-----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, HCHGOnv36l4YJEASA/A/mHlCRCBa27NBaLDzLbZzRmpwSA0wCkPphQnguCLUaZs7 4ddC1bd7omO5+BW535zWSQ== 0001021408-02-012072.txt : 20020927 0001021408-02-012072.hdr.sgml : 20020927 20020927160256 ACCESSION NUMBER: 0001021408-02-012072 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 13 CONFORMED PERIOD OF REPORT: 20020629 FILED AS OF DATE: 20020927 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: 0703 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-08544 FILM NUMBER: 02774849 BUSINESS ADDRESS: STREET 1: 701 GRIFFITH ROAD CITY: CHARLOTTE STATE: NC ZIP: 28217 BUSINESS PHONE: 7045595777 MAIL ADDRESS: STREET 1: P. O. BOX 242108 CITY: CHARLOTTE STATE: NC ZIP: 28224 10-K 1 d10k.txt SPEIZMAN INDUSTRIES - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------- FORM 10-K [X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 [Fee Required] For the fiscal year ended June 29, 2002 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 incorporation (I.R.S. Employer or organization) Identification No.) 701 Griffith Road, Charlotte, North Carolina 28217 - ------------------------------------------------ ------------------------------ (Address of principal executives offices) (Zip Code) Registrant's telephone number, including area code: (704) 559-5777 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. [X] The aggregate market value of the voting stock held by non-affiliates of the registrant as of September 20, 2002, was $1,694,308 based on the last sale price of $0.70 per share reported by the NASDAQ Market System on that date. As of September 20, 2002, there were 3,255,428 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 19, 2002 are incorporated herein by reference into Part III. CAUTIONARY NOTE REGARDING FORWARD-LOOKING INFORMATION This Annual Report on Form 10-K and the documents incorporated herein by reference contain forward-looking statements that have been made pursuant to the provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are based on current expectations, estimates, and projections about Speizman's industry, management beliefs, and certain assumptions made by Speizman's management. Words such as "anticipates," "expects," "intends," "plans," "believes, "seeks," "estimates," variations of such words, and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and are subject to certain risks, uncertainties, and assumptions that are difficult to predict; therefore, actual results may differ materially from those expressed or forecasted in any such forward-looking statements. Such risks and uncertainties include those set forth herein under "Risk Factors" on pages 7 through 9. The Company undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events, or otherwise. However, readers should carefully review the risk factors set forth in other reports and documents that the Company files from time to time with the Securities and Exchange Commission, particularly the Quarterly Reports on Form 10-Q and any Current Reports on Form 8-K. PART I Item 1. Business. General Speizman Industries, Inc. is a distributor of specialized industrial machinery, parts and equipment. The Company operates primarily in two segments, textile division and laundry division. In the textile segment, the Company distributes sock-knitting machines, other knitting equipment, automated boarding, finishing and packaging equipment used in the sock industry, and related parts. In the laundry segment, the Company distributes commercial and industrial laundry equipment, including the distribution of machines and parts as well as providing installation and after sales service. The Company refers to its operations in the textile segment as Speizman Industries, and the laundry segment as Wink Davis Equipment Co., Inc. ("Wink Davis"). 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 2000, 2001 and 2002 contained 52 weeks and ended on July 1, 2000, June 30, 2001 and June 29, 2002, respectively. Speizman Industries The technologically advanced sock knitting machines distributed by Speizman Industries are manufactured by Lonati, S.p.A., Brescia, Italy ("Lonati"), which the Company believes is the world's largest manufacturer of hosiery knitting equipment. The Company and Lonati entered into their present agreement for the sale of Lonati machines in the United States in 1992. The Company and Lonati further amended this agreement in January 2002. In May 2002, the Company and Lonati further amended this agreement to provide for Lonati's forbearance and payment restructuring with respect to trade debt owed Lonati by the Company. This amendment was effective February 2002. The Company's agreement with Lonati, as amended, is referred to herein as the Lonati Agreement. Speizman and Lonati 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 open toe knitting machines in 1989. Its current product line includes newer technology represented by its single cylinder closed toe knitting machine, which eliminates the steps associated for a sock manufacturer in sewing the toe on a sock. Pursuant to the Lonati agreements discussed above, Lonati has appointed Speizman Industries as Lonati's distributor and exclusive agent in the United States and Canada for the sale of its range of single (both open and closed toe versions) and double cylinder sock knitting machines and related spare parts. The Lonati Agreement continues through January 2006 and can be terminated by Lonati earlier in the event of its breach by the Company. 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 1 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 that compete with Lonati machines. Speizman believes that it is and will remain in compliance in all material respects with these 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 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 (both closed toe and open toe versions) 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. As these functions are all electronically controlled, they allow the rapid change of sock design, style and size, result in increased production volume and efficiency and simplify the servicing of the machines. Lonati single cylinder machines are also available in a closed toe version, which enables hosiery manufacturers to automate their production processes by knitting in the toe as opposed to manually seaming. This procedure not only results in a higher quality product but manufacturers also benefit from lower manufacturing costs. In addition to the previously described machines distributed in the United States, Speizman Industries distributes these sock knitting machines as well as Lonati sheer hosiery knitting machines in Canada and Mexico. Speizman also distributes knitting machines, manufactured by Santoni, SpA, Brescia, Italy ("Santoni"), one of Lonati's subsidiaries, in the United States and Canada. Santoni products include large diameter circular knitting machines utilizing new technology in the production of seamless undergarments, action wear and swimsuits. 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 the Company's net revenues: 25.1% in fiscal 2002, 26.2% in fiscal year 2001 and 21.2% in fiscal 2000. In addition, sales of Santoni machines in the United States, Canada and Mexico generated 6.8%, 4.2% and 32.3% of the Company's net revenues in fiscal 2002, 2001 and 2000, respectively. In addition to the Lonati and Santoni knitting machines, Speizman Industries distributes new machines and equipment for the seaming, finishing, boarding, and packaging operations under written agreements and arrangements with other manufacturers. The following table sets forth certain information concerning most of these additional distribution arrangements. SRA SrL and Tecnopea are subsidiaries of Lonati.
----------------------------- ------------------------------------------------------- ------------------------------ Manufacturer Machine Territory ----------------------------- ------------------------------------------------------- ------------------------------ Braun (Joint Marketing Pocketed dye and extracting machines Worldwide Agreement with Martint Equipment) Syracuse, NY Conti Complett, S.p.A., Sock or seaming machines and sock United States, Canada Milan, Italy turning devices Matec Dial rib sock knitters, medical knitters United States and Canada Florence, Italy Margasa Proycetos E. Fiber waste reclaiming and rag tearing machines United States, Canada and Ingeniera Textile, S.L. Mexico Barcelona, Spain SRA Srl Automated loading, positioning, and finishing United States and Canada Florence, Italy devices Tecnopea Automated folding and packaging equipment United States Brescia, Italy ----------------------------- ------------------------------------------------------- ------------------------------
Commencing in January 2001 and in conjunction with licensing certain assets of Todd Motion Controls, Inc. ("TMC"), a subsidiary of the Company, to SRA Srl ("SRA"), the Company obtained exclusive rights to distribute TMC equipment in the United States and Canada that is manufactured by SRA. SRA has distribution rights for TMC equipment outside the United States and Canada. 2 Speizman Industries sells textile machine parts and used textile equipment in the United States and in a number of foreign countries. 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. From time to time, Speizman Industries acts as a liquidator of textile mill equipment and as a broker in the purchase and sale of such equipment. Sales and Marketing Speizman Industries markets and sells knitting machines and related equipment primarily by maintaining frequent contact with customers and understanding of its customers' individual business needs. Speizman Industries exhibits its equipment at trade shows and uses its private showroom to demonstrate new machines to its customers. In some cases, salespersons will set up competitive trials in a customer's plant and allow the customer to use Speizman's machine in its own work environment alongside competing machines for two weeks to three months. Speizman Industries also offers customers the opportunity to send their employees to Speizman's facilities 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. These marketing strategies are complemented by Speizman's commitment to service and continuing education. At September 20, 2002, Speizman Industries employed 4 salespersons and 13 technical representatives. In addition to its sales staff, Speizman Industries uses several 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 approximately seven (7) days prior to the machine's shipment to the customer's plant. Generally, the letter of credit must be payable 60-90 days 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. The majority 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 and the customer takes title at the European port. 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. Since November 2000, substantially all of Speizman Industries' purchases of Italian machines for sale in the United States have been denominated in U.S. dollars. Prior to that time, most of these purchases were denominated in Italian Lira or, more recently, EURO dollars. Speizman's purchases of parts for resale from these manufacturers are still denominated in Euro dollars. Speizman anticipates that it will utilize forward exchange contracts in connection with these purchases of parts in fiscal 2003, although it did not do so in 2002. Speizman has historically adjusted sales prices or purchased forward exchange contracts in an effort to mitigate adverse effects of foreign currency fluctuations. Additionally, 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. There can be no assurance that fluctuations in foreign exchange rates will not have an adverse effect on Speizman Industries future operations. Substantially, 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 frequently distributes lists throughout the industry of used machines that Speizman Industries has for sale. Additionally, Speizman utilizes its Internet web site for 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 2002, 2001 and 2000. Customers 3 Speizman Industries' customers consist primarily of the major sock manufacturers in the United States and Canada. In fiscal year 2001, one customer (Sara Lee Sock Company) represented 13.4% of the Company's revenues. In fiscal years 2002 and 2000, no single customer represented over 10% of the Company's 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 the Company. Competition The sock knitting machine industry is competitive. The principal competitive factors in the distribution of sock knitting machines are technology, price, service, and delivery. Management believes that its competitive advantages are the technological advantages of machines manufactured by Lonati and its affiliates and Speizman Industries' staff of technicians whom management believes is more comprehensive than any maintained by the competition. Lonati single cylinder machines compete primarily with machines manufactured by an Italian company (Sangiacomo, S.p.A.) and a Czech company (Ange) and Lonati double cylinder machines compete primarily with machines manufactured by an Italian company (Matec) 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. Management believes that it is at a 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 other than Lonati machines, Speizman Industries competes with a number of foreign and domestic manufacturers and distributors of new and used machines. 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 are 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 original equipment manufacturer ("OEM's") parts for a number of the machines it distributes, it competes with firms that manufacture and distribute duplicates of such parts. Wink Davis Wink Davis, with offices in Smyrna, Georgia, Wood Dale, Illinois, Jessup, Maryland and Charlotte, North Carolina, distributes commercial laundry equipment and parts and provides related services, principally installation services. 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 from its distribution of washers, dryers, ironers and other finishing equipment manufactured by Pellerin Milnor and Chicago Dryer. Wink Davis represents both of these companies in Georgia, South Carolina, North Carolina, Virginia, middle and eastern Tennessee, Maryland, Washington, DC, northern and central Florida, and the Chicago, Illinois areas. The Pellerin Milnor agreement appoints Wink Davis as the exclusive distributor 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 4 most of its current territories since 1972. In 2002, Pellerin Milnor has presented its annual top distributor award to Wink Davis and has done so for all but three years since 1980. 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 OEMs, distributes other laundry related equipment. The following table sets forth, in alphabetical order, certain information concerning the additional distribution agreements:
- ------------------------------------------------------------------------------------------------------------------------ Manufacturer Machine Territory - ------------------------------------------------------------------------------------------------------------------------ Ajax Manufacturing Laundry and dry cleaning presses and Southeastern U.S. & Chicago, IL areas Cincinnati, Ohio dryers American Dryer, Commercial dryers Southeastern U.S. & Chicago, IL areas Fall River, MA Cissell Manufacturing, Commercial dryers, laundry and dry Southeastern U.S. & Chicago, IL areas Louisville, KY cleaning pressing equipment Energenics Corp., Lint collectors and automatic cart Southeastern U.S. & Chicago, IL areas Naples, FL wash systems Forenta, Inc., Laundry and dry cleaning presses Southeastern U.S. & Chicago, IL areas Morrisville, TN Huebsch Originators, Commercial dryers Southeastern U.S. & Chicago, IL areas Ripon, WI - ------------------------------------------------------------------------------------------------------------------------
Sales and Marketing 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 ("white machines"), 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 payment with the balance due 10 days after final acceptance. At September 20, 2002, Wink Davis employed approximately 10 sales persons and 25 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 and does not 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 properly prepared prior to the delivery of equipment. Wink Davis personnel install the equipment and provide training for the customers' operators. Smaller sales of white machines 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 their property, maintenance or housekeeping staffs. These staffs are often small with 5 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. Generally, each sales office is staffed by two 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 any of the Wink Davis' locations or shipped directly from the manufacturer. Customers Wink Davis has over 4,000 active 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. During the past three fiscal periods, no customer represented more than 10% of the Company's revenues. Accordingly, the loss of any single customer would not materially affect the operations of Wink Davis. Competition The laundry equipment business is very competitive, with the principal competitive factors being price and service offerings. Wink Davis competes directly with several other distributors representing other OEMs. Wink Davis believes the products they distribute are of equal or better quality than their competitors' products. In some instances, Wink Davis may be at a price disadvantage when a customer considers price only. 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. 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 20, 2002, the Company had 115 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 firm backlog of unfilled orders for new and used machines was $20.1 million at September 13, 2002. The Company's firm backlog of unfilled orders was $13.8 million and $28.2 million at June 30, 2001 and July 1, 2000, respectively. The reduction in unfilled orders at June 2001 compared to July 2000 was primarily due to a trend in lower equipment sales which the Company believes was due to lower capital spending as a result of declining economic conditions, primarily in the United States. The period of time required to fill orders varies depending on the machine ordered. The Company typically fills orders in its backlog within three to four months. Backlog consists of executed sales orders. Orders in backlog are subject to cancellation or changes in delivery. In addition, the Company's current backlog will not necessarily lead to revenues in any future period. Any cancellation, delay or change in orders which constitute our current or future backlog may result in lower than expected revenues. Risk Factors Risks Related to Speizman's Bank Debt 6 As of September 18, 2002, Speizman had $7.4 million in borrowings under its line of credit facility with a commercial bank. This facility matures December 31, 2002. The Company currently does not have the financial resources to repay this debt when it becomes due and will therefore need to refinance this debt prior to maturity. There is no assurance that the Company will be able to refinance this debt with another lender on a timely basis, on commercially reasonable terms, or at all. Additionally, the textile industry has continued to experience tightened lending practices from traditional financial institutions which may further hinder Speizman's ability to refinance this debt, especially in light of Speizman's recent financial losses. If Speizman is unable to refinance this debt or obtain needed additional capital, it would be required to significantly reduce its operations, dispose of assets and/or sell additional securities on terms that could be dilutive to current stockholders. Risks Related to Lonati Agreement In May 2002, the Company and Lonati S.p.A. entered into an agreement effective February 2002, providing for the amendment of their agreement under which Speizman Industries distributes Lonati sock-knitting machines in the United States and Lonati's forbearance and payment restructuring with respect to $4.2 million of trade debt owed by the Company to Lonati. The Company entered into similar agreements with Lonati subsidiaries for the restructuring of $930,000 of trade debt. The agreements are secured by a subordinated security interest to all of the assets of the Company. The amendment and forbearance agreements provide that the following events, among others, will constitute an event of default under Speizman's distribution agreement with Lonati, as amended. . failure to pay any amounts owed when due, which failure continues for 10 days after written notice; . an event of default occurring under Speizman's existing credit facility with SouthTrust; . an event of default for any indebtedness in excess of $1.0 million; or . failure to refinance its existing credit facility at maturity for a new term extending beyond July 31, 2003. Upon the occurrence of an event of default, Lonati can terminate its distribution agreement with Speizman and can declare all amounts due Lonati payable in full. The Company was in default of one of its trade notes payable in excess of $1.0 million at June 29, 2002 for failure to make the required monthly payments. In July 2002, the Company became current on its payments related to the trade note and obtained a waiver from the note holder. As a result, the Company was in default of the Lonati agreement as well and obtained waivers from Lonati and its subsidiaries for the covenant violation. The Lonati agreement allows Lonati to make sales directly to customers located in the Company's distribution territories and pay the Company a commission as determined on a case by case basis. If direct sales to customers became material, it would have an adverse affect on the Company's profits since the commissions received by Lonati are typically less than the profits generated by equipment sales. Risks Related to Wink Davis Contracts The Company's distributor agreements with Pellerin Milnor and Chicago Dryer are renewed on an annual basis. If the Company lost the distribution rights to either of these product lines, it would have a material adverse impact on the revenues of the Company. 7 Speizman's Ability to Return to Profitability Due principally to a decline in sales, Speizman incurred a net loss of $5.3 million in fiscal 2002. In addition, Speizman incurred net losses of $5.9 million in fiscal 2001, principally as a result of losses associated with foreign currency derivatives. The Company will need to generate increases in revenues to return to profitability and in order to generate cash from future operating activities. Speizman's Large Amount of Debt Could Negatively Impact its Business and Stockholders Principally as a result of losses funded during fiscal 2001 and 2002, the Company is burdened with a large amount of debt. Speizman's large amount of debt could negatively impact its stockholders in many ways, including: . reducing funds available to support its business operations and for other corporate purposes because portions of cash flow from operations must be dedicated to the payment of its existing debt; . impairing its ability to obtain additional financing for working capital, capital expenditures, acquisitions or general corporate purposes; . increasing vulnerability to increases in interest rates; . hindering its ability to adjust rapidly to changing market conditions; and . making it more vulnerable to a further downturn in general economic conditions or in its business. Relationship with Foreign Suppliers The majority of Speizman Industries' suppliers for parts and equipment are based in foreign countries primarily concentrated in Italy. 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 manufacturers or obtain an adequate remedy for a breach of any such provision, due principally that they are foreign companies. Dependence on Lonati The Company's operations are substantially dependent on the net revenues generated from the sale of sock knitting and other machines manufactured by both Lonati and Santoni and the Company expects this dependence to continue. Sales of sock knitting and other machines manufactured by Lonati and Santoni generated an aggregate of approximately 31.9%, 30.4% and 53.5% of the Company's net revenues in fiscal 2002, 2001 and fiscal 2000, respectively. The Company amended its agreement with Lonati for the sale of its machines in February 2002 to be the exclusive agent in the United States and Canada through February 1, 2006. The agreement can be terminated immediately upon breach of the contract. The Company and Lonati entered into their present agreement for the sale of Lonati machines in Mexico in 1997, which is renewable annually. The Company has acted as the United States sales agent and distributor for certain machines manufactured by Lonati continuously since 1982. The cost to the Company of Lonati machines, as well as the delivery schedule of these machines, are in the discretion of Lonati. Management believes that the Company's relationship with Lonati will continue to be strong as long as the Company generates substantial sales of Lonati machines; however, there can be no assurance that the Company will be able to do so or that the Company's relationship with Lonati will continue or will continue on its present terms. Any decision by Lonati to sell machines through another distributor or directly to purchasers would have a material adverse effect on the Company. Machine Performance and Delayed Deliveries During fiscal 2000 and the early part of fiscal year 2001, the Company experienced issues with machine performance and delays from Lonati in shipments of closed toe knitting machines and Santoni undergarment knitting machines. The Company experienced material cancellations or postponements of orders due to these delays and performance issues. Although the Company did not experience delays in shipments on issues with machine performance in 2002, there can be no assurance that delayed deliveries in the future or issues with machine performance on newer technology will not result in the loss or cancellation of significant orders. The Company also cannot predict situations in Italy such as potential employee strikes or political developments which could further delay deliveries or have other adverse effects on the business of Lonati and the other Italian manufacturers represented by the Company. 8 Foreign Currency Risk Prior to November 2000, Speizman Industries' purchases of foreign manufactured machinery and spare parts for resale were denominated in Italian lira. For purchases of machines that were denominated in Italian lira or Euro dollars, Speizman generally purchased hedging contracts to compensate for anticipated dollar fluctuations; however, during fiscal year 2001, the Company experienced adverse effects utilizing lira hedging contracts for orders that were postponed or delayed. Prior to fiscal year 2001 and for approximately 30 years, the Company did not experience any adverse effects from utilizing lira hedging contracts. During fiscal year 2001, the Company arranged with Lonati and its affiliates to purchase its products for resale in U.S. dollars through April 2002. As of May 2002, Lonati can require purchases to be in either Euro dollars or U.S. dollars. For purchases of machines that are denominated in Euro dollars, Speizman Industries feels its current practices enable the Company to adjust sales prices, or to commit to hedging contracts that effectively compensate for anticipated dollar fluctuations. At June 30, 2001, the Company had contracts maturing through September 2001 to purchase approximately 432.0 million lira for approximately $198,000 for which the market value at June 30, 2001 if terminated was $189,000. There were no foreign currency hedging contracts in place as of June 29, 2002. Additionally, international currency fluctuations that result in substantial price level changes could impede or promote import/export sales and substantially impact profits. Speizman is not able to assess the quantitative effect of such international price level changes could have upon Speizman Industries' operations. There can be no assurance of fluctuations and foreign exchange rates will not have an adverse effect on Speizman Industries' future operations. All of Speizman Industries' export sales originating from the United States are made in U.S. dollars. Industry Conditions The Company's business is subject to all the risks inherent in acting as a distributor including competition from other distributors and other manufacturers of both textile and laundry equipment, as well as the termination of profitable distributor-manufacturer relationships. The Company's laundry equipment segment is subject to the risks associated with new construction in the hospitality industry. Currently, there is a slowdown in construction of new hotels due to excess room availability as a whole. This as well as a general slowdown in the U.S. economy recently reduced demand for new equipment product offered by the Company. The textile segment is subject to the risks associated with certain categories in the textile industry, specifically, for socks, underwear, and actionwear garments. The textile industry risks relating to socks, underwear, and actionwear garments include the impact of style and consumer preference changes. These factors may contribute to fluctuations in the demand for the Company's sock knitting and packaging equipment and knitted fabric equipment products. There is a slowdown in underwear and actionwear garments that commenced during the second half of the last fiscal year. Nasdaq Listing The Company's Common stock has been listed on the Nasdaq SmallCap Market since March 20, 2001 and was listed on the Nasdaq National Market System from October 1993 to March 19, 2001. The Company's continued listing of its common stock on the Nasdaq SmallCap Market is subject to certain criteria which include a minimum bid of $1.00 as well as maintaining a minimum market value of public float of $1.0 million. Since January 2002, the Company's stock has been trading below $1.00. The Company has been notified by Nasdaq that unless its common stock maintains a closing bid price of at least $1.00 for a minimum period of 10 consecutive trading days by February 10, 2003, the Company's common stock will be delisted. If the Company is delisted, its common stock might trade in the OTC - - Bulletin Board, which is viewed by most investors as a less desirable marketplace. In such event, the market price of the common stock may be adversely impacted and a stockholder may find it difficult to dispose, or obtain accurate quotations as to the market value, of the Company's common stock. 9 Item 2. Properties. The Company leases all of its real property. Significant leases are summarized in the table below:
Lease Monthly Approximate Lease Origination Term Rental Rental Square Use Location Date (months) Rate Footage - -------------------------------------------------------------------------------------------------------------------------- Properties used primarily by Speizman Industries: - ------------------------------------------------ Executive, administrative, machinery Charlotte, NC December 1, 1999 180 $66,667 221,000 (a) rebuilding and warehousing Properties used primarily by Wink Davis: - --------------------------------------- Administrative, general Smyrna, GA May 1, 2001 61 $ 5,248 12,000 office and warehouse Sales and service office and Wood Dale, IL June 1, 2002 61 $ 5,555 6,800 warehouse Sales and service office and Jessup, MD October 1, 2001 18 $ 2,460 2,500 warehouse Sales and service office and Charlotte, NC March 1, 2000 60 $ 6,682 10,800 warehouse
- ------------ (a) The Company's headquarters are leased from a limited liability company owned by Robert S. Speizman, his wife and their children. The Company believes its office and warehouse space is sufficient to meet its needs for the foreseeable future. Item 3. Legal Proceedings. On June 29, 2000, Hazel Hernandez filed a lawsuit against the Company and Wink Davis Equipment Company, Inc. (a wholly-owned subsidiary of Speizman Industries) in the U.S. District Court for the Northern District of Illinois, Case No. 00-CV-5183 and is seeking damages of $2.7 million. The plaintiff alleges that her spouse, a laundry company employee, was killed by a Milnor 2-stage laundry press machine, which was sold by Wink Davis Equipment Company, Inc. to the employer of Hernandez's spouse. The manufacturer of the machine, as well as manufacturers of certain components therein, have also been joined as defendants in the lawsuit. The legal grounds for including the Company as a defendant are not clear. The plaintiff's claims include allegations that the Company and Wink Davis Equipment Company, Inc. placed an unreasonably dangerous machine in the stream of commerce, were negligent in the design, manufacture, sale, and distribution of the machine, and other grounds. The court has dismissed the claim against Speizman Industries. Wink Davis Equipment Company, Inc. denies the allegations and believes that it will ultimately prevail in the matter. In fiscal 2001, the Company filed suit in the Superior Court, District of Montreal, Province of Quebec, Canada (Civil Action No. 500-17-010102-013) against Nalpac for breach of contract associated with nonpayment of machines. On July 30, 2001, the Nalpac Company filed a counterclaim against the Company. Nalpac claims that it set up a joint venture with Gentry Mills, known as Seamless Knit, Inc., to knit and sell seamless garments, investing as much as $6.0 million (Canadian) in the project. It also alleges that delays in delivery of the machines, and defects in their operation, caused Nalpac to suffer financial loss in the amount of $6.8 million (Canadian) (approximately 4.3 million U.S. dollars), plus interest and penalties in an unspecified amount, under Quebec law. The Company denies the allegations of the counterclaim, and is defending its position vigorously, and believes that it will ultimately prevail. Due to the inherent uncertainty as to the outcome of litigation, the Company cannot estimate the amount of loss, if any, that will result from the resolution of the lawsuits described above. 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 2002. 10 Executive Officers of Registrant The following table sets forth certain information regarding the executive officers of the Company as of September 17, 2002: Name Age Positions with the Company ---- --- -------------------------- Robert S. Speizman 62 Chairman of the Board, President and Director Bryan D. Speizman 37 Vice President-Parts Sales and Non-Hosiery Division Mark A. Speizman 31 Senior Vice President, Hosiery Paul R.M. Demmink 47 Vice President-Finance, Chief Financial Officer, Secretary and Treasurer P. Donald Mullen II 38 President, Wink Davis Equipment Company, Inc. 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. Bryan D. Speizman, son of Robert S. Speizman, began serving as Vice President-Parts Sales and Non-Hosiery Division in July 2002. He served as a sales representative from 2001 to July 2002, Senior Vice President-Non-Hosiery from 1997 to May 2001 and as a sales representative from 1990 to June 1997. Mark A. Speizman, son of Robert S. Speizman, began serving as Senior Vice President, Hosiery in July 1997 and served as a sales representative of the Company from 1995 to June 1997. Paul R.M. Demmink began serving as Vice President-Finance, Chief Financial Officer, Secretary and Treasurer in July 2002. He served as President of Mid-South Sales Group, Inc., a privately held distributor, from May 1994 to September 2001 and was a private investor from September 2001 to June 2002. From 1989 to 1994, he served as Executive Vice President and Chief Financial Officer of Broadway and Seymour. P. Donald Mullen II, son-in-law of Robert S. Speizman, began serving as President of Wink Davis Equipment Company, Inc. in August 2000. He served as Vice President of Wink Davis from June 1998 to August 2000 and as Sales Engineer of Wink Davis from August 1997 to June 1998. He also served as a Sales Manager of Speizman from August 1996 to August 1997. Prior to that, he served four years as a key account manager for a division of TimeWarner. 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" from October 1993 to March 19, 2001. Commencing on March 20, 2001, the Company began trading on the NASDAQ SmallCap System under SPZN. The following table sets forth, for the periods indicated, the high and low sale prices as reported by the NASDAQ Market System. Fiscal 2001 High Low ---- --- First Quarter (ended September 30, 2000) ........... $ 3.43 $ 2.25 Second Quarter (ended December 30, 2000) ........... 2.36 0.50 Third Quarter (ended March 31, 2001) ............... 1.68 0.50 Fourth Quarter (ended June 30, 2001) ............... 1.50 0.53 Fiscal 2002 First Quarter (ended September 29, 2001) ........... $ 1.24 $ 0.66 Second Quarter (ended December 29, 2001) ........... 0.85 0.49 Third Quarter (ended March 33, 2002) ............... 0.60 0.28 Fourth Quarter (ended June 29, 2002) ............... 0.70 0.33 As of June 29, 2002, there were approximately 196 stockholders of record of the Common Stock. Management believes that when the number of beneficial stockholders are included with the number of record stockholders, the Company is in compliance with the maintenance standards set by the Nasdaq Stock Market. 11 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 limit the Company's ability to pay cash dividends on its capital stock. Item 6. Selected Consolidated Financial Data. The following sets forth selected consolidated financial information for Speizman Industries, Inc. as of and for each of the years in the five-year period ended June 29, 2002, and has been derived from the Company's audited consolidated financial statements. The selected consolidated financial data should be read together with the Company's consolidated financial statements and related notes thereto and with "Management's Discussion and Analysis of Financial Condition and Results of Operations."
Fiscal Year Ended -------------------------------------------------------------------- June 29, June 30, July 1, July 3, June 27, 2002(a) 2001 2000 1999 1998 (b) ------- ---- ---- ---- -------- (In thousands, except per share data) Statement of Operations Data: Net revenues .............................................. $ 57,103 $ 82,233 $ 115,182 $ 101,412 $ 90,886 Cost of sales ............................................. 49,344 70,511 96,443 85,564 74,034 --------- --------- --------- ---------- --------- Gross profit .............................................. 7,759 11,722 18,739 15,848 16,852 Selling, general and administrative expenses .............. 12,671 14,849 15,420 15,124 12,658 --------- --------- --------- --------- --------- Operating income (loss) ................................... (4,912) (3,127) 3,319 724 4,194 Interest (income) expense, net ............................ 1,930 2,422 1,973 1,103 988 Loss on settlement of uncommitted foreign currency derivative contracts ..................................... - 3,926 - - - Income (loss) before taxes on income ...................... (6,842) (9,475) 1,346 (379) 3,206 Taxes (benefit) on income ................................. (1,500) (3,612) 544 (126) 1,273 --------- --------- --------- ---------------------- Net income (loss) ......................................... $ (5,342) $ (5,863) $ 802 $ (253) $ 1,933 ========= ========= ========= ========= ========= Per Share Data: Basic earnings (loss) per share ........................... $ (1.64) $ (1.80) $ 0.25 $ (0.08) $ 0.59 Diluted earnings (loss) per share ......................... (1.64) (1.80) 0.24 (0.08) 0.56 Weighted average shares outstanding - basic ............... 3,255 3,253 3,243 3,274 3,284 Weighted average shares outstanding - diluted ............. 3,255 3,253 3,296 3,274 3,426 Balance Sheet Data: Working capital ........................................... $ 8,952 $ 17,300 $ 28,182 $ 16,058 $ 20,210 Total assets .............................................. 40,047 54,873 68,255 56,456 51,925 Short-term debt ........................................... - - - 4,900 4,000 Long-term debt, including current maturity ................ 15,610 16,404 19,725 7,196 9,561 Stockholders' equity ...................................... 12,119 17,366 23,490 22,577 23,207
- ------------ (a) As described in Note 5 to Financial Statements, in 2002, the Company discontinued amortizing goodwill and recorded an impairment charge of $1.0 million. (b) On August 1, 1997, the Company acquired Wink Davis. On February 6, 1998, the Company acquired TMC. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. The following discussion of the Financial Condition and Results of Operations of Speizman contains forward-looking statements within the meaning of Section 21e of the Securities Exchange Act of 1934. Speizman's actual results and timing of certain events could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including, but not limited to, those set forth under "Risk Factors" and "Cautionary Note Regarding Forward-Looking Information" and elsewhere in this Annual Report on Form 10-K. 12 Overview The Company's revenues are generated primarily from its distribution of textile equipment (principally knitting equipment and, to a lesser extent, from the sale of parts used in such equipment and the sale of used equipment) and commercial laundry equipment (principally commercial washers and dryers and, to a lesser 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. The Company's sales have decreased to $57.1 million in 2002 from $82.2 million in 2001 and $115.2 million for fiscal 2000. In addition, the Company incurred net losses of $5.3 million in 2002 and $5.8 million in 2001. The Company believes that the decrease in sales over the previous two years are due, in large part, to the delay in the sales of closed toe machines and the slowdown in the overall economy. Factors contributing to the losses in 2002, include the $1.0 million goodwill impairment charge. Factors that have contributed to the losses for 2001 include losses from the use of lira hedging contracts for anticipated sales that were postponed or cancelled. The Company has responded to the decrease in sales by reducing its personnel in all departments, restructuring its commission arrangement with sales personnel, and reducing general and administrative expenses, including a reduction of the lease payments for its main facility. In addition, the Company has reduced its bank financing, and interest expense through aggressive asset management. In order to further improve its available cash, the Company has entered into extended payment terms with Lonati and its subsidiaries. The Company is currently in discussions with potential lenders regarding refinancing its credit facility, which is scheduled to expire on December 31, 2002. Recently the Company began to experience an increase in equipment bookings for both the Textile and Laundry divisions. Management believes that revenues will improve as customers begin purchasing new labor saving equipment and as general economic conditions improve. Results of Operations Year Ended June 29, 2002 Compared to Year Ended June 30, 2001 Net Revenue. Net revenues decreased to $57.1 million in fiscal 2002 from $82.2 million in fiscal 2001, a reduction of 30.6%. Revenues in the textile division decreased to $31.5 million in fiscal 2002 from $47.3 million in fiscal 2001. The $15.8 million reduction in textile revenue is primarily attributable to lower sales of new and used sock knitting equipment ($13.5 million), used yarn processing equipment ($2.0 million), and sales commissions and licensing fees ($1.0 million), offset by increases in finishing and boarding equipment ($1.7 million). The decrease in textile revenues was primarily from the overall downturn of the economy and difficult market conditions during the year. Revenues in the laundry division decreased to $25.6 million in fiscal 2002 from $34.9 million in the prior year. The $9.3 million decrease is primarily due to reduced sales of new equipment and reflects the downturn in the hospitality industry. Cost of Sales and Gross Profit. Cost of sales as a percentage of revenues increased to 86.4% in fiscal 2002 from 85.7% in the prior year. Gross profit in the textile division decreased from $6.1 million in 2001 to $3.9 million in 2002. As a percentage of revenues, gross margin decreased from 12.8% to 12.2%. The reduction in gross margin dollars primarily reflects the reduction in sales noted above. The reduction in gross margin percentage was primarily due to the Company's inability to pass on price increases for closed toe machines to its customers due to weakness in the economy. The price increase was the result of Lonati's agreement to allow the Company to purchase equipment in U.S. dollars. In prior years, the Company purchased equipment in Italian lira and assumed the risk of foreign exchange fluctuations. Gross profit in the laundry division decreased from $5.7 million in 2001 to $3.9 million in 2002. As a percentage of revenues, gross margin decreased from 16.2% to 15.3%. The reduction in gross margin dollars primarily reflects the reduction in sales noted above. The reduction in gross margin percentage was primarily due to an increase in the number of large projects relative to total revenues in 2002 as compared to 2001. Large projects are more competitive than smaller white machine sales and are therefore more price sensitive. Selling Expenses. Selling expenses decreased to $5.4 million (9.5% of net revenue) in fiscal 2002 from $7.8 million (9.5% of net revenue) in fiscal 2001. The $2.4 million reduction was primarily due to lower personnel costs 13 ($715,000), travel ($515,000) and commissions ($668,000). The reduction in selling expenses were attributable to a change in the compensation plans for the Sales team from a salary and commission structure plan that was more fixed in nature to an all commission plan that is variable with revenues and gross margins. General and Administrative. General and administrative expenses decreased to $6.2 million (10.9% of revenue) in fiscal 2002 from $7.1 million (8.6% of net revenue) in fiscal 2001. The decrease of $900,000 was primarily attributable to reduced personnel costs ($540,000), ceasing to amortize goodwill ($440,000), lower travel costs ($94,000), and property insurance ($111,000), offset by increases in bad debt reserves ($122,000), health insurance ($135,000) and bank service fees ($101,000). The increase as a percentage of sales reflects the fixed nature of certain of these expenses including salaries, rents, etc. Loss on Goodwill Impairment. Loss on goodwill impairment in fiscal 2002 of $1.0 million reflects an adjustment of the goodwill associated with the Company's 1998 acquisition of TMC. The impairment in the carrying value of TMC's goodwill is due primarily to the elimination of license fee revenues in connection with an agreement to restructure certain trade debt with Lonati and its subsidiaries (see Liquidity and Capital Resources). Interest Expense. Interest expense decreased to $1.9 million in fiscal 2002 compared to $2.4 million in the prior year and reflects reduced borrowings under the Company's revolving line of credit during the current year. Because the Company uses interest rate swap derivatives which covered the majority of its borrowings during the year, fluctuations of interest rates had an immaterial effect on interest expense. Benefit for Income Taxes. The benefit for income taxes decreased to $1.5 million in fiscal 2002 (22% of pretax loss) compared to $3.6 million (38.1% of pretax loss) in the prior year. The reduction in the effective rate is due primarily to the nondeductablility of the writedown of goodwill noted above and is partially offset by the valuation reserve against deferred tax assets. Net Loss. Net loss for the year was $5.3 million, or $1.64 per share (basic and diluted), for fiscal 2002 compared to a net loss of $5.9 million, or $1.80 per share (basic and diluted), in the prior year. Year Ended June 30, 2001 Compared to Year Ended July 1, 2000 Net Revenues. Net revenues decreased to approximately $82.2 million for the year ended June 30, 2001, a decrease of $33.0 million (or 28.6%) from the prior year. Revenues in the laundry equipment and services segment increased to $34.9 million, an increase of $5.1 million (or 17%) compared to the prior year. The increase in laundry equipment and service revenue was primarily due to two large installation projects completed during fiscal year 2001. The increase in revenues for laundry equipment and services was offset by a decrease in textile equipment revenues. Revenues decreased in the textile equipment segment to $47.3 million for the year ended June 30, 2001, a decrease of $38.1 million (or 44.6%) from the prior year. Approximately $34.0 million of the decrease in textile equipment revenues (or 89%) was due to decreased sales in the United States and Canada for knitted fabric equipment, resulting from the dramatic softening in demand in the seamless underwear category. Cost of Sales. Cost of sales as a percentage of revenues increased unfavorably to 85.7% for the fiscal year 2001 as compared to 83.7% in fiscal year 2000. The net increase is due to increased costs on lira denominated equipment and parts sold primarily during the first half of fiscal year 2001. The increase in lira costs was a result of an overall devaluation in the Euro and lira coupled with the company utilizing foreign exchange derivatives contracted at stronger exchange rates for commitments that were subsequently delay or cancelled. Refer to Disclosure about Foreign Currency Losses in Fiscal Year 2001 for more discussion. The increase in lira costs associated with utilizing these foreign exchange contracts for equipment and parts sold during fiscal year 2001 was $3.2 million and represented a 3.9% component of consolidated cost of sales as a percentage of consolidated revenues for fiscal year 2001. This increase was offset primarily by reduced costs of approximately $1.5 million reflected in the second half of fiscal year 2001 from the planned elimination of non-performing business operations including the manufacturing activities of TMC. Selling Expenses. Selling expenses decreased by $120,000 (or 1.5%) to $7.8 million in fiscal 2001. As a percentage of revenue, selling expenses increase unfavorably to 9.5%, compared to 6.9% in the prior fiscal year. As a percentage of revenue, the increase is due to selling expense, primarily personnel and related costs, in the textile equipment segment being primarily fixed in nature coupled with a decrease in annual textile equipment sales, and higher total 14 commissions due to a higher mix of laundry equipment sales compared to the mix in the prior fiscal year. Commissions on laundry equipment sales are generally higher compared to commissions on sales of textile equipment. General and Administrative. General and administrative expenses decreased favorably by $450,000 (or 6%) to $7.1 million, compared to the prior fiscal year. The reduction primarily resulted from savings reflected in second half of fiscal year 2001 from reduced personnel and overhead associated with the Company's planned elimination of certain non-performing operations as well as the consolidation of certain administrative activities for its laundry segment. Interest Expense. Interest expense increased unfavorably by $450,000 to $2.4 million in fiscal year 2001 compared to $1,973,000 in the prior year. The increase is due to higher average balances throughout the fiscal year 2001 on the Company's line of credit to fund operations. Loss on Settlement of Uncommitted Foreign Currency Derivatives. Loss on settlement of uncommitted foreign currency derivatives of $3.9 million reflects a one-time loss associated with the discontinuation of the Company's uncommitted foreign currency derivatives classified as cash flow hedges. Refer to Disclosure about Foreign Currency Losses in Fiscal Year 2001 for more discussion. Taxes (Benefit) on Income (Loss). The benefit for income taxes was $3.6 million for the current year, a rate of 38.1% of the net loss. The effective rate in the prior fiscal year was 40.4%. The reduced rate in the current year is primarily due to a reduced effective state tax rate in the current fiscal year. The Company recognized as of June 30, 2001 a deferred tax benefit of $3.0 million for which the Company believes will be recoverable through the normal course of its business in the future. Net Loss. Net loss for the year was $5.9 million or $1.80 per share, both basic and diluted. In the prior year, net income was $802,000 or $0.25 per basic share and $0.24 per diluted share. Liquidity and Capital Resources Over the past three fiscal periods, the Company satisfied its cash requirements from operations and/or borrowings under credit facility arrangements and negotiating extended terms of trade debt. The Company has a revolving credit facility with SouthTrust Bank, N.A. The agreement with SouthTrust as amended on July 31, 2002, expires on December 31, 2002 and provides a revolving line of credit up to $13.0 million and an additional line of credit for issuance of Documentary Letters of Credit up to $6.0 million. The availability under the combined lines of credit is limited by the percentage of accounts receivable and inventory advance rates determined from time to time by SouthTrust. As of September 7, 2002, the Company's revolving line of credit was $7.7 million and the usage for documentary letters of credit was $3.4 million. The unused amount available to the Company as determined by the Bank was $2.2 million. Amounts outstanding under the line of credit for direct borrowings bear interest based upon two components: London Interbank Offered Rate (LIBOR) rate plus the applicable margin (1.5% to 2.5%) for a short term fixed period and prime plus the applicable margin (0% to 1.25%) for the non-fixed period. The rates vary based upon the Company's funded debt as defined in the loan agreement. During the year, the Company had two interest rate swap derivatives. The first swap which expired on June 2, 2002, fixed the interest rate for borrowing levels at $3.0 million at 7.77% plus the applicable margin. The second swap which expires on June 2, 2003 fixes the interest rate for borrowing levels at $5.0 million at 7.79% plus applicable margin. In connection with the SouthTrust facility, the Company granted a security interest in all assets of the Company. Working capital at June 29, 2002 was $8.9 million, a decrease of $8.4 million from $17.3 at June 30, 2001. The Working capital ratio at June 29, 2002 was 1.47 compared with 1.79 at June 30, 2001. Net cash provided by operating activities was $7.0 million for 2002 compared with $2.8 million provided by operating activities during 2001. Net cash provided by operating activities in 2002 was primarily due to a net reduction in accounts receivable of $8.8 million, inventory reductions of $1.7 million, non-cash expenses of $4.0 million, a reduction in deferred tax assets of $1.2 million, partially offset by a net loss of $5.3 million, and a $3.2 million decrease in customer deposits and accrued expenses. During fiscal 2002, the Company restructured $6.4 million in trade debt. Had the Company not renegotiated the terms this debt, cash flow from operations and working capital would have been lower by $6.4 million. The reduction of $9.3 million in accounts receivable during fiscal year 2002 was due to a decline in sales or billings for fiscal year 2002 when compared to the prior fiscal year coupled with an improvement in the number of days of sales 15 in accounts receivable from year to year, partially offset by deductions for losses on accounts of $535,000. The percentage drop in sales from year to year of 30.6% accounted for a decrease in net accounts receivable of approximately $5.9 million. The number of days of sales in accounts receivable improved at June 29, 2002 to 93 days compared with 104 days at June 30,2001. The improvement of 11 days accounted for a further reduction in net accounts receivable of approximately $1.7 million and was primarily due to an increased effort on cash collections. The number of days of sales in accounts receivable is calculated by dividing the average net accounts receivable balance by the revenues for the prior fiscal period multiplied by 360 days for the fiscal period. The reduction in inventory of $3.2 million was primarily due to sales of used hosiery and yarn processing equipment coupled with increases in inventory reserves related to used hosiery equipment. The decrease in current and long-term deferred taxes of $1.3 million was primarily due to new tax legislation in 2002 which enabled the Company to carry back operating losses rather than using them to offset future operating income. As a result, the Company received a tax refund of $2.2 million in 2002 and has classified $523,000 as a current income tax receivable. The deferred tax asset was further reduced by a $200,000 valuation reserve against net operating loss carry forwards in the event that they expired prior to utilization. These reductions were offset by increases in deferred tax benefits associated with the current year operating loss of $1.4 million and inventory valuation reserves of $300,000. The Company believes the net deferred tax benefits will be recoverable through its normal course of business in the future. The net decrease in accounts payable and overdraft of $5.5 million during fiscal year 2002 was primarily due to a decrease in costs associated with the decrease in the Company's sales. The percentage drop in cost of sales of $49.3 million in fiscal year 2002 as compared to cost of sales of $70.0 million in fiscal year 2001 was approximately 30%. This accounted for a $4.6 million decrease in accounts payable and bank overdraft. The net decrease in customer deposits of $2.4 million during fiscal 2002 was primarily due to the restructuring of one customer's deposit for $1.3 million into a trade note payable from fiscal 2001. The remaining decrease is attributable to lower sales in 2002 compared with 2001. Net cash provided in investing activities for 2002 was $115,000 which was primarily from proceeds on the disposition of assets. This compared to net cash used in investing activities in 2001 of $132,000 primarily from capital expenditures. Net cash used in financing activities was $6.1 million in 2002, primarily from net payments of $6.0 million on the Company's line of credit and payments of other long-term debt of $81,000. This compared to net cash used by financing activities in the prior year of $3.4 million, primarily related to payments net of borrowings on the Company's line of credit. The Company's credit facility with SouthTrust matures December 31, 2002. As of September 18, 2002, Speizman had $7.4 million in borrowings under its line of credit facility with a commercial bank. This facility matures December 31, 2002. The Company currently does not have the financial resources to repay this debt when it becomes due and will therefore need to refinance this debt prior to maturity. There is no assurance that the Company will be able to refinance this debt with another lender on a timely basis, on commercially reasonable terms, or at all. Additionally, the textile industry has continued to experience tightened lending practices from traditional financial institutions which may further hinder Speizman's ability to refinance this debt, especially in light of Speizman's recent financial losses. If Speizman is unable to refinance this debt or obtain needed additional capital, it would be required to significantly reduce its operations, dispose of assets and/or sell additional securities on terms that could be dilutive to current stockholders. The Company believes that it will refinance with another bank as it has in the past few years. However, there is no assurance that additional financing will be available when needed or desired on terms favorable to the Company or at all. 16 Contractual Obligations and Commitments The following table presents our long-term contractual obligations:
Payment Due By Periods ----------------------------------------------------------------------------------- Less Than Total One Year 1-3 Years 4-5 Years After 5 Years ----------- ----------- ----------- ---------- ------------- Long-term debt $11,109,000 $ 6,565,000 $ 4,544,000 $ - $ - Capital lease obligations 10,334,000 800,000 2,400,000 1,600,000 5,534,000 Irrevocable letters of credit 5,012,000 5,012,000 - - - Operating leases 1,384,000 609,000 708,000 67,000 - ----------- ----------- ----------- ---------- ------------- Total contractual cash obligations $27,839,000 $12,986,000 $ 7,652,000 $1,667,000 $ 5,534,000 =========== =========== =========== ========== =============
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 domestic 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 Losses in Fiscal Year 2001 Historically, Speizman Industries' purchases of foreign manufactured machinery and spare parts for resale have been denominated in Italian lira. As part of its risk management programs, the Company historically has used forward exchange contracts to protect against the currency exchange risk associated with the Company's anticipated and firm commitments of lira-denominated purchases for resale. In cases where anticipated or firm commitments are cancelled or postponed that were previously hedged with foreign currency contracts, the utilization of these forward exchange contracts on future purchases may positively or negatively affect the earnings of the Company, depending upon the position of the U.S. dollar against the lira at the time of the actual purchases. The Company cancelled or postponed orders during calendar year 2000 due to unanticipated delays associated with the closed toe machines as well as cancellations by customers who had signed sales orders with the Company for closed toe hosiery and knitted fabric equipment. Associated with these cancelled purchase orders, the Company had committed to purchase contracts of approximately 76 billion lira during the latter part of calendar year 1999. The utilization of this lira during fiscal year 2001 for other purchases coupled with the continual strengthening position of the dollar since 1999 had a significant adverse effect on gross profit during fiscal year 2001. The adverse effect on gross profit through increased cost of sales during the year ended June 2001 was approximately $3.2 million. Additionally, of the 76 billion lira contracts associated with the cancelled purchase orders, approximately 37 billion lira were uncommitted and were treated as cash flow hedges for accounting purposes. For cash flow hedges, changes in the fair value of the hedging instrument are deferred and recorded in other comprehensive income (equity), then recognized in the statement of operations in the same period as the sale is recognized on the hedged item. These commitments were initially designated to be utilized on anticipated purchase commitments primarily related to two product lines. Due to delays by the manufacturers, the Company renegotiated its future purchases with these foreign suppliers in U.S. dollars. In light of this, on November 13, 2000, the Company deemed these foreign currency derivatives as ineffective for hedge accounting as originally designated going forward. Accordingly, and in light of the potential future devaluation of the lira in relation to the U.S. dollar, the Company entered into offsetting foreign currency derivatives in order to fix its exposure on the ineffective cash flow derivatives and reported a loss on 17 settlement of cash flow derivatives of approximately $3.9 million, before income tax benefit. The Company had no foreign exchange contracts designated as cash flow hedges as of June 29, 2002. In summary, the total losses associated with the utilization of the Company's fair value hedge contracts and the settlement of its cash flow hedges were approximately $7.1 million for fiscal year 2001, before tax benefit. In the future, currency fluctuations of the lira could result in substantial price level changes and therefore impede or promote import/export sales and substantially impact profits. Generally, 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 Speizman Industries' future operations. In addition, the Company is continually evaluating other alternatives to limit its risk on foreign currency fluctuations and is currently purchasing a majority of its textile equipment denominated in U.S. dollars. Critical Accounting Policies The Company's discussion and analysis of its financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Management believes the following critical accounting policies, among others, affect its more significant judgments and estimates used in the preparation of its consolidated financial statements. Impairment of Goodwill In assessing the value of the Company's goodwill, management must make assumptions regarding estimated future cash flows and other factors to determine the carrying account of the assets. If these estimates or their related assumptions change in the future, the Company may be required to record impairment charges for these assets. Effective July 1, 2001, the Company adopted Statement of Financial Standards No. 142, "Goodwill and Other Intangible Assets" and is now required to analyze goodwill for impairment issues on an annual basis. During fiscal 2002, the Company reduced the carrying account of goodwill associated with its finishing division and took a charge to income for $1.0 million. Inventory and Bad Debt Reserves In assessing the value of the Company's accounts receivable and inventory, management must make assumptions regarding the collectibility of accounts receivable and the market value of the Company's inventory. In the case of accounts receivable, the Company considers the current and future financial condition of it's customers and judgmentally determines the reserve required. In the case of inventory, the Company considers recent sales of similar products, trends in the industry and other factors when establishing an inventory reserve. Deferred Tax Assets The Company has recorded a deferred tax benefit associated with its net operating losses and other timing differences associated with tax regulations and generally accepted accounting principles, because management believes these assets will be recoverable by offsetting future taxable income. If the Company does not return to profitability, or if the loss carryforwards cannot be utilized within federal statutory deadlines (currently 20 years), the asset may be impaired. During fiscal 2002, the Company reduced its deferred tax asset by $200,000 in light of these uncertainties. 18 New Accounting Pronouncements In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." The standard retains the previously existing accounting requirements related to the recognition and measurement of the impairment of long-lived assets to be held and used while expanding the measurement requirements of long-lived assets to be disposed of by sale to include discontinued operations. It also expands on the previously existing reporting requirements for discontinued operations to include a component of an entity that either has been disposed of or is classified as held for sale. Management does not believe the adoption of SFAS No. 144 will have a material effect on the Company's financial statements. Item 7A. Quantitative and Qualitative Disclosure about Market Risk. The Company is exposed to market risks, which include changes in U.S. and international interest rates as well as changes in foreign currency exchange rates as measured against the U.S. dollar and each other. The Company attempts to reduce these risks by utilizing financial instruments, pursuant to Company policies. To minimize interest rate exposures, the Company may use interest rate swap derivatives. These derivatives fix the interest rate for borrowings specified in the swap agreements. The Company used interest rate swap derivatives during fiscal 2001 and 2002. The value of the U.S. dollar affects the Company's financial results. Changes in exchange rates (primarily the Euro) may positively or negatively affect the Company's revenues (as expressed in U.S. dollars), cost of sales, gross margins, operating expenses, and retained earnings. Where the Company deems it prudent, it engages in hedging those transactions aimed at limiting in part the impact of currency fluctuations. As discussed in the Foreign Currency Risk section set forth herein under "Risk Factors", the Company purchases forward exchange contracts to protect against currency exchange risks associated with the Company's anticipated and firm commitments of lira-dominated purchases for resale. These hedging activities provide only limited protection against currency exchange risks and interest rate fluctuation. Factors that could impact the effectiveness of the Company's programs include volatility of the currency markets, interest rate fluctuation and availability of hedging instruments. All hedging contracts that are entered into by the Company are components of hedging programs and are entered into for the sole purpose of hedging an existing or anticipated exposure, not for speculation. Although the Company maintains programs to reduce the impact of changes in currency exchange rates, when the U.S. dollar sustains a strengthening position against the euro in which the Company has anticipated purchase commitments, the Company's gross margins could be adversely affected if future sale prices cannot be increased because of market pressures. 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-17 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 Item 14 of this Annual Report on Form 10-K and the remainder is set forth in the Company's 2002 Proxy Statement for the 2002 Annual Meeting of Stockholders Item 11. Executive Compensation. 19 The response to this Item 11 is set forth in the Company's 2002 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. Item 12. Security Ownership of Certain Beneficial Owners and Management. The response to this Item 12 is set forth in the Company's 2002 Proxy Statement under the section captioned "Stock Ownership of Certain Beneficial Owners and Management," which section is incorporated by reference. Equity Compensation Plan Information The following table provides information as of June 29, 2002 about the Company's common stock that may be issued upon the exercise of options to purchase common stock outstanding under the Company's existing stock option and equity compensation plans:
Number of securities remaining available for Number of securities to Weighted-average future issuance under be issued upon exercise exercise of outstanding equity compensation plans of outstanding options, options, warrants (excluding securities warrants and rights and rights reflected in column (a)) ----------------------- ----------------------- ------------------------- Plan category (a) (b) (c) - ------------------------------ ----------------------- ----------------------- ------------------------- Equity compensation plans approved by stockholders(1) 463,750 4.29 156,250 Equity compensation plans not approved by stockholders - - - ------- ---- ------- Total 463,750 4.29 156,250 ======= ==== =======
_____________ (1) The Company's existing stock option and equity compensation plans have been approved by stockholders. Item 13. Certain Relationships and Related Transactions. The response to this Item 13 is set forth in the Company's 2002 Proxy Statement under the section captioned "Certain Transactions," which section is incorporated herein by reference. Item 14. Controls and Procedures. Not applicable. 20 PART IV Item 15. 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 29, 2002 and June 30, 2001 .......................................... F-2 Consolidated Financial Statements for each of the three years in the period ended June 29, 2002, June 30, 2001 and July 1, 2000: Consolidated Statements of Operations ............................................................ F-3 Consolidated Statements of Stockholders' Equity .................................................. F-4 Consolidated Statements of Cash Flows ............................................................ F-5 Summary of Significant Accounting Policies ............................................................. F-6 Notes to Consolidated Financial Statements ............................................................. F-8 2. Financial Statement Schedules: Page ---- Report of Independent Certified Public Accountants on Financial Statement Schedule ..................... S-1 Schedule II - Valuation and Qualifying Accounts ........................................................ S-2
3. Exhibits: (a) 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 May 31, 2002, the Company filed a Current Report on Form 8-K pursuant to Item 5 thereof reporting the resignation of John C. Angelella as Vice President and Chief Financial Officer of the Company. 21 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 27, 2002 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 Chairman of the Board, President September 27, 2002 - ------------------------ Robert S. Speizman and Director (Principal Executive Officer) /s/ Paul R. M. Demmink Vice President-Finance, CFO, September 27, 2002 - ------------------------ Paul R. M. Demmink Secretary and Treasurer (Principal Financial Officer and Principal Accounting Officer) /s/ Jon P. Brady Director September 26, 2002 - ------------------------ Jon P. Brady /s/ William Gorelick Director September 18, 2002 - ------------------------ William Gorelick /s/ Scott C. Lea Director September 26, 2002 - ------------------------ Scott C. Lea /s/ Josef Sklut Director September 26, 2002 - ------------------------ Josef Sklut 22 CERTIFICATIONS I, Robert S. Speizman, Chairman of the Board and President of Speizman Industries, Inc., certify that: 1. I have reviewed this annual report on Form 10-K of Speizman Industries, Inc.; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; and 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report. Date: September 27, 2002 /s/ Robert S. Speizman --------------------------------------- Robert S. Speizman Chairman of the Board and President (Principal Executive Officer) I, Paul R.M Demmink, Vice President-Finance, CFO, Secretary and Treasurer of Speizman Industries, Inc., certify that: 1. I have reviewed this annual report on Form 10-K of Speizman Industries, Inc.; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; and 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report. Date: September 27, 2002 /s/ Paul R.M. Demmink ------------------------------------------ Paul R.M. Demmink Vice President-Finance, CFO, Secretary and Treasurer (Principal Financial Officer) 23 [BDO SEIDMAN LETTERHEAD] 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 29, 2002 and June 30, 2001, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended June 29, 2002. 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 auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits 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 29, 2002 and June 30, 2001, and the results of their operations and their cash flows for each of the three years in the period ended June 29, 2002, in conformity with accounting principles generally accepted in the United States of America. Charlotte, North Carolina BDO Seidman, LLP August 30, 2002 F-1 SPEIZMAN INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
June 29, June 30, 2002 2001 ---------------- ---------------- ASSETS Current: Cash and cash equivalents .............................................. $ 970,000 $ - Accounts receivable .................................................... 10,144,000 19,440,000 Inventories ............................................................ 13,542,000 16,722,000 Income tax refund ...................................................... 523,000 578,000 Deferred tax asset, current ............................................ 1,773,000 1,366,000 Prepaid expenses and other current assets .............................. 1,004,000 1,198,000 ---------------- ---------------- TOTAL CURRENT ASSETS ................................................ 27,956,000 39,304,000 ---------------- ---------------- Property and Equipment: Building and leasehold improvements .................................... 6,887,000 7,336,000 Machinery and equipment ................................................ 939,000 1,084,000 Furniture, fixtures and transportation equipment ....................... 1,575,000 1,658,000 ---------------- ---------------- 9,401,000 10,078,000 Less accumulated depreciation and amortization ......................... (3,089,000) (2,866,000) ---------------- ---------------- NET PROPERTY AND EQUIPMENT .......................................... 6,312,000 7,212,000 ---------------- ---------------- Deferred tax asset, long-term .............................................. 1,561,000 3,298,000 Other long-term assets ..................................................... 428,000 269,000 Goodwill, net of accumulated amortization .................................. 3,790,000 4,790,000 ---------------- ---------------- $ 40,047,000 $ 54,873,000 ================ ================ LIABILITIES AND STOCKHOLDERS' EQUITY Current: Bank Overdraft ......................................................... $ - $ 1,438,000 Accounts payable ....................................................... 9,994,000 14,007,000 Customers' deposits .................................................... 1,779,000 4,183,000 Accrued expenses ....................................................... 545,000 1,475,000 Current maturities of long-term debt ................................... 6,565,000 844,000 Current maturity of obligation under capital lease ..................... 121,000 57,000 ---------------- ---------------- TOTAL CURRENT LIABILITIES ........................................... 19,004,000 22,004,000 Long-term debt ............................................................. 4,544,000 10,978,000 Obligation under capital lease ............................................. 4,380,000 4,525,000 ---------------- ---------------- TOTAL LIABILITIES ................................................... 27,928,000 37,507,000 ---------------- ---------------- Commitments and Contingencies Stockholders' Equity: Common stock - par value $.10; authorized 12,000,000 shares at June 29, 2002 and 20,000,000 shares at June 30, 2001, issued 3,396,228, outstanding 3,255,428 ............................. 340,000 340,000 Additional paid-in capital ............................................. 13,047,000 13,047,000 Accumulated other comprehensive loss ................................... (169,000) (264,000) Retained earnings (accumulated deficit) ................................ (512,000) 4,830,000 ---------------- ---------------- Total ............................................................... 12,706,000 17,953,000 Treasury stock, at cost, 140,800 shares ................................ (587,000) (587,000) ---------------- ---------------- TOTAL STOCKHOLDERS' EQUITY .......................................... 12,119,000 17,366,000 ---------------- ---------------- $ 40,047,000 $ 54,873,000 ================ ================
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 29, June 30, July 1, 2002 2001 2000 ---------------- --------------- --------------- (52 weeks) (52 weeks) (52 weeks) ---------------- --------------- --------------- REVENUES $ 57,103,000 $ 82,233,000 $ 115,182,000 COST OF SALES 49,344,000 70,511,000 96,443,000 ---------------- --------------- --------------- GROSS PROFIT 7,759,000 11,722,000 18,739,000 SELLING EXPENSES 5,443,000 7,770,000 7,890,000 GENERAL AND ADMINISTRATIVE EXPENSES 6,228,000 7,079,000 7,530,000 GOODWILL IMPAIRMENT CHARGES 1,000,000 - - ---------------- --------------- --------------- OPERATING INCOME (LOSS) (4,912,000) (3,127,000) 3,319,000 Net Interest Expense 1,930,000 2,422,000 1,973,000 Loss on settlement of uncommitted foreign currency derivative contracts - 3,926,000 ---------------- --------------- --------------- EARNINGS (LOSS) BEFORE PROVISION (BENEFIT) FOR (6,842,000) (9,475,000) 1,346,000 INCOME TAX PROVISION (BENEFIT) FOR INCOME TAX (1,500,000) (3,612,000) 544,000 ---------------- --------------- --------------- NET EARNINGS (LOSS) $ (5,342,000) $ (5,863,000) $ 802,000 ================ =============== =============== Basic earnings (loss) per share $ (1.64) $ (1.80) $ $ 0.25 Diluted earnings (loss) per share $ (1.64) $ (1.80) $ $ 0.24 Weighted average shares Outstanding: Basic 3,255,428 3,252,577 3,243,311 Diluted 3,255,428 3,252,577 3,295,579
See accompanying summary of accounting policies and notes to consolidated financial statements. F-3 SPEIZMAN INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Retained Accumulated Additional Earnings Other Common Common Paid-In (accumulated Comprehensive Treasury Comprehensive Shares Stock Capital deficit) Loss Stock Loss --------- ----------- ------------ ------------ ------------- ------------ ------------- BALANCE, JULY 3, 1999 ........ 3,369,506 $ 337,000 $12,936,000 $ 9,891,000 $ - $ (587,000) Net income ................... - - - 802,000 - - Exercise of stock options .... 23,722 2,000 109,000 - - - --------- --------- ---------- ---------- ----------- ----------- BALANCE, JULY 1, 2000 ........ 3,393,228 $ 339,000 $13,045,000 $10,693,000 $ - $ (587,000) Net loss ..................... - - - (5,863,000) - - $(5,863,000) Accumulated Comprehensive loss - Interest rate swap, net of tax ..................... - - - - (264,000) - (264,000) ----------- Comprehensive Loss ........ - - - - - - $(6,127,000) =========== Exercise of stock options .... 3,000 1,000 2,000 - - - --------- --------- ---------- ---------- ----------- ----------- BALANCE, JUNE 30, 2001 3,396,228 340,000 13,047,000 4,830,000 (264,000) (587,000) Net loss ..................... - - - (5,342,000) - - $(5,342,000) Accumulated Comprehensive loss - Interest rate swap, net of tax ..................... - - - - 95,000 - 95,000 ----------- Exercise of stock options .... - - - - - - $(5,247,000) =========== --------- --------- ---------- ---------- ----------- ----------- BALANCE, JUNE 29, 2002 ....... 3,396,228 $ 340,000 $13,047,000 $ (512,000) $ (169,000) $ (587,000) ========= ========= ========== ========== =========== ===========
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 29, June 30, July 1, 2002 2001 2000 ----------------- ----------------- ------------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) ............................................ $ (5,342,000) $ (5,863,000) $ 802,000 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: (Gain) loss on disposal of fixed assets ...................... 38,000 6,000 (6,000) Depreciation ................................................. 747,000 922,000 998,000 Amortization ................................................. 246,000 532,000 573,000 Writedown for goodwill impairment ............................ 1,000,000 Provision for losses on accounts receivable .................. 535,000 413,000 259,000 Provision for inventory obsolescence ......................... 1,432,000 689,000 807,000 Deferred income taxes ....................................... 1,213,000 (3,028,000) (246,000) (Increase) decrease in: Accounts receivable ...................................... 8,761,000 10,869,000 (9,843,000) Inventories .............................................. 1,748,000 (922,000) (936,000) Prepaid expenses and other assets ........................ (106,000) 3,599,000 105,000 Increase (decrease) in: Accounts payable and bank overdraft ...................... (186,000) (4,753,000) 5,128,000 Accrued expenses and customers' deposits ................. (3,122,000) 322,000 (1,872,000) ---------------- ---------------- --------------- Net cash provided by (used in) operating activities .......... 6,964,000 2,786,000 (4,231,000) ---------------- ---------------- --------------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures ......................................... (10,000) (219,000) (473,000) Proceeds from property and equipment disposals ............... 125,000 87,000 79,000 ---------------- ---------------- --------------- Net cash provided by (used in) investing activities ...... 115,000 (132,000) (394,000) ---------------- ---------------- --------------- CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings on line of credit ................................. 50,461,000 40,386,000 13,510,000 Payments on line of credit ................................... (56,439,000) (43,208,000) (4,610,000) Principal payments on long-term debt ......................... (81,000) (499,000) (5,641,000) Debt issue costs ............................................. (50,000) (50,000) (244,000) Other borrowings ............................................. - - 1,570,000 Issuance of common stock upon exercise of stock options ...... - 3,000 112,000 ---------------- ---------------- --------------- Net cash provided by (used in) financing activities ...... (6,109,000) (3,368,000) 4,697,000 ---------------- ---------------- --------------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ............................................ 970,000 (714,000) 72,000 CASH AND CASH EQUIVALENTS, at beginning of year ................ - 714,000 642,000 ---------------- ---------------- --------------- CASH AND CASH EQUIVALENTS, at end of year ...................... $ 970,000 $ - $ 714,000 ================ ================ ===============
See accompanying summary of accounting policies and notes to consolidated financial statements. F-5 SPEIZMAN INDUSTRIES, INC. AND SUBSIDIARIES SUMMARY OF SIGNIFICANT 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. Wink Davis Equipment Company, Inc. ("Wink Davis") was acquired on August 1, 1997. Todd Motion Controls, Inc. ("TMC") was acquired on February 6, 1998. Speizman Yarn Equipment Co., Inc. ("Speizman Yarn") began operations on August 1, 1998. Speizman Canada, Inc. was incorporated on February 16, 1989. Speizman de Mexico S.A. de C.V. was incorporated on April 2, 1997. REVENUE RECOGNITION The major portion of the Company's revenues consists of sales and commissions on sales of machinery and equipment. The revenue derived therefrom for the textile segment is recognized in full at the time of shipment, and for the laundry segment, at time of installation. In some instances the laundry equipment and services business is engaged in installation projects for customers on a contract basis. Some contracts call for progress billings. In such cases, the Company uses the percentage of completion method to recognize revenue whereby sales are recorded based upon the ratio of costs incurred to total estimated costs at completion. Billings in excess of the revenue recognized, or deferred revenue at June 29, 2002 and June 30, 2001 was immaterial. Shipping and handling charges to customers are included in revenues. Costs associated with shipping are included in cost of sales. 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 and accelerated methods for financial reporting purposes and by accelerated methods for income tax purposes. Useful lives are generally five years for computer equipment, seven years for machinery, and ten years for office furniture. Assets recorded under capital leases and leasehold improvements are amortized using the straight-line method over the lesser of their useful lives or the related lease term (between 5-15 years). LONG-LIVED ASSETS Long-lived assets, such as goodwill and property and equipment, are evaluated for impairment annually, when events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable through the estimated discounted future cash flows from the use of these assets. When any such impairment exists, the related assets will be written down to fair value. In 2001 and prior, the Company amortized goodwill on a straight-line basis over fifteen years. Goodwill is net of writedowns and accumulated amortization of $2,648,000 and $1,648,000 at June 29, 2002 and June 30, 2001, respectively. See Note 5 for discussion of adoption on Statement of Financial Accounting Standards ("SFAS") No. 142. FINANCIAL INSTRUMENTS The Company does not hold or issue financial instruments for trading purposes. Amounts to be paid or received under interest rate swap agreements are recognized as increases or reductions in interest expense in the periods in which they accrue. TAXES ON INCOME The Company provides for income taxes using the liability method. Deferred tax assets or liabilities at the end of each period are determined using the enacted tax rates. Income tax expense will increase or decrease in the same period in which a change in tax rates is enacted. F-6 SPEIZMAN INDUSTRIES, INC. AND SUBSIDIARIES SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (continued) FOREIGN CURRENCY TRANSACTIONS The Company has certain transactions denominated in foreign currency. Assets and liabilities are translated into U.S. dollars at the year-end exchange rate. Income and expense accounts are translated at the current rates in effect during the year. Gains or losses from foreign currency transactions are reflected in the statements of operations. INCOME (LOSS) PER SHARE Basic net income per share includes no dilution and is calculated by dividing net income (loss) 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). A reconciliation of shares used in calculating basic and diluted earnings per share for years ending July 29, 2002, June 30, 2001 and July 1, 2000 is as follows: The basic shares outstanding for the fiscal year 2002, 2001 and 2000 is 3,255,428, 3,252,577 and 3,243,311, respectively. The effect of the assumed conversion of employee stock options was 0, 0 and 52,268 for fiscal years 2002, 2001 and 2000, respectively. Options to purchase approximately 463,000, 389,000 and 284,500 shares of common stock at prices from $0.56 to $6.31, $1.88 to $6.31 and $4.87 to $6.13 per share were outstanding during portions of fiscal years 2002, 2001 and 2000, respectively, but were not included in the computation of diluted earnings per share for each of the respective years because they were anti-dilutive. 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. The years ending June 29, 2002, June 30, 2001 and July 1, 2000 included 52 weeks. ADVERTISING The Company expenses advertising costs as incurred. Total advertising expense approximated $17,000, $103,000 and $169,000 for fiscal years 2002, 2001and 2000, respectively. 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. RECLASSIFICATIONS Certain reclassifications were made to the prior years' financial statements to conform to the current year presentation. NEW ACCOUNTING PRONOUNCEMENTS In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." The standard retains the previously existing accounting requirements related to the recognition and measurement of the impairment of long-lived assets to be held and used while expanding the measurement requirements of long-lived assets to be disposed of by sale to include discontinued operations. It also expands on the previously existing reporting requirements for discontinued operations to include a component of an entity that either has been disposed of or is classified as held for sale. Management does not believe the adoption of SFAS No. 144 will have a material effect on the Company's 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 and Mexico, the Company primarily sells to customers located within the United States. Export sales from the United States were $832,000, $4,310,000 and $16,633,000 during fiscal 2002, 2001 and 2000, 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 also 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, Canada and Mexico of machines manufactured by Lonati, S.p.A., generated the following percentages of the Company's net revenues: 25.1% in 2002, 26.2% in 2001 and 21.2% in 2000. In addition, sales of Santoni machines in the United States, Canada and Mexico generated 6.8%, 4.2% and 32.3% of the Company's net revenues in fiscal 2002, 2001 and 2000, respectively. In 2001, sales to one customer approximated 13.4% of revenues. In 2002 and 2000, there were no sales to customers in excess of 10% of revenues. Generally, the customers contributing the most to the Company's net revenues vary from year to year. NOTE 2 -- RISK MANAGEMENT AND DERIVATIVE FINANCIAL INSTRUMENTS Effective July 2, 2000, the Company adopted Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities (SFAS 133), as amended by SFAS No. 137 and SFAS No. 138, which establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. SFAS 133, as amended, requires the Company to recognize all derivative instruments on the balance sheet at fair value. If the derivative is a hedge, changes in the fair value of derivatives are either offset against the change in fair value of assets, liabilities, or firm commitments through earnings or recognized in comprehensive income (equity) until the hedged item is recognized in earnings. The ineffective portion of a derivative's change in fair value is recognized in earnings. In transition, the statement required all hedging relationships to be evaluated and designated anew, resulting in cumulative-effect-type transition adjustments to other comprehensive income. The effect on earnings in transition was immaterial. The Company has historically entered into forward exchange contracts to reduce the foreign currency exchange risks associated with its committed and anticipated lira and Euro denominated purchases, and not for speculation. As of June 29, 2002, the Company had no foreign currency exchange contracts. For derivatives classified as cash flow hedges, changes in the fair value of the hedging instrument are deferred and recorded in other comprehensive income (equity), then recognized in the statement of operations in the same period that the hedged transaction is recognized. In transition, and effective July 2, 2000, the Company's designated commitments to purchase 37.0 billion lira as cash flow hedges. These commitments were initially designated to be utilized on anticipated purchase commitments primarily related to two product lines. Due to delays by the manufacturers, the Company renegotiated its future purchases with these foreign suppliers in U.S. dollars. In light of this, on November 13, 2000, the Company deemed these foreign currency derivatives as ineffective for hedge accounting as originally F-8 SPEIZMAN INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) designated. Accordingly, and in light of the potential future devaluation of the lira in relation to the U.S. dollar, the Company entered into offsetting foreign currency derivatives in order to fix its exposure on the ineffective cash flow derivatives. On November 13, 2000, and in accordance with SFAS 133, as amended, the Company reported a loss on settlement of cash flow derivatives of approximately $3.9 million, before income tax benefit. The Company had no foreign exchange contracts designated as cash flow hedges as of June 29, 2002. The Company had one interest rate swap derivative designated as a cash flow hedge at June 29, 2002. The change in the fair market value was a gain of $95,000 net of tax expense, and was recognized in Other Comprehensive Income (equity) at June 29, 2002. The liability of approximately $280,000 is included in accrued expenses on the Company's balance sheet. For interest rate swap agreements, increases or reductions in interest expense are recognized in the periods in which they accrue. NOTE 3 -- ACCOUNTS RECEIVABLE
Accounts receivable are summarized as follows: June 29, 2002 June 30, 2001 ------------- ------------- Trade receivables ............................................. $ 10,963,000 $ 20,187,000 Less allowance for doubtful accounts .......................... (819,000) (747,000) -------------- -------------- Net accounts receivable ....................................... $ 10,144,000 $ 19,440,000 =============== ==============
NOTE 4 -- INVENTORIES
Inventories net of reserves are summarized as follows: June 29, 2002 June 30, 2001 ------------- ------------- Machines New ...................................................... $ 6,539,000 $ 6,453,000 Used ..................................................... 2,166,000 4,457,000 Parts and supplies ............................................ 4,837,000 5,812,000 -------------- -------------- Total ......................................................... $ 13,542,000 $ 16,722,000 ============== ==============
NOTE 5 -- GOODWILL Goodwill is calculated as the excess of the cost of purchased businesses over the value of their underlying net assets. In 2002, the Company ceased amortizing goodwill and began evaluating it for impairment in accordance with SFAS No. 142, "Goodwill and Other Intangible Assets". During the year, the Company recognized a loss on impairment of $1,000,000 associated with its finishing division. The impairment in the carrying value of goodwill is due primarily to the elimination of license fee revenues in connection with an agreement to restructure certain trade debt with Lonati. In 2001 and prior, the Company amortized goodwill on a straight-line basis over fifteen years. Goodwill is net of writedowns and accumulated amortization of $2,648,000 and $1,648,000 at June 29, 2002 and June 30, 2001, respectively. F-9 SPEIZMAN INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Effective July 1, 2001, the Company adopted SFAS No. 142, "Goodwill and Other Intangible Assets". The following table presents the impact of this new standard on prior years earnings (losses) and per share amounts:
2002 2001 2000 ----------------- ---------------- ---------------- NET EARNINGS (LOSS) As reported ............................... $ (5,342,000) $ (5,863,000) $ 802,000 Add back Goodwill amortization, net of tax effect ........................... - 226,000 218,000 ------------- ------------- ------------ Adjusted .................................. $ (5,342,000) $ (5,637,000) $ 1,020,000 ============= ============= ============ Basic earnings (loss) per share As reported ............................... $ (1.64) $ (1.80) $ 0.25 Add back Goodwill amortization, net of tax effect ........................... - 0.07 0.07 ------------- ------------- ------------ Adjusted .................................. $ (1.64) $ (1.73) $ 0.32 ============= ============= ============ Diluted earnings (loss) per share As reported ............................... $ (1.64) $ (1.80) $ 0.24 Add back Goodwill amortization, net of tax effect ........................... - 0.07 0.07 ------------- ------------- ------------ Adjusted .................................. $ (1.64) $ (1.73) $ 0.31 ============= ============= ============
NOTE 6 -- LEASES The Company conducts its operations from leased real properties, which include offices and warehouses. In April 1999, several textile machinery warehouses and the corporate offices were relocated into a new facility. This new facility is leased from The Speizman LLC, a limited liability company owned by Mr. Robert S. Speizman, his wife and their children. In accordance with SFAS No. 13, "Accounting for Leases", the Company recognized this as a capital lease, except the portion of the lease applicable to the land, which was recorded as an operating lease. In December 1999, The Speizman LLC completed construction of an additional 100,000 square feet of warehouse space to the facility. In order to consolidate the remaining textile equipment warehouses to this single location, the Company entered into a new lease agreement. In June 2000, the Company amended the lease with The Speizman LLC. The amendment extended the term to 180 months, ending May 2015, and made maintenance and taxes the responsibility of the Company. In January 2002, the lease was amended to reduce the monthly payments from $88,000 to $67,000. The reduction was treated as a reduction to interest expense on the capital lease obligation. Prior to relocating to its new facility, the Company leased office and warehouse facilities from a partnership in which Mr. Robert Speizman, the Company's president had a 50% interest. Lease payments to the partnership approximated $76,000 in fiscal 2000. Lease payments to The Speizman LLC approximated $928,000, $1,055,000 and $860,000 in fiscal years 2002, 2001 and 2000, respectively. The primary operating facility and certain sales offices of the laundry equipment and services operations were leased from a partnership in which Mr. C. Alexander Davis, former President of Wink Davis, has a 50% interest. The primary lease expired in fiscal 2001. Lease payments to the partnership were approximately $203,000 and $205,000 in fiscal years 2001 and 2000, respectively. F-10 SPEIZMAN INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) In April 2000, Wink Davis entered into a five-year lease for office facilities with The Speizman LLC II, a limited liability company owned by Mr. Robert S. Speizman, his wife and their children. In November 2001, Speizman LLC II sold the property and assigned the lease to a third party. Lease payments to The Speizman LLC II totaled approximately $38,000, $80,000 and $19,000 in 2002, 2001 and 2000, respectively. The lease has been accounted for as an operating lease. In addition, the Company leases autos and other equipment under operating lease agreements. As of June 29, 2002, future net minimum lease payments under capital and operating leases that have initial or remaining noncancelable terms in excess of one year are as follows:
Capital Operating Lease Leases ------------ ---------- 2003 ............................................................... $ 800,000 $ 609,000 2004 ............................................................... 800,000 360,000 2005 ............................................................... 800,000 216,000 2006 ............................................................... 800,000 132,000 2007 ............................................................... 800,000 67,000 Beyond ............................................................. 6,334,000 - ------------ ---------- Total minimum lease payments .................................. $ 10,334,000 $1,384,000 ========== Less amount representing interest at 15% ...................... (5,833,000) ------------ Present value of net minimum lease payments ................... 4,501,000 Current portion ............................................... (121,000) ------------ $ 4,380,000 ============
The following summarizes property held under capital leases:
2002 2001 ------------ ---------- Land and Building .................................................. $ 5,127,000 $5,127,000 Less accumulated depreciation ...................................... (962,000) (640,000) ------------ ---------- $ 4,165,000 $4,487,000 ============ ==========
Total rent expense for all operating leases approximated $915,000, $1,125,000 and $1,057,000 in fiscal years 2002, 2001 and 2000, respectively. NOTE 7-- TAXES (BENEFIT) ON INCOME Provisions (benefit) for federal and state income taxes in the consolidated statements of operations are made up of the following components:
2002 2001 2000 ------------- ------------- ----------- Current: Federal ............................. $ (2,731,000) $ (629,000) $ 550,000 State ............................... 18,000 45,000 240,000 ------------- ------------- ----------- (2,713,000) (584,000) 790,000 ------------- ------------- ----------- Deferred: Federal ............................. 1,328,000 (2,194,000) (167,000) State ............................... (115,000) (834,000) (79,000) ------------- ------------- ----------- 1,213,000 (3,028,000) (246,000) ------------- ------------- ----------- Total taxes (benefit) on income ......... $ (1,500,000) $ (3,612,000) $ 544,000 ============= ============= ===========
F-11 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 are reflected in the consolidated balance sheets as follows: June 29, 2002 June 30, 2001 ------------- ------------- Net current assets ................. $ 1,773,000 $ 1,366,000 Net noncurrent assets .............. 1,561,000 3,298,000 ------------- ------------- $ 3,334,000 $ 4,664,000 ============= ============= Principal items making up the deferred income tax assets (liabilities) are as follows: Year Ended ------------------------------- June 29, June 30, 2002 2001 ------------- ------------- Inventory valuation reserves ....... $ 955,000 $ 617,000 Depreciation ....................... 116,000 27,000 Deferred compensation .............. 263,000 286,000 Deferred charges and other ......... (21,000) 116,000 Inventory capitalization ........... 420,000 299,000 Accounts receivable reserves ....... 307,000 294,000 Net operating loss carryforwards ... 1,381,000 2,795,000 Interest rate swap ................. 113,000 230,000 Deferred tax valuation reserve ..... (200,000) - ------------- ------------- Net deferred tax asset ......... $ 3,334,000 $ 4,664,000 ============= ============= Deferred taxes include federal and state net operating loss carryforwards of approximately $2,460,000 and $13,506,000, respectively, which may be utilized to offset future taxable income. These carryforwards expire at various dates through 2022. The Company's effective income tax rates are different than the U.S. Federal statutory tax rate for the following reasons:
2002 2001 2000 ---- ---- ---- U.S. Federal statutory tax rate .................................. (34.0)% (34.0)% 34.0% State income taxes, net of federal income tax benefit ............ (1.0) (5.5) 7.9 Non-deductible goodwill impairment ............................... 5.5 - - Other non-deductible expenses .................................... 1.7 1.6 3.3 Deferred tax valuation reserve ................................... 2.9 - - Other ............................................................ 3.0 (0.2) (4.8) ----- ----- ----- Effective tax rate ............................................... (21.9)% (38.1)% 40.4% ===== ===== =====
NOTE 8 - LONG-TERM DEBT The Company has a revolving credit facility and a line of credit for issuance of Documentary Letters of Credit with SouthTrust Bank, N.A. Effective February 19, 2002, the Company entered into a Third Amendment and Forbearance Agreement ("Third Amendment") relating to its original Credit Facility Agreement with SouthTrust. The Third Amendment provides a revolving credit facility up to $15.0 million and an additional line of credit for issuance of Documentary Letters of Credit up to $4.0 million. The availability under the combined facility is limited to a borrowing base as defined in the Third Amendment and the original Credit Facility Agreement. F-12 SPEIZMAN INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Advances under the revolving credit facility and line of credit as amended are broken down into two components for the calculation of interest expense: the London Interbank Offered Rate (LIBOR) component that accrues interest at the LIBOR rate plus 1 1/2% to 2 1/2%, and a base rate component that accrues interest at prime plus 1 1/4%. The rates are scaled based upon the Company's funded debt as defined in the original Credit Facility Agreement. Prior to the Second Amendment and pursuant to the terms of the First Amendment dated November 13, 2000, the LIBOR component accrued interest at the LIBOR rate plus 3%, and the base rate component accrued interest at prime plus 1 1/4 %. The Company also has in effect an interest rate swap derivative that fixes the interest rate for advances under the LIBOR component at 7.79% plus the applicable margin for borrowing levels of $5.0 million, which expires on June 2, 2003. As of June 29, 2002, amounts outstanding of $5.0 million were advanced under the LIBOR component at a rate of 1.84% plus 2.5%. The facility is secured by all the assets of the Company. The Credit Facility as amended by the Third Amendment contains specific covenants that require, among other things, the Company to maintain specified EBITDA targets for each month through July 31, 2002. The Company was in compliance at June 29, 2002 with its bank covenants. Effective July 31, 2002, the Company executed a Fourth Amendment to the credit facility with SouthTrust. The amendment extends the maturity date to December 31, 2002, decreases the revolving credit facility to $13.0 million and increases the line of credit to $6.0 million. In addition, it requires the Company to meet specific EBITDA targets for each month through maturity. As of June 29, 2002, the Company had $3.8 million available under its credit facility. Other long-term obligations primarily include trade debt with payment dates beyond one year. Effective February 2002, the Company restructured its payment terms with Lonati S.p.A., its largest supplier, on current trade obligations amounting to $5.2 million, less $1.0 million owed to the Company. The net balance of $4.2 million is payable over a 24-month period commencing March 1, 2004. The restructured terms also include an interest charge at 6% per annum, payable quarterly commencing September 2002. The agreement also provides the Company through February 2006 with exclusive distribution rights for Lonati's product line and the ability to purchase in U.S. dollars. In consideration, the Company entered into a non-binding agreement and is in the process of amending its License Agreement with Todd Motion Controls, Inc. ("TMC") and SRA, an affiliate of Lonati, whereby license fees previously due under this agreement would be eliminated, commencing January 1, 2002. Previously, the agreement provided for quarterly license fees of $125,000 payable to the Company through December 2004. At June 29, 2002, the Company was in violation of one of its covenants related to the Lonati agreement and obtained a waiver from Lonati and its subsidiaries for the violation. The Company also restructured a refundable customer deposit in the amount of $1.2 million included in trade notes payable below, to a two-year period, payable monthly commencing January 31, 2002. The amount of this obligation bears no interest. Long-term debt consists of:
June 29, 2002 June 30, 2001 --------------- -------------- Total Total ----- ----- Revolving Credit Facility .................. $ 5,000,000 $ 10,978,000 Trade notes payable ........................ 6,109,000 844,000 --------------- -------------- Total ...................................... 11,109,000 11,822,000 Current maturities ......................... (6,565,000) (844,000) --------------- -------------- $ 4,544,000 10,978,000 =============== ==============
Annual maturities of long-term debt excluding capital lease obligations are: 2003 ............................... $ 6,565,000 2004 ............................... 1,025,000 2005 ............................... 2,112,000 2006 ............................... 1,407,000 --------------- $ 11,109,000 ===============
F-13 SPEIZMAN INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) NOTE 9 -- STOCK OPTIONS The Company has reserved 450,000 and 155,000 shares of Common Stock under employee stock plans adopted in 1995 and 2000, respectively. As of June 29, 2002, options to purchase 444,500 and 5,000 were outstanding under the 1995 and 2000 Plans, respectively. Generally, 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 1995 and 2000 Plans are not limited and may be less than 100% of the fair market value on the date of the grant. The Company has reserved 15,000 shares of Common Stock under a non-employee directors stock option plan adopted in 1995. As of June 29, 2002, 14,250 options to purchase were outstanding under this plan. 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. A summary of employee and non-employee directors stock option transactions and other information for 2002, 2001 and 2000 follows:
Year Ended ----------------------------------------------------------------------------------- Weighted Weighted Weighted June 29, Average June 30, Average July 1, Average 2002 Price/Sh 2001 Price/Sh 2000 Price/Sh ----------- -------- ----------- -------- ----------- -------- Shares under option, beginning of year ..... 442,000 $ 4.56 478,163 $ 4.81 452,385 $ 4.84 Options granted ............................ 34,000 0.63 45,000 1.00 49,500 4.53 Options exercised .......................... - - (3,000) 0.75 (23,722) 4.81 Options expired ............................ (12,250) 3.87 (78,163) 4.08 - - --------- -------- --------- -------- --------- -------- Shares under option, end of year ........... 463,750 $ 4.29 442,000 $ 4.56 478,163 $ 4.81 ========= ======== ========= ======== ========= ======== Options exercisable ........................ 455,000 384,500 427,163 ========= ========= ========= Prices of options exercised ................ - $ 0.75 $ 0.75 to $ 4.95 Prices of options outstanding, end of ...... $ 0.56 to $ 1.00 to $ 0.75 to year ....................................... $ 6.31 $ 6.31 $ 6.31
The Company has adopted the disclosure only provisions of Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (SFAS No. 123). Accordingly, no compensation cost has been recognized for the stock option plans. The fair value of these options was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions for fiscal years 2002, 2001 and 2000: expected lives of 10.0 years, expected volatility of 73.9% for fiscal year 2002, 70.4% for fiscal year 2001 and 53% for fiscal year 2000, risk-free interest rate of 4.9% for 2002, 5.4% for 2001 and 6.5% for 2000, and dividend yield of 0.0% for all three years. 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 years 2002, 2001 and 2000 was $0.63, $1.00 and $3.36 per share, respectively. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the 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 Year Ended June 29, 2002 June 30, 2001 July 1, 2000 ------------- ------------- ------------ Pro forma net (loss) income ......................... $ (5,402,000) $ (5,914,000) $ 670,000 Pro forma basic (loss) earnings per share ........... $ (1.66) $ (1.82) $ 0.20 Pro forma diluted (loss) earnings per share ........ (1.66) (1.82) 0.21
F-14 SPEIZMAN INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) The following table summarizes information about stock options outstanding at June 29, 2002:
Options Outstanding Options Exercisable --------------------------------------------------------- ---------------------------------------- Number of Weighted-Average Number Weighted-Average Range of Outstanding Remaining Weighted-Average Exercisable Exercise Price Exercise price at 6/29/02 Contractual Life Exercise Price at 6/29/02 ------------------------------------------------------------------------------------------------------------------- $ 0 to 2 79,000 8.4 0.84 70,250 0.87 2 to 4 124,000 3.4 3.05 124,000 3.05 4 to 6 188,750 4.5 5.83 188,750 5.83 6 to 8 72,000 5.0 6.31 72,000 6.31 ------- ------- 463,750 455,000 ======= =======
NOTE 10 -- DEFERRED COMPENSATION PLANS The Company has deferred compensation agreements with one active and one retired employee providing for remaining payments amounting to $1,285,000. One agreement, as modified, has been in effect since 1972 and the second agreement was effective October 1989. The earliest of the agreements matured in December 1998. The agreements provide for monthly payments on retirement or death benefits over fifteen year periods. The agreements are funded under trust agreements whereby the Company pays to the trust amounts necessary to meet the obligations under the deferred compensation agreements. Charges to operations applicable to those agreements were $94,000, $20,000 and $30,000 for the fiscal years 2002, 2001 and 2000, respectively. NOTE 11 -- EMPLOYEES' RETIREMENT PLAN During 1989, the Company adopted a 401(k) retirement plan 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. In prior years, the Company made discretionary contributions that matched 50% of each employee's contribution up to 4% of pretax eligible compensation. During 2002, the Company ceased matching contributions. The Company's discretionary contributions totaled approximately $33,000, $173,000 and $163,000 in fiscal years 2002, 2001 and 2000, respectively. NOTE 12 -- COMMITMENTS AND CONTINGENCIES The Company had outstanding commitments backed by letters of credit of approximately $5,012,000 and $5,321,000 at June 29, 2002 and June 30, 2001, respectively, relating to the purchase of machine inventory for delivery to customers. The Company filed a lawsuit with one of its customers for nonperformance associated with certain sales contracts. On July 30, 2001, the defendant filed a counterclaim alleging damages due to delay in delivery of machines and defects in operation in the amount of $6.8 million (Canadian) or approximately U.S. $4.3 million, plus interest and penalties in an unspecified amount. Based upon discussions with its legal counsel, the Company believes the counterclaim is without merit and intends to defend its position vigorously. In the normal course of business, the Company is named in various other lawsuits. The Company vigorously defends such lawsuits, none of which are expected to have a material impact on operations, either individually or in the aggregate. F-15 SPEIZMAN INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) NOTE 13 -- SEGMENT INFORMATION The Company operates primarily in two segments of business, textile equipment ("textile") and laundry equipment and services ("laundry"). Prior to the acquisition of Wink Davis on August 1, 1997, the Company operated only in the textile segment. TMC and Speizman Yarn are included in the textile equipment classification. Corporate operations include general corporate expenses, amortization of debt issuance costs, interest expense related to the Company's credit facility and elimination of intersegment balances. The table below summarizes financial data by segment.
Total Textile Total Laundry Segment Segment Corporate Total ------------- ------------- ------------- -------------- Net Revenues ...................................... 2002 $ 31,548,000 $ 25,555,000 $ - $ 57,103,000 2001 47,337,000 34,896,000 - 82,233,000 2000 85,370,000 29,812,000 - 115,182,000 Earnings (Loss) before Interest & Taxes ........... 2002 (3,956,000)(2) 220,000 (1,176,000) (4,912,000) 2001 (6,398,000)(3) 714,000 (1,369,000) (7,053,000) 2000 4,481,000 145,000 (1,307,000) 3,319,000 Total Assets ...................................... 2002 30,258,000 9,789,000 - 40,047,000 2001 43,339,000 14,570,000 (3,036,000) 54,873,000 2000 55,328,000 13,499,000 (572,000) 68,255,000 Capital Expenditures .............................. 2002 10,000 - - 10,000 2001 182,000 37,000 - 219,000 2000 3,214,000 59,000 - 3,273,000 Depreciation and Amortization ..................... 2002 684,000 63,000 246,000 993,000(1) 2001 914,000 447,000 92,000 1,453,000 2000 967,000 471,000 133,000 1,571,000 Interest Expense (Income) ......................... 2002 845,000 8,000 1,077,000 1,930,000 2001 963,000 28,000 1,431,000 2,422,000 2000 727,000 8,000 1,238,000 1,973,000
- ------------ (1) The Company discontinued amortization of goodwill in 2002. (2) The textile segment includes a $1.0 million loss on impairment of goodwill in 2002. (3) In 2001, the loss before interest and taxes for the textile segment included a one-time loss on settlement of uncommitted cash flow foreign currency derivative contracts of $3.9 million. NOTE 14 -- SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Year Ended ---------------------------------------------------------- June 29, June 30, July 1, 2002 2001 2000 ------------ ------------ ----------- Cash paid (received) during year for: Interest expense .......................................... $ 1,951,000 $ 2,389,000 $ 2,054,000 Income taxes .............................................. (2,775,000) (304,000) 873,000
Non-Cash Investing and Financing Transactions: The Company acquired $255,000 of inventory through financing arrangements with one of its vendors in 2001. A capital lease obligation of $1,900,000 was incurred in fiscal 1999 when the Company entered into a lease for its corporate offices and warehouses. An additional $2,800,000 was incurred in fiscal 2000 from the addition of 100,000 square feet of warehouse space leased and related land during the year. F-16 SPEIZMAN INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) NOTE 15 -- QUARTERLY FINANCIAL INFORMATION (UNAUDITED) The following table presents unaudited supplemental quarterly financial information for the years ended June 29, 2002 and June 30, 2001:
QUARTER ENDED September 29, 2001 December 29, 2001 March 30, 2002 June 29, 2002 ------------------ ----------------- -------------- ------------- 2002 Revenues ............................ $ 12,177,000 $ 15,107,000 $ 12,932,000 $ 16,887,000 Gross Profit ........................ 1,490,000 2,094,000 1,715,000 2,460,000 Operating Income (loss) ............. (1,622,000) (738,000) (2,303,000)(a) (249,000) Income (loss) before taxes .......... (2,177,000) (1,320,000) (2,702,000) (643,000) Net Income (loss) ................... $ (1,427,000) $ (1,040,000) $ (2,214,000) $ (661,000) Basic earnings (loss) per share ..... $ (0.44) $ (0.32) $ (0.68) (0.20) Diluted earnings (loss) per share ... (0.44) (0.32) (0.68) (0.20) September 30, 2000 December 30, 2000 March 31, 2001 June 30, 2001 ------------------ ----------------- -------------- ------------- 2001 Revenues ............................ $ 20,896,000 $ 17,811,000 $ 21,164,000 $ 22,362,000 Gross Profit ........................ 1,548,000 2,405,000 3,503,000 4,266,000 Operating Income (loss) ............. (2,344,000) (1,516,000) 25,000 708,000 Income (loss) before taxes .......... (2,856,000) (6,089,000)(b) (601,000) 71,000 Net Income (loss) ................... $ (1,783,000) $ (3,751,000) $ (371,000) $ 42,000 Basic earnings (loss) per share ..... $ $ (0.55) $ (1.15) $ (0.11) $ 0.01 Diluted earnings (loss) per share ... (0.55) (1.15) (0.11) 0.01
- ------------ (a) The textile segment includes a $1.0 million goodwill impairment charge in 2002. (b) In 2001, the loss before interest and taxes for the textile segment included a one-time loss on settlement of uncommitted cash flow foreign currency derivative contracts of $3.9 million. Earnings (loss) per share calculation for each quarter are based on the weighted average shares outstanding for each period. The sum of the quarters may not necessarily be equal to the full year earnings (loss) per share amount. NOTE 16 -- OPERATIONS As shown in the accompanying financial statements, the Company's sales have decreased to $57.1 million in 2002 from $82.2 million in 2001 and $115.2 million for fiscal 2000. In addition, the Company incurred net losses of $5.3 million in 2002 and $5.8 million in 2001. The Company believes that the decrease in sales over the previous two years are due, in large part, to the delay in the sales of closed toe machines and the slowdown in the overall economy. However, the Company believes that the trend in sales has stabilized. Factors contributing to the losses in 2002, include the $1 million goodwill impairment charge. Factors that have contributed to the losses for 2001 include losses from the use of lira hedging contracts for anticipate sales that were postponed or cancelled. The Company has responded to the decrease in sales by reducing its personnel in all departments, restructuring its commission arrangement with sales personnel, and reducing general and administrative expenses, including a reduction of the lease payments for its main facility. In addition, the Company has reduced its bank financing, and interest expense through aggressive asset management. To further improve its available cash, the Company has entered into extended payment terms with Lonati and its subsidiaries. The Company is currently in discussions with potential lenders regarding refinancing its credit facility, which is scheduled to expire on December 31, 2002. There can be no assurances the Company will be able to refinance this debt with another lender on a timely basis, on commercially reasonable terms, or at all. F-17 [BDO SEIDMAN LETTERHEAD] REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE SPEIZMAN INDUSTRIES, INC. The audits referred to in our report dated August 30, 2002, 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 financial statement schedule presents fairly, in all material respects, the information set forth therein. Charlotte, North Carolina BDO Seidman, LLP August 30, 2002 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 July 1, 2000: Reserve for doubtful accounts ........ $ 646,000 $ 259,000 $ - $ 303,000 $ 602,000 ---------- ---------- ------- --------- ---------- Reserve for inventory obsolescence ... $ 736,000 $ 807,000 $ - $ 230,000 $1,313,000 ---------- ---------- ------- --------- ---------- Fiscal year ended June 30, 2001: Reserve for doubtful accounts ........ $ 602,000 $ 413,000 $ - $ 268,000 $ 747,000 ---------- ---------- ------- --------- ---------- Reserve for inventory obsolescence ... $1,313,000 $ 689,000 $ - $ 430,000 $1,572,000 ---------- ---------- ------- --------- ---------- Fiscal year ended June 29, 2002: Reserve for doubtful accounts ........ $ 747,000 $ 535,000 $ - $ 463,000 $ 819,000 ---------- ---------- ------- --------- ---------- Reserve for inventory obsolescence ... $1,572,000 $1,432,000 $ - $ 443,000 $2,561,000 ---------- ---------- ------- --------- ----------
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. (Incorporated by reference to Exhibit 10.4 contained in the Company's Annual Report on Form 10-K for the fiscal year ended June 28, 1997, File No.0-8544, filed with the Commission on September 26, 1997 (the "1997 Form 10-K").) 3.5 Certificate of Amendment of Certificate of Incorporation of the Company, dated January 7, 2002. (Incorporated by reference to Exhibit 10(a) contained in the Company's Quarterly Report on Form 10-Q for quarter ended December 29, 2001, File No. 0-8544, filed with the Commission on February 12, 2002 (the "December 29, 2001 Form 10-Q").) 3.6 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. (Incorporated by reference to Exhibit 10.3 contained in the Company's Annual Report on Form 10-K for the fiscal year ended June 27, 1998, File No. 0-8544, filed with the Commission on September 25, 1998 (the "1998 Form 10-K").) 10.4 Distribution Agreement by and between the Company and Lonati, dated December 3, 2001, relating to the Company's distribution of Lonati machines in Mexico. (Incorporated by reference to Exhibit 10(a) contained in the Company's Quarterly Report on Form 10-Q for quarter ended March 30, 2002, File No. 0-8544, filed with the Commission on May 14, 2002 (the "March 30, 2002 Form 10-Q").) 10.5 First Amendment to Agency Agreement between the Company and Lonati effective May 3, 2001. Confidential Treatment requested pursuant to a request for confidential treatment filed with the SEC on September 28, 2001. The portions of the exhibit for which confidential treatment has been requested have been omitted from the exhibit. The omitted information has been filed separately with the Commission as part of the confidential treatment request. (Incorporated by reference to Exhibit 10.4 contained in the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2001, File No. 0-8544, filed with the Commission on September 28, 2001 (the "2001 Form 10-K").) 10.6 Second Amendment to Agency Agreement and Forbearance Agreement between the Company and Lonati effective February 1, 2002. (Incorporated by reference to Exhibit 10(f) contained in the March 30, 2002 Form 10-Q.) 10.7 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.) 10.8 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.) 10.9 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.) 10.10 Agreement between the Company and Santoni effective February 1, 2002. 10.11 Distributorship Agreement between the Company and Conti Complett, S.p.A., Milan, Italy, dated October 2, 1989. 10.12 Letter Agreement between Speizman Yarn Equipment, Inc. and Margasa, dated June 15, 1999. (Incorporated by reference to Exhibit 10.10 contained in the Company's Annual Report on Form 10-K for the fiscal year ended July 3, 1999, File No. 0-8544, filed with the Commission on October 1, 1999 (the "1999 Form 10-K".) 10.13 Letter Agreement between Speizman Yarn Equipment, Inc. and Margasa, dated January 23, 2001. (Incorporated by reference to Exhibit 10.10 contained in the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2001, File No. 0-8544, filed with the Commission on September 29, 2001 (the "2001 Form 10-K".) 10.14 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.) 10.15 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. 10.16 Lease Agreement by and between The Speizman LLC and the Company regarding corporate headquarters and warehouse, dated as of December 1, 1999. 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, 2000, File No. 0-8544, filed with the Commission on September 30, 2000 (the "2000 Form 10-K".) 10.17 First Amendment to Lease Agreement, dated December 1, 1999 by and between The Speizman LLC and the Company, dated as of June 2000. (Incorporated by reference to Exhibit 10.18 contained in the 2000 Form 10-K.) 10.18 Second Amendment to Lease Agreement by and between The Speizman LLC and the Company effective January 1, 2002. (Incorporated by reference to Exhibit 10(f) contained in the March 30, 2002 Form 10-Q.) 10.19* 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.) 10.20* 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.) 10.21* 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.) 10.22* 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.) 10.23* Speizman Industries, Inc. 2000 Equity Compensation Plan of the Company. (Incorporated by reference to Exhibit 99 to the Company's Registration Statement on Form S-8, registration no. 333-74292, filed with the Commission on November 30, 2001.) 10.24* 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.) 10.25* 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.) 10.26* Executive Bonus Plan of the Company, adopted July 20, 1993. (Incorporated by reference to Exhibit 10.30 contained in the 1993 Form S-1.) 10.27* 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 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").) 10.28 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.) 10.29 Fourth Modified Redemption Agreement between the Company and Robert S. Speizman, dated September 14, 1994 as amended by Fifth Modified Redemption Agreement, dated September 26, 1995. 10.30 Credit Facility Agreement by and between the Company and its subsidiaries and SouthTrust Bank, N.A., dated as of May 31, 2000. (Incorporated by reference to Exhibit 10.53 contained in the 2000 Form 10-K.) 10.31 Amendment and Forbearance Agreement by and between the Company and its subsidiaries and SouthTrust, dated as of November 13, 2000. (Incorporated by reference to Exhibit 10(a) contained in the Company's Quarterly Report on Form 10-Q for quarter ended December 30, 2000, File No. 0-8544, filed with the Commission on February 13, 2001 (the "December 30, 2000 Form 10-Q".) 10.32 Second Amendment and Forbearance Agreement by and between the Company and its subsidiaries and SouthTrust dated as of February 19, 2002. (Incorporated by reference to Exhibit 10.34 contained in the 2001 Form 10-K.) 10.33 Third Amendment and Forbearance Agreement by and between the Company and its subsidiaries and SouthTrust dated as of February 19, 2002. (Incorporated by reference to Exhibit 10(c) contained in the March 30, 2002 Form 10-Q.) 10.34 Fourth Amendment and Forbearance Agreement by and between the Company and its subsidiaries and SouthTrust dated as of July 31, 2002. 10.35 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 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").) 10.36 Dealer Agreement between Pellerin Milnor Corporation and Wink Davis dated as of February 1, 2002. (Incorporated by reference to Exhibit 10(d) contained in the March 30, 2002 Form 10-Q.) 10.37 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.) 10.38 Lease Agreement by and between The Speizman LLC, II and Wink Davis, dated as of March 1, 2000 relating to the Wink Davis Charlotte, North Carolina office. (Incorporated by reference to Exhibit 10.61 contained in the 2000 Form 10-K.) 10.39 Commercial Lease between Master Distributors, Inc. t/a Atlantic Beverage Co., Inc. and Wink Davis, dated as of September 6, 2001, relating to the Maryland office. (Incorporated by reference to Exhibit 10(e) contained in the March 30, 2002 Form 10-Q.) 10.40 Industrial Building Lease between Kensington Partners, Ltd. and Wink Davis, dated as of April 25, 2002, relating to the Wood Dale, Illinois office. 10.41 License Agreement by and between Todd Motion Controls, Inc and SRA srl ("SRA"), dated October 4, 2000. (Incorporated by reference to Exhibit 10(b) contained in the Company's December 30, 2000 Form 10-Q.) 10.42 First Amendment to License Agreement and Grant of Distributorship between SRA and the Company and its subsidiaries dated July 16, 2002. 10.43 Agreement between Tecnopea SrL and the Company, effective as of February 1, 2002. 21 List of Subsidiaries 23 Consent of BDO Seidman, LLP 99.1 Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 99.2 Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. - ----------------- * Represents a management contract or compensatory plan or arrangement of the Registrant. EX-10.10 3 dex1010.txt AGREEMENT EXHIBIT 10.10 AGREEMENT The present agreement (the "Agreement") is made effective as of the 1/st/ day of February 2002 by and between Santoni SpA, a corporation established and organized under the laws of the Italian Republic, having its legal address in Italy, 25135 Brescia, Via Carlo Fenzi 14, fiscal code and registered nr. 00273280172, represented by its legal representative Mr. Ettore Lonati (hereinafter "Santoni"); Vignoni Srl, a company established and organized under the laws of the Italian Republic, having its legal address in Italy, 23135 Brescia, Via Carlo Fenzi 14, registered nr. 03476200179, represented by its legal representative Mr. Ettore Lonati (hereinafter "Vignoni"); Marchisio Srl on voluntary winding up, a company established and organized under the laws of the Italian Republic, having its legal address in Italy, 25135 Brescia, Via Carlo Fenzi 14, registered nr. 03452440179, represented by its liquidator Mr. Ettore Lonati (hereinafter "Marchisio"); Matec SpA, a corporation established and organized under the laws of the Italian Republic, having its legal address in Italy, 50018 Scandicci (FI), Via dellenazioni Unite 7, registered nr. 04475560480, represented by its legal representative Mr. Ettore Lonati (hereinafter "Matec"); Dinema SpA, a corporation established and organized under the laws of the Italian Republic, having its legal address in Italy, 25134 Brescia, Via San Polo 183, fiscal code and registered nr. 00292820172, represented by its legal representative Mr. Ettore Lonati (hereinafter "Dinema") (hereinafter collectively the "Compan(y)ies") parties of the first part and Speizman Industries, Inc., a corporation established and organized under the laws of the State of Delaware ("Speizman"), having its legal address and principal office at 701 Griffith Road, Charlotte, North Carolina 28217, represented by its legal representative and executive officer, Mr. Robert S. Speizman; Speizman Yarn Equipment, Inc., a corporation established and organized under the laws of the State of South Carolina, having its legal address and principal office at 701 Griffith Road, Charlotte, North Carolina 28217, represented by its legal representative and executive officer, Mr. Robert S. Speizman; Wink Davis Equipment Co., Inc., a corporation established and organized under the laws of the State of Georgia, having its legal address and principal office at 4938 S. Atlanta Road, Suite 800 & 900, Smyrna, Georgia 30080, represented by its legal representative and executive officer Mr. Robert S. Speizman; (hereinafter collectively "Speizman") parties of the second part Preliminary Statement: A. On March 12/th/, 1999 Santoni and Speizman entered a certain Exclusive Distributorship Agreement, (hereinafter the "Original Agreement"), in order to appoint Speizman as Santoni's exclusive distributor in U.S.A. and Canada for the sale of its products (machines and spare parts); B. During the Original Agreement performance, Speizman was on default on its contractual obligations to pay Santoni's ordered products; C. On account of separate past transactions (hereinafter the "other transactions"), several debts emerged toward Vignoni, Marchisio, Matec and Dinema; D. Presently, Speizman owes to the above mentioned Companies the following amount of money: d.1 Santoni's outstanding claim: (Euro) 258.531,30 (Two Hundred Fifty-Eight Thousand Five Hundred Thirty-One and 30/100 Euro), net of Speizman's counterclaims; d.2 Vignoni's outstanding claim: USD 185,185.48 (One Hundred Eighty-Five Thousand One Hundred Eighty-Five and 48/100 US Dollar); d.3 Marchisio's outstanding claim: USD 287,043.00 (Two Hundred Eighty-Seven Thousand Forty-Three and 00/100 US Dollar); d.4 Matec's outstanding claim: (Euro) 28.995,05 (Twenty-Eight Thousand Nine Hundred Ninety-Five and 05/100 Euro) d.5 Dinema's outstanding claim: USD 172,371.00 (One Hundred Seventy-Two Thousand Three Hundred Seventy-One and 00/100 US Dollar); E. The Parties wish to enter this Agreement for the purpose of agreeing and confirming the terms and conditions of payment of both the outstanding and subsequent trade Speizman's debts as well as the supplements and modifications to the Original Agreement as set forth herein. Now therefore, in consideration of the premises and the mutual promises and covenants set forth herein, the Parties hereby agree as follows: Agreement: 1. Premises The above stated premises are an integral part of this Agreement. 2. Outstanding debt 2.1 Speizman shall repay the total outstanding debt owed to Santoni, Vignoni and Marchisio ((Euro) 258.531,30 + USD 185,815.48 + USD 287,043.00) with sixty-nine (69) successive equal weekly payments of (Euro) 10,000.00 each (Ten Thousand and 00/100 Euro) - total for all three aforementioned companies), on Friday of each week and a seventieth (70) and final weekly payment in an amount equal to the outstanding unpaid balance , until the debt is paid in full, with the first payment due on March 1/st/, 2002. Speizman and Santoni further acknowledge and agree that Santoni's outstanding claim in the present amount of (Euro) 253.531,30 is net of, and calculated after credit for, the sum of USD 252,729.73 (Two Hundred Fifty-Two Thousand Seven Hundred Twenty-Nine and 73/100 U.S. Dollars) which was owed by Santoni to Speizman as of February 27/th/, 2002 (the "Credited Amount"), excluding the amount of USD 285,000.00 according to the Alba Waldensian, Inc., settlement, and which has been paid and satisfied in full by setting off such amount against the amounts owed by Speizman to Santoni. Speizman acknowledges and agrees that after crediting the Credited Amount against the indebtedness of Speizman, there remains outstanding and payable by Speizman to Santoni the indebtedness comprising the outstanding claim in the amount of (Euro) 258.531,30. 2.2 All payments shall be allocated among Santoni, Vignoni and Marchisio in proportion to the outstanding amount of the indebtedness owned to each of such companies by Speizman. In the event that any weekly payment is not made when due, the amount which is delinquent shall bear interest until paid at a default rate of interest of 6% per year, which interest shall be due and payable weekly on Friday of each week together with the regularly scheduled installment of principal. 2.3 Speizman shall repay the USD 172,371.00 (One Hundred Seventy-Two Thousand Three Hundred Seventy-One and 00/100 US Dollar) outstanding debt owed to Dinema with monthly payment of USD 14,300.00 (Fourteen Thousand Three Hundred and 00/100 US Dollar) each until paid in full, with first payment due on March 1/st/, 2002. 2.4 Moreover, Speizman commits themselves to insure the correct and full performance of all outstanding and further trade debts towards Matec according to the terms and conditions of payment previously agreed upon by Matec itself and Speizman in the purchase orders and related correspondence. 2.5 Subject to the terms, conditions, and understandings contained in this Agreement, and for so long as there does not exist a default under the terms of this Agreement, the Companies hereby agree to refrain and forbear temporarily from exercising and enforcing any of their remedies with respect to the outstanding debt of Speizman to the Companies. 3. Further trade debts 3.1 Speizman shall pay all future spare parts orders on and after the ate of this Agreement by irrevocable and confirmed Letter of Credit net ninety (90) days from the date of the invoice. 3.2 Furthermore, on and after the ate of this Agreement, Speizman shall pay for new machine orders comprising Products on the following payment terms: ten percent (10%) of the purchase price by down-payment in cash at the order confirmation and the remaining ninety percent (90%) of the purchase price against ninety (90) days irrevocable and confirmed Letter of Credit. 3.3 The effectiveness of each purchase order is conditioned upon the correct and full payment and performance of the aforementioned ten percent (10%) down-payment. 3.4 Each irrevocable Letter of Credit shall be issued at least 7 days prior to the shipment date and shall be payable at 90 (ninety) days from the invoice issued by each Company for the Products. With respect to purchases after the date of this Agreement, Speizman shall pay for Products in Euros ((Euro)) or US Dollars on account of the currency designated in the invoices and all letters of credit issued with respect to such purchases shall be payable in Euros ((Euro)) or US Dollars as well. All letters of credit must be irrevocable when issued and must be issued and confirmed by a bank satisfactory to the Companies. Other terms of the Letters of Credit must be satisfactory to each Company. 3.5 The terms of payment set forth in this Section 3 shall apply to all purchases by Speizman of Products (as defined in the Original Agreement and other transactions), including spare parts and new machines, made after the date of this Agreement. Spare part orders that are less than USD 50,000 (Fifty Thousand and 00/100 US Dollars) in value shall be paid by wire transfer upon each Company's notice that the goods are ready to be shipped. 4. Default and termination 4.1 The Companies may terminate this Agreement and/or the Original Agreement and/or the other transactions immediately by written notice to Speizman in the event that: a) Speizman is in breach of its contractual obligations and fails to remedy such breach within a reasonable term, not to exceed thirty (30) days from the receipt of the other party's written notice stating the occurrence of the breach. b) Speizman or any subsidiary of Speizman shall (i) commence a voluntary case under the federal bankruptcy laws (as now or hereafter in effect), (ii) file a petition seeking to take advantage of any other laws, domestic or foreign, relating to bankruptcy, insolvency, reorganization, winding up or composition for adjustment of debts, (iii) consent to or fail to contest in a timely and appropriate manner any petition filed against it in an involuntary case under such bankruptcy laws or other laws, (iv) apply for or consent to, or fail to contest in a timely and appropriate manner, the appointment of, or the taking of possession by a receiver, custodian, trustee, or liquidator of itself or of a substantial part of its property, domestic or foreign, (v) admit in writing its inability to pay its debts as they become due, (vi) make a general assignment for the benefit of creditors, or (vii) take any corporate action for the purpose of authorizing any of the foregoing; c) A case or other proceeding shall be commenced against Speizman or any subsidiary of Speizman in any court of competent jurisdiction seeking (i) relief under the federal bankruptcy laws (as now or hereafter in effect) or under any other laws, domestic or foreign, relating to bankruptcy, insolvency, reorganization, winding up or adjustment of debts, or (ii) the appointment of a trustee, receiver, custodian, liquidator or the like for Speizman or any subsidiary of Speizman or for all or any substantial part of their respective assets, domestic or foreign, and such case or proceeding shall continue without dismissal or stay for a period of sixty (60) consecutive days, or an order granting the relief requested in such case or proceeding (including but not limited to an order for relief under such federal bankruptcy laws) shall be entered. d) A judgment or order for the payment of money which causes the aggregate amount of all such judgments (to the extent not fully covered by insurance) to exceed $1,000,000 shall be entered against Speizman or any of its subsidiaries by any court and such judgment or order shall continue without discharge or stay for a period of sixty (60) days. e) Speizman shall default in the payment or performance of its existing credit facility with SouthTrust Bank, N.A. (apart from the continuation during any agreed-upon forbearance period of any existing default which is the subject of a binding forbearance agreement by SouthTrust Bank, N.A.). f) Speizman or any of its subsidiaries shall default in the payment of any indebtedness for borrowed money, the aggregate outstanding amount of which indebtedness is in excess of USD 1,000,000 beyond the period of grace if any, provided in the instrument or agreement under which such indebtedness was created. g) Speizman shall fail to obtain refinancing of the existing credit facility from SouthTrust Bank, N.A. or other banks upon maturity of such facility (by acceleration upon default or otherwise) in the principal amount of at least USD 12,000,000.00 (Twelve Million US Dollars) and for a term extending beyond January 31, 2003. 4.2 Accordingly, in the event of early termination of this agreement, the time limits provided herein in favour of debtor are to expiry immediately and each Company will be entitled to claim any and all accrued credits against Speizman pursuant to the Original Agreement and other transactions. 4.3 Immediately upon the occurrence of any default under this Agreement (i) the obligations, agreement, and commitments of the Companies set forth in this Agreement shall immediately and automatically terminate and be of no further force or effect without further notice to or consent of Speizman, (ii) Santoni shall have the right to terminate the Original Agreement, as amended hereby, and all of Speizman's rights and agency thereunder, (iii) the Companies shall each have the right to declare the principal of and interest on the indebtedness of Speizman to such Companies, or any of them, at the time outstanding, and all other amounts owed to the Companies, or any of them, to be immediately due and payable, whereupon the same shall immediately become due and payable without presentment, demand, protest or other notice of any kind, all of which are expressly waived and (iv) each of the Companies shall have the right to exercise and enforce any and all rights and remedies available to each such Company under this Agreement, under any and all documents executed and delivered in connections with this Agreement, under the Original Agreement and under applicable laws to the same extent as though no forbearance had been agreed to by the Companies as provided in this Agreement, without regard to any notice or cure period contained in any of the foregoing or otherwise available under applicable laws. 5. Exclusive distribution 5.1 Speizman will be Santoni's exclusive distributor in the U.S.A. and Canada for the sale of the Products through and including July 3/rd/, 2004, unless the early termination of the Original Agreement and/or of this Agreement occur. 6. Reference currency All transactions relating to this Agreement, Original Agreement as well as the other transactions, are to be wholly paid in Euros ((euro)) or US Dollars on account of the currency designated in the invoices. 7. Governing law and Exclusive Forum for disputes 7.1 This Agreement shall be governed and construed in all respects in accordance with the Laws of the Republic of Italy. The parties expressly exclude the applicability of the United Nations Convention on Contracts for the International Sale of Goods and any other international conventions or treaties regarding the international sale of goods. Any allusion to local uses or customs is merely indicative. 7.2 The Parties agree that the exclusive competent Forum to resolve any dispute that could arise between the Parties in terms of interpretation, execution and performance of this agreement or otherwise directly or indirectly pertaining to this agreement, shall be the Court of Brescia (Italy). However, the Companies shall have the further right to file any legal proceeding against Speizman before any court of competent jurisdiction, State or Federal, in the Sates of North and South Carolina. 8. Final Clause 8.1 Should any provisions of this agreement be or become invalid, illegal or unenforceable under applicable law, the other provisions of this Agreement shall not be affected, and, to the extent permissible under applicable law, the Parties shall use their best efforts to modify said invalid, illegal, or unenforceable provisions so as to comply with such laws. 8.2 This Agreement shall not constitute a novation of the Original Agreement and the other transactions which shall remain in full force and effect except expressly amended hereby. Santoni SpA Speizman Industries, Inc. By: /s/ Ettore Lonati By: /s/ Robert S. Speizman ------------------------------ ----------------------------- Name: E. Lonati Name: Robert S. Speizman Title: President Title: President Vignoni Srl Speizman Yarn Equipment, Inc. By: /s/ Ettore Lonati By: /s/ Robert S. Speizman ------------------------------ ----------------------------- Name: E. Lonati Name: Robert S. Speizman Title: President Title: President Marchisio Srl in liquidazione Wink Davis Equipment Co., Inc. By: /s/ Ettore Lonati By: /s/ P. Donald Mullen, II ------------------------------ ----------------------------- Name: E. Lonati Name: P. Donald Mullen, II Title: President Title: President Matec SpA By: /s/ Ettore Lonati ------------------------------ Name: E. Lonati Title: President Dinema SpA By: /s/ Ettore Lonati ------------------------------ Name: E. Lonati Title: President Brescia, (date) Charlotte, (date) 24-06-02 June 25, 2002 Specific Acceptance Speizman declare to accept specifically, pursuant to articles 1341 and 1342 of the Italian Civil Code, the following clauses as described above: 4. default and termination; 5. exclusive distribution; 7. governing law and exclusive forum for disputes. Speizman Industries, Inc. By: /s/ Robert S. Speizman ---------------------------------- Name: Robert S. Speizman Title: President Speizman Yarn Equipment, Inc. By: /s/ Robert S. Speizman ---------------------------------- Name: Robert S. Speizman Title: President Wink Davis Equipment Co., Inc. By: /s/ P. Donald Mullen, II ---------------------------------- Name: P. Donald Mullen, II Title: President Charlotte (date) June 25, 2002 /s/ EL EX-10.11 4 dex1011.txt DISTRIBUTORSHIP AGREEMENT EXHIBIT 10.11 [Conti Complett letterhead] Dated: 2/nd/ October, 1989 Distributorship Agreement between Conti Complett S.p.A., an Italian Company having its headquarters in Milan, Via Varese, 18, represented by its Managing Director, Dr. Roberto Conti (hereinafter "Conti Complett"), on one side and SPEIZMAN INDUSTRIES, INC., a United States Company having its headquarters in Charlotte, NC 28231 - 508 West 5/th/ Street - P.O. Box 31215 U.S.A., represented by its Managing Director, Mr. Bob Speizman (hereinafter the "Distributor"), on the other side whereas Conti Complett manufacturer of Linking and Special Sewing Machines; - - Distributor intends to obtain the exclusive distributorship of the Products for United States (hereinafter the "Territory") and Conti Complett intends to grant such exclusive distributorship, now, therefore, the following is agreed and stipulated: 1. Appointment of Distributor - Conti Complett hereby appoints the Distributor as the exclusive distributor in the Territory for the machines listed in Attachment "A" hereto (hereinafter the "Products"). 2. Exclusivity a. The Distributor agrees that it shall not offer for sale, sell either directly or indirectly in the Territory, other new products competing with the Products. b. The Distributor agrees not to offer for sale, sell or deliver any of the Products destined for export outside of the Territory to any person, firm or company without Conti Complett's prior written consent. c. Conti Complett shall sell and deliver the Products to the Distributor on an exclusive basis and, therefore, Conti Complett will not offer for sale or deliver the Products to any other person, firm or company in the Territory for use within the Territory. 3. Prices - Discounts - Terms of Payment - Sales prices to customers of the Products and of the spare parts shall be those indicated in Attachment "B" hereto, which also shows discounts to Distributors. Conti Complett shall have the right to change the list prices and discounts at its own discretion giving 15 days prior written notice to the Distributor. Payment by Distributors shall be made as follows: Machines: Direct remittance at 30 days from date of invoice. Ex Works Spare parts: Direct remittance at 30 days from date of invoice. The Distributor shall be free to fix such resale prices for the Products as it deems suitable, provided that such prices are not fixed so high that they might jeopardize the sale of the Products, in Conti Complett's opinion. In all cases, Conti Complett shall be informed in advance of the sale prices quoted by the Distributor. 4. Distributor's Obligations - The Distributor agrees to provide satisfactory sales and service facilities in the Territory and without limiting the generality of its obligations it agrees to do its best to: a. Engage and maintain a sufficient number of competent sales personnel and provide a customer relations organization adequate to take advantage of the sales and services in the potential channels of distribution in the Territory. b. Provide satisfactory facilities and equipment for warehousing and transportation and distribution of the Products in the Territory. c. Have at all times stock of the Products and spare parts in the Territory adequate to meet the normal needs of its customers. d. Adequately perform the accepted service obligations including, without limitation, installation service, after-sale inspection and maintenance service. e. Promptly notify Conti Complett of all complaints or claims regarding the Products. f. Not disclose any technical and commercial information regarding the Products, industrial secrets, etc., either during the Agreement or after its dissolution. 5. Conti Complett's Obligation - Conti Complett agrees to do its best to support the activities of the Distributor and to help with the introduction of the Products. Conti Complett agrees to make available samples and literature free of charge in quantities adequate for the needs of the Territory. 6. Delivery - Conti Complett shall use its best efforts to meet delivery dates agreed upon from time to time. Conti Complett shall not be liable for any delay due to any strike, either local or national, or for any reason beyond its control. 2 7. Conti Complett's liability - Conti Complett guarantees that the Products and spare parts are suitable to the use for which they are destined and that they are free of all flaws and defects. In all cases, Conti Complett's liability for flaws and defects in the Products and spare parts is limited to the net price paid by the Distributor for the Products as indicated in Attachment "B" hereto. 8. Trademark and Patents - The Distributor undertakes not to tamper with or alter the trademarks affixed to the Products, spare parts or their packaging. The Distributor shall have the right to add its own trademarks to the Products, spare parts and their packaging. In the event that the Distributor becomes aware of any infringement of Conti Complett's trademark or patents, it shall promptly notify Conti Complett thereof and shall cooperate with Conti Complett in enforcing, judicially or otherwise, Conti Complett's ownership rights on such trademarks or patents. 9. Assignment - Sub-distributorships - The Distributor shall not transfer this Agreement to any other person, firm or company. However, the Distributor can appoint sub-distributors at its exclusive liability. 10. Duration - This agreement shall be effective from the date of its stipulation until December 31/st/, 1990. It shall be automatically renewed, from year to year, unless written notice of dissolution is given by either part by registered letter three months prior to the initial extended expiration date. 11. Accelerated dissolution - In spite of that set forth in point 10 above, Conti Complett shall have the right to dissolve this agreement without prior notice in the following cases: a. Distributor's bankruptcy or insolvency or admission to a composition or controlled management procedure, or the worsening of its financial situation. b. Change in Distributor's ownership or control. c. Breach by Distributor of any of its obligations set forth herein, which are not of minor importance. 12. Governing Law - This Agreement shall be governed by Italian Law. SPEIZMAN INDUSTRIES, INC. CONTI COMPLETT By: /s/ Robert Speizman By: /s/ Roberto Conti -------------------------- -------------------------------- Robert Speizman Roberto Conti 3 ATTACHMENT "A" Sock Toe Closing Machine Mod 220 Sock Turning Device "AUTOREVERSE" 4 ATTACHMENT "B" Discount of distributor Machines: 20% Spare parts: 20% In case of acting as our Agent, direct invoice from Conti Complett to the customer, Conti Complett will pay the following commission: Machines: 20% Spare parts: 20% 5 EX-10.15 5 dex1015.txt SPLIT DOLLAR INSURANCE AGREEMENT EXHIBIT 10.15 FIRST AMENDMENT TO SPLIT DOLLAR INSURANCE AGREEMENT This Agreement is made this 4/th/ day of September, 1996 between SPEIZMAN INDUSTRIES, INC. ("Employer") and RICHARD A. BIGGER, JR., Successor Trustee of the Robert S. Speizman Irrevocable Trust dated January 1976 ("Trustee"). W I T N E S S E T H: WHEREAS, the parties made an Agreement dated January 15, 1992, relating to an insurance policy held by the Trustee insuring the life of Robert S. Speizman ("Employee"); and WHEREAS, the insurance policy covered the original Split Dollar Agreement has been surrendered by the Trustee, and replaced by Phoenix Home Life Insurance Company Policy #U015277; and WHEREAS, the parties desire to subject this new policy to the original Split Dollar Insurance Contract, in place of the insurance policy described in the original Split Dollar Insurance Agreement; NOW THEREFORE, in consideration of the premises, the parties agree that paragraph 1 of the Agreement dated January 15, 1992 is hereby changed to refer to Phoenix Home Life Insurance Company Policy #U015277 on the life of the Employee in the face amount of Two Million Dollars ($2,000,000.00), which policy is described on the attached Schedule A. Except as modified herein, the original Split Dollar Insurance Agreement dated January 15, 1992 remains in full force and effect. IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written, pursuant to authority duly given. SPEIZMAN INDUSTRIES, INC. (CORPORATE SEAL) By: /s/ Robert S. Speizman ------------------------------------- President ATTEST: /s/ Josef Sklut - ----------------------- Secretary /s/ Richard A. Bigger, Jr. (Trustee) ----------------------------------------- Richard A. Bigger, Jr., Trustee I consent to this Agreement and insurance covering my life owned by Trustee. /s/ Robert S. Speizman ----------------------------------------- Robert S. Speizman SCHEDULE A It is agreed, pursuant to the foregoing Split Dollar Life Insurance Agreement dated January 15, 1992, as amended 4 September, 1996, that the following described policy of life insurance will be subject to the provisions of said Agreement: Policy #U015277 issued by Phoenix Home Life Insurance Company on June 15, 1996, insuring the life of Robert S. Speizman. COLLATERAL ASSIGNMENT ASSIGNMENT made 4 September, 1996 by RICHARD A. BIGGER, JR., Successor Trustee under Agreement of ROBERT S. SPEIZMAN dated January 16, 1976, ("Assignor"), to SPEIZMAN INDUSTRIES, INC. ("Assignee"). FOR VALUE RECEIVED, the Assignor hereby assigns to the Assignee Insurance Policy #U015277 issued by Phoenix Home Life Insurance Company on the life of Robert S. Speizman, as collateral security to the extent of the indebtedness of the Assignor to the Assignee. The Assignee shall have the right to reassign its interest but only to the Assignor. The Assignee will not have the right to surrender the policy for its cash value. Except as specifically herein granted to the Assignee, the Assignor will retain all incidents of ownership in the policy. /s/ Richard A. Bigger, Jr., (Trustee) ---------------------------------------------- Richard A. Bigger, Jr. Successor Trustee under Agreement of Robert S. Speizman, dated January 16, 1976. ASSIGNOR Dated: 4 September 1996 SPEIZMAN INDUSTRIES, INC. By: /s/ Josef Sklut ------------------------------------------ Title: VP - Finance --------------------------------------- Dated: 4 September 1996 EX-10.29 6 dex1029.txt REDEMPTION AGREEMENT EXHIBIT 10.29 STATE OF NORTH CAROLINA FOURTH MODIFIED REDEMPTION AGREEMENT COUNTY OF MECKLENBURG THIS FOURTH MODIFIED REDEMPTION AGREEMENT is dated September 14, 1994, by and between ROBERT S. SPEIZMAN (the "Stockholder") and SPEIZMAN INDUSTRIES, INC. (the "Company"). WITNESSETH: The parties hereto have previously entered into a Redemption Agreement dated May 31, 1974, that was mutually terminated by Agreement dated March 6, 1980, reinstated and modified by Modified Agreement dated April 14, 1987 and thereafter further modified by a Second Modified Redemption Agreement dated September 30, 1991, and by a Third Modified Redemption Agreement dated July 14, 1993 (all collectively known as the "Redemption Agreement"); and The parties desire to further modify the Redemption Agreement in certain respects, mainly to reduce the amount to be set aside for the costs of transition and management upon the death of the Stockholder, to remove surplus language, and to restate the Agreement in its entirety, to enhance its readability; NOW, THEREFORE, the restated Agreement reads as follows: WHEREAS, the Stockholder owns a substantial portion of the outstanding common stock of the Company; and WHEREAS, the Stockholder desires assurance that if he should pass away his Estate will have sufficient funds to pay estate and inheritance taxes and expenses incident to the transfer of his Estate; and WHEREAS, it is in the interest of the Company and its stockholders that arrangements be made for redemption of all or a portion of the common stock of Stockholder in the event of his decease; and WHEREAS, the Company has secured ordinary life insurance policies on the life of the Stockholder in the principal sum of $1,150,000, the proceeds of which are payable to the Company; It is therefore agreed: 1. Purchase of Securities. Upon the decease of the Stockholder, the Company, upon written demand made by the legal representatives of the Estate of the Stockholder at any time within two (2) years after decease, will purchase all or a portion of the common stock of the Company owned by the Stockholder on the date of his death (the common stock being hereinafter referred to as the Securities) in accordance with the terms and conditions hereinafter set forth. 2. Purchase Price. The "purchase price" for each share of common stock sold hereunder shall be equal to the fair market value per share less a discount of 5% from said fair market value. Said purchase price shall be determined as of the date the option granted the legal representatives of the Estate of the Stockholder is exercised by written notice to the Company under paragraph 1 hereof. For the purpose hereof, the term "fair market value" per share shall mean the last sale price in the over-the-counter market reported on the National Association of Securities Dealers Automated Quotation System ("NASDAQ") on such date, or the last sale price reported on the NASDAQ National Market System on such date, whichever is applicable, or, if no sale of the common stock takes place on such date, the average of the closing high bid and low asked price in the over-the-counter market reported on NASDAQ on such date or the average of such prices reported on the NASDAQ National Market System on such date, whichever is applicable. If there is no such last sale price or closing high bid and low asked prices reported on such date, then the fair market value per share shall be determined by the Board of Directors in accordance with the regulations promulgated under Section 2031 of the Internal Revenue Code of 1986, as amended, or by any appropriate method selected by the Board of Directors. However, notwithstanding any provision of this agreement to the contrary, in no event shall the total purchase price to be received by the Estate of the Stockholder exceed the proceeds of life insurance, including double indemnity in the event of accidental death, paid to the Company by reason of the Stockholder's death under the policy or policies carried by the Company on the life of the Stockholder under paragraph 3 hereof. 3. Insurance. The Company will, from the date of this agreement to the date of Stockholder's death, except and to the extent otherwise consented to or agreed to by Stockholder, maintain in effect at all times the $1,150,000 of life insurance for its benefit now carried on the life of the Stockholder to provide to the Company. A. Description of Policies. Notwithstanding any provision of this Redemption Agreement to the contrary, the Stockholder and the Company hereby agree that the $1,150,000 of life insurance maintained by the Company under paragraph 3 hereof consists of Crown Life Insurance Company Policy No. 1983893 in the amount of $400,000 and Sun Life Assurance Company of Canada Policy No. UB8126194R in the amount of $750,000. All references in the Redemption Agreement or any exhibit thereto to Phoenix Mutual Life Insurance Co. Policy No. 2060237 in the amount of $1,150,000 and Sun Life Assurance Company of Canada Policy No. UB8126193V in the amount of $2,000,000 are hereby deleted. 4. Priority for Application of Insurance Proceeds. The obligation of the Company hereunder is subject to the following payments which will be the priority for disbursement of the proceeds of the policies owned by the Company on the life of the Stockholder: A. To repay policy loans. B. To the extent possible, to use the balance of such insurance proceeds to redeem the stock of the Stockholder. 5. Limitations on Obligation of Company. The fulfillment of the obligations of the Company herein is subject to the compliance with the statutes of the state of incorporation of the Company, and the Company agrees to take all appropriate steps to comply with applicable statutes. 6. Closing. Upon receipt by the Company of a written demand by the legal representatives of the Estate of the Stockholder that the Company purchase the Securities, the Company shall notify the legal representatives that such purchase and sale of the Securities shall take place at a specified time and place within 60 days after its receipt of such written demand at the principal office of the Company and the legal representatives. At the closing of the purchase and sale of the Securities, upon delivery to the Stockholder of the Securities to be redeemed in proper form free and clear of all encumbrances, and duly endorsed for transfer to the Company, the Company shall deliver to the representatives the purchase price of such securities. 7. Notices. All notices and demands under this Agreement shall be in writing, and if to the Company will be duly given if delivered by hand to an officer, or if addressed and mailed by Certified Mail, return receipt requested, to the Company at 508 West 5/th/ Street, Charlotte, North Carolina 28202, or at such other address as the Company may hereafter designate by notice, or, if to the Stockholder, will be duly given if delivery by hand by an officer of the Company, or if addressed and mailed, by Certified Mail, return receipt requested, to the Stockholder or to his legal representative at 8347 Providence Road, Charlotte, North Carolina 28277, or at such other address as may appear as the home address of the Stockholder in the records of the Company. 8. Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the Company, its successors, and assigns, including but not limited to any corporation or entity which may acquire all or substantially all of the Company's assets and business or with or into which the Company may be consolidated or merged. This Agreement shall inure to the benefit of and be binding upon the Stockholder, his executors and administrators, but may not be assigned by the Stockholder except to his executors and administrators. 9. Entire Agreement. This instrument contains the entire agreement of the parties. It may not be amended or terminated orally, but may be amended only by an agreement in writing signed by the parties. This Agreement will be governed by the laws of the state of incorporation of the Company. IN WITNESS WHEREOF, the parties have executed this agreement pursuant to authority duly given, this 14/th/ day of September, 1994. SPEIZMAN INDUSTRIES, INC. [CORPORATE SEAL] By: /s/ Robert S. Speizman ------------------------------- President ATTEST: /s/ Josef Sklut /s/ Robert S. Speizman [SEAL] - ------------------------------ ----------------------------- Secretary Robert S. Speizman STATE OF NORTH CAROLINA FIFTH MODIFIED REDEMPTION AGREEMENT COUNTY OF MECKLENBURG THIS FIFTH MODIFIED REDEMPTION AGREEMENT is dated September 26, 1995, by and between ROBERT S. SPEIZMAN (the "Stockholder") and SPEIZMAN INDUSTRIES, INC. (the "Company"). WITNESSETH: The parties hereto have previously entered into a Redemption Agreement dated May 31, 1974, that was mutually terminated by Agreement dated March 6, 1980, reinstated and modified by Modified Agreement dated April 14, 1987 and thereafter further modified by a Second Modified Redemption Agreement dated September 30, 1991,by a Third Modified Redemption Agreement dated July 14, 1993, and by a Fourth Modified Redemption Agreement dated September 14, 1994 (all collectively known as the "Redemption Agreement"); and The parties desire to further modify the Redemption Agreement in certain respects, to limit the amount of stock that will be redeemed from the Stockholder's estate. NOW, THEREFORE, the parties hereto agree as follows: 1. Paragraph 4-B of the Redemption Agreement is hereby amended to read as follows: B. To the extent possible, to use the balance of such insurance proceeds to redeem the stock of the Stockholder; however, in no case will the stock redeemed exceed an amount that will reduce the Stockholder's estate's percentage of the outstanding stock of the Company to less than sixteen percent (16%). 2. Except as modified herein, the Redemption Agreement will not otherwise be affected by this Fifth Modification Agreement and the terms thereof will remain in full force and effect. IN WITNESS WHEREOF, the parties have executed this agreement the date and year first set forth above. SPEIZMAN INDUSTRIES, INC. [CORPORATE SEAL] By: /s/ Robert S. Speizman --------------------------- President ATTEST: /s/ Josef Sklut /s/ Robert S. Speizman [SEAL] - ----------------------------------- ----------------------------- Secretary Robert S. Speizman EX-10.34 7 dex1034.txt FOURTH AMENDMENT AND FORBEARRANCE AGREEMENT EXHIBIT 10.34 FOURTH AMENDMENT AND FORBEARANCE AGREEMENT THIS FOURTH AMENDMENT AND FORBEARANCE AGREEMENT (this "Agreement"), dated and effective the 31/st/ day of July, 2002 (the "Effective Date"), by and among SPEIZMAN INDUSTRIES, INC., a Delaware company ("Speizman"), SPEIZMAN YARN EQUIPMENT, INC., a South Carolina company ("Speizman Yarn"), WINK DAVIS EQUIPMENT COMPANY, INC., a Georgia company ("Wink Davis"), TODD MOTION CONTROLS, INC., a North Carolina company ("Todd Motion" and together with Speizman, Speizman Yarn, Wink Davis and any future or indirect subsidiaries of Speizman or of any other entities listed above, the "Borrowers"), jointly and severally and their respective successors and assigns, and SOUTHTRUST BANK ("Lender"). R E C I T A L S : WHEREAS, the Borrowers above entered into that certain Credit Facility Agreement, dated as of May 31, 2000 (the "Credit Agreement") with Lender for the purpose of establishing a $17,500,000 Revolving Credit Facility and a $15,000,000 Letter of Credit Facility with the Lender in favor of the Borrowers (collectively, with all other obligations owed by Borrowers to SouthTrust, the "Obligations") (all terms not otherwise defined herein shall have the meaning ascribed to it in the Credit Agreement); and WHEREAS, the parties amended the Credit Agreement pursuant to that certain Amendment and Forbearance Agreement dated as of the 13/th/ day of November, 2000 (the "First Amendment") which was superseded by the Second Amendment as hereinafter defined; and WHEREAS, the parties amended the Credit Agreement pursuant to that certain Second Amendment and Forbearance Agreement dated July 1, 2001 (the "Second Amendment"); and WHEREAS, the parties amended the Credit Agreement pursuant to that certain Third Amendment and Forbearance Agreement dated February 19, 2002 (the "Third Amendment"); (the Credit Agreement, Second Amendment, and Third Amendment are collectively the "Credit Agreements"); and WHEREAS, the Borrowers have requested the Lender to temporarily modify certain terms of the Credit Agreement and to forbear from taking remedial actions as a result of their non-compliance with certain covenants and warranties in the Credit Agreement (the "Existing Noncompliance") and to extend the Forbearance Period as set forth in the Third Amendment; and WHEREAS, the Lender is willing to accommodate the Borrowers under the terms set forth in this Agreement; and WHEREAS, the Lender is willing to grant the forbearance requested by the Borrowers, but only upon the terms and conditions set forth in this Agreement. NOW, THEREFORE, the Borrowers and the Lender agree as follows: 1. Borrowers acknowledge and agree that the foregoing recitals are true, correct, and complete. 2. "Existing Noncompliance": Borrowers acknowledge that as of the date hereof, they are not in compliance with Sections 10.16, 10.17, 10.18 and 10.19 of the Credit Agreement and as set forth in Sections 4.01(a), (c) and (d) of the Second Amendment. As a result, the Lender could declare an event of default under the Credit Agreement and exercise its rights and remedies thereunder and under the related Loan Documents. 3. Except as expressly set forth herein, the terms and conditions of the Credit Agreements remain in full force and effect. This Agreement shall be a Loan Document. 4. Lender agrees that, in respect of the Existing Noncompliance, during the Forbearance Period (as defined below), Lender will not enforce or exercise any remedies available to it under the Loan Documents, and will not seek collection of the Loans from the Borrowers, except as set forth herein. As used herein, the term "Forbearance Period" means the period of time commencing on as of the date of this Agreement and ending on December 31, 2002, subject to an earlier termination of the Forbearance Period as provided in Section 6 below. 5. Interest shall continue to accrue on the principal of the Loans, as set forth in the Credit Agreement, as amended, until such principal is paid in full. During the Forbearance Period, Borrowers shall make all payments in accordance with the payment terms set forth in the respective Loan Documents. 6. Notwithstanding the provisions of Section 2 above, the Forbearance Period shall automatically terminate without further notice to the Borrowers or any other person (all notice otherwise required by the Loan Documents or otherwise being hereby waived) if (i) any case or other proceeding is instituted by or against Borrowers under any state or federal law relating to the bankruptcy or insolvency of debtors, including, without limitation, the United States Bankruptcy Code, 11 U.S.C. (S) 101 et seq.; (ii) any "Event of Default" (as defined in the Loan Documents) occurs under any of the Loan Documents other than the Existing Noncompliance; (iii) any of the acknowledgments, warranties, or representations of Borrowers set forth herein shall be untrue or inaccurate in any material respect as of the date made; or (iv) Borrowers breach, default, or failure to perform any other obligation or agreement contained in this Agreement in a material way arising to an Event of Default under the Loan Documents, including, without limitation, the failure to meet its EBITDA projections as set forth in more detail in paragraph 9. 7. During the Forbearance Period, SouthTrust can require Borrowers, at Borrowers' sole expense, to hire an independent outside consulting firm to assist Borrowers with financial reporting, soliciting alternative financing opportunities, and seeking potential investors and/or purchasers. SouthTrust shall notify Borrowers in writing of such request. Borrowers will thereafter notify SouthTrust in writing of the name and address of the consultant that Borrowers intends to hire. 8. The Credit Agreement, as amended, is hereby amended as follows: 2 (a) Section 3.1 of the Credit Agreement is amended to increase the maximum principal face amount of Documentary Letters of Credit by $2,000,000 to $6,000,000. (b) Lender will permit no over-advancements under the Revolving Credit Loan. Any Over-Advance Condition shall be an immediate Event of Default hereunder. (c) The percentage of Eligible Accounts used to determine, and as stated in the definition of "Borrowing Base Amount" remains 80%. (d) The Borrowing Base Certificate attached as Exhibit B to the Second Amendment shall continue to be used by the Borrowers with the amended percentage of Eligible Accounts set forth above. 9. In addition to the reports required under Section 10.1 of the Credit Agreement, as amended by the Second Amendment, the Borrowers will provide within 20 days after the end of each month, all financial information and reporting currently required under the Credit Agreement on a quarterly basis, including EBITDA calculations, on a monthly basis with financial information for the immediately proceeding month. 10. Borrowers have provided Lender month-end EBITDA projections for all months covered by the Forbearance Agreement (the "EBITDA Projections"). A copy of the EBITDA Projections are attached hereto as Exhibit A. It shall constitute an Event of Default hereunder, and cause the termination of this Agreement, if the actual EBITDA numbers for any one month do not fall within a variance of $100,000 of the EBITDA Projections for that month. 11. The Lender shall have no further obligation to provide additional financing to the Borrowers except as set forth under the Loan Documents or herein. Nothing contained herein shall constitute a commitment or guarantee by Lender to extend any future financing to Borrowers, except as set forth in the Loan Documents. 12. Borrowers acknowledge and agree that (i) this Agreement is not intended to be, and shall not be deemed or construed to be, a novation or release of the Loan Documents or any of them; (ii) except as expressly provided in this Agreement, this Agreement is not intended to be, and shall not be deemed or construed to be, a modification, amendment, or waiver of the Loan Documents or any of them; (iii) neither this Agreement nor any payments made or other actions taken pursuant to this Agreement shall be deemed to cure the Existing Noncompliance unless and until all sums payable with respect thereto pursuant to the Loan Documents are paid in full or Borrowers shall have met the conditions of this Agreement with respect thereto; (iv) except as otherwise expressly provided in this Agreement, Lender reserves all available rights and remedies, at law, in equity, and under the Loan Documents, in connection with any Event of Default, including the Existing Noncompliance, whether now existing or hereafter occurring, under the Loan Documents; and (v) all requirements in the Loan Documents for notice by Lender to the Borrowers, or any of them, are hereby waived, except as set forth herein. 13. Borrowers ratify and confirm all terms and conditions of the Loan Documents (as amended hereby). Borrowers acknowledge that: (i) all the Loan Documents are in full force and 3 effect, and (ii) the Loan Documents constitute the legal, valid and binding obligations of Borrowers enforceable against Borrowers in accordance with their terms. Borrowers represent and warrant to Lender that as of the date hereof, Borrowers have no defenses, setoffs, rights of recoupment, counterclaims or claims of any nature whatsoever in respect to the Loan Documents, and to the extent any such defenses, setoffs, rights of recoupment, counterclaims or claims may exist, whether known or unknown, the same are hereby expressly waived, released and discharged. Borrowers represents and warrants to Lender that the Loans continue to be secured by the Loan Documents, and that except with respect to the Existing Noncompliance, no Event of Default has occurred and is continuing under the Loan Documents, and no event has occurred or failed to occur that, with the lapse of time, giving of notice or both, would constitute an Event of Default under the Loan Documents. 14. Borrowers, in consideration of Lender's agreement to forebear and modify the Agreements as set forth above and herein, and as a material inducement therefore, does hereby release, remise and forever discharge Lender and its affiliates, parents, divisions, subsidiaries, successors, predecessors, stockholders, officers, directors, agents, employees, attorneys, successors, and assigns (Lender and such other parties being collectively referred to herein as the "Released Parties") of and from any and all claims, liabilities, actions, and causes of action, if any, of whatever kind or nature, whether known or unknown, those that are contingent, suspected, or unsuspected, and whether concealed or hidden, which have existed, arising out of or in any way connected with any occurrences, acts, omissions, or transactions involving, directly or indirectly, the Loan Documents, or any of the Obligations, or any other transactions and dealings between the Borrower. 15. Borrowers further acknowledge and agree that all of the Loan Documents will continue to secure all of the Obligations, and Borrowers have heretofore and do hereby waive any right for a marshaling of any Collateral now or hereafter subject to the liens and security interests of the Loan Documents. 16. In recognition of Lender's right to have all its attorneys' fees and other expenses incurred in connection with the preparation, negotiations and drafting of this Agreement secured by the Collateral, notwithstanding payment in full of all Obligations by Borrowers, Lender shall not be required to record any terminations or satisfactions of any of its liens on the Collateral unless and until Borrowers has executed and delivered to Lender releases of all claims, known and unknown which exist as of the date thereof. Borrowers understand that this provision constitutes a waiver of its rights under (S) 7-9A-513 of the Alabama Code. 17. Borrowers acknowledge and agree that, if Lender shall, pursuant to the rights granted to Lender hereunder, under the Loan Documents, or under applicable law, dispose of any or all of the Collateral after the occurrence of an Event of Default, such disposition shall be deemed commercially reasonable if, in the written opinion of three (3) commercial loan officers outside of Lender with experience in the textile machine and laundry equipment industry with three (3) years of experience each, the manner of the disposition is not inconsistent with the manner in which such commercial loan officers would have handled the disposition. 18. Borrowers represent and warrant to Lender that: (i) Borrowers are, respectively, corporations organized, validly existing and in good standing under the laws of the State set forth 4 above and have full power and authority to execute, deliver and perform this Agreement and the other Loan Documents, and the same have been duly authorized pursuant to all requisite corporate action; (ii) this Agreement and the other Loan Documents constitute valid and legally binding obligations of the Borrowers, enforceable in accordance with their respective terms, except as enforceability may be limited by bankruptcy, insolvency or similar laws affecting the enforcement of creditors' rights generally, and general principles of equity; (iii) the execution, delivery and performance by the Borrowers of this Agreement and the other Loan Documents, will not and did not, violate, conflict with, or constitute any default under any law (including laws relating to usury), government regulation, or any other agreement or instrument binding upon the Borrowers; and (iv) no approval, authorization or other action by, or filing with, any governmental official, board or authority is required in connection with the execution and delivery of this Agreement or any of the other Loan Documents, and the performance of the provisions thereof, except such approvals and authorizations as have been received, such actions as have been taken, and such filings as have been made. 19. This Agreement shall be construed in accordance with, and shall in all respects be governed by, the laws of the State of North Carolina. The Loans owing under the Loan Documents are payable to Lender by Borrowers at Lender's principal place of business in Birmingham, Jefferson County, Alabama, and the Loan Documents and this Agreement shall be enforceable in the state and federal courts presiding in Jefferson County, Alabama, and any other court of competent jurisdiction. 20. Borrowers agree to pay all reasonable expenses, including attorneys' fees, incurred by Lender in connection with the negotiations and preparation of this Agreement. The validity and effectiveness of this Agreement is conditioned upon Borrowers paying all outstanding expenses of Lender as of the Effective Date, including attorneys' fees, being _________________________. 21. WAIVER OF JURY TRIAL. BORROWERS AND LENDER HEREBY EXPRESSLY WAIVE ANY RIGHT THEY MAY HAVE TO A TRIAL BY JURY IN ANY LAWSUIT OR OTHER COURT ACTION RELATED TO THE LOANS, THIS AGREEMENT, ANY OF THE LOAN DOCUMENTS OR ANY TRANSACTION CONTEMPLATED HEREBY OR THEREBY, INCLUDING, WITHOUT LIMITATION, IN RESPECT TO ANY CLAIM, COUNTERCLAIM, THIRD-PARTY CLAIM, DEFENSE, OR SET-OFF ASSERTED IN ANY SUCH LAWSUIT OR COURT ACTION. ANY SUCH LAWSUIT OR COURT ACTION SHALL BE TRIED EXCLUSIVELY TO A COURT WITHOUT A JURY. BORROWERS SPECIFICALLY ACKNOWLEDGE THAT THEIR EXECUTION OF THIS WAIVER OF JURY TRIAL IS A MATERIAL PORTION OF THE CONSIDERATION RECEIVED BY THE LENDER IN EXCHANGE FOR ITS ENTERING INTO THIS AGREEMENT. 22. This Agreement may be executed in any number of counterparts, but it shall not be necessary that each counterpart be executed by all the parties hereto as long as each party executes at least one such counterpart. When each of the parties hereto has executed at least one counterpart hereof, this Agreement shall thereupon be deemed executed by all parties, and together all such counterparts shall comprise but a single instrument. No provision of this Agreement shall be construed against or interpreted to the disadvantage of any party to this 5 Agreement by any court or other governmental or judicial authority by reason of such party's having or being deemed to have structured or dictated such provision. This Agreement will inure to the benefit of the parties hereto, their respective successors and assigns. This Agreement and the obligations of the parties hereunder shall be interpreted, construed and enforced in accordance with the laws of the State of North Carolina. Time is of the essence in the performance of this Agreement. 6 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. COMPANY AND SUBSIDIARIES: LENDER: SPEIZMAN INDUSTRIES, INC. (SEAL) SOUTHTRUST BANK (SEAL) By: /s/ Robert S. Speizman By: /s/ Andy Raine ------------------------------ --------------------------------------- Robert S. Speizman Andy Raine Title: President Title: Vice President SPEIZMAN YARN EQUIPMENT, INC. (SEAL) By: /s/ Robert S. Speizman ------------------------------ Robert S. Speizman Title: President TODD MOTION CONTROLS, INC. (SEAL) By: /s/ Robert S. Speizman ------------------------------ Robert S. Speizman Title: President WINK DAVIS EQUIPMENT COMPANY, INC. (SEAL) By: /s/ Paul R. M. Demmink ------------------------------ Paul R. M. Demmink Title: Vice President-Finance, CFO 7 STATE OF NORTH CAROLINA ) ) COUNTY OF MECKLENBURG ) I, Dana Gail Russell, a Notary Public in and for said County in said State, hereby certify that Robert S. Speizman, whose name as President of SPEIZMAN INDUSTRIES, INC., a Delaware corporation, is signed to the foregoing Forbearance Agreement, and who is known to me, acknowledged before me on this day that, being informed of the contents of such instrument, he, as such officer and with full authority, executed the same voluntarily for and as the act of said corporation. Given under my hand and seal, this 31/st/ day of July, 2002. NOTARY PUBLIC - /s/ Dana Gail Russell [SEAL] My Commission Expires: June 25, 2006 STATE OF NORTH CAROLINA ) ) COUNTY OF MECKLENBURG ) I, Dana Gail Russell, a Notary Public in and for said County in said State, hereby certify that Robert S. Speizman, whose name as President of SPEIZMAN YARN EQUIPMENT, INC., a South Carolina corporation, is signed to the foregoing Forbearance Agreement, and who is known to me, acknowledged before me on this day that, being informed of the contents of such instrument, he, as such officer and with full authority, executed the same voluntarily for and as the act of said corporation. Given under my hand and seal, this 31/st/ day of July, 2002. NOTARY PUBLIC - /s/ Dana Gail Russell [SEAL] My Commission Expires: June 25, 2006 8 STATE OF NORTH CAROLINA ) ) COUNTY OF MECKLENBURG ) I, Dana Gail Russell, a Notary Public in and for said County in said State, hereby certify that Robert S. Speizman, whose name as President of TODD MOTION CONTROLS, INC., a North Carolina corporation, is signed to the foregoing Forbearance Agreement, and who is known to me, acknowledged before me on this day that, being informed of the contents of such instrument, he, as such officer and with full authority, executed the same voluntarily for and as the act of said corporation. Given under my hand and seal, this 31/st/ day of July, 2002. NOTARY PUBLIC - /s/ Dana Gail Russell [SEAL] My Commission Expires: June 25, 2006 STATE OF NORTH CAROLINA ) ) COUNTY OF MECKLENBURG ) I, Dana Gail Russell, a Notary Public in and for said County in said State, hereby certify that Paul R. M. Demmink, whose name as Vice President-Finance, CFO of WINK DAVIS EQUIPMENT, INC., a Georgia corporation, is signed to the foregoing Forbearance Agreement, and who is known to me, acknowledged before me on this day that, being informed of the contents of such instrument, he, as such officer and with full authority, executed the same voluntarily for and as the act of said corporation. Given under my hand and seal, this 31/st/ day of July, 2002. NOTARY PUBLIC - /s/ Dana Gail Russell [SEAL] My Commission Expires: June 25, 2006 9 STATE OF ALABAMA ) ) COUNTY OF JEFFERSON ) I, Kimberly Renee Lowe, a Notary Public in and for said County in said State, hereby certify that Andy Raine, whose name as Vice President of SOUTHTRUST BANK is signed to the foregoing Forbearance, and who is known to me, acknowledged before me on this day that, being informed of the contents of such instrument, he, as such officer and with full authority, executed the same voluntarily for and as the act of said SOUTHTRUST BANK. Given under my hand and seal, this 31st day of July, 2002. NOTARY PUBLIC - /s/ Kimberly Renee Lowe [SEAL] My Commission Expires: 12/20/04 10 EXHIBIT A EBITDA PROJECTIONS 11 EX-10.40 8 dex1040.txt INDUSTRIAL BUILDING LEASE EXHIBIT 10.40 INDUSTRIAL BUILDING LEASE Term of Lease: Beginning May 8, 2002 / Ending June 30, 2007 Monthly Rent: See Rider Attached Date of Lease: April 25, 2002 Location of Premises: 760 Creel Drive, Wood Dale, IL Purpose: Office, Warehousing and Distribution of Commercial Laundry Equipment except Laundry Chemicals - ------------------------------------------------------------------------------- LESSEE LESSOR - -------------------------------------------------------------------------------- Name: Wink Davis Equipment Co., Inc. Name: Kensington Partners, Ltd. Owner of Record - -------------------------------------------------------------------------------- Address: 760 Creel Drive Address: 765 Route 83, Suite 109 - -------------------------------------------------------------------------------- City: Wood Dale, IL 60191 City: Bensenville, IL 60106 - -------------------------------------------------------------------------------- In consideration of the mutual covenants and agreements herein stated, Lessor hereby leases to Lessee and Lessee hereby leases from Lessor solely for the above purpose the premises designated above (the "Premises"), together with the appurtenances thereto, for the above Term. LEASE COVENANTS AND AGREEMENTS 1. RENT. Lessee shall pay Lessor or Lessor's agent as rent for the Premises the sum stated above, monthly in advance, until termination of this lease, at Lessor's address stated above or such other address as Lessor may designate in writing. 2. CONDITIONS AND UPKEEP OF PREMISES. Lessee has examined and knows the condition of the Premises and has received the same in good order and repair, and acknowledges that no representations as to the condition and repair thereof have been made by Lessor, or his agent, prior to or at the execution of this lease that are not herein expressed; Lessee will keep the Premises including all appurtenances, in good repair, replacing all broken glass with glass of the same size and quality as that broken, and will replace all damaged plumbing fixtures with others of equal quality, and will keep the Premises, including adjoining alleys and landscaping abutting the Premises, in a clean and healthful condition according to the applicable municipal ordinances and the direction of the proper public officers during the term of this Lease at Lessee's expense, and will without injury to the roof, remove all snow and ice from the same when necessary, and will remove the snow and ice from the sidewalk and parking areas abutting the Premises; and upon the termination of this lease, in any way, will yield up the Premises to Lessor, in good condition and repair, loss by fire and ordinary wear excepted, and will deliver the keys therefor at the place of payment of said rent. 3. LESSEE NOT TO MISUSE: SUBLET: ASSIGNMENT. Lessee will not allow Premises to be used for any purpose that will increase the rate of insurance thereon, nor for any purpose other than that hereinbefore specified, and will not load floors with machinery or goods beyond the floor load rating prescribed by applicable municipal ordinances, and will not allow the Premises to be occupied in whole, or in part, by any other person, and will not sublet the same, or any part thereof, nor assign this lease without in each case the written consent of the Lessor first had, and Lessee will not permit any transfer by operation of law of the interest in Premises acquired through this lease, and will not permit Premises to be used for any unlawful purpose, or for any purpose that will injure the reputation of the building or increase the fire hazard of the building, or disturb the tenants or the neighborhood, and will not permit the same to remain vacant or unoccupied for more than ten consecutively days; and will not allow any signs, cards or placards to be posted, or placed thereon, nor permit any alteration of or addition to any of the Premises, except by written consent of Lessor; all alterations and additions to the Premises shall remain for the benefit of Lessor unless otherwise provided in the consent aforesaid. 4. MECHANIC'S LIEN. Lessee will not permit any mechanic's lien or liens to be placed upon the Premises or any building or improvement thereon during the term hereof, and in case of the filing of such lien Lessee will promptly pay same. If default in payment thereof shall continue for thirty (30) days after written notice thereof from Lessor to the Lessee; the Lessor shall have the right and privilege at Lessor's option of paying the same or any portion thereof without inquiry as to the validity thereof, and any amounts so paid, including expenses and interest, shall be so much additional indebtedness hereunder due from Lessee to Lessor and shall be repaid to Lessor immediately on rendition of bill therefor. 5. INDEMNITY FOR ACCIDENTS. A. Lessee covenants and agrees that he will protect and save and keep the Lessor forever harmless and indemnified against and from any penalty or damages or charges imposed for any violation of any laws or ordinances, whether occasioned by the neglect of Lessee or those hold under Lessee, and that Lessee will at all times protect, indemnify and save and keep harmless the Lessor against and from any and all loss, cost, damage or expense, arising out of or from any accident or other occurrence on or about the Premises, causing injury to any person or property whomsoever or whatsoever and will protect, indemnify and save and keep harmless the Lessor against and from any and all claims and against and from any and all loss, cost, damage or expense arising out of any failure of Lessee in any respect to comply with and perform all the requirements and provision hereof. B. Lessor covenants and agrees that he will protect and save and keep the Lessee forever harmless and indemnified against and from any penalty or damages or charges imposed for any violation of any laws or ordinances occasioned by any act or negligence of Lessor, its agents, contractors or employees. Further, Lessor will at all times protect, indemnify and save and keep harmless the Lessee against and from any and all loss, cost, damage or expense arising out of or from any accident or other occurrence occasioned by any act or negligence of Lessor, its agents, contractors or employees causing injury to any person or property. Further, Lessor will protect and indemnify and save and keep harmless the Lessee against and from any and all claims and against and from all loss, cost, damage or expense arising out of any failure of Lessor to comply with and perform the requirements of Lessor as set forth in this lease. 6. NON-LIABILITY OF LESSOR. Except as provided by Illinois stature, Lessor shall not be liable for any damage occasioned by failure to keep the Premises in repair, nor for any damage done or occasioned by or from plumbing, gas, water, sprinkler, steam or other pipes or sewerage or the bursting, leaking or running of any pipes, tank or plumbing fixtures, in, above, upon or about Premises or any building or improvement thereon nor for any damage occasioned by water, snow or ice being upon or coming through the roof, skylights, trap door or otherwise, nor for any damages arising from acts or neglect of any owners or occupants of adjacent or contiguous property. Prior to the required roof repairs, the condition of the roof will be an exception to this section. 7. WATER, GAS AND ELECTRICAL CHARGES. Lessee will pay, in addition to the rent above specified, all water rents, gas and electric light and power bills taxed, levied or charged on the Premises, for and during the time for which this lease is granted, and in case said water rents and bills for gas, electric light and power shall not be paid when due, Lessor shall have the right to pay the same, which amounts so paid, together with any sums paid by Lessor to keep the Premises in a clean and healthy condition, as above specified, are declared to be so much additional rent and payable with the installment of rent next due thereafter. 8. KEEP PREMISES IN REPAIR. Lessor shall not be obliged to incur any expense for repairing any 2 improvements upon said demised premises or connected therewith, and the Lessee at his own expense will keep all improvements in good repair (injury by fire, or other causes beyond Lessee's control excepted) as well as in a good tenantable and wholesome condition, and will comply with all local or general regulations, laws and ordinances applicable thereto, as well as lawful requirements of all competent authorities in that behalf. Lessee will, as far as possible, keep said improvements from deterioration and falling temporarily out of repair. If Lessee does not make repairs as required hereunder promptly and adequately, Lessor may but need not make such repairs and pay the costs thereof, and such costs shall be so much additional rent immediately due from and payable by Lessee to Lessor. 9. ACCESS TO PREMISES. Lessee will allow Lessor free access to the Premises, provided twenty-four hour notice to Lessee, for the purpose of examining or exhibiting the same or to make any repairs, or alterations thereof which Lessor may see fit to make and will allow to have placed upon the Premises at all times notice of "For Sale" and "To Rent", and will not interfere with the same. 10. ABANDONMENT AND RELETTING. If Lessee shall abandon or vacate the Premises, or if Lessee's right to occupy the Premises be terminated by Lessor by reason of Lessee's breach of any of the covenants herein, the same may be re-let by Lessor for such rent and upon such terms as Lessor may deem fit, subject to Illinois statute; and if a sufficient sum shall not thus be realized monthly, after paying the expenses of such re-letting and collecting to satisfy the rent hereby reserved, Lessee agrees to satisfy and pay all deficiency monthly during the remaining period of this lease. 11. HOLDING OVER. Lessee will, at the termination of this lease by lapse of time or otherwise, yield up immediate possession to Lessor, and failing so to do, will pay as liquidated damages, for the whole time such possession is withheld, the sum of two hundred eighty dollars ($280.00) per day; but the provisions of this clause shall not be held as a waiver by Lessor of any right of re-entry as hereinafter set forth; nor shall the receipt of said rent or any part thereof, or any other act in apparent affirmance of tenancy, operate as a waiver of the right to forfeit this lease and the term hereby granted for the period still unexpired, for a breach of any of the covenants herein. 12. EXTRA FIRE HAZARD. There shall not be allowed, kept, or used on the Premises any inflammable or explosive liquids or materials save such as may be necessary for use in the business of the Lessee, and in such case, any such substances shall be delivered and stored in amount, and used, in accordance with the rules of the applicable Board of Underwriters and statutes and ordinances now or hereafter in force. 13. DEFAULT BY LESSEE. If default be made in the payment of the above rent, or any part thereof, or in any of the covenants herein contained to be kept by the Lessee, Lessor may at any time thereafter at this election declare said term ended and reenter the Premises or any part thereof, with or (to the extent permitted by law) without notice or process of law, and remove Lessee or any persons occupying the same, without prejudice to any remedies which might otherwise be used for arrears of rent, and Lessor shall have at all times the right to distrain for rent due, and shall have a valid and first lien upon all personal property which Lessee now owns, or may hereafter acquire or have an interest in, which is by law subject to such distraint, as security for payment of the rent herein reserved. Monetary defaults shall occur on the 10/th/ day, non-monetary defaults will occur after the 30/th/ day. 14. NO RENT DEDUCTION OR SET OFF. Lessee's covenant to pay rent is and shall be independent of each and every other covenant of this lease. Lessee agrees that any claim by Lessee against Lessor shall not be deducted from rent nor set off against any claim for rent in any action. 15. RENT AFTER NOTICE OR SUIT. It is further agreed, by the parties hereto, that after the service of notice or the commencement of a suit or after final judgment for possession of the Premises, Lessor may receive 3 and collect any rent due, and the payment of said rent shall not waive or affect said notice, said suit, or said judgment. 16. PAYMENT OF COSTS. Lessee will pay and discharge all reasonable costs, attorney's fees and expenses that shall be made and incurred by Lessor in enforcing the covenants and agreements of this lease. 17. RIGHTS CUMULATIVE. The rights and remedies of Lessor under this lease are cumulative. The exercise or use of any one or more thereof shall not bar Lessor from exercise or use of any other right or remedy provided herein or otherwise provided by law, nor shall exercise nor use of any right or remedy by Lessor waive any other right or remedy. 18. FIRE AND CASUALTY. In case the Premises shall be rendered untenantable during the term of this lease by fire or other casualty, Lessor at his option may terminate the lease or repair the Premises within 60 days thereafter. If Lessor elects to repair, this lease shall remain in effect provided such repairs are completed within said time. If Lessor shall not have repaired the Premises within said time, then at the end of such time the term hereby created shall terminate. If this lease is terminated by reason of fire or casualty as herein specified, rent shall be apportioned and paid to the day of such fire or casualty. 19. SUBORDINATION, ATTORNMENT, NONDISTURBANCE, AND ESTOPPEL. This lease is subordinate to all mortgages which may now or hereafter affect the Premises. This Lease and Lessee's rights are and shall be subject to any mortgage(s) or trust deed(s) now or hereafter placed by Lessor against the Premises and to any amendments, modifications or renewals thereof. Lessee shall execute and deliver within ten (10) days of the request of Lessor or its mortgagee such acknowledgments or documents as may be requested from time to time in connection with the financing of the Premises including, without limitation, subordination and attornment instruments, and estoppel certificates. Lessee hereby consents in advance to any collateral assignment of the Lease which Lessor elects, in its sole discretion, to execute, provided that every such collateral assignment shall provide that the same shall not become operative except in the event of a default under the note collateralized by this Lease or under any mortgage securing such note. If, in connection with the financing of the Premises or any part or component thereof, any lender shall request reasonable modifications of the Lease that do not materially increase the obligations or materially and adversely affect the rights of Lessee under this Lease, Lessee covenants to make such modifications. If any foreclosure proceedings are initiated by any lender, or a deed in lieu is granted, Lessee agrees, upon written request of any such lender or any purchaser at sale, to attorn and pay rent to such party and to execute and deliver any instruments necessary or appropriate to evidence or effectuate such attornment. In the event of attornment, no lender shall be: (i) liability for any act or omission of Lessor, or subject to any offsets or defenses which Lessee might have against Lessor prior to such lender's becoming Lessor under such attornment. Subject to the foregoing, any lender shall not disturb the tenancy of Lessee hereunder provided that Lessee attorn to such lender and fully and faithfully performs and observes each and every obligation of Lessee hereunder. 20. PLURALS; SUCCESSORS. The words "Lessor" and "Lessee" wherever herein occurring and used shall be construed to mean "Lessors" and "Lessees" in case more than one person constitutes either party to this lease; and all the covenants and agreements contained shall be binding upon, and inure to, their respective successors, heirs, executors, administrators and assigns and may be exercised by his or their attorney or agent. 21. SEVERABILITY. Wherever possible each provision of this lease shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this lease shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without 4 validating the remainder of such provision or the remaining provisions of this lease. If this instrument is executed by a corporation, such execution has been authorized by a duly adopted resolution of the Board of Directors of such corporation. This lease consists of 6 pages numbered 1 to 6, including a rider consisting of 3 pages, identified by Lessor and Lessee. IN WITNESS WHEREOF, the parties hereto have executed this instrument this day and year first above written. /s/ L. Gail Gormly /s/ P. Donald Mullen (SEAL) - ----------------------------------- --------------------------------- L. Gail Gormly P. Donald Mullen, President ___________________________________ _________________________________(SEAL) Please print or type name(s) _________________________________(SEAL) below signature(s) _________________________________(SEAL) ASSIGNMENT BY LESSOR On this _____________________, 20___, for value received, Lessor hereby transfers, assigns and sets over to ________________________________, all right, title and interest in and to the above Lease and the rent thereby reserved, except rent due and payable to __________________________, 20___. __________________________(SEAL) __________________________(SEAL) 5 GUARANTEE On this _________________, 20___, in consideration or Ten Dollars ($10.00) and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the undersigned Guarantor hereby guarantees the payment of rent and performance by Lessee, Lessee's heirs, executors, administrators, successors or assigns of all covenants and agreements of the above Lease. ______________________(SEAL) ______________________(SEAL) State of Illinois, County of __________________ss. I, the undersigned, a Notary Public in and for said County, in the State aforesaid, DO HEREBY CERTIFY that _____________________________personally known to me to be the same person _____ whose name _____________ subscribed to the foregoing instrument, appeared before me this day in person, and acknowledged that _____ he ____________ signed, sealed and delivered the said instrument as IMPRESS ________________ free and voluntary act, for the uses and SEAL purposes therein set forth, including the release and HERE waiver of right of homestead. Given my hand and official seal this _______ day of ____, 20__. Commission expires _________________, 20__ __________________________________ Notary Public This document was prepared by __________________________________________________ (Name and Address) Mail to:________________________________________________________________________ (Name and Address) ________________________________________________________________________ (City) (State) (Zip Code) Or Recorder's Office Box No. ___________________________________________________ Legal Description: Permanent Real Estate Index Number(s) __________________________________________ Address(es) of Real Estate: ____________________________________________________ 6 RIDER ATTACHED TO AND A PART OF INDUSTRIAL BUILDING LEASE AGREEMENT BETWEEN KENSINGTON PARTNERS, LTD., LESSOR AND WINK DAVIS EQUIPMENT CO., INC. AS LESSEE FOR THE PREMISES LOCATED AT 760 CREEL DRIVE, WOOD DALE, IL. 22. RIDER GOVERNS: In the event of any discrepancy between the form portion of this lease, and the rider, provisions of the rider shall govern. 23. RENT: A. The total minimum base rent reserved in this lease shall be THREE HUNDRED FIFTY TWO THOUSAND SIX HUNDRED TWENTY-EIGHT AND 88/100 DOLLARS ($352,628.88) payable monthly in advance as follows: May 8, 2002 - May 31, 2002 $4,300.80 monthly June 1, 2002 - May 30, 2003 $5,555.27 monthly June 1, 2003 - May 30, 2004 $5,677.27 monthly June 1, 2004 - May 30 2005 $5,802.35 monthly June 1, 2005 - May 30, 2006 $5,930.52 monthly June 1, 2006 - May 30, 2007 $6,031.93 monthly B. Said rent shall be paid to LESSOR without deductions or offset and without notice or demand at LESSOR'S address or to such other person or at suchother place as LESSOR may from time to time designate in writing. C. LESSEE agrees to pay rent in advance to LESSOR on or before the first day of each and every month, LESSEE agrees to pay an additional sum equal to 10% of the monthly rental as a late charge. Late charges shall be paid at the time of payment of the next month's rent. 24. TAXES: LESSOR shall pay all taxes levied or assessed against the subject property before they become delinquent. LESSEE agrees to pay as additional rent during the term of this lease or any renewals or extensions thereof any increase in such taxes over a base tax amount of the fully assessed 2000 tax bill, plus any legal fees incurred in successfully contesting the Real Estate Tax Assessment. A copy of the 2000 tax bill is attached hereto for future reference. At the time a tax bill is received containing increases which are to be paid by LESSEE, LESSOR will notify LESSEE of the amount due for such yearly increase plus a prorated portion of the increase for the then current year, which shall be due within ten (10) days of such notice. LESSEE shall also commence paying 1/12/th/ of such increase as additional monthly rental, which shall be applied to any increase contained in the next tax bill. Upon termination of the term, any deficiency in the tax payments made by LESSEE, based on the most recent ascertainable taxes, may be deducted from the security deposit to be returned to LESSEE. 25. INSURANCE: A. LESSEE agrees to maintain in force at LESSEE'S sole obligation and expense, insurance coverage on the Premises with minimum coverage of Bodily Injury 7 ($1,000,000.00 each occurrence and $2,000,000.00 aggregate). Property Damage ($500,000.00 each occurrence and $500,000.00 aggregate), and Personal Injury ($1,000,000.00). Said policy shall be written with an insurance company reasonably satisfactory to LESSOR and shall contain a provision that it may not be canceled without at least thirty (30) days written notice to LESSOR. A Certificate of Insurance shall be delivered to the LESSOR and shall indicate Kensington Partners, Ltd. as an additional Insured. LESSEE agrees to comply with any and all recommendations of the insurance company or companies concerning LESSEE'S manner of use of the leased premises so as to avoid invalidating any insurance policy carried on the premises. LESSEE, at its expense, agrees to install portable fire extinguishers, if necessary on the premises due to LESSEE'S specific business as required by LESSOR'S insurance companies and/or municipal authorities. If the use of the premises increases the hazard beyond that contemplated in this lese, or if as a result of any hazard of the LESSEE'S operations in the demised premises, the rate or premium on fire or other insurance is raised, the LESSEE will pay for such increase in cost. B. LESSOR shall provide and maintain all peril casualty insurance on subject property at all times during the term hereof, at LESSOR'S expense. However, LESSEE shall pay any cost of said casualty insurance in excess of the current premium (2002 - Base Year) or any increase that is a result of LESSEE'S use or occupancy of subject property. 26. PERSONAL PROPERTY: LESSEE is hereby given the right and privilege of removing all personal property belonging to said LESSEE at the expiration of the said lease provided, however, any damage or injury caused to said real estate by reason of the removal of said personal property shall be repaired by and at the expense of the LESSEE, normal wear and tear excepted if caused by the conduct of LESSEE'S business. Personal property attached to the building shall be removed only upon LESSOR'S written consent, which consent shall not unreasonably be withheld. 27. UTILITY SERVICE: An electric meter, gas meter and water meter are installed in subject premise. The billing for utilities will be paid by LESSEE directly to the utility companies. 28. MAINTENANCE: LESSEE shall, at the LESSEE'S sole cost and expense, be responsible for the normal routine maintenance, repair or replacement of the following: floor coverings, plumbing fixtures, rodding of all plumbing and sewer lines within the building, electrical fixtures, light bulbs and ballasts, hot water heater, hinges, locks, widow and plate glass, window hardware and mechanisms, dock and garage doors, automatic garage door openers, and heating and air conditioning systems. Required costs for the maintenance and replacement of the heating and air conditioning equipment, above the annual maintenance agreement held by Lessee, shall be shared equally. All repairs must be made with materials of the same size and quality as is existing. If the LESSEE fails to maintain the premises and make the necessary repairs during the term of this Lease, the 8 LESSOR may make the repairs and charge the LESSEE accordingly. LESSOR is responsible for maintenance, repair, or replacement of roof and structural walls unless it is necessitated by the intentional or negligent acts of the LESSEE, its agents or employees. At all times during the term of this Lease, LESSEE shall have and keep in force a maintenance contract (in form and with a contractor satisfactory to LESSOR), providing for inspection and necessary repairs of heating, air conditioning and ventilating equipment at least two (2) times per calendar year. Said contract shall provide that it will not be cancelable by either party thereto, except upon thirty (30) days written notice to LESSOR. Copies of the inspection reports will be submitted to LESSOR within thirty (30) days of inspection. 29. USE: LESSEE agrees not to store any materials, engage in any activity or discharge any matter in the air, sewers, or on the property contrary to the laws and ordinances of the Corporate Municipality or Fire Protection District or other governmental bodies having authority or jurisdiction and shall hold LESSOR harmless for any cost involved due to LESSEE'S illegal activity or discharge. 30. SECURITY DEPOSIT: LESSEE has submitted to LESSOR, ELEVEN THOUSAND SIX HUNDRED FIFTY FIVE DOLLARS AND 57/100 ($11,655.57) representing an amount equal to ONE (1) MONTH rent to be held as security deposit plus one month rent in advance. Security deposit shall secure the faithful performance by LESSEE of all of the terms, covenants and conditions for which LESSEE is obligated. Upon termination of the Lease, LESSOR may apply the security deposit to the cost of repairing any damage caused by LESSEE, or to any other amounts due hereunder from LESSEE to LESSOR, and agrees to return the balance, if any, to LESSEE, within thirty (30) days of termination of this lease. The security deposit is not to be considered the last months rent. 31. SNOW REMOVAL & LAWN CARE: LESSEE shall be responsible for snow removal and lawn maintenance during the term of this lease. 32. LESSEE'S USE: LESSEE represents and warrants that his intended use shall comply with all applicable laws, governmental regulations, and the terms of any enforcement action commenced by any federal, state, regional or local laws pertaining to air and water quality, hazardous waste, waste disposal and other environmental matters, including, but not limited to, the Clean Water, Clean Air, Federal Water Pollution Control, Solid Waste Disposal, Resource Conservation and Recovery and Liability Acts, and the rules, regulations, guidelines and ordinances of all applicable federal, state, and local agencies and bureaus. LESSEE hereby covenants and agrees to indemnify, defend and hold harmless from and against any claim, action suit, punitive damage or expense (including, without limitation, attorney's fees), resulting form, arising out of, or base upon (I) the presence, release, use, generation, discharge, storage, or disposal of any Hazardous Materials on, under, in or about, or to and from the property as it relates to LESSSEE'S use, or (II) the violation, or alleged violation, of any statute, ordinance, order, rule, regulation, permit judgement or license relating to the use, generation, release, discharge, storage, disposal or transportation of Hazardous Materials on, under, in or about, or to or from the property as it relates to LESSEE'S use. This indemnity shall include, without limitation, any damage, liability, fine, penalty, punitive damage, cost or expense arising from or out of any claim, action, suit or proceeding for personal injury 9 (including sickness, disease, or death) tangible or intangible property damage, compensation for lost wages, business income, profits or other economic loss, damage to the natural resources or the environment, nuisance, pollution, contamination, leak spill, release or other adverse effect on the environment. These environmental representations and indemnification shall survive lease term for an indefinite period of time. LESSEE: LESSOR: /s/ P. Donald Mullen /s/ Steven R. Ballagh - ----------------------------------- ------------------------------ P. Donald Mullen Steven R. Ballagh Wink Davis Equipment Company, Inc. Kensington Partners, Ltd. 10 EX-10.42 9 dex1042.txt FIRST AMENDMENT TO LICENSE AGREEMENT EXHIBIT 10.42 FIRST AMENDMENT TO LICENSE AGREEMENT AND GRANT OF DISTRIBUTORSHIP The present agreement (the "Agreement") is made by and between SRA Srl, a company established and organized under the laws of the Italian Republic, having its legal address in Italy, 50010 Badia a Settimo (FI), Via delle Fonti 8/E, registered nr. 00423470483, represented by its legal representative Mr. Ettore Lonati (hereinafter "SRA") Lonati SpA (successor to Lonati Srl), a corporation established and organized under the laws of the Italian Republic, having its legal address in Italy, 25123 Brescia, Via San Polo 11, fiscal code nr. 01469680175 and registered nr. 02096730961, represented by its legal representative Mr. Ettore Lonati (hereinafter "Lonati") parties of the first part and Todd Motion Controls Inc., a corporation established and organized under the laws of the State of North Carolina, having its legal address and principal office at 701 Griffith Road, Charlotte 28217 North Carolina, U.S.A., represented by its legal representative and executive officer Mr. Robert S. Speizman (hereinafter "TMC") party of the second part Preliminary Statements: A. On October 4, 2000, SRA and TMC entered a certain License Agreement (hereinafter the "Original Agreement"), in order to grant SRA a license to certain patents and patent applications for manufacturing and selling worldwide sock boarding or packaging apparatus; B. On June 28, 2001, with TMC's consent, SRA and Lonati executed an Assignment of Interest in License Agreement By Licensee, whereby SRA assigned to Lonati all of its interests in the above mentioned Original Agreement; C. The Parties wish to enter this Agreement for the purpose of amending and supplementing the Original Agreement as set forth herein. Now therefore, in consideration of the premises and the mutual promises and covenants set forth herein, the Parties hereby agree as follows Agreement: 1. Premises The above stated premises are an integral part of this Agreement. 2. License fees Paragraph 4. of the Original Agreement entitled "License fees and other considerations" is hereby amended by deleting Paragraph 4. in its entirety, by eliminating any license fee payable to TMC, commencing on January 1, 2002. 3. Default and termination The occurrence of any of the following events shall constitute a default by TMC under the Original Agreement as amended by this Agreement and shall constitute a default under this Agreement (each an "Event of Default"): (a) TMC shall default in the performance or observance of any term, covenant, condition or agreement contained in the Original Agreement, as amended by this Agreement, or of this Agreement and such default shall continue for a period of thirty (30) days after written notice thereof has been given to TMC by Lonati and/or SRA. (b) TMC shall (i) commence a voluntary case under the federal bankruptcy laws (as now or hereafter in effect), (ii) file a petition seeking to take advantage of any other laws, domestic or foreign, relating to bankruptcy, insolvency, reorganization, winding up or composition for adjustment of debts, (iii) consent to or fail to contest in a timely and appropriate manner any petition filed against it in an involuntary case under such bankruptcy laws or other laws, (iv) apply for or consent to, or fail to consent in a timely and appropriate manner, the appointment of, or the taking of possession by, a receiver, custodian, trustee, or liquidator of itself or of a substantial part of its property, domestic or foreign, (v) admit in writing its inability to pay its debts as they become due, (vi) make a general assignment for the benefit of creditors, or (vii) take any corporate action for the purpose of authorizing any of the foregoing. (c) A case or other proceeding shall be commenced against TMC in any court of competent jurisdiction seeking (i) relief under the federal bankruptcy laws (as now or hereafter in effect) or under any other laws, domestic or foreign, relating to bankruptcy, insolvency, reorganization, winding up or adjustment of debts, or (ii) the appointment of a trustee, receiver, custodian, liquidator or the like for TMC or for all or any substantial part of its assets, domestic or foreign, and such case or proceeding shall continue without dismissal or stay for a period of sixty (60) consecutive days, or an order granting the relief requested in such case or proceeding (including, but not limited to, an order for relief under such federal bankruptcy laws) shall be entered. (d) Speizman Industries, Inc. ("Speizman"), which owns all of the outstanding stock of TMC, shall default in the payment or performance of its existing credit facility with SouthTrust Bank, N.A. (apart from the continuation during any agreed-upon forbearance period of any existing default which is the subject of a binding forbearance agreement by SouthTrust Bank, N.A.). (e) Speizman or any of its subsidiaries, including TMC, shall default in the payment of any indebtedness for borrowed money, the aggregate outstanding amount of which 2 indebtedness is in excess of $1,000,000 beyond the period of grace if any, provided in the instrument or agreement under which such indebtedness was created. (f) Speizman shall fail to obtain refinancing of the existing credit facility from SouthTrust Bank, N.A. or other banks upon maturity of such facility (by acceleration upon default or otherwise) in the principal amount of at least USD 12,000,000.00 (Twelve Million and 00/100 US Dollar) and for a term extending beyond July 31, 2003. Immediately upon the occurrence of any Event of Default under this Agreement (i) the obligations, agreements, and commitments of Lonati and/or SRA set forth in this Agreement shall immediately and automatically terminate and be of no further force or effect without further notice to or consent of TMC, (ii) Lonati and/or SRA shall have the right to terminate the Original Agreement, as amended hereby by written notice to TMC, and all of TMC's rights and agency thereunder, (iii) Lonati and/or SRA shall have the right to terminate this Agreement upon written notice to TMC, and all of TMC's rights and agencies hereunder, (iv) Lonati and/or SRA shall have the right to exercise and enforce any and all rights and remedies available to Lonati and SRA under this Agreement, under any and all documents executed and delivered in connection with this Agreement, under the Original Agreement and under applicable laws. All rights and remedies available to Lonati and SRA under this Agreement, under any and all documents executed and delivered in connection therewith, and under applicable laws, may be asserted, enforced and exercised concurrently, cumulatively, or successively from time to time. 4. Exclusive distributorship 4.1 Subject to earlier termination as provided herein, the Parties agree that TMC will be the exclusive distributor of SRA Robosox and of all packaging equipment (the "Products") made by SRA (or by another company, to the extent that any other company in the Lonati Group manufactures such products) for a term beginning on the date of this Agreement and continuing until, but not beyond, July 3, 2004, within the territories of U.S.A. and Canada (the "Territory"). 4.2 TMC shall purchase SRA's Product according to the terms and conditions set forth in this Section 4 of this Agreement and upon such additional sales terms and conditions as may be agreed upon by both parties from time to time in writing and, according to the price list for SRA's Products in force at the time any purchase order is accepted by SRA. Prices shall be subject to change by SRA at any time and without notice. SRA shall have the right to accept or reject any purchase order, or part thereof, at its discretion. 4.3 TMC shall pay all future spare parts orders by irrevocable and confirmed Letter of Credit net ninety (90) days from the date of the invoice. 4.4 TMC shall pay for new machine orders and other Products (other than spare parts) on the following terms: ten percent (10%) down-payment at the order confirmation and ninety percent (90%) against ninety (90) days irrevocable and confirmed Letter of Credit. 3 4.5 The ten percent (10%) down-payment shall be paid by wire transfer or other immediate funds with each purchase order and prior to shipment. The effectiveness of each purchase order is conditioned upon the correct and full payment and performance of the aforementioned ten percent (10%) down-payment. 4.6 Each irrevocable Letter of Credit shall be issued at least 7 days prior to the shipment date and shall be payable at 90 (ninety) days from the invoice issued by SRA for the Products. With respect to purchases after the date of this Agreement, TMC shall pay for Products in United States Dollars and all letters of credit issued with respect to such purchases shall be payable in United States Dollars. All letters of credit must be irrevocable when issued and must be issued and confirmed by a bank satisfactory to SRA. Other terms of the Letters of Credit must be satisfactory to SRA. 4.7 The terms of payment set forth in this Section 4 shall apply to all purchases by TMC of Products, including spare parts and new machines, made after the date of this Agreement. 4.8 All transactions relating to this Agreement and Original Agreement will be in U.S. Dollars. 4.9 No order for any Products shall be binding for SRA unless and until it has been expressly accepted by SRA by issuing and forwarding to TMC the relevant pro-forma invoice. 4.10 TMC shall bear any cost and expense suffered in connection with and as a consequence of the fulfillment of any and all its obligations hereunder. Accordingly, TMC shall be responsible for all taxes and charges of any nature which may be imposed or assessed in the Territory with respect to the Products, including but not limited to income, franchise, profits and gross receipts taxes, turnover, and added-value taxes, duties, custom charges, import licenses and transportation taxes. Moreover, TMC shall duly comply with any law and statutory regulations existing in the Territory and concerning the importation of the Products and the sale of the Products in the Territory. 4.11 TMC shall commit itself to use diligent and reasonable efforts to promote the Products in the aforementioned Territory by continuously endeavoring to adequately increase the sales of SRA's Product in the Territory. 4.12 TMC shall provide customers in the Territory with efficient and competent technical assistance, during the period of installation and testing of the Product, as well as during the whole period the Product is running, shall deal promptly and property with any customer complaints and shall supply, without charge, all necessary instructions on use and maintenance of the Products. In the event of particular difficulties, TMC shall have the right to request assistance from SRA's technicians, provided that SRA shall be reimbursed for the costs and expenses of such technicians in performing work at the request of TMC including reasonable salaries, living and travel expenses for such TMC technicians. 4 4.13 TMC shall treat as confidential any and all information received from SRA in connection with the execution and performance of this Agreement, including, without limitation, customer lists, marketing plans, product designs and developments, and technical know-how. TMC shall not use or disclose any such information to any third party without the prior written consent of SRA and shall cause Speizman and its subsidiaries to maintain the confidentiality of such information, unless and only to the extent that such information is or becomes generally known to the public through no fault of TMC. The confidentiality obligation stated herein shall survive the termination or expiration of the Agreement. TMC shall also maintain completely confidential and private any commercial and economic new or confidential information that it becomes aware of during the performance of this Agreement. Furthermore, TMC shall not disclose such confidential information for one (1) year after the termination of this Agreement. 4.14 TMC shall market the Products under SRA's registered trademark (the "Trademark"). For this purpose SRA grants TMC with the non-exclusive right and license to use the Trademark in connection with the marketing and servicing of the Product in the Territory during the term of this Agreement and in accordance with the terms of this Agreement solely for the purpose of marketing, advertising and selling the Products. TMC shall afford SRA reasonable opportunities during the term hereof to inspect and monitor the activities of TMC in order to ensure TMC's use of such trademarks is in accordance with SRA's standards, specifications and instructions. 4.15 TMC acknowledges and agrees that nothing in this Agreement shall be construed or interpreted as conferring upon TMC any right or interest in the Trademark, that is, and shall remain the exclusive property of SRA. In this regard, TMC warrants that it neither has nor will acquire or represent that it has any right in or to the Trademark nor its registration. 4.16 SRA warrants that the Products supplied hereunder will confirm to the description herein stated or stated in any written description or specification supplied by SRA at the time of the purchase order, that it will convey good title thereto, free of all liens of any kind. This is SRA's sole warranty with respect to the goods. SRA makes no other warranty of any kind whatsoever, expressed or implied. TMC is not authorized to make or give additional warranties, express or implied, on behalf of SRA. SRA makes no warranties of merchantability or fitness for any particular purpose, or any other warranty, express or implied, except as expressly provided herein. SRA shall in no event be liable, whether in contract, tort, or on any other basis, for consequential, incidental, indirect or punitive damages, or loss of profits of any kind sustained by TMC, or by any person dealing with TMC, in connection with the products. SRA's liability for any claim of any kind (including, without limitation, claims based upon any express warranty contained herein and claims based upon any warranty implied by law), shall be limited, at SRA's option, to repair or replacement of the products or the return to TMC of the price paid, and TMC expressly waives any right it might have to any other measure of damages, statutory or otherwise. 5 4.17 All deliveries of Products are F.O.B. Scandicci-Firenze, Italy. After delivery to carrier F.O.B. Brescia, Italy, the Products shall be in all respects at the risk of TMC and any claim for damage or shortage shall be made by TMC against the carrier. 4.18 At any time during the term of this Agreement, SRA shall have the right to make changes in type, model and specification to any Product as well as to the Territory extension in such a manner as it may deem necessary or advisable. 4.19 Upon the expiration of the term of such exclusive distributorship granted to TMC on July 3/rd/, 2004, or upon the earlier termination of this Agreement or of the Original Agreement as amended hereby, the agency granted to TMC with respect to distribution of such Products shall cease and terminate. 5. Governing law and Exclusive Forum for disputes 5.1 This Agreement shall be governed and construed in all respects in accordance with the Laws of the Republic of Italy. The parties expressly exclude the applicability of the United Nations Convention on Contracts for the International Sale of Goods and any other international conventions or treaties regarding the international sale of goods. Any reference to local uses or customs is merely indicative. 5.2 Subject to the provisions of Section 5.3 of this Agreement, each of the Parties hereby irrevocably consents to the personal jurisdiction of the courts of Brescia, Italy, in any action, claim or other proceeding arising out of any dispute in connection with this Agreement or the Original Agreement, any rights or obligations hereunder or thereunder, or the performance of such rights and obligations. TMC hereby irrevocably consents to the service of a summons and complaint and other process in any action, claim or proceeding brought by SRA or Lonati in connection with this Agreement or the Original Agreement, any rights or obligations hereunder or thereunder, or the performance of such rights and obligations. 5.3 Notwithstanding the provisions of Section 5.2 with respect to jurisdiction in the courts of Brescia, Italy, SRA and Lonati shall each have the right to waive the provisions of Section 5.2 and to bring any action or proceeding against TMC or its properties in the courts of any other jurisdictions, including without limitation the State and federal courts located in the State of North Carolina, U.S.A. 6. Amendment In the event of any conflict between the terms of the Original Agreement and the terms of this Agreement, the terms of this Agreement shall be controlling and the Original Agreement shall be deemed amended to the extent required to conform to the provisions of this Agreement, including amendments due to Sections 2, 3, 4 and 5 above. Except as amended hereby, the Original Agreement shall remain in force and effect. 6 7. Final clause 7.1 Should any provisions of this Agreement be or become invalid, illegal or unenforceable under applicable law, the other provisions of this Agreement shall not be affected, and, to the extent permissible under applicable law, the Parties shall use their best efforts to modify said invalid, illegal, or unenforceable provisions so as to comply with such laws. 7.2 Except as modified by this Agreement, the Original Agreement with its subsequent amendments shall remain in full force and effect and is hereby ratified and confirmed. SRA Srl Todd Motion Controls Inc. By: /s/ Ettore Lonati By: /s/ Robert S. Speizman ------------------------ ------------------------------ Name: Ettore Lonati Name: Robert S. Speizman Title: President Title: President Lonati SpA By: /s/ Ettore Lonati ------------------------- Name: Ettore Lonati Title: President Brescia, (date) Charlotte, (date) Specific Acceptance TMC declare to accept specifically, pursuant to articles 1341 and 1342 of the Italian Civil Code, the following clauses as described above: 3. default and termination; 4. exclusive distributorship; 5. governing law and exclusive forum for disputes; 6 amendment. Todd Motion Controls Inc. By: /s/ Robert S. Speizman ------------------------------ Name: Robert S. Speizman Title: President Charlotte (date) July 16, 2002 7 EX-10.43 10 dex1043.txt AGREEMENT EXHIBIT 10.43 AGREEMENT The present agreement (the "Agreement") is made effective as of the 1/st/ day of February 2002 by and between Tecnopea Srl, a company established and organized under the laws of the Italian Republic, having its legal address in Italy, 25027 Quinazno d'Oglio (BS), Via Don E. Torri 2, registered nr. 0159523986, represented by its legal representative Mr. Ettore Lonati (hereinafter "Tecnopea"); On one hand and Speizman Industries, Inc., a corporation established and organized under the laws of the State of Delaware ("Speizman"), having its legal address and principal office at 701 Griffith Road, Charlotte, North Carolina 28217, represented by its legal representative and executive officer Mr. Robert S. Speizman; Speizman Yarn Equipment, Inc., a corporation established and organized under the laws of the State of South Carolina, having its legal address and principal office at 701 Griffith Road, Charlotte, North Carolina 28217, represented by its legal representative and executive officer Mr. Robert S. Speizman; Wink Davis Equipment Co., Inc., a corporation established and organized under the laws of the State of Georgia, having its legal address and principal office at 4938 S. Atlanta Road, Suite 800 and 900, Smyrna, Georgia 30080, represented by its legal representative and executive officer Mr. Robert S. Speizman; On the other hand Preliminary Statements: A. On account of certain past transactions between Tecnopea and Speizman (hereinafter the "Transactions"), several debts emerged toward Tecnopea; B. Presently, Speizman owes to Tecnopea the total amount of USD 4,000.00 (Four Thousand US Dollar) plus (Euro) 8.292,81 (Eight Thousand Two Hundred Ninety-Two and 81/100 Euro); E. The Parties wish to enter this Agreement for the purpose of agreeing and confirming the terms and conditions of payment of Speizman's outstanding trade debts as set forth herein. Now therefore, in consideration of the premises and the mutual promises and covenants set forth herein, the Parties hereby agree as follows: Agreement: 1. Premises The above stated premises are an integral part of this Agreement. 2. Outstanding debt 2.1 Speizman commit itself to insure the correct and full performance of all outstanding and further trade debts towards Tecnopea according to the terms and conditions of payment previously agreed upon by Tecnopea itself and Speizman in the purchase orders and related correspondence. 2.2 Subject to the terms, conditions, and understandings contained in this Agreement, and for so long as there does not exist a default under the terms of this Agreement, Tecnopea hereby agrees to refrain and forbear temporarily from exercising and enforcing any of their remedies with respect to the outstanding debt of Speizman to Tecnopea. 3. Further trade debts 3.1 Speizman shall pay all future trade spare part orders on and after the date of this Agreement by irrevocable and confirmed Letter of Credit net ninety (90) days from the date of the invoice. 3.2 Furthermore, on and after the date of this Agreement, Speizman shall pay for new machine orders comprising Products on the following payment terms: ten percent (10%) of the purchase price by down-payment in cash at the order confirmation and the remaining ninety percent (90%) of the purchase price against ninety (90) days irrevocable and confirmed Letter of Credit. 3.3 The effectiveness of each purchase order is conditioned upon the correct and full payment and performance of the aforementioned ten percent (10%) down-payment. 3.4 Each irrevocable Letter of Credit shall be issued at least 7 days prior to the shipment date and shall be payable at 90 (ninety) days from the invoice issued by Tecnopea for the Products. With respect to the purchases after the date of this Agreement, Speizman shall pay for Products in Euros (Euro) or US Dollars on account of the currency designated in the invoices and all letters of credit issued with respect to such purchases shall be payable in Euros (Euro) or US Dollars as well. All letters of credit must be irrevocable when issued and must be issued and confirmed by a bank satisfactory to Tecnopea. Other terms of the Letters of Credit must be satisfactory to Tecnopea. 3.5 The terms of payment set forth in this Section 3 shall apply to all purchases made by Speizman of Products (as defined in the Original Agreement and other transactions), including spare parts and new machines, made after the date of this Agreement. Spare part orders that are less than USD 50,000.00 (Fifty Thousand and 00/100 US Dollars) in value shall be paid by wire transfer upon each Company's notice that the goods are ready to be shipped. 4. Default and termination 4.1 Tecnopea may terminate this Agreement and/or the Transactions immediately by written notice to Speizman in the event that: a) Speizman is in breach of its contractual obligations and fails to remedy such breach within a reasonable term, not to exceed thirty (30) days from the receipt of the other party's written notice stating the occurrence of the breach. b) Speizman or any subsidiary of Speizman shall (i) commence a voluntary case under the federal bankruptcy laws (as now or hereafter in effect), (ii) file a petition seeking to take advantage of any other laws, domestic or foreign, relating to bankruptcy, insolvency, reorganization, winding up or composition for adjustment of debts, (iii) consent to or fail to contest in a timely and appropriate manner any petition filed against it in an involuntary case under such bankruptcy laws or other laws, (iv) apply for or consent to, or fail to contest in a timely and appropriate manner, the appointment 2 of, or the taking of possession by, a receiver, custodian, trustee, or liquidator of itself or of a substantial part of its property, domestic or foreign, (v) admit in writing its inability to pay its debts as they become due, (vi) make a general assignment for the benefit of creditors, or (vii) take any corporate action for the purpose of authorizing any of the foregoing. c) A case or other proceeding shall be commenced against Speizman or any subsidiary of Speizman in any court of competent jurisdiction seeking (i) relief under the federal bankruptcy laws (as now or hereafter in effect) or under any other laws, domestic or foreign, relating to bankruptcy, insolvency, reorganization, winding up or adjustment of debts, or (ii) the appointment of a trustee, receiver, custodian, liquidator or the like for Speizman or any subsidiary of Speizman or for all or any substantial part of their respective assets, domestic or foreign, and such case or proceeding shall continue without dismissal or stay for a period of sixty (60) consecutive days, or an order granting the relief requested in such case or proceeding (including, but not limited to, an order for relief under such federal bankruptcy laws) shall be entered. d) A judgment or order for the payment of money which causes the aggregate amount of all such judgments (to the extent not fully covered by insurance) to exceed $1,000,000 shall be entered against Speizman or any of its subsidiaries by any court and such judgment or order shall continue without discharge or stay for a period of thirty (30) days. e) Speizman shall default in the payment or performance of its existing credit facility with SouthTrust Bank, N.A. (apart from the continuation during any agreed-upon forbearance period of any existing default which is the subject of a binding forbearance agreement by SouthTrust Bank, N.A.). f) Speizman or any of its subsidiaries shall default in the payment of any indebtedness for borrowed money, the aggregate outstanding amount of which indebtedness is in excess of $1,000,000 beyond the period of grace if any, provided in the instrument or agreement under which such indebtedness was created. g) Speizman shall fail to obtain refinancing of the existing credit facility from SouthTrust Bank, N.A. or other banks upon maturity of such facility (by acceleration upon default or otherwise) in the principal amount of at least USD 12,000,000.00 (Twelve Million US Dollar) and for a term extending beyond July 31, 2003. 4.2 Accordingly, in the event of early termination of this Agreement, the time limits provided herein favour of debtor are to expiry immediately and Tecnopea will be entitled to claim any and all accrued credits against Speizman pursuant to the Transactions. 4.3 Immediately upon the occurrence of any default under this Agreement (i) the obligations, agreement, and commitments of Tecnopea set forth in this Agreement shall immediately and automatically terminate and be of no further force or effect without further notice to or consent of Speizman, (ii) Tecnopea shall have the right to declare the principal of and interest on the indebtedness of Speizman to Tecnopea, at the time outstanding, and all other amounts owed to Tecnopea to be immediately due and payable, whereupon the same shall immediately become due and payable without presentment, demand, protest or other notice of any kind, all of which are expressly waived and (iii) Tecnopea shall have the right to exercise and enforce any and all rights and remedies available to Tecnopea under this Agreement, under any and all documents executed and delivered in connection with this Agreement, under the Transactions and under applicable laws to the same extent as though no forbearance had been agreed to by 3 Tecnopea as provided in this Agreement, without regard to any notice or cure period contained in any of the foregoing or otherwise available under applicable laws. 5. Exclusive distribution Speizman will be Tecnopea's exclusive distributor in U.S.A. and Canada for the sale of Tecnopea's products through and including July 3/rd/, 2004, unless the early termination of the Transactions and/or of this Agreement occur. 6. Reference currency All transactions relating to this Agreement, as well as the Transactions, are to be wholly paid in Euros (Euro) or US Dollars on account of the currency designated in the respective invoices. 7. Governing law and Exclusive Forum for disputes 7.1 This agreement shall be governed and construed in all respects in accordance with the Laws of the Republic of Italy. The parties expressly exclude the applicability of the United Nations Convention on Contracts for the International Sale of Goods and any other international conventions or treaties regarding the international sale of goods. Any allusion to local uses or customs is merely indicative. 7.2 The Parties agree that the exclusive competent Forum to resolve any dispute that could arise between the Parties in terms of interpretation, execution and performance of this agreement or otherwise directly or indirectly pertaining to this agreement, shall be the Court of Brescia (Italy). However, Tecnopea shall have the further right to file any legal proceeding against Speizman before any court of competent jurisdiction, State or Federal, in the States of North and South Carolina. 8. Final Clause 8.1 Should any provision of this agreement be or become invalid, illegal or unenforceable under applicable law, the other provisions of this Agreement shall not be affected, and, to the extent permissible under applicable law, the Parties shall use their best efforts to modify said invalid, illegal or unenforceable provisions so as to comply with such laws. 8.2 This Agreement shall not constitute a novation of the Transactions which shall remain in full force and effect except expressly amended hereby. Tecnopea SpA Speizman Industries, Inc. By: /s/ Ettore Lonati By: /s/ Robert S. Speizman ---------------------- ------------------------------------- Name: Ettore Lonati Name: Robert S. Speizman Title: President Title: President Speizman Yarn Equipment, Inc. By: /s/ Robert S. Speizman ------------------------------------- Name: Robert S. Speizman Title: President 4 Wink Davis Equipment Co., Inc. By: /s/ P. Donald Mullen, II ------------------------------------- Name: P. Donald Mullen, II Title: President Brescia, (date) Charlotte, (date) 24-06-02 Specific Acceptance Speizman declare to accept specifically, pursuant to articles 1341 and 1342 of the Italian Civil Code, the following clauses as described above: 4. default and termination; 5. exclusive distribution; 7. governing law and exclusive forum for disputes. By: /s/ Robert S. Speizman ------------------------------------ Name: Robert S. Speizman Title: President Speizman Yarn Equipment, Inc. By: /s/ Robert S. Speizman ------------------------------------ Name: Robert S. Speizman Title: President Wink Davis Equipment Co., Inc. By: /s/ P. Donald Mullen, II ------------------------------------ Name: P. Donald Mullen, II Title: President Charlotte (date) /s/ June 25, 02 5 EX-21 11 dex21.txt LIST OF SUBSIDIARIES Exhibit 21 List of Subsidiaries Wink Davis Equipment Company, Inc., Georgia Speizman Yarn Equipment, Inc., Charlotte, North Carolina Speizman Canada, Inc. Speizman de Mexico S.A. de C.V. EX-23 12 dex23.txt CONSENT EXHIBIT 23 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Speizman Industries, Inc. Charlotte, North Carolina We hereby consent to the incorporation by reference in the Registration Statements No. 333-06287, No. 333-06289, No. 333-23503, No. 333-46769, and No. 333-74292 of Speizman Industries, Inc. on Form S-8 of our reports dated August 30, 2002, relating to the consolidated financial statements and schedules of Speizman Industries, Inc. appearing in the Company's Annual Report on Form 10-K for the year ended June 29, 2002. Charlotte, North Carolina BDO Seidman, LLP September 25, 2002 EX-99.1 13 dex991.txt CERTIFICATION Exhibit 99.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report on Form 10-K of Speizman Industries, Inc. (the "Company") for the year ended June 29, 2002 as filed with the Securities and Exchange Commission (the "Report"), I, Robert S. Speizman, Chairman of the Board and President (Principal Executive Officer) of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, as of the date hereof, to my knowledge: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: September 27, 2002 By: /s/ Robert S. Speizman ----------------------------------- Robert S. Speizman Chairman of the Board and President (Principal Executive Officer) EX-99.2 14 dex992.txt CERTIFICATION Exhibit 99.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report on Form 10-K of Speizman Industries, Inc. (the "Company") for the year ended June 29, 2002 as filed with the Securities and Exchange Commission (the "Report"), I, Paul R.M. Demmink, Vice President-Finance, CFO, Secretary and Treasurer (Principal Financial Officer) of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, as of the date hereof, to my knowledge: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: September 27, 2002 By: /s/ Paul R.M. Demmink -------------------------------------- Paul R.M. Demmink Vice President-Finance, CFO, Secretary and Treasurer (Principal Financial Officer) -----END PRIVACY-ENHANCED MESSAGE-----