Lessor has performed all of its obligations and satisfied
all of its conditions arising under the Lease; and (c) Tenant has not assigned,
sublet or encumbered its interest in the Lease.
5. BINDING EFFECT. This Agreement shall be binding upon and shall inure to
the benefit of Lessor and the parties constituting the Tenant, jointly and
severally, and their respective personal representatives, heirs, successors and
permitted assigns.
6. ENTIRE AGREEMENT. This Agreement contains the entire agreement of the
parties hereto, and no change, qualification or cancellation hereof shall be
effective unless set forth in a writing signed by the parties hereto.
7. NOTICES. All notices, requests, consents and other communications in
connection with this Agreement shall be in writing and shall be deemed to have
been duly given when delivered or mailed in the United States Mail, First Class,
postage prepaid and addressed as follows:
As to Seller: Speizman Brothers Fifth Street Partnership
c/o Robert S. Speizman
508 West 5th Street
P.O. Box 31215
Charlotte, North Carolina 28231
As to Tenant: Speizman Industries, Inc.
508 West 5th Street
P.O. Box 31215
Charlotte, North Carolina 28231
8. SEVERABILITY. In the event that any portion of this Agreement is found
to be in violation of or conflict with any federal or state law, the parties
agree that the invalidity or unenforceability of such provision shall in no way
render invalid or unenforceable any other part or provision hereof.
9. GOVERNING LAW. This Agreement shall be construed and enforced in
accordance with the applicable provisions of North Carolina law, and the parties
hereto do further agree and stipulate that any dispute hereunder shall be
brought in the court of proper jurisdiction (State or Federal) in Charlotte,
Mecklenburg County, North Carolina.
-2-
<PAGE>
IN WITNESS WHEREOF, the Lessor and Tenant have each executed this
Agreement as of the day and year set forth above.
SPEIZMAN BROTHERS FIFTH STREET
PARTNERSHIP
/s/ ROBERT S. SPEIZMAN
---------------------- (SEAL)
Robert S. Speizman, Partner
/s/LAWRENCE J. SPEIZMAN
--------------------------- (SEAL)
Lawrence J. Speizman, Partner
SPEIZMAN INDUSTRIES, INC.
/s/ROBERT S. SPEIZMAN
---------------------------- (SEAL)
Robert S. Speizman, President
ATTEST:
/s/JOSEF SKLUT
- --------------------------
Secretary
[CORPORATE SEAL]
-3-
<PAGE>
STATE OF NORTH CAROLINA
COUNTY OF MECKLENBURG
I, L.GAIL GORMLY a Notary Public in and for said County and State do hereby
certify that ROBERT S. SPEIZMAN, as a General Partner of SPEIZMAN BROTHERS FIFTH
STREET PARTNERSHIP, personally appeared before me this day and acknowledged the
due execution of the foregoing instrument.
Witness my hand and notarial seal, this the 9 day of MARCH , 1998.
/s/L. GAIL GORMLY STATE OF NORTH CAROLINA
-------------------------
Notary Public
[SEAL]
My Commission Expires: 11-11-2000
-----------
STATE OF FLORIDA
COUNTY OF PALM BEACH
I, KRISTEN T. NEE a Notary Public in and for said County and State do
hereby certify that LAWRENCE J. SPEIZMAN, as a General Partner of SPEIZMAN
BROTHERS FIFTH STREET PARTNERSHIP, personally appeared before me this day and
acknowledged the due execution of the foregoing instrument.
Witness my hand and notarial seal, this the 16 day of SEPTEMBER , 1998.
/s/ KRISTEN T. NEE
---------------------------
Notary Public
[SEAL]
My Commission Expires:12-11-2001
-----------
-4-
<PAGE>
STATE OF NORTH CAROLINA
COUNTY OF MECKLENBURG
I,L. GAIL GORMLY, a Notary Public of the County and State aforesaid,
certify that ROBERT S. SPEIZMAN personally came before me this day and
acknowledged that he is the President of SPEIZMAN INDUSTRIES, INC. and that by
authority duly given and as the act of the corporation, the foregoing instrument
was signed in its name, sealed with its corporate seal and attested by its
Corporate Secretary.
Witness my hand and official stamp or seal, this the 9 day of MARCH, 1998.
/s/L. GAIL GORMLY
---------------------
Notary Public
[SEAL]
My Commission Expires: 11-11-2000
----------
-5-
STATE OF NORTH CAROLINA
LEASE AGREEMENT
---------------
COUNTY OF MECKLENBURG
THIS LEASE AGREEMENT is executed effective as of October 29, 1997, by and
between THE SPEIZMAN LLC, a North Carolina limited liability company, ("Lessor")
and SPEIZMAN INDUSTRIES, INC., a North Carolina Corporation, ("Lessee").
1. LEASE OF THE PREMISES. Upon the terms and conditions contained herein,
Lessor hereby leases to Lessee, and Lessee hereby leases and lets from Lessor,
the premises consisting of the land, building and improvements located at 701
Griffith Road, Charlotte, North Carolina and more particularly described on
Exhibit "A" attached hereto and incorporated herein by reference (the
"Premises"). Provided, however, that upon Lessor's satisfaction of its lender's
obligations for releasing Tracts 2 and 3 of the Premises or any portion thereof
or the approximately 2.0 acre tract shown on Exhibit "B" to the Deed of Trust in
favor of such Lender from the lien in favor of West Coast Life Insurance Company
of even date herewith (as evidenced in the Deed of Trust and Security Agreement
securing said lien), Lessee shall be obligated to enter into an amendment of
this Lease deleting all or any portion of such property, as applicable, from
this Lease, without modification of rent or any other term of this Lease.
2. TERM. The term of this Lease shall commence as of the date hereof and
shall end on September 30, 2012; provided, however, that is Lessee remains in
possession of the Premises after expiration of the term hereof, with Lessor's
acquiescence and without any express agreement of the parties, Lessee shall be a
tenant at will at the rental rate then in effect at the end of the term.
Provided, further, that if Lessee remains in possession of the Premises after
expiration of the terms hereof without Lessor's acquiescence, Lessee shall be a
tenant at sufferance and commencing on the date following the date of expiration
of the term, the monthly rental payable under paragraph 3 hereof shall be, for
each month or fraction thereof during which Lessee remains in possession of the
Premises, 200% of the monthly rental otherwise payable under paragraph 3 hereof.
Provided, finally, that in any event of holding over after the end of the term
of the Lease, there shall be no renewal or extension of the Lease by operation
of law or otherwise.
3. RENT. Lessee shall pay to Lessor as rental for the Premises the sum of
Fifty One Thousand Nine Hundred Fifty Three and 40/100's Dollars ($51,953.40)
per month, payable on or before the fifth (5th) day of each calendar month
during the term thereof. To the extent the first or last month of the term of
this Lease is less than a full calendar month, rental for such month shall be
prorated on a daily basis. Provided, however, that the monthly rental payable
hereunder shall be increased (but not decreased) each November 1 by any change
in the Consumer Price Index, Urban Wage Earners and Clerical Workers (CPI-W,
1982-84=100) ("Index") by multiplying the then in effective monthly rental by
the value of said Index for the month two months prior to the then present
November 1 (or nearest available month) and dividing the product by the value of
said Index for the month two months prior to the then previous November 1 (or
nearest available month). In the event that the Index ceases to be published,
there shall be substituted for the Index the measure published by the U.S
Department of Labor which most
<PAGE>
nearly approximates the Index.
4. CONDITION OF THE PREMISES. Lessee acknowledges that it has inspected
the Premises and accepts same in their present condition and state of repair.
Lessee acknowledges that neither Lessor nor any of Lessor's officers or agents
have made any representation or warranty regarding the condition or state of
repair of the Premises or the suitability of the Premises for Lessee's intended
use.
5. USE OF THE PREMISES. Lessee agrees to use the Premises solely for light
manufacturing, offices and a distribution facility, or such other uses as may be
permitted by I-2 zoning or such other future zoning as may affect the Premises.
Lessee shall not use the Premises in any manner that causes damage to the
Premises (exclusive of ordinary wear and tear) or which creates waste or a
nuisance. Lessee shall use the Premises in compliance, in all material respects,
with applicable laws and governmental regulations, ordinances, building and
zoning codes.
6. ALTERATIONS. Without the prior written consent of Lessor and Lessor's
lender, if any, Lessee shall not make any material alterations to the Premises,
save and except minor nonstructural alterations which are not of a permanent
nature and which do not injure or damage the Premises or decrease the value
thereof. In the event that any alterations or improvements to the Premises are
required to comply with any applicable laws, regulations or ordinances affecting
the Premises, Lessee shall give to Lessor prompt notice of such requirement and
shall promptly proceed to make such improvements or alterations as required.
7. FIXTURES. Upon termination of this Lease, Lessee may remove any of
Lessee's trade fixtures from the Premises, excluding the basic building systems
such as air conditioning, heating, electricity, ventilation, lighting and
plumbing, and Lessee shall be responsible for repairing any damage to the
Premises caused by such removal.
8. MAINTENANCE AND REPAIRS. Except as expressly provided otherwise in this
Lease, Lessor shall be responsible for maintaining the exterior walls, roof
(including roof leak repairs) and other structural components of the building
situated on the Premises, along with basic systems for electricity, air
conditioning, heat, water and plumbing, in a normal, reasonable and habitable
condition and state of repair, consistent in all respects with the condition and
state of repair existing at the commencement of this Lease, ordinary wear and
tear excepted. Lessee shall pay normal operating expenses with respect to the
Premises, including costs for ordinary maintenance of the electrical, heat, air
conditioning, and water and plumbing systems which are necessary for the normal
and customary operation thereof, but Lessee shall not be responsible for any
repairs, replacements or overhauls of such systems. Lessee shall maintain the
exterior grounds of the Premises in a neat and orderly condition, and shall
furnish all light bulbs for use on or in respect of the Premises.
2
<PAGE>
9. INSURANCE.
---------
(a) CASUALTY INSURANCE. During the term of this Lease, Lessee
shall maintain and keep in full force and effect, at its
cost, a standard comprehensive fire and extended coverage
policy of insurance with respect to the Premises naming
Lessor and Lessee as insured as their interests appear,
and providing a minimum aggregate limit on coverage of not
less than the full insurable value of the improvements
thereon. Such policy shall provide coverage against
casualties and perils normally covered by a standard fire
and extended coverage insurance policy for similar
properties, shall provide for loss of rents coverage, and
shall be in such amounts and coverages as are required by
any lender of Lessor. Lessee shall have the
responsibility to determine whether to maintain casualty
insurance with respect to Lessee's personalty and business
interruption insurance for Lessee's own benefit.
(b) LIABILITY INSURANCE. During the term of this Lease,
Lessee shall maintain and keep in full force and effect,
at its cost, a standard commercial general policy of
liability insurance insuring both Lessor and Lessee
against liabilities customarily insured against under such
policies arising out of the use of the Premises. Such
insurance shall provide an aggregate limit on coverage of
not less than $2,000,000 per occurrence, $4,000,000
aggregate general limit per policy year, and $2,000,000
property damage or such amounts as are required by any
lender of Lessor.
(c) CERTIFICATE OF INSURANCE. Lessee shall furnish to Lessor, upon
request, (i) a certificate of insurance showing such insurance
to be in full force and effect, and (ii) proof that the
premiums necessary to keep said insurance in full force and
effect have been timely paid.
(d) INSURANCE COMPANIES AND CANCELLATION. Insurance required
hereunder shall be maintained with sound and reputable
insurance companies reasonably satisfactory to the parties
or as required by any lender of Lessor, and no such policy
shall be cancelable or subject to reduction of coverage
except after thirty (30) days prior written notice to the
party not responsible for the maintenance of such
insurance and Lessor's lender, provided that Lessee may
satisfy its obligations hereunder, in whole or in part, by
means of a so-called blanket policy or under a
self-insurance program should Lessee prove to Lessor and
Lessor's lender that its tangible net worth is greater
than $100,000,000.00.
(e) WAIVER OF SUBROGATION. Lessor and Lessee hereby waive any and
all rights of recovery against the other, and against the
officers, directors, employees, agents and representatives of
the other, for loss or damage suffered by such waiving party
with respect to any events or circumstances relating to the
Premises to the extent such loss or damage is covered by
-3-
<PAGE>
applicable insurance; provided, the insurance company actually
makes payment on the policy. The insuring party shall, prior
to obtaining the policies of insurance required hereunder,
give notice to the insurance carrier that the foregoing mutual
waiver of subrogation is contained in this Lease and shall
request such insurance carrier to issue a customary
endorsement to the policy to permit such waiver of subrogation
to the extent necessary in order to prevent such waiver from
invalidating any such applicable insurance.
10. TAXES. Lessee shall pay all real property taxes and special
assessments applicable (and any penalties for late payment associated therewith)
to the Premises during the term of this Lease no later than the due date as
shown on the bill therefor, whether such bill is received directly from the
taxing authority or Lessor. Such taxes shall be prorated between Lessor and
Lessee for any partial year of the Lease term on a prorata daily basis. Such tax
payment shall be made by Lessee within twenty (20) days after notice thereof to
Lessee (but in any event, before same shall become delinquent), provided,
however, to the extent not previously paid, upon termination of this Lease
Lessee shall pay to Lessor its prorata share of any such unpaid real estate
taxes applicable to the term of this Lease based on the last available tax
statement. Lessee shall be solely responsible for paying any taxes or
governmental assessments levied upon Lessee's personal or business property.
11. UTILITIES. Lessee shall be responsible for the payment of all utility
service charges utilized on or with respect to the Premises during the term of
this Lease, including, without limitation, electricity, gas, water, sewage,
trash pickup and telephone service.
12. INDEMNIFICATION. Lessee agrees to indemnify and hold Lessor harmless
from and against claims, liabilities, damages, costs and expenses (including
reasonable attorneys fees) incurred by or asserted against Lessor as a result of
Lessee's use of the Premises during the term of this Lease.
13. DAMAGE OR DESTRUCTION OF THE PREMISES. Subject to the terms of the
lien of any first lien mortgage, deed of trust or other first lien security
interest in the Premises, in the event the Premises are damaged or destroyed by
vandalism, fire, storm, wind or other casualty, the insurance proceeds from the
casualty insurance maintained pursuant to the terms hereof shall be utilized to
repair, as soon as practical, the damaged portion of the Premises so as to
restore the Premises to a condition substantially the same in all material
respects as the condition existing immediately before such casualty to the
extent of net insurance proceeds available to Lessor for repair. The rent
payable pursuant to this Lease for the period during which such damaged
condition continues shall be reasonably and equitably abated in proportion to
the degree to which Lessee's use of the Premises is impaired.
14. RIGHT OF ENTRY. At all times during the term of this Lease, Lessor and
Lessor's officers, agents and representatives shall have the right to enter into
and upon the Premises for purposes of inspecting the same.
15. CONDEMNATION. In the event all or any part of the Premises are taken
under
-4-
<PAGE>
power of eminent domain, the rental provided hereunder shall be reduced in
proportion to which the value of the property taken bears to the whole value of
the Premises immediately prior to such condemnation. After any such taking, if
the residue of the Premises is reasonably inadequate for Lessee's intended use
thereof as contemplated hereby, Lessee shall have the option to terminate this
Lease by giving written notice thereof to Lessor. All damages awarded and
condemnation proceeds received shall be payable to Lessor, provided that Lessee
may make a separate claim for its undepreciated leasehold improvements, moving
expenses or the like so long as such claim does not reduce any potential claim
of Lessor.
16. FAILURE BY LESSEE TO PAY EXPENSES. In the event Lessee fails to pay
any cost or expense with respect to the Premises required to be paid by Lessee
hereunder, Lessor shall have the option, in its discretion, to pay such cost or
expense and recover the same from Lessee as additional rent which sum shall be
payable with interest thereon at the rate of eight percent (8%) per annum,
within ten (10) days after demand by Lessor.
17. ASSIGNMENT OR SUBLETTING. Lessee shall not assign, transfer, or
mortgage this Lease, nor shall Lessee sublease all or any part of the Premises
without Lessor's prior written consent, provided, however, that Lessor consents
to that certain sublease to J.B. Ivey & Company of even date herewith. In the
event of any assignment, transfer or subletting, Lessee shall remain primarily
liable for all obligations under the Lease (except as may be expressly agreed by
the parties and consented to by Lessor's lender).
18. ENVIRONMENTAL MATTERS.
---------------------
(a) COMPLIANCE. During the term of this Lease, Lessee shall
comply with all applicable Environmental Laws (as
hereinafter defined) and shall not place or store, handle
or dispose of any Hazardous Substances (as hereinafter
defined) in, on or under the Premises except as permitted
by applicable law and appropriate governmental
authorities. If requested by Lessor, Lessee shall furnish
Lessor with copies of all environmental permits, if any,
required by governmental authorities with competent
jurisdiction with respect to the Premises or Lessee's
operations at the Premises. During the term of this
Lease, Lessee shall promptly notify Lessee in the event of
Lessee's discovery of, or Lessee's receipt of notice
concerning, any Hazardous Substances which are located on
or under or adjacent to, or are being or have been
released from, the Premises.
(b) INDEMNIFICATION. Lessee hereby indemnifies Lessor and
holds Lessor harmless from and against all loss,
liability, damage, expense, claim, cost, fine or penalty,
including costs of investigation and remediation, suffered
or incurred by Lessor as a result of (i) the violation by
Lessee (or Lessee's subtenants or assignees, or the
agents, contractors, customers or employees of same during
the term of the Lease of any Environmental Law, (ii) any
Hazardous Substances placed or disposed of on or under the
Premises or any adjacent premises by Lessee, its agents,
contractors, customers, employees (or Lessee's subtenants
or assignees, or the agents, contractors,
-5-
<PAGE>
customers or employees of same) during the term of this Lease,
or (iii) any exacerbation during the term of this Lease of any
existing environmental condition by Lessee, its agents,
contractors, customers, employees (or Lessee's subtenants or
assignees, or the agents, contractors, customers or employees
of same). The foregoing indemnities shall survive and remain
in effect following the termination of this Lease. Lessor's
remedies hereunder against Lessee are not exclusive of common
law and statutory remedies otherwise available to Lessor, and
shall not be affected in any way if the liability or claim for
which indemnification is sought arises by reason of strict
liability. Lessor acknowledges that an above-ground diesel
storage tank exists and is operated by Lessee on the Premises.
(c) Definitions.
------------
(i) "Remediation," for purposes of this Lease, shall
mean all direct and indirect costs (including costs
by way of reimbursement of any regulatory agency)
reasonably incurred in connection with or arising
out of the investigation and remediation of any of
the matters covered by the foregoing indemnities,
including by way of illustration and without
limitation, reasonable attorney's fees,
investigation costs, penalties, fines and interest
imposed by any regulatory authority, reasonable
investigative fees and consulting fees, testing,
costs of removal of contaminated materials,
transportation of contaminated materials, and
landfill or other off-site disposal costs,
reasonable costs of replacement of contaminated
materials removed, reasonable costs of restoring the
Premises to substantially the condition existing as
of the date hereof, reasonable costs of on-site
treatment of contaminated soil and groundwater, and
reasonable costs of digging wells and future
monitoring.
(ii) The term "Hazardous Substances" is defined for
purposes of this Lease as that term is defined under
the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended
(42 U.S.C. Sections 9601 et seq.) ("CERCLA"), and
any implementing regulations, and, in addition as
including any petroleum, crude oil or any fractions
thereof or any other substance or material
classified as toxic, hazardous or extremely
hazardous under any applicable federal, state or
local law, ordinance or requirement or any
governmental authority with competent jurisdiction.
(iii) The term "Environmental Laws" is defined for purposes of
this Lease as meaning CERCLA, the Resource Conservation
and Recovery Act (42 U.S.C. Sections 6901 et seq.), and
any other federal, state or local law, statute,
ordinance, regulation or rule (A) concerning hazardous,
toxic or dangerous wastes, substances or
-6-
<PAGE>
materials, or (B) pertaining to the protection of the
environment.
19. EVENTS OF DEFAULT. Any of the following shall be deemed an event of
default by Lessee under this Lease:
(a) Failure by Lessee to timely pay any installment of rent or any
other monetary obligation under this Lease as and when due and
payable;
(b) The breach by Lessee of any other term or provision of
this Lease, and the continuance thereof for a period of
ten (10) days after receipt by Lessee of written notice
thereof from Lessor, provided if such breach is not
reasonably capable of being cured within such 10-day
period, Lessee shall not be in default hereunder to the
extent it proceeds and continues to proceed in good faith
to cure such breach as soon as reasonably practical;
(c) Lessee (i) making a general assignment for the benefit of
creditors, (ii) generally not paying its debts as they
become due, (iii) admitting in writing an inability to pay
its debts as they become due, (iv) filing a voluntary
petition in bankruptcy, (v) becoming insolvent, or (vi)
filing a petition seeking for itself any reorganization,
arrangement, composition, or readjustment of its debts or
other similar relief from its creditors generally; or
(d) An order or decree being entered by a court of competent
jurisdiction (i) adjudging Lessee as bankrupt or insolvent,
(ii) appointing a trustee, receiver, liquidator, custodian or
other similar official for Lessee, or (iii) ordering the
winding up or liquidation of Lessee's affairs.
20. REMEDIES. Upon the occurrence of any event of default as provided
herein which is continuing, Lessor shall have the right to:
(a) Terminate this Lease and enter into and upon the Premises,
retake possession thereof and expel Lessee therefrom, and to
recover from Lessee all costs and expenses (including
reasonable attorneys' fees) incurred by Lessor in connection
with retaking possession of the Premises;
(b) Recover from Lessee, upon demand, all rent or other sums
due or to become due to Lessor under the terms of this
Lease; provided, however, in the event Lessor relets the
Premises during the term hereof, Lessor shall give credit
to Lessee for the rent and other sums actually collected
by Lessor with respect to the term of such Lease
coinciding with the term of this Lease, less any costs and
expenses incurred by Lessor in reletting the Premises; or
(c) Without terminating this Lease, Lessor may exercise its
options under subparagraphs (a) and (b) above simultaneously.
-7-
<PAGE>
(d) Exercise any other right or remedy available hereunder or
otherwise available at law or in equity.
Lessor may pursue any one or more of the foregoing remedies, and
pursuit of any of the foregoing remedies shall not prejudice the rights of
Lessor to pursue any other remedies.
21. QUIET ENJOYMENT. Provided Lessee performs its obligations and
covenants contained herein, Lessor covenants that Lessee shall peaceably and
quietly have, hold and enjoy the Premises during the term hereof free from
interference from Lessor and all persons claiming by or through Lessor.
22. SUBORDINATION, ATTORNMENT AND NON-DISTURBANCE.
(a) Lessee's rights shall be subject to any bona fide
mortgage, deed of trust or other security interest which
is now or may hereafter be placed upon the Premises by
Lessor. Lessee shall, if requested by Lessor or Lessor's
lender, execute a separate agreement reflecting such
subordination and, further, shall be obligated to execute
such documentation as may facilitate Lessor's sale or
refinancing of the Premises, including but not limited to
an estoppel certificate substantially in the form attached
hereto as Exhibit "B" or a subordination, attornment and
non-disturbance agreement substantially in the form
attached hereto as Exhibit "C".
(b) In the event of a sale, assignment or transfer by Lessor
of its interest in the Premises or in this Lease (whether
by sale, default, foreclosure or otherwise) to a successor
in interest who expressly assumes the obligations of
Lessor under this Lease, Lessor shall thereupon be
released and discharged from its obligations and covenants
under this Lease, except those obligations that have
accrued prior to such sale, assignment or transfer.
Lessor's assignment of this Lease, or any or all of its
rights in this Lease, shall not affect Lessee's
obligations hereunder, and Lessee shall attorn and look to
the assignee as Lessor, provided Lessee has first received
written notice of such assignment. Provided, further,
however, that in the event that a lender of Lessor, its
successors or assigns shall become the owner of the
Premises through foreclosure or other similar judicial
process, then, in that event, the lender, its successors
or assigns shall have the right to cancel this Lease upon
ninety (90) days written notice to Lessee.
(c) Whether in connection with a sale or refinancing or otherwise,
Lessee shall be obligated to execute and deliver to Lessor or
its lender, an estoppel certificate substantially in the form
attached hereto as Exhibit "B" or such other documentation as
reasonably may be requested by Lessor or its lender, within
fifteen (15) days of receipt of a written request therefore.
23. LENDER'S NOTICE AND RIGHT TO CURE. Lessee agrees to be bound by
-8-
<PAGE>
and to act in accordance with the provisions of paragraph 4 of Exhibit "C"
of the Lease, the same being incorporated herein as if fully set forth.
24. LESSOR'S DEFAULT. In the event of a default by Lessor under this
Lease, Lessee agrees that, in all events, Lessor's liability shall be limited to
the actual equity interest of Lessor in the Premises for the satisfaction of
Lessee's remedies under this Lease.
25. MISCELLANEOUS.
-------------
(a) FEES OF LEGAL COUNSEL. In the event either party to this
agreement shall employ legal counsel to protect its rights
hereunder or to enforce any term or provision hereof, the
party prevailing in any such action shall have the right to
recover from the other party all of its reasonable attorneys'
fees and expenses incurred in relation to such claims.
(b) FURTHER ASSURANCES. The parties agree that from time to time
hereafter, upon request, each of them will execute,
acknowledge and deliver such other instruments and documents
and take such further action as may be reasonably necessary to
carry out the intent of this agreement.
(c) MODIFICATION. Except as otherwise provided herein, no term or
provision contained herein may be modified, amended or waived
except by written agreement or consent signed by the party to
be bound thereby.
(d) BINDING EFFECT AND BENEFIT. This agreement shall inure to the
benefit of, and shall be binding upon, the parties hereto, and
their respective successors and permitted assigns. Otherwise,
this agreement shall not create any rights for the benefit of
any third party.
(e) HEADINGS AND CAPTIONS. Subject headings and captions are
included for convenience purposes only and shall not affect
the interpretation of this agreement.
(f) NOTICE. All notices, requests, demands and other
communications permitted or required hereunder shall be in
writing, and shall either be (i) delivered in person, (ii)
delivered by express mail or other overnight delivery
service providing receipt of delivery, (iii) mailed by
certified mail or registered mail, postage prepaid, return
receipt requested, or (iv) sent by telex, telegraph or
other facsimile transmission as follows:
-9-
<PAGE>
If to Lessee, addressed or delivered in person to:
(mailing address)
Speizman Industries, Inc.
P. O. Box 31215
Charlotte, NC 28231
(delivery address)
Speizman Industries, Inc.
508 W. 5th Street
Charlotte, NC 28202
With copy to:
Garth K. Dunklin
Odom & Groves, P.C.
P. O. Box 32248
Charlotte, NC 28232-2248
If to Lessor, addressed or delivered in person to:
The Speizman LLC
c/o Robert S. Speizman
(mailing address)
Speizman Industries, Inc.
P. O. Box 31215
Charlotte, NC 28231
(delivery address)
Speizman Industries, Inc.
508 W. 5th Street
Charlotte, NC 28202
or to such other address as either party may designate by
notice. Any such notice or communication shall be deemed to
have been made when actually received by the addressee,
pursuant to (f)(i) above or one (1) business day after
initiation of delivery pursuant to (f)(ii)-(iv) above.
(g) SEVERABILITY. If any portion of this agreement is held
invalid, illegal, or unenforceable, such determination shall
not impair the enforceability of the remaining terms and
provisions herein.
(h) WAIVER. No waiver of a breach or violation of any term or
provision of this agreement shall operate or be construed as a
waiver of any subsequent breach or limit or restrict any right
or remedy otherwise available.
-10-
<PAGE>
(i) RIGHTS AND REMEDIES CUMULATIVE. The rights and remedies
expressed herein are cumulative and not exclusive of any
rights and remedies otherwise available.
(j) GENDER AND PRONOUNS. Throughout this agreement, the masculine
shall include the feminine and neuter and the singular shall
include the plural and vice versa as the context requires.
(k) ENTIRE AGREEMENT. This document constitutes the entire
agreement of the parties with respect to the lease of the
Premises and supersedes any and all other prior agreements,
oral or written, with respect to the subject matter contained
herein.
(l) GOVERNING LAW. This agreement shall be subject to and governed
by the laws of the State of North Carolina.
(m) INCORPORATION BY REFERENCE. All exhibits and documents
referred to in this agreement shall be deemed incorporated
herein by any reference thereto as if fully set out.
(n) COUNTERPARTS. This agreement may be executed in two or more
counterparts each of which shall be deemed an original, but
all of which together shall constitute one and the same
instrument.
(o) AUTHORITY. Each individual signing this agreement in a
representative capacity acknowledges and represents that
he/she is duly authorized to execute this agreement in such
capacity in the name of, and on behalf of, the designated
corporation or other entity.
(p) JOINT PREPARATION. This agreement shall be deemed to have been
prepared jointly by the parties hereto, and any uncertainty or
ambiguity existing herein shall not be interpreted against any
party by reason of its drafting of this agreement, but shall
be interpreted according to the application of the rules of
interpretation for arm's length agreements.
(q) MEMORANDUM OF LEASE. Upon request by either party, a
memorandum of this lease in customary form shall be
executed and delivered between Lessor and Lessee and
either party shall have the right to record such
memorandum of lease in the appropriate real estate
recording offices in the county where the Premises are
located. Provided, however, that the recordation of said
memorandum shall be subject to paragraph 22 hereof and
Lessee does hereby agree to cooperate in releasing any
said memorandum in furtherance thereof.
-11-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this agreement effective as
of the day and year aforesaid.
LESSOR:
THE SPEIZMAN LLC
/s/ ROBERT S. SPEIZMAN [SEAL]
------------------------------
Robert S. Speizman, Manager
LESSEE:
SPEIZMAN INDUSTRIES, INC.
/S/ROBERT S. SPEIAMAN
----------------------
By: Robert S. Speiaman
Title: President
Attest:
/s/ Josef Sklut
- --------------------------------
______________________ Secretary
[Corporate Seal]
-12-
<PAGE>
STATE OF NORTH CAROLINA
COUNTY OF MECKLENBURG
I, a Notary Public, do hereby certify that Robert S. Speizman personally
appeared before me this day and acknowledged that he is the manager of The
Speizman LLC, a North Carolina limited liability company, and further
acknowledged the due execution of this instrument on behalf of and as the
authorized act and deed of such limited liability company.
Witness my hand and official stamp or seal, this the day of October, 29
1997.
/s/SUE H. EDWARDS
-----------------
Notary Public
My commission expires:
1-29-2001
- ---------
STATE OF NORTH CAROLINA
COUNTY OF MECKLENBURG
I, a Notary Public of the County and State aforesaid, certify that Robert
S. Speizman personally came before me this day and acknowledged that he is the
President of Speizman Industries, Inc. and that by authority duly given and as
the act of the corporation, the foregoing instrument was signed in its name,
sealed with its corporate seal and attested by its Secretary.
Witness my hand and official stamp or seal, this the day of October, 29
1997.
/s/ SUE H. EDWARDS
-------------------
Notary Public
My commission expires:
1-29-2001
- ---------
-13-
STATE OF NORTH CAROLINA
FIRST AMENDMENT TO LEASE AGREEMENT
COUNTY OF MECKLENBURG
THIS FIRST AMENDMENT TO LEASE AGREEMENT is executed effective as of
October 29, 1997 by and between THE SPEIZMAN LLC, a North Carolina limited
liability company ("Lessor") and SPEIZMAN INDUSTRIES, INC., a North Carolina
corporation ("Lessee").
W I T N E S S E T H:
WHEREAS, the parties have heretofore entered into that certain Lease
Agreement dated October 29, 1997 ("Lease") whereby Lessor did lease to Lessee
certain premises as described in the Lease located at 701 Griffith Road,
Charlotte, North Carolina; and,
WHEREAS, the parties have since determined that the assumptions regarding
responsibilities under the Lease in setting the rental rate were in fact
inaccurate as to (1) square footage; (2) responsibility for insurance; (3)
responsibility for taxes; and,
WHEREAS, the parties are desirous of amending said Lease to accurately
reflect the contemplation of the parties in the setting of the rate and to
accurately assess rental based upon the true square footage of the facility;
NOW, THEREFORE, for good and valuable consideration the receipt and
sufficiency of which is hereby acknowledged, the parties do hereby agree to
amend the Lease as follows:
(1) The first sentence of paragraph 3. RENT, which presently reads "Lessee
shall pay to Lessor as rental for the Premises the sum of Fifty-One Thousand
Nine Hundred Fifty-Three and 40/100's Dollars ($51,953.40) per month, payable on
or before the fifth (5th) day of each calendar month during the term thereof."
shall be deleted and replaced with the following:
"Lessee shall pay to Lessor as rental for the Premises the sum of
Fifty-Four Thousand Nine Hundred Twenty-Three and 40/100's Dollars
($54,923.40) per month, payable on or before the fifth (5th) day of each
calendar month during the term thereof."
(2) Paragraph 9. INSURANCE, (a) Casualty Insurance. shall be deleted and
replaced with the following:
"(a) Casualty Insurance. During the term of this Lease, Lessor
--------------------
shall maintain and keep in full force and effect, at its
cost, a standard comprehensive fire and extended coverage
policy of insurance with respect to the Premises naming
Lessor and Lessee as insured as their interests appear, in
such amounts as Lessor's lender, if any, shall require.
Lessee
<PAGE>
shall have the responsibility to determine whether to maintain
casualty insurance with respect to Lessee's personalty and business
interruption insurance for Lessee's own benefit."
3. Paragraph 10. TAXES shall be deleted and replaced with the following:
"Lessor shall pay all ad valorem real property taxes and special
assessments applicable (and any penalties for late payment associated
therewith) to the Premises during the term of this Lease not later than
the due date shown on the bill therefor. Lessee shall be solely
responsible for paying any taxes or governmental assessments levied upon
Lessee's personal or business property."
4. Except as modified herein, the Lease remains enforceable according to
its tenor as originally set forth.
IN WITNESS WHEREOF, the parties have hereunto set their hands and seals
pursuant to authority duly given, this the 22 day of July, 1998.
LESSOR:
THE SPEIZMAN LLC
/s/ ROBERT S. SPEIZMAN
By: ----------------------------- (SEAL)
Robert S. Speizman, Manager
LESSEE:
SPEIZMAN INDUSTRIES, INC.
/s/ ROBERT S. SPEIZMAN
By: ------------------------------
Robert S. Speizman, President
ATTEST:
/s/ Josef Sklut, Secretary
- ---------------------------------
Josef Sklut, Secretary
[Corporate Seal]
2
<PAGE>
STATE OF NORTH CAROLINA
COUNTY OF MECKLENBURG
I, a Notary Public, do hereby certify that Robert S. Speizman personally
appeared before me this day and acknowledged that he is the manager of The
Speizman LLC, a North Carolina limited liability company, and further
acknowledged the due execution of this instrument on behalf of and as the
authorized act and deed of such limited liability company.
Witness my hand and official stamp or seal, this the 22 day of July, 1998.
/s/ L. Gail Gormly
-----------------------------
Notary Public
My commission expires:
(NOTARY SEAL APPEARS HERE)
11-11-2000
- ---------------------------
[Notarial Seal]
STATE OF NORTH CAROLINA
COUNTY OF MECKLENBURG
I, a Notary Public of the County and State aforesaid, certify that Robert
S. Speizman personally came before me this day and acknowledged that he is the
President of Speizman Industries, Inc. and that by authority duly given and as
the act of the corporation, the foregoing instrument was signed in its name,
sealed with its corporate seal and attested by its Secretary.
Witness my hand and official stamp or seal, this the 22 day of July, 1998.
L. Gail Gormly
-----------------------------
Notary Public
My commission expires:
(NOTARY SEAL APPEARS HERE)
11-11-2000
- ----------------------
[Notarial Seal]
3
MEMORANDUM OF AGREEMENT OF EXTENSION OF LEASE MADE AND ENTERED INTO THE CITY OF
AND DISTRICT OF MONTREAL, ON THIS 23RD DAY OF SEPTEMBER 1997.
- ------------------------------------------------------------------------------
BETWEEN: METRO II & III (G.P.), general partnership, duly authorized to
act on behalf of the owners of the building herein below
described, having its placed of business at 8300 Pie IX,
Montreal, Providence of Quebec, H1Z 4E8, herein acting and
represented by Mr. Jordan Aberman, duly authorized for these
purposes,
(hereinafter referred to as "Lessor")
AND: SPEIZMAN CANADA INC., legal person duly incorporated having
its head office at 800 Place Victoria, Suite 4702, Montreal,
Providence of Quebec, H4Z 1H6, and a place of business at 5205
Metropolitan East, Suite 3, St-Leonard, Province of Quebec,
H1R 1Z7, herein acting and represented by Robert S. Speizman,
its President, duly authorized by virtue of a resolution of
its Board of Directors, a certified extract of which is
annexed to these present;
(hereinafter referred to as "Lessee")
WHEREAS the Lessor is acting on behalf of the owners of that certain building
bearing civic address 5205 Metropolitan East, Suite number THREE (3),
St-Leonard, Province of Quebec ("Building");
WHEREAS in virtue of a lease starting March 1, 1989 ("Lease") the Lessee leased
those certain premises bearing civic address 5205 Metropolitan East, Suite
number THREE (3), St-Leonard, Province of Quebec, having approximately Two
Hundred and Fifty square feet (250 sq. ft.) ("Leased Premises"), for the period
of THREE (3) years;
WHERAS the Lessee and the Lessor did extend the Lease for a further period of
THREE (3) years by agreement dated February 17, 1992, and for THREE (3) further
periods of ONE (1) year each by agreement dated October 21, 1994, November 21,
1995 and January 29, 1997;
WHEREAS the Lease and the agreements dated February 17, 1992, October 21, 1994,
November 21, 1995 and January 29, 1997, are hereinafter called the Lease;
WHEREAS both the Lessor and the Lessee wish to extend the Lease for a further
term of ONE (1) year under the following terms and conditions:
THEREFORE THE PARTIES AGREE AS FOLLOWS:
1. This Memorandum of Agreement is made upon and subject to the same terms
and conditions as set forth in the Lease including the rental rate which
shall be at THREE HUNDRED AND FIFTEEN DOLLARS ($315.00), plus G.S.T. and
Q.S.T. and any
<PAGE>
applicable taxes, gross per month, save and except for Lessee's proportion
of the nonresidential municipal surtax.
2. The term of the Lease which presently expires on the last day of February
1998 shall be extended for an additional period of ONE (1) year from the
first day of March 1998 and shall expire on the last day of February,
1999, unless sooner terminated in the manner set forth in the Lease.
3. The Lessee accepts the Leased Premises in its present state and condition.
4. Except as herein before specifically modified, supplemented and amended,
and as so modified, supplemented and amended, the Lease shall remain in
full force and effect.
5. The Parties have requested that this Memorandum of Agreement be
prepared in the English language. Les parties ont demande que la
presente convention soit redigee en anglais.
- ------------------------------------------------------------------------------
IN WITNESS WHEREOF, THE LESSEE AND THE LESSOR HAVE DULY SIGNED AND EXECUTED
THESE PRESENTS ON THE DATE HEREINABOVE MENTIONED.
METRO II & III (G.P.)
Per: /s/ Jordan Aberman /s/ Helene Mallette
------------------------------ -------------------------------
Jordan Aberman Helene Mallette
SPEIZMAN CANADA INC.
Per: /s/ Robert S. Speizman /s/ L. Gail Gormly
------------------------------ -------------------------------
Robert S. Speizman L. Gail Gormly
<PAGE>
CERTIFIED EXTRACT FROM THE SIGNED RESOLUTIONS OF THE BOARD OF DIRECTORS OF
SPEIZMAN CANADA INC.
BE IT RESOLVED,
1. That Mr. Robert S. Speizman, President be and is hereby authorized to sign
the Memorandum if agreement of Lease between the Corporation and Metro II & III
(G.P.) regarding the Leased Premises located at 5205 Metropolitan East, Suite 3,
in the City of St-Leonard, Province of Quebec.
CERTIFIED TRUE COPY OF THE RESOLUTIONS OF THE BOARD OF DIRECTORS OF SPEIZMAN
CANADA INC. DULY ADOPTED AND REMAINING IN FULL FORCE AND EFFECT, UNAMENDED.
Montreal, this 23rd day of September 1997.
/s/ Robert S. Speizman
- -------------------------------------
Name: Robert S. Speizman
Function: President
Affix the corporate seal
{NationsBank Letterhead}
February 4, 1998
Speizman Industries, Inc.
508 West 5th Street
Charlotte, NC 28231
Attn: Mr. Josef Sklut
Re: $1,300,000 increase in Term Loan (Amended Term Loan) to Speizman
Industries, Inc. (the "Borrower")
Ladies and Gentlemen:
This letter is delivered to you to outline the proposed increase in the Term
Loan documented in the Amended and Restated Credit Facility For Speizman
Industries, Inc., dated July 31, 1997 (the "Credit Facility"). NationsBank is
pleased to advise of its commitment to increase the Term Loan by $1,300,000
subject to the satisfaction of each of the following conditions:
(a) each of the terms and conditions set forth in the Credit Facility with
additional amendments satisfactory to NationsBank to include Todd
Motion Controls, Inc. ("TMC") and its assets to the Credit Facility,
the addition of TMC as a guarantor of the Credit Facility, the pledge
of TMC's stock and the grant of a first lien on TMC's assets;
(b) principal repayment evidenced by the Term Note shall increase to
$380,000, payable quarterly;
(c) payment to NationsBank an underwriting fee for its own account of
$15,000 payable at closing of the Amended Term Loan;
(d) payment by Borrower of all reasonable out-of-pocket fees and expenses
(including reasonable attorney's fees and expenses and expenses of due
diligence) incurred before or after the date hereof by NationsBank in
connection with Amended Term Loan, regardless of whether or not the
Amended Term Loan is closed;
(e) review and approval of the TMC acquisition documents and completion of
the acquisition by February 28, 1998;
<PAGE>
February 4, 1998
Speizman Industries, Inc.
Page 2
To evidence your acknowledgement and acceptance of the provisions hereof, please
sign and return a copy of this letter.
With best regards,
NATIONSBANK, N.A.
/s/ E. Phifer Helms
- --------------------
E. Phifer Helms
Senior Vice President
ACCEPTED AND AGREED TO AS OF
THE DATE FIRST ABOVE WRITTEN:
SPEIZMAN INDUSTRIES, INC.
By: /s/ Josef Sklut
- --------------------
Name: Josef Sklut
Title: Vice President- Finance
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement ("Agreement") is made and entered into as of
February 6, 1998, by and among SPEIZMAN INDUSTRIES, INC., a Delaware corporation
("Buyer"), and the undersigned persons identified on Schedule A hereto
("Sellers").
RECITALS
Sellers desire to sell, and Buyer desires to purchase, all of the issued
and outstanding common shares (the "Shares") of capital stock of Todd Motion
Controls, Inc., a North Carolina 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:
"ACCOUNTS RECEIVABLE"--as defined in SECTION 3.8.
"ADJUSTMENT CLAIMS" -- as defined in SECTION 2.2(B).
"ADJUSTMENT DATE"--as defined in SECTION 2.2(B).
"AFFILIATE"-- a Person which directly or indirectly controls, or is
controlled by, or is under common control with another Person, which owns five
percent (5%) or more of the voting equity of another Person, or five percent
(5%) or more of equity interest of which is owned by another Person.
"APPLICABLE CONTRACT"--any Contract (i) under which the Company has or may
acquire any rights, (ii) under which the Company has or may become subject to
any obligation or liability, or (iii) by which the Company or any of the assets
owned or used by it is or may become bound.
"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 (i) any
inaccuracy in or breach of, or any failure to perform or comply with, such
representation, warranty, covenant, obligation, or other provision, or (ii) 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 A/R AND INVENTORY"--as defined in SECTION 2.2(B).
"COMPANY"--as defined in the Recitals of this Agreement.
"COMPANY OTHER BENEFIT OBLIGATION" means all obligations, arrangements, or
customary practices, owed, adopted or followed by the Company, 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, including
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 Section 132.
"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.
"COMPETING BUSINESS"--as defined in SECTION 3.24.
"CONSENT"--any approval, consent, ratification, waiver, or other
authorization (including any Governmental Authorization).
"CONTEMPLATED TRANSACTIONS"--all of the transactions contemplated by this
Agreement, including (i) the sale of the Shares by Sellers to Buyer; (ii) the
execution, delivery, and performance of the Employment Agreements and the
Sellers' Releases; (iii) the performance by Buyer and Sellers of their
respective covenants and obligations under this Agreement; and (iv) 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.
"COPYRIGHTS"--as defined in SECTION 3.22(a)(iii).
"DAMAGES"--as defined in SECTION 10.2.
"DISCLOSURE LETTER"--the disclosure letter delivered by Sellers to Buyer
concurrently with the execution and delivery of this Agreement.
"EMPLOYMENT AGREEMENTS"--as defined in SECTION 2.4(a)(iii).
2
<PAGE>
"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.
"ENVIRONMENTAL LAW"--any Legal Requirement that requires or relates to:
(i) 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;
(ii) preventing or reducing to acceptable levels the release of pollutants
or hazardous substances or materials into the Environment;
(iii) reducing the quantities, preventing the release, or minimizing the
hazardous characteristics of wastes that are generated;
(iv) assuring that products are designed, formulated, packaged, and used
so that they do not present unreasonable risks to human health or the
Environment when used or disposed of;
(v) protecting resources, species, or ecological amenities;
(vi) reducing to acceptable levels the risks inherent in the
transportation of hazardous substances, pollutants, oil, or other potentially
harmful substances;
(vii) cleaning up pollutants that have been released, preventing the
threat of release, or paying the costs of such clean up or prevention; or
(viii) making responsible parties pay private parties, or groups of them,
for damages done to their health or the Environment, or permitting
self-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.
3
<PAGE>
"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
Section 414.
"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, tank cars, 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.
"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 any other act,
business, operation, or thing that increases the danger, or risk of danger, or
poses an unreasonable risk of harm to persons or property on or off the
Facilities, or that may affect the value of the Facilities or the Company.
"HAZARDOUS MATERIALS"--any waste or other substance that is listed,
defined, designated, or classified as, or otherwise determined to be, 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.
"INDEMNIFIED PERSONS"--as defined in SECTION 10.2.
"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.
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"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.
"MARKS"--as defined in SECTION 3.22(a)(i).
"MULTI-EMPLOYER PLAN" has the meaning given in ERISA Section 3(37)(A).
"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: (i) 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; (ii) 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); and (iii)
such action is similar in nature and magnitude to actions customarily taken,
without any authorization by the board of directors (or by any Person or group
of Persons exercising similar authority), in the ordinary course of the normal
day-to-day operations of other Persons that are in the same line of business as
such Person.
"ORGANIZATIONAL DOCUMENTS"--the articles or certificate of
incorporation and the bylaws of a corporation and any amendment thereto.
"PATENTS"--as defined in SECTION 3.22(a)(ii).
"PENSION PLAN" has the meaning given in ERISA SECTION 3(2)(A).
"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" has the meaning given in ERISA Section 3(3).
"PLAN SPONSOR" has the meaning given in ERISA Section 3(16)(B).
"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.
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"PURCHASE PRICE"--as defined in SECTION 2.2(a).
"QUALIFIED PLAN" means any Plan that meets or purports to meet the
requirements of IRC SECTION 401(a).
"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.
"SELLER'S CLOSING DOCUMENTS"--as defined in SECTION 3.2(a).
"SELLERS' RELEASES"--as defined in SECTION 2.4(a).
"SHARES"--as defined in the Recitals of this Agreement and Section 3.3.
"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 that such a claim, Proceeding, dispute,
action, or other matter is likely to be asserted, commenced, taken, or otherwise
pursued in the future.
"TITLE IV PLANS" means all Pension Plans that are subject to Title IV of
ERISA, 29 U.S.C. Section 1301 et seq., other than Multi-Employer Plans.
"TRADE SECRETS"--as defined in SECTION 3.22(a).
"WT"-- William H. Todd, a resident of Forsyth County, North Carolina.
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.
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2.2 PURCHASE PRICE; ADJUSTMENT. (a) The purchase price (the "Purchase Price")
for the Shares payable by Buyer will be $1,841,304, payable to the Sellers in
immediately available funds (by bank cashier's checks, certified checks or wired
funds) on the Closing Date, in the amounts for each Seller set forth on Schedule
A.
(b) On or immediately following the Closing Date, Buyer shall
conduct a physical inventory and examination of all raw materials and purchased
parts inventory and Accounts Receivable held by the Company on the Closing Date
(the "Closing Date A/R and Inventory"). On the nine (9) month anniversary of the
Closing Date (the "Adjustment Date"), the Sellers shall jointly and severally
remit to Buyer an amount equal to (i) the book value of all Closing Date A/R and
Inventory (excluding hydraulic parts inventory and research and development
parts inventory (as physically designated by Buyer and WT prior to Closing)) (if
any) that are not sold or collected by the Company prior to the Adjustment Date,
and (ii) the aggregate amount of all claims and related costs associated with
the Company's default under that certain Incentive Contract as set forth in Part
3.17(d)(i) of the Disclosure Letter (such unsold or uncollected Closing Date A/R
and Inventory and such claims related to the Incentive Contract herein
collectively referred to as the "Adjustment Claims"), to the extent such
Adjustment Claims exceed $50,000.
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
FEBRUARY 6, 1998 or at such other time and place as the parties may agree.
2.4 CLOSING OBLIGATIONS. At or before 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, for transfer to Buyer;
(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), (C), (D) and (E), executed by WT, Joseph Collins, Marion Todd, Jonathan
Freeman, and Thomas Reavis, respectively (the "Employment Agreements");
(iv) an opinion of Nelson, Boyles, Niblock & Green, counsel to
Sellers, dated the Closing Date, in the form of EXHIBIT 2.4(a)(iv);
(v) resignation of all directors of the Company;
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(vi) such other certificates and
documents as Buyer shall reasonably request; and
(vii) all consents and approvals of governmental authorities,
lenders, lessors, and other third parties required in connection with the (x)
consummation of the Contemplated Transaction and (y) continued operation of the
business of the Company, including all consents required of First Citizens'
Bank.
(b) Buyer will deliver to Sellers:
(i) the amounts specified on SCHEDULE A by bank cashier's or
certified check payable to the order of the persons specified on SCHEDULE A; and
(ii) the Employment Agreements, executed by the Company.
2.5 CLOSING DATE FINANCIAL STATEMENTS.
---------------------------------
The Company's accountants, Brown, Jenkins & Company, will prepare a
balance sheet of the Company (the "Closing Date Balance Sheet") as of the
Closing Date and a statement of income of the Company (the "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 thirty (30) days after the Closing Date. If
within thirty (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 the Closing Date Financial Statements will be deemed
acceptable. 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, for resolution. If the issues in dispute are submitted to such
third-party accountants for resolution, (i) each party will furnish to such
accountants such workpapers and other documents and information relating to the
disputed issues as such accountants may request and are available to that party
(or its independent public accountants), and will be afforded the opportunity to
present to such accountants any material relating to the determination and to
discuss the determination with such accountants; (ii) the determination by such
accountants, as set forth in a notice delivered to both parties by such
accountants, will be binding and conclusive on the parties; and (iii) Buyer and
Sellers will each bear 50% of the fees of such accountants for such
determination.
3. REPRESENTATIONS AND WARRANTIES OF SELLERS. Sellers represent and warrant to
Buyer as follows:
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3.1 ORGANIZATION AND GOOD STANDING.
------------------------------
(a) The Company is a corporation duly organized, validly existing, and in
good standing under the laws of the State of North Carolina, 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. Except as set forth in Part 3.1
of the Disclosure Letter, the Company is duly qualified to do business as a
foreign corporation and is in good standing under the laws of each state or
other jurisdiction 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 jurisdiction 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. Upon the
execution and delivery of the Employment Agreements (to which each Seller is a
party) and the Sellers' Releases (collectively, the "Sellers' Closing
Documents"), the Sellers' Closing Documents will constitute the legal, valid,
and binding obligations of Sellers, enforceable against Sellers in accordance
with their respective terms. 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) 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) 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;
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(iv) 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) result in the imposition or creation of any Encumbrance upon or
with respect to any of the assets owned or used by the Company.
Except as set forth in Part 3.2(b) of the Disclosure Letter, 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 5,000 shares of common stock and 5,000 shares of preferred stock, each with a
par value of $10 per share, of which 185 shares of common stock are issued and
outstanding and constitute the Shares. No shares of preferred stock have been
issued or are outstanding. 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. 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. There are no Contracts
relating to the issuance, sale, or transfer of any equity securities, options,
warrants 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) the compiled
balance sheets of the Company as at August 31 in each of the years 1996 and 1997
(such August 31, 1997 balance sheet being herein sometimes referred to as the
"Balance Sheet"), and the related statements of income for each of the fiscal
years then ended, and (b) an unaudited, management prepared balance sheet of the
Company as at December 31, 1997 (the "Interim Balance Sheet") and the related
unaudited consolidated statements of income, changes in stockholders' equity,
and cash flow for the period then ended, including in each case the notes
thereto. Such financial statements and notes fairly present the financial
condition and the results of operations 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); 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. The books of account, minute books, stock record
books, 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
interests therein owned by or in which the Company has an interest. 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).
All material properties and assets reflected in the Balance Sheet and the
Interim Balance Sheet are free and clear of all Encumbrances except (i) 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
and (ii) liens for current taxes not yet due.
3.7 CONDITION AND SUFFICIENCY OF ASSETS. The buildings, plants, structures,
and equipment owned and leased by the Company are structurally sound, in good
operating condition and repair, are 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. The building, plants,
structures, and equipment, owned and leased by 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. 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.
Unless paid prior to the Closing Date, the Accounts Receivable are or will be as
of the Closing Date current. 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 of all Accounts Receivable as of January 30, 1998, which list sets
forth the aging of such Accounts Receivable.
3.9 INVENTORY. Except with regard to Closing Date A/R and Inventory, all
inventory of the Company, whether or not reflected in the Balance Sheet or the
Interim Balance Sheet, consists 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.
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3.10 NO UNDISCLOSED LIABILITIES. Except as set forth in Part 3.10 of the
Disclosure Letter, the Company has no liabilities or obligations of any nature
(whether known or unknown and whether absolute, accrued, contingent, or
otherwise) 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 that 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 within the past five (5) years. Such returns
and reports reflect accurately all liability for taxes of each the Company for
the periods covered thereby. 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) No examination of any tax return of the Company or other tax audit is
currently in progress or is planned, and (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,
and (iv) the Company has not elected to be treated as a small business
corporation under Subchapter S of the IRC.
3.12 NO MATERIAL ADVERSE CHANGE. 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 no event has
occurred or circumstance exists that may result in such a material adverse
change.
3.13 EMPLOYEE BENEFITS.
(a) (i) Part 3.13(a)(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(a)(v) of the Disclosure Letter sets forth the
financial cost of all obligations owed under any Company Plan or Company Other
Benefit Obligation that is not subject to the disclosure and reporting
requirements of ERISA.
(b) Sellers have delivered to Buyer:
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(i) all documents that set forth the terms of each Company Plan and
Company Other Benefit Obligation and of any related trust, including (A) all
plan descriptions and summary plan descriptions of Company Plans for which the
Company is 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 four (4) 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
Section 601 et seq. and IRC Section 4980B;
(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 (4) years preceding the
date of this Agreement; and
(xii) the most recent determination letter for each Company Plan
that is a Qualified Plan.
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(c) Except as set forth in Part 3.13(c)(vi) 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 voluntary employees' beneficiary associations
under IRC Section 501(c)(9) whose members include employees of the Company.
(iv) There are, and have been, no ERISA Affiliates.
(v) The Company has 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 an 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 full compliance with ERISA, the IRC, and other applicable Laws
including the provisions of such Laws expressly mentioned in this Section 3.13,
and with any applicable collective bargaining agreement.
(A) No transaction prohibited by ERISA Section 406 and no
"prohibited transaction" under IRC Section 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
Section 162 or Section 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 (30) days,
without payment of any additional contribution or amount and without the vesting
or acceleration of any benefits promised by such Plan.
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(ix) No event has occurred or circumstance exists 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, is Threatened.
(xi) Each Qualified Plan of the Company is qualified in form and
operation under IRC Section 401(a); each trust for each such Plan is exempt from
federal income tax under IRC Section 501(a). No event has occurred or
circumstance exists that will or could give rise to disqualification or loss of
tax-exempt status of any such Plan or trust.
(xii) Except to the extent required under ERISA Section 601 et seq.
and IRC Section 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 Section 601 et seq. and IRC Section 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 Section 280G or Section 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) 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 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) no event has occurred or circumstance exists that (with or
without notice or lapse of time) (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
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(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, 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 of the Disclosure Letter contains a complete and accurate
list of each Governmental Authorization 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. Each Governmental Authorization listed or required to be listed in
Part 3.14 of the Disclosure Letter is valid and in full force and effect. 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 full compliance with all of the terms and requirements of each Governmental
Authorization identified in Part 3.14 of the Disclosure Letter;
(ii) no event has occurred or circumstance exists that may (with or
without notice or lapse of time) (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 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 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) all applications required to have been filed for the renewal of
the Governmental Authorizations listed in Part 3.14 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
Governmental Authorizations have been duly made on a timely basis with the
appropriate Governmental Bodies.
(v) the Governmental Authorizations listed in Part 3.14 of the
Disclosure Letter collectively constitute all of the 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.
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3.15 LEGAL PROCEEDINGS; ORDERS.
-------------------------
(a) Except as set forth in Part 3.15 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, any 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. No such Proceeding has been Threatened,
and 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 of the Disclosure Letter. The Proceedings
listed in Part 3.15 of the Disclosure Letter will not have a material adverse
effect on the business, operations, assets, condition, or prospects of the
Company.
(b) Except as set forth in Part 3.15 of the Disclosure Letter (i) there is
no Order to which any of the Company, or any of the assets owned or used by the
Company, is subject; and (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.
(c) Except as set forth in Part 3.15 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 (with or without notice or lapse of time) a
violation of or failure to comply with any term or requirement of any Order to
which the Company, is subject; and (iii) 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, 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; issuance,
redemption, or transfer of any shares of capital stock; grant of any stock
option, warrant 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
any 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, entry into any employment, severance, or similar
Contract with any director, officer, or employee, or extending any loan or
advance to any officer, director, or employee of the Company
17
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or the Sellers; provided, however, Buyer acknowledges that the Company may repay
an existing loan to WT and his spouse in an amount not to exceed $8,500 in the
aggregate.
(d) adoption of, or increase in the payments to or benefits under, any
profit sharing, bonus, deferred compensation, savings, insurance, 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 $10,000;
(g) termination of or receipt of notice of terminations of any existing
relationship with employees or customers;
(h) 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 asset
or property of the Company, including the sale, lease, or other disposition of
any of the Intellectual Property Assets;
(i) cancellation or waiver of any claims or rights with a value to the
Company in excess of $5,000;
(j) material change in the accounting methods used by the Company; or
(k) incurring of any material indebtedness (other than trade payables), or
making of any significant capital expenditures; or
(l) agreement, whether oral or written, by the Company to do any of the
foregoing.
3.17 CONTRACTS; NO DEFAULTS.
----------------------
(a) 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 $5,000;
(ii) 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 $5,000;
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(iii) 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 annual payments of less than $5,000 and with terms of less than one
year);
(iv) 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;
(v) each collective bargaining agreement and other Applicable
Contract to or with any labor union or other employee representative of a group
of employees;
(vi) 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;
(vii) 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;
(viii) each Applicable Contract providing for payments to or by any
Person based on sales, purchases, or profits, other than direct payments for
goods;
(ix) each power of attorney that is currently effective and
outstanding;
(x) 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;
(xi) each Applicable Contract for capital expenditures in excess of
$5,000; and
(xii) 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) Except as set forth in Part 3.17(b) of the Disclosure Letter:
(i) No Seller (and no related person of a Seller) has or may acquire
any rights under, and no Seller 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
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(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) 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.
(d) 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 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 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) 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) 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.
(g) The Company is not restricted by any Contract from marketing any
product of the Company in any geographical territory in the world.
(h) Except as disclosed in Part 3.17(h) of the Disclosure Letter, neither
the Company nor any Seller is party to any distributor agreement or any
marketing arrangement with Dematex, Inc., IMTEX, Inc., Micheal Tobias or any of
their Affiliates; PROVIDED, HOWEVER, the Sellers shall provide full indemnity to
the Buyer for any claim and related costs of defense related
20
<PAGE>
to any relationship or purported relationship between the Company or any Seller
and Dematex, Inc., IMTEX, Inc., Micheal Tobias or any of their Affiliates.
3.18 INSURANCE.
---------
(a) Sellers have 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;
(ii) true and complete copies of all pending applications for
policies of insurance; and
(iii) any statement by the auditor of the Company's financial
statements with regard to the adequacy of such entity's coverage or of the
reserves for claims.
(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) Part 3.18(c) of the Disclosure Letter sets forth, a statement
describing each claim under an insurance policy for an amount in excess of
$10,000, and
(d) 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;
21
<PAGE>
(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) The Company has not 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 timely notice to the insurer of all
claims that may be insured thereby.
3.19 ENVIRONMENTAL MATTERS. Except as set forth in Part 3.19 of the
Disclosure Letter:
(a) The Company is, and at all times has been, in full 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 or any
other Person for whose conduct they are or may be held to be responsible
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, transferred, imported, used, or processed by Sellers, the
Company, or any other Person for whose conduct they are or may be held
responsible, 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.
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(c) No Seller or the Company has any basis to expect, nor has any of them
or any other Person for whose conduct they are or may be held responsible,
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, or any other Person for whose conduct they
are or may be held responsible, 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) 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. Each
of the Sellers, the Company, any other Person for whose conduct the Sellers or
the Company are or may be held responsible, or any other Person, has not
permitted, 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.
(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, the Company, or any other
Person.
(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, the
Company, or any other Person for whose conduct they are or may be held
responsible, with Environmental Laws.
-23-
<PAGE>
3.20 EMPLOYEES.
---------
(a) Part 3.20 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) 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 any such employee or director. 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 of the Disclosure Letter.
(c) Part 3.20 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 and is not a
party to any collective bargaining or other labor Contract. There has not been,
there is not presently pending or existing, and 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. No event
has occurred or circumstance exists that could provide the basis for any work
stoppage or other labor dispute. The Company has complied in all 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. 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.
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3.22 INTELLECTUAL PROPERTY.
---------------------
(a) Intellectual Property Assets. The term "Intellectual Property Assets"
--------------------------------------------------------------------
includes:
- --------
(i) the Company's name, all fictional business names, trading names,
registered and unregistered trademarks, service marks, and applications
(collectively, "Marks");
(ii) all patents, patent applications, and inventions and
discoveries that may be patentable (collectively, "Patents");
(iii) all copyrights in both published works and unpublished works
(collectively, "Copyrights"); and
(iv) 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) Agreements. Part 3.22(b) of the Disclosure Letter contains a complete
and accurate list and summary description, including any royalties paid or
received by the Company, of all Contracts relating to the Intellectual Property
Assets to which the Company is a party or by which the Company is bound, except
for any license implied by the sale of a product and perpetual, paid-up licenses
for commonly available software programs with a value of less than $10,000 under
which the Company is the licensee. There are no outstanding and no Threatened
disputes or disagreements with respect to any such agreement.
(c) Know-How Necessary for the Business.
-----------------------------------
(i) The Intellectual Property Assets are all those necessary for the
operation of the Company's businesses as they are currently conducted. Except as
set forth in Part 3.22(c) of the Disclosure Letter, 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 Encumbrances, and has the right to use without
payment to a third party all of the Intellectual Property Assets.
(ii) 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.
(d) Patents
-------
(i) Part 3.22(d) of the Disclosure Letter contains a complete and
accurate list and summary description of all Patents. Except as set forth in
Part 3.22(d) of the Disclosure Letter, the Company is the owner of all right,
title, and interest in and to each of the Patents, free and clear of all
Encumbrances.
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(ii) All of the issued Patents are currently in compliance with
formal legal requirements (including payment of filing, examination, and
maintenance fees and proofs of working or use), are valid and enforceable, and
are not subject to any maintenance fees or taxes or actions falling due within
ninety (90) days after the Closing Date.
(iii) Except as set forth in Part 3.22(d) of the Disclosure Letter,
no Patent has been or is now involved in any interference, reissue,
reexamination, or opposition proceeding and there is no potentially interfering
patent or patent application of any third party.
(iv) Except as set forth in Part 3.22(d) of the Disclosure Letter,
no Patent is infringed or has been challenged or threatened in any way. Except
as set forth in Part 3.22(d) of the Disclosure Letter, none of the products
manufactured and sold, nor any process or know-how used, by the Company
infringes or is alleged to infringe any patent or other proprietary right of any
other Person.
(e) Trademarks
----------
(i) Part 3.22(e) of Disclosure Letter contains a complete and
accurate list and summary description of all Marks. The Company is the owner of
all right, title, and interest in and to each of the Marks, free and clear of
all Encumbrances.
(ii) All Marks that have been registered with the United States
Patent and Trademark Office are currently in compliance with all formal legal
requirements (including the timely post-registration filing of affidavits of use
and incontestability and renewal applications), are valid and enforceable, and
are not subject to any maintenance fees or taxes or actions falling due within
ninety (90) days after the Closing Date.
(iii) No Mark has been or is now involved in any opposition,
invalidation, or cancellation and no such action is Threatened with the respect
to any of the Marks.
(iv) There is no potentially interfering trademark or trademark
application of any third party.
(v) No Mark is infringed or has been challenged or threatened in any
way and none of the Marks used by the Company infringes or is alleged to
infringe any trade name, trademark, or service mark of any third party.
(vi) All products and materials containing a Mark bear the proper
federal registration notice where permitted by law.
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(f) Copyrights
----------
(i) Part 3.22(f) of the Disclosure Letter contains a complete and
accurate list and summary description of all Copyrights. The Company is the
owner of all right, title, and interest in and to each of the Copyrights, free
and clear of all Encumbrances.
(ii) All Copyrights have been registered and are currently in
compliance with formal legal requirements, are valid and enforceable, and are
not subject to any maintenance fees or taxes or actions falling due within
ninety (90) days after the date of Closing.
(iii) No Copyright is infringed has been challenged or threatened in
any way and none of the subject matter of any of the Copyrights infringes or is
alleged to infringe any copyright of any third party or is a derivative work
based on the work of a third party.
(iv) All works encompassed by the Copyrights have been marked with
the proper copyright notice.
(g) Trade Secrets
-------------
(i) With respect to each Trade Secret, 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) Sellers and the Company have taken all reasonable precautions
to protect the secrecy, confidentiality, and value of their Trade Secrets.
(iii) 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 Company and no Trade Secret is subject to any adverse claim or
has been challenged or Threatened in any way.
3.23 CERTAIN PAYMENTS. Neither the Company nor any director, officer,
agent, employee of the Company, or any other Person associated with or acting
for or on behalf of the 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. Except as disclosed in Part 3.24
of the Disclosure Letter, 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),
27
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used in or pertaining to the Company businesses. Except as disclosed in Part
3.24 of the Disclosure Letter, 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.
3.26 DISCLOSURE. No representation or warranty of Sellers in this Agreement
and no statement in the Disclosure Letter fails to state a material fact or
contains an untrue statement, necessary to make the statements herein or
therein, in light of the circumstances in which they were made, not misleading.
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. Buyer has the
absolute and unrestricted right, power, and authority to execute and deliver
this Agreement and to perform its obligations under this Agreement.
(b) 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.
(c) Except as provided 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 CERTAIN PROCEEDINGS. There is no pending Proceeding that has been
commenced or Threatened against Buyer and that challenges, or may have the
effect of preventing, delaying, making illegal, or otherwise interfering with,
any of the Contemplated Transactions.
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4.4 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. COVENANTS OF SELLERS PRIOR TO CLOSING DATE.
5.1 ACCESS AND INVESTIGATION. Between the date of this Agreement and the
Closing Date, Sellers will, and will cause the Company and its Representatives
to, (a) afford Buyer and its Representatives and prospective lenders and their
Representatives (collectively, "Buyer's Advisors") full and free access to the
Company's personnel, properties, contracts, books and records, and other
documents and data, (b) furnish Buyer and Buyer's Advisors with copies of all
such contracts, books and records, and other existing documents and data as
Buyer may reasonably request, and (c) furnish Buyer and Buyer's Advisors with
such additional financial, operating and other data and information as Buyer may
reasonably request.
5.2 OPERATION OF THE BUSINESS OF THE COMPANY. Between the date of this
Agreement and the Closing Date, Sellers will, and will cause the Company to:
(a) Conduct the business of the Company only in the Ordinary Course of
Business;
(b) Use their best efforts to preserve intact the current business
organization of the Company, keep available the services of current officers,
employees and agents of the Company, and maintain the relations and good will
with suppliers, customers, landlords, creditors, employees, agents and others
having business relationship with the Company;
(c) Confer with Buyer concerning operational matters of a material nature;
and
(d) Otherwise report periodically to Buyer concerning the status of the
business, operations and finances of the Company.
5.3 NEGATIVE COVENANT. Except otherwise permitted by this Agreement,
between the date of this Agreement and the Closing Date, Sellers will not, and
will cause the Company not to, without the prior written consent of Buyer, take
any affirmative action, or fail to take any reasonable action within their or
its control, as a result of the occurrence or likelihood of occurrence of any of
the changes or events listed in Section 3.16.
5.4 REQUIRED APPROVALS. As promptly as practicable after the date of this
Agreement, Sellers will, and will cause the Company to, make all filings
required by Legal Requirements to be made by them in order to commensurate the
Contemplated Transactions. Between the date of this Agreement and the Closing
Date, Sellers will, and will cause the Company
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to, cooperate with Buyer with respect to all filings that Buyer elects to make
or is required by Legal Requirements to make in connection with the Contemplated
Transactions.
5.5 NOTIFICATION. Between the date of this Agreement and the Closing Date,
each Seller will promptly notify Buyer in writing if such Seller or the Company
becomes aware of any fact or condition that causes or constitutes a Breach of
any of Sellers' representations and warranties as of the date of this Agreement,
or if such Seller or the Company becomes aware of the occurrence after the date
of this Agreement of any fact or condition that would (except as expressly
contemplated by this Agreement) cause or constitute a Breach of any such
representation or warranty had such representation or warranty been made as of
the time of occurrence or discovery of such fact or condition. Should any such
fact or condition require any change in the Disclosure Letter if the Disclosure
Letter were dated as of the date of occurrence or discovery of any such fact or
condition, Sellers will promptly deliver to Buyer a supplement to the Disclosure
Letter specifying such change. During the same period, each Seller will promptly
notify Buyer of the occurrence of any Breach of any covenant of Sellers in this
Section 5 or of the occurrence of any event that may make satisfaction of the
conditions in Section 7 impossible or unlikely.
5.6 PAYMENT OF INDEBTEDNESS BY AFFILIATES. Except as expressly provided in
this Agreement, Sellers will cause all indebtedness owing to the Company by
either Sellers or any Affiliate of Sellers to be paid in full prior to the
Closing.
5.7 NO NEGOTIATION. Until such time, if any, as this Agreement is
terminated pursuant to Section 9, Sellers will not, and will cause the Company
and each of their representatives not to, directly or indirectly, solicit,
initiate or encourage any inquiries or proposals from, discussions or
negotiations with, provide a non-public information to, or consider the merits
of any unsolicited inquiries or proposals from, any Person (other than Buyer)
relating to any transaction involving the sale of the business or assets (other
than in the Ordinary Course of Business) of the Company, or any of the capital
stock of the Company, or any merger, consolidation, business combination, or
similar transaction involving the Company.
5.8 BEST EFFORTS. Between the date of this Agreement and the Closing Date,
Sellers will use their best efforts to cause the conditions in Sections 7 and 8
to be satisfied.
6. COVENANTS OF BUYER PRIOR TO CLOSING DATE.
6.1 APPROVALS OF GOVERNMENTAL BODIES. As promptly as practicably after the
date of this Agreement, Buyer will make all filings required by Legal
Requirements to be made to consummate the Contemplate Transactions. Between the
date of this Agreement and the Closing Date, Buyer will cooperate with Sellers
with respect to all filings that Sellers are required to by Legal Requirements
to make in connection with Contemplated Transactions, provided that this
Agreement will not require Buyer to dispose of or make any change in any portion
of its business or to incur any other burden to obtain a Governmental
Authorization.
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6.2 BEST EFFORTS. Except as is set forth in the provisos to Section 6.1,
between the date of this Agreement and the Closing Date, Buyer will use its best
efforts to cause the conditions in Section 7 and 8 to be satisfied.
7. CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE. Buyer's obligation to
purchase the Shares and to take the other actions required to be taken by Buyer
at the Closing is subject to the satisfaction, at or prior to the Closing of
each of the following conditions (any of which may be waived by Buyer, in whole
or in part);
7.1 ACCURACY OF REPRESENTATIONS. All of Sellers' representations and
warranties in this Agreement (considered collectively), and each of these
representations and warranties (considered individually), must have been
accurate in all material respects as of the date of this Agreement, and must be
accurate in all material respects as of the Closing Date as if made on the
Closing Date, without giving effect to any supplement to the Disclosure Letter.
7.2 SELLERS' PERFORMANCE.
(a) All of the covenants and obligations that Sellers are required to
perform or to comply with pursuant to this Agreement at or prior to the Closing
(considered collectively), and each of the covenants and obligations (considered
individually), must have been fully performed and complied with in all material
respects.
(b) Each document required to be delivered pursuant to Section 2.4 must
have been delivered, and each of the other covenants and obligations in Section
5 must have been performed and complied with in all respects.
7.3 CONSENTS. Each of the consents identified in Part 3.2 of the Disclosure
Letter must have been obtained and must be in full force and effect.
7.4 ADDITIONAL CONDITIONS. Each of the following conditions must have been
satisfied to the satisfaction of Buyer:
(a) Buyer will have completed all of its legal and financial due diligence
of the Company, the results of which will have been satisfactory to Buyer.
(b) WT will have negotiated and entered into, on behalf of the Company,
lease agreements for the following locations of the Company on terms
satisfactory to Buyer:
(i) With respect to the Company's assembly facility (Patterson
Road), a renewal of the existing lease through at least August 31, 1998 at the
same rental rate and on the same terms as currently in effect; and
(ii) With respect to the Company's research and development facility
and general offices facility (Reynolda Road), a lease for a term of two (2)
years from the Closing Date. The rental rate shall be the average of the two (2)
MAI appraisals (or such other appraisal
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standard as agreed upon by Buyer and WT) (one commissioned by each of Buyer and
WT) prepared on a "gross" lease basis.
(c) Buyer shall have secured financing on terms satisfactory to Buyer for
the consummation of the Contemplated Transactions.
(d) Buyer shall have received such other documents as Buyer may reasonably
request for the purpose of evidencing the accuracy of Sellers' representations
and warranties and performance of covenants to be complied with pursuant to the
terms of this Agreement.
7.5 NO PROCEEDINGS. Since the day of this Agreement there must not have
been any commenced or Threatened against Buyer or any Person affiliated with
Buyer, any Proceeding (i) involving any challenge to, or seeking damages or
other relief in connection with, any of the Contemplated Transactions, or (ii)
that may have the effect of preventing, delaying, making illegal, or otherwise
interfering with any of the Contemplated Transactions.
7.6 NO CLAIM REGARDING STOCK OWNERSHIP OR SALE PROCEEDS. There must have
not been made or Threatened by any Person any claim asserting that such Person
(i) is the holder or the beneficial owner of, or has the right to acquire or to
obtain beneficial ownership of, any stock of, or any other voting, equity or
ownership interest in, the Company or (ii) is entitled to all or any portion of
the Purchase Price payable for the Shares.
7.7 NO PROHIBITION. Neither the consummation nor the performance of any of
the Contemplated Transactions will, directly or indirectly (with or without
notice or lapse of time), materially contravene, or conflict with, or result in
a material violation of, or cause buyer or any Person affiliated with Buyer to
suffer any material adverse consequence under, any applicable Legal Requirement
or Order.
8. CONDITIONS PRECEDENT TO SELLERS' OBLIGATION TO CLOSE. Sellers' obligation
to sell the Shares and to take the actions required to be taken by Sellers at
the Closing is subject to the satisfaction, at or prior to the Closing, of each
of the following conditions (any of which may be waived by Sellers, in whole or
in part):
8.1 ACCURACY OF REPRESENTATIONS. All of Buyer's representations and
warranties in this Agreement (considered collectively), and each of these
representations and warranties (considered individually), must have been
accurate in all material respects as of the date of this Agreement and must be
accurate in all material respects as of the Closing Date as if made on the
Closing Date.
8.2 BUYER'S PERFORMANCE. All of the covenants and obligations that Buyer is
required to perform or to comply with pursuant to this Agreement at or prior to
the Closing (considered collectively), and each of these covenants and
obligations (considered individually), must have been performed and complied
with in all material respects.
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8.3 CONSENTS. Each of the consents identified in Part 3.2 of the Disclosure
Letter must have been obtained and must be in full force and effect.
8.4 RELEASE OF GUARANTY. WT and his spouse shall have been released from
their personal guaranty of all obligations of the Company owing to First
Citizens' Bank.
8.5 NO INJUNCTION. There must not be any Legal Requirement or any
injunction or other Order that (i) prohibits the sale of the Shares by Sellers
to Buyer and (ii) has been adopted or issued, or has otherwise become effective,
since the date of this Agreement.
9. TERMINATION.
-----------
9.1 TERMINATION EVENTS. This Agreement may, by notice given prior to or at
the Closing, be terminated (a) by either Buyer or Sellers if a material Breach
of any provision of this Agreement has been committed by the other party and
such Breach has not been waived; (b)(i) by Buyer if any of the conditions set
forth in Section 7 has not been satisfied as of the Closing Date or if
satisfaction of such a condition is or becomes impossible (other than through
the failure of Buyer to comply with its obligations under this Agreement) and
Buyer has not waived such condition on or before the Closing Date; or (ii) by
Sellers, if any of the conditions in Section 8 has not been satisfied as of the
Closing Date or if satisfaction of such a condition is or becomes impossible
(other than through the failure of Sellers to comply with their obligations
under this Agreement) and Sellers have not waived such condition on or before
the Closing Date; (c) by mutual consent of Buyer and Sellers; or (d) by either
Buyer or Sellers if the Closing has not occurred (other than through the failure
of any party seeking to terminate this Agreement to comply fully with its
obligations under this Agreement) on or before February 6, 1998, or such later
date as the parties may agree upon.
9.2 Each party's right of termination under Section 9.1 is in addition to
any other rights it may have under this Agreement or otherwise, and the exercise
of a right of termination will not be an election of remedies. If this Agreement
is terminated pursuant to Section 9.1, all further obligations of the parties
under this Agreement will terminate, except that the obligations in Sections
11.1 and 11.3 will survive; provided, however, that if this Agreement is
terminated by a party because of the Breach of the Agreement by the other party
or because one or more of the conditions to the terminating party's obligations
under this Agreement is not satisfied as a result of the other party's failure
to comply with its obligations under this Agreement, the terminating party's
right to pursue all legal remedies will survive such termination unimpaired.
10. INDEMNIFICATION; REMEDIES.
-------------------------
10.1 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. The right to indemnification, payment
of Damages or other remedy based on such representations, warranties, covenants,
and obligations will not be affected by any investigation conducted with respect
to, or any knowledge acquired (or capable of being acquired)
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at any time, whether before or after the execution and delivery of this
Agreement or the Closing Date, with respect to the accuracy or inaccuracy of or
compliance with, any such representation, warranty, covenant, or obligation. 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.
10.2 INDEMNIFICATION AND PAYMENT OF DAMAGES BY SELLERS. Sellers will
jointly and severally indemnify and hold harmless Buyer, the Company, and their
respective Representatives, stockholders, controlling persons, and Affiliates
(collectively, the "Indemnified Persons") for, and will pay to the Indemnified
Persons the amount of, any loss, liability, claim, damage expense (including
costs of investigation and defense and reasonable attorneys' fees) or diminution
of value, whether or not involving a third-party claim (collectively,
"Damages"), arising, directly or indirectly, from or in connection with (i) 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; (ii) any Breach by any Seller of any covenant or
obligation of such Seller in this Agreement; or (iii) the claim of any third
party for liabilities or obligations of the Company based on or arising out of
the conduct of the Company's business prior to the Closing. The remedies
provided in this Section 10.2 will not be exclusive of or limit any other
remedies that may be available to Buyer or the other Indemnified Persons.
10.3 INDEMNIFICATION AND PAYMENT OF DAMAGES BY BUYER. Buyer will indemnify
and hold harmless Sellers, their respective heirs, executors and personal
representatives, and will pay to Sellers, their respective heirs, executors and
personal representatives the amount of any Damages arising, directly or
indirectly, from or in connection with (i) any Breach of any representation or
warranty made by Buyer in this Agreement; or (ii) any Breach by Buyer of any
covenant or obligation of Buyer in this Agreement which is to be performed by
Buyer after the Closing.
10.4 PROCEDURE FOR INDEMNIFICATION--THIRD PARTY CLAIMS.
(a) Promptly after receipt by an indemnified party under Section 10.2 or
10.3 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 that the indemnifying party demonstrates that the
defense of such action is prejudiced by the indemnifying party's failure to give
such notice.
(b) If any Proceeding referred to in SECTION 10.4(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, unless the claim
involves Taxes, 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
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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 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 10 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. If the
indemnifying party assumes the 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; (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
(10) 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 SECTION 10 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).
(d) Sellers hereby consent to the non-exclusive jurisdiction of any court
in which a Proceeding is brought against any Indemnified Person for purposes of
any claim that an Indemnified Person may have under this Agreement with respect
to such Proceeding or the matters alleged therein, and agree that process may be
served on Sellers with respect to such a claim anywhere in the world.
10.5 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.
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11. GENERAL PROVISIONS.
11.1 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.
11.2 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 determines. Unless consented
to by Buyer in advance or required by Legal Requirements, prior to the Closing,
Sellers shall, and shall cause the Company to, keep the terms of 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.
11.3 CONFIDENTIALITY. Except as otherwise provided herein, the terms of the
Confidentiality Agreement between Buyer, WT and the Company dated October 10,
1997, shall remain in full force and effect until the Closing Date.
11.4 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: William H. Todd
c/o Todd Motion Controls, Inc.
Post Office Box 11966
Winston-Salem, North Carolina 27106
Facsimile No.: 910-924-1750
with a copy to: H. David Niblock, Esq.
Nelson, Boyles, Niblock & Green
101 Charlois Boulevard, Suite 102
Winston-Salem, North Carolina 27103
Facsimile No.: (910) 760-9013
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If to Buyer: Robert S. Speizman, President
Speizman Industries, Inc.
P. O. Box 31215
Charlotte, North Carolina 28231
Facsimile No.: (704) 376-3153
with a copy to: Kilpatrick Stockton LLP
3500 One First Union Center
301 South College Street
Charlotte, North Carolina 28202-6001
Attention: David B. Whelpley, Jr., Esq.
Facsimile No.: (704) 338-5125
11.5 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.
11.6 FURTHER ASSURANCES. The parties agree (i) to furnish upon request to
each other such further information, (ii) to execute and deliver to each other
such other documents, and (iii) 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.
11.7 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, (i) 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; (ii) no waiver that may be
given by a party will be applicable except in the specific instance for which it
is given; and (iii) 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.
11.8 ENTIRE AGREEMENT AND MODIFICATION. This Agreement supersedes all prior
agreements between the parties with respect to its subject matter (including the
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Letter of Intent between Buyer and Sellers dated November 25, 1997, as amended)
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.
11.9 DISCLOSURE LETTER.
(a) Any disclosure or exception by the Company or any Seller in this
Agreement, in any exhibit or schedule hereto, or in the Disclosure Letter 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 with respect to a
specifically identified representation or warranty), the statements in the body
of this Agreement will control.
11.10 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 without the consent of the Sellers. 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.
11.11 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.
11.12 SECTION HEADINGS, CONSTRUCTION. The headings of Sections in this
Agreement are provided for convenience only and will not affect its construction
or interpretation. Except as otherwise provided herein 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.
11.13 TIME OF ESSENCE. With regard to all dates and time periods set forth
or referred to in this Agreement, time is of the essence.
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11.14 GOVERNING LAW. This Agreement will be governed by the laws of the
State of North Carolina without regard to conflicts of laws principles.
11.15 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:
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SPEIZMAN INDUSTRIES, INC.
By: /s/ Robert S. Speizman
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Its: President
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SELLERS:
-------
/s/ William H. Todd
---------------
William H. Todd
/s/ Marion C. Todd
---------------
Marion C. Todd
/s/ Joseph Collins
---------------
Joseph Collins
/s/ Leon Locklear
-------------
Leon Locklear
CLTLIB01:343594.02\VER. 5
40
<PAGE>
Exhibits and Schedules
Exhibits
2.4(a)(ii) Seller's Release
2.4(a)(iii)(A) Employment Agreement of William Todd
2.4(a)(iii)(B) Employment Agreement of Joseph Collins
2.4(a)(iii)(C) Employment Agreement of Marion Todd
2.4(a)(iii)(D) Employment Agreement of Jonathan Freeman
2.4(a)(iii)(E) Employment Agreement of Thomas Reavis
2.4(a)(iv) Opinion of Nelson, Boyles, Niblock & Green
Schedules
A List of Sellers and Ownership Percentages
4.2 Required Buyer Consents
STATE OF NORTH CAROLINA )
: LEASE AGREEMENT
COUNTY OF FORSYTH )
THIS LEASE AGREEMENT made this 6th day of February, 1998, by and between WILLIAM
H. TODD and wife, JO ANNE TODD, of Forsyth County, North Carolina (hereinafter
referred to as "LANDLORD"), and TODD MOTIONS CONTROLS, INC., a North Carolina
business corporation (hereinafter referred to as "TENANT").
W I T N E S S E T H:
--------------------
1. LEASE OF PREMISES. The Tenant hereby agrees to rent and take upon the
following terms and conditions hereinafter set forth that certain real property,
including all of the improvements located thereon, located at 5511 Reynolda
Road, Winston-Salem, NC, 27106, as more specifically described on the attached
Exhibit "A" which is incorporated herein by reference as if the fully set forth
(hereinafter referred to as "PREMISES").
2. TERM. The term of this Lease shall be Twenty-Four (24) months
commencing as of the 1st day of February, 1998 and ending on January 31, 2000.
3. RENT. Tenant agrees to pay Landlord the following rents:
The annual rent of Twenty-Five Thousand Four Hundred Thirty Seven and
50/100 Dollars ($25,473.50) which annual rent shall be payable in equal monthly
installments of Two Thousand One Hundred Nineteen and 79/100 Dollars
($2,119.79), which the first such installment being due and payable on the first
day of February, 1998, and being due and payable on the first day of each and
every consecutive month thereafter for the remaining term of this Lease.
4. TAXES AND INSURANCE. The Landlord is responsible for the total ad
valorem and real estate taxes and the insurance on the building. The Tenant
shall be responsible for such insurance coverage as provided in Paragraph 18 of
this Lease.
5. USE. The Premises shall be used for any purpose permitted under
applicable zoning laws. The Premises shall not be used for any illegal purposes;
nor shall they be used in any manner to create any nuisance or trespass; nor in
any manner to vitiate the insurance or increase the rate of insurance on the
Premises.
6. UTILITIES. Water and sewer will be paid by the Tenant. Electric power
bills and all other utility bills are the sole responsibility of the Tenant.
7. LANDLORD'S MAINTENANCE.. Landlord shall, at the expense of the
Landlord, maintain and be liable for the foundation, outside walls, eaves,
troughs, spouts, window frames, roofing and flashing, water and sewer lines
outside or inside the building on the Premises, parking lot, and driveways.
These items are listed by way of illustration but are not exclusive. In addition
to the above, and except as provided herein, the Landlord shall be financially
1
<PAGE>
responsible for any and all repairs, replacements or service to the Premises.
Landlord warrants that upon delivery of possession of the demised premise, all
plumbing, wiring, and the heating and air conditioning systems shall be in good
working order.
8. TENANT'S MAINTENANCE. Tenant, at its expense, shall maintain the HVAC
system to include two (2) annual maintenance calls. Landlord shall be
responsible for replacement or repairs to said HVAC system. Tenant, at its
expense, shall maintain the plumbing system to include leaking faucets and
clogged toilets. Major repairs or replacements will be responsibility of the
Landlord.
9. CONDITION OF PREMISES. Tenant accepts the Premises in their present
condition and acknowledges that the same are suited for the use intended by
Tenant. Tenant agrees to return the Premises to Landlord at the expiration or
sooner termination of the term hereof in as good condition and repair as when
first received, normal wear and tear, damage by storm, fire, lightning,
earthquake or casualty excepted.
10. INTERIOR DESIGN, ETC. Any changes or alterations in the interior
design, decor, furnishings, trade fixtures, and other decorating of or for the
Premises must be first submitted to Landlord for approval, which shall not be
unreasonably withheld or delayed, before installation thereof by Tenant, and
such installation shall be at Tenant's expense and shall be free of any liens.
11. ADVERTISING SIGNS. All advertising signs are subject to approval of
Landlord, which shall not be unreasonably withheld or delayed, and Tenant must
obtain such approval in writing prior to installation. Such approval will be
granted if the sign is satisfactory with the zoning and sign regulations of the
appropriate governmental agency in charge of the same. Tenant shall remove
Tenant's signs from the Premises at the expiration or sooner termination of the
term hereof.
12. NO NUISANCE. The Tenant shall keep the Premises clean, both inside and
outside, at its own expense, and will remove all trash, garbage and other refuse
from the p clean, both inside and outside, at its own expense, and will remove
all trash, garbage and other refuse from the Premises. Tenant agrees to keep all
accumulated rubbish in covered containers provided by the Landlord and removed
regularly at Landlord's expense.
13. NO OBSTRUCTION. Tenant shall neither encumber nor obstruct the area
adjoining the Premises not allow the same to be obstructed or encumbered in any
manner, and shall keep said area and adjoining sidewalks, if any, free of ice,
snow, rubbish and dirt. Tenant shall not place, or cause to be placed, any
merchandise, vending machines, or anything else on said area or sidewalks, if
any, or the exterior of the Premises, without the written consent of the
Landlord first obtained, which shall not be unreasonably withheld or delayed.
14. DESTRUCTION OF PREMISES. Should fire or other casualty totally destroy
the building on the leased property or render the same more than fifty percent
(50%) unfit for the operation of Tenant's business, Landlord shall with all
reasonable dispatch rebuild or restore such building so as to afford
substantially the same space and facilities as at the time of such
2
<PAGE>
damage or destruction; providing however, that in the event of damage or
destruction to such extent by fire, or other casualty the Tenant shall have an
option to terminate this Lease without payment of further rent, within thirty
(30) days of the date thereof by giving written notice to that effect to the
Landlord and upon receipt of such notice the Landlord shall be under no duty to
rebuild or restore any buildings on the leased property.
In the event of partial destruction or damage to said buildings on the
leased property by fire or other casualty which does not render them more than
fifty percent (50%) unfit for occupancy, the Landlord shall, at its expense
restore and repair such property with all reasonable dispatch, and this Lease
shall continue in full force and effect except as provided in the next paragraph
relating to rental.
The rental payable by the Tenant hereunder shall abate to the extent and
so long as the leased property is unfit for the conduct of the Tenant's regular
business therein as the result of fire or other casualty. Any rent which may
have been paid in advance for such period during which occupancy by the Tenant
is impossible or impractical shall be adjusted or rebated, as the case may be,
depending upon the extent of the leased property made by the Tenant during such
period.
15. ENVIRONMENTAL REPRESENTATIONS AND WARRANTIES.
---------------------------------------------
(A) Tenant agrees to comply with any and all Federal, State or local
environmental laws regulating Tenant's use and occupancy of the Premises,
including, without limitation, any such law regulating Hazardous Materials. As
used herein, "Hazardous Materials" means asbestos, FCBs, petroleum or any other
hazardous or toxic substance, material, waste or other environmentally regulated
substance that is subject to any Hazardous Materials Law (as defined below).
(B) Landlord represents and warrants to the best of its knowledge,
that no Hazardous Materials are located on, in or about the Premises, the
Building or the real estate on which the Building is located, or used in
connection therewith. Landlord agrees to disclose to Tenant in writing the
existence, extent and nature of any Hazardous Material ascertained on, in or
about the Premises, Building or real estate, or used in connection therewith,
upon Landlord's knowledge of the same.
16. ALTERATIONS REQUIRED BY LAW. In the event any local, state or federal
laws, rules and regulations require that the leased premises be altered, changed
or modified in order to comply with any law, rule or regulation, and said
alteration, change or modification is within reason, such alteration, change or
modification shall be the sole and separate responsibility of the Landlord and
shall be completed in compliance with said law, rule or regulation at Landlord's
expense. (For example, in the event that the leased premises do not comply with
any rule or regulation concerning requirements for the handicapped it shall be
the sole and separate responsibility of Landlord to bring the leased premises
into compliance with said laws, rules and regulations.) In the event
alterations, changes and modifications are not within reason, then in this event
if the Landlord fails to make the required alterations, changes and
modifications the Tenant shall have the option to (1) make at its own expense
the alterations, changes and
3
<PAGE>
modifications required or (2) terminate this Lease by giving Landlord thirty
(30) days prior written notice thereto.
17. INDEMNIFICATION. Tenant agrees to indemnify and save harmless the
Landlord against all claims for damages to persons or property by reason of the
negligent use or occupancy of the Premises and all expenses incurred by Landlord
as a result thereof or in connection therewith including reasonable attorney's
fees, court costs, and related expenses actually incurred.
18. INSURANCE. Tenant is responsible for insurance on its contents and
fixtures. Tenant agrees to carry $1,000,000.00 liability insurance with Landlord
named as co-insured.
19. COMPLIANCE WITH LAWS. Tenant agrees, at its own expense, to comply
promptly with all requirements of any legally constituted public authority,
except as such requirements concern responsibilities of Landlord, in which event
Landlord agrees to promptly comply, at its own expense, with said requirements.
20. CONDEMNATION. If the whole of the Premises, or such portion thereof as
will make the Premises unusable for the purposes herein rented, be condemned by
any legally constituted authority for any public use or purpose, then, in either
of said events, the term hereof shall cease from time when possession thereof is
taken by such authority; and rental shall be accounted for as between Landlord
and Tenant as of that date. Such termination, however, shall be without
prejudice to the rights of either Landlord or Tenant to recover compensation and
damage caused by condemnation from the condemnor. It is further understood and
agreed that neither Tenant nor Landlord shall have any rights in any award made
to the other by any condemnation authority.
21. ASSIGNMENT AND SUBLETTING. Tenant shall not, without the prior written
consent of Landlord endorsed hereon, which shall not be unreasonably withheld or
delayed, assign this Lease or any interest hereunder. Tenant may subrent or
sublease the Premises or any part thereof, or permit the use of the Premises by
any party other than Tenant.
22. REMOVAL OF TRADE FIXTURES. Tenant may (if not in default hereunder)
prior to the expiration or sooner termination of the term hereof, remove all
trade fixtures and supplies which Tenant has placed in the Premises, provided
Tenant shall restore the Premises to the same condition as existed at the
commencement of the term hereof, normal wear and tear excepted.
23. DEFAULT. It is mutually agreed that (a) in the event the Tenant shall
default in the payment of rent herein reserved, when due, and fails to cure such
default within ten (10) days after the date of receipt of written notice of
default from Landlord, or (b) if Tenant shall be in default in any of the terms
or provisions of this Lease, other than the provisions requiring payment of
rent, and fails to cure such default within thirty (30) days after the date of
receipt of written notice of default from Landlord, or (c) if Tenant is
adjudicated bankrupt, or (d) if a permanent receiver is appointed for Tenant's
property and such receiver is not removed within sixty (60) days after written
notice from Landlord to Tenant to obtains such removal, or (e) if, whether
voluntarily or involuntarily, Tenant takes advantage of any debtor relief
proceedings
4
<PAGE>
under any present or future law, whereby the rent of any part thereof is, or is
proposed to be, reduced or payment thereof deferred, or (f) if Tenant's effects
should be levied upon or attached under process against Tenant, and such levy or
attachment is not satisfied or dissolved within thirty (30) days after written
notice from Landlord to Tenant to satisfy or dissolve the same, then, in any of
said events, Landlord, at its option, may terminate this Lease by written notice
to Tenant, whereupon this Lease shall terminate. Any notice provided in the
paragraph may be given by Landlord or its attorney. Upon such termination by
Landlord, Tenant will at once surrender possession of the Premises to Landlord
and remove all of Tenant's effects therefrom; and Landlord may forthwith reenter
the Premises and repossess itself thereof, and remove all persons and effects
therefrom, using such force as may be necessary.
24. LANDLORD'S RIGHT OF ENTRY. Landlord may post on the Premises "For
Rent" signs sixty (60) days before the expiration of the term hereof. Landlord
may enter the Premises at reasonable hours to extend the same to prospective
tenants and to make repairs required of or permitted to be made by Landlord
under the terms hereof, or to inspect the premises for the purpose of
determining if Tenant is complying with the requirements of this Lease.
25. HOLD OVER. If Tenant remains in possession of the Premises after the
expiration of the term hereof, with Landlord's acquiescence and without any
express agreement of the parties, Tenant shall be a Tenant from month to month
at the same monthly rental in effect at the end of such term and there shall be
no renewal of this Lease by operation of law.
26. NO WAIVER. No failure of Landlord to exercise any power given to
Landlord hereunder, or to insist upon strict compliance by Tenant with Tenant's
obligations hereunder, and no custom or practice of the parties at variance with
the terms hereof shall constitute a waiver of Landlord's right to demand exact
compliance with the terms hereof.
27. NOTICES. Any notices required to be given by any party hereto shall be
considered given if addressed to the parties hereinafter set forth and mailed by
certified mail, return receipt requested.
For the Landlord: William H. Todd and wife, Jo Anne Todd
c/o H. David Niblock
--------------------
101 Charlois Blvd.
------------------
Winston-Salem, NC 27103
------------------------
Attn: David Niblock
For the Tenant: Todd Motion Controls, Inc.
c/o Speizman Industries, Inc.
-----------------------------
P.O. Box 31215
--------------
Charlotte, NC 28231
--------------------
Attn: Robert S. Speizman, President
28. ENTIRE AGREEMENT. This Lease contains the entire agreement of the
parties hereto; and no representations, inducements, promises or agreements,
oral or other, between the parties not embodied herein, shall be of any force or
effect.
5
<PAGE>
IN WITNESS WHEREOF, Landlord and Tenant have caused this Agreement to be
executed all as of the date first above written.
LANDLORD:
/s/ William H. Todd
-------------------
William H. Todd
/s/ Jo Anne S. Todd
-------------------
Jo Anne Todd
TENANT:
Todd Motion Controls, Inc.
By:
/s/ Robert S. Speizman
----------------------
Name: Robert S. Speizman
Title: President
6
[THE MERIDIAN REALTY GROUP LETTERHEAD]
Agreement to Lease
This writing shall serve as an agreement between Todd Motion Controls, Inc, 5511
Reynolda Road, Winston-Salem, NC 27106 , Lessee and Douglas L. Cook et al.,
Lessor, c/o Mr. Bill Wall, P.O. Box 4042, Winston-Salem, NC 27105 to lease a
certain portion of the warehouse located at 4290 N. Patterson Avenue,
Winston-Salem, NC, as shown on attachment "A".
The lease term shall commence on September 1, 1996, for six months, with three
consecutive options to renew for a term of six months at each term expiration
upon two months notice to the Lessor and Agent. Either party shall have the
option to cancel the lease upon a six months written notice after a period of 12
months occupancy with notice to either Mr. Bill Wall or Lessors agent Robert H.
Hoffman, Meridian Realty Group, Inc.
Lessor shall maintain, at his expense, fire and extended property insurance for
the building and the Lessee shall maintain, at his expense, liability and
property insurance for the stored property.
The Lessee will protect and save the Lessors harmless and does hereby indemnify
the Lessors against all claims for damages either to persons or property of
whatever kind or nature arising in any manner out of or on account of its use of
the leased premises or on account of any condition of the premises for which the
Lessee is responsible under the terms hereof. Lessee will notify Lessors of any
exterior or structural defect in the lease premises of which it is aware which
may cause injury to any person or property so that Lessors may take whatever
action that may be necessary to correct the same.
Rental for the subject leased space shall be $1.50 per square foot, annually on
35,340 square feet (as shown on attachment "A"), for $4,417.50 per month. With
the rental due the 1st of each month and all made WITHOUT FURTHER NOTICE payable
to Cooks Warehouse, c/o Mr. Bill Wall as addressed above. However the lease rate
for the month of September 1996 shall be one half the rate quoted above (i.e.
$2,208.25) with payment of the September 96 and October 96 rental due together
in the first week in September 96.
Any increase in the buildings annual insurance rate, above that at the beginning
date of this lease, which increase is caused by the Lessees activities, within
the subject space shall be the expense of the Lessee.
The Lessee shall have the privilege and responsibility of removing, at the
termination of his lease occupancy , any and all equipment, wiring material,
etc., which he has installed in the building including any walls except for
bathroom area which shall remain a part of the building.
Signatures below acknowledge the understanding and agreement of the terms set
forth above.
Acknowledgement
Todd Motion Controls, Inc.
By: /s/ William H. Todd Date: 10/20/96
------------------------------ ------------
WILLIAM H. TODD, PRESIDENT
Acknowledgement
Douglas L. Cook, et. al., Lessor
By: /s/ Douglas Cook Date: 11/22/96
------------------------------ ------------
By: /s/ illegible Date: 12/02/96
------------------------------ ------------
The Meridian Realty Group, Inc.
EXHIBIT 21
LIST OF SUBSIDIARIES
Wink Davis Equipment Company, Inc., Georgia
Todd Motion Controls, Inc., Winston-Salem, North Carolina
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements
No. 2-77747 and No. 33-43042 of Speizman Industries, Inc. on Form S-8 of our
report dated August 27, 1998, appearing in this Annual Report on Form 10-K of
Speizman Industries, Inc. for the year ended June 27, 1998.
Charlotte, North Carolina BDO Seidman, LLP
August 27, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000092827
<NAME> SPEIZMAN INDUSTRIES, INC.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-27-1998
<PERIOD-START> JUN-29-1997
<PERIOD-END> JUN-27-1998
<CASH> 2,193,329
<SECURITIES> 0
<RECEIVABLES> 20,671,045
<ALLOWANCES> 853,211
<INVENTORY> 15,934,745
<CURRENT-ASSETS> 41,318,174
<PP&E> 3,720,342
<DEPRECIATION> 1,632,367
<TOTAL-ASSETS> 50,033,911
<CURRENT-LIABILITIES> 21,102,045
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335,741
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<COMMON> 0
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<TOTAL-LIABILITY-AND-EQUITY> 50,033,911
<SALES> 90,886,285
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<CGS> 74,033,817
<TOTAL-COSTS> 86,888,903
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<INTEREST-EXPENSE> 791,067
<INCOME-PRETAX> 3,206,315
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