<PAGE> 1
FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 10549
X Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act
- --- of 1934
For the quarterly period ended July 31, 1996
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For the Transition period from to
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COMMISSION FILE NUMBER 03938
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Wellington Hall, Limited
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(Exact name of Registrant as specified in its charter)
North Carolina 56 0815012
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Route 1, U.S. Highway 29 and 70, Lexington, N.C. 27292
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(Address of principal executive offices)
(704) 249-4931
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(Registrant's Telephone Number, including Area Code)
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 the number of shares outstanding of each of insurer's classes of
common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
CLASS Number of Shares Date
----- ---------------- ----
<S> <C> <C>
Common Stock 1,689,887 July 31, 1996
</TABLE>
Traditional Small Business Disclosure Format:
YES X No
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Page 1 of 24 Pages
EXHIBIT INDEX (NONE -- No Exhibits Filed)
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WELLINGTON HALL, LIMITED AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
Item 1. Consolidated Financial Statements
Consolidated Balance Sheet - July 31, 1996 3
Consolidated Statements of Operations,
Nine Months Ended July 31, 1996 and 1995 5
Consolidated Statements of Changes in
Cash Flows - Six Months Ended July 31,
1996 and 1995 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 13
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Wellington Hall Limited And Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
Quarter Ended
July 31,
ASSETS 1996
<S> <C>
Current Assets:
Cash $ 16,841.18
Accounts Receivables
Trade $ 703,367.10
Allowance For Bad Debt $ (43,800.00)
Inventories $ 4,642,942.07
Note Receivable-Officer $ 27,907.84
Prepaid Expenses $ 146,452.32
Deferred Income Taxes $ 0.00
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Total Current Assets $ 5,492,652.31
Deferred Income Taxes $ 108,864.00
Property, Plant, and Equipment
Cost $ 2,138,679.83
Less Accumulated Depreciation $(1,228,962.64)
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$ 909,717.19
Other Assets $ 27,598.73
Total Assets $ 6,548,791.80
</TABLE>
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Wellington Hall Limited And Subsidiaries
Consolidated Balance Sheet
<TABLE>
<CAPTION>
Quarter Ended
July 31,
LIABILITIES 1996
<S> <C>
Current Liabilities:
Current Maturities of L/T Debt $ 316,786.26
Notes Payable, Banks $1,542,280.11
Accounts Payable
Trade $ 442,168.00
Sundry $ 82,508.42
Customer Deposits $ 62,352.28
Other Current Liabilities $ 229,050.43
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Total Current Liabilities $2,675,145.50
Noncurrent Liabilities:
Deferred Compensation Accrual $ 222,000.00
Long-Term Debt, Less Current Maturities $1,118,272.89
Total Liabilities $4,015,417.99
STOCKHOLDERS' EQUITY
Common Stock; Authorized 6,000,000 $6,759,549.00
Shares; No Par; Stated Value $4; Shares
Issued and Outstanding-1,689,887
Amount Less Than Stated Value Paid ($3,705,017.99)
For Common Stock (Common Stock
Discount)
Preferred Stock; Authorized 5,000,000
Shares; $5 Par; No Shares Issued
Or Outstanding
Retained Earnings $1,262,699.43
Cumulative Translation Adjustments ($1,783,856.64)
Total Stockholders' Equity $2,533,373.80
Total Liabilities & Equity $6,548,791.79
</TABLE>
Notes to consolidated financial statement are an internal part hereof.
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Wellington Hall Limited And Subsidiaries
Statement Of Operations
<TABLE>
<CAPTION>
Three Months Ended
July 31,
1996 1995
<S> <C> <C>
Revenues:
Sale Of Furniture $1,246,698 $1,473,474
Other Income $ 2,140 $ 5,838
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Total $1,248,837 $1,479,312
Cost Of Furniture Sold $ 850,591 $ 981,741
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Gross Profit $ 398,246 $ 497,571
Other Operating, Selling,General $ 319,599 $ 351,950
And Administrative Expenses
Income (Loss) From Operations $ 78,647 $ 145,621
Other Deductions:
Interest Expense-S/T $ 53,228 $ 54,197
Interest Expense-L/T $ 38,158 $ 40,673
---------- ----------
Total $ 91,386 $ 94,869
Income Before Taxes And $ (12,739) $ 50,751
Extraordinary Items
Income Taxes $ 2,277 $ 5,995
Net Income $ (15,016) $ 44,756
---------- ----------
Earnings (Loss) Per Share Of
Common Stock
Primary And Assuming Fully
Diluted
Income Before Extraordinary Item $ (0.01) $ 0.03
Extraordinary Item $ 0.00 $ 0.00
---------- ----------
Net Income (Loss) $ (0.01) $ 0.03
</TABLE>
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Wellington Hall Limited And Subsidiaries
Statements of Cash Flow
<TABLE>
<CAPTION>
Three Months Ended
July 31,
1996 1995
<S> <C> <C>
Cash Flow From Operating Activities
Net Income (Loss) For The Period $ (15,015) $ 45,200
Noncash Expenses (Income) Included
In Net Income
Depreciation $ 28,449 $ 32,283
Deferred Income Taxes $ 0 $ 0
Deferred Compensation $ 6,000 $ 6,000
Changes in Assets and Liabilities:
(Increase) Decrease In Accounts
Receivables, Net $ 51,778 $ 65,524
(Increase) Decrease In Note Receivable $ 0 $ 0
(Increase) Decrease In Inventories $(179,500) $(331,940)
(Increase) Decrease In Prepaid Expenses $ (14,192) $ 65,190
(Increase) Decrease In Other Assets $ (2,505) $ 3,567
Increase (Decrease) In Accounts
Payables, Customer Deposits And
Other Current Liabilities $ (9,873) $ 123,614
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Net Cash Provided By (Used For) $(134,859) $ 9,437
Operating Activities
Cash Flow From Investing Activities:
Purchase of Property And Equipment $ (20,455) $ (5,687)
Cash Flow From Financing Activities:
Proceeds From Long-Term Borrowing $ (38,646) $ (71,680)
Proceeds From Short-Term Borrowing $ 145,575 $ 116,667
--------- ---------
Net Cash Provided By Financing Activities $ 106,929 $ 44,987
Effect Of Exchange Rate On Cash $ 15,875 $ 3,685
Net Increase (Decrease) In Cash $ (35,514) $ 52,423
Cash, Beginning Of Period $ 54,679 $ 31,132
Cash, End Of Period $ 16,841 $ 83,556
Cash Paid During The Period For:
Income Taxes $ 0 $ 5,995
Interest $ 91,386 $ 94,869
</TABLE>
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ITEM I. CONTINUED
WELLINGTON HALL, LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting of only normal
recurring accruals) necessary to present fairly the financial position of
the Company for the interim period presented.
2. The results of operation for the three-month period ended July 31, 1996 and
July 31, 1995, are not necessarily indicative of the results to be expected
for the full year.
3. Promotional expenses are charged in as incurred.
4. The Company takes a physical inventory at the end of the second quarter
(October 31,) and at year-end (April 30). At the end of each month and at
the end of the first quarter' (July 31) and the third quarter (January 31),
inventories are adjusted to purchases, production and shipments.
5. The financial statements of the Company's foreign subsidiary, Muebles
Wellington Hall, S.A., have been translated into U.S. dollars in accordance
with FASB Statement No. 52. All balance sheet accounts have been translated
using the current ("spot") exchange rates at the balance sheet date or
12.15 Lempiras to 1 U.S. Dollar. Income statement amounts have been
translated using the weighted average exchange rate which for the period
was 11.83 Lempira to 1 U.S. Dollar. The gains and losses resulting from the
change in exchange rates during the quarter have been reported separately
as a component of stockholders' equity entitled "Cumulative Translation
Adjustments". Net currency transaction gains or losses which occur during
the quarter are included in net earnings.
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Item 2:
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Accounts receivables decreased by approximately $53,000 as a results
of a decline in revenues caused mostly by restricted production and extended
vacation close down for the domestic operations as a result of the continuing
weakness in the furniture segment of the national economy. The receivables
represented a turnover rate of about fifty-one days and represents a increase
of about five day when compared to the turn over rate reported at April 30,
1996.
Inventories increased by about $71,000 during the fiscal quarter as
a result of increased production at the Company's Honduras facility with
shipments there increasing significantly in July which left approximately
$200,000 of inventory in transit to the Lexington N.C. facility at quarter's
end versus about $74,000 at year end April 30, 1996. The receipt of these
intransit inventories and the continued higher levels of production at the
Honduras facility are expected to support an increase in the future Company
sales. The increased production at that facility is in response to a renewed
and revised marketing effort put in place early in 1996 which is having a
positive effect on the Companys level of incoming orders and has resulted in a
backlog of orders of approximately $2,033,000 at July 31 versus $1,796,000 at
the same time last year and $1,853,000 at April 30. A portion of the April 30,
1996 backlog were orders for new products introduced at the April National
Furniture Market held in High Point N.C. and the production requirements of
theses new products were prohibitive to the shipment of theses products during
the first quarter ended on July 31 but are expected to effect second quarter
sales.
The reported inventory level of approximately $4,643,000 at the
first fiscal quarter's end were down about $369,000 from the $5,012,000
reported at July 31, 1995. Thought the level of inventory reported last year
were somewhat hyped by inordinate wood delivers during that first quarter, the
drop in the level of inventory also reflects efforts to reducing the level of
inventory to accommodate cash flow and to bringing the turn ratio to an
acceptable level over time.
On July 31, 1996 the Company's subsidiary Wellington Hall Caribbean
Corp.'s loan with the Overseas Private Investment Corporation (OPIC) had an
outstanding balance of $990,999 that carried an interest rate of 12% per annum.
Prior to July 31, 1996 the terms of the loan require quarterly principal
payments when amounted to approximately $123,500 per year and were scheduled to
double to about $247,000 per year beginning July 31, 1996. On July 19, 1996 the
Company requested that OPIC change the terms of the loan including a change to
the interest rate to 9% per annum and that addition principal payments be
delayed by two years. At the time of that request, OPIC responded by rescinding
the Company's obligation to make a principal payment scheduled for July 31,
1996 in the amount of approximately $62,500. In addition, OPIC committed to
reviewing certain requested information and, thereafter, determining what other
concessions were necessary to accommodating the Company's need of time to
growing its sales and to accumulating adequate working capital through profits
to support a level of sales against which adequate profits could be expected to
service and repay the balance of the loan and other
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obligations. The information requested by OPIC is extensive and includes
detailed proforma projected financial results in monthly detail for fiscal
1997, Quarterly details for fiscal 1998, and annual results for fiscal 1999.
Though high priority is given to the preparation of this information, other
demands since the July 19th meeting have limited the available management time
for the preparation of the information. It is projected that the information
will be submitted mid to late September or about one month later that
originally planned. The final nature or configuration of a requested concession
on the interest rate or repayment of principal by OPIC, if a concession is made
at all, nor the timing of a decision by OPIC are unknown at the time this
filing is submitted.
The current maturities on long term debt reported on the consolidated
balance sheet of $316,786 does not reflect the rescinded obligation to a
principal payment originally due on July 31, 1996 nor does the balance
anticipate any other changes to the terms of the OPIC loan.
The Company must meet its interim cash requirements through cash flow
from operations and use of both domestic and foreign lines-of-credit. At July
31, 1996 the Company had approximately $11,000 available from Lexington State
Bank (LSB), its domestic bank. The foreign subsidiary had available
approximately $140,000 from its primary foreign bank lender, BANCHASA, which
corresponds with Nations Bank and none from its secondary foreign bank, Banco
De Honduras, a subsidiary of Citibank.
Property and equipment is reported to be down about thirty-five
thousand dollars but when expenditures of approximately twenty thousand
dollars are added then the reduction would be about fifty-five thousand
dollars. The decline is mostly the result of the devaluation of the Honduran
currency relative to the prior fiscal year end. The currency exchange rate was
11.06 to $1 on April 30, 1996 and 12.15 to $1 on a July 31, 1996, an almost ten
percent reduction in value during the first quarter. The historical value of
the Company's Honduran assets are carried on the subsidiaries books in the
local currency, the lempira. Accounting rules dictate that those lempiras be
converted to dollars at the "spot" rate in effect on July 31, 1996. The
reduction to these assets appears as part of the translation adjustment. There
are no significant capital expenditures planned for the balance of this fiscal
year.
The Company's current liabilities are approximately $79,000 above that
reported at 4-30-96 or about (3%) three percent mostly as a result of the
increases in raw material inventories and production at the Honduran facility.
However, the current liabilities are about $180,000 less than that reported at
the end of the previous years first quarter. Short-term borrowing increased by
about $127,000 and accounts payable decreased by about $38,000 and current
maturities on long term debt decreased by about $31,000.
THREE MONTHS ENDED JULY 31, 1996 COMPARED TO THE THREE MONTHS
ENDED JULY 31, 1995
Consolidated sales for the quarter were down approximately $227,000 or
15% for the three months period as a result of the current recession within
the furniture segment of the national economy, a shrinking distribution base
and possibly a permanent resistance by the consumer to
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<PAGE> 10
purchasing more stylish, higher quality, and higher priced furniture. Sales for
domestically produced product were down about (21%) twenty-one percent for the
quarter and sales of foreign produced products declined by about (13%) thirteen
points for the quarter. The foreign sales include inter company sales and
reflect the impact the recession is having on total operations and the effort
to reduce inventories during a period of a soft economy.
Orders for the three months periods were approximately $1,470,000,
essentially equal to last year's first quarter, but the Company was without a
salesmen in it's North Carolina, South Carolina and Virginia territory (the
"North Carolina territory"), its most productive, for one half the quarter
when the previous multi line representative resigned and negotiations with an
individual to fill the opening as an exclusive representative, a sales and
marketing manager, and as and investor delayed the process.
On September 6, 1996 the Company executed an "Employment And Stock
Purchase Agreement" (the "agreement") with Arthur F. Bingham and the entire
text of this agreement is herein included as Exhibit No. 10.17 under PART II,
Item 6 of this report. Some of the more significant conditions of this
agreement makes Mr. Bingham, who is a nominee for the election to the board of
director at the meeting of the shareholders to be held September 18, 1996, the
Company's exclusive sales representative in the North Carolina territory, the
Senior Executive Vice President of Sales and Marketing, and requires an
investment of $300,000 for the Company stock within sixty days of the effective
date of the agreement. For these duties Mr. Bingham will receive the normal
sales commissions paid on the territory sales and a compensation package for
his Sales and Marketing responsibilities including a base salary, disability,
and expense reimbursement that totals approximately $52,200 per year.
Cost of Sales were down approximately $131,000 (13%) thirteen percent
for the three months periods as compared with last year and reflects management
efforts to curtail production, reduce cost and to reducing inventories to
manage the company's cash position.
Selling, General and Administrative Expenses decreased by about
$32,000 during the first quarters as compared to last year.
Interest Expenses for the quarter decreased slightly because of lower
interest rate being applied to domestic borrowing as compared to last year.
In January 1996, the Company employed Mr. Arnold Axelberg as a
consultant to fill the capacity of Marketing Manager. During the previous two
years, Mr Axelberg has consulted for a number of furniture companies having
previously been employed by Rich's department stores where he was the Senior
Buyer for furniture for sixteen years. The primary purpose of Mr. Axelberg's
employment was to work with management in the development and execution of a
marketing plan aimed at increasing revenues and reducing inventories.
Management believes Mr. Axelberg's association has produced some results and
his employment with the Company will continue for the time being to among other
things assist with the transition period that is
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anticipated for Mr. Bingham to learn and understand certain marketing programs
and commitments to dealers put in place since Mr. Axelberg was employed and
that management desires being continued.
In 1989 the Company acquired the Honduran facility and anticipated
raising $1,500,000 through the sale of the Company's stock by the board of
directors. The private placement ended early in 1990 having produced about one
half the funds anticipated. The result of not raising all the funds has been
that the Company has had to take on more debt and restrict it capital
expenditure that were both in its original plans for the acquisition and over
time since the the acquisition. Because of this debt, sales, from the time of
the acquisition, needed to grow rapidly to a level against which operating
incomes would be adequate to servicing the debts and to funding capital needs
if the Company was to growth. Thought the Companys operating profits, as a
percent of sales, has for the most part been adequate, maintaining an adequate
level of sales since the acquisition has only been possible over limited
periods of time mostly as a result of a sluggish furniture economy which has
existed over much of that time, a period which includes two out and out
recessions. To further complicate the matter, the sluggish furniture economy
has diminished the distribution base especially the base of mid to small
retailers more committed to using smaller manufactures, such as the Company, as
a resource and the consumer taste in home furnishings seems to have swung away
from the more formal designs and execution the Company marketed to a the more
informal designs and execution.
The resulting situation is that the Company has too much debt service
given its sales volume more recently achieved and inadequate funds for its plans
to restoring and growing its sales to a level where its operating profits can
accommodate all the needs. Having initiated early in 1996 a marketing effort to
achieving the sales, and having begun to see the results of this effort, the
Company is now prepared to address a means to securing the necessary funding and
to solving its debt-equity problem in general. Having, over time, discussed,
investigated and evaluated a number of means of raising equity capital and given
more recent developments, the Company now intends to take the following steps
that are expected to raising capital, reducing debt, increasing working capital,
and increasing its sales. The plan is as follows:
1. The Company will request that its line of credit with Lexington State Bank,
its primary domestic bank, be extended by $250,000 to manage short term
requirements. Though initial discussions have been positive, there is no
assurance the extension will be granted.
2. The agreement between the Company and Arthur Bingham disclosed above will
make $300,000 available to the Company by November 6, 1996.
3. The General Manager of the Company's Honduran subsidiary has verbally
committed to investing 1,800,000 Honduran lempiras which will repay the
Company's indebtedness with Banco de Honduras which at the exchange rate in
effect at July 31, 1996 would equate to approximately $150,000. These funds are
contingent on the sale of certain real-estate own by the General Manager which
could be completed by as early as November of this year but could intend until
the spring of 1997.
4. The Company plans to prepare for approval by the Securities and
Exchange Commission a stock offering to its current shareholder to buy
additional, registered common stock at a price at or
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near the market price and to include a further enticement to purchase in the
form of a number of warrants based the level of participation by the
shareholder in the offering
5. Included as a condition of the proposed stock offering will be the right of
the board of directors to sell any remaining stock not purchased by the
stockholders and not required to satisfy the required stock that will be issued
to Mr. Arthur Bingham and the Companys Honduran General Manager in exchange for
their investment to other investors. The Company has no specific investor
committed to purchasing this unsubscribed stock.
6. Discussed above is a request made of the Overseas Private Investment
Corporation for a concession on the terms of the Company's loan whereby
principal payments would be delayed for two years. If that concession is
granted, then the scheduled payments for fiscal year 1997 of approximately
$247,000 would not be required and the cash requirement for these principal
payments relative to fiscal year 1996 would be reduced by about $123,500.
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PART II
Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits Filed: 10.17 Employment and Stock Purchase
Agreement between the Company and Arthur F. Bingham effective
September 1, 1996
(b) Reports on From 8-K filed during the quarter ended
July 31, 1996: None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WELLINGTON HALL, LIMITED
------------------------
(Registrant)
Date: September 12, 1996 By: /s/ Hoyt M. Hackney, Jr.
------------------ ---------------------------------
Hoyt M. Hackney, Jr., President and
Chief Executive Officer
Chief Financial Officer
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Exhibit No. 10.17
EMPLOYMENT AND STOCK PURCHASE AGREEMENT
THIS EMPLOYMENT AND STOCK PURCHASE AGREEMENT ("Agreement"), made
effective September 1, 1996, by and between Wellington Hall, Limited a North
Carolina corporation ("Company"), and Arthur F. Bingham of Davidson County,
North Carolina ("Bingham");
WITNESSETH:
WHEREAS, the Company is engaged in the business of manufacturing,
buying, finishing and selling furniture and related products and in all
activities incidental thereto; and
WHEREAS, in addition to the Company business located North of
Lexington, North Carolina, on Interstate 85, the Company owns a business
operation in San Pedro Sula, Honduras, through its wholly owned subsidiary,
Wellington Hall Caribbean Corp; and
WHEREAS, it is the need of additional capital for various uses
including reduction of outstanding debt and capital expenditures; and
WHEREAS, the shares of the Company in accordance with the information
furnished by MacDaniel, Lewis and Co., a market maker in the Company's common
stock, the high and low quotes for the last several months have been
approximately forty-four cents ($.44) and thirty-two cents ($.32) respectively;
and
WHEREAS, the Company desires to employ and obtain the unique
experience, ability and services of Bingham who has had many years of
experience in sales marketing and product development for a major furniture
manufacturer; and
WHEREAS, Bingham desires to become affiliated with the Company and to
make an investment in common shares of the Company in the amount of Three
Hundred Thousand Dollars ($300,000.00); and
WHEREAS, the Company desires to employ Bingham as Senior Executive
Vice President of Sales and Marketing and Bingham desires to accept said
employment and make the investment as hereinabove outlined under the terms and
conditions hereinafter set forth; and
WHEREAS, the terms and conditions of this Agreement were duly
reviewed, approved and authorized by Company's Board of Directors at its
meeting held on the 31st day of August, 1996.
NOW, THEREFORE, in consideration of the premises and the promises of
the parties as hereinafter set forth, the parties hereby covenant and agree as
follows:
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1. EMPLOYMENT AND DUTIES. Company hereby employs Bingham and Bingham
accepts employment as Senior Executive Vice President of Sales and Marketing
and an exclusive sales representative to perform the duties outlined in the
schedule attached hereto as Schedule "A" which is incorporated herein by
reference, along with any other duties that may be reasonably assigned to him
by the President or Board of Directors of the Company for the term of this
Agreement.
2. PERFORMANCE. During the term of this Agreement, Bingham agrees to
devote his full time and attention to such employment and to use his best
efforts in the performance of the duties customarily incident to such offices
and such other duties that may from time-to-time be assigned to him by the
Board of Directors.
3. TERM. The initial term of this Agreement shall be for a ten (10)
year period beginning as of September 1, 1996, and ending on August 31, 2006,
unless sooner terminated as provided by paragraph 17. Thereafter, the term of
this Agreement shall automatically be extended for successive one-year terms
unless and until either party shall give the other written notice of
termination at least ninety (90) days prior to the end of the current term or
any extended term.
It is contemplated that throughout his term of employment, Bingham
shall continue to occupy the position of Senior Vice President of Sales and
Marketing and shall continue to be elected as a Director of the Company. In the
event Bingham is for any reason whatsoever not continued in such posts he shall
have the right, but not the obligation, to terminate his employment under this
Agreement by giving thirty (30) days written notice of such intention to the
Company, and if such failure is not cured within said thirty (30) day period,
this contract shall terminate at the end of said thirty (30) day period and the
Company will immediately pay to Bingham severance compensation equal to one
and a half (1 1/2) times the annual compensation provided in this Agreement for
Bingham for the year in which such notice is given. If Bingham does not
terminate, then nothing herein shall be construed to limit the term of this
Agreement or Bingham's compensation hereunder.
4. COMPENSATION. In consideration of services to be rendered by
Bingham hereunder, all of which are described in Schedule "A" attached hereto
(the "Services"), which Services are acknowledged by the Company to be
valuable, unique and in its best interest, the Company agrees to pay to Bingham
and he agrees to accept the following annual compensation payable monthly:
(a) In addition to the services to be performed as described in
Scheduled "A" attached hereto, Bingham is hereby granted a
sales territory described in Schedule "B" attached hereto (the
"Territory") for which he will be paid a commission of five
percent (5%) of all sales of products of Wellington Hall
Caribbean Corp ("WHCC") and six percent (6%) commission of all
sales of products of the Company. The commission will be paid
by the 10th of the month on orders shipped the previous month.
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The above commission shall exclude what is commonly referred
to as OEM sales; i.e. wood sales, intercompany sales to
Wellington Hall Limited, component sales, or sales to other
manufacturers. Commissions will be paid on all Company
products sold to or offered to a Company dealer within the
boundaries of the Territory.
(b) As compensation for the position of Senior Executive Vice
President of Sales and Marketing, Bingham shall receive a sum
of at least Thirty Thousand Dollars ($30,000.00) annually
payable on a monthly basis with the first payment due on
September 30, 1996 (the "Annual Compensation"). In addition to
the above, an annual bonus shall be paid which will be a sum
equal to the amount which two percent (2%) of the sales in the
territory from WHCC and one percent (1%) of the sales in the
territory from the Company exceeds Thirty Thousand Dollars
($30,000.00) for each fiscal year beginning September 1, 1996,
through August 31, 1997. This bonus shall be payable within
thirty (30) days after complete of the fiscal year. In no
event shall the annual compensation be less than Thirty
Thousand Dollars ($30,000.00).
(c) In addition to the above Bingham shall receive a five percent
(5%) commission on all orders that are considered "House"
orders, and five percent (5%) commission on inventory sales
that will be used to raise capital and reduce inventory which
will be primarily out of "seconds", overruns and discontinued
items. All such commission shall be payable on the 10th of the
month on sales shipped the previous month.
5. EXPENSES. The Company recognizes that in the course of performing
his services hereunder Bingham will necessarily incur expenses in connection
with those duties. In connection with the duties of acting in the capacity of
Senior Executive Vice President of Sales and Marketing he will incur expenses
for such items as entertainment, travel, hotels, out-of-town meals, gas and any
trips required to be made to Honduras. The Company will reimburse Bingham for
all of the reasonable business expenses described above. As regards his duties
as a sales representative in the Territory, Bingham will be reimbursed for
similar reasonable business expenses up to a maximum of Fifteen Thousand
Dollars ($15,000.00) per year. Reimbursement to be made within thirty (30)
days after filing the requisite request and documentation of expenses so
incurred. In addition to the above, Company will provide a cellular telephone
for the use of Bingham with said account in the name of the Company.
The maximum of Fifteen Thousand Dollars ($15,000.00) per year as
reimbursement to Bingham as a sales representative provided above shall be
increased on an annual basis commencing September 1, 1997, by an amount in each
year in which the National Consumer Price Index, for the month of July,
published by the United States Bureau of Labor Statistics, shows a
-16-
<PAGE> 4
rise in the cost of living index for Greensboro, North Carolina, over the level
of such cost of living index in July of 1996, and such adjustments shall be
made on a cumulative basis every two (2) years.
6. TRANSPORTATION. The Company shall have no obligation to provide an
automobile for the use of Bingham; however, during the term of this Agreement
the Company shall pay to Bingham Three Hundred Fifty Dollars ($350.00) per
month payable on the 10th of the month for Bingham's use in financing,
operating, maintaining, insuring, and providing for other expense incidental to
the operation and maintenance of an automobile, which the company acknowledges
is necessary in the performance by Bingham of his duties hereunder.
7. OFFICE. In connection with his duties as Senior Executive Vice
President of Sales and Marketing, Bingham will be provided an office at the
Company's plant in Lexington, North Carolina, with the usual office
appointments.
8. ACCESS TO COMPANY RECORDS. During the term that Bingham is a
Director and Senior Executive Vice President of Sales and Marketing, he shall
have access to all records, financial and otherwise of the Company and shall be
allowed to make copies thereof for his personal use only recognizing the
fiduciary duty which he will owe to the Company pursuant to his position.
9. MOVING EXPENSES. The Company recognizes that Bingham does not live
in the immediate area of the Company and the Company agrees to pay all
reasonable moving expenses up to a maximum of Seventy-Five Hundred Dollars
($7,500.00) which Bingham incurs in moving to the area of High Point, North
Carolina.
10. GROUP INSURANCE. The Company agrees to provide for Bingham during
the term of this Agreement, suitable group medical, accident and health
insurance in reasonable amounts the same as provided for other offices employed
by the Company.
11. LIFE INSURANCE. The Company agrees to pay for a term life
insurance policy on the life of Bingham with the Company to be the beneficiary
in a policy amount of One Million Dollars ($1,000,000.00) with the annual
premium not to exceed Three Thousand Six Hundred Dollars ($3,600.00) per year.
If the term insurance premium ever exceeds Three Thousand Six Hundred Dollars
($3,600.00) per year, the amount of life insurance which can be purchased for
Three Thousand Six Hundred Dollars on the life of Bingham will be amount
purchased. For the period of time that the premiums are less than Three
Thousand Six Hundred Dollars ($3,600.00) per year, the balance, if any, will be
payable to Bingham as an additional supplement on Bingham's disability
insurance premiums in addition to any sums set forth in paragraph 12.
12. DISABILITY. Bingham shall receive full compensation for any
period of illness or incapacity during the term of this Agreement.
Notwithstanding the foregoing, the Company shall have the right to terminate
this Agreement if such illness or incapacity shall be of such a character
-17-
<PAGE> 5
as to prevent Bingham from materially performing his duties hereunder for a
period of six (6) consecutive months by giving Bingham at least thirty (30)
days written notice of the Company's intention to do so. If Bingham resumes the
performance of his duty within thirty (30 days following receipt of such notice
and materially performs such duties on a regular basis thereafter, then this
Agreement shall continue in full force and the Company's notice of intention to
terminate shall have no further effect.
The Company agrees to provide Bingham with a disability insurance
policy in an amount satisfactory to Bingham; however the obligation of the
Company shall be limited to payment of premiums not to exceed Twenty-Four
Hundred Dollars ($2,400.00) per year. Any additional amount of premium to buy
the disability insurance which Bingham desires shall be the sole obligation of
Bingham.
3. STOCK PURCHASE AGREEMENT. Company intends to file a registration
whereby Company will sell a certain number of shares at Fifty Cents ($.50) a
share with each present shareholder being given the option to purchase their
prorata number of shares. Each such shares shall also contain a warrant to
purchase one (1) additional share for each four (4) shares owned at a stated
price. Company and Bingham agree to enter into a Stock Purchase Agreement
wherein Company agrees to sell and Bingham agrees to purchase six hundred
thousand (600,000) shares of common stock of the Company at Fifth Cents ($.50)
per share. The Stock Purchase Agreement shall provide that the shares to be
sold by the Company and purchased by Bingham shall first come from unsubscribed
shares of the offering. In the event there is not six hundred thousand
(600,000) unsubscribed shares available, then Company shall issue additional
shares at Fifty Cents ($.50) a share containing identical warrants attached
thereto in order that there will be sufficient shares to fund Company's
obligation to sell hereunder and Bingham's obligation to purchase six hundred
thousand (600,000) shares of Company's common stock at Fifty Cents ($.50) per
share. Bingham shall deliver his check in the amount of Three Hundred Thousand
Dollars ($300,000.00) within sixty (60) days of the execution of this
Agreement.
14. STOCK OPTION. Company agrees to enter into an Executive Stock
Option Plan wherein Company shall grant to Bingham the option to purchase one
hundred fifty thousand (150,000) shares of common stock at Fifty Cents ($.50)
per share, one hundred fifty thousand (150,000) shares of common stock at
Eighty Cents ($.80) a share and one hundred fifty thousand (150,000) shares of
common stock at One Dollar and Thirty Cents ($1.30) per share under the
following conditions:
(a) If from May 1, 1997 until April 30, 1998 the combined
Wellington Hall Limited ("WHL") and Wellington Hall Caribbean
Corp ("WHCC") shipments of retail sales as hereinabove defined
in the Territory ("1998 Sales") are equal to or greater than
Two and a half Million Dollars ($2,500,000.00) then the first
option to purchase one hundred fifty thousand (150,000) shares
of common stock of WHL at Fifty Cents ($.50) per share will be
effective for a period of seven (7) years beginning September
1, 1998.
-18-
<PAGE> 6
(b) If from May 1, 1998, until April 30, 1999, the combined WHL
and WHCC shipments of retail sales from the Territory ("1999
Sales") for which commissions were earned are equal to or
greater than Two Million Seven Hundred Thousand Dollars
$2,700,000.00), or the second option for one hundred fifty
thousand shares (150,000) of common stock of WHL at Eighty
Cents ($.80) per share will become effective for a period of
seven (7) years beginning September 1, 1999.
(c) If from May 1, 1999,until April 30, 2000, the combined WHL and
WHCC shipments of retail sales from the Territory for which
commission were earned ("2000 Sales") are equal to or greater
than Three Million Dollars ($3,000,000.00) then the third
option for one hundred fifty thousand (150,000) shares of
common stock of WHL shall be effective as of September 1,
2000.
15. COMMISSIONS FROM HUNT TERRITORY. Any commissions that would
normally be paid in Bingham's territory (formerly Don Hunt's territory) for
orders received by Company after June 10, 1996, and shipped after August 12,
1996, will be paid to Bingham.
16. GENERAL BINGHAM BENEFITS. This Agreement is not intended and shall
not be deemed to be in lieu of any rights, benefits and privileges to which
Bingham may be entitled as an employee of the Company under any retirement
pension profit-sharing, vacation or other plan which may now be in effect or
which may hereinafter be adopted by the Company.
17. TERMINATION. The Company shall have the right to terminate this
Agreement only for cause. "For cause" for the purposes of this Agreement shall
be deemed to be only (a) willful material breach of Bingham's obligations under
this Agreement, which breach is not substantially cured by Bingham within ten
(10) business days after the Company gives written notice of the specific
alleged breach to Bingham (it being understood that Bingham's failure to
perform and discharge his duties and responsibilities hereunder as a result of
his incapacity due to physical or mental illness or injury or accident or death
shall not be deemed such a breach); (b) willful gross misconduct of Bingham in
the course of his employment that is substantially injurious to the company;
and (c) conviction in any court of a felony which results in incarceration for
more than ninety (90) consecutive days (unless such conviction is reversed in
any final appeal thereof).
18. SALE, MERGER, CONSOLIDATION OR LIQUIDATION. If the Company is
merged, liquidated, consolidated or otherwise combined with any other company
or if substantially all of the assets of the Company are acquired by any other
person or entity, or if the control of the Company shall pass to any other
person or entity not presently in control, then in that event the Employment
Agreement shall remain in full force and effect or at the option of the Company
upon the occurance of any such events described above, then the Company or its
successor may terminate this Agreement upon the payment to Bingham of an amount
equal one and a half (1 1/2) times his earnings for the last fiscal year prior
to the date of termination. For purpose of determining Bingham's earnings,
there shall be included both Bingham's commissions paid under Bingham's
territory, plus any compensation paid for Bingham's position as Senior
Executive Vice President
-19-
<PAGE> 7
of Sales and Marketing. In the event Bingham's employment is terminated, the
payment provided herein shall be made within thirty (30) days after the date of
termination.
19. NOTICES. All notices to be given by any party to this Agreement to
any other party shall be in writing and shall be given by depositing such
notice in the United States mail first-class postage prepaid, addressed as
follows:
If to Company: Chairman of the Board
Wellington Hall Limited
Post Office Box 1354
Lexington, North Carolina 27293-1354
With Copy to: Gaither S. Walser
Brinkley, Walser, McGirt,
Miller, Smith & Coles PLLC
Post Office Box 1657
Lexington, North Carolina 27293-1657
If to Bingham: Arthur F. Bingham
Post Office Box 1354
Lexington, North Carolina 27293-1354
With Copy To: Mr. James M. Gaither, Jr.
Gaither, Gorham & Crone
Suite 203
27 1st Avenue NE
Post Office Box 2507
Hickory, North Carolina 28603
20. MISCELLANEOUS.
(a) This Agreement shall be governed by and construed according to
the laws of the State of North Carolina.
(b) This Agreement shall insure to the benefit of and be binding
upon the Company, its successors and assigns, including,
without limitation, any person, partnership, company or
corporation which may acquire substantially all of the
company's assets or business or into which the Company may be
liquidated, consolidated, merged or otherwise combined, and
shall inure to the benefit of and be binding upon Bingham, his
heirs, distributees and personal representatives.
(c) The failure of either the Company or Bingham to insist in any
one or more instances upon performance of any terms or
conditions of this Agreement shall not
-20-
<PAGE> 8
be construed to be a waiver of future performance of any such
term, covenant or condition and the obligations of the
respective parties hereto shall continue in full force and
effect.
(d) This Agreement constitutes the full and complete understanding
and agreement between the Company and Bingham as to the
subject matter hereof and supersedes all prior understandings
and agreements and cannot be amended, modified or supplemented
in any respect except by subsequent written agreement of the
Company and Bingham.
(e) Headings in this Agreement are for convenience only and shall
not be used to interpret or construe its provisions.
(f) This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which
together shall be one and the same instrument.
(g) Annual compensation payable under this Agreement shall cease
upon Bingham's death; however, any deferred compensation
arrangements which may be payable to Bingham under this
Agreement or any other plan, along with any stock options
which have been earned pursuant to this Agreement and the
Stock Options Agreement to be entered into by Company and
Bingham shall remain in full force and effect and be payable
in accordance with their terms.
(h) Death, illness, incapacity or disability of Bingham during the
term hereof shall not constitute a breach of this Agreement by
Bingham.
IN WITNESS WHEREOF, the parties hereto have herunto signed their
names, and the Company has caused its name to be signed hereto by its President
and attested by its Secretary and its corporate seal to be affixed, and the
undersigned individual herewith expressly adopts as his seal the word "SEAL"
appearing beside his signature below, all of which was done as of the day and
year first above written.
WELLINGTON HALL LIMITED
By:/s/ Hoyt M. Hackney, Jr.
--------------------------
President
-21-
<PAGE> 9
ATTEST:
/s/ William W. Woodruff
- --------------------------
Secretary
[SEAL] /s/ Arthur F. Bingham (SEAL)
-------------------------
Arthur F. Bingham
-22-
<PAGE> 10
SCHEDULE "A"
DUTIES OF BINGHAM
JOB TITLE: SENIOR EXECUTIVE VICE PRESIDENT OF SALES AND MARKETING
PURPOSE: TO ADMINISTER A NATIONAL SALES AND MARKETING PROGRAM THAT ASSURES
CONTINUING GROWTH IN THE COMPANY'S PROFITABLE SALES.
DUTIES:
DEVELOP AND EXECUTE AN ANNUAL SALES AND MARKETING BUDGET THAT COVERS
ALL SALES TERRITORIES, DEMONSTRATES A GROWTH IN SALES, AND CONTROLS COSTS.
DEVELOP AND MAINTAIN A PRODUCT STRATEGY THAT MEETS THE COMPANY'S
PRODUCTION NEEDS AND CAPABILITIES. DIRECT THE PRODUCT DESIGN DEVELOPMENT AND
SAMPLING OF NEW PRODUCTS.
DIRECT ALL ACTIVITIES RELATIVE TO THE PREPARATION AND EXECUTION OF THE
COMPANY'S TWO SEMI-ANNUAL FURNITURE MARKETS. MAINTAIN THE COMPANY'S HIGH POINT
SHOWROOM. DEVELOP AND DIRECT FURNITURE DISPLAY AND SHOWROOM INTERIOR DESIGN.
DEVELOP AND MAINTAIN THE COMPANY'S SUPPLY OF SALES AIDS. PROGRAM AND
DIRECT PHOTOGRAPHY, LAYOUT, AND PRINTING REQUIREMENTS. MAINTAIN AN INVENTORY OF
ALL MATERIALS INCLUDING TRANSPARENCIES AND NEGATIVES, FOR REPRODUCTION PURPOSES
AND FOR DEALER ADVERTISING.
MANAGE AND DIRECT THE COMPANY'S SALES TERRITORIES AND SALES
REPRESENTATIVES, INCLUDING THE NECESSARY SUPPORT TO DEVELOPING NEW DISTRIBUTION
AND A GROWTH IN THE SALES VOLUME FOR EACH GEOGRAPHICAL AREA, INCLUDING THE
RESTRUCTURING OF THE TERRITORIES AND REPRESENTATION AS NECESSARY.
MANAGE DEALER RELATIONS, INCLUDING PROMOTIONS, INCENTIVES, TRAINING,
CONTESTS, ADVERTISING ARRANGEMENTS AND SPECIAL FREIGHT ARRANGEMENTS.
DEVELOP AND MAINTAIN ANY NATION ADVERTISING CAMPAIGN, INCLUDING THE
COMPANY'S HOME PAGE ON THE INTERNET AND RESPONSES TO E-MAIL REQUEST.
ANY AND ALL OTHER ACTIVITIES RELATIVE TO THE COMPANY'S SALES AND
MARKETING ACTIVITIES OR NEEDS.
JOB TITLE: SALES REPRESENTATIVE IN TERRITORY DESCRIBED ON SCHEDULE "B".
-23-
<PAGE> 11
SCHEDULE "B"
BINGHAM'S EXCLUSIVE TERRITORY
THIS TERRITORY, HEREAFTER REFERRED TO AS THE "NORTH CAROLINA
TERRITORY" IS DEFINED AS AND/OR INCLUDES THE ENTIRE STATES OF NORTH CAROLINA
AND SOUTH CAROLINA. ALSO INCLUDED IS THE STATE OF VIRGINIA EXCLUDING THE
ARLINGTON AND ALEXANDRIA AREA. THE EXCLUDED AREA IS BOARDED ON THE NORTHWEST BY
A LINE FROM MANASSAS, VIRGINIA TO ASHBURN, VIRGINIA AND ON THE SOUTHWEST BY A
LINE FROM MANASSAS, VIRGINIA TO QUANTICO, MARYLAND. BINGHAM WILL SOLICIT ORDERS
ONLY FOR COMPANY'S PRODUCTS.
-24-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM UNAUDITED
CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF INCOME AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH NOTES TO FINANCIAL STATEMENT.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-30-1997
<PERIOD-START> MAY-01-1996
<PERIOD-END> JUL-31-1996
<CASH> 16,841
<SECURITIES> 0
<RECEIVABLES> 703,367
<ALLOWANCES> 43,800
<INVENTORY> 4,642,942
<CURRENT-ASSETS> 5,492,652
<PP&E> 2,138,679
<DEPRECIATION> 1,228,962
<TOTAL-ASSETS> 6,548,792
<CURRENT-LIABILITIES> 2,675,145
<BONDS> 0
0
0
<COMMON> 1,689,887
<OTHER-SE> 1,562,699
<TOTAL-LIABILITY-AND-EQUITY> 6,548,792
<SALES> 1,246,698
<TOTAL-REVENUES> 1,248,837
<CGS> 850,591
<TOTAL-COSTS> 1,170,190
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 43,800
<INTEREST-EXPENSE> 91,386
<INCOME-PRETAX> (12,739)
<INCOME-TAX> 2,277
<INCOME-CONTINUING> (15,016)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (15,016)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> (.01)
</TABLE>
