-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JgjmND8BXVhTqK/0/HoFZsLb3rYdybPocxxH8d4Y0j9Ig1w+Z4TzNOLJivS9xHpv DyejyWe9RMLo7ClFXzt1hw== 0000950168-98-003075.txt : 19980928 0000950168-98-003075.hdr.sgml : 19980928 ACCESSION NUMBER: 0000950168-98-003075 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 13 CONFORMED PERIOD OF REPORT: 19980627 FILED AS OF DATE: 19980925 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SPEIZMAN INDUSTRIES INC CENTRAL INDEX KEY: 0000092827 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-INDUSTRIAL MACHINERY & EQUIPMENT [5084] IRS NUMBER: 560901212 STATE OF INCORPORATION: DE FISCAL YEAR END: 0629 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-08544 FILM NUMBER: 98714771 BUSINESS ADDRESS: STREET 1: 508 W. 5TH STREET CITY: CHARLOTTE STATE: NC ZIP: 28231 BUSINESS PHONE: 7043723751 MAIL ADDRESS: STREET 1: 508 W. 5TH STREET CITY: CHARLOTTE STATE: NC ZIP: 28231 10-K 1 SPEIZMAN INDUSTRIES, INC. 10-K - -------------------------------------------------------------------------------- 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 June 27, 1998 OR |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from __________________ to _____________________ COMMISSION FILE NO. 0-8544 SPEIZMAN INDUSTRIES, INC. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) DELAWARE 56-0901212 - ------------------------------------- -------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 508 West Fifth Street, Charlotte, North Carolina 28202 - ------------------------------------- -------------------------------- (Address of principal executives offices) (Zip Code) Registrant's telephone number, including area code: (704) 372-3751 Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.10 Par Value ---------------------------- (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to filing such requirements for the past 90 days. Yes |X| No |_| Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment of this Form 10-K. |_| The aggregate market value of the voting stock held by non-affiliates of the registrant as of September 11, 1998, was $12,864,248 based on the last sale price of $3.88 per share reported by the NASDAQ National Market System on that date. As of September 11, 1998, there were 3,319,806 shares of the registrant's Common Stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant's Proxy Statement for its Annual Meeting of Stockholders to be held on November 18, 1998 are incorporated herein by reference into Part III. PART I ITEM 1. BUSINESS. GENERAL Speizman Industries, Inc. and subsidiaries (collectively the "Company") is a major distributor operating through three companies: Speizman Industries, Inc. ("Speizman" or "Speizman Industries"), Wink Davis Equipment Co., Inc. ("Wink Davis") and Todd Motion Controls, Inc. ("TMC"). Speizman distributes sock knitting machines, other knitting equipment and related parts. Wink Davis sells commercial and industrial laundry equipment, including the distribution of machines and parts as well as installation and after sales service. TMC manufactures automated boarding, finishing and packaging equipment used in the sock knitting industry. TMC's products are sold through Speizman's distribution network. ALL REFERENCES HEREIN ARE TO THE COMPANY'S 52-OR-53 WEEK FISCAL YEAR ENDING ON THE SATURDAY CLOSEST TO JUNE 30. THE FISCAL YEARS 1994 THROUGH 1998 EACH CONTAINED 52 WEEKS AND ENDED ON JUNE 27, 1998, JUNE 28, 1997, JUNE 29, 1996, JULY, 1, 1995 AND JULY 2, 1994. SPEIZMAN INDUSTRIES Speizman Industries is the leading distributor of new sock knitting machines in the United States. It distributes technologically advanced sock knitting machines manufactured by Lonati, S.p.A., Brescia, Italy ("Lonati"), which Speizman Industries believes is the world's largest manufacturer of hosiery knitting equipment. It also distributes Lonati sock and sheer hosiery knitting machines in Canada. In addition, through sales arrangements with other European textile machinery manufacturers, Speizman distributes other sock knitting machines, knitting machines for underwear and other knitted fabrics and other equipment related to the manufacture of socks, sheer hosiery and other textile products, principally in the United States and Canada. Speizman sells textile machine parts and used textile equipment in the United States and in a number of foreign countries. Speizman Industries and Lonati entered into their present agreement for the sale of Lonati machines in the United States in January 1992 (the "Lonati Agreement"). Speizman and Lonati also entered into a similar agreement relating to Speizman Industries' distribution of Lonati sock and sheer hosiery knitting machines in Canada in January 1992 and in Mexico in 1997. Speizman Industries has distributed Lonati double cylinder machines in the United States continuously since 1982. Speizman began distributing Lonati single cylinder machines in 1989. Pursuant to the Lonati Agreement, Lonati has appointed Speizman Industries as Lonati's exclusive agent in the United States for the sale of its range of single and double cylinder sock knitting machines and related spare parts. Under the Lonati Agreement, Speizman Industries also serves as the distributor of such equipment in the United States. Although the Lonati Agreement does not establish Speizman Industries as the exclusive distributor of Lonati sock machines in the United States, Speizman in fact has exclusively distributed Lonati double cylinder sock machines continuously since 1982 and Lonati single cylinder sock knitting machines since 1989. The Lonati Agreement extended to December 31, 1995 and continues from year to year thereafter, although it may be terminated on 90 days written notice at any year end or without notice in the event of a breach. Speizman and Lonati also entered into a similar agreement relating to Speizman Industries' distribution of Lonati sock and sheer hosiery knitting machines in Canada in January 1992. The Lonati Agreement contains certain covenants and conditions relating to Speizman Industries' sale of Lonati machines, including, among others, requirements that Speizman Industries, at its own expense, promote the sale of Lonati machines and assist Lonati in maintaining its competitive position, maintain an efficient sales staff, provide for the proper installation and servicing of the machines, maintain an adequate inventory of parts and pay for all costs of advertising the machines. Speizman is prohibited during the term of the Lonati Agreement from distributing any machines or parts that compete with Lonati machines and parts. Speizman believes that it is and will remain in compliance in all material respects with such covenants. The cost to Speizman of Lonati machines, as well as the delivery schedule of these machines, are totally at the discretion of Lonati. The Lonati Agreement allows Lonati to sell 1 machines directly to the sock manufacturer with any resulting commission paid to Speizman determined on a case by case basis. The Lonati single cylinder machines distributed by Speizman Industries are for the knitting of athletic socks. The Lonati double cylinder machines are for the knitting of dress and casual socks. The Lonati machines are electronic, high-speed, and have computerized controls. Lonati single cylinder machines are capable of knitting pouch heel and toe, reciprocated heel and toe and tube socks. These and other features allow the rapid change of sock design, style and size, result in increased production volume and efficiency and simplify the servicing of the machines. Speizman Industries distributes these sock knitting machines as well as Lonati sheer hosiery knitting machines in Canada and in Mexico. In addition, Speizman distributes the knitting machines, described below, manufactured by Santoni, S.r.l. Brescia, Italy ("Santoni"), one of Lonati's subsidiaries, in the United States, Canada and Mexico. Sales by Speizman Industries in the United States, Canada and Mexico of new machines manufactured by Lonati, S.p.A., generated the following percentages of Speizman's net revenues: 41.1% in fiscal 1998, 60.1% in fiscal 1997 and 46.2% in fiscal 1996. In addition, sales of Santoni machines in the United States, Canada and Mexico generated 5.3%, 7.0% and 4.8% of Speizman Industries' net revenues in fiscal 1998, 1997 and 1996, respectively. In addition to the Lonati machines, Speizman Industries distributes new knitting and other machines and equipment under written agreements and other arrangements with the manufacturers. The following table sets forth certain information concerning certain of these additional distribution arrangements: - ------------------------------------------------------------------------------- MANUFACTURER MACHINE TERRITORY - ------------------------------------------------------------------------------- Santoni, S.r.l., Circular knitting machines United States, Canada Brescia, Italy for underwear, men's socks and Mexico and women's sheer hosiery and surgical support hose Conti Complett, S.p.A., Sock toe closing machines United States and Milan, Italy and sock turning devices Canada Dinema, Data collection United States and Brescia, Italy Canada Marchisio, Fabric knitting machines United States and Brescia, Italy Canada Mecmor, Fabric knitting machines United States and Varese, Italy Canada Vignoni, Fabric knitting machines United States and Cividino, Italy Canada - ---------------------------------------------------------------------------- There can be no assurance that Speizman will not encounter significant difficulties in any attempt to enforce any provisions of the agreements with foreign manufacturers, or any agreement that may arise in connection with the placement and confirmation of orders for the machines manufactured by foreign manufacturer or obtain an adequate remedy for a breach of any such provision, due principally to the fact that they are foreign companies. Speizman Industries sells used machinery and parts to the textile industry. Speizman Industries carries significant amounts of machinery and parts inventories to meet customers' requirements and to assure itself of an adequate supply of used machinery. Speizman acts as a liquidator of textile mills and as a broker in the purchase and sale of such mills. MARKETING AND SALES Speizman Industries markets and sells knitting machines and related equipment primarily by maintaining frequent contacts with customers and understanding of its customers' individual business needs. Salespersons will set up competitive trials in a customer's plant and allow the customer to use Speizman's machine in its own work 2 environment alongside competing machines for two weeks to three months. Speizman Industries also offers customers the opportunity to send their employees to Speizman Industries for training courses on the operation and service of the machines and, depending on the number of machines purchased and the number of employees to train, may offer such training courses at the customer's facility. In addition, Speizman Industries exhibits its equipment at trade shows and uses its private showroom to demonstrate new machines. These marketing strategies are complemented by Speizman's commitment to service and continuing education. Speizman Industries also produces, at its own expense, training videos for its major lines of equipment. At September 11, 1998, Speizman employed approximately 10 salespersons and 28 technical representatives. In addition to its sales staff, Speizman Industries uses over 40 commission sales agents in a number of foreign countries in connection with its sales of used machines. The terms of new machine sales generally are individually negotiated including the purchase price, payment terms and delivery schedule. Speizman Industries is usually required to purchase imported machines with a letter of credit in favor of the manufacturer delivered not less than about 15 days prior to the machine's shipment to the customer's plant. Generally, the letter of credit must be payable 60 days or longer from the date of the on-board bill of lading and upon presentation of the bill of lading. The period from shipment by the manufacturer to installation in the customer's plant is generally 30-60 days. Speizman encourages trade-ins of older equipment, which reduces the customer's initial capital outlay. Speizman Industries believes that its trade-in policy has increased sales of certain of Speizman Industries' new equipment lines. Substantially all of the new machines sold by Speizman Industries are drop-shipped from the foreign manufacturer by container or air freight directly to the customer's plant using Speizman's freight forwarder to coordinate shipment. Title is taken at the European port, and Speizman insures the machines for 110% of cost. Because a substantial portion of Speizman Industries' revenues are derived from sales of machines and equipment imported from abroad, these sales may be subject to import controls, duty and currency fluctuations. The majority of Speizman Industries' purchases of Italian machines for sale in the United States are denominated in Italian lira. Generally, Speizman has been able to adjust sales prices or purchase lira hedging contracts to compensate for anticipated dollar fluctuations. However, international currency fluctuations that result in substantial price level changes could impede import sales and substantially impact profits. Speizman is not able to assess the quantitative effect such international price level changes could have upon Speizman Industries' operations. All of Speizman Industries' export sales originating from the United States are made in U.S. dollars. Speizman Industries also markets used machines through its employees and outside commission salespersons. Speizman Industries markets its used machines in the United States and in a number of foreign countries. Speizman uses trade advertising extensively and frequently distributes lists throughout the industry of used machines that Speizman Industries has for sale. Additionally, Speizman updates its Internet web site listing used machines available for sale. Speizman Industries exports certain new and used machines and parts for sale in Canada, Mexico and a number of other foreign countries. See Note 1 of Notes to Consolidated Financial Statements for certain financial information concerning Speizman Industries' foreign sales in fiscal 1998, 1997 and 1996. CUSTOMERS Speizman Industries' customers consist primarily of the major sock manufacturers in the United States and Canada. In fiscal 1998, Speizman Industries' two largest customers, Manufactuier De Bas Iris Hosiery, Inc. (Canada) and Renfro Corporation, accounted for 11.7% and 3.8%, respectively, of the Company's revenues. In fiscal 1997, Speizman Industries' two largest customers, Manufactuier De Bas Iris Hosiery, Inc. (Canada) and Sara Lee Company, accounted for 10.5% and 9.9%, respectively, of Speizman Industries' revenues. In fiscal 1996, Speizman Industries' two largest customers, Renfro Corporation and Manufacturier De Bas Iris Hosiery, Inc. (Canada), accounted for 8.8% and 5.8%, respectively, of Speizman Industries' revenues. Generally, the customers contributing the most to Speizman Industries' net revenues vary from year to year. Speizman Industries believes that the loss of any principal customer could have a material adverse effect on Speizman Industries. 3 COMPETITION The sock knitting machine industry is competitive. Lonati single cylinder machines compete primarily with machines manufactured by an Italian and a Czech company and Lonati double cylinder machines compete primarily with machines manufactured by an Italian company acquired in 1993 by Lonati but not represented by Speizman Industries. Lonati machines compete, to a lesser extent, with machines manufactured by a number of other foreign companies of varying sizes and with companies selling used machines. The principal competitive factors in the distribution of sock knitting machines are technology, price, service, and allowance of trade-ins and delivery. Management believes that its competitive advantages are the technological advantages of the Lonati machines, Speizman Industries' commitment to customer service and Speizman Industries' allowance of trade-ins of used machines on new Lonati machines. Management believes that it is at a short term competitive disadvantage if a potential customer's decision will be based primarily on price since, generally, the purchase price of Lonati machines is higher than that of competing machines. In its sale of new equipment in addition to Lonati machines, Speizman Industries competes with a number of foreign and domestic manufacturers and distributors of new and used machines. In its sale of such other machines and equipment, certain of Speizman Industries' competitors may have substantially greater resources than Speizman Industries. Domestic and foreign sales of used sock and sheer hosiery knitting machines is fragmented and highly competitive. Speizman Industries competes with a number of domestic and foreign companies that sell used machines as well as domestic and foreign manufacturers that have used machines for sale as a result of trade-ins. In the United States, Speizman Industries has one primary competitor in its sale of used sock knitting machines. The principal competitive factors in Speizman Industries' domestic and foreign sales of used machines are price and availability of machines that are in demand. Although Speizman Industries is the exclusive distributor of parts for a number of the machines it distributes, it competes with firms that manufacture and distribute duplicates of such parts. In addition, Speizman Industries competes with a number of distributors and manufacturers in its other parts sales. WINK DAVIS Wink Davis, based in Atlanta, Georgia, distributes commercial laundry equipment and parts and provides related service. Wink Davis was acquired by Speizman on August 1, 1997. Wink Davis sells to a wide variety of customers. A large share of these customers maintain on premise laundries ("OPL's"). OPL's are commonly found in hotels, nursing homes and other institutions that perform their laundry services in-house. Some larger installations of equipment are found in hospitals, prisons and linen processing plants. The largest portion of Wink Davis' sales are generated from its distributorships of both Pellerin-Milnor (washer extractor equipment manufacturers based in Kenner, La.) and Chicago Dryer (commercial ironer/folder manufacturers based in Chicago, IL). Wink Davis represents both of these companies for the southeastern United States and Chicago, Illinois areas. Specifically, Wink Davis' territories include Georgia, South Carolina, North Carolina, Virginia, middle and eastern Tennessee, Maryland, Washington, D.C., northern and central Florida, and the Chicago, Illinois areas. The Pellerin-Milnor agreement appoints Wink Davis as the exclusive agent within its territories. In some instances, a customer's purchase order may be taken in one agent's territory, but the equipment is actually delivered to a territory served by a different Pellerin-Milnor agent. In these instances, Pellerin-Milnor grants the sale to the territory in which the purchase order was taken. The dealer servicing the territory in which the equipment is installed receives a commission for which that dealer must assume responsibility for installing the equipment. Historically, these sales involving two separate Pellerin-Milnor dealers have been infrequent and management feels this issue does not significantly improve or hurt its operations. The Chicago Dryer agreement does not appoint Wink Davis as the exclusive agent within its territories. Both the Pellerin-Milnor and Chicago Dryer agreements are renewed on an annual basis and may be terminated in the event of a breach. Wink Davis has continuously represented both manufacturers for most of its current territories since 1972. Since 1980, Pellerin-Milnor has presented its annual top distributor award to Wink Davis for all but three years. There can be no assurance that the loss of one or both of these distributorships would not have a materially adverse impact to Wink Davis' operations. 4 The Pellerin Milnor and Chicago Dryer agreements contain certain covenants and conditions relating to Wink Davis' sales of these products, including, among other things, that Wink Davis, at its own expense, promote the sale of the manufacturers' machines and assist the manufacturers in maintaining their competitive positions, maintain an efficient sales staff, provide for the proper installation, maintenance and servicing of the machines, maintain adequate inventory of parts and pay for all costs of advertising the machines. Wink Davis believes that it is and will remain in compliance in all material respects with such covenants. Additionally, Wink Davis, under written agreements and other arrangements with original equipment manufacturers ("OEMs"), distributes other laundry related equipment. The following table sets forth certain information concerning the additional distribution agreements:
MANUFACTURER MACHINE TERRITORY - ------------------------------------------------------------------------------------------ Ajax Manufacturing, Laundry and Dry Cleaning Southeastern U.S. & Chicago, IL areas Cincinnati, OH Presses American Dryer, Commercial Dryers Southeastern U.S. & Chicago, IL areas Fall River, MA Cissell Manufacturing, Commercial Dryers, Southeastern U.S. & Chicago, IL areas Louisville, KY laundry and dry cleaning pressing equipment Consolidated Laundry Commercial Dryers Southeastern U.S. & Chicago, IL areas Machinery, Los Angeles, CA Energenics Corp., Lint collectors and Southeastern U.S. & Chicago, IL areas Naples, FL automatic cart wash systems Forenta, Inc., Laundry and Dry Cleaning Southeastern U.S. & Chicago, IL areas Morrisville, TN Presses Huebsch Originators, Commercial Dryers Southeastern U.S. & Chicago, IL areas Ripon, WI Unipress, Inc., Laundry and Dry Cleaning Southeastern U.S. & Chicago, IL areas Tampa, FL Presses VIC Manufacturing, Dry Cleaning Equipment Southeastern U.S. & Chicago, IL areas Minneapolis, MN
MARKETING AND SALES Wink Davis' primary products include washers, dryers, ironers and other finishing equipment. Some of the larger installations include continuous batch washers ("CBW's"), large dryers, pressing and folding equipment and conveyor systems resulting in the laundering process being substantially automated. The majority of the sales consist of washers, with less than 165 pound capacity per load, and corresponding dryers. CBW systems or tunnels are highly customized with a variety of features depending on the unique needs and constraints of each customer. Sales orders are generated through a variety of methods including repeat business referrals, cold calls and unsolicited telephone orders. Typical sales terms on larger contracts require 15% down with the balance due 10 days after delivery. At September 11, 1998, Wink Davis employed approximately 15 sales persons and 32 technical representatives. Most used equipment in smaller facilities has little value and there is little demand for that type of used laundry equipment. Accordingly, Wink Davis rarely accepts trade-ins of low capacity used equipment, nor do they purchase used equipment of that nature. Some used CBW units can be rebuilt at a substantial reduction in price to new units. Wink Davis does occasionally find sales opportunities of this type. Many large orders, especially those at new construction sites, require newly designed or modified electrical, plumbing, construction or other work at the customer site. Wink Davis often subcontracts these tasks for the customer in conjunction with the sale. Wink Davis has a staff of CAD operators, and service personnel who assist and support outside contractors to ensure that the facilities are 5 properly prepared prior to the delivery of equipment. Wink Davis personnel install the equipment and provide training for the customers' operators. Smaller white sales generally require less support and frequently consist of matching the specifications of the newly ordered machine to the existing site. Additionally, Wink Davis provides repair and maintenance services to OPL facilities. Customers' OPL facilities are typically operated and managed by the property, maintenance or janitorial staffs. These staffs are often small with broad areas of responsibilities and limited technical expertise, especially for specific maintenance and repair issues of the laundry equipment. Accordingly, Wink Davis provides a full range of repair and maintenance services. Each sales office is staffed by four or more technicians. Each technician travels to the customer's site in a maintenance van, fully stocked with the most commonly needed parts. Upon notification, Wink Davis will dispatch and commonly have a technician addressing the problem within 24 hours. If additional parts are required, they may be ordered from the main Atlanta warehouse or shipped directly from the manufacturer. CUSTOMERS Wink Davis has over 4,000 customers ranging in size from single washing machine facilities to large laundry systems in hospitals or linen supply houses. Customers purchasing laundry machines typically continue their association with Wink Davis through purchase of repair parts or through service calls for equipment repairs. No customer represents more than 10% of Wink Davis' business. Accordingly, the loss of any single customer will not materially affect the operations of Wink Davis. COMPETITION The laundry equipment business is very competitive. Wink Davis competes directly with several other distributors representing other OEMs. Wink Davis believes the products they represent are of equal quality. In some instances, Wink Davis may be at a price disadvantage when a customer considers price only. Many sales of white machines are price sensitive, however this varies by region. The purchase decision on larger installations is less price sensitive as these customers are more concerned about production output and quality, and the seller's ability to efficiently service the machines being purchased. Wink Davis maintains a well-trained staff of technicians covering all geographic areas of distribution. Management believes this staff is more comprehensive than any maintained by the competition. TMC TMC assembles automated boarding and finishing equipment for the sock manufacturing industry. Management believes significant potential exists for automating finishing operations in mills that specialize in high volume production which is sold through large discount retail chains. Typically, this denotes athletic socks, but may also include single-color, casual dress socks. The current technology for athletic sock knitting operations is considered highly automated and capital intensive. Raw material on yarn cones directly feeds a machine which knits the entire product. A second off line operation closes the toe using automated turners and toe closing equipment. Finishing processes, unlike knitting operations, are significantly labor intensive. Through a series of steps, socks are boarded, trimmed, paired and bagged. TMC's machine significantly automates this process. In addition to boarding, trimming, pairing and bagging, the equipment can also insert j-hooks (a small plastic hanger for a display case), transfer print and board. PRODUCTION The production process is basically assembly. Many of the electronic, pneumatic, and structural parts are standard items available from various distributors. A significant portion of the hardware and structural components are custom designed and ordered. As of September 11, 1998, TMC employed 15 direct assemblers, 8 indirect laborers, and 9 persons in research and development. All assembly is done at TMC's leased facility on Patterson Avenue in Winston-Salem, N.C. Since the acquisition by Speizman Industries on February 6, 1998 through September 11, 1998, TMC has shipped approximately 33 machines. 6 Historically, most of the products have been built to order based on unique customer specifications. Currently, research and development, together with manufacturing, are designing a modularization project. The modularization project will transform the product from a custom ordered machine to standardized configurations. Customers will have the opportunity to select the most commonly requested features for addition to the standard product. Management believes that this will continue to meet virtually all of the potential customers' needs. However, by creating modular components, management hopes to improve production efficiencies. Management also hopes to reduce cycle time between receiving the customer order and delivery of the equipment. RESEARCH AND DEVELOPMENT TMC has 9 employees in research and development, including William Todd, the former owner and current Vice President. Key components of the product have been patented and several other patents are pending. Currently, the research and development staff is developing equipment for additional hosiery manufacturing functions and other packaging applications, possibly outside the hosiery industry. SALES AND MARKETING TMC was acquired by Speizman on February 6, 1998. Prior to the acquisition, equipment was sold directly through TMC's sales force. After the acquisition, all sales are now made through Speizman Industries' sales force. The customer base for TMC's product significantly overlaps with the customer base for hosiery knitting machinery. COMPETITION Competition consists of domestic and foreign manufacturers of similar equipment. Such competitors consist of both large and small firms, many of which compete intensely with TMC. REGULATORY MATTERS The Company is subject to various federal, state and local statutes and regulations relating to the protection of the environment and safety in the work place. The failure by the Company to comply with any of such statutes or regulations could result in significant monetary penalties, the cessation of certain of its operations, or both. Management believes that the Company's current operations are in compliance with applicable environmental and work place safety statutes and regulations in all material respects. The Company's compliance with these statutes and regulations has not materially affected its business; however, the Company cannot predict the future effects of compliance with such statutes or regulations. EMPLOYEES As of September 11, 1998, the Company had 231 full-time employees. The Company's employees are not represented by a labor union, and the Company has never suffered an interruption of business as a result of a labor dispute. The Company considers its relations with its employees to be good. BACKLOG The Company's backlog of unfilled orders for new and used machines was $24.5 million, $16.8 million and $19.3 million at June 27, 1998, June 28, 1997 and June 29, 1996, respectively. Management believes that all Speizman Industries' unfilled orders at June 27, 1998 will be filled by the end of fiscal 1999. The period of time required to fill orders varies depending on the machine ordered. RECEIPT OF MARZOLI AND VOUK PRODUCT LINES On August 1, 1998, the Company was granted the exclusive United States and Canadian distribution rights of the Marzoli product line manufactured by Fratelli Marzoli & C. SpA, an Italian corporation. Lonati has an ownership interest in Fratelli Marzoli & C. Spa. Operations of this product line are being conducted through a new, wholly-owned subsidiary of the Company, Speizman Yarn Equipment, Inc. As part of its agreement with Fratelli Marzoli & C. 7 SpA, the Company will assume the operations of the current offices, showrooms and personnel. Fratelli Marzoli & C. SpA manufactures equipment used in the yarn processing industry. Prior to the Company's receipt of distribution rights, Fratelli Marzoli & Co. SpA distributed their products in the United States through its wholly-owned subsidiary, Marzoli International, Inc., a domestic corporation based in Spartanburg, South Carolina. Revenues of Marzoli International, Inc. for the twelve months ended December 31, 1997 were approximately $13.9 million. On August 1, 1998, the Company was granted the exclusive United States and Canadian distribution rights of the Vouk product line manufactured by Vouk SpA Officine Meccanotessili, an Italian corporation in which Lonati has an ownership interest. Vouk SpA Officine Meccanotessili manufactures equipment used in the yarn processing industry. Operations of this product line are being conducted through Speizman Yarn Equipment, Inc. Prior to the Company's receipt of the distribution rights, Vouk SpA Officine Meccanotessili sold directly in the United States and Canada through several agents. ITEM 2. PROPERTIES. The Company leases all of its real property. Significant leases are summarized in the table below:
APPROXIMATE LEASE LEASE TERM MONTHLY RENTAL SQUARE USE LOCATION ORIGINATION DATE (MONTHS) RENTAL RATE FOOTAGE - ------------------------------------------------------------------------------------------------------------------------------------ Properties used primarily by Speizman: Current executive, administrative, machinery rebuilding and warehousing Charlotte, NC April 1, 1998 12 $ 29,669 89,000 (a) Future executive, administrative, machinery rebuilding and warehousing Charlotte, NC October 1, 1997 180 $ 54,923 122,052 (b) Warehousing Charlotte, NC March 1, 1998 9 $ 9,375 45,000 Warehousing Charlotte, NC - Monthly $ 9,654 41,000 Warehousing Charlotte, NC - Monthly $ 4,000 20,000 Sales office and warehouse Glendale, NY August 1, 1998 24 $ 2,314 3,641 Properties used primarily by Wink Davis: Administrative, sales office and warehouse Atlanta, GA July 30, 1997 24 $ 7,651 23,700 (c) Sales office and warehouse Wooddale, IL July 30, 1997 24 $ 6,099 6,500 (c) Sales office and warehouse Charlotte, NC July 30, 1997 24 $ 2,012 6,045 (c) Sales office and warehouse Chester, VA July 30, 1997 24 $ 1,982 6,000 (c) Properties used primarily by TMC: Research and development and administration Winston-Salem, NC February 6, 1998 24 $ 2,120 6,000 (d) Machine assembly Winston-Salem, NC September 1, 1996 24 $ 4,417 35,340
(a)The Company's headquarters are leased from a partnership owned by Robert S. Speizman and his brother. The City of Charlotte has designated this building an "historic landmark" and, as a result, modifications to the building require prior approval of the Charlotte-Mecklenburg Historic Landmark Commission. (b)This property is leased from a corporation owned by Robert S. Speizman, his wife and their children. The Company plans to relocate its executive, administrative, machinery rebuilding and a substantial portion of its warehousing to this location in the spring of 1999. Currently, this location is being upfitted to support these functions. (c)These properties are leased from a partnership owned by C. Alexander Davis, a former shareholder and current President of Wink Davis, and his brother. (d)This property is leased from William H. Todd, a former shareholder and current VP-Research and Development of TMC, and his wife. 8 ITEM 3. LEGAL PROCEEDINGS. Speizman Industries, Inc. is presently the Defendant in a lawsuit filed by Mr. Boyd A. McClure, a former employee of the Company who lost his job in mid-1997, pursuant to a reduction in workforce. The lawsuit presently pending in the United States District Court for the Western District of North Carolina, Charlotte Division, is entitled BOYD A. MCCLURE V. SPEIZMAN INDUSTRIES, INC., Case No. 3:98-CV-195-MU. In this lawsuit, Mr. McClure asserts three (3) claims against Speizman Industries, Inc.: (1) he alleges that he was discharged from his employment because of a physical disability in violation of The Americans With Disabilities Act; (2) he alleges he was discharged from his employment because of his age in violation of The Age Discrimination In Employment Act; and (3) he alleges he was the victim of "wrongful discharge", a tort claim recognized under the State of North Carolina which basically encompasses the substance of the two above-mentioned federal law claims. At the present time, both Plaintiff and Speizman Industries, Inc. are engaged in discovery processes including depositions, and it is the Company's unwavering position that it will defend vigorously against all claims brought by Mr. McClure through trial, if necessary. At this early juncture, there is too much subjectivity inherent in an assessment of the likelihood of Mr. McClure's success to accurately quantify or qualify the underlying merits of this case. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. No matters were submitted to a vote of the Company's security holders during the fourth quarter of fiscal 1997. EXECUTIVE OFFICERS OF REGISTRANT The following table sets forth certain information regarding the executive officers of the Company:
NAME AGE POSITIONS WITH THE COMPANY ---- --- -------------------------- Robert S. Speizman... 58 Chairman of the Board, President and Director Josef Sklut.......... 69 Vice President-Finance, Secretary, Treasurer and Director C. Alexander Davis... 50 President, Wink Davis Equipment Company, Inc. Bryan D. Speizman ... 33 Senior Vice President, Non-Hosiery Mark A. Speizman .... 27 Senior Vice President, Hosiery
Robert S. Speizman has served as President of the Company since November 1976. From 1969 to October 1976, Mr. Speizman served as Executive Vice President of the Company. Mr. Speizman has been a director of the Company since 1967 and Chairman of the Board of Directors since July 1987. Josef Sklut has served as Vice President-Finance of the Company since 1978, as Secretary of the Company since 1977, as Treasurer of the Company since 1969 and as a director of the Company since 1977. C. Alexander Davis has served as President, Wink Davis Equipment Company, Inc., since August 1, 1997, as Executive Vice President, Wink Davis Equipment Co., Inc., from 1973 to July 31, 1997 and as a director of Wink Davis Equipment Company, Inc., from 1973 to July 31, 1997. Bryan D. Speizman, son of Robert S. Speizman, began serving as Senior Vice President, Non-Hosiery in fiscal 1998. Mark A. Speizman, son of Robert S. Speizman, began serving as Senior Vice President, Hosiery in fiscal 1998. 9 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The Company's Common Stock has been included for quotation on the NASDAQ National Market System under the NASDAQ symbol "SPZN" since October 1993. The following table sets forth, for the periods indicated, the high and low sale prices as reported by the NASDAQ National Market System. FISCAL 1997 HIGH LOW ---- --- First Quarter (ended September 28, 1996) ............ 5.75 3.75 Second Quarter (ended December 28, 1996)............. 6.88 4.38 Third Quarter (ended March 29, 1997)................. 7.13 4.50 Fourth Quarter (ended June 28, 1997)................. 6.25 3.88 FISCAL 1998 First Quarter (ended September 27, 1997) ............ 9.50 4.88 Second Quarter (ended December 27, 1997)............. 9.19 5.38 Third Quarter (ended March 28, 1998)................. 7.25 5.38 Fourth Quarter (ended June 27, 1998)................. 7.13 5.00 As of June 27, 1998, there were approximately 241 stockholders of record of the Common Stock. The Company has never declared or paid any dividends on its Common Stock. Future cash dividends, if any, will be at the discretion of the Company's Board of Directors and will depend upon, among other things, future earnings, operations, capital requirements, surplus, restrictive covenants in agreements to which the Company may be subject, general business conditions and such other factors as the Board of Directors may deem relevant. The Company's present credit facility contains certain financial and other covenants that could limit the Company's ability to pay cash dividends on its capital stock. 10 ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA.
Fiscal Year Ended ------------------------------------------------------ June 27, June 28, June 29, July 1, July 2, 1998 1997 1996 1995 1994 ---- ---- ---- ---- ---- (IN THOUSANDS, EXCEPT NET INCOME PER SHARE DATA) STATEMENT OF INCOME DATA: Net revenues.................................$ 90,886 $79,103 $46,280 $61,597 $69,526 Cost of sales................................ 74,034 65,935 40,547 53,986 60,004 ------ ------ ------ ------ ------ Gross profit................................. 16,852 13,168 5,733 7,611 9,522 Selling, general and administrative expenses 12,855 8,855 6,577 5,478 4,350 ------ ------ ------ ------ ------ Operating income (loss)...................... 3,997 4,313 (844) 2,133 5,172 Interest (income) expense, net. 791 (18) (43) (15) 6 ------ ------ ------ ------ ------ Income (loss) before taxes on income 3,206 4,331 (801) 2,148 5,166 Taxes (benefit) on income ................... 1,273 1,645 (228) 854 1,869 ------ ------ ------ ------ ------ Net income (loss)............................ 1,933 2,686 (573) 1,294 3,297 Preferred stock dividends.................... - - - - 41 ------ ------ ------ ------ ------ Net income (loss) applicable to common stock $1,933 $ 2,686 $ (573) $ 1,294 $ 3,256 ====== ======= ======= ======== ======== PER SHARE DATA: Basic earnings (loss) per share $ 0.59 $ 0.83 $ (0.18) $ 0.40 $ 1.16 Diluted earnings (loss) per share 0.56 0.80 (0.18) 0.40 1.10 Weighted average shares outstanding - basic 3,284 3,229 3,209 3,209 2,805 Weighted average shares outstanding - diluted ........................................ 3,426 3,353 3,209 3,272 2,949 BALANCE SHEET DATA: Working capital.............................. $20,216 $18,741 $16,313 $17,613 $16,579 Total assets................................. 50,034 43,174 36,149 35,704 30,160 Short-term debt.............................. 4,000 - - - - Long-term debt, including current maturity 7,670 112 148 147 293 Stockholders' equity......................... 23,207 20,938 18,203 18,782 17,483
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. GENERAL The Company's revenues are generated primarily from its distribution of textile equipment (principally knitting equipment and, to a lessor extent, from the sale of parts used in such equipment and the sale of used equipment) and commercial laundry equipment and services (principally commercial washers and dryers and, to a lessor extent, the sale of parts used in such equipment and related services). The Company began operating in the laundry equipment and services segment with the purchase of Wink Davis on August 1, 1997. RESULTS OF OPERATIONS YEAR ENDED JUNE 27, 1998 COMPARED TO YEAR ENDED JUNE 28, 1997 NET REVENUES. Net revenues in fiscal 1998 were $90.9 million as compared to $79.1 million in fiscal 1997, an increase of $11.8 million or 14.9%. This increase is primarily due to the acquisition of Wink Davis on August 1, 1997. Wink Davis recognized revenues in fiscal 1997 of $23.7 million. Additional components of the increase include $2.0 million increase from sales of TMC products (acquired on February 6, 1998) and an increase of $0.7 million in parts sales, offset by an $10.8 million decrease in hosiery related equipment, a $1.6 million decrease in knitted fabric equipment and a decrease of $2.2 million in products no longer represented, including sweater, and garment wet processing equipment. COST OF SALES. In fiscal 1998 cost of sales were $74.0 million an increase of $8.1million from $65.9 million in fiscal 1997. Cost of sales as a percentage of revenues decrease to 81.5% in fiscal 1998 as compared to 83.3% in fiscal 1997. This decrease results from higher margins on hosiery related parts and equipment and the exclusion of lower margin 11 liquidations of products discontinued in 1997. This decrease in cost of sales as a percentage of revenues was slightly offset by lower margins on Wink Davis sales. SELLING EXPENSES. Selling expenses increased to $6.9 million in fiscal 1998 as compared to $5.8 million in fiscal 1997. This net increase of $1.1 million results from increased selling expenses of $1.8 million at Wink Davis and TMC, offset by decreases of $443,000 in textile equipment related salaries and commissions and other decreases in letter of credit expenses, professional fees, advertising and other expense decreases generally related to lower overall sales volume of textile machinery. GENERAL AND ADMINISTRATIVE. General and administrative expense increased in fiscal 1998 to $5.9 million from $3.0 million in fiscal 1997. This increase results primarily from additional administrative expenses of $1.7 million of Wink Davis and TMC, amortization expenses of $405,000 and rental expense of the new facility of $324,000. INTEREST EXPENSE. Interest expense is expressed net of interest income. In fiscal 1998, net interest expense was $791,000. This significant increase in interest expense is related directly to the debt funded acquisitions of Wink Davis and TMC. TAXES (BENEFIT) ON INCOME (LOSS). The provision for income taxes in fiscal 1998 is $1,273,000 or 39.7% of income before taxes. The provision for income taxes in fiscal 1997 is $1,645,000 or 38.0% of income before taxes. NET INCOME (LOSS). Net income for fiscal 1998 decreased to $1.9 million compared to net income of $2.7 million for fiscal 1997. Basic earnings per share decreased to $0.59 and diluted earnings per share decreased to $0.56. In fiscal 1997, basic earnings per share was $0.83 and diluted earnings per share was $0.80. YEAR ENDED JUNE 28, 1997 COMPARED TO YEAR ENDED JUNE 29, 1996 NET REVENUES. Net revenues in fiscal 1997 were $79.1 million as compared to $46.3 million in fiscal 1996, an increase of $32.8 million or 70.9%. This increase is due to a combination of price and volume increases. This increase reflects a $32.2 million increase in sales of hosiery equipment, a $0.7 million increase in sales of dyeing and finishing equipment, a $0.6 million increase in sales of garment wet processing equipment, a $1.2 million increase in parts and other sales activities partially offset by a $1.9 million decrease in sales of sweater manufacturing and related equipment. The market for hosiery equipment is influenced by the retail sector, changes in technology and general economic conditions affecting the Company's customers. COST OF SALES. In fiscal 1997, cost of sales was $65.9 million as compared to $40.5 million in fiscal 1996, an increase of $25.4 million or 62.6%. Cost of sales as a percent of revenue decreased to 83.4% in fiscal 1997 from 87.6% in fiscal 1996. This decrease results from increased demand for hosiery equipment resulting in increased sales prices and increased field service efficiency arising from increased volume. SELLING EXPENSES. Selling expenses increased to $5.8 million in fiscal 1997 from $4.7 million in fiscal 1996, an increase of 23.6%. The increase results from overall increased selling activity, including salaries, sales commissions, exhibition expenses and letter of credit expenses. These increases are partially offset by elimination of expenses of the CopyGuard division, which was disposed in fiscal 1996. GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses for fiscal 1997 totaled $3.0 million, an increase of $1.1 million from $1.9 million in fiscal 1996. The increase results primarily from additional salaries and management bonuses. INTEREST INCOME. Interest income is expressed net of interest expense. In fiscal 1997, interest income exceeded interest expense by $18,000. Net interest income was $43,000 in fiscal 1996. TAXES (BENEFIT) ON INCOME (LOSS). The provision for income taxes in fiscal 1997 is $1,645,000 or 38.0% of income before taxes. In fiscal 1996 the provision for income taxes is a tax benefit of $228,000 or 28.5% of loss before taxes. The higher effective tax rate in fiscal 1997 results from the combined effects of non-deductible entertainment and life insurance expenses and U.S. profits taxed at rates higher than foreign tax rates. 12 NET INCOME (LOSS). Net income for fiscal 1997 increased to $2.7 million compared to a net loss of $0.6 million for fiscal 1996. Basic earnings per share increased to$0.83 and diluted earnings per share increased to $0.80 in fiscal 1997. In fiscal 1996, basic and diluted loss per share was $0.18. LIQUIDITY AND CAPITAL RESOURCES The Company has a credit facility with NationsBank, opened on August 1, 1997, in conjunction with the purchase of Wink Davis, amended on February 6, 1998, in conjunction with the purchase of TMC and expiring on July 31, 2000. This facility furnished term loan financing for these acquisitions and also provides a line of credit for direct borrowings and issuance of documentary letters of credit. The line of credit provides up to $38.3 million, subject to current collateral balances, including up to a maximum of $8.5 million for direct borrowings, with the balance available for documentary letters of credit and term debt. Amounts outstanding under the line of credit bear interest at the greater of prime plus 1.0% or the Federal Funds Rate plus 1.5% for base rate loans and the Eurodollar Rate plus 2.0% for Eurodollar loans. In connection with this line of credit, the Company granted a security interest in accounts receivable and inventory, as defined in the loan agreement. Working capital at June 27, 1998 was $20.2 million as compared to $18.7 million at June 28, 1997, an increase of $1.5 million. Operating activities in fiscal 1998 used $1.3 million. In fiscal 1997 operating activities used $3.4 million. Significant funds were used in investing activities, primarily the purchases of Wink Davis and TMC for $9.5 million and $1.8 million respectively. Funds for these acquisitions were provided from financing activities, primarily through the issuance of $8.3 million in long term notes and $4.0 million of borrowings on the revolving line of credit. Cash flows from investing and financing activities in fiscal 1997 were significantly less. SEASONALITY AND OTHER FACTORS There are certain seasonal factors that may affect the Company's business. Traditionally, manufacturing businesses in Italy close for the month of August, and the Company's hosiery customers close for one week in July. Consequently, no shipments or deliveries, as the case may be, of machines distributed by the Company that are manufactured in Italy are made during these periods which fall in the Company's first quarter. In addition, manufacturing businesses in Italy generally close for two weeks in December, during the Company's second quarter. Fluctuations of customer orders or other factors may result in quarterly variations in net revenues from year to year. EFFECTS OF INFLATION AND CHANGING PRICES Management believes that inflation has not had a material effect on the Company's operations. DISCLOSURE ABOUT FOREIGN CURRENCY RISK Generally, the Company's purchases of foreign manufactured machinery for resale are denominated in Italian lira. In the ordinary course of business, the Company enters into foreign exchange forward contracts to mitigate the effect of foreign currency movements between the Italian lira and the U.S. dollar from the time of placing the Company's purchase order until final payment for the purchase is made. The contracts have maturity dates that do not generally exceed 12 months. Substantially all of the increase or decrease of the lira denominated purchase price is offset by the gains and losses of the foreign exchange contract. The unrealized gains and losses on these contracts are deferred and recognized in the results of operations in the period in which the hedged transaction is consummated. A substantial portion of the Company's textile machine and spare part purchases are denominated and payable in Italian lira. Currency fluctuations of the lira could result in substantial price level changes and therefore impede or promote import/export sales and substantially impact profits. However, to reduce exposure to adverse foreign currency fluctuations during the period from customer orders to payment for goods sold, the Company enters into forward exchange contracts. The Company is not able to assess the quantitative effect that such currency fluctuations could have upon the Company's operations. There can be no assurance that fluctuations in foreign currency exchange rates will not have a significant adverse effect on future operations. 13 At June 27, 1998, the Company had contracts maturing through March 1999 to purchase approximately 24.3 billion Lira for approximately $13.7 million, which approximates the spot rate on that date. NOTE REGARDING PRIVATE SECURITIES LITIGATION REFORM ACT Statements made by the Company which are not historical facts are forward looking statements that involve risks and uncertainties. Actual results could differ materially from those expressed or implied in forward looking statements. All such forward looking statements are subject to the safe harbor created by the Private Securities Litigation Reform Act of 1995. Important factors that could cause financial performance to differ materially from past results and from those expressed and implied in this document include, without limitation, the risks of acquisition of businesses (including limited knowledge of the businesses acquired and misrepresentations by sellers) availability of financing, competition, management's ability to manage growth, loss of customers, and a variety of other factors. YEAR 2000 COMPLIANCE The Company has reviewed its computer and business systems to identify those areas that could be adversely affected by Year 2000 software failures. The primary information system used by both Speizman Industries and TMC has been reviewed and all known issues related to the Year 2000 issues have been resolved. Costs incurred were not significant. The primary information system used by Wink Davis is not Year 2000 compliant. In conjunction with the purchase of Wink Davis on August 1, 1997, management planned to integrate Wink Davis' information into the existing system used by Speizman Industries. The integration project, which was not accelerated due to the Year 2000 issue, is scheduled to be completed in December 1998. The estimated project cost of integrating Wink Davis' information system is approximately $100,000. A substantial portion of the equipment distributed by the Company has computerized controls and features. However, to the Company's knowledge, no operating features of the equipment are dependent on any time or date information, such as the Year 2000 issue. The Company is aware of one subsidiary's voice mail system and there may be other computer-based systems which may require upgrading to ensure operational continuity beyond December 31, 1999. The Company has substantially completed identification of all such systems and believes that all significant systems will be compliant in time to ensure no disruption to the Company's operations. The cost of bringing these minor systems into compliance is not anticipated to be material. Currently, the Company cannot predict the effect of the Year 2000 problem on entities with which it transacts business and there can be no assurance it will not have a material adverse effect on the Company's business, financial condition, results of operations or cash flows. The Company will be formulating a contingency plan to address the possible effects of any of its customers experiencing Year 2000 problems. NEW ACCOUNTING PRONOUNCEMENTS In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 130, REPORTING COMPREHENSIVE INCOME (SFAS 130), which establishes standards for reporting and display of comprehensive income, its components and accumulated balances. Comprehensive income is defined to include all changes in equity except those resulting from investments by owners and distributions to owners. Among other disclosures, SFAS 130 requires that all items that are required to be recognized under current accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. SFAS 130 is effective for financial statements for periods beginning after December 15, 1997 and requires comparative information for earlier years to be restated. Because of the recent issuance of this standard, management has been unable to fully evaluate the impact, if any, the standard may have on future financial statement disclosures. Results of operations and financial position, however, will be unaffected by implementations of this standard. 14 In June 1997, the Financial Accounting Standards Board issued SFAS No. 131, Disclosures about SEGMENTS OF AN ENTERPRISE and RELATED INFORMATION, (SFAS 131) which supersedes SFAS No. 14, FINANCIAL REPORTING FOR SEGMENTS OF A BUSINESS ENTERPRISE. SFAS 131 establishes standards for the way that public companies report information about operating segments in annual financial statements and requires reporting of selected information about operating segments in interim financial statements issued to the public. It also establishes standards for disclosures regarding products and services, geographic areas and major customers. SFAS 131 defines operating segments as components of a company about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. SFAS 131 is effective for financial statements for periods beginning after December 15, 1997 and requires comparative information for earlier years to be restated. Because of the recent issuance of this standard, management has been unable to fully evaluate the impact, if any, it may have on future financial statement disclosures. Results of operations and financial position, however, will be unaffected by implementation of this standard. Statement of Financial Accounting Standards No. 133 Accounting for Derivative Instruments and Hedging Activities (SFAS No. 133) establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. This statement is effective for all fiscal quarters of fiscal years beginning after June 15, 1999. Management is presently assessing the impact of the adoption of SFAS No. 133, on its consolidated financial statements. In May, 1998, the American Institute of Certified Public Accountants issued Statement of Position 98-5, Reporting on the Costs at Start-Up Activities. SOP 98-5 requires that entities expense start-up costs and organization costs as they are incurred. SOP 98-5 is effective for fiscal years beginning after December 15, 1998. Management does not anticipate SOP 98-5 having a material impact on its consolidated financial statements. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK. Not applicable. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The financial statements and supplementary data required by this Item 8 appear on Pages F-1 through F-16 and S-1 through S-2 of this Annual Report on Form 10-K. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. Not applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The response to this Item 10 is set forth in part under the caption "Executive Officers of the Registrant" in Part I of this Annual Report on Form 10-K and the remainder is set forth in the Company's Proxy Statement for the Annual Meeting of Stockholders to be held November 18, 1998 (the "1998 Proxy Statement") under the sections captioned "Election of Directors," "Certain Information Regarding the Board of Directors" and "Compliance with Section 16(a) of the Securities Exchange Act of 1934," which sections are incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION. The response to this Item 11 is set forth in the 1998 Proxy Statement under the section captioned "Executive Compensation and Related Information," which section, other than the subsections captioned "Report of the Compensation Committee and the Stock Option Committee on Executive Compensation" and "Comparative Performance Graph," is incorporated herein by reference. 15 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The response to this Item 12 is set forth in the 1998 Proxy Statement under the section captioned "Stock Ownership of Certain Beneficial Owners and Management," which section is incorporated by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The response to this Item 13 is set forth in the 1998 Proxy Statement under the section captioned "Certain Transactions," which section is incorporated herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (a)The following documents are included as part of the Annual Report on Form 10-K: 1. FINANCIAL STATEMENTS: Page Report of Independent Certified Public Accountants ................ F-1 Consolidated Balance Sheets - June 27, 1998 and June 28, 1997...... F-2 Consolidated Financial Statements for each of the three years in the periods ended June 27, 1998, June 28, 1997 and June 29, 1996: Consolidated Statements of Operations ......................... F-3 Consolidated Statements of Stockholders' Equity ............... F-4 Consolidated Statements of Cash Flows ......................... F-5 Summary of Accounting Policies .................................... F-6 Notes to Consolidated Financial Statements ........................ F-8 2. FINANCIAL STATEMENT SCHEDULES: Report of Independent Certified Public Accountants................. S-1 Schedule II - Valuation and Qualifying Accounts.................... S-2 16 3. EXHIBITS: The Exhibits filed as part of this Annual Report on Form 10-K are listed on the Exhibit Index immediately preceding such Exhibits, and are incorporated herein by reference. (b) Reports on Form 8-K On April 6, 1998, the Company filed a Current Report on Form 8-K pursuant to Item 5 thereof reporting that on March 31, 1998, the Company announced a plan to repurchase up to $500,000 of its currently outstanding common stock. SIGNATURES Pursuant to the requirements of Section 131 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SPEIZMAN INDUSTRIES, INC. Date: September 25, 1998 By: /s/ Robert S. Speizman ---------------------- Robert S. Speizman, President Pursuant to the requirements of the Securities Act of 1933, this has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signatures Title Date ---------- ----- ---- /s/ Robert S. Speizman President and Director September 25, 1998 - -------------------------- (Principal Executive Officer) Robert S. Speizman /s/ Josef Sklut Vice President-Finance, Secretary, September 25, 1998 - -------------------------- Treasurer and Director Josef Sklut (Principal Financial Officer and Principal Accounting Officer) /s/ Steven P. Berkowitz Director September 24, 1998 - -------------------------- Steven P. Berkowitz /s/ William Gorelick Director September 23, 1998 - -------------------------- William Gorelick /s/ Scott C. Lea Director September 23, 1998 - -------------------------- Scott C. Lea
17 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To the Board of Directors and Stockholders Speizman Industries, Inc. We have audited the accompanying consolidated balance sheets of SPEIZMAN INDUSTRIES, INC. AND SUBSIDIARIES as of June 27, 1998 and June 28, 1997, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended June 27, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of SPEIZMAN INDUSTRIES, INC. AND SUBSIDIARIES at June 27, 1998 and June 28, 1997, and the results of their operations and their cash flows for each of the three years in the period ended June 27, 1998, in conformity with generally accepted accounting principles. Charlotte, North Carolina BDO Seidman, LLP August 27, 1998 F-1 SPEIZMAN INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
June 27, June 28, 1998 1997 ----------- ------------ ASSETS Current: Cash and cash equivalents...................... $ 2,193,329 $ 3,832,534 Accounts receivable (Notes 1, 2 and 7).......... 19,817,834 21,075,138 Inventories (Notes 3 and 7)..................... 15,934,745 12,970,134 Prepaid expenses and other current assets....... 3,372,266 2,988,786 ----------- ------------ TOTAL CURRENT ASSETS.......................... 41,318,174 40,866,592 ----------- ------------ Property and Equipment: (Note 7) Leasehold improvements.......................... 552,655 750,140 Machinery and equipment......................... 1,825,959 1,770,886 Furniture, fixtures and transportation equipment 1,341,728 1,078,429 ----------- ------------ 3,720,342 3,599,455 Less accumulated depreciation and amortization.. (1,632,367) (1,811,183) ----------- ------------ NET PROPERTY AND EQUIPMENT.................... 2,087,975 1,788,272 ----------- ------------ Other long-term assets............................. 517,352 518,957 Intangibles, net of accumulated amortization (Note 4)........................................ 6,110,410 - ----------- ------------ $50,033,911 $ 43,173,821 =========== ============= LIABILITIES AND STOCKHOLDERS' EQUITY Current: Note payable - bank line of credit (Note 7) .... $ 4,000,000 $ - Accounts payable................................ 10,809,976 19,075,766 Customers' deposits............................. 2,158,512 1,380,621 Accrued expenses................................ 2,188,557 1,667,621 Current maturities of long-term debt (Note 8)... 1,945,000 1,769 ----------- ------------ TOTAL CURRENT LIABILITIES..................... 21,102,045 22,125,777 Long-Term Debt (Note 8)............................ 5,725,000 110,344 ----------- ------------ TOTAL LIABILITIES............................. $26,827,045 $ 22,236,121 =========== ============= Commitments and Contingencies (Notes 5, 10, 11, 12 and 13) Stockholders' Equity (Notes 9 and 10): Common Stock - par value $.10; authorized 20,000,000 shares, issued 3,357,406, outstanding 335,741 3,319,806; and issued 3,262,866, outstanding 3,235,266, respectively .................................. 335,741 326,287 Additional paid-in capital........................12,889,546 12,512,299 Retained earnings.................................10,143,226 8,209,911 Foreign currency translation adjustment.......... - (11,000) ----------- ------------ Total...........................................23,368,513 21,037,497 Treasury stock, at cost, 37,600 shares and 27,600 shares................................... (161,647) (99,797) ----------- ------------ TOTAL STOCKHOLDERS' EQUITY......................23,206,866 20,937,700 ----------- ------------ $50,033,911 $ 43,173,821 =========== =============
See accompanying summary of accounting policies and notes to consolidated financial statements. F-2 SPEIZMAN INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended ------------------------------------------ June 27, June 28, June 29, 1998 1997 1996 ------------ ----------- ----------- NET REVENUES (Note 1)................... $ 90,886,285 $79,103,225 $46,279,969 ------------ ----------- ----------- COSTS AND EXPENSES: Cost of sales......................... 74,033,817 65,934,696 40,546,962 Selling expenses...................... 6,944,079 5,810,360 4,699,280 General and administrative expenses.... 5,911,007 3,045,269 1,878,193 ------------ ----------- ----------- Total costs and expenses........... 86,888,903 74,790,325 47,124,435 ------------ ----------- ----------- 3,997,382 4,312,900 (844,466) INTEREST (INCOME) EXPENSE, net of interest income of $102,968, $113,137 and $126,522 ................................. 791,067 (17,651) (43,400) ------------ ----------- ----------- NET INCOME (LOSS) BEFORE TAXES........... 3,206,315 4,330,551 (801,066) TAXES (BENEFIT) ON INCOME (Note 6)....... 1,273,000 1,645,000 (228,000) ------------ ----------- ----------- NET INCOME (LOSS)....................... $ 1,933,315 $ 2,685,551 (573,066) ============ ============ ======== Earnings (loss) per share: Basic ................................. 0.59 0.83 (0.18) Diluted ............................... 0.56 0.80 (0.18) Weighted average shares outstanding: Basic ................................ 3,284,278 3,228,745 3,208,599 Diluted .............................. 3,425,899 3,353,419 3,208,599
See accompanying summary of accounting policies and notes to consolidated financial statements. F-3 SPEIZMAN INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Foreign Additional Currency Common Common Paid-In Retained Translation Treasury Stockholders' Shares Stock Capital Earnings Adjustment Stock Equity --------- --------- ------------ ------------ ---------- --------- -------------- BALANCE, JULY 2, 1995 3,236,199 $323,620 $ 12,459,965 $ 6,097,426 $ 731 $(99,797) $ 18,781,945 Net loss.................... - - - (573,066) - - (573,066) Foreign currency translation adjustment............... - - - - (5,954) - (5,954) --------- -------- ----------- ----------- -------- ---------- ----------- BALANCE, JUNE 29, 1996 3,236,199 323,620 12,459,965 5,524,360 (5,223) (99,797) 18,202,925 Net income................. - - - 2,685,551 - - 2,685,551 Exercise of stock options 26,667 2,667 52,334 - - - 55,001 Foreign currency translation adjustment............... - - - - (5,777) - (5,777) --------- -------- ----------- ----------- -------- ---------- ----------- BALANCE, JUNE 28, 1997 3,262,866 326,287 12,512,299 8,209,911 (11,000) (99,797) 20,937,700 Net income................. - - - 1,933,315 - - 1,933,315 Exercise of stock options 94,540 9,454 275,547 - - - 285,001 Purchase of treasury stock - - - - - (61,850) (61,850) Foreign currency translation adjustment............... - - - - 11,000 - 11,000 Tax effect of exercise of stock options............ - - 101,700 - - - 101,700 --------- -------- ----------- ----------- -------- ---------- ----------- BALANCE, JUNE 27, 1998 3,357,406 $335,741 $12,889,546 $10,143,226 $ - $ (161,647) $23,206,866 ========= ======== =========== =========== ======== ========== ===========
See accompanying summary of accounting policies and notes to consolidated financial statements. F-4 SPEIZMAN INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended --------------------------------------------- June 27, June 28, June 29, 1988 1997 1996 CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) ...................... $ 1,933,315 $ 2,685,551 $ (573,066) Adjustments to reconcile net income to net cash provided by (used in) operating activities: Gain on disposal of fixed assets ....... (4,980) - - Depreciation and amortization .......... 1,184,724 484,152 173,336 Provision for losses on accounts receivable.............................. 189,545 214,521 113,500 Provision for inventory obsolescence.... 275,000 154,133 139,436 Provision for deferred income taxes..... (187,000) (121,000) (58,000) Provision for deferred compensation..... 379 (25,220) 6,782 Foreign currency translation adjustment. 11,000 (5,777) (5,954) (Increase) decrease in: Accounts receivable................... 5,304,947 (9,129,210) 3,804,734 Inventories........................... (337,132) (1,484,715) 1,649,026 Prepaid expenses...................... 22,717 (701,675) 159,244 Other assets.......................... 590,564 229,728 (69,076) Increase (decrease) in: Accounts payable...................... (9,302,942) 4,211,199 (192,360) Accrued expenses and customers' deposits............................. (985,393) 114,895 1,214,580 ---------- --------- -------- Net cash provided by (used in) operating activities.................... (1,305,256) (3,373,418) 6,362,182 ---------- --------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of Wink Davis Equipment Company, Inc. ............................ (9,467,677) - - Acquisition of Todd Motion Controls, Inc.................................... (1,841,304) - - Capital expenditures.................... (470,221) (846,845) (1,159,659) Proceeds from property and equipment disposals............................... 76,304 27,125 347,557 ---------- --------- -------- Net cash used in investing activities... (11,702,898) (819,720) (812,102) ---------- --------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Net borrowings on line of credit agreement ................................ 4,000,000 - - Principal payments on long term debt... (1,154,202) (11,052) (5,216) Issuance of common stock upon exercise of stock options........................ 285,001 55,001 - Purchase of treasury stock ............. (61,850) - - Proceeds from issuance of long term notes due to bank ...................... 8,300,000 - - ---------- --------- -------- Net cash provided by (used in) financing activities................. 11,368,949 43,949 (5,216) ---------- --------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS...................... (1,639,205) (4,149,189) 5,544,864 CASH AND CASH EQUIVALENTS, at beginning of year.................................. 3,832,534 7,981,723 2,436,859 ---------- --------- -------- CASH AND CASH EQUIVALENTS, at end of year. $ 2,193,329 $ 3,832,534 $ 7,981,723 ========== ========== ==========
See accompanying summary of accounting policies and notes to consolidated financial statements. F-5 SPEIZMAN INDUSTRIES, INC. AND SUBSIDIARIES SUMMARY OF ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION The consolidated financial statements of Speizman Industries, Inc. and subsidiaries (collectively the "Company") include all of its subsidiaries, all of which are wholly owned. All material intercompany transactions (domestic and foreign) have been eliminated. The financial statements of the Company's United Kingdom subsidiary were translated from pounds sterling to U.S. dollars in accordance with generally accepted accounting principles. The United Kingdom subsidiary was liquidated on June 28, 1997. Wink Davis Equipment Company, Inc. ("Wink Davis") was acquired on August 1, 1997. Todd Motion Controls, Inc. ("TMC") was acquired on February 6, 1998. REVENUE RECOGNITION The major portion of the Company's revenues consists of sales and commissions on sales of machinery and equipment. The profit derived therefrom is recognized in full at the time of shipment. CASH AND CASH EQUIVALENTS For purposes of the statements of cash flows, the Company considers all highly liquid debt instruments with an original maturity of three months or less to be cash equivalents. The carrying amount of cash equivalents approximates fair value due to the short-term maturity of these instruments. INVENTORIES Inventories are carried at the lower of cost or market. Cost is computed, in the case of machines, on an identified cost basis and, in the case of other inventories, on an average cost basis. PROPERTY AND EQUIPMENT Property and equipment are stated at cost. Depreciation is computed over the estimated useful lives of the assets by the straight-line method for financial reporting purposes and by accelerated methods for income tax purposes. FOREIGN EXCHANGE CONTRACTS The Company enters into foreign currency contracts to reduce the foreign currency exchange risks. Foreign currency hedging contracts obligate the Company to buy a specified amount of a foreign currency at a fixed price in specific future periods. Realized and unrealized gains and losses are recognized in net income in the period of the underlying transaction. As of June 27, 1998, the Company had contracts maturing through March 1999 to purchase approximately 24.3 billion Lira for approximately $13.7 million, which approximates the spot rate on that date. TAXES ON INCOME The Company has adopted the SFAS Statement No. 109, "Accounting for Income Taxes." Accordingly, deferred tax assets or liabilities at the end of each period are determined using the tax rate expected to be in effect when taxes are actually paid or recovered. Income tax expense will increase or decrease in the same period in which a change in tax rates is enacted. INCOME PER SHARE The Company has adopted SFAS Statement no. 128, "Earnings per Share." Accordingly, basic net income per share includes no dilution and is calculated by dividing net income by the weighted average number of common shares outstanding for the period. Diluted net income per share reflects the potential dilution of securities that could share in the net income of the Company which consists of stock options (using the treasury stock method). FISCAL YEAR The Company maintains its accounting records on a 52-53 week fiscal year. The fiscal year ends on the Saturday closest to June 30. Years ending June 27, 1998, June 28, 1997 and June 29, 1996 included 52 weeks. ADVERTISING The Company expenses advertising costs as incurred. Total advertising expense approximated $97,000, $95,000 and $80,000 for fiscal years 1998, 1997 and 1996, respectively. F-6 SPEIZMAN INDUSTRIES, INC. AND SUBSIDIARIES SUMMARY OF ACCOUNTING POLICIES - (CONTINUED) FAIR VALUE OF FINANCIAL INSTRUMENTS Financial instruments of the Company include long-term debt and line of credit agreements. Based upon the current borrowing rates available to the Company, estimated fair values of these financial instruments approximate their recorded carrying amounts. USE OF ESTIMATES IN PREPARING FINANCIAL STATEMENTS The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. NEW ACCOUNTING PRONOUNCEMENTS In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 130, REPORTING COMPREHENSIVE INCOME (SFAS 130), which establishes standards for reporting and display of comprehensive income, its components and accumulated balances. Comprehensive income is defined to include all changes in equity except those resulting from investments by owners and distributions to owners. Among other disclosures, SFAS 130 requires that all items that are required to be recognized under current accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. SFAS 130 is effective for financial statements for periods beginning after December 15, 1997 and requires comparative information for earlier years to be restated. Because of the recent issuance of this standard, management has been unable to fully evaluate the impact, if any, the standard may have on future financial statement disclosures. Results of operations and financial position, however, will be unaffected by implementations of this standard. In June 1997, the Financial Accounting Standards Board issued SFAS No. 131, Disclosures about SEGMENTS OF AN ENTERPRISE and RELATED INFORMATION, (SFAS 131) which supersedes SFAS No. 14, FINANCIAL REPORTING FOR SEGMENTS OF A BUSINESS ENTERPRISE. SFAS 131 establishes standards for the way that public companies report information about operating segments in annual financial statements and requires reporting of selected information about operating segments in interim financial statements issued to the public. It also establishes standards for disclosures regarding products and services, geographic areas and major customers. SFAS 131 defines operating segments as components of a company about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. SFAS 131 is effective for financial statements for periods beginning after December 15, 1997 and requires comparative information for earlier years to be restated. Because of the recent issuance of this standard, management has been unable to fully evaluate the impact, if any, it may have on future financial statement disclosures. Results of operations and financial position, however, will be unaffected by implementation of this standard. Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities (SFAS No. 133) establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. This statement is effective for all fiscal quarters of fiscal years beginning after June 15, 1999. Management is presently assessing the impact of the adoption of SFAS No. 133 on its consolidated financial statements. In May, 1998, the American Institute of Certified Public Accountants issued Statement of Position 98-5, Reporting on the Costs at Start-Up Activities. SOP 98-5 requires that entities expense start-up costs and organization costs as they are incurred. SOP 98-5 is effective for fiscal years beginning after December 15, 1998. Management does not anticipate SOP 98-5 having a material impact on its consolidated financial statements. F-7 SPEIZMAN INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 -- BUSINESS AND CREDIT RISK CONCENTRATION The Company is engaged in the distribution of machinery for the textile and commercial laundry industries. With operations in the United States, Canada, Mexico and formerly the United Kingdom, the Company primarily sells to customers located within the United States. Export sales from the United States were approximately $15,992,000, $12,433,000 and $7,196,000 during fiscal 1998, 1997 and 1996, respectively. There were no export sales by the Canadian operations or the commercial laundry operations. Financial instruments which potentially subject the Company to credit risk consist principally of temporary cash investments and trade receivables. The Company places its temporary cash investments with high credit quality financial institutions and, by policy, limits the amount of credit exposure to any one financial institution. The Company reviews a customer's credit history before extending credit. An allowance for doubtful accounts is established based upon factors surrounding the credit risk of specific customers, historical trends and other information. To reduce credit risk the Company generally requires a down payment on large equipment orders. A substantial amount of the Company's revenues are generated from the sale of sock knitting and other machines manufactured by Lonati, S.p.A. and one of its wholly owned subsidiaries (Santoni). Sales by the Company in the United States and Canada of machines manufactured by Lonati, S.p.A., generated the following percentages of the Company's net revenues: 41.1% in 1998, 60.1% in 1997 and 46.2% in 1996. In addition, sales of Santoni machines in the United States and Canada generated 5.3%, 7.0% and 4.8% of the Company's net revenues in fiscal 1998, 1997 and 1996, respectively. In 1998, approximately 12% and 4% of revenues consisted of sales to the Company's two largest customers. In 1997, approximately 11% and 10% of revenues consisted of sales to the Company's two largest customers. In 1996, approximately 9% and 6% of revenues consisted of sales to the Company's two largest customers. Generally, the customers contributing the most to the Company's net revenues vary from year to year. NOTE 2 -- ACCOUNTS RECEIVABLE Accounts receivable are summarized as follows: June 27, June 28, 1998 1997 ------------ ----------- Trade receivables............................ $ 20,671,045 $21,549,615 Less allowance for doubtful accounts......... (853,211) (474,477) ------------ ----------- Net accounts receivable...................... $ 19,817,834 $21,075,138 ============ =========== NOTE 3 -- INVENTORIES Inventories are summarized as follows: June 27, June 28, 1998 1997 ------------ ----------- Machines New....................................... $ 3,051,280 $3,961,362 Used...................................... 6,414,845 4,807,479 Parts and supplies........................... 6,468,620 4,201,293 ------------ ----------- Total........................................ $15,934,745 $12,970,134 ============ =========== NOTE 4 - INTANGIBLES Goodwill is calculated as the excess of the cost of purchased businesses over the value of their underlying net assets and is amortized on a straight-line basis over fifteen years. Goodwill is net of accumulated amortization of $327,500 at June 27, 1998. F-8 SPEIZMAN INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) NOTE 5 -- LEASES The Company conducts its operations from leased real properties which include offices, warehouses and manufacturing facilities. The primary operating facility of the textile operations and corporate offices is leased from a partnership in which Mr. Robert S. Speizman, the Company's President, has a 50% interest. The lease extends through March 1999. Lease payments to the partnership approximated $356,000, $356,000 and $323,000 in fiscal years 1998, 1997 and 1996, respectively. The Company plans to consolidate several textile machinery warehouses and the corporate offices into a single location. After renovating this new facility, the Company plans to complete this consolidation in the spring of 1999. This new facility is leased from a corporation owned by Robert S. Speizman, his wife and their children. This lease extends through September 2012. Lease payments to the corporation, net of sublease payments received from the former lessor, approximated $307,000 in fiscal 1998. The primary operating facility and certain sales offices of the laundry equipment and services operations are leased from a partnership in which Mr. C. Alexander Davis, President of Wink Davis, has a 50% interest. The leases extend through July 1999. Lease payments to the partnership approximated $128,000 in fiscal 1998. As of June 27, 1998, future minimum rental payments required under operating leases that have initial or remaining noncancelable terms in excess of one year are as follows: Operating Leases ------ 1999 ........................................ $ 1,239,816 2000 ........................................ 920,929 2001 ........................................ 744,327 2002 ........................................ 684,179 2003 ....................................... 664,012 Beyond....................................... 6,101,389 ----------- Total minimum lease payments ............. $10,354,652 =========== Total rent expense for operating leases approximated $1,566,000, $1,021,600 and $791,400 for fiscal years 1998, 1997 and 1996, respectively. NOTE 6-- TAXES ON INCOME Provisions for federal and state income taxes in the consolidated statements of operations are made up of the following components: 1998 1997 1996 ---- ---- ---- Current: Federal.......................$ 1,206,000 $1,482,000 $ (70,000) State.......................... 251,000 282,000 (15,000) Foreign........................ 3,000 2,000 (85,000) --------- --------- ---------- 1,460,000 1,766,000 (170,000) --------- --------- ---------- Deferred: Federal........................ (152,000) (87,000) (50,000) State.......................... (35,000) (34,000) (8,000) --------- --------- --------- (187,000) (121,000) (58,000) --------- --------- --------- Total taxes (benefit) on income..$ 1,273,000 $1,645,000 $ (228,000) =========== ========== =========== F-9 SPEIZMAN INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) Deferred tax benefits and liabilities are provided for the temporary differences between the book and tax bases of assets and liabilities. Deferred tax assets (liabilities) are reflected in the consolidated balance sheets as follows: June 27, June 28, 1998 1997 ----------- --------- Net current assets........................... $ 647,000 $ 383,000 Net noncurrent assets........................ 147,000 152,000 ----------- --------- $ 794,000 $ 535,000 =========== ========= Principal items making up the deferred income tax assets (liabilities) are as follows: Year Ended --------------------- June 27, June 28, 1998 1997 ---------- -------- Inventory valuation reserves.............. $ 195,000 $162,000 Depreciation.............................. (110,000) (107,000) Deferred charges.......................... 161,000 107,000 Inventory capitalization ................. 224,000 191,000 Accounts receivable reserves.............. 324,000 182,000 ---------- -------- Net deferred tax asset................. $ 794,000 $535,000 ========== ======== The Company's effective income tax rates are different than the U.S. Federal statutory tax rate for the following reasons: 1998 1997 1996 ---- ---- ---- U.S. Federal statutory tax rate.............. 34.0% 34.0% 34.0% State income taxes, net of federal income tax benefit...................................... 5.1 4.3 3.6 Non-deductible expenses...................... 1.2 1.5 (5.3) Foreign tax rates............................ - (0.8) (4.9) Net tax effect of prior year adjustments..... - - 2.5 Other........................................ (0.6) (1.0) (1.4) ----- ----- ---- Effective tax rate........................... 39.7% 38.0% 28.5% ===== ==== ==== NOTE 7 -- LINE OF CREDIT The Company has a credit facility with NationsBank, opened on August 1, 1997, in conjunction with the purchase of Wink Davis, amended on February 6, 1998, in conjunction with the purchase of TMC and expiring on July 31, 2000. This facility furnished term loan financing for these acquisitions and also provides a line of credit for direct borrowings and issuance of documentary letters of credit. The line of credit provides up to $38.3 million, subject to current collateral balances, including up to a maximum of $8.5 million for direct borrowings, with the balance available for documentary letters of credit and term debt. Amounts outstanding under the line of credit bear interest at the greater of prime plus 1.0% or the Federal Funds Rate plus 1.5% for base rate loans and the Eurodollar Rate plus 2.0% for Eurodollar loans. At June 27, 1998, the interest rate on the line of credit was 9.50%. In connection with this line of credit, the Company granted a security interest in accounts receivable and inventory, as defined in the loan agreement. (See Note 8) This credit facility contains certain covenants that require, among other things, the Company to maintain levels of current assets to current liabilities, gross borrowings to EBITDA, working capital, tangible net worth, restrictions on dividends, and certain fixed charge coverage. As of June 27, 1998, the Company was in compliance with such covenants. F-10 SPEIZMAN INDUSTRIES INC., AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) NOTE 8 -- LONG-TERM DEBT Long-term debt consists primarily of a term loan with NationsBank which provided $8.3 million used for financing the acquisitions of Wink Davis and TMC. The repayment schedule requires quarterly principal payments of $380,000, a single annual prepayment calculated as a percentage of the prior year's adjusted earnings, and the balance due on the loan's expiration date, July 31, 2000. The term loan agreement permits the Company to select either a base interest rate or a Eurodollar interest rate plus 2.0%. The base interest is the greater of prime plus 1.0% or the Federal Funds Effective Rate plus 1.5%. At June 27, 1998, $7,250,000 of the term loan was borrowed under the Eurodollar selection bearing interest at 7.625% and the balance of $420,000 was borrowed under the base rate selection bearing interest at 9.5%. The term loan agreement requires that the Company enter an interest rate swap agreement for a portion of the outstanding principal. The swap agreement is an interest rate hedge which, in effect, converts the interest rate from a variable to a fixed rate over a three-month period. At June 27, 1998, $7,250,000 was fixed at an interest rate of 7.625% through August 15, 1998. Long-term debt consists of: June 27, 1998 June 28, 1997 ------------- ------------- Total Total -------------- ------------- Term loan........................ $ 7,670,000 $ - Other............................ - 112,113 ------------- ----------- Total............................ 7,670,000 112,113 Current maturities............... (1,945,000) (1,769) ------------- ----------- $ 5,725,000 $ 110,344 ============= =========== Annual maturities of long-term debt are 1999, $1,945,000; 2000, $1,520,000; and 2001, $4,205,000. NOTE 9 -- STOCK OPTIONS The Company has reserved 125,000, 250,000 and 450,000 shares of Common Stock under employee stock plans adopted in 1981, 1991 and 1995, respectively. As of June 27, 1998, options to purchase 4,000, 85,385 and 371,000 were outstanding under the 1981, 1991 and 1995 Plans, respectively. Currently, outstanding options become exercisable in two to four years from the grant date. All options, subject to certain exceptions with regard to termination of employment and the percentage of outstanding shares of common stock owned, must be exercised within ten (10) years of the grant date. The option price under the 1981 and 1991 Plans, subject to certain exceptions, may not be less than 100% of the fair market value per share of Common Stock on the date of the grant of the option or 110% of such value for persons who control 10% or more of the voting power of the Company's stock on the date of the grant. The option price under the 1995 Plan is not limited and may be less than 100% of the fair market value on the date of the grant. A summary of employee stock option transactions and other information for 1998, 1997, and 1996 follows: F-11 SPEIZMAN INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Year Ended ------------------------------------------------------------ Weighted Weighted Weighted June 27, Average June 28, Average June 29, Average 1998 Price/Sh 1997 Price/Sh. 1996 Price/Sh -------- -------- -------- Shares under option, beginning of year.......... 466,925 $4.17 334,092 $3.13 150,429 $3.15 Options granted............ 88,000 6.31 159,500 6.00 183,663 3.10 Options exercised.......... (94,540) 3.01 (26,667) 2.06 - - Options expired............ - - - - - - -------- ----- ------- ----- ------- ----- Shares under option, end of year.....................460,385 $4.81 466,925 $4.17 334,092 $3.13 ======== ===== ======= ===== ======= ===== Options exercisable.........236,410 141,668 117,086 ======== ======= ======= Prices of options $.75 to exercised................. $5.50 $2.063 - Prices of options $.75 to $.75 to $.75 to outstanding, end of year...$6.31 $6.00 $5.50
The Company has reserved 15,000 shares of Common Stock under a non-employee directors stock option plan adopted in 1995. Each option granted under the Plan becomes exercisable in cumulative increments of 50% and 100% on the first and second anniversaries of the date of the grant, respectively, and subject to certain exceptions must be exercised within ten (10) years from the date of the grant. The option price equals the fair market value per share of Common Stock on the date of the grant. Options to purchase 9,000 shares were granted and outstanding at the end of the year at a price of $2.88 to $6.13. A summary of non-employee directors stock option and other information for 1998, 1997 and 1996 follows:
Year Ended -------------------------------------------------------- Weighted Weighted Weighted June 27, Average June 28, Average June 29, Average 1998 Price/Sh 1997 Price/Sh 1996 Price/Sh. -------- -------- -------- -------- -------- --------- Shares under option, beginning of year............6,000 $ 4.16 3,000 $ 2.88 - $ - Options granted..............3,000 6.13 3,000 5.44 3,000 2.88 Options exercised............ - - - - - - Options expired.............. - - - - - - ----- ------ ----- ------- ----- ------ Shares under option, end of year..................... 9,000 $ 4.81 6,000 $ 4.16 3,000 $ 2.88 ===== ======= ===== ======= ===== ====== Options exercisable......... 4,500 1,500 - ===== ===== ===== Prices of options exercised................... - - - Prices of options $2.88 to $2.88 to outstanding, end of year....$6.13 $5.44 $2.88
The Company has adopted the disclosure only provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation." Accordingly, no compensation cost has been recognized for the stock option plans. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions for grants: expected lives of 10.0 years, expected volatility of 0.574, risk-free interest rate of 6.5% and dividend yield of 0.0%. The Black-Scholes option valuation model was developed for estimating the fair value of traded options that have no vesting restrictions and are fully transferable. Because option valuation models require the use of subjective assumptions and changes in these assumptions can materially impact the fair value of the options and the Company's options do not have the characteristics of traded options, the option valuation models do not necessarily provide a reliable measure of the fair value of its options. The estimated fair value of stock options granted during fiscal 1998 and 1997 was $4.69 and $4.46 per share, respectively. F-12 SPEIZMAN INDUSTRIES INC., AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options vesting period. Had compensation cost for the Company's stock option plans been determined based on the fair value at the grant date for awards consistent with the provisions of SFAS No. 123, the Company's net earnings and earnings per share would have been changed to the pro forma amounts indicated below: Year Ended Year Ended June 27, 1998 June 28, 1997 ------------- ------------- Pro forma net income ............ $ 1,480,353 $ 2,512,366 Pro forma basic earnings per share ............................ $ 0.45 $ 0.78 Pro forma diluted earnings per share ............................ 0.43 0.75 The following table summarizes information about stock options outstanding at June 27, 1998: Range of exercise prices $0.75 to $6.31 ------------------------ -------------- Outstanding options Number outstanding........................ 469,385 Weighted average remaining contractual life (years)............................... 7.2 Weighted average exercise price............ $ 4.81 Exercisable options Number outstanding......................... 264,609 Weighted average exercise price............ $ 4.07 NOTE 10 -- STOCK REDEMPTION AGREEMENTS The Company has an agreement with its principal stockholder whereby, upon his death, the Company is obligated to redeem a portion of the stock in the Company held by the estate. The redemption price for common stock is to be the fair market value of common stock, less 5%, plus any accrued dividends. In no case will the Company pay out more than the amount of life insurance proceeds received by the Company as a result of the death of the stockholder, nor will the Company redeem a number of shares that would reduce the principal holder's estate's percentage of the outstanding common stock of the Company to less than 16%. At June 27, 1998, there were 673,475 common shares covered by the above agreement. The face value of life insurance carried by the Company under this agreement amounts to $1,150,000. NOTE 11 -- DEFERRED COMPENSATION PLANS The Company has deferred compensation agreements with two employees providing for payments amounting to $2,056,680 upon retirement and from $1,546,740 to $2,181,600 upon death prior to retirement. One agreement, as modified, has been in effect since 1972 and the second agreement was effective October 1989. Both agreements provide for monthly payments on retirement or death benefits over fifteen year periods. Both agreements are funded under trust agreements whereby the Company pays to the trust amounts necessary to pay premiums on life insurance policies carried to meet the obligations under the deferred compensation agreements. Charges to operations applicable to those agreements were approximately $50,362, $48,885 and $53,885 for the fiscal years 1998, 1997 and 1996, respectively. F-13 SPEIZMAN INDUSTRIES INC., AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) NOTE 12 -- EMPLOYEES' RETIREMENT PLAN The Company adopted a 401(k) retirement plan, effective October 1, 1989, for all qualified employees of the Company to participate in the plan. Employees may contribute a percentage of their pretax eligible compensation to the plan, and the Company matches 50% (25% prior to September 13, 1996) of each employee's contribution up to 4% of pretax eligible compensation. The Company's matching contributions totaled approximately $107,000, $47,000 and $21,000 in fiscal years 1998, 1997 and 1996, respectively. NOTE 13 -- COMMITMENTS AND CONTINGENCIES The Company had outstanding commitments backed by letters of credit of approximately $8,220,000 and $16,631,000 at June 27, 1998 and June 28, 1997, respectively, relating to the purchase of machine inventory for delivery to customers. The Company is presently the Defendant in a lawsuit filed by a former employee of the Company who lost his job in 1997, pursuant to a reduction in workforce. At the present time, both Plaintiff and the Company are engaged in discovery processes including depositions, and it is the Company's position that it will defend vigorously against all claims brought by this former employee through trial, if necessary. While the amount claimed may be substantial, the ultimate liability cannot now be determined because of a number of considerable uncertainties, both factual and legal, that presently exist. Therefore, it is possible that results of operations in a particular period could be materially affected. Based on facts currently available, management believes that the disposition of this matter will not have a materially adverse effect on the financial position of the Company. NOTE 14 - SUBSEQUENT EVENT On August 1, 1998, the Company was granted the exclusive United States and Canadian distribution rights of the Marzoli product line manufactured by Fratelli Marzoli & C. spa, an Italian corporation. As part of its agreement with Fratelli Marzoli & C. SpA, the Company will assume the operations of the current offices, showrooms and personnel. Fratelli Marzoli & C. SpA manufactures equipment used in the yarn processing industry. Prior to the Company's receipt of distribution rights, Fratelli Marzoli & Co. SpA distributed its products in the United States through its wholly-owned subsidiary, Marzoli International, Inc., a domestic corporation based in Spartanburg, South Carolina. Revenues of Marzoli International, Inc. for the twelve months ended December 31, 1997 were approximately $13.9 million. NOTE 15 - BUSINESS ACQUISITIONS On August 1, 1997, the Company acquired all of the outstanding stock of Wink Davis, a Georgia corporation. For financial statement purposes, the acquisition was accounted for as a purchase and accordingly, Wink Davis' results for the eleven months since the date of acquisition are included in the consolidated financial statements. The aggregate purchase price was approximately $9,467,677. There is a possible additional conditional payment of up to $1.5 million in cash over a five-year period based on certain pre-tax earnings calculations. These contingent payments, if any, will be capitalized as increases to the original purchase price and amortized accordingly. The aggregate purchase price, which was financed through available cash resources, borrowings on the revolving line of credit and issuance of a term loan, has been allocated to the assets based upon their respective fair market values. The excess of the purchase price over assets acquired (Goodwill) approximated $4,343,662 and is being amortized over fifteen years. F-14 SPEIZMAN INDUSTRIES INC., AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) On February 6, 1998, the Company acquired all of the outstanding stock of TMC, a North Carolina corporation. For financial statement purposes the acquisition was accounted for as a purchase and, accordingly, TMC's results are included in the consolidated financial statements since the date of acquisition. The aggregate purchase price was approximately $1,841,304. The aggregate purchase price, which was financed through available cash resources, borrowings on the revolving line of credit and issuance of a term loan, has been allocated to the assets based upon their respective fair market values. The excess of the purchase price over assets acquired (Goodwill) approximated $2,094,247 and is being amortized over fifteen years. The following unaudited pro forma consolidated results of operations for fiscal 1997 have been prepared as if the acquisition of Wink Davis occurred as of the beginning of fiscal 1997. Pro forma operating results for fiscal 1998 as though the enterprises had been combined as of the beginning of the fiscal year would not differ materially from actual results for fiscal 1998. The acquisition of Wink Davis occurred early in fiscal 1998, and, accordingly, operating results for the incremental period of approximately one month would not be significant. The incremental operating results of TMC for fiscal 1997 and incremental period of approximately seven months in fiscal 1998 would not be significant. Pro Forma Results for the Year Ended June 28, 1997 ------------------------ Net sales $ 111,739,000 Net income $ 2,589,000 Net income per share - basic $ 0.80 Net income per share - diluted $ 0.77 The pro forma consolidated results do not purport to be indicative of results that would have occurred had the acquisitions been in effect for the period presented, nor do they purport to be indicative of the results that will be obtained in the future. NOTE 16 - SEGMENT INFORMATION The Company operates primarily in two segments of business, textile equipment and laundry equipment and services. Prior to the acquisition of Wink Davis on August 1, 1997, the Company operated only in the textile segment. TMC is included in the textile equipment classification. The table below summarizes financial data by segment. Total revenues Textile equipment $ 67,229,741 Laundry equipment and services 23,656,544 ---------- $ 90,886,285 ============ Total assets Textile equipment $ 38,744,098 Laundry equipment and services 11,289,813 ---------- $ 50,033,911 ============ Income before interest and taxes Textile equipment $ 3,915,662 Laundry equipment and services 81,720 ---------- $ 3,997,382 ============ F-15 SPEIZMAN INDUSTRIES INC., AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) NOTE 17 -- SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Year Ended ------------------------------------ June 27, June 28, June 29, 1998 1997 1996 ---- ---- ---- Cash paid during year for: Interest................................$ 776,544 $ 101,315 $ 81,578 Income taxes............................1,381,196 1,440,696 120,086 F-16 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS SPEIZMAN INDUSTRIES, INC. The audits referred to in our report dated August 27, 1998, relating to the consolidated financial statements of Speizman Industries, Inc. and subsidiaries which is contained in Item 8 of this Form 10-K included the audit of the financial statement schedule listed in the accompanying index. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement schedule based upon our audits. In our opinion, such consolidated financial statement schedule presents fairly, in all material respects, the information set forth therein. Charlotte, North Carolina BDO Seidman, LLP August 27, 1998 S-1 SPEIZMAN INDUSTRIES, INC. AND SUBSIDIARIES SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F - -------- -------- -------- -------- -------- -------- BALANCE AT CHARGED TO CHARGED TO DEDUCTIONS BALANCE BEGINNING COSTS AND OTHER FROM AT END DESCRIPTION OF PERIOD EXPENSES ACCOUNTS RESERVES OF PERIOD - ----------- --------- -------- -------- -------- --------- Fiscal year ended June 29, 1996: Reserve for doubtful accounts........ $207,158 $113,500 $ - $ 60,702 $259,956 -------- -------- --------- --------- -------- Reserve for inventory obsolescence... $595,990 $139,436 $ - $ 226,456 $508,970 -------- -------- --------- --------- -------- Fiscal year ended June 28, 1997: Reserve for doubtful accounts........ $259,956 $233,671 $ - $ 19,150 $474,477 -------- -------- --------- --------- -------- Reserve for inventory obsolescence... $508,970 $154,133 $ - $ 241,629 $421,474 -------- -------- --------- --------- -------- Fiscal year ended June 27, 1998: Reserve for doubtful accounts........ $474,477 $247,631 $ 189,189 $ 58,086 $853,211 -------- -------- --------- --------- -------- Reserve for inventory obsolescence... $421,474 $275,000 $ - $ 189,288 $507,186 -------- -------- --------- --------- --------
S-2 SPEIZMAN INDUSTRIES, INC. INDEX TO EXHIBITS EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------ ---------------------- 3.1 Certificate of Incorporation of Speizman Industries, Inc. (the "Company"). (Incorporated by reference to Exhibit 3.1 contained in the Company's Registration Statement on Form S-1 (the "1993 Form S-1"), registration number 33-69748, filed with the Securities and Exchange Commission (the "Commission") on September 30, 1993, and amendments thereto.) 3.2 Certificate of Amendment to Certificate of Incorporation of the Company, dated December 4, 1978. (Incorporated by reference to Exhibit 3.2 contained in the 1993 Form S-1.) 3.3 Certificate of Amendment to Certificate of Incorporation of the Company, dated February 8, 1993. (Incorporated by reference to Exhibit 3.3 contained in the 1993 Form S-1.) 3.4 Certificate of Amendment of Certificate of Incorporation of the Company, dated January 31, 1997. 3.5 Bylaws of the Company, as amended November 7, 1978. (Incorporated by reference to Exhibit 3.6 contained in the 1993 Form S-1.) 4.1 Certificate of Incorporation of the Company as currently in effect (included as Exhibits 3.1 through 3.5). (Incorporated by reference to Exhibit 4.1 contained in the 1993 Form S-1.) 4.2 Bylaws of the Company, as amended November 7, 1978. (Incorporated by reference to Exhibit 4.2 contained in the 1993 Form S-1.) 4.3 Specimen Common Stock Certificate. (Incorporated by reference to Exhibit 4.3 contained in the 1993 Form S-1.) 10.1 Agency Agreement between the Company and Lonati, S.r.l., Brescia, Italy ("Lonati"), dated January 2, 1992, relating to the Company's distribution of machines in the United States. (Incorporated by reference to Exhibit 10.1 contained in the 1993 Form S-1.) 10.2 Agency Agreement between the Company and Lonati, dated January 2, 1992, relating to the Company's distribution of machines in Canada. (Incorporated by reference to Exhibit 10.2 contained in the 1993 Form S-1.) 10.3 Distribution Agreement by and between Company and Lonati, dated January 2, 1997, relating to the Company's distribution of circular knitting machines, ladies and men in Mexico. 10.4 Agency Agreement between the Company and Santoni, S.r.l., Brescia, Italy ("Santoni"), dated January 2, 1992 ("Santoni Agreement"). (Incorporated by reference to Exhibit 10.3 contained in the 1993 Form S-1.) 10.5 Letter from Santoni relating to the Santoni Agreement, dated June 8, 1992. (Incorporated by reference to Exhibit 10.4 contained in the 1993 Form S-1.) 10.6 Letter Agreement between the Company and Santoni relating to the Santoni Agreement, dated July 21, 1993. (Incorporated by reference to Exhibit 10.5 contained in the 1993 Form S-1.) 10.7 Distributorship Agreement between the Company and Conti Complett, S.p.A., Milan, Italy, dated October 2, 1989. (Incorporated by reference to Exhibit 10.8 contained in the Company's Annual Report on Form 10-K for the fiscal year ended July 2, 1994, File No. 0-8544, filed with the Commission on September 30, 1994 (the "1994 Form 10-K").) 10.8 Letter from Orizio Paolo, S.p.A., Brescia, Italy, dated July 18, 1995, appointing Company as its exclusive distributor. (Incorporated by reference to Exhibit 10.15 contained in the Company's Annual Report on Form 10-K for the fiscal year ended July 1, 1995, File No. 0-8544, filed with the Commission on September 29, 1995 (the "1995 Form 10-K").) 10.9 Independent Distributor Agreement between the Company and Orizio Paolo, S.p.A., dated August 1, 1995. (Incorporated by reference to Exhibit 10.15.1 contained in the Company's Annual Report on Form 10-K for fiscal year ended June 29, 1996, File No. 0-8544, filed with the Commission on September 25, 1996 (the "1996 Form 10-K").) 10.10 Termination Agreement (fax) of Distributor Agreement between the Company and Orizio Paola, S.p.A. dated as of April 1998. 10.11 Split Dollar Insurance Agreement, dated January 15, 1992, between the Company and Richard A. Bigger, Jr., Successor Trustee of the Robert S. Speizman Irrevocable Insurance Trust. (Incorporated by reference to Exhibit 10.13 contained in the 1993 Form S-1.) 10.12 First Amendment to Split Dollar Insurance Agreement, dated September 4, 1996, between the Company and Richard A. Bigger, Jr., Successor Trustee of the Robert S. Speizman Irrevocable Insurance Trust. (Incorporated by reference to Exhibit 10.16.1 contained in the Company's 1996 Form 10-K.) 10.13 Lease Agreement between the Company and Speizman Brothers Partnership, dated as of December 12, 1990. (Incorporated by reference to Exhibit 10.14 contained in the 1993 Form S-1.) 10.14 Lease Amendment and Extension Agreement between the Company and Speizman Brothers Partnership dated April 1, 1995. (Incorporated by reference to Exhibit 10.18 contained in the Company's 1995 Form 10-K.) 10.15 Second Lease Amendment and Extension Agreement between the Company and Speizman Brothers Fifth Street Partnership (formerly Speizman Brothers Partnership), dated April 1, 1996. (Incorporated by reference to Exhibit 10.18.1 contained in the Company's 1996 Form 10-K.) 10.16 Third Lease Amendment and Extension Agreement between the Company and Speizman Brothers Fifth Street Partnership, dated April 1, 1998. 10.17 Lease Agreement by and between The Speizman LLC and Speizman Industries, Inc., dated as of October 29, 1997. 10.18 First Amendment to Lease Agreement by and between The Speizman LLC and Speizman Industries, Inc., dated as of October 29, 1997, and executed July 22, 1998. 10.19 Deed of Lease between Speizman Canada, Inc., and Metro II & III, undated, as renewed by letter agreement, dated February 17, 1992. (Incorporated by reference to Exhibit 10.19 contained in the 1993 Form S-1.) 10.20 Letter Agreement extending lease between Speizman Canada, Inc., and Metro II & III, dated October 21, 1994. (Incorporated by reference to Exhibit 10.20 contained in the Company's 1995 Form 10-K.) 10.21 Memorandum of Agreement of Extension of Lease between Speizman Canada, Inc., and Metro II & III, dated November 21, 1995. (Incorporated by reference to Exhibit 10.20.1 contained in the Company's 1996 Form 10-K.) 10.22 Memorandum of Agreement of Extension of Lease between Speizman Canada, Inc., and Metro II & III, dated January 29, 1997. (Incorporated by reference to Exhibit 10.17 contained in the Company's Annual Report on Form 10-K for fiscal year ended June 27, 1997, File No. 0-8544, filed with the Commission on September 26, 1997 (the "1997 Form 10-K").) 10.23 Memorandum of Agreement of Extension of Lease between Speizman Canada, Inc., and Metro II & III, dated September 23, 1997. 10.24 Agreement of Lease between the Company and LBA Properties, Inc., dated June 2, 1994. (Incorporated by reference to Exhibit 10.17.1 contained in the Company's 1994 Form 10-K.) 10.25 Lease Agreement between the Company and B.F. Knott, dated May 12, 1993. (Incorporated by reference to Exhibit 10.18 contained in the Company's 1994 Form 10-K.) 10.26 Modification and Extension of Lease between the Company and B.F. Knott, dated March 29, 1994. (Incorporated by reference to Exhibit 10.18.1 contained in the Company's 1994 Form 10-K.) 10.27 Modification and Extension of Lease between the Company and B.F. Knott, dated October 17, 1994. (Incorporated by reference to Exhibit 10.24 contained in the Company's 1995 Form 10-K.) 10.28 Modification and Extension of Lease between the Company and B.F. Knott, dated February 13, 1995. (Incorporated by reference to Exhibit 10.25 contained in the Company's 1995 Form 10-K.) 10.29 Lease Agreement between the Company and Daniel H. Porter, dated August 17, 1995. (Incorporated by reference to Exhibit 10.26 contained in the Company's 1995 Form 10-K.) 10.30 Extension of Lease Agreement between the Company and Daniel H. Porter, dated May 14, 1997. (Incorporated by reference to Exhibit 10.25 contained in the Company's 1997 Form 10-K.) 10.31 Lease Agreement between the Company and Kathryn B. Godley, dated March 5, 1996. (Incorporated by reference to Exhibit 10.27 contained in the Company's 1996 Form 10-K.) 10.32 Lease Agreement between the Company and Hans L. Lengers, LLC, dated February 15, 1996. (Incorporated by reference to Exhibit 10.28 contained in the Company's 1996 Form 10-K.) 10.33* 1981 Incentive Stock Option Plan of the Company. (Incorporated by reference to Exhibit 10.19 contained in the 1993 Form S-1.) 10.34* 1991 Incentive Stock Option Plan and Amendment to 1981 Incentive Stock Option Plan of the Company. (Incorporated by reference to Exhibit 10.20 contained in the 1993 Form S-1.) 10.35* 1991 Incentive Stock Option Plan, as Amended and Restated Effective September 20, 1993, of the Company. (Incorporated by reference to Exhibit 10.21 contained in the 1993 Form S-1.) 10.36* Speizman Industries, Inc. 1995 Stock Option Plan. (Incorporated by reference to Exhibit 4 to the Company's Registration Statement on Form S-8, registration number 333-06287, filed with the Commission on June 19, 1996.) 10.37* Speizman Industries, Inc. Nonqualified Stock Option Plan as amended on October 4, 1996. (Incorporated by reference to Exhibit 99.1 to the Company's Registration Statement on Form S-8, registration no. 333-23503, filed with the Commission on March 18, 1997.) 10.38* Speizman Industries, Inc. Nonqualified Stock Option Plan as amended on September 29, 1997. (Incorporated by reference to Exhibit 99.1 to the Company's Registration Statement on Form S-8, registration no. 333-46769, filed with the Commission on February 24, 1998.) 10.39* Restated Deferred Compensation Agreement, dated May 22, 1989, between the Company and Josef Sklut, as amended by Amendment to Deferred Compensation Agreement, dated December 30, 1992 (the "Deferred Compensation Agreement"). (Incorporated by reference to Exhibit 10.27 contained in the 1993 Form S-1.) 10.40* Restated Trust Agreement, dated May 22, 1989, between the Company and First Citizens Bank and Trust Company, as amended by First Amendment to Trust Agreement dated December 30, 1992, relating to the Deferred Compensation Agreement. (Incorporated by reference to Exhibit 10.28 contained in the 1993 Form S-1.) 10.41* Executive Bonus Plan of the Company, adopted February 2, 1990, as amended March 5, 1990. (Incorporated by reference to Exhibit 10.29 contained in the 1993 Form S-1.) 10.42* Executive Bonus Plan of the Company, adopted July 20, 1993. (Incorporated by reference to Exhibit 10.30 contained in the 1993 Form S-1.) 10.43* Resolutions of the Company's Board of Directors dated November 15, 1995, extending Executive Bonus Plan adopted July 20, 1993. (Incorporated by reference to Exhibit 10.34 contained in the Company's 1995 Form 10-K.) 10.44 Redemption Agreement between the Company and Robert S. Speizman, dated May 31, 1974, as amended by Modified Redemption Agreement, dated April 14, 1987, Second Modified Redemption Agreement, dated September 30, 1991, and Third Modified Redemption Agreement, dated as of July 14, 1993. (Incorporated by reference to Exhibit 10.34 contained in the 1993 Form S-1.) 10.45 Fourth Modified Redemption Agreement between the Company and Robert S. Speizman, dated September 14, 1994. (Incorporated by reference to Exhibit 10.36 contained in the Company's 1995 Form 10-K). 10.46 NationsBank of North Carolina, National Association $12,000,000 Credit Facility for Speizman Industries, Inc., dated April 19, 1994. (Incorporated by reference to Exhibit 10.45 contained in the 1994 Form 10-K.) 10.47 1995 Consolidated Amendment Agreement to Loan Agreement and Related Documents dated May, 1995. (Incorporated by reference to Exhibit 10.38 contained in the Company's 1995 Form 10-K). 10.48 1995 Second Consolidated Amendment Agreement to Loan Agreement and Related Documents, dated September 1, 1995. (Incorporated by reference to Exhibit 10.43 contained in the Company's 1996 Form 10-K.) 10.49 1995 Third Consolidated Amendment Agreement to Loan Agreement and Related Documents, dated October 31, 1995. (Incorporated by reference to Exhibit 10.44 contained in the Company's 1996 Form 10-K.) 10.50 1996 First Consolidated Amendment Agreement to Loan Agreement and Related Documents, dated May 15, 1996. (Incorporated by reference to Exhibit 10.45 contained in the Company's 1996 Form 10-K.) 10.51 1996 Second Consolidated Amendment Agreement to Loan Agreement and Related Documents, dated June 26, 1996. (Incorporated by reference to Exhibit 10.46 contained in the Company's 1996 Form 10-K.) 10.52 1996 Third Consolidated Amendment Agreement to Loan Agreement and Related Documents, dated August 26, 1996. (Incorporated by reference to Exhibit 10.47 contained in the Company's 1996 Form 10-K.) 10.53 NationsBank $25,000,000 Amended and Restated Credit Facility, dated December 19, 1996. (Incorporated by reference to Exhibit 10.47 contained in the Company's 1997 Form 10-K.) 10.54 NationsBank $37,000,000 Amended and Restated Credit Facility, dated July 31, 1997. (Incorporated by reference to Exhibit 10.48 contained in the Company's 1997 Form 10-K.) 10.55 NationsBank Letter increasing Term Loan by $1.3 million, dated February 4, 1998. 10.56 Stock Purchase Agreement, dated as of July 31, 1997, by and among Speizman Industries, Inc. and Wink Davis, Jr., C. Alexander Davis, Wingfield Austin Davis IIII, Taylor Ferrell Davis, Allison Davis Jabaley, Matthew Worley Davis, Amy Butler Davis and Kyle Alexander Davis. (Incorporated by reference to Exhibit 3 contained in the Company's Current Report on Form 8-K, File No. 0-8544, filed on August 14, 1997.) 10.57 Dealer Agreement by and between Pellerin Milnor Corporation and Wink Davis Equipment Company, Inc. ("Wink Davis"), dated July 1, 1989, relating to the Company's distribution of machines primarily in the southeastern United States and the Chicago, Illinois area. (Incorporated by reference to Exhibit 10.50 contained in the Company's 1997 Form 10-K.) 10.58 Distributor Agreement by and between Chicago Dryer Corporation ("CDC") and Wink Davis, dated January 1, 1994, relating to the distribution of certain items of CDC's commercial laundry equipment. (Incorporated by reference to Exhibit 10.51 contained in the Company's 1997 Form 10-K.) 10.59 Atlanta Commercial Board of Realtors Standard Commercial Lease Agreement by and among Davis Brothers Venture and Wink Davis, dated July 31, 1997 relating to the Atlanta, Georgia area. (Incorporated by reference to Exhibit 10.52 contained in the Company's 1997 Form 10-K.) 10.60 Atlanta Commercial Board of Realtors Standard Commercial Lease Agreement by and among Davis Brothers Venture and Wink Davis, dated July 31, 1997 relating to the Charlotte, North Carolina area. (Incorporated by reference to Exhibit 10.53 contained in the Company's 1997 Form 10-K.) 10.61 Atlanta Commercial Board of Realtors Standard Commercial Lease Agreement by and among Davis Brothers Venture and Wink Davis, dated July 31, 1997 relating to the Wooddale, Illinois area. (Incorporated by reference to Exhibit 10.54 contained in the Company's 1997 Form 10-K.) 10.62 Atlanta Commercial Board of Realtors Standard Commercial Lease Agreement by and among Davis Brothers Venture and Wink Davis, dated July 31, 1997 relating to the Chester, Virginia area. (Incorporated by reference to Exhibit 10.55 contained in the Company's 1997 Form 10-K.) 10.63 Earnout Agreement by and among Speizman Industries, Inc. and C. Alexander Davis, Amy Butler Davis, Taylor Ferrell Davis and Kyle Alexander Davis, dated July 31, 1997. (Incorporated by reference to Exhibit 10.56 contained in the Company's 1997 Form 10-K.) 10.64 Stock Purchase Agreement, dated as of February 6, 1998, by and among Speizman Industries, Inc. and William H. Todd, Leon Locklear, Marion C. Todd and Joseph L. Collins. 10.65 Lease Agreement by and between William H. Todd and wife, Jo Anne Todd and Todd Motion Controls, Inc., dated February 6, 1998, for the Reynolda facility. 10.66 Agreement to Lease between Todd Motion Controls, Inc. and Douglas I. Cook, et al., dated September 1, 1996, for the Patterson Avenue facility. 21 List of Subsidiaries 23 Consent of BDO Seidman 27 Financial Data Schedule - ------------------------- * Represents a management contract or compensatory plan or arrangement of the Registrant. EX-10 2 EXHIBIT 10.10 - -------------------------------------------------------------------------------- FAX - -------------------------------------------------------------------------------- Speizman Industries, Inc. P O Box 31215 508 West 5th Street Charlotte, NC 28231 Phones: (704) 372-3751 o Fax: (704) 376-3153 o Export Sales Fax: (704) 372-0315
COMPANY: Orizio Paolo, S.p.A. No. of Pages: 1 ------------------------------------- ------------------- LOCATION: Italy Fax No. EXP/ 2880-G /98 ------------------------------------- ------------ ---------------------------- ATTENTION: Massimo Conforti If you do not receive the ------------------------------------- number of pages indicated, please contact us at: FROM: C. Paisley Gordon (704) 372-3751 ------------------------------------- ---------------------------- DATE: April 29, 1998 ------------------------------------- YOUR FAX 1309 DATED APRIL 15, SUBJECT: 1998...FAX OF 29 APRIL 1998 ------------------------------------- cc: Robert Speizman, Bryan Speizman, Josef Sklut, DR, File
- -------------------------------------------------------------------------------- Dear Massimo: We are in agreement with you to terminate our distributor agreement the end of April, 1998. We have enjoyed our relationship and feel as though we moved a number of machines but, due to pricing, we were unable to make any money representing Orizio. Thank you for all your help over the past years. It has been enjoyable working with you. Would you please advise your new representative in the United States that we have a number of new Orizio machines in stock and a large number of Orizio spare parts. Following is a list of the Orizio machinery and spare parts we have on hand. Thank you again for your help. I hope to see you again in the near future. Please advise if you have any questions. Yours truly, C. Paisley Gordon Vice President Knitted Fabric Division CPG/lb EX-10 3 EXHIBIT 10.16 STATE OF NORTH CAROLINA THIRD LEASE AMENDMENT COUNTY OF MECKLENBURG AND EXTENSION AGREEMENT ----------------------- This THIRD LEASE AMENDMENT AND EXTENSION AGREEMENT (the "Agreement"), is made effective the first day of April, 1998, by and between SPEIZMAN BROTHERS FIFTH STREET PARTNERSHIP (formerly SPEIZMAN BROTHERS PARTNERSHIP) ("Lessor") and SPEIZMAN INDUSTRIES, INC. ("Tenant"). STATEMENT OF PURPOSE -------------------- A. Lessor entered into a written Lease Agreement with Tenant dated December 12, 1990 (the "Lease"), pursuant to which Lessor leased to Tenant and the Tenant leased from Lessor the Leased Premises described therein which are located at 508 West Fifth Street, Charlotte, North Carolina. B. The parties entered into a First Lease Amendment and Extension Agreement effective April 1, 1995. C. The parties entered into a Second Lease Amendment and Extension Agreement effective April 1, 1996, and the parties now wish to further amend the Lease to extend the lease term and modify the rents payable thereunder. NOW, THEREFORE, in consideration of the Statement of Purpose (which by this reference is made a substantive part of this Lease Amendment and Extension Agreement) and other valuable consideration exchanged, the adequacy, sufficiency and delivery of which are acknowledged by the parties, Lessor and Tenant mutually agree: 1. INCORPORATION OF STATEMENT OF PURPOSE. The parties hereto ratify and incorporate by reference the Statement of Purpose set forth above. 2. ADDITIONAL TERM. Lessor hereby leases and demises to Tenant and Tenant hereby rents and takes from Lessor the Leased Premises for an additional term of nine months commencing at midnight on the first day of April, 1998 and ending on December 31, 1998, upon the same terms and conditions as set forth in the Lease, except as herein modified. Should Tenant wish to renew the Lease, it must give written notice to Lessor at least 90 days prior to the end of the term. If such notice is not received, the Lease will automatically renew for an additional six (6) month period unless Tenant provides Lessor of written notice to the contrary at least 30 days prior to the end of any term. 3. RENTAL DURING ADDITIONAL TERM. The rent amount during each year of the Additional Term will be the sum of Three Hundred Fifty-Six Thousand Twenty-Two and 86/100 Dollars ($356,022.86), payable in equal monthly installments of Twenty-Nine Thousand Six Hundred Sixty-Eight and 57/100 Dollars ($29,668.57), payable on the first business day of each month during the term hereof, commencing on the first day of April, 1998. Lessor reserves the right to reasonably adjust the rent if such renewals are made. 4. RATIFICATION OF LEASE. Except as herein amended and extended, the parties ratify and confirm the Lease. Further, as of the date of this Agreement, Tenant hereby certifies to Lessor that: (a) the Lease, as amended, is in full force and effect; (b) Lessor has performed all of its obligations and satisfied all of its conditions arising under the Lease; and (c) Tenant has not assigned, sublet or encumbered its interest in the Lease. 5. BINDING EFFECT. This Agreement shall be binding upon and shall inure to the benefit of Lessor and the parties constituting the Tenant, jointly and severally, and their respective personal representatives, heirs, successors and permitted assigns. 6. ENTIRE AGREEMENT. This Agreement contains the entire agreement of the parties hereto, and no change, qualification or cancellation hereof shall be effective unless set forth in a writing signed by the parties hereto. 7. NOTICES. All notices, requests, consents and other communications in connection with this Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed in the United States Mail, First Class, postage prepaid and addressed as follows: As to Seller: Speizman Brothers Fifth Street Partnership c/o Robert S. Speizman 508 West 5th Street P.O. Box 31215 Charlotte, North Carolina 28231 As to Tenant: Speizman Industries, Inc. 508 West 5th Street P.O. Box 31215 Charlotte, North Carolina 28231 8. SEVERABILITY. In the event that any portion of this Agreement is found to be in violation of or conflict with any federal or state law, the parties agree that the invalidity or unenforceability of such provision shall in no way render invalid or unenforceable any other part or provision hereof. 9. GOVERNING LAW. This Agreement shall be construed and enforced in accordance with the applicable provisions of North Carolina law, and the parties hereto do further agree and stipulate that any dispute hereunder shall be brought in the court of proper jurisdiction (State or Federal) in Charlotte, Mecklenburg County, North Carolina. -2- IN WITNESS WHEREOF, the Lessor and Tenant have each executed this Agreement as of the day and year set forth above. SPEIZMAN BROTHERS FIFTH STREET PARTNERSHIP /s/ ROBERT S. SPEIZMAN ---------------------- (SEAL) Robert S. Speizman, Partner /s/LAWRENCE J. SPEIZMAN --------------------------- (SEAL) Lawrence J. Speizman, Partner SPEIZMAN INDUSTRIES, INC. /s/ROBERT S. SPEIZMAN ---------------------------- (SEAL) Robert S. Speizman, President ATTEST: /s/JOSEF SKLUT - -------------------------- Secretary [CORPORATE SEAL] -3- STATE OF NORTH CAROLINA COUNTY OF MECKLENBURG I, L.GAIL GORMLY a Notary Public in and for said County and State do hereby certify that ROBERT S. SPEIZMAN, as a General Partner of SPEIZMAN BROTHERS FIFTH STREET PARTNERSHIP, personally appeared before me this day and acknowledged the due execution of the foregoing instrument. Witness my hand and notarial seal, this the 9 day of MARCH , 1998. /s/L. GAIL GORMLY STATE OF NORTH CAROLINA ------------------------- Notary Public [SEAL] My Commission Expires: 11-11-2000 ----------- STATE OF FLORIDA COUNTY OF PALM BEACH I, KRISTEN T. NEE a Notary Public in and for said County and State do hereby certify that LAWRENCE J. SPEIZMAN, as a General Partner of SPEIZMAN BROTHERS FIFTH STREET PARTNERSHIP, personally appeared before me this day and acknowledged the due execution of the foregoing instrument. Witness my hand and notarial seal, this the 16 day of SEPTEMBER , 1998. /s/ KRISTEN T. NEE --------------------------- Notary Public [SEAL] My Commission Expires:12-11-2001 ----------- -4- STATE OF NORTH CAROLINA COUNTY OF MECKLENBURG I,L. GAIL GORMLY, a Notary Public of the County and State aforesaid, certify that ROBERT S. SPEIZMAN personally came before me this day and acknowledged that he is the President of SPEIZMAN INDUSTRIES, INC. and that by authority duly given and as the act of the corporation, the foregoing instrument was signed in its name, sealed with its corporate seal and attested by its Corporate Secretary. Witness my hand and official stamp or seal, this the 9 day of MARCH, 1998. /s/L. GAIL GORMLY --------------------- Notary Public [SEAL] My Commission Expires: 11-11-2000 ---------- -5- EX-10 4 EXHIBIT 10.17 STATE OF NORTH CAROLINA LEASE AGREEMENT --------------- COUNTY OF MECKLENBURG THIS LEASE AGREEMENT is executed effective as of October 29, 1997, by and between THE SPEIZMAN LLC, a North Carolina limited liability company, ("Lessor") and SPEIZMAN INDUSTRIES, INC., a North Carolina Corporation, ("Lessee"). 1. LEASE OF THE PREMISES. Upon the terms and conditions contained herein, Lessor hereby leases to Lessee, and Lessee hereby leases and lets from Lessor, the premises consisting of the land, building and improvements located at 701 Griffith Road, Charlotte, North Carolina and more particularly described on Exhibit "A" attached hereto and incorporated herein by reference (the "Premises"). Provided, however, that upon Lessor's satisfaction of its lender's obligations for releasing Tracts 2 and 3 of the Premises or any portion thereof or the approximately 2.0 acre tract shown on Exhibit "B" to the Deed of Trust in favor of such Lender from the lien in favor of West Coast Life Insurance Company of even date herewith (as evidenced in the Deed of Trust and Security Agreement securing said lien), Lessee shall be obligated to enter into an amendment of this Lease deleting all or any portion of such property, as applicable, from this Lease, without modification of rent or any other term of this Lease. 2. TERM. The term of this Lease shall commence as of the date hereof and shall end on September 30, 2012; provided, however, that is Lessee remains in possession of the Premises after expiration of the term hereof, with Lessor's acquiescence and without any express agreement of the parties, Lessee shall be a tenant at will at the rental rate then in effect at the end of the term. Provided, further, that if Lessee remains in possession of the Premises after expiration of the terms hereof without Lessor's acquiescence, Lessee shall be a tenant at sufferance and commencing on the date following the date of expiration of the term, the monthly rental payable under paragraph 3 hereof shall be, for each month or fraction thereof during which Lessee remains in possession of the Premises, 200% of the monthly rental otherwise payable under paragraph 3 hereof. Provided, finally, that in any event of holding over after the end of the term of the Lease, there shall be no renewal or extension of the Lease by operation of law or otherwise. 3. RENT. Lessee shall pay to Lessor as rental for the Premises the sum of Fifty One Thousand Nine Hundred Fifty Three and 40/100's Dollars ($51,953.40) per month, payable on or before the fifth (5th) day of each calendar month during the term thereof. To the extent the first or last month of the term of this Lease is less than a full calendar month, rental for such month shall be prorated on a daily basis. Provided, however, that the monthly rental payable hereunder shall be increased (but not decreased) each November 1 by any change in the Consumer Price Index, Urban Wage Earners and Clerical Workers (CPI-W, 1982-84=100) ("Index") by multiplying the then in effective monthly rental by the value of said Index for the month two months prior to the then present November 1 (or nearest available month) and dividing the product by the value of said Index for the month two months prior to the then previous November 1 (or nearest available month). In the event that the Index ceases to be published, there shall be substituted for the Index the measure published by the U.S Department of Labor which most nearly approximates the Index. 4. CONDITION OF THE PREMISES. Lessee acknowledges that it has inspected the Premises and accepts same in their present condition and state of repair. Lessee acknowledges that neither Lessor nor any of Lessor's officers or agents have made any representation or warranty regarding the condition or state of repair of the Premises or the suitability of the Premises for Lessee's intended use. 5. USE OF THE PREMISES. Lessee agrees to use the Premises solely for light manufacturing, offices and a distribution facility, or such other uses as may be permitted by I-2 zoning or such other future zoning as may affect the Premises. Lessee shall not use the Premises in any manner that causes damage to the Premises (exclusive of ordinary wear and tear) or which creates waste or a nuisance. Lessee shall use the Premises in compliance, in all material respects, with applicable laws and governmental regulations, ordinances, building and zoning codes. 6. ALTERATIONS. Without the prior written consent of Lessor and Lessor's lender, if any, Lessee shall not make any material alterations to the Premises, save and except minor nonstructural alterations which are not of a permanent nature and which do not injure or damage the Premises or decrease the value thereof. In the event that any alterations or improvements to the Premises are required to comply with any applicable laws, regulations or ordinances affecting the Premises, Lessee shall give to Lessor prompt notice of such requirement and shall promptly proceed to make such improvements or alterations as required. 7. FIXTURES. Upon termination of this Lease, Lessee may remove any of Lessee's trade fixtures from the Premises, excluding the basic building systems such as air conditioning, heating, electricity, ventilation, lighting and plumbing, and Lessee shall be responsible for repairing any damage to the Premises caused by such removal. 8. MAINTENANCE AND REPAIRS. Except as expressly provided otherwise in this Lease, Lessor shall be responsible for maintaining the exterior walls, roof (including roof leak repairs) and other structural components of the building situated on the Premises, along with basic systems for electricity, air conditioning, heat, water and plumbing, in a normal, reasonable and habitable condition and state of repair, consistent in all respects with the condition and state of repair existing at the commencement of this Lease, ordinary wear and tear excepted. Lessee shall pay normal operating expenses with respect to the Premises, including costs for ordinary maintenance of the electrical, heat, air conditioning, and water and plumbing systems which are necessary for the normal and customary operation thereof, but Lessee shall not be responsible for any repairs, replacements or overhauls of such systems. Lessee shall maintain the exterior grounds of the Premises in a neat and orderly condition, and shall furnish all light bulbs for use on or in respect of the Premises. 2 9. INSURANCE. --------- (a) CASUALTY INSURANCE. During the term of this Lease, Lessee shall maintain and keep in full force and effect, at its cost, a standard comprehensive fire and extended coverage policy of insurance with respect to the Premises naming Lessor and Lessee as insured as their interests appear, and providing a minimum aggregate limit on coverage of not less than the full insurable value of the improvements thereon. Such policy shall provide coverage against casualties and perils normally covered by a standard fire and extended coverage insurance policy for similar properties, shall provide for loss of rents coverage, and shall be in such amounts and coverages as are required by any lender of Lessor. Lessee shall have the responsibility to determine whether to maintain casualty insurance with respect to Lessee's personalty and business interruption insurance for Lessee's own benefit. (b) LIABILITY INSURANCE. During the term of this Lease, Lessee shall maintain and keep in full force and effect, at its cost, a standard commercial general policy of liability insurance insuring both Lessor and Lessee against liabilities customarily insured against under such policies arising out of the use of the Premises. Such insurance shall provide an aggregate limit on coverage of not less than $2,000,000 per occurrence, $4,000,000 aggregate general limit per policy year, and $2,000,000 property damage or such amounts as are required by any lender of Lessor. (c) CERTIFICATE OF INSURANCE. Lessee shall furnish to Lessor, upon request, (i) a certificate of insurance showing such insurance to be in full force and effect, and (ii) proof that the premiums necessary to keep said insurance in full force and effect have been timely paid. (d) INSURANCE COMPANIES AND CANCELLATION. Insurance required hereunder shall be maintained with sound and reputable insurance companies reasonably satisfactory to the parties or as required by any lender of Lessor, and no such policy shall be cancelable or subject to reduction of coverage except after thirty (30) days prior written notice to the party not responsible for the maintenance of such insurance and Lessor's lender, provided that Lessee may satisfy its obligations hereunder, in whole or in part, by means of a so-called blanket policy or under a self-insurance program should Lessee prove to Lessor and Lessor's lender that its tangible net worth is greater than $100,000,000.00. (e) WAIVER OF SUBROGATION. Lessor and Lessee hereby waive any and all rights of recovery against the other, and against the officers, directors, employees, agents and representatives of the other, for loss or damage suffered by such waiving party with respect to any events or circumstances relating to the Premises to the extent such loss or damage is covered by -3- applicable insurance; provided, the insurance company actually makes payment on the policy. The insuring party shall, prior to obtaining the policies of insurance required hereunder, give notice to the insurance carrier that the foregoing mutual waiver of subrogation is contained in this Lease and shall request such insurance carrier to issue a customary endorsement to the policy to permit such waiver of subrogation to the extent necessary in order to prevent such waiver from invalidating any such applicable insurance. 10. TAXES. Lessee shall pay all real property taxes and special assessments applicable (and any penalties for late payment associated therewith) to the Premises during the term of this Lease no later than the due date as shown on the bill therefor, whether such bill is received directly from the taxing authority or Lessor. Such taxes shall be prorated between Lessor and Lessee for any partial year of the Lease term on a prorata daily basis. Such tax payment shall be made by Lessee within twenty (20) days after notice thereof to Lessee (but in any event, before same shall become delinquent), provided, however, to the extent not previously paid, upon termination of this Lease Lessee shall pay to Lessor its prorata share of any such unpaid real estate taxes applicable to the term of this Lease based on the last available tax statement. Lessee shall be solely responsible for paying any taxes or governmental assessments levied upon Lessee's personal or business property. 11. UTILITIES. Lessee shall be responsible for the payment of all utility service charges utilized on or with respect to the Premises during the term of this Lease, including, without limitation, electricity, gas, water, sewage, trash pickup and telephone service. 12. INDEMNIFICATION. Lessee agrees to indemnify and hold Lessor harmless from and against claims, liabilities, damages, costs and expenses (including reasonable attorneys fees) incurred by or asserted against Lessor as a result of Lessee's use of the Premises during the term of this Lease. 13. DAMAGE OR DESTRUCTION OF THE PREMISES. Subject to the terms of the lien of any first lien mortgage, deed of trust or other first lien security interest in the Premises, in the event the Premises are damaged or destroyed by vandalism, fire, storm, wind or other casualty, the insurance proceeds from the casualty insurance maintained pursuant to the terms hereof shall be utilized to repair, as soon as practical, the damaged portion of the Premises so as to restore the Premises to a condition substantially the same in all material respects as the condition existing immediately before such casualty to the extent of net insurance proceeds available to Lessor for repair. The rent payable pursuant to this Lease for the period during which such damaged condition continues shall be reasonably and equitably abated in proportion to the degree to which Lessee's use of the Premises is impaired. 14. RIGHT OF ENTRY. At all times during the term of this Lease, Lessor and Lessor's officers, agents and representatives shall have the right to enter into and upon the Premises for purposes of inspecting the same. 15. CONDEMNATION. In the event all or any part of the Premises are taken under -4- power of eminent domain, the rental provided hereunder shall be reduced in proportion to which the value of the property taken bears to the whole value of the Premises immediately prior to such condemnation. After any such taking, if the residue of the Premises is reasonably inadequate for Lessee's intended use thereof as contemplated hereby, Lessee shall have the option to terminate this Lease by giving written notice thereof to Lessor. All damages awarded and condemnation proceeds received shall be payable to Lessor, provided that Lessee may make a separate claim for its undepreciated leasehold improvements, moving expenses or the like so long as such claim does not reduce any potential claim of Lessor. 16. FAILURE BY LESSEE TO PAY EXPENSES. In the event Lessee fails to pay any cost or expense with respect to the Premises required to be paid by Lessee hereunder, Lessor shall have the option, in its discretion, to pay such cost or expense and recover the same from Lessee as additional rent which sum shall be payable with interest thereon at the rate of eight percent (8%) per annum, within ten (10) days after demand by Lessor. 17. ASSIGNMENT OR SUBLETTING. Lessee shall not assign, transfer, or mortgage this Lease, nor shall Lessee sublease all or any part of the Premises without Lessor's prior written consent, provided, however, that Lessor consents to that certain sublease to J.B. Ivey & Company of even date herewith. In the event of any assignment, transfer or subletting, Lessee shall remain primarily liable for all obligations under the Lease (except as may be expressly agreed by the parties and consented to by Lessor's lender). 18. ENVIRONMENTAL MATTERS. --------------------- (a) COMPLIANCE. During the term of this Lease, Lessee shall comply with all applicable Environmental Laws (as hereinafter defined) and shall not place or store, handle or dispose of any Hazardous Substances (as hereinafter defined) in, on or under the Premises except as permitted by applicable law and appropriate governmental authorities. If requested by Lessor, Lessee shall furnish Lessor with copies of all environmental permits, if any, required by governmental authorities with competent jurisdiction with respect to the Premises or Lessee's operations at the Premises. During the term of this Lease, Lessee shall promptly notify Lessee in the event of Lessee's discovery of, or Lessee's receipt of notice concerning, any Hazardous Substances which are located on or under or adjacent to, or are being or have been released from, the Premises. (b) INDEMNIFICATION. Lessee hereby indemnifies Lessor and holds Lessor harmless from and against all loss, liability, damage, expense, claim, cost, fine or penalty, including costs of investigation and remediation, suffered or incurred by Lessor as a result of (i) the violation by Lessee (or Lessee's subtenants or assignees, or the agents, contractors, customers or employees of same during the term of the Lease of any Environmental Law, (ii) any Hazardous Substances placed or disposed of on or under the Premises or any adjacent premises by Lessee, its agents, contractors, customers, employees (or Lessee's subtenants or assignees, or the agents, contractors, -5- customers or employees of same) during the term of this Lease, or (iii) any exacerbation during the term of this Lease of any existing environmental condition by Lessee, its agents, contractors, customers, employees (or Lessee's subtenants or assignees, or the agents, contractors, customers or employees of same). The foregoing indemnities shall survive and remain in effect following the termination of this Lease. Lessor's remedies hereunder against Lessee are not exclusive of common law and statutory remedies otherwise available to Lessor, and shall not be affected in any way if the liability or claim for which indemnification is sought arises by reason of strict liability. Lessor acknowledges that an above-ground diesel storage tank exists and is operated by Lessee on the Premises. (c) Definitions. ------------ (i) "Remediation," for purposes of this Lease, shall mean all direct and indirect costs (including costs by way of reimbursement of any regulatory agency) reasonably incurred in connection with or arising out of the investigation and remediation of any of the matters covered by the foregoing indemnities, including by way of illustration and without limitation, reasonable attorney's fees, investigation costs, penalties, fines and interest imposed by any regulatory authority, reasonable investigative fees and consulting fees, testing, costs of removal of contaminated materials, transportation of contaminated materials, and landfill or other off-site disposal costs, reasonable costs of replacement of contaminated materials removed, reasonable costs of restoring the Premises to substantially the condition existing as of the date hereof, reasonable costs of on-site treatment of contaminated soil and groundwater, and reasonable costs of digging wells and future monitoring. (ii) The term "Hazardous Substances" is defined for purposes of this Lease as that term is defined under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended (42 U.S.C. Sections 9601 et seq.) ("CERCLA"), and any implementing regulations, and, in addition as including any petroleum, crude oil or any fractions thereof or any other substance or material classified as toxic, hazardous or extremely hazardous under any applicable federal, state or local law, ordinance or requirement or any governmental authority with competent jurisdiction. (iii) The term "Environmental Laws" is defined for purposes of this Lease as meaning CERCLA, the Resource Conservation and Recovery Act (42 U.S.C. Sections 6901 et seq.), and any other federal, state or local law, statute, ordinance, regulation or rule (A) concerning hazardous, toxic or dangerous wastes, substances or -6- materials, or (B) pertaining to the protection of the environment. 19. EVENTS OF DEFAULT. Any of the following shall be deemed an event of default by Lessee under this Lease: (a) Failure by Lessee to timely pay any installment of rent or any other monetary obligation under this Lease as and when due and payable; (b) The breach by Lessee of any other term or provision of this Lease, and the continuance thereof for a period of ten (10) days after receipt by Lessee of written notice thereof from Lessor, provided if such breach is not reasonably capable of being cured within such 10-day period, Lessee shall not be in default hereunder to the extent it proceeds and continues to proceed in good faith to cure such breach as soon as reasonably practical; (c) Lessee (i) making a general assignment for the benefit of creditors, (ii) generally not paying its debts as they become due, (iii) admitting in writing an inability to pay its debts as they become due, (iv) filing a voluntary petition in bankruptcy, (v) becoming insolvent, or (vi) filing a petition seeking for itself any reorganization, arrangement, composition, or readjustment of its debts or other similar relief from its creditors generally; or (d) An order or decree being entered by a court of competent jurisdiction (i) adjudging Lessee as bankrupt or insolvent, (ii) appointing a trustee, receiver, liquidator, custodian or other similar official for Lessee, or (iii) ordering the winding up or liquidation of Lessee's affairs. 20. REMEDIES. Upon the occurrence of any event of default as provided herein which is continuing, Lessor shall have the right to: (a) Terminate this Lease and enter into and upon the Premises, retake possession thereof and expel Lessee therefrom, and to recover from Lessee all costs and expenses (including reasonable attorneys' fees) incurred by Lessor in connection with retaking possession of the Premises; (b) Recover from Lessee, upon demand, all rent or other sums due or to become due to Lessor under the terms of this Lease; provided, however, in the event Lessor relets the Premises during the term hereof, Lessor shall give credit to Lessee for the rent and other sums actually collected by Lessor with respect to the term of such Lease coinciding with the term of this Lease, less any costs and expenses incurred by Lessor in reletting the Premises; or (c) Without terminating this Lease, Lessor may exercise its options under subparagraphs (a) and (b) above simultaneously. -7- (d) Exercise any other right or remedy available hereunder or otherwise available at law or in equity. Lessor may pursue any one or more of the foregoing remedies, and pursuit of any of the foregoing remedies shall not prejudice the rights of Lessor to pursue any other remedies. 21. QUIET ENJOYMENT. Provided Lessee performs its obligations and covenants contained herein, Lessor covenants that Lessee shall peaceably and quietly have, hold and enjoy the Premises during the term hereof free from interference from Lessor and all persons claiming by or through Lessor. 22. SUBORDINATION, ATTORNMENT AND NON-DISTURBANCE. (a) Lessee's rights shall be subject to any bona fide mortgage, deed of trust or other security interest which is now or may hereafter be placed upon the Premises by Lessor. Lessee shall, if requested by Lessor or Lessor's lender, execute a separate agreement reflecting such subordination and, further, shall be obligated to execute such documentation as may facilitate Lessor's sale or refinancing of the Premises, including but not limited to an estoppel certificate substantially in the form attached hereto as Exhibit "B" or a subordination, attornment and non-disturbance agreement substantially in the form attached hereto as Exhibit "C". (b) In the event of a sale, assignment or transfer by Lessor of its interest in the Premises or in this Lease (whether by sale, default, foreclosure or otherwise) to a successor in interest who expressly assumes the obligations of Lessor under this Lease, Lessor shall thereupon be released and discharged from its obligations and covenants under this Lease, except those obligations that have accrued prior to such sale, assignment or transfer. Lessor's assignment of this Lease, or any or all of its rights in this Lease, shall not affect Lessee's obligations hereunder, and Lessee shall attorn and look to the assignee as Lessor, provided Lessee has first received written notice of such assignment. Provided, further, however, that in the event that a lender of Lessor, its successors or assigns shall become the owner of the Premises through foreclosure or other similar judicial process, then, in that event, the lender, its successors or assigns shall have the right to cancel this Lease upon ninety (90) days written notice to Lessee. (c) Whether in connection with a sale or refinancing or otherwise, Lessee shall be obligated to execute and deliver to Lessor or its lender, an estoppel certificate substantially in the form attached hereto as Exhibit "B" or such other documentation as reasonably may be requested by Lessor or its lender, within fifteen (15) days of receipt of a written request therefore. 23. LENDER'S NOTICE AND RIGHT TO CURE. Lessee agrees to be bound by -8- and to act in accordance with the provisions of paragraph 4 of Exhibit "C" of the Lease, the same being incorporated herein as if fully set forth. 24. LESSOR'S DEFAULT. In the event of a default by Lessor under this Lease, Lessee agrees that, in all events, Lessor's liability shall be limited to the actual equity interest of Lessor in the Premises for the satisfaction of Lessee's remedies under this Lease. 25. MISCELLANEOUS. ------------- (a) FEES OF LEGAL COUNSEL. In the event either party to this agreement shall employ legal counsel to protect its rights hereunder or to enforce any term or provision hereof, the party prevailing in any such action shall have the right to recover from the other party all of its reasonable attorneys' fees and expenses incurred in relation to such claims. (b) FURTHER ASSURANCES. The parties agree that from time to time hereafter, upon request, each of them will execute, acknowledge and deliver such other instruments and documents and take such further action as may be reasonably necessary to carry out the intent of this agreement. (c) MODIFICATION. Except as otherwise provided herein, no term or provision contained herein may be modified, amended or waived except by written agreement or consent signed by the party to be bound thereby. (d) BINDING EFFECT AND BENEFIT. This agreement shall inure to the benefit of, and shall be binding upon, the parties hereto, and their respective successors and permitted assigns. Otherwise, this agreement shall not create any rights for the benefit of any third party. (e) HEADINGS AND CAPTIONS. Subject headings and captions are included for convenience purposes only and shall not affect the interpretation of this agreement. (f) NOTICE. All notices, requests, demands and other communications permitted or required hereunder shall be in writing, and shall either be (i) delivered in person, (ii) delivered by express mail or other overnight delivery service providing receipt of delivery, (iii) mailed by certified mail or registered mail, postage prepaid, return receipt requested, or (iv) sent by telex, telegraph or other facsimile transmission as follows: -9- If to Lessee, addressed or delivered in person to: (mailing address) Speizman Industries, Inc. P. O. Box 31215 Charlotte, NC 28231 (delivery address) Speizman Industries, Inc. 508 W. 5th Street Charlotte, NC 28202 With copy to: Garth K. Dunklin Odom & Groves, P.C. P. O. Box 32248 Charlotte, NC 28232-2248 If to Lessor, addressed or delivered in person to: The Speizman LLC c/o Robert S. Speizman (mailing address) Speizman Industries, Inc. P. O. Box 31215 Charlotte, NC 28231 (delivery address) Speizman Industries, Inc. 508 W. 5th Street Charlotte, NC 28202 or to such other address as either party may designate by notice. Any such notice or communication shall be deemed to have been made when actually received by the addressee, pursuant to (f)(i) above or one (1) business day after initiation of delivery pursuant to (f)(ii)-(iv) above. (g) SEVERABILITY. If any portion of this agreement is held invalid, illegal, or unenforceable, such determination shall not impair the enforceability of the remaining terms and provisions herein. (h) WAIVER. No waiver of a breach or violation of any term or provision of this agreement shall operate or be construed as a waiver of any subsequent breach or limit or restrict any right or remedy otherwise available. -10- (i) RIGHTS AND REMEDIES CUMULATIVE. The rights and remedies expressed herein are cumulative and not exclusive of any rights and remedies otherwise available. (j) GENDER AND PRONOUNS. Throughout this agreement, the masculine shall include the feminine and neuter and the singular shall include the plural and vice versa as the context requires. (k) ENTIRE AGREEMENT. This document constitutes the entire agreement of the parties with respect to the lease of the Premises and supersedes any and all other prior agreements, oral or written, with respect to the subject matter contained herein. (l) GOVERNING LAW. This agreement shall be subject to and governed by the laws of the State of North Carolina. (m) INCORPORATION BY REFERENCE. All exhibits and documents referred to in this agreement shall be deemed incorporated herein by any reference thereto as if fully set out. (n) COUNTERPARTS. This agreement may be executed in two or more counterparts each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. (o) AUTHORITY. Each individual signing this agreement in a representative capacity acknowledges and represents that he/she is duly authorized to execute this agreement in such capacity in the name of, and on behalf of, the designated corporation or other entity. (p) JOINT PREPARATION. This agreement shall be deemed to have been prepared jointly by the parties hereto, and any uncertainty or ambiguity existing herein shall not be interpreted against any party by reason of its drafting of this agreement, but shall be interpreted according to the application of the rules of interpretation for arm's length agreements. (q) MEMORANDUM OF LEASE. Upon request by either party, a memorandum of this lease in customary form shall be executed and delivered between Lessor and Lessee and either party shall have the right to record such memorandum of lease in the appropriate real estate recording offices in the county where the Premises are located. Provided, however, that the recordation of said memorandum shall be subject to paragraph 22 hereof and Lessee does hereby agree to cooperate in releasing any said memorandum in furtherance thereof. -11- IN WITNESS WHEREOF, the parties have executed this agreement effective as of the day and year aforesaid. LESSOR: THE SPEIZMAN LLC /s/ ROBERT S. SPEIZMAN [SEAL] ------------------------------ Robert S. Speizman, Manager LESSEE: SPEIZMAN INDUSTRIES, INC. /S/ROBERT S. SPEIAMAN ---------------------- By: Robert S. Speiaman Title: President Attest: /s/ Josef Sklut - -------------------------------- ______________________ Secretary [Corporate Seal] -12- STATE OF NORTH CAROLINA COUNTY OF MECKLENBURG I, a Notary Public, do hereby certify that Robert S. Speizman personally appeared before me this day and acknowledged that he is the manager of The Speizman LLC, a North Carolina limited liability company, and further acknowledged the due execution of this instrument on behalf of and as the authorized act and deed of such limited liability company. Witness my hand and official stamp or seal, this the day of October, 29 1997. /s/SUE H. EDWARDS ----------------- Notary Public My commission expires: 1-29-2001 - --------- STATE OF NORTH CAROLINA COUNTY OF MECKLENBURG I, a Notary Public of the County and State aforesaid, certify that Robert S. Speizman personally came before me this day and acknowledged that he is the President of Speizman Industries, Inc. and that by authority duly given and as the act of the corporation, the foregoing instrument was signed in its name, sealed with its corporate seal and attested by its Secretary. Witness my hand and official stamp or seal, this the day of October, 29 1997. /s/ SUE H. EDWARDS ------------------- Notary Public My commission expires: 1-29-2001 - --------- -13- EX-10 5 EXHIBIT 10.18 STATE OF NORTH CAROLINA FIRST AMENDMENT TO LEASE AGREEMENT COUNTY OF MECKLENBURG THIS FIRST AMENDMENT TO LEASE AGREEMENT is executed effective as of October 29, 1997 by and between THE SPEIZMAN LLC, a North Carolina limited liability company ("Lessor") and SPEIZMAN INDUSTRIES, INC., a North Carolina corporation ("Lessee"). W I T N E S S E T H: WHEREAS, the parties have heretofore entered into that certain Lease Agreement dated October 29, 1997 ("Lease") whereby Lessor did lease to Lessee certain premises as described in the Lease located at 701 Griffith Road, Charlotte, North Carolina; and, WHEREAS, the parties have since determined that the assumptions regarding responsibilities under the Lease in setting the rental rate were in fact inaccurate as to (1) square footage; (2) responsibility for insurance; (3) responsibility for taxes; and, WHEREAS, the parties are desirous of amending said Lease to accurately reflect the contemplation of the parties in the setting of the rate and to accurately assess rental based upon the true square footage of the facility; NOW, THEREFORE, for good and valuable consideration the receipt and sufficiency of which is hereby acknowledged, the parties do hereby agree to amend the Lease as follows: (1) The first sentence of paragraph 3. RENT, which presently reads "Lessee shall pay to Lessor as rental for the Premises the sum of Fifty-One Thousand Nine Hundred Fifty-Three and 40/100's Dollars ($51,953.40) per month, payable on or before the fifth (5th) day of each calendar month during the term thereof." shall be deleted and replaced with the following: "Lessee shall pay to Lessor as rental for the Premises the sum of Fifty-Four Thousand Nine Hundred Twenty-Three and 40/100's Dollars ($54,923.40) per month, payable on or before the fifth (5th) day of each calendar month during the term thereof." (2) Paragraph 9. INSURANCE, (a) Casualty Insurance. shall be deleted and replaced with the following: "(a) Casualty Insurance. During the term of this Lease, Lessor -------------------- shall maintain and keep in full force and effect, at its cost, a standard comprehensive fire and extended coverage policy of insurance with respect to the Premises naming Lessor and Lessee as insured as their interests appear, in such amounts as Lessor's lender, if any, shall require. Lessee shall have the responsibility to determine whether to maintain casualty insurance with respect to Lessee's personalty and business interruption insurance for Lessee's own benefit." 3. Paragraph 10. TAXES shall be deleted and replaced with the following: "Lessor shall pay all ad valorem real property taxes and special assessments applicable (and any penalties for late payment associated therewith) to the Premises during the term of this Lease not later than the due date shown on the bill therefor. Lessee shall be solely responsible for paying any taxes or governmental assessments levied upon Lessee's personal or business property." 4. Except as modified herein, the Lease remains enforceable according to its tenor as originally set forth. IN WITNESS WHEREOF, the parties have hereunto set their hands and seals pursuant to authority duly given, this the 22 day of July, 1998. LESSOR: THE SPEIZMAN LLC /s/ ROBERT S. SPEIZMAN By: ----------------------------- (SEAL) Robert S. Speizman, Manager LESSEE: SPEIZMAN INDUSTRIES, INC. /s/ ROBERT S. SPEIZMAN By: ------------------------------ Robert S. Speizman, President ATTEST: /s/ Josef Sklut, Secretary - --------------------------------- Josef Sklut, Secretary [Corporate Seal] 2 STATE OF NORTH CAROLINA COUNTY OF MECKLENBURG I, a Notary Public, do hereby certify that Robert S. Speizman personally appeared before me this day and acknowledged that he is the manager of The Speizman LLC, a North Carolina limited liability company, and further acknowledged the due execution of this instrument on behalf of and as the authorized act and deed of such limited liability company. Witness my hand and official stamp or seal, this the 22 day of July, 1998. /s/ L. Gail Gormly ----------------------------- Notary Public My commission expires: (NOTARY SEAL APPEARS HERE) 11-11-2000 - --------------------------- [Notarial Seal] STATE OF NORTH CAROLINA COUNTY OF MECKLENBURG I, a Notary Public of the County and State aforesaid, certify that Robert S. Speizman personally came before me this day and acknowledged that he is the President of Speizman Industries, Inc. and that by authority duly given and as the act of the corporation, the foregoing instrument was signed in its name, sealed with its corporate seal and attested by its Secretary. Witness my hand and official stamp or seal, this the 22 day of July, 1998. L. Gail Gormly ----------------------------- Notary Public My commission expires: (NOTARY SEAL APPEARS HERE) 11-11-2000 - ---------------------- [Notarial Seal] 3 EX-10 6 EXHIBIT 10.23 MEMORANDUM OF AGREEMENT OF EXTENSION OF LEASE MADE AND ENTERED INTO THE CITY OF AND DISTRICT OF MONTREAL, ON THIS 23RD DAY OF SEPTEMBER 1997. - ------------------------------------------------------------------------------ BETWEEN: METRO II & III (G.P.), general partnership, duly authorized to act on behalf of the owners of the building herein below described, having its placed of business at 8300 Pie IX, Montreal, Providence of Quebec, H1Z 4E8, herein acting and represented by Mr. Jordan Aberman, duly authorized for these purposes, (hereinafter referred to as "Lessor") AND: SPEIZMAN CANADA INC., legal person duly incorporated having its head office at 800 Place Victoria, Suite 4702, Montreal, Providence of Quebec, H4Z 1H6, and a place of business at 5205 Metropolitan East, Suite 3, St-Leonard, Province of Quebec, H1R 1Z7, herein acting and represented by Robert S. Speizman, its President, duly authorized by virtue of a resolution of its Board of Directors, a certified extract of which is annexed to these present; (hereinafter referred to as "Lessee") WHEREAS the Lessor is acting on behalf of the owners of that certain building bearing civic address 5205 Metropolitan East, Suite number THREE (3), St-Leonard, Province of Quebec ("Building"); WHEREAS in virtue of a lease starting March 1, 1989 ("Lease") the Lessee leased those certain premises bearing civic address 5205 Metropolitan East, Suite number THREE (3), St-Leonard, Province of Quebec, having approximately Two Hundred and Fifty square feet (250 sq. ft.) ("Leased Premises"), for the period of THREE (3) years; WHERAS the Lessee and the Lessor did extend the Lease for a further period of THREE (3) years by agreement dated February 17, 1992, and for THREE (3) further periods of ONE (1) year each by agreement dated October 21, 1994, November 21, 1995 and January 29, 1997; WHEREAS the Lease and the agreements dated February 17, 1992, October 21, 1994, November 21, 1995 and January 29, 1997, are hereinafter called the Lease; WHEREAS both the Lessor and the Lessee wish to extend the Lease for a further term of ONE (1) year under the following terms and conditions: THEREFORE THE PARTIES AGREE AS FOLLOWS: 1. This Memorandum of Agreement is made upon and subject to the same terms and conditions as set forth in the Lease including the rental rate which shall be at THREE HUNDRED AND FIFTEEN DOLLARS ($315.00), plus G.S.T. and Q.S.T. and any applicable taxes, gross per month, save and except for Lessee's proportion of the nonresidential municipal surtax. 2. The term of the Lease which presently expires on the last day of February 1998 shall be extended for an additional period of ONE (1) year from the first day of March 1998 and shall expire on the last day of February, 1999, unless sooner terminated in the manner set forth in the Lease. 3. The Lessee accepts the Leased Premises in its present state and condition. 4. Except as herein before specifically modified, supplemented and amended, and as so modified, supplemented and amended, the Lease shall remain in full force and effect. 5. The Parties have requested that this Memorandum of Agreement be prepared in the English language. Les parties ont demande que la presente convention soit redigee en anglais. - ------------------------------------------------------------------------------ IN WITNESS WHEREOF, THE LESSEE AND THE LESSOR HAVE DULY SIGNED AND EXECUTED THESE PRESENTS ON THE DATE HEREINABOVE MENTIONED. METRO II & III (G.P.) Per: /s/ Jordan Aberman /s/ Helene Mallette ------------------------------ ------------------------------- Jordan Aberman Helene Mallette SPEIZMAN CANADA INC. Per: /s/ Robert S. Speizman /s/ L. Gail Gormly ------------------------------ ------------------------------- Robert S. Speizman L. Gail Gormly CERTIFIED EXTRACT FROM THE SIGNED RESOLUTIONS OF THE BOARD OF DIRECTORS OF SPEIZMAN CANADA INC. BE IT RESOLVED, 1. That Mr. Robert S. Speizman, President be and is hereby authorized to sign the Memorandum if agreement of Lease between the Corporation and Metro II & III (G.P.) regarding the Leased Premises located at 5205 Metropolitan East, Suite 3, in the City of St-Leonard, Province of Quebec. CERTIFIED TRUE COPY OF THE RESOLUTIONS OF THE BOARD OF DIRECTORS OF SPEIZMAN CANADA INC. DULY ADOPTED AND REMAINING IN FULL FORCE AND EFFECT, UNAMENDED. Montreal, this 23rd day of September 1997. /s/ Robert S. Speizman - ------------------------------------- Name: Robert S. Speizman Function: President Affix the corporate seal EX-10 7 EXHIBIT 10.55 {NationsBank Letterhead} February 4, 1998 Speizman Industries, Inc. 508 West 5th Street Charlotte, NC 28231 Attn: Mr. Josef Sklut Re: $1,300,000 increase in Term Loan (Amended Term Loan) to Speizman Industries, Inc. (the "Borrower") Ladies and Gentlemen: This letter is delivered to you to outline the proposed increase in the Term Loan documented in the Amended and Restated Credit Facility For Speizman Industries, Inc., dated July 31, 1997 (the "Credit Facility"). NationsBank is pleased to advise of its commitment to increase the Term Loan by $1,300,000 subject to the satisfaction of each of the following conditions: (a) each of the terms and conditions set forth in the Credit Facility with additional amendments satisfactory to NationsBank to include Todd Motion Controls, Inc. ("TMC") and its assets to the Credit Facility, the addition of TMC as a guarantor of the Credit Facility, the pledge of TMC's stock and the grant of a first lien on TMC's assets; (b) principal repayment evidenced by the Term Note shall increase to $380,000, payable quarterly; (c) payment to NationsBank an underwriting fee for its own account of $15,000 payable at closing of the Amended Term Loan; (d) payment by Borrower of all reasonable out-of-pocket fees and expenses (including reasonable attorney's fees and expenses and expenses of due diligence) incurred before or after the date hereof by NationsBank in connection with Amended Term Loan, regardless of whether or not the Amended Term Loan is closed; (e) review and approval of the TMC acquisition documents and completion of the acquisition by February 28, 1998; February 4, 1998 Speizman Industries, Inc. Page 2 To evidence your acknowledgement and acceptance of the provisions hereof, please sign and return a copy of this letter. With best regards, NATIONSBANK, N.A. /s/ E. Phifer Helms - -------------------- E. Phifer Helms Senior Vice President ACCEPTED AND AGREED TO AS OF THE DATE FIRST ABOVE WRITTEN: SPEIZMAN INDUSTRIES, INC. By: /s/ Josef Sklut - -------------------- Name: Josef Sklut Title: Vice President- Finance EX-10 8 EXHIBIT 10.64 STOCK PURCHASE AGREEMENT This Stock Purchase Agreement ("Agreement") is made and entered into as of February 6, 1998, by and among SPEIZMAN INDUSTRIES, INC., a Delaware corporation ("Buyer"), and the undersigned persons identified on Schedule A hereto ("Sellers"). RECITALS Sellers desire to sell, and Buyer desires to purchase, all of the issued and outstanding common shares (the "Shares") of capital stock of Todd Motion Controls, Inc., a North Carolina corporation (the "Company"), for the consideration and on the terms set forth in this Agreement. AGREEMENT The parties, intending to be legally bound, agree as follows: 1. DEFINITIONS. For purposes of this Agreement, the following terms have the meanings specified or referred to in this Section 1: "ACCOUNTS RECEIVABLE"--as defined in SECTION 3.8. "ADJUSTMENT CLAIMS" -- as defined in SECTION 2.2(B). "ADJUSTMENT DATE"--as defined in SECTION 2.2(B). "AFFILIATE"-- a Person which directly or indirectly controls, or is controlled by, or is under common control with another Person, which owns five percent (5%) or more of the voting equity of another Person, or five percent (5%) or more of equity interest of which is owned by another Person. "APPLICABLE CONTRACT"--any Contract (i) under which the Company has or may acquire any rights, (ii) under which the Company has or may become subject to any obligation or liability, or (iii) by which the Company or any of the assets owned or used by it is or may become bound. "BALANCE SHEET"--as defined in SECTION 3.4. "BREACH"--a "Breach" of a representation, warranty, covenant, obligation, or other provision of this Agreement or any instrument delivered pursuant to this Agreement will be deemed to have occurred if there is or has been (i) any inaccuracy in or breach of, or any failure to perform or comply with, such representation, warranty, covenant, obligation, or other provision, or (ii) any claim (by any Person) or other occurrence or circumstance that is or was inconsistent with such representation, warranty, covenant, obligation, or other provision; and the term "Breach" means any such inaccuracy, breach, failure, claim, occurrence, or circumstance. "BUYER"--as defined in the first paragraph of this Agreement. "CLOSING"--as defined in Section 2.3. "CLOSING DATE"--the date and time as of which the Closing actually takes place. "CLOSING DATE A/R AND INVENTORY"--as defined in SECTION 2.2(B). "COMPANY"--as defined in the Recitals of this Agreement. "COMPANY OTHER BENEFIT OBLIGATION" means all obligations, arrangements, or customary practices, owed, adopted or followed by the Company, whether or not legally enforceable, to provide benefits, other than salary, as compensation for services rendered, to present or former directors, employees, or agents, other than obligations, arrangements, and practices that are Plans, including consulting agreements under which the compensation paid does not depend upon the amount of service rendered, severance payment policies, and fringe benefits within the meaning of IRC Section 132. "COMPANY PLAN" means all Plans of which the Company is or was a Plan Sponsor, or to which the Company otherwise contributes or has contributed, or in which the Company otherwise participates or has participated. All references to Plans are to Company Plans unless the context requires otherwise. "COMPETING BUSINESS"--as defined in SECTION 3.24. "CONSENT"--any approval, consent, ratification, waiver, or other authorization (including any Governmental Authorization). "CONTEMPLATED TRANSACTIONS"--all of the transactions contemplated by this Agreement, including (i) the sale of the Shares by Sellers to Buyer; (ii) the execution, delivery, and performance of the Employment Agreements and the Sellers' Releases; (iii) the performance by Buyer and Sellers of their respective covenants and obligations under this Agreement; and (iv) Buyer's acquisition and ownership of the Shares and exercise of control over the Company. "CONTRACT"--any agreement, contract, obligation, promise, or undertaking (whether written or oral and whether express or implied) that is legally binding. "COPYRIGHTS"--as defined in SECTION 3.22(a)(iii). "DAMAGES"--as defined in SECTION 10.2. "DISCLOSURE LETTER"--the disclosure letter delivered by Sellers to Buyer concurrently with the execution and delivery of this Agreement. "EMPLOYMENT AGREEMENTS"--as defined in SECTION 2.4(a)(iii). 2 "ENCUMBRANCE"--any charge, claim, community property interest, condition, equitable interest, lien, option, pledge, security interest, right of first refusal, or restriction of any kind, including any restriction on use, voting, transfer, receipt of income, or exercise of any other attribute of ownership. "ENVIRONMENT"--soil, land surface or subsurface strata, surface waters (including navigable waters, ocean waters, streams, ponds, drainage basins, and wetlands), groundwaters, drinking water supply, stream sediments, ambient air (including indoor air), plant and animal life, and any other environmental medium or natural resource. "ENVIRONMENTAL, HEALTH, AND SAFETY LIABILITIES"--any cost, damages, expense, liability, obligation, or other responsibility arising from or under Environmental Law or Occupational Safety and Health Law. "ENVIRONMENTAL LAW"--any Legal Requirement that requires or relates to: (i) advising appropriate authorities, employees, and the public of intended or actual releases of pollutants or hazardous substances or materials, violations of discharge limits, or other prohibitions and of the commencements of activities, such as resource extraction or construction, that could have significant impact on the Environment; (ii) preventing or reducing to acceptable levels the release of pollutants or hazardous substances or materials into the Environment; (iii) reducing the quantities, preventing the release, or minimizing the hazardous characteristics of wastes that are generated; (iv) assuring that products are designed, formulated, packaged, and used so that they do not present unreasonable risks to human health or the Environment when used or disposed of; (v) protecting resources, species, or ecological amenities; (vi) reducing to acceptable levels the risks inherent in the transportation of hazardous substances, pollutants, oil, or other potentially harmful substances; (vii) cleaning up pollutants that have been released, preventing the threat of release, or paying the costs of such clean up or prevention; or (viii) making responsible parties pay private parties, or groups of them, for damages done to their health or the Environment, or permitting self-appointed representatives of the public interest to recover for injuries done to public assets. "ERISA"--the Employee Retirement Income Security Act of 1974 or any successor law, and regulations and rules issued pursuant to that Act or any successor law. 3 "ERISA AFFILIATE" means, with respect to the Company, any other person that, together with the Company, would be treated as a single employer under IRC Section 414. "FACILITIES"--any real property, leaseholds, or other interests currently or formerly owned or operated by any the Company and any buildings, plants, structures, or equipment (including motor vehicles, tank cars, and rolling stock) currently or formerly owned or operated by the Company. "GAAP"--generally accepted United States accounting principles, applied on a basis consistent with the basis on which the Balance Sheet and the other financial statements referred to in Section 3.4 were prepared. "GOVERNMENTAL AUTHORIZATION"--any approval, consent, license, permit, waiver, or other authorization issued, granted, given, or otherwise made available by or under the authority of any Governmental Body or pursuant to any Legal Requirement. "GOVERNMENTAL BODY"--any federal, state, local, municipal, foreign, or other government or governmental or quasi-governmental authority of any nature. "HAZARDOUS ACTIVITY"--the distribution, generation, handling, importing, management, manufacturing, processing, production, refinement, Release, storage, transfer, transportation, treatment, or use (including any withdrawal or other use of groundwater) of Hazardous Materials in, on, under, about, or from the Facilities or any part thereof into the Environment, and any other act, business, operation, or thing that increases the danger, or risk of danger, or poses an unreasonable risk of harm to persons or property on or off the Facilities, or that may affect the value of the Facilities or the Company. "HAZARDOUS MATERIALS"--any waste or other substance that is listed, defined, designated, or classified as, or otherwise determined to be, hazardous, radioactive, or toxic or a pollutant or a contaminant under or pursuant to any Environmental Law, including any admixture or solution thereof, and specifically including petroleum and all derivatives thereof or synthetic substitutes therefor and asbestos or asbestos-containing materials. "INDEMNIFIED PERSONS"--as defined in SECTION 10.2. "INTELLECTUAL PROPERTY ASSETS" --as defined in SECTION 3.22. "INTERIM BALANCE SHEET"--as defined in SECTION 3.4. "IRC"--the Internal Revenue Code of 1986, as amended, or any successor law, and regulations issued by the IRS pursuant to the Internal Revenue Code or any successor law. "IRS"--the United States Internal Revenue Service or any successor agency, and, to the extent relevant, the United States Department of the Treasury. 4 "LEGAL REQUIREMENT"--any federal, state, local, municipal, foreign, international, multinational, or other administrative order, constitution, law, ordinance, principle of common law, regulation, statute, or treaty. "MARKS"--as defined in SECTION 3.22(a)(i). "MULTI-EMPLOYER PLAN" has the meaning given in ERISA Section 3(37)(A). "OCCUPATIONAL SAFETY AND HEALTH LAW"--any Legal Requirement designed to provide safe and healthful working conditions and to reduce occupational safety and health hazards, and any program, whether governmental or private (including those promulgated or sponsored by industry associations and insurance companies), designed to provide safe and healthful working conditions. "ORDER"--any award, decision, injunction, judgment, order, ruling, subpoena, or verdict entered, issued, made, or rendered by any court, administrative agency, or other Governmental Body or by any arbitrator. "ORDINARY COURSE OF BUSINESS"--an action taken by a Person will be deemed to have been taken in the "Ordinary Course of Business" only if: (i) such action is consistent with the past practices of such Person and is taken in the ordinary course of the normal day-to-day operations of such Person; (ii) such action is not required to be authorized by the board of directors of such Person (or by any Person or group of Persons exercising similar authority); and (iii) such action is similar in nature and magnitude to actions customarily taken, without any authorization by the board of directors (or by any Person or group of Persons exercising similar authority), in the ordinary course of the normal day-to-day operations of other Persons that are in the same line of business as such Person. "ORGANIZATIONAL DOCUMENTS"--the articles or certificate of incorporation and the bylaws of a corporation and any amendment thereto. "PATENTS"--as defined in SECTION 3.22(a)(ii). "PENSION PLAN" has the meaning given in ERISA SECTION 3(2)(A). "PERSON"--any individual, corporation (including any non-profit corporation), general or limited partnership, limited liability company, joint venture, estate, trust, association, organization, labor union, or other entity or Governmental Body. "PLAN" has the meaning given in ERISA Section 3(3). "PLAN SPONSOR" has the meaning given in ERISA Section 3(16)(B). "PROCEEDING"--any action, arbitration, audit, hearing, investigation, litigation, or suit (whether civil, criminal, administrative, investigative, or informal) commenced, brought, conducted, or heard by or before, or otherwise involving, any Governmental Body or arbitrator. 5 "PURCHASE PRICE"--as defined in SECTION 2.2(a). "QUALIFIED PLAN" means any Plan that meets or purports to meet the requirements of IRC SECTION 401(a). "RELEASE"--any spilling, leaking, emitting, discharging, depositing, escaping, leaching, dumping, or other releasing into the Environment, whether intentional or unintentional. "REPRESENTATIVE"--with respect to a particular Person, any director, officer, employee, agent, consultant, advisor, or other representative of such Person, including legal counsel, accountants, and financial advisors. "SECURITIES ACT"--the Securities Act of 1933 or any successor law, and regulations and rules issued pursuant to that Act or any successor law. "SELLERS"--as defined in the first paragraph of this Agreement. "SELLER'S CLOSING DOCUMENTS"--as defined in SECTION 3.2(a). "SELLERS' RELEASES"--as defined in SECTION 2.4(a). "SHARES"--as defined in the Recitals of this Agreement and Section 3.3. "Threat of Release"--a substantial likelihood of a Release that may require action in order to prevent or mitigate damage to the Environment that may result from such Release. "THREATENED"--a claim, Proceeding, dispute, action, or other matter will be deemed to have been "Threatened" if any demand or statement has been made (orally or in writing) or any notice has been given (orally or in writing), or if any other event has occurred or any other circumstances exist, that would lead a prudent Person to conclude that such a claim, Proceeding, dispute, action, or other matter is likely to be asserted, commenced, taken, or otherwise pursued in the future. "TITLE IV PLANS" means all Pension Plans that are subject to Title IV of ERISA, 29 U.S.C. Section 1301 et seq., other than Multi-Employer Plans. "TRADE SECRETS"--as defined in SECTION 3.22(a). "WT"-- William H. Todd, a resident of Forsyth County, North Carolina. 2. SALE AND TRANSFER OF SHARES; CLOSING. ------------------------------------ 2.1 SHARES. Subject to the terms and conditions of this Agreement, at the Closing, Sellers will sell and transfer the Shares to Buyer, and Buyer will purchase the Shares from Sellers. 6 2.2 PURCHASE PRICE; ADJUSTMENT. (a) The purchase price (the "Purchase Price") for the Shares payable by Buyer will be $1,841,304, payable to the Sellers in immediately available funds (by bank cashier's checks, certified checks or wired funds) on the Closing Date, in the amounts for each Seller set forth on Schedule A. (b) On or immediately following the Closing Date, Buyer shall conduct a physical inventory and examination of all raw materials and purchased parts inventory and Accounts Receivable held by the Company on the Closing Date (the "Closing Date A/R and Inventory"). On the nine (9) month anniversary of the Closing Date (the "Adjustment Date"), the Sellers shall jointly and severally remit to Buyer an amount equal to (i) the book value of all Closing Date A/R and Inventory (excluding hydraulic parts inventory and research and development parts inventory (as physically designated by Buyer and WT prior to Closing)) (if any) that are not sold or collected by the Company prior to the Adjustment Date, and (ii) the aggregate amount of all claims and related costs associated with the Company's default under that certain Incentive Contract as set forth in Part 3.17(d)(i) of the Disclosure Letter (such unsold or uncollected Closing Date A/R and Inventory and such claims related to the Incentive Contract herein collectively referred to as the "Adjustment Claims"), to the extent such Adjustment Claims exceed $50,000. 2.3 CLOSING. The purchase and sale (the "Closing") provided for in this Agreement will take place at the offices of Buyer's counsel at Suite 3500, One First Union Center, Charlotte, North Carolina, at 10:00 a.m. (local time) on FEBRUARY 6, 1998 or at such other time and place as the parties may agree. 2.4 CLOSING OBLIGATIONS. At or before the Closing: (a) Sellers will deliver to Buyer: (i) certificates representing the Shares, duly endorsed (or accompanied by duly executed stock powers), with signatures guaranteed by a commercial bank, for transfer to Buyer; (ii) releases in the form of EXHIBIT 2.4(a)(ii) executed by Sellers (collectively, "Sellers' Releases"); (iii) employment agreements in the forms of EXHIBITS 2.4(a)(iii)(A), (B), (C), (D) and (E), executed by WT, Joseph Collins, Marion Todd, Jonathan Freeman, and Thomas Reavis, respectively (the "Employment Agreements"); (iv) an opinion of Nelson, Boyles, Niblock & Green, counsel to Sellers, dated the Closing Date, in the form of EXHIBIT 2.4(a)(iv); (v) resignation of all directors of the Company; 7 (vi) such other certificates and documents as Buyer shall reasonably request; and (vii) all consents and approvals of governmental authorities, lenders, lessors, and other third parties required in connection with the (x) consummation of the Contemplated Transaction and (y) continued operation of the business of the Company, including all consents required of First Citizens' Bank. (b) Buyer will deliver to Sellers: (i) the amounts specified on SCHEDULE A by bank cashier's or certified check payable to the order of the persons specified on SCHEDULE A; and (ii) the Employment Agreements, executed by the Company. 2.5 CLOSING DATE FINANCIAL STATEMENTS. --------------------------------- The Company's accountants, Brown, Jenkins & Company, will prepare a balance sheet of the Company (the "Closing Date Balance Sheet") as of the Closing Date and a statement of income of the Company (the "Closing Date Income Statement") for the period from the date of the Balance Sheet through the Closing Date (such Closing Date Balance Sheet and Closing Date Income Statement being herein referred to as the "Closing Date Financial Statements"). Buyer's accountants, BDO Seidman, LLP, will be given the opportunity to review the work papers and to consult with the Company's accountants prior to the completion of the Closing Date Financial Statements. The Closing Date Financial Statements will be delivered to Buyer within thirty (30) days after the Closing Date. If within thirty (30) days following such delivery of the Closing Date Financial Statements, Buyer has not given notice of objection to the Closing Date Financial Statements (which notice must contain a statement of reasonable basis of objection), then the Closing Date Financial Statements will be deemed acceptable. If Buyer gives notice of objection within such 30-day period, the issues in dispute will be submitted to KPMG Peat Marwick LLP, certified public accountants, for resolution. If the issues in dispute are submitted to such third-party accountants for resolution, (i) each party will furnish to such accountants such workpapers and other documents and information relating to the disputed issues as such accountants may request and are available to that party (or its independent public accountants), and will be afforded the opportunity to present to such accountants any material relating to the determination and to discuss the determination with such accountants; (ii) the determination by such accountants, as set forth in a notice delivered to both parties by such accountants, will be binding and conclusive on the parties; and (iii) Buyer and Sellers will each bear 50% of the fees of such accountants for such determination. 3. REPRESENTATIONS AND WARRANTIES OF SELLERS. Sellers represent and warrant to Buyer as follows: 8 3.1 ORGANIZATION AND GOOD STANDING. ------------------------------ (a) The Company is a corporation duly organized, validly existing, and in good standing under the laws of the State of North Carolina, with full corporate power and authority to conduct its business as it is now being conducted, to own or use the properties and assets that it purports to own or use, and to perform all its obligations under Applicable Contracts. Except as set forth in Part 3.1 of the Disclosure Letter, the Company is duly qualified to do business as a foreign corporation and is in good standing under the laws of each state or other jurisdiction in which either the ownership or use of the properties owned or used by it, or the nature of the activities conducted by it, requires such qualification. Part 3.1 of the Disclosure Letter contains a complete and accurate list of each jurisdiction in which the Company is authorized to do business. (b) Sellers have delivered to Buyer copies of the Organizational Documents of the Company, as currently in effect. 3.2 AUTHORITY; NO CONFLICT. ---------------------- (a) This Agreement constitutes the legal, valid, and binding obligation of Sellers, enforceable against Sellers in accordance with its terms. Upon the execution and delivery of the Employment Agreements (to which each Seller is a party) and the Sellers' Releases (collectively, the "Sellers' Closing Documents"), the Sellers' Closing Documents will constitute the legal, valid, and binding obligations of Sellers, enforceable against Sellers in accordance with their respective terms. Sellers have the absolute and unrestricted right, power, authority, and capacity to execute and deliver this Agreement and the Sellers' Closing Documents and to perform their obligations under this Agreement and the Sellers' Closing Documents. (b) Except as set forth in Part 3.2(b) of the Disclosure Letter, neither the execution and delivery of this Agreement nor the consummation or performance of any of the Contemplated Transactions will, directly or indirectly (with or without notice or lapse of time): (i) contravene, conflict with, or result in a violation of (A) any provision of the Organizational Documents of the Company, or (B) any resolution adopted by the board of directors or the stockholders of the Company; (ii) contravene, conflict with, or result in a violation of, or give any Governmental Body or other Person the right to challenge any of the Contemplated Transactions or to exercise any remedy or obtain any relief under, any Legal Requirement or any Order to which the Company or any Seller, or any of the assets owned or used by the Company, may be subject; (iii) contravene, conflict with, or result in a violation of any of the terms or requirements of, or give any Governmental Body the right to revoke, withdraw, suspend, cancel, terminate, or modify, any Governmental Authorization that is held by the Company or that otherwise relates to the business of, or any of the assets owned or used by, the Company; 9 (iv) contravene, conflict with, or result in a violation or breach of any provision of, or give any Person the right to declare a default or exercise any remedy under, or to accelerate the maturity or performance of, or to cancel, terminate, or modify, any Applicable Contract; or (v) result in the imposition or creation of any Encumbrance upon or with respect to any of the assets owned or used by the Company. Except as set forth in Part 3.2(b) of the Disclosure Letter, no Seller or the Company is or will be required to give any notice to or obtain any Consent from any Person in connection with the execution and delivery of this Agreement or the consummation or performance of any of the Contemplated Transactions. 3.3 CAPITALIZATION. The authorized equity securities of the Company consist of 5,000 shares of common stock and 5,000 shares of preferred stock, each with a par value of $10 per share, of which 185 shares of common stock are issued and outstanding and constitute the Shares. No shares of preferred stock have been issued or are outstanding. Sellers are and will be on the Closing Date the record and beneficial owners and holders of the Shares, free and clear of all Encumbrances. The Shares are owned by Sellers in the manner set forth on Schedule A. No legend or other reference to any purported Encumbrance appears upon any certificate representing equity securities of the Company. All of the outstanding equity securities of the Company have been duly authorized and validly issued and are fully paid and nonassessable. There are no Contracts relating to the issuance, sale, or transfer of any equity securities, options, warrants or other securities of the Company. None of the outstanding equity securities or other securities of the Company was issued in violation of the Securities Act or any other Legal Requirement. The Company does not own, or have any Contract to acquire, any equity securities or other securities of any Person or any direct or indirect equity or ownership interest in any other business. 3.4 FINANCIAL STATEMENTS. Sellers have delivered to Buyer: (a) the compiled balance sheets of the Company as at August 31 in each of the years 1996 and 1997 (such August 31, 1997 balance sheet being herein sometimes referred to as the "Balance Sheet"), and the related statements of income for each of the fiscal years then ended, and (b) an unaudited, management prepared balance sheet of the Company as at December 31, 1997 (the "Interim Balance Sheet") and the related unaudited consolidated statements of income, changes in stockholders' equity, and cash flow for the period then ended, including in each case the notes thereto. Such financial statements and notes fairly present the financial condition and the results of operations of the Company as at the respective dates of and for the periods referred to in such financial statements, all in accordance with GAAP, subject, in the case of interim financial statements, to normal recurring year-end adjustments (the effect of which will not, individually or in the aggregate, be materially adverse) and the absence of notes (that, if presented, would not differ materially from those included in the Balance Sheet); the financial statements referred to in this Section 3.4 reflect the consistent application of such accounting principles throughout the periods involved, except as disclosed in the notes to such financial statements. 10 3.5 BOOKS AND RECORDS. The books of account, minute books, stock record books, and other records of the Company, all of which have been made available to Buyer, are complete and correct and have been maintained in accordance with sound business practices. At the Closing, all of those books and records will be in the possession of the Company. 3.6 TITLE TO PROPERTIES; ENCUMBRANCES. Part 3.6 of the Disclosure Letter contains a complete and accurate list of all real property, leaseholds, or other interests therein owned by or in which the Company has an interest. The Company owns all the properties and assets (whether real, personal, or mixed and whether tangible or intangible) that it purports to own located in the facilities owned or operated by the Company or reflected as owned in the books and records of the Company, including all of the properties and assets reflected in the Balance Sheet and the Interim Balance Sheet (except for assets held under capitalized leases and personal property sold since the date of the Balance Sheet and the Interim Balance Sheet, as the case may be, in the Ordinary Course of Business). All material properties and assets reflected in the Balance Sheet and the Interim Balance Sheet are free and clear of all Encumbrances except (i) security interests shown on the Balance Sheet or the Interim Balance Sheet as securing specified liabilities or obligations, with respect to which no default exists and (ii) liens for current taxes not yet due. 3.7 CONDITION AND SUFFICIENCY OF ASSETS. The buildings, plants, structures, and equipment owned and leased by the Company are structurally sound, in good operating condition and repair, are adequate for the uses to which they are being put, and none of such buildings, plants, structures, or equipment is in need of maintenance or repairs, except for ordinary, routine maintenance and repairs that are not material in nature or cost. The building, plants, structures, and equipment, owned and leased by the Company are sufficient for the continued conduct of the Company's businesses after the Closing in substantially the same manner as conducted prior to the Closing. 3.8 ACCOUNTS RECEIVABLE. All accounts receivable of the Company that are reflected on the Balance Sheet or the Interim Balance Sheet or on the accounting records of the Company as of the Closing Date (collectively, the "Accounts Receivable") represent or will represent valid obligations arising from sales actually made or services actually performed in the Ordinary Course of Business. Unless paid prior to the Closing Date, the Accounts Receivable are or will be as of the Closing Date current. There is no contest, claim, or right of set-off, other than returns in the Ordinary Course of Business, under any Contract with any obligor of an Accounts Receivable relating to the amount or validity of such Accounts Receivable. Part 3.8 of the Disclosure Letter contains a complete and accurate list of all Accounts Receivable as of January 30, 1998, which list sets forth the aging of such Accounts Receivable. 3.9 INVENTORY. Except with regard to Closing Date A/R and Inventory, all inventory of the Company, whether or not reflected in the Balance Sheet or the Interim Balance Sheet, consists of a quality and quantity usable and salable in the Ordinary Course of Business, except for obsolete items and items of below-standard quality which have been written off or written down to net realizable value. 11 3.10 NO UNDISCLOSED LIABILITIES. Except as set forth in Part 3.10 of the Disclosure Letter, the Company has no liabilities or obligations of any nature (whether known or unknown and whether absolute, accrued, contingent, or otherwise) except for liabilities or obligations reflected or reserved against in the Balance Sheet or the Interim Balance Sheet and current liabilities incurred in the Ordinary Course of Business since the respective dates thereof. 3.11 TAXES. ----- (a) The Company has filed or caused to be filed, within the times and within the manner prescribed by law, all federal, state, local, and foreign tax returns and tax reports that are required to be filed by, or with respect to, the Company, and Sellers have delivered, or made available, to Buyer copies of, and Part 3.11 of the Disclosure Letter contains a complete and accurate list of, all such returns and reports filed within the past five (5) years. Such returns and reports reflect accurately all liability for taxes of each the Company for the periods covered thereby. All federal, state, local and foreign income, profits, franchise, sales, use, occupancy, excise, customs, withholding and other taxes and assessments (including interest and penalties) payable by, or due from, the Company have been fully paid or adequately disclosed and fully provided for (in accordance with GAAP) on the Balance Sheet and the Interim Balance Sheet. (b) No examination of any tax return of the Company or other tax audit is currently in progress or is planned, and (i) there are no outstanding agreements or waivers extending the statutory period of limitation applicable to any tax return of the Company, (ii) none of Sellers or the Company has any tax liability that could result in any lien being imposed on the capital stock or the assets of the Company, (iii) the Company is, and has been, an accrual method taxpayer, and (iv) the Company has not elected to be treated as a small business corporation under Subchapter S of the IRC. 3.12 NO MATERIAL ADVERSE CHANGE. Since the date of the Balance Sheet, there has not been any material adverse change in the business, operations, properties, prospects, assets, or condition of the Company, and no event has occurred or circumstance exists that may result in such a material adverse change. 3.13 EMPLOYEE BENEFITS. (a) (i) Part 3.13(a)(i) of the Disclosure Letter contains a complete and accurate list of all Company Plans and Company Other Benefit Obligations and identifies as such all Company Plans that are Qualified Plans. (ii) Part 3.13(a)(v) of the Disclosure Letter sets forth the financial cost of all obligations owed under any Company Plan or Company Other Benefit Obligation that is not subject to the disclosure and reporting requirements of ERISA. (b) Sellers have delivered to Buyer: 12 (i) all documents that set forth the terms of each Company Plan and Company Other Benefit Obligation and of any related trust, including (A) all plan descriptions and summary plan descriptions of Company Plans for which the Company is required to prepare, file, and distribute plan descriptions and summary plan descriptions, and (B) all summaries and descriptions furnished to participants and beneficiaries regarding Company Plans and Company Other Benefit Obligations for which a plan description or summary plan description is not required; (ii) all personnel, payroll, and employment manuals and policies; (iii) all collective bargaining agreements pursuant to which contributions have been made or obligations incurred (including both pension and welfare benefits) by the Company, and all collective bargaining agreements pursuant to which contributions are being made or obligations are owed by such entities; (iv) a written description of any Company Plan or Company Other Benefit Obligation that is not otherwise in writing; (v) all registration statements filed with respect to any Company Plan; (vi) all insurance policies purchased by or to provide benefits under any Company Plan; (vii) all contracts with third party administrators, actuaries, investment managers, consultants, and other independent contractors that relate to any Company Plan and Company Other Benefit Obligation; (viii) all reports submitted within the four (4) years preceding the date of this Agreement by third party administrators, actuaries, investment managers, consultants, or other independent contractors with respect to any Company Plan or Company Other Benefit Obligation; (ix) all notifications to employees of their rights under ERISA Section 601 et seq. and IRC Section 4980B; (x) the Form 5500 filed in each of the most recent three plan years with respect to each Company Plan, including all schedules thereto and the opinions of independent accountants; (xi) all notices that were given by the IRS or the Department of Labor to the Company or any Company Plan within the four (4) years preceding the date of this Agreement; and (xii) the most recent determination letter for each Company Plan that is a Qualified Plan. 13 (c) Except as set forth in Part 3.13(c)(vi) of the Disclosure Letter: (i) No Company Plan is a Title IV Plan. (ii) The Company has never established, maintained, or contributed to or otherwise participated in, or had an obligation to maintain, contribute to, or otherwise participate in, any Multi-Employer Plan. (iii) There are no voluntary employees' beneficiary associations under IRC Section 501(c)(9) whose members include employees of the Company. (iv) There are, and have been, no ERISA Affiliates. (v) The Company has performed all of its respective obligations under all Company Plans and Company Other Benefit Obligations. The Company has made appropriate entries in its financial records and statements for all obligations and liabilities under such Plans and Obligations that have accrued but are not due. (vi) No statement, either written or oral, has been made by the Company to any Person with regard to any Plan or Other Benefit Obligation that was not in accordance with the Plan or Other Benefit Obligation and that could have an adverse economic consequence to the Company or to Buyer. (vii) The Company, with respect to all Company Plans and Company Other Benefits Obligations is, and each Company Plan and Company Other Benefit Obligation is, in full compliance with ERISA, the IRC, and other applicable Laws including the provisions of such Laws expressly mentioned in this Section 3.13, and with any applicable collective bargaining agreement. (A) No transaction prohibited by ERISA Section 406 and no "prohibited transaction" under IRC Section 4975(c) has occurred with respect to any Company Plan. (B) All filings required by ERISA and the IRC as to each Plan have been timely filed, and all notices and disclosures to participants required by either ERISA or the IRC have been timely provided. (C) All contributions and payments made or accrued with respect to all Company Plans and Company Other Benefit Obligations are deductible under IRC Section 162 or Section 404. No amount, or any asset of any Company Plan is subject to tax as unrelated business taxable income. (viii) Each Company Plan can be terminated within thirty (30) days, without payment of any additional contribution or amount and without the vesting or acceleration of any benefits promised by such Plan. 14 (ix) No event has occurred or circumstance exists that could result in a material increase in premium costs of Company Plans and Company Other Benefit Obligations that are insured, or a material increase in benefit costs of such Plans and Obligations that are self-insured. (x) Other than claims for benefits submitted by participants or beneficiaries, no claim against, or legal proceeding involving, any Company Plan or Company Other Benefit Obligation is pending or, is Threatened. (xi) Each Qualified Plan of the Company is qualified in form and operation under IRC Section 401(a); each trust for each such Plan is exempt from federal income tax under IRC Section 501(a). No event has occurred or circumstance exists that will or could give rise to disqualification or loss of tax-exempt status of any such Plan or trust. (xii) Except to the extent required under ERISA Section 601 et seq. and IRC Section 4980B, the Company does not provide health or welfare benefits for any retired or former employee or is obligated to provide health or welfare benefits to any active employee following such employee's retirement or other termination of service. (xiii) Sellers and the Company have complied with the provisions of ERISA Section 601 et seq. and IRC Section 4980B. (xiv) No payment that is owed or may become due to any director, officer, employee, or agent of the Company will be non-deductible to the Company or subject to tax under IRC Section 280G or Section 4999; nor will the Company be required to "gross up" or otherwise compensate any such person because of the imposition of any excise tax on a payment to such person. (xv) The consummation of the Contemplated Transactions will not result in the payment, vesting, or acceleration of any benefit. 3.14 COMPLIANCE WITH LEGAL REQUIREMENTS; GOVERNMENTAL AUTHORIZATIONS. --------------------------------------------------------------- (a) Except as set forth in Part 3.14 of the Disclosure Letter: (i) the Company is, and at all times since January 1, 1995 has been, in full compliance with each Legal Requirement that is or was applicable to it or to the conduct or operation of its business or the ownership or use of any of its assets; (ii) no event has occurred or circumstance exists that (with or without notice or lapse of time) (A) may constitute or result in a violation by the Company of, or a failure on the part of the Company to comply with, any Legal Requirement, or (B) may give rise to any obligation on the part of the Company to undertake, or to bear all or any portion of the cost of, any remedial action of any nature; and 15 (iii) the Company has not received, at any time since January 1, 1995, any notice or other communication (whether oral or written) from any Governmental Body or any other Person regarding (A) any actual, alleged, possible, or potential violation of, or failure to comply with, any Legal Requirement, or (B) any actual, alleged, possible, or potential obligation on the part of the Company to undertake, or to bear all or any portion of the cost of, any remedial action of any nature. (b) Part 3.14 of the Disclosure Letter contains a complete and accurate list of each Governmental Authorization that is held by the Company or that otherwise relates to the business of, or to any of the assets owned or used by, the Company. Each Governmental Authorization listed or required to be listed in Part 3.14 of the Disclosure Letter is valid and in full force and effect. Except as set forth in Part 3.14 of the Disclosure Letter: (i) the Company is, and at all times since January 1, 1995 has been, in full compliance with all of the terms and requirements of each Governmental Authorization identified in Part 3.14 of the Disclosure Letter; (ii) no event has occurred or circumstance exists that may (with or without notice or lapse of time) (A) constitute or result directly or indirectly in a violation of or a failure to comply with any term or requirement of any Governmental Authorization listed in Part 3.14 of the Disclosure Letter, or (B) result directly or indirectly in the revocation, withdrawal, suspension, cancellation, or termination of, or any modification to, any Governmental Authorization listed in Part 3.14 of the Disclosure Letter; (iii) the Company has not received, at any time since January 1, 1995, any notice or other communication (whether oral or written) from any Governmental Body or any other Person regarding (A) any actual, alleged, possible, or potential violation of or failure to comply with any term or requirement of any Governmental Authorization, or (B) any actual, proposed, possible, or potential revocation, withdrawal, suspension, cancellation, termination of, or modification to any Governmental Authorization; and (iv) all applications required to have been filed for the renewal of the Governmental Authorizations listed in Part 3.14 of the Disclosure Letter have been duly filed on a timely basis with the appropriate Governmental Bodies, and all other filings required to have been made with respect to such Governmental Authorizations have been duly made on a timely basis with the appropriate Governmental Bodies. (v) the Governmental Authorizations listed in Part 3.14 of the Disclosure Letter collectively constitute all of the Governmental Authorizations necessary to permit the Company to lawfully conduct and operate its business in the manner it currently conducts and operates such business and to permit the Company to own and use its assets in the manner in which it currently owns and uses such assets. 16 3.15 LEGAL PROCEEDINGS; ORDERS. ------------------------- (a) Except as set forth in Part 3.15 of the Disclosure Letter, there is no pending Proceeding (i) that has been commenced by or against the Company or that otherwise relates to or may affect the business of, or any of the assets owned or used by, any the Company; or (ii) that challenges, or that may have the effect of preventing, delaying, making illegal, or otherwise interfering with, any of the Contemplated Transactions. No such Proceeding has been Threatened, and no event has occurred or circumstance exists that may give rise to or serve as a basis for the commencement of any such Proceeding. Sellers have delivered to Buyer copies of all pleadings, correspondence, and other documents relating to each Proceeding listed in Part 3.15 of the Disclosure Letter. The Proceedings listed in Part 3.15 of the Disclosure Letter will not have a material adverse effect on the business, operations, assets, condition, or prospects of the Company. (b) Except as set forth in Part 3.15 of the Disclosure Letter (i) there is no Order to which any of the Company, or any of the assets owned or used by the Company, is subject; and (ii) Seller is not subject to any Order that relates to the business of, or any of the assets owned or used by, the Company. (c) Except as set forth in Part 3.15 of the Disclosure Letter (i) the Company is, in full compliance with all of the terms and requirements of each Order to which it, is subject; (ii) no event has occurred or circumstance exists that may constitute or result in (with or without notice or lapse of time) a violation of or failure to comply with any term or requirement of any Order to which the Company, is subject; and (iii) the Company has not received, any notice or other communication (whether oral or written) from any Governmental Body or any other Person regarding any actual, alleged, possible, or potential violation of, or failure to comply with, any term or requirement of any Order to which the Company, is subject. 3.16 ABSENCE OF CERTAIN CHANGES AND EVENTS. Except as set forth in Part 3.16 of the Disclosure Letter, since the date of the Balance Sheet, the Company has conducted its businesses only in the Ordinary Course of Business and there has not been any: (a) change in the Company's authorized or issued capital stock; issuance, redemption, or transfer of any shares of capital stock; grant of any stock option, warrant or right to purchase shares of capital stock of the Company; issuance of any security convertible into such capital stock; grant of any registration rights; purchase, redemption, retirement, or other acquisition by any the Company of any shares of any such capital stock; or declaration or payment of any dividend or other distribution or payment in respect of shares of capital stock; (b) amendment to the Organizational Documents of the Company; (c) payment or increase by the Company of any bonuses, salaries, or other compensation to any stockholder, director, officer, or (except in the Ordinary Course of Business) employee, entry into any employment, severance, or similar Contract with any director, officer, or employee, or extending any loan or advance to any officer, director, or employee of the Company 17 or the Sellers; provided, however, Buyer acknowledges that the Company may repay an existing loan to WT and his spouse in an amount not to exceed $8,500 in the aggregate. (d) adoption of, or increase in the payments to or benefits under, any profit sharing, bonus, deferred compensation, savings, insurance, pension, retirement, or other employee benefit plan for or with any employees of the Company; (e) damage to or destruction or loss of any asset or property of the Company, whether or not covered by insurance, materially and adversely affecting the properties, assets, business, financial condition, or prospects of the Company, taken as a whole; (f) entry into, termination of, or receipt of notice of termination of (i) any license, distributorship, dealer, sales representative, joint venture, credit, or similar agreement, or (ii) any Contract or transaction involving a total remaining commitment by or to any the Company of at least $10,000; (g) termination of or receipt of notice of terminations of any existing relationship with employees or customers; (h) sale (other than sales of inventory in the Ordinary Course of Business), lease, or other disposition of any asset or property of the Company or mortgage, pledge, or imposition of any lien or other encumbrance on any asset or property of the Company, including the sale, lease, or other disposition of any of the Intellectual Property Assets; (i) cancellation or waiver of any claims or rights with a value to the Company in excess of $5,000; (j) material change in the accounting methods used by the Company; or (k) incurring of any material indebtedness (other than trade payables), or making of any significant capital expenditures; or (l) agreement, whether oral or written, by the Company to do any of the foregoing. 3.17 CONTRACTS; NO DEFAULTS. ---------------------- (a) Part 3.17(a) of the Disclosure Letter contains a complete and accurate list, and Sellers have delivered to Buyer true and complete copies, of: (i) each Applicable Contract that involves performance of services or delivery of goods or materials by the Company of an amount or value in excess of $5,000; (ii) each Applicable Contract that was not entered into in the Ordinary Course of Business and that involves expenditures or receipts of the Company in excess of $5,000; 18 (iii) each lease, rental or occupancy agreement, license, installment and conditional sale agreement, and other Applicable Contract affecting the ownership of, leasing of, title to, use of, or any leasehold or other interest in, any real or personal property (except personal property leases and installment and conditional sales agreements having a value per item or aggregate annual payments of less than $5,000 and with terms of less than one year); (iv) each licensing agreement or other Applicable Contract with respect to patents, trademarks, copyrights, or other intellectual property, including agreements with current or former employees, consultants, or contractors regarding the appropriation or the non-disclosure of any of the Intellectual Property Assets; (v) each collective bargaining agreement and other Applicable Contract to or with any labor union or other employee representative of a group of employees; (vi) each joint venture, partnership, and other Applicable Contract (however named) involving a sharing of profits, losses, costs, or liabilities by the Company with any other Person; (vii) each Applicable Contract containing covenants that in any way purport to restrict the business activity of the Company or limit the freedom of the Company to engage in any line of business or to compete with any Person; (viii) each Applicable Contract providing for payments to or by any Person based on sales, purchases, or profits, other than direct payments for goods; (ix) each power of attorney that is currently effective and outstanding; (x) each Applicable Contract entered into other than in the Ordinary Course of Business that contains or provides for an express undertaking by the Company to be responsible for consequential damages; (xi) each Applicable Contract for capital expenditures in excess of $5,000; and (xii) each written warranty, guaranty, and or other similar undertaking with respect to contractual performance extended by the Company other than in the Ordinary Course of Business. (b) Except as set forth in Part 3.17(b) of the Disclosure Letter: (i) No Seller (and no related person of a Seller) has or may acquire any rights under, and no Seller has or may become subject to any obligation or liability under, any Contract that relates to the business of, or any of the assets owned or used by, the Company; and 19 (ii) No officer, director, agent, employee, consultant, or contractor of the Company is bound by any Contract that purports to limit the ability of such officer, director, agent, employee, consultant, or contractor to (A) engage in or continue any conduct, activity, or practice relating to the business of the Company, or (B) assign to the Company or to any other Person any rights to any invention, improvement, or discovery. (c) Except as set forth in Part 3.17(c) of the Disclosure Letter, each Contract identified or required to be identified in Part 3.17(a) of the Disclosure Letter is in full force and effect and is valid and enforceable in accordance with its terms. (d) Except as set forth in Part 3.17(d) of the Disclosure Letter: (i) The Company is in full compliance with all applicable terms and requirements of each Contract under which it has any obligation or by which the Company or any of the assets owned or used by the Company is bound; (ii) each other Person that has any obligation under any Contract under which the Company has any rights is in full compliance with all applicable terms and requirements of such Contract; (iii) no event has occurred or circumstance exists that (with or without notice or lapse of time) may contravene, or result in a violation or breach of, or give the Company or other Person the right to declare a default or exercise any remedy under, or to accelerate the maturity or performance of, or to cancel, terminate, or modify, any Contract; and (iv) The Company has not given to or received from any other Person, any notice or other communication (whether oral or written) regarding any actual, alleged, or potential violation or breach of, or default under, any Contract. (e) There are no renegotiations of, attempts to renegotiate, or outstanding rights to renegotiate any material amounts paid or payable to the Company under current or completed Contracts with any Person, and no such Person has made written demand for such renegotiation. (f) The Contracts relating to the sale or provision of products or services by the Company have been entered into in the Ordinary Course of Business and have been entered into without the commission of any act alone or in concert with any other Person, or any consideration having been paid or promised, that is or would be in violation of any Legal Requirement. (g) The Company is not restricted by any Contract from marketing any product of the Company in any geographical territory in the world. (h) Except as disclosed in Part 3.17(h) of the Disclosure Letter, neither the Company nor any Seller is party to any distributor agreement or any marketing arrangement with Dematex, Inc., IMTEX, Inc., Micheal Tobias or any of their Affiliates; PROVIDED, HOWEVER, the Sellers shall provide full indemnity to the Buyer for any claim and related costs of defense related 20 to any relationship or purported relationship between the Company or any Seller and Dematex, Inc., IMTEX, Inc., Micheal Tobias or any of their Affiliates. 3.18 INSURANCE. --------- (a) Sellers have delivered to Buyer: (i) true and complete copies of all policies of insurance to which the Company is a party or under which the Company, or any director of the Company, is or has been covered at any time within the five (5) years preceding the date of this Agreement; (ii) true and complete copies of all pending applications for policies of insurance; and (iii) any statement by the auditor of the Company's financial statements with regard to the adequacy of such entity's coverage or of the reserves for claims. (b) Part 3.18(b) of the Disclosure Letter describes: (i) any self-insurance arrangement by or affecting the Company, including any reserves established thereunder; (ii) any contract or arrangement, other than a policy of insurance, for the transfer or sharing of any risk by the Company; and (iii) all obligations of the Company to third parties with respect to insurance (including such obligations under leases and service agreements) and identifies the policy under which such coverage is provided. (c) Part 3.18(c) of the Disclosure Letter sets forth, a statement describing each claim under an insurance policy for an amount in excess of $10,000, and (d) Except as set forth on Part 3.18(d) of the Disclosure Letter: (i) All policies to which the Company is a party or that provide coverage to either Seller, the Company, or any director or officer of the Company: (A) are valid, outstanding, and enforceable; (B) are issued by an insurer that is financially sound and reputable; (C) taken together, provide adequate insurance coverage for the assets and the operations of the Company for all risks normally insured against by a Person carrying on the same business or businesses as the Company; 21 (D) are sufficient for compliance with all Legal Requirements and Contracts to which the Company is a party or by which it is bound; (E) will continue in full force and effect following the Closing Date; and (F) do not provide for any retrospective premium adjustment or other experienced-based liability on the part of the Company. (ii) The Company has not received (A) any refusal of coverage or any notice that a defense will be afforded with reservation of rights, or (B) any notice of cancellation or any other indication that any insurance policy is no longer in full force or effect or will not be renewed or that the issuer of any policy is not willing or able to perform its obligations thereunder. (iii) The Company has paid all premiums due, and have otherwise performed all of its respective obligations, under each policy to which the Company is a party or that provides coverage to the Company or a director thereof. (iv) The Company has given timely notice to the insurer of all claims that may be insured thereby. 3.19 ENVIRONMENTAL MATTERS. Except as set forth in Part 3.19 of the Disclosure Letter: (a) The Company is, and at all times has been, in full compliance with, and has not been and is not in violation of or liable under, any Environmental Law. No Seller or the Company has any basis to expect, nor has any of them or any other Person for whose conduct they are or may be held to be responsible received, any actual or Threatened order, notice, or other communication from (i) any Governmental Body or private citizen acting in the public interest, or (ii) the current or prior owner or operator of any Facilities, of any actual or potential violation or failure to comply with any Environmental Law, or of any actual or Threatened obligation to undertake or bear the cost of any Environmental, Health, and Safety Liabilities with respect to any of the Facilities or any other properties or assets (whether real, personal, or mixed) in which Sellers or the Company has had an interest, or with respect to any property or Facility at or to which Hazardous Materials were generated, manufactured, refined, transferred, imported, used, or processed by Sellers, the Company, or any other Person for whose conduct they are or may be held responsible, or from which Hazardous Materials have been transported, treated, stored, handled, transferred, disposed, recycled, or received. (b) There are no pending or Threatened claims, Encumbrances, or other restrictions of any nature, resulting from any Environmental, Health, and Safety Liabilities or arising under or pursuant to any Environmental Law, with respect to or affecting any of the Facilities or any other properties and assets (whether real, personal, or mixed) in which Sellers or the Company has or had an interest. 22 (c) No Seller or the Company has any basis to expect, nor has any of them or any other Person for whose conduct they are or may be held responsible, received, any citation, directive, inquiry, notice, Order, summons, warning, or other communication that relates to Hazardous Activity, Hazardous Materials, or any alleged, actual, or potential violation or failure to comply with any Environmental Law, or of any alleged, actual, or potential obligation to undertake or bear the cost of any Environmental, Health, and Safety Liabilities with respect to any of the Facilities or any other properties or assets (whether real, personal, or mixed) in which Sellers or the Company had an interest, or with respect to any property or facility to which Hazardous Materials generated, manufactured, refined, transferred, imported, used, or processed by Sellers, the Company, or any other Person for whose conduct they are or may be held responsible, have been transported, treated, stored, handled, transferred, disposed, recycled, or received. (d) No Seller or the Company, or any other Person for whose conduct they are or may be held responsible, has any Environmental, Health, and Safety Liabilities with respect to the Facilities or with respect to any other properties and assets (whether real, personal, or mixed) in which Sellers or the Company (or any predecessor), has or had an interest, or at any property geologically or hydrologically adjoining the Facilities or any such other property or assets. (e) There are no Hazardous Materials present on or in the Environment at the Facilities or at any geologically or hydrologically adjoining property, including any Hazardous Materials contained in barrels, above or underground storage tanks, landfills, land deposits, dumps, equipment (whether moveable or fixed) or other containers, either temporary or permanent, and deposited or located in land, water, sumps, or any other part of the Facilities or such adjoining property, or incorporated into any structure therein or thereon. Each of the Sellers, the Company, any other Person for whose conduct the Sellers or the Company are or may be held responsible, or any other Person, has not permitted, conducted, or is aware of, any Hazardous Activity conducted with respect to the Facilities or any other properties or assets (whether real, personal, or mixed) in which Sellers or the Company has or had an interest. (f) There has been no Release or Threat of Release of any Hazardous Materials at or from the Facilities or at any other locations where any Hazardous Materials were generated, manufactured, refined, transferred, produced, imported, used, or processed from or by the Facilities, or from or by any other properties and assets (whether real, personal, or mixed) in which Sellers or the Company has or had an interest, or any geologically or hydrologically adjoining property, whether by Sellers, the Company, or any other Person. (g) Sellers have delivered to Buyer true and complete copies and results of any reports, studies, analyses, tests, or monitoring possessed or initiated by Sellers or the Company pertaining to Hazardous Materials or Hazardous Activities in, on, or under the Facilities, or concerning compliance by Sellers, the Company, or any other Person for whose conduct they are or may be held responsible, with Environmental Laws. -23- 3.20 EMPLOYEES. --------- (a) Part 3.20 of the Disclosure Letter contains a complete and accurate list of the following information for each employee or director of the Company, name; job title; current compensation paid or payable and any change in compensation since January 1, 1996; vacation accrued; and service credited for purposes of vesting and eligibility to participate under the Company's pension, retirement, profit-sharing, thrift-savings, deferred compensation, stock bonus, stock option, cash bonus, employee stock ownership (including investment credit or payroll stock ownership), severance pay, insurance, medical, welfare, or vacation plan, other Employee Pension Benefit Plan or Employee Welfare Benefit Plan, or any other employee benefit plan or any Director Plan. (b) No employee or director of the Company is a party to, or is otherwise bound by, any agreement or arrangement, including any confidentiality, non-competition, or proprietary rights agreement, between such employee or director and any other Person ("Proprietary Rights Agreement") that in any way adversely affects or will affect (i) the performance of his duties as an employee or director of the Company, or (ii) the ability of the Company to conduct its business, including any Proprietary Rights Agreement with Sellers or the Company by any such employee or director. No director, officer, or other key employee of the Company intends to terminate his employment with the Company except as disclosed in Part 3.20 of the Disclosure Letter. (c) Part 3.20 of the Disclosure Letter also contains a complete and accurate list of the following information for each retired employee or director of the Company, or their dependents, receiving benefits or scheduled to receive benefits in the future: name, pension benefit, pension option election, retiree medical insurance coverage, retiree life insurance coverage, and other benefits. 3.21 LABOR RELATIONS; COMPLIANCE. The Company has not been and is not a party to any collective bargaining or other labor Contract. There has not been, there is not presently pending or existing, and there is not Threatened, (a) any strike, slowdown, picketing, work stoppage, or employee grievance process, (b) any Proceeding against or affecting the Company relating to the alleged violation of any Legal Requirement pertaining to labor relations or employment matters, including any charge or complaint filed by an employee or union with the National Labor Relations Board, the Equal Employment Opportunity Commission, or any comparable Governmental Body, organizational activity, or other labor or employment dispute against or affecting any of the Company or its premises, or (c) any application for certification of a collective bargaining agent. No event has occurred or circumstance exists that could provide the basis for any work stoppage or other labor dispute. The Company has complied in all respects with all Legal Requirements relating to employment, equal employment opportunity, nondiscrimination, immigration, wages, hours, benefits, collective bargaining, the payment of social security and similar taxes, occupational safety and health, and plant closing. The Company is not liable for the payment of any compensation, damages, taxes, fines, penalties, or other amounts, however designated, for failure to comply with any of the foregoing Legal Requirements. 24 3.22 INTELLECTUAL PROPERTY. --------------------- (a) Intellectual Property Assets. The term "Intellectual Property Assets" -------------------------------------------------------------------- includes: - -------- (i) the Company's name, all fictional business names, trading names, registered and unregistered trademarks, service marks, and applications (collectively, "Marks"); (ii) all patents, patent applications, and inventions and discoveries that may be patentable (collectively, "Patents"); (iii) all copyrights in both published works and unpublished works (collectively, "Copyrights"); and (iv) all know-how, trade secrets, confidential information, customer lists, software, technical information, data, process technology, plans, drawings, and blue prints (collectively, "Trade Secrets") owned, used, or licensed by the Company as licensee or licensor. (b) Agreements. Part 3.22(b) of the Disclosure Letter contains a complete and accurate list and summary description, including any royalties paid or received by the Company, of all Contracts relating to the Intellectual Property Assets to which the Company is a party or by which the Company is bound, except for any license implied by the sale of a product and perpetual, paid-up licenses for commonly available software programs with a value of less than $10,000 under which the Company is the licensee. There are no outstanding and no Threatened disputes or disagreements with respect to any such agreement. (c) Know-How Necessary for the Business. ----------------------------------- (i) The Intellectual Property Assets are all those necessary for the operation of the Company's businesses as they are currently conducted. Except as set forth in Part 3.22(c) of the Disclosure Letter, the Company is the owner of all right, title, and interest in and to each of the Intellectual Property Assets, free and clear of all Encumbrances, and has the right to use without payment to a third party all of the Intellectual Property Assets. (ii) No employee of the Company has entered into any Contract that restricts or limits in any way the scope or type of work in which the employee may be engaged or requires the employee to transfer, assign, or disclose information concerning his work to anyone other than the Company. (d) Patents ------- (i) Part 3.22(d) of the Disclosure Letter contains a complete and accurate list and summary description of all Patents. Except as set forth in Part 3.22(d) of the Disclosure Letter, the Company is the owner of all right, title, and interest in and to each of the Patents, free and clear of all Encumbrances. 25 (ii) All of the issued Patents are currently in compliance with formal legal requirements (including payment of filing, examination, and maintenance fees and proofs of working or use), are valid and enforceable, and are not subject to any maintenance fees or taxes or actions falling due within ninety (90) days after the Closing Date. (iii) Except as set forth in Part 3.22(d) of the Disclosure Letter, no Patent has been or is now involved in any interference, reissue, reexamination, or opposition proceeding and there is no potentially interfering patent or patent application of any third party. (iv) Except as set forth in Part 3.22(d) of the Disclosure Letter, no Patent is infringed or has been challenged or threatened in any way. Except as set forth in Part 3.22(d) of the Disclosure Letter, none of the products manufactured and sold, nor any process or know-how used, by the Company infringes or is alleged to infringe any patent or other proprietary right of any other Person. (e) Trademarks ---------- (i) Part 3.22(e) of Disclosure Letter contains a complete and accurate list and summary description of all Marks. The Company is the owner of all right, title, and interest in and to each of the Marks, free and clear of all Encumbrances. (ii) All Marks that have been registered with the United States Patent and Trademark Office are currently in compliance with all formal legal requirements (including the timely post-registration filing of affidavits of use and incontestability and renewal applications), are valid and enforceable, and are not subject to any maintenance fees or taxes or actions falling due within ninety (90) days after the Closing Date. (iii) No Mark has been or is now involved in any opposition, invalidation, or cancellation and no such action is Threatened with the respect to any of the Marks. (iv) There is no potentially interfering trademark or trademark application of any third party. (v) No Mark is infringed or has been challenged or threatened in any way and none of the Marks used by the Company infringes or is alleged to infringe any trade name, trademark, or service mark of any third party. (vi) All products and materials containing a Mark bear the proper federal registration notice where permitted by law. 26 (f) Copyrights ---------- (i) Part 3.22(f) of the Disclosure Letter contains a complete and accurate list and summary description of all Copyrights. The Company is the owner of all right, title, and interest in and to each of the Copyrights, free and clear of all Encumbrances. (ii) All Copyrights have been registered and are currently in compliance with formal legal requirements, are valid and enforceable, and are not subject to any maintenance fees or taxes or actions falling due within ninety (90) days after the date of Closing. (iii) No Copyright is infringed has been challenged or threatened in any way and none of the subject matter of any of the Copyrights infringes or is alleged to infringe any copyright of any third party or is a derivative work based on the work of a third party. (iv) All works encompassed by the Copyrights have been marked with the proper copyright notice. (g) Trade Secrets ------------- (i) With respect to each Trade Secret, the documentation relating to such Trade Secret is current, accurate, and sufficient in detail and content to identify and explain it and to allow its full and proper use without reliance on the knowledge or memory of any individual. (ii) Sellers and the Company have taken all reasonable precautions to protect the secrecy, confidentiality, and value of their Trade Secrets. (iii) The Company has good title and an absolute (but not necessarily exclusive) right to use the Trade Secrets and the Trade Secrets are not part of the public knowledge or literature, and have not been used, divulged, or appropriated either for the benefit of any Person or to the detriment of the Company and no Trade Secret is subject to any adverse claim or has been challenged or Threatened in any way. 3.23 CERTAIN PAYMENTS. Neither the Company nor any director, officer, agent, employee of the Company, or any other Person associated with or acting for or on behalf of the Company, has directly or indirectly (a) made any contribution, gift, bribe, rebate, payoff, influence payment, kickback, or other payment to any Person, private or public, regardless of form, whether in money, property, or services (i) to obtain favorable treatment in securing business, (ii) to pay for favorable treatment for business secured, (iii) to obtain special concessions or for special concessions already obtained, for or in respect of the Company, or (iv) in violation of any Legal Requirement, (b) established or maintained any fund or asset that has not been recorded in the books and records of the Company. 3.24 RELATIONSHIPS WITH RELATED PERSONS. Except as disclosed in Part 3.24 of the Disclosure Letter, no Seller or any related person of Sellers or of the Company has any interest in any property (whether real, personal, or mixed and whether tangible or intangible), 27 used in or pertaining to the Company businesses. Except as disclosed in Part 3.24 of the Disclosure Letter, no Seller or any related person of Sellers or of the Company is a Person that has (i) had business dealings or a material financial interest in any transaction with the Company other than business dealings or transactions conducted in the Ordinary Course of Business with the Company at substantially prevailing market prices and on substantially prevailing market terms, or (ii) engaged in competition with the Company with respect to any line of the products or services of the Company (a "Competing Business") in any market presently served by the Company. Except as set forth in Part 3.24 of the Disclosure Letter, no Seller or any related person of Sellers or of the Company is a party to any Contract with, or has any claim or right against, the Company. 3.25 BROKERS OR FINDERS. Sellers and their agents have incurred no obligation or liability, contingent or otherwise, for brokerage or finders' fees or agents' commissions or other similar payment in connection with this Agreement. 3.26 DISCLOSURE. No representation or warranty of Sellers in this Agreement and no statement in the Disclosure Letter fails to state a material fact or contains an untrue statement, necessary to make the statements herein or therein, in light of the circumstances in which they were made, not misleading. 4. REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer represents and warrants to Sellers as follows: 4.1 ORGANIZATION AND GOOD STANDING. Buyer is a corporation duly organized, validly existing, and in good standing under the laws of the State of Delaware. 4.2 AUTHORITY; NO CONFLICT. (a) This Agreement constitutes the legal, valid, and binding obligation of Buyer, enforceable against Buyer in accordance with its terms. Buyer has the absolute and unrestricted right, power, and authority to execute and deliver this Agreement and to perform its obligations under this Agreement. (b) Neither the execution and delivery of this Agreement by Buyer, nor the consummation or performance of any of the Contemplated Transactions by Buyer, will give any Person the right to prevent, delay, or otherwise interfere with any of the Contemplated Transactions pursuant to (i) any provision of Buyer's Organizational Documents; (ii) any resolution adopted by the board of directors of Buyer; (iii) any Legal Requirement or Order to which Buyer may be subject; or (iv) any Contract to which Buyer is a party or by which Buyer may be bound. (c) Except as provided in Schedule 4.2, Buyer is not and will not be required to obtain any Consent from any Person in connection with the execution and delivery of this Agreement or the consummation or performance of any of the Contemplated Transactions. 4.3 CERTAIN PROCEEDINGS. There is no pending Proceeding that has been commenced or Threatened against Buyer and that challenges, or may have the effect of preventing, delaying, making illegal, or otherwise interfering with, any of the Contemplated Transactions. 28 4.4 BROKERS OR FINDERS. Buyer and its officers and agents have incurred no obligation or liability, contingent or otherwise, for brokerage or finders' fees or agents' commissions or other similar payment in connection with this Agreement and will indemnify and hold Sellers harmless from any such payment alleged to be due by or through Buyer as a result of the action of Buyer or its officers or agents. 5. COVENANTS OF SELLERS PRIOR TO CLOSING DATE. 5.1 ACCESS AND INVESTIGATION. Between the date of this Agreement and the Closing Date, Sellers will, and will cause the Company and its Representatives to, (a) afford Buyer and its Representatives and prospective lenders and their Representatives (collectively, "Buyer's Advisors") full and free access to the Company's personnel, properties, contracts, books and records, and other documents and data, (b) furnish Buyer and Buyer's Advisors with copies of all such contracts, books and records, and other existing documents and data as Buyer may reasonably request, and (c) furnish Buyer and Buyer's Advisors with such additional financial, operating and other data and information as Buyer may reasonably request. 5.2 OPERATION OF THE BUSINESS OF THE COMPANY. Between the date of this Agreement and the Closing Date, Sellers will, and will cause the Company to: (a) Conduct the business of the Company only in the Ordinary Course of Business; (b) Use their best efforts to preserve intact the current business organization of the Company, keep available the services of current officers, employees and agents of the Company, and maintain the relations and good will with suppliers, customers, landlords, creditors, employees, agents and others having business relationship with the Company; (c) Confer with Buyer concerning operational matters of a material nature; and (d) Otherwise report periodically to Buyer concerning the status of the business, operations and finances of the Company. 5.3 NEGATIVE COVENANT. Except otherwise permitted by this Agreement, between the date of this Agreement and the Closing Date, Sellers will not, and will cause the Company not to, without the prior written consent of Buyer, take any affirmative action, or fail to take any reasonable action within their or its control, as a result of the occurrence or likelihood of occurrence of any of the changes or events listed in Section 3.16. 5.4 REQUIRED APPROVALS. As promptly as practicable after the date of this Agreement, Sellers will, and will cause the Company to, make all filings required by Legal Requirements to be made by them in order to commensurate the Contemplated Transactions. Between the date of this Agreement and the Closing Date, Sellers will, and will cause the Company 29 to, cooperate with Buyer with respect to all filings that Buyer elects to make or is required by Legal Requirements to make in connection with the Contemplated Transactions. 5.5 NOTIFICATION. Between the date of this Agreement and the Closing Date, each Seller will promptly notify Buyer in writing if such Seller or the Company becomes aware of any fact or condition that causes or constitutes a Breach of any of Sellers' representations and warranties as of the date of this Agreement, or if such Seller or the Company becomes aware of the occurrence after the date of this Agreement of any fact or condition that would (except as expressly contemplated by this Agreement) cause or constitute a Breach of any such representation or warranty had such representation or warranty been made as of the time of occurrence or discovery of such fact or condition. Should any such fact or condition require any change in the Disclosure Letter if the Disclosure Letter were dated as of the date of occurrence or discovery of any such fact or condition, Sellers will promptly deliver to Buyer a supplement to the Disclosure Letter specifying such change. During the same period, each Seller will promptly notify Buyer of the occurrence of any Breach of any covenant of Sellers in this Section 5 or of the occurrence of any event that may make satisfaction of the conditions in Section 7 impossible or unlikely. 5.6 PAYMENT OF INDEBTEDNESS BY AFFILIATES. Except as expressly provided in this Agreement, Sellers will cause all indebtedness owing to the Company by either Sellers or any Affiliate of Sellers to be paid in full prior to the Closing. 5.7 NO NEGOTIATION. Until such time, if any, as this Agreement is terminated pursuant to Section 9, Sellers will not, and will cause the Company and each of their representatives not to, directly or indirectly, solicit, initiate or encourage any inquiries or proposals from, discussions or negotiations with, provide a non-public information to, or consider the merits of any unsolicited inquiries or proposals from, any Person (other than Buyer) relating to any transaction involving the sale of the business or assets (other than in the Ordinary Course of Business) of the Company, or any of the capital stock of the Company, or any merger, consolidation, business combination, or similar transaction involving the Company. 5.8 BEST EFFORTS. Between the date of this Agreement and the Closing Date, Sellers will use their best efforts to cause the conditions in Sections 7 and 8 to be satisfied. 6. COVENANTS OF BUYER PRIOR TO CLOSING DATE. 6.1 APPROVALS OF GOVERNMENTAL BODIES. As promptly as practicably after the date of this Agreement, Buyer will make all filings required by Legal Requirements to be made to consummate the Contemplate Transactions. Between the date of this Agreement and the Closing Date, Buyer will cooperate with Sellers with respect to all filings that Sellers are required to by Legal Requirements to make in connection with Contemplated Transactions, provided that this Agreement will not require Buyer to dispose of or make any change in any portion of its business or to incur any other burden to obtain a Governmental Authorization. 30 6.2 BEST EFFORTS. Except as is set forth in the provisos to Section 6.1, between the date of this Agreement and the Closing Date, Buyer will use its best efforts to cause the conditions in Section 7 and 8 to be satisfied. 7. CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE. Buyer's obligation to purchase the Shares and to take the other actions required to be taken by Buyer at the Closing is subject to the satisfaction, at or prior to the Closing of each of the following conditions (any of which may be waived by Buyer, in whole or in part); 7.1 ACCURACY OF REPRESENTATIONS. All of Sellers' representations and warranties in this Agreement (considered collectively), and each of these representations and warranties (considered individually), must have been accurate in all material respects as of the date of this Agreement, and must be accurate in all material respects as of the Closing Date as if made on the Closing Date, without giving effect to any supplement to the Disclosure Letter. 7.2 SELLERS' PERFORMANCE. (a) All of the covenants and obligations that Sellers are required to perform or to comply with pursuant to this Agreement at or prior to the Closing (considered collectively), and each of the covenants and obligations (considered individually), must have been fully performed and complied with in all material respects. (b) Each document required to be delivered pursuant to Section 2.4 must have been delivered, and each of the other covenants and obligations in Section 5 must have been performed and complied with in all respects. 7.3 CONSENTS. Each of the consents identified in Part 3.2 of the Disclosure Letter must have been obtained and must be in full force and effect. 7.4 ADDITIONAL CONDITIONS. Each of the following conditions must have been satisfied to the satisfaction of Buyer: (a) Buyer will have completed all of its legal and financial due diligence of the Company, the results of which will have been satisfactory to Buyer. (b) WT will have negotiated and entered into, on behalf of the Company, lease agreements for the following locations of the Company on terms satisfactory to Buyer: (i) With respect to the Company's assembly facility (Patterson Road), a renewal of the existing lease through at least August 31, 1998 at the same rental rate and on the same terms as currently in effect; and (ii) With respect to the Company's research and development facility and general offices facility (Reynolda Road), a lease for a term of two (2) years from the Closing Date. The rental rate shall be the average of the two (2) MAI appraisals (or such other appraisal 31 standard as agreed upon by Buyer and WT) (one commissioned by each of Buyer and WT) prepared on a "gross" lease basis. (c) Buyer shall have secured financing on terms satisfactory to Buyer for the consummation of the Contemplated Transactions. (d) Buyer shall have received such other documents as Buyer may reasonably request for the purpose of evidencing the accuracy of Sellers' representations and warranties and performance of covenants to be complied with pursuant to the terms of this Agreement. 7.5 NO PROCEEDINGS. Since the day of this Agreement there must not have been any commenced or Threatened against Buyer or any Person affiliated with Buyer, any Proceeding (i) involving any challenge to, or seeking damages or other relief in connection with, any of the Contemplated Transactions, or (ii) that may have the effect of preventing, delaying, making illegal, or otherwise interfering with any of the Contemplated Transactions. 7.6 NO CLAIM REGARDING STOCK OWNERSHIP OR SALE PROCEEDS. There must have not been made or Threatened by any Person any claim asserting that such Person (i) is the holder or the beneficial owner of, or has the right to acquire or to obtain beneficial ownership of, any stock of, or any other voting, equity or ownership interest in, the Company or (ii) is entitled to all or any portion of the Purchase Price payable for the Shares. 7.7 NO PROHIBITION. Neither the consummation nor the performance of any of the Contemplated Transactions will, directly or indirectly (with or without notice or lapse of time), materially contravene, or conflict with, or result in a material violation of, or cause buyer or any Person affiliated with Buyer to suffer any material adverse consequence under, any applicable Legal Requirement or Order. 8. CONDITIONS PRECEDENT TO SELLERS' OBLIGATION TO CLOSE. Sellers' obligation to sell the Shares and to take the actions required to be taken by Sellers at the Closing is subject to the satisfaction, at or prior to the Closing, of each of the following conditions (any of which may be waived by Sellers, in whole or in part): 8.1 ACCURACY OF REPRESENTATIONS. All of Buyer's representations and warranties in this Agreement (considered collectively), and each of these representations and warranties (considered individually), must have been accurate in all material respects as of the date of this Agreement and must be accurate in all material respects as of the Closing Date as if made on the Closing Date. 8.2 BUYER'S PERFORMANCE. All of the covenants and obligations that Buyer is required to perform or to comply with pursuant to this Agreement at or prior to the Closing (considered collectively), and each of these covenants and obligations (considered individually), must have been performed and complied with in all material respects. 32 8.3 CONSENTS. Each of the consents identified in Part 3.2 of the Disclosure Letter must have been obtained and must be in full force and effect. 8.4 RELEASE OF GUARANTY. WT and his spouse shall have been released from their personal guaranty of all obligations of the Company owing to First Citizens' Bank. 8.5 NO INJUNCTION. There must not be any Legal Requirement or any injunction or other Order that (i) prohibits the sale of the Shares by Sellers to Buyer and (ii) has been adopted or issued, or has otherwise become effective, since the date of this Agreement. 9. TERMINATION. ----------- 9.1 TERMINATION EVENTS. This Agreement may, by notice given prior to or at the Closing, be terminated (a) by either Buyer or Sellers if a material Breach of any provision of this Agreement has been committed by the other party and such Breach has not been waived; (b)(i) by Buyer if any of the conditions set forth in Section 7 has not been satisfied as of the Closing Date or if satisfaction of such a condition is or becomes impossible (other than through the failure of Buyer to comply with its obligations under this Agreement) and Buyer has not waived such condition on or before the Closing Date; or (ii) by Sellers, if any of the conditions in Section 8 has not been satisfied as of the Closing Date or if satisfaction of such a condition is or becomes impossible (other than through the failure of Sellers to comply with their obligations under this Agreement) and Sellers have not waived such condition on or before the Closing Date; (c) by mutual consent of Buyer and Sellers; or (d) by either Buyer or Sellers if the Closing has not occurred (other than through the failure of any party seeking to terminate this Agreement to comply fully with its obligations under this Agreement) on or before February 6, 1998, or such later date as the parties may agree upon. 9.2 Each party's right of termination under Section 9.1 is in addition to any other rights it may have under this Agreement or otherwise, and the exercise of a right of termination will not be an election of remedies. If this Agreement is terminated pursuant to Section 9.1, all further obligations of the parties under this Agreement will terminate, except that the obligations in Sections 11.1 and 11.3 will survive; provided, however, that if this Agreement is terminated by a party because of the Breach of the Agreement by the other party or because one or more of the conditions to the terminating party's obligations under this Agreement is not satisfied as a result of the other party's failure to comply with its obligations under this Agreement, the terminating party's right to pursue all legal remedies will survive such termination unimpaired. 10. INDEMNIFICATION; REMEDIES. ------------------------- 10.1 SURVIVAL; RIGHT TO INDEMNIFICATION NOT AFFECTED BY KNOWLEDGE. All representations, warranties, covenants, and obligations in this Agreement, the Disclosure Letter, and any other certificate or document delivered pursuant to this Agreement will survive the Closing. The right to indemnification, payment of Damages or other remedy based on such representations, warranties, covenants, and obligations will not be affected by any investigation conducted with respect to, or any knowledge acquired (or capable of being acquired) 33 at any time, whether before or after the execution and delivery of this Agreement or the Closing Date, with respect to the accuracy or inaccuracy of or compliance with, any such representation, warranty, covenant, or obligation. The waiver of any condition based on the accuracy of any representation or warranty, or on the performance of or compliance with any covenant or obligation, will not affect the right to indemnification, payment of Damages, or other remedy based on such representations, warranties, covenants, and obligations. 10.2 INDEMNIFICATION AND PAYMENT OF DAMAGES BY SELLERS. Sellers will jointly and severally indemnify and hold harmless Buyer, the Company, and their respective Representatives, stockholders, controlling persons, and Affiliates (collectively, the "Indemnified Persons") for, and will pay to the Indemnified Persons the amount of, any loss, liability, claim, damage expense (including costs of investigation and defense and reasonable attorneys' fees) or diminution of value, whether or not involving a third-party claim (collectively, "Damages"), arising, directly or indirectly, from or in connection with (i) any Breach of any representation or warranty made by Sellers in this Agreement, the Disclosure Letter, or any other certificate or document delivered by Sellers pursuant to this Agreement; (ii) any Breach by any Seller of any covenant or obligation of such Seller in this Agreement; or (iii) the claim of any third party for liabilities or obligations of the Company based on or arising out of the conduct of the Company's business prior to the Closing. The remedies provided in this Section 10.2 will not be exclusive of or limit any other remedies that may be available to Buyer or the other Indemnified Persons. 10.3 INDEMNIFICATION AND PAYMENT OF DAMAGES BY BUYER. Buyer will indemnify and hold harmless Sellers, their respective heirs, executors and personal representatives, and will pay to Sellers, their respective heirs, executors and personal representatives the amount of any Damages arising, directly or indirectly, from or in connection with (i) any Breach of any representation or warranty made by Buyer in this Agreement; or (ii) any Breach by Buyer of any covenant or obligation of Buyer in this Agreement which is to be performed by Buyer after the Closing. 10.4 PROCEDURE FOR INDEMNIFICATION--THIRD PARTY CLAIMS. (a) Promptly after receipt by an indemnified party under Section 10.2 or 10.3 of notice of the commencement of any Proceeding against it, such indemnified party will, if a claim is to be made against an indemnifying party under such Section, give notice to the indemnifying party of the commencement of such claim, but the failure to notify the indemnifying party will not relieve the indemnifying party of any liability that it may have to any indemnified party, except to the extent that the indemnifying party demonstrates that the defense of such action is prejudiced by the indemnifying party's failure to give such notice. (b) If any Proceeding referred to in SECTION 10.4(a) is brought against an indemnified party and it gives notice to the indemnifying party of the commencement of such Proceeding, the indemnifying party will, unless the claim involves Taxes, be entitled to participate in such Proceeding and, to the extent that it wishes (unless (i) the indemnifying party is also a party to such Proceeding and the indemnified party determines in good faith that joint representation 34 would be inappropriate, or (ii) the indemnifying party fails to provide reasonable assurance to the indemnified party of its financial capacity to defend such Proceeding and provide indemnification with respect to such Proceeding) to assume the defense of such Proceeding with counsel satisfactory to the indemnified party and, after notice from the indemnifying party to the indemnified party of its election to assume the defense of such Proceeding, the indemnifying party will not, as long as it diligently conducts such defense, be liable to the indemnified party under this Section 10 for any fees of other counsel or any other expenses with respect to the defense of such Proceeding, in each case subsequently incurred by the indemnified party in connection with the defense of such Proceeding, other than reasonable costs of investigation. If the indemnifying party assumes the defense of a Proceeding, (i) it will be conclusively established for purposes of this Agreement that the claims made in that Proceeding are within the scope of and subject to indemnification; (ii) no compromise or settlement of such claims may be effected by the indemnifying party without the indemnified party's consent unless (A) there is no finding or admission of any violation of Legal Requirements or any violation of the rights of any Person and no effect on any other claims that may be made against the indemnified party, and (B) the sole relief provided is monetary damages that are paid in full by the indemnifying party; and (iii) the indemnified party will have no liability with respect to any compromise or settlement of such claims effected without its consent. If notice is given to an indemnifying party of the commencement of any Proceeding and the indemnifying party does not, within ten (10) days after the indemnified party's notice is given, give notice to the indemnified party of its election to assume the defense of such Proceeding, the indemnifying party will be bound in accordance with the terms of SECTION 10 by any determination made in such Proceeding or any compromise or settlement effected by the indemnified party. (c) Notwithstanding the foregoing, if an indemnified party determines in good faith that there is a reasonable probability that a Proceeding may adversely affect it or its Affiliates other than as a result of monetary damages for which it would be entitled to indemnification under this Agreement, the indemnified party may, by notice to the indemnifying party, assume the exclusive right to defend, compromise, or settle such Proceeding, but the indemnifying party will not be bound by any determination of a Proceeding so defended or any compromise or settlement effected without its consent (which may not be unreasonably withheld). (d) Sellers hereby consent to the non-exclusive jurisdiction of any court in which a Proceeding is brought against any Indemnified Person for purposes of any claim that an Indemnified Person may have under this Agreement with respect to such Proceeding or the matters alleged therein, and agree that process may be served on Sellers with respect to such a claim anywhere in the world. 10.5 PROCEDURE FOR INDEMNIFICATION--OTHER CLAIMS. A claim for indemnification for any matter not involving a third-party claim may be asserted by notice to the party from whom indemnification is sought. 35 11. GENERAL PROVISIONS. 11.1 EXPENSES. Except as otherwise expressly provided in this Agreement, each party to this Agreement will bear its respective expenses incurred in connection with the preparation, execution, and performance of this Agreement and the Contemplated Transactions, including all fees and expenses of agents, representatives, counsel, and accountants; provided, however, upon the Closing of the Contemplated Transactions, attorneys' and accountants' fees incurred by Sellers in connection with the Contemplated Transactions will be paid by the Company at or before the Closing to the extent such costs are determined to be reasonable by Sellers and Buyer. 11.2 PUBLIC ANNOUNCEMENTS. Any public announcement or similar publicity with respect to this Agreement or the Contemplated Transactions will be issued, if at all, at such time and in such manner as Buyer determines. Unless consented to by Buyer in advance or required by Legal Requirements, prior to the Closing, Sellers shall, and shall cause the Company to, keep the terms of this Agreement strictly confidential and may not make any disclosure of this Agreement to any Person. Sellers and Buyer will consult with each other concerning the means by which the Company employees, customers, and suppliers and others having dealings with the Company will be informed of the Contemplated Transactions, and Buyer will have the right to be present for any such communication. 11.3 CONFIDENTIALITY. Except as otherwise provided herein, the terms of the Confidentiality Agreement between Buyer, WT and the Company dated October 10, 1997, shall remain in full force and effect until the Closing Date. 11.4 NOTICES. All notices, consents, waivers, and other communications under this Agreement must be in writing and will be deemed to have been duly given when (a) delivered by hand (with written confirmation of receipt), (b) sent by telecopier (with written confirmation of receipt), provided that a copy is mailed by registered mail, return receipt requested, or (c) when received by the addressee, if sent by a nationally recognized overnight delivery service (receipt requested), in each case to the appropriate addresses and telecopier numbers set forth below (or to such other addresses and telecopier numbers as a party may designate by notice to the other parties): If to Sellers: William H. Todd c/o Todd Motion Controls, Inc. Post Office Box 11966 Winston-Salem, North Carolina 27106 Facsimile No.: 910-924-1750 with a copy to: H. David Niblock, Esq. Nelson, Boyles, Niblock & Green 101 Charlois Boulevard, Suite 102 Winston-Salem, North Carolina 27103 Facsimile No.: (910) 760-9013 36 If to Buyer: Robert S. Speizman, President Speizman Industries, Inc. P. O. Box 31215 Charlotte, North Carolina 28231 Facsimile No.: (704) 376-3153 with a copy to: Kilpatrick Stockton LLP 3500 One First Union Center 301 South College Street Charlotte, North Carolina 28202-6001 Attention: David B. Whelpley, Jr., Esq. Facsimile No.: (704) 338-5125 11.5 JURISDICTION; SERVICE OF PROCESS. Any action or proceeding seeking to enforce any provision of, or based on any right arising out of, this Agreement may be brought against any of the parties in the courts of the State of North Carolina, County of Mecklenburg, or, if it has or can acquire jurisdiction, in the United States District Court for the Western District of North Carolina and each of the parties consents to the jurisdiction of such courts (and of the appropriate appellate courts) in any such action or proceeding and waives any objection to venue laid therein. Process in any action or proceeding referred to in the preceding sentence may be served on any party anywhere in the world. 11.6 FURTHER ASSURANCES. The parties agree (i) to furnish upon request to each other such further information, (ii) to execute and deliver to each other such other documents, and (iii) to do such other acts and things, all as the other party may reasonably request for the purpose of carrying out the intent of this Agreement and the documents referred to in this Agreement. 11.7 WAIVER. The rights and remedies of the parties to this Agreement are cumulative and not alternative. Neither the failure nor any delay by any party in exercising any right, power, or privilege under this Agreement or the documents referred to in this Agreement will operate as a waiver of such right, power, or privilege, and no single or partial exercise of any such right, power, or privilege will preclude any other or further exercise of such right, power, or privilege or the exercise of any other right, power, or privilege. To the maximum extent permitted by applicable law, (i) no claim or right arising out of this Agreement or the documents referred to in this Agreement can be discharged by one party, in whole or in part, by a waiver or renunciation of the claim or right unless in writing signed by the other party; (ii) no waiver that may be given by a party will be applicable except in the specific instance for which it is given; and (iii) no notice to or demand on one party will be deemed to be a waiver of any obligation of such party or of the right of the party giving such notice or demand to take further action without notice or demand as provided in this Agreement or the documents referred to in this Agreement. 11.8 ENTIRE AGREEMENT AND MODIFICATION. This Agreement supersedes all prior agreements between the parties with respect to its subject matter (including the 37 Letter of Intent between Buyer and Sellers dated November 25, 1997, as amended) and constitutes (along with the documents referred to in this Agreement) a complete and exclusive statement of the terms of the agreement between the parties with respect to its subject matter. This Agreement may not be amended, except by a written agreement executed by the party to be charged with the amendment. 11.9 DISCLOSURE LETTER. (a) Any disclosure or exception by the Company or any Seller in this Agreement, in any exhibit or schedule hereto, or in the Disclosure Letter shall be deemed to be a disclosure and exception with respect to same and any applicable representation or warranty set forth in Section 3 hereinabove. (b) In the event of any inconsistency between the statements in the body of this Agreement and those in the Disclosure Letter (other than an exception expressly set forth as such in the Disclosure Letter with respect to a specifically identified representation or warranty), the statements in the body of this Agreement will control. 11.10 ASSIGNMENTS, SUCCESSORS, AND NO THIRD-PARTY RIGHTS. Neither party may assign any of its rights under this Agreement without the prior consent of the other parties, except that Buyer may assign any of its rights under this Agreement to any subsidiary of Buyer without the consent of the Sellers. Subject to the preceding sentence, this Agreement will apply to, be binding in all respects upon, and inure to the benefit of the successors and permitted assigns of the parties. Nothing expressed or referred to in this Agreement will be construed to give any Person other than the parties to this Agreement any legal or equitable right, remedy, or claim under or with respect to this Agreement or any provision of this Agreement. This Agreement and all of its provisions and conditions are for the sole and exclusive benefit of the parties to this Agreement and their successors and assigns. 11.11 SEVERABILITY. If any provision of this Agreement is held invalid or unenforceable by any court of competent jurisdiction, the other provisions of this Agreement will remain in full force and effect. Any provision of this Agreement held invalid or unenforceable only in part or degree will remain in full force and effect to the extent not held invalid or unenforceable. 11.12 SECTION HEADINGS, CONSTRUCTION. The headings of Sections in this Agreement are provided for convenience only and will not affect its construction or interpretation. Except as otherwise provided herein all references to "Section" or "Sections" refer to the corresponding Section or Sections of this Agreement. All words used in this Agreement will be construed to be of such gender or number as the circumstances require. Unless otherwise expressly provided, the word "including" does not limit the preceding words or terms. 11.13 TIME OF ESSENCE. With regard to all dates and time periods set forth or referred to in this Agreement, time is of the essence. 38 11.14 GOVERNING LAW. This Agreement will be governed by the laws of the State of North Carolina without regard to conflicts of laws principles. 11.15 COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which will be deemed to be an original copy of this Agreement and all of which, when taken together, will be deemed to constitute one and the same agreement. 39 IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of the date first written above. BUYER: ----- SPEIZMAN INDUSTRIES, INC. By: /s/ Robert S. Speizman -------------------------- Its: President --------- SELLERS: ------- /s/ William H. Todd --------------- William H. Todd /s/ Marion C. Todd --------------- Marion C. Todd /s/ Joseph Collins --------------- Joseph Collins /s/ Leon Locklear ------------- Leon Locklear CLTLIB01:343594.02\VER. 5 40 Exhibits and Schedules Exhibits 2.4(a)(ii) Seller's Release 2.4(a)(iii)(A) Employment Agreement of William Todd 2.4(a)(iii)(B) Employment Agreement of Joseph Collins 2.4(a)(iii)(C) Employment Agreement of Marion Todd 2.4(a)(iii)(D) Employment Agreement of Jonathan Freeman 2.4(a)(iii)(E) Employment Agreement of Thomas Reavis 2.4(a)(iv) Opinion of Nelson, Boyles, Niblock & Green Schedules A List of Sellers and Ownership Percentages 4.2 Required Buyer Consents EX-10 9 EXHIBIT 10.65 STATE OF NORTH CAROLINA ) : LEASE AGREEMENT COUNTY OF FORSYTH ) THIS LEASE AGREEMENT made this 6th day of February, 1998, by and between WILLIAM H. TODD and wife, JO ANNE TODD, of Forsyth County, North Carolina (hereinafter referred to as "LANDLORD"), and TODD MOTIONS CONTROLS, INC., a North Carolina business corporation (hereinafter referred to as "TENANT"). W I T N E S S E T H: -------------------- 1. LEASE OF PREMISES. The Tenant hereby agrees to rent and take upon the following terms and conditions hereinafter set forth that certain real property, including all of the improvements located thereon, located at 5511 Reynolda Road, Winston-Salem, NC, 27106, as more specifically described on the attached Exhibit "A" which is incorporated herein by reference as if the fully set forth (hereinafter referred to as "PREMISES"). 2. TERM. The term of this Lease shall be Twenty-Four (24) months commencing as of the 1st day of February, 1998 and ending on January 31, 2000. 3. RENT. Tenant agrees to pay Landlord the following rents: The annual rent of Twenty-Five Thousand Four Hundred Thirty Seven and 50/100 Dollars ($25,473.50) which annual rent shall be payable in equal monthly installments of Two Thousand One Hundred Nineteen and 79/100 Dollars ($2,119.79), which the first such installment being due and payable on the first day of February, 1998, and being due and payable on the first day of each and every consecutive month thereafter for the remaining term of this Lease. 4. TAXES AND INSURANCE. The Landlord is responsible for the total ad valorem and real estate taxes and the insurance on the building. The Tenant shall be responsible for such insurance coverage as provided in Paragraph 18 of this Lease. 5. USE. The Premises shall be used for any purpose permitted under applicable zoning laws. The Premises shall not be used for any illegal purposes; nor shall they be used in any manner to create any nuisance or trespass; nor in any manner to vitiate the insurance or increase the rate of insurance on the Premises. 6. UTILITIES. Water and sewer will be paid by the Tenant. Electric power bills and all other utility bills are the sole responsibility of the Tenant. 7. LANDLORD'S MAINTENANCE.. Landlord shall, at the expense of the Landlord, maintain and be liable for the foundation, outside walls, eaves, troughs, spouts, window frames, roofing and flashing, water and sewer lines outside or inside the building on the Premises, parking lot, and driveways. These items are listed by way of illustration but are not exclusive. In addition to the above, and except as provided herein, the Landlord shall be financially 1 responsible for any and all repairs, replacements or service to the Premises. Landlord warrants that upon delivery of possession of the demised premise, all plumbing, wiring, and the heating and air conditioning systems shall be in good working order. 8. TENANT'S MAINTENANCE. Tenant, at its expense, shall maintain the HVAC system to include two (2) annual maintenance calls. Landlord shall be responsible for replacement or repairs to said HVAC system. Tenant, at its expense, shall maintain the plumbing system to include leaking faucets and clogged toilets. Major repairs or replacements will be responsibility of the Landlord. 9. CONDITION OF PREMISES. Tenant accepts the Premises in their present condition and acknowledges that the same are suited for the use intended by Tenant. Tenant agrees to return the Premises to Landlord at the expiration or sooner termination of the term hereof in as good condition and repair as when first received, normal wear and tear, damage by storm, fire, lightning, earthquake or casualty excepted. 10. INTERIOR DESIGN, ETC. Any changes or alterations in the interior design, decor, furnishings, trade fixtures, and other decorating of or for the Premises must be first submitted to Landlord for approval, which shall not be unreasonably withheld or delayed, before installation thereof by Tenant, and such installation shall be at Tenant's expense and shall be free of any liens. 11. ADVERTISING SIGNS. All advertising signs are subject to approval of Landlord, which shall not be unreasonably withheld or delayed, and Tenant must obtain such approval in writing prior to installation. Such approval will be granted if the sign is satisfactory with the zoning and sign regulations of the appropriate governmental agency in charge of the same. Tenant shall remove Tenant's signs from the Premises at the expiration or sooner termination of the term hereof. 12. NO NUISANCE. The Tenant shall keep the Premises clean, both inside and outside, at its own expense, and will remove all trash, garbage and other refuse from the p clean, both inside and outside, at its own expense, and will remove all trash, garbage and other refuse from the Premises. Tenant agrees to keep all accumulated rubbish in covered containers provided by the Landlord and removed regularly at Landlord's expense. 13. NO OBSTRUCTION. Tenant shall neither encumber nor obstruct the area adjoining the Premises not allow the same to be obstructed or encumbered in any manner, and shall keep said area and adjoining sidewalks, if any, free of ice, snow, rubbish and dirt. Tenant shall not place, or cause to be placed, any merchandise, vending machines, or anything else on said area or sidewalks, if any, or the exterior of the Premises, without the written consent of the Landlord first obtained, which shall not be unreasonably withheld or delayed. 14. DESTRUCTION OF PREMISES. Should fire or other casualty totally destroy the building on the leased property or render the same more than fifty percent (50%) unfit for the operation of Tenant's business, Landlord shall with all reasonable dispatch rebuild or restore such building so as to afford substantially the same space and facilities as at the time of such 2 damage or destruction; providing however, that in the event of damage or destruction to such extent by fire, or other casualty the Tenant shall have an option to terminate this Lease without payment of further rent, within thirty (30) days of the date thereof by giving written notice to that effect to the Landlord and upon receipt of such notice the Landlord shall be under no duty to rebuild or restore any buildings on the leased property. In the event of partial destruction or damage to said buildings on the leased property by fire or other casualty which does not render them more than fifty percent (50%) unfit for occupancy, the Landlord shall, at its expense restore and repair such property with all reasonable dispatch, and this Lease shall continue in full force and effect except as provided in the next paragraph relating to rental. The rental payable by the Tenant hereunder shall abate to the extent and so long as the leased property is unfit for the conduct of the Tenant's regular business therein as the result of fire or other casualty. Any rent which may have been paid in advance for such period during which occupancy by the Tenant is impossible or impractical shall be adjusted or rebated, as the case may be, depending upon the extent of the leased property made by the Tenant during such period. 15. ENVIRONMENTAL REPRESENTATIONS AND WARRANTIES. --------------------------------------------- (A) Tenant agrees to comply with any and all Federal, State or local environmental laws regulating Tenant's use and occupancy of the Premises, including, without limitation, any such law regulating Hazardous Materials. As used herein, "Hazardous Materials" means asbestos, FCBs, petroleum or any other hazardous or toxic substance, material, waste or other environmentally regulated substance that is subject to any Hazardous Materials Law (as defined below). (B) Landlord represents and warrants to the best of its knowledge, that no Hazardous Materials are located on, in or about the Premises, the Building or the real estate on which the Building is located, or used in connection therewith. Landlord agrees to disclose to Tenant in writing the existence, extent and nature of any Hazardous Material ascertained on, in or about the Premises, Building or real estate, or used in connection therewith, upon Landlord's knowledge of the same. 16. ALTERATIONS REQUIRED BY LAW. In the event any local, state or federal laws, rules and regulations require that the leased premises be altered, changed or modified in order to comply with any law, rule or regulation, and said alteration, change or modification is within reason, such alteration, change or modification shall be the sole and separate responsibility of the Landlord and shall be completed in compliance with said law, rule or regulation at Landlord's expense. (For example, in the event that the leased premises do not comply with any rule or regulation concerning requirements for the handicapped it shall be the sole and separate responsibility of Landlord to bring the leased premises into compliance with said laws, rules and regulations.) In the event alterations, changes and modifications are not within reason, then in this event if the Landlord fails to make the required alterations, changes and modifications the Tenant shall have the option to (1) make at its own expense the alterations, changes and 3 modifications required or (2) terminate this Lease by giving Landlord thirty (30) days prior written notice thereto. 17. INDEMNIFICATION. Tenant agrees to indemnify and save harmless the Landlord against all claims for damages to persons or property by reason of the negligent use or occupancy of the Premises and all expenses incurred by Landlord as a result thereof or in connection therewith including reasonable attorney's fees, court costs, and related expenses actually incurred. 18. INSURANCE. Tenant is responsible for insurance on its contents and fixtures. Tenant agrees to carry $1,000,000.00 liability insurance with Landlord named as co-insured. 19. COMPLIANCE WITH LAWS. Tenant agrees, at its own expense, to comply promptly with all requirements of any legally constituted public authority, except as such requirements concern responsibilities of Landlord, in which event Landlord agrees to promptly comply, at its own expense, with said requirements. 20. CONDEMNATION. If the whole of the Premises, or such portion thereof as will make the Premises unusable for the purposes herein rented, be condemned by any legally constituted authority for any public use or purpose, then, in either of said events, the term hereof shall cease from time when possession thereof is taken by such authority; and rental shall be accounted for as between Landlord and Tenant as of that date. Such termination, however, shall be without prejudice to the rights of either Landlord or Tenant to recover compensation and damage caused by condemnation from the condemnor. It is further understood and agreed that neither Tenant nor Landlord shall have any rights in any award made to the other by any condemnation authority. 21. ASSIGNMENT AND SUBLETTING. Tenant shall not, without the prior written consent of Landlord endorsed hereon, which shall not be unreasonably withheld or delayed, assign this Lease or any interest hereunder. Tenant may subrent or sublease the Premises or any part thereof, or permit the use of the Premises by any party other than Tenant. 22. REMOVAL OF TRADE FIXTURES. Tenant may (if not in default hereunder) prior to the expiration or sooner termination of the term hereof, remove all trade fixtures and supplies which Tenant has placed in the Premises, provided Tenant shall restore the Premises to the same condition as existed at the commencement of the term hereof, normal wear and tear excepted. 23. DEFAULT. It is mutually agreed that (a) in the event the Tenant shall default in the payment of rent herein reserved, when due, and fails to cure such default within ten (10) days after the date of receipt of written notice of default from Landlord, or (b) if Tenant shall be in default in any of the terms or provisions of this Lease, other than the provisions requiring payment of rent, and fails to cure such default within thirty (30) days after the date of receipt of written notice of default from Landlord, or (c) if Tenant is adjudicated bankrupt, or (d) if a permanent receiver is appointed for Tenant's property and such receiver is not removed within sixty (60) days after written notice from Landlord to Tenant to obtains such removal, or (e) if, whether voluntarily or involuntarily, Tenant takes advantage of any debtor relief proceedings 4 under any present or future law, whereby the rent of any part thereof is, or is proposed to be, reduced or payment thereof deferred, or (f) if Tenant's effects should be levied upon or attached under process against Tenant, and such levy or attachment is not satisfied or dissolved within thirty (30) days after written notice from Landlord to Tenant to satisfy or dissolve the same, then, in any of said events, Landlord, at its option, may terminate this Lease by written notice to Tenant, whereupon this Lease shall terminate. Any notice provided in the paragraph may be given by Landlord or its attorney. Upon such termination by Landlord, Tenant will at once surrender possession of the Premises to Landlord and remove all of Tenant's effects therefrom; and Landlord may forthwith reenter the Premises and repossess itself thereof, and remove all persons and effects therefrom, using such force as may be necessary. 24. LANDLORD'S RIGHT OF ENTRY. Landlord may post on the Premises "For Rent" signs sixty (60) days before the expiration of the term hereof. Landlord may enter the Premises at reasonable hours to extend the same to prospective tenants and to make repairs required of or permitted to be made by Landlord under the terms hereof, or to inspect the premises for the purpose of determining if Tenant is complying with the requirements of this Lease. 25. HOLD OVER. If Tenant remains in possession of the Premises after the expiration of the term hereof, with Landlord's acquiescence and without any express agreement of the parties, Tenant shall be a Tenant from month to month at the same monthly rental in effect at the end of such term and there shall be no renewal of this Lease by operation of law. 26. NO WAIVER. No failure of Landlord to exercise any power given to Landlord hereunder, or to insist upon strict compliance by Tenant with Tenant's obligations hereunder, and no custom or practice of the parties at variance with the terms hereof shall constitute a waiver of Landlord's right to demand exact compliance with the terms hereof. 27. NOTICES. Any notices required to be given by any party hereto shall be considered given if addressed to the parties hereinafter set forth and mailed by certified mail, return receipt requested. For the Landlord: William H. Todd and wife, Jo Anne Todd c/o H. David Niblock -------------------- 101 Charlois Blvd. ------------------ Winston-Salem, NC 27103 ------------------------ Attn: David Niblock For the Tenant: Todd Motion Controls, Inc. c/o Speizman Industries, Inc. ----------------------------- P.O. Box 31215 -------------- Charlotte, NC 28231 -------------------- Attn: Robert S. Speizman, President 28. ENTIRE AGREEMENT. This Lease contains the entire agreement of the parties hereto; and no representations, inducements, promises or agreements, oral or other, between the parties not embodied herein, shall be of any force or effect. 5 IN WITNESS WHEREOF, Landlord and Tenant have caused this Agreement to be executed all as of the date first above written. LANDLORD: /s/ William H. Todd ------------------- William H. Todd /s/ Jo Anne S. Todd ------------------- Jo Anne Todd TENANT: Todd Motion Controls, Inc. By: /s/ Robert S. Speizman ---------------------- Name: Robert S. Speizman Title: President 6 EX-10 10 EXHIBIT 10.66 [THE MERIDIAN REALTY GROUP LETTERHEAD] Agreement to Lease This writing shall serve as an agreement between Todd Motion Controls, Inc, 5511 Reynolda Road, Winston-Salem, NC 27106 , Lessee and Douglas L. Cook et al., Lessor, c/o Mr. Bill Wall, P.O. Box 4042, Winston-Salem, NC 27105 to lease a certain portion of the warehouse located at 4290 N. Patterson Avenue, Winston-Salem, NC, as shown on attachment "A". The lease term shall commence on September 1, 1996, for six months, with three consecutive options to renew for a term of six months at each term expiration upon two months notice to the Lessor and Agent. Either party shall have the option to cancel the lease upon a six months written notice after a period of 12 months occupancy with notice to either Mr. Bill Wall or Lessors agent Robert H. Hoffman, Meridian Realty Group, Inc. Lessor shall maintain, at his expense, fire and extended property insurance for the building and the Lessee shall maintain, at his expense, liability and property insurance for the stored property. The Lessee will protect and save the Lessors harmless and does hereby indemnify the Lessors against all claims for damages either to persons or property of whatever kind or nature arising in any manner out of or on account of its use of the leased premises or on account of any condition of the premises for which the Lessee is responsible under the terms hereof. Lessee will notify Lessors of any exterior or structural defect in the lease premises of which it is aware which may cause injury to any person or property so that Lessors may take whatever action that may be necessary to correct the same. Rental for the subject leased space shall be $1.50 per square foot, annually on 35,340 square feet (as shown on attachment "A"), for $4,417.50 per month. With the rental due the 1st of each month and all made WITHOUT FURTHER NOTICE payable to Cooks Warehouse, c/o Mr. Bill Wall as addressed above. However the lease rate for the month of September 1996 shall be one half the rate quoted above (i.e. $2,208.25) with payment of the September 96 and October 96 rental due together in the first week in September 96. Any increase in the buildings annual insurance rate, above that at the beginning date of this lease, which increase is caused by the Lessees activities, within the subject space shall be the expense of the Lessee. The Lessee shall have the privilege and responsibility of removing, at the termination of his lease occupancy , any and all equipment, wiring material, etc., which he has installed in the building including any walls except for bathroom area which shall remain a part of the building. Signatures below acknowledge the understanding and agreement of the terms set forth above. Acknowledgement Todd Motion Controls, Inc. By: /s/ William H. Todd Date: 10/20/96 ------------------------------ ------------ WILLIAM H. TODD, PRESIDENT Acknowledgement Douglas L. Cook, et. al., Lessor By: /s/ Douglas Cook Date: 11/22/96 ------------------------------ ------------ By: /s/ illegible Date: 12/02/96 ------------------------------ ------------ The Meridian Realty Group, Inc. EX-21 11 EXHIBIT 21 EXHIBIT 21 LIST OF SUBSIDIARIES Wink Davis Equipment Company, Inc., Georgia Todd Motion Controls, Inc., Winston-Salem, North Carolina EX-23 12 EXHIBIT 23 EXHIBIT 23 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statements No. 2-77747 and No. 33-43042 of Speizman Industries, Inc. on Form S-8 of our report dated August 27, 1998, appearing in this Annual Report on Form 10-K of Speizman Industries, Inc. for the year ended June 27, 1998. Charlotte, North Carolina BDO Seidman, LLP August 27, 1998 EX-27 13 FDS -- SPEIZMAN INDUSTRIES, INC.
5 0000092827 SPEIZMAN INDUSTRIES, INC. YEAR JUN-27-1998 JUN-29-1997 JUN-27-1998 2,193,329 0 20,671,045 853,211 15,934,745 41,318,174 3,720,342 1,632,367 50,033,911 21,102,045 0 335,741 0 0 22,871,125 50,033,911 90,886,285 90,886,285 74,033,817 86,888,903 0 0 791,067 3,206,315 1,273,000 1,933,315 0 0 0 1,933,315 0.59 0.56
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