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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [Fee Required]
For the fiscal year ended DECEMBER 31, 1998
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|_| TRANSACTION 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 number 0-25246
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WINSLOEW FURNITURE, INC.
(Exact name of registrant as specified in its charter)
FLORIDA 63-1127982
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
160 VILLAGE STREET, BIRMINGHAM, ALABAMA 35242
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (205) 408-7600
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
Name on Each Exchange
Title of Each Class on Which Registered
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COMMON STOCK,
$.01 PAR VALUE PER SHARE NASDAQ NATIONAL MARKET
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes 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 to this Form 10-K. |X|
The aggregate market value of shares of Common Stock held by
non-affiliates of the registrant as of March 1, 1999, was approximately
$110,537,892 based on a $27.00 closing sale price for the Common Stock quoted
on the Nasdaq National Market System on such date. For purposes of this
computation, all executive officers, directors, and 5% beneficial owners are,
in fact, affiliates of the registrant.
The number of shares of Common Stock, $.01 par value per share, of the
registrant outstanding as of March 1, 1999, was 7,181,908.
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INDEX TO ITEMS
Page
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PART I
ITEM 1. Business......................................................... 3
ITEM 2. Properties.......................................................15
ITEM 3. Legal Proceedings................................................16
ITEM 4. Submission of Matters to a Vote of Security Holders..............16
PART II
ITEM 5. Market for the Registrant's Common Equity and Related
Stockholder Matters............................................17
ITEM 6. Selected Financial Data..........................................18
ITEM 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.......................................20
ITEM 7A. Quantitative and Qualitative Disclosures About
Market Risk....................................................25
ITEM 8. Financial Statements and Supplementary Data......................26
ITEM 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.............................45
PART III
ITEM 10. Directors and Executive Officers of the Registrant..............46
ITEM 11. Executive Compensation..........................................49
ITEM 12. Security Ownership of Certain Beneficial Owners and Management..53
ITEM 13. Certain Relationships and Related Transactions..................56
PART IV
ITEM 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K...................................................57
Signatures................................................................61
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PART I
ITEM 1. BUSINESS
GENERAL
WinsLoew designs, manufactures and distributes casual furniture,
contract seating and ready-to-assemble ("RTA") furniture.
BUSINESS
CASUAL FURNITURE. WinsLoew designs, manufactures and distributes
casual furniture for both the residential and contract markets. WinsLoew
constructs its residential products of extruded and tubular aluminum, wrought
iron and cast aluminum. WinsLoew marketed its residential products through
independent sales representatives primarily to specialty patio stores and
furniture stores. WinsLoew constructed its contract products of extruded,
tubular and cast aluminum, steel, wrought iron, wood and fiberglass. WinsLoew
marketed its contract products primarily through its in-house sales force,
primarily to apartment developers and management companies, hospitality
providers (hotel, motel, restaurants, country clubs and resorts), architectural
design firms, and city and state municipalities.
CONTRACT SEATING. WinsLoew designs, and distributes contract seating
products constructed of contemporary, traditional and transitional styles of
wood and metal. Products include upholstered chairs, sofas and love seats
offered in a variety of finish and fabric options. WinsLoew designs its
contract seating products for use in the restaurant, lodging, office,
healthcare facilities and retail stores. WinsLoew assembles these products
pursuant to specific orders and distribute them to a broad customer base, which
includes architectural design firms, office furniture dealers, and restaurant
and lodging chains through independent sales organizations.
RTA FURNITURE. WinsLoew's RTA products consist of promotionally priced
RTA "spindle" and "flatline" furniture and fully assembled case goods furniture
designed for household use. Products include corner spindle units, four drawer
chests, three drawer changing towers, coffee tables, end tables, entertainment
centers and tape storage units. Distribution is through mass merchants and
catalog wholesalers.
HISTORY
MERGER OF WINSTON AND LOEWENSTEIN. WinsLoew was formed in December
1994 through the merger of Winston Furniture Company, Inc. ("Winston") and
Loewenstein Furniture Group, Inc. ("Loewenstein") with and into WinsLoew, a
newly-formed corporation that was formed for the purpose of the merger. As a
result of the merger, (i) each outstanding share of Winston common stock was
converted into 1.00 shares of WinsLoew Common Stock, and each outstanding share
of Loewenstein common stock was converted into 1.05 shares of WinsLoew Common
Stock.
WINSTON HISTORY. Winston, a designer, manufacturer and distributor of
casual furniture for both the residential and contract markets, began business
in October 1975 as a division of Marathon Corporation. In March 1986, Winston
management and certain other investors acquired the aluminum furniture business
of that division in a leveraged buyout. Winston acquired the wrought iron and
tubular steel furniture business of the Lyon-Shaw, Inc. a division of B.B.
Walker Company ("Lyon Shaw"), in November 1986. In August 1987, Winston
competed an initial public offering of its shares. In December 1988, Winston
management, other employees and affiliates of the Trivest Partnerships
purchased Winston in a leveraged buyout. Following the December 1988 buyout,
Winston expanded its manufacturing facilities, focused on its core business and
reduced its outstanding indebtedness. In February 1993, Winston competed its
initial public offering and used the net proceeds received therefrom to further
reduce outstanding indebtedness. In September 1994, Winston acquired
substantially all of the assets of Texacraft, Inc., a Texas corporation
("Texacraft"), which was a privately held manufacturer of aluminum furniture
for the contract market.
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LOEWENSTEIN HISTORY. Loewenstein, Inc. was founded in 1967 and
acquired in February 1985 by Atlantis Plastics, Inc., a publicly-traded
plastics company and an affiliate of the Trivest Partnerships. In 1987 and
1988, Atlantis acquired (i) Southern Wood Products, Inc. ("Southern Wood"), a
manufacturer of promotionally priced RTA furniture; (ii) Gregson Furniture
Industries, Inc. ("Gregson"), a manufacturer of traditional and transitional
styled seating for the office and institutional markets; and (iii) Excel Office
and Contract, Inc. ("Excel"), a manufacturer of contemporary and traditional
styled seating for the office furniture market. Loewenstein, Inc., Southern
Wood, Gregson and Excel represented the furniture group of Atlantis (the
"Atlantis Furniture Group"). In April 1991, former management and employees of
the Atlantis Furniture Group and certain affiliates of the Trivest Partnerships
formed Loewenstein, which concurrently therewith purchased the Atlantis
Furniture Group. In September 1993, Loewenstein completed its initial public
offering of Loewenstein common stock and used the net proceeds to retire
substantially all of its outstanding indebtedness and for working capital. In
November 1993, Loewenstein acquired substantially all of the assets of
Shaffield Industries, Inc., a Tennessee corporation, and certain of its
affiliates (collectively, "Shaffield"). The assets acquired consisted of
substantially all of the assets used by Shaffield in its business as a
vertically-integrated manufacturer of RTA furniture, including futons, chairs,
tables and related accessories marketed under the trademark FROM THE SOURCE. In
February 1994, Loewenstein acquired New West Industries, a California
corporation ("New West"). New West was a manufacturer of RTA furniture,
including futons, chairs and related accessories.
RECENT DEVELOPMENTS
SALE OF EXCEL. During the fourth quarter of 1995, WinsLoew disposed of
the assets of its Excel business.
SALE OF LYON SHAW. During the third quarter of 1997, WinsLoew disposed
of certain assets of its Lyon Shaw wrought iron furniture manufacturing
business in the casual furniture product line.
TROPIC CRAFT ACQUISITION. During the third quarter of 1998, WinsLoew
acquired the stock of Villella, Inc. d.b.a. Tropic Craft Aluminum Furniture
Manufacturers ("Tropic Craft"), a manufacturer of aluminum casual furniture
sold into contract markets.
POMPEII ACQUISITION. During the fourth quarter of 1998, WinsLoew
entered into a Stock Purchase Agreement with the shareholders of Miami Metal
Products, Inc. d.b.a. Pompeii Furniture Industries, a manufacturer of aluminum
casual furniture sold into contract and residential markets. The closing of the
Pompeii acquisition is expected to occur in the second quarter of 1999, once
certain conditions related to the Pompeii facility are met by the selling
shareholders.
RTA OPERATIONS. During 1997, WinsLoew adopted a plan to dispose of its
"RTA" operations and recorded a pretax non-cash charge totaling $12.4 million
in the fourth quarter of 1997 relating to the disposal of the "RTA" operations.
During 1998, WinsLoew sold its equity interest in the Continental Engineering
subsidiary. In addition, WinsLoew liquidated the assets related to its New West
futon business. WinsLoew subsequently decided to retain its third "RTA" entity
(Southern Wood) due to improved profitability and, accordingly, has reclassed
its Southern Wood results to continuing operations.
Reference is made to Note 2 of the Company's Consolidated Financial
Statements for additional information with respect to the Company's
discontinued operations, acquisitions and dispositions, including the completed
Tropic Craft acquisition.
GOING PRIVATE TRANSACTION. On March 5, 1999, WinsLoew and Trivest
Furniture Corporation (the "Purchaser"), a Florida corporation formed by Earl
W. Powell of Trivest, Inc., who is also the Chairman of WinsLoew's Board of
Directors, entered into an Agreement and Plan of Merger (the "Merger
Agreement"), pursuant to which Mr. Powell, certain investment partnerships
affiliated with Trivest, Inc. and certain members of WinsLoew's senior
management will acquire WinsLoew in a merger transaction. Pursuant to the
Merger Agreement, (i) the Purchaser will merge with and into WinsLoew (the
"Merger"), with WinsLoew as the surviving corporation, (ii) each outstanding
share of WinsLoew common stock (other than shares held by the Purchaser) will
be converted into the right to receive $30.00 per share in cash, and (iii) each
outstanding option to purchase WinsLoew common stock will be canceled and the
holder thereof will receive a cash payment equal to the difference between $30
and the exercise price of such option (collectively, the "Transactions"). The
Merger Agreement was approved by a special committee of WinsLoew's Board of
Directors acting on, among other things, an oral opinion received from its
financial advisor, Mann, Armistead & Epperson, Ltd., Richmond, Virginia, that
the Merger consideration is fair to WinsLoew's shareholders from a financial
point of view. Consummation of the Merger and the other Transactions is
subject, among other things, to (i) the approval of holders of a majority of
the outstanding shares of WinsLoew's common stock, (ii) the receipt of the
written fairness opinion of Mann, Armistead & Epperson, Ltd., (iii) the
Purchaser obtaining adequate financing, and (iv) compliance with applicable
regulatory and governmental requirements. Accordingly, there can be no
assurance that the Merger will be consummated.
PRODUCT LINES
WinsLoew has three principal product lines (Casual Furniture, Contract
Seating and RTA Furniture) that are produced or distributed in 8 manufacturing
locations as follows:
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<TABLE>
<CAPTION>
Division and Location Principal Products Principal Customers
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<S> <C> <C>
CASUAL FURNITURE:
Winston Residential casual furniture constructed Specialty patio stores and furniture
Haleyville, Alabama of aluminum stores
(2 locations)
Texacraft Contract casual furniture constructed of Apartment developers and management
Houston, Texas aluminum, wrought iron, wood and companies, hospitality providers and
fiberglass manufactures
Tropic Craft Contract casual furniture constructed of Apartment developers and management
Ocala, Florida aluminum, wrought iron, wood and companies, hospitality providers and
fiberglass manufactures
Winston International Imported residential casual furniture Specialty patio stores, department
Haleyville, Alabama constructed of cast aluminum and wrought stores and furniture stores
iron
CONTRACT SEATING:
Loewenstein Contemporary, transitional and Architectural design firms,
Pompano Beach, Florida traditional seating for hospitality, restaurant and lodging chains, office
office and other institutional uses furniture dealers and retail store
planners
Gregson Traditional office and other Office furniture dealers and lodging
Liberty, North Carolina institutional seating chains
RTA FURNITURE:
Southern Wood Promotional RTA furniture Mass merchandisers and catalog
Sparta, Tennessee wholesalers
(2 locations)
</TABLE>
COMPETITIVE STRENGTHS
WinsLoew believes that it has the following competitive strengths.
CASUAL FURNITURE
Management attributes its historical success in the casual furniture
product line to its: (i) commitment to producing a quality product delivered
"in time and on time", (ii) emphasis on providing extensive customer service,
(iii) cost-efficient manufacturing operations, (iv) innovatively styled
products and merchandising programs, and (v) results-oriented management, team
philosophy and culture. Management believes that WinsLoew can continue the
growth it has experienced in the casual furniture line by capitalizing on its
existing distribution channels, manufacturing capabilities and reputation for
quality and customer service. Specifically, WinsLoew intends to grow in its
existing market through: (i) continued leadership in new products and
merchandising programs, (ii) expanding existing market penetration, (iii)
broadening distribution channels, and (iv) developing off season products for
its distribution channel and other channels.
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CONTRACT SEATING
WinsLoew is committed to providing value to its contract seating
customers by offering innovative designs, a broad range of high quality
products at competitive prices and responsive customer service with quick and
timely delivery. WinsLoew ensures that its products provide both superior
structural integrity and aesthetic styling through its adherence to strict
manufacturing and quality control standards and through its long-standing and
frequently exclusive relationships with a number of leading Italian designers
and manufacturers. These suppliers have extensive experience in the design,
engineering and production of contemporary and transitional-styled chairs. The
suppliers use steam-bending of solid wood components, intricate joinery and
other sophisticated manufacturing techniques generally unavailable in the
United States. In addition, WinsLoew's electrostatically applied, ultraviolet
cured wood finishing system produces one of the most consistent, durable and
vibrant finishes in the industry. The system also increases manufacturing
efficiency and reduces waste and air emissions. WinsLoew's commitment to
providing high levels of customer service is also typified by its policies of
paying freight charges if a guaranteed shipping date is missed and, under its
"Quick Ship" program, guaranteeing shipment of a significant portion of its
product line within 10 working days from receipt of a customer's order.
WinsLoew offers a broad selection of wood, metal and upholstered
chairs, sofas and love seats designed for restaurant, lodging, office and other
institutional uses, with prices generally ranging from $150 to $550. WinsLoew's
custom design capabilities also allow it to modify styles, materials and
production in order to provide customers with products that meet particular
specifications. WinsLoew's strategy of offering a broad selection of product
styles and price ranges provides it with access to distribution channels
serving a variety of end users, including restaurants, hotels, healthcare
facilities, retail store planners, corporate offices, schools, sports
facilities, airport lounges and cruise lines.
RTA FURNITURE
WinsLoew's RTA furniture product line consists of promotionally priced
RTA products sold directly to mass merchandisers and catalog wholesalers under
the Southern Wood name. Southern Wood's low cost structure is based on its use
of inexpensive raw materials, its relatively low labor rates and its use of
equipment to achieve manufacturing efficiencies. WinsLoew believes that its
focused price strategy and its ability to quickly introduce and begin
manufacturing new products will allow the Company to maintain or increase its
market share.
BUSINESS STRATEGY
CASUAL FURNITURE
The business strategy of the casual division emphasizes the following
elements:
EXPANSION OF SALES AND MARKET SHARE. WinsLoew's growth objectives for
the casual furniture line are primarily focused on areas where WinsLoew can
expand into new distribution channels, as well as capitalize on its existing
distribution channels, manufacturing capabilities and reputation for quality
and customer service, including: (i) new product introductions in WinsLoew's
extruded and tubular aluminum and International divisions, (ii) expansion into
new geographic areas, and (iii) increased sales to commercial customers such as
hotels, restaurants, country clubs, interior designers and apartment and hotel
developers.
PROVIDE VALUE TO CUSTOMERS. WinsLoew is committed to providing value
to its retailing customers by designing and manufacturing high quality,
competitively priced products and responding to its customers' needs for "in
time and on time" delivery. WinsLoew maintains a strong customer service
orientation that is typified by its PDQ shipping program, where WinsLoew either
ships within 15 business days after credit approval or pays for the freight
costs. Quick delivery is particularly important to casual furniture retailers
because of the short selling season and the retailer's general desire to
minimize inventory levels. Another principal component of WinsLoew's marketing
strategy is its focus on special sales programs for customers. These programs
also reduce the effects of seasonality on WinsLoew's operations and minimize
WinsLoew's finished good inventory.
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COMMITMENT TO PRODUCT DEVELOPMENT. Management believes that the high
fashion style and variety of WinsLoew's casual furniture designs provide a
strong competitive advantage and WinsLoew therefore devotes significant
resources to new product development and introductions.
COMMITMENT TO INDUSTRY LEADERSHIP. WinsLoew strives to establish a
reputation in the casual furniture and contract seating manufacturing industry
of superior products and service. For example, WinsLoew received the
prestigious "Manufacturer Leadership Award" for 1998 given by the Casual
Furniture Retailers Association. The Company has received this award three
times since its inception in 1990, when WinsLoew was the first recipient. The
award is voted upon by members of the Casual Furniture Retailers Association,
and the criteria include service, quality, ethics and product design, among
others. WinsLoew has been a finalist for the award every year.
ENHANCED USE OF MANUFACTURING CAPABILITIES, WinsLoew operates
approximately 205,000 square feet of manufacturing space for casual furniture
products and produces most of such products from basic raw materials using
strict quality control measures. WinsLoew's vertical integration permits
WinsLoew to: (i) produce a variety of chairs, tables and other furniture
products, (ii) manufacture cushions and (iii) cut and assemble the fabric
covers that are combined with preassembled poles to produce outdoor umbrellas.
WinsLoew also maintains strict cost containment measures in order to ensure
that its products are manufactured in a cost-efficient manner.
DEVELOP OR ACQUIRE COMPLEMENTARY PRODUCT LINES. WinsLoew continues to
seek opportunities to develop or acquire complementary product lines in order
to capitalize on its existing distribution channels, manufacturing capabilities
and reputation for quality and customer service.
CONTRACT SEATING
The business strategy of the contract seating division emphasizes the
following elements:
HISTORICAL BASE BUSINESS. WinsLoew has historically concentrated its
base contract seating business on its project driven core seating market.
WinsLoew has based its growth in this market on its manufacturing capabilities
and its reputation for quality and customer service. Examples of programs which
have increased sales in this business are the Company's custom design services
and its Quick Ship program.
LODGING BUSINESS. The Company supplies various seating products for
hotel rooms and common areas for lodging chains. The Company has based its
growth in this market on its reputation for quality, delivery and service.
PRIVATE LABEL PROGRAM. WinsLoew offers a "private label" program
through which contract seating products are marketed to nationally recognized
designers and manufacturers of office furniture systems. WinsLoew believes that
its success in generating private label business is primarily attributable to
its proven ability to produce a quality product on short lead time, its
state-of-the-art finishing capabilities, its competitive prices and the direct
involvement of its senior executives in private label marketing.
DEVELOP OR ACQUIRE COMPLEMENTARY PRODUCT LINES. WinsLoew continues to
seek opportunities to develop or acquire complementary product lines in order
to capitalize on its existing distribution channels, manufacturing capabilities
and reputation for quality and customer service.
RTA FURNITURE
The business strategy of the RTA division emphasizes the Company's
manufacturing flexibility and capabilities in order to broaden its line of
promotionally priced products. As a "niche player" in the RTA business, which
is dominated by several national large manufacturers and is experiencing a
trend toward consolidation, WinsLoew has positioned its RTA business to
manufacture and distribute products larger manufacturers do not emphasize. This
has broaden the Company's product line from just "spindle" products to
currently include both "flatline" and case goods.
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PRODUCTS
WinsLoew designs, manufactures and distributes three principal product
lines: (i) casual furniture for both the residential and contract markets; (ii)
contract seating designed for restaurant, lodging, office or other general
institutional use; and (iii) promotionally priced "RTA" furniture designed for
household use.
CASUAL FURNITURE
WinsLoew's casual furniture products for residential use consist
principally of medium to upper-medium priced indoor and outdoor furniture sold
under five brand names: "Winston" residential extruded and tubular aluminum
furniture, "Texacraft" contract casual furniture, "Tropic Craft" contract
casual furniture and "Winston International" imports casual furniture. WinsLoew
currently manufactures and sells numerous residential style collections that
include traditional, European, and contemporary design patterns. Within each
style collection there are multiple products including chairs, tables, chaise
lounges and accessory pieces such as ottomans, cocktail tables, end tables, tea
carts and umbrellas. WinsLoew offers extruded and tubular aluminum with glider
action, adjustable positions and rocking and swivel motions. WinsLoew's casual
seating products feature cushions and vinyl strapping in a variety of colors
and patterns. All of WinsLoew's casual furniture products feature a durable
painted finish, which is also offered in a wide selection of colors. The
suggested retail prices for a residential table and four chairs currently range
from approximately $600 to $1,400.
WinsLoew's casual contract products include chairs, chaise lounges,
tables and umbrellas constructed of extruded, tubular and cast aluminum, steel,
wrought iron, wood and fiberglass. WinsLoew's casual contract products include
a selection of restaurant and outdoor seating and site furnishings. WinsLoew
markets casual contract products through Company employees and independent
sales representatives, primarily to apartment developers and management
companies, hospitality providers (hotel, motel, restaurants, country clubs, and
resorts), architectural design firms and city and state municipalities.
WinsLoew continually reviews and evaluates its casual furniture
designs, and annually adds and discontinues designs it deems appropriate.
WinsLoew identifies trends in shapes, colors and patterns through independent
research, contacts with WinsLoew's dealers and the occasional use of
independent designers. Management also solicits opinions from its
manufacturer's representatives, dealers and employees prior to final design
selection. WinsLoew has generally replaced or modified approximately one-third
to one-half of its casual furniture product lines annually. The costs of
implementing these annual changes have historically included certain: (i)
research and development costs; (ii) capital expenditures for tooling; and
(iii) advertising and catalog expenses. Shipments of WinsLoew's new designs
generally begin in September of each year.
CONTRACT SEATING
WinsLoew's contract seating products (other than the casual contract
products described above) include wood, metal and upholstered chairs, as well
as reception area love seats and sofas. WinsLoew's broad product line consists
of numerous distinct models of chairs in contemporary, traditional and
transitional styles. WinsLoew's general merchandising strategy for contract
seating is to provide innovative seating products that are practical,
comfortable, sturdy and moderately priced.
WinsLoew assembles wood frames and finishes them with one of
WinsLoew's numerous standard colors or, if requested, to the customer's
specification. WinsLoew's metal chairs are available in chrome or in a
selection of standard powder coat finishes. For upholstered products, the
customer may select from a number of catalog fabrics, vinyls and leathers or
may specify or supply its choice of materials. WinsLoew maintains an inventory
of unassembled chair components that enables it to respond quickly to large
quantity orders in a variety of finish and fabric combinations. See
"--Manufacturing."
WinsLoew believes that an important element of its success in the
contract seating business is its long-standing and frequently exclusive
relationships with leading Italian design firms, as well as its proven ability
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to offer innovative products that are sturdy, aesthetically appealing and
scaled for the United States market. WinsLoew bases this belief upon its
extensive industry experience and discussions with key customers, sales
representatives and competitors. WinsLoew continually reviews and reconsiders
its contract furniture designs, and annually adds and deletes designs as it
deems appropriate to address perceived marketing opportunities. WinsLoew
generally begins the design process by identifying marketing needs and
conceptualizing product ideas through regular meetings of its senior management
team. Reflecting its focus on both sales and manufacturing, WinsLoew also
solicits opinions with respect to trends in styles, colors and other design
elements from its sales representatives, customers, and employees prior to
final design selection. WinsLoew provides preliminary sketches to either
WinsLoew's manufacturing personnel or WinsLoew's European suppliers, who in
turn engineer the product's construction and produce one or more prototypes in
preparation for actual full-scale production. WinsLoew generally introduces new
products at national or regional furniture markets. WinsLoew's custom design
capabilities also allow it to modify styles, materials and production in order
to provide customers with products that meet their particular needs.
RTA FURNITURE
WinsLoew's RTA products include promotionally priced RTA "spindle" and
"flatline" furniture and fully assembled case goods furniture products designed
for household use. WinsLoew's promotionally priced "spindle" products include
ready to assemble items such as coffee tables, end tables, wall units and
rolling carts. "Flatline" products include ready to assemble items such as book
shelves, entertainment centers and tape storage units. Case goods products
include fully assembled four drawer chests and three drawer chest and changing
towers, with an optional hutch.
WinsLoew's "spindle" and "flatline" products are sold in a box that
contains all components and hardware necessary for home-assembly. Case goods
are sold fully assembled and packaged, offering consumers a promotionally
priced alternative for household furniture.
MANUFACTURING
CASUAL FURNITURE
WinsLoew has manufacturing facilities for casual furniture products in
Haleyville, Alabama; Houston, Texas; and Ocala, Florida. The facilities in
Haleyville manufacture extruded and tubular aluminum casual furniture and most
related accessories, including cushions and umbrellas. In the Houston facility,
the Company manufactures extruded and tubular aluminum. In the Ocala facility,
the Company manufactures extruded and tubular aluminum, steel and wood
furniture. WinsLoew's goal at its facilities is to produce a high quality
product at the lowest possible manufacturing cost and deliver it in a timely
manner to dealers. WinsLoew's international products are manufactured in
Mexico. See "--Marketing and Sales."
WINSTON DIVISION - HALEYVILLE, ALABAMA. WinsLoew's aluminum furniture
manufacturing facility in Haleyville manufactures goods exclusively to order.
WinsLoew normally ships products on the day completed, eliminating the need to
maintain finished goods inventory. WinsLoew provides timely delivery service by
typically shipping goods within three weeks after credit approval.
In the manufacturing process, WinsLoew cuts extruded aluminum tubes to
size and shapes or bends them in specially designed machinery. The aluminum is
then welded to form a solid frame, and the frame is subjected to a grinding and
buffing process to eliminate any rough spots that may have been caused during
welding. After this process is completed, the frame is cleaned, painted in a
state-of-the-art powder coating system and heat cured. WinsLoew then adds vinyl
strapping, cushions, fabric slings, or other accessories to the finished frame,
as appropriate. WinsLoew then packages the product with umbrellas, tempered
glass and other accessories, as applicable, and ships it to the customer.
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WinsLoew extensively refurbished and modernized its Haleyville
facilities in late 1984 and significantly expanded them in 1990 and 1993.
WinsLoew believes that its Haleyville facilities are some of the most modern in
the casual aluminum furniture industry, and that the efficiencies attributable
to these plants are a significant factor in WinsLoew's relatively low
manufacturing costs.
WinsLoew's vertical integration provides additional manufacturing
efficiencies. WinsLoew manufactures cushions for its aluminum furniture in
Haleyville, and, in addition, cuts, sews and assembles the fabric covers that
are combined with pre-assembled poles to produce outdoor umbrellas.
WinsLoew believes that it manufactures the highest quality aluminum
casual furniture in its price range. WinsLoew welds, not rivets or bolts, the
major frame components of its aluminum furniture, thereby increasing the
durability and enhancing the appearance of the aluminum product line. The
powder coated painting process results in an attractive and durable finish. To
ensure that only the highest quality products are shipped to customers,
WinsLoew's quality control department has established control check points
where the quality of 100% of its aluminum products is examined during the
manufacturing process. These processes allow WinsLoew to offer a two-year frame
and finish guarantee on all of its aluminum products for residential use.
Warranty expense to date has been negligible.
TEXACRAFT DIVISION - HOUSTON, TEXAS. WinsLoew's Houston facility
includes an aluminum furniture manufacturing facility with processes
essentially the same as WinsLoew's aluminum line in Haleyville. Additionally,
the Houston facility manufactures steel and wood furniture and includes a
fiberglass manufacturing facility for tables, umbrellas, and accessories.
TROPIC CRAFT DIVISION - OCALA, FLORIDA. WinsLoew's Ocala facility
includes an aluminum furniture manufacturing facility with processes
essentially the same as WinsLoew's aluminum line in Haleyville.
CONTRACT SEATING
WinsLoew currently utilizes approximately 226,000 square feet of
manufacturing space for contract seating production in facilities located in
Florida and North Carolina.
LOEWENSTEIN DIVISION - POMPANO BEACH, FLORIDA. This facility assembles
and finishes to customer order most of WinsLoew's contract seating products
(other than the casual contract products described above). WinsLoew purchases
component parts from a variety of suppliers, including a number of European
manufacturers, or manufactures. The principal elements of wood chair assembly
include: (i) frame glue-up, (ii) sanding, (iii) seat assembly (in which
upholstered seats are constructed from component bottoms, foam padding and
cloth coverings) and (iv) painting/lacquering. To provide consistency and speed
in this finishing process, WinsLoew utilizes a state-of-the-art conveyorized
paint line with electrostatic spray guns and a three-dimensional ultraviolet
drying system. For upholstered products, the specified fabric cloth is
stretched to the chair frame over foam padding. WinsLoew generally assembles
its metal chairs from imported components. After rework and leveling, WinsLoew
cartons its chairs to prevent damage in transportation. The manufacturing
process also includes a number of product inspections and other quality control
procedures.
GREGSON DIVISION - LIBERTY, NORTH CAROLINA. This manufacturing
facility includes such operations as assembling, upholstering, and finishing.
While styling is continuously updated, the basic construction process does not
change significantly from year to year, which reduces the need for substantial
modifications to the production process. The Company is the process of
consolidating the manufacture of its contract products for the hospitality
market at the Gregson facility and the manufacture of all other contract
seating products at the Pompano Beach facility. Management expects this process
to be completed by the end of 1999.
RTA FURNITURE
SOUTHERN WOOD DIVISION - SPARTA, TENNESSEE. WinsLoew currently
utilizes approximately 158,000 square feet of manufacturing and warehouse space
for its RTA products. For the manufacture of its "spindle" products the
10
<PAGE> 11
Company uses high density particle board and dowels. The Company turns, stains
and lacquers all of the spindles. WinsLoew laminates the particle board with a
variety of wood grains and solid colors. WinsLoew individually boxes the
product with spindles and board, along with any necessary hardware and assembly
instructions. For "flatline" products WinsLoew individually boxes the cut
laminated particle board, along with necessary hardware and assembly
instructions. For case goods, the edges of the cut laminated particle board may
be "soft formed" for aesthetic value. The unit is then assembled using glue and
screws and utilizes quality components and hardware, such as self-closing
drawer runners, on all units. These fully assembled units are then packaged for
shipment.
MANUFACTURING CAPACITY
Management believes that the Company's manufacturing facilities in the
casual and contract seating product lines are currently operating, in the
aggregate, at approximately 75% of capacity, assuming a one-shift basis.
Management considers the Company's present manufacturing capacity to be
sufficient for the foreseeable future and believes that, by adding multiple
shift operations, the Company can significantly increase the total capacity of
its facilities to meet growing product demand with minimal additional capital
expenditures. In addition, the Company engages in an ongoing maintenance and
upgrading program, and considers its machinery and equipment to be in good
condition and adequate for the purposes for which they are currently used.
MARKETING AND SALES
CASUAL FURNITURE
WinsLoew markets its residential casual furniture products throughout
the United States, Canada and the Caribbean. WinsLoew currently makes
substantially all of its residential sales to customers located east of the
Rocky Mountains. WinsLoew markets residential products to approximately 800
active customers, including specialty patio stores, full-line furniture
retailers, and department stores. WinsLoew also sells its contract casual
products to certain commercial end-users such as hotels, restaurants, country
clubs, exporters, interior designers and developers of apartments and motels.
WinsLoew sells substantially all of its residential products through
approximately 30 independent manufacturer's representatives. Each
representative: (i) promotes, solicits and sells WinsLoew's products in an
assigned territory, (ii) agrees to assist in the collection of receivables and
adjustment of any complaints with regard to his or her sales and (iii) receives
commissions based on the net sales made in his or her territory. WinsLoew
determines the prices at which its products will be sold and may refuse to
accept any orders submitted by a sales representative for credit-worthiness or
other reasons. WinsLoew's representatives may carry other products which do not
directly compete with WinsLoew's product lines. WinsLoew has long-standing
relationships with most of its representatives.
WinsLoew's marketing program assists its representatives in various
ways, including: (i) holds exhibitions at national and regional furniture shows
and leases a year-round showroom at the Merchandise Mart in Chicago, Illinois,
(ii) provides retailers with annual four-color catalogs of its products, sample
materials illustrating available colors and fabrics, point of sale materials
and special sales brochures, (iii) provides information directly to
representatives at annual sales meetings attended by senior management and
manufacturing personnel, (iv) maintains a customer service department which
ensures that WinsLoew promptly responds to the needs and orders of WinsLoew's
customers, (v) maintains regular contact with key retailers and (vi) conducts
ongoing surveys to determine dealer satisfaction. WinsLoew markets its casual
contract products nationally through a team of company employed and independent
sales representatives.
WinsLoew organized its Winston International division primarily for
the purpose of distributing casual furniture products that it does not
manufacture. Winston International's current product offerings include a line
of cast aluminum products. WinsLoew inventories, distributes and administers
this product line in Haleyville, Alabama.
11
<PAGE> 12
CONTRACT SEATING
WinsLoew sells its contract seating products primarily to
architectural design firms, restaurant, lodging chains, office furniture
dealers and retail store planners. WinsLoew sells substantially all of its
contract seating products through approximately 40 independent sales
representative organizations that employ approximately 100 sales associates.
Each sales representative: (i) promotes and sells WinsLoew's products in an
assigned territory, (ii) assists WinsLoew in responding to customer service
request and (iii) receives commissions based on the net sales made in his or
her territory. WinsLoew determines the prices at which its products will be
sold, and may refuse to accept any orders submitted by a sales representative
for creditworthiness or other reasons.
WinsLoew's marketing program assists its representatives in various
ways, including: (i) holds exhibitions at national shows, (ii) provides its
representatives and customers with four color catalogs of its products, (iii)
provides information to representatives at sales meetings and (iv) maintains a
customer service department that ensures WinsLoew promptly responds to the
needs and orders of customers.
RTA FURNITURE
WinsLoew sells its promotionally priced RTA furniture products through
independent sales representatives, primarily to mass merchandisers and catalog
wholesalers. WinsLoew prepares product catalogs and brochures as sales material
for its independent sales representatives. The Company maintains a customer
service department to ensure prompt response to the needs and orders of
customers. The Company also holds exhibitions at national furniture shows.
BACKLOG
As of December 31, 1998, WinsLoew's backlog of orders was
approximately $21.8 million, compared to $17.6 million at December 31, 1997.
WinsLoew, in accordance with industry practice, generally permits orders to be
canceled prior to shipment without penalty. Management does not consider
backlog to be predictive of future sales activity because of WinsLoew's short
manufacturing cycle and delivery time, and, especially in the case of casual
furniture, the seasonality of sales.
RAW MATERIAL AND SOURCING
WinsLoew manufactures most of its products to order from basic raw
materials, and, consequently, is able to avoid carrying large amounts of
finished goods inventory particularly in its casual and contract seating
product lines. WinsLoew also attempts to maintain minimum levels of raw
material inventory. WinsLoew's principal raw materials consist of extruded
aluminum tubes, steel rods, woven vinyl fabrics, paint/finishing materials,
vinyl strapping, cushion filler materials, cartons, glass table tops, component
parts for contract seating, particle board and other lumber products and
hardware. Although WinsLoew has no long-term supply contracts, it generally has
a number of sources for its raw materials and has not experienced any
significant problems in obtaining adequate supplies for its operations.
Nevertheless, the purchase of aluminum is, from time to time, highly
competitive, and its price, as a commodity, is subject to market conditions
beyond WinsLoew's control. In addition, fluctuations in lumber prices and the
costs of other raw materials have not historically had a material adverse
effect on WinsLoew's results of operations.
However, future price increases may have a material adverse effect on
WinsLoew's financial condition and results of operations. Management believes
that WinsLoew's policy of maintaining several sources for most supplies
contributes to its ability to obtain competitive pricing.
A significant portion of the Loewenstein raw materials consist of
component chair parts purchased from several Italian manufacturers. WinsLoew
views its suppliers as "partners" and works with such suppliers on an ongoing
basis to design and develop new products. WinsLoew believes that these
cooperative efforts, its long-standing relationships with these suppliers and
its experience in conducting on-site, quality control inspections provide it
with a competitive advantage over many other furniture manufacturers, including
a competitive
12
<PAGE> 13
purchasing advantage in times of product shortages. In addition, in the case of
Italian and European suppliers, WinsLoew generally contracts for its purchases
of such component parts in such manner as to minimize its exposure to foreign
currency fluctuations. Although WinsLoew has close working relationships with
its foreign suppliers, WinsLoew's future success may depend, in part, on
maintaining such or similar relationships. Given the special nature of the
manufacturing capabilities of these suppliers, in particular certain
wood-bending capabilities, and sources of specialized wood types, the
Loewenstein division could experience a disruption in their operations in the
event of any required replacement of such suppliers. Situations beyond
WinsLoew's control, including political instability, significant and prolonged
foreign currency fluctuations, economic disruptions, the imposition of tariffs
and import and export controls, changes in government policies and other
factors may have a material adverse effect on WinsLoew.
FURNITURE INDUSTRY AND COMPETITION
The furniture industry is cyclical and affected by changes in general
economic conditions, consumer confidence and discretionary income, interest
rate levels, and credit availability. Weather conditions during the peak retail
selling season and the resulting impact on consumer purchases of outdoor
furniture products also affect sales of casual furniture products.
The furniture industry is highly competitive and includes a large
number of manufacturers, none of which dominate the market. Certain of the
companies which compete directly with WinsLoew may have greater financial and
other resources than WinsLoew. Based on its extensive industry experience,
management believes that competition in casual furniture and contract seating
is generally a function of product design, construction quality, prompt
delivery, product availability, customer service and price. Management
similarly believes that competition in WinsLoew's promotional price niche of
the RTA furniture industry is limited, and is based primarily on prompt
delivery, product availability, customer service and price.
WinsLoew believes that it successfully competes in the furniture
industry primarily on the basis of its innovatively styled product offerings
and merchandising programs, the quality of its products, and WinsLoew's
emphasis on providing high levels of customer service. While sales of imported,
foreign-produced casual furniture have increased significantly in recent years,
WinsLoew's sales have not been adversely affected because such foreign products
are generally: (i) limited in design, styles and colors, (ii) of lesser quality
than WinsLoew's products, (iii) marketed in the lower-end price range and (iv)
not supported with competitive customer service and responsiveness to
customers' needs for quick delivery.
TRADEMARKS AND PATENTS
WinsLoew has registered the following trademarks with the United
States Patent and Trademark Office: WINSTON, LOEWENSTEIN/OGGO, GREGSON,
SOUTHERN WOOD PRODUCTS, and LECASSO. Management believes that WinsLoew's
trademark position is adequately protected in all markets in which WinsLoew
does business. WinsLoew also believes that its various trade names are
generally well recognized by dealers and distributors, and are associated with
a high level of quality and value.
WinsLoew holds several design and utility patents, and has
applications pending for issuance of other design and utility patents. Since
WinsLoew believes that it is an innovator of styles and designs, it is the
Company's policy to apply for design and utility patents for those designs
which it believes may be of significance to WinsLoew.
EMPLOYEES
At December 31, 1998, WinsLoew had approximately 1,124 full-time
employees, of whom 17 were employed in management, 203 in sales, general, and
administrative positions, and 904 in manufacturing, shipping, and warehouse
positions.
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<PAGE> 14
The only employees subject to collective bargaining agreements are
approximately 123 of WinsLoew's hourly employees in Haleyville, Alabama, who
are represented by the Retail, Wholesale, and Department Store Union. The labor
agreement between WinsLoew and such union, which expires on July 31, 2001,
provides that there shall be no strikes, slowdowns or lockouts. WinsLoew
considers its employee relations to be good.
ENVIRONMENTAL MATTERS
WinsLoew's management believes that WinsLoew complies in all material
respects with all applicable federal, state and local provisions relating to
the protection of the environment. The principal environmental regulations that
apply to WinsLoew govern air emissions, water quality and the storage and
disposition of solvents. Compliance with environmental protection laws and
regulations has not had a material adverse impact on WinsLoew's financial
condition or results of operations in the past and is not expected to have a
material adverse impact in the future.
14
<PAGE> 15
ITEM 2. PROPERTIES
The following table provides information with respect to each of the
Company's facilities:
<TABLE>
<CAPTION>
Appr. Owned Lease
Building Area Appr. Land or Expiration
Location Division Primary Use (Feet) Area (Acres) Leased Date
- ---------------- ------------- ------------- -------------- ------------ ----- ----------
<S> <C> <C> <C> <C> <C> <C>
Hoover, AL All Headquarters 9,800 2.0 Owned N/A
Haleyville, AL Winston Manufacturing 155,000 17 Owned N/A
and Offices
Haleyville, AL Winston Warehouse 20,000 1 Owned N/A
Haleyville, AL Winston Sewing Plant 30,000 1 Owned N/A
Chicago, IL Casual Division Merchandise 12,000 N/A Leased 8/31/02
Mart Showroom
Houston, TX Texacraft Manufacturing 89,500 N/A Leased 4/15/05
and Offices
Ocala, FL Tropic Craft Manufacturing 49,000 7.4 Owned N/A
and Offices
Pompano Beach, FL Loewenstein Manufacturing 100,000 13.8 Owned N/A
and Offices
Pompano Beach, FL Loewenstein Warehouse 6,500 N/A Leased MTM
Liberty, NC Gregson Manufacturing 126,000 9.5 Owned N/A
and Offices
Sparta, TN Southern Manufacturing 94,300 10.0 Owned N/A
Wood and Offices
Sparta, TN Southern Manufacturing 63,260 32.9 Owned N/A
Wood and Offices
</TABLE>
For additional information with respect to the Company's lease
obligations, see Note 8 of Notes to the Company's Consolidated Financial
Statements included in this Annual Report on Form 10-K.
Substantially all of the Company's assets are currently pledged as
collateral for a credit facility. See Note 4 of the Notes to the Company's
Consolidated Financial Statements included in this Annual Report on Form 10-K.
15
<PAGE> 16
ITEM 3. LEGAL PROCEEDINGS
From time to time, the Company is subject to legal proceedings and
other claims arising in the ordinary course of its business. The Company
maintains insurance coverage against potential claims in an amount which it
believes to be adequate. Based primarily on discussions with counsel and
management familiar with the underlying disputes, the Company believes that it
is not presently a party to any litigation, the outcome of which would have a
material adverse effect on its business or operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
16
<PAGE> 17
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's Common Stock has been traded on the Nasdaq National
Market under the symbol "WLFI" since January 1, 1995. The following table sets
forth, for the period indicated, the high and low sales price per share of
Common Stock as reported by the Nasdaq National Market System:
High Low
---- ---
1997
----
First Quarter................... $ 11 7/8 $ 8 1/8
Second Quarter.................. $ 11 $ 8 3/8
Third Quarter................... $ 15 $ 10 15/16
Fourth Quarter.................. $ 16 13/16 $ 13 5/16
1998
----
First Quarter................... $ 20 5/8 $ 13 3/4
Second Quarter.................. $ 29 $ 20 11/16
Third Quarter................... $ 28 3/4 $ 15 1/2
Fourth Quarter.................. $ 26 1/2 $ 17 7/8
As of March 1, 1999, there were approximately 105 holders of record of
Common Stock and approximately 1,550 persons or entities holding Common Stock
in nominee name. The closing sale price per share for the Common Stock on March
1, 1999 was $27.00
The Company has not declared nor paid any cash dividends on its Common
Stock, does not anticipate that any dividends will be declared nor paid in the
foreseeable future, and intends to retain earnings to finance the development
and expansion of the Company's operations. In addition, the Company's payment
of dividends is also restricted under the terms of its credit facilities (see
Note 4 of Notes to the Company's Consolidated Financial Statements).
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<PAGE> 18
ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial data are derived from
the Consolidated Financial Statements of WinsLoew. The following data has been
restated to reflect Southern Wood as a continuing operation (see Note 2 of
Notes to Consolidated Financial Statements). The following selected
consolidated financial data should be read in conjunction with WinsLoew's
Consolidated Financial Statements and related Notes, "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the other
financial information included herein.
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------------------------------------
1998 1997 1996 1995 1994
------------ ------------ ----------- ---------- ------------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales $141,360 $122,145 $117,405 $110,887 $95,561
Cost of sales 87,232 79,431 78,029 78,710 65,060
------------ ------------ ---------- ---------- ---------
Gross profit 54,128 42,714 39,376 32,177 30,501
Selling, general and administrative expenses 23,124 21,427 21,472 19,303 16,303
Amortization 1,122 992 1,444 2,087 2,000
Non-recurring charges -- -- -- -- 917
------------ ------------ ---------- ---------- ---------
Operating income 29,882 20,295 16,460 10,787 11,281
Interest expense 635 2,296 3,083 3,841 2,795
------------ ------------ ---------- ---------- ---------
Income from continuing operations before income
taxes and extraordinary item 29,247 17,999 13,377 6,946 8,486
Provision for income taxes 10,947 6,838 4,834 3,489 3,068
------------ ------------ ---------- ---------- ---------
Income from continuing operations before
extraordinary item 18,300 11,161 8,543 3,457 5,418
Income (loss) from discontinued operations, net
of taxes -- (718) (259) (9,199) 934
Gain (loss) from sale of discontinued
operations, net of taxes 2,031 (8,200) -- -- --
Extraordinary item -- -- -- 1,698 --
------------ ------------ ---------- ---------- ---------
Net income (loss) $20,331 $2,243 $8,284 ($4,044) $6,352
============ ============ ========== =========== =========
Basic earnings (loss) per share:
Income from continuing operations before
extraordinary item $2.46 $1.49 $0.98 $0.38 $0.56
Income (loss) from discontinued operations,
net of taxes -- (0.09) (0.03) (1.02) 0.10
Gain (loss) from sale of discontinued
operations, net of taxes 0.27 (1.10) -- -- --
Extraordinary item -- -- -- 0.19 --
------------ ------------ ---------- ---------- ---------
Net income (loss) $2.73 $0.30 $0.95 ($0.45) $0.66
============ ============ ========== =========== =========
Weighted average shares 7,450 7,484 8,724 9,029 9,655
============ ============ ========== =========== =========
Diluted earnings (loss) per share:
Income from continuing operations before
extraordinary item $2.40 $1.48 $0.98 $0.38 $0.56
Income (loss) from discontinued operations,
net of taxes -- (0.10) (0.03) (1.02) 0.10
Gain (loss) from sale of discontinued
operations, net of taxes 0.27 (1.08) -- -- --
Extraordinary item -- -- -- 0.19 --
------------ ------------ ---------- ---------- ---------
Net income (loss) $2.67 $0.30 $0.95 ($0.45) $0.66
============ ============ ========== =========== =========
Weighted average shares and common share
equivalents outstanding 7,624 7,563 8,730 9,029 9,655
============ ============ ========== =========== =========
</TABLE>
18
<PAGE> 19
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------------
1998 1997 1996 1995 1994
------------ ------------ ----------- ----------- -----------
(In thousands)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital $25,840 $29,937 $40,102 $58,785 $37,711
Total assets 84,553 80,414 99,950 104,004 111,054
Long-term debt (less current portion) 1,400 15,908 38,726 40,130 39,094
Total debt 1,447 16,423 40,681 41,941 40,893
Stockholders' equity 66,226 51,026 48,400 53,228 60,680
</TABLE>
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<PAGE> 20
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
WinsLoew is comprised of companies engaged in the design, manufacture
and distribution of casual furniture and contract seating furniture. WinsLoew's
casual furniture products are distributed through independent manufacturer's
representatives and are constructed of extruded and tubular aluminum and cast
aluminum. These products are distributed through fine patio stores, department
stores and full line furniture stores nationwide. WinsLoew's contract seating
products are distributed to a broad customer base, which includes architectural
design firms and restaurant and lodging chains.
During 1997 the Company adopted a plan to dispose of its RTA
operations. WinsLoew's RTA products included ergonomically-designed computer
workstations, which the Company denoted as "space savers", promotionally-priced
coffee and end tables, wall units and rolling carts and an extensive line of
futons, futon frames and related accessories. Distribution of RTA furniture
products was primarily through mass merchandisers, catalogue wholesalers and
specialty retailers. As a result of this decision, the Company recorded a
pre-tax non-cash charge totaling $12.4 million in the fourth quarter of 1997
relating to the disposal of the RTA operations. The charge can be summarized as
follows:
Write-off of goodwill in connection with sale of assets $ 3,902,000
Reduction of inventory value 2,791,000
Reduction of property to net realizable value 2,067,000
Reduction of accounts receivable value 1,390,000
Other liabilities / reserves 1,050,000
Accrual for losses through disposition 1,200,000
=============
Total $12,400,000
=============
The Company planned to sell two of the businesses and liquidating the
assets related to the futon business. During 1998 the Company sold one of the
businesses, completed the liquidation of the futon business and decided to
retain its Southern Wood business due to improved profitability (see Note 2 to
Notes to the Consolidated Financial Statements).
The amounts reflected hereafter include Southern Wood as a continuing
operation.
RESULTS OF OPERATIONS
The following table sets forth net sales, gross profit and gross
margin as a percent of net sales for the years ended December 31, 1998, 1997
and 1996 for each of the Company's product lines (in thousands, except for
percentages):
<TABLE>
<CAPTION>
1998 1997 1996
------------------------- ----------------------------- ----------------------------
Net Gross Gross Net Gross Gross Net Gross Gross
Sales Profit Margin Sales Profit Margin Sales Profit Margin
----------- --------- -------- ----------- --------- ------------------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Casual furniture $59,733 $28,227 47.3% $56,363 $24,164 42.9% $58,066 $23,812 41.0%
Contract seating 69,938 23,439 33.5% 58,386 17,256 29.6% 48,629 14,126 29.0%
RTA 11,689 2,462 21.1% 7,396 1,294 17.5% 10,710 1,438 13.4%
-------- ------- -------- ------- -------- -------
Total $141,360 $54,128 38.3% $122,145 $42,714 35.0% $117,405 $39,376 33.5%
======== ======= ======== ======= ======== =======
</TABLE>
The following table sets forth certain information relating to the
Company's operations expressed as a percentage of the Company's net sales:
20
<PAGE> 21
<TABLE>
<CAPTION>
For the Years Ended December 31,
-----------------------------------------------
1998 1997 1996
-------------- ------------ ------------
<S> <C> <C> <C>
Gross profit 38.3% 35.0% 33.5%
Selling, general and administrative expense 16.4% 17.5% 18.3%
Amortization 0.8% 0.8% 1.2%
Operating income 21.1% 16.6% 14.0%
Interest expense 0.4% 1.9% 2.6%
Provision for income taxes 7.7% 5.6% 4.1%
Income from continuing operations before extraordinary
item 12.9% 9.1% 7.3%
Loss from discontinued operations, net of taxes -- (0.6%) (0.2%)
Gain (loss) from sale of discontinued operations, net of
taxes 1.4% (6.7%) --
Net income 14.4% 1.8% 7.1%
</TABLE>
COMPARISON OF YEARS ENDED DECEMBER 31, 1998 AND 1997
NET SALES. WinsLoew's consolidated net sales for 1998 increased $19.2
million or 15.7% to $141.4 million, compared to $122.1 million in 1997. The
casual product line sales increased by 17.9%, after excluding sales for the
Company's wrought iron business sold during 1997. The Company believes that due
to its high quality and innovative designs, existing retail customers have
continued to allocate more floor space, requiring larger inventories of the
Company's casual aluminum furniture. The contract seating product line
experienced a sales increase of 19.8% due to growth in the core business and
increased demand from the lodging industry. The RTA product line experienced a
sales increase of 58.0% due to increased demand as the Company broadened it's
product offering to include additional flat-line products and case goods which
allowed the Company to enter new markets.
GROSS PROFIT. Consolidated gross profit increased $11.4 million in
1998 to $54.1 million compared to $42.7 million in 1997. The casual, contract
seating and RTA product lines improved gross profits in 1998 due to greater
operating efficiencies, increased sales volumes and improved raw material
costs.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $1.7 million in 1998, compared to 1997, due
to commissions expense and other variable costs related to the increased sales
volume in 1998.
AMORTIZATION. Amortization expense increased $130,000 in 1998,
compared to 1997, due to amortization of goodwill related to the Tropic Craft
acquisition.
OPERATING INCOME. As a result of the above, WinsLoew recorded
operating income of $29.9 million (21.1% of net sales) in 1998, compared to
operating income of $20.3 million (16.6% of net sales) in 1997.
INTEREST EXPENSE. WinsLoew's interest expense decreased $1.7 million
in 1998, compared to 1997. The Company has reduced its debt by $15.0 million
from December 31, 1997.
PROVISION FOR INCOME TAXES. WinsLoew's effective tax rate from
continuing operations of 37.4% in 1998 and 38.0% in 1997 is greater than the
federal statutory rate due to the effect of state income taxes and
non-deductible goodwill amortization.
21
<PAGE> 22
COMPARISON OF YEARS ENDED DECEMBER 31, 1997 AND 1996
NET SALES. WinsLoew's consolidated net sales for 1997 increased $4.7
million or 4.0% to $122.1 million, compared to $117.4 million in 1996. The
casual product line sales increased by 7.6% after excluding sales for the
Company's wrought iron business sold during 1997. The Company believes that due
to its high quality and innovative designs, existing retail customers have
allocated more floor space, requiring larger inventories of the Company's
casual aluminum furniture. The contract seating product line experienced a
sales increase of 20.1% due to growth in the core business and increased demand
from the lodging industry. The RTA product line experienced a sales decrease of
30.9% due to the loss of a major customer.
GROSS PROFIT. Consolidated gross profit increased $3.3 million in 1997
to $42.7 million compared to $39.4 million in 1996. The casual and contract
seating product lines improved gross profits in 1997 due to greater operating
efficiencies, increased sales volumes (after excluding sales for the Company's
Lyon Shaw wrought iron business sold in 1997) and improved raw material costs.
The RTA product line experienced a 10.0% decrease in gross profit in 1997 due
to lower sales volume.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses decreased $45,000 in 1997, compared to 1996, due to
various cost reduction programs which more than offset commission expense and
other variable costs related to the increased sales volume in 1997.
AMORTIZATION. Amortization expense decreased $452,000 due to the
intangible assets that became fully amortized in 1996.
OPERATING INCOME. As a result of the above, WinsLoew recorded
operating income of $20.3 million (16.6% of net sales) in 1997, compared to
operating income of $16.5 million (14.0% of net sales) in 1996.
INTEREST EXPENSE. WinsLoew's interest expense decreased $787,000 in
1997, compared to 1996. The Company reduced its debt by $24.3 million from
December 31, 1996 to December 31, 1997.
PROVISION FOR INCOME TAXES. WinsLoew's effective tax rate from
continuing operations of 38.0% in 1997 and 36.1% in 1996 is greater than the
federal statutory rate due to the effect of state income taxes and
non-deductible goodwill amortization.
SEASONALITY AND QUARTERLY INFORMATION
The furniture industry is cyclical and sensitive to changes in general
economic conditions, consumer confidence, and discretionary income, interest
rate levels and credit availability.
Sales of casual products are typically higher in the second quarter
and fourth quarters of each year, primarily as a result of the following: (i)
high retail demand for casual furniture in the second quarter, preceding the
summer months and (ii) the impact of special sales programs on fourth quarter
sales. The Company's casual product sales can also be affected by weather
conditions during the peak retail selling season and the resulting impact on
consumer purchases of outdoor furniture products. During the third quarter of
1997, the Company sold its Lyon Shaw wrought iron division (See Note 3 of the
Notes to the Consolidated Financial Statements).
The following table presents the Company's unaudited quarterly data
for 1998 and 1997. Such operating results are not necessarily indicative of
results for future periods. WinsLoew believes that all necessary and normal
recurring adjustments have been included in the amounts in order to present
fairly and in accordance with generally accepted accounting principles the
selected quarterly information when read in conjunction with WinsLoew's
Consolidated Financial Statements included elsewhere herein. The following data
has been restated to reflect Southern Wood as a continuing operation.
22
<PAGE> 23
<TABLE>
<CAPTION>
(In thousands, except per share amounts)
1998 QUARTERS First Second Third Fourth
------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
Net sales $27,576 $42,892 $36,258 $34,634
Gross profit 9,630 16,740 13,527 14,231
Operating income 4,871 10,282 6,265 8,464
Interest expense (income) 333 354 137 (189)
Income from continuing operations 2,873 6,199 3,791 5,437
Gain on sale of discontinued operations -- -- -- 2,031
Net income $2,873 $6,199 $3,791 $7,468
============ ============ ============ ============
Basic earnings per share:
Income from continuing operations(1) $0.38 $0.83 $0.51 $0.75
Gain on sale of discontinued
operations -- -- -- 0.27
------------ ----------- ------------- ------------
Net income(1) $0.38 $0.83 $0.51 $1.02
============ =========== ============= ============
Weighted average shares 7,535 7,513 7,468 7,296
============ =========== ============= ============
Diluted earnings per share:
Income from continuing operations $0.37 $0.80 $0.50 $0.73
Gain on sale of discontinued
operations -- -- -- 0.27
------------ ----------- ------------- ------------
Net income $0.37 $0.80 $0.50 $1.00
============ =========== ============= ============
Weighted average shares and common share
equivalents outstanding 7,683 7,722 7,647 7,453
============ =========== ============= ============
</TABLE>
<TABLE>
<CAPTION>
1997 QUARTERS First Second Third Fourth
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Net sales $24,682 $39,854 $29,523 $28,086
Gross profit 7,519 15,020 10,073 10,102
Operating income 2,592 8,313 4,440 4,950
Interest expense 857 645 590 204
Income from continuing operations 1,047 4,729 2,355 3,030
Loss from discontinued operations (229) (225) (73) (191)
Loss on sale of discontinued operations -- -- -- (8,200)
Net income (loss) $818 $4,504 $2,282 ($5,361)
=========== ============ =========== ===========
Basic earnings (loss) per share:
Income from continuing operations(1) $0.14 $0.63 $0.31 $0.40
Loss from discontinued operations(1) (0.03) (0.03) (0.01) (0.03)
Loss on sale of discontinued operations(1) -- -- -- (1.09)
----------- ------------ ----------- -----------
Net income (loss) $0.11 $0.60 $0.30 ($0.72)
=========== ============ =========== ===========
Weighted average shares 7,443 7,456 7,508 7,524
=========== ============ =========== ===========
Diluted earnings (loss) per share:
Income from continuing operations $0.14 $0.63 $0.31 $0.40
Loss from discontinued
operations (0.03) (0.03) (0.01) (0.03)
Loss on sale of discontinued
operations(1) -- -- -- (1.07)
----------- ------------ ----------- -----------
Net income (loss)(1) $0.11 $0.60 $0.30 ($0.70)
=========== ============ =========== ===========
Weighted average shares and common share
equivalents outstanding 7,495 7,502 7,602 7,630
=========== ============ =========== ===========
</TABLE>
- -----------
(1) Quarter amounts do not add to annual figures due to rounding.
23
<PAGE> 24
LIQUIDITY AND CAPITAL RESOURCES
The Company's short-term cash needs are primarily for working capital
to support its debt service, accounts receivable and inventory requirements.
The Company has historically financed its short-term liquidity needs with
internally generated funds and revolving line of credit borrowings. At December
31, 1998, the Company had $25.8 million of working capital and $18.4 million of
unused and available funds under its credit facilities.
The Company has a senior credit facility with a consortium of banks
and other institutional lenders. The facility, which matures in February 2001
and is collateralized by substantially all of the assets of the Company,
consists of a revolving line of credit, term loan and an acquisition line of
credit. The working capital revolving line of credit allows the Company to
borrow funds up to a certain percentage of eligible inventories and accounts
receivable. The $12.5 million acquisition line of credit can be used for
capital expenditures and purchases of the Company's common stock.
In June 1996, WinsLoew amended its senior credit facility to provide
the Company with a variable amount available under the revolving line of credit
(see Note 4 to the Consolidated Financial Statements). Due to the seasonal
nature of the casual furniture product line, WinsLoew's cash requirements are
usually greater in the first quarter of each year. The June 1996 amendment
allows the amount available to fluctuate with the seasonal nature of the
Company's business. After the first quarter of each year, the Company's cash
requirements from its credit line decline. By use of a variable amount of
credit availability, the Company can avoid the cost of an available but unused
line of credit. At December 31, 1998, from an available maximum line of credit
of $40 million, WinsLoew has elected to set the amount available at $35
million.
WinsLoew's senior credit facility allows the Company to borrow under
its line of credit to purchase shares of the Company's common stock (see Note 5
of Notes to the Consolidated Financial Statements). As of December 31, 1998,
there was $6.1 million available for such repurchases.
CASH FLOWS FROM OPERATING ACTIVITIES. Net cash provided by operations
increased to $31.1 million in 1998 primarily due to improved profitability from
continuing operations.
CASH FLOWS FROM INVESTING ACTIVITIES. During 1998, the Company spent
$0.9 million on capital expenditures and $9.3 million on the purchase of Tropic
Craft (see Note 3 to the Consolidated Financial Statements).
At December 31, 1998, the Company had no material commitments for
capital expenditures.
CASH FLOWS FROM FINANCING ACTIVITIES. During 1998, The Company used
the cash generated by operations to repay $15.0 million of debt and purchase
$6.1 million of the Company's common stock (see Note 5 of Notes to the
Consolidated Financial Statements).
FOREIGN EXCHANGE FLUCTUATIONS AND EFFECTS OF INFLATION
WinsLoew purchases some raw materials from several Italian suppliers.
These purchases expose the Company to the effects of fluctuations in the value
of the U.S. dollar versus the Italian lira. If the U.S. dollar declines in
value versus the Italian lira, the Company will pay more in U.S. dollars for
these purchases. To reduce its exposure to loss from such potential foreign
exchange fluctuations, the Company will occasionally enter into foreign
exchange forward contracts. These contracts allow the Company to buy Italian
lira at a predetermined exchange rate, thereby transferring the risk of
subsequent exchange rate fluctuations to a third party. However, if the Company
is unable to continue such forward contract activities, and the Company's
inventories increase in connection with expanding sales activities, a weakening
of the U.S. dollar against the Italian lira could result in reduced gross
margins. The Company elected to hedge a portion of its exposure to purchases
made in 1998 by entering into foreign currency forward contracts. At December
31, 1998, the Company did not have any forward
24
<PAGE> 25
contracts outstanding. The Company did not incur significant gains or losses
from these foreign currency transactions.
Inflation has not had a significant impact on the Company in the past
three years, nor is it expected to have a significant impact in the foreseeable
future.
YEAR 2000
The Company began an assessment of the Year 2000 issue on its systems
in mid 1995. Based on the assessment, the Company determined that it was
necessary to replace portions of its software and hardware so that those
systems will properly utilize dates beyond December 31, 1999. To date,
approximately 91% of the Company's continuing operations business critical
systems have been remediated and tested at a cost of approximately $0.5
million, which was provided by internally generated funds. This process is
projected to be completed by mid to late 1999 at minimal additional cost.
The Company has contacted its significant suppliers and customers
concerning Year 2000 compliance. Based on these discussions the Company is not
aware of any supplier or customer with a Year 2000 issue that would materially
impact the Company's financial position, results of operations or liquidity.
However, WinsLoew has no means of ensuring that suppliers or customers will be
Year 2000 ready. The effect of non-compliance by third parties is not
determinable.
Management believes that it has substantially completed an effective
program to resolve the Year 2000 issue in a timely manner. In the event that
the Company is unable to complete the program or if the program is not
successful, management believes that it has established adequate contingency
plans involving manual systems, maintaining increased inventory levels and
adjusting staffing levels for it's business critical systems and that such an
event would not materially impact the Company's financial position. However,
disruptions in the general economy resulting from Year 2000 issues could
adversely affect the Company.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by this item is contained in "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
in Note 1 of the Company's Consolidated Financial Statements.
25
<PAGE> 26
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Report of Ernst & Young LLP, Independent Auditors....................... 27
Consolidated Balance Sheets as of December 31, 1998 and 1997............ 28
Consolidated Statements of Income For the Years Ended December 31,
1998, 1997 and 1996.................................................. 29
Consolidated Statements of Stockholders' Equity For the Years
Ended December 31, 1998, 1997 and 1996............................... 30
Consolidated Statements of Cash Flows For the Years Ended
December 31, 1998, 1997 and 1996..................................... 31
Notes to Consolidated Financial Statements.............................. 32
26
<PAGE> 27
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
STOCKHOLDERS OF WINSLOEW FURNITURE, INC.
We have audited the accompanying consolidated balance sheets of WinsLoew
Furniture, Inc. and Subsidiaries as of December 31, 1998 and 1997, and the
related consolidated statements of income, stockholders' equity and cash flows
for each of the three years in the period ended December 31, 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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of WinsLoew
Furniture, Inc. and Subsidiaries at December 31, 1998 and 1997, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles.
/s/ Ernst & Young LLP
Birmingham, Alabama
January 29, 1999
27
<PAGE> 28
WINSLOEW FURNITURE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(In thousands except share and per share amounts) December 31,
---------------------------
1998 1997
---------- ---------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 1,475 $ 707
Accounts receivable, less allowances for doubtful accounts of
$1,694 and $788 at December 31, 1998 and 1997, respectively 23,647 22,031
Inventories 12,206 10,433
Prepaid expenses and other current assets 4,638 7,409
Net assets of discontinued operations -- 1,470
---------- ---------
Total current assets 41,966 42,050
Net assets of discontinued operations -- 4,548
Property, plant and equipment, net 13,948 12,023
Goodwill, net 27,176 21,021
Other assets, net 1,463 772
---------- ---------
$84,553 $80,414
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of long-term debt $47 $515
Accounts payable 4,377 3,395
Other accrued liabilities 9,952 8,203
Net liabilities of discontinued operations 1,750 --
---------- ---------
Total current liabilities 16,126 12,113
Long-term debt, net of current portion 1,400 15,908
Deferred income taxes 801 1,367
---------- ---------
Total liabilities 18,327 29,388
---------- ---------
Commitments and contingencies (Note 8)
Stockholders' equity:
Preferred stock, par value $.0l per share, 5,000,000 shares
authorized, none issued -- --
Common stock -- par value $.0l per share, 20,000,000 shares authorized,
7,294,408 and 7,526,508 shares issued and
outstanding at December 31, 1998 and 1997, respectively 73 75
Additional paid-in capital 19,797 24,926
Retained earnings 46,356 26,025
---------- ---------
Total stockholders' equity 66,226 51,026
---------- ---------
$84,553 $80,414
========== =========
</TABLE>
See accompanying notes.
28
<PAGE> 29
WINSLOEW FURNITURE, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
(In thousands except per share amounts) Year Ended December 31,
----------------------------------------
1998 1997 1996
--------- ---------- ---------
<S> <C> <C> <C>
Net sales $ 141,360 $ 122,145 $ 117,405
Cost of sales 87,232 79,431 78,029
--------- ---------- ----------
Gross profit 54,128 42,714 39,376
Selling, general and administrative expenses 23,124 21,427 21,472
Amortization 1,122 992 1,444
--------- ---------- ----------
Operating income 29,882 20,295 16,460
Interest expense 635 2,296 3,083
--------- ---------- ----------
Income from continuing operations before
income taxes 29,247 17,999 13,377
Provision for income taxes 10,947 6,838 4,834
--------- ---------- ----------
Income from continuing operations 18,300 11,161 8,543
Loss from discontinued operations,
net of taxes -- (718) (259)
Gain (loss) from sale of discontinued operations,
net of taxes 2,031 (8,200) --
--------- ---------- ----------
Net income $ 20,331 $ 2,243 $ 8,284
========= ========== ==========
Basic earnings (loss) per share:
Income from continuing operations $ 2.46 $ 1.49 $ 0.98
Loss from discontinued operations,
net of taxes -- (0.09) (0.03)
Gain (loss) from sale of discontinued
operations, net of taxes 0.27 (1.10) --
--------- ---------- ----------
Net income $ 2.73 $ 0.30 $ 0.95
========= ========== ==========
Weighted average number of shares 7,450 7,484 8,724
========= ========== ==========
Diluted earnings (loss) per share:
Income from continuing operations $ 2.40 $ 1.48 $ 0.98
Loss from discontinued operations,
net of taxes -- (0.10) (0.03)
Gain (loss) from sale of discontinued
operations, net of taxes 0.27 (1.08) --
--------- ---------- ----------
Net income $ 2.67 $ 0.30 $ 0.95
========= ========== ==========
Weighted average number of shares and
common stock equivalents 7,624 7,563 8,730
========= ========== ==========
</TABLE>
See accompanying notes.
29
<PAGE> 30
WINSLOEW FURNITURE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
(In Thousands Except Share Amounts) Common Stock Additional
-------------------- Paid-in Retained
Shares Amount Capital Eearnings Total
-------- ------ ---------- ---------- -----
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1995 8,967,112 $ 90 $ 37,640 $ 15,498 $ 53,228
Exercise of stock options 25,100 -- 187 -- 187
Repurchase and cancellation of stock (576,925) (6) (3,958) -- (3,964)
Repurchase and cancellation of stock
from affiliated company (933,504) (9) (9,326) -- (9,335)
Net income -- -- -- 8,284 8,284
--------- ------ ---------- ---------- ----------
BALANCE, DECEMBER 31, 1996 7,481,783 75 24,543 23,782 48,400
Exercise of stock options 94,725 1 872 -- 873
Repurchase and cancellation of stock (50,000) (1) (489) -- (490)
Net income -- -- -- 2,243 2,243
--------- ------ ---------- ---------- ----------
BALANCE, DECEMBER 31, 1997 7,526,508 75 24,926 26,025 51,026
Exercise of stock options 63,900 1 924 -- 925
Repurchase and cancellation of stock (296,000) (3) (6,053) -- (6,056)
Net income -- -- -- 20,331 20,331
--------- ------ ---------- ---------- ----------
BALANCE, DECEMBER 31, 1998 7,294,408 $ 73 $ 19,797 $ 46,356 $ 66,226
========= ====== ========== ========== ==========
</TABLE>
See accompanying notes.
30
<PAGE> 31
WINSLOEW FURNITURE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(In thousands) Year Ended December 31,
------------------------------------
1998 1997 1996
-------- --------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 20,331 $ 2,243 $ 8,284
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,618 2,634 2,979
Provision for losses on accounts receivable 1,331 42 1,759
Change in net assets held for sale 6,743 14,710 1,591
Changes in operating assets and liabilities,
net of effects from acquisitions and dispositions:
Accounts receivable (2,210) 1,875 (617)
Inventories (1,164) 1,182 288
Prepaid expenses and other current assets 2,779 (3,871) 50
Other assets 843 691 (144)
Accounts payable 792 (591) 1,841
Other accrued liabilities (357) 3,386 (497)
Deferred income taxes (566) (310) 690
-------- -------- --------
Total adjustments 10,809 19,748 7,940
-------- -------- --------
Net cash provided by operating activities 31,140 21,991 16,224
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, net of disposals (942) (425) (1,351)
Proceeds from disposition of business -- 2,119 --
Investment in subsidiary (9,323) -- --
-------- -------- --------
Net cash provided by (used in) investing activities (10,265) 1,694 (1,351)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net payments under revolving credit agreements (10,837) (19,872) (65)
Payments on long-term debt (4,139) (4,386) (4,225)
Proceeds from issuance of common stock, net 925 873 187
Repurchase and cancellation of stock (6,056) (490) (3,964)
Repurchase and cancellation of stock from affiliated company -- -- (9,335)
Proceeds front issuance of long-term debt -- -- 3,030
-------- -------- --------
Net cash used in financing activities (20,107) (23,875) (14,372)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents 768 (190) 501
Cash and cash equivalents at beginning of year 707 897 396
-------- -------- --------
Cash and cash equivalents at end of year $ 1,475 $ 707 $ 897
======== ======== ========
SUPPLEMENTAL DISCLOSURES:
Interest paid $ 695 $ 2,318 $ 3,296
Income taxes paid $ 9,579 $ 6,048 $ 3,937
======== ======== ========
Investing activities included the acquisition of Tropic Craft in 1998.
Assets acquired, liabilities assumed and consideration paid was as follows:
Fair value of assets acquired $ 10,078
Cash acquired (43)
Liabilities assumed (712)
--------
$ 9,323
========
</TABLE>
See accompanying notes.
31
<PAGE> 32
WINSLOEW FURNITURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of WinsLoew
Furniture, Inc. ("WinsLoew") and its subsidiaries (the "Company"). All material
intercompany balances and transactions have been eliminated.
BUSINESS
WinsLoew is comprised of companies engaged in the design, manufacture and
distribution of casual, contract seating and ready-to-assemble ("RTA")
furniture. WinsLoew's casual furniture products are distributed through
independent manufacturer's representatives, and are constructed of extruded and
tubular aluminum, wrought iron and cast aluminum. These products are
distributed through fine patio stores, department stores and full line
furniture stores nationwide. WinsLoew's contract seating products are
distributed to a customer base which includes architectural design firms,
restaurant and lodging chains. WinsLoew's RTA products include promotionally
priced coffee and end tables, wall units and rolling carts. Distribution of RTA
furniture products is primarily through mass merchandisers, catalogue
wholesalers and specialty retailers. The Company performs periodic credit
evaluations of its customers' financial condition and determines if collateral
is needed on a customer by customer basis.
CASH AND CASH EQUIVALENTS
The Company classifies as cash and cash equivalents all highly liquid
investments which have maturities at the date of purchase of three months or
less. The Company maintains its cash in bank deposit accounts which, at times,
may exceed the federally insured limits. The Company has not experienced any
losses in such accounts. The Company's cash balance at December 31, 1998
includes $1.0 million in an escrow account pending final purchase price
adjustments related to the sale of a discontinued operation (see Note 2).
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined
utilizing the first-in, first-out ("FIFO") and weighted average methods.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. The Company provides for
depreciation on a straight-line basis over the following estimated useful
lives: building and improvements, 8 to 40 years; manufacturing equipment, 2 to
10 years; office furniture and equipment, 3 to 7 years; and vehicles, 3 to 5
years.
GOODWILL
Goodwill is amortized on a straight-line basis over forty years from the date
of the respective acquisition. The carrying value of goodwill is reviewed if
the facts and circumstances suggest it may be impaired. If the review, using
undiscounted cash flows over the remaining amortization period, indicates that
the cost of goodwill will not be recoverable, the Company's carrying value are
reduced.
32
<PAGE> 33
DEFERRED COSTS (OTHER ASSETS)
Loan acquisition costs and related legal fees, included in other assets, are
deferred and amortized over the respective terms of the related debt.
INCOME TAXES
Deferred income taxes are provided for temporary differences between the basis
of assets and liabilities for financial reporting purposes and the related
basis for income tax purposes in accordance with the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 109, ACCOUNTING FOR INCOME TAXES.
EARNINGS PER SHARE
In 1997, the Financial Accounting Standards Board issued SFAS No. 128, EARNINGS
PER SHARE. Statement 128 replaced the calculation of primary and fully diluted
earnings per share with basic and diluted earnings per share. Unlike primary
earnings per share, basic earnings per share excludes any dilutive effects of
options, warrants and convertible securities. Diluted earnings per share is
very similar to the previously reported fully diluted earnings per share. All
earnings per share amounts for all periods have been presented, and where
appropriate, restated to conform to SFAS No. 128 requirements.
The numerators for the earnings per share calculation are set forth on the face
of the accompanying income statements. The only difference between the
denominator for the basic and dilutive calculations are the number of shares
added to basic for the dilutive effect of employee stock options.
REVENUE RECOGNITION
Sales are recorded at time of shipment from the Company's facilities to
customers.
USE OF ESTIMATES
The preparation of the consolidated financial statements requires the use of
estimates in the amounts reported. Actual results could differ from those
estimates.
ACCOUNTING FOR STOCK-BASED COMPENSATION PLANS
The Company follows the provisions of Accounting Principles Board (APB) Opinion
No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES and related Interpretations to
account for its stock option plan. Under provisions of APB No. 25, no
compensation expense has been recognized for stock option grants.
FOREIGN CURRENCY FORWARD CONTRACTS
The Company has exposure to losses which may result from settlement of certain
raw materials purchases denominated in a foreign currency. To reduce this
exposure, the Company has entered into forward contracts to buy foreign
currency. These forward contracts are accounted for as hedges, therefore, gains
and losses from settlement of the forward contracts are used to offset gains
and losses from settlement of the liability for the purchased raw materials.
Gains and losses are recognized in the same period in which gains or losses
from the raw material purchases are recognized. The Company is exposed to
losses on the forward contracts in the event it does not purchase the raw
materials, however, the Company does not anticipate this event.
At December 31, 1998 the Company did not have any forward contracts
outstanding. There were no significant deferred gains or (losses) and actual
gains (losses) included in cost of sales were ($12,000), $30,000 and $15,000
for the years ended December 31, 1998, 1997 and 1996, respectively.
33
<PAGE> 34
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARD
In 1998, the Company adopted SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF AN
ENTERPRISE AND RELATED INFORMATION. The standard establishes principles for the
disclosure of information about operating segments in financial statements. The
adoption did not have any effect on the Company's primary financial statements,
but did effect the disclosure of segment information contained in Note 9.
2. DISCONTINUED OPERATIONS
During 1997 the Company adopted a plan to dispose of its RTA operations.
WinsLoew's RTA products included ergonomically-designed computer workstations,
which the Company denoted as "space savers", promotionally-priced coffee and
end tables, wall units and rolling carts and an extensive line of futons, futon
frames and related accessories. Distribution of RTA furniture products was
primarily through mass merchandisers, catalogue wholesalers and specialty
retailers. As a result of this decision, the Company recorded a pre-tax
non-cash charge totaling $12.4 million ($8.2 million net of taxes) in the
fourth quarter of 1997 relating to the disposal of the RTA operations. The
charge can be summarized as follows:
Write-off of goodwill in connection with sale of assets $ 3,902,000
Reduction of inventory value 2,791,000
Reduction of property to net realizable value 2,067,000
Reduction of accounts receivable value 1,390,000
Other liabilities / reserves 1,050,000
Accrual for losses through disposition 1,200,000
==============
Total $12,400,000
==============
The Company planned to sell two of the businesses and liquidate the assets
related to the futon business. During 1998 the Company sold one of the
businesses, completed the liquidation of the futon business and decided to
retain its Southern Wood business due to improved profitability.
As a condition of the sale mentioned above, WinsLoew is required to hold in
escrow $1.0 million of the sales proceeds to provide indemnification to the
purchaser for claims arising from the date of purchase to December 31, 1999.
34
<PAGE> 35
The operating results of the discontinued operations are summarized as follows
(dollars in thousands, except for per share amounts):
<TABLE>
<CAPTION>
For the Years Ended December 31,
---------------------------------------------------------
1998 1997 1996
---------------- --------------- ----------------
<S> <C> <C> <C>
Net sales $ 4,432 $ 15,921 $ 26,574
Income before taxes -- (1,178) (385)
Net loss -- (718) (259)
Net loss per share - diluted $ -- ($0.10) ($0.03)
</TABLE>
The net assets of the discontinued operations at December 31, 1998 and 1997 are
as follows:
(In thousands) 1998 1997
------------- ------------
Current assets $ -- $ 3,449
Current liabilities, including reserve
for estimated losses through
disposal date (1,750) (1,979)
============= ============
Net assets/liabilities of discontinued
operations, current ($1,750) $ 1,470
============= ============
Property, net $ -- $ 478
Goodwill, net -- 4,018
Other assets -- 52
============= ============
Net assets of discontinued
operations, non-current $ -- $ 4,548
============= ============
The total assets and liabilities of the subsequently retained Southern Wood
operation for the period classified as a discontinued operation were $4.0
million and $1.1 million, respectively, at December 31, 1997.
The operating results of the subsequently retained Southern Wood operation for
each of the years the operation was reported as a discontinued operation are
summarized as follows (dollars in thousands, except for per share amounts):
<TABLE>
<CAPTION>
For the Years Ended December 31,
---------------------------------------------------------
1998 1997 1996
---------------- --------------- ----------------
<S> <C> <C> <C>
Net sales $ 11,689 $ 7,396 $ 10,710
Income before taxes 1,004 399 30
Net income 611 247 18
Net income per share - diluted $ 0.08 $ 0.03 $ --
</TABLE>
During 1998, the Company recorded pre-tax income from the disposition of
discontinued operations totaling $3.2 million ($2.0 million net of taxes). The
components are as follows:
Reversal of reserves related to Southern Wood $ 2,425,000
Gain on liquidation of Futon operations 1,857,000
Loss on sale of remaining RTA operation (1,093,000)
---------------
Total $ 3,189,000
===============
35
<PAGE> 36
As a result of the Board's decision to retain Southern Wood, the consolidated
financial statements for 1997 and 1996 have been reclassified to reflect the
results of operations and assets and liabilities, net of reserves for
discontinued operations, of Southern Wood as a continuing operation.
3. ACQUISITION AND DISPOSITION
During the third quarter of 1997 the Company disposed of certain assets of its
wrought iron business in the casual furniture product line. The sale generated
proceeds of $2.1 million. This business accounted for net sales of $5.7 million
and $11.0 million in the years ended December 31, 1997 and 1996, respectively.
The operating income of this business was not material to consolidated
operating income. During the third quarter of 1997, the Company recorded
approximately $230,000 of costs associated with the sale in selling, general
and administrative expenses.
In June 1998, the Company purchased all of the stock of Villella, Inc. d/b/a
Tropic Craft Aluminum Furniture Manufacturers ("Tropic Craft") for $9.3
million. In addition, the seller will be entitled to receive a contingent
purchase price payment of up to $1.0 million upon achievement of targeted
earning performance with respect to the years ending June 30, 1999 and June 30,
2000. Tropic Craft is engaged in the design and manufacture of contract casual
furniture. The acquisition resulted in goodwill of $6.9 million. Funds for the
acquisition were provided under WinsLoew's credit facility. The acquisition was
accounted for under the purchase method and, accordingly, the operating results
of Tropic Craft have been included in the consolidated operating results since
the date of acquisition.
The following unaudited pro forma information has been prepared assuming that
the acquisition of Tropic Craft occurred on January 1, 1997. Permitted pro
forma adjustments include only the effects of events directly attributable to
the transaction that are factually supportable and expected to have a
continuing impact. The pro forma results are not necessarily indicative of what
actually would have occurred if the acquisition had been in effect for the
entire period presented. In addition, they are not intended to be a projection
of future results and do not reflect any synergies that might be achieved from
combined operations.
(In thousands, except per share amounts)
For the Years Ended December 31,
---------------------------------------
1998 1997
----------------- -----------------
Net sales $144,752 $127,108
Income from continuing
operations $18,946 $11,298
Net income $20,977 $2,380
Income from continuing
operations per share - diluted $2.49 $1.49
Net income per share - diluted $2.76 $0.32
36
<PAGE> 37
4. LONG-TERM DEBT
Long-term debt consisted of the following at December 31, 1998 and 1997:
(In thousands) 1998 1997
---------------- ----------------
Revolving line of credit $1,400 $1,546
Term loan -- 2,287
Acquisition line of credit -- 12,500
Other 47 90
---------- ---------
1,447 16,423
Less: current portion 47 515
---------- ---------
$1,400 $15,908
========== =========
SENIOR CREDIT FACILITIES
The Company's senior credit facility, as amended, provides for $62.5 million
which matures in February 2001, and is collateralized by substantially all of
the assets of the Company. The facility consists of a working capital revolving
line of credit (maximum of $40 million), a term loan (originally $10 million)
and an acquisition line of credit (maximum of $12.5 million). The working
capital revolving line of credit allows the Company to borrow funds up to a
certain percentage of eligible inventories and accounts receivable. The term
loan requires quarterly repayments. The acquisition line of credit converts to
a term loan with principal payments due in quarterly installments.
Additionally, a payment equal to 50% of cash flow, as defined, is required for
each year within 90 days of year-end. WinsLoew's amended senior credit facility
provides the Company with a variable amount available under the revolving line
of credit. Effective each June 30, the maximum amount available under its
revolving line of credit is $20 million. The Company may, at its option, elect
to increase the revolving line of credit at each December 31 through the
following June 30 to a maximum of $40 million. As of December 31, 1998,
WinsLoew elected to increase the revolving line of credit to $35 million.
The WinsLoew's senior credit facility allows the Company to borrow up to $10
million under its line of credit to purchase shares of the Company's common
stock (see Note 5 below). At December 31, 1998 there was $6.1 million available
for this purpose.
The interest rates on the components of the senior credit facility are either
the base rate plus a spread, or the LIBOR rate plus a spread, as elected by the
Company. The spread is determined by the leverage ratio, as defined, for the
twelve month period ending each quarter. At December 31, 1998, the loans are
priced at the base rate plus 0.25% (8.25% at December 31, 1998). If any LIBOR
loans been outstanding at December 31, 1998 they would have been priced at the
LIBOR rate plus 1.25%. In addition, WinsLoew pays an unused facility fee of
.375% per annum on a quarterly basis in arrears.
The agreement requires the Company to meet certain financial ratios for
leverage, interest coverage, tangible net worth and includes other provisions
generally common in such agreements including restrictions on dividends,
additional indebtedness and capital expenditures. At December 31, 1998, the
Company was in compliance with its debt covenants. The carrying value of the
revolving line of credit approximated its fair value at December 31, 1998.
37
<PAGE> 38
5. CAPITAL STOCK
On January 23, 1998, the Board approved a plan authorizing the repurchase of
1,000,000 shares of the Company's stock in the open market at times and prices
deemed advantageous. During 1998, the Company retired 296,000 shares of common
stock purchased for $6.1 million. Subsequent to December 31, 1998 the Company
has purchased 92,500 shares at a cost of $2.6 million. Currently, under the
Board approved repurchase plan, there are 611,500 shares available for
repurchase.
6. INCOME TAXES
The provision (benefit) for income taxes consisted of the following:
<TABLE>
<CAPTION>
For the Years Ended December 31,
--------------------------------------------------------
(in thousands) 1998 1997 1996
---------------- --------------- ----------------
<S> <C> <C> <C>
Provision for taxes related to
continuing operations $ 10,947 $ 6,838 $ 4,834
Benefit for taxes related to
discontinued operations (375) -- (126)
Provision (benefit) for taxes related
to loss on sale of discontinued
operations
1,158 (4,200) --
======== ======== ========
Total provision for taxes $ 12,105 $ 2,263 $ 4,708
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
For the Years Ended December 31,
--------------------------------------------------------
(in thousands) 1998 1997 1996
---------------- ---------------- ---------------
<S> <C> <C> <C>
Federal:
Current $10,128 $3,985 $4,478
Deferred 856 (1,936) (251)
State:
Current 989 496 542
Deferred 132 (282) (61)
---------------- ---------------- ----------------
$12,105 $2,263 $4,708
================ ================ ================
</TABLE>
At December 31, 1998 and 1997, deferred tax assets and liabilities consisted of
the following:
<TABLE>
<CAPTION>
(in thousands)
1998 1997
---------------- ---------------
<S> <C> <C>
Deferred tax assets:
Capitalized inventory costs $ 173 $ 415
Reserves and accruals 2,894 3,660
State net operating loss carryforwards 304 344
---------------- ---------------
Deferred tax assets 3,371 4,419
---------------- ---------------
Deferred tax liabilities:
Intangible asset basis difference (191) (98)
Excess of tax over book depreciation (611) (1,194)
Prepaid expenses (94) (93)
Other (504) (75)
---------------- ---------------
Deferred tax liabilities (1,400) (1,460)
================ ===============
Deferred income taxes, net $1,971 $2,959
================ ===============
</TABLE>
38
<PAGE> 39
<TABLE>
<CAPTION>
1998 1997
---------------- ---------------
<S> <C> <C>
Included in:
Other current assets/liabilities $2,772 $4,326
Deferred income taxes (801) (1,367)
================ ===============
$1,971 $2,959
================ ===============
</TABLE>
The following table summarizes the differences between the federal income tax
rate and the Company's effective income tax rate for financial statement
purposes:
<TABLE>
<CAPTION>
For the Years Ended December 31,
-------------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Federal income tax rate 35.0% 34.0% 34.0%
State income taxes 3.4% 4.7% 2.2%
Goodwill amortization 2.1% 9.3% 2.0%
Other (3.4%) 2.2% (2.0%)
=========== ========== ===========
Effective tax rate 37.1% 50.2% 36.2%
=========== ========== ===========
</TABLE>
7. RELATED PARTY TRANSACTIONS
In October 1994, WinsLoew entered into a ten-year agreement (the "Investment
Services Agreement") with Trivest, Inc. ("Trivest"). Trivest and the Company
have certain common shareholders, officers and directors. Pursuant to the
Investment Services Agreement, Trivest provides corporate finance, financial
relations, strategic and capital planning and other management advice to the
Company. The base compensation is $500,000, subject to cost of living increases
and increases for additional businesses acquired. For 1998, 1997 and 1996, the
amount expensed was $641,000, $628,000 and $604,000, respectively. In 1996, the
Company retired 933,504 shares of its common stock purchased from an affiliated
company at $10 per share.
8. COMMITMENTS AND CONTINGENCIES
LEASES
The Company leases certain office space, manufacturing facilities and various
items of equipment under operating leases. Some leases for office and
manufacturing space contain renewal options and provisions for increases in
minimum payments based on various measures of inflation. Rental expense
amounted to approximately $830,000, $769,000, and $792,000 for the years ended
December 31, 1998, 1997 and 1996, respectively. Operating lease agreements in
effect at December 31, 1998, have the following remaining minimum payment
obligations:
(In thousands)
1999 $765
2000 740
2001 744
2002 714
2003 306
2004 - 2007 757
39
<PAGE> 40
EMPLOYMENT AGREEMENTS
The Company has employment agreements with certain employees. The agreements
provide for minimum salary levels and bonuses based on a percentage of pre-tax
operating income, as defined in the agreements.
EMPLOYEE BENEFIT PLANS
The Company has an employee benefit plan established under the provisions of
Section 401(k) of the Internal Revenue Code. Full-time employees who meet
various eligibility requirements may voluntarily participate in the plan. The
plan provides for voluntary employee contributions through salary reduction, as
well as discretionary employer contributions. Company contributions were
$161,000 and $143,000 in 1998 and 1997, respectively.
STOCK OPTION PLAN
In 1994, the Company established a Stock Option Plan (the "Plan") as a means to
retain and motivate key employees and directors. The Compensation Committee of
the Board of Directors administers and interprets the Plan and is authorized to
grant options to all eligible employees of the Company and non-employee
directors. The Plan provides for both incentive stock options and non-qualified
stock options. Options are granted under the Plan on such terms and at such
prices as determined by the Compensation Committee, except that the per share
exercise price of incentive stock options cannot be less than the fair market
value of the Company's common stock on the date of grant. The Company has
reserved 1,500,000 shares of common stock for issuance upon exercise of stock
options. All options which have been granted have a term of ten years and vest
ratably over five years.
Pro forma net income and earnings per share have been determined as if the
Company had accounted for its employee stock options as compensation expense
based on their fair value. Fair value was estimated at the date of grant using
a Black-Scholes option pricing model for 1998, 1997 and 1996 assuming a
risk-free interest rate of 4.83%, 6.45% and 6.2% for 1998, 1997 and 1996,
respectively, a volatility factor for the Company's common stock of .608, .411
and .532 in 1998, 1997 and 1996, respectively and a weighted-average expected
life of the options of six years. The pro forma information is not likely to be
representative of the effects of options on pro forma net income in future
years because the Company is required to include only options granted since
1994 in the pro forma information.
<TABLE>
<CAPTION>
For the Years Ended December 31,
----------------------------------------------------
1998 1997 1996
-------------- --------------- ----------------
<S> <C> <C> <C>
(In thousands)
Pro forma net income $20,035 $2,068 $8,198
============== =============== ================
Pro forma income (loss) per share, diluted:
Income from continuing operations $ 2.36 $ 1.45 $ 0.97
Loss from discontinued operations,
net of taxes -- (0.09) (0.03)
Gain (loss) from sale of discontinued
operations, net of taxes 0.27 (1.08) --
============== =============== ================
Net income $ 2.63 $ 0.28 $ 0.94
============== =============== ================
</TABLE>
40
<PAGE> 41
Information with respect to WinsLoew's Plan is as follows:
<TABLE>
<CAPTION>
1998
-----------------------------------
Weighted Average
Exercise Price
Options Price 1997 1996
--------------- ------------------ ---------------- -----------------
<S> <C> <C> <C> <C> <C>
Options outstanding at January 1 784,850 $ 9.19 671,550 738,450
Granted 40,000 $ 20.62 250,000 25,000
Exercised (63,900) $ 8.25 (94,725) (25,100)
Canceled (18,050) $ 9.29 (41,975) (66,800)
------------ ============ ============
Options outstanding at December 31 742,900 $ 9.89 784,850 671,550
============ ============ ============
Exercise prices per share $5.88-$23.44 $5.88-$16.06 $5.88-$11.63
Options exercisable at December 31 422,060 $ 9.20 407,100 480,400
============ ============ ============
Options available for grant at
December 31 573,375 595,325 803,350
============ ============ ============
</TABLE>
Information with regard to options outstanding and exercise price at December
31 is as follows:
<TABLE>
<CAPTION>
Options Exercisable
at December 31, 1998
----------------------
Weighted
Weighted Average
Average Options Outstanding Remaining Weighted
Exercise ----------------------------------- Life Average
Exercise Price Price 1998 1997 1996 at 12/31/98 Shares Price
- ------------------- ----------- ---------- ---------- ----------- ------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
$5.88 - $6.67 $6.16 255,800 291,850 356,250 6.1 160,240 $6.20
8.66 8.66 8,200 10,250 10,250 6.2 4,920 8.66
10.00 - 10.50 10.35 240,900 284,750 158,550 7.3 104,900 10.16
11.13 - 11.63 11.56 163,000 163,000 146,500 5.4 145,000 11.61
12.63 12.63 20,000 20,000 -- 8.6 4,000 12.63
16.06 16.06 15,000 15,000 -- 8.9 3,000 16.06
17.00 17.00 17,500 -- -- 9.0 -- --
23.44 23.44 22,500 -- -- 9.4 -- --
========== ========== =========== ==========
Total 9.89 742,900 784,850 671,550 7.0 422,060 9.20
========== ========== =========== ==========
</TABLE>
The estimated weighted average fair value of options granted in 1998 is $12.51
per option. The weighted average remaining contractual life for options granted
in 1998 is 9.3 years.
LITIGATION AND LIABILITY CLAIMS
The Company is, from time to time, involved in routine litigation including
general liability and worker's compensation claims. It is the opinion of
management that sufficient insurance has been purchased to cover current and
potential general liability and worker's compensation claims. None of such
litigation in which the Company is presently involved is believed to be
material to its liquidity, financial position or results of operations.
41
<PAGE> 42
9. OPERATING SEGMENTS
The Company has three segments organized and managed based on the products
sold. These reportable segments are described in Note 1.
The Company evaluates performance and allocates resources based on gross
profit. The accounting policies are the same as those described in the summary
of significant accounting policies. There are no intersegment sales/transfers.
Export revenues are not material.
<TABLE>
<CAPTION>
For the Years Ended December 31,
-------------------------------------------------------
1998 1997 1996
-------------- --------------- -----------------
(In thousands)
<S> <C> <C> <C>
REVENUES:
Casual products $ 59,733 $ 56,363 $ 58,066
Contract seating products 69,938 58,386 48,629
Ready to assemble products 11,689 7,396 10,710
-------------- --------------- -----------------
Total revenues $ 141,360 $ 122,145 $ 117,405
============== =============== =================
SEGMENT GROSS PROFIT:
Casual products $ 28,227 $ 24,164 $ 23,812
Contract seating products 23,439 17,256 14,126
Ready to assemble products 2,462 1,294 1,438
-------------- --------------- -----------------
Total segment gross profit 54,128 42,714 39,376
Reconciling items:
Selling and general and administrative
expenses 23,124 21,427 21,472
Amortization 1,122 992 1,444
-------------- --------------- -----------------
Operating income 29,882 20,295 16,460
Interest expense, net 635 2,296 3,083
-------------- --------------- -----------------
Income from continuing operations before
income taxes $ 29,247 $ 17,999 $ 13,377
============== =============== =================
DEPRECIATION AND AMORTIZATION:
Casual products $1,550 $1,532 $1,956
Contract seating products 425 411 360
Ready to assemble products 309 341 349
-------------- --------------- -----------------
Total 2,284 2,284 2,665
Reconciling items:
Corporate 334 350 314
-------------- --------------- -----------------
Total depreciation and amortization $ 2,618 $ 2,634 $ 2,979
============== =============== =================
</TABLE>
42
<PAGE> 43
<TABLE>
<CAPTION>
For the Years Ended December 31,
-----------------------------------------------------
1998 1997 1996
-------------- --------------- ---------------
<S> <C> <C> <C>
EXPENDITURES FOR (DISPOSAL OF) LONG LIVED
ASSETS, NET:
Casual products $ (24) $ 790 $ 629
Contract seating products
129 236 162
Ready to assemble products
103 (576) 61
-------------- --------------- ---------------
Total 208 450 852
Reconciling items:
Corporate 734 (25) 499
-------------- --------------- ---------------
Total expenditures for long lived assets,
net $ 942 $ 425 $ 1,351
============== =============== ===============
SEGMENT ASSETS:
Casual products $ 51,880 $ 41,964 $ 48,086
Contract seating products 23,486 21,836 22,372
Ready to assemble products 6,496 3,974 6,246
Total 81,862 67,774 76,704
Reconciling items:
Corporate 2,691 6,622 2,518
Assets held for sale -- 6,018 20,728
-------------- --------------- ---------------
Total consolidated assets $ 84,553 $ 80,414 $ 99,950
============== =============== ===============
</TABLE>
The Company has one contract seating customer that accounted for 17%, 16% and
10% of consolidated revenues in the years ended December 31, 1998, 1997 and
1996, respectively.
10. SUPPLEMENTAL INFORMATION
The following balance sheet captions are comprised of the items specified
below:
December 31,
------------------------------------
1998 1997
---------------- ----------------
(In thousands)
Inventories:
Raw materials $ 9,288 $ 8,146
Work in process 1,521 1,089
Finished goods 1,397 1,198
---------------- ----------------
$ 12,206 $ 10,433
================ ================
43
<PAGE> 44
December 31,
------------------------------------
1998 1997
---------------- ----------------
(In thousands)
Property, plant and equipment:
Land $2,628 $1,834
Building and improvements 10,838 9,273
Manufacturing equipment 9,464 9,146
Office equipment 1,953 1,776
Construction in progress 81 74
Vehicles 176 141
---------------- ---------------
25,140 22,244
Accumulated depreciation (11,192) (10,221)
---------------- ---------------
$13,948 $12,023
================ ===============
Other accrued liabilities:
Compensation, commissions and
employee benefits $3,063 $2,324
Customer deposits 1,749 1,559
Income taxes 1,546 971
Interest 24 88
Other 3,570 3,261
---------------- ---------------
$9,952 $8,203
================ ===============
Depreciation expense for continuing operations was $1,496,000, $1,642,000, and
$1,535,000 for the years ended December 31, 1998, 1997 and 1996, respectively.
Accumulated amortization at December 31, 1998 and 1997 related to goodwill was
$6,348,000 and $5,564,000, respectively. Accumulated amortization at December
31, 1998 and 1997 related to other intangible assets was $1,110,000 and
$773,000, respectively.
11. SUBSEQUENT EVENTS
In January 1999, the Company entered into a non-binding letter of intent (the
"letter") to pursue a potential merger in which the Company's public
shareholders would receive $30.00 per share in cash. The purchasing entity
would be formed by the Chairman of the Board of Directors and other members of
management. A Special Committee of the Company's Board of Directors was
established to review the proposal and it has recommended the letter.
The letter permits the Company to solicit and consider superior proposals
subject to the payment of a termination fee to the management group upon the
acceptance of another offer. The proposed merger is subject to, among other
things, approval by the Company's shareholders and the Special Committee.
Accordingly, there can be no assurance that the merger will be consummated.
44
<PAGE> 45
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
No events nor occurrences required to be disclosed in this Item 9 have
occurred.
45
<PAGE> 46
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position
- -------------------------------- --- ------------------------------
<S> <C> <C>
Earl W. Powell................... 60 Chairman of the Board
Bobby Tesney..................... 54 President, Chief Executive Officer and Director
R. Craig Watts................... 45 Executive Vice President -- Contract Seating
Stephen C. Hess.................. 50 Executive Vice President -- Casual Furniture
Vincent A. Tortorici, Jr......... 45 Vice President and Chief Financial Officer
Jerry C. Camp.................... 33 Vice President -- Operations
William F. Kaczynski, Jr......... 39 Director
Phillip T. George, M.D........... 59 Director
Peter W. Klein................... 43 Director
William H. Allen, Jr............. 63 Director
Sherwood M. Weiser............... 68 Director
M. Miller Gorrie................. 63 Director
James S. Smith................... 70 Director
Henry C. Cheek................... 73 Director
</TABLE>
The Company was formed in September 1994, and in December 1994 the
Company merged with each of Winston and Loewenstein. Each of the Company's
directors and executive officers were also directors or officers of Winston
and/or Loewenstein, as described below. Prior to the merger, each of Winston
and Loewenstein were publicly held corporations whose common stock traded on
the Nasdaq National Market.
Mr. Powell, Chairman of the Board of the Company since October 1994,
serves as President and Chief Executive Officer of Trivest, Inc. ("Trivest"),
which is a private investment firm specializing in management services and
acquisitions, dispositions and leveraged buyouts, which was formed by Messrs.
Powell and George in 1981. Trivest is an affiliate of the Trivest Partnerships
and Trivest Manager. Mr. Powell has also served as Chairman of the Board of
Atlantis Plastics, Inc., an American Stock Exchange company whose subsidiaries
are engaged in the plastics industry ("Atlantis"), since founding that company
in February 1984, as Chief Executive of Atlantis from its organization until
February 1995 and as President of Atlantis from November 1993 to February 1995.
Mr. Powell has served as Chairman of the Board of Biscayne Apparel, Inc., a
company whose principal subsidiaries are engaged in the apparel industry
("Biscayne"), since October 1985 and presently serves as Chief Executive
Officer of Biscayne. The common stock of Biscayne is quoted on the NASD OTC
Bulletin Board. Biscayne filed a voluntary Chapter 11 bankruptcy petition in
February 1999. Mr. Powell also served as Chairman of the Board of Winston from
December 1988 to December 1994, Chairman of the Board of Loewenstein from
February 1985 to December 1994 and as Loewenstein's President and Chief
Executive Officer from May 1994 to December 1994. From 1971 until 1985, Mr.
Powell was a partner with KPMG Peat Marwick, Certified Public Accountants
("Peat Marwick"), where his positions included serving as managing partner of
Peat Marwick's Miami office.
46
<PAGE> 47
Mr. Tesney, President, Chief Executive Officer and a director of the
Company since October 1994, served as President, Chief Executive Officer and a
director of Winston from December 1993 to December 1994, General Manager of
Winston from 1985 to December 1993 and as Senior Vice President-Operations of
Winston from January to December 1993. Mr. Tesney also served as Vice President
of Winston from 1979 until January 1992.
Mr. Watts, Executive Vice President-Contract Seating of the Company
since October 1994, served as a director of Loewenstein from December 1990 to
December 1994, and was appointed Loewenstein's Executive Vice
President-Contract Seating in May 1993, after serving as Vice President since
May 1991. Mr. Watts also serves as the President and Chief Operating Officer of
the Company's Loewenstein and Gregson divisions, and has served in a number of
management positions since joining Loewenstein in April 1981.
Mr. Hess, the Company's Executive Vice President-Casual Furniture
since October 1994, served as Winston's Executive Vice President from December
1993 to December 1994, Winston's Senior Vice President-Marketing and Sales from
January 1992 to September 1993, and as Winston's Vice President-Marketing and
Sales from January 1983 until January 1992.
Mr. Tortorici, the Company's Vice President and Chief Financial
Officer since October 1994, served as Winston's Vice President-Finance and
Administration and Chief Financial Officer from March 1988 to December 1994.
Mr. Tortorici is a certified public accountant and was employed by Arthur
Andersen & Co. from 1976 until March 1988.
Mr. Camp, the Company's Vice President - Operations since September
1998, served as the Company's Director of Safety, Environmental and Human
Resources from October 1994 to September 1998, served as Director of
Engineering at Winston from September 1988 to October 1994, and served in
various other capacities with Winston, including Project Engineer, from May
1984 to September 1988.
Mr. Kaczynski was elected director of the Company in January 1998. Mr.
Kaczynski has served as an executive officer of Trivest since January 1998 and
is presently a Managing Director. From July 1996 until December 1997, he was
Chief Financial Officer of WebSite Management Company, Inc. d/b/a FlashNet
Communications, an Internet service provider. From May 1994 until July 1996, he
was Chief Financial Officer of Colorado Mountain Express, Inc., an airport
transportation company. Prior to that he was with Heller Financial, Inc. from
1986 until 1994, most recently as Senior Vice President-Corporate Finance
Group, Dallas, Texas.
Dr. George, a director of the Company since October 1994, served as a
director of Winston from October 1989 to December 1994 and as a director of
Loewenstein from February 1985 to December 1994. Dr. George also serves as the
Vice Chairman of the Board of Trivest, the Vice Chairman of the Board and
Chairman of the Executive Committee of the Board of Directors of Atlantis, and
as a Director of Biscayne. Biscayne filed a voluntary Chapter 11 bankruptcy
petition in February 1999. Dr. George's executive position with Trivest has
been his principal occupation since retiring from the private practice of
plastic and reconstructive surgery in February 1986.
Mr. Klein, a director of the Company since October 1994, served as a
director of Winston from December 1988 to December 1994 and as a director of
Loewenstein from May 1993 to December 1994. Mr. Klein has served as an
executive officer of Trivest since May 1986 and is presently a Managing
Director and the General Counsel of Trivest. Prior to joining Trivest, Mr.
Klein practiced law in Chicago, Illinois and Cleveland, Ohio.
Mr. Allen, a director of the Company since October 1994, served as a
director of Loewenstein from September 1993 to December 1994. Mr. Allen serves
as Vice Chairman of NationsBank Florida, and served as Chairman of the Board
and Chief Executive Officer of Intercontinental Bank, a Nasdaq National Market
company headquartered in Miami, Florida, since April 1987 until its merger with
NationsBank South in December 1994. Mr. Allen also serves as a director of
American Bankers Insurance Group, a New York Stock Exchange company
headquartered in Miami, Florida, and Decorator Industries, Inc., traded on the
American Stock Exchange, headquartered in Hollywood, Florida.
47
<PAGE> 48
Mr. Weiser, a director of the Company since October 1994, has been,
since 1970, the Chairman of the Board, President and Chief Executive Officer of
CHC International, Inc., a leading hotel and casino development and management
company that does business as "Carnival Hotels and Casinos," and its
predecessors. Mr. Weiser also serves as a director of Carnival Corporation, a
cruise line traded on the New York Stock Exchange, Wyndam International, Inc.,
traded as a paired share real estate investment trust on the New York Stock
Exchange, and Mellon United National Bank, a New York Stock Exchange company.
Mr. Gorrie, a director of the Company since October 1994, served as a
director of Winston from February 1993 to December 1994 and from May 1986 to
December 1988. Mr. Gorrie has been Chairman of Brasfield & Gorrie General
Contractor, Inc., a diversified general contractor based in Birmingham,
Alabama, since 1964. Mr. Gorrie is a director of Colonial Properties Trust, a
real estate investment trust traded on the New York Stock Exchange.
Mr. Smith, a director of the Company since October 1994, served as a
director of Winston from February 1993 to December 1994, and as a director of
Biscayne from June 1986 to February 1992. Mr. Smith has been engaged in private
investment activities as his principal occupation for more than the prior five
years. Mr. Smith served as Executive Vice President of Stephens, Inc., an
investment banking firm based in Little Rock, Arkansas, from January 1985 until
May 1987. Mr. Smith has also served as President of the Arnold D. Frese
Foundation since March 1979.
Mr. Cheek, a director of the Company since October 1994, served as a
director of Winston from February 1993 to December 1994. Mr. Cheek has been
engaged in private investment activities as his principal occupation for more
than the prior five years. From 1951 until his retirement in 1984, Mr. Cheek
was Vice President of U.S. Industries, Inc., a diversified holding company and
served as Chief Executive Officer of its Furniture Group. Mr. Cheek served as a
director of Winston from May 1987 through December 1988.
48
<PAGE> 49
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth compensation awarded to, earned by or
paid to the Company's Chief Executive Officer, and each of the Company's other
executive officers whose total 1998 salary and bonus from the Company was
$100,000 or more (the Chief Executive Officer and such other executive officer
are referred to herein as the "Named Executive Officers").
<TABLE>
<CAPTION>
Long Term
Compensation
-------------
Annual Compensation Awards
--------------------------------------------------------- -------------
Other Annual Number of
Fiscal Year Salary Bonus Compensation(1) Options Granted
----------- --------- --------- --------------- ---------------
Name and Principal Position (1)
- --------------------------------------
<S> <C> <C> <C> <C> <C>
BOBBY TESNEY....................... 1998 $250,150 $250,150 $104,236 --
President and Chief Executive 1997 245,000 183,750 49,221 40,000
Officer 1996 216,400 162,300 28,240 --
STEPHEN C. HESS.................... 1998 204,200 173,570 42,256 --
Executive Vice President -- 1997 200,000 150,000 20,935 30,000
Casual Furniture 1996 178,218 133,663 18,606 --
VINCENT A. TORTORICI, JR........... 1998 148,050 96,233 15,784 --
Vice President and Chief 1997 145,000 72,500 12,669 25,000
Financial Officer 1996 129,900 64,950 8,718 --
R. CRAIG WATTS..................... 1998 185,824 157,803 21,067 --
Executive Vice President -- 1997 181,830 136,373 19,343 25,000
Contract Seating 1996 166,138 121,103 20,357 --
JERRY C. CAMP...................... 1998 94,096 28,800 7,820 --
Vice President -- Operations 1997 85,770 8,900 5,908 5,000
1996 71,850 7,185 5,195 --
</TABLE>
- ---------------------
(1) "Other Annual Compensation" represents amount paid by the Company on
behalf of the Named Executive Officer under the Company's Non-Qualified
Supplemental Executive Retirement Plan established in October 1996. Under
the terms of this Plan, selected employees make after-tax contributions of
their salary to one or more investment alternatives available under such
Plan. The Company then matches the employee contribution (up to 10% of
compensation on an after-tax basis) depending on the employee's length of
service (up to 50% for 15 years of continuous service). The employee is
vested at all times in the deferred compensation and is vested immediately
in the matching contribution.
OPTION GRANTS
No stock options were granted to any Named Executive Officers in 1998.
49
<PAGE> 50
AGGREGATED 1998 FISCAL YEAR-END OPTION VALUE TABLE
The following table sets forth certain information concerning
unexercised stock options held by the Named Executive Officers as of December
31, 1998. No stock options were exercised by such persons during 1998. All
"unexercisable" options will become fully exercisable and cancelled in exchange
for cash payments pursuant to the Merger. See "THE MERGER -- Cash-out of
WinsLoew Stock Options."
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised Options In-the Money Options
At December 31, 1998 At December 31, 1998
-------------------------------- --------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- -------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Bobby Tesney...................... 73,000 52,000 $1,263,625 $922,000
Stephen C. Hess................... 51,000 34,000 849,750 589,000
Vincent A. Tortorici, Jr.......... 30,000 30,000 536,250 525,000
R. Craig Watts.................... 55,175 30,000 1,020,335 525,000
Jerry C. Camp..................... 4,500 4,000 68,063 64,000
</TABLE>
401 (k) PLAN
Effective January 1, 1997, the WinsLoew Furniture, Inc. 401 (k) Plan
was established. Employees of the Company and its subsidiaries are eligible to
participate in the Plan following the later to occur of (i) the employee's
completion of one year of service or (ii) the employee's 21st birthday.
Eligible employees may make a salary reduction contributions to the Plan on a
pretax basis. For each calendar year, the Company and the other participating
employees may make matching contributions to the Plan based on a discretionary
matching percentage to be determined each year by the Company. In addition, the
Company and the other participating employers may make a discretionary profit
sharing contribution to the plan on behalf of each participant who completes
more than 500 hours of service during the year or who is employed on the last
day of the year. This latter contribution is allocated proportionately based on
each participants compensation. An employee's vested benefits are payable upon
his retirement, death, disability, or other termination of employment or upon
the attainment of age 59-1/2. An employee is always fully vested in his account
balance attributable to his own contributions to the Plan. The employee's
interest in the account attributable to his employers contributions and
earnings thereon becomes fully vested upon the earlier of the attainment of his
normal retirement date (age 65), his death, his permanent and total disability,
or his completion of six years of service. If an employee terminates employment
for reasons other than retirement, death, or disability, his vested interest is
based on a graduated vesting schedule which provides for 20% vesting after two
years of service and 20% for each year thereafter. Nonvested amounts are
forfeited.
LONG TERM INCENTIVE AND PENSION PLANS
The Company has no Long Term Incentive or Pension Plans.
DIRECTOR COMPENSATION
During 1996 and the first quarter of 1997, the Company paid each
director who was neither an employee of the Company nor Trivest an annual
retainer of $10,000, an additional retainer of $2,500 for serving on the
Compensation Committee, a $500 fee for each meeting of the Board of Directors
attended and, unless held on the same day as a Board meeting, $500 for each
committee meeting attended. The Company also reimburses all directors for
expenses incurred in connection with their activities as directors.
Additionally, prior to 1997, on March 31 of each year, each director
who was neither an employee of the Company nor Trivest received automatic
grants of options to purchase 5,000 shares of Common Stock pursuant to the
Company's 1994 Stock Option Plan. Such options become exercisable at the rate
of 20% per year on each anniversary of the date of grant, and have an exercise
price equal to the fair market value of Common Stock on the date of grant. The
unexercised portion of any such option will terminate upon the earliest to
occur of the
50
<PAGE> 51
following: (i) the expiration of 10 years from the date of grant of the option,
(ii) twelve months after the date on which the optionee ceases to be a director
by reason of the death or disability of the optionee, or (iii) three months
after the optionee ceases to be a director for any other reason. In addition,
each other director of the Company is eligible to receive discretionary grants
of options pursuant to such plan. These automatic grants were terminated in
connection with the adoption of the Amended and Restated 1994 Stock Option Plan
by the Board of Directors in January 1997.
The Board of Directors approved new compensation policies effective
April 1, 1997. Directors who are neither employees of the Company nor Trivest
are paid a $2,500 cash fee for each meeting attended in person and a $500 cash
fee for each meeting attended by telephone. In addition, each member of the
Compensation and Audit Committee receives a $2,500 annual retainer, payable
quarterly in advance.
In addition, during 1998 each of the Company's directors was granted
options to purchase 2,500 shares of Common Stock pursuant to the Company's
Amended and Restated 1994 Stock Option Plan for each meeting of the Board of
Directors attended by him. There were two meetings of the Board of Directors in
1998. Such options become exercisable at the rate of 20% per year on each
anniversary of the date of grant and have an exercise price equal to the fair
market value of the Common Stock on the date of grant. The unexercised portion
of such options will terminate on the earliest to occur of the following (i)
the expiration of 10 years from the date of grant of the option, (ii) twelve
months after the date on which the optionee ceases to be a director by reason
of the death or disability of the optionee, or (iii) except as otherwise may be
determined by the Board, three months after the date on which the optionee
ceases to be a director for any other reason. The unvested portion of the
foregoing options will become fully vested in the event of a change in control
of the Company.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE IN
CONTROL ARRANGEMENTS
Effective January 1, 1995, the Company entered into five-year
employment agreements with each of Messrs. Tesney, Watts, Hess and Tortorici
(as amended, the "Employment Agreement"). The Employment Agreements provide for
the Company to pay Messrs. Tesney, Watts, Hess and Tortorici base salaries of
$200,000, $150,000, $165,000 and $120,000, respectively, in each case subject
to annual cost of living adjustments. The Employment Agreements also provide
for annual incentive compensation payments of a portion of the executive's then
base salary (100% in the case of Mr. Tesney, 85% in the case of each of Messrs.
Hess and Watts, and 65% in the case of Mr. Tortorici) based on the operating
earnings (adjusted to exclude the effect of goodwill amortization) of (i) the
Company, in the case of Messrs. Tesney and Tortorici, (ii) the Company's
Contract Seating divisions, in the case of Mr. Watts,) and (iii) the Company's
Casual Furniture divisions, in the case of Mr. Hess. None of such officers will
receive any incentive compensation payment under his Employment Agreement for
any particular year unless the relevant operating earnings for such year are at
least 75% of the "target earnings" for such year. Target earnings for 1998 were
set by the Compensation Committee of the Board. Each Employment Agreement also
provides that the executive will receive six months base salary if his
employment is terminated without "cause" (as defined), and prohibits the
executive from directly or indirectly competing with the Company for one year
after termination of his employment (six months if he is terminated by the
Company without "cause"). The Employment Agreements were approved by the
Compensation Committee of the Company's Board of Directors.
Each of the Named executive Officers holds options to purchase Common
Stock under the company's Amended and restated 1994 Stock Option Plan. To the
extent not already exercisable, such options generally become exercisable upon
(i) a reorganization, merger, consolidation or other form of corporate
transaction with respect to which ownership of a majority of the voting power
of the Common Stock is transferred, (ii) liquidation or dissolution of the
Company or (iii) the sale of all or substantially all of the Company's assets.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Powell, the Company's Chairman, also serves on the Board of
Directors of CHC International, Inc., a hotel and casino development and
management company. Mr. Weiser, a director and member of the
51
<PAGE> 52
Compensation Committee of the Company, serves as Chairman of the Board,
President and Chief Executive Officer of CHC International, Inc. See
"--Directors and Executive Officers of WinsLoew."
52
<PAGE> 53
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding the beneficial
ownership of the Company's Common Stock as of March 1, 1999 by (i) each person
known by the Company to beneficially own more than five percent of the
outstanding shares of Common Stock, (ii) each director of the Company, (iii)
each "Named Executive Officer" of the Company (as defined below in "Executive
Compensation-Summary Compensation Table"), and (iv) all directors and executive
officers of the Company as a group:
<TABLE>
<CAPTION>
Beneficial Ownership
of Common Stock(2)
-----------------------------------
Number of Shares Percentage
---------------- ----------
<S> <C> <C> <C>
Earl W. Powell(3)(4).............................................. 1,999,187 27.7%
Phillip T. George, M.D.(3)(5)..................................... 1,865,283 25.9%
Trivest Group, Inc.(3)(6)......................................... 908,455 12.6%
FMR Corp.(7)...................................................... 596,200 8.3%
Trivest Special Situations Fund 1985, L.P.(3)(8).................. 542,816 7.6%
Heartland Advisors, Inc.(9)....................................... 229,300 3.2%
R. Craig Watts(10)................................................ 173,237 2.4%
M. Miller Gorrie(11).............................................. 155,950 2.2%
Bobby Tesney(12).................................................. 134,693 1.9%
Stephen C. Hess(13)............................................... 87,602 1.2%
Vincent A. Tortorici, Jr.(14)..................................... 51,950 *
James S. Smith(15)................................................ 35,000 *
Henry C. Cheek(16)................................................ 21,000 *
Sherwood M. Weiser(17)............................................ 17,175 *
William H. Allen, Jr.(18)......................................... 10,550 *
Peter W. Klein(3)(19)............................................. 8,050 *
Jerry C. Camp(20)................................................. 6,262 *
William F. Kaczynski, Jr.(3)(21).................................. 500 *
All directors and executive officers as a group (14 persons)(22).. 2,863,012 37.9%
</TABLE>
- -------------------------
(*) Less than 1%
(1) Except as otherwise indicated below, the address of each beneficial
owner is 160 Village Street, Birmingham, Alabama 35242.
(2) Except as otherwise indicated below, all shares are owned directly and
each person has sole voting and investment power with respect to all
shares. For purposes of this table, a person is deemed to have "beneficial
ownership" of any shares as of a given date which the person has the right
to acquire within 60 days after such date. For purposes of computing the
outstanding shares held by each person named above on a given date, any
shares which such person has the right to acquire within 60 days after
such date are deemed to be outstanding, but are not deemed to be
outstanding for the purpose of computing the percentage ownership of any
other person. However, the table does not reflect the acceleration of
stock options vesting that will result from the Merger. See "THE MERGER --
Cash-out of WinsLoew Stock Options."
53
<PAGE> 54
(3) The beneficial owner's address is 2665 South Bayshore Drive, Suite 800,
Miami, Florida 33133.
(4) Includes 259,135 shares owned directly, 36,625 shares subject to
exercisable options granted under the Company's stock option plan, 662,484
shares held of record by Trivest Fund I, Ltd., 245,971 shares held of
record by Trivest Equity Partners I, Ltd., 116,459 shares held of record
by Trivest Principals' Fund 1988, of which Mr. Powell is a general
partner, 542,816 shares owned of record by Trivest Special Situations Fund
1985, L.P. ("TSSF") (see note (8)) and 135,697 shares owned of record by
Trivest Annuity Fund, Ltd.("Annuity Fund") . The General Partner of
Annuity Fund is Trivest Plan Sponsor, Inc. ("Trivest Plan Sponsor").
Messrs. Powell and George are executive officers and directors of Trivest
Plan Sponsor and beneficially own 100% of its outstanding stock.
(5) Includes 136,641 shares owned directly, 1,965 shares held of record by Dr.
George as custodian for his minor children under the Florida Uniform Gifts
to Minors Act as to which Dr. George disclaims beneficial ownership,
23,250 shares subject to exercisable options under the Company's stock
option plan, 662,484 shares held of record by Trivest Fund I, Ltd.,
245,971 shares held of record by Trivest Equity Partners I, Ltd., 116,459
shares held of record by Trivest Principals' Fund 1988, of which Dr.
George is a general partner, 542,816 shares of record owned by TSSF (See
note (8)), and 135,697 shares owned of record by Annuity Fund. The General
Partner of Annuity Fund is Trivest Plan Sponsor. Messrs. Powell and George
are executive officers and directors of Trivest Plan Sponsor and
beneficially own 100% of its outstanding stock.
(6) Trivest Group, Inc. serves as the sole general partner of Trivest 1988
Fund Managers, Ltd., which in turn is the sole general partner of (i)
Trivest Fund I, Ltd., a privately held investment partnership that holds
of record 662,484 shares of Common Stock, and (ii) Trivest Equity Partners
I, Ltd., a privately held investment partnership that holds of record
245,971 shares of Common Stock. Messrs. Powell and George are executive
officers and directors of Trivest Group, Inc. and beneficially own 100% of
its outstanding capital stock.
(7) The address for FMR Corp. is 82 Devonshire Street, Boston, Massachusetts
02109.
(8) The general partner of TSSF is Trivest Associates, L.P. ("Associates"), a
Florida limited partnership whose general partner is Trivest, Inc. Messrs.
Powell and George are executive officers and directors of Trivest Inc. and
beneficially own 100% of its outstanding capital stock. Messrs. Powell and
George are also limited partners of Associates.
(9) The address for Heartland Advisors, Inc. is 790 North Milwaukee Street,
Milwaukee, Wisconsin 53202.
(10) Includes 113,062 shares owned directly and 60,175 shares subject to
exercisable options granted under the Company's Stock Option Plan. Mr.
Watts' address is 1801 N. Andrews Extension, Pompano Beach, Florida 33061.
(11) Includes 62,750 shares owned directly and 14,500 shares subject to
exercisable options granted under the Company's stock option plan and
78,700 shares owned by Brasfield & Gorrie, General Contractors,
Incorporated. Mr. Gorrie's address is c/o Brasfield and Gorrie, 729 South
30th Street, Birmingham, Alabama 35223.
(12) Includes 51,693 shares owned directly and 83,000 shares subject to
exercisable options granted under the Company's stock option plan.
(13) Includes 31,602 shares owned directly and 56,000 shares subject to
exercisable options granted under the Company's stock option plan.
(14) Includes 16,950 shares owned directly and 35,000 shares subject to
exercisable options granted under the
Company's stock option plan.
54
<PAGE> 55
(15) Includes 20,000 shares owned directly and 15,000 shares subject to
exercisable options granted under the Company's stock option plan. Mr.
Smith's address is Suite 916, 10 Rockefeller Plaza, New York, New York
10020.
(16) Includes 6,000 shares owned directly and 15,000 shares subject to
exercisable options granted under the Company's stock option plan. Mr.
Cheek's address is 3713 Fairway Drive, DCBE, Granbury, Texas 76049.
(17) Includes 5,675 shares held by Mr. Weiser's wife, 2,000 shares owned
directly and 9,500 shares subject to exercisable options granted under the
Company's stock option plan. Mr. Weiser's address is 3250 Mary Street, 5th
Floor, Miami, Florida 33133.
(18) Includes 1,050 shares owned directly and 9,500 shares subject to
exercisable options granted under the Company's stock option plan. Mr.
Allen's address is c/o Nations Bank South, 200 S.E. 1st Street, Suite 800,
Miami, Florida 33131.
(19) Represents 8,050 shares subject to exercisable options granted under the
Company's stock option plan.
(20) Includes 1,762 shares owned directly and 4,500 shares subject to
exercisable options granted under the Company's stock option plan.
(21) Includes 500 shares subject to exercisable options.
(22) Includes an aggregate of 361,100 shares subject to exercisable options
granted under the Company's stock option plan, 1,024,914 shares owned of
record by Trivest Fund I, Ltd., Trivest Equity Fund I, Ltd., and Trivest
Principals' Fund 1988 and 678,513 shares owned of record by TSSF and
Annuity Fund. See notes (4), (5), (6) and (7).
55
<PAGE> 56
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
INVESTMENT SERVICES AGREEMENT. In December 1994, the Company entered
into a ten-year investment Services Agreement with Trivest (the "Investment
Services Agreement), pursuant to which Trivest provides corporate finance,
strategic and capital planning and other management advice to the Company,
including (i) conducting relations on behalf of the Company with accountants,
attorneys, financial advisors and other professionals, (ii) providing reports
to the Company with respect to the value of its assets, and (iii) rendering
advice with respect to acquisitions, dispositions, financings and refinancings.
Pursuant to the Investment Services Agreement, Trivest receives a base annual
fee of $500,000 (in 1994), subject to cost-of-living increases. In addition,
for each additional business acquired by the Company, Trivest's base
compensation will generally be increased by the greater of (i) $100,000, and
(ii) the sum of 5% of the additional business's projected annual earnings
before income taxes, interest expense and amortization of goodwill ("EBITA")
for the fiscal year in which it is acquired up to $2.0 million of EBITA, plus
3.5% of EBITA in excess of $2.0 million. Moreover, subject to the approval of
the Company's board (including a majority of disinterested directors), for each
acquisition or disposition of any business operation by the Company introduced
or negotiated by Trivest, Trivest will generally receive a fee of up to 3% of
the purchase price. The Company paid Trivest $640,980 for services rendered
under the Investment Services Agreement during 1998.
Pursuant to an amendment entered into between Trivest and the Company
as of March 5, 1999, the parties agreed that (i) no such fee would be payable
to Trivest with respect to the Merger, (ii) if the Termination Fee is paid in
connection with a Superior Proposal pursuant to the Merger Agreement, no such
fee shall be payable with respect to such Superior Proposal under the
Investment Services Agreement, and (iii) Trivest shall not be reimbursed under
the Investment Services Agreement for any expenses related to the Merger or a
Superior Proposal. See "SPECIAL FACTORS--Background" and "THE
MERGER--Termination."
TRIVEST LEGAL DEPARTMENT. Trivest maintains an internal legal
department. The Trivest legal department accounts for its time on an hourly
basis and bills Trivest and its affiliates, including the Company, for services
rendered at prevailing rates. In 1998, the Company paid Trivest $40,516.25 for
services rendered by the Trivest legal department. The Company believes that
the fees charged by the Trivest legal department in 1998 were no less favorable
to the Company than fees charged by unaffiliated third parties for similar
services.
56
<PAGE> 57
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Documents filed as part of this report:
(1) FINANCIAL STATEMENTS:
Reference is made to the index set forth on page
26 of this Annual Report on Form 10-K
(2) FINANCIAL STATEMENTS SCHEDULES:
The following consolidated financial statement
schedule is filed herewith:
Sequential
Page Number
-----------
Schedule II-- Valuation and Qualifying Accounts............62
Any required information not included in the above-described schedule
is included in the consolidated financial statements and notes thereto
contained herein. All other schedules for which provision is made in the
applicable accounting regulations of the Securities and Exchange Commission are
not required under the related instructions are otherwise not applicable and
therefore have been omitted.
(3) EXHIBITS: (An asterisk to the left of an exhibit
number denotes a management contract or
compensatory plan or arrangement required to be
filed as an exhibit to the Annual Report on Form
10-K)
<TABLE>
<CAPTION>
Exhibit Description
- ------- -----------
<S> <C>
2.1 Agreement and Plan of Merger, dated as of September 30, 1994, by and among Registrant, Old
Winston and Old Loewenstein(1)
2.2 Agreement and Plan of Merger, dated as of March 5, 1999, between the Registrant and Trivest
Furniture Corporation. (2.1)(10)
3.1 Registrant's Articles of Incorporation(1)
3.2 Registrant's Bylaws(1)
*10.1 Registrant's 1994 Stock Option Plan, As Amended and Restated Effective January 23, 1997(6)
10.2 Form of Indemnification Agreement between the Registrant and certain of its directors and
executive officers, and schedule of parties thereto (10.2)(2)
*10.3 Employment Agreements between the Registrant and each of Bobby Tesney, R. Craig Watts, Stephen
C. Hess, and Vincent A. Tortorici, Jr. (10.3)(2)
*10.4 Investment Services Agreement, dated December 16, 1994, between the Registrant and Trivest, Inc.
(10.6)(2)
</TABLE>
57
<PAGE> 58
<TABLE>
<CAPTION>
Exhibit Description
- ------- -----------
<S> <C>
10.5 Agreement, dated August 1, 1996, between Winston and the Retail, Wholesale, and Department Store
Union, AFL-CIO (10.8)(1)
10.6 Lease, dated May 24, 1996, between LaSalle National Bank and Winston (10.7)(6)
10.7 Business Lease, dated November 18, 1993, between Loewenstein and Emanuel Vanzo (10.21)(2)
10.8 Lease Agreement by and between Teacher Insurance and Annuity Association and Winston Furniture
Company of Alabama, Inc., commencing December 15, 1995 (10.23)(4)
10.9 Lease Agreement, dated as of January 11, 1989, between W. Leslie Pelio and Michael Haworth d/b/a
Simworth, as amended (10.29)(2)
10.10 Standard Industrial Lease Multi-tenant, dated as of June 1997, between The Mutual Life Insurance
Company of New York and Continental Engineering Group, Inc., d/b/a Microcenter(7)
10.11 Stock Purchase Agreement among WinsLoew Furniture, Inc., Continental Engineering Group, Inc.,
and certain Shareholders, dated February 15, 1995 (10.31)(3)
10.12 Credit Agreement, dated February 2, 1995, among the Registrant, its subsidiaries, and Heller
Financial, Inc. (10.32)(3)
10.13 First Amendment to Credit Agreement, dated February 22, 1995, among the Registrant, its
subsidiaries, and Heller Financial, Inc. (10.17)(4)
10.14 Second Amendment to Credit Agreement, dated May 8, 1995, among the Registrant, its subsidiaries,
and Heller Financial, Inc. (10.18)(4)
10.15 Third Amendment to Credit Agreement, dated November 15, 1995, among the Registrant, its
subsidiaries, and Heller Financial, Inc. (10.19)(4)
10.16 Fourth Amendment to Credit Agreement, dated November 20, 1995, among the Registrant, its
subsidiaries, and Heller Financial, Inc. (10.20)(4)
10.17 Fifth Amendment to Credit Agreement, dated June 30, 1996, among the Registrants, its
subsidiaries, and Heller Financial, Inc. (10.21)(5)
10.18 Sixth Amendment to Credit Agreement, dated July 1, 1996, among the Registrants, its
subsidiaries, and Heller Financial, Inc. (10.22)(5)
10.19 Seventh Amendment to Credit Agreement, dated January 27, 1997, among the Registrants, its
subsidiaries, and Heller Financial, Inc. (10.20)(6)
*10.20 Registrant's Non-Qualified Supplemental Retirement Plan for Key Employees (10.22)(6)
10.21 Eighth Amendment to Credit Agreement, dated May 22, 1998, between the Registrant, its
subsidiaries and Heller Financial, Inc. (8)
10.22 Stock Purchase Agreement, dated as of June 30, 1998, between the Registrant and Vertiflex
Company (11)
</TABLE>
58
<PAGE> 59
<TABLE>
<CAPTION>
Exhibit Description
- ------- -----------
<S> <C>
10.23 Stock Purchase Agreement, dated as of June 30, 1998, between Winston Furniture Company of
Alabama, Inc. and Thomas Villella. (2.1)(9)
10.24 Contract for Sale and Purchase, dated as of June 30, 1998, between Villella, Inc. and Thomas L.
Villella, as Trustee of the Thomas L. Villella Family Trust dated August 5, 1991 (2.2)(9)
10.25 Stock Purchase Agreement, dated as of November 23, 1998, among Winston Furniture Company of
Alabama, Inc., Miami Metal Products, Inc., Industrial Mueblera Pompeii de Mexico, S.A. de C.V.
and the Sellers named therein (11)
*10.26 Amendment No. 1 to Investment Services Agreement, dated as of March 5, 1998, between the
Registrant and Trivest II, Inc. (11)
21.1 Registrant's Subsidiaries(11)
23.1 Consent of Ernst & Young LLP, Independent Auditors(11)
</TABLE>
- ---------------
(1) Incorporated by reference to the exhibits, shown in parentheses and filed
with the Registrant's Registration Statement on Form S-4 (No. 33-85476).
(2) Incorporated by reference to the exhibits, shown in parentheses and filed
with the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1994.
(3) Incorporated by reference to the exhibits, shown in parentheses and filed
with the Registrant's Report on Form 8-K filed April 7, 1995.
(4) Incorporated by reference to the exhibits, shown in parentheses and filed
with the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1995.
(5) Incorporated by reference to the exhibits, shown in parentheses and filed
with the Registrant's Report on Form 10-Q for the quarter ended June 28,
1996.
(6) Incorporated by reference to the exhibits, shown in parentheses and filed
with the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1996.
(7) Incorporated by reference to the exhibits, shown in parentheses and filed
with the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1997.
(8) Incorporated by reference to the exhibits, shown in parentheses and filed
with the Registrant's Report on Form 10-Q for the quarter ended June 26,
1998.
(9) Incorporated by reference to the exhibits, shown in parentheses and filed
with the Registrant's Report on Form 8-K filed July 14, 1998.
(10) Incorporated by reference to the exhibits, shown in parentheses and filed
with the Registrant's Report on Form 8-K filed March 11, 1999.
(11) Filed herewith.
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed by the Registrant
during the last quarter of the period covered by this
report.
59
<PAGE> 60
(c) EXHIBITS REQUIRED BY ITEM 601 OF REGULATION S-K
The index to exhibits that are listed in Item 14(a)(3) of
this report and not incorporated by reference follows the
"Signatures" section hereof and is incorporated herein by
reference.
(d) FINANCIAL STATEMENTS SCHEDULES REQUIRED BY REGULATION S-X
The financial statement schedules required by Regulation
S-X are included herein. See Item 14(a)2 for index.
60
<PAGE> 61
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
WINSLOEW FURNITURE, INC.
Date: March 29, 1999 By:/S/BOBBY TESNEY
------------------------------------
Bobby Tesney
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant in the capacities, and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- ---------------------------------- -------------------------------- ---------------------
<S> <C> <C>
/S/BOBBY TESNEY
- ---------------------------------- President, Chief Executive Officer
Bobby Tesney and Director (Principal Executive
Officer)
/S/VINCENT A. TORTORICI, JR.
- ---------------------------------- Vice President and Chief Financial
Vincent A. Tortorici, Jr. Officer (Principal Financial and
Accounting Officer)
/S/EARL W. POWELL
- ---------------------------------- Chairman of the Board
Earl W. Powell
/S/PHILLIP T. GEORGE, M.D.
- ---------------------------------- Director
Phillip T. George, M.D.
/S/WILLIAM F. KACZYNSKI, JR.
- ---------------------------------- Director
William F. Kaczynski, Jr.
/S/PETER W. KLEIN
- ---------------------------------- Director
Peter W. Klein
/S/M. MILLER GORRIE
- ---------------------------------- Director
M. Miller Gorrie
/S/JAMES S. SMITH
- ---------------------------------- Director
James S. Smith
/S/HENRY C. CHEEK
- ---------------------------------- Director
Henry C. Cheek
/S/WILLIAM H. ALLEN, JR.
- ---------------------------------- Director
William H. Allen, Jr.
/S/SHERWOOD M. WEISER
- ---------------------------------- Director
Sherwood M. Weiser
</TABLE>
61
<PAGE> 62
SCHEDULE II - VALUATION OF QUALIFYING ACCOUNTS
WINSLOEW FURNITURE, INC.
December 31, 1998
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E COL. F
- ----------------------------------------------------------------------------------------------------------------------------------
Additions
Balance at --------------------------------------------
Beginning Charged to Charged to Balance at
Description of Period Costs and Expense Other Accounts Deductions End of Period
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Year Ended December 31, 1996
Allowance for doubtful accounts $ 464,000 $ 1,759,000 -- ($191,000)(1) $ 2,032,000
=========== =========== =========== =========== ===========
Year Ended December 31, 1997
Allowance for doubtful accounts $ 2,032,000 $ 42,000 -- ($1,286,000)(1) $ 788,000
=========== =========== =========== =========== ===========
Year Ended December 31, 1998
Allowance for doubtful accounts $ 788,000 $ 1,331,000 -- ($425,000)(1) $ 1,694,000
=========== =========== =========== =========== ===========
Year Ended December 31, 1996
Allowance for excess and
obsolete inventory $ 660,000 $ 680,000 -- ($851,000)(2) $ 489,000
=========== =========== =========== =========== ===========
Year Ended December 31, 1997
Allowance for excess and
obsolete inventory $ 489,000 $ 1,267,000 -- ($1,382,000)(2) $ 374,000
=========== =========== =========== =========== ===========
Year Ended December 31, 1998
Allowance for excess and
obsolete inventory $ 374,000 $ 702,000 -- ($581,000)(2) $ 495,000
=========== =========== =========== =========== ===========
</TABLE>
- ----------------------
(1) Uncollectible accounts receivable written-off.
(2) Excess and obsolete inventory written-off
<PAGE> 1
EXHIBIT 10.22
STOCK PURCHASE AGREEMENT
BETWEEN
WINSLOEW FURNITURE, INC.
AND
VERTIFLEX COMPANY
(Sale of Continental Engineering Group, Inc.)
Dated as of June 30, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
1. Definitions 1
2. PURCHASE AND SALE OF COMPANY SHARES 8
(a) BASIC TRANSACTION 8
(b) PURCHASE PRICE 8
(c) PAYMENT OF PURCHASE PRICE 8
(d) SATISFACTION OF FUNDED INDEBTEDNESS 9
(e) THE CLOSING 9
(f) DELIVERIES AT THE CLOSING 9
(g) POST-CLOSING PURCHASE PRICE ADJUSTMENT 10
3A. REPRESENTATIONS AND WARRANTIES OF THE SELLER AS TO SELLER MATTERS 12
(a) ORGANIZATION 12
(b) AUTHORIZATION OF TRANSACTION 12
(c) NONCONTRAVENTION 12
(d) OWNERSHIP OF COMMON STOCK 13
(e) BROKERS FEES 13
3B. REPRESENTATIONS AND WARRANTIES OF THE SELLER WITH RESPECT TO THE COMPANY 13
(a) ORGANIZATION AND STANDING 13
(b) AUTHORITY TO DO BUSINESS 13
(c) CHARTER AND BYLAWS; CORPORATE RECORDS 13
(d) NO SUBSIDIARIES 14
(e) CAPITALIZATION 14
(f) FINANCIAL STATEMENTS 14
(g) ABSENCE OF CERTAIN DEVELOPMENTS 15
(h) UNDISCLOSED LIABILITIES 17
(i) TANGIBLE PERSONAL PROPERTY 17
(j) REAL PROPERTY 18
(k) INSURANCE 18
(l) LABOR RELATIONS 18
(m) COMPANY PERMITS; COMPLIANCE WITH LAW 19
(n) LITIGATION 19
(o) LIST OF ACCOUNTS 19
(p) LIST OF PERSONNEL 19
(q) EMPLOYEE BENEFITS 20
(r) TAX MATTERS 22
</TABLE>
-i-
<PAGE> 3
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
(s) ENVIRONMENTAL MATTERS 23
(t) INTELLECTUAL PROPERTY 24
(u) MATERIAL CONTRACTS 25
(v) TRANSACTIONS WITH AFFILIATES 25
(w) POWERS OF ATTORNEY 25
(x) INVENTORY 25
(y) ACCOUNTS RECEIVABLE 26
(z) CUSTOMERS AND SUPPLIERS 26
(aa) TRAILING SALES COMMISSIONS 26
(bb) FULL DISCLOSURE 26
4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER 26
(a) ORGANIZATION 26
(b) AUTHORIZATION OF TRANSACTION 26
(c) NONCONTRAVENTION 26
(d) BROKERS FEES 27
(e) ACQUISITION OF SHARES FOR INVESTMENT 27
(f) FULL DISCLOSURE 27
5. POST-CLOSING COVENANTS 27
(a) GENERAL 27
(b) LITIGATION SUPPORT 27
(c) PUBLICITY 27
(d) CERTAIN TAX MATTERS 28
(e) FINANCIAL REPORTING COOPERATION 30
(f) 401(K) PLAN 30
(g) NON-COMPETITION 30
6. CONDITIONS TO OBLIGATION TO CLOSE 31
(a) CONDITIONS TO OBLIGATION OF THE PURCHASER 31
(b) CONDITIONS TO OBLIGATION OF THE SELLER 33
7. REMEDIES FOR BREACHES OF THIS AGREEMENT 34
(a) SURVIVAL OF REPRESENTATIONS AND WARRANTIES 34
(b) INDEMNIFICATION 34
(c) LIMITATION OF RECOURSE 37
8. DISPUTE RESOLUTION 38
(a) DISPUTE DEFINED 38
(b) DISPUTE RESOLUTION PROCEDURES 38
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
(c) PROVISIONAL REMEDIES 39
(d) TOLLING STATUTE OF LIMITATIONS 39
(e) PERFORMANCE TO CONTINUE 39
(f) EXTENSION OF DEADLINES 39
(g) ENFORCEMENT 39
(h) COSTS 39
(i) REPLACEMENT 40
9. MODIFICATION AND WAIVERS 40
(a) MODIFICATION 40
(b) WAIVERS 40
10. ADDITIONAL AGREEMENTS 40
(a) PROPORTIONATE SHARE 41
(b) STOCK ADJUSTMENTS 41
(c) SELLER'S GUARANTEE OF ACCOUNTS RECEIVABLE 42
(d) SEVERANCE OBLIGATIONS 43
(e) MICROCENTRE DISPUTE 43
(f) PRE-CLOSING WORKERS COMPENSATION CLAIMS 43
(g) VACATION ACCRUAL 43
11. MISCELLANEOUS 44
(a) NO THIRD-PARTY BENEFICIARIES 44
(b) ENTIRE AGREEMENT 44
(c) SUCCESSION AND ASSIGNMENT 44
(d) COUNTERPARTS 44
(e) HEADINGS 44
(f) NOTICES 44
(g) GOVERNING LAW; VENUE 46
(h) AMENDMENTS AND WAIVERS 46
(i) SEVERABILITY 46
(j) EXPENSES 46
(k) CONSTRUCTION 46
(l) INCORPORATION OF DISCLOSURE SCHEDULE 46
(m) WAIVER OF JURY TRIAL 47
(n) PREVAILING PARTIES 47
(o) EQUITABLE REMEDIES 47
</TABLE>
EXHIBIT A -- Escrow Agreement
Schedule I -- Shares
Schedule II -- Accounting Policies and Procedures
Disclosure Schedule
-iii-
<PAGE> 5
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement is made and entered into as of
June 30, 1998, by and between VERTIFLEX COMPANY, an Illinois corporation (the
"PURCHASER"), and WINSLOEW FURNITURE, INC., a Florida corporation (the
"SELLER"). The Purchaser and the Seller are each referred to in this Agreement
as a "PARTY" and collectively as the "PARTIES".
The Seller directly owns all of the outstanding capital stock of
Continental Engineering Group, Inc., a California corporation (the "COMPANY").
This Agreement contemplates a transaction in which the Purchaser will
purchase from the Seller, and the Seller will sell to the Purchaser, all of the
outstanding capital stock of the Company.
NOW, THEREFORE, in consideration of the premises and the mutual
promises herein made, and in consideration of the representations, warranties
and covenants herein contained, the Parties agree as follows.
1. DEFINITIONS.
"ACCOUNTING FIRM" has the meaning set forth in section 2(g)(ii) below.
"ACCOUNTS RECEIVABLE" means all accounts, instruments, drafts,
acceptances and other forms of receivables relating to the Company's business,
and all rights earned under the Company's contracts to sell goods or render
services.
"ACQUIRED BUSINESS" has the meaning set forth in section 5(g)(ii)
below.
"ACTUAL AMOUNT" has the meaning set forth in section 2(g)(ii)(C) below.
"AFFILIATE" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act.
"AFFILIATED GROUP" means any affiliated group within the meaning of
section 1504 of the Code.
"AUTHORITY" means any federal, state, local or foreign governmental
regulatory agency, commission, bureau, authority, court or arbitration tribunal.
"AGREEMENT" means this Stock Purchase Agreement together with all
exhibits and schedules contemplated hereby.
"ASSIGNED RECEIVABLES" has the meaning set forth in section 10(c)(ii)
below.
-1-
<PAGE> 6
"BASIS" means any past or present fact, situation, circumstance,
status, condition, activity, practice, plan, occurrence, event, incident,
action, failure to act, or transaction that forms or could form the basis for
any specified consequences.
"BASKET" has the meaning set forth in section 7(b)(i) below.
"CERCLA" has the meaning set forth in section 3B(s)(iV) below.
"CHANGE OF CONTROL" has the meaning set forth in section 5(g)(i) below.
"CHARTER" and "BYLAWS," respectively, mean with respect to any
corporation, those instruments that, among other things, (a) define its
existence, as filed or recorded with the applicable Authority, including,
without limitation, such corporation's Articles or Certificate of Incorporation,
and (b) otherwise govern its internal affairs, in each case as amended,
supplemented, or restated.
"CLOSING" has the meaning set forth in section 2(e) below.
"CLOSING BALANCE SHEET" has the meaning set forth in section 2(g)(i)
below.
"CLOSING DATE" has the meaning set forth in section 2(e) below.
"CODE" means the Internal Revenue Code of 1986, as amended, and the
regulations promulgated thereunder.
"COMMON STOCK" means the Common Stock of the Company, no par value.
"COMPANY" has the meaning set forth in the preface above.
"COMPANY PERMITS" means all licenses, franchises, permits, orders,
approvals, registrations, authorizations, qualification filings with all
Authorities required in connection with the operation of the business of the
Company.
"COMPANY FINANCIAL STATEMENTS" has the meaning set forth in section
3B(f)(i) below.
"COMPANY INTERIM FINANCIAL STATEMENTS" has the meaning set forth in
section 3B(f)(i) below.
"COMPETING BUSINESS" has the meaning set forth in section 5(g)(ii)
below.
"CONFIDENTIALITY AGREEMENT" has the meaning set forth in section 11(b)
below.
"CONTROLLED GROUP OF CORPORATIONS" has the meaning set forth in section
1563 of the Code.
"CPR" has the meaning set forth in section 8(b)(ii) below.
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<PAGE> 7
"DISPUTE" has the meaning set forth in section 8(a) below.
"EMPLOYEE BENEFIT PLAN" has the meaning set forth in section 3B(q)
below.
"EMPLOYEE PENSION BENEFIT PLAN" has the meaning set forth in ERISA
section 3(2).
"EMPLOYEE WELFARE BENEFIT PLAN" has the meaning set forth in ERISA
section 3(1).
"ENVIRONMENTAL, HEALTH AND SAFETY REQUIREMENTS" means all federal,
state, local and foreign statutes, regulations, ordinances and judicial and
administrative orders and determinations to which the Company is a party
concerning workplace health and safety and pollution or protection of the
environment, including, without limitation, all those relating to the presence,
use, production, generation, handling, transportation, treatment, storage,
disposal, distribution, labeling, testing, processing, discharge, release,
threatened release, control or cleanup of any Materials of Environmental
Concern.
"ENVIRONMENTAL CLAIM" means any written notice or claim by any person
or any Authority alleging potential liability (including, without limitation,
potential liability for investigatory costs, cleanup costs, governmental
response costs, natural resources damages, property damages, personal injuries
or penalties) arising out of, based on or resulting from (i) the presence,
release or threatened release into the environment, of any Material of
Environmental Concern at any location, whether or not owned, leased or operated
by the Company, or (ii) any violation, or alleged violation, of any
Environmental, Health and Safety Requirement.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA AFFILIATE" means any Person that would be aggregated with the
Company under section 414(b), (c), (m) or (o) of the Code.
"ESCROW ACCOUNT" has the meaning set forth in section 2(c)(ii) below.
"ESCROW AGREEMENT" means the Escrow Agreement, in the form of EXHIBIT A
hereto, to be entered into on the Closing Date by the Purchaser, the Seller and
the Escrow Agent.
"ESCROW AGENT" has the meaning set forth in section 2(c)(ii) below.
"ESCROW FUNDS" has the meaning set forth in section 2(c)(ii) below.
"FINAL CLOSING BALANCE SHEET DETERMINATION DATE" has the meaning set
forth in section 2(g)(ii) below.
"FUNDED INDEBTEDNESS" means the aggregate amount (including the current
portions thereof) of all (i) indebtedness for money borrowed from others and
purchase money indebtedness (other than
-3-
<PAGE> 8
accounts payable in the ordinary course) of the Company, (ii) indebtedness of
the type described in clause (i) above guaranteed, directly or indirectly, in
any manner by the Company, or in effect guaranteed, directly or indirectly, in
any manner by the Company, through an agreement, contingent or otherwise, to
supply funds to, or in any other manner invest in, the debtor, or to purchase
indebtedness, or to purchase and pay for property if not delivered or pay for
services if not performed, primarily for the purpose of enabling the debtor to
make payment of the indebtedness or to assure the owners of the indebtedness
against loss, but excluding endorsements of checks and other instruments in the
ordinary course, (iii) indebtedness of the type described in clause (i) above
secured by any Lien upon property owned by the Company, even though the Company
has not in any manner become liable for the payment of such indebtedness, and
interest expense accrued but unpaid, and all prepayment premiums, on or relating
to any of such indebtednesection
"GAAP" means United States generally accepted accounting principles as
in effect from time to time.
"HIGH AMOUNT" has the meaning set forth in section 2(g)(ii)(B) below.
"INCOME TAX" means any federal, state, local or foreign Tax based on,
measured by or with respect to income, net worth or capital, including any
interest, penalty or addition thereto.
"INDEMNIFIED PARTY" has the meaning set forth in section 7(b)(v) below.
"INDEMNIFYING PARTY" has the meaning set forth in section 7(b)(v)
below.
"INITIAL PAYMENT" has the meaning set forth in section 2(c)(i) below.
"INTELLECTUAL PROPERTY" has the meaning set forth in section 3B(t)
below.
"INTELLECTUAL PROPERTY LICENSES" has the meaning set forth in section
3B(t) below.
"IRS" means the Internal Revenue Service.
"INVENTORY" means all of the Company's inventories, including without
limitation, raw materials, work in progress, finished goods, spare parts,
supplies, packaging goods and other like items.
"KNOWLEDGE" (and the related phrase "TO THE KNOWLEDGE OF"), (a) when
applied to the Seller means the actual knowledge of Bobby Tesney, Vincent A.
Tortorici, Jr., Jerry Camp and Rick Lee, after reasonable investigations and
inquiries of the officers and responsible employees of the Company (including,
without limitation, Zoeann Gamboa, Randy Gastelum, Terry King, John Latta and
David Capodiece), and (b) when applied to the Purchaser means the actual
knowledge after reasonable investigation of the executive officers of the
Purchaser.
-4-
<PAGE> 9
"LABOR DISPUTE" has the meaning set forth in section 7(b)(iii) below.
"LIEN" means any lien, charge, claim, restriction, encumbrance,
security interest or pledge of any kind whatsoever.
"LISTED INTELLECTUAL PROPERTY" has the meaning set forth in section
3B(t) below.
"LOSS" or "LOSSES" means all damages, dues, penalties, fines,
reasonable amounts paid in settlement, Taxes, costs, obligations, losses,
expenses, and fees (including court costs and reasonable attorneys' fees and
expenses), including, as the context may require, any of the foregoing which
arise out of or in connection with any actions, suits, proceedings, hearings,
investigations, charges, complaints, claims, demands, injunctions, judgments,
orders, decrees or rulings.
"LOW AMOUNT" has the meaning set forth in section 2(g)(ii)(A) below.
"MATERIAL ADVERSE CHANGE" or "MATERIAL ADVERSE EFFECT" means any change
or effect that is materially adverse to the business, assets, financial
condition or results of operations of the Company.
"MATERIAL CONTRACT" means any contract or agreement whether written or
oral (including any and all amendments thereto) to which the Company is a party,
or by which the Company or any of its assets is bound, and which (a) relates to
Funded Indebtedness or is a letter of credit, pledge, bond or similar
arrangement running to the account of or for the benefit of the Company, (b)
relates to the purchase, maintenance or acquisition, or sale or furnishing of
materials, supplies, merchandise, machinery, equipment, parts or any other
property or services (excluding any such contract made in the Ordinary Course of
Business and which is expected to be fully performed within 30 days of the date
hereof or which involves revenues or expenditures of less than $25,000), (c) is
a collective bargaining agreement, (d) obligates the Company not to compete with
any business, or to conduct any business with only certain parties, or which
otherwise restrains or prevents the Company from carrying on any lawful business
or which restricts the right of the Company to use or disclose any information
in its possession, (e) relates to (i) employment, compensation, severance, or
consulting between the Company and any of its officers or directors, or (ii)
other employees or consultants who are entitled to compensation thereunder in
excess of $25,000 per annum, (f) is a lease or sublease of real property, or a
lease, sublease or other title retention agreement or conditional sales
agreement for any machinery, equipment, vehicle or other tangible personal
property (whether the Company is a lessor or lessee), (g) is a contract for
capital expenditures or the acquisition or construction of fixed assets for or
in respect of any real property involving payments in excess of $25,000, (h) is
a contract granting any Person a Lien on any of the assets of the Company, in
whole or in part (other than Permitted Liens), (i) is a contract by which the
Company retains any manufacturer's representatives, broker or other sales agent,
distributor or representative, or advertising or marketing entity or through
which the Company is appointed or authorized as a sales agent, distributor or
representative, (j) is a contract under which the Company has granted or
received a license or sublicense or under which the Company is obligated to pay
or has the right to receive a royalty,
-5-
<PAGE> 10
license fee or similar payment (other than software licenses for purchased
software), (k) is a joint venture or partnership contract or a limited liability
company operating agreement, (l) is (i) an agreement for the storage,
transportation, treatment and disposal of any materials subject to regulation
under any Environmental Health and Safety Requirements, or (ii) a contract for
storage, transportation or similar services with carriers or warehousemen
(excluding any such contract entered into in the Ordinary Course of Business and
involving annual expenditures not exceeding $50,000), (m) is an agreement or
arrangement with the Seller or any Affiliate of the Seller, or (n) other than
the insurance policies and binders set forth in section 3B(k) of the Disclosure
Schedule, is otherwise material to the assets, business, operations or financial
condition of the Company.
"MATERIALS OF ENVIRONMENTAL CONCERN" means chemicals, toxic chemicals,
pollutants, contaminants, wastes, toxic substances, hazardous substances,
petroleum and petroleum products, pesticides, asbestos, polychlorinated
biphenyls, in each case with respect to which liability or standards of conduct
are imposed pursuant to any Environmental, Health and Safety Requirements.
"MEDIATION REQUEST" has the meaning set forth in section 8(b)(ii)
below.
"MOST RECENT BALANCE SHEET" means the balance sheet contained within
the Most Recent Financial Statements.
"MULTIEMPLOYER PLAN" has the meaning set forth in ERISA section 3(37).
"NET WORKING CAPITAL" means the total current assets of the Company
(which current assets shall exclude the current portion of deferred tax assets,
cash (except the Company's cash in its payroll account and its bank account in
England and the Company's petty cash), and prepaid insurance) and (b) the total
current liabilities of the Company (which current liabilities shall exclude the
current portion of any Funded Indebtedness, income taxes and accrued insurance),
in each case determined as of the close of business on June 26, 1998 and by
reference to the amounts set forth on the face (but not the notes) of the
Closing Balance Sheet..
"90 AND OVER ACCOUNTS RECEIVABLE" has the meaning set forth in section
10(c) below.
"NON-COMPETITION AREA" has the meaning set forth in section 5(g)(i)
below.
"NOTICE OF DISAGREEMENT WITH CLOSING BALANCE SHEET" has the meaning set
forth in section 2(g)(ii) below.
"OPINION OF SELLER'S COUNSEL" means the opinion of Gordon & Einstein,
Ltd., counsel to the Seller, dated as of the Closing Date, addressed to the
Purchaser, in form and substance reasonably satisfactory to the Purchaser and
its lender.
"ORDINARY COURSE OF BUSINESS" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity and
frequency).
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<PAGE> 11
"OTHER TAXES" means all Taxes other than Income Taxes.
"PARTY" has the meaning set forth in the preface above.
"PERMITTED INVESTMENT" has the meaning set forth in section 5(g)(ii)
below.
"PERMITTED LIENS" means (a) Liens set forth on the Disclosure Schedule
and which are identified as Permitted Liens, (b) Liens for Taxes not yet due and
payable and as to which appropriate reserves have been reflected on the Company
Interim Financial Statements, (c) workers or unemployment compensation Liens
arising in the Ordinary Course of Business and as to which appropriate reserves
have been reflected on the Most Recent Balance Sheet or adequate provision has
been made therefor by the Seller, and (d) mechanic's, materialman's, supplier's,
vendor's or landlord's Liens arising in the ordinary course of business securing
amounts which are not delinquent or being contested.
"PERSON" means any natural person, corporation, limited liability
company, unincorporated organization, partnership, association, joint-stock
company, joint venture, trust or government, or any agency or political
subdivision of any government.
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"PRE-CLOSING TAX PERIOD" means any tax period (including partial
periods) that ends on or prior to the Closing Date.
"PROPORTIONATE SHARE" has the meaning set forth in section 10(a)(i)
below.
"PURCHASED BUSINESS" has the meaning set forth in section 5(g)(i)
below.
"PURCHASER" has the meaning set forth in the preface above.
"PURCHASE PRICE" has the meaning set forth in section 2(b) below.
"PURCHASE PRICE ADJUSTMENT" has the meaning set forth in section
2(g)(iii) below.
"REAL PROPERTY" has the meaning set forth in section 3B(j) below.
"REPLACEMENT" has the meaning set forth in section 8(i) below.
"RETURN" means any return, declaration (including any declaration of
estimated Taxes), report, claim for refund, or information return or statement
relating to Taxes with respect to any income, assets or properties of the
Company, including any schedule or attachment thereto.
-7-
<PAGE> 12
"SECURITIES ACT" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"SELLER" has the meaning set forth in the preface above.
"SHARES" has the meaning set forth in section 2(a) below.
"SUBSIDIARY" means any corporation with respect to which a specified
Person (or a Subsidiary thereof) owns, directly or indirectly, a majority of the
common stock or has the power to vote or direct the voting of sufficient
securities to elect a majority of the directors.
"TAX ASSESSMENT" has the meaning set forth in section 5(d) below.
"TAX NOTICE" has the meaning set forth in section 5(d) below.
"TAXES" means all federal, state, local and foreign taxes (including,
without limitation, income or profits taxes, premium taxes, excise taxes, sales
taxes, use taxes, gross receipts taxes, franchise taxes, ad valorem taxes,
severance taxes, capital levy taxes, transfer taxes, value added taxes,
employment and payroll-related taxes, property taxes, real estate taxes,
business license taxes, occupation taxes, import duties and other governmental
charges and assessments), of any kind whatsoever, including interest, additions
to tax and penalties with respect thereto.
"THIRD PARTY CLAIM" has the meaning set forth in section 7(b)(v) below.
"UNRESTRICTED REPRESENTATIONS AND WARRANTIES" has the meaning set forth
in section 7(a) below.
2. PURCHASE AND SALE OF COMPANY SHARES.
(a) BASIC TRANSACTION. On and subject to the terms and conditions of
this Agreement, the Purchaser agrees to purchase from the Seller, and the Seller
agrees to sell to the Purchaser, free and clear of any and all restrictions on
transfer, Liens, claims and demands, all of the shares of Common Stock owned by
the Seller (the "SHARES") as set forth in SCHEDULE I hereto, for the
consideration specified below in this section 2.
(b) PURCHASE PRICE. The aggregate purchase price to be paid by the
Purchaser for all of the Shares (the "PURCHASE PRICE") shall be (i) $7,875,000,
plus or MINUS (ii) any Purchase Price Adjustment made pursuant to section 2(g)
below.
(c) PAYMENT OF PURCHASE PRICE. On the Closing Date, the Purchaser shall
make payment of the Purchase Price as follows:
(i) To the Seller, by wire transfer of immediately available
funds, the sum of $6,874,250 (the "INITIAL PAYMENT"), to the account
designated in writing by the Seller on the
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Closing Date. The Seller may direct the Purchaser to deliver a portion
of the Initial Payment to certain third parties for fees, expenses,
costs or other obligations arising out of or in connection with the
transactions contemplated in this Agreement.
(ii) To American National Bank and Trust Company of Chicago,
as escrow agent (the "ESCROW AGENT") pursuant to the terms of the
Escrow Agreement, the sum of $1,000,000 (the "ESCROW FUNDS"), together
with $750.00, representing the Seller's share of the first 12 months'
escrow fees, for a total payment to the Escrow Agent of $1,000,750. As
provided in the Escrow Agreement, the Escrow Funds shall be held in an
account (the "ESCROW ACCOUNT") to provide indemnification to the
Purchaser as provided in section 7(b) hereof.
(d) SATISFACTION OF FUNDED INDEBTEDNESS. On the Closing Date, the
Seller, at its expense, shall take such steps as shall be necessary such that,
concurrently with the Closing, there will be no further obligations of the
Company, monetary or otherwise, with respect to any Funded Indebtedness
outstanding immediately prior to the Closing. The Seller will make arrangements
reasonably satisfactory to the Purchaser for all holders of Funded Indebtedness
outstanding immediately prior to the Closing to provide to the Purchaser
recordable form mortgage and lien releases, canceled notes, trademark and patent
assignments and other documents reasonably requested by the Purchaser
simultaneously with or promptly following the Closing. If, after the Closing,
the Purchaser discovers that the Seller failed to eliminate, concurrently with
the Closing, all obligations of the Company, monetary or otherwise, with respect
to any Funded Indebtedness outstanding immediately prior to the Closing, the
Seller, at its expense, will take those actions reasonably requested by the
Purchaser to remove such obligations.
(e) THE CLOSING. The closing of the transactions contemplated by this
Agreement (the "CLOSING") shall take place at the offices of Schwartz & Freeman,
401 North Michigan, Suite 1900, Chicago, Illinois 60611 (or at such other
location as the Parties may agree), commencing at 10:00 a.m. local time on June
30, 1998 or such other date as the Seller and the Purchaser may mutually
determine (the "CLOSING DATE"). The Closing when completed shall be deemed to
have been effective at 11:59 p.m. on June 26, 1998.
(f) DELIVERIES AT THE CLOSING. At the Closing, (i) the Seller will
deliver to the Purchaser the various certificates and documents referred to in
section 6(a) below, (ii) the Purchaser will deliver to the Seller the various
certificates and documents referred to in section 6(b) below, (iii) the Seller
will deliver to the Purchaser stock certificates representing all of the Shares
being purchased pursuant to section 2(a) above, duly endorsed in blank or
accompanied by duly executed assignment documents, sufficient in form and
substance to convey to the Purchaser good title to such Shares, free and clear
of all restrictions on transfer, Liens, claims and demands and (iv) the
Purchaser will deliver to the Seller the Initial Payment.
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<PAGE> 14
(g) POST-CLOSING PURCHASE PRICE ADJUSTMENT.
(i) At the Closing, the Seller shall prepare and deliver to
the Purchaser (A) a balance sheet of the Company as of June 26, 1998
(the "CLOSING BALANCE SHEET") and (B) the Seller's calculation of the
Net Working Capital of the Company as of such time. The Seller shall
deliver to Purchaser a draft of the Closing Balance Sheet and its
calculation of Net Working Capital two days prior to the Closing Date.
Except as provided in SCHEDULE II hereto, the Closing Balance Sheet
(including, without limitation, such calculation of Net Working
Capital) shall be prepared (A) in accordance with GAAP applied in a
manner consistent with the same accounting principles and methodologies
used in preparing the Company Financial Statements and (B) in
accordance with the principles and procedures set forth on SCHEDULE II
hereto.
(ii) During the 45 days immediately following receipt of the
Closing Balance Sheet by the Purchaser, the Purchaser and its
accountants shall be entitled to review the Closing Balance Sheet and
the calculation of Net Working Capital and any working papers, trial
balances and similar materials relating thereto prepared by the Seller
or its accountants, and the Seller shall provide the Purchaser and its
accountants with timely access, during the Company's normal business
hours, to the Company's personnel, properties, books and records and to
the Seller's personnel, properties, books and records to the extent
related to the preparation of the Closing Balance Sheet's calculation
of Net Working Capital. The Seller shall use reasonable commercial
efforts to cause its accountants to make available to the Purchaser any
working papers, trial balances and similar materials prepared by such
accountants in connection with the preparation of the Closing Balance
Sheet's calculation of Net Working Capital; PROVIDED, HOWEVER, that the
Purchaser acknowledges and agrees that such accountants may require the
Purchaser to execute customary undertakings in connection with such
accesection The Closing Balance Sheet's calculation of Net Working
Capital shall become final and binding upon the Parties on the 46th day
following delivery thereof unless the Purchaser gives written notice to
the Seller of its disagreement with the Closing Balance Sheet's
calculation of Net Working Capital (a "NOTICE OF DISAGREEMENT WITH
CLOSING BALANCE SHEET") prior to such date. Any Notice of Disagreement
With Closing Balance Sheet shall specify in reasonable detail the
nature of any disagreement so asserted. If a timely Notice of
Disagreement With Closing Balance Sheet is received by the Seller with
respect to the Closing Balance Sheet's calculation of Net Working
Capital , then the Closing Balance Sheet's calculation of Net Working
Capital (as revised in accordance with clause (A) or (B) below), shall
become final and binding as to the calculation of Net Working Capital
upon the Parties on the earlier of (A) the date the Purchaser and the
Seller resolve in writing any differences they have with respect to any
matter specified in a Notice of Disagreement With Closing Balance
Sheet, or (B) the date any matters in dispute are finally resolved in
writing by the Accounting Firm in the manner described below (the date
on which the Closing Balance Sheet's calculation of Net Working Capital
becomes final and binding being hereinafter referred to as the "FINAL
CLOSING BALANCE SHEET DETERMINATION DATE"). During the 30 days
immediately following the delivery of any Notice of
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<PAGE> 15
Disagreement With Closing Balance Sheet, the Purchaser and the Seller
shall seek in good faith to resolve in writing any differences which
they may have with respect to any matter specified in such Notice of
Disagreement With Closing Balance Sheet. During such period, the
Purchaser and its accountants shall each have access to the Seller's
and the Company's working papers, trial balances and similar materials
(including the working papers, trial balances and similar materials of
their respective accountants) prepared in connection with the
preparation of the Closing Balance Sheet and the calculation of Net
Working Capital. At the end of such 30 day period, the Seller and the
Purchaser shall submit to an Accounting Firm for review and resolution
any and all matters which remain in dispute and which were included in
any Notice of Disagreement With Closing Balance Sheet (it being
understood that the Accounting Firm shall act as an arbitrator to
determine, based solely on presentations by the Purchaser and the
Seller (and not by independent review), only those matters which remain
in dispute), and the Accounting Firm shall reach a final, binding
resolution of all matters which remain in dispute, which final
resolution shall be (A) in writing, (B) furnished to the Purchaser and
the Seller as soon as practicable after the items in dispute have been
referred to the Accounting Firm, (C) made in accordance with this
Agreement, and (D) conclusive and binding upon the Parties and not
subject to collateral attack for any reason. The Closing Balance Sheet,
with any adjustments necessary to reflect the Accounting Firm's
resolution of the matters in dispute, shall become final and binding as
to the calculation of Net Working Capital on the Parties on the date
the Accounting Firm delivers its final resolution to the Parties, which
shall be no later than 90 days after the Closing Date. The Accounting
Firm shall be mutually selected by the Purchaser and the Seller, or, if
the Purchaser and the Seller cannot so agree within the 30-day period
referred to above, by lot from among the independent "Big 6" public
accounting firms (after excluding the Seller's independent public
accountants and the Purchaser's independent public accountants) willing
to act (the "ACCOUNTING FIRM"). Each Party shall pay its own costs and
expenses incurred in connection with such arbitration, provided that
the fees and expenses of the Accounting Firm shall be borne as follows:
(A) if the Accounting Firm resolves all of
the remaining objections in favor of the Purchaser (the amount
of the Net Working Capital so determined is referred to herein
as the "LOW AMOUNT"), the Seller will be responsible for all
of the fees and expenses of the Accounting Firm;
(B) if the Accounting Firm resolves all of
the remaining objections in favor of the Seller (the amount of
the Net Working Capital so determined is referred to herein as
the "HIGH AMOUNT"), the Purchaser will be responsible for all
of the fees and expenses of the Accounting Firm; and
(C) if the Accounting Firm resolves some of
the remaining objections in favor of the Purchaser and the
rest of the remaining objections in favor of the Seller (the
amount of the Net Working Capital so determined is referred to
herein as "ACTUAL AMOUNT"), the Seller will be responsible for
that fraction of the fees
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<PAGE> 16
and expenses of the Accounting Firm equal to (i) the
difference between the High Amount and the Actual Amount over
(ii) the difference between the High Amount and the Low
Amount, and the Purchaser will be responsible for the
remainder of the fees and expenses.
(iii) Upon the final determination of the Closing Balance
Sheet in accordance with this section 2(g), the following amounts will
be payable:
(A) if Net Working Capital is greater than
$2,800,000.00, the Purchaser shall pay to
the Seller the amount by which the amount of
the Net Working Capital exceeds such amount;
and
(B) if Net Working Capital is less than
$2,800,000.00, the Seller shall pay to the
Purchaser the amount by which the amount of
the Net Working Capital is less than such
amount.
Any required adjustment to the Purchase Price pursuant to this section
2(g) shall be referred to as the "PURCHASE PRICE ADJUSTMENT".
(iv) Within 48 days after the receipt by the Purchaser of the
Closing Balance Sheet in accordance with section 2(g)(i) above, the
Seller, if section 2(g)(iii)(B) is applicable, shall make the payment
required by section 2(g)(iii)(B) above with respect to any undisputed
amounts constituting a portion of the Purchase Price Adjustment. If
section 2(g)(iii)(A) is applicable, the Purchaser shall make payments
to Seller of the Purchase Price Adjustment out of 60% of its collection
of accounts receivable until the Purchase Price Adjustment is paid in
full. With respect to any items that are the subject of a Notice of
Disagreement With Closing Balance Sheet, payment shall be made within
three business days after the Final Closing Balance Sheet Determination
Date.
3A. REPRESENTATIONS AND WARRANTIES OF THE SELLER AS TO SELLER MATTERS.
The Seller represents and warrants to the Purchaser as follows:
(a) ORGANIZATION. The Seller is a corporation duly organized, validly
existing, and in good standing under the laws of Florida.
(b) AUTHORIZATION OF TRANSACTION. The Seller has full corporate power
and authority to execute and deliver this Agreement and the Escrow Agreement and
to perform its obligations hereunder and thereunder. This Agreement constitutes
and the Escrow Agreement, when executed and delivered, will constitute the valid
and legally binding obligations of the Seller, enforceable in accordance with
their respective terms.
(c) NONCONTRAVENTION. Neither the execution and the delivery of this
Agreement or the Escrow Agreement, nor the consummation of the transactions
contemplated hereby or thereby, will
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<PAGE> 17
(i) violate any statute, regulation, rule, injunction, judgment, order, decree
or ruling of any Authority to which the Seller is subject or any provision of
its charter or bylaws or other organizational document, as the case may be, or
(ii) except as set forth under section 3A(c) of the Disclosure Schedule conflict
with, result in a breach of, constitute a default under, result in the
acceleration of, create in any party the right to accelerate, terminate, modify
or cancel, or require any notice under any agreement, contract, lease, license
or instrument to which the Seller is a party or by which it is bound or to which
any of its assets is subject. The Seller is not required to give any notice to,
make any filing with, or obtain any authorization, consent or approval of any
Authority in order for it to consummate the transactions contemplated by this
Agreement.
(d) OWNERSHIP OF COMMON STOCK. The Seller holds of record and owns
beneficially the number of Shares set forth on SCHEDULE I attached hereto and
has good title to such Shares, free and clear of any restrictions on transfer,
Liens, claims, and demands. The Seller is not a party to any option, warrant,
purchase right, or other contract or commitment that could require the Seller to
sell, transfer, or otherwise dispose of any capital stock of the Company (other
than this Agreement). The Seller is not a party to any voting trusts, proxies,
or other agreements or understandings with respect to the voting of any capital
stock of the Company. The Shares represent all of the issued and outstanding
capital stock of the Company.
(e) BROKERS FEES. The Seller does not have any liability or obligation
to pay any fees or commissions to any broker, finder or agent with respect to
the transactions contemplated by this Agreement for which the Company or the
Purchaser could become liable or obligated. Without limitation as to the
foregoing, the Seller shall pay all fees and expenses of Mann, Armistead &
Epperson, Ltd. in connection with the transactions contemplated hereby.
3B. REPRESENTATIONS AND WARRANTIES OF THE SELLER WITH RESPECT TO THE
COMPANY. The Seller represents and warrants to the Purchaser as follows:
(a) ORGANIZATION AND STANDING. The Company is a corporation duly
organized, validly existing and in good standing under the laws of its state of
incorporation.
(b) AUTHORITY TO DO BUSINESS The Company has all requisite corporate
power and authority to own, lease and operate its properties and to conduct its
business in the manner where now conducted and is duly licensed or qualified to
do business as a foreign corporation and is in good standing in each
jurisdiction in which the nature of its properties and assets or the conduct of
its business requires it to be so licensed or qualified, except where the
failure to be in good standing or to be duly licensed or qualified to do
business would not have a Material Adverse Effect. section 3B(b) of the
Disclosure Schedule sets forth a list of each jurisdiction in which the Company
is licensed or qualified to do business as a foreign corporation. The Company is
not required to be licensed or qualified to transact business as a foreign
corporation in the District of Columbia or England.
(c) CHARTER AND BYLAWS; CORPORATE RECORDS. Copies of the Charter and
bylaws of the Company and all amendments thereto as in effect on the date hereof
have been delivered to the
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<PAGE> 18
Purchaser and are complete and correct as of the date hereof. A copy of the
corporate minutes and stock records of the Company have been delivered to the
Purchaser. With respect to all periods from and after March 24, 1995, such
corporate minutes contain a complete record of the meetings of the sole
shareholder and the board of directors (and any committees thereof) of the
Company. With respect to all periods prior to March 24, 1995, to the Knowledge
of the Seller such corporate minutes contain a complete record of the meetings
of the sole shareholder and the board of directors (and any committees thereof)
of the Company.
(d) NO SUBSIDIARIES. The Company has no direct or indirect equity
interest by stock ownership or otherwise in any other corporation, partnership,
joint venture, firm, association or business enterprise.
(e) CAPITALIZATION. The Company's authorized capital stock consists
solely of 1,000,000 shares of Common Stock, of which 1,000 shares are issued and
outstanding. All of the issued and outstanding shares of capital stock of the
Company (i) are duly authorized, validly issued, fully paid and nonassessable,
(ii) are held beneficially and of record by the Seller, and (iii) were not
issued in violation of the preemptive rights of any person or any agreement or
law by which the Company at the time of issuance was bound. No shares of Common
Stock are held by the Company in its treasury. There are no outstanding or
authorized subscriptions, warrants, options or, except for this Agreement, other
agreements or rights of any kind to purchase or otherwise receive or be issued,
or securities or obligations of any kind convertible into, any shares of capital
stock or any other security of the Company; there is no outstanding contract or
other agreement of the Seller, the Company or any other person to purchase,
redeem or otherwise acquire any outstanding shares of the capital stock of the
Company, or securities or obligations of any kind convertible into any shares of
the capital stock of the Company; there are no dividends which have accrued or
been declared but are unpaid on the capital stock of the Company, and there are
no outstanding or authorized stock appreciation, phantom stock, profit sharing,
stock plans or similar rights with respect to the Company.
(f) FINANCIAL STATEMENTS.
(i) The Seller has delivered to the Purchaser copies of the
Company's unaudited balance sheet at March 27, 1998 (the "MOST RECENT
BALANCE SHEET") and the related statements of income, stockholders'
equity and cash flow for the three fiscal months then ended (the
"COMPANY INTERIM FINANCIAL STATEMENTS"), and for the fiscal years ended
December 31, 1995, December 31, 1996 and December 31, 1997, which
financial statements together with the Company Interim Financial
Statements are collectively referred to herein as the "COMPANY
FINANCIAL STATEMENTS". The Company Financial Statements (i) have been
prepared from the books and records of the Company, (ii) present fairly
the financial condition of the Company and its results of operations as
at and for the respective periods then ended, and (iii) have been
prepared in accordance with GAAP applied consistently throughout the
periods indicated; PROVIDED, HOWEVER, that the Interim Company Interim
Financial Statements are subject to normal, non-material year-end
adjustments and lack footnotes and other presentation items.
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<PAGE> 19
(ii) The Seller has delivered to the Purchaser copies of (i)
the unaudited consolidated balance sheet and related consolidated
statements of income, stockholders' equity and cash flows of the Seller
and its subsidiaries for the three fiscal months ended March 27, 1998,
and (ii) the audited consolidated balance sheets of the Seller and its
subsidiaries as of December 31, 1997 and 1996, and the related
consolidated statements of income, stockholders' equity and cash flows
for each of the three years in the period ended December 31, 1997, with
the report thereon of Ernst & Young LLP.
(g) ABSENCE OF CERTAIN DEVELOPMENTS. Except as otherwise contemplated
by this Agreement, since the date of the Most Recent Balance Sheet, the Company
has conducted its business only in the Ordinary Course of Business and there has
not been any Material Adverse Change with respect to the Company. Without
limiting the generality of the foregoing, since that date, the Company has not,
except as set forth in section 3B(g) of the Disclosure Schedule:
(i) borrowed any amount or incurred any liabilities, except
liabilities incurred in the Ordinary Course of Business (none of which
results from, arises out of, relates to, is in the nature of or was
caused by any breach of contract, breach of warranty, tort,
infringement or violation of law);
(ii) mortgaged, pledged or subjected to any Lien any of its
assets, except for Permitted Liens, or entered into any conditional
sale or other title retention agreement with respect to any property or
asset;
(iii) sold, assigned or transferred any of its tangible
assets, except for (A) sales of Inventory in the Ordinary Course of
Business and (B) sales of immaterial assets (having an aggregate value
of not more than $10,000) not used nor useful in the business of the
Company;
(iv) sold, assigned, transferred or granted any interest
(other than Liens in respect of Funded Indebtedness) in any patents,
trademarks or trade names or any material copyrights, trade secrets or
other intangible assets;
(v) made any capital expenditures or commitments therefor in
excess of $25,000 individually or $100,000 in the aggregate (all
capital expenditures being in the Ordinary Course of Business), except
for the purchase of the packaging line which, except for amounts
included in accounts payable on the Closing Balance Sheet, has been
paid for in full
(vi) entered into any agreement, contract, lease or license
outside the Ordinary Course of Business or involving in excess of
$25,000;
(vii) suffered any theft, damage, destruction or casualty loss
(in excess of $25,000 in the aggregate) to its property, whether or not
covered by insurance;
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<PAGE> 20
(viii) entered into any agreement with any labor union or
association representing any employee, or made any wage or salary
increase or bonus, or increase in any other direct or indirect
compensation, for or to any of its officers, directors or employees;
(ix) made any change in its accounting methods, principles or
practices;
(x) made any increase in or established any bonus, insurance,
deferred compensation, pension, retirement, profit-sharing, stock
option (including the granting of stock options, stock appreciation
rights, performance awards or restricted stock awards or the amendment
of any existing stock options, stock appreciation rights, performance
awards or restricted stock awards), stock purchase or other employee
benefit plan or agreement or arrangement;
(xi) reclassified, combined, split, subdivided or redeemed or
otherwise repurchased any capital stock of the Company, or created,
authorized, issued, sold, delivered, pledged or encumbered any
additional capital stock (whether authorized but unissued or held in
treasury) or other securities equivalent to or exchangeable for capital
stock, or granted or otherwise issued any options, warrants or other
rights with respect thereto;
(xii) acquired or agreed to acquire by merging or
consolidating with, or by purchasing any portion of the capital stock,
partnership interests or assets of, or by any other manner, any
business or any corporation, partnership, limited liability company,
association or other business organization or division thereof;
(xiii) made any loan or advance (whether in cash or other
property), or made any investment in or capital contribution to, or
extended any credit to, any Person, except (i) short-term investments
pursuant to customary cash management policies, and (ii) advances made
in the Ordinary Course of Business to employees;
(xiv) cancelled, compromised, waived or released any right or
claim (or series of related rights and claims) outside the Ordinary
Course of Business or involving more than $25,000 in the aggregate;
(xv) made or pledged to make any charitable contribution;
(xvi) (A) except in the Ordinary Course of Business liquidated
Inventory or accepted product returns, (B) accelerated receivables or
(C) delayed payables;
(xvii) declared or set aside or paid any dividend in kind or
made any distribution in kind with respect to its capital stock or
redeemed, purchased or otherwise acquired any of its capital stock;
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<PAGE> 21
(xviii) incurred any obligation to pay any management fee or
other fees or reimbursements to Affiliates of the Company, except for
obligations which will be paid prior to Closing; or
(xix) committed to do any of the foregoing.
(h) UNDISCLOSED LIABILITIES. The Company does not have any liability
(whether asserted or unasserted, whether absolute or contingent, whether accrued
or unaccrued, whether liquidated or unliquidated, and whether due or to become
due, including any liability for Taxes) (and, to the Knowledge of the Seller,
there is no Basis for any present or future action, suit, proceeding, hearing,
investigation, charge, complaint, claim or demand against the Company giving
rise to any liability), except for (i) liabilities reflected in the Company
Financial Statements, (ii) contractual obligations of the Company which are to
be performed in the Ordinary Course of Business under agreements, contracts,
leases, licenses and other arrangements to which the Company or any of its
assets are bound (none of which results from, arises out of, relates to, is in
the nature of or was caused by any breach of contract, breach of warranty, tort,
infringement or violation of law), (iii) liabilities reflected in section 3B(h)
of the Disclosure Schedule and (iv) liabilities which have arisen in the
Ordinary Course of Business since the date of the Most Recent Balance Sheet
(none of which results from, arises out of, relates to, is in the nature of or
was caused by any breach of contract, breach of warranty, tort, infringement or
violation of law). The Company has received no notice of any potential returns
from customers; however, based upon the past custom and practice of the Company,
there may be returns from United Stationers, S.P. Richards and Office Depot.
(i) TANGIBLE PERSONAL PROPERTY.
(i) Except as set forth in section 3B(i) of the
Disclosure Schedule and except for Inventory disposed of in the
Ordinary Course of Business since the date of the Most Recent Balance
Sheet, the Company has (x) good and marketable title to all of the
tangible personal property and assets which are used in the operation
of its business and which it owns or purports to own, and (y) valid
leasehold interests in all leases of tangible personal property which
it leases or purports to lease, in each case free and clear of any
Liens, other than Permitted Liens. The Company owns or leases all
buildings, machinery, equipment, and other tangible assets necessary
for the conduct of its businesses as presently conducted. Each such
tangible asset has been maintained in accordance with normal industry
practice, is in good operating condition and repair (subject to normal
wear and tear), and is suitable for the purposes for which it presently
is used.
(ii) The Company enjoys peaceful and undisturbed
possession under all of such leases of personal property under which it
is operating. There are no existing defaults, or events which with the
passage of time or the giving of notice, or both, would constitute
defaults by the Company or, to the Knowledge of the Seller, by any
other party to any such lease, except defaults which could not
reasonably be expected to have a Material Adverse Effect.
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<PAGE> 22
(j) REAL PROPERTY.
(i) The Company does not own any real property. section 3B(j)
of the Disclosure Schedule sets forth a list of all real property
leased, subleased or otherwise occupied by the Company, indicating the
nature of its interest therein and setting forth a brief description of
the buildings and improvements located thereon (collectively, the "REAL
PROPERTY"). The Seller has delivered a complete copy of all leases to
the Purchaser. The Company has valid leasehold interests in all leases
of Real Property which it leases or purports to lease, free and clear
of any Liens, other than Permitted Liens. To the Knowledge of the
Seller, there are no pending condemnation, expropriation, eminent
domain or similar proceedings affecting all or any portion of such Real
Property and, to the Knowledge of Seller, no such proceedings are
contemplated.
(ii) The Company enjoys peaceful and undisturbed possession
under all of such Real Property leases under which it is operating. All
of such leases are valid, subsisting and in full force and effect, no
notice of termination has been received by the Company with respect
thereto, and there are no existing defaults, or events which with the
passage of time or the giving of notice, or both, would constitute
defaults by the Company or, to the Knowledge of the Seller, by any
other party thereto, except for defaults which could not reasonably be
expected to have a Material Adverse Effect.
(iii) The Real Property is in compliance with the American
with Disabilities Act.
(k) INSURANCE. Section 3B(k) of the Disclosure Schedule sets forth a
list of all insurance policies currently in effect which are owned or held by
the Company, insuring the products, properties, assets, business and operations
of the Company and its potential liabilities to third parties, and all general
liability policies maintained by the Company. All such policies are in full
force and effect and all premiums due and payable in respect thereof have been
paid, except to the extent set forth in section 3B(k) of the Disclosure
Schedule. Since the respective dates of such policies, no notice of cancellation
or non-renewal with respect to any such policy has been received by the Company.
Such policies are sufficient for compliance with all requirements of law and
Material Contracts to which the Company is a party. Since the respective dates
of such policies, no notice of cancellation or non-renewal with respect to any
such policy has been received by the Company. Section 3B(k) of the Disclosure
Schedule sets forth a list of all pending claims with respect to all such
policies.
(l) LABOR RELATIONS.
(i) The Company is not now, nor has it ever been, a party to
or otherwise bound by any labor or collective bargaining agreement.
Except as set forth in section 3B(l) of the Disclosure Schedule, as of
the date hereof (A) the Company is not involved in or, to the Knowledge
of the Seller, threatened with any labor dispute, strike, slowdown,
work stoppage, grievance, unfair labor practice charge, arbitration,
suit or administrative
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<PAGE> 23
proceeding relating to labor matters involving its employees, (B) there
are no actions, proceedings or claims pending or, to the Knowledge of
the Seller, threatened against the Company under any laws relating to
employment, including any provisions thereof relating to wages, hours,
collective bargaining, withholding or the payment of social security or
other Taxes, and (C) the Company has not conducted negotiations with
respect to any future contract with or commitment to any labor union or
association and, to the Knowledge of the Seller, there are no current
or threatened attempts to organize or establish any labor union or
association or employee association with respect to the Company.
(ii) The Company is not involved in or, to the Knowledge of
the Company, threatened with any grievance, unfair labor practice
charge, arbitration, suit or administrative proceeding relating to
labor matters involving its employees or independent contractors
(including, without limitation, any dispute, grievance, charge or
proceeding relating to sexual harassment or age, sex, race or other
discrimination).
(m) COMPANY PERMITS; COMPLIANCE WITH LAW. The Company holds and is in
compliance with all Company Permits and is in substantial compliance with all
requirements of law. Except as set forth in section 3B(m) of the Disclosure
Schedule, no notice, citation, summons or order has been received by the
Company, no complaint has been filed and served on it, no penalty has been
assessed and, to the Knowledge of the Seller, no investigation, proceeding or
review is pending or threatened (i) with respect to any alleged violation by the
Company of any law or Company Permit, or (ii) with respect to any alleged
failure by the Company to have any Permit. A true and correct list of all
Company Permits is set forth in section 3B(m) of the Disclosure Schedule.
(n) LITIGATION. Section 3B(n) of the Disclosure Schedule sets forth a
list of all actions, suits, claims or proceedings pending or, to the Knowledge
of the Seller, threatened against or involving the Company, or any of its assets
or properties. There are no outstanding orders, judgments, injunctions,
stipulations, awards or decrees of any Authority against the Company, or any of
its assets or properties.
(o) LIST OF ACCOUNTS. Section 3B(o) of the Disclosure Schedule sets
forth a list of all bank and securities accounts, and all safe deposit boxes,
maintained by the Company and a listing of the persons authorized to draw
thereon or make withdrawals therefrom or, in the case of safe deposit boxes,
with access thereto.
(p) LIST OF PERSONNEL. Section 3B(p) of the Disclosure Schedule sets
forth (i) the name and total compensation of each officer and director of the
Company and each other employee of the Company whose total compensation for the
twelve months ended December 31, 1997 exceeded $25,000, (ii) all wage or salary
increases or bonuses received by such persons since December 31, 1997, and any
accrual for such increases or bonuses, and (iii) all commitments or agreements
by the Company to increase the wages or modify the conditions or terms of
employment of any of its employees.
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<PAGE> 24
(q) EMPLOYEE BENEFITS. Section 3B(q) of the Disclosure Schedule sets
forth (i) all of the current Employee Pension Benefit Plans, Employee Welfare
Benefit Plans and all other employee benefit, fringe benefit plans and programs
maintained or contributed to by the Company or any ERISA Affiliate with respect
to current or former employees of the Company (the "EMPLOYEE BENEFIT PLANS").
(i) With respect to each Employee Benefit Plan:
(1) each such Employee Benefit Plan (and each
related trust, insurance contract or fund)
complies in form and, to the Knowledge of
the Seller, in operation with the applicable
requirements of ERISA, the Code and other
applicable laws (including, without
limitation, all reporting and disclosure
requirements), and has been operated in all
material respects in accordance with its
terms;
(2) all contributions (including all employer
contributions and employee salary reduction
contributions, if any) which are due have
been paid to each such Employee Benefit Plan
which is an Employee Pension Benefit Plan,
and there are no accumulated funding
deficiencies with respect to any such
Employee Pension Benefit Plan;
(3) each such Employee Benefit Plan which is an
Employee Pension Benefit Plan intended to so
qualify under section 401(a) of the Code so
qualifies and has received a favorable
determination letter from the IRS as to its
qualification under section 401(a) of the
Code;
(4) no "prohibited transaction" (as such term is
defined in section 406 of ERISA or section
4975 of the Code) has occurred with respect
to any such Employee Benefit Plan which is
an Employee Pension Benefit Plan (or its
related trust) which could subject the
Company or any officer, director or employee
of the Company, to any Tax or penalty
imposed under section 4975 of the Code or
liability under section 406 of ERISA;
(5) the Company has delivered to the Purchaser
correct and complete copies of the plan
documents and summary plan descriptions
which implement each such Employee Benefit
Plan;
(6) no such Employee Benefit Plan which is an
Employee Pension Benefit Plan has been
completely or partially terminated or has
been the subject of a "reportable event" (as
defined in section 4043 of ERISA) as to
which notices would be required to be filed
with the PBGC. To the Knowledge of the
Seller, no proceeding by the PBGC to
terminate
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<PAGE> 25
any such Employee Pension Benefit Plan
(other than a Multiemployer Plan) has been
instituted;
(7) the Company has not incurred, and will not
incur as a result of any existing condition
or the transactions contemplated by this
Agreement, any liability to the PBGC (except
for required premium payments, if any), or
otherwise under Title IV of ERISA (including
any withdrawal liability) or under the Code
with respect to any such Employee Benefit
Plan which is an Employee Pension Benefit
Plan and, as of the Closing Date, the assets
of each such Employee Pension Benefit Plan
are at least equal in value to the present
value of accrued benefits of the Plan, based
on actuarial methods, tables and assumptions
reasonably satisfactory to the Purchaser;
and
(8) no action, suit, proceeding, hearing or
investigation with respect to the
administration or the investment of assets
of any such Employee Benefit Plan (other
than routine claims for benefits) is pending
or, to the Knowledge of the Seller,
threatened.
(ii) The Company does not contribute to any Multiemployer Plan
or have any liability (including withdrawal liability) under any
Multiemployer Plan.
(iii) The Company does not have any obligation to provide
health or other welfare benefits to former, retired or terminated
employees, except as specifically required under section 4980B of the
Code. With respect to all of its past and present employees, the
Company has complied in all material respects with the notice and
continuation requirements of Part 6 of Subtitle B of Title I of ERISA
and of section 4980B of the Code.
(iv) The Company has no liability for or relating to any
Employee Benefit Plan or arrangement sponsored, maintained or
contributed to by an ERISA Affiliate.
(v) The consummation of the transactions contemplated by this
Agreement will not entitle any individual to any severance pay, and
will not accelerate the time of payment or vesting, or increase the
amount of any compensation due to any individual, and will not be the
direct or indirect cause of any amount payable under any Employee
Benefit Plan being classified as an "excess parachute payment" under
section 280G of the Code.
(vi) The Company has no obligation under any dental plan to
pay any portion of its employees' dental insurance or deductible.
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<PAGE> 26
(r) TAX MATTERS.
(i) All Income Tax Returns and all material Other Tax Returns
required to be filed with respect to the business and assets of the
Company have been duly and timely (within any applicable extension
periods) filed with the appropriate Authorities in all jurisdictions in
which such Returns are required to be filed. The Company has paid all
Taxes required to be paid by it (without regard to whether a Tax Return
is required), except Taxes which are not delinquent and for which an
adequate reserve has been established on the Company Interim Financial
Statements.
(ii) The unpaid Taxes of the Company (i) did not as of the
date of the Most Recent Balance Sheet, exceed the reserve for Tax
liability (rather than any reserve for deferred Taxes established to
reflect timing differences between book and tax income) disclosed on
the face of the Most Recent Balance Sheet, and (ii) do not exceed that
reserve as adjusted for the passage of time through the Closing Date in
accordance with the custom of the Company.
(iii) Except as set forth in section 3B(r) of the Disclosure
Schedule, there is no claim or assessment pending or, to the Knowledge
of the Seller, threatened against the Company for any alleged
deficiency in Income Taxes or any material alleged deficiency in Other
Taxes.
(iv) Except as set forth in section 3B(r) of the Disclosure
Schedule, the Company has not (a) filed any consent to the application
of Section 341(f) of the Code, (b) executed a waiver or consent
extending any statute of limitations for the assessment or collection
of any Income Taxes or Other Taxes which remain outstanding, (c)
applied for a ruling relative to Income Taxes or Other Taxes, (d)
entered into a closing agreement with any Tax Authority, or (e) filed
an election under Section 338(g) or 338(h)(10) of the Code or caused or
permitted a deemed election under Section 338(e) of the Code.
(v) Except as set forth in section 3B(r) of the Disclosure
Schedule, no Income Tax Return or Other Tax Return of the Company has
been audited by any Tax Authority at any time since March 24, 1995 and
to the Seller's Knowledge, no Income Tax Return or Other Tax Return of
the Company was audited prior to March 24, 1995.
(vi) The Company is not a party to any written agreement
providing for the allocation or sharing of Taxes.
(vii) The Company has no liability for the Income Taxes of any
other Person other than the Seller and its subsidiaries under Treasury
Regulations Section 1.1502-6 (or any similar provision of state,
foreign or local law).
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<PAGE> 27
(viii) The Company has not been a member of an Affiliated
Group filing a consolidated federal Income Tax Return other than an
Affiliated Group of which the common parent is the Seller.
(ix) The Company has not changed its tax method of accounting
or tax practice from January 1, 1997 through the Closing Date, except
for the adoption of mark to market rules for accounts receivable. The
Company's taxable income for the year ending December 31, 1998
attributable to the adoption of such mark to market rules will not
exceed $50,000.
(s) ENVIRONMENTAL MATTERS. Except as disclosed in section 3B(s) of the
Disclosure Schedule:
The Company has not disposed of or released any substance,
arranged for the disposal of any substance, knowingly exposed any employee or
other individual to any substance or condition, or owned or operated its
businesses or any property or facility so as to give rise to any liability or
corrective or remedial obligation of the Company under any Environmental, Health
and Safety Requirement.
(i) The Company has not, since March 24, 1995 and, to the
Knowledge of the Seller, in any period prior thereto, disposed of or
released any substance, arranged for the disposal of any substance,
knowingly exposed any employee or other individual to any substance or
condition, or owned or operated its businesses or any property or
facility so as to give rise to any liability or corrective or remedial
obligation of the Company under any Environmental, Health and Safety
Requirement. The Company is in compliance with all Environmental Health
and Safety Requirements and, to the Knowledge of the Seller, has been
in compliance with all Environmental Health and Safety Requirements
since March 24, 1995.
(ii) There is no Environmental Claim of which the Company has
received written notice or, to the Knowledge of the Seller, threatened
or filed since March 14, 1995 against the Company or against any Person
whose liability for any Environmental Claim the Company has retained or
assumed either contractually or by operation of law, or against any
real or personal property or operations which the Company owns, leases
or operates.
(iii) There are no environmental Liens on any of the Real
Property arising as a result of any actions taken or omitted to be
taken by the Company and, to the Knowledge of the Seller, no actions
have been taken by any Authority with respect to any of the Real
Property or are in process or pending, to impose an environmental Lien
with respect to the Real Property as a result of any such actions.
(iv) No Real Property presently or heretofore owned or
operated by the Company is currently listed on the National Priorities
List or the Comprehensive Environmental Response, Compensation and
Liability Information System, both promulgated under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as
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<PAGE> 28
amended ("CERCLA"), or on any comparable state list, and the Company
has not received any written notice of potential liability from any
Person under or relating to CERCLA or any comparable state or local
law.
(v) To the Knowledge of the Seller, no underground storage
tanks, friable and damaged asbestos-containing materials, or
pcb-containing equipment or fluids are present on any of the Real
Property.
(vi) To the Knowledge of the Seller, no off-site location at
which the Company has disposed or arranged for the disposal of any
waste is listed on the National Priorities List or on any comparable
state list and the Company has not received any written notice from any
Person with respect to any such off-site location, of potential or
actual liability or a written request for information from any Person
under or relating to CERCLA or any comparable state or local law.
(vii) The Company has investigated all recommendations in the
Phase I Environmental Assessment and Environmental Compliance Audit
dated December 20, 1994 prepared by The Forrester Group, Inc. and the
Seller has determined either that the Company has complied with or was
in compliance with all such recommendations. The Company has not
changed its environmental compliance and procedures except to come into
compliance with such recommendations and Environmental, Health and
Safety Requirements and has not taken any action which would cause it
not to be in compliance with such recommendations.
(t) INTELLECTUAL PROPERTY. Section 3B(t) of the Disclosure Schedule
hereto sets forth a list of all patents, pending patent applications,
trademarks, service marks, pending trademark or service mark applications and
trade names licensed to, applied for or registered in the name of, the Company,
or in which the Company has or purports to have any rights, and all material
copyright registrations or pending applications for registrations of the
Company, or in which the Company has or purports to have any rights, including
the nature (E.G., patent, trademark, etc.) of the intellectual property, the
application or registration number, the jurisdiction and the record owner (the
"LISTED INTELLECTUAL PROPERTY"). Except as set forth in section 3B(t) of the
Disclosure Schedule, with respect to the ListeD Intellectual Property, no
registration relating thereto (if any) has lapsed, expired or been abandoned or
canceled or is the subject of cancellation proceedings. The Company owns or
possesses adequate and enforceable licenses (free of Liens other than Permitted
Liens) to use all Listed Intellectual Property and any other material
intellectual property rights (including, without limitation, drawings, trade
secrets, know-how and confidential information) currently used by the Company,
or necessary to permit the Company to conduct its business as now conducted (the
Listed Intellectual Property and the other intellectual property rights are
collectively called the "INTELLECTUAL PROPERTY"). Section 3B(t) of the
Disclosure Schedule sets forth all licenses to which the Company is a party
relating to the Intellectual Property (the "INTELLECTUAL PROPERTY LICENSES").
Except as set forth in section 3B(t) of the Disclosure Schedule, to the
Knowledge of the Seller the Company has not infringed on or misappropriated and
is not now infringing on or misappropriating any Intellectual Property right
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<PAGE> 29
belonging to any Person, and no claim is pending or, to the Knowledge of the
Seller, threatened to the effect that any Intellectual Property is invalid or
unenforceable. To the Knowledge of the Seller, except as set forth section 3B(t)
of the Disclosure Schedule, no Person is infringing upon or violating any of the
Listed Intellectual Property. Each item of Intellectual Property owned or used
by the Company prior to the Closing hereunder (other than any intellectual
property rights owned by the Seller or any Subsidiary of the Seller other than
the Company and not necessary or useful to the conduct of the Company's business
as now conducted) will be owned or available for use by the Company on identical
terms and conditions immediately subsequent to the Closing hereunder. Except as
set forth section 3B(t) of the Disclosure Schedule, to the Knowledge of the
Seller, since 1991 the Company has never received any charge, complaint, claim,
demand or notice alleging any such interference, infringement, misappropriation
or violation with any intellectual property rights of third parties except as
disclosed in section 3B(n) of the Disclosure Schedule. The loss of the
Microcentre name will not cause a breach or default by the Company under any
Material Contract.
(u) MATERIAL CONTRACTS. Section 3B(u) of the Disclosure Schedule sets
forth a list of all Material Contracts. Except as set forth section 3B(u) of the
Disclosure Schedule, all of the Material Contracts are valid and binding and in
full force and effect and there are no defaults thereunder or events which with
notice or the passage of time would constitute a default by the Company or, to
the Knowledge of the Seller, by any other party thereto, except for defaults
which could not reasonably be expected to have a Material Adverse Effect. The
Seller has delivered to the Purchaser a correct and complete copy of each
Material Contract.
(v) TRANSACTIONS WITH AFFILIATES. Except as set forth in section 3B(v)
of the Disclosure Schedule and except for normal advances to employees
consistent with past practices, payment of compensation for employment to
employees consistent with past practices, and participation in Employee Benefit
Plans by employees, the Company has not purchased, acquired or leased any
property or services from, or sold, transferred or leased any property or
services to, or loaned or advanced any money to, or borrowed any money from or
entered into or been subject to any management, consulting or similar agreement
with, any officer, director or shareholder of the Company or any of their
respective Affiliates. No Affiliate of the Company is indebted to the Company
for money borrowed or other loans or advances, and the Company is not indebted
to any such Affiliate.
(w) POWERS OF ATTORNEY. Except as set forth in section 3B(w) of the
Disclosure Schedule, the Company has not granted any power of attorney to any
Person for any purpose whatsoever, which power of attorney is currently in
force.
(x) INVENTORY. The Inventory consists in all material respects of items
usable and saleable in the ordinary and usual course of business, subject to the
reserve for Inventory writedown set forth on the Most Recent Balance Sheet as
adjusted for the passage of time through the Closing Date in accordance with the
past custom and practice of the Company. The Inventory is valued on the Most
Recent Balance Sheet at the lower of cost (on a first-in-first-out basis) or
market pursuant to GAAP, consistently applied with prior periods.
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<PAGE> 30
(y) ACCOUNTS RECEIVABLE. All of the Accounts Receivable are properly
reflected on the books and records of the Company, arose from bona fide
transactions in the ordinary course of business and are valid receivables
subject to no setoffs or counterclaims, subject only to the reserves set forth
on the Most Recent Balance Sheet. section 3B(y) of the Disclosure Schedule sets
forth a current aging of the Company's accounts receivable.
(z) CUSTOMERS AND SUPPLIERS. Section 3B(z) of the Disclosure Schedule
sets forth a list of the names and addresses of the 10 largest (by volume)
customers and suppliers of the Company for the fiscal years ended December 31,
1997 and December 31, 1996. The Company maintains satisfactory relations with
each of such customers and suppliers. Except as set forth in section 3B(z) of
the Disclosure Schedule, no customer, or group of customers, which accounted for
more than 5% of the Company's aggregate sales revenues during the last twelve
months has canceled, terminated or, to the Knowledge of the Seller, made any
threat to the Company to cancel or otherwise terminate, or to materially
decrease its usage of the Company's services or products, and no supplier, or
any group of suppliers, which accounted for more than 5% of the aggregate
supplies purchased by the Company during the last twelve months, has canceled,
terminated or, to the Knowledge of the Seller, made any threat to the Company to
cancel or otherwise terminate, or to materially decrease the provision of
services or supplies to the Company.
(aa) TRAILING SALES COMMISSIONS. If any independent sales
representative of the Company is terminated after Closing, he shall not be
entitled to any commissions for any sales which are made after the date of
termination of such sales representative.
(bb) FULL DISCLOSURE. The representations and warranties of the Seller
contained in this Agreement do not contain any untrue statement of a material
fact and do not omit to state any material fact required to be stated to make
the statements contained herein not false or misleading.
4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The Purchaser
represents and warrants to the Seller as follows:
(a) ORGANIZATION. The Purchaser is a corporation duly organized,
validly existing, and in good standing under the laws of Illinois.
(b) AUTHORIZATION OF TRANSACTION. The Purchaser has full corporate
power and authority to execute and deliver this Agreement and the Escrow
Agreement and to perform its obligations hereunder and thereunder. This
Agreement constitutes and the and the Escrow Agreement, when executed and
delivered, will constitute the valid and legally binding obligations of the
Purchaser, enforceable in accordance with their respective terms.
(c) NONCONTRAVENTION. Neither the execution and the delivery of this
Agreement or the Escrow Agreement, nor the consummation of the transactions
contemplated hereby or thereby, will (i) violate any statute, regulation, rule,
injunction, judgment, order, decree or ruling of any Authority to which the
Purchaser is subject or any provision of its charter or bylaws or other
organizational
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<PAGE> 31
document, as the case may be, or (ii) except as set forth under section 4(c) of
the Disclosure Schedule conflict with, result in a breach of, constitute a
default under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify or cancel, or require any notice under any
agreement, contract, lease, license or instrument to which the Purchaser is a
party or by which it is bound or to which any of its assets is subject. The
Purchaser is not required to give any notice to, make any filing with, or obtain
any authorization, consent or approval of any Authority in order for it to
consummate the transactions contemplated by this Agreement.
(d) BROKERS FEES. The Purchaser does not have any liability or
obligation to pay any fees or commissions to any broker, finder or agent with
respect to the transactions contemplated by this Agreement for which the Seller
or the Company (prior to the Closing) could become liable or obligated.
(e) ACQUISITION OF SHARES FOR INVESTMENT. The Shares to be purchased by
the Purchaser pursuant to this Agreement are being acquired for investment only
and not with a view to any public distribution thereof, and the Purchaser will
not offer to sell or otherwise dispose of the Shares so acquired by it in
violation of any of the registration requirements of the Securities Act or any
comparable state laws.
(f) FULL DISCLOSURE. The representations and warranties of the
Purchaser contained in this Agreement do not contain any untrue statement of a
material fact and do not omit to state any material fact required to be stated
to make the statements contained herein not false or misleading.
5. POST-CLOSING COVENANTS. The Parties agree as follows with respect to
the period following the Closing.
(a) GENERAL. In the event that at any time after the Closing any
further action is necessary to carry out the purposes of this Agreement, each of
the Parties will take such further action (including the execution and delivery
of such further instruments and documents) as any other Party may reasonably
request, all at the sole cost and expense of the requesting Party.
(b) LITIGATION SUPPORT. In the event and for so long as any Party
actively is contesting or defending against any action, suit, proceeding,
hearing, investigation, charge, complaint, claim or demand in connection with
(i) any transaction contemplated under this Agreement, or (ii) any fact,
situation, circumstance, status, condition, activity, practice, occurrence,
event, incident, action, failure to act, or transaction on or prior to the
Closing Date involving the Company, each of the Parties will cooperate with the
contesting or defending Party and its counsel in the contest or defense, all at
the sole cost and expense of the contesting or defending Party (except to the
extent that the contesting or defending Party is entitled to indemnification
therefor under this Agreement).
(c) PUBLICITY. No publicity release or announcement concerning this
Agreement or the transactions contemplated hereby shall be made without advance
approval thereof by the Purchaser and the Seller (which shall not be
unreasonably withheld or delayed). The Parties agree to cooperate
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<PAGE> 32
in issuing any press release or other public announcement concerning this
Agreement or the transactions contemplated hereby. Whenever practicable, each
Party shall furnish to the other Party drafts of all such press releases or
announcements prior to their release. Nothing contained in this section 5(c)
shall prevent either Party from at any time furnishing any information to any
Authority or from making any disclosures required under the Securities Exchange
Act of 1934, as amended, or under the rules and regulations of any national
securities exchange on which such Party's shares of capital stock are listed.
(d) CERTAIN TAX MATTERS.
(i) Upon the condition that the Closing be effected, the
Seller will indemnify and hold harmless the Purchaser and the Company
from, against and in respect of any Losses the Purchaser or the Company
may suffer resulting from, arising out of, relating to, in the nature
of, or caused by any liability of the Company for Income Taxes of any
other Person under Treasury Regulation Section 1.1502-6 (or any similar
provision of state, local or foreign law).
(ii) The Seller will include the income of the Company
(including any deferred income included in income pursuant to Treasury
Regulation Sections 1.1502-13 and 1.1502- 14 and any excess loss
accounts taken into income under Treasury Regulation Section 1.1502-19)
on the Seller's consolidated federal Income Tax Returns for all Pre-
Closing Tax Periods and will pay all federal Income Taxes attributable
to such income. The Seller shall be responsible for and shall pay all
Taxes which relate to the period prior to the Closing Date, including
any transfer, sales or use tax caused by the sale of the Shares to the
Purchaser. The Purchaser will cause the Company to provide, or cause to
be provided, to the Seller, without charge (except for reasonable
out-of-pocket expenses), such information as may reasonably be
requested by the Seller in connection with the preparation of any such
Tax Returns relating to Pre-Closing Tax Periods. The income of the
Company will be apportioned to the period up to and including the
Closing Date and the period after the Closing Date by closing the books
of the Company as of the end of the Closing Date.
(iii) If a notice shall be given by any Tax Authority with
respect to a potential Tax liability of the Company which, if
sustained, would result in a payment by the Seller to the Purchaser
pursuant to section 7(b)(ii) below (a "TAX ASSESSMENT"), the Purchaser
shall, after receipt of such notice, promptly notify the Seller in
writing (a "TAX NOTICE"). The Seller may, by written notice to the
Purchaser given within 30 days after the receipt by the Seller of a Tax
Notice, at the Seller's sole cost and expense (except as hereinafter
provided), participate fully in the defense of all Tax Assessments with
respect to which the Seller may become liable pursuant to the Seller's
indemnification obligations hereunder. The Purchaser shall diligently
prosecute such defense in cooperation and consultation with the Seller
and shall provide written notice to the Seller of all conferences,
meetings, proceedings and appearances before all Authorities with
respect to the defense of any such Tax Assessment. If the Seller elects
to participate in the defense of a Tax Assessment, the Purchaser shall
provide, or shall cause
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<PAGE> 33
the Company to provide, to the Seller (at no cost to the Seller, except
for reasonable out-of-pocket expenses) such information as may be
required in connection with such defense as reasonably requested by the
Seller. If the Seller elects to participate in the defense of a Tax
Assessment, the Purchaser shall give the Seller written notice of any
proposed resolution or settlement of such Tax Assessment not less than
15 business days before the Purchaser accepts or intends to accept such
proposed resolution or settlement. The Purchaser shall have the right
to settle or otherwise to resolve any Tax Assessment for which the
Seller would become liable pursuant to its indemnification obligations
hereunder upon the written consent of the Seller, which consent shall
not be unreasonably withheld or delayed.
(iv) The Seller shall have no liability with respect to any
Taxes resulting by reason of any election made or deemed to be made by
the Purchaser or the Company subsequent to the Closing, whether express
or implied, under Section 338 of the Code. Upon the condition that the
Closing be effected, the Purchaser and the Company, jointly and
severally, will indemnify and hold harmless the Seller from, against
and in respect of any Losses the Seller may suffer resulting from,
arising out of, relating to, in the nature of, or caused by any
election made or deemed to be made by the Purchaser or the Company
subsequent to the Closing, whether express or implied, under Section
338 of the Code.
(v) The Seller shall be entitled to any and all refunds of
Taxes attributable to any Pre-Closing Tax Period. If the Purchaser or
the Company voluntarily amends any Return (other than as required by
any Tax Authority) for a taxable period which includes any Pre- Closing
Tax Period, or, without the Seller's consent, enters into any agreement
or settlement with any Tax Authority relating to a taxable period
ending after the Closing Date, and such agreement or settlement affects
any item of deduction, loss, credit, income or gain with respect to any
Pre-Closing Tax Period, then notwithstanding any provision of this
Agreement which may be to the contrary, the Seller shall have no
liability for any Losses with respect to any Taxes attributable to any
change in tax liability effected by such amended Return, agreement or
settlement.
(vi) Notwithstanding any provision of this Agreement which may
be to the contrary, the Purchaser and the Company shall preserve all
Returns, books and records in their control relating to any liabilities
for Taxes due with respect to any Pre-Closing Tax Period until the
expiration of all applicable statutes of limitation and extensions
thereof with respect to Taxes for any such period.
(vii) In the event of any inconsistency between the provisions
of this section 5(d) and section 7(b) below, the provisions of this
section 5(d) shall be controlling.
(viii) If a notice shall be given by any Tax Authority to the
Seller with respect to a potential Tax liability of the Company, the
Seller shall, after receipt of such notice, promptly notify the
Purchaser in writing.
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<PAGE> 34
(e) FINANCIAL REPORTING COOPERATION. The Purchaser shall cause to be
prepared and delivered to the Seller, to the extent not already prepared and
delivered, in the normal time frame followed by the Seller consistent with past
practice, the financial reporting package for the Company (but only in respect
of periods ending on or prior to the Closing Date) for the closing for the
Seller's fiscal quarter ending June 26, 1998.
(f) 401(K) PLAN. The Seller shall retain all liability for the
Company's existing 401(k) Plan.
(g) NON-COMPETITION.
(i) In order to induce the Purchaser to enter into this
Agreement, the Seller expressly covenants and agrees that for a period
of three years from and after the Closing Date, neither it nor any of
its Subsidiaries will, except in the case of a Permitted Investment,
directly or indirectly own, manage, operate, join, control, or
participate in the management, control or operation of, any Person that
engages in the manufacture, sale or distribution of ergonomically
designed space savers, which consist of ready to assemble computer work
stations as currently manufactured by the Company (the "PURCHASED
BUSINESS") in the continental United States (the "NON-COMPETITION
AREA"). The obligations of the Seller and its Subsidiaries under this
section 5(g)(i) shall terminate and be of no further force or effect
upon the occurrence of a Change in Control. For purposes hereof, the
term "CHANGE OF CONTROL" shall mean the occurrence of any event whereby
Affiliates of Trivest, Inc., collectively, cease to beneficially own
(within the meaning of Rule 13d-3 under the Securities Exchange Act) at
least 5% of the outstanding shares of common stock of the Seller
(determined on a fully diluted basis, giving effect to the conversion,
exchange or exercise of any rights to acquire shares from the Seller,
other than any such rights owned by such Persons).
(ii) For purposes of this section 5(g), a "PERMITTED
INVESTMENT" means an acquisition after the date hereof of a Person, all
or any portion of its equity interests or certain of its businesses
(the entity or businesses acquired being herein called the "ACQUIRED
BUSINESS"), if that portion of the Acquired Business that competes with
the Purchased Business or any portion thereof (the "COMPETING
BUSINESS") accounted for 15% or less of the total revenues of the
Acquired Business during the most recently completed fiscal year of the
Acquired Business preceding the date of the acquisition; PROVIDED,
HOWEVER, that if such Competing Business generated more than $5,000,000
in total revenues during such fiscal year, the Seller shall be required
to use its best efforts to sell, transfer, divest or otherwise dispose
of (or cause its Subsidiary proposing to acquire the Acquired Business
to use its best efforts to sell, transfer, divest or otherwise dispose
of) such Competing Business to an unaffiliated third party within 12
months of such acquisition.
(iii) The Parties acknowledge and agree that no portion of the
Purchase Price shall be allocated to the covenants and agreements of
the Seller set forth in this section 5(g). To the extent that any part
of this section 5(g) may be invalid, illegal or unenforceable for any
reason, it
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is intended that such part shall be enforceable to the extent that a
court of competent jurisdiction shall determine that such part if more
limited in scope would have been enforceable and such part shall be
deemed to have been so written and the remaining parts shall as written
be effective and enforceable in all events.
(iv) In the event of the Seller's breach of the provisions of
section 5(g)(i), and provided that, if the Seller has a Dispute with
the Purchaser whether such a breach has occurred that the Dispute is
fully and finally resolved in accordance with the provisions of section
8 of this Agreement, then the Purchaser shall be entitled to recover
its Losses from the Escrow Funds; PROVIDED, HOWEVER, that such payments
shall not be subject to the Basket; PROVIDED, FURTHER, that if no
Escrow Funds remain (either because the Escrow Agreement has terminated
or Losses for which the Purchaser is entitled to indemnification under
section 7(b)(i), together witH amounts paid from the Escrow Account
pursuant to this section 5(g) and sections 10(a), 10(b), 10(c)
And 10(d) exceed $1,000,000), the Purchaser shall be entitled to
recover its Losses from the Seller.
6. CONDITIONS TO OBLIGATION TO CLOSE.
(a) CONDITIONS TO OBLIGATION OF THE PURCHASER. The obligation of the
Purchaser to consummate the transactions to be performed by it in connection
with the Closing is subject to satisfaction of the following conditions:
(i) the representations and warranties set forth in section 3A
and section 3B above that are qualified as to their materiality shall
be true and correct and any such representations and warranties that
are not so qualified shall be true and correct in all material respects
at and as of the Closing Date;
(ii) the Seller shall have performed and complied with all of
the covenants to be performed by it hereunder in all material respects
through the Closing;
(iii) there shall not be any injunction, judgment, order,
decree, ruling or charge in effect preventing consummation of any of
the transactions contemplated by this Agreement, and no action, suit,
claim or proceeding shall be pending before any Authority which seeks
to prohibit or enjoin the consummation of the transactions contemplated
by this Agreement or which could reasonably be expected to adversely
impact the Company's right to own it assets and operate its business as
presently conducted;
(iv) the Seller shall have delivered to the Purchaser a
certificate to the effect that the conditions specified above in
section section 6(a)(i) and (ii) have been satisfied in all respects;
(v) all of the directors and officers of the Company shall
have delivered duly signed resignations effective at the time of the
Closing (or the Seller shall have taken such
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other action as is necessary to ensure that such persons are not
directors and officers of the Company at the time of the Closing);
(vi) all filings that are required to have been made by the
Company with any Authority in order to carry out the transactions
contemplated by this Agreement and in order for the Purchaser to
operate the business of the Company in the ordinary course after the
Closing Date shall have been made; all authorizations, consents,
approvals and permits from all Authorities required for the Company to
carry out the transactions contemplated by this Agreement and in order
for the Purchaser to operate the business of the Company in the
Ordinary Course of Business after the Closing Date shall have been
received and all statutory waiting periods (or extensions thereof) in
respect thereof shall have expired;
(vii) the Purchaser shall have received a certificate issued
by the Secretary of State of the State of Florida, as of a date
reasonably acceptable to the Purchaser, as to the good standing of the
Seller in such state;
(viii) the Purchaser shall have received a certificate issued
by the Secretary of State of the State of California and of each state
in which the Company is qualified as a foreign entity, as of a date
reasonably acceptable to the Purchaser, as to the good standing (or
non- dissolution, as applicable) of the Company in such states;
(ix) the Seller shall have delivered to the Purchaser (a) a
copy of the Company's Charter, as amended to date, certified as of the
recent date by the Secretary of State of the State of California, and
(b) all minute books, stock transfer books, blank stock certificates
and corporate seals of the Company;
(x) all proceedings, corporate or other, to be taken in
connection with the transactions contemplated by this Agreement by the
Seller, and all documents incident thereto, shall be reasonably
satisfactory in form and substance to the Purchaser, and the Seller
shall have made available to the Purchaser for examination the
originals or true and correct copies of all documents the Purchaser may
reasonably request in connection with the transactions contemplated by
this Agreement;
(xi) all conditions precedent to the funding of the loans
contemplated by the financing commitments heretofore issued to
Purchaser for the financing of the transactions contemplated hereby
shall have been satisfied;
(xii) the Seller and the Escrow Agent shall have executed and
delivered the Escrow Agreement;
(xiii) the Purchaser shall have received the Opinion of
Seller's counsel; and
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(xiv) the Seller shall have received a consent to the
assignment of the Real Property lease of the Company's facility located
at 5300 N. Irwindale Avenue, Irwindale, California, together with an
estoppel certificate, in form and substance reasonably satisfactory to
the Purchaser and its counsel.
The Purchaser may waive any condition specified in this section 6(a) if it
executes a writing so stating at or prior to the Closing.
(b) CONDITIONS TO OBLIGATION OF THE SELLER. The obligation of the
Seller to consummate the transactions to be performed by it in connection with
the Closing is subject to satisfaction of the following conditions:
(i) the representations and warranties set forth in section 4
above that are qualified as to their materiality shall be true and
correct and any such representations and warranties that are not so
qualified shall be true and correct in all material respects at and as
of the Closing Date;
(ii) the Purchaser shall have performed and complied with all
of its covenants hereunder in all material respects through the
Closing;
(iii) there shall not be any injunction, judgment, order,
decree, ruling or charge in effect preventing consummation of any of
the transactions contemplated by this Agreement, and no action, suit,
claim or proceeding shall be pending before any Authority which seeks
to prohibit or enjoin the consummation of the transactions contemplated
by this Agreement;
(iv) the Purchaser shall have delivered to the Seller a
certificate to the effect that each of the conditions specified above
in sections 6(b)(i) and (ii) has been satisfied in all respects;
(v) all filings that are required to have been made by the
Purchaser with any Authority in order to carry out the transactions
contemplated by this Agreement shall have been made; all
authorizations, consents and approvals from all Authorities required
for the Purchaser to carry out the transactions contemplated by this
Agreement shall have been received and all statutory waiting periods
(or extensions thereof) in respect thereof shall have expired;
(vi) the Seller shall have received a certificate issued by
the Secretary of State of the State of Illinois, as of a date
reasonably acceptable to the Seller, as to the good standing (or
non-dissolution, as applicable) of the Purchaser in such state;
(vii) the Purchaser shall have delivered to the Seller a copy
of the Purchaser's Charter, as amended to date, certified as of the
recent date by the Secretary of State of the State of Illinois;
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(viii) all proceedings, corporate or other, to be taken in
connection with the transactions contemplated by this Agreement by the
Purchaser, and all documents incident thereto, shall be reasonably
satisfactory in form and substance to the Seller, and the Purchaser
shall have made available to the Seller for examination the originals
or true and correct copies of all documents the Seller may reasonably
request in connection with the transactions contemplated by this
Agreement; and
(ix) the Purchaser and the Escrow Agent shall have executed
and delivered the Escrow Agreement.
The Seller may waive any condition specified in this section 6(b) if they
execute a writing so stating at or prior to the Closing.
7. REMEDIES FOR BREACHES OF THIS AGREEMENT.
(a) SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Seller contained in section 3A, section 3B(d), section 3B(e),
section 3B(l)(ii), section 3B(q) and section 3B(R) (the "UNRESTRICTED
REPRESENTATIONS AND WARRANTIES"), and of the Purchaser contained in section 4
shall survive the Closing and continue in full force and effect for the statute
of limitations applicable thereto. The representations and warranties of the
Company contained in section 3B (other than the Unrestricted Representations and
Warranties) shall survive the Closing and continue in full force and effect
until December 31, 1999. Any claim (including a then unliquidated claim which a
Party asserts (in the good faith discretion of such Party) could reasonably be
expected to become owing (taking into account any applicable statutes of
limitations)) for which any Party shall have given proper notice in accordance
with the terms of this Agreement (and the Escrow Agreement) on or prior to the
expiration of the applicable survival period shall survive until such claim is
resolved pursuant to the terms of this Agreement or the Escrow Agreement. To
preserve any claim for breach of any such representation or warranty, the Party
claiming a breach shall be obligated to notify the Party claimed to be in breach
in writing of any such breach, or facts that can reasonably be expected to give
rise to such breach, before termination of the applicable survival period in
respect of such representation or warranty; otherwise, such Party's claim for
breach shall be forever barred.
(b) INDEMNIFICATION.
(i) Pursuant to the terms of the Escrow Agreement and subject
to section 7(a) above and the conditions set forth in this section
7(b), subsequent to the Closing Date the Seller shall indemnify, defend
and hold harmless the Purchaser and the Company from, against and in
respect of any Losses which Purchaser or the Company shall suffer,
sustain or become subject to by virtue of or which arise out of, or
result from, any breach of the representations and warranties of the
Seller set forth in this Agreement (other than the Unrestricted
Representations and Warranties); PROVIDED, HOWEVER, that: (A) the
Company's right to indemnification with respect to such breaches under
this section 7(b)(i) shall be satisfied only by recourse to the funds
deposited and remaining in the Escrow Account and the Seller shall not
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have any personal liability to the Purchaser or the Company with
respect to any such breach, (B) neither the Purchaser nor the Company
shall be entitled to indemnification with respect to any Losses under
this section 7(b)(i) until all such Losses exceed, in the aggregate,
$75,000 (the "BASKET")in which case the Purchaser or the Company, as
the case may be, shall be entitled to indemnification (subject to
clause (A) hereof) to the full extent such Losses relating back to the
first dollar. As provided in the Escrow Agreement and in section 7(a)
hereof, the Purchaser may assert a then unliquidated claim (in the good
faith discretion of the Purchaser) which could reasonably be expected
to become owing (taking into account any applicable statutes of
limitations).
(ii) Subject to section 7(a) above and the conditions set
forth in this section 7(b), subsequent to the Closing Date the Seller
shall indemnify, defend and hold harmless the Purchaser and the Company
from, against and in respect of any Losses which Purchaser or the
Company shall suffer, sustain or become subject to by virtue of or
which arise out of, or result from, any breach of any of the
Unrestricted Representations and Warranties. If the Purchaser or the
Company has experienced any Losses which it is entitled to
indemnification under this section 7(b)(ii), subject to final
resolution of the amount of such Losses pursuant to section 8, the
Purchaser may withhold its consent to the release of funds from the
Escrow until the Purchaser receives the indemnification to which the
Purchaser is entitled.
(iii) Subject to section 7(a) above and the conditions set
forth in this section 7(b), subsequent to the Closing Date the Seller
shall indemnify, defend and hold harmless the Purchaser and te Company
from, against and in respect of any Losses which Purchaser or the
Company shall suffer, sustain or become subject to by virtue of or
which arise out of, or result from any breach by the Seller of its
covenants and agreements set forth in this Agreement including, but not
limited to, section 10 hereof. If, after the Closing, any grievance,
unfair labor practice charge, arbitration, suit or administrative
proceeding relating to labor matters involving employees or independent
contractors of the Company (including, without limitation, any dispute,
grievance, charge or proceeding relating to sexual harassment or age,
sex, race or other discrimination) (the foregoing is collectively
referred to herein as a "LABOR DISPUTE") is filed against the Company
as a result of any alleged action, alleged omission to act or alleged
circumstances existing or occurring prior to Closing, the Seller shall
indemnify, defend and hold harmless the Purchaser and the Company from,
against and in respect of any Losses which Purchaser or the Company
shall suffer, sustain or become subject to by virtue of such Labor
Dispute. If the Purchaser or the Company has experienced any Losses
which it is entitled to indemnification under this section 7(b)(iii),
subject to final resolution of the amount of such Losses pursuant to
section 8, the Purchaser may withhold its consent to the release of
funds from the Escrow until the Purchaser receives the indemnification
to which the Purchaser is entitled.
(iv) Subject to section 7(a) above and the conditions set
forth in this section 7(b), subsequent to the Closing Date the
Purchaser shall indemnify, defend and hold harmless the Seller and its
successors and assigns from, against and in respect of, any Losses
which any such Person shall suffer, sustain or become subject to by
virtue of or which arise out of, or result from,
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any breach by the Purchaser of any of representations, warranties or
covenants set forth in this Agreement.
(v) A Party (which, if the Purchaser is to be indemnified,
shall be deemed to include the Company) seeking indemnification
pursuant to this section 7(b) (the "INDEMNIFIed PARTY") shall
immediately notify the Party from whom such indemnification is sought
(the "INDEMNIFYING PARTY") in the event that any person not a Party to
this Agreement shall make any demand or claim, or file or threaten to
file any lawsuit (a "THIRD PARTY CLAIM"), which Third Party Claim may
cause liability to the Indemnifying Party pursuant to the
indemnification provisions of this Agreement. In any such event, the
Indemnifying Party shall have the right, exercisable by notice to the
Indemnified Party within 20 days after notice by the Indemnified Party
to the Indemnifying Party of the commencement or assertion of such
Third Party Claim, to retain counsel, at the cost and expense of the
Indemnifying Party, to defend any such Third Party Claim. The
Indemnified Party shall be permitted to employ separate counsel and to
participate in the defense of such Third Party Claim, but the fees and
expenses of such counsel shall be borne by the Indemnified Party. In
the event that the Indemnifying Party shall fail to respond within 20
days after receipt of notice from the Indemnified Party of the
commencement or assertion of any such Third Party Claim, then the
Indemnified Party shall retain counsel and conduct the defense of such
Third Party Claim as it or he may in its or his discretion deem proper,
at the cost and expense of the Indemnifying Party.
(vi) Unless and until an Indemnifying Party assumes the
defense of a Third Party Claim as provided in section (v), the
Indemnified Party may defend against the Third Party Claim in any
manner it may reasonably deem appropriate.
(vii) The Indemnifying Party, if it shall have assumed the
defense of any Third Party Claim, shall not have the right to consent
to the entry of judgment with respect to, or otherwise settle such
Third Party Claim without the prior written consent of the Indemnified
Party (which consent shall not be unreasonably withheld or delayed),
unless the judgment or proposed settlement involves only the payment of
money damages and does not impose an injunction or other equitable
relief upon the Indemnified Party. In no event will the Indemnified
Party consent to the entry of any judgment with respect to, or
otherwise settle any such Third Party Claim without the prior written
consent of the Indemnifying Party (which consent shall not be
unreasonably withheld or delayed).
(viii) The Parties shall cooperate in the defense of any Third
Party Claim and shall furnish such records, information and testimony,
and attend at such conferences, discovery proceedings, hearings, trials
and appeals as may be reasonably requested in connection therewith.
(ix) The amount of any Losses subject to indemnification under
section 7(b)(i), (ii) or (iii) shall be calculated net of any amounts
which have been previously recovered by the
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Indemnified Party under insurance policies or other collateral sources
(such as contractual indemnities of any Person which are contained
outside this Agreement), and each of the Parties hereby covenants that
it will not release any such collateral sources from any obligations
they may have. In the event any such amounts recovered or recoverable
under insurance policies or other collateral sources are not received
before any claim for indemnification is paid pursuant to this section
7(b) and the Escrow Agreement, then the Indemnified Party shall pursue
such insurance policies or collateral sources with reasonable diligence
(unless the Indemnified Party determines that it is not in its best
interests to do so, in which case the Indemnified Party shall permit
the Indemnifying Party to pursue such recoveries on its behalf), and in
the event it receives any recovery, the amount of such recovery shall
be applied FIRST, to reimburse the Indemnified Party for its
out-of-pocket expenses (including reasonable attorneys' fees) expended
in pursuing such recovery, SECOND, to refund any payments made by the
Indemnifying Party pursuant to this section 7(b) and the Escrow
Agreement which would not have been so paid had such recovery been
obtained prior to such payment, and THIRD, any excess to the
Indemnifying Party. If the Indemnified Party fails or elects not to
pursue any such insurance policies or collateral sources with
reasonable diligence, then the Indemnifying Party shall have the right
of subrogation to pursue such insurance policies or collateral sources
and may take any reasonable actions necessary to pursue such rights of
subrogation in its name or the name of the party from whom subrogation
is obtained. The Indemnified Party shall reasonably cooperate with the
Indemnifying Party to pursue a subrogation claim. Any recovery obtained
by the Indemnifying Party shall be applied FIRST, to reimburse the
Indemnifying Party for its out-of-pocket expenses (including reasonable
attorney's fees) expended in pursuing such recovery, SECOND, to refund
any payments made by the Indemnifying Party pursuant to this Section
9.2 with respect to the Losses for which the collateral source was also
responsible, and THIRD, any excess to the Indemnified Party. In
addition, all Losses subject to indemnification hereunder shall be
calculated net of any tax benefits which have been actually realized by
the Indemnified Party as a result thereof.
(x) Any payment made by the Seller pursuant to its
indemnification obligations under section 5(d)(i) above or this section
7(b) shall constitute a reduction in the Purchase Price hereunder. Any
payment made by the Purchaser pursuant to the Purchaser's
indemnification obligations under this section 7(b) or section 5(d)(iv)
above shall constitute an addition to the Purchase Price hereunder.
(c) LIMITATION OF RECOURSE. The rights of the Parties for
indemnification relating to this Agreement or the transactions contemplated
hereby shall be strictly limited to those contained in section 5(d) and section
7(b) hereof, and subject to the last sentence hereof, such indemnification
rights shall be the exclusive remedies of the Parties subsequent to the Closing
Date with respect to any matter in any way relating to this Agreement or arising
in connection herewith. To the maximum extent permitted by law, the Purchaser
hereby waives and shall cause its Affiliates to waive all other rights and
remedies with respect to any such matter, whether under any laws (including,
without limitation, any right or remedy under CERCLA or any other Environmental
Health and Safety Requirements),
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at common law or otherwise. Except as provided in this Agreement, no claim,
action or remedy shall be brought or maintained subsequent to the Closing Date
by the Purchaser or the Company or their respective Affiliates, successors or
permitted assigns against the Seller, and no recourse shall be brought or
granted against the Seller, by virtue of or based upon any alleged misstatement
or omission respecting an inaccuracy in or breach of any of the representations,
warranties or covenants of the Seller set forth or contained in this Agreement,
except to the extent that the same shall have been the result of fraud by any
such Person.
8. DISPUTE RESOLUTION
(a) DISPUTE DEFINED. As used in this Agreement, "DISPUTE"
shall (i) mean any dispute or disagreement between the Parties concerning the
interpretation of this Agreement, the validity of this Agreement, any breach or
alleged breach by any Party under this Agreement, any claim by either Party for
indemnification under this Agreement or any other matter relating in any way to
this Agreement, and (ii) exclude any dispute or disagreement between the
Purchaser and the Seller concerning the determination of Net Working Capital as
of the Closing Date, which shall be resolved pursuant to the provisions of
section 2(g) of this Agreement.
(b) DISPUTE RESOLUTION PROCEDURES.
(i) If a Dispute arises, the Parties shall follow the
procedures specified in this section 8. The Parties shall promptly
attempt to resolve any Dispute by negotiations between themselves.
Either the Purchaser or the Seller may give the other Party written
notice of any Dispute not resolved in the normal course of
businesection The Purchaser and the Seller shall meet at a mutually
acceptable time and place within 15 calendar days after delivery of
such notice, and thereafter as often as they reasonably deem necessary,
to exchange relevant information and to attempt to resolve the Dispute.
If the Dispute has not been resolved by the Parties within 30 calendar
days of the disputing Party's notice, or if the Parties fail to meet
within such 15 calendar days, either the Purchaser or the Seller may
initiate mediation in Chicago, Illinois as provided in Section section
8(b)(ii) of this Agreement. If a negotiator intends to be accompanied
at a meeting by legal counsel, the other negotiator shall be given at
least three business days' notice of such intention and may also be
accompanied by legal counsel.
(ii) If the Dispute is not resolved by negotiations pursuant
to section 8(b)(i), the Purchaser and the Seller shall attempt in good
faith to resolve any such Dispute by nonbinding mediation. Either the
Purchaser or the Seller may initiate a nonbinding mediation proceeding
by a request in writing to the other Party (the "MEDIATION REQUEST"),
and both disputing Parties will then be obligated to engage in a
mediation. The proceeding will be conducted in accordance with the then
current Center for Public Resources ("CPR") Model Procedure for
Mediation of Business Disputes, with the following exceptions:
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(A) if the Parties have not agreed within 30 calendar
days of the Mediation Request on the selection of a mediator
willing to serve, CPR, upon the request of either the
Purchaser or the Seller, shall appoint a member of the CPR
Panels of Neutrals as the mediator; and
(B) efforts to reach a settlement will continue until
the conclusion of the proceedings, which shall be deemed to
occur upon the earliest of the date that: (1) a written
settlement is reached, or (2) the mediator concludes and
informs the Parties in writing that further efforts would not
be useful, or (3) the Purchaser and the Seller agree in
writing that an impasse has been reached, or (4) a period of
60 calendar days has passed since the Mediation Request and
none of the events specified in the foregoing clauses (1) (2)
or (3) has occurred. No Party may withdraw before the
conclusion of the proceeding.
(iii) If a Dispute is not resolved by negotiation pursuant to
section 8(b)(i) of this Agreement or by mediation pursuant to section
8(b)(ii) of this Agreement within 100 calendar days after initiation of
the negotiation process pursuant to section 8(b)(i), such Dispute and
any other claims arising out of or relating to this Agreement may be
heard, adjudicated and determined in an action or proceeding filed in
any state or federal court specified in section 11(g).
(c) PROVISIONAL REMEDIES. At any time during the procedures specified
in sections 8(b)(i) and 8(b)(ii) of this Agreement, a Party may seek a
preliminary injunction or other provisional judicial relief if in its judgment
such action is necessary to avoid irreparable damage or to preserve the status
quo. Despite such action, the parties will continue to participate in good faith
in the procedures specified in sections 8(b)(i) and 8(b)(ii). .
(d) TOLLING STATUTE OF LIMITATIONS. All applicable statutes of
limitation and defenses based upon the passage of time shall be tolled while the
procedures specified in sections 8(b)(i) and 8(b)(ii) of this Agreement
are pending. The Parties will take such action, if any, as is required to
effectuate such tolling.
(e) PERFORMANCE TO CONTINUE. Each Party shall continue to perform its
or his obligations under this Agreement pending final resolution of any Dispute.
(f) EXTENSION OF DEADLINES. All deadlines specified in this section 8
may be extended by mutual agreement between the parties.
(g) ENFORCEMENT. The Parties regard the obligations in this section 8
to constitute an essential provision of this Agreement and one that is legally
binding on them. In case of a violation of the obligations in this section 8 by
either Party hereto, the other Party may bring an action to seek enforcement of
such obligations in any state or federal court specified in section 11(g).
(h) COSTS. The Parties shall pay their own costs, fees, and expenses
incurred in connection with the application of the provisions of sections
8(b)(i) and 8(b)(ii) of this Agreement. In addition, the fees and expenses of
CPR and the mediator in connection with the application of the provisions of
section 8(b)(ii) of this Agreement shall be borne 50% by the Purchaser and 50%
by the Seller.
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(i) REPLACEMENT. If CPR is no longer in business or is unable or
refuses or declines to act or to continue to act under section 8(b)(ii) of this
Agreement for any reason, then the functions specified in section 8(b)(ii) to be
performed by CPR shall be performed by another Person engaged in a business
equivalent to that conducted by CPR as is agreed to by the Purchaser and the
Seller (the "REPLACEMENT"). If the Purchaser and the Seller cannot agree on the
identity of the Replacement within 10 calendar days after a Request, the
Replacement shall be selected by the Chief Judge of the United States District
Court for the Northern District of Illinois upon application. If a Replacement
is selected by either means, section 8(b)(ii) shall be deemed appropriately
amended to refer to such Replacement.
9. MODIFICATION AND WAIVERS.
(a) MODIFICATION. The Parties may, by mutual consent, amend, modify or
supplement this Agreement in such manner as may be agreed upon by them in
writing at any time.
(b) WAIVERS. The Purchaser, by an instrument in writing, may extend the
time for or waive the performance of any of the obligations of the Seller or
waive compliance by the Seller with any of the covenants or conditions of the
Seller contained herein, and the Seller, by an instrument in writing, may extend
the time for or waive the performance of any of the obligations of the Purchaser
or waive compliance by the Purchaser with any of the covenants or conditions of
the Purchaser contained herein.
10. ADDITIONAL AGREEMENTS. The Parties agree that any claim for payment
pursuant to sections 10(a), 10(b) and 10(c) must be made by the Purchaser
on or before April 15, 1999. To preserve any claim for payment, the Purchaser
shall be obligated to notify the Seller in writing of any claim, together with
supporting documentation, on or before April 15, 1999, otherwise, the
Purchaser's claim shall be forever barred. The Parties further agree that any
payments required to be made pursuant to sections 10(a), 10(b), 10(c) and
10(d) may be made from funds deposited in the Escrow Account; PROVIDED, HOWEVER,
that such payments shall not be subject to the Basket; PROVIDED, FURTHER, that
to the extent Losses for which the Purchaser is entitled to indemnification
under section 7(b)(i), together with amounts paid from the Escrow Account
pursuant to sections 5(g)(iv), 10(a), 10(b), 10(c) and 10(d) exceed
$1,000,000, Seller shall pay the Purchaser the deficiency within 30 days of the
Purchaser's request. The following are provided by way of example and not by way
of limitation:
Assume that $250,000 in payments required to be made pursuant to this
section 10(a) are paid from funds deposited in the Escrow Account and
the Purchaser is entitled to indemnification for $800,000 in Losses
which arise out of the representations and warranties of the Seller set
forth in this Agreement (other than the Unrestricted Representations
and Warranties) under section 7(b)(i). In addition to the $250,000
already paid from funds deposited in the Escrow Account, the Seller
shall be required to pay the Purchaser the difference between $800,000
and the funds remaining in the Escrow Account ($750,000 and any accrued
earnings thereon) and the Purchaser shall receive the funds remaining
in the Escrow Account.
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<PAGE> 45
Assume that $250,000 in payments required to be made pursuant to this
section 10(a) are paid from funds deposited in the Escrow Account and
the Purchaser incurs $1,100,000 in Losses which arise out of the
representations and warranties of the Seller set forth in this
Agreement (other than the Unrestricted Representations and Warranties).
Since the Purchaser's indemnification under section 7(b)(i) is limited
to $1,000,000, in addition to the $250,000 already paid from funds
deposited in the Escrow Account, the Seller shall only be required to
pay the Purchaser the difference between $1,000,000 and the funds
remaining in the Escrow Account ($750,000 and any accrued earnings
thereon) and the Purchaser shall receive the funds remaining in the
Escrow Account.
(a) PROPORTIONATE SHARE. The percentage used to calculate certain
bonuses to independent sales representatives of the Company increases after
certain dollar thresholds are exceeded or the bonus does not become effective
until certain thresholds are exceeded.. In addition, the percentage used to
calculate rebates for certain of the Company's customers increases as the
customer's volume of purchases increases or the rebate is not effective until
certain thresholds are exceeded. It is the intent of the parties that the Seller
and the Purchaser share in the cost of such items based on the proportion of
sales prior to and after Closing. To the extent the accrual on the Company's
Closing Balance Sheet for such rebates and bonuses is less than the Seller's
Proportionate Share of such rebates and bonuses, the Seller shall pay the
Purchaser the deficiency within 30 days of the Purchaser's request provided such
request contains supporting documentation and provided that any Dispute
regarding payment is first resolved pursuant to section 8 of this Agreement. By
way of example, if a customer is entitled to a two percent (2%) rebate for
purchases up to $1,000,000 and a three percent (3%) rebate for all subsequent
purchases and the customer purchased $1,000,000 in products prior to Closing and
$1,000,000 after Closing, the Seller and the Purchaser are each responsible for
$25,000 of the rebate. To the extent the accrual on the Company's Closing
Balance Sheet was less than $25,000, the Seller shall pay the Purchaser for the
deficiency. Seller's "PROPORTIONATE SHARE" shall equal the amount of sales for
the applicable period prior to Closing divided by the total sales for the
applicable period.
(b) STOCK ADJUSTMENTS. It is customary, from time to time, for the
Company to provide stock adjustments (returned merchandise which is discontinued
or after the end of the catalog season) and for the Company to resell such
returned merchandise. To the extent the accrual on the Company's Closing Balance
Sheet for stock adjustments was insufficient for (1) the difference between the
original sales price of the returned merchandise and the resale price thereof,
(2) re-work costs and shipping costs, but specifically excluding any commissions
due on the resale of the returned merchandise which shall be the obligation of
the Company and which shall not be the responsibility of the Seller under this
section 10(b), and (3) the cost of any returned merchandise which was sold prior
to Closing and which is not resold by the Company, Seller shall pay Purchaser
the deficiency within thirty (30) days of Purchaser's request, provided that (i)
the Purchaser causes the Company to use its best efforts to resell the returned
merchandise in the Ordinary Course of Business, (ii) such request contains
supporting documentation, including evidence of the Purchaser's compliance with
the immediately preceding subparagraph (i), and (iii) any Dispute regarding
payment is first resolved pursuant to section 8 of this Agreement.
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<PAGE> 46
(c) SELLER'S GUARANTEE OF ACCOUNTS RECEIVABLE.
(i) With respect to accounts receivable on the Closing Balance
Sheet which as of the Closing are 90 days or over (the "90 AND OVER
ACCOUNTS RECEIVABLE"), Seller guarantees the collectibility of $60,000
of the 90 and Over Accounts Receivable in full.
(ii) The Purchaser agrees to use efforts consistent with the
Company's past custom and practice to cause the Company to collect all
90 and Over Accounts Receivable, but shall not be obligated to resort
to litigation. Any sums payable by account debtors on account of any
accounts receivable of such account debtors shall be credited to the
earliest invoices of the Company to such account debtors, unless
specifically directed otherwise by the account debtor. Subject to the
foregoing, to the extent any 90 and Over Accounts Receivable existing
at the Closing are unpaid for a period of 60 days after the Closing,
the Purchaser shall send written notice to the Seller indicating the
specific account debtors, the amount of the unpaid invoices
representing 90 and Over Accounts Receivable to each such account
debtor and the total of all such unpaid 90 and Over Accounts
Receivable. The Seller shall pay the amount of all 90 and Over Accounts
Receivable, not to exceed $60,000 within 30 days of the receipt of any
notice pursuant to this section 10(c)(ii) on the condition that the
Purchaser shall simultaneously cause the Company to assign such unpaid
90 and Over Accounts Receivable (the "ASSIGNED RECEIVABLES") to the
Seller. Such assignment shall include the right to sue as an assignee
of the Company. In the event that after such assignment the Company
receives any payment on the Assigned Receivables, the Purchaser shall
cause the Company to promptly remit such amount to the Seller.
Thereafter, the Seller, as owner of the Assigned Receivables, may take
any action the Seller deems necessary to collect the Assigned
Receivables and any collections shall be the property of the Seller.
The Purchaser agrees to cooperate and shall cause the Company to
cooperate with the Seller in any action the Seller wishes to take to
collect the Assigned Receivables consistent with the Company's past
custom and practice . In the event the Purchaser does not want to
assign any Account Receivable to the Seller because it does not want
the Seller to initiate collection action thereon, the Seller shall be
relieved of any liability under this section 10(c) with respect to such
90 and Over Account Receivable.
(iii) In the event any 90 and Over Account Receivable is
subject to a valid dispute by the account debtor and/or the Purchaser
wishes to grant a discount on any 90 and Over Account Receivable, the
Purchaser shall send written notice or notices to the Seller indicating
the specific account debtors and the amount of the dispute or discount.
The Purchaser shall consult with the Seller with respect to the
resolution of any dispute and/or the amount of any discount and shall
not settle any such dispute or grant any discount without the consent
of the Seller, which consent shall not be unreasonably withheld. Where
consent is given to the settlement of any dispute and/or the granting
of any discount, subject to the total amount paid by the Seller
pursuant to section 10(c) not exceeding $60,000, the Seller shall pay
the Purchaser the difference between the original amount of the 90 and
Over Account Receivable and the amount actually received by the
Purchaser after settlement or discount, with payment to be made within
30 days after the settlement or granting of the
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<PAGE> 47
discount. Where consent is withheld by the Seller, the Purchaser may
either assign the 90 and Over Account Receivable, or settle the dispute
or grant the discount at its own expense and the Seller shall be
relieved of any liability under this section 10(c) with respect to such
90 and Over Account Receivable.
(d) SEVERANCE OBLIGATIONS.
(i) If the Purchaser terminates any of the Company's employees
after Closing, none of such employees are entitled to any severance
packages, except (A) as provided in section 10(d)(ii) and except as may
be required under applicable law as a result of action taken by the
Purchaser or the Company after Closing.
(ii) At the Purchaser's request, the Seller will cause the
Company to terminate Rick Lee immediately prior to Closing. The Seller
agrees (A) to be responsible for and to pay any severance obligation to
Rick Lee and (B) to indemnify, defend and hold the Purchaser and the
Company harmless from any Losses incurred as a result of any claim by
Rick Lee resulting from such termination; PROVIDED, HOWEVER, if the
Purchaser or the Company retains Rick Lee as an employee or consultant
to the Company following Closing, such indemnification shall not apply
with respect to any obligations of the Company to Rick Lee under such
employment or consulting arrangement or any Losses incurred by the
Company or the Purchaser as a result of its termination of such
employment or consulting arrangement.
(e) MICROCENTRE DISPUTE. The Seller agrees to continue to try to
resolve the pending disputes between the Company and Micro Electronics, Inc.
regarding the Company's trademark "MICROCENTRE" on the basis of the current
settlement terms being discussed by the Company and Micro Electronics, Inc., and
shall be responsible for all costs of resolving such disputes, including,
without limitation, attorneys' fees and court costs. In the event the disputes
cannot be resolved on the basis of the current draft of the Settlement
Agreement, as modified by the terms of the attachment to the Gordon & Einstein,
Ltd. letter dated June 29, 1998, the Seller agrees to continue to defend the
litigation at its sole cost and expense and to indemnify, defend and hold the
Purchaser and the Company harmless with respect to all Losses incurred in
connection with such disputes. Upon resolution of the dispute on substantially
the same terms as set forth in the current draft of the Settlement Agreement, as
modified by the terms of the attachment to Gorden & Einstein, Ltd.'s letter
dated June 29, 1998, the Purchaser agrees to immediately cause the Company to
execute the Settlement Agreement submitted by the Seller or its counsel.
(f) PRE-CLOSING WORKERS COMPENSATION CLAIMS. The Seller agrees to be
responsible for and to cause to be paid all workers compensation claims which
relate to pre-Closing periods.
(g) VACATION ACCRUAL. To the extent the accrual on the Company's
Closing Balance Sheet for vacation is less than the amount which should have
properly been accrued in accordance with GAAP, the Purchaser shall be entitled
to indemnification for the deficiency in accordance with and subject to the
provisions of Section 7(b)(i).
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<PAGE> 48
11. MISCELLANEOUS.
(a) NO THIRD-PARTY BENEFICIARIES. This Agreement shall not confer any
rights or remedies upon any Person other than the Parties and their respective
successors and permitted assigns.
(b) ENTIRE AGREEMENT. This Agreement (including the documents referred
to herein) constitutes the entire agreement among the Parties and supersedes any
prior understandings, agreements, or representations by or among the Parties,
written or oral, to the extent they related in any way to the subject matter
hereof, other than the confidentiality agreement between the Purchaser and Mann
Armistead & Epperson, Ltd. executed in connection with the transactions
contemplated hereby (the "CONFIDENTIALITY AGREEMENT"), which shall remain in
full force and effect until the Closing has occurred.
(c) SUCCESSION AND ASSIGNMENT. This Agreement shall be binding upon and
inure to the benefit of the Parties named herein and their respective successors
and permitted assigns. No Party may assign either this Agreement or any of its
rights, interests or obligations hereunder without the prior written approval of
the other Parties; PROVIDED, HOWEVER, that, the Purchaser may (i) assign any or
all of its rights and interests hereunder to one or more of its wholly-owned
Subsidiaries and (ii) designate one or more of its wholly-owned Subsidiaries to
perform its obligations hereunder and (iii) after the Closing is effected, any
or all of the rights and interests of Purchaser hereunder (A) may be assigned to
any purchaser of substantially all of the assets of Purchaser, (B) may be
assigned as a matter of law to the surviving entity in any merger of the
Purchaser, and (C) may be assigned as collateral security to any lender or
lenders (including any agent for any such lender or lenders) providing financing
to the Purchaser in connection with the transactions contemplated hereby, or to
any assignee or assignees of any such lender, lenders or agent (it being
understood that in any or all of the cases described in clauses (i), (ii) and
(iii) above the Purchaser nonetheless shall remain responsible for the
performance of all of its obligations hereunder).
(d) COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(e) HEADINGS. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(f) NOTICES. All notices, requests, demands, claims and other
communications hereunder will be in writing. Any notice, request, demand, claim
or other communication hereunder shall be deemed duly given if (and then two
business days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set forth
below:
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<PAGE> 49
If to the Seller:
WinsLoew Furniture, Inc.
201 Cahaba Valley Parkway
Pelham, Alabama 35124
Attention: Mr. Bobby Tesney, President and
Chief Executive Officer
Fax: (205) 403-0403
With copies to (which shall not constitute notice to the Seller):
Peter W. Klein, Esq.
Managing Director and General Counsel
Trivest, Inc.
2665 South Bayshore Drive
Suite 800
Miami, Florida 33133
Fax: (305) 858-1629
If to the Purchaser:
Vertiflex Company
630 West 41st Street
Chicago, Illinois 60609-2678
Attention: Mr. Sheldon G. Karras, Executive Vice President
Fax: (973) 927-3986
With copies to (which shall not constitute notice to the Purchaser):
Stuart Duhl, Esq.
Schwartz & Freeman
Suite 1900
401 North Michigan Avenue
Chicago, Illinois 60611
Fax: (312) 222-0818
Any Party may send any notice, request, demand, claim or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail or electronic mail), but no such notice, request,
demand, claim or other communication shall be deemed to have been duly given
unless and until it actually is received by the intended recipient. Any Party
may change the address to which notices, requests, demands, claims and other
communications hereunder are to be delivered by giving the other Parties notice
in the manner herein set forth.
-45-
<PAGE> 50
(g) GOVERNING LAW; VENUE. This Agreement shall be governed by and
construed in accordance with the domestic laws of the State of Illinois without
giving effect to any choice or conflict of law provision or rule (whether of the
State of Illinois or any other jurisdiction) that would cause the application of
the laws of any jurisdiction other than the State of Illinois. The Parties agree
that any and all actions arising under or in respect of this Agreement shall be
litigated in any federal or state court of competent jurisdiction located in the
County of Cook, State of Illinois. By execution and delivery of this Agreement,
each Party irrevocably submits to the personal and exclusive jurisdiction of
such courts for itself or himself, and in respect of its or his property with
respect to such action. Each Party agrees that venue would be proper in any of
such courts, and hereby waives any objection that any such court is an improper
or inconvenient forum for the resolution of any such action.
(h) AMENDMENTS AND WAIVERS. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by the
Purchaser and the Seller. No waiver by any Party of any default,
misrepresentation or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation or breach of warranty or covenant hereunder or affect
in any way any rights arising by virtue of any prior or subsequent such
occurrence.
(i) SEVERABILITY. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
(j) EXPENSES. Except as otherwise provided in this Agreement, each of
the Parties will bear their own costs and expenses (including legal and
investment advisory fees and expenses) incurred in connection with this
Agreement and the transactions contemplated hereby.
(k) CONSTRUCTION. The Parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
specification of any dollar amount in the representations and warranties or
otherwise in this Agreement or in the Disclosure Schedule is not intended and
shall not be deemed to be an admission or acknowledgment of the materiality of
such amounts or items, nor shall the same be used in any dispute or controversy
between the Parties to determine whether any obligation, item or matter (whether
or not described herein or included in any schedule) is or is not material for
purposes of this Agreement.
(l) INCORPORATION OF DISCLOSURE SCHEDULE. The Disclosure Schedule
identified in this Agreement is incorporated herein by reference and made a part
hereof.
-46-
<PAGE> 51
(m) WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY IRREVOCABLY AND
UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT SUCH PARTY MAY LEGALLY AND
EFFECTIVELY DO SO, TRIAL BY JURY IN ANY SUIT, ACTION OR PROCEEDING ARISING
HEREUNDER.
(n) PREVAILING PARTIES. In the event of any litigation with regard to
this Agreement, the prevailing Party or Parties shall be entitled to receive
from the nonprevailing Party or Parties and the nonprevailing Party or Parties
shall pay all reasonable fees and expenses of counsel for the prevailing Party
or Parties.
(o) EQUITABLE REMEDIES. The Seller acknowledges and agrees that the
Purchaser would not have an adequate remedy at law in the event any of the
provisions of section 5(g) of this Agreement are not performed in accordance
with their specific terms or are breached. Accordingly, the Seller agrees that
the Purchaser shall be entitled to an injunction or injunctions to prevent
breaches of section 5(g) of this Agreement and to enforce specifically the terms
and provisions thereof in any action instituted in any court of competent
jurisdiction, in addition to any other remedies which may be available to it.
SIGNATURES APPEAR ON FOLLOWING PAGE
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<PAGE> 52
IN WITNESS WHEREOF, the Parties hereto have each executed and delivered
this Agreement as of the day and year first above written.
WINSLOEW FURNITURE, INC.
By: /s/ Bobby Tesney
-------------------------------------
Bobby Tesney
President and Chief Executive Officer
VERTIFLEX COMPANY
By: /s/ Sheldon G. Karras
-------------------------------------
Sheldon G. Karras
Executive Vice President
-48-
<PAGE> 1
EXHIBIT 10.25
STOCK PURCHASE AGREEMENT
by and among
THE NAMED SELLERS
and
WINSTON FURNITURE COMPANY OF ALABAMA, INC.
and
MIAMI METAL PRODUCTS, INC.
and
INDUSTRIAL MUEBLERA POMPEII de MEXICO, S.A. de C.V.
dated as of November 23, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
1. DEFINITIONS..............................................................................1
2. PURCHASE AND SALE OF COMPANY SHARES AND IMP SHARES......................................10
(a) BASIC TRANSACTION..............................................................11
(b) PURCHASE PRICE.................................................................11
(c) PAYMENT OF COMPANY PURCHASE PRICE AND IMP PURCHASE PRICE.......................11
(d) FUNDED INDEBTEDNESS ...........................................................12
(e) EARNOUT........................................................................12
(f) POST-CLOSING COMPANY PURCHASE PRICE ADJUSTMENT.................................16
(g) THE CLOSING....................................................................18
(h) DELIVERIES AT THE CLOSING......................................................18
(i) TRANSFER TAXES.................................................................18
(j) NET CASH PAYMENT TO SELLERS....................................................18
3A. REPRESENTATIONS AND WARRANTIES OF THE SELLERS...........................................19
(a) CAPACITY.......................................................................19
(b) BINDING OBLIGATION.............................................................19
(c) NONCONTRAVENTION...............................................................19
(d) OWNERSHIP OF COMMON STOCK AND IMP STOCK .......................................19
(e) BROKERS' FEES..................................................................20
3B. REPRESENTATIONS AND WARRANTIES OF THE SELLERS WITH RESPECT TO THE COMPANY AND IMP.......20
(a) ORGANIZATION/POWER AND AUTHORITY TO CONDUCT BUSINESS ..........................20
(b) AUTHORIZATION OF TRANSACTION...................................................20
(c) NONCONTRAVENTION...............................................................20
(d) BROKERS' FEES..................................................................21
(e) CAPITALIZATION.................................................................21
(f) FINANCIAL STATEMENTS...........................................................22
(g) ABSENCE OF CERTAIN DEVELOPMENTS................................................22
(h) UNDISCLOSED LIABILITIES........................................................24
(i) LEGAL COMPLIANCE...............................................................24
(j) COMPANY AND IMP PERMITS........................................................24
(k) TAX MATTERS....................................................................25
(l) CERTAIN BUSINESS RELATIONSHIPS WITH THE COMPANY AND IMP........................26
(m) TITLE TO TANGIBLE ASSETS OTHER THAN REAL PROPERTY INTERESTS....................27
(n) REAL PROPERTY..................................................................27
(o) INTELLECTUAL PROPERTY..........................................................28
(p) CONTRACTS......................................................................29
(q) POWERS OF ATTORNEY.............................................................29
(r) INSURANCE......................................................................29
(s) LITIGATION.....................................................................29
(t) LABOR RELATIONS................................................................30
(u) EMPLOYEE BENEFITS..............................................................30
(v) ENVIRONMENTAL, HEALTH AND SAFETY MATTERS.......................................32
</TABLE>
- i -
<PAGE> 3
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
(w) CUSTOMERS AND SUPPLIERS........................................................33
(x) INVENTORY......................................................................33
(y) ACCOUNTS RECEIVABLE............................................................33
(z) LIST OF ACCOUNTS...............................................................34
(aa) PRODUCTS LIABILITY.............................................................34
4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.........................................34
(a) ORGANIZATION...................................................................34
(b) AUTHORIZATION OF TRANSACTION...................................................34
(c) NONCONTRAVENTION...............................................................34
(d) BROKERS' FEES..................................................................34
(e) ACQUISITION OF SHARES FOR INVESTMENT...........................................35
5. PRE-CLOSING COVENANTS...................................................................35
(a) GENERAL........................................................................35
(b) NOTICES AND CONSENTS...........................................................35
(c) OPERATION OF BUSINESS .........................................................35
(d) PRESERVATION OF BUSINESS ......................................................35
(e) FULL ACCESS ...................................................................36
(f) NOTICE OF DEVELOPMENTS.........................................................36
(g) NO ADDITIONAL REPRESENTATIONS OR WARRANTIES....................................36
6. POST-CLOSING COVENANTS..................................................................36
(a) GENERAL........................................................................36
(b) SECTION 338(h)(10) ELECTION....................................................37
(c) TRANSITION.....................................................................38
(d) LITIGATION SUPPORT.............................................................38
(e) NONCOMPETITION.................................................................38
(f) NON-SOLICITATION...............................................................39
(g) CONFIDENTIALITY................................................................39
7. NO SHOP.................................................................................40
8. CONDITIONS TO OBLIGATION TO CLOSE.......................................................40
(a) CONDITIONS TO OBLIGATION OF THE PURCHASER......................................40
(b) CONDITIONS TO OBLIGATION OF THE SELLERS........................................41
9. REMEDIES FOR BREACHES OF THIS AGREEMENT.................................................42
(a) SURVIVAL OF REPRESENTATIONS AND WARRANTIES.....................................42
(b) INDEMNIFICATION................................................................43
(c) TREATMENT OF INDEMNIFICATION PAYMENTS..........................................46
(d) EXCLUSIVE REMEDY...............................................................46
(e) ASSIGNMENT BY PURCHASER........................................................46
(f) NO CONTRIBUTION FROM COMPANY OR IMP............................................46
10. DISPUTE RESOLUTION......................................................................46
(a) DISPUTE DEFINED................................................................46
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
(b) DISPUTE RESOLUTION PROCEDURES..................................................47
(c) PROVISIONAL REMEDIES...........................................................48
(d) TOLLING OF STATUTE OF LIMITATIONS..............................................48
(e) PERFORMANCE TO CONTINUE........................................................48
(f) EXTENSION OF DEADLINES.........................................................48
(g) ENFORCEMENT....................................................................48
(h) COSTS..........................................................................48
11. ADDITIONAL AGREEMENTS...................................................................48
(a) PRODUCT RETURNS................................................................49
(b) SELLERS' GUARANTEE OF ACCOUNTS RECEIVABLE......................................49
(c) VACATION AND HOLIDAY ACCRUAL...................................................50
(d) EPCRA FILINGS..................................................................51
(e) LITIGATION.....................................................................51
12. TERMINATION.............................................................................51
(a) TERMINATION OF AGREEMENT.......................................................51
(b) EFFECT OF TERMINATION..........................................................52
13. WINSLOEW FURNITURE GUARANTY.............................................................52
14. MISCELLANEOUS...........................................................................52
(a) PRESS RELEASES AND PUBLIC ANNOUNCEMENTS........................................52
(b) NO THIRD-PARTY BENEFICIARIES...................................................52
(c) ENTIRE AGREEMENT...............................................................52
(d) SUCCESSION AND ASSIGNMENT......................................................52
(e) COUNTERPARTS...................................................................53
(f) HEADINGS.......................................................................53
(g) NOTICES........................................................................53
(h) GOVERNING LAW; VENUE...........................................................54
(i) AMENDMENTS AND WAIVERS.........................................................54
(j) SEVERABILITY...................................................................55
(k) EXPENSES.......................................................................55
(l) CONSTRUCTION...................................................................55
(m) INCORPORATION OF DISCLOSURE SCHEDULE...........................................55
(n) EQUITABLE REMEDIES.............................................................55
(o) WAIVER OF JURY TRIAL...........................................................56
(p) PREVAILING PARTIES.............................................................56
</TABLE>
Exhibit A -- Escrow Agreement
Exhibit B -- Employment Agreement With Perry Martin
Exhibit C -- Consulting Agreement With Leo Martin
Exhibit D -- Lease Amendment With Nitram Partners, Ltd.
Exhibit E -- Joinder Agreement With Sherry Mittleman and Lisa Schneiderman
Disclosure Schedule
-iii-
<PAGE> 5
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement is made as of November __, 1998,
by and among WINSTON FURNITURE COMPANY OF ALABAMA, INC., an Alabama corporation
(the "PURCHASER"), MIAMI METAL PRODUCTS, INC., D/B/A POMPEII FURNITURE
INDUSTRIES, a Florida corporation (the "COMPANY"), INDUSTRIAL MUEBLERA POMPEII
DE MEXICO, S.A. DE C.V., a Mexican corporation ("IMP") and the following selling
shareholders, LEO MARTIN ("L. MARTIN"), GLORIA MARTIN ("G. MARTIN"), DONALD R.
TESCHER, TRUSTEE AND NOT INDIVIDUALLY OF THE LEO MARTIN RETAINED ANNUITY TRUST
AGREEMENT I, DONALD R. TESCHER, TRUSTEE AND NOT INDIVIDUALLY OF THE LEO MARTIN
RETAINED ANNUITY TRUST AGREEMENT II, DONALD R. TESCHER, TRUSTEE AND NOT
INDIVIDUALLY OF THE LEO MARTIN RETAINED ANNUITY TRUST AGREEMENT III, DONALD R.
TESCHER, TRUSTEE AND NOT INDIVIDUALLY OF THE GLORIA MARTIN RETAINED ANNUITY
TRUST AGREEMENT I, DONALD R. TESCHER, TRUSTEE AND NOT INDIVIDUALLY OF THE GLORIA
MARTIN RETAINED ANNUITY TRUST AGREEMENT II, and DONALD R. TESCHER, TRUSTEE AND
NOT INDIVIDUALLY OF THE GLORIA MARTIN RETAINED ANNUITY TRUST AGREEMENT III
(collectively, the "SELLERS" and individually, a "SELLER"). The Purchaser, the
Company, IMP and the Sellers are each referred to in this Agreement as a "PARTY"
and collectively as the "PARTIES". WinsLoew Furniture, Inc. and Perry B. Martin
are parties to this Agreement solely for the purpose of agreeing to the
provisions set forth above their respective signatures.
The Sellers directly own all of the outstanding capital stock
of the Company. L. Martin and G. Martin directly own all of the outstanding
capital stock of IMP.
This Agreement contemplates a transaction in which (i) the
Purchaser will purchase from the Sellers, and the Sellers will sell to the
Purchaser, all of the outstanding capital stock of the Company and (ii) the
Purchaser will purchase from L. Martin and G. Martin, and L. Martin and G.
Martin will sell to the Purchaser, all of the outstanding capital stock of IMP.
NOW, THEREFORE, in consideration of the premises and the
mutual promises herein made, and in consideration of the representations,
warranties and covenants herein contained, the Parties agree as follows.
1. DEFINITIONS.
"ACCOUNTING FIRM" has the meaning set forth in section 2(e)(vi) below.
"ACCOUNTS RECEIVABLE" means all of the Company's accounts, instruments,
drafts, acceptances and other forms of receivables and all rights earned under
the Company's contracts to sell goods or render services, including, but not
limited to, rights to any letters of credit which back any Account Receivable.
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"ADJUSTED EBITAM" means has the meaning set forth in section 2(e)(iv)
below.
"ADJUSTED EBITAM STATEMENT" has the meaning set forth in section
2(e)(vi) below.
"AFFILIATE" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act.
"AFFILIATED GROUP" means any affiliated group within the meaning of
section 1504 of the Code.
"ALLOCATION SCHEDULE" has the meaning set forth in section 6(b)(iv)
below.
"ASSIGNED RECEIVABLES" has the meaning set forth in section 11(b)(ii)
below.
"AUTHORITY" means any federal, state, local or foreign governmental
regulatory agency, commission, bureau, authority, court or arbitration tribunal.
"AVAILABLE CASH" means all Cash held by the Company as of midnight on
the day before the Closing Date less (i) an amount of Cash necessary to cover
outstanding checks (which are not otherwise stale) which have been mailed or
otherwise delivered by the Company but have not cleared and (ii) the amount
necessary to comply with the provisions of section 8(a)(xiv).
"BUSINESS OF THE COMPANY AND IMP" means the manufacture of high-end
metal-frame furniture for residential and hospitality industries.
"CASH" means cash and cash equivalents (including marketable securities
and short term investments) calculated in accordance with GAAP applied on a
basis consistent with the preparation of the Financial Statements.
"CERCLA" has the meaning set forth in section 3B(v)(vi) below.
"CLOSING" has the meaning set forth in section 2(g) below.
"CLOSING BALANCE SHEET" has the meaning set forth in section 2(f)(i)
below.
"CLOSING DATE" has the meaning set forth in section 2(g) below.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMPANY" has the meaning set forth in the preface above.
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<PAGE> 7
"COMPANY COMMON STOCK" means the Class A Common Stock, $.10 par value,
and the Class B Common Stock, $.10 par value, of the Company.
"COMPANY PERMITS" has the meaning set forth in section 3B(j)(i) below.
"COMPANY PRO RATA SHARE" means with respect to any Seller a fractional
multiplier of which the numerator is the number of shares of Company Common
Stock held by such Seller and the denominator is the total number of shares of
Company Common Stock held by all Sellers.
"COMPANY PURCHASE PRICE" has the meaning set forth in section 2(b)(i)
below.
"COMPANY PURCHASE PRICE ADJUSTMENT" has the meaning set forth in
section 2(f)(iii) below.
"COMPANY PURCHASE PRICE ADJUSTMENT ESCROW ACCOUNT" has the meaning set
forth in section 2(c)(ii) below
"COMPANY SHARES" has the meaning set forth in section 2(a) below.
"CONFIDENTIALITY AGREEMENT" has the meaning set forth in section 121(b)
below.
"CONFIDENTIAL INFORMATION" means data and information relating to the
Business of the Company and IMP (which does not rise to the level of a Trade
Secret) which is not generally known to their competitors and which (a) derives
economic value, actual or potential, from not being known to, and not being
readily ascertainable by proper means by, other persons who can obtain economic
value from its disclosure or use, and (b) is the subject of efforts that are
reasonable under the circumstances to maintain its secrecy. Confidential
Information does not include any data or information that has been voluntarily
disclosed to the public by the Company or IMP or that has been independently
developed and disclosed by others, or that otherwise enters the public domain
through lawful means.
"CONSULTING AGREEMENT" means the Consulting Agreement to be entered
into between the Purchaser and Leo Martin in the forms of EXHIBIT C hereto.
"DEDUCTIBLE" has the meaning set forth in section 9(b)(i) below.
"DEFENSE COUNSEL" has the meaning set forth in section 9(b)(v) below.
"DEFENSE NOTICE" has the meaning set forth in section 9(b)(v) below.
"DETERMINATION NOTICE" has the meaning set forth in section 2(e)(ii)
below.
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<PAGE> 8
"DISCLOSURE SCHEDULE" means the Disclosure Schedule accompanying this
Agreement.
"DISPUTE" has the meaning set forth in section 10(a) below.
"EARNOUT" has the meaning set forth in section 2(e)(i) below.
"EARNOUT ACTUAL AMOUNT" has the meaning set forth in section
2(e)(vi)(C) below.
"EARNOUT HIGH AMOUNT" has the meaning set forth in section 2(e)(vi)(B)
below.
"EARNOUT LOW AMOUNT" has the meaning set forth in section 2(e)(vi)(A)
below.
"EMPLOYEE BENEFIT PLAN" has the meaning set forth in section 3B(u)
below.
"EMPLOYEE BENEFIT PLAN REPRESENTATIONS AND WARRANTIES" has the meaning
set forth in section 9(a) below.
"EMPLOYEE PENSION BENEFIT PLAN" has the meaning set forth in ERISA
section 3(2).
"EMPLOYEE WELFARE BENEFIT PLAN" has the meaning set forth in ERISA
section 3(1).
"EMPLOYMENT AGREEMENT" means the Employment Agreement to be entered
into between the Purchaser and Perry B. Martin in the form of EXHIBIT B hereto.
"ENVIRONMENTAL, HEALTH AND SAFETY REQUIREMENTS" means all federal,
state, local, regional and foreign statutes, regulations and ordinances
concerning workplace health and safety and pollution or protection of the
environment, including all those relating to the presence, use, production,
generation, handling, transportation, treatment, storage, disposal,
distribution, labeling, testing, processing, discharge, release, threatened
release, control or cleanup of any hazardous materials, substances or wastes.
"ENVIRONMENTAL CLAIM" means any written notice or claim by any Person
or any Authority alleging potential liability (including, without limitation,
potential liability for investigatory costs, cleanup costs, governmental
response costs, natural resources damages, property damages, personal injuries
or penalties) arising out of, based on or resulting from (i) the presence,
release or threatened release into the environment, of any Material of
Environmental Concern at any location, whether or not owned, leased or operated
by the Company or IMP, or (ii) any violation, or alleged violation, of any
Environmental, Health and Safety Requirement.
"ENVIRONMENTAL REPRESENTATIONS AND WARRANTIES" has the meaning set
forth in section 9(a) below.
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<PAGE> 9
"EPCRA" has the meaning set forth in section 3B(v)(ii) below.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ESCROW AGREEMENT" means the Escrow Agreement, in the form of EXHIBIT A
hereto, to be entered into on the Closing Date by the Company, the Sellers, the
Sellers' Representative and the Escrow Agent.
"ESCROW AGENT" has the meaning set forth in section 2(c)(ii) below.
"ESCROW FUND" has the meaning set forth in section 2(c)(ii) below.
"FINAL ADJUSTED EBITAM DETERMINATION DATE" has the meaning set forth in
section 2(e)(vi) below.
"FINAL CLOSING BALANCE SHEET DETERMINATION DATE" has the meaning set
forth in section 2(f)(ii) below.
"FINANCIAL STATEMENTS" has the meaning set forth in section 3B(f)
below.
"FUNDED INDEBTEDNESS" means the aggregate amount (including the current
portions thereof) of all (i) indebtedness for money borrowed from others and
purchase money indebtedness of the Company and IMP, (ii) indebtedness of the
type described in clause (i) above guaranteed, directly or indirectly, in any
manner by the Company or IMP, or in effect guaranteed, directly or indirectly,
in any manner by the Company or IMP, through an agreement, contingent or
otherwise, to supply funds to, or in any other manner invest in, the debtor, or
to purchase indebtedness, or to purchase and pay for property if not delivered
or to pay for services if not performed, primarily for the purpose of enabling
the debtor to make payment of the indebtedness or to assure the owners of the
indebtedness against loss, but excluding endorsements of checks and other
instruments in the ordinary course, (iii) indebtedness of the type described in
clause (i) above secured by any Lien upon property owned by the Company or IMP,
even though neither the Company nor IMP has in any manner become liable for the
payment of such indebtedness and (iv) interest expense accrued but unpaid, and
all prepayment premiums, on or relating to any of such indebtedness.
"GAAP" means United States generally accepted accounting principles as
in effect from time to time.
"G. MARTIN" has the meaning set forth in the preface above.
"GENERAL INDEMNIFICATION ESCROW ACCOUNT" has the meaning set forth in
section 2(c)(ii) below
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<PAGE> 10
"HART-SCOTT-RODINO ACT" means the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended.
"IMP" has the meaning set forth in the preface above.
"IMP PERMITS" has the meaning set forth in section 3B(j)(ii) below.
"IMP PRO RATA SHARE" means with respect to L. Martin and G. Martin a
fractional multiplier of which the numerator is the number of shares of IMP
Stock held by such Person and the denominator is the total number of shares of
IMP Stock held by both L. Martin and G. Martin.
"IMP PURCHASE PRICE" has the meaning set forth in section 2(b)(ii)
below.
"IMP SHARES" has the meaning set forth in section 2(a) below.
"IMP STOCK" means the Series B Stock of IMP.
"INDEMNIFIED PARTIES" has the meaning set forth in section 9(b)(v)
below.
"INDEMNIFYING PARTIES has the meaning set forth in section 9(b)(v)
below.
"INITIAL PAYMENT" has the meaning set forth in section 2(c)(i) below.
"INTELLECTUAL PROPERTY" means all trademarks, service marks, trade
dress, logos, trade names and corporate names, together with all goodwill
associated therewith (including all translations, adaptations, derivations and
combinations of the foregoing); copyrights and copyrightable works;
registrations, applications and renewals for any of the foregoing; trade secrets
and confidential information (including, without limitation, ideas,
compositions, know-how, manufacturing and production processes and techniques,
research and development information, drawings, specifications, designs, plans,
proposals, technical data, business and marketing plans, and customer and
supplier lists and related information); and computer software (including,
without limitation, data, data bases and documentation).
"IRS" means the Internal Revenue Service.
"INVENTORY" means all of the inventories of the Company and IMP,
including without limitation, raw materials, work in progress, finished goods,
packaging goods and other like items.
"JOINDER AGREEMENT" means the Joinder Agreement to be entered into by
Sherry Mittleman and Lisa Schneiderman in the form of EXHIBIT E hereto.
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<PAGE> 11
"KNOWLEDGE" means, with respect to the Sellers (for the Company) and L.
Martin and G. Martin (for IMP), the actual knowledge, after reasonable
investigation, of any of L. Martin, Perry B. Martin, Larry Schroeder and J.L.
Emery.
"L. MARTIN" has the meaning set forth in the preface above.
"LEASE AMENDMENT" means the First Amendment to Lease Agreement to be
entered into between the Company and Nitram Partners, Ltd. in the form of
EXHIBIT D hereto.
"LIEN" means any mortgage, pledge, lien, encumbrance, charge or other
security interest, whether or not related to the extension of credit or the
borrowing of money.
"LOSS" or "LOSSES" means all damages, dues, penalties, fines,
reasonable amounts paid in settlement, Taxes, costs, obligations, losses,
expenses, and fees (including court costs and reasonable attorneys' fees and
expenses), including, as the context may require, any of the foregoing which
arise out of or in connection with any actions, suits, proceedings, hearings,
investigations, charges, complaints, claims, demands, injunctions, judgments,
orders, decrees or rulings.
"MATERIAL ADVERSE CHANGE" or "MATERIAL ADVERSE EFFECT" means any change
or effect that is materially adverse to the business, financial condition or
results of operations of the Company or IMP.
"MATERIAL CONTRACT" means any contract or agreement whether written or
oral to which either the Company or IMP is a party, or by which the Company or
IMP or any of their respective assets is bound, and which (a) relates to Funded
Indebtedness or is a letter of credit, pledge, bond or similar arrangement
running to the account of or for the benefit of the Company or IMP, (b) relates
to the purchase, maintenance or acquisition of, or sale or furnishing of,
materials, supplies, merchandise, machinery, equipment, parts or any other
property or services (excluding any such contract made in the Ordinary Course of
Business and which is expected to be fully performed within 90 days of the date
hereof or which involves revenues or expenditures of less than $50,000), (c) is
a collective bargaining agreement, (d) obligates the Company or IMP not to
compete with any business, or which otherwise restrains or prevents the Company
or IMP from carrying on any lawful business or which restricts the right of the
Company or IMP to use or disclose any information in its possession (excluding
in each case customary restrictive covenants contained in agreements entered
into in the Ordinary Course of Business), (e) relates to (i) employment,
compensation, severance, or consulting between the Company or IMP and any of
their respective officers or directors, or (ii) between the Company or IMP and
any other employees or consultants of the Company or IMP who are entitled to
compensation thereunder in excess of $35,000 per annum, (f) is a lease or
sublease of real property, or a lease, sublease or other title retention
agreement or conditional sales agreement involving annual payments in excess of
$25,000 individually or $100,000 in the aggregate for any machinery, equipment,
vehicle or other tangible personal property (whether the Company or IMP
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<PAGE> 12
is a lessor or lessee), (g) is a contract for capital expenditures or the
acquisition or construction of fixed assets for or in respect of any real
property involving payments to be made after the date hereof in excess of
$50,000, (h) is a contract granting any Person a Lien on any of the assets of
the Company or IMP, in whole or in part (other than Permitted Liens), (i) is a
contract by which the Company or IMP retains any manufacturer's representatives,
broker or other sales agent, distributor or representative or through which the
Company or IMP is appointed or authorized as a sales agent, distributor or
representative, (j) is a joint venture or partnership contract, a limited
liability company operating agreement or an agreement or arrangement with any
Seller, or with any Affiliate of any Seller, (k) is (i) an agreement for the
storage, transportation, treatment and disposal of any materials subject to
regulation under any Environmental Health and Safety Requirements, or (ii) a
contract for storage, transportation or similar services with carriers or
warehousemen (excluding any such contract entered into in the Ordinary Course of
Business and involving aggregate annual expenditures not exceeding $50,000), or
(l) any other agreement (or group of related agreements) the performance of the
executory portion of which involves consideration in excess of $50,000 or which
cannot be terminated by the Company or IMP upon 90 days notice.
"MATERIALS OF ENVIRONMENTAL CONCERN" means chemicals, pollutants,
contaminants, wastes, toxic substances, hazardous substances, petroleum and
petroleum products in each case with respect to which liability or standards of
conduct are imposed pursuant to any Environmental, Health and Safety
Requirements.
"MEDIATION REQUEST" has the meaning set forth in section 10(b)(ii)
below.
"MOST RECENT BALANCE SHEET" means the balance sheet contained within
the Most Recent Financial Statements.
"MOST RECENT FINANCIAL STATEMENTS" has the meaning set forth in section
3B(f) below.
"MOST RECENT FISCAL MONTH END" has the meaning set forth in section
3B(f) below.
"MOST RECENT FISCAL YEAR END" has the meaning set forth in section
3B(f) below.
"MULTIEMPLOYER PLAN" has the meaning set forth in ERISA section 3(37).
"NET WORKING CAPITAL" means the total current assets of the Company
(which current assets may include Cash but which shall not include any prepaid
recruiting expense) MINUS the total current liabilities of the Company (which
current liabilities shall exclude the current portion of any Funded
Indebtedness), in each case determined as of the close of business on the day
before the Closing Date.
"NET WORKING CAPITAL THRESHOLD AMOUNT" has the meaning set forth in
section 2(f)(iii) below.
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<PAGE> 13
"90 AND OVER ACCOUNTS RECEIVABLE" has the meaning set forth in section
11(b)(1) below.
"NOTICE OF DISAGREEMENT WITH ADJUSTED EBITAM STATEMENT" has the meaning
set forth in section 2(e)(vi) below.
"NOTICE OF DISAGREEMENT WITH CLOSING BALANCE SHEET" has the meaning set
forth in section 2(f)(ii) below.
"ORDINARY COURSE OF BUSINESS" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity and
frequency).
"PARTY" has the meaning set forth in the preface above.
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"PERMITTED LIENS" means (i) Liens for Taxes not yet due and payable or
being contested in good faith by appropriate proceedings and as to which
adequate reserves have been established, (ii) workers or unemployment
compensation claims and/or Liens arising in the Ordinary Course of business,
(iii) mechanic's, materialman's, supplier's, vendor's, landlord's or similar
Liens arising in the Ordinary Course of Business securing amounts which are not
delinquent, and (iv) purchase money Liens and Liens securing rental payments
under capital lease arrangements.
"PERSON" means an individual, a partnership, a corporation, a limited
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization or a governmental entity (or any
department, agency or political subdivision thereof).
"POST-CLOSING TAX PERIOD" means any tax period (including partial
periods) that ends after the Closing Date.
"PRE-CLOSING TAX PERIOD" means any tax period (including partial
periods) that ends on or prior to the Closing Date.
"PRODUCTS LIABILITY REPRESENTATIONS AND WARRANTIES" has the meaning set
forth in section 9(a) below.
"PURCHASER" has the meaning set forth in the preface above.
"REAL PROPERTY" has the meaning set forth in section 3B(n) below.
"RESTRICTED AREA" has the meaning set forth in section 6(e) below.
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<PAGE> 14
"Section 338(h)(10) ELECTION" has the meaning set forth in section
6(b)(i) below.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SECURITIES EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"SELLER" or "SELLERS" has the meaning set forth in the preface above.
"SELLERS' REPRESENTATIVE" means L. Martin.
"SUBSIDIARY" means any corporation with respect to which a specified
Person (or a Subsidiary thereof) owns, directly or indirectly, a majority of the
common stock or has the power to vote or direct the voting of sufficient
securities to elect a majority of the directors.
"TAXES" means all federal, state, local and foreign taxes (including,
without limitation, income or profits taxes, premium taxes, excise taxes, sales
taxes, use taxes, gross receipts taxes, franchise taxes, ad valorem taxes,
severance taxes, capital levy taxes, transfer taxes, value added taxes,
employment and payroll-related taxes, property taxes, business license taxes,
occupation taxes, import duties and other governmental charges and assessments),
of any kind whatsoever, including interest, additions to tax and penalties with
respect thereto.
"TAX REPRESENTATIONS AND WARRANTIES" has the meaning set forth in
section 9(a) below.
"TAX RETURN" means any return, declaration, report, claim for refund or
information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
"THIRD PARTY CLAIM" has the meaning set forth in section 9(b)(v) below.
"TRADE SECRETS" means information relating to the Company and IMP,
without regard to form, including, but not limited to, technical or nontechnical
data, formulas, patterns, compilations, programs, devices, methods, techniques,
drawings, processes, financial data, financial plans, product plans or lists of
actual or potential customers or suppliers which is not commonly known by or
available to the public and which (a) derives economic value, actual or
potential, from not being known to, and not being readily ascertainable by
proper means by, other persons who can obtain economic value from its disclosure
or use, and (b) is the subject of efforts that are reasonable under the
circumstances to maintain its secrecy.
"TRANSACTION REPRESENTATIONS AND WARRANTIES" has the meaning set forth
in section 9(a) below.
2. PURCHASE AND SALE OF COMPANY SHARES AND IMP SHARES.
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<PAGE> 15
(a) BASIC TRANSACTION. On and subject to the terms and conditions of
this Agreement, (i) the Purchaser agrees to purchase from each of the Sellers,
and each of the Sellers agrees to sell to the Purchaser, free and clear of all
restrictions on transfer (other than restrictions under the Securities Act and
state securities laws), Liens, claims and demands, all of the shares of Company
Common Stock owned by each of the Sellers as set forth in section 3B(E) OF THE
DISCLOSURE SCHEDUle (thE "COMPAny SHARES") for the consideration specified below
in this section 2 and (ii) the Purchaser agrees to purchase from each of L.
Martin and G. Martin, and each of L. Martin and G. Martin agrees to sell to the
Purchaser, free and clear of all restrictions on transfer (other than
restrictions under the Securities Act and state securities laws), Liens, claims
and demands, all of the shares of IMP Stock owned by each of L. Martin and G.
Martin as set forth in section 3B(e) OF THE DISCLOSURE SCHEDULE (the "IMP
SHARES") for the consideration specified below in this section 2.
(b) PURCHASE PRICE.
(i) The aggregate purchase price to be paid by the Purchaser
for the all of the Company Shares (the "COMPANY PURCHASE PRICE") shall
be $16,400,000, MINUS (A) the amount of Funded Indebtedness as of the
Closing Date (after giving effect to any reduction of such Funded
Indebtedness on the Closing Date by application of Available Cash) and
MINUS (B) any Company Purchase Price Adjustment made pursuant to
section 2(f) below, PLus (C) any Earnout payments made pursuant to
section 2(e) below. The amount of the Company Purchase Price to be
received by each Seller shall be the Seller's Company Pro Rata Share
thereof.
(ii) The aggregate purchase price to be paid by the Purchaser
for the all of the IMP Shares (the "IMP PURCHASE PRICE") shall be
$50,000. The amount of the IMP Purchase Price to be received by each of
L. Martin and G. Martin shall be such Person's IMP Pro Rata Share
thereof.
(c) PAYMENT OF COMPANY PURCHASE PRICE AND IMP PURCHASE PRICE. On the
Closing Date, the Purchaser shall make payment of the Company Purchase Price and
the IMP Purchase Price as follows:
(i) To the Sellers, by wire transfer of immediately available
funds, the sum of $13,900,000 [$16,400,000 MINUS (A) the amount of
Funded Indebtedness as of the Closing Date (after giving effect to any
reduction of such Funded Indebtedness on the Closing Date by
application of Available Cash) and (B) $2,500,000 to be deposited as
the Escrow Fund pursuant to section 2(c)(ii) below] (thE "INITIAL
PAYMENt"), to the account designated in writing by the Sellers'
Representative at least two business days prior to the Closing Date.
(ii) To SunTrust Bank, Atlanta, as escrow agent (the "ESCROW
AGENT") pursuant to the terms of the Escrow Agreement, the sum of
$2,500,000 (the "ESCROW FUND"). As provided in the Escrow Agreement,
the Escrow Fund shall be divided into two accounts as
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<PAGE> 16
follows: (A) $50,000 thereof shall be held in an account (the "COMPANY
PURCHASE PRICE ADJUSTMENT ESCROW ACCOUNT") to be utilized to fund the
Company Purchase Price Adjustment as described in section 2(f) hereof,
and (B) $2,450,000 thereof shall be held in an account (the "GENERAL
INDEMNIFICATION ESCROW ACCOUNT") to provide indemnification to the
Purchaser as provided in section 9(b) hereof.
(iii) To L. Martin and G. Martin, by wire transfer of
immediately available funds, the sum of $50,000 to the account
designated in writing by the Sellers' Representative at least two
business days prior to the Closing Date.
(d) FUNDED INDEBTEDNESS. At the Closing, the Purchaser and/or the
Company (as determined by the Purchaser) shall deliver to the holders of Funded
Indebtedness an amount sufficient to repay all Funded Indebtedness outstanding
immediately prior to the Closing (in connection with which the Company shall
apply Available Cash to the reduction of Funded Indebtedness), with the result
that immediately following the Closing there will be no further monetary
obligations of the Company with respect to any Funded Indebtedness outstanding
immediately prior to the Closing. On the Closing Date, the Company will provide
the Purchaser with customary pay-off letters from all holders of Funded
Indebtedness outstanding immediately prior to the Closing, and make arrangements
reasonably satisfactory to the Purchaser for such holders to provide to the
Purchaser recordable form mortgage and lien releases, canceled notes, trademark
and patent assignments and other documents reasonably requested by the Purchaser
simultaneously with the Closing.
(e) EARNOUT.
(i) The Sellers will be entitled to receive a contingent
purchase price payment of up to $1,000,000 (the "EARNOUT") in
accordance with the provisions of this section 2(e). The Earnout shall
be payable with respect to the Company's fiscal year ending December
31, 1998 and the amount of the Earnout payment for such fiscal year
will be equal to two times the amount (if any) by which the Company's
Adjusted EBITAM for such fiscal exceeds $2,200,000; PROVIDED, HOWEVER,
that in no event shall the Earnout amount for such fiscal year be more
than $1,000,000. The amount of the Earnout to be received by each
Seller shall be the Seller's Company Pro Rata Share thereof.
(ii) Within a reasonable time after the conclusion of the
fiscal year ending December 31, 1998, but no later than 30 days
following the end of such fiscal year, the Purchaser shall deliver to
the Sellers' Representative a written notice which shall set forth an
estimate of the amount of the Company's Adjusted EBITAM for such fiscal
year and an estimate of the Earnout (if any) earned and all
calculations made in the determination of such amounts (the
"DETERMINATION NOTICE"). The chief financial officer of the Purchaser
shall
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<PAGE> 17
certify the amounts determined and calculations made as set forth in
the Determination Notice are true and correct to the best of his
knowledge and belief.
(iii) The Earnout shall be payable as follows. 75% of the
Earnout (if any) for any such fiscal year will be paid within three
business days of the Sellers' Representative's receipt of the
Determination Notice, by wire transfer of immediately available funds
to an account or accounts designated by the Sellers' Representative in
writing. The remaining Earnout (if any) will be paid upon the final
determination of the Adjusted EBITAM Statement for the fiscal year
ending December 31, 1998 in accordance with this section 2(e), by wire
transfer of immediately available funds to an account or accounts
designated by the Sellers' Representative in writing. If the amount of
the Earnout that is ultimately determined to be payable pursuant to
section 2(e)(vi) is less than the amount paid based upon the
Determination Notice, then the Sellers shall repay the difference
within three business days after such determination.
(iv) For purposes of this Agreement, "ADJUSTED EBITAM" for the
Company's fiscal year ending December 31, 1998 means the unaudited net
income (excluding extraordinary gains or losses) of the Company
(including IMP) for the twelve months ending on the last day of such
fiscal year, PLUS (A) any interest on indebtedness and any financing
and related fees and expenses deducted in determining net income, (B)
all fees or expenses incurred in connection with the transactions
contemplated by this Agreement deducted in determining net income, (C)
income Taxes deducted in determining net income, (D) any amortization
to the extent attributable to the purchase accounting "write-up"
resulting from the transactions contemplated hereby and deducted in
determining net income, (E) management or other fees charged by the
Purchaser and/or its Affiliates and (F) expenses of a non-recurring
nature that may occur subsequent to the Closing Date as mutually agreed
upon by the Purchaser and the Sellers' Representative.
(v) Except as otherwise expressly provided herein, any amount
or calculation to be made in connection with the Earnout shall be
determined or made (A) in accordance with GAAP applied in a manner
consistent with the same accounting principles and methodologies used
in the preparation of the Financial Statements, and (B) using the same
revenue, income and expense recognition policies and practices as have
been used by the Company prior to the Closing.
(vi) Within 90 days following the Closing, the Purchaser at
its expense shall prepare and deliver to the Sellers' Representative a
statement of the actual Adjusted EBITAM of the Company for such fiscal
year (the "ADJUSTED EBITAM STATEMENT"). The chief financial officer of
the Purchaser shall certify the amounts determined and calculations
made as set forth in the Adjusted EBITAM Statement are true and correct
to the best of his knowledge and belief. During the 30 days immediately
following receipt of the Adjusted
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<PAGE> 18
EBITAM Statement by the Sellers' Representative, the Sellers'
Representative and his accountants shall be entitled to review the
Adjusted EBITAM Statement and any working papers, trial balances and
similar materials relating to the Adjusted EBITAM Statement prepared by
the Purchaser or its accountants, and the Purchaser shall provide the
Sellers' Representative and his accountants with timely access, during
normal business hours, to the personnel, properties, books and records
of the Company. The Adjusted EBITAM Statement shall become final and
binding upon the parties on the 31st day following delivery thereof
unless the Sellers' Representative gives written notice to the
Purchaser of his disagreement with the Adjusted EBITAM Statement (a
"NOTICE OF DISAGREEMENT WITH ADJUSTED EBITAM STATEMENT") prior to such
date. Any Notice of Disagreement With Adjusted EBITAM Statement shall
specify in reasonable detail the nature of any disagreement so
asserted. If a timely Notice of Disagreement With Adjusted EBITAM
Statement is received by the Purchaser with respect to the Adjusted
EBITAM Statement, then the Adjusted EBITAM Statement (as revised in
accordance with clause (A) or (B) below), shall become final and
binding upon the Parties on the earlier of (A) the date the Purchaser
and the Sellers' Representative resolve in writing any differences they
have with respect to any matter specified in a Notice of Disagreement
With Adjusted EBITAM Statement, or (B) the date any matters in dispute
are finally resolved in writing by the Accounting Firm in the manner
described below (the date on which the Adjusted EBITAM Statement so
becomes final and binding being hereinafter referred to as the "FINAL
ADJUSTED EBITAM DETERMINATION DATE"). During the 30 days immediately
following the delivery of any Notice of Disagreement With Adjusted
EBITAM Statement, the Purchaser and the Sellers' Representative shall
seek in good faith to resolve in writing any differences which they may
have with respect to any matter specified in such Notice of
Disagreement With Adjusted EBITAM Statement. During such period, the
Sellers' Representative and his accountants shall each have access to
the Company's working papers, trial balances and similar materials
(including the working papers, trial balances and similar materials of
the Company's accountants) prepared in connection with the Purchaser's
preparation of the Adjusted EBITAM Statement. At the end of such 30-day
period, the Sellers' Representative and the Purchaser shall submit to
an independent "Big 6" public accounting firm (the "ACCOUNTING FIRM")
for review and resolution any and all matters which remain in dispute
and which were included in any Notice of Disagreement With Adjusted
EBITAM Statement (it being understood that the Accounting Firm shall
act as an arbitrator to determine, based solely on presentations by the
Purchaser and the Sellers' Representative (and not by independent
review), only those matters which remain in dispute), and the
Accounting Firm shall reach a final, binding resolution of all matters
which remain in dispute, which final resolution shall be (W) in
writing, (X) furnished to the Purchaser and the Sellers' Representative
as soon as practicable after the items in dispute have been referred to
the Accounting Firm, (Y) made in accordance with this Agreement, and
(Z) conclusive and binding upon the Parties to this Agreement and not
subject to collateral attack for any reason. The Adjusted EBITAM
Statement, with any adjustments necessary to reflect the Accounting
Firm's resolution of the
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<PAGE> 19
matters in dispute, shall become final and binding on the Parties on
the date the Accounting Firm delivers its final resolution to the
Parties. The Accounting Firm shall be mutually selected by the
Purchaser and the Sellers' Representative, or, if the Purchaser and the
Sellers' Representative cannot so agree within the 30-day period
referred to above, by lot from among the independent "Big 6" public
accounting firms (after excluding the Purchaser's independent public
accountants) willing to act. Each Party shall pay its own costs and
expenses incurred in connection with such arbitration, provided that
the fees and expenses of the Accounting Firm shall be borne as follows:
(A) if the Accounting Firm resolves all of
the remaining objections in favor of the Purchaser (the amount
of the Earnout so determined is referred to herein as the
"EARNOUT LOW AMOUNT"), the Sellers will be responsible for all
of the fees and expenses of the Accounting Firm (PRO RATA
based on each Seller's Company Pro Rata Share);
(B) if the Accounting Firm resolves all of
the remaining objections in favor of the Sellers (the amount
of the Earnout so determined is referred to herein as the
"EARNOUT HIGH AMOUNT"), the Purchaser will be responsible for
all of the fees and expenses of the Accounting Firm; and
(C) if the Accounting Firm resolves some of
the remaining objections in favor of the Purchaser and the
rest of the remaining objections in favor of the Sellers (the
amount of the Earnout so determined is referred to herein as
"EARNOUT ACTUAL AMOUNT"), the Sellers will be responsible for
that fraction of the fees and expenses of the Accounting Firm
(PRO RATA based on each Seller's Company Pro Rata Share) equal
to (i) the difference between the Earnout High Amount and the
Earnout Actual Amount over (ii) the difference between the
Earnout High Amount and the Earnout Low Amount, and the
Purchaser will be responsible for the remainder of the fees
and expenses.
(vii) If the Purchaser has determined that any remaining
Earnout payment is payable with respect to the fiscal year ending
December 31, 1998, the Purchaser shall pay such remaining Earnout
payment when it delivers the Adjusted EBITAM Statement for such fiscal
year (even if the Sellers' Representative disputes the amount of such
Earnout payment as determined by the Purchaser). If the amount of the
Earnout payment is in dispute, and the Earnout payment that is
ultimately determined to be payable pursuant to section 2(e)(vi) is (A)
greater than the amount (if any) paid pursuant to the previous sentence
and section 2(e)(iii), then the Purchaser shall pay the difference
within three business days after such determination, or (B) less than
the amount (if any) paid pursuant to the previous sentence and section
2(e)(iii), then the Sellers shall repay, the difference within three
business days after such determination. Payment of any remaining
Earnout pursuant to clause (A) of this paragraph (vii) shall be
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<PAGE> 20
made by the Purchaser to the Sellers by wire transfer of immediately
available funds to the account or accounts designated in writing by the
Sellers' Representative. Payment of any amounts payable to the
Purchaser pursuant to clause (B) of this paragraph (vii) shall be made
by wire transfer of immediately available funds to the account
designated in writing by the Purchaser.
(f) POST-CLOSING COMPANY PURCHASE PRICE ADJUSTMENT.
(i) Within 10 days following the Closing, the Seller's
Representative shall prepare and deliver to the Purchaser (A) a balance
sheet of the Company as of the close of business on the day preceding
the Closing Date (the "CLOSING BALANCE SHEET") and (B) the Seller's
Representative's calculation of the Net Working Capital of the Company
as of such time. The Closing Balance Sheet (including, without
limitation, such calculation of Net Working Capital) shall be prepared
in accordance with GAAP applied in a manner consistent with the same
accounting principles and methodologies used in preparing the Financial
Statements.
(ii) During the 30 days immediately following receipt of the
Closing Balance Sheet by the Purchaser, the Purchaser and its
accountants shall be entitled to review the Closing Balance Sheet and
any working papers, trial balances and similar materials relating to
the Closing Balance Sheet prepared by the Seller's Representative or
his accountants, and the Purchaser and its accountants shall also have
with timely access, during the Company's normal business hours, to the
Company's personnel, properties, books and records to the extent
related to the preparation of the Closing Balance Sheet. The Seller's
Representative shall use reasonable commercial efforts to cause his
accountants to make available to the Purchaser any working papers,
trial balances and similar materials prepared by such accountants in
connection with the preparation of the Closing Balance Sheet; PROVIDED,
HOWEVER, that the Purchaser acknowledges and agrees that such
accountants may require the Purchaser to execute customary undertakings
in connection with such accesection The Closing Balance Sheet and the
calculation of Net Working Capital shall become final and binding upon
the Parties on the 31st day following delivery thereof unless the
Purchaser gives written notice to the Seller of its disagreement with
the Closing Balance Sheet as it affects the calculation of Net Working
Capital (a "NOTICE OF DISAGREEMENT WITH CLOSING BALANCE SHEET") prior
to such date. Any Notice of Disagreement With Closing Balance Sheet
shall specify in reasonable detail the nature of any disagreement so
asserted. If a timely Notice of Disagreement With Closing Balance Sheet
is received by the Seller's Representative with respect to the Closing
Balance Sheet, then the Closing Balance Sheet (as revised in accordance
with clause (A) or (B) below), shall become final and binding as to the
calculation of Net Working Capital upon the Parties on the earlier of
(A) the date the Purchaser and the Seller's Representative resolve in
writing any differences they have with respect to any matter specified
in a Notice of Disagreement With Closing Balance Sheet, or
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<PAGE> 21
(B) the date any matters in dispute are finally resolved in writing by
the Accounting Firm in the manner described below (the date on which
the Closing Balance Sheet so becomes final and binding being
hereinafter referred to as the "FINAL CLOSING BALANCE SHEET
DETERMINATION DATE"). During the 30 days immediately following the
delivery of any Notice of Disagreement With Closing Balance Sheet, the
Purchaser and the Seller shall seek in good faith to resolve in writing
any differences which they may have with respect to any matter
specified in such Notice of Disagreement With Closing Balance Sheet.
During such period, the Parties and their respective accountants shall
each have access to the Company's working papers, trial balances and
similar materials (including the working papers, trial balances and
similar materials of their respective accountants) prepared in
connection with the preparation of the Closing Balance Sheet. At the
end of such 30-day period, the Seller's Representative and the
Purchaser shall submit to an Accounting Firm for review and resolution
any and all matters which remain in dispute and which were included in
any Notice of Disagreement With Closing Balance Sheet (it being
understood that the Accounting Firm shall act as an arbitrator to
determine, based solely on presentations by the Purchaser and the
Seller's Representative (and not by independent review), only those
matters which remain in dispute), and the Accounting Firm shall reach a
final, binding resolution of all matters which remain in dispute, which
final resolution shall be (w) in writing, (x) furnished to the
Purchaser and the Seller's Representative as soon as practicable after
the items in dispute have been referred to the Accounting Firm, (y)
made in accordance with this Agreement, and (z) conclusive and binding
upon the Parties and not subject to collateral attack for any reason.
The Closing Balance Sheet, with any adjustments necessary to reflect
the Accounting Firm's resolution of the matters in dispute, shall
become final and binding on the Parties on the date the Accounting Firm
delivers its final resolution to the Parties, which shall be no later
than 90 days after the Closing Date. Each Party shall pay its own costs
and expenses incurred in connection with such arbitration, provided
that the fees and expenses of the Accounting Firm shall be borne as
follows:
(A) if the amount of the Net Working Capital
is below the Net Working Capital Threshold Amount after the
resolution of all remaining objections by the Accounting Firm,
the Sellers will be responsible for all of the fees and
expenses of the Accounting Firm (PRO RATA based on each
Seller's Company Pro Rata Share); or
(B) if the amount of the Net Working Capital
is equal to or above the Net Working Capital Threshold Amount
after the resolution of all remaining objections by the
Accounting Firm, the Purchaser will be responsible for all of
the fees and expenses of the Accounting Firm.
(iii) Upon the final determination of the Closing Balance
Sheet in accordance with this section 2(f), if Net Working Capital is
less than $3,077,000.00 (the "NET WORKING CAPITAL
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<PAGE> 22
THRESHOLD AMOUNT"), the Sellers shall pay to the Purchaser the amount
by which the amount of the Net Working Capital is less than such amount
(PRO RATA based on each Seller's Company Pro Rata Share). Any required
adjustment to the Company Purchase Price pursuant to this section 2(f)
shall be referred to as the "COMPANY PURCHASE PRICE ADJUSTMEnt".
(iv) Within 33 days after the receipt by the Purchaser of the
Closing Balance Sheet in accordance with section 2(f)(i) above, the
Sellers' Representative and the Purchaser shall jointly instruct the
Escrow Agent to make the disbursements of Company Purchase Price
Adjustment Escrow Account with respect to any undisputed amounts
constituting a portion of the Company Purchase Price Adjustment. With
respect to any items that are the subject of a Notice of Disagreement
With Closing Balance Sheet, joint disbursement instructions shall be
given to the Escrow Agent within three business days after the Final
Closing Balance Sheet Determination Date.
(g) THE CLOSING. The closing of the transactions contemplated by this
Agreement (the "CLOSING") shall take place at the offices of Cypen & Cypen, 825
Arthur Godfrey Road, Miami Beach, Florida 33140 (or at such other location as
the Parties may agree), commencing at 10:00 a.m. local time on or before March
31, 1999 or such other date as the Sellers' Representative and the Purchaser may
mutually determine (the "CLOSING DATE").
(h) DELIVERIES AT THE CLOSING. At the Closing, (i) the Sellers will
deliver to the Purchaser the various certificates and documents referred to in
section 8(a) below, (ii) the Purchaser will deliver to the Sellers the various
certificates and documents referred to in section 8(b) below, (iii) each of the
Sellers will deliver to the Purchaser stock certificates representing all of his
or her Company Shares, duly endorsed in blank or accompanied by duly executed
assignment documents, sufficient in form and substance to convey to the
Purchaser good title to the Sellers' Company Shares, free and clear of all
restrictions on transfer (other than restrictions under the Securities Act and
state securities laws), Liens, claims and demands, (iv) each of L. Martin and G.
Martin will deliver to the Purchaser stock certificates representing all of his
or her IMP Shares, duly endorsed in blank or accompanied by duly executed
assignment documents, sufficient in form and substance to convey to the
Purchaser good title to the IMP Shares, free and clear of all restrictions on
transfer (other than restrictions under the Securities Act and state securities
laws), Liens, claims and demands, (v) the Purchaser will deliver to the Sellers
the Initial Payment, (v) the Purchaser will deliver to the Escrow Agent the
Escrow Fund and (vi) the Purchaser will deliver to L. Martin and G. Martin the
IMP Purchase Price.
(i) TRANSFER TAXES. The Sellers shall be responsible for the payment of
all sales and transfer taxes, if any, which may be payable with respect to the
transactions contemplated by this Agreement.
(j) NET CASH PAYMENT TO SELLERS. Immediately prior to the Closing, the
Sellers will cause the Company to pay to the Sellers in an aggregate amount
equal to the excess (if any) of (i) the
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<PAGE> 23
Available Cash less $1.00 MINUS (ii) the Funded Indebtedness as of the Closing
Date (after giving effect to any reduction of such Funded Indebtedness on the
Closing Date by application of Available Cash) .
3A. REPRESENTATIONS AND WARRANTIES OF THE SELLERS. Each of the Sellers,
severally as to himself or herself only (and not jointly), represents and
warrants (subject to the exceptions set forth in the Disclosure Schedule) to the
Purchaser as follows:
(a) CAPACITY. The Seller has full capacity to execute and deliver this
Agreement and the Escrow Agreement and to perform his or her obligations
hereunder and thereunder.
(b) BINDING OBLIGATION. This Agreement constitutes and the Escrow
Agreement, when executed and delivered, will constitute the valid and legally
binding obligations of the Seller enforceable in accordance with their terms.
(c) NONCONTRAVENTION. Neither the execution and the delivery of this
Agreement or the Escrow Agreement, nor the consummation of the transactions
contemplated hereby or thereby, will (i) violate any statute, regulation, rule,
injunction, judgment, order, decree or ruling of any government, governmental
agency or court to which the Seller is subject, or (ii) conflict with, result in
a breach of, constitute a default under, result in the acceleration of, create
in any party the right to accelerate, terminate, modify or cancel, or require
any notice under any agreement, contract, lease, license or instrument to which
the Seller is a party or by which the Seller is bound or to which any of the
Seller's assets is subject. Except as set forth in section 3A(c) OF THE
DISCLOSURE SCHEDULE, the Sellers are not required to give any notice to, make
any filing with, or obtain any authorization, consent or approval of any
government or governmental agency in order for the Sellers to consummate the
transactions contemplated by this Agreement.
(d) OWNERSHIP OF COMPANY COMMON STOCK AND IMP STOCK.
(i) The Seller holds of record and owns beneficially the
number of Company Shares set forth next to the Seller's name in section
3B(e) OF THE DISCLOSURE SCHEDULE and has good title to such Company
Shares, free and clear of any restrictions on transfer (other than
restrictions under the Securities Act and state securities laws),
Liens, claims, and demands. The Seller is not a party to any option,
warrant, purchase right, or other contract or commitment that could
require the Seller to sell, transfer, or otherwise dispose of any
capital stock of the Company (other than this Agreement). The Seller is
not a party to any voting trusts, proxies, or other agreements or
understandings with respect to the voting of any capital stock of the
Company.
(ii) L. Martin and G. Martin hold of record and own
beneficially the number of IMP Shares set forth next to such Person's
name in section 3B(e) OF THE DISCLOSURE SCHEDULE and
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<PAGE> 24
has good title to such IMP Shares, free and clear of any restrictions
on transfer (other than restrictions under the Securities Act and state
securities laws), Liens, claims, and demands. Neither L. Martin or G.
Martin is a party to any option, warrant, purchase right, or other
contract or commitment that could require such Person to sell,
transfer, or otherwise dispose of any capital stock of the IMP (other
than this Agreement). Neither L. Martin or G. Martin is a party to any
voting trusts, proxies, or other agreements or understandings with
respect to the voting of any capital stock of IMP.
(e) BROKERS' FEES. The Seller has no liability or obligation to pay any
fees or commissions to any broker, finder or agent with respect to the
transactions contemplated by this Agreement for which the Purchaser or the
Company (with respect to periods following the Closing) could become liable or
obligated.
3B. REPRESENTATIONS AND WARRANTIES OF THE SELLERS WITH RESPECT TO THE
COMPANY AND IMP. The following representations and warranties made to the
Purchaser with respect to the Company are made by the Sellers jointly and
severally (subject to the exceptions set forth in the Disclosure Schedule) and
the following representations and warranties made to the Purchaser with respect
to IMP are made by L. Martin and G. Martin jointly and severally (subject to the
exceptions set forth in the Disclosure Schedule):
(a) ORGANIZATION/POWER AND AUTHORITY TO CONDUCT BUSINESS. The Company
is a corporation duly organized, validly existing, and in good standing under
the laws of Florida. IMP is a corporation duly organized, validly existing, and
in good standing under the laws of Mexico. Each of the Company and IMP is duly
authorized to conduct business and is in good standing under the laws of each
jurisdiction where such qualification is required, except where the lack of such
qualification would not have a Material Adverse Effect. section 3B(A) OF THE
DISCLOSURE SCHEDUle sets forth a list of each jurisdiction in which the Company
and IMP are licensed or qualified to do business as a foreign corporation. Each
of the Company and IMP has full corporate power and authority to carry on the
businesses in which it is engaged and to own and use the properties owned and
used by it. Neither the Company nor IMP has any Subsidiary, and does not own,
directly or indirectly, any capital stock or other equity interests in any
corporation, partnership or other entity.
(b) AUTHORIZATION OF TRANSACTION. Each of the Company and IMP has full
corporate power and authority to execute and deliver this Agreement and to
perform its obligations hereunder. This Agreement constitutes the valid and
legally binding obligations of the Company and IMP, enforceable in accordance
with its terms.
(c) NONCONTRAVENTION. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) violate any statute, regulation, rule, injunction, judgment, order, decree
or ruling of any government, governmental agency or court to which the Company
or IMP is subject or any provision of the charter or bylaws of the Company or
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<PAGE> 25
the charter documents of IMP or (ii) conflict with, result in a breach of,
constitute a default under, result in the acceleration of, create in any party
the right to accelerate, terminate, modify or cancel, or require any notice
under any agreement, contract, lease, license or instrument to which the Company
or IMP is a party or by which either the Company or IMP is bound or to which any
of the assets of either the Company or IMP is subject. Neither the Company nor
IMP is required to give any notice to, make any filing with, or obtain any
authorization, consent or approval of any government or governmental agency in
order for the Company and IMP to consummate the transactions contemplated by
this Agreement.
(d) BROKERS' FEES. Neither the Company nor IMP has any liability or
obligation to pay any fees or commissions to any broker, finder or agent with
respect to the transactions contemplated by this Agreement.
(e) CAPITALIZATION.
(i) The Company Common Stock constitutes the Company's only
authorized classes of capital stock. section 3B(e) OF THE DISCLOSURE
SCHEDULE sets forth for the Company (A) the number of shares of
authorized Company Common Stock, (ii) the number of issued and
outstanding shares of Company Common Stock, the names of the holders of
record thereof, and the number of shares held by each such holder, and
(iii) the number of shares of Company Common Stock (if any) held in
treasury. All of the issued and outstanding shares of capital stock of
the Company have been duly authorized, are validly issued, fully paid
and nonassessable and were not issued in violation of the preemptive
rights of any Person or any agreement or law by which the Company at
the time of issuance was bound. There are no outstanding stock
appreciation, phantom stock or similar rights with respect to the
Company, and the Company is not a party to any option, warrant,
purchase right, or other contract or commitment that could require the
Company to issue, sell, transfer or otherwise dispose of any capital
stock of the Company.
(ii) The IMP Stock constitutes IMP's only authorized classes
of capital stock. section 3B(e) OF THE DISCLOSURE SCHEDULE sets forth
for IMP (A) the number of shares of authorized IMP Stock, (ii) the
number of issued and outstanding shares of IMP Stock, the names of the
holders of record thereof, and the number of shares held by each such
holder, and (iii) the number of shares of IMP Stock (if any) held in
treasury. All of the issued and outstanding shares of capital stock of
IMP have been duly authorized, are validly issued, fully paid and
nonassessable and were not issued in violation of the preemptive rights
of any Person or any agreement or law by which IMP at the time of
issuance was bound. There are no outstanding stock appreciation,
phantom stock or similar rights with respect to IMP, and IMP is not a
party to any option, warrant, purchase right, or other contract or
commitment that could require IMP to issue, sell, transfer or otherwise
dispose of any capital stock of IMP.
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<PAGE> 26
(f) FINANCIAL STATEMENTS. Set forth in section 3B(f) OF THE DISCLOSURE
SCHEDULE are the following financial statements (collectively the "FINANCIAL
STATEMENTS"): (i) audited balance sheets and statements of income and statements
of shareholders equity and cash flows as of and for the fiscal year ended
December 31, 1997 (the "MOST RECENT FISCAL YEAR END") for the Company; and (ii)
unaudited balance sheet and statement of income and statement of cash flows (the
"MOST RECENT FINANCIAL STATEMENTS") as of and for the eight months ended August
31, 1998 (the "MOST RECENT FISCAL MONTH END") for the Company, with all
operations of IMP reflected in the Most Recent Financial Statements. Except as
set forth in section 3B(f) OF THE DISCLOSURE SCHEDULE, the Financial Statements
(including the notes thereto) have been prepared in accordance with GAAP applied
on a consistent basis throughout the periods covered thereby and present fairly
the financial condition of the Company and IMP as of such dates and the results
of operations of the Company and IMP for such periods; PROVIDED, HOWEVER, that
the Most Recent Financial Statements are subject to normal year-end adjustments
(which will not be material, individually or in the aggregate) and lack
footnotes and other presentation items.
(g) ABSENCE OF CERTAIN DEVELOPMENTS. Except as otherwise contemplated
by this Agreement, since the Most Recent Fiscal Year End, the Company and IMP
have conducted their business only in the Ordinary Course of Business and there
has not been any Material Adverse Change with respect to the Company or IMP.
Without limiting the generality of the foregoing, since that date, neither the
Company nor IMP has:
(i) borrowed any amount or incurred any liabilities, except
liabilities incurred in the Ordinary Course of Business;
(ii) mortgaged, pledged or subjected to any Lien any of its
assets, except for Permitted Liens, or entered into any conditional
sale or other title retention agreement with respect to any property or
asset;
(iii) except as set forth in section 3B(g)(iii) OF THE
DISCLOSURE SCHEDULE, sold, assigned, transferred or removed any of its
tangible assets, except for sales of Inventory in the Ordinary Course
of Business;
(iv) sold, assigned or transferred any patents, trademarks or
trade names or any material copyrights, trade secrets or other
intangible assets;
(v) suffered any extraordinary losses or waived any rights of
material value;
(vi) except as set forth in section 3B(g)(vi) OF THE
DISCLOSURE SCHEDULE, made any capital expenditures or commitments
therefor in excess of $25,000 individually or $100,000 in the
aggregate;
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<PAGE> 27
(vii) entered into any material agreement, contract, lease or
license outside the Ordinary Course of Business;
(viii) suffered any theft, damage, destruction or casualty
loss in excess of $50,000 to its property, whether or not covered by
insurance;
(ix) entered into any agreement with any labor union or
association representing any employee;
(x) made any wage or salary increase or bonus, or increase in
any other direct or indirect compensation, for or to any of its
officers, directors or employees, or otherwise made any material change
in employment terms for any of its directors, officers and employees;
(xi) made any change in its accounting methods, principles or
practices;
(xii) made any increase in or established any bonus,
insurance, deferred compensation, pension, retirement, profit-sharing,
stock option (including the granting of stock options, stock
appreciation rights, performance awards or restricted stock awards or
the amendment of any existing stock options, stock appreciation rights,
performance awards or restricted stock awards), stock purchase or other
employee benefit plan or agreement or arrangement;
(xiii) except as set forth in section 3B(g)(xiii) OF THE
DISCLOSURE SCHEDULE, made any payment (including any dividends or other
distributions with respect to the Company Common Stock or IMP Stock) to
any Seller or any Affiliate of any Seller (other than compensation
otherwise payable in the Ordinary Course of Business to any Seller
employed by the Company) or forgiven any indebtedness due or owing from
any Seller or any Affiliate of any Seller to the Company or IMP;
(xiv) except as set forth in section 3B(g)(xiv) OF THE
DISCLOSURE SCHEDULE, reclassified, combined, split, subdivided or
redeemed or otherwise repurchased any capital stock of the Company or
IMP, or created, authorized, issued, sold, delivered, pledged or
encumbered any additional capital stock (whether authorized but
unissued or held in treasury) or other securities equivalent to or
exchangeable for capital stock, or granted or otherwise issued any
options, warrants or other rights with respect thereto;
(xv) acquired or agreed to acquire by merging or consolidating
with, or by purchasing any portion of the capital stock, partnership
interests or assets of, or by any other manner, any business or any
corporation, partnership, limited liability company, association or
other business organization or division thereof;
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<PAGE> 28
(xvi) made any loan or advance (whether in cash or other
property), or made any investment in or capital contribution to, or
extended any credit to, any Person, except (i) short-term investments
pursuant to customary cash management policies, and (ii) advances made
in the Ordinary Course of Business;
(xvii) taken any action which if taken would adversely affect
the eligibility of the Company to be taxed pursuant to the provisions
of Subchapter S of the Code or under any comparable state or local law
for any period prior to the Closing Date;
(xviii) (A) except in the Ordinary Course of Business
liquidated Inventory or accepted product returns, (B) accelerated
receivables, (C) delayed payables, or (D) changed in any material
respect the Company's practices in connection with the payment of
payables in respect of raw materials purchases; or
(xix) committed to do any of the foregoing.
(h) UNDISCLOSED LIABILITIES. Neither the Company nor IMP has any
liability (whether asserted or unasserted, whether absolute or contingent,
whether accrued or unaccrued, whether liquidated or unliquidated, and whether
due or to become due, including any liability for Taxes), except for (i)
liabilities set forth on the face of the Most Recent Balance Sheet (or in any
notes thereto or to the Financial Statements for the Most Recent Fiscal Year
End), (ii) liabilities under agreements, contracts, leases, licenses and other
arrangements to which either the Company or IMP or any of its respective assets
may be bound, (iii) liabilities reflected on the Disclosure Schedule, and (iv)
liabilities which have arisen in the Ordinary Course of Business since the Most
Recent Fiscal Month End. section 3B(h) OF THE DISCLOSURE SCHEDULE sets forth as
of the Most Recent Fiscal Month End a true and correct listing of the
indebtedness of the Company described in clauses (i), (ii) and (iii) of the
definition of Funded Indebtednesection IMP has no Funded Indebtedness.
(i) LEGAL COMPLIANCE. Each of the Company and IMP is in compliance with
all applicable statutes, laws, ordinances, rules, orders and regulations of
federal, state, local and foreign governments (and all agencies thereof), except
where the failure to comply would not have a Material Adverse Effect or prevent
or materially delay the consummation of the transactions contemplated hereby.
Except as set forth in section 3B(i) OF THE DISCLOSURE SCHEDULE, since December
31, 1996, neither the Company nor IMP has received any written communication
from a governmental authority that alleges that either the Company or IMP is not
in compliance with any foreign, federal, state or local laws, rules or
regulations.
(j) COMPANY AND IMP PERMITS.
(i) Except as set forth in section 3B(j) OF THE DISCLOSURE
SCHEDULE, the Company holds all permits, licenses, orders and approvals
of all Authorities necessary for the lawful conduct
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of its business (the "COMPANY PERMITS"), except for failures to hold
such permits, licenses, variances, exemptions, orders and approvals
that would not have a Material Adverse Effect and copies of all Company
Permits have been furnished to the Purchaser. Except as set forth in
section 3B(j) OF THE DISCLOSURE SCHEDULE, the Company is in compliance
with the terms of the Company Permits and has received no variances or
exemptions with respect thereto.
(ii) IMP holds all permits, licenses, orders and approvals of
all Authorities necessary for the lawful conduct of its business (the
"IMP PERMITS"), except for failures to hold such permits, licenses,
variances, exemptions, orders and approvals that would not have a
Material Adverse Effect and copies of all IMP Permits have been
furnished to the Purchaser. IMP is in compliance with the terms of the
IMP Permits and has received no variances or exemptions with respect
thereto.
(k) TAX MATTERS.
(i) The Company has elected (with the consent of all of its
shareholders), in compliance with all applicable legal requirements, to
be taxed under Subchapter S of the Code and corresponding provisions
under any applicable state and local laws, and such elections are in
effect for the Company. No action has been taken by the Company or any
shareholder of the Company that may result in the revocation of any
such elections. Except as set forth in section 3B(k)(i) OF THE
DISCLOSURE SCHEDULE, (A) the Company has no "Subchapter C earnings and
profits" as defined in section 1362(d) of the Code and (B) the Company
has no "net unrealized built-in gain" as such term is defined in
section section 1374(d)(1) and 1374(d)(8) of the Code. The Company has
no liability, absolute or contingent, for the payment of any income
Taxes under the Code or under the laws of such states or localities
which afford tax treatment similar to that under Subchapter S of the
Code. The Company has filed all Tax Returns required to be filed by it
(taking into account any extensions of due dates). The Company has paid
all Taxes required to be paid by it (without regard to whether a Tax
Return is required), except Taxes for which an adequate reserve has
been established on the Most Recent Financial Statements.
(ii) All Income Tax Returns and all material Other Tax Returns
required to be filed with respect to the business and assets of IMP
have been duly and timely (within any applicable extension periods)
filed with the appropriate Authorities in all jurisdictions in which
such Returns are required to be filed. IMP has paid all Taxes required
to be paid by it (without regard to whether a Tax Return is required),
except Taxes for which an adequate reserve has been established on the
Most Recent Financial Statements.
(iii) No Tax Return of either the Company or IMP is under
audit or examination by any taxing Authority and, since January 1,
1988, no written notice of such an audit or examination has been
received by either the Company or IMP. Since January 1, 1988, each
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deficiency resulting from any audit or examination relating to Taxes by
any taxing authority has been paid, except for deficiencies being
contested in good faith. Since January 1, 1988, the federal income Tax
Returns of the Company have not been examined by and settled with the
Internal Revenue Service and the Tax Returns of IMP have not been
examined by and settled with the applicable Mexican Authorities.
(iv) There is no agreement or other document extending, or
having the effect of extending, the period of assessment or collection
of any Taxes for either the Company or IMP.
(v) Neither the Company nor IMP is a party to or bound by any
tax sharing agreement, tax indemnity obligation or similar agreement
with respect to Taxes (including any advance pricing agreement, closing
agreement or other agreement relating to Taxes with any taxing
Authority).
(vi) Neither the Company nor IMP will be required to include
in a taxable period ending after the Closing Date taxable income
attributable to income that accrued in a prior taxable period but was
not recognized in any prior taxable period as a result of the
installment method of accounting, the completed contract method of
accounting, the long-term contract method of accounting, the cash
method of accounting or section 481 of the Code with respect to a
change in method of accounting occurring before the Closing Date or
comparable provisions of state, local or foreign tax law.
(vii) Neither the Company nor IMP has filed a consent pursuant
to or agreed to the application of section 341(f) of the Code or any
comparable provision of foreign tax law..
(viii) Neither the Company nor IMP has, during the five-year
period ending on the Closing Date, been a personal holding company
within the meaning of section 541 of the Code or any comparable
provision of foreign tax law.
(ix) Neither the Company nor IMP has ever filed or been
included in any combined or consolidated tax return with any other
person or been a member of an Affiliated Group filing a consolidated
federal or foreign income Tax Return.
(l) CERTAIN BUSINESS RELATIONSHIPS WITH THE COMPANY AND IMP. Except as
set forth under section 3B(l) OF THE DISCLOSURE SCHEDULE and except for normal
advances to employees consistent with past practice, payment of compensation for
employment to employees consistent with past practice, and participation in
Employee Benefit Plans by employees, since January 1, 1996 neither the Company
nor IMP has purchased, acquired or leased any property or services from, or
sold, transferred or leased any property or services to, or loaned or advanced
any money to, or borrowed any money from, or entered into or been subject to any
management, consulting or similar agreement with (i)
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<PAGE> 31
any officer, director or shareholder of the Company or IMP, or (ii) any of their
respective Affiliates. Except as set forth under section 3B(l) OF THE DISCLOSURE
SCHEDULE, no Affiliate of either the Company or IMP is indebted to the Company
or IMP for money borrowed or other loans or advances, and neither the Company
nor IMP is indebted to any such Affiliate for money borrowed or other loans or
advances.
(m) TITLE TO TANGIBLE ASSETS OTHER THAN REAL PROPERTY INTERESTS. Each
of the Company and IMP has good and valid title to, or a valid leasehold
interest in, all the tangible assets (other than real property or interests in
real property) used or useful in the conduct of its respective business, except
Inventory sold since the date hereof in the Ordinary Course of Business, free
and clear of any Liens other than Permitted Liens. The machinery and equipment
used regularly in the conduct of the Company's and IMP's business are in
reasonable operating condition and repair (subject to normal wear and tear), and
are suitable for the purposes for which they are presently used. Except for
interests and rights in property pursuant to any lease, license or other
agreement described in section 3B(p) OF THE DISCLOSURE SCHEDULE or pursuant to
any lease, license or other agreement not required to be described in section
3B(p) OF THE DISCLOSURE SCHEDULE and except for property supplied by any
customer or supplier in connection with the purchase or sale of products or
services from or to such customer or supplier in the Ordinary Course of
Business, there is no tangible personal property owned by any third party which
is used by the Company or IMP in the operation of its respective business
section 3B(m) OF THE DISCLOSURE SCHEDULE lists all machinery, equipment,
vehicles, furniture and other tangible personal property of any kind and
description (other than Inventory) owned or leased by the Company and IMP.
(n) REAL PROPERTY.
(i) Neither the Company nor IMP owns any real property.
section 3B(n) of the DISCLOSURE SCHEDULE sets forth a list of all real
property leased, subleased or otherwise occupied by the Company and
IMP, indicating the nature of its interest therein and setting forth a
brief description of the buildings and improvements located thereon
(collectively, the "REAL PROPERTY"). Each of the Company and IMP has
valid leasehold interests in all leases of Real Property which it
leases or purports to lease, free and clear of any Liens, other than
Permitted Liens. There are no pending condemnation, expropriation,
eminent domain or similar proceedings affecting all or any portion of
such Real Property and, to the Knowledge of the Sellers (with respect
to the Company) and L. Martin and G. Martin (with respect to IMP), no
such proceedings are contemplated.
(ii) Each of the Company and IMP enjoys peaceful and
undisturbed possession under all of such Real Property leases under
which it is operating. All of such leases are valid, subsisting and in
full force and effect, no notice of termination has been received by
either the Company or IMP with respect thereto, and there are no
existing defaults, or events which with the passage of time or the
giving of notice, or both, would constitute defaults by
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<PAGE> 32
either the Company or IMP or, to the Knowledge of the Sellers (with
respect to the Company) and L. Martin and G. Martin (with respect to
IMP), by any other party thereto, except for defaults which could not
reasonably be expected to have a Material Adverse Effect.
(iii) The Real Property is in compliance with the Americans
With Disabilities Act or the comparable provision of foreign law.
(o) INTELLECTUAL PROPERTY.
(i) Section 3B(o)(i) OF THE DISCLOSURE SCHEDULE identifies
each patent, pending patent application or registered Intellectual
Property owned or used by the Company and IMP, and each material
written license agreement (excluding off-the-shelf software license
agreements) pursuant to which the Company or IMP has granted to any
third party, or received from any third party a grant of, any rights in
any of the Intellectual Property owned or used by the Company or IMP.
Each of the Company and IMP owns, or possesses adequate and enforceable
licenses or rights (free of Liens other than Permitted Liens) to use
all Intellectual Property and any other material intellectual property
rights (including, without limitation, patents, pending patent
applications, inventions, drawings, trade secrets, know-how and
confidential information) currently used by the Company and IMP, or
necessary to permit the Company and IMP to conduct its business as now
conducted.
(ii) Except as set forth on section 3B(o)(i) OF THE DISCLOSURE
SCHEDULE, with respect to each item identified in section 3B(o)(i) of
the Disclosure Schedule:
(A) each of the Company and IMP possesses all right,
title and interest, free and clear of any Lien (other than
Permitted Liens), license or other restriction;
(B) such item is not subject to any outstanding
injunction, judgment, order, decree, ruling or charge;
(C) no action, suit, proceeding, hearing,
investigation, written claim or written demand is pending or,
to the Knowledge of the Sellers (with respect to the Company)
and L. Martin and G. Martin (with respect to IMP), is
threatened which challenges the legality, validity,
enforceability, use or ownership of the item;
(D) neither the Company nor IMP, nor, to the
Knowledge of the Sellers (with respect to the Company) and L.
Martin and G. Martin (with respect to IMP), any other party to
any license agreement is in breach or default and no event has
occurred which with notice or lapse of time would constitute a
breach or default or permit termination, modification or
acceleration thereunder;
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<PAGE> 33
(E) to the Knowledge of the Sellers (with respect to
the Company) and L. Martin and G. Martin (with respect to
IMP), no party to any license agreement has repudiated any
material provision thereof;
(F) no claims are pending or, to the Knowledge of the
Sellers (with respect to the Company) and L. Martin and G.
Martin (with respect to IMP), threatened that the Company is
infringing on or otherwise violating the rights of any person
with regard to any such item; and
(G) to the Knowledge of the Sellers (with respect to
the Company) and L. Martin and G. Martin (with respect to
IMP), no person is infringing on or otherwise violating any
right of the Company or IMP with respect to such item.
(p) CONTRACTS. Section 3B(p) OF THE DISCLOSURE SCHEDULE lists the
Material Contracts to which each of the Company and IMP is a party. The Sellers
have made available to the Purchaser a correct and complete copy of each
Material Contract listed in section 3B(p) OF THE DISCLOSURE SCHEDULE. With
respect to each such agreement: (A) the agreement is legal, valid, binding,
enforceable and in full force and effect; (B) neither the Company nor, to the
Knowledge of the Sellers (with respect to the Company) and L. Martin and G.
Martin (with respect to IMP), any other party is in breach or default, and no
event has occurred which with notice or lapse of time would constitute a breach
or default, or permit termination, modification, or acceleration, under the
agreement; and (C) no party has repudiated any provision of the agreement.
(q) POWERS OF ATTORNEY. Except as set forth in section 3B(q) OF THE
DISCLOSURE SCHEDULE, there are no outstanding powers of attorney executed on
behalf of either the Company or IMP.
(r) INSURANCE. Section 3B(r) OF THE DISCLOSURE SCHEDULE describes each
insurance policy maintained by the Company and IMP and the Company has delivered
to the Purchaser correct and complete copies of all such policies. All of such
insurance policies are in full force and effect and, to the Knowledge of the
Sellers (with respect to the Company) and L. Martin and G. Martin (with respect
to IMP), neither the Company nor IMP is in default with respect to its
obligations under any of such insurance policies. Such policies are sufficient
for compliance with all requirements of law and Material Contracts to which
either the Company or IMP is a party. Since the respective dates of such
policies, no notice of cancellation or non-renewal with respect to any such
policy has been received by either the Company or IMP. section 3B(r) OF THE
DISCLOSURE SCHEDULE sets forth a list of all pending claims with respect to all
such policies and the loss runs for all such policies for the last three years.
(s) LITIGATION. Section 3B(s) OF THE DISCLOSURE SCHEDULE sets forth
each instance in which either the Company or IMP (i) is subject to any
outstanding injunction, judgment, order, decree or ruling or (ii) is a party or,
to the Knowledge of the Sellers (with respect to the Company) and L. Martin and
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<PAGE> 34
G. Martin (with respect to IMP), is threatened to be made a party, to any
action, suit, proceeding, hearing or investigation of, in or before any court or
quasi-judicial or administrative agency of any federal, state, local or foreign
jurisdiction or before any arbitrator.
(t) LABOR RELATIONS. Neither the Company nor IMP is and has ever been a
party to a collective bargaining agreement. Except as set forth under section
3B(t) OF THE DISCLOSURE SCHEDULE, (i) since January 1, 1996 neither the Company
nor IMP has been involved in or, to the Knowledge of the Sellers (with respect
to the Company) and L. Martin and G. Martin (with respect to IMP), threatened
with any strike, slowdown or work stoppage, (ii)since January 1, 1996 neither
the Company nor IMP has been involved in or, to the Knowledge of the Sellers
(with respect to the Company) and L. Martin and G. Martin (with respect to IMP),
threatened with any unfair labor practice charge, arbitration, suit or
administrative proceeding relating to labor matters involving its employees,
(iii) there are no actions, proceedings or claims pending or, to the Knowledge
of the Sellers (with respect to the Company) and L. Martin and G. Martin (with
respect to IMP), threatened against either the Company or IMP under any laws
relating to employment, including any provisions thereof relating to wages,
hours, collective bargaining, withholding or the payment of social security or
other Taxes and (iv) the Company has complied with the provisions of the
Immigration Reform and Control Act of 1986 with respect to all of its employees
hired after November 6, 1986 by verifying their employment eligibility and
having them complete Form I-9.
(u) EMPLOYEE BENEFITS. Section 3B(u) OF THE DISCLOSURE SCHEDULE sets
forth (a) all of the current Employee Pension Benefit Plans, Employee Welfare
Benefit Plans and all other material employee benefit, fringe benefit plans and
programs maintained or contributed to by the Company and IMP with respect to
current or former employees of the Company and IMP (the "EMPLOYEE BENEFIT
PLANS").
(i) With respect to each Employee Benefit Plan:
(A) each such Employee Benefit Plan (and each related
trust, insurance contract or fund) complies in form and, to
the Knowledge of the Sellers (with respect to the Company) and
L. Martin and G. Martin (with respect to IMP), in operation
with the applicable requirements of ERISA and the Code or the
comparable provisions of foreign law;
(B) all contributions (including all employer
contributions and employee salary reduction contributions, if
any) which are due have been paid to each such Employee
Benefit Plan which is an Employee Pension Benefit Plan, and
there are no accumulated funding deficiencies with respect to
any such Employee Pension Benefit Plan;
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(C) each such Employee Benefit Plan which is an
Employee Pension Benefit Plan has received a favorable
determination letter from the IRS as to its qualification
under section 401(a) of the Code or the comparable provision
of foreign law;
(D) no "prohibited transaction" (as such term is
defined in section 406 of ERISA or section 4975 of the Code)
has occurred with respect to any such Employee Benefit Plan
which is an Employee Pension Benefit Plan (or its related
trust) which could subject the Company or any officer,
director or employee of the Company, to any Tax or penalty
imposed under section 4975 of the Code or liability under
section 406 of ERISA;
(E) the Company has delivered to the Purchaser
correct and complete copies of the plan documents and summary
plan descriptions, the most recent determination letter
received from the IRS, the most recent Form 5500 Annual
Report, and all related trust agreements, insurance contracts
and other funding arrangements which implement each such
Employee Benefit Plan;
(F) no such Employee Benefit Plan which is an
Employee Pension Benefit Plan has been completely or partially
terminated or has been the subject of a "reportable event" (as
defined in section 4043 of ERISA) as to which notices would be
required to be filed with the PBGC. To the Knowledge of the
Sellers (with respect to the Company) and L. Martin and G.
Martin (with respect to IMP), no proceeding by the PBGC to
terminate any such Employee Pension Benefit Plan (other than a
Multiemployer Plan) has been instituted;
(G) the Company has not incurred any liability to the
PBGC (except for required premium payments, if any), or
otherwise under Title IV of ERISA (including any withdrawal
liability) or under the Code with respect to any such Employee
Benefit Plan which is an Employee Pension Benefit Plan; and
(H) no action, suit, proceeding, hearing or
investigation with respect to the administration or the
investment of assets of any such Employee Benefit Plan (other
than routine claims for benefits) is pending or, to the
Knowledge of the Sellers (with respect to the Company) and L.
Martin and G. Martin (with respect to IMP), threatened.
(ii) The Company does not contribute to any Multiemployer Plan
or have any liability (including withdrawal liability) under any
Multiemployer Plan.
(iii) Neither the Company nor IMP has any obligation to
provide health or other welfare benefits to former, retired or
terminated employees, except as specifically required under section
4980B of the Code or comparable provision of foreign law. With respect
to all of its
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past and present employees, each of the Company and IMP has complied in
all material respects with the notice and continuation requirements of
Part 6 of Subtitle B of Title I of ERISA and of section 4980B of the
Code or comparable provision of foreign law.
(v) ENVIRONMENTAL, HEALTH AND SAFETY MATTERS. Except as disclosed in
section 3B(v) OF The DISCLOSURE SCHEDULE:
(i) Neither the Company nor IMP has disposed of or released
any substance, arranged for the disposal of any substance, knowingly
exposed any employee or other individual to any substance or condition,
or owned or operated its businesses or any property or facility so as
to give rise to any liability or corrective or remedial obligation of
either the Company or IMP under any Environmental, Health and Safety
Requirement.
(ii) Each of the Company and IMP is in compliance with all
Environmental Health and Safety Requirements, including, but not
limited to, the Emergency Planning and Community Right-to-Know Act
("EPCRA"), 42 U.S.C. section 11001 et seq., and neither the Company nor
IMP has, since December 31, 1995, received any written communication
from any Authority that alleges that either the Company or IMP is not
in such compliance.
(iii) There is no Environmental Claim of which either the
Company or IMP has received written notice or, to the Knowledge of the
Sellers (with respect to the Company) and L. Martin and G. Martin (with
respect to IMP), threatened or recently filed against either the
Company or IMP, nor, to the Knowledge of the Sellers (with respect to
the Company) and L. Martin and G. Martin (with respect to IMP), is
there any Environmental Claim against any Person whose liability for
any Environmental Claim either the Company or IMP has retained or
assumed contractually.
(iv) No underground storage tanks, friable and damaged
asbestos-containing materials, or pcb-containing equipment or fluids
are present on any of the Real Property.
(v) There are no Liens arising under any Environmental, Health
and Safety Requirement on any of the Real Property arising as a result
of any actions taken or omitted to be taken by either the Company or
IMP and, to the Knowledge of the Sellers (with respect to the Company)
and L. Martin and G. Martin (with respect to IMP), no actions have been
taken by any Authority with respect to any of the Real Property to
impose an environmental Lien with respect to the Real Property as a
result of any such actions.
(vi) No real property presently or, to the Knowledge of the
Sellers (with respect to the Company) and L. Martin and G. Martin (with
respect to IMP), heretofore owned or operated by either the Company or
IMP is currently listed on the National Priorities List or the
Comprehensive Environmental Response, Compensation and Liability
Information
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System, both promulgated under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended
("CERCLA"), or on any analogous state or foreign list.
(vii) To the Knowledge of the Sellers (with respect to the
Company) and L. Martin and G. Martin (with respect to IMP), no off-site
location at which either the Company or IMP has disposed or arranged
for the disposal of any waste is listed on the National Priorities List
or on any analogous state list.
(w) CUSTOMERS AND SUPPLIERS. section 3B(w) OF THE DISCLOSURE SCHEDULE
contains a complete and accurate list of the names and addresses of the 10
largest (by volume) customers and suppliers of each of the Company and IMP for
the fiscal years ended December 31, 1997 and December 31, 1996. Each of the
Company and IMP maintains satisfactory relations with each of such customers and
suppliers and since the Most Recent Fiscal Month End no event has occurred that
would materially adversely affect either the Company's or IMP's relations with
such customers and suppliers. Since the Most Recent Fiscal Month End, (i) no
customer which accounted for more than 5% of either the Company's or IMP's
aggregate sales revenues during the last twelve months has canceled, terminated
(or, to the Knowledge of the Sellers (with respect to the Company) and L. Martin
and G. Martin (with respect to IMP), made any threat to either the Company or
IMP to cancel or terminate), or materially decreased its usage of either the
Company's or IMP's services or products, and (ii) no supplier, or any group of
suppliers, which accounted for more than 5% of the aggregate supplies purchased
by either the Company or IMP during the last twelve months, has canceled,
terminated or, to the Knowledge of the Sellers (with respect to the Company) and
L. Martin and G. Martin (with respect to IMP), made any threat to either the
Company or IMP to cancel or otherwise terminate, or to materially decrease the
provision of services or supplies to either the Company or IMP.
(x) INVENTORY. The Inventory of the Company and IMP consists in all
material respects of items usable and saleable in the Ordinary Course of
Business in the Company's present product lines. Except as set forth in section
3B(f) OF THE DISCLOSURE SCHEDULE, the Inventory of the Company and IMP is valued
at the lower of cost (on a first-in-first-out basis) or market in accordance
with GAAP on a basis consistent with all prior periods of the Company and IMP
since the fiscal year ended December 31, 1996.
(y) ACCOUNTS RECEIVABLE. All of the Accounts Receivable of each of the
Company and IMP are properly reflected on its books and records and arose from
bona fide transactions in the Ordinary Course of Businesection The reserve for
bad debts set forth on the Most Recent Balance Sheet has been determined in
accordance with GAAP on a basis consistent with prior periods. None of such
Accounts Receivable is or will be at the Closing Date subject to any
counterclaim or set off, other than routine claims for the return of defective
or non-conforming merchandise.
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<PAGE> 38
(z) LIST OF ACCOUNTS. section 3B(z) OF THE DISCLOSURE SCHEDULE sets
forth a list of all bank and securities accounts, and all safe deposit boxes,
maintained by each of the Company and IMP and a listing of the persons
authorized to draw thereon or make withdrawals therefrom or, in the case of safe
deposit boxes, with access thereto.
(aa) PRODUCTS LIABILITY. To the Knowledge of the Sellers (with respect
to the Company) and L. Martin and G. Martin (with respect to IMP), except for
routine warranty claims for the return of defective or non-conforming
merchandise and except as set forth in section 3B(aa) OF THE DISCLOSURE
SCHEDULE, there exist no claims against either the Company or IMP for injury to
persons or property suffered by any person as a result of the sale of any
product by the Company or IMP, including, but not limited to, claims arising out
of the defective or unsafe nature of the products sold by either the Company or
IMP. section 3B(aa) OF THE DISCLOSURE SCHEDULE sets forth a true and correct
list and brief description of all product liability claims that have been filed
against the Company and IMP since January 1, 1996.
4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The Purchaser
represents and warrants (subject to the exceptions set forth in the Disclosure
Schedule) to the Sellers, the Company and IMP as follows:
(a) ORGANIZATION. The Purchaser is a corporation duly organized,
validly existing, and in good standing under the laws of Alabama.
(b) AUTHORIZATION OF TRANSACTION. The Purchaser has full corporate
power and authority to execute and deliver this Agreement and to perform its
obligations hereunder. This Agreement constitutes the valid and legally binding
obligation of the Purchaser, enforceable in accordance with its terms.
(c) NONCONTRAVENTION. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) violate any statute, regulation, rule, injunction, judgment, order, decree
or ruling of any government, governmental agency or court to which the Purchaser
is subject or any provision of its charter or bylaws or other organizational
document, as the case may be, or (ii) conflict with, result in a breach of,
constitute a default under, result in the acceleration of, create in any party
the right to accelerate, terminate, modify or cancel, or require any notice
under any agreement, contract, lease, license or instrument to which the
Purchaser is a party or by which it is bound or to which any of its assets is
subject. The Purchaser is not required give any notice to, make any filing with,
or obtain any authorization, consent or approval of any government or
governmental agency in order for it to consummate the transactions contemplated
by this Agreement.
(d) BROKERS' FEES. Except for any transaction fees payable to Richard
Vanderkaay & Associates (all of which fees will be paid at or prior to the
Closing), the Purchaser does not have any
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<PAGE> 39
liability or obligation to pay any fees or commissions to any broker, finder or
agent with respect to the transactions contemplated by this Agreement for which
the Sellers or the Company (prior to the Closing) could become liable or
obligated.
(e) ACQUISITION OF SHARES FOR INVESTMENT. The Company Shares and the
IMP Shares to be purchased by the Purchaser pursuant to this Agreement are being
acquired for investment only and not with a view to any public distribution
thereof, and the Purchaser will not offer to sell or otherwise dispose of such
Shares so acquired by it in violation of any of the registration requirements of
the Securities Act or any comparable state laws.
5. PRE-CLOSING COVENANTS. The Parties agree as follows with respect to
the period between the execution of this Agreement and the Closing:
(a) GENERAL. Each of the Parties will use commercially reasonable
efforts to take all action and to do all things necessary, proper or advisable
in order to consummate and make effective the transactions contemplated by this
Agreement (including satisfaction, but not waiver, of the closing conditions set
forth in section 8 below).
(b) NOTICES AND CONSENTS. Each of the Parties will give any notices to,
make any filings with, and use commercially reasonable efforts to obtain any
authorizations, consents and approvals of governments and governmental agencies
in connection with consummation of the transactions contemplated by this
Agreement. Without limiting the generality of the foregoing, each of the Parties
will file any Notification and Report Forms and related material that such Party
may be required to file with the Federal Trade Commission and the Antitrust
Division of the United States Department of Justice under the Hart-Scott-Rodino
Act, will use commercially reasonable efforts to obtain a waiver from the
applicable waiting period, and will make any further filings pursuant thereto
that may be necessary, proper or advisable in connection therewith.
(c) OPERATION OF BUSINESS. Neither the Company nor IMP will engage
in any practice, take any action, or enter into any transaction of the sort
described in section 3B(g) above. In addition, each of the Company and IMP will
continue to conduct its business in the Ordinary Course of Business and will not
(i) except in the Ordinary Course of Business liquidate Inventory or accept
product returns, (ii) accelerate receivables, (iii) delay payables, or (iv)
change in any material respect either the Company's ir IMP's practices in
connection with the payment of payables in respect of raw materials purchases.
(d) PRESERVATION OF BUSINESS. Each of the Company and IMP will use
commercially reasonable efforts to maintain its business and properties,
including its present operations, physical facilities, working conditions, and
relationships with lessors, licensors, suppliers, customers and employees.
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(e) FULL ACCESS. Each of the Company and IMP will permit
representatives of the Purchaser to have full access at all reasonable times,
and in a manner so as not to interfere with the normal business operations of
the Company and IMP, to the premises, properties, personnel, books, records
(including tax records), contracts and documents of or pertaining to the Company
and IMP. The Purchaser reaffirms its obligations under the Confidentiality
Agreement.
(f) NOTICE OF DEVELOPMENTS. Each Party will promptly give notice to the
other Party(ies) of its, his or her discovery of any material adverse
development which, had such development been in existence on the date hereof,
would constitute a breach of the representations and warranties contained in
section section 3A and 3B (in the case of a Seller) or section 4 (in the case of
the Purchaser). No disclosure by any Party pursuant to this section 5(f) shall
be deemed to amend or supplement the Disclosure Schedules or to prevent or cure
any misrepresentation or breach of warranty.
(g) NO ADDITIONAL REPRESENTATIONS OR WARRANTIES. The Purchaser
acknowledges that none of the Sellers, the Company, IMP, nor any other Person
has made any representation or warranty, express or implied, as to the accuracy
or completeness of any information regarding the Company, IMP or any Seller,
except as expressly set forth in this Agreement or the Disclosure Schedule, and
the Purchaser further agrees that none of the Sellers, the Company, IMP nor any
other Person will have or be subject to any liability to the Purchaser or any
other Person resulting from the distribution to the Purchaser, or the
Purchaser's use of, any such information. EXCEPT FOR THE REPRESENTATIONS AND
WARRANTIES EXPRESSLY SET FORTH IN SECTION 3A and 3B, NONE OF THE SELLERS, THE
COMPANY OR IMP MAKES ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, AT LAW
OR IN EQUITY, IN RESPECT OF THE SELLERS, THE COMPANY OR IMP OR ANY OF THE
ASSETS, LIABILITIES OR OPERATIONS OF THE COMPANY OR IMP, AND THE SELLERS, THE
COMPANY AND IMP EXPRESSLY DISCLAIM ANY SUCH REPRESENTATION OR WARRANTY.
6. POST-CLOSING COVENANTS. The Parties agree as follows with respect to
the period following the Closing.
(a) GENERAL. In the event that at any time after the Closing any
further action is necessary to carry out the purposes of this Agreement, each of
the Parties will take such further action (including the execution and delivery
of such further instruments and documents) as any other Party may reasonably
request, all at the sole cost and expense of the requesting Party; PROVIDED,
HOWEVER, that the taking of any action necessary to execute or deliver to the
Purchaser any stock powers and such other instruments of transfer as may be
necessary to transfer ownership of the Shares by any Seller shall be borne by
such Seller.
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(b) Section 338(h)(10) ELECTION.
(i) The Sellers will join with the Purchaser in making an
election under section 338(h)(10) of the Code and Treasury Regulations
section 1.338(h)(10)-1(d) (and any corresponding elections under any
applicable state and local Laws)(collectively, a "section 338(h)(10)
ELECTION") with respect to the purchase and sale of the Company Shares
from the Sellers hereunder. The Sellers will pay any tax attributable
to the making of the section 338(h)(10) Election (including, without
limitation, any tax arising as the result of the recognition of any
built-in gain pursuant to the provisions of section 1374 of the Code
and any Tax arising as the result of the "recapture" of previously
deducted items) and the Sellers, jointly and severally, will indemnify
the Purchaser and the Company from and against any Losses arising out
of any failure to pay such tax.
(ii) The Sellers will be responsible for preparing and filing
all income or franchise Tax Returns of the Company and IMP relating to
Pre-Closing Tax Periods. The Purchaser will be responsible for
preparing and filing all income and franchise Tax Returns of the
Company and IMP relating to periods other than Pre-Closing Tax Periods.
After the Closing has occurred, the Purchaser will cause the Company
and IMP to provide, or cause to be provided, to the Sellers, without
charge, any information that may reasonably be requested by the Sellers
in connection with the preparation of any such Tax Returns relating to
Pre- Closing Tax Periods. The Sellers will allow the Purchaser an
opportunity to review and comment on such Tax Returns (including any
amended Returns). The Sellers will take no positions on the Tax Returns
of the Company or IMP that relate to Pre-Closing Tax Periods that would
adversely affect the Company or IMP after the Closing Date. The
Purchaser will take no positions on the Tax Returns of the Company or
IMP that relate to Post-Closing Tax Periods that would adversely affect
the Sellers after the Closing Date for any Pre-Closing Tax Periods. The
income of the Company will be apportioned to the period up to the
Closing Date and the period from and after the Closing Date in
accordance with the provisions of section 1362(e)(6)(i) of the Code by
closing the books of the Company as of the close of business on the
last calendar day immediately preceding the Closing Date.
(iii) Section 6(b)(iii) OF THE DISCLOSURE SCHEDULE sets forth
an allocation of the estimated "Modified Adjusted Deemed Sales Price",
as defined in Treasury Regulations section 1.338(h)(10)-(f), among the
assets of the Company (the "ALLOCATION SCHEDULE"). Promptly (but in no
event later than 30 days following the Purchaser's receipt of the
Closing Balance Sheet) after the Closing Date, the Sellers and the
Purchaser shall exchange completed and executed copies of IRS Form
8023-A (or other applicable form), required schedules thereto, and any
similar forms required by any state or local Tax Authority. If any
changes are required to these forms as a result of information which is
first available after the Closing Date, the Sellers and the Purchaser
will in good faith use commercially reasonable efforts to promptly
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<PAGE> 42
agree on such changes. The Sellers and the Purchaser each agree to file
all Tax Returns in accordance with the Allocation Schedule.
(c) TRANSITION. None of the Sellers, the Company or IMP will take any
action that is designed or intended to have the effect of discouraging any
lessor, licensor, customer, supplier or other business associate of the Company
or IMP from maintaining the same business relationships with the Company and IMP
after the Closing as it maintained with the Company and IMP prior to the
Closing.
(d) LITIGATION SUPPORT. In the event and for so long as any Party
actively is contesting or defending against any action, suit, proceeding,
hearing, investigation, charge, complaint, claim or demand in connection with
(i) any transaction contemplated under this Agreement, or (ii) any fact,
situation, circumstance, status, condition, activity, practice, occurrence,
event, incident, action, failure to act, or transaction on or prior to the
Closing Date involving the Company or IMP, each of the Parties will cooperate
with the contesting or defending Party and its, his or her counsel in the
contest or defense, all at the sole cost and expense of the contesting or
defending Party (except in connection with any dispute among the Parties,
including any dispute relating to a Notice of Disagreement With Adjusted EBITAM
Statement), and except to the extent that the contesting or defending party is
entitled to indemnification therefor under this Agreement).
(e) NONCOMPETITION. In order to induce the Purchaser to enter into this
Agreement, each Seller and Perry Martin (severally and not jointly) expressly
covenants and agrees that for a period of five years from and after the Closing
Date, such Person will not, directly or indirectly, engage in or have any
interest in any sole proprietorship, partnership, corporation, limited liability
company or business or any other Person (other than the Purchaser), whether as
an employee, officer, director, partner, agent, security holder, consultant or
otherwise, that directly or indirectly is engaged in the Business of the Company
in all markets in which the Company and IMP currently sell their products (the
"RESTRICTED AREA"). The Sellers and Perry Martin agree that the covenant
provided for in this section 6(e) is reasonable and necessary in terms of time,
activity and territory to protect the Purchaser's interest as a buyer of the
Company Common Stock and IMP Stock and in protecting the Company's and IMP's
Trade Secrets. The Sellers and Perry Martin further acknowledge and agree that
such covenants are reasonable and necessary in terms of time, area and line of
business to protect the Purchaser's other legitimate business interests, which
include its interests in protecting the Company's and IMP's (i) valuable
confidential business information, (ii) substantial relationships with customers
throughout the Restricted Area and (iii) customer goodwill associated with the
Company's and IMP's ongoing businesection The Sellers and Perry Martin expressly
authorize the enforcement of the covenants provided for in this section 6(e) by
(A) the Purchaser and its Subsidiaries, (B) the Purchaser's permitted assigns
and (C) any successors to the Company's and IMP's businesection To the extent
that the covenant provided for in this section 6(e) may later be deemed by a
court to be too broad to be enforced with respect to its duration or with
respect to any particular activity or geographic area, the court making such
determination shall have the power to reduce the duration
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<PAGE> 43
or scope of the provision, and to add or delete specific words or phrases to or
from the provision. The provision as modified shall then be enforced.
(f) NON-SOLICITATION. In order to induce the Purchaser to enter into
this Agreement, each Seller and Perry Martin (severally and not jointly)
expressly covenants and agrees that for a period of five years from and after
the Closing Date, such Person will not, directly or indirectly, solicit for
employment or employ (or attempt to solicit for employment or employ), for
himself, herself or itself or on behalf of any sole proprietorship, partnership,
corporation, limited liability company or business or any other Person (other
than the Purchaser), any employee of the Company or IMP or encourage any such
employee to leave his or her employment with the Company or IMP. To the extent
that the covenant provided for in this section 6(f) may later be deemed by a
court to be too broad to be enforced with respect to its duration or with
respect to any particular activity or geographic area, the court making such
determination shall have the power to reduce the duration or scope of the
provision, and to add or delete specific words or phrases to or from the
provision. The provision as modified shall then be enforced.
(g) CONFIDENTIALITY. In order to induce the Purchaser to enter into
this Agreement, each Seller and Perry Martin (severally and not jointly)
expressly covenants and agrees that from and after the Closing Date, such Person
will not, directly or indirectly, for himself, herself or itself or on behalf of
any sole proprietorship, partnership, corporation, limited liability company or
business or any other Person (other than the Purchaser) disclose, divulge,
furnish or make accessible to anyone (other than the Company, IMP or any of
their respective Affiliates or representatives) any Confidential Information or
Trade Secrets, or in any way use any Confidential Information or Trade Secrets
in the conduct of any business; PROVIDED, HOWEVER, that nothing in this section
6(g) will prohibit the disclosure of any Confidential Information or Trade
Secrets (i) which is required to be disclosed by a Seller or Perry Martin or any
such other Person in connection with any court action or any proceeding before
any Authority, (ii) in connection with the enforcement of any of the respective
rights of a Seller or Perry Martin hereunder, or (iii) in connection with the
defense by a Seller or Perry Martin, of any claim asserted against him or it
hereunder; PROVIDED, HOWEVER, that in the case of a disclosure contemplated by
clause (i), no disclosure shall be made until such Person shall give notice to
the Company of the intention to disclose such Confidential Information or Trade
Secrets so that the Company may contest the need for disclosure, and such Person
will cooperate (and will cause his or her Affiliates and their respective
representatives to cooperate) with the Purchaser in connection with any such
proceeding. Notwithstanding any provision of this Agreement which may be to the
contrary (x) the foregoing provisions restricting the use of Confidential
Information shall survive the Closing for a period of seven years, and (y) the
foregoing provisions restricting the use of Trade Secrets shall survive the
Closing for so long as permitted by the Florida Uniform Trade Secrets Act,
Chapter 688, Florida Statutes.
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<PAGE> 44
7. NO SHOP. From the date of this Agreement until the earlier of (i)
the Closing Date, or (ii) the termination of this Agreement, each of the Company
and IMP shall not, and the Sellers shall cause the Company and IMP and their
respective officers, directors, employees and other agents not to, directly or
indirectly, take any action to solicit, initiate or encourage any offer or
proposal or indication of interest in a merger, consolidation or other business
combination involving any equity interest in, or a substantial portion of the
assets of the Company or IMP, other than in connection with the transactions
contemplated by this Agreement. The Company, IMP and the Sellers shall
immediately advise the Purchaser of the terms of any written offer, proposal or
indication of interest that they, the Company or IMP receive or otherwise become
aware of.
8. CONDITIONS TO OBLIGATION TO CLOSE.
(a) CONDITIONS TO OBLIGATION OF THE PURCHASER. The obligation of the
Purchaser to consummate the transactions to be performed by it in connection
with the Closing is subject to satisfaction of the following conditions:
(i) the representations and warranties set forth in section 3A
and section 3B above that are qualified as to their materiality shall
be true and correct and any such representations and warranties that
are not so qualified shall be true and correct in all material respects
at and as of the Closing Date (as though made then and as though the
Closing Date were substituted for the date of this Agreement);
(ii) the Sellers, the Company and IMP shall have performed and
complied with all of their respective covenants hereunder in all
material respects through the Closing;
(iii) there shall not be any injunction, judgment, order,
decree, ruling or charge in effect preventing consummation of any of
the transactions contemplated by this Agreement, and no action, suit,
claim or proceeding shall be pending before any Authority which seeks
to prohibit or enjoin the consummation of the transactions contemplated
by this Agreement;
(iv) each of the Sellers (or the Sellers' Representative
acting on their behalf) shall have delivered to the Purchaser a
certificate to the effect that the conditions specified above in
sections 8(a)(i) and (ii), as they pertain to such Seller, have
been satisfied in all respects;
(v) the Sellers shall have delivered to the Purchaser a
certificate to the effect that the conditions specified above in
sections 8(a)(i) and (ii) have been satisfied in all respects;
(vi) all applicable waiting periods (and any extensions
thereof) under the Hart-Scott-Rodino Act shall have expired or
otherwise been terminated;
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<PAGE> 45
(vii) all of the directors and officers of the Company and IMP
designated by the Purchaser prior to the Closing shall have delivered
duly signed resignations effective at the time of the Closing (or the
Sellers, the Company or IMP shall have taken such other action as is
necessary to ensure that such persons are not directors or officers of
the Company or IMP at the time of the Closing);
(viii) Perry B. Martin shall have executed and delivered to
the Purchaser the Employment Agreement;
(ix) L. Martin shall have executed and delivered to the
Purchaser the Consulting Agreement;
(x) Nitram Partners, Ltd. shall have executed and delivered to
the Purchaser the Lease Amendment;
(xi) Sherry Mittleman and Lisa Schneiderman shall have
executed and delivered to the Purchaser the Joinder Agreement;
(xii) the Purchaser shall have completed its due diligence
review of the Company and IMP (including, without limitation, a
financial, legal, commercial and environmental review of the Company
and IMP) and the results thereof shall be satisfactory to the Purchaser
in its absolute discretion;
(xiii) there shall be no payables or receivables between the
Sellers and the Company or IMP or between Affiliates of the Sellers and
the Company or IMP, other than lease payments and intercompany payments
between the Company and IMP;
(xiv) the Company will have Net Working Capital of at least
the Net Working Capital Threshold Amount; and
(xv) the Sellers shall have corrected the building code
violations referenced in section 12(a)(v).
The Purchaser may waive any condition specified in this section 8(a) if it
executes a writing so stating at or prior to the Closing.
(b) CONDITIONS TO OBLIGATION OF THE SELLERS. The obligation of the
Sellers to consummate the transactions to be performed by them in connection
with the Closing is subject to satisfaction of the following conditions:
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<PAGE> 46
(i) the representations and warranties set forth in section 4
above shall be true and correct in all material respects at and as of
the Closing Date (as though made then and as though the Closing Date
were substituted for the date of this Agreement);
(ii) the Purchaser shall have performed and complied with all
of its covenants hereunder in all material respects through the
Closing;
(iii) there shall not be any injunction, judgment, order,
decree, ruling or charge in effect preventing consummation of any of
the transactions contemplated by this Agreement, and no action, suit,
claim or proceeding shall be pending before any Authority which seeks
to prohibit or enjoin the consummation of the transactions contemplated
by this Agreement;
(iv) the Purchaser shall have delivered to the Sellers'
Representative a certificate to the effect that each of the conditions
specified above in sections 8(b)(i) and (ii) has been satisfied
in all respects;
(v) all applicable waiting periods (and any extensions
thereof) under the Hart-Scott-Rodino Act shall have expired or
otherwise been terminated;
(vi) the Purchaser shall have executed and delivered to the
Sellers' Representative the Employment Agreement;
(vii) the Purchaser shall have executed and delivered to the
Sellers' Representative the Consulting Agreement; and
(x) the Company shall have executed and delivered to the
Sellers' Representative the Lease Amendment.
The Sellers' Representative may waive any condition specified in this section
8(b) if he executes a writing so stating at or prior to the Closing.
9. REMEDIES FOR BREACHES OF THIS AGREEMENT.
(a) SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Sellers contained in section 3A and contained in section
3B(b), (d) and (e) (collectively, THE "TRANSACTION REPRESENTATIONS AND
WARRANTIES"), the representations and warranties of the Sellers contained in
section 3B(k) (thE "TAX REPRESENTATIONS AND WARRANTIES"), the representations
and warranties of the Sellers contained in section 3B(u) (thE "EMPLOYEE BENEFIT
PLAN REPRESENTATIONS AND WARRANTIES"), the representations and warranties of the
Sellers contained in section 3B(v) (the "ENVIRONMENTAL REPRESENTATIONS AND
WARRANTIES"), the representations and warranties of the Sellers contained in
section 3B(aa) (the "PRODUCTS LIABILITY REPRESENTATIONS AND WARRANTIES") and the
representations and
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<PAGE> 47
warranties of the Purchaser contained in section 4 shall survive the Closing and
continue in full force and effect for the statute of limitations applicable
thereto. The representations and warranties of the Sellers contained in section
3B (other than the Transaction Representations and Warranties, the Tax
Representations and Warranties, the Employee Benefit Plan Representations and
Warranties, the Environmental Representations and Warranties and the Products
Liability Representations and Warranties) shall survive the Closing and continue
in full force and effect until the two year anniversary of the Closing Date. Any
claim for which any Party shall have given proper notice in accordance with the
terms of this Agreement (and the Escrow Agreement) on or prior to the expiration
of the applicable survival period shall survive until such claim is resolved
pursuant to the terms of this Agreement or the Escrow Agreement. To preserve any
claim for breach of any such representation or warranty, the Party claiming a
breach shall be obligated to notify the Party claimed to be in breach (except
that where the Party claimed to be in breach is the Company or IMP, notice shall
be given to the Sellers' Representative) in writing of any such breach, or facts
that can reasonably be expected to give rise to such breach, before termination
of the applicable survival period in respect of such representation or warranty;
otherwise, such Party's claim for breach shall be forever barred.
(b) INDEMNIFICATION.
(i) Pursuant to the terms of the Escrow Agreement and subject
to section 9(a) above and the conditions set forth in this section
9(b), subsequent to the Closing Date the Sellers shall indemnify,
defend and hold harmless the Company and IMP (as assignee of the
Purchaser pursuant to section 9(e) hereof) from, against and in respect
of any Losses which the Purchaser, the Company or IMP shall suffer,
sustain or become subject to by virtue of or which arise out of, or
result from, any breach of the covenants, representations and
warranties of the Sellers set forth in this Agreement (other than the
Transaction Representations and Warranties, the Tax Representations and
Warranties, the Employee Benefit Plan Representations and Warranties,
the Environmental Representations and Warranties and the Products
Liability Representations and Warranties); PROVIDED, HOWEVER, that: (A)
the Company's and IMP's right to indemnification with respect to such
breaches under this section 9(b)(i) shall be satisfied only by recourse
to the funds deposited and remaining in the General Indemnification
Escrow Account, and none of the Sellers shall have any personal
liability to the Company or IMP with respect to any such breach, and
(B) the Company and IMP shall not be entitled to indemnification with
respect to any Losses under this section 9(b)(i) until all such Losses
exceed, in the aggregate, $150,000 (the "DEDUCTIBLE"), in which case
the Company and IMP shall be entitled to indemnification only to the
extent such Losses exceed $150,000. Notwithstanding anything to the
contrary contained in this section 9(b)(i), any breach of the
representations and warranties of the Sellers contained in section
3B(x) shall not be subject to the Deductible.
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<PAGE> 48
(ii) Subject to section 9(a) above and the conditions set
forth in this section 9(b), subsequent to the Closing Date the Sellers
shall indemnify, defend and hold harmless the Company and IMP (as
assignee of the Purchaser pursuant to section 9(e) hereof) from,
against and in respect of any Losses which Purchaser, the Company or
IMP shall suffer, sustain or become subject to by virtue of or which
arise out of, or result from, any breach of any of the Transaction
Representations and Warranties, the Tax Representations and Warranties,
the Employee Benefit Plan Representations and Warranties, the
Environmental Representations and Warranties or the Products Liability
Representations and Warranties; PROVIDED, HOWEVER, that no Seller shall
be obligated to indemnify the Purchaser for an amount in excess of its,
his or her Company Pro Rata Share or IMP Pro Rata Share, whichever is
applicable, of any such Losses. The Company's and IMP's right to
indemnification with respect to breaches of Transaction Representations
and Warranties, Tax Representations and Warranties, Employee Benefit
Plan Representations and Warranties, Environmental Representations and
Warranties or Products Liability Representations and Warranties under
this section 9(b)(ii) shall not be subject to the Deductible and shall
be satisfied first by recourse to the funds deposited and remaining in
the General Indemnification Escrow Account; PROVIDED, HOWEVER, that to
the extent Losses for which the Purchaser is entitled to
indemnification under section 9(b)(i), together with amounts paid from
the General Indemnification Escrow Account pursuant to this section
9(b)(ii) exceed $2,450,000, the Sellers shall pay the Purchaser the
deficiency within 10 days of the Purchaser's request. In no event shall
the Company or IMP be entitled to indemnification for any Losses with
respect to the breach of any Employee Benefit Plan Representations and
Warranties and the Products Liability Representations and Warranties to
the extent that the sum of (x) all such Losses, and (y) the amount of
all disbursements made to the Company and IMP from the General
Indemnification Escrow Account exceeds, in the aggregate, $5,000,000.
In no event shall the Company or IMP be entitled to indemnification for
any Losses with respect to the breach of any Tax Representations and
Warranties or Environmental Representations and Warranties to the
extent that the sum of (x) all such Losses, (y) the amount of all
disbursements made to the Company and IMP from the General
Indemnification Escrow Account and (z) the amount of any Losses paid
for a breach of any Employee Benefit Plan Representations and
Warranties and the Products Liability Representations and Warranties,
exceeds in the aggregate, the Company Purchase Price and the IMP
Purchase Price. There shall be no limit on the amount of any Losses for
which the Company or IMP is entitled to indemnification for the breach
of any Transaction Representations and Warranties.
(iii) Subject to section 9(a) above and the conditions set
forth in this section 9(b), subsequent to the Closing Date (A) the
Purchaser shall indemnify, defend and hold harmless each Seller and his
or her estate, heirs, personal representatives or successors from,
against and in respect of any Losses which any such Person shall
suffer, sustain or become subject to by virtue of or which arise out
of, or result from, any breach by the Purchaser of its covenants,
representations and warranties set forth in this Agreement, and (B) the
Company and IMP
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<PAGE> 49
shall indemnify, defend and hold harmless each Seller and his or her
estate, heirs, personal representatives or successors from, against and
in respect of, any Losses which any such Person shall suffer, sustain
or become subject to by virtue of or which arise out of, or result
from, any breach by the Company or IMP of any of its covenants herein
which are to be performed after the Closing.
(iv) Promptly after the assertion by any third party of any
claim, demand or notice (a "THIRD PARTY CLAIM") against any Person or
Persons entitled to indemnification under this section 9(b) (the
"INDEMNIFIED PARTIES") that results or may result in the incurrence by
such Indemnified Parties of any Losses for which such Indemnified
Parties would be entitled to indemnification pursuant to this
Agreement, such Indemnified Parties shall promptly notify the parties
from whom such indemnification could be sought (the "INDEMNIFYING
PARTIES") of such Third Party Claim. In the case of claims for which
indemnification may be sought against the General Indemnification
Escrow Account, notice shall be given to the Sellers and to the
Sellers' Representative, and the Sellers and the Sellers'
Representative shall be considered the Indemnifying Parties solely for
the purpose of defending any such Third Party Claim as provided herein.
Thereupon, the Indemnifying Parties shall have the right, upon written
notice (the "DEFENSE NOTICE") to the Indemnified Parties within 30 days
after receipt by the Indemnifying Parties of notice of the Third Party
Claim (or sooner if such claim so requires) to conduct, at their own
expense, the defense against the Third Party Claim in their own names
or, if necessary, in the names of the Indemnified Parties. The Defense
Notice shall specify the counsel the Indemnifying Parties shall appoint
to defend such Third Party Claim (the "DEFENSE COUNSEL") and the
Indemnified Parties shall have the right to approve the Defense
Counsel, which approval shall not be unreasonably withheld. In the
event the Indemnified Parties and the Indemnifying Parties cannot agree
on such counsel within 10 days after the Defense Notice is given, then
the Indemnifying Parties shall propose an alternate Defense Counsel,
which shall be subject again to the Indemnified Parties' approval which
approval shall not be unreasonably withheld. Any Indemnified Party
shall have the right to employ separate counsel in any such Third Party
Claim and/or to participate in the defense thereof, but the fees and
expenses of such counsel shall not be included as part of any Losses
incurred by the Indemnified Party unless (A) the Indemnifying Parties
shall have failed to give the Defense Notice within the prescribed
period, (B) such Indemnified Party shall have received an opinion of
counsel, reasonably acceptable to the Indemnifying Parties, to the
effect that the interests of the Indemnified Party and the Indemnifying
Parties with respect to the Third Party Claim are sufficiently adverse
to prohibit the representation by the same counsel of both parties
under applicable ethical rules, or (C) the employment of such counsel
at the expense of the Indemnifying Parties has been specifically
authorized by the Indemnifying Parties. The party or parties conducting
the defense of any Third Party Claim shall keep the other parties
apprised of all significant developments and shall not enter into any
settlement, compromise or consent to judgment with respect to such
Third Party Claim
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<PAGE> 50
unless the Company and the Sellers' Representative consent, such
consent not to be unreasonably withheld.
(v) Notwithstanding any other provisions contained herein, the
costs of enforcement of the Escrow Agreement by the Purchaser, the
Company, IMP or any Seller shall not constitute Losses hereunder.
Rather, such costs and expenses shall be paid in accordance with the
terms of the Escrow Agreement.
(c) TREATMENT OF INDEMNIFICATION PAYMENTS. All indemnification payments
under this section 9 shall be deemed adjustments to the Company Purchase Price
or the IMP Purchase Price, whichever is applicable.
(d) EXCLUSIVE REMEDY. The Parties acknowledge and agree that the
foregoing indemnification provisions in this section 9 shall be the exclusive
remedy of the Purchaser, the Company, IMP and the Sellers with respect to
transactions contemplated by this Agreement. Without limiting the generality of
the foregoing, the Purchaser, the Company, IMP and the Sellers hereby waive any
statutory, equitable or common law rights or remedies relating to any
environmental, health and safety matters, including, without limitation, any
such matters arising under any Environmental, Health and Safety Requirements,
CERCLA, or any analogous state law.
(e) ASSIGNMENT BY PURCHASER. Provided that the Closing shall occur, the
Purchaser hereby assigns and transfers to the Company and IMP, effective as of
the Closing, all benefits and rights of the Purchaser pursuant to section 6 and
section 9 hereof.
(f) NO CONTRIBUTION FROM COMPANY OR IMP. Each Seller hereby waives any
rights to seek or obtain indemnification or contribution from the Company or IMP
for Losses pursuant to section 9(b) or the Escrow Agreement as a result of any
breach by the Company or IMP of any representation, warranty or covenant (other
than covenants to be performed by the Company and IMP after the Closing)
contained in this Agreement.
10. DISPUTE RESOLUTION.
(a) DISPUTE DEFINED. As used in this Agreement, "DISPUTE" shall (i)
mean any dispute or disagreement among the Parties concerning the interpretation
of this Agreement, the validity of this Agreement, any breach or alleged breach
by any party under this Agreement or any other matter relating in any way to
this Agreement, and (ii) exclude (A) any dispute or disagreement between the
Company and the Sellers concerning the determination of the Earnout, which shall
be resolved pursuant to the provisions of section 2(e)(iv) of this Agreement and
(B) any dispute or disagreement between the Company and the Sellers concerning
the determination of the Net Working Capital which shall be resolved pursuant to
the provisions of Section 2(f)(ii) of this Agreement.
- 46 -
<PAGE> 51
(b) DISPUTE RESOLUTION PROCEDURES.
(i) If a Dispute arises, the Parties shall follow the
procedures specified in this section 10. The Parties shall promptly
attempt to resolve any Dispute by negotiations between themselves.
Either the Purchaser or the Sellers' Representative may give the other
Party written notice of any Dispute not resolved in the normal course
of businesection The Purchaser and the Sellers' Representative shall
meet at a mutually acceptable time and place within 15 calendar days
after delivery of such notice, and thereafter as often as they
reasonably deem necessary, to exchange relevant information and to
attempt to resolve the Dispute. If the Dispute has not been resolved by
the Parties within 30 calendar days of the disputing Party's notice, or
if the Parties fail to meet within such 15 calendar days, either the
Purchaser or the Sellers' Representative may initiate mediation as
provided in section 10(b)(ii) of this Agreement. If a negotiator
intends to be accompanied at a meeting by legal counsel, the other
negotiator shall be given at least three business days' notice of such
intention and may also be accompanied by legal counsel.
(ii) If the Dispute is not resolved by negotiations pursuant
to section 10(b)(i), the Purchaser and the Sellers' Representative
shall attempt in good faith to resolve any such Dispute by nonbinding
mediation. Either the Purchaser or the Sellers' Representative may
initiate a nonbinding mediation proceeding by a request in writing to
the other Party or Parties (the "MEDIATION REQUEST"), and all disputing
Parties will then be obligated to engage in a mediation. The proceeding
will be conducted in accordance with the then current procedures for
mediation under Chapter 44 of the Florida Statutes and Rules 1.700-730
of the Florida Rules of Civil Procedure:
(A) if the Parties have not agreed within 30 calendar
days of the Mediation Request on the selection of a mediator
willing to serve, the court, upon the request of either the
Purchaser or the Sellers' Representative, shall appoint a
certified mediator selected by rotation or by such other court
procedures as provided in Chapter 44 of the Florida Statutes
and Rules 1.700-730 of the Florida Rules of Civil Procedure;
and
(B) efforts to reach a settlement will continue until
the conclusion of the proceedings, which shall be deemed to
occur upon the earliest of the date that: (i) a written
settlement is reached, or (ii) the mediator concludes and
informs the Parties in writing that further efforts would not
be useful, or (iii) the Purchaser and the Sellers'
Representative agree in writing that an impasse has been
reached, or (iv) a period of 60 calendar days has passed since
the Mediation Request and none of the events specified in the
foregoing clauses (i) (ii) or (iii) has occurred. No party may
withdraw before the conclusion of the proceeding.
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<PAGE> 52
(iii) If a Dispute is not resolved by negotiation pursuant to
section 10(b)(i) of this Agreement or by mediation pursuant to section
10(b)(ii) of this Agreement within 100 calendar days after initiation
of the negotiation process pursuant to section 10(b)(i), such Dispute
and any other claims arising out of or relating to this Agreement may
be heard, adjudicated and determined in an action or proceeding filed
in any state or federal court specified in section 12(h).
(c) PROVISIONAL REMEDIES. At any time during the procedures specified
in sections 10(b)(i) and 10(b)(ii) of this Agreement, a Party may seek a
preliminary injunction or other provisional judicial relief if in its judgment
such action is necessary to avoid irreparable damage or to preserve the status
quo. Despite such action, the Parties will continue to participate in good faith
in the procedures specified in sections 10(b)(i) and 10(b)(ii).
(d) TOLLING STATUTE OF LIMITATIONS. All applicable statutes of
limitation and defenses based upon the passage of time shall be tolled while the
procedures specified in sections 10(b)(i) and 10(b)(ii) of this Agreement
are pending. The Parties will take such action, if any, as is required to
effectuate such tolling.
(e) PERFORMANCE TO CONTINUE. Each Party shall continue to perform its,
his or her obligations under this Agreement pending final resolution of any
Dispute.
(f) EXTENSION OF DEADLINES. All deadlines specified in this section 10
may be extended by mutual agreement among the Parties.
(g) ENFORCEMENT. The Parties regard the obligations in this section 10
to constitute an essential provision of this Agreement and one that is legally
binding on them. In case of a violation of the obligations in this section 10 by
any Party hereto, any other Party or Parties may bring an action to seek
enforcement of such obligations in any state or federal court specified in
section 12(h).
(h) COSTS. The Parties shall pay their own costs, fees, and expenses
incurred in connection with the application of the provisions of sections
10(b)(i) and 10(ii) of this Agreement. In addition, the fees and expenses of the
mediator in connection with the application of the provisions of section
10(b)(ii) of this Agreement shall be borne 50% by the Purchaser and 50% by the
Sellers (PRO RATA based on each Seller's Company Pro Rata Share).
11. ADDITIONAL AGREEMENTS. The Parties agree that any claim for payment
pursuant to sections 11(b) and 11(c) must be made by the Purchaser on or before
June 30, 1999 and to preserve any claim for payment thereunder, the Purchaser
shall be obligated to notify the Seller in writing of any claim, together with
supporting documentation, on or before June 30, 1999, otherwise, the Purchaser's
claim under sections 11(b) and 11(c) shall be forever barred. The Parties agree
that there shall be no time limit on any claim for payment pursuant to sections
11(a), 11(d) and 11(e). The Parties further agree that any payments required to
be made pursuant to sections 11(a), 11(b), 11(c), 11(d) and 11(e) shall
- 48 -
<PAGE> 53
not be subject to the Deductible and may be made from funds deposited in the
Escrow Account; PROVIDED, HOWEVER, that to the extent Losses for which the
Purchaser is entitled to indemnification under section 9(b)(i), together with
amounts paid from the Escrow Account pursuant to sections 11(a), 11(b),
11(c), 11(d) and 11(e) exceed $2,450,000, the Sellers shall pay the Purchaser
the deficiency within 30 days of the Purchaser's request (PRO RATA based on each
Seller's Company Pro Rata Share).
(a) PRODUCT RETURNS. Notwithstanding anything set forth in section
3B(aa) OF THE DISCLOSURE SCHEDULE, in the event (i) customers of the Company or
IMP return within the applicable warranty period any defective or non-conforming
merchandise sold prior to Closing, (ii) the Company or IMP is required to
provide any customers with a credit against their accounts receivable within the
applicable warranty period as a result of the receipt of defective or
non-conforming merchandise sold prior to Closing or (iii) any product liability
claims are brought with respect to merchandise sold prior to Closing which are
not covered by insurance, the Sellers shall be required to pay the Purchaser
(PRO RATA based on each Seller's Company Pro Rata Share) the amount of the
credits, the amount of the uninsured product liability claims and the sum of (A)
the difference between the original sales price of the returned merchandise and
the resale price thereof, (B) re-work costs and shipping costs, and (C) the cost
of any returned merchandise which was sold prior to Closing and which is not
resold by the Company, within 30 days of the Purchaser's request, provided that
(1) the Purchaser causes the Company to use its best efforts to resell the
returned merchandise in the Ordinary Course of Business and (2) any Dispute
regarding payment is first resolved pursuant to section 10 of this Agreement.
(b) SELLERS' GUARANTEE OF ACCOUNTS RECEIVABLE.
(i) With respect to accounts receivable on the Closing Balance
Sheet which as of the Closing are 90 days or over from the invoice date
thereof (the "90 AND OVER ACCOUNTS RECEIVABLE"), the Sellers guarantee
the collectibility of the 90 and Over Accounts Receivable in full minus
any remaining reserve for bad debts included in the Closing Balance
Sheet.
(ii) The Purchaser agrees to use efforts consistent with the
Company's past custom and practice to cause the Company to collect all
90 and Over Accounts Receivable, but shall not be obligated to resort
to litigation. Any sums payable by account debtors on account of any
accounts receivable of such account debtors shall be credited to the
earliest invoices of the Company to such account debtors, unless
specifically directed otherwise by the account debtor. Subject to the
foregoing, to the extent any 90 and Over Accounts Receivable existing
at the Closing are unpaid for a period of 60 days after the Closing,
the Purchaser shall send written notice to the Sellers' Representative
indicating the specific account debtors, the amount of the unpaid
invoices representing 90 and Over Accounts Receivable to each such
account debtor and the total of all such unpaid 90 and Over Accounts
Receivable. The Sellers shall pay the Purchaser the amount of all such
unpaid 90
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<PAGE> 54
and Over Accounts Receivable minus any remaining reserve for bad debts
included in the Closing Balance Sheet (PRO RATA based on each Seller's
Company Pro Rata Share) within 30 days of the receipt of any notice
pursuant to this section 11(b)(ii) on the condition that the Purchaser
shall simultaneously cause the Company to assign such unpaid 90 and
Over Accounts Receivable (the "ASSIGNED RECEIVABLES") to the Sellers'
Representative. Such assignment shall include the right to sue as an
assignee of the Company. In the event that after such assignment the
Company receives any payment on the Assigned Receivables, the Purchaser
shall cause the Company to promptly remit such amount to the Sellers'
Representative. Thereafter, the Sellers' Representative, as owner of
the Assigned Receivables, may take any action the Sellers'
Representative deems necessary to collect the Assigned Receivables and
any collections shall be the property of the Sellers The Purchaser
agrees to cooperate and shall cause the Company to cooperate with the
Sellers' Representative in any action the Sellers' Representative
wishes to take to collect the Assigned Receivables consistent with the
Company's past custom and practice . In the event the Purchaser does
not want to assign any Account Receivable to the Sellers'
Representative because it does not want the Sellers' Representative to
initiate collection action thereon, the Sellers shall be relieved of
any liability under this section 11(b) with respect to such 90 and Over
Accounts Receivable.
(iii) In the event any 90 and Over Accounts Receivable is
subject to a valid dispute by the account debtor and/or the Purchaser
wishes to grant a discount on any 90 and Over Accounts Receivable, the
Purchaser shall send written notice or notices to the Sellers'
Representative indicating the specific account debtors and the amount
of the dispute or discount. The Purchaser shall consult with the
Sellers' Representative with respect to the resolution of any dispute
and/or the amount of any discount and shall not settle any such dispute
or grant any discount without the consent of the Sellers'
Representative, which consent shall not be unreasonably withheld. Where
consent is given to the settlement of any dispute and/or the granting
of any discount, the Sellers shall pay the Purchaser the difference
between the original amount of the 90 and Over Accounts Receivable and
the amount actually received by the Purchaser after settlement or
discount, with payment to be made within 30 days after the settlement
or granting of the discount. Where consent is withheld by the Sellers'
Representative, the Purchaser may either assign the 90 and Over
Accounts Receivable, or settle the dispute or grant the discount at its
own expense and the Sellers shall be relieved of any liability under
this section 11(b) with respect to such 90 and Over Accounts
Receivable.
(c) VACATION AND HOLIDAY ACCRUAL. To the extent the accrual on the
Company's Closing Balance Sheet for vacation and holidays is less than the
amount which should have properly been accrued in accordance with GAAP, the
Sellers shall pay the Purchaser the deficiency within 30 days of the Purchaser's
request (PRO RATA based on each Seller's Company Pro Rata Share).
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<PAGE> 55
(d) EPCRA FILINGS. Notwithstanding the disclosures made by the Sellers
in section 3B(v) of THE DISCLOSURE SCHEDULE, the Sellers shall be responsible
for and shall pay the Purchaser (PRO RATA based on each Seller's Company Pro
Rata Share) the full amount of all Losses resulting from any failure to comply
with EPCRA.
(e) LITIGATION. Notwithstanding the disclosures made by the Sellers in
section 3B(S) OF The DISCLOSURE SCHEDULE, the Sellers shall be responsible for
and shall pay the Purchaser (PRO RATA based on each Seller's Company Pro Rata
Share) the full amount of all Losses resulting the matters described in section
3B(s) OF THE DISCLOSURE SCHEDULE. Such litigation shall be considered to be a
"Third Party Claim" and shall be handled in accordance with the provisions of
section 9(b)(iv) of this Agreement.
12. TERMINATION.
(a) TERMINATION OF AGREEMENT. Certain of the Parties may terminate this
Agreement as provided below:
(i) the Purchaser and the Sellers' Representative may
terminate this Agreement by mutual written consent at any time prior to
the Closing;
(ii) the Purchaser may terminate this Agreement by giving
written notice to the Sellers' Representative at any time prior to the
Closing in the event the Company has within the previous 10 business
days given the Purchaser any notice pursuant to section 5(f) above;
(iii) the Purchaser may terminate this Agreement by giving
written notice to the Sellers' Representative at any time prior to the
Closing (A) in the event that the Sellers, the Company or IMP have
breached any representation, warranty or covenant contained in this
Agreement (other than the representations and warranties in section
3B(f)-(aa) above) in any material respect, the Purchaser has notified
the Sellers' Representative of the breach, and the breach has continued
without cure for a period of 30 days after the notice of breach or (B)
if the Closing shall not have occurred on or before June 30, 1999, by
reason of the failure of any condition precedent under section 8(a)
hereof (unless the failure results primarily from the Purchaser
breaching any representation, warranty or covenant contained in the
Agreement); and
(iv) the Sellers' Representative may terminate this Agreement
by giving written notice to the Purchaser at any time prior to the
Closing (A) in the event the Purchaser has breached any material
representation, warranty or covenant contained in this Agreement in any
material respect, the Sellers' Representative has notified the
Purchaser of the breach, and the breach has continued without cure for
a period of 30 days after the notice of breach or (B) if the Closing
shall not have occurred on or before June 30, 1999, by reason of the
failure of any condition precedent under section 8(b) hereof (unless
the failure results primarily from the
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<PAGE> 56
Sellers, the Company or IMP breaching any representation, warranty or
covenant contained in this Agreement).
(v) On or before February 1, 1999, the Sellers' Representative
will notify the Purchaser by giving written notice of what is required
to correct any code violations with respect to the Real Property
subject to the Lease Amendment, the estimated time period to make such
corrections and the Sellers' willingness to make such corrections. If
the Sellers' Representative fails to give such notice, the Purchaser
shall have the right to terminate this Agreement. If such notice is
given and states that the Sellers are not willing to make such
corrections, then the Sellers may terminate this Agreement, subject to
the payment to the Purchaser of $22,500, representing one-half of the
filing fees required to be paid under the Hart-Scott-Rodino Act. If the
Sellers are willing to make such corrections and the estimated date for
completion thereof is after March 31, 1999, the Purchaser shall have
the right to terminate this Agreement.
(b) EFFECT OF TERMINATION. If any Party terminates this Agreement
pursuant to section 12(a) above, all rights and obligations of the Parties
hereunder shall terminate without any liability of any Party to any other Party
(except for any liability of any Party then in breach); PROVIDED, HOWEVER, that
the confidentiality provisions contained in the confidentiality agreement
between WinsLoew Furniture, Inc. and the Company, dated May 28, 1998, executed
in connection with the transaction (the "CONFIDENTIALITY AGREEMENT") shall
survive the termination of this Agreement.
13. WINSLOEW FURNITURE GUARANTY. WinsLoew Furniture, Inc., a Florida
corporation, agrees to guaranty all obligations of the Purchaser under this
Agreement.
14. MISCELLANEOUS.
(a) PRESS RELEASES AND PUBLIC ANNOUNCEMENTS. No Party shall issue any
press release or public announcement relating to the subject matter of this
Agreement prior to the Closing without the prior written approval of the other
Parties.
(b) NO THIRD-PARTY BENEFICIARIES. This Agreement shall not confer any
rights or remedies upon any Person other than the Parties and their respective
successors and permitted assigns.
(c) ENTIRE AGREEMENT. This Agreement (including the documents referred
to herein) constitutes the entire agreement among the Parties and supersedes any
prior understandings, agreements, or representations by or among the Parties,
written or oral, to the extent they related in any way to the subject matter
hereof, other than the Confidentiality Agreement, which shall remain in full
force and effect.
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<PAGE> 57
(d) SUCCESSION AND ASSIGNMENT. This Agreement shall be binding upon and
inure to the benefit of the Parties named herein and their respective successors
and permitted assigns. No Party may assign either this Agreement or any of its
rights, interests or obligations hereunder without the prior written approval of
the other Parties; PROVIDED, HOWEVER, that, unless expressly prohibited
hereunder, the Purchaser may (i) assign any or all of its rights and interests
hereunder to one or more of its Affiliates and (ii) designate one or more of its
Affiliates to perform its obligations hereunder and (iii) after the Closing is
effected, any or all of the rights and interests of Purchaser hereunder (A) may
be assigned to any purchaser of substantially all of the assets of Purchaser,
(B) may be assigned as a matter of law to the surviving entity in any merger of
the Purchaser, and (C) may be assigned as collateral security to any lender or
lenders (including any agent for any such lender or lenders) providing financing
to the Purchaser in connection with the transactions contemplated hereby, or to
any assignee or assignees of any such lender, lenders or agent (it being
understood that in any or all of the cases described in clauses (i), (ii) and
(iii) above the Purchaser nonetheless shall remain responsible for the
performance of all of its obligations hereunder).
(e) COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(f) HEADINGS. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(g) NOTICES. All notices, requests, demands, claims and other
communications hereunder will be in writing. Any notice, request, demand, claim
or other communication hereunder shall be deemed duly given two business days
after it is sent by registered or certified mail, return receipt requested,
postage prepaid, and addressed to the intended recipient as set forth below:
If to the Sellers, the Sellers' Representative or Perry Martin, or if
to the Company or IMP (prior to the Closing):
Leo Martin
Bristol Towers Apartments
2127 Brickell Avenue, Apt. 3602
Miami, Florida 33129
Facsimile: (305) 858-8252
With copies to (which shall not constitute notice to the Sellers, the
Sellers' Representative or the Company):
Stephen H. Cypen, Esq.
Cypen & Cypen
P.O. Box 402099
825 Arthur Godfrey Road
Miami Beach, Florida 33140-0099
Facsimile: (305) 535-0050
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<PAGE> 58
Donald R. Tescher, Esq.
Tescher Chaves Rubin & Forman, PA
2101 Corporate Boulevard, Suite 107
Boca Raton, Florida 33431
Facsimile: (561) 998-1642
If to the Purchaser or WinsLoew Furniture Company, Inc., or if to the
Company or IMP (after the Closing):
Bobby Tesney
WinsLoew Furniture, Inc.
160 Village Street
Birmingham, Alabama 35242
Facsimile: (205) 408-7028
Any Party may send any notice, request, demand, claim or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail or electronic mail), but no such notice, request,
demand, claim or other communication shall be deemed to have been duly given
unless and until it actually is received by the intended recipient. Any Party
may change the address to which notices, requests, demands, claims and other
communications hereunder are to be delivered by giving the other Parties notice
in the manner herein set forth.
(h) GOVERNING LAW; VENUE. This Agreement shall be governed by and
construed in accordance with the domestic laws of the State of Florida without
giving effect to any choice or conflict of law provision or rule (whether of the
State of Florida or any other jurisdiction) that would cause the application of
the laws of any jurisdiction other than the State of Florida. The Parties agree
that any and all actions arising under or in respect of this Agreement shall be
litigated in any federal or state court of competent jurisdiction located in the
County of Miami-Dade, State of Florida. By execution and delivery of this
Agreement, each Party irrevocably submits to the personal and exclusive
jurisdiction of such courts for itself or himself, and in respect of its or his
property with respect to such action. Each Party agrees that venue would be
proper in any of such courts, and hereby waives any objection that any such
court is an improper or inconvenient forum for the resolution of any such
action.
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<PAGE> 59
(i) AMENDMENTS AND WAIVERS. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by the
Purchaser, the Sellers, the Company and IMP. No waiver by any Party of any
default, misrepresentation or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation or breach of warranty or covenant hereunder or affect
in any way any rights arising by virtue of any prior or subsequent such
occurrence.
(j) SEVERABILITY. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
(k) EXPENSES. Except as otherwise provided in this Agreement, each of
the Parties will bear his, her or its own costs and expenses (including legal
and investment advisory fees and expenses) incurred in connection with this
Agreement and the transactions contemplated hereby. The Sellers agree that
neither the Company nor IMP has borne and will not bear any of the costs and
expenses of the Sellers (including any of their legal and investment advisory
fees and expenses) in connection with this Agreement or any of the transactions
contemplated hereby to the extent that any of the same shall remain unpaid at
the time of the Closing. Except as provided in section 12(a)(v), the Purchaser
shall bear all filing fees required to be paid under the Hart-Scott-Rodino Act.
(l) CONSTRUCTION. The Parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
specification of any dollar amount in the representations and warranties or
otherwise in this Agreement or in the Disclosure Schedule is not intended and
shall not be deemed to be an admission or acknowledgment of the materiality of
such amounts or items, nor shall the same be used in any dispute or controversy
between the parties to determine whether any obligation, item or matter (whether
or not described herein or included in any schedule) is or is not material for
purposes of this Agreement.
(m) INCORPORATION OF DISCLOSURE SCHEDULE. The Disclosure Schedule
identified in this Agreement is incorporated herein by reference and made a part
hereof.
(n) EQUITABLE REMEDIES. Each of the Sellers and Perry B. Martin
acknowledges and agrees that the Purchaser would not have an adequate remedy at
law in the event any of the provisions of section 6(e), section 6(f) and section
6(g) of this Agreement are not performed in accordance with their specific terms
or are breached. Accordingly, each of Each of the Sellers and Perry B. Martin
agrees that the Purchaser shall be entitled to an injunction or injunctions to
prevent breaches of section 6(e), section 6(f) and section 6(g) of this
Agreement and to enforce specifically the terms and provisions thereof in any
action instituted in any court of competent jurisdiction, in addition to any
other remedies which may be available to it.
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<PAGE> 60
(o) WAIVER OF JURY TRIAL. EACH PARTY HERETO, WINSLOEW FURNITURE, INC.
AND PERRY B. MARTIN HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE
FULLEST EXTENT IT MAY LEGALLY AND EFFECTIVELY DO SO, TRIAL BY JURY IN ANY SUIT,
ACTION OR PROCEEDING ARISING HEREUNDER.
(p) PREVAILING PARTIES. Except as otherwise expressly provided to the
contrary in this Agreement, in the event of any litigation with regard to this
Agreement, the prevailing Party or Parties shall be entitled to receive from the
nonprevailing Party or Parties and the nonprevailing Party or Parties shall pay
all reasonable costs, fees (including reasonable trial and appellate attorneys'
fees) and expenses of the prevailing Party or Parties.
SIGNATURES APPEAR ON FOLLOWING PAGE
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<PAGE> 61
IN WITNESS WHEREOF, the Parties hereto have executed this
Agreement as of the date first above written.
WINSTON FURNITURE COMPANY OF
ALABAMA, INC.
By: /s/ Stephen C. Hess
-------------------------------------------
Stephen C. Hess, President
MIAMI METAL PRODUCTS, INC.
By: /s/ Leo Martin
-------------------------------------------
Leo Martin, Chairman
INDUSTRIAL MUEBLERA POMPEII de MEXICO,
S.A. de C.V.
By: /s/ Leo Martin
-------------------------------------------
Leo Martin, Chairman
SELLERS:
Leo Martin
-----------------------------------------------
Leo Martin
Gloria Martin
-----------------------------------------------
Gloria Martin
Donald R. Tescher, Trustee
-----------------------------------------------
Donald R. Tescher, Trustee and not individually
of the Leo Martin Retained Annuity Trust
Agreement I
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<PAGE> 62
Donald R. Tescher, Trustee
-----------------------------------------------
Donald R. Tescher, Trustee and not individually
of the Leo Martin Retained Annuity Trust
Agreement II
Donald R. Tescher, Trustee
-----------------------------------------------
Donald R. Tescher, Trustee and not individually
of the Leo Martin Retained Annuity Trust
Agreement III
Donald R. Tescher, Trustee
-----------------------------------------------
Donald R. Tescher, Trustee and not individually
of the Gloria Martin Retained Annuity Trust
Agreement I
Donald R. Tescher, Trustee
-----------------------------------------------
Donald R. Tescher, Trustee and not individually
of the Gloria Martin Retained Annuity Trust
Agreement II
Donald R. Tescher, Trustee
-----------------------------------------------
Donald R. Tescher, Trustee and not individually
of the Gloria Martin Retained Annuity Trust
Agreement III
SELLERS' REPRESENTATIVE:
Leo Martin
-----------------------------------------------
Leo Martin
By its execution hereof, WinsLoew Furniture,
Inc. agrees to the provisions of Sections 13 and
14 of this Agreement.
WINSLOEW FURNITURE, INC.
By: /s/ Bobby Tesney
-------------------------------------------
Bobby Tesney, President
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<PAGE> 63
By his execution hereof, Perry B. Martin agrees
to the provisions of Sections 6(e), 6(f), 6(g),
and 14 of this Agreement.
Perry B. Martin
-----------------------------------------------
Perry B. Martin
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<PAGE> 1
EXHIBIT 10.26
Amendment No. 1 to
Investment Services Agreement
This Amendment No. 1 to Investment Services Agreement ("Amendment") is
made and entered into as of the 5th day of March, 1999 by and between WinsLoew
Furniture, Inc., a Florida corporation (the "Company"), and Trivest II, Inc., a
Florida corporation ("Trivest II").
Preliminary Statements
A. The Company and Trivest, Inc., a Delaware corporation ("Trivest"),
entered into an Investment Services Agreement dated as of December 16, 1994
("Agreement").
B. Trivest, Trivest II and the Company entered into an Assignment and
Assumption Agreement dated as of January 1, 1996 ("Assignment") pursuant to
which Trivest assigned its rights and obligations under the Agreement to
Trivest II.
C. Trivest Furniture Corporation, a Florida corporation ("Purchaser"),
and the Company have entered into an Agreement and Plan of Merger ("Merger
Agreement") of even date herewith.
D. Trivest II and the Company desire to amend the Agreement as
provided in this Amendment.
NOW, THEREFORE, in consideration of the mutual premises and the
agreements set forth herein, the parties agree as follows:
1. The following Section 17 shall be added in its entirety:
17. Application to Proposed Going Private Transaction.
(a) Notwithstanding any provision of this Agreement, the parties agree
and acknowledge:
(i) If the Merger Agreement is terminated by reason of the Company
entering into an agreement with respect to a Superior Proposal (as defined in
the Merger Agreement), the Termination Fee (as defined in the Merger Agreement)
is paid to Purchaser, and the transaction contemplated by such Superior
Proposal is consummated, then Trivest II shall not be entitled to any
compensation pursuant to Section 6.3 of this Agreement as a result of the
Company entering into an agreement or closing a transaction for such Superior
Proposal.
(ii) Trivest II is not entitled to any compensation or expense
reimbursement under this Agreement related to any transaction contemplated by
the Merger Agreement or any Superior Proposal, and Trivest II is not deemed to
be providing services to, or acting on behalf of, the Company in connection
with any such transaction. No such transaction constitutes a transaction for
which Trivest is entitled to compensation under Section 6.3(b) Paragraph (a)
above does not in any way affect amounts otherwise due Trivest II (i) under
Sections 6.1 or 6.2 of this Agreement, or (ii) under Sections 4 or 6.3 related
to a transaction other than the Merger or any Superior Proposal.
<PAGE> 2
2. Except as specifically set forth herein, all terms and conditions
of the Agreement, as modified by the Assignment, shall continue in full force
and effect and all terms used herein shall have the same meanings set forth in
the Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be duly executed by their authorized representatives on the date first above
written.
TRIVEST II, INC.
By: /s/ EARL W. POWELL
-------------------------------
Earl W. Powell
Chief Executive Officer
WINSLOEW FURNITURE, INC.
By: /s/ BOBBY TESNEY
-------------------------------
Bobby Tesney
President and Chief Executive Officer
2
<PAGE> 1
EXHIBIT 21.1
List of Registrant's Subsidiaries
State of
Name of Subsidiary Incorporation
- ------------------ --------------------
Winston Furniture Company of Alabama, Inc. Alabama
Loewenstein, Inc. Florida
Tropic Craft, Inc. Florida
Texacraft, Inc. Texas
Winston Properties, Inc. Alabama
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration
Statement (Form S-8 No. 33-87352) pertaining to the WinsLoew Furniture, Inc.
1994 Stock Option Plan of WinsLoew Furniture, Inc. of our report dated January
29, 1999, with respect to the consolidated financial statements of WinsLoew
Furniture, Inc. and Subsidiaries included in the Annual Report (Form 10-K) for
the year ended December 31, 1998.
Our audits also included the financial statement schedule of WinsLoew
Furniture, Inc. listed in Item 14(a). This schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits. In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ Ernst & Young LLP
Birmingham, Alabama
March 24, 1999
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<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 1,475
<SECURITIES> 0
<RECEIVABLES> 23,647
<ALLOWANCES> 0
<INVENTORY> 12,206
<CURRENT-ASSETS> 41,966
<PP&E> 27,176
<DEPRECIATION> 0
<TOTAL-ASSETS> 84,553
<CURRENT-LIABILITIES> 16,126
<BONDS> 1,400
0
0
<COMMON> 73
<OTHER-SE> 66,153
<TOTAL-LIABILITY-AND-EQUITY> 84,553
<SALES> 141,360
<TOTAL-REVENUES> 141,360
<CGS> 87,232
<TOTAL-COSTS> 111,478
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 635
<INCOME-PRETAX> 29,247
<INCOME-TAX> 10,947
<INCOME-CONTINUING> 18,300
<DISCONTINUED> 2,031
<EXTRAORDINARY> 0
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<NET-INCOME> 20,331
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