UNITED STATES SECURITIES AND EXCHANGE COMMISSION
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Washington, D.C. 20549
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FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED OCTOBER 31, 1998
Commission File Number 0-934
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B. B. WALKER COMPANY
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(Exact name of registrant as specified in its charter)
North Carolina 56-0581797
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
414 East Dixie Drive, Asheboro, NC 27203
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (336) 625-1380
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports) and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. ( )
On January 29, 1999, the aggregate market value of voting stock held by non-
affiliates was approximately $2,473,871.
On January 29, 1999, 1,720,954 shares of the Registrant's voting common stock
with a par value of $1.00 per share were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Shareholders of the Company for the year
ended October 31, 1998 are incorporated herein by reference in Parts II and
IV. Portions of the Proxy Statement for the Company's Annual Meeting of
Shareholders to be held on March 15, 1999 are incorporated by reference in
Part III.
The Exhibit Index is on Pages F-4 and F-7.
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B.B. WALKER COMPANY
1998 FORM 10-K ANNUAL REPORT
Table of Contents
PART I
Page No.
Item 1. Business 1
Item 2. Properties 11
Item 3. Legal Proceedings 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Executive Officers of the Company 12
PART II
Item 5. Market for the Registrant's Common Stock and
Related Stockholder Matters 12
Item 6. Selected Financial Data 12
Item 7. Management's Discussion and Analysis of the
Results of Operations and Financial Condition 13
Item 8. Financial Statements and Supplementary Data 13
Item 9. Changes In and Disagreements With Accountants
on Accounting and Financial Disclosure 13
PART III
Item 10. Directors, Executive Officers, Promoters and
Control Persons of the Registrant 13
Item 11. Executive Compensation 13
Item 12. Security Ownership of Certain Beneficial Owners
and Management 13
Item 13. Certain Relationships and Related Transactions 14
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 14
Exhibit Index F-4 to F-7
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B.B. Walker Company
1998 Form 10-K
PART I
ITEM 1. BUSINESS
GENERAL
B.B. Walker Company, (the "Company") was incorporated in North Carolina on
October 15, 1952. The Company designs, manufactures and markets complete
lines of moderately-priced, value-oriented western and work/outdoor boots and
shoes for men and women. The majority of the Company's products are sold
under its proprietary brand names, with the remainder sold under major
retailers' private labels and on contract to other footwear manufacturers.
The Company markets its product primarily to wholesale customers in the
United States, but it also serves customers in Canada, Japan and Europe
The Company has one subsidiary, Bender Shoe Company ("Bender"), which is
wholly-owned. Bender is located in Somerset, Pennsylvania and principally
manufactures footwear with welt construction. In addition, the Company
operates two retail shoe outlets which carry a wide assortment of footwear,
including other footwear companies' brands, accessories, and footwear care
products.The Company's business is separated into two divisions, wholesale and
retail. Footwear manufactured and wholesaled by the Company, which includes
branded, private label and institutional sales, comprised 91.8% of net sales
in 1998, 92.0% of net sales in 1997 and 92.6% of net sales in 1996. The
remaining 8.2%, 8.0%, and 7.4% of net sales in fiscal 1998, 1997, and 1996,
respectively, were sales from the Company's retail outlets.
Revenues for 1998 decreased $3,835,000 (or 11.7%) from 1997. Some of this
decline in shipments was expected due to the additional impact from the major
changes made in 1997 to combine the sales forces of the western boots and
work/outdoor boots. Management also attributes a decrease in sales to some
erosion in our Company's channel of distribution over the past year. Many of
the western retail customers either were in the process of liquidation or went
out of business during the past twelve months, which severely hampered the
Company's attempt to increase sales. From 1997 to 1998, whereas the
work/outdoor boot shipments fell $4,012,000 (or 22.9%), the Company did show a
$323,000 (or 2.4%) increase in western branded shipments, therefore
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B.B. Walker Company
1998 Form 10-K
allowing an increase in western market share of distribution during the past
year. The combined sales of the Company's two retail outlets declined $227,000
(or 8.8%) from 1997 to 1998 due to increased competition from major discount
retailers surrounding the retail outlets plus a loss in sales due to a third
retail outlet's closing in January, 1997.
The Company's gross margin percentage fell slightly to 25.4% in 1998 from 26.1%
in 1997. Most of the 0.7% decrease can be attributed to the $190,000 in costs
associated with the Company's physical move of certain manufacturing
operations during the third quarter of 1998. The Company operates two
manufacturing facilities, in Asheboro, North Carolina and in Somerset,
Pennsylvania. To make the Company more competitive, management decided to move
all of the production of footwear with cement construction from the Somerset
plant to the Asheboro plant. At the same time, all of the footwear with welt
construction was moved from the Asheboro plant to the Somerset plant. This
consolidation of operations in two separate locations should create substantial
manufacturing efficiencies in both production and inventory costs in 1999.
Late in the fourth quarter of 1998, the Company received an attractive offer to
sell all of its approximately 22.3 acres of real property in Asheboro, North
Carolina. This land is in one of the prime commercial sections of Randolph
County. The Company has entered into a Contract for Purchase and Sale of Real
Property Located in Asheboro, North Carolina, dated as of January 28, 1999.
Under this contract, the purchaser will have until February 26, 1999 to examine
the suitability of the property for its needs. During that period, the
contract may be terminated by the purchaser without further obligation to the
Company. Accordingly, there can be no assurances that the sale of the
Asheboro, North Carolina property will be consummated. If the transaction
closes, part of the purchase price will be paid in cash and part will be paid
by purchase money promissory note. A portion of the property sold to the
purchaser, including the tract of land on which the plant is located, will be
leased back to the Company for up to one year. The rent under the lease
equals the interest due under the promissory note. While there will be costs
associated with relocating the Asheboro facility and some interruption in the
Company's manufacturing operations, the Company has taken steps to limit the
effects of these matters and does not expect the relocation to have a material
adverse effect on the operations of the Company.
CURRENT PRODUCTS
The Company manufactures and distributes high quality, moderately-priced
branded and private label footwear. The Company's product offerings to its
customers consist principally of either western boots or work/outdoor boots.
The Company also manufactures safety shoes with steel toe construction. The
Company has approximately 2,600 active accounts. A majority of the customer
base is made up of small retail chains and independent retail outlets. In
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1998 Form 10-K
1998 and 1997, one customer accounted for approximately 12% and 10% of net
sales, respectively. In 1996, no single customer comprised 10% or more of net
sales. The Company does not feel that a single customer or group of customers
comprise a significant portion of operations or exert significant influence
over the Company, or that the loss of any single customer would have a
material adverse effect on the Company. The following is a description of the
respective product offerings of the Company for each of its primary markets:
BRANDED FOOTWEAR
For western boot customers, the Company offers quality western boots through
two proprietary brands. With its ABILENE[REGISTERED] brand, the Company
manufactures high quality, all-leather boots for the traditional boot wearer.
ABILENE BOOTS[REGISTERED] are made in both men's and women's styles and are
distributed mainly through a variety of western apparel and footwear stores.
A more contemporary line, SAGE[REGISTERED], is offered at a lower price point
and features brighter colors and accents. The SAGE[REGISTERED] line is
offered in both men's and women's styles. Also under the SAGE[REGISTERED]
brand, the Company has a children's line of western footwear which is
manufactured overseas for the Company.
To promote brand recognition for the ABILENE[REGISTERED] line of footwear,
the Company has entered into several promotional relationships with
influential country music talents. In 1998, the Company continued
promotional agreements with Confederate Railroad and DooWah Riders, two
prominent bands in country music, to promote the ABILENE[REGISTERED] brand at
their concerts and other special events.
After being produced in either of the Company's two manufacturing plants, the
final product is transferred to the central warehouse in Asheboro, North
Carolina for distribution.
For the work/outdoor customer, the Company manufactures and distributes
work/outdoor footwear under its GOLDEN RETRIEVER[REGISTERED] brand. The
Company offers a variety of work/outdoor styles under the GOLDEN RETRIEVER
[REGISTERED] trademark, including pull-on, lace-up, lined, insulated
and waterproof, in a variety of heights, soles and constructions. The
DURATUFF[REGISTERED] Work Boot brand, which has been well-received since
being introduced in 1997, features double-cushioned insoles. In addition, the
Company manufactures and markets quality boots and shoes for work and safety
use under the WALKER FOOTWEAR THAT WORKS[REGISTERED] brand and the SAFETY
FIRST[REGISTERED] brand.
The Company continues to review all styles in its product lines and eliminates
those styles that offer only marginal returns to the Company. Historically,
the Company has developed a solid reputation as a producer of quality, durable
work boots and western footwear.
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1998 Form 10-K
PRIVATE LABEL FOOTWEAR
The Company manufactures shoes for large retailers and other footwear
manufacturers under contract. Most of the private label products consist of
work/outdoor footwear, although the Company is actively pursuing new customers
of its western private label products. The significant customers in this
division consist of large national retail chains, specialty catalog retailers,
and large wholesalers. In addition, this division serves large accounts
overseas, primarily in Europe and Japan.
OTHER
The Company operates two retail stores which offer the Company's branded
merchandise at discount prices to retail customers. In addition to Company
brands, a wide selection of other manufacturers' brands and accessories are
offered to provide customers with a variety of options from which to choose.
One retail store, which operates under THE FOOTFACTORY[REGISTERED] name, is
located in an outlet mall in Lancaster, Pennsylvania. The second store is a
factory outlet store located in its Asheboro, North Carolina facility.
In addition, the Company also manufactures footwear for institutional
customers, primarily prisons and correctional facilities. Styles manufactured
for these customers are a basic work boot construction. Most orders for
institutional customers are obtained through a competitive bidding process.
MANUFACTURING
The Company operates two manufacturing facilities, in Asheboro, North Carolina
and in Somerset, Pennsylvania. As discussed previously, there was a
significant change made in manufacturing operations during the third quarter
of 1998. As of the fourth quarter of 1998, the Asheboro plant produces only
cement-constructed footwear while the Somerset plant manufactures only welt-
constructed footwear. The Company has entered into a Contract for Purchase
and Sale of Real Property Located in Asheboro, North Carolina, dated as of
January 28, 1999. Under this contract, it is possible that the Company will
sell the Asheboro, North Carolina facility on or before April 15, 1999 (see
previous discussion in Item 1 under GENERAL).
The Company traditionally has manufactured the majority of its footwear
products in its own factories. In situations where it is advantageous to the
Company, production of components, primarily uppers, used in the manufacture
of footwear are outsourced to other manufacturers. Some of these manufacturers
are outside of the United States which subjects the Company to the normal risks
of conducting business abroad, such as political unrest, labor disturbances or
expropriation. No such problems have been experienced or are anticipated.
The manufacture of footwear is relatively labor-intensive and involves five
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1998 Form 10-K
primary operations: production of uppers; lasting the uppers to define the
shape, form and size of the footwear; bottoming the footwear; finishing the
footwear; and packaging the footwear. The Company produces boots and shoes
with "cemented" or molded bottoms as well as boots and shoes with bottoms
that are "welted" or stitched to the uppers.
The Company continues to explore manufacturing and product design innovations
in order to utilize its production capacity in the most efficient manner, to
produce high quality footwear, and to maintain a moderate price structure for
its products. Management believes innovation in its manufacturing process,
including innovation in product design and cost containment, is instrumental
in the Company's long-term success.
SALES AND MARKETING
The Company markets its products through a single sales force directed by a
national sales manager. The national sales manager is accountable for
planning the territory, budget, service, sales operations, and motivation of
the sales staff. Territories are established by the national sales manager
using Metro Market Demographic and other statistical data. Salespersons are
hired based on strengths and experience to sell and service within a
territory, including development of the customer base. The Company's
salespersons solicit orders within the territory to which they are assigned.
Orders are submitted to the Company's credit department in Asheboro, North
Carolina for acceptance or rejection based on the customer's credit history.
To a lesser extent, the Company's products are also marketed by independent
sales representatives, who are often engaged to develop new geographic
markets for the Company.
The Company markets its products primarily to wholesale customers in the
United States, but also provides footwear to customers in Canada, Japan and
Europe. The Company has approximately 2,600 active accounts. The Company's
salesmen are offered special incentives for opening new accounts. A majority
of the customer base is made up of small retail chains and independent retail
outlets, which have been adversely affected by the larger retail chains.
During 1998 and 1997, one customer accounted for approximately 12% and 10% of
net sales, respectively. For 1996, no customers comprised 10% or more of net
sales. Historically, the largest ten customers account for less than 35% of
net sales. The Company does not feel that a single customer or group of
customers comprise a significant portion of operations or exert significant
influence over the Company.
DISTRIBUTION
The Company's footwear is distributed nationally from its warehouse in
Asheboro, North Carolina. The Company ships its finished goods with its own
fleet of trucks and trailers or uses a parcel delivery service and common
carriers when cost effective or requested by the customer. The Company's
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1998 Form 10-K
trucks deliver goods to large customers, as well as to trucking terminals for
subsequent delivery to customers by local or cartage carriers. On the back
haul, the trucks generally pick up raw materials from suppliers for delivery
to the Company's warehouse at its Asheboro facility.
COMPETITION
The Company operates in a highly competitive industry. Competition comes from
numerous domestic manufacturers of footwear, as well as imports, particularly
from China. With the North American Free Trade Agreement ("NAFTA") and the
General Agreement on Trade and Tariffs ("GATT"), foreign competition has
easier access to the United States markets. However, the growth in footwear
imports in the western and work/outdoor markets, the Company's two primary
markets, has been less than that experienced by footwear manufacturers
serving other markets.
Many of the Company's competitors have greater financial, distribution, brand
name recognition and marketing resources than the Company. The Company relies
on product performance, styling, quality, and timeliness of product delivery
and perceived product value to distinguish its products from the competition.
The Company believes that, based on these factors, it maintains a strong
competitive position in its current market niches. Additionally, with the use
of an extensive cost accounting system, the Company maintains a tight control
on the costs that go into the manufacture of its products. The Company
believes this gives it the advantage of being a low cost producer and allows
it to be competitive in the pricing of its products, which are medium priced
in relation to the market. The Company anticipates that substantial
competition will continue in the future and therefore continues to plan and
develop strategies to enhance its competitive position.
RAW MATERIAL AND FINISHED GOODS INVENTORIES
Each of the Company's footwear styles has different raw material requirements
and is produced in numerous sizes and widths. The Company maintains its
inventories of raw materials at its Asheboro facility. Raw materials are
shipped from the Asheboro facility to the Somerset facility based on scheduled
orders. To the extent practicable, the Company strives to support customers
by maintaining the Company's most popular branded products in stock and by
shipping products quickly to meet customer delivery requirements, with timely
notification to customers of unavoidable delays in delivery. Because of the
large number of variations in sizes and widths for each style, the Company
continues to develop enhancements to its inventory control system and
production planning process to ensure adequate stock levels are maintained
and to minimize delivery time for out-of-stock items.
While the Company believes that its products are relatively insensitive to
fashion trends, changes in consumer tastes do impact inventory levels. The
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1998 Form 10-K
Company's product development staff monitors the market and responds on a
timely basis with new constructions and styles to prevent the buildup of
inventory that is no longer in peak demand in the marketplace. In addition,
the Company offers special incentive-based inventory reduction programs to
turn over on-hand inventory of styles that are slow moving or that are being
replaced with newer styles.
The Company's principal raw materials are leather, rubber and composition-
based heels and soles, and fiber based items, such as insoles. The Company
purchases its raw materials from numerous suppliers, the majority of which
are domestic. The Company is not dependent on any one supplier for raw
materials. While the Company expects that supplies of raw materials will
continue to be readily available as needed for the Company's operations, the
price of some of the components of its products, primarily leather, has
exhibited volatility in the past, and some price volatility can be
anticipated in future years. The supply of leather and other raw materials
was adequate in 1998.
SEASONALITY
The Company experiences significant seasonal fluctuations in net sales because
consumers purchase a large percentage of the Company's products from September
through January. As a result, retail dealers of the Company's products
generally request delivery of products from June through October for advance
orders and from October through December for restocking orders. Accordingly,
inventory levels are highest during June and July and accounts receivable
levels are highest during October through December. Because of seasonal
fluctuations, there can be no assurance that the results of any particular
quarter will be indicative of results for the full year or for future years.
BACKLOG
Backlog records are maintained based on orders for pairs of footwear, rather
than in terms of dollars. The backlog fluctuates on a seasonal basis,
reaching higher levels in the spring and summer months when retailers buy for
fall selling. At October 31, 1998, the backlog for orders believed to be
firm was 65,289 pairs, as compared to 119,470 pairs as of November 1, 1997.
One of the reasons for this backlog decrease is our largest customer's change
in its ordering method, which significantly impacted the backlog total.
Another reason is the general softness in the retail footwear environment, as
evidenced by the 11.7% sales decrease from 1998 to 1997. The backlog at a
particular time is affected by a number of factors, including seasonality and
scheduled date of manufacture and delivery. Private label and export orders
often have significant lead times. Therefore, a comparison of the Company's
backlog from period to period may not be meaningful and may not be indicative
of future sales.
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1998 Form 10-K
Advance private label and export orders provide the Company with a stable work
flow which complements orders for branded footwear. The Company attempts to
ship orders for branded products from inventory as they are received. Thus,
the backlog of branded products only reflects orders that were not immediately
filled from inventory and does not accurately predict the mix of future sales.
All orders at October 31, 1998 are expected to be filled during the current
fiscal year.
INTELLECTUAL PROPERTY
The Company owns federal trademark registrations for many of its marks,
including ABILENE[REGISTERED], SAGE[REGISTERED], GOLDEN RETRIEVER
[REGISTERED], DURATUFF[REGISTERED], WALKER FOOTWEAR THAT WORKS[REGISTERED],
SAFETY FIRST[REGISTERED], AIR RIDE[REGISTERED], COMFORT SYSTEM[REGISTERED],
and EASY COMFORT SYSTEM[REGISTERED]. The Company's trademarks are valuable
assets. Therefore, it is the policy of the Company to pursue registration of
its trademarks whenever possible and to defend its trademarks from infringement
to the greatest extent practicable under the law. There are no patents,
licenses, franchises or concessions that are material to the operations of the
Company.
GOVERNMENTAL REGULATION
All of the Company's operations are subject to federal, state and local
regulatory standards, primarily in the area of safety, health, employment and
environmental standards. In general, the Company has experienced no
difficulty in complying with these standards and believes that they have not
had any material effect on its capital expenditures, earnings or competitive
position.
EMPLOYEES
The Company and its subsidiary employed 392 persons as of October 31, 1998, 193
at the Asheboro, North Carolina facility and 199 at the Somerset,
Pennsylvania facility. Of these individuals, 290 were engaged in
manufacturing and 102 in administrative, sales, and transportation functions.
Substantially all of the Company's employees were employed on a full-time
basis. None of the Company's employees are covered by collective bargaining
agreements and the Company believes its relations with its employees are good.
READINESS FOR YEAR 2000 COMPLIANCE
The Company has initiated a program to minimize the risk of potential
disruption from the "Year 2000 ('Y2K') problem." This problem is a result
of computer programs having been written using two digits (rather than four)
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1998 Form 10-K
to define the applicable year. Any information technology ("IT") systems that
have time-sensitive software may recognize a date using "00" as the year 1900
rather than the year 2000, which could result in miscalculations and system
failures. The problem also extends to "non-IT" systems; that is, operating
and control systems that rely on embedded chip systems. In addition, like
every other business enterprise, the Company is at risk from Y2K failures on
the part of its major business counterparts, including suppliers,
distributors, and manufacturers, as well as potential failures in public and
private infrastructure services, including electricity, water, gas,
transportation, and communications.
The Company began developing a plan in November 1997 to resolve the Y2K issues
that are reasonably within its control. These efforts are being coordinated
through the Company's data processing department and chaired by the information
systems programming manager ("ISPM"). With respect to the Company's Y2K
efforts, the ISPM reports periodically to the Company's president, who in turn
updates the Audit Committee of the Board of Directors.
In January 1998, the ISPM completed an identification of those IT systems
which would require detailed program changes to be Y2K compliant. An employee
programmer already familiar with the Company's computer system has been
assigned full-time to modify those identified programs. Program changes and
testing are made in a test directory specifically created for the Y2K
modifications so that there are no conflicts with live data. When testing is
completed for a system, files are then converted, and modified programs are
copied to live directories on a weekend when no users are on the system. The
Company's current timetable anticipates completion of all conversions,
necessary testing, and full implementation by June 30, 1999. At this time,
he Company has not deemed it necessary to develop contingency plans for any of
the applications being converted; however, the Company will continue to assess
this and will develop contingency plans for any applications not converted and
operating by June 30, 1999.
With respect to Electronic Data Interchange ("EDI") applications, a Company
manager with extensive computer experience is assessing the Company's impact
from four customers who transmit orders via EDI. All but three of these
customers utilize a third-party EDI service bureau, while the fourth one (the
Company's largest customer) is expected to be changed from being an internal
EDI user to an external user by June 30, 1999. No significant EDI transmission
problems are anticipated.
With regard to non-IT systems, the Company's phone and security systems
are both Y2K compliant. The Company is in the process of assessing personal
computers and manufacturing machines that are not Y2K compliant, especially
those with programs that involve stitching patterns on western boots. Major
suppliers to the Company have been contacted by questionnaire, and the Company
has received confirmations
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B.B. Walker Company
1998 Form 10-K
of either Y2K compliance or a timetable to be compliant from such suppliers.
The Company has also contacted its major customers by questionnaire to assess
their status with regard to the Y2K issue. Contingency plans will be developed
for any significant suppliers or customers that are not Y2K compliant by June
30, 1999, or earlier if the Company becomes aware that such entities may not be
Y2K compliant in a timely manner.
It is important to note that the description of the Company's efforts
necessarily involves estimates and projections with respect to activities
required in the future. The required code changes, testing, and
implementation necessary to address the Y2K issue are expected to cost
approximately $100,000, and the Company has incurred approximately $45,000
through October 31, 1998. The Company estimates that it is approximately
40% complete with the efforts required to be Y2K compliant. These estimates
and projections are subject to change as work continues.
Even though the Company believes its Y2K plan should adequately address the
Y2K issue, there can be no assurance that unforeseen difficulties will not
arise. If the Company does not identify and fix all Y2K problems, or if a
major supplier or customer is unable to adequately address its Y2K issue, the
Company's results of operations or financial condition could be materially
impacted.
FORWARD-LOOKING STATEMENTS
The foregoing discussion contains some forward-looking statements about the
Company's financial condition and results of operations, which are subject to
certain risks and uncertainties that could cause actual results to differ
materially from those reflected in the forward-looking statements. Readers
are cautioned not to place undue reliance on these forward-looking statements,
which reflect management's judgment only as of the date hereof. The Company
undertakes no obligation to publicly revise these forward-looking statements
to reflect events and circumstances that arise after the date hereof.
Factors that might cause actual results to differ materially from these
forward-looking statements include (1) the effects of general economic
conditions, (2) the impact of competitive products and pricing in the footwear
industry, (3) failure to achieve anticipated sales results, (4) management's
ability to accurately predict the effect of cost reductions, and (5)
management's ability to accurately predict the adequacy of the Company's
financing arrangement to meet its working capital and capital expenditure
requirements.
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1998 Form 10-K
ITEM 2. PROPERTIES
As of October 31, 1998, the Company and its subsidiary utilized an aggregate
of approximately 355,000 square feet of floorspace in various facilities, all
of which are in service and are adequate for the operations performed.
Substantially all of the Company's property, including its facilities and
inventories, are insured on a replacement value basis.
The Company and its subsidiary, Bender Shoe Company, operate manufacturing and
warehousing facilities as follows:
Asheboro, North Carolina - This location on 414 East Dixie Drive, Asheboro,
North Carolina contains the manufacturing facility for footwear with cement
construction, as well as the administrative offices of the Company. The
Company uses 281,857 square feet of space in one building on approximately
22.3 acres of land. The premises are used for manufacturing, shipping,
warehousing, administration, and a retail outlet store. Paved parking and
truck loading areas are maintained. The premises owned in fee are subject to
an existing lien under a deed of trust in favor of Mellon Bank, N.A. The
Company has entered into a Contract for Purchase and Sale of Real Property
Located in Asheboro, North Carolina, dated as of January 28, 1999. Under this
contract, it is possible that the Company will sell the Asheboro, North
Carolina facility on or before April 15, 1999 (see previous discussion in
Item 1 under GENERAL).
Somerset, Pennsylvania - The Company's subsidiary, Bender Shoe Company, moved
to a larger facility in Somerset in August, 1994. The facility provides
approximately 68,000 square feet of space on 3.8 acres of land. The facility
is used primarily for the manufacture of footwear with welt construction plus
raw material storage. A small portion of the space is used as administrative
offices. The Company owns the facility which is subject to existing liens in
favor of First National Bank and Trust Company in Asheboro, NC, the
Pennsylvania Industrial Development Authority, the Pennsylvania Economic
Revitalization Fund and Mellon Bank, N.A.
The Company also operates factory outlet retail stores in Asheboro, North
Carolina and Lancaster, Pennsylvania. The Asheboro retail store is located
at the Company's Asheboro manufacturing facility. The Company leases the
retail store space in Lancaster, PA.
ITEM 3. LEGAL PROCEEDINGS
(a) From time to time, the Company is a defendant in legal actions
involving claims arising in the normal course of business. In management's
opinion, after consultation with counsel and a review of the facts, the
liabilities, if any, resulting from such legal proceedings will not have a
material effect on the Company's financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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EXECUTIVE OFFICERS OF THE COMPANY
The names, ages and positions of the executive officers of the Company as of
October 31, 1998 are listed below along with their business experience during
the past five years. Officers are elected annually by the Board of Directors
at the Annual Meeting of the Board of Directors convened immediately following
the Annual Meeting of the Shareholders. Executive officers serve until the
next annual meeting of the Directors and until their successors are elected
and qualified.
Executive Officer (Age) Position and Office
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Kent T. Anderson (56) Chairman (1992), President (1984) and
Chief Executive Officer (1986) (1)
French P. Humphries (58) Executive Vice President (1995) (2)
Carey M. Durham (47) Chief Financial Officer (1998) (3)
(1) Officer is also a director of the Company.
(2) As of December 1995, officer was named Executive Vice President and
directs the Company's marketing and merchandising efforts. From 1992 to 1995,
he served as Vice President - Marketing. Prior to 1992, he was General
Manager of the Western Division, a position he held since 1977.
(3) Served in this position since October 1, 1998. His responsibilities
include directing the Company's finance and accounting functions. A Certified
Public Accountant, he was in executive financial management in the home
furnishings industry (1995-98) and injection-molded plastics manufacturing
(1989-95) prior to joining the Company.
PART II
ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information required by this Item is found under the heading "Stock
Prices" on page 43 of the Annual Report to Shareholders (included as Exhibit
13 to this filing) for the year ended October 31, 1998 and is incorporated
herein by reference. The Company had 1,166 shareholders of record at January
29, 1999.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this Item is reported on page 29 of the Annual
Report to Shareholders (included as Exhibit 13 to this filing) under the
heading "Selected Financial Data" and is incorporated herein by reference.
12
<PAGE>
B.B. Walker Company
1998 Form 10-K
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
The information required by this Item is on pages 30 through 42 of the Annual
Report to Shareholders (included as Exhibit 13 to this filing) under the
heading "Management's Discussion and Analysis of Results of Operations and
Financial Condition" and is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item is reported on pages 4 through 28 of
the Annual Report to Shareholders (included as Exhibit 13 to this filing)
and is incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
Certain information required by Part III has been omitted under Item G of the
General Instructions for Form 10-K, Rule 12-b-23, as the Company files with
the Securities and Exchange Commission a definitive proxy statement pursuant
to Regulation 14A not later than 120 days after the end of its fiscal year.
Only those sections of the Proxy Statement which specifically address the
items set forth herein are incorporated by reference.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Information concerning the Company's directors required by this Item is
incorporated herein by reference to the Company's Proxy Statement.
Information concerning the Company's executive officers required by this Item
is incorporated herein by reference to Part I of this Form 10-K on Page 12,
under the caption "Executive Officers of the Company".
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated herein by reference to
the Company's Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated herein by reference to
the Company's Proxy Statement.
13
<PAGE>
B.B. Walker Company
1998 Form 10-K
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated herein by reference to
the Company's Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A) The following documents are filed as part of this Form 10-K:
(1) Financial Statements - The following consolidated financial
statements of the Company are incorporated herein by reference to
pages 4 through 28 of the Annual Report to Shareholders:
(a) Consolidated Statements of Income (Loss) for the fiscal years
ended October 31, 1998, November 1, 1997, and November 2, 1996.
(b) Consolidated Balance Sheets at October 31, 1998 and November 1,
1997.
(c) Consolidated Statements of Cash Flows for the fiscal years ended
October 31, 1998, November 1, 1997, and November 2, 1996.
(d) Consolidated Statements of Shareholders' Equity for the fiscal
years ended October 31, 1998, November 1, 1997, and November 2,
1996.
(e) Notes to Consolidated Financial Statements
(f) Report of Independent Accountants
(2) Financial Statement Schedules - The following supplementary
consolidated financial statement schedules of the Company are filed
as part of this Form 10-K and should be read in conjunction with
the Annual Report to Shareholders:
Schedule Page
-------- ----
VIII Valuation and Qualifying Accounts F-2
X Supplementary Income Statement Information F-3
The reports of the Company's independent public accountants with
respect to the above described financial statements and financial
statement schedules appear on page 28 of the Annual Report to
Shareholders and on page F-1 of this report, respectively, and are
incorporated herein by reference.
14
<PAGE>
B.B. Walker Company
1998 Form 10-K
All other financial statements and schedules not listed have been
omitted since the required information is included in the
consolidated financial statements or the notes thereto or is not
applicable or required.
(B) No reports on Form 8-K were filed by the Company during the last quarter
of fiscal 1998.
(C) A listing of exhibits is incorporated herein by reference to the Index to
Exhibits on pages F-4 through F-7.
15
<PAGE>
B.B. Walker Company
1998 Form 10-K
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
B.B. WALKER COMPANY (Registrant)
By: DOROTHY W. CRAVEN
---------------------
Dorothy W. Craven
Date: February 11, 1999 Corporate Secretary
-----------------
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant
and in the capacities indicated and on the date indicated.
Signature Title
--------- -----
Principal Executive Officer:
KENT T. ANDERSON 2/11/99 Chairman of the Board, Chief Executive
- ------------------ ------- Officer and President
Kent T. Anderson Date
Principal Financial and Accounting Officer:
CAREY M. DURHAM 2/11/99 Chief Financial Officer
- ------------------ -------
Carey M. Durham Date
BOARD OF DIRECTORS
KENT T. ANDERSON 2/11/99 EDNA A. WALKER 2/11/99
- ------------------ ------- ---------------- -------
Kent T. Anderson Date Edna A. Walker Date
Chairman
ROBERT L. DONNELL, JR. 2/11/99 MICHAEL C. MILLER 2/11/99
- ------------------------ ------- ------------------- -------
Robert L. Donnell, Jr. Date Michael C. Miller Date
JAMES P. McDERMOTT 2/11/99 GEORGE M. BALL 2/11/99
- -------------------- ------- ---------------- -------
James P. McDermott Date George M. Ball Date
16
<PAGE>
B.B. Walker Company
1998 Form 10-K
REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULES
---------------------------------
To the Board of Directors and Shareholders of
B.B. Walker Company
Our audits of the consolidated financial statements referred to in our report
dated December 4, 1998 appearing on page 28 of the 1998 Annual Report to
Shareholders of B.B. Walker Company (which report and consolidated financial
statements are incorporated by reference in this Annual Report on Form 10-K)
also included an audit of the Financial Statement Schedules listed in Item
14(A) of this Form 10-K. In our opinion, these Financial Statement Schedules
present fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.
PRICEWATERHOUSECOOPERS LLP
- --------------------------
PricewaterhouseCoopers LLP
Greensboro, North Carolina
December 4, 1998
F-1
<PAGE>
B.B. WALKER COMPANY Schedule VIII
-------------
VALUATION AND QUALIFYING ACCOUNTS
Balance at Charged to Charged to
Beginning Costs and Other Balance at
Description of Year Expenses Accounts Deductions End of Year
----------- ---------- ---------- ----------- ---------- ----------
Allowance for Doubtful Accounts:
October 31, 1998 $ 503,000 453,000 - 399,000 $ 557,000
========== ========== ========== ========== ===========
November 1, 1997 $ 742,000 267,000 - 506,000 $ 503,000
========== ========== =========== ========= ===========
November 2, 1996 $ 521,000 922,000 - 701,000 $ 742,000
========== ========== =========== ========= ===========
F-2
<PAGE>
B.B. WALKER COMPANY Schedule X
----------
SUPPLEMENTARY INCOME STATEMENT INFORMATION
October 31, November 1, November 2,
1998 1997 1996
(52 weeks) (53 weeks) (53 weeks)
------------ ------------ ------------
The following amounts were charged to
costs and expenses:
Maintenance and repairs $ 363,000 $ 338,000 $ 438,000
========== ========== ==========
Advertising costs $ 925,000 $1,011,000 $1,349,000
========== ========== ==========
F-3
<PAGE>
INDEX TO EXHIBITS
Page Number or
Exhibit Incorporation By
Number Description Reference To
- ------- ----------- ------------
(3) Articles of Incorporation and By-Laws
(3)(a) Articles of Amendment to Articles of Exhibit D to Form 10-K
Incorporation and Restated Charter of for the fiscal year
B.B. Walker Company dated November 28, 1979, ended November 3, 1979
filed with the Secretary of State in
Raleigh, NC
(3)(b) Articles of Amendment to Articles of Exhibit A to Form 10-Q
Incorporation dated March 24, 1980, filed for the six month
with the Secretary of State in Raleigh, NC period ended May 3,
1980
(3)(c) Articles of Merger of Lyon & Shaw, Inc. Exhibit (3) (c) to
into Registrant dated January 21, 1987 the Form 10-K for the
fiscal year ended
November 1, 1986
(3)(d) Copy of the revised By-Laws of B.B. Walker Exhibit (3)(d) to the
Company as amended January 7, 1992 Form 10-K for the
fiscal year ended
November 2, 1991
(3)(e) Articles of Merger of Walker Shoe Company Exhibit (3)(g) to the
into B.B. Walker Company dated June 29, 1987 Form 10-K for the
fiscal year ended
October 31, 1987
(3)(f) Articles of Amendment to Articles of Exhibit (3)(f) to the
Incorporation dated November 16, 1988, filed Form 10-K for the
with the Secretary of State in Raleigh, NC fiscal year ended
October 30, 1988
(3)(g) Articles of Amendment to Articles of Exhibit (3)(g) to the
Incorporation dated March 30, 1994, filed Form 10-K for the
with the Secretary of State in Raleigh, NC fiscal year ended
October 29, 1994
(4) The Registrant, B.B. Walker Company, by signing Exhibit (4) to Form
this report, agrees to furnish the Securities 10-K for the fiscal
and Exchange Commission upon its request a copy year ended November
of any instrument which defines the rights of 2, 1985
holders of long-term debt of the Registrant and
its subsidiary for which consolidated or
unconsolidated financial statements are required
to be filed and which authorizes a total amount
F-4
<PAGE>
Page Number or
Exhibit Incorporation By
Number Description Reference To
- ------- ----------- ------------
of securities not in excess of 10% of the total
assets of the Registrant and its subsidiary on a
consolidated basis.
(4)(a) Certificate of Common Capital Stock of B.B. Exhibit (N) to Form
Walker Company 10-K for the fiscal
year ended October
28, 1978
(4)(b) Unsecured Promissory Note of B.B. Walker Exhibit (B) to Form
Company with flexible rate minimum interest 10-K for the fiscal
provisions year ended November
1, 1980
(4)(c)(1) Credit Agreement dated August 15, 1995 Exhibit (4)(c)(1) to
between Mellon Bank, N.A., Philadelphia, PA, Form 10-Q for the
as Lender and B.B. Walker Company, Asheboro, third quarter ended
NC, the Registrant, as Borrower. The twenty- July 29, 1995
one supporting schedules have been omitted
being detailed forms, lists and support for
specific provisions set out in the agreement.
(4)(c)(2) Revolving Credit Note dated August 15, 1995 Exhibit (4)(c)(2) to
in the amount of $20 million; signed by the Form 10-Q for the
Registrant and in favor of Mellon Bank, N.A., third quarter ended
Philadelphia, PA July 29, 1995
(4)(c)(3) Term Loan Note dated August 15, 1995 in the Exhibit (4)(c)(3) to
amount of $3 million; signed by the Form 10-Q for the
Registrant and in favor of Mellon Bank, third quarter ended
N.A., Philadelphia, PA July 29, 1995
(4)(c)(4) Letter dated February 6, 1996 acknowledging Exhibit (4)(c)(4) to
Mellon Bank's agreement to amend financial Form 10-Q for the
covenants of the Revolving Credit Agreement first quarter ended
effective as of October 28, 1995 and February 3, 1996
thereafter
(4)(c)(5) First Amendment to the Credit Agreement Exhibit (4)(c)(5) to
dated April 15, 1996 between B.B. Walker Form 10-Q for the
and Mellon Bank, N.A. second quarter ended
May 4, 1996
(4)(c)(6) Second Amendment to the Credit Agreement Exhibit (4)(c)(6) to
dated October 18, 1996 between B.B. Walker Form 10-K for the
and Mellon Bank, N.A. fiscal year ended
November 2, 1996
F-5
<PAGE>
Page Number or
Exhibit Incorporation By
Number Description Reference To
- ------- ----------- ------------
(4)(c)(7) Third Amendment to the Credit Agreement Exhibit (4)(c)(7) to
dated November 14, 1996 between B.B. Walker Form 10-K for the
and Mellon Bank, N.A. fiscal year ended
November 2, 1996
(4)(c)(8) Fourth Amendment to the Credit Agreement Exhibit (4)(c)(8) to
dated April 15, 1997 between B.B. Walker Form 10-Q for the
and Mellon Bank, N.A. second quarter ended
May 3, 1997
(4)(c)(9) Fifth Amendment to the Credit Agreement Exhibit (4)(c)(9)
dated July 8, 1998 between B.B. Walker Form 10-Q for the
and Mellon Bank, N.A. third quarter ended
August 1, 1998
(4)(c)(10)Separate Agreement with Mellon Bank Exhibit (4)(c)(10)
Regarding Calculation of Financial Form 10-Q for the
Covenants, dated September 10, 1998 third quarter ended
August 1, 1998
(4)(c)(11)Sixth Amendment to the Credit Agreement Exhibit (4)(c)(11)
dated December 29, 1998 between B.B. Walker Form 10-K for the
and Mellon Bank, N.A. fiscal year ended
October 31, 1998
(4)(c)(12)Separate Agreement with Mellon Bank Exhibit (4)(c)(12)
Regarding Calculation of Financial Form 10-K for the
Covenants, dated December 30, 1998 fiscal year ended
October 31, 1998
(10)(a) B.B. Walker Company Nonqualified Deferred Exhibit (10) to Form
Compensation Plan as amended, adopted 10-K for the fiscal
June 7, 1983. year ended October
29, 1983
(10)(d) 1987 Incentive Stock Option Plan effective Exhibit (10)(d) to
February 11, 1987 Form 10-K for the
fiscal year ended
October 29, 1988
(10)(e) 1995 Incentive Stock Option Plan for Key Filed with the 1994
Employees and Non-Employee Directors Proxy Statement
effective March 20, 1995 mailed to
to shareholders on
February 27, 1995
F-6
<PAGE>
Page Number or
Exhibit Incorporation By
Number Description Reference To
- ------- ----------- ------------
(10)(f)(1) Employment Agreement between B.B. Walker Exhibit (10)(f)(1) to
Company and Kent T. Anderson, President Form 10-Q for the
and Chief Executive Officer, dated October nine months ended
2, 1989 July 28, 1990
(10)(f)(2) First Amendment to Employment Agreement Exhibit (10)(f)(2) to
between B.B. Walker Company and Kent T. Form 10-Q for the
Anderson, President and Chief Executive nine months ended
Officer, dated July 6, 1990 July 28, 1990
(10)(g) Contract for Purchase and Sale of Real Exhibit (10)(g) to
Property Located in Asheboro, North Form 10-K for the
Carolina, between B.B. Walker Company fiscal year ended
and H. William Hull, Jr., dated October 31, 1998
January 28, 1999
(11) Computation of earnings per share amounts are
explained in Note 1 to the Consolidated
Financial Statements in the Annual Report to
Shareholders for the fiscal year ended
October 31, 1998, which is Exhibit 13 to this
filing
(13) Annual Report to Shareholders for the fiscal Filed herewith as
year ending October 31, 1998 Exhibit (13)
(22) Subsidiaries of the Registrant Filed herewith as
Exhibit (22)
(27) Summary Financial Information Schedule Filed herewith as
Exhibit (27)
F-7
<PAGE>
Exhibit 13
----------
B.B. WALKER COMPANY AND SUBSIDIARY
FIFTY-FIRST ANNUAL REPORT TO SHAREHOLDERS
OCTOBER 31, 1998
1998 ANNUAL REPORT OF
B.B. WALKER COMPANY
B.B. WALKER COMPANY is a publicly held manufacturer and distributor of men's
and women's footwear, whose common stock is registered with the Securities and
Exchange Commission and is traded in the Over The Counter Securities Market.
A substantial portion of the Company's common stock is owned by employees
through participation in the Employee Stock Ownership Plan and Trust and by
many employees individually.
Founded in 1947 in Asheboro, North Carolina and incorporated in 1952 in the
State of North Carolina, the Company currently markets high quality, medium-
priced western and work/outdoor boots and shoes under the ABILENE BOOT COMPANY
name. A majority of the Company's sales are under trademarked brands. In
addition, the Company manufactures footwear under major retailers' private
labels and on contract for other footwear manufacturers. The Company also
operates two retail stores.
For western boot customers, the Company offers quality western boots through
two proprietary brands. Through its ABILENE[REGISTERED] brand, the Company
manufactures and markets high quality all-leather boots for the traditional
boot wearer that look and feel great. Abilene Boots[REGISTERED] feature the
AIR RIDE[REGISTERED] Comfort System which is designed to deliver comfort from
every part of the boot by utilizing a technologically advanced cushion insole.
Abilene Boots[REGISTERED] definitely live up to their "AFFORDABLE QUALITY"
[REGISTERED] slogan. The SAGE COLLECTION[REGISTERED] is offered at a lower
price point and features bright colors and accents which can be worn on most
any occasion by the metro fashion consumer or the traditional boot wearer.
Sage[REGISTERED] styles offer the same craftmanship and superior fit that
Abilene[REGISTERED] styles do.
For work/outdoor footwear customers, the Company markets quality boots through
its GOLDEN RETRIEVER[REGISTERED] brand, including pull-on, lace-up, lined,
insulated and waterproof, in a variety of heights, soles and constructions.
The Golden Retriever[REGISTERED] Easy Comfort[REGISTERED] System features a
specially contoured cushioned insole that is guaranteed to never give out.
Made for the working consumer, DURATUFF[REGISTERED]Work Boots feature
double cushioned insoles and are built to work for a living. The Company
continues to manufacture boots and shoes for work and safety use under the
WALKER FOOTWEAR THAT WORKS[REGISTERED] brand and the SAFETY FIRST[REGISTERED]
brand. The mainstays of this line are all-leather lace-up and pull-on utility
boots.
The Company has historically served the private label market, manufacturing
footwear for large retailers and other footwear manufacturers on a contract
basis. Most of the Company's private label products consist of work/outdoor
footwear. In addition, the Company also produces several styles purchased in
large quantities by institutional customers such as prison systems and work
camps.
B.B. WALKER COMPANY and its subsidiary are equal opportunity employers. All
matters regarding recruiting, hiring, training, compensation, benefits,
promotion, transfers and other personnel policies will continue to be free
from all discriminatory practices.
The Company and its subsidiary employ 392 people at October 31, 1998.
Contents Page
-------- ----
Financial Highlights.....................................1
Message to Shareholders..................................2
Consolidated Financial Statements and Notes..............4
Report of Independent Accountants.......................28
Selected Financial Data.................................29
Management's Discussion and Analysis of Results
of Operations and Financial Condition.................30
Stock Prices............................................43
Officers and Directors..........................Back Cover
Inside Front Cover
B.B. WALKER COMPANY AND SUBSIDIARY
FINANCIAL HIGHLIGHTS
Fiscal Year Ended
---------------------------------------
October 31, November 1, November 2,
1998 1997 1996
(52 weeks) (52 weeks) (53 weeks)
----------- ----------- -----------
(In thousands, except per share data)
OPERATIONS
Net sales $ 28,813 $ 32,648 $ 37,506
======== ======== ========
Income (loss) before income taxes
and minority interest (736) (54) (4,659)
Provision for (benefit from)
income taxes (813) (80) (620)
Minority interest (2) (2) (2)
-------- -------- --------
Net income (loss) $ 75 $ 24 $ (4,041)
======== ======== ========
BASIC EARNINGS (LOSS) PER SHARE $ .04 $ .01 $ (2.34)
======== ======== ========
Average number of shares outstanding 1,724 1,729 1,727
======== ======== ========
DILUTED EARNINGS (LOSS) PER SHARE $ .04 $ .01 $ (2.34)
======== ======== ========
Average number of shares outstanding 1,727 1,732 1,728
======== ======== ========
FINANCIAL CONDITION,
Current assets $ 18,314 $ 19,268 $ 24,953
Current liabilities 14,102 13,368 19,534
Working capital 4,212 5,900 5,419
Current ratio 1.30 to 1 1.44 to 1 1.28 to 1
Long-term obligations,
non-current portion 1,303 3,216 3,286
Shareholders' equity 4,642 4,557 4,522
Book value per common share 2.65 2.59 2.57
1
CHAIRMAN'S MESSAGE TO SHAREHOLDERS
TO OUR SHAREHOLDERS
B. B. Walker Company's fiscal year ended on October 31, 1998. We are happy
to report a net income of $75,000 in 1998 compared to $24,000 in 1997, even
though the loss from operations in 1998 was $736,000 compared to a $54,000
loss in 1997. Since we anticipate significant net income in 1999 (which will
allow the Company to offset related income tax liabilities with net operating
loss carryforwards from prior years), we were able to adjust our tax valuation
allowance by $609,000 in 1998 compared to only $62,000 in 1997.
Late in the fourth quarter of 1998, the Company received an attractive offer
to sell all of its approximately 22.3 acres of real property in Asheboro,
North Carolina. This land is in one of the prime commercial sections of
Randolph County. In January 1999, the Company entered into a contract to sell
its Asheboro, NC property. Under this contract, the purchaser will have until
February 26, 1999 to examine the suitability of the property for its needs.
During that period, the contract may be terminated by the purchaser without
further obligation to the Company. Accordingly, there can be no assurances
that the sale of the Asheboro, NC property will be consummated. If the
transaction closes, part of the purchase price will be paid in cash and part
will be paid by purchase money promissory note. A portion of the property
sold to the purchaser, including the tract of land on which the plant is
located, will be leased back to the Company for up to one year. The rent
under the lease equals the interest due under the promissory note. While
there will be costs associated with relocating the Asheboro facility and some
interruption in the Company's manufacturing operations, the Company has taken
steps to limit the effects of these matters and does not expect the relocation
to have a material adverse effect on the operations of the Company.
The Company operates two manufacturing facilities, the aforementioned one in
Asheboro, North Carolina, and one in Somerset, Pennsylvania. To make the
Company more competitive, we decided to move all of the production of footwear
with cement construction from the Somerset plant to the Asheboro plant. At
the same time, all of the footwear with welt construction was moved from the
Asheboro plant to the Somerset plant at a cost of over $190,000 late in the
third quarter of 1998. Since there was not enough product demand to support
two welt operations, this consolidation of operations in two separate locations
should create substantial manufacturing efficiencies in both production and
inventory costs beginning in fiscal 1999.
After the transfer of the welt operations to the Somerset plant was made in
1998, it was determined that a 282,000 square foot building was no longer
necessary to conduct business in Asheboro at our current level. Therefore,
the Company decided to sell the property and move its operations to a more
efficient operating space. Once the final contract is signed, we will begin
exploring suitable options and follow with an announcement detailing the next
phase of our operations.
2
Our increase in operating losses from the prior year was $682,000. Revenues
for 1998 were $28,813,000, a $3,835,000 (or 11.7%) decrease from 1997 revenues
of $32,648,000. Some of this decline in shipments was expected due to the
additional impact from the major changes made in 1997 to combine the sales
forces of the western boots and work/outdoor boots. We also attribute a
decrease in sales to some erosion in our Company's channel of distribution over
the past year. Many of our western retail customers either were in the process
of liquidation or went out of business during the past twelve months, which
severely hampered our Company's attempt to increase sales. While the
work/outdoor shoe shipments fell 22.9% in 1998, we did show a modest 2.4%
increase in western branded shipments, therefore allowing us to increase
western market share. Management is taking steps to address this deterioration
in revenues.
The coming year will be another one of major transition for B. B. Walker
Company, as we look forward to the relocation of our facilities in this area.
In the meantime, we appreciate the support and loyalty of our customers,
shareholders, and employees.
Sincerely,
KENT T. ANDERSON
-------------------------------
Kent T. Anderson
Chairman of the Board, Chief
Executive Officer and President
3
B. B. WALKER COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
<TABLE>
<CAPTION>
Fiscal Year Ended
Fiscal Year Ended
-------------------------------------
October 31, November 1, November 2,
1998 1997 1996
(52 weeks) (52 weeks) (53 weeks)
----------- ----------- -----------
(In thousands, except per share data)
<S> <C> <C> <C>
Revenues:
Net sales (Note 11) $ 28,813 $ 32,648 $ 37,506
Interest and other income 39 77 43
------- ------- -------
28,852 32,725 37,549
------- ------- -------
Costs and expenses:
Cost of products sold (Note 13) 21,507 24,121 29,702
Selling and administrative
expenses (Notes 12 and 13) 6,736 6,996 10,377
Depreciation and amortization 269 458 637
Interest expense 1,076 1,204 1,492
------- ------- -------
29,588 32,779 42,208
------- ------- -------
Loss before income taxes
and minority interest (736) (54) (4,659)
Benefit from income taxes (Note 7) (813) (80) (620)
Minority interest (2) (2) (2)
------- ------- -------
Net income (loss) $ 75 $ 24 $ (4,041)
======= ======= =======
Basic and diluted earnings (loss)
per share (Note 1) $ .04 $ .01 $ (2.34)
======= ======= =======
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these financial statements.
4
B. B. WALKER COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
October 31, November 1,
1998 1997
----------- -----------
(In thousands, except share data)
CURRENT ASSETS:
Cash $ 1 $ 1
Accounts receivable, less allowance for doubtful
accounts of $557 in 1998 and $503 in 1997 (Note 4) 7,157 9,084
Inventories (Notes 2 and 4) 9,660 9,533
Prepaid expenses 446 413
Deferred income tax benefit, current (Note 7) 1,050 237
------- -------
Total current assets 18,314 19,268
PROPERTY, PLANT AND EQUIPMENT, net of accumulated
depreciation and amortization (Notes 3, 4, 5 and 14) 1,622 1,750
OTHER ASSETS 144 156
------- -------
$ 20,080 $ 21,174
======= =======
The accompanying notes to consolidated financial statements are an integral
part of these financial statements.
5
B. B. WALKER COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS, Continued
LIABILITIES AND SHAREHOLDERS' EQUITY
October 31, November 1,
1998 1997
----------- -----------
(In thousands, except share data)
CURRENT LIABILITIES:
Borrowings under finance agreement (Note 4) $ 6,885 $ 7,364
Accounts payable, trade 3,536 3,937
Accrued salaries, wages and bonuses 367 468
Other accounts payable and accrued liabilities 555 489
Portion of long-term obligations payable
within one year (Note 5) 2,566 1,087
Income taxes payable (Note 7) 193 23
------- -------
Total current liabilities 14,102 13,368
------- -------
LONG-TERM OBLIGATIONS (Note 5) 1,303 3,216
MINORITY INTERESTS IN CONSOLIDATED SUBSIDIARY 33 33
SHAREHOLDERS' EQUITY (Notes 10):
7% cumulative preferred stock, $100 par value,
1,150 shares authorized, 828 shares issued
and outstanding in 1998 and 1997 83 83
Common stock, $1 par value, 6,000,000 shares
authorized, 1,720,954 shares in 1998 and
1,726,534 shares in 1997 issued and outstanding 1,721 1,727
Capital in excess of par value 2,717 2,724
Retained earnings 198 129
Equity loans collateralized by Company
common stock (77) (106)
------- -------
Total shareholders' equity 4,642 4,557
------- -------
COMMITMENTS AND CONTINGENCIES (Note 9)
$ 21,174 $ 21,174
======= =======
The accompanying notes to consolidated financial statements are an integral
part of these financial statements.
6
B. B. WALKER COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Fiscal Year Ended
-------------------------------------
October 31, November 1, November 2,
1998 1997 1996
52 weeks) (52 weeks) (53 weeks)
----------- ----------- -----------
(In thousands, except share data)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 75 $ 24 $ (4,041)
Adjustments to reconcile net income (loss)
to net cash provided by (used for)
operating activities:
Depreciation and amortization 269 458 637
(Gain) loss on sale of fixed assets (3) (29) 138
(Increase) decrease in:
Accounts receivable, trade (net) 1,927 1,724 2,659
Inventories (127) 2,978 3,317
Prepaid expenses (33) 28 (130)
Deferred income tax benefit (813) (87) 620
Other assets 12 58 205
Increase (decrease) in:
Accounts payable, trade (401) (1,047) (226)
Accrued salaries, wages and bonuses (101) (634) 511
Other accounts payable and
accrued liabilities 66 (191) 48
Income taxes payable 170 1,065 (429)
------- ------- -------
Net cash provided by
operating activities 1,041 4,347 3,309
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (141) - (21)
Proceeds from disposal of property, plant
and equipment 3 29 6
------- ------- -------
Net cash provided by (used for)
investing activities (138) 29 (15)
------- ------- -------
(Continued)
7
B. B. WALKER COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS, Continued
Fiscal Year Ended
-------------------------------------
October 31, November 1, November 2,
1998 1997 1996
(52 weeks) (52 weeks) (53 weeks)
----------- ----------- -----------
(In thousands, except share data)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net payments under
finance agreement $ (479) $ (4,100) $ (2,548)
Proceeds from issuance of
long-term obligations 75 241 45
Payment on long-term obligations (509) (528) (800)
Payment of debt issue costs - - -
Purchase of subsidiary common stock
from minority interest - - (1)
Cash repayments from loans to shareholders 16 17 16
Dividends paid on 7% cumulative
preferred stock (6) (6) (6)
------- ------- -------
Net cash used for financing activities (903) (4,376) (3,294)
------- ------- -------
Net change in cash - - -
Cash at beginning of year 1 1 1
------- ------- -------
Cash at end of year $ 1 $ 1 $ 1
======= ======= =======
The accompanying notes to consolidated financial statements are an integral
part of these financial statements.
8
B.B. WALKER COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Equity Loans
(In thousands, 7% Cumulative Capital in Collateralized Total
except number Preferred Stock Common Stock Excess of Retained By Common Shareholders'
of shares) Shares Amount Shares Amount Par Value Earnings Stock Equity
------ ------ --------- ------ --------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at October 28, 1995 828 $ 83 1,726,535 $ 1,727 $ 2,724 $ 4,158 $ (139) $ 8,553
Retirement of common stock
repurchased - - (1) - - - - -
Repayment of equity loans col-
lateralized by common stock - - - - - - 16 16
Net loss - - - - - (4,041) - (4,041)
Dividends on 7% preferred
stock - - - - - (6) - (6)
---- ---- --------- ------ ------- ------ ------ --------
Balance at November 2, 1996 828 83 1,726,534 1,727 2,724 111 (123) 4,522
Repayment of equity loans col-
lateralized by common stock - - - - - - 17 17
Net income - - - - - 24 - 24
Dividends on 7% preferred
stock - - - - - (6) - (6)
---- ---- --------- ------ ------- ------ ------ --------
Balance at November 1, 1997 828 83 1,726,534 1,727 2,724 129 (106) 4,557
Repayment of equity loans by
retirement of common stock - - (5,580) (6) (7) - 13 -
Repayment of equity loans col-
lateralized by common stock - - - - - - 16 16
Net loss - - - - - 75 - 75
Dividends on 7% preferred
stock - - - - - (6) - (6)
---- ---- --------- ------ ------- ------ ------ --------
Balance at October 31, 1998 828 $ 83 1,720,954 $ 1,721 $ 2,717 $ 198 $ (77) $ 4,642
==== ==== ========= ====== ======= ====== ====== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these financial statements.
9
B. B. WALKER COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ACCOUNTING POLICIES
Business
- --------
B.B. Walker Company and Subsidiary (the "Company") is engaged in the design,
manufacture, marketing and distribution of western and work/outdoor footwear.
The Company's sales come primarily from sales of branded footwear to small
independent retail chains and private label products to selected large
retailers. The Company has manufacturing facilities in Asheboro, North
Carolina and Somerset, Pennsylvania. A subsequent event relating to the
Asheboro, North Carolina property is discussed in Note 14. The significant
accounting policies followed by the Company in preparing the accompanying
consolidated financial statements are as follows:
Principles of consolidation
- ---------------------------
The consolidated financial statements include the accounts of B.B. Walker
Company and its subsidiary. All significant intercompany balances and
transactions are eliminated in consolidation.
Use of estimates in the preparation of financial statements
- -----------------------------------------------------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the consolidated financial statements and
the accompanying notes. Actual results could differ from those estimates.
Inventories
- -----------
Inventories are valued at the lower of cost or market with cost being
determined on the first-in, first-out basis.
Property, plant and equipment
- -----------------------------
All property, plant and equipment, except assets under capital leases, are
reported at cost. Assets under capital leases are reported at the present
value of the minimum lease payments. Maintenance and repairs which do not
improve or extend the life of an asset are charged to expense as incurred.
Any gain or loss on the disposal of assets is recorded as other income or
expense.
Depreciation is computed by the straight-line method over the estimated useful
lives of the assets. The depreciable lives for various classes of property,
plant and equipment are as follows:
Buildings and improvements 5 to 40 years
Machinery and equipment 3 to 10 years
10
B. B. WALKER COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
NOTE 1 - ACCOUNTING POLICIES, Continued
Earnings per share
- ------------------
Basic earnings per share (EPS) is computed by dividing income available to
common shareholders by the weighted-average number of common shares
outstanding for the year. In arriving at income available to common
shareholders, preferred stock dividends of $5,796 were deducted in each year
presented. Diluted EPS reflects the potential dilution that could occur if
dilutive securities and other contracts to issue common stock were exercised
or converted into common stock or resulted in the issuance of common stock
that then shared in the earnings of the Company. The weighted average number
of shares, including common stock equivalents, used in earnings per share
computations were:
1998 1997 1996
--------- --------- ---------
Primary 1,724,000 1,729,000 1,727,000
Fully diluted 1,727,000 1,732,000 1,728,000
Revenue recognition
- -------------------
The Company recognizes a sale when the goods are shipped or ownership and
risk of loss is otherwise assumed by the customer.
Advertising costs
- -----------------
The Company expenses advertising costs, other than direct response
advertising, as incurred. Direct response advertising was expensed the first
time the advertising appears. Advertising expense for 1998, 1997 and 1996 is
$925,000, $1,011,000, and $1,349,000, respectively.
Fiscal year
- -----------
The Company's operations are based on a fifty-two, fifty-three week fiscal
year that ends on the Saturday closest to October 31. The fiscal years ended
October 31, 1998 and November 1, 1997 consisted of fifty-two weeks each. The
fiscal year ended November 2, 1996 included fifty-three weeks of operations.
The impact on operations of the extra week in 1996 was not significant.
11
B. B. WALKER COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
NOTE 1 - ACCOUNTING POLICIES, Continued
New accounting standards
- ------------------------
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 130, "REPORTING COMPREHENSIVE
INCOME". This Statement requires that changes in the amounts of comprehensive
income items, which are currently reported as separate components of equity,
be shown in a financial statement, displayed as prominently as other financial
statements. The common components of other comprehensive income would include
items such as foreign currency translation adjustments, minimum pension
liability adjustments and/or unrealized gains or losses on available-for-sale
securities. The Statement does not require a specific format for the
financial statement in which comprehensive income is reported, but does
require that an amount representing total comprehensive income be reported in
that statement.
In June 1997, the FASB issued FAS 131, "DISCLOSURES ABOUT SEGMENTS OF AN
ENTERPRISE AND RELATED INFORMATION". This Statement will change the way
companies report information about segments of their business in their annual
financial statements and require companies to report selected segment
information in their quarterly reports issued to shareholders. It also
requires entity-wide disclosures about the products and services an entity
provides, the material countries in which it holds assets and reports
revenues, and its major customers. The Statement also requires companies to
disclose segment data based on how management makes decisions about allocating
resources to segments and measuring their performance.
Adoption of FAS No. 130 and FAS No. 131 are required for the Company in fiscal
1999. Management is evaluating the potential effects on the Company's
financial statements of adoption of these statements. While such evaluation
is not complete, management currently does not expect the adoption of the
statements will have a material effect on its disclosure requirements.
12
B. B. WALKER COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
NOTE 2 - INVENTORIES
Inventories on hand at October 31, 1998 and November 1, 1997 consisted of the
following:
(In thousands)
October 31, November 1,
1998 1997
----------- -----------
Finished goods $ 5,167 $ 4,883
Work in process 945 884
Raw materials and supplies 3,548 3,766
-------- --------
$ 9,660 $ 9,533
======== ========
NOTE 3 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, by major class, at October 31, 1998 and
November 1, 1997 was as follows:
(In thousands)
October 31, November 1,
1998 1997
----------- -----------
Land $ 531 $ 425
Buildings 2,287 2,285
Leasehold improvements 459 459
Machinery and equipment:
Owned 4,710 4,322
Capital leases - 357
Transportation equipment 158 158
-------- --------
8,145 8,006
Less accumulated depreciation
and amortization 6,523 6,256
-------- --------
$ 1,622 $ 1,750
======== ========
Included in accumulated depreciation at October 31, 1998 and November 1, 1997
is $-0- and $348,000, respectively, related to capital leases.
13
B. B. WALKER COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
NOTE 4 - BORROWINGS UNDER FINANCE AGREEMENT
On August 15, 1995, the Company entered into a revolving finance agreement
(the "Agreement") with a bank which permits borrowings up to certain
percentages of eligible accounts receivable and inventories. Advances
available to the Company cannot exceed $8,000,000 in the aggregate, of which
no more than $4,000,000 may be borrowed against inventory. The Agreement was
amended effective July 8, 1998. Under the terms of the amended Agreement,
interest at the bank's prime rate plus 1.50% (9.50% at October 31, 1998) is
accrued on all outstanding amounts. The Company pays a monthly commitment
fee equal to .25% of the unused availability under the Agreement along with
other miscellaneous fees related to its operation.
As discussed more fully in Note 5, the Agreement also provides a term loan
of $3,000,000 with a variable interest rate at the bank's prime rate plus
1.50%. Proceeds from this loan were used to repay the existing deed of trust
on the Asheboro facility with the remainder applied against the outstanding
amount under the revolving finance agreement. Subsequent to fiscal year
ending October 31, 1998, the Agreement was amended effective December 28,
1998 and sets the maturity date at June 30, 1999.
Borrowings under the Agreement are secured by all accounts receivable,
inventories and machinery and equipment of the Company. In addition, the
bank has a first lien on the Asheboro land and facilities. The bank also
as a subordinated security interest in the manufacturing facility in Somerset.
The Agreement contains various restrictive covenants, as amended effective
July 8, 1998, which include, among other things, maintenance of certain
financial ratios, limits on capital expenditures, minimum net worth
requirements and net income requirements. The Agreement also restricts
payment of dividends on common stock to payments made with shares of common
stock. At October 31, 1998, the Company was in compliance with its
restrictive covenants.
A summary of activity for borrowings under the finance agreement for the
year is as follows:
(In thousands)
Fiscal year
----------------------------
1998 1997 1996
-------- -------- --------
Average short-term borrowings $ 6,900 $ 7,780 $ 11,159
Maximum short-term borrowings $ 7,592 $ 11,526 $ 14,467
Weighted average interest rate 10.3% 10.4% 9.5%
Interest rate at year-end 9.5% 10.3% 10.0%
The weighted average interest rate is computed by dividing interest expense and
other borrowing costs on the short-term borrowings by the average borrowings
during the fiscal year.
14
B. B. WALKER COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
NOTE 5 - LONG TERM OBLIGATIONS
Long-term debt and other non-current obligations consist of the following:
(In thousands)
October 31, November 1,
1998 1997
----------- -----------
Note payable to a bank, payable in monthly
installments of $23,384 with a balloon
payment of $1,707,058 due June 30, 1999,
variable interest at the bank's prime rate
plus 1.50% (9.5% at October 31, 1998) $ 1,894 $ 2,286
Note payable to a bank, due in monthly
installments of $2,550 through January 2009,
variable interest at the bank's prime rate
plus .75% (8.75% at October 31, 1998),
secured by the Company's land and building
in Somerset, PA 205 216
Note payable to the Pennsylvania Industrial
Development Authority, due in monthly
installments of $3,089 through February
2010, fixed interest at 2% per annum,
secured by the Company's land and building
in Somerset, PA 373 402
Note payable to the Pennsylvania Economic
Revitalization Fund, due in monthly
installments of principal plus accrued
interest of $1,544 through August 2010,
fixed interest at 2% per annum, secured
by the Company's land and buildings
in Somerset, PA 194 208
Promissory notes payable to shareholders,
due in varying amounts through 2003, variable
interest based on prime rate 1,203 1,182
Capital lease obligations, due in monthly
installments through 1998, interest ranging
from 12% to 12.75% - 9
-------- --------
3,869 4,303
Less amounts payable within one year 2,566 1,087
-------- --------
$ 1,303 $ 3,216
======== ========
15
B. B. WALKER COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
NOTE 5 - LONG TERM OBLIGATIONS, Continued
The effective interest rate on the promissory notes payable to shareholders
averaged 9.5% in 1998 and 1997. Cash paid for interest was $1,089,000 in
1998, $1,124,000 in 1997 and $1,507,000 in 1996.
Principal maturities on long-term obligations are as follows:
Fiscal Year (In thousands)
Ending Amounts
----------- ------------
1999 $ 2,566
2000 479
2001 160
2002 120
2003 84
Thereafter 460
---------
$ 3,869
=========
NOTE 6 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of accounts receivable, short-term notes receivable,
and borrowings under finance agreement approximate fair value because of the
short maturity of those instruments. The carrying amount of long-term debt
approximates fair value because the interest rate is variable based on the
bank's prime rate.
16
B. B. WALKER COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
NOTE 7 - INCOME TAXES
The components of the provision for (benefit from) income taxes are as
follows:
(In thousands)
October 31, November 1, November 2,
1998 1997 1996
----------- ----------- -----------
Current:
Federal $ - $ 7 $ (1,240)
State - - -
------- ------- -------
- 7 (1,240)
------- ------- -------
Deferred:
Federal (533) (87) 620
State (280) - -
------- ------- -------
(813) (87) 620
------- ------- -------
$ (813) $ (80) $ (620)
======= ======= =======
The Company has net operating loss carryforwards available to offset future
U.S. tax liabilities of approximately $1,370,000, of which $450,000 will
expire in 2012 and $920,000 will expire in 2018. The Company has state net
operating loss carryforwards of $4,420,000, which expire from 1999 to 2013.
Due to the uncertainty surrounding the ability of the Company to utilize
these loss carryforwards, a valuation allowance of $1,190,000 was recorded in
fiscal 1996. During fiscal 1998, the Company began negotiating the sale of
its manufacturing facility in Asheboro, NC, along with an adjacent piece of
property. The projected gain on this sale is expected to be sufficient to
utilize all of the net operating loss carryforwards. Based on the more likely
than not probability that this income will be realized during 1999, the Company
decreased the valuation reserve relating to the loss carryforwards to zero at
October 31, 1998. The effect of reducing the valuation allowance provides an
income tax benefit of $609,000 for fiscal 1998.
Cash paid for income taxes, net of refunds, was ($166,000) in 1998,
($1,061,000) in 1997, and ($806,000) in 1996.
17
B. B. WALKER COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
NOTE 7 - INCOME TAXES, Continued
The provision for (benefit from) income taxes differs from the amount computed
by applying the U.S. federal income tax rate of 34 percent to income (loss)
before income taxes for the three years ended October 31, 1998, November 1,
1997, and November 2, 1996 as follows:
(In thousands)
October 31, November 1, November 2,
1998 1997 1996
----------- ----------- -----------
Computed expected income tax
expense (benefit) $ (251) $ (18) $ (1,584)
State income taxes (benefit), net
of federal income tax benefit (37) (40) (170)
Change in the valuation allowance (609) (62) 1,075
Other, net 84 40 59
------- ------- -------
$ (813) $ (80) $ (620)
======= ======= =======
The significant components of deferred income tax expense for the years ended
October 31, 1998, November 1, 1997, and November 2, 1996 are as follows:
(In thousands)
October 31, November 1, November 2,
1998 1997 1996
----------- ----------- -----------
Deferred tax expense (exclusive of
the effect of other components
listed below) $ 21 $ 275 $ (285)
State deferred tax benefit (20) (40) (170)
Federal operating loss and
credit carryforwards (205) (260) -
Change in the valuation allowance (609) (62) 1,075
------- ------- -------
$ (813) $ (87) $ 620
======= ======= =======
18
B. B. WALKER COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
NOTE 7 - INCOME TAXES, Continued
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets at October 31, 1998 and November 1, 1997
are as follows:
(In thousands)
October 31, November 1,
1998 1997
----------- -----------
Deferred tax assets:
Current portion:
Provision for doubtful accounts $ 219 $ 171
Reserve for sales discounts 36 35
Self insurance accrual for claims incurred
but not reported at year-end 41 51
Inventories, principally due to additional
costs inventoried for tax purposes 319 361
Accruals for certain personnel costs 22 17
Federal net operating loss carryforward 465 260
State economic loss carryforward 348 325
Other 29 61
------- -------
Total current 1,479 1,281
------- -------
Long-term portion:
Accruals for certain personnel costs - 6
Fixed assets 206 166
Other 4 -
------- -------
Total long-term 210 172
------- -------
Total gross deferred tax assets 1,689 1,453
Valuation allowance (519) (1,128)
------- -------
1,170 325
------- -------
Deferred tax liabilities:
Current portion:
Prepaid employee benefits (120) (88)
------- -------
Net deferred tax asset $ 1,050 $ 237
======= =======
19
B. B. WALKER COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
NOTE 8 - EMPLOYEE BENEFIT AND STOCK OPTION PLANS
The Company and its subsidiary sponsor retirement plans which provide benefits
to all qualified employees. Administrative and trustee expenses associated
with these plans are paid by the Company.
The Company provides a non-contributory, defined contribution plan that
invests in the common stock of the Company. The plan covers all eligible
employees excluding employees of the Company's subsidiary who are covered by a
defined benefit pension plan. Contributions to the Employee Stock Ownership
Plan of B.B. Walker Company, which are determined by the Board of Directors,
were $65,000 in 1998, 1997, and 1996.
The Retirement Savings Plan of B.B. Walker Company, a Section 401-K plan, is
available to all eligible employees of the Company who meet certain age and
service requirements. This plan was opened to employees of the Company's
subsidiary during 1997. Employee contributions are limited to a percentage of
their base compensation, as defined in the plan. The plan does provide for
matching contributions by the Company, but such contributions are made at the
discretion of the Company. Contributions to the plan were $20,800 in 1998,
$16,500 in 1997, and $23,500 in 1996.
For the benefit of the employees of its subsidiary, the Company sponsors a
non-contributory, defined benefit pension plan. The plan provides benefits
based on years of service. The Company's funding policy is to contribute
annually the minimum required contribution. Contributions are intended to
provide not only for benefits attributed to service to date but also for those
expected to be earned in the future.
Net annual pension expense for 1998, 1997, and 1996 included the following
components:
(In thousands)
1998 1997 1996
------ ------ ------
Service cost - benefits earned during the period $ 88 $ 91 $ 78
Interest on projected benefit obligation 76 66 56
Actual return on plan assets (77) (67) (56)
Net amortization and deferral (18) (17) (19)
---- ---- ----
Net annual pension expense $ 69. $ 73 $ 59
==== ==== ====
20
B. B. WALKER COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
NOTE 8 - EMPLOYEE BENEFIT AND STOCK OPTION PLANS, Continued
The following table sets forth the plan's funded status at October 31, 1998
and November 1, 1997:
(In thousands)
October 31, November 1,
1998 1997
----------- -----------
Actuarial present value of benefit obligations:
Vested benefit obligations $ 1,068 $ 937
======= =======
Accumulated benefit obligations $ 1,155 $ 1,027
======= =======
Projected benefit obligation $ (1,155) $ (1,027)
Plan assets at fair value 1,330 1,182
------- -------
Plan assets in excess of projected
benefit obligation 175 155
Unrecognized net loss 181 162
Unrecognized net asset at transition (50) (57)
------- -------
Prepaid pension cost $ 306 $ 260
======= =======
The weighted average discount rate used in determining the actuarial present
value of the projected benefit obligation and the expected long-term rate of
return on assets was 7.5% for 1998, 1997 and 1996.
21
B. B. WALKER COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
NOTE 8 - EMPLOYEE BENEFIT AND STOCK OPTION PLANS, Continued
The Company also has an incentive bonus plan for employees which allows the
Company to pay bonuses based upon certain percentages of operating profit.
No incentive bonuses were granted in 1998, 1997, or 1996.
In March 1995, the Board of Directors approved, and the shareholders ratified,
the 1995 Incentive Stock Option Plan and Automatic Stock Option Grant Program
for Key Employees and Non-Employee Directors. Under the Incentive Stock
Option Plan for Key Employees, a maximum of 300,000 shares of the Company's
authorized but unissued common stock have been reserved for issuance to key
employees. For employees owning less than 10% of the Company's common stock,
the options are granted at not less than 100% of the fair market value at the
date of grant and expire ten years from the date of grant. For employees
owning 10% or more of the Company's stock, options are granted at not less
than 110% of the fair market value and expire five years from the date of
grant. One-half of the options granted are exercisable at the date of grant;
one-half are exercisable after twelve months.
Under the Automatic Stock Option Grant Program of the 1995 Incentive Stock
Option Plan, a maximum of 50,000 shares of the Company's authorized but
unissued common stock has been reserved for issuance to non-employee directors
of the Company. Non-employee directors will be granted an option to purchase
1,000 shares of common stock on the first business day after the annual
meeting of shareholders where the director is elected or remains a member of
the Board of Directors. The option price for each option granted is 100% of
the fair market value at the date of grant. The options will expire ten years
from the date of grant. One-half of the options granted are exercisable at
the date of grant; one-half are exercisable after twelve months.
The Company's 1987 Incentive Stock Option Plan, which covered 300,000 shares
of the Company's common stock, expired during 1997 according to the terms of
the plan. All options under the plan that have been granted but not exercised
will expire ten years from the date of grant and no additional options will be
granted under this plan. The terms governing this plan are substantially the
same as the 1995 Incentive Stock Option Plan described above.
22
B. B. WALKER COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
NOTE 8 - EMPLOYEE BENEFIT AND STOCK OPTION PLANS, Continued
During 1996, the Company adopted the provisions of Statement of Financial
Accounting Standards No. 123, "ACCOUNTING FOR STOCK-BASED COMPENSATION" (FAS
123). FAS 123 encourages but does not require a fair value based method of
accounting for stock compensation plans. Therefore, as allowed by FAS 123,
the Company has elected to continue to follow Accounting Principles Board
Opinion No. 25 and related Interpretations in accounting for its fixed stock
option plans. Accordingly, no compensation cost has been recognized for these
plans in the Consolidated Statements of Income (Loss). Had compensation cost
for the Company's fixed stock option plans been determined based on the fair
value at the grant dates for awards under those plans consistent with the
method of FASB Statement No. 123, the Company's net income and earnings per
share would have been reduced to the pro forma amounts in the following table:
(In thousands)
1998 1997
------ ------
Net income (loss) As reported $ 75 $ 24
Pro forma 56 7
Basic earnings per share As reported $ .04 $ .01
Pro forma .03 .00
Diluted earnings per share As reported $ .04 $ .01
Pro forma .03 .00
23
B. B. WALKER COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
NOTE 8 - EMPLOYEE BENEFIT AND STOCK OPTION PLANS, Continued
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1998, 1997, and 1996, respectively: no expected
dividend yield for each year; expected volatility of 55.7% for each year; risk
free interest rates of 6.00%, 6.76%, and 6.14%; and expected lives of ten years.
A summary of the activity in the fixed stock option plans is as follows:
Year of Number of Options Price Weighted-Average
Grant Shares Per Share Exercise Price
------- --------- ------------- ----------------
Options outstanding at
October 28, 1995 166,950 1.33 - 5.83 3.70
Granted 5,000 1.75 1.75
Forfeited 1993 (12,500) 3.50 - 5.83 4.90
--------
Options outstanding at
November 2, 1996 159,450 1.33 - 4.00 3.55
Granted 81,000 0.75 0.75
Forfeited 1992-1995 (11,250) 2.00 - 4.00 3.47
Expired 1987 (3,000) 1.33 1.33
--------
Options outstanding at
November 1, 1997 226,200 0.75 - 4.00 2.58
Granted 10,000 0.63 - 1.00 0.81
Forfeited 1987-1995 (27,250) 0.75 - 4.00 2.90
--------
Options outstanding at
October 31, 1998 208,950 0.63 - 4.00 2.45
========
Options available for future grant - 1995 plan 216,000
=======
Outstanding options exercisable at October 31, 1998, November 1, 1997, and
November 2, 1996 were 203,950, 185,700, and 156,950, respectively.
24
B. B. WALKER COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
NOTE 9 - COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS
The Company has entered into various operating leases for certain buildings
and machinery and equipment. The agreements expire at various dates
through 2003. The future minimum lease payments under noncancellable
operating leases with initial terms of one year or more are as follows:
(In thousands)
Operating
Fiscal year ending Leases
------------------ ---------
1999 $ 483
2000 187
2001 73
2002 51
2003 16
-------
Total minimum lease payments $ 810
=======
Rental expense amounted to $558,000 in 1998, $589,000 in 1997, and $630,000
in 1996.
LITIGATION
From time to time, the Company is a defendant in legal actions involving
claims arising in the normal course of business. In management's opinion,
after consultation with counsel and a review of the facts, the liabilities, if
any, resulting from such legal proceedings will not have a material effect on
the Company's financial position or results of operations.
NOTE 10 - SHAREHOLDERS' EQUITY
The 7% cumulative preferred stock is callable at the option of the Company at
$103 per share plus any unpaid dividends. Preferred shareholders are entitled
to seventy voting rights per share if dividends on preferred stock are not
paid within ninety days after the scheduled due date. At October 31, 1998,
there are no preferred dividends in arrears.
The Company is authorized to issue up to 200,000 shares of Class A preferred
stock having no par value. The Class A preferred stock may be issued in one
or more series with terms, preferences, limitations and relative rights being
established by the Board of Directors. At October 31, 1998, no Class A
preferred stock has been issued.
The Company has made loans to certain key employees for the purchase of the
Company's common stock as stipulated in the 1987 Incentive Stock Option Plan.
The loans are secured by the common stock purchased and shares are released
from collateral as the loan principal is paid down. The loans bear interest
at 4% annually.
25
B. B. WALKER COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
NOTE 11 - CREDIT CONCENTRATIONS AND SALES TO MAJOR CUSTOMERS
The Company's trade receivables do not represent significant concentrations of
credit risk because a large number of geographically diverse customers
comprise the customer base. However, a substantial portion of the customer
base is retailers. In 1998 and 1997, one major customer comprised 11.89% and
10.25% of net sales, respectively. In 1996, no single customer comprised more
than 10% of net sales.
NOTE 12 - RELATED PARTY TRANSACTIONS
Through July 1997, the Company employed an advertising agency and public
relations firm that was owned by an officer and director of the Company and
his wife, who also managed and directed the daily operations of the agency.
The agency rendered technical and creative services to the Company in the
areas of design, layout, photography and other services essential to its
advertising programs. The agency also placed Company advertisements and ad
copy in trade publications, footwear magazines and other related media sources,
and coordinated public relations events and press releases for the Company.
In August 1997, the Company created an in-house advertising agency to provide
more focus to its advertising programs. The in-house agency is staffed by
four employees who were formerly employed by the Company's external
advertising agency. The manager of the external advertising agency, who is
also the wife of an officer and director of the Company, is managing the
operations for the in-house agency and is providing consultation regarding the
implementation of advertising programs. The manager, who still manages the
external advertising agency, is on a monthly retainer to the Company and is
supervised by management of the Company. The in-house agency will provide
comparable technical and creative services, as well as fulfilling other
functions related to the Company's advertising programs as previously provided
by the external agency.
In 1998, 1997, and 1996, the Company paid the external advertising agency
$100,000, $373,000, and $456,000, respectively, for services rendered.
Included in the above amounts were payments for placing advertisements, which
funds were then subsequently paid to the publications, net of the agency's
standard commission.
26
B. B. WALKER COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
NOTE 13 - UNUSUAL CHARGES
During the fourth quarter of fiscal 1996, in response to business conditions
and a deteriorating financial position, the Company repositioned its product
offerings in order to direct the Company's limited resources towards those
styles that displayed the most potential for the Company. Management reviewed
the existing lines offered by the Company and eliminated styles that would not
generate acceptable returns for the Company. To recognize the impairment to
inventory for the elimination of styles from certain product lines, the
Company wrote down inventories by $511,000 to the lower of cost or market.
Such amount is included as cost of products sold in the accompanying statement
of income (loss) for the fiscal year ended November 2, 1996.
In addition, the Company determined that consolidation and/or reduction of
various operations related to the manufacturing, marketing and administrative
functions of the Company was required to support the elimination of the
product styles. Accruals related to personnel and benefit costs to be
incurred as changes to these operations are implemented amounted to
approximately $571,000 at November 2, 1996. Of such amount, $359,000 and
$212,000 are reported as cost of products sold and selling and administrative
expenses, respectively, in the accompanying statement of income (loss) for the
fiscal year ended November 2, 1996.
NOTE 14 - SUBSEQUENT EVENT
In January 1999, the Company entered into a contract to sell its manufacturing
facility in Asheboro, NC, along with an adjacent piece of property. The sale
is expected to close in the second quarter of fiscal 1999.
27
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholders of B.B. Walker Company
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income (loss), of cash flows, and of changes in
shareholders' equity present fairly, in all material respects, the financial
position of B.B. Walker Company and its subsidiary at October 31, 1998 and
November 1, 1997, and the results of their operations and their cash flows
for each of the three years in the period ended October 31, 1998, in
conformity with generally accepted accounting principles. 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 of these statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
- --------------------------
PricewaterhouseCoopers LLP
Greensboro, North Carolina
December 4, 1998
28
B.B. WALKER COMPANY AND SUBSIDIARY
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
(In thousands, except for
items denoted by (1) below)
1998 1997 1996 1995 1994
(52 weeks) (52 weeks) (53 weeks) (52 weeks) (52 weeks)
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
Net sales $ 28,813 $ 32,648 $ 37,506 $ 43,453 $ 51,148
======= ======= ======= ======= =======
Income (loss) from continuing operations
before income taxes, minority interests
and extraordinary item $ (736) $ (54) $ (4,659) $ (1,868) $ 812
Provision for (benefit from) income taxes (813) (80) (620) (626) 336
Minority interests in continuing operations (2) (2) (2) (2) (2)
------- ------- ------- ------- -------
Net income (loss) $ 75 $ 24 $ (4,041) $ (1,244) $ 474
======= ======= ======= ======= =======
FINANCIAL CONDITION:
Current assets $ 18,314 $ 19,268 $ 24,953 $ 30,898 $ 30,264
Current liabilities 14,102 13,368 19,534 21,533 20,510
Working capital 4,212 5,900 5,419 9,365 9,754
Current ratio (1) 1.30 to 1 1.44 to 1 1.28 to 1 1.43 to 1 1.48 to 1
Total assets 20,080 21,174 27,375 34,377 34,016
Long-term obligations 1,303 3,216 3,286 4,257 3,692
Minority interests in consolidated subsidiary 33 33 33 34 34
Total liabilities 15,438 16,617 22,853 25,824 24,236
Shareholders' equity 4,642 4,557 4,522 8,553 9,780
PER SHARE INFORMATION (1) (2):
Shareholders' equity (book value) $ 2.65 $ 2.59 $ 2.57 $ 4.91 $ 5.56
======= ======= ======= ======= =======
Per share of common stock and common
stock equivalent:
Net income (loss) $ .04 $ .01 $ (2.34) $ (.72) $ .26
======= ======= ======= ======= =======
Per share of common stock and common
stock equivalent-assuming full dilution:
Net income (loss) $ .04 $ .01 $ (2.34) $ (.72) $ .26
======= ======= ======= ======= =======
Cash dividends on preferred stock $ 7.00 $ 7.00 $ 7.00 $ 7.00 $ 7.00
Cash dividends on common stock (2) - - - - .073
OTHER INFORMATION:
Property, plant and equipment, net $ 1,622 $ 1,750 $ 2,208 $ 2,968 $ 3,593
Depreciation and amortization 269 458 637 667 610
Capital additions 141 - 21 43 2,055
Space occupied (square feet) 355 355 358 358 363
Average number of common shares outstanding (2) 1,724 1,727 1,727 1,731 1,737
Number of shareholders (1) 1,166 1,177 1,169 1,229 1,142
Number of employees (1) 392 423 521 637 658
</TABLE>
(2) Information adjusted for three-for-two stock split paid on March 24, 1994.
29
B.B. WALKER COMPANY AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
- ---------------------
The following summarizes the results of operations for the Company for the
years ended October 31, 1998, November 1, 1997, and November 2, 1996:
October 31, November 1, November 2,
1998 1997 1996
----------- ----------- -----------
Net sales 100.0% 100.0% 100.0%
Cost of products sold 74.6% 73.9% 79.2%
------- ------- -------
Gross margin 25.4% 26.1% 20.8%
Selling and administrative expenses 23.4% 21.4% 27.7%
Depreciation and amortization .9% 1.4% 1.7%
Interest expense 3.7% 3.7% 4.0%
Interest and other income (.1%) (.2%) (.1%)
------- ------- -------
Loss before income taxes
and minority interest (2.5%) (.2%) (12.5%)
Benefit from income taxes (2.8%) (.3%) (1.7%)
Minority interest - - -
------- ------- -------
Net income (loss) .3% .1% (10.8%)
======= ======= =======
FISCAL 1998 COMPARED TO FISCAL 1997
Material Changes in Operations
- ------------------------------
The Company operates two manufacturing facilities, one in Asheboro, North
Carolina, and one in Somerset, Pennsylvania. To make the Company more
competitive, management decided to move all of the production of footwear with
cement construction from the Somerset plant to the Asheboro plant. At the same
time, all of the footwear with welt construction was moved from the Asheboro
plant to the Somerset plant. Since there was not enough product demand to
support two welt operations, this consolidation of operations in two separate
locations in July, 1998 should create substantial manufacturing efficiencies
in both production and inventory costs during fiscal 1999.
In January 1999, the Company entered into a contract to sell its manufacturing
facility in Asheboro, NC, along with an adjacent piece of property (see
"Potential Sale of Property" discussion in the Liquidity and Capital Resources
section). Management anticipates that the contract will be finalized in the
second quarter of 1999. The increase in capital and income created by this
sale will result in substantial benefits to the Company. Subsequent
relocation of the manufacturing, retail, and administrative operations is not
expected to adversely affect operations of the Company.
30
B.B. WALKER COMPANY AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION, Continued
Net Sales
- ---------
Net sales for the Company were $28,813,000 in 1998 as compared to $32,648,000
in 1997. This was a reduction of $3,835,000, or 11.7%, from the prior year.
Management attributes this decrease to the additional impact from the major
changes made in 1997 to combine the sales forces of the western boots and
work/outdoor boots. Also, there was some erosion in the Company's channel of
distribution over the past year. This trend is a continuation of the soft
retail environment that the western footwear market has experienced for
several years. Recent steps have been taken to address this deterioration in
revenues. The Company's sales include sales of footwear manufactured and
wholesaled by the Company and sales from the Company's retail outlets.
Footwear manufactured and wholesaled by the Company, which includes branded,
private label and institutional sales, comprised 91.8% of net sales in 1998
and 92.0% of net sales in 1997. The remaining 8.2% and 8.0% of net sales in
1998 and 1997, respectively, were sales from the Company's retail outlets.
Sales of branded footwear were down $1,713,000, or 8.8%, in 1998 from 1997.
Pairs shipped were off 14.6% while the price per pair shipped increased 6.2%.
While the work branded and exports were down $1,323,000, or 20.8%, and
$639,000, or 49.8%, respectively, western branded sales were up $280,000, or
2.4%, in 1998 over 1997. The increase in western boot sales is encouraging
during a year when many western retailers went out of business, therefore
increasing the Company's western footwear market share in 1998. Weak consumer
spending for work footwear depressed sales of the Company's branded products,
and most of the export decrease is due to the loss of a major account in Japan.
The increase in price per pair can be attributed to a more favorable mix of
inventory shipped.
Private label sales in 1998 reflected a decrease of $1,636,000, or 19.1%,
compared to 1997 private label sales. Private label pairs shipped were off
20.3% while the average price per pair was up .6%. Sales in this division have
been impacted by soft retail sales, as orders from customers did not keep pace
with the prior year. The one exception is the Company's largest customer, a
major discount retailer, whose shipments rose $78,000, or 2.3%, over the prior
year. The results of private label sales are dictated by activity of several
large accounts and the timing of shipments to those accounts.
Sales to institutional customers fell by $353,000, or 16.9%, under the prior
year. Much of this business is solicited through a formal bidding process
with governmental entities and the results of this division are impacted by
the Company's success in bidding on new business.
Retail sales for the year were $227,000, or 8.7%, lower than the results for
two retail outlets, one in Asheboro, NC and one in Lancaster, PA,
experienced increased competition from major discount retailers
surrounding the retail outlets. Another reason for the loss in volume from
1997 to 1998 was our January, 1997 closing of a retail store in Myrtle Beach,
SC.
31
B.B. WALKER COMPANY AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION, Continued
Gross Margin
- ------------
The Company's gross margin was $7,306,000 in 1998 and $8,527,000 in 1997, a
decrease of $1,221,000. As a percentage of sales, the gross margin for 1998
decreased to 25.4% from 1997's gross margin of 26.1%. Most of this decrease
can be attributed to the $190,000 cost in moving the welt division from the
Asheboro, NC plant to the Somerset, PA plant during the third quarter of 1998.
Selling and Administrative Expenses
- -----------------------------------
Selling and administrative expenses were $6,736,000 for 1998 as compared to
$6,996,000 for 1997, a decrease of $260,000, or 3.7%. The Company continued
to reduce expenses in most functional areas to more appropriately reflect the
level at which the Company intended to operate. Management lowered the general
and administrative headcount and realigned significant responsibilities in the
administrative functions. The largest savings came from advertising and
promotional expenses, which were down $133,000, or 14.5%, from 1997, as the
Company continued to redefine its advertising strategy with the intention of
maintaining its brand awareness using cost effective methods. Personnel
related expenses in the sales department were down $69,000, or 2.9%, from the
prior year. Professional fees were $38,000, or 33.0%, less in 1998. One
expense item that increased in 1998 was software services by $12,000, or 22.0%,
as the Company continued to address the Year 2000 conversion of its computer
system.
Interest Expense
- ----------------
Interest expense incurred in 1998 was $1,076,000, or $128,000 less than
interest expense of $1,204,000 for 1997. Lower interest expense in 1998 is
a result of a lower average outstanding balance on the revolving finance
agreement as compared to 1997's average balance. The average outstanding
balance on the revolving finance agreement was approximately $880,000, or
11.3%, less in 1998 than in 1997. Interest on other borrowings remained at
similar levels to the prior year.
Depreciation and Amortization
- -----------------------------
Depreciation and amortization decreased $189,000 to $269,000 in 1998 from
$458,000 in 1997. For the previous four years, the Company has made only
minimal fixed asset additions. With minimal amounts invested in fixed assets
in recent years, depreciation charges are lower because fixed assets are
becoming fully depreciated and are not being replaced. See additional
discussion in the Liquidity and Capital Resources section.
32
B.B. WALKER COMPANY AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION, Continued
Provision for Income Taxes
- --------------------------
The Company had a net loss before income taxes of $736,000 in 1998. In 1997,
the net loss before income taxes was $54,000. Accordingly, the Company
recorded a net benefit from income taxes of $813,000 and $80,000 in 1998 and
1997, respectively. The primary difference between the Company's income tax
benefit and the federal statutory rate of 34% represents a change in
management's estimate of the amount to be recorded in the valuation allowance
that established a reserve against the net deferred income tax asset. Under
Financial Accounting Standard No. 109, whose guidelines the Company follows in
accounting for income taxes, deferred income tax assets must be recorded at a
value that reflects their net realizable value determined to be the amount that
"more likely than not" will be recovered in future periods. Based on an
analysis at October 31, 1998, a net asset of $1,050,000 was recorded which was
an increase of $813,000 over the prior year.
Net Income
- ----------
For the year ended October 31, 1998, the Company reported net income of
$75,000, or .3% of net sales, whereas for the year ended November 1, 1997,
the Company reported a net income of $24,000, or .1% of net sales. The
improvement of $51,000 can be attributed to the effect of the valuation
allowance adjustment in 1998. This adjustment was made due to the impact of
the property sale which was previously discussed.
FISCAL 1997 COMPARED TO FISCAL 1996
Material Changes in Operations
- ------------------------------
Prior to the end of the 1996 fiscal year, the Company began implementing a
plan to return the Company to profitability, primarily through a repositioning
of the Company's product lines. The Company focused its limited resources on
designing, manufacturing and promoting those styles in its branded lines that
would generate acceptable returns for the Company. This required eliminating
a significant number of styles from the product lines, primarily the
work/outdoor line.
In addition, operational changes were required to match the selling and
administrative support with the new initiatives implemented by the Company.
The most significant of these changes was the merger and reduction of the
separate sales forces that previously served the Work/Outdoor Division and the
Western Division. The Company dedicated extensive resources to retraining the
new sales team to market both western and work/outdoor footwear. This change
impacted the Company's sales during the first quarter and into the second
quarter as this transition was implemented. Management also reviewed and
refined how the sales team markets the product lines to customers and what
customers the Company wants to serve in order to take full advantage of the
new sales structure.
33
B.B. WALKER COMPANY AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION, Continued
In relation to manufacturing, management examined its operations to identify
changes needed to maximize use of manufacturing capacity. Limited
modifications to the work flow at the plants in Asheboro, NC and Somerset, PA
were made which resulted in gains in efficiency. Also, a reorganization in
the structure of the raw materials management was implemented with an emphasis
on improving procedures and reducing the Company's investment in inventory.
Efforts in these areas have identified additional areas for improvement and
management continues to review its options for the manufacturing function.
Overall, the processes initiated during the year had a positive impact on the
Company's financial condition and operations. A reduction in receivables of
approximately $1,700,000 and a reduction in inventories of approximately
$3,000,000 generated enough cash flow to allow for a reduction in the advances
against the revolving credit facility of approximately $4,100,000 during the
year. More importantly, the Company reported a net loss of $56,000 before an
income tax benefit of $80,000 in fiscal 1997 versus a net loss of $4,661,000
before an income tax benefit of $620,000 in the prior year. This was
accomplished through an improvement in gross margins from 20.8% to 26.1% and a
reduction in selling and administrative expenses of approximately $3,400,000.
Net Sales
- ---------
Net sales for the Company were $32,648,000 in 1997 as compared to $37,506,000
in 1996. This was a reduction of $4,858,000 or 13.0% from the prior year.
The decrease was anticipated because of the repositioning of the Company's
product lines and the restructuring of the sales force. In addition, demand
for the Company's branded western boots continued to reflect the poor retail
environment for western apparel. The Company's sales include sales of
footwear manufactured and wholesaled by the Company and sales from the
Company's retail outlets. Footwear manufactured and wholesaled by the
Company, which includes branded, private label and institutional sales,
comprised 92.0% of net sales in 1997 and 92.6% of net sales in 1996. The
remaining 8.0% and 7.4% of net sales in 1997 and 1996, respectively, were
sales from the Company's retail outlets.
Sales of branded footwear were down $5,307,000, or 21.5%, in 1997 from 1996.
Pairs shipped were off 27.8% while the price per pair shipped increased 9.5%.
The increase in price per pair can be attributed to a more favorable mix of
inventory shipped. The decrease in sales of branded footwear was anticipated
as a result of the significant changes implemented during the first half of
the fiscal year. First, a significant change involved the merger of the two
separate sales forces for work/outdoor boots and western boots, respectively,
into a single sales force. The merged sales force is marketing both
work/outdoor boots and western boots to customers within their territory.
During the first quarter, territorial boundaries for the merged sales force
were established and the salesmen received extensive training on marketing
both lines of footwear. As a result of this transition, salesmen had to
develop relationships with customers that they may not have previously served
and orders for footwear were impacted as the plan was implemented.
34
B.B. WALKER COMPANY AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION, Continued
Second, the Company has repositioned its product lines to direct its limited
resources towards promoting styles that will generate acceptable returns for
the Company. Part of this process involved eliminating various styles from
the branded line. A significant number of the eliminated styles were
work/outdoor styles. Although these styles generated sales volume in the
prior year, they did not provide adequate margins to support their inclusion
in the product line.
Finally, branded sales have also been impacted by a weak retail sector,
particularly in western markets, during the year. Demand at the retail level
for western boots remains soft and orders have been lower than the prior year.
Private label sales in 1997 were up $297,000, or 3.6%, over 1996 private label
sales. Private label pairs shipped rose 1.5% while the average price per pair
was up 1.2%. The results of private label sales are dictated by activity of
several large accounts and the timing of shipments to those accounts.
Sales to institutional customers improved by $347,000, or 20.0%, over the
prior year. Much of this business is solicited through a formal bidding
process with governmental entities and the results of this division are
impacted by the Company's aggressiveness in bidding on new business. During
1997, the Company obtained more of this business to provide production volume
for its plants.
Retail sales for the year were $195,000, or 7.0%, lower than the results for
1996. In January 1997, the Company closed its retail outlet in Myrtle Beach,
SC because of declining profitability for the outlet. Significant additions
of newer retail space in the region surrounding the retail outlet resulted in
fewer customers visiting the mall where the retail outlet was located.
Management elected not to attempt to lease more favorable retail space because
of the significant competition in the area. This loss in volume was partially
offset by increases in sales in the remaining two retail outlets, one in
Asheboro, NC and one in Lancaster, PA. Same store sales for these two outlets
rose 6.0% from 1996 sales.
35
B.B. WALKER COMPANY AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION, Continued
Gross Margin
- ------------
The Company's gross margin was $8,527,000 in 1997 and $7,804,000 in 1996, an
increase of $723,000. As a percentage of sales, the gross margin for 1997
increased to 26.1% from 1996's gross margin of 20.8%. The increase can be
attributed to a variety of factors related to the repositioning of the product
lines and other operational changes implemented during 1997. The Company
managed a higher margin product mix by eliminating from the product lines many
styles that were not making adequate contributions. In addition, by focusing
on stronger product offerings, the Company was able to lower the rate of
returned goods in relation to gross sales. Another positive factor was better
productivity from manufacturing personnel and reduction in manufacturing
variances. However, the Company's gross margin continues to be affected by
the necessity to use discounting programs and aggressive dating terms in order
to induce orders and maintain market share. In addition, the Company's gross
margin for 1997 also reflects the impact of discontinuing a significant number
of styles.
Selling and Administrative Expenses
- -----------------------------------
Selling and administrative expenses were $6,996,000 for 1997 as compared to
$10,377,000 for 1996, a decrease of $3,381,000, or 32.6%. The Company reduced
expenses in most functional areas to more appropriately reflect the level at
which the Company intended to operate. Adjustments to operations, including
the consolidation of the separate work/outdoor and western sales forces,
generated most of the decrease. In addition, management lowered the general
and administrative headcount and realigned significant responsibilities in the
administrative functions. The largest savings came from personnel related
expenses. Salary and benefits were down approximately $1,620,000 from the
prior year. The selling and administrative headcount was lowered
approximately 23% because of the changes implemented in operations. In
addition, with fewer employees, travel and showroom expenses were down
$203,000. Advertising and sample expenses were lowered $338,000 as the
Company redefined its advertising strategy with the intention of maintaining
its brand awareness using cost effective methods. Professional fees were
$377,000 less than 1996 because of larger expenses in the prior year related
to the amortization of fees for the bank financing agreement. Finally, bad
debt expense was $589,000 less than the prior year. Evaluation of specific
accounts required larger accruals in 1996 than were necessary in 1997.
36
B.B. WALKER COMPANY AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION, Continued
Interest Expense
- ----------------
Interest expense incurred in 1997 was $1,204,000, or $288,000 less than
interest expense of $1,492,000 for 1996. Lower interest expense in 1997 is a
result of a lower average outstanding balance on the revolving finance
agreement as compared to 1996's average balance. The average outstanding
balance on the revolving finance agreement was approximately $3,380,000, or
30.3%, less in 1997 than in 1996. This decrease was partially offset by an
increase in weighted average interest paid on the revolving finance agreement
of approximately 1.0%. Interest on other borrowings remained at similar
levels to the prior year.
Depreciation and Amortization
- -----------------------------
Depreciation and amortization decreased $179,000 to $458,000 in 1997 from
$637,000 in 1996. For the previous three years, the Company has only made
minimal fixed asset additions. With minimal amounts invested in fixed assets
in recent years, depreciation charges on fixed assets that are becoming fully
depreciated are not being replaced, resulting in lower depreciation expense.
Provision for Income Taxes
- --------------------------
The Company had a net loss before income taxes of $54,000 in 1997. In 1996,
the net loss before income taxes was $4,659,000. Accordingly, the Company
recorded a net benefit from income taxes of $80,000 and $620,000 in 1997 and
1996, respectively. The primary difference between the Company's income tax
benefit and the federal statutory rate of 34% represents a change in
management's estimate of the amount to be recorded in the valuation allowance
that established a reserve against the net deferred income tax asset. Under
Financial Accounting Standard No. 109, whose guidelines the Company follows in
accounting for income taxes, deferred income tax assets must be recorded at a
value that reflects their net realizable value determined to be the amount
that "more likely than not" will be recovered in future periods. Based on an
analysis at November 1, 1997, a net asset of $237,000 was recorded which was
an increase of $87,000 over the prior year. In 1996, the Company had an
effective tax rate of 13.3%. This rate was substantially lower than the
federal statutory rate of 34% as the Company added $1,075,000 to the valuation
allowance in response to losses incurred during 1996.
Net Income
- ----------
For the year ended November 1, 1997, the Company reported net income of
$24,000, or .1% of net sales. For the year ended November 2, 1996, the
Company reported a net loss of $4,041,000, or 10.8% of net sales. The
improvement of $4,065,000 can be attributed to stronger gross margins,
significant reductions in selling and administrative expenses from operational
changes, and lower interest expense from reduced borrowings under the
revolving finance agreement.
37
B.B. WALKER COMPANY AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION, Continued
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has funded substantially all of its working capital
and capital expenditure requirements through borrowings under its finance
agreement and other indebtedness. The revolving finance agreement provides
flexibility to the Company as the availability of funds fluctuates with the
seasonal needs of the Company. Generally, the Company's working capital needs
are highest in the fourth fiscal quarter and lowest in the first fiscal
quarter. With its revolving finance agreement, the Company finances its
accounts receivable and inventories, paying interest at a variable rate (prime
plus 1.5%, or 9.5%, at October 31, 1998). The Company had outstanding advances
of $6,885,000 at October 31, 1998, and an additional $680,000 available under
the agreement.
During fiscal 1998, the Company generated $1,041,000 of cash from operations
which was used to reduce the advances under the revolving finance agreement by
$479,000. Approximately $1,927,000 was generated from reductions in accounts
receivable. As of year-end, the Company continued to rely on the revolving
finance agreement to provide working capital and management anticipates that
the revolving finance agreement will continue to provide the necessary
liquidity to fund its daily operations going forward.
Under the Company's financing agreement with the bank, the amount available to
be drawn is determined by a formula based on certain percentages of eligible
accounts receivable and inventories. The credit line available under the
current agreement is $8,000,000, with the sublimit for inventory at $4,000,000.
In addition to the revolving credit facility, the financing agreement also
provides a $3,000,000 term loan that was used to repay an existing mortgage
note payable to a bank which and which carries a balance of $1,894,000
at October 31, 1998. Per the terms of the note, the Company has monthly
installments of $23,384 with a balloon payment of $1,707,058 due
June 30, 1999. The term loan bears interest at the bank's prime rate plus
1.5% (9.5% at October 31, 1998).
The due date of the original term loan was July 31, 1998, but the
financing agreement was amended on July 8, 1998, to extend the due date to
December 31, 1998. The primary reason for this extension was the Company's
receipt of an attractive offer to sell all of its 22.3 acres of property in
Asheboro, NC (see following section entitled "Potential Sale of Property").
Since both the Company's management and the bank felt that the sale of this
property would substantially benefit the Company, it was decided to postpone
the due date of the term loan until the actual close of the sale. This fifth
amendment amended certain restrictive financial covenants under the revolving
finance agreement effective July 8, 1998, and thereafter. The covenants
require the satisfaction of certain financial tests and the maintenance of
certain financial ratios as defined in the agreement. At October 31, 1998,
the Company was in compliance with its restrictive financial covenants.
38
B.B. WALKER COMPANY AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION, Continued
Since the actual close of the property's sale had not occurred as of
October 31, 1998, a sixth amendment to the financing agreement was made on
December 29, 1998, which extends the due date of the term loan to
June 30, 1999. Management expects that the contract will be finalized in
the second quarter of 1999.
All advances under the revolving credit facility and the term loan are
secured by all accounts receivable, inventories, machinery and equipment of
the Company. In addition, the bank has a first lien on the Asheboro land and
facilities and a subordinated lien on the Somerset facilities.
In July 1994, the Company purchased a larger manufacturing facility in
Somerset, Pennsylvania to replace the existing facility also located in
Somerset. The Company paid for the acquisition with financing from three
sources. The Company completed two sources of long-term financing on
March 7, 1995. The first source of financing was from the Pennsylvania
Industrial Development Authority ("PIDA"), a program offered by the Department
of Commerce of the Commonwealth of Pennsylvania. The loan was for $480,000
and bears interest at 2% annually. Monthly installments of $3,089, which
includes principal and interest, will be paid over 15 years. The second
source of financing came from a bank note for $240,000. This loan bears
interest at .75% above the bank's prime rate (8.75% at October 31, 1998) and
will be repaid in monthly installments of principal and interest, currently
$2,550, for 15 years. On July 27, 1995, the Company finalized the long-term
financing for this project with a loan from a program offered by the
Department of Commerce of the Commonwealth of Pennsylvania. This financing,
which was provided under the Economic Development Partnership Program, was
for $240,000. This note bears interest at 2% annually with monthly payments
of principal and interest amounting to $1,544 for 15 years. All notes are
secured by the manufacturing facility. Capitalized in fixed assets at
October 31, 1998 are land and buildings with a cost of approximately
$1,062,000 related to the facility. The remainder of the expenditures made
for the facility were paid with borrowings under the revolving finance
agreement.
The Company made capital expenditures of $141,000 in 1998 and has made only
minimal capital expenditures during the past four years. The Company made
significant upgrades to its equipment and facilities in 1993 and 1994.
Because of cash flow considerations and restrictions under the finance
agreement with a bank, the Company has only been making capital expenditures
to maintain current levels of operations during the past four years. Funding
for capital expenditures other than the building acquisition in 1994 has come
primarily from the available balance on the finance agreement. The Company
anticipates raising the level of capital expenditures in 1999 due to costs
associated with relocating the Asheboro, NC administrative, manufacturing,
and retail operations of the business, but it is premature to estimate those
costs at this time. Funding is expected to be provided by the bank under
mutually-suitable arrangements.
39
B.B. WALKER COMPANY AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION, Continued
Net working capital, which consists primarily of accounts receivable and
inventories less current liabilities, was $4,212,000 at October 31, 1998 and
$5,900,000 at November 1, 1997. The ratio of current assets to current
liabilities decreased to 1.30 to 1 at October 31, 1998, compared to 1.44 to 1
at November 1, 1997. Cash flows generated from operations in 1998 was a net
inflow of $1,041,000 compared to a net cash inflow of $4,347,000 in 1997.
Potential Sale of Property
- --------------------------
Late in the fourth quarter of 1998, the Company received an attractive offer
to sell all of its approximately 22.3 acres of real property in Asheboro,
North Carolina. This land is in one of the prime commercial sections of
Randolph County. The Company has entered into a Contract for Purchase and
Sale of Real Property Located in Asheboro, North Carolina, dated as of
January 28, 1999. Under this contract, the purchaser will have until
February 26, 1999 to examine the suitability of the property for its needs.
During that period, the contract may be terminated by the purchaser without
further obligation to the Company. Accordingly, there can be no assurances
that the sale of the Asheboro, North Carolina property will be consummated.
If the transaction closes, part of the purchase price will be paid in cash
and part will be paid by purchase money promissory note. A portion of the
property sold to the purchaser, including the tract of land on which the
plant is located, will be leased back to the Company for up to one year. The
rent under the lease equals the interest due under the promissory note. While
there will be costs associated with relocating the Asheboro facility and some
interruption in the Company's manufacturing operations, the Company has taken
steps to limit the effects of these matters and does not expect the relocation
to have a material adverse effect on the operations of the Company.
Readiness for Year 2000 Compliance
- ----------------------------------
The Company has initiated a program to minimize the risk of potential
disruption from the "Year 2000 ('Y2K') problem." This problem is a result
of computer programs having been written using two digits (rather than four)
to define the applicable year. Any information technology ("IT") systems
that have time-sensitive software may recognize a date using "00" as the year
1900 rather than the year 2000, which could result in miscalculations and
system failures. The problem also extends to "non-IT" systems; that is,
operating and control systems that rely on embedded chip systems. In
addition, like every other business enterprise, the Company is at risk
from Y2K failures on the part of its major business counterparts, including
suppliers, distributors, and manufacturers, as well as potential failures in
public and private infrastructure services, including electricity, water,
gas, transportation, and communications.
The Company began developing a plan in November 1997 to resolve the Y2K
issues that are reasonably within its control. These efforts are being
coordinated through the Company's data processing department and chaired by
the information systems programming manager ("ISPM"). With respect to the
Company's Y2K efforts, the ISPM reports periodically to the Company's
president, who in turn updates the Audit Committee of the Board of Directors.
In January 1998, the ISPM completed an identification of those IT systems
which would require detailed program changes to be Y2K compliant. An
employee programmer already familiar with the Company's computer system has
been assigned full-time to modify those identified programs. Program changes
and testing are made in a test directory specifically created for the Y2K
modifications so that there are no conflicts with live data. When testing
is completed for a system, files are then converted, and modified programs
are copied to live directories on a weekend when no users are on the system.
The Company's current timetable anticipates completion of all conversions,
necessary testing, and full implementation by June 30, 1999. At this time,
the Company has not deemed it necessary to develop contingency plans for any
of the applications being converted; however, the Company will continue to
assess this and will develop contingency plans for any applications not
converted and operating by June 30, 1999.
With respect to Electronic Data Interchange ("EDI") applications, a Company
manager with extensive computer experience is assessing the Company's impact
from four customers who transmit orders via EDI. All but three of these
customers utilize a third-party EDI service bureau, while the fourth one
(the Company's largest customer) is expected to be changed from being an
internal EDI user to an external user by June 30, 1999. No significant EDI
transmission problems are anticipated.
With regard to non-IT systems, the Company's phone and security systems are
both Y2K compliant. The Company is in the process of assessing personal
computers and manufacturing machines that are not Y2K compliant, especially
those with programs that involve stitching patterns on western boots. Major
suppliers to the Company have been contacted by questionnaire, and the
Company has received confirmations of either Y2K compliance or a timetable
to be compliant from such suppliers. The Company has also contacted its
major customers by questionnaire to assess their status with regard to the
Y2K issue. Contingency plans will be developed for any significant suppliers
or customers that are not Y2K compliant by June 30, 1999, or earlier if the
Company becomes aware that such entities may not be Y2K compliant in a timely
manner.
40
B.B. WALKER COMPANY AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION, Continued
It is important to note that the description of the Company's efforts
necessarily involves estimates and projections with respect to activities
required in the future. The required code changes, testing, and
implementation necessary to address the Y2K issue are expected to cost
approximately $100,000, and the Company has incurred approximately $45,000
through October 31, 1998. The Company estimates that it is approximately
40% complete with the efforts required to be Y2K compliant. These estimates
and projections are subject to change as work continues.
Even though the Company's Y2K plan should adequately address the Y2K issue,
there can be no assurance that unforeseen difficulties will not arise. If
the Company does not identify and fix all Y2K problems, or if a major
supplier or customer is unable to adequately address its Y2K issue, the
Company's results of operations or financial condition could be materially
impacted.
New Accounting Standards
- ------------------------
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income". This Statement requires that changes in the amounts of
comprehensive income items, which are currently reported as separate
components of equity, be shown in a financial statement, displayed as
prominently as other financial statements. The common components of other
comprehensive income would include foreign currency translation adjustments,
minimum pension liability adjustments and/or unrealized gains or losses on
available-for-sale securities. The Statement does not require a specific
format for the financial statement in which comprehensive income is reported,
but does require that an amount representing total comprehensive income be
reported in that statement.
In June 1997, the FASB issued FAS 131, "Disclosures About Segments of an
Enterprise and Related Information". This Statement will change the way
companies report information about segments of their business in their annual
financial statements and require companies to report selected segment
information in their quarterly reports issued to shareholders. It also
requires entity-wide disclosures about the products and services an entity
provides, the material countries in which it holds assets and reports
revenues, and its major customers. The Statement also requires companies
to disclose segment data based on how management makes decisions about
allocating resources to segments and measuring their performance.
Adoption of FAS No. 130 and FAS No. 131 are required for the Company in
fiscal 1999. Management is evaluating the potential effects on the
Company's financial statements of adoption of these statements. While such
evaluation is not complete, management currently does not expect the adoption
of the statements will have a material effect on its disclosure requirements.
41
B.B. WALKER COMPANY AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION, Continued
Forward-Looking Statements
- --------------------------
The foregoing discussion contains some forward-looking statements about the
Company's financial condition and results of operations, which are subject
to certain risks and uncertainties that could cause actual results to differ
materially from those reflected in the forward-looking statements. Readers
are cautioned not to place undue reliance on these forward-looking
statements, which reflect management's judgment only as of the date
hereof. The Company undertakes no obligation to publicly revise these
forward-looking statements to reflect events and circumstances that arise
after the date hereof.
Factors that might cause actual results to differ materially from these
forward-looking statements include (1) the effects of general economic
conditions, (2) the impact of competitive products and pricing in the
footwear industry, (3) failure to achieve anticipated sales results, (4)
management's ability to accurately predict the effect of cost reductions,
and (5) management's ability to accurately predict the adequacy of the
Company's financing arrangement to meet its working capital and capital
expenditure requirements.
42
B.B. WALKER COMPANY AND SUBSIDIARY
STOCK PRICES
B.B. Walker Company common stock is publicly traded. Markets in B.B. Walker
Company common stock are maintained by Scott & Stringfellow of Winston-Salem,
North Carolina.
Approximately 1,166 shareholders own common stock in B.B. Walker Company, some
shares of which are held by banks, brokers, investment trusts or nominees.
The largest shareholder is the Employee Stock Ownership Plan and Trust of B.B.
Walker Company, which holds approximately 21.76% of the total shares issued
and outstanding. At the last Annual Meeting of the Shareholders held on March
16, 1998, 80.00% of the shares outstanding were represented in person or by
proxy at the meeting.
The following are the Bid and Ask quotations for the last two fiscal years:
Bid Prices Ask Prices
High Low High Low
-------------- ---------------
1998:
First Quarter $ 1/2 $ 3/8 $ 1 1/4 $ 7/8
Second Quarter 3/8 3/8 7/8 7/8
Third Quarter 1 1/4 3/8 2 1/4 7/8
Fourth Quarter 1 1/4 1/2 2 1/4 1 1/4
1997:
First Quarter $ 1 $ 3/4 $ 1 1/2 $ 1 1/4
Second Quarter 3/4 1/4 1 1/4 3/4
Third Quarter 3/8 1/4 7/8 3/4
Fourth Quarter 1/2 3/8 1 1/4 7/8
These Over-the-Counter market quotations reflect interdealer prices, without
retail mark-up, mark-down or commissions, and may not necessarily represent
actual transactions.
43
B.B. WALKER COMPANY
OFFICERS
- --------
KENT T. ANDERSON
Chairman and Chief Executive Officer
FRENCH P. HUMPHRIES CAREY M. DURHAM
Executive Vice President Chief Financial Officer
DOROTHY W. CRAVEN REBECCA S. RICH
Secretary Assistant Secretary
DIRECTORS
- ---------
KENT T. ANDERSON EDNA A. WALKER
Chairman and Chief Executive Officer President, B.B. Walker Foundation
ROBERT L. DONNELL, JR. MICHAEL C. MILLER
Retired President
First National Bank and Trust Co.
JAMES P. McDERMOTT GEORGE M. BALL
Retired Chairman of the Board
Philpott, Ball & Company
TRANSFER AGENT AND REGISTRAR
The Company acts as its own Transfer Agent and Registrar, handling all
securities transfers at its Executive Offices.
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
101 Centreport Drive
Suite 250
Greensboro, NC 27409
FORM NO. 10-K
Each year, B.B. Walker Company files a Form No. 10-K report with the
Securities and Exchange Commission in Washington, DC which contains more
detailed information. If you would like to receive a copy, please send your
request to Corporate Secretary, B.B. Walker Company, Drawer 1167, Asheboro,
North Carolina 27204.
NOTICE OF ANNUAL MEETING
The Annual Meeting of the Company's Shareholders will be held in the executive
offices of B.B. Walker Company at 414 East Dixie Drive, Highway 64 East,
Asheboro, North Carolina, at 7:00 p.m. EST on Monday night, March 15, 1999. A
formal notice of the meeting, together with a proxy statement and proxy, will
be mailed prior to the meeting. Shareholders who cannot attend are urged to
exercise their right to vote by signing and promptly returning the proxy.
Inside Back Cover
Exhibit 22
----------
Subsidiaries of the Registrant
- ------------------------------
The Registrant, during fiscal 1998, owned the following percentages of the
voting securities of the following subsidiaries:
Name Percent Incorporated Note
---- ------- ------------ ----
Bender Shoe Company 100% Pennsylvania (1)
(1) Operates as a division of B.B. Walker Company, Inc.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-31-1998
<CASH> 1
<SECURITIES> 0
<RECEIVABLES> 7,714
<ALLOWANCES> 557
<INVENTORY> 9,660
<CURRENT-ASSETS> 18,314
<PP&E> 8,145
<DEPRECIATION> 6,523
<TOTAL-ASSETS> 20,080
<CURRENT-LIABILITIES> 14,102
<BONDS> 0
0
83
<COMMON> 1,721
<OTHER-SE> 2,838
<TOTAL-LIABILITY-AND-EQUITY> 20,080
<SALES> 28,813
<TOTAL-REVENUES> 28,852
<CGS> 21,507
<TOTAL-COSTS> 28,512
<OTHER-EXPENSES> 2
<LOSS-PROVISION> 453
<INTEREST-EXPENSE> 1,076
<INCOME-PRETAX> (738)
<INCOME-TAX> (813)
<INCOME-CONTINUING> 75
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 75
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
</TABLE>
Exhibit(4)(c)(11)
SIXTH AMENDMENT TO CREDIT AGREEMENT
THIS SIXTH AMENDMENT TO CREDIT AGREEMENT (this "Amendment"), dated as of
December 29, 1998, by and between B.B. WALKER COMPANY, a North Carolina
corporation (the "Borrower"), and MELLON BANK, N.A., a national banking
association (the "Lender").
RECITALS
A. The Borrower and the Lender are parties to a certain Credit Agreement
dated as of August 15, 1995 (as amended by the "First Amendment", the "Second
Amendment", the "Third Amendment", the "Fourth Amendment", and the "Fifth
Amendment", each defined below, the "Credit Agreement") pursuant to which the
Lender established certain credit facilities for the Borrower in order to
provide working capital financing and to refinance certain existing
indebtedness. Except as otherwise defined herein, capitalized terms used in
this Amendment shall have the same meaning as in the Credit Agreement.
B. As a result of certain Events of Default, the Borrower and the Lender
entered into the First Amendment to Credit Agreement dated as of April 15,
1996 ("First Amendment"), the Second Amendment to Credit Agreement dated as
of October 18, 1996 ("Second Amendment"), the Third Amendment to Credit
Agreement dated as of November 16, 1996 ("Third Amendment"), the Fourth
Amendment to Credit Agreement dated as of March 11, 1997 ("Fourth Amendment"),
and the Fifth Amendment to Credit Agreement dated as of July 8, 1998 ("Fifth
Amendment").
C. The Borrower has requested that the Lender extend the Term Loan
Maturity Date and amend certain other terms and provisions in the Credit
Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual covenants
herein contained and intending to be legally bound hereby, the parties hereto
agree as follows:
AMENDMENTS
1. The following definitions set forth in Article 1 of the Credit
Agreement shall be deleted and restated in their entirety as follows:
"Term Loan Maturity Date" shall mean June 30, 1999.
2. The following additions are hereby made to Article 1, Definitions,
in alphabetical order:
"Sixth Amendment" shall mean the Sixth Amendment to Credit
Agreement, dated as of December 29, 1998, by and between the
Borrower and the Lender.
"Sixth Amendment Closing Date" shall mean December 29, 1998.
1
<PAGE>
SIXTH AMENDMENT TO CREDIT AGREEMENT, Continued
3. Section 2.4, Term Loan, shall be amended by deleting Section 2.4 (d)
in its entirety and replacing it with the following:
(d) Scheduled Amortization; Maturity. As of the Sixth
Amendment Closing Date, the outstanding Principal due
under the Term Loan was $1,847,363.83. After the Sixth
Amendment Closing Date, Principal due under the
Term Loan shall be payable on each Regular Payment Date
in equal monthly installments of $35,714.28, with all
remaining principal due and payable on the Term
Loan Maturity Date.
4. Sections 6.1(a) through (f) are hereby deleted in their entirety and
replaced with the following new Sections 6.1(a) through (f) and new Section
6.1(g):
6.1. Financial Covenants. The following Financial Covenants shall
be calculated without recognizing the proceeds of sale of the Borrower's assets
at its Asheboro, N.C. plant:
(a) Consolidated Current Ratio. The Consolidated Current Ratio
shall not at any time be less than 1.25 to 1.00 as of December 31, 1998, and at
all times thereafter.
(b) Consolidated Leverage Ratio. The Consolidated Leverage Ratio
shall not at any time exceed 3.00 to 1:00 as of January 31, 1999, and at all
times thereafter.
(c) Consolidated Tangible Net Worth. Consolidated Tangible Net
Worth shall not at any time be less than $4,900,000 as of the fiscal year
ending October 31, 1998; $4,900,000 as of and from November 1, 1998 and at all
times through September 30, 1999; $5,100,000 as of the fiscal year ending
October 31, 1999 and at all time through October 30, 2000; and $5,500,000 as
of the fiscal year ending October 31, 2000 and at all times thereafter.
(d) Consolidated Working Capital. Consolidated Working Capital
shall not at any time be less than $5,000,000 as of the fiscal year ending
October 31, 1998; $4,700,000 as of and from November 1, 1998 and at all times
through May 31, 1999; $4,600,000 as of and from June 1, 1999 and at all times
through September 30, 1999; $4,700,000 as of the fiscal year ending October 31,
1999 and at all time through October 30, 2000; and $5,000,000 as of the fiscal
year ending October 31, 2000 and at all times thereafter.
(e) Consolidated Net Income. Consolidated Net Income for the
fiscal year ending October 31, 1998 shall be not less than ($750,000);
Consolidated Net Income for the fiscal year ending October 31, 1999 shall be
not less than $200,000. and for each fiscal year thereafter, Consolidated Net
Income shall be not less than $400,000.
(f) Capital Expenditures. The Borrower shall not make any
Capital Expenditures which exceed, in the aggregate, $150,000 for the fiscal
year ending October 31, 1998 and for each fiscal year thereafter.
(g) Inventory Turnover. The Borrower shall not have Inventory
Turnover, determined quarterly and annually, of less than 2.2 to 1.0 from
January 31, 1999 and at all times thereafter.
2
<PAGE>
SIXTH AMENDMENT TO CREDIT AGREEMENT, Continued
REPRESENTATIONS AND WARRANTIES
5. Other Representations and Warranties. Each of the representations
and warranties (as amended hereby) made by the Borrower in Article 3 of the
Credit Agreement are true and correct on and as of the Sixth Amendment Closing
Date (except those representations and warranties that address matters only as
of a particular date, which are true and correct as of that date), and are
incorporated herein as though fully set forth.
CONDITIONS PRECEDENT
6. Conditions to Effectiveness of this Amendment. The obligation of the
Lender to enter into this Amendment is subject to the satisfaction, immediately
prior to or concurrently with the execution of the Amendment, of the following
conditions precedent:
(a) Sixth Amendment, etc. The Lender shall have received this
Sixth Amendment, duly executed by the Borrower.
(b) Corporate Proceedings. The Lender shall have received
certificates by the Secretary or Assistant Secretary of the Borrower dated as
of the Sixth Amendment Closing Date as to (i) true copies of the articles of
incorporation and by-laws (or other constituent documents) of the Borrower in
effect on such date (which, in the case of articles of incorporation or other
constituent documents filed or required to be filed with the Secretary of State
or other Governmental Authority in its jurisdiction of incorporation, shall be
certified to be true, correct and complete by such Secretary of State or other
Governmental Authority not more than thirty (30) days before the date of this
Amendment), (ii) true copies of all corporate action taken by the Borrower
relative to this Amendment and the other Amendment Documents and (iii) the
incumbency and signature of the respective officers of the Borrower executing
this Amendment and the other Amendment Documents, together with satisfactory
evidence of the incumbency of such Secretary or Assistant Secretary. The
Lender shall have received certificates from the appropriate Secretaries of
State or other applicable Governmental Authorities showing the good standing
of the Borrower in its state of incorporation and each state in which the
Borrower does business, if applicable in such state.
(c) Officers' Certificates. The Lender shall have received
certificates from such officers of the Borrower in the form of Exhibit C
attached hereto.
(d) Fees, Expenses, Etc. All fees and other compensation
(including, without limitation, attorneys' fees) required to be paid to the
Lender pursuant hereto or pursuant to any other written agreement on or prior
to the Sixth Amendment Closing Date shall have been paid or received.
(e) Other Conditions Precedent. Each of the conditions
precedent set forth in Section 4.02 of the Credit Agreement shall have been
met.
3
<PAGE>
SIXTH AMENDMENT TO CREDIT AGREEMENT, Continued
MISCELLANEOUS
7. Reaffirmation; No Waiver. Except as expressly modified herein, the
terms of the Credit Agreement, the Security Documents and all of the Loan
Documents executed in connection therewith, remain in full force and effect
in accordance with their respective terms and conditions, are in no manner
impaired hereby and, are hereby reaffirmed by all of the parties. In the
event of any conflict between this Amendment and any other Loan Document, the
provisions of this Amendment shall prevail.
8. Fees, Expenses, Etc. Within ten (10) days of receipt of invoice,
the Borrower shall pay all fees and other compensation (including, without
limitation, attorneys' fees, costs of searches, field examination expenses,
filing and recording fees) required to be paid to the Lender pursuant hereto,
pursuant to any Amendment Document or pursuant to any other written agreement.
9. Severability. The provisions of this Amendment are intended to be
severable. If any provision of this Amendment shall be held invalid or
unenforceable in whole or in part in any jurisdiction such provision shall,
as to such jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without in any manner affecting the validity or
enforceability thereof in any other jurisdiction or the remaining provisions
hereof in any jurisdiction.
10. Prior Understandings. This Amendment and the other Amendment
Documents supersede all prior and contemporaneous understandings and
agreements, whether written or oral, among the parties hereto relating to the
transactions provided for herein and therein.
11. Counterparts. This Amendment may be executed in any number of
counterparts and by the different parties hereto on separate counterparts
each of which, when so executed, shall be deemed an original, but all such
counterparts shall constitute but one and the same instrument.
12. Successors and Assigns. This Amendment shall be binding upon and
inure to the benefit of the Borrower, the Lender, all future holders of the
Notes, and their respective successors and assigns, except that the Borrower
may not assign or transfer any of its rights hereunder or interests herein
without the prior written consent of the Lender, and any purported assignment
without such consent shall be void.
13. Governing Law. THIS AMENDMENT AND ALL OTHER AMENDMENT DOCUMENTS
(EXCEPT TO THE EXTENT, IF ANY, OTHERWISE EXPRESSLY STATED IN SUCH OTHER
AMENDMENT DOCUMENTS) SHALL BE GOVERNED BY, CONSTRUED AND ENFORCED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF PENNSYLVANIA, WITHOUT REGARD TO
CHOICE OF LAW PRINCIPLES.
4
<PAGE>
SIXTH AMENDMENT TO CREDIT AGREEMENT, Continued
IN WITNESS WHEREOF, the parties hereto, by their officers
thereunto duly authorized, have executed and delivered this Amendment as of
the date first above written.
ATTEST: B.B. WALKER COMPANY
By: DOROTHY W. CRAVEN By: KENT T. ANDERSON
----------------- ----------------
Dorothy W. Craven Kent T. Anderson, President
Corporate Secretary
[Corporate Seal]
MELLON BANK, N.A.
By: ROGER D. ATTIX
--------------
Roger D. Attix, Vice President
CONSENTED TO this 29th
day of December, 1998:
FIRST NATIONAL BANK
AND TRUST COMPANY
By: R. HOOKER THOMAS III
--------------------
R. Hooker Thomas, III
Senior Vice President
5
Exhibit (4)(c)(12)
Mellon Business Credit
- ----------------------
December 30, 1998
Mr. Kent Anderson
Chairman of the Board
B.B. Walker Company
414 E. Dixie Drive
Asheboro, NC 27203
Dear Kent:
As you have requested, Mellon Business Credit has approved a
modification in the method of calculation of your financial covenants.
With the change in the date of expiration of the term Facility to June
30, 1999, all of that debt must be classified as short term for
accounting purposes.
By this letter, Mellon approves that that portion of the Mellon Term
Facility that would otherwise have been due greater than one year
hence, had the expiration of the Term Facility not been modified, shall
be permitted to be classified as long term debt for covenant
calculation purposes.
This modification will apply only through June 30, 1999. Failure by
B.B. Walker Company, Inc. to sell their Asheboro, NC facility and thus
pay off this term debt or seek an alternative solution acceptable to
Mellon will constitute an event of default.
Sincerely,
ROGER D. ATTIX
- --------------
Roger D. Attix
Vice President
Mellon Business Credit
Mellon Bank Center
1735 Market Street
Philadelphia, PA 19101-7899
RDA:mjs
ACKNOWLEDGED:
KENT T. ANDERSON
- ----------------
Kent T. Anderson
Chairman of the Board
Exhibit (10)(g)
---------------
CONTRACT FOR PURCHASE AND SALE
OF
REAL PROPERTY LOCATED IN ASHEBORO, NC
THIS CONTRACT FOR PURCHASE AND SALE OF REAL PROPERTY (this "Agreement") is
made and entered into as of the 28th day of January, 1999 by and between
B. B. WALKER COMPANY, a North Carolina corporation with offices at 414 East
Dixie Drive, Asheboro, North Carolina 27203 ("Walker") and H. WILLIAM HULL,
JR., a resident of Rocky Mount, North Carolina (Hull and any person or
entity to whom Hull may assign his rights and obligations hereunder as
permitted in Paragraph 18 shall be referred to herein as "BUYER").
BACKGROUND STATEMENT
A. Walker is the present owner of the eight (8) lots and parcels of real
estate located in Asheboro, North Carolina as are outlined in red on that
map of survey entitled "Plat Prepared for Walker Shoe Company" prepared by
Steven D. Brown, Registered Land Surveyor (Registration Number L-1435) dated
June 22, 1987. The eight lots owned by Walker shall be referred to herein
as the "Walker Property". The two lots of the Walker Property located on
the eastern side of Third Street as shown on the Survey (hereinafter
sometimes referred to as the "Eastern Tract") and the buildings and
improvements located thereon are currently used by Walker as a manufacturing
facility and for office and retail purposes and such lots and the buildings
and improvements located thereon shall be referred to herein as the
"Manufacturing Facility". The six lots of the Walker Property located on the
western side of Third Street as shown on the Survey shall be referred to
herein as the "Western Tract".
B. Walker has entered into six (6) contracts to purchase the six (6) lots
and parcels of real estate located in Asheboro, North Carolina. The six
lots Walker has agreed to purchase are more particularly described in the
Additional Property Contracts and shall be referred to herein as the
"Additional Property". The six contracts to purchase the Additional
Property, some of which Walker entered into directly with the Sellers
thereunder and some of which Walker has obtained by assignment from King
Cecil, LLC, set forth the following information with respect to each such
contract: the sellers thereunder, the contract price payable thereunder, the
property subject thereto, the earnest money deposited by the buyer
thereunder, the commissions, if any, payable by the buyer thereunder, and
the closing date thereunder. The six contracts to purchase the Additional
Property shall be referred to herein as the "Additional Property Contracts".
C. B. B. Walker Shoe Foundation (the "Foundation") is the owner of that
certain lot fronting on Atlantic Avenue in Asheboro, North Carolina which is
outlined in yellow on the Survey and which is the property acquired by the
Foundation pursuant to that deed recorded in Book 952 at Page 552 in the
Office of the Register of Deeds of Randolph County, North Carolina (the
"Foundation Lot").
1
D. The Western Tract of the Walker Property, the Additional Property, and
the Foundation Lot have recently been rezoned by the City Council of Asheboro
to a B-2 zoning district under the City of Asheboro's zoning ordinance which
district permits the use of such properties for office, retail, and motel and
hotel purposes. In addition, (i) the portion of Washington Street between
the Walker Property and the Additional Property; (ii) that portion of Second
Street as is outlined in green on the survey as well as that unopened portion
of Second Street located on Lot 6 of the Walker Property; and (iii) all of
Atlanta Avenue from First Street to Third Street and from Third Street to Cox
Road have been closed by all appropriate action of the City Council of
Asheboro subject to the fulfillment of certain conditions precedent as more
specifically discussed below. Buyer desires: (i) to acquire the Walker
Property for a purchase price of $5,600,000; (ii) to acquire the Additional
Property by assuming the Additional Property Contracts and paying the purchase
prices due thereunder; and (iii) to acquire the Foundation Lot from the
Foundation for the sum of $25,000.00. Walker desires to sell the Walker
Property to Buyer and to assign the Additional Property Contracts to Buyer for
the purchase price of $5,600,000. Walker and Buyer anticipate that Buyer and
the Foundation will, prior to the expiration of the Examination Period, enter
into a contract providing for the purchase and sale of the Foundation Lot by
the Foundation to the Buyer for a purchase price of $25,000.00 (the
"Foundation Lot Contract").
E. Following the acquisition of the Walker Property, the Additional
Property, and the Foundation Lot Buyer contemplates constructing upon
portions of the Walker Property, the Additional Property and the Foundation
Lot various improvements including an office building and a retail building.
If so, Walker desires to rent from Buyer approximately 12,000 square feet of
office space in the office building to be constructed by Buyer (the "Office
Lease") and approximately 8,000 square feet of retail space in the retail
building to be constructed by Buyer (the "Retail Lease") and Buyer desires
to rent such office and retail space to Walker.
F. Walker and Buyer contemplate that title to the Walker Property will be
conveyed to Buyer in a single closing but that Walker will lease back from
Buyer the two tracts located on the eastern side of Third Street (Lot 1
and Lot 2 as shown on the Survey) and the buildings and improvements located
thereon comprising the Manufacturing Facility for a lease term of nine (9)
months following the closing date (the "Manufacturing Facility Lease").
G. Walker and Buyer desire by this document to set forth their agreement
with respect to the purchase and sale of the Walker Property, the assignment
to Buyer of the Additional Property Contracts, the closings of Atlantic
Avenue, Washington Street, and Second Street and understandings with regard
to certain other matters.
NOW THEREFORE IN CONSIDERATION of the mutual agreements and promises set
forth herein and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, Walker and Buyer hereby agree
as follows:
2
1. Buy/Sell Agreement. Walker agrees to sell and Buyer agrees to purchase,
on the terms hereinafter stated, all of Walker's right, title and interest
in and to the Walker Property, including all buildings and improvements
located thereon. Walker's equipment, machinery, inventory, furniture and
other items of personal property located on or used in connection with the
Property (the "Excluded Property") shall not be included within the Walker
Property and none of such Excluded Property shall be conveyed or sold
hereunder. All Excluded Property shall be removed by Walker at or prior to
the termination of the Manufacturing Facility Lease. In addition to its
right and obligation to remove all items of the Excluded Property, upon the
termination of the Manufacturing Facility Lease, Walker shall be entitled to
remove, but shall not be required to remove, any and all air compressors and
air cleaning equipment, all telephone systems, all building security systems
and the Flagpole and bell located at the entrance to the Manufacturing
Facility as Walker may elect (the "Other Excluded Property") without regard
to whether such Other Excluded Property constitutes personal property or
fixtures. Walker shall have no obligation to replace any Excluded Property
or Other Excluded Property or to repair or restore any damage resulting from
the removal thereof. Any Excluded Property or Other Excluded Property which
is not removed by Walker within thirty (30) days following the expiration of
the Manufacturing Facility Lease shall become and remain the property of Buyer.
2. Purchase Price. Subject only to the prorations and adjustments provided
for herein, the total purchase price to be paid to Walker by Buyer for the
Walker Property shall be FIVE MILLION SIX HUNDRED THOUSAND AND NO/100 DOLLARS
($5,600,000.00) which amount shall be referred to herein as the "Purchase
Price". Buyer shall pay the Purchase Price in the following manner:
a. Earnest Money. The sum of FIFTY THOUSAND AND NO/100 DOLLARS ($50,000)
in cash or by other immediately available funds (the "Earnest Money") shall
be deposited by Buyer as earnest money with Lawyers Title Insurance Company
of North Carolina (the "Escrow Agent") contemporaneously with Buyer's
execution and delivery of this Agreement. A failure by Buyer to deposit the
Earnest Money contemporaneously with its execution and delivery hereof shall
constitute an automatic recission of this Agreement and of any obligation of
Walker to Buyer with respect to the conveyance of the Walker Property and the
assignment of the Additional Property Contracts. The Earnest Money shall be
held by the Escrow Agent in an interest bearing account in a federal
depository institution as selected by Escrow Agent and any interest earned
upon the Earnest Money shall be added thereto and shall become a part of such
Earnest Money to be disbursed as provided herein. In the event that the sale
provided for herein is consummated, the Earnest Money shall be paid over to
Walker at closing and credited against the cash portion of the Purchase Price.
In the event that Buyer exercises any right to terminate this Agreement as
provided herein, the Earnest Money shall be refunded to Buyer. In the event
that Buyer does not terminate this Agreement pursuant to a right provided
herein and the sale contemplated hereunder is not consummated, then the
earnest money shall be disbursed to the party entitled thereto as provided
for in Paragraph 17.
3
b. Cash at Closing. TWO MILLION TWO HUNDRED THOUSAND AND NO/100
DOLLARS ($2,200,000.00) in cash or immediately available funds shall be paid
by Buyer to Walker at the closing of the sale contemplated hereunder which
sum shall include the Earnest Money. The amount of cash due at closing
shall be adjusted if necessary to reflect the prorations and adjustments
provided for in Paragraph 11 hereof.
c. Purchase Money Note. THREE MILLION FOUR HUNDRED THOUSAND AND NO/100
DOLLARS ($3,400,000.00) shall be paid by Buyer executing and delivering to
Walker at the closing Buyer's purchase money promissory note in that face
amount (the "Purchase Money Note"). The Purchase Money Note shall: (i)
provide for interest prior to default at a variable rate equal to the
interest rate announced and established by NationsBank, NA from time to time
as its Prime Rate; (ii) provide for monthly payments of interest only
commencing on the first day of the first month following the closing and
continuing on the first day of each month thereafter to and including the
maturity date; (iii) provide for a maturity date which shall be the first
anniversary of the closing on which maturity date the entire principal amount
of the Purchase Money Note, together with all accrued unpaid interest thereon,
shall be due and payable in one lump sum payment; (iv) be prepayable in whole
or in part at any time without prepayment penalty or fee; (v) be secured by a
purchase money deed of trust constituting a first priority lien upon the
Manufacturing Facility (the "Purchase Money Deed of Trust"); and (vi) provide
that it is a non-recourse indebtedness as provided for in NCGS Section
45-21.38 The Purchase Money Deed of Trust shall: (i) constitute a first
priority lien upon that portion of the Walker Property lying east of Third
Street (Lots 1 and 2 as shown on the Survey); and (ii) contain a due on sale
clause pursuant to which the Purchase Money Note shall become due and payable
in the event the security property or any interest therein or portion thereof
is conveyed except coincident to rearrangement of utility services on the
Walker Property and the Additional Property provided such rearrangements do
not materially adversely affect Walker's use of the Manufacturing Facility
pursuant to the Manufacturing Facility Lease.
The Purchase Price due Walker for the Walker Property shall not include
credit for the purchase prices to be paid under the Additional Property
Contracts which purchase prices shall be paid to the sellers thereunder by
Buyer when and as due pursuant to the Additional Property Contracts following
the assignment thereof to Buyer as provided in Paragraph 4 below. In addition
to paying the Purchase Price, in exchange for Walker's assignment of the
Additional Property Contracts to Buyer, Buyer shall reimburse Walker at
Closing for the earnest money deposits made by Walker under such Additional
Property Contracts and are to be credited against the purchase prices due
under the Additional Property Contracts and Buyer shall pay when and as due
the commissions payable by Walker in connection with the closings under the
Additional Property Contracts The Purchase Price shall also be in addition to
the amount due the Foundation for the purchase of the Foundation Lot, pursuant
to the Foundation Lot Contract.
4
3. Matters of Title. Matters relating to the nature and extent of the title
to the Walker Property and to the Additional Property shall be as follows:
a. Marketable Title of the Walker Property. Buyer's obligations
hereunder shall be subject to and conditioned upon Walker being able to
convey good and marketable title in indefeasible fee simple to the Walker
Property free of monetary liens and encumbrances subject only to month to
month tenants in possession, ad valorem taxes for the calendar year of
closing (which shall be prorated on a calendar year basis) and such
easements, rights of way and restrictions and matters of record as may be
customary and usual with respect to properties comparable to the Walker
Property and which do not materially affect the value of the Walker Property
or its potential use for office, retail and motel and hotel purposes,
including without limitation those easements, restrictions and matters of
record (collectively, the "Permitted Exceptions") and upon Buyer being able
to obtain, at its sole cost and expense (including without limitation title
examination fees), a title insurance binder from a reputable title insurance
company selected by Buyer by which such title insurance company commits to
issue a title insurance policy in favor of Buyer subject only to such
Permitted Exceptions.
b. Cure of Title Defects. No later than two days after the expiration
of the Examination Period as defined below, Buyer shall notify Walker in
writing of any matter of record affecting title to the Walker Property as of
the expiration of the Examination Period which Buyer deems objectionable.
In the event Buyer fails to notify Walker of any such objections within such
time period, then Buyer shall be deemed to have agreed to accept the Walker
Property subject to all matters of record as of the expiration of the
Examination Period; provided, however, that Walker shall remain obligated to
pay and discharge any monetary liens and encumbrances upon the Walker
Property or otherwise to obtain a release of the Walker Property from such
liens and encumbrances at or prior to closing, it being agreed that the cash
portion of the Purchase Price may be used for that purpose. In the event
Buyer notifies Walker in writing of a matter of record affecting title to the
Walker Property (other than a monetary lien or encumbrance to be discharged
or released at closing) to which Buyer objects, Walker shall have thirty (30)
days after its receipt of such notice to cure the title matter objected to by
Buyer and the closing hereunder shall be postponed for such time. Walker
shall, however, have no obligation to cure any such title objection. If
Walker cures the title matter to which Buyer has objected within such thirty
(30) day time period, then the sale provided for herein shall be consummated
as herein provided. If, however, Walker is unable to cure the title matter to
which Buyer has objected within such time period or is unwilling to do so,
then Buyer may at its option either: (i) terminate this Agreement and obtain
a full refund of the Earnest Money; or (ii) elect to waive its objection to
the title matter and to complete the closing as provided herein notwithstanding
the continued existence of such title matter and without any credit against or
diminution in the Purchase Price.
5
c. Marketable Title to the Additional Properties. Buyer's obligations
hereunder shall be conditioned upon the sellers under the Additional Property
Contracts being able to convey good and marketable title in indefeasible fee
simple to the Additional Property subject only to the rights of month to
month tenants in possession thereof, ad valorem taxes for the calendar year
in which the closing occurs (which taxes shall be prorated as provided in the
Additional Property Contracts) and to such other title exceptions and matters
of record as is contemplated in the Additional Property Contracts. No later
than the expiration of the Examination Period, Buyer, at its sole cost and
expense, shall cause the title to the Additional Property to be examined by
an attorney selected by Buyer and Buyer shall provide Walker with an opinion
of title from such attorney indicating the owners of the Additional Property
and setting forth the matters of record affecting the title to such
Additional Property. No later than two days following the expiration of the
Examination Period, Buyer shall notify Walker in writing of any matter of
record affecting title to any of the Additional Property as of the expiration
of the Examination Period which Buyer finds objectionable and which Buyer
reasonably believes is not a title matter which is permitted pursuant to the
applicable Additional Property Contract. Buyer shall be deemed to have
agreed to accept the Additional Property subject to all matters of record
affecting title thereto as of the expiration of the Examination Period which
are not objected to in writing by Buyer within such time period; provided,
however that monetary liens and encumbrances affecting title to any of the
Additional Property shall be paid and discharged as provided for in the
applicable Additional Property Contract so that the Sellers thereunder can
convey the properties free of liens and other monetary encumbrances. In the
event that Buyer notifies Walker in writing within such time period of a
matter of title affecting any of the Additional Property which Buyer finds
objectionable and which Buyer reasonably believes is not a title exception
permitted under the applicable Additional Property Contract, then Walker
shall notify the seller under the applicable Additional Property Contract
and will use good faith efforts to cause the seller to cure or remedy the
title matter as contemplated in the applicable Additional Property Contract
or in such other manner as may be reasonably acceptable to Buyer. Walker
shall not, however, be obligated to cure any title matter affecting the
Additional Property, and if any title matter affecting any of the Additional
Property is not cured to Buyer's reasonable satisfaction at or prior to
closing, then Buyer may elect: (i) to terminate this Agreement and obtain
a refund of the Earnest Money; (ii) to close the purchase of the Walker
Property and to take an assignment of all but the affected Additional
Property Contracts; or (iii) to waive its objection to the title matter and
complete the closing of the Walker Property and to take an assignment of all
of the Additional Property Contracts notwithstanding the continued existence
of such title matter. One or more of the Additional Properties may be
subject to month to month leases. If required by the applicable Additional
Property Contract, Buyer shall accept title to the Additional Property
subject to such month to month leases, provided the same may be terminated
on not more than thirty (30) days notice.
d. Deed of Conveyance. Walker shall convey title to the Walker
Property to Buyer at the closing by a general warranty deed subject only to
the Permitted Exceptions and such other matters of title agreed to or
accepted by Buyer in accordance with the terms hereof.
6
e. Walker's Lien Affidavit. Walker shall deliver to Buyer at closing
Walker's Affidavit and Indemnity Agreement in such standard form as required
by Buyer's title insurer to the effect that all work, labor, services, and
materials furnished to or in connection with the Walker Property within the
120 days immediately preceding the closing have been fully paid for so that
no mechanic's or materialmen's lien may be properly filed against the
Property, provided that if any such lien is improperly filed but is based
upon an allegation that Walker contracted for the sums allegedly due, Walker
shall indemnify and save Buyer harmless therefrom.
f. Costs of Title Examination and Insurance. Buyer shall pay all costs
of any title examinations and title insurance which Buyer obtains or
procures in connection with the Walker Property or the Additional Property.
Walker shall have no obligation to provide Buyer with an attorney's opinion
of title or title insurance with respect to either the Walker Property or
the Additional Property but Walker shall, upon Buyer's request therefor,
make available to Buyer a copy of any existing title insurance policy which
Walker may have upon the Walker Property and will request of the sellers
under the Additional Property Contracts copies of any title insurance
policies which such sellers may have with respect to the Additional Property.
4. The Additional Property Contracts. Walker hereby represents to Buyer
that: (i) true copies of the Additional Property Contracts are attached;
(ii) all of such Additional Property Contracts are in full force and effect
free of default by the buyer thereunder; and (iii) Walker has the full
right, power and authority to assign the Additional Property Contracts to
Buyer as contemplated herein. Walker agrees that it shall not agree to
any alteration, modification, or termination of any of the Additional
Property Contracts without first having obtained Buyer's consent thereto
which consent shall not be unreasonably withheld or delayed. At all times
prior to the closing hereunder, Walker shall cooperate with Buyer with
respect to the Additional Property Contracts and shall authorize Buyer to
make such examinations and inspections of the Additional Property as Walker
may be entitled to make pursuant to the Additional Property Contracts.
Except as otherwise provided herein, Walker shall, at the closing hereunder,
assign to Buyer all of Walker's rights, title and interest in, to and under
the Additional Property Contracts as the buyer thereunder and Buyer shall
assume the performance of all of Walker's obligations under all such
Additional Property Contracts, including without limitation the obligation
to pay the purchase prices as may be due thereunder to the sellers under
such Additional Property Contracts. Such assignment and assumption shall be
evidenced by a written assignment and assumption agreement in standard and
customary form (the "Assignment and Assumption Agreement"). In addition,
Buyer shall at closing hereunder reimburse Walker for all earnest money
deposited by Walker pursuant to the Additional Property Contracts to the
extent such earnest money deposits are to be credited against the purchase
prices due under the Additional Property Contracts and shall assume Walker's
obligation to pay such commissions as may be due from Walker in connection
with such Additional Property Contracts. In the event that the
scheduled closing date under any of the Additional Property Contracts
occurs prior to the closing hereunder, then Walker may, but shall not be
7
obligated to, attempt to obtain an extension of the time for closing under
such Additional Property Contract. In the event that Walker cannot or
chooses not to obtain such an extension, then Walker shall complete the
purchase of the property as provided for in any such affected Additional
Property Contract and Walker shall thereafter convey such Additional
Property to Buyer at the closing hereunder. The purchase price to be paid
by Buyer for those portions of the Additional Property which Walker has
acquired prior to the closing hereunder in accordance with its obligation
set forth in the immediately preceding sentence: (i) shall be equal to the
total of (a) the purchase prices paid for such Additional Property by Walker
pursuant to the Additional Property Contracts plus (b) the total of all
reasonable closing costs and expenses incurred by Walker in completing the
acquisition of such Additional Property, including without limitation any
commissions paid by Walker in connection with such purchases and any loan
fees actually incurred by Walker in the event that Walker obtains third party
financing to finance such acquisitions plus (c) an amount equal to the
interest on the total of the amounts referenced in clauses (a) and (b) that
would accrue at the per annum rate equal to the Prime Rate of NationsBank,
N.A. plus one and one-half percent for the period from the expenditure of
each such sum to the closing date hereunder; (ii) shall be in addition to the
$5,600,000 Purchase Price provided for herein; and (iii) shall be paid by
Buyer in full at closing in cash or by immediately available funds. If any
of the Additional Property Contracts are assigned to Buyer as contemplated
herein, then from and after such assignment, Buyer shall indemnify and
defend Walker from and against any and all liabilities and obligations under
or associated with the Additional Property Contracts assigned to Buyer.
5. The Foundation Lot Contract. Promptly following the execution and
delivery of this Agreement, the Buyer shall use good faith efforts to enter
into an Agreement with the Foundation for the purchase by the Buyer of the
Foundation Lot for a purchase price of $25,000 and subject to standard
provisions and any non-standard provisions approved by Buyer. In the event
that the Foundation at any time prior to the expiration of the Examination
Period offers to sell the Foundation Lot to Buyer for a purchase price of
$25,000 payable in cash (the "Foundation Offer"), then Buyer shall, within
seventy-two (72) hours following Buyer's receipt of the Foundation Offer,
either (i) accept the Foundation's Offer and purchase the Foundation Lot as
provided therein; or (ii) waive the condition precedent to Buyer's
obligation to purchase the Walker Property hereunder relating to the Buyer's
purchase of the Foundation Lot and proceed with the closing hereunder without
purchasing the Foundation Lot. In the event that prior to closing, Buyer has
been unable to enter into a contract with the Foundation to purchase the
Foundation Lot despite Buyer's good faith efforts to do so and the Foundation
has not offered to sell the Foundation Lot to Buyer pursuant to the Foundation
Offer, then Buyer shall have the right either: (i) to terminate this Agreement
and receive a refund of the Earnest Money; or (ii) to waive the requirement
for the Foundation Lot Contract and proceed to closing without having entered
into the Foundation Lot Contract. In the event that Buyer acquires the
Foundation Lot prior to the closing hereunder and thereafter the closing
hereunder does not occur for any reason, then, notwithstanding any termination
8
of this Agreement and regardless of whether either Walker or Buyer has
defaulted hereunder, Walker shall, promptly following the failure of the
closing hereunder to have occurred, purchase the Foundation Lot from Buyer
and Buyer shall sell the Foundation Lot to Walker for a purchase price equal
to the purchase price paid by Buyer to the Foundation for the purchase of the
Foundation Lot plus reasonable closing costs actually incurred and paid by
Buyer in connection with such purchase. In the event that Buyer enters into
the Foundation Lot Contract prior to the closing hereunder, the closing
thereunder has not occurred, and the closing hereunder does not occur for
any reason, then, notwithstanding any termination of this Agreement and
regardless of whether either Walker or Buyer has defaulted hereunder, Buyer
shall assign to Walker the Foundation Contract without any payment therefor
from Walker except for the reimbursement to Buyer of any earnest money
deposited by Buyer with the Foundation pursuant to the Foundation Lot Contract.
6. Examination Period. The time from the date of this Agreement until 5:00
p.m. on February 26, 1999 shall be referred to herein as the "Examination
Period".
a. Inspections and Examinations. During the Examination Period Buyer
shall be entitled to make and conduct such inspections, appraisals, physical
evaluations, environmental assessments, surveys, and other examinations of
the Walker Property, the Additional Property, and the Foundation Lot as
Buyer may elect in its discretion to make and as may be permitted under the
Additional Property Contracts and the Foundation Lot Contract. Walker
agrees, subject only to reasonable prior notice, to permit Buyer and Buyer's
representatives and agents access to the Walker Property for the purpose of
making and conducting such inspections, appraisals, physical evaluations,
environmental assessments, surveys and examinations. All of such
inspections, appraisals, physical evaluations, environmental assessments,
surveys and other examinations: (i) shall be made at Buyer's sole cost, risk
and expense; (ii) shall be made without damage or physical injury to the
Walker Property or the Additional Property; and (iii) shall be made
following reasonable prior notice to Walker as to the Walker Property.
Walker reserves the right to accompany Buyer and Buyer's representatives
during any entry upon the Walker Property by Buyer or Buyer's
representatives pursuant to this Paragraph 6. Buyer shall repair and restore
any damage to the Walker Property or the Additional Property resulting from
any entry upon the Walker Property or the Additional Property made by Buyer
or Buyer's representatives and agents and Buyer shall indemnify and holder
Walker harmless from and against any and all claims made against Walker or
losses or damages incurred by Walker as a result of or arising out of any
entries upon the Walker Property or the Additional Property made by Buyer
or Buyer's representatives and agents.
b. Termination Right. Buyer may, for any reason sufficient to itself,
terminate this Agreement at any time prior to the expiration of the
Examination Period by written notice to Walker which notice, to be effective,
must be received by Walker prior to the expiration of the Examination Period.
9
Upon Walker's receipt of such written notice of termination from Buyer, this
Agreement shall terminate, Buyer shall be entitled to a refund of the Earnest
Money and neither party shall have any liability to the other hereunder
except that Buyer shall remain liable upon its indemnity agreement set forth
in Paragraph 6(a) above and the parties shall be obligated to buy and sell
the Foundation Lot or to assign the Foundation Lot Contract as provided in
Paragraph 5 above. If Buyer does not provide written notice of termination
pursuant to this Paragraph 6(b) prior to the expiration of the Examination
Period, then Buyer shall have no further right to terminate this Agreement
pursuant to this Paragraph 6.
c. AS IS, WHERE, IS Sale. Walker makes no warranties of any nature,
express or implied, with respect to the physical condition or state of repair
of the Walker Property or of the Additional Property or with respect to any
other matter relating to or affecting the Walker Property, the Additional
Property or the Foundation Lot, except as may otherwise be provided herein.
The Walker Property and any of the Additional Property conveyed by Walker to
Buyer is being sold hereunder in its AS IS, WHERE IS CONDITION WITH ALL
FAULTS. Walker shall have no duty to make any repairs to any of the Walker
Property or the Additional Property or to restore any damage thereto whether
now existing or suffered subsequent to the date hereof.
7. Rezoning and Street Closings. With respect to the rezoning of the
Western Tract of the Walker Property, the Eastern Tract of the Walker
Property, the Additional Property, and the Foundation Lot, and the closing
of those portions of Atlantic Avenue, Second Street and Washington Street,
Walker and Buyer agree as follows:
a. Rezoning. Walker and Buyer acknowledge to one another that the
City Council of the City of Asheboro at its meeting on January 7, 1999
unconditionally rezoned the Western Tract of the Walker Property, the
Additional Property, and the Foundation Lot to a B-2 zone under the City
of Asheboro's zoning ordinance. Buyer agrees that such B-2 zoning
classification is acceptable to it and that Buyer has and does hereby
approve of the present B-2 zoning classification applicable to the Western
Tract of the Walker Property, the Additional Property, and the Foundation Lot.
b. Street Closings. Walker and Buyer acknowledge to one another that
the City Council of the City of Asheboro, at its meeting on January 7, 1999,
took such action as was necessary to close the portion of Washington Street
between the Walker Property and the Additional Property, and the portion of
Atlantic Avenue from First Street to Third Street subject only to Walker's
acquisition of the Additional Property or Buyer's acquisition of the
Additional Property, the Western Tract of the Walker Property, and the
Foundation Lot. Walker and Buyer also acknowledge to one another that the
portion of Second Street located to the north of Atlantic Avenue as shown on
the Survey as well as that portion thereof located south of Atlantic Avenue
which constitutes one of the Additional Properties has previously been
unconditionally closed by the City Council of the City of Asheboro. Buyer
agrees that it has reviewed and approved the current status of the closing
of the portions of Washington Street and of Second Street as set forth above
and that B. B. Walker shall not be obligated to take any further action in
connection therewith.
10
c. Rezoning of Eastern Tract. Walker and Buyer acknowledge to one
another that Walker has filed an application with the City of Asheboro
requesting that the Eastern Tract of the Walker Property be rezoned to a
B-2 zoning classification under the City of Asheboro's zoning ordinance.
With respect to such rezoning, Walker and Buyer agree that: (i) Walker
shall use good faith efforts to pursue the pending rezoning application and
to obtain a rezoning of the Eastern Tract of the Walker Property to a B-2
zoning classification prior to the closing hereunder; (ii) provided it shall
have used good faith efforts to obtain such rezoning, Walker shall have no
liability to Buyer in the event that the rezoning is not obtained; and
(iii) the completion of the rezoning of the Eastern Tract to a B-2 zoning
classification prior to the closing hereunder shall be a condition precedent
to the Buyer's obligation hereunder to complete the closing of the Walker
Property and the Additional Property as set forth herein. In the event,
that the Eastern Tract of the Walker Property has not been rezoned to a B-2
zoning classification on or before April 15, 1999, Buyer may terminate this
Agreement and obtain a refund of the Earnest Money Deposit or Buyer may
elect to waive this condition. Upon any termination Buyer and Walker shall
be obligated to take the actions with respect to the Foundation Lot or
Foundation Lot Contract as are set forth in Paragraph 5 above.
8. Completion of Conditions to Closing of Atlantic Avenue to the East of
Third Street. Walker believes and understands that the portion of Atlantic
Avenue located to the east of Third Street which is shown on the Survey has
been closed by the city council of Asheboro subject only to (i) Walker
conveying to the city of Asheboro a strip of property ten feet in width
along the southern boundary line of the portion of Lot 2 of the Walker
Property as is outlined in pink on the Survey for use by the city to expand
the right of way for Telephone Avenue from forty feet to fifty feet; and
(ii) Walker causing Telephone Avenue to be opened and paved from the current
end thereof as shown on the Survey to Cox Road as shown on the Survey, the
cost of which opening and paving is estimated to be less than $100,000.
Oliver Rubber Company has filed a lawsuit in the Superior Court of Randolph
County challenging the validity of the closing of Atlantic Avenue to the
east of Third Street. With respect to the completion of the conditions to
the closing of Atlantic Avenue east of Third Street and the objection filed
by Oliver Rubber Company, Walker and Buyer hereby agree as follows:
a. Fulfillment of Conditions. On or prior to the Closing Date, Walker
shall convey to the city of Asheboro the ten feet wide strip along the
southern boundary of the portion of Lot 2 as is outlined in pink on the
Survey for use by the city to widen the right of way for Telephone Avenue
(the "Ten Feet Wide Strip"), as to which Buyer consents to such conveyance
of the Ten Feet Wide Strip and agrees that such conveyance shall not affect
Buyer's obligations hereunder or result in a diminution of the Purchase
Price. Buyer will be responsible for opening and paving Telephone Avenue
and paying the costs thereof, as may be necessary to fulfill the conditions
to the closing of the eastern portion of Atlantic Avenue, and Walker shall
have no further responsibility with respect to the opening and paving of
Telephone Avenue or with respect to the closing of Atlantic Avenue.
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b. Oliver Rubber Company Lawsuit. Walker shall use good faith efforts
to cause Oliver Rubber Company to dismiss its challenge to the closing of
the portion of Atlantic Avenue to the east of Third Street and to negotiate
a settlement with Oliver Rubber Company of its objections to such closing.
Walker shall not, however, be obligated to participate in the pending
lawsuit against the city and if Walker shall have used good faith efforts
to negotiate a settlement with Oliver Rubber Company of its objections to
the closing of Atlantic Avenue, then Walker shall have no liability to Buyer
in the event that a settlement cannot be achieved. Buyer agrees that in
order to obtain a dismissal of the Oliver Rubber Company's challenge to the
closing of Atlantic Avenue, Walker may enter into a settlement agreement with
Oliver Rubber Company providing for the conveyance to Oliver Rubber Company
of a strip of land along the southern boundary of Lot 2 of the Walker Property
which strip of land shall be approximately 25 feet wide at its widest point
(which shall be at the intersection of Third Street and Telephone Avenue) and
which shall taper from such widest point to a width of approximately 10 feet.
Buyer consents to the conveyance of such strip of land provided the total
acreage to be included therein does not exceed .6 acres and agrees that such
conveyance shall not relieve Buyer of its obligations hereunder or result in
a diminution in the Purchase Price. In the event that Walker enters into a
settlement agreement with Oliver Rubber Company as described above, Walker
shall be entitled to receive from Oliver Rubber Company all amounts paid by
Oliver Rubber Company for the strip of land to be conveyed to it and any
amounts received by Walker shall not be credited against the Purchase Price.
In addition, Buyer shall remain responsible for paving and opening the unopened
portion of Telephone Avenue notwithstanding the fact that Walker may have
entered into a settlement agreement with Oliver Rubber Company as set forth
above. The settlement of Oliver Rubber Company's objection to the closing of
Atlantic Avenue and the dismissal of its petition challenging such closing
shall be a condition precedent to Buyer's obligations to purchase the Walker
Property and the Additional Property as provided for herein and in the event
that the Oliver Rubber Company objection has not been settled and its petition
dismissed prior to April 15, 1999, Buyer may at its option terminate this
Agreement and obtain a refund of the Earnest Money Deposit or Buyer may elect
to waive this condition. Upon any termination by Buyer, Walker and Buyer
shall be obligated to take the action with respect to the Foundation Lot or
the Foundation Lot Contract as is provided for in Paragraph 5 above.
9. The Office Lease, the Retail Lease, and the Manufacturing Facility Lease.
With respect to the Office Lease, the Retail Lease and the Manufacturing
Facility Lease, Walker and Buyer hereby agree as follows:
a. The Office Lease. Prior to the Closing Date, Walker and Buyer
shall negotiate in good faith the terms and conditions of the Office Lease
pursuant to which Walker will lease from Buyer and Buyer will lease to
Walker space in the office building to be constructed by Buyer upon the
Western Tract and Additional Property. The Office Lease shall contain the
following terms and conditions among others as may be agreed upon by Walker
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and Buyer: (i) the demised premises shall consist of approximately 12,000
square feet of space on a single floor within the office building; (ii) the
office building and the demised premises shall be completed and ready for
occupancy in accordance with plans and specifications reasonably acceptable
to Walker and no later than the first anniversary of the closing hereunder;
(iii) Walker shall be entitled to a tenant allowance in an amount to be
negotiated between the parties to cover the costs of the upfitting of such
space; (iv) the initial term shall be for such duration as the parties may
determine by subsequent negotiation; and (v) the minimum annual rent payable
under such lease shall be a fixed rent in an amount to be negotiated between
the parties. Promptly following the expiration of the Examination Period,
Buyer shall submit to Walker a proposed Office Lease embodying the foregoing
terms and otherwise in a form acceptable to Buyer. Walker and Buyer shall
thereafter attempt to reach agreement upon the final terms and conditions
of the Office Lease so that the Office Lease may be executed and delivered
at closing. In the event that the parties cannot agree upon an acceptable
Office Lease prior to the Closing Date, Walker shall have the right either
to (a) terminate this Agreement, in which event the Earnest Money shall be
refunded to Buyer; or (b) to waive the requirement that the Office Lease be
executed, in which event, the sale contemplated hereunder shall be
consummated without the execution of the Office Lease and the parties shall
thereafter be relieved of any obligation to one another with respect to the
Office Lease.
b. The Retail Lease. Prior to the Closing Date, Walker and Buyer shall
negotiate in good faith the terms and conditions of the Retail Lease pursuant
to which Walker will lease from Buyer and Buyer will lease to Walker space
in one of the retail buildings to be constructed by Buyer on the Western
Tract and the Additional Property. The Retail Lease shall contain the
following terms and conditions among others as may be agreed upon by Walker
and Buyer: (i) the demised premises shall consist of approximately 8,000
square feet located on a single floor of one of the retail buildings to be
constructed by Buyer; (ii) the retail building and the demised premises
shall be constructed in accordance with plans and specifications reasonably
acceptable to Walker and no later that the first anniversary of the closing
hereunder; (iii) Walker shall be entitled to a tenant allowance in an amount
to be negotiated between the parties to cover the costs of upfitting the
demised premises; (iv) the initial term shall be such duration as the parties
may determine by subsequent negotiation; (v) the minimum annual rent payable
under the lease for the initial term shall be fixed rent in an amount to be
negotiated between the parties; and (vi) the lease shall not provide for
percentage rents. Promptly following the expiration of the Examination
Period, Buyer shall submit to Walker a proposed form of the Retail Lease
embodying the foregoing terms and otherwise in a form acceptable to Buyer.
Walker and Buyer shall thereafter attempt to reach agreement about the final
terms and conditions of the Retail Lease prior to the Closing Date so that
the Retail Lease may be executed and delivered at closing. In the event
that the parties cannot reach agreement upon the final terms of the Retail
Lease prior to the Closing Date, then Walker may elect either (a) to
terminate this Agreement, in which event, the Earnest Money shall be
refunded to Buyer; or (b) to waive the requirement that the Retail Lease be
executed, in which event the sale provided for herein will be consummated
notwithstanding the failure to execute the Retail Lease and the parties
shall thereafter be relieved of any obligation to one another with respect
to the Retail Lease.
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c. The Manufacturing Facility Lease. The Manufacturing Lease shall
be executed and delivered at closing and pursuant thereto Buyer shall lease
to Walker and Walker shall lease from Buyer all of the land, buildings, and
improvements constituting the Manufacturing Facility. The Manufacturing
Facility Lease shall: (i) be for a term of nine (9) months commencing on
the closing date and expiring nine months thereafter; (ii) provide for
monthly rentals in an amount equal to the monthly interest due and payable
for such month under the Purchase Money Note; (iii) provide that Walker may
use the Manufacturing Facility for any purpose as Walker may desire including
such uses as are comparable to Walker's current use of the Manufacturing
Facility; (iv) provide that neither Buyer nor Walker shall be required to
repair or maintain the Manufacturing Facility but that Walker shall be
entitled to make such repairs or alterations as it desires; (v) provide that
Walker shall pay the costs of all utilities used by it at the Manufacturing
Facility; (vi) provide that neither Walker nor Buyer shall be required to
restore any damage or destruction to the Manufacturing Facility resulting
from fire or other casualty; and (vii) provide that Walker shall pay all
ad valorem taxes due upon the Manufacturing Facility for the period in which
Walker is in possession pursuant to the Manufacturing Facility Lease,
failing which Buyer may pay such taxes and offset the amounts paid against
the sums due under the Purchase Money Note.
10. Closing. The purchase and sale of the Walker Property as
contemplated herein shall be consummated and closed as follows:
a. Closing Date and Location. The sale of the Walker Property to
Buyer and the assignment of the Additional Property Contracts to Buyer shall
be consummated and closed on April 15, 1999 or on such earlier date as may
be agreed upon by Walker and Buyer (the "Closing Date"). Time is of the
essence hereunder and there shall be no extension of the Closing Date or of
the Examination Period or of any other time period provided for herein,
except by mutual written agreement of Walker and Buyer. The closing shall
be held at the offices of Walker in Asheboro, North Carolina at 10:00 a.m.
on the Closing Date or at such other place and at such other time on the
Closing Date as may be mutually agreed upon by Walker and Buyer.
b. Walker's Documents. At the closing, Walker will deliver or cause
to be delivered to Buyer the following items and documents all of which shall
be properly executed and acknowledged as appropriate: (i) a general warranty
deed in standard form reasonably acceptable to Buyer's counsel conveying to
Buyer the Walker Property (except for the Ten Feet Wide Strip and, if
appropriate, the Oliver Rubber Company Strip) and conveying to the extent
appropriate such portions of the Additional Property as Walker may have
acquired as provided herein free and clear of all liens and encumbrances
except for the Permitted Exceptions; (ii) the Assignment and Assumption
Agreement by which Walker shall assign to Buyer the Additional Property
Contracts as contemplated in Paragraph 4 hereof; (iii) the lien affidavit
referred to in Paragraph 3(e) hereof; (iv) a closing statement in standard
form setting forth the Purchase Price, the closing costs and expenses, and
the prorations and adjustments provided for herein (the "Closing Statement");
(v) the originals of the Additional Property Contracts; (vii) a FIRPTA
affidavit in standard form confirming that Walker is not a foreign taxpayer;
and (viii) such additional documents as may be reasonably required by
counsel for Buyer in order to consummate and close the transactions
contemplated hereby.
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c. Buyer's Documents. At the closing, Buyer shall deliver to Walker
the following items and documents all of which shall be properly executed
and acknowledged as appropriate: (i) the cash portion of the Purchase Price
plus cash in the amount due pursuant to Paragraph 4 for the purchase from
Walker of such portions of the Additional Property as Walker may have
acquired prior to the closing hereunder; (ii) the Purchase Money Note;
(iii) the Purchase Money Deed of Trust; (iv) the Assignment and Assumption
Agreement by which Buyer shall assume all of Walker's obligations under and
with respect to the Additional Property Contracts as provided for in
Paragraph 4 hereof; (v) the Closing Statement; and (vi) such additional
items and documents as might be reasonably required by counsel to Walker
in order to consummate and close the transactions contemplated hereby.
d. Documents to be Executed and Delivered by Both Walker and Buyer.
In addition to the Walker Documents and the Buyer's Documents, Walker and
Buyer shall both execute and deliver to one another the following documents
and instruments, all of which shall be duly executed and acknowledged as
appropriate: (i) the Office Lease. unless the parties have failed to reach
agreement on the form of such Office Lease and Walker has waived the
requirement for such Office Lease; (ii) the Retail Lease, unless the
parties have failed to reach agreement on the form of such Retail Lease
and Walker has waived the requirement for such Retail Lease; and (iii) the
Manufacturing Facility Lease.
e. Closing Costs. Walker shall pay the following closing costs:
Walker's attorneys' fees and expenses incurred in connection with the
preparation of this Agreement and the closing of the transactions
contemplated hereunder, the brokerage commissions due the Recognized Broker
as defined in Paragraph 18 below, and the documentary tax stamps required
to be affixed to the Deed. Buyer shall pay the following closing costs:
Buyer's attorneys' fees as charged by any attorney engaged by Buyer to
perform services on Buyer's behalf, including without limitation title
examination services as provided for herein, the costs of any title
insurance procured by Buyer with respect to the Walker Property or the
Additional Property, the recording fees for the recordation of the Deed
and the Purchase Money Deed of Trust, the costs of any surveys of the
Walker Property or of the Additional Property or of the Foundation Lot
obtained and contracted for by Buyer, the costs and expenses of all other
items and services obtained by Buyer in connection with its inspection,
appraisal and evaluation of the Walker Property and the Additional Property,
including without limitation, any and all environmental audit or assessment
fees, physical inspection fees, appraisal fees, and any brokerage fees due
any broker engaged by Buyer. Buyer shall be responsible for paying at the
closing under the Additional Property Contracts such closing costs as are
payable by the buyer under each such Additional Property Contract. Buyer
shall be responsible for arranging for and coordinating the completion of
the closings under the Additional Property Contracts which closings shall
occur either concurrently with the closing hereunder or subsequent thereto
as Buyer may elect.
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f. Possession. Possession of the Western Tract (and of any of the
Additional Property conveyed by Walker to Buyer) shall be delivered to Buyer
at closing subject only to tenants then in possession under leases approved
by Buyer. Possession of the Manufacturing Facility shall be delivered to
Buyer upon the termination or expiration of the Manufacturing Facility
Lease. Possession of the Additional Property not conveyed by Walker to
Buyer shall be delivered to Buyer as provided in the Additional Property
Contracts and possession of the Foundation Lot shall be delivered as
provided in the Foundation Lot Contract.
11. Adjustments and Prorations. The following items will be prorated
between Walker and Buyer on a calendar year basis to the Closing Date and
the cash portion of the Purchase Price as provided in Paragraph 2(b) will
be adjusted to reflect such prorations: (i) the ad valorem taxes on the
Western Tract and for any portions of the Additional Property conveyed from
Walker to Buyer for the calendar year 1999; (ii) any rents due and payable
under any leases affecting the Western Tract and for any portions of the
Additional Property conveyed from Walker to Buyer; and (iii) any utilities
expenses or other operating expenses which Walker shall have prepaid with
respect to the operation of the improvements on the Western Tract. Walker
shall be responsible for the payment of all assessments levied or pending
against the Walker Property prior to the Closing Date and Buyer shall be
responsible for all other assessments, if any, against the Walker Property
levied thereafter. Ad valorem taxes and operating expenses in connection
with the Manufacturing Facility shall be paid by Walker for all periods
prior to closing and thereafter such operating expenses and taxes shall be
paid by Walker for so long as the Manufacturing Facility Lease is in effect.
Prorations with respect to the Additional Property not conveyed by Walker to
Buyer shall be accomplished between Buyer and the sellers under the
Additional Property Contracts in accordance with the terms of the Additional
Property Contracts and prorations with respect to the Foundation Lot shall be
accomplished between the Buyer and the Foundation as provided in the
Foundation Lot Contract.
12. Care and Maintenance of Walker Property Until the Closing Date. From
the date of this Agreement to the Closing Date, Walker may, but shall not
be required to, continue to operate the Walker Property in the usual and
customary course of its business consistent with past operations. Walker
shall be under no obligation to make any repairs or capital expenditures of
any kind with respect to the Walker Property or with respect to any portion
of the Additional Property acquired by Walker or to maintain or care for the
Walker Property or any portion of the Additional Property in any way, but
Walker shall not commit waste thereof.
13. Conditions to Buyer's Obligations. Buyer's obligations hereunder
shall be subject to the fulfillment of the following conditions precedent and
if any such condition precedent is not fulfilled at the Closing Date or has
not been waived by Buyer, Buyer may terminate this Agreement in which event
the Earnest Money shall be refunded to Buyer:
16
a. Walker's Compliance. Walker shall have performed and complied with
all agreements and conditions required to be performed by Walker hereunder
and Walker shall have executed and delivered to Buyer at the closing all
documents and instruments required to be delivered by Walker hereunder.
b. No Material Adverse Change in Zoning, Street Closings, or Title.
There shall have occurred no material adverse change in the zoning
applicable to the Western Tract, the Additional Property or the Foundation
Lot or in the status of the efforts to close Atlantic Avenue, Second Street
and Washington Street from that as existed at the expiration of the
Examination Period and no objections, challenges or legal actions of any
nature shall have been filed with or before any governmental entity or court
contesting the validity or propriety of the zoning applicable to the Western
Tract, the Eastern Tract, the Additional Property or the Foundation Lot or
contesting the validity of the closing of the portions of Atlantic Avenue,
Second Street or Washington Street except for the objection of Oliver Rubber
Company. There shall have occurred no material adverse change in the status
of record title to the Walker Property or the Additional Property, or the
Foundation Lot from that as existed as of the expiration of the Examination
Period.
c. Additional Property Contracts Remain in Effect. Except to the
extent that Walker shall have acquired portions of the Additional Property
pursuant to the Additional Property Contracts as provided for in Paragraph 4
hereof, the Additional Property Contracts shall remain in full force and
effect, unmodified except as consented to by Buyer, such that upon the
assignment thereof by Walker to Buyer, Buyer shall have the right to complete
the acquisition of such Additional Property in accordance with such remaining
Additional Property Contracts.
d. Required Approvals and Consents. Walker shall have obtained all
consents, approvals, and authorizations as may be necessary to authorize
Walker to complete the conveyance of the Walker Property as contemplated
hereunder (the "Required Consents") including without limitation the consent
and approval of any lender or party whose consent and approval may be
required pursuant to any loan agreement or other agreement binding upon
Walker, the approval by Walker's Board of Directors, and, if deemed
necessary by Walker's counsel, the approval by Walker's shareholders and
the approval of any governmental authority whose approval may be required.
e. Foundation Lot Contract. Unless Buyer has waived its requirement
for the Foundation Lot Contract, Buyer and the Foundation shall have entered
into the Foundation Lot Contract as provided for pursuant to Paragraph 5
hereof and the Foundation shall not be in default thereunder.
f. Rezoning of Eastern Tract. The Eastern Tract of the Walker
Property shall have been rezoned to a B-2 zoning classification as
provided for in Paragraph 7 above.
g. Settlement of Oliver Rubber Company's Objection. Oliver Rubber
Company's objection to the Closing of Atlantic Avenue shall have been
settled and its petition challenging such closing shall have been dismissed
as provided for in Paragraph 8 above.
17
14. Conditions to Walker's Obligations. Walker's obligations hereunder
shall be subject to the fulfillment of the following condition precedent and
if such condition precedent is not fulfilled at the Closing Date or has not
been waived by Walker, Walker may terminate this Agreement in which event
the Earnest Money shall be refunded to Buyer unless the Buyer is in default
hereunder:
a. Buyer's Compliance. Buyer shall have performed and complied with
all agreements and conditions required to be performed by Buyer hereunder
and shall have executed and delivered to Walker all documents required to
be executed by Buyer hereunder, including without limitation the Office
Lease and the Retail Lease, unless Walker has waived the requirement for
such leases.
15. Risk of Loss. No damage to any of the improvements located on the
Walker Property or the Additional Property occurring during the period from
the expiration of the Examination Period to the Closing Date resulting from
any fire or other casualty shall relieve Walker or the Buyer from their
respective obligations hereunder and the sale contemplated herein shall be
completed notwithstanding such casualty damage or loss without any
diminution in the Purchase Price due hereunder. Walker shall be entitled
to all insurance proceeds payable under any policy maintained by Walker with
respect to the Walker Property and Buyer shall not be entitled to share in
such proceeds. Walker may, but shall not be obligated to, restore any
improvements as may be damaged or destroyed by any fire or other casualty.
16. Tax-Deferred Exchange. In the event that Walker desires to effect
a tax-deferred exchange in connection with the conveyance of the Walker
Property, Buyer agrees to cooperate in effecting such exchange and Buyer
shall enter into such agreements as may be reasonably required to accomplish
the exchange desired by Walker; provided, however, that: (i) Walker shall
be responsible for all additional costs associated with such exchange; (ii)
Buyer shall not be obligated to assume any additional liability with respect
to such tax deferred exchange; (iii) Buyer shall not be obligated to take
title to any exchange property unless Buyer has received an environmental
site assessment with respect to such property which report is acceptable to
Buyer in all respects; and (iv) Walker shall indemnify and hold Buyer
harmless with regard thereto including from any liability arising from any
environmental conditions, at or affecting any such exchange property.
17. Earnest Money Deposit and Default. With respect to the Earnest Money
and defaults by Walker or Buyer hereunder, Walker and Buyer agree as follows:
a. Earnest Money Deposit. The Earnest Money shall be held by the
Escrow Agent in an interest bearing insured account at a federal depository
institution in Buyer's name. All interest earned upon the Earnest Money
shall be for Buyer's account and shall be deemed to be a part of the Earnest
Money and shall be applied, refunded or paid over in the same manner as
provided for herein with respect to the principal of the Earnest Money. In
the event the sale contemplated hereunder closes as herein provided, the
Earnest Money shall be paid over to Walker and credited to the cash portion
of the Purchase Price as provided in Paragraph 2 hereof. In the event either
party terminates this Agreement pursuant to any termination right granted
such party herein, other than a termination by Walker because of Buyer's
default the Earnest Money, shall be promptly refunded to Buyer and this
Agreement shall be of no further force and effect.
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b. Walker's Default. In the event that Walker defaults in the
performance of its obligations hereunder, then Buyer, as it sole and
exclusive remedy, may either (i) terminate this Agreement in which event
the Earnest Money shall be promptly refunded to Buyer, and the parties
shall thereafter have no further obligation to one another hereunder or
(ii) in lieu of terminating this Agreement and accepting a refund of the
Earnest Money, Buyer may institute an action against Walker for specific
performance of this Agreement and Walker agrees that this Agreement shall
be specifically enforceable against it. In no event, however, shall Buyer
be entitled to maintain against Walker an action for damages for Walker's
breach hereof.
c. Buyer's Default. In the event that the sale contemplated herein
does not close because of a default hereunder by Buyer, then the Earnest
Money shall be paid to Walker as liquidated damages for Buyer's default and
upon such payment this Agreement shall terminate and the parties shall have
no further obligations to one another hereunder except with respect to the
purchase and sale of any of the Additional Property which Buyer may have
acquired prior to such termination which Additional Property shall be bought
and sold as provided in Paragraph 4 hereof. The payment of the Earnest
Money to Walker shall be Walker's sole and exclusive remedy for Buyer's
default hereunder. Walker and Buyer agree that the amount of damages that
Walker would sustain as the result of Buyer's default in completing the sale
hereunder would be difficult to ascertain and that the amount of liquidated
damages provided for herein is a reasonable estimate of such damages and is
not a penalty.
18. Brokers. Buyer and Walker hereby recognize Donald R. Browning of
Providence Real Estate Advisors, L.L.C. of Charlotte, North Carolina (the
"Recognized Broker") as the broker representing Walker in connection with
this Agreement and agree that the entire commission due to such Recognized
Broker upon the closing of this transaction pursuant to an agreement between
Walker and the Recognized Broker shall be the sole responsibility of
Walker. Walker shall indemnify and hold Buyer harmless with respect to any
commissions due the Recognized Broker. Buyer hereby represents and
acknowledges that Buyer has been represented in connection with this
Agreement by Peter T. Chenery (the "Buyer's Agent) and that upon the closing
Buyer shall be responsible for all commissions as may be due the Buyer's
Agent pursuant to any agreement between Buyer and Buyer's Agent. Buyer
shall indemnify and hold Walker harmless with respect to any commissions
claimed by the Buyer's Agent. Buyer and Walker each represent and warrant
to one another that, other than the Recognized Broker and the Buyer's Agent,
each respective party has dealt with no other real estate broker, dealer or
salesperson in connection with the transactions contemplated by this
Agreement and that no other broker, dealer or salesperson is entitled to a
commission with respect to the transaction contemplated hereby based upon
actions of such respective party. Buyer and Walker each hereby agree to
indemnify, defend and hold the other harmless from any and against any loss,
damage or claim resulting from a breach of the foregoing representation,
including reasonable attorneys' fees. The provisions of this Paragraph
shall survive the closing and any termination of this Agreement.
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19. Assignment. Neither this Agreement nor the rights of Buyer hereunder
may be assigned by Buyer, whether voluntarily or by operation of law,
without Walker's prior written consent and Walker hereby reserves the right
to approve or disapprove of any proposed assignment in its sole unfettered
discretion. Notwithstanding the foregoing, H. William Hull, Jr. may,
without Walker's consent assign his rights and interests hereunder to any
partnership, limited liability company, corporation or other legal entity in
which H. William Hull, Jr. owns a controlling equity interest, provided only
that any such entity to which Hull assigns his rights and interests
hereunder shall in connection with such assignment assume the performance of
all of Buyer's obligations hereunder by written agreement, a copy of which
shall be delivered to Walker. No assignment by Hull shall be effective
unless and until Hull has provided Walker with written notice of such
assignment and with a copy of the assumption agreement executed by such
assignee. From and after such assignment, the assignee shall be the
"Buyer" hereunder.
20. Miscellaneous. Buyer and Walker hereby further agree as follows.
a. Entire Agreement. This Agreement represents the entire
understanding of the parties with respect to the subject matter hereof and
merges all prior negotiations and agreements concerning the purchase and
sale of the Walker Property. All amendments hereto must be in writing and
signed by the party sought to be charged with them.
b. Notices. Whenever any notice may be given or is required to be
given under the terms of this Agreement, the same shall be in writing and
shall be deemed given at the earlier of (i) actual delivery;
(ii) forty-eight hours after deposit in registered or certified United
States mail, return receipt requested with postage prepaid; or (iii)
twenty-four (24) hours after deposit with a recognized overnight
commercial courier; and in all events addressed to the parties as follows:
To Walker: B. B. WALKER COMPANY
414 East Dixie Drive
Asheboro, North Carolina 27203
Attention: Kent T. Anderson
Chairman of the Board
With Copies To: E. Garrett Walker
Smith Helms Mulliss & Moore, L.L.P.
300 North Greene Street, Suite 1400
Post Office Box 21927
Greensboro, North Carolina 27420
and
Donald R. Browning
Providence Real Estate Advisors, LLC
212 South Tryon Street, Suite 333
Charlotte, North Carolina 28281
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To the Buyer: H. WILLIAM HULL, JR.
Post Office Box 2203
Rocky Mount, North Carolina 27802
With Copies To: Thomas L. Young
Battle, Winslow, Scott & Wiley, P.A.
Post Office Box 7100
Rocky Mount, North Carolina 27804
To The Escrow Agent: Lawyer's Title Insurance Company of
North Carolina
or such substitute address as either party may designate by such notice.
c. Binding Effect. The parties to this Agreement mutually agree that
it shall be binding upon and inure to the benefit of their respective heirs,
representatives, successors in interest and permitted assigns.
d. Controlling Law. It is the intent of the parties hereto that all
questions with respect to the construction of this Agreement and the rights
and liabilities of the parties shall be determined in accordance with the
laws of the State of North Carolina.
e. Counterparts. This Agreement may be executed in two (2) or more
counterparts, each of which shall constitute one and the same Agreement.
f. Titles. The titles or section headings are inserted only for
convenience and are in no way to be construed as a part of this Agreement
or as a limitation of the scope of the particular provisions to which they
refer.
g. Survival of Provisions. No covenants, representations, warranties
and agreements of Walker set forth in this Agreement shall survive the
closing except those warranties contained in the deed of conveyance and
except as specifically provided for in this Agreement.
IN WITNESS WHEREOF B. B. WALKER COMPANY and H. WILLIAM HULL, JR. have duly
executed and sealed this Contract of Purchase and Sale of Real Estate as of
the day and year first above written.
B. B. WALKER COMPANY
BY: KENT T. ANDERSON
----------------
KENT T. ANDERSON
CHIEF EXECUTIVE OFFICER
ATTEST:
DOROTHY W. CRAVEN
- -----------------
DOROTHY W. CRAVEN, SECRETARY
(CORPORATE SEAL)
BY: H. WILLIAM HULL, JR.
--------------------
H. WILLIAM HULL, JR.
(SEAL)
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