<PAGE> 1
As filed with the Securities and Exchange Commission on February 20, 1997
Registration No. ______________
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------------
FORM SB-2
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
-------------------------------
WELLINGTON HALL, LIMITED
(Exact name of registrant as specified in its charter)
-------------------------------
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<S> <C> <C>
56-0815012 North Carolina 4010
(I.R.S. Employer Identification (State or other jurisdiction of (Primary Standard Industrial
No.) incorporation or organization) Classification Code Number)
</TABLE>
ROUTE 1, U.S. HIGHWAY NO. 29 AND NO. 70
LEXINGTON, NORTH CAROLINA 27292
(910) 249-4931
(Address, including zip code, and telephone number, including
area code, of registrants principal executive offices)
-------------------------------
HOYT M. HACKNEY
PRESIDENT
WELLINGTON HALL, LIMITED
ROUTE 1, U.S. HIGHWAY NO. 29 AND NO. 70
LEXINGTON, NORTH CAROLINA 27292
(910) 249-4931
(Name, address, including zip code, and telephone
number, including area code, of
agent for service)
-------------------------------
with copies to.
KENNETH N. SHELTON
SCHELL BRAY AYCOCK ABEL & LIVINGSTON P.L.L.C.
POST OFFICE BOX 21847
GREENSBORO, NORTH CAROLINA 27403
(910) 370-8800
-------------------------------
Approximate date of commencement of proposed distribution of the securities to
the public: As soon as practicable after the Registration Statement becomes
effective.
-------------------------------
CALCULATION OF REGISTRATION FEES
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<CAPTION>
=============================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED SHARE PRICE REGISTRATION FEE
- -------------------------------------------------------------------------------------------------------------
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Common Stock 1,689,887 $.50 $844,943.50 $292
=============================================================================================================
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION (DATED FEBRUARY 20, 1997)
PROSPECTUS
1,689,887 Shares of Common Stock
WELLINGTON HALL, LIMITED
Wellington Hall, Limited (the "Company") is offering to the holders of
its outstanding Common Stock of record on __________, ___ 1997 (the
"Shareholders") the nontransferable right to subscribe (a "Right") for one
additional share of Common Stock, no par value, for each share of Common Stock
held on the record date, with certain limited exceptions (the "Rights
Offering").
Each Shareholder may subscribe for shares in addition to those shares
that his Rights entitle him to purchase. If the Shareholders in the aggregate
do not subscribe for the maximum number of shares to which they are entitled in
the Rights Offering, such remaining shares will be sold to Shareholders who
have subscribed therefor, with certain limited exceptions (the "Subscription
Offering"). To the extent more shares are subscribed for than are available,
the available shares will be pro rated among the subscribing Shareholders
therefor based on the percentage that the amount of shares that each
Shareholder subscribed for over those which his Rights entitled him to purchase
in the Rights Offering bears to the total amount of shares that all
Shareholders in the aggregate subscribed for over those which their Rights
entitled them to purchase in the Rights Offering, with certain limited
exceptions.
Any of the 1,689,887 shares offered hereby that are not sold in the
Rights Offering and the Subscription Offering may be sold to persons who are
not directors, officers or Shareholders of the Company (the "Public Offering").
The Rights Offering, the Subscription Offering and the Public Offering are
sometimes referred to herein as the "Offerings." Directors and officers of the
Company who are Shareholders have indicated that they intend to subscribe for
approximately 105,000 shares in the Offerings.
Shareholders desiring to participate in the Offerings must subscribe
for a minimum of 1,000 shares of Common Stock. A subscriber in the Public
Offering must subscribe for a minimum of 10,000 shares. Any subscription in
excess of 100,000 shares is subject to the approval of the Board of Directors
of the Company, except to the extent that a Shareholder is entitled to
subscribe for such shares in the Rights Offering.
Certain persons are not eligible to participate in the Offerings. No
shares will be offered to certain Shareholders or other persons who reside in
any foreign country or in a state of the United States where compliance by the
Company with the securities laws of such jurisdiction would be impractical for
reasons of cost or otherwise. See "The Offerings." In addition, following the
employment on September 1, 1996 of Arthur F. Bingham as the Company's Senior
Executive Vice President of Sales and Marketing, Mr. Bingham purchased a total
of 600,000 shares of Common Stock at a price of $.50 per share. In connection
therewith, Mr. Bingham and the Company agreed that Mr. Bingham would not be
eligible to participate in the Rights Offering or Subscription Offering.
The Offerings will commence concurrently and subscriptions may be made
beginning on the date of this Prospectus. The Rights Offering and Subscription
Offering expire at 5:00 p.m., Eastern Standard Time, on _______________, 1997,
unless extended (the "Expiration Time"). The Public Offering will terminate
within 30 days of the expiration of the Rights Offering and Subscription
Offering, unless extended (the "Public Offering Termination Time").
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY
SHAREHOLDERS AND OTHER SUBSCRIBERS IN THE OFFERINGS, SEE "RISK FACTORS"
BEGINNING ON PAGE 9 OF THIS PROSPECTUS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------------
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<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Underwriting discounts and
Price to Public commissions. Proceeds to Company (1)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PER SHARE $.50 n/a $.50
- ----------------------------------------------------------------------------------------------------------
Total $844,943.50 (2) n/a $844,943.50 (2)
- ----------------------------------------------------------------------------------------------------------
</TABLE>
(1) Before deduction of expenses payable by the Company estimated to be
$45,000.
(2) Assumes that the Offerings are fully subscribed and all shares offered
hereby are sold.
Certificates for shares sold in the Rights Offering and Subscription
Offering will be delivered promptly after the Expiration Time and certificates
for shares sold in the Public Offering will be delivered promptly after the
Public Offering Termination Time.
The date of this Prospectus is February, _____ 1997.
<PAGE> 3
TABLE OF CONTENTS
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AVAILABLE INFORMATION . . . . . . . . . . . . . 2 MANAGEMENT . . . . . . . . . . . . . . . . . . 30
PROSPECTUS SUMMARY . . . . . . . . . . . . . . 3 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT . . . . . . . . . . . . . . 31
RISK FACTORS . . . . . . . . . . . . . . . . . 9
EXECUTIVE COMPENSATION . . . . . . . . . . . . 32
THE OFFERINGS . . . . . . . . . . . . . . . . . 11
DESCRIPTION OF SECURITIES . . . . . . . . . . . 36
USE OF PROCEEDS . . . . . . . . . . . . . . . . 17
MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER
CAPITALIZATION . . . . . . . . . . . . . . . . 17 MATTERS . . . . . . . . . . . . . . . . . 38
SELECTED FINANCIAL DATA . . . . . . . . . . . . 18 INDEMNIFICATION FOR SECURITIES ACT LIABILITIES. 38
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL LEGAL OPINIONS . . . . . . . . . . . . . . . . 38
CONDITION AND RESULTS OF OPERATIONS . . . . 19 INDEPENDENT AUDITORS . . . . . . . . . . . . . 38
BUSINESS . . . . . . . . . . . . . . . . . . . 23 INDEX TO FINANCIAL STATEMENTS . . . . . . . . F-1
</TABLE>
AVAILABLE INFORMATION
The Company is subject to the information requirements of the
Securities and Exchange Act of 1934, as amended, and in according therewith
files reports, proxy statements, information statements and other information
with the Securities and Exchange Commission (the "Commission"). Such reports,
proxy statements, information statements and other information concerning the
Company may be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. and at
the Commission's Regional Offices at Citicorp Center, 500 West Madison Street,
Suite 1500, Chicago, Illinois 60661 and Seven World Trade Center, 13th Floor,
New York, New York 10048. Copies of such material can also be obtained from
the Public Reference Section of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates, and also can be obtained
electronically through the Commission's Electronic Data Gathering, Analysis and
Retrieval system at the Commission's web site (http:\\www.sec.gov).
This Prospectus constitutes a part of a Registration Statement on Form
SB-2 (the "Registration Statement") filed by the Company with the Commission
under the Securities Act of 1933 (the "Securities Act"). This Prospectus omits
certain of the information contained in the Registration Statement in
accordance with the rules and regulations of the Commission. Reference is
hereby made to the Registration Statement and related exhibits for further
information with respect to the Company and the Common Stock. Statements
contained herein concerning the provisions of any document are not necessarily
complete and, in each instance, reference is made to the copy of such document
filed as an exhibit to the Registration Statement or otherwise filed with the
Commission. Each such statement is qualified in its entirety by such
reference.
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and consolidated historical financial statements (including the
notes thereto) included elsewhere in this Prospectus. See "Risk Factors" for
certain factors that should be considered by Shareholders and other subscribers
before subscribing for shares of Common Stock. Unless the context requires
otherwise, the term "the Company" includes Wellington Hall, Limited and its
subsidiaries.
THE COMPANY
The Company manufactures high quality wooden home furniture. The
manufacturing operation involves the machining, sanding, assembling and
finishing of components and other raw materials. The Company's products are
distributed nationally through full-service retail stores and unaffiliated
trade showrooms that service the professional designer.
The Company owns a lumber processing mill and furniture manufacturing
facility located in San Pedro Sula, Honduras, Central America (the "Honduran
Facilities"). Wellington Hall Caribbean Corporation ("WHCC"), a wholly-owned
subsidiary of the Company, serves as a sales and distribution company for the
Honduran Facilities. WHCC is a North Carolina corporation organized in
December, 1988 and is located in Lexington, North Carolina. Muebles Wellington
Hall, S.A. ("MWH"), the Honduran subsidiary of WHCC, located in San Pedro
Sula, manages and operates the Honduran Facilities.
The Company has recently adopted specific strategies designed to improve
its results of operations and financial condition. These strategies involve a
more aggressive program of product development, improving marketing and
strengthening management, as well as increasing capital and reducing
indebtedness.
The Company has developed and adopted a comprehensive marketing plan that
includes strategic measures such as (i) augmenting the Company's traditional
product lines with more casual designs of furniture that management believes
reflect trends in consumer tastes, (ii) exploring new opportunities for its
Honduran Facilities and other offshore resources with designs employing
materials such as leather, marble, metal, wicker, bamboo and rattan, (iii)
updating and upgrading catalogs and other sales aids in all distribution
channels and (iv) developing more targeted programs with selected retail
distributors that include promotions, stock reserves for quicker shipments and
sales contests. See "Business--Markets."
In addition to the foregoing, the Company has recruited an experienced
senior executive to lead its sales and marketing function. In September 1996,
the Company employed Arthur F. Bingham for the newly created position of Senior
Executive Vice President of Sales and Marketing. Mr. Bingham directs and
oversees all aspects of the Company's sales and marketing activities with the
goal of assuring continuing growth in profitable sales. Mr. Bingham's
employment arrangement provides for several incentives for him to assist the
Company in increasing sales revenues. See "Management."
Management believes that the highly leveraged position of the Company has
impeded its ability to pursue strategies designed to improve its results of
operations. In response, the Company also is pursuing a number of strategies
to improve its financial condition by raising equity capital, reducing
indebtedness and increasing working capital. The Offerings are the primary
means of accomplishing these goals. See "Use of Proceeds" and
"Capitalization." In addition, Mr. Bingham purchased 600,000 shares of Common
Stock at $.50 per share, and the Company has used these funds to reduce its
indebtedness and provide working capital. The Company also has granted stock
options to Mr Bingham and to Mr. Ralph Eskelsen, manager of the Honduran
Facilities, that will provide incentives to these key employees and may result
in additional contributions to capital. Mr. Eskelsen has indicated that he is
likely to purchase between $135,000 and $150,000 of Common Stock during
calendar year 1997
3
<PAGE> 5
through exercise of his options at $.50 per share. Because this purchase is at
the option of Mr. Eskelsen, the proceeds therefrom have not been reflected in
the "Capitalization" section of this Prospectus.
The Company has been negotiating with its lenders to amend its loan
agreements to provide more favorable terms. On January 10, 1997, the Company
received a commitment letter from the Overseas Private Investment Corporation
("OPIC") to restructure its loan to reduce principal payments until July 1997
(with the deferred payments to be made in a larger balloon payment at the end
of the term of the loan in 1999) and to lower the interest rate. The OPIC
loan restructuring is subject to finalizing the corresponding loan documents to
reflect the revised terms and conditions. The effect of the restructured loan
is a reduction to the Company's cash requirements for scheduled principal
payments for fiscal 1997 and 1998 of $247,748 and $123,874, respectively, which
will contribute significantly to improving the Company's working capital and
cash flow for these years. The restructured OPIC loan also will reduce
scheduled interest expense by $9,910 in fiscal 1997 and $18,900 in fiscal 1998.
In addition, on January 16, 1997, the Company obtained an additional $250,000
line of credit from Lexington State Bank. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
The Offerings, if fully subscribed, would increase the Company's equity
capital by about $800,000 and reduce indebtedness by a corresponding amount.
Interest expense would have been reduced by $79,744 and $83,201 in fiscal 1995
and 1996, respectively, and by $40,438 in the first half of fiscal 1997, on a
pro forma basis, if the Offerings were fully subscribed and consummated at the
beginning of the period. In addition to achieving a reduction in interest
expenses, management believes that the increase in equity and reduction of debt
service requirements in 1997 and 1998 that the foregoing strategies are
designed to achieve would make working capital and other funds available to
pursue its marketing and sales strategies more aggressively with the goal of
increasing funds generated by operations to fund future growth and debt service
requirements.
The Company's business was founded in 1964, and the Company is incorporated
in North Carolina The Company's principal office is located at Route 1, U.S.
Highway 29 and 70 North, Lexington, North Carolina 27292, telephone (910)
249-4931.
THE OFFERINGS
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The Offerings . . . . . . . . . . . . . . The Company is offering to holders of its Common Stock of record at the
close of business on the Record Date (as defined) the nontransferable
Right to subscribe for one share of Common Stock at the Offering Price
for each share of Common Stock then held.
The issuance of shares pursuant to the Rights Offering is not
conditioned upon the sale of any minimum number of shares of Common
Stock pursuant thereto. No Shareholder is required to subscribe for any
shares.
</TABLE>
4
<PAGE> 6
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Each Shareholder may subscribe for shares in addition to those
shares that his Rights entitle him to purchase. If the
Shareholders in the aggregate do not subscribe for the maximum
number of shares to which they are entitled in the Rights
Offering, such remaining shares will be sold in the Subscription
Offering to Shareholders who have subscribed therefor. To the
extent more shares are subscribed for than are available, the
available shares will be pro rated among the subscribing
Shareholders therefor based on the percentage that the amount of
shares that each Shareholder subscribed for over those which his
Rights entitled him to purchase in the Rights Offering bears to
the total amount of shares that all the subscribing Shareholders
in the aggregate subscribed for over those which their Rights
entitled them to purchase in the Rights Offering, with certain
limited exceptions.
Any available shares that are not sold in the Rights Offering
and Subscription Offering may be sold in the Public Offering to
persons not officers, directors or Shareholders of the Company,
provided that in no event shall shares be sold to such persons
prior to the Expiration Time (as defined) or after the Public
Offering Termination Time (as defined).
Shareholders desiring to participate in the Offerings must
subscribe for a minimum of 1,000 shares of Common Stock. A
subscriber in the Public Offering must subscribe for a minimum
of 10,000 shares. Any subscription in excess of 100,000 shares
is subject to the approval of the Board of Directors of the
Company, except to the extent that a Shareholder is entitled to
subscribe for such shares in the Rights Offering.
Commencement of Offerings . . . . . . . The Offerings will commence concurrently and subscriptions may
be made beginning on the date of this Prospectus.
Expiration Time; Public Offering The Rights Offering and Subscription Offering will expire at
Termination Time . . . . . . . . . . . 5:00 P.M. Eastern Standard Time, on ______________ ________,
1997, unless extended, and the Public Offering will expire
within 30 days thereafter, unless extended.
Record Date; Eligible Shareholders . . The record date for purposes of determining Shareholders who are
eligible to receive Rights is ____________ ___, 1997 (the
"Record Date"). Certain Shareholders and other persons are not
eligible to participate in the Offerings. See "The Offerings."
Offering Price . . . . . . . . . . . . The Offering Price is $.50 per share of Common Stock.
Subscription Agent . . . . . . . . . . Lexington State Bank.
</TABLE>
5
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Method of Exercising Rights or Rights may be exercised by Shareholders in the Rights Offering
Otherwise Subscribing for Shares and and additional shares subscribed for in the Subscription
Payment . . . . . . . . . . . . . . . . Offering by completing and signing the Stock Order Form accompanying
this Prospectus and mailing or delivering to the Subscription Agent
the Stock Order Form, together with payment in full (in United
States dollars, by check or money order payable to the order of
Lexington State Bank) for all shares subscribed for in the
Rights Offering and Subscription Offering.
Persons not officers, directors or Shareholders of the Company
may subscribe in the Public Offering for any available shares by
completing and signing the Stock Order Form and mailing or
delivering to the Subscription Agent the Stock Order Form,
together with payment for all shares subscribed for, in the same
manner described hereinabove for the purchase of shares by
Shareholders.
The risk of delivery of all documents and payments is on
subscribers and not on the Company or the Subscription Agent.
If the mail is used, it is recommended that insured registered
mail be used and that a sufficient number of days be allowed to
ensure delivery to the Subscription Agent before the Expiration
Time or the Public Offering Termination Time as the case may be.
Except as described under "The Offerings - Late Delivery of
Subscription and Payment in Rights Offering and Subscription
Offering," completed and executed Stock Order Forms must be
received by the Subscription Agent by the Expiration Time (in
the case of the Rights Offering and Subscription Offering) or
the Public Offering Termination Time (in the case of the Public
Offering). SUBSCRIBERS WILL NOT HAVE ANY RIGHT TO REVOKE THEIR
SUBSCRIPTIONS AFTER DELIVERY IS MADE TO THE SUBSCRIPTION AGENT.
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6
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Escrow Arrangements . . . . . . . . . . All funds received by the Subscription Agent will be held in an
escrow account until the completion of the Rights Offering and
the Subscription Offering. In the event that shares for which
payment has been made by subscribing Shareholders in the
Subscription Offering are not available, payment attributable to
those shares shall be refunded to such subscribing Shareholders.
Any refund due a subscribing Shareholder will be mailed without
reduction or interest to the address designated on the
appropriate Stock Order Form promptly following the Expiration
Time.
If shares are available in the Public Offering, then funds will
be held by the Subscription Agent until acceptance of the
subscriptions therefor at or prior to the Public Offering
Termination Time. If no shares are available in the Public
Offering such that no subscriptions will be accepted in the
Public Offering, or a subscription is otherwise rejected,
payment for such subscriptions will be refunded to the
appropriate subscriber. Any such refund will be mailed without
reduction or interest to the address designated on the
appropriate Stock Order Form promptly following rejection of the
subscription.
Rights of Subscribers . . . . . . . . . Subscribers will have no rights as shareholders of the Company
with respect to the shares of Common Stock subscribed for until
stock certificates representing such shares are issued to them.
Certain Federal Tax Considerations. . . Subject to limited exceptions, the Company believes that, as of
the date hereof, the Common Stock to be issued in the Offerings
would be "qualified small business stock" within the meaning of
Section 1202 of the Internal Revenue Code, and accordingly, a
noncorporate subscriber who holds Common Stock purchased in the
Offerings for more than five years would be able to exclude from
his gross income 50% of any gain from a sale or other taxable
disposition of such Common Stock.
Shares to be Outstanding . . . . . . . 3,979,774, assuming that the Offerings are fully subscribed, and
all shares offered hereby are sold.
Use of Proceeds . . . . . . . . . . . . The net proceeds from the sale of 1,689,887 shares of Common
Stock offered hereby by the Company are estimated at $800,000,
assuming all shares are sold and after payment of expenses of
the Offerings. If all shares are sold, approximately $550,000
of the net proceeds will be used to reduce the outstanding
borrowings under the Company's primary line of credit with
Lexington State Bank and the remaining $250,000 of the net
proceeds will be used to reduce the principal amount of the loan
from OPIC. If all shares are not sold, the net proceeds will
first be allocated to reduce the Company's outstanding
borrowings under the primary line of credit with Lexington State
Bank up to $550,000 and any remainder will be used to reduce the
principal amount of the loan from OPIC. The line of credit may
be used for future working capital and other liquidity needs.
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7
<PAGE> 9
SUMMARY CONSOLIDATED FINANCIAL DATA
The following financial data should be read in conjunction with the
information set forth under "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the audited and unaudited Consolidated
Financial Statements included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Six Months Six Months
Years Ended April 30 Ended Ended
-------------------- Oct. 31, Oct. 31,
1995 1996
1992 1993 1994 1995 1996 (Unaudited) (Unaudited)
---- ---- ---- ---- ---- ----------- -----------
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INCOME STATEMENT DATA:
Net Revenue $6,369,602 $6,884,589 $7,296,892 $7,260,491 $5,989,959 $3,087,862 $2,849,726
Gross Profit 1,445,583 2,091,018 2,288,471 2,203,412 1,846,267 1,010,645 932,656
Income (Loss) From
Continuing Operations
before Extraordinary
Items and Cumulative
Effect of Change in
Accounting Principal (304,713) 226,137 300,514 222,655 73,574 58,117 36,859
Net Income (Loss) (304,713) 288,236(1) 384,398(2) 22,655 73,574 58,117 36,839
Per Common Share:
Net Income (Loss)
Primary 0.18 0.17 0.23 0.13 0.04 0.03 0.02
Net Income (Loss)
Fully diluted 0.18 0.17 0.23 0.13 0.04 0.03 0.02
Cash Dividends
Declared 0 0 0 0 0 0 0
BALANCE SHEET DATA:
Working Capital $2,365,060 $2,466,214 $3,182,938 $3,206,220 $2,920,606 $3,115,825 $3,347,955
Total Assets 6,904,303 7,403,705 7,234,384 7,108,221 6,601,314 7,175,906 6,794,595
Total Debt 3,276,681 3,456,298 3,262,893 3,013,612 2,892,360 3,019,332 3,157,586
Shareholder Equity 2,603,388 2,832,508 2,802,872 2,838,105 2,660,859 2,797,357 2,541,030
</TABLE>
(1) Reflects an income tax benefit of $62,099 resulting from operating losses
carried forward from prior years.
(2) Reflects the cumulative effect of a change in accounting method for income
taxes of $83,884.
8
<PAGE> 10
RISK FACTORS
A Shareholder should consider all the information contained in this
Prospectus before deciding whether to purchase shares of the Common Stock
offered hereby. In particular, Shareholders should carefully consider the
following factors:
1. DETERMINATION OF OFFERING PRICE; ABSENCE OF ACTIVE TRADING MARKET.
The Company's Common Stock is traded on a limited basis on the NASD's
over-the-counter bulletin board. On February 12, 1997, the closing bid and
asked quotations were $.281 and $.437, respectively. The price to the public
of the Common Stock offered hereby (the "Offering Price") was the product of
the private negotiation between the Company and Arthur F. Bingham following the
employment of Mr. Bingham as of September 1, 1996 as Senior Executive Vice
President of Sales and Marketing of the Company. The Company has issued
600,000 shares of Common Stock to Mr. Bingham at a price of $.50 per share.
The Offering Price bears no relationship to the Company's assets, net earnings,
book value or recent market quotations for the Common Stock or any other
generally accepted criteria of value. The Offering Price of $.50 per share is
substantially lower than the net tangible book value of $1.02 per share
derived from the Company's October 31, 1996 balance sheet.
2. DIVIDEND LIMITATIONS.
Since its formation in 1964, the Company has not paid any cash
dividends on its Common Stock and does not anticipate that any such dividends
will be paid in the foreseeable future. Pursuant to the terms of its
line-of-credit and long-term loan agreements with Lexington State Bank, the
Company may not pay any dividends, purchase, redeem or otherwise retire any of
its capital stock, or otherwise make any distributions of its assets resulting
in the reduction of its capital without the prior written consent of Lexington
State Bank. See "Market For Common Equity and Related Shareholder Matters."
3. DEPENDENCY ON KEY MANAGEMENT PERSONNEL.
The Company believes that it is highly dependent on the services of
its present executive officers. If any of these officers should die or
otherwise become inactive in the Company's business, the loss of such officer
could have a material adverse effect on the Company's business prospects. The
Company carries two key man life insurance policies on its President, Hoyt M.
Hackney, in an aggregate amount of $1,825,000 payable to the Company in the
event of Mr. Hackney's death. Approximately $1.4 million of the amount
payable has been assigned to the Company's lenders for payment in the event of
Mr. Hackney's death and the remainder would be used to pay death benefits to
Mr. Hackney's survivors. The Company also carries a key man life insurance
policy on its Senior Executive Vice President of Sales and Marketing, Arthur F.
Bingham, in an aggregate amount of $1,000,000, $500,000 of which has been
assigned to the Company's lenders for payment in the event of Mr. Bingham's
death with the remainder to be used to pay death benefits to Mr. Bingham's
survivors.
4. COMPETITION.
The furniture industry is characterized by highly intense competition.
The Company, while unranked in any known comparative study of the industry,
competes with many nationally recognized and financially successful
manufacturers of high quality furniture. Many companies with which the Company
competes, both domestic and foreign, have substantially larger production
capacities, distribution networks and greater financial resources than has the
Company.
The furniture industry is a segmented industry whereby design, quality
and price place each manufacturer
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<PAGE> 11
into one or more competitive market niches. The Company competes in the
medium-high price market, which normally requires a larger number of items in
the product line, smaller production lot sizes and higher inventory
requirements to maintain a competitive delivery cycle. While the Company
believes its pricing structure, product design and product quality to be
competitive with those of its competitors, the Company's limited financial
resources negatively affect its ability to compete effectively in its market
niche.
5. INDUSTRY CONDITIONS.
The furniture industry historically has been cyclical, fluctuating
sharply with the business cycle of the national economy. During economic
downturns, the furniture industry tends to experience longer periods of
recession and greater declines than does the general economy. The Company
believes that the industry is influenced significantly by economic conditions
generally and more specifically by consumer behavior and confidence, the level
of personal discretionary spending, housing activity, interest rates and credit
availability. These factors affect not only the ultimate consumer, but also
furniture retailers, the industry's primary direct customers. The cyclical
nature of the industry has contributed historically to fluctuations in the
Company's results of operations, and such fluctuations can be expected to occur
in the future.
6. GOVERNMENTAL REGULATIONS AND ENVIRONMENTAL CONSIDERATIONS.
The Company's domestic operations must meet extensive federal,
state and local regulatory standards in the areas of safety, health and
environmental pollution controls. Historically, these standards have not had
any material adverse effect on the Company's sales or operations. The
furniture industry currently anticipates increased federal and state
environmental regulation, particularly with respect to emissions from paint and
finishing operations and wood dust levels in manufacturing operations. The
industry and its suppliers are attempting to develop water-based finishing
materials to replace commonly-used organic-based finishes which are a major
source of regulated emissions. The Company cannot at this time estimate the
impact of these new standards on the Company's operations or the cost of
compliance thereof (including future capital expenditure requirements).
7. FOREIGN MANUFACTURING FACILITY.
The Company currently devotes substantial financial and management
resources to its lumber processing mill and hardwood furniture manufacturing
facility located in San Pedro Sula, Honduras (the "Honduran Facilities"). The
Company's growth and future profitability are materially dependent upon the
growth, profitability and overall success of the Honduran Facilities.
In general, Central American countries tend to be susceptible to
substantial economic and political instability. While Honduras is more
politically and economically stable than some other Central American countries,
it is susceptible to the same types of instability characteristic of the
region. This political and economic instability could have a materially
adverse impact on the operations and profitability of the Honduran Facilities.
There can be no assurance that the Company will be able to continue to operate
the Honduran Facilities profitably or that the long-term profit potential of
the Honduran Facilities can be realized. The loss of the Honduran Facilities
as a source of wood and/or supplies for the Company's proprietary products
would have a materially adverse affect on the Company's operations, financial
condition, competitiveness and future prospects.
The adequacy of the long-term supply of mahogany in Honduras is
uncertain. The agency of the Honduran government responsible for forest
resources in Honduras is not able to provide accurate information on the
current supply of mahogany available in Honduras. However, other types of wood
such as pine, laurel and cedar, are available and may be used in manufacturing
furniture products. These alternative types of wood may help to diminish the
Company's need for mahogany in the event the supply of mahogany proves
inadequate. Additionally,
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<PAGE> 12
a supplemental supply of mahogany is readily and abundantly available from
import sources at prices somewhat higher than those found in the Honduran
market.
8. HIGH DEGREE OF FINANCIAL LEVERAGE.
The Company has substantial leverage. As of October 31, 1996, the
Company's total indebtedness was 46.5% of total capitalization. Although the
net proceeds of the Offerings will be used to reduce indebtedness, there can be
no assurance that significant proceeds will be raised in the Offerings. The
degree to which the Company is leveraged may adversely affect the Company's
ability to finance its future operations, to compete effectively against better
capitalized competitors and to withstand downturns in its business or in the
economy generally, and could limit its ability to pursue business opportunities
that may be in the interests of the Company and its Shareholders. In addition,
although the Company has been able in the past to meet its debt service
obligations and believes it will continue to do so in the future either through
repayment or refinancings, there can be no assurance that the Company will be
able to meet such obligations or that any refinancing would be on terms
favorable to the Company.
9. ADDITIONAL AUTHORIZED SHARES AVAILABLE FOR ISSUANCE.
The Company is authorized to issue 6,000,000 shares of its Common
Stock. If all of the 1,689,887 shares offered hereby are sold, there will be a
total of 3,979,774 shares issued and outstanding. There is presently a total
of 900,000 shares of Common Stock subject to outstanding options granted under
the Company's 1997 Stock Option and Restricted Stock Plan and another 300,000
shares reserved for future issuance thereunder. Even after reserving these
shares, the Company will, after the Offerings, have at least 820,226 shares of
authorized but unissued Common Stock available for issuance without further
Shareholder approval. The issuance of any additional shares of Common Stock
would reduce the percentage of ownership of the Company held by the investors
who purchase shares of Common Stock pursuant to this offering.
The Board of Directors also has the authority to issue up to 5,000,000
shares of $5.00 Par Preferred Stock ("Preferred Stock") from time to time in
one or more series and with such voting powers, preferences and relative
rights, designations, qualifications and limitations as the Board may fix by
resolution, without shareholder approval. It is not possible to state the
actual effect of the authorization of Preferred Stock upon the rights of
holders of the Common Stock unless and until the Board of Directors determines
the specific rights of the holders of a series of the Preferred Stock. Such
effects might include, however, (i) restrictions on dividends on the Common
Stock if dividends on Preferred Stock have not been paid; (ii) dilution of the
voting power of the Common Stock to the extent that the Preferred Stock has
voting rights; (iii) dilution of the equity interest of the Common Stock unless
the Preferred Stock is redeemed by the Company; and (iv) the Common Stock not
being entitled to share in the Company's assets upon liquidation until
satisfaction of any liquidation preference granted the Preferred Stock. See
"Description of Securities-Preferred Stock."
THE OFFERINGS
PURPOSE OF THE OFFERINGS
The Rights Offering, the Subscription Offering and the Public Offering
(together, the "Offerings") are intended to strengthen the Company's capital
structure by increasing shareholders' equity and reducing indebtedness. The
proceeds from the sale of shares of Common Stock will improve the Company's
debt to equity ratio, increase working capital, reduce interest expense and
improve cash flow. The Rights Offering and
11
<PAGE> 13
Subscription Offering enable the Company's Shareholders to purchase shares of
Common Stock at the same price paid by Mr. Bingham for his shares in a private
purchase from the Company.
THE OFFERINGS
The Company is offering to holders of its Common Stock of record at
the close of business on __________ _____, 1997 (the "Shareholders") the
nontransferable right to subscribe (a "Right") for one share of Common Stock at
the offering price of $.50 per share (the "Offering Price") for each share of
Common Stock held on that date (the "Record Date").
The issuance of shares pursuant to the Rights Offering is not
conditioned upon the sale of any minimum number of shares of Common Stock
pursuant thereto. No Shareholder is required to subscribe for any shares, but
a subscribing Shareholder must subscribe for a minimum of 1,000 shares.
Each Shareholder may subscribe for more shares than his Rights entitle
him to purchase. If the Shareholders in the aggregate do not subscribe for the
maximum number of shares to which they are entitled in the Rights Offering,
such remaining shares will be sold in the Subscription Offering to Shareholders
who have subscribed therefor. To the extent more shares are subscribed for
than are available, the available shares will be pro rated among the
subscribing Shareholders therefor based on the percentage that the amount of
shares that each Shareholder subscribed for over those which his Rights
entitled him to purchase in the Rights Offering bears to the total amount of
shares that all the subscribing Shareholders in the aggregate subscribed for
over those which their Rights entitled them to purchase in the Rights Offering.
Notwithstanding the foregoing, for purposes of calculating the above-referenced
percentage, all Shareholders who subscribe for the minimum number of 1,000
shares in the Offerings will be treated together as a single Shareholder, with
their excess subscriptions aggregated. Each such Shareholder will then be
allocated an equal portion of the percentage of available shares as calculated.
Any shares that remain unsubscribed for at the Expiration Time may be
sold in the Public Offering to persons not officers, directors or Shareholders
of the Company, provided that in no event shall shares be sold to such persons
prior to the Expiration Time (as defined) or after the Public Offering
Termination Time (as defined). A subscriber in the Public Offering must
subscribe for a minimum of 10,000 shares.
Any subscription pursuant to the Offerings in excess of 100,000 shares
is subject to the approval of the Board of Directors of the Company, except to
the extent that a Shareholder is entitled to subscribe for such shares in the
Rights Offering.
EXPIRATION TIME
The Rights Offering and Subscription Offering will expire at 5:00 P.M.
Eastern Standard Time, on ______________ ________, 1997 (the "Expiration
Time"), unless extended, and the Public Offering will expire with 30 days
thereafter, unless extended by the Company (the "Public Offering Termination
Time").
OFFERING PRICE
The Offering Price is $.50 per share of Common Stock. The Offering
Price was the product of the negotiation between the Company and Arthur F.
Bingham of a private purchase of Common Stock by Mr. Bingham and bears no
relationship to the Company's assets, net earnings, book value or recent market
quotations for the Common stock or any other generally accepted criteria of
value.
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<PAGE> 14
SUBSCRIPTION AGENT
The Subscription Agent for this offering is Lexington State Bank.
SHARES HELD BY NOMINEE
Banks, trust companies, securities dealers and brokers that hold
Common Stock as nominees for more than one beneficial owner may, upon proper
showing to the Subscription Agent, exercise their Rights on the same basis as
if the beneficial owners were record holders on the Record Date. The Company
reserves the right to deny any division of Rights if in its opinion the result
would be inconsistent with the intent of this privilege.
METHOD OF EXERCISING RIGHTS OR OTHERWISE SUBSCRIBING FOR SHARES AND PAYMENT
Rights may be exercised in the Rights Offering and shares subscribed
for in the Subscription Offering by completing and signing the Stock Order Form
accompanying this Prospectus and mailing or delivering the Stock Order Form,
together with payment in full (in United States dollars, by check or money
order payable to the order of Lexington State Bank) for all shares subscribed
for in both the Rights Offering and the Subscription Offering, to the
Subscription Agent in the manner indicated below.
Persons who are not officers, directors or Shareholders of the Company
and desiring to subscribe for shares in the Public Offering must complete and
sign a Stock Order Form in the form accompanying this Prospectus and mailing or
delivering such Stock Order Form, together with payment in full (in United
States dollars, by check or money order payable to the order of Lexington State
Bank) for all shares subscribed for in the Public Offering, to the Subscription
Agent in the manner indicated below.
Stock Order Forms may be mailed or delivered to:
Lexington State Bank
<TABLE>
<S> <C>
By Mail: Trust Department By Delivery: Trust Department
Post Office Box 867 38 West First Avenue
Lexington, North Carolina 27293-0867 Lexington, North Carolina 27292
</TABLE>
A STOCK ORDER FORM ONCE RECEIVED BY THE SUBSCRIPTION AGENT, IS
IRREVOCABLE AND CANNOT BE AMENDED, MODIFIED, OR RESCINDED BY THE SUBSCRIBER
WITHOUT THE CONSENT OF THE COMPANY.
The risk of delivery of all documents and payments is on subscribers
and not on the Company or the Subscription Agent. If the mail is used, it is
recommended that insured registered mail be used and that a sufficient number
of days be allowed to ensure delivery to the Subscription Agent before the
Expiration Time or the Public Offering Termination Date as the case may be.
All funds received by the Subscription Agent will be held in an escrow
account until the completion of the Rights Offering and the Subscription
Offering. In the event that shares for which payment has been made by
subscribing Shareholders in the Subscription Offering are not available,
payment attributable to those shares shall be refunded to such subscribing
Shareholders. Any refund due a subscribing Shareholder will be mailed without
reduction or interest to the address designated on the appropriate Stock Order
Form promptly following the Expiration Time.
If shares are available in the Public Offering, then funds will be
held by the Subscription Agent until
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<PAGE> 15
acceptance of the subscriptions therefor at or prior to the Public Offering
Termination Time. If no shares are available in the Public Offering such that
no subscriptions will be accepted in the Public Offering, or a subscription is
otherwise rejected, payment for such subscriptions will be refunded to the
appropriate subscriber. Any such refund will be mailed without reduction or
interest to the address designated on the appropriate Stock Order Form promptly
following rejection of the subscription.
The instructions to the Stock Order Form should be read carefully and
strictly followed. Questions relating to the method of subscription and
requests for additional copies of the Prospectus should be directed to Hoyt M.
Hackney, telephone (910) 249-4931. All persons should carefully follow all
instructions. DO NOT SEND SUBSCRIPTION DOCUMENTS OR PAYMENT TO THE COMPANY.
All questions with respect to the validity, form and eligibility of any
exercise of Rights or other subscriptions will be determined solely by the
Company. The Company in its sole discretion may waive any defect or
irregularity, permit a defect or irregularity to be corrected within such time
as it may determine, or reject the exercise of any Right or other
subscriptions. Subscriptions will not be deemed to have been made until all
irregularities have been waived or cured within such time as the Company
determines in its sole discretion. Neither the Company nor the Subscription
Agent shall be under any duty to give notification of defects in subscription
or incur any liability for failure to give such notification.
LATE DELIVERY OF STOCK ORDER FORM AND PAYMENT IN RIGHTS OFFERING AND
SUBSCRIPTION OFFERING
Except as provided immediately hereinafter, the failure of the
Subscription Agent for any reason to actually receive by the Expiration Time a
properly completed and executed Stock Order Form, accompanied by full payment,
from any Shareholder shall be deemed a waiver and release by such Shareholder
of all subscription rights held. However, if prior to the Expiration Time,
the Subscription Agent has received a written or telegraphic guarantee from a
commercial bank, a trust company having an office in the United States, or a
member firm of the New York Stock Exchange, another registered national
securities exchange or the National Association of Securities Dealers, Inc.,
stating the name of the subscribing Shareholder, the number of Rights to which
the subscribing Shareholder is entitled and the number of shares of Common
Stock subscribed for and guaranteeing that the Stock Order Form and the
appropriate payment will be promptly delivered to the Subscription Agent, such
subscription will be accepted subject to withholding the stock certificates for
such shares of Common Stock until receipt of the duly completed and executed
Stock Order Form and payment of the Subscription Price within five business
days of the Expiration Time.
RIGHTS OF SUBSCRIBERS
Subscribers will have no rights as Shareholders of the Company with
respect to the shares of Common Stock subscribed for until stock certificates
representing such shares are issued to them. Subscribers will not have any
right to revoke their subscriptions after delivery is made to the Subscription
Agent.
NONTRANSFERABILITY OF RIGHTS
The Rights are nontransferable and may not be purchased or sold.
LIMITATIONS ON PURCHASES OF SHARES
The Company will make reasonable efforts to register, qualify, or
exempt from registration the shares of Common Stock offered hereby pursuant to
the securities laws of all jurisdictions of the United States in which
Shareholders reside. However, shares will not be offered to any person who
resides in a foreign country, or who resides in any jurisdiction in the United
States if (i) a small number of Shareholders reside in such jurisdiction; (ii)
the issuance of Rights or the offer or sale of shares of Common Stock under the
securities laws of such jurisdiction would require the Company to register as a
broker or dealer or otherwise qualify the shares of Common Stock for
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<PAGE> 16
sale in such jurisdiction; and (iii) such registration or qualification
described in clause (ii) above would be impracticable for reasons of cost or
otherwise.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
General
The following is a summary of the anticipated material effects on
Federal income tax of the purchase, ownership and disposition of shares of
Common Stock by a subscriber in the Offerings. The summary is based upon the
Internal Revenue Code of 1986, as amended (the "Code"), and existing
regulations thereunder, all as in effect and existing on the date hereof and
all of which are subject to change at any time (possibly with retroactive
effect) and to different interpretations. This summary assumes that the shares
of Common Stock are (and will be) held by subscribers as "capital assets"
within the meaning of Section 1221 of the Code. This summary does not address
the tax consequences to subscribers who are subject to special rules (such as
financial institutions, tax exempt organizations, dealers in securities and
insurance companies) or aspects of Federal income taxation that may be relevant
to a particular subscriber based upon his individual tax situation.
Common Stock
A subscriber who purchases Common Stock in the Offerings will have an
initial tax basis in the Common Stock equal to its purchase price. Upon a sale,
exchange or other taxable disposition of shares of Common Stock, a subscriber
generally will recognize gain or loss for United States Federal income tax
purposes in an amount equal to the difference between (i) the sum of the amount
of cash and the fair market value of any property received upon such sale,
exchange or other disposition and (ii) the subscriber's tax basis in the shares
of Common Stock being sold. If, at the time of the sale or exchange, the Common
Stock was held as a capital asset for more than one year, such gain or loss
generally will be long-term capital gain or loss.
Potential 50% Exclusion of Capital Gain
Section 1202 of the Code provides that noncorporate taxpayers may
exclude from their gross income 50% of any gain from the sale or exchange of
"qualified small business stock" (as defined below) that has been held for more
than five years. Qualified small business stock generally means any stock in a
C corporation that is originally issued (i) after August 10, 1993, (ii) by an
issuing corporation that, both before and after the issuance, has aggregate
gross assets of $50,000,000 or less and (iii) in exchange for money or other
qualifying property. In addition to the foregoing requirements, Section 1202
contains certain limitations and requirements relating to, among other things,
(A) limitations on a taxpayer having an offsetting short position with respect
to the stock that may be the subject of the exclusion and (B) application of
the exclusion to pass-through entities that hold qualified small business
stock.
The Company believes that, as of the date hereof, the Common Stock to
be issued in the Offerings would be "qualified small business stock" within the
meaning of Section 1202. If the requirements of Section 1202 are met, a
noncorporate subscriber who holds Common Stock purchased in the Offerings for
more than five years would be able to exclude from his gross income 50% of any
gain from a sale or other taxable disposition of such Common Stock.
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<PAGE> 17
One-half of any gain excluded under Section 1202 is treated as a
preference in computing alternative minimum taxable income.
SECTION 1202 OF THE CODE HAS SPECIFIC EXCEPTIONS AND LIMITATIONS THAT
MAY APPLY TO EACH SUBSCRIBER DIFFERENTLY. EACH SUBSCRIBER SHOULD CONSULT HIS
OR HER OWN TAX ADVISORS WITH RESPECT TO THE POSSIBLE APPLICATION OF SECTION
1202 TO ANY GAIN ON A SALE OR EXCHANGE OF COMMON STOCK BY SUCH SUBSCRIBER.
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<PAGE> 18
USE OF PROCEEDS
The net proceeds from the sale of 1,689,887 shares of Common Stock
offered hereby by the Company are estimated at $800,000, assuming all shares
are sold and after payment of expenses of the Offerings. If all shares are
sold, approximately $550,000 will be used to reduce the loans representing the
Company's primary revolving line of credit from Lexington State Bank and the
remaining $250,000 of the net proceeds will be used to reduce the principal
amount of the Company's OPIC loan.
The Company's primary line of credit with Lexington State Bank bears
interest at the rate of prime plus 1%. The line of credit is reviewed for
renewal annually. The Company has used this line of credit within the last
twelve months for working capital. The balance outstanding under this line of
credit was $944,000 at October 31, 1996 compared to $1,186,000 at October 31,
1995.
The OPIC loan presently bears interest at a rate of 12% per annum and
matures on October 31, 1999, with final balloon payment of $185,812. The
Company has received from OPIC a commitment letter to, among other things,
reduce the interest rate to 10% effective November 1, 1996, and defer principal
payments with a final balloon payment of $557,438 due on October 31, 1999. See
"Business---General" and "Management's Discussion and Analysis of Results of
Operations and Financial Condition."
The line of credit may be used for future working capital and other
liquidity needs. If all shares are not sold, the net proceeds will first be
allocated to reducing the line of credit up to $550,000 and any additional
proceeds would be used to reduce the OPIC loan.
CAPITALIZATION
The following table sets forth as of October 31, 1996 (i) the actual
consolidated capitalization of the Company, (ii) the pro forma capitalization
of the Company after giving effect to the sale of 600,000 to Arthur F. Bingham
shares of Common Stock at $.50 per share after October 31, 1996 and (iii) the
pro forma as adjusted capitalization of the Company as adjusted to giving
effect to the consummation of the Offerings and the application of the gross
proceeds therefrom, assuming all shares offered hereby are sold. There can be
no assurance any shares will be sold in the Offerings. This table should be
read in conjunction with the Company's consolidated financial statements and
"Management's Discussion and Analysis of Results of Operations and Financial
Condition" appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Actual Pro Forma Pro Forma As
------ --------- ------------
As of Adjusted
------- --------
October 31, Maximum
----------- -------
1996
----
<S> <C> <C> <C>
DEBT(2)
Due on Demand Note . . . . . . . . . . . . . . . . . $ 25,000 $ 25,000 $ 25,000
Short-Term Lines of Credit . . . . . . . . . . . . . 1,447,809 1,447,809 897,809
Long-term debt, including current portion . . . . . . 1,684,777 1,399,082 1,149,082
Total debt . . . . . . . . . . . . . . . . . . . . 3,157,588 2,871,891 2,071,891
----------- ------------ -----------
STOCKHOLDERS EQUITY -- --
Preferred stock; authorized and
unissued 5,000,000 shares; $5.00 par;
Common Stock; authorized 6,000,000
shares; no par; issued and outstanding 1,669,887;
Pro Forma 2,289,887; Pro Forma as adjusted
3,979,779 3,054,431 3,354,431 4,154,431
Retained earnings . . . . . . . . . . . . . . . . . . 1,314,431 1,314,431 1,314,431
Translation Adjustments . . . . . . . . . . . . . . . (1,827,679) (1,827,679) (1,827,679)
Total common Shareholders' equity . . . . . . . 2,541,029 2,841,029 3,641,029
----------- ------------ -----------
Total capitalization . . . . . . . . . . . . . . $ 6,794,595 $ 6,794,595 $ 6,794,595
=========== ============ ===========
</TABLE>
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SELECTED FINANCIAL DATA
The following table presents selected financial data for the periods
indicated. The financial data presented should be read in conjunction with the
information set forth under "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the audited and unaudited Consolidated
Financial Statements included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Six Months Six Months
Years Ended April 30 Ended Ended
-------------------- Oct. 31, Oct. 31,
1995 1996
1992 1993 1994 1995 1996 (Unaudited) (Unaudited)
---- ---- ---- ---- ---- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net Revenue $6,369,602 $6,884,589 $7,296,892 $7,260,491 $5,989,959 $3,092,130 $2,849,726
Gross Profit 1,848,731 2,203,412 2,288,471 203,412 1,846,267 1,014,913 932,656
Income (Loss) From
Continuing Operations
before Extraordinary
Items and Cumulative
Effect of Change in
Accounting Principal (304,713) 226,137 300,514 222,655 73,574 58,117 36,859
Net Income (Loss) (304,713) 288,236(1) 384,398(2) 222,655 73,574 58,117 36,839
Per Common Share:
Net Income (Loss)
Primary 0.18 0.17 0.23 0.13 0.04 0.03 0.02
Net Income (Loss)
Fully diluted 0.18 0.17 0.23 0.13 0.04 0.03 0.02
Declared 0 0 0 0 0 0 0
BALANCE SHEET DATA:
Working Capital $2,365,060 $2,466,214 $3,182,938 $3,206,220 $2,920,606 $3,115,825 $3,347,955
Total Assets 6,904,303 7,403,705 7,234,384 7,108,221 6,601,314 7,175,906 6,794,595
Total Debt 3,276,681 3,456,298 3,262,893 3,013,612 2,892,360 3,019,332 3,157,588
Shareholder Equity 2,603,388 2,832,508 2,802,872 2,838,105 2,660,859 2,797,357 2,541,030
</TABLE>
(1) Reflects an income tax benefit of $62,099 resulting from operating losses
carried forward from prior years.
(2) Reflects the cumulative effect of a change in accounting method for income
taxes of $83,884.
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<PAGE> 20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Six Months Ended October 31, 1996 Compared to the Six Months Ended October 31,
1995
Consolidated revenues were down approximately $254,500 or 8.2% for the
first six months of fiscal 1996 compared to the first six months of fiscal
1995. This decline was largely the 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 purchasing the higher
quality and higher priced furniture of the type that historically has been the
Company's principal product line. Sales for domestically produced products
were down about 18% percent for the half year. Sales of foreign produced goods
increased by about 28.9% for the six month period.
New orders received during the six month period amounted to
approximately $3,273,000 in future sales up slightly from the same period last
year. During the period the Company was without a salesmen in its territory
encompassing North Carolina, South Carolina and Virginia (the "North Carolina
territory"), its most productive, for almost three months while negotiations
with Mr. Bingham to fill the slot as exclusive representative and sales and
marketing manager. The Company's backlog of orders at October 31, 1996 was
approximately $1.997,000 versus $1,690,000 at that time last year and
$1,853,000 on April 30, 1996.
Cost of Sales were down approximately $160,400 or 8% for the six-month
period as compared with last year, reflecting the reduced level of sales.
Selling, General and Administrative Expenses decreased about $55,000
or 7% for the half year, primarily as a result of a reduction in the
commissions paid to the Company's sales representatives because of reduced
sales.
Interest Expenses were $193,220 for the first six months of the
current fiscal year, up slightly ($1,364) from the six month period of the
prior year, primarily as a result of increased borrowings against foreign
lines-of-credit to support production increases at the Honduran Facilities.
For the six month period ending October 31, 1996, operating income
(earnings before interest and taxes) was $230,096, 13.6 cents per share,
compared to $257,315, 15.2 cents per share, for the same period of the prior
year. Net income was $36,463, or $.02 per share, compared to $58,117, or $.03
per share for the same period of fiscal 1996.
Fiscal Year ended April 30, 1996 compared to Fiscal Year Ended April 30, 1995
Consolidated revenues for the fiscal year ended April 30, 1996 were
down $1,271,682 or 17.5 % as compared to those reported for the previous year.
This decline is primarily the result of a soft furniture economy that affected
the fourth quarter of the prior year and persisted throughout fiscal 1996.
Cost of Sales was down approximately $913,000 or about 18% for the
year as compared with the prior year, reflecting management's efforts to
curtail production as a reaction to the slow economy and to reduce inventories
to manage the Company's cash position.
Selling, General and Administrative Expenses decreased about $246,000
or approximately 15% during the year, primarily as a result of reduced sales
commissions.
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<PAGE> 21
Operating income (earnings before interest and taxes) for the year was
$458,338 (27 cents per share), down from $577,639 (34 cents per share)
reported for fiscal 1995. As a percent of sales, this income represented 7.6%
and 7.9% respectively.
Interest Expenses for the year were $388,829, up 15.7% from $335,951
as a result of increased borrowing against foreign lines-of-credit and, to
lesser extent, higher interest rates being applied to domestic borrowings as
compared to last year.
Net income was $73,574, or $.04 per share, for the year ended April
30, 1996 as compared to $222,655, or $.13 per share, for the prior year.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal long-term capital resources are stockholders'
equity, the term loan of Wellington Hall with Lexington State Bank and the term
loan of WHCC with the Overseas Private Investment Corporation (OPIC). As of
October 31, 1996, total stockholders' equity was $2,846,724 and the outstanding
principal amounts of the Lexington State Bank loan and the OPIC loan were
$408,084 and $990,999, respectively.
The Lexington State Bank loan bears interest at the prime rate plus
1.5% and is payable in monthly installments of $7000 until maturity on April
10, 2002. It is secured by substantially all of the Company's domestic assets.
The net proceeds of the loan were used to refinance indebtedness used to
purchase and expand the Company's Lexington, North Carolina facility.
Since July 1996, the Company has been negotiating with OPIC to amend
the OPIC loan agreement to provide more favorable terms. Principal payments
were scheduled to double from approximately $31,000 per quarter to approximately
$62,000 per quarter beginning on July 31, 1996 with a final balloon payment of
$185,812 due on October 31, 1999. Under the present loan agreement, WHCC is
also obligated to make quarterly interest payments at the rate of 12% per annum.
On January 10, 1997, WHCC received a commitment letter to amend the loan
agreement to, among other things, lower the interest rate to 10% annum as of
November 1, 1996 and to suspend principal payments from July 31, 1996 until July
31, 1997, at which time quarterly payments of approximately $31,000 would be due
and payable. Principal payments would increase to approximately $62,000 on July
31, 1998 with a balloon payment of approximately $557,438 due on October 31,
1999. The amendment to the loan documents is expected to be completed by March
31, 1997. Upon execution of the amended documents, WHCC would pay OPIC a
rescheduling fee of 1% of the principal balance and reimburse OPIC for its legal
and other out-of-pocket costs incurred to effectuate the amendment. The
proceeds from the OPIC loan, together with funds generated internally by
Wellington Hall, were used to acquire and improve the Honduran Facilities.
The OPIC loan prohibits the payment of dividends and other
distributions by Wellington Hall and requires that it maintain a stated amount
of tangible net worth as well as certain financial ratios, including current
assets to current liabilities and total indebtedness to tangible net worth. In
addition, WHCC is prohibited from paying dividends or making other
distributions to Wellington Hall and is required to maintain a stated amount of
current assets in excess of current liabilities, and WHCC and MWH are required
to maintain stated ratios of current assets to current liabilities and
indebtedness to tangible net worth. WHCC also is required to generate operating
income sufficient to service the OPIC loan for a least four consecutive
quarters beginning July 31, 1996. The amendment effectively would extend this
date to the four quarters preceding maturity on July 31, 1999. Wellington
Hall, WHCC and MWH are each in compliance with the requirements of the OPIC
loan.
Under the OPIC loan arrangement, Wellington Hall, Limited is obligated
to supply any necessary funds to
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WHCC to meet WHCC's obligations thereunder, and MWH has also guaranteed the
obligations of WHCC. The OPIC loan is secured by substantially all of the
tangible assets of the Honduran Facilities.
The Company's primary sources of liquidity are bank lines of credit
and cash flow from operations. For its domestic operations, the Company has
two lines of credit with Lexington State Bank. Under its primary line, the
Company may borrow the lesser of (i) $1,200,000 or (ii) the sum of 70% of the
Wellington Hall's accounts receivable less than 60 days old, 50% of its
finished good inventories and 10% of work in process and raw material
inventories. As of October 31, 1996, the Company had $944,000 in borrowings
under this line of credit, leaving $166,000 available for future borrowings.
The Company pays interest monthly at the rate of prime plus 1% on outstanding
borrowings under the facility. Principal payments are due on demand. The line
of credit also contains restrictive covenants that prohibit Wellington Hall
from paying dividends and making other distributions with respect to its
capital stock and require it to maintain certain financial ratios, including
current assets to current liabilities and total liabilities to total net worth.
The Company is in compliance with all requirements of the line of credit. The
line of credit is reviewed annually for renewal.
On January 16, 1996, Wellington Hall executed the loan documents that
increased its line of credit from Lexington State Bank in the amount of
$250,000. No borrowings have been made to date. Outstanding borrowings under
this facility will bear interest at the rate of prime plus 1 1/2%, payable
monthly. Principal payments will be due on demand.
Wellington Hall is also indebted to Lexington State Bank under a
demand loan for $100,000 borrowed in 1993 to finance working capital. The loan
bears interest at the prime rate plus 1% payable monthly and the outstanding
balance as of October 31, 1996 was $100,000.
The Lexington State Bank lines of credit and demand loan are secured
by substantially all of the Company's domestic assets.
MWH has lines of credit with two Honduran banks in an aggregate amount
of $500,000. As of October 31, 1996, an aggregate of $404,000 had been
borrowed under these lines, leaving approximately $96,000 for future
borrowings. Borrowings as bear interest at 25% payable quarterly and principal
is payable on demand. The lines are secured by a second lien on the fixed
assets of MWH and current assets.
The Company's other primary source of liquidity is net cash provided
by operating activities which was $97,517 and $295,289 in fiscal 1996 and 1995,
respectively. However, operations used $305,910 during the first six months of
the current fiscal year, primarily as a result of the increases in inventories
and accounts receivable discussed below.
As of October 31, 1996, accounts receivable had increased by
approximately $132,000 since the beginning of the fiscal year, mostly as a
result of an increase in sales during the second quarter ended that date. The
receivables represented a turnover rate of about fifty-one days, an increase of
about five days when compared to the turnover rate reported at April 30, 1996.
Inventories increased by about $284,000 during the first six months of
the current fiscal year primarily as a result of increased production to meet
an increased backlog of orders. The Company believes that the renewed and
revised marketing effort that it put in place in early 1996 has had some
positive effect on the Company's level of incoming orders and has resulted in a
backlog of orders of approximately $1,997,000 at October 31, 1996 versus
$1,666,000 on the same date in 1995 and versus $1,853,000 at April 30, 1996.
The increased inventories consisted primarily of inventory in transit from the
Honduran Facilities to the Lexington NC facility, which at quarter's end was
about $200,000 versus about $74,000 at year end April 30, 1996, and the
inventory of raw materials and
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supplies in transit to the Honduran Facilities from Lexington at October 31,
1996, which was about $52,000 versus about $5,000 on hand at April 30, 1996.
Property and Equipment is reported to be down about $49,000 as of
October 31, 1996 compared to year-end but, when expenditures of approximately
$29,000 are added, the decrease is actually about $78,000. The decline is
mostly the result of the devaluation of the Honduran currency relative to the
prior fiscal year end of approximately 14%. The historical value of the
Company's Honduran assets are carried on the subsidiaries' books in the local
currency, the lempira. Lempiras are converted to dollars at the "spot" rate in
effect at period end when the Company's financial statements are consolidated,
and the reduction to the reported value of these assets appears as part of the
translation adjustment.
There are no significant capital expenditures planned for the balance
of this fiscal year and expenditures for the remainder of the year will be
limited to maintenance needs which develop from time to time. The Company's
total outlay for capital improvements for the fiscal year ended April 30, 1996
was approximately $39,000.
As of September 1, 1996, the Company executed an Employment and Stock
Purchase Agreement with Arthur F. Bingham (the "Agreement"). On October 10,
1996, Mr. Bingham loaned the Company $285,694 at terms included in an addendum
to the Agreement. These terms, among other things, allowed the Company two
years to repay the loan. On February 12, 1997, the Company issued to Mr.
Bingham 600,000 shares of stock as repayment of that loan and for his
additional investment of $14,306. Mr. Bingham has also been granted options to
purchase 600,000 additional shares at option prices ranging from $.50 to $1.30
per share, 450,000 of which are subject to certain performance conditions. See
"Management."
In 1989, the Company acquired the Honduran Facilities 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 incur more debt and restrict capital
expenditures that were both in its original plans at the time of the
acquisition and that have developed since the acquisition. Because of this
debt, sales needed to grow rapidly from the time of the acquisition to a level
at which operating incomes would be adequate to service the debt and to fund
capital needs if the Company was to grow. Maintaining an adequate level of
sales since the acquisition has been possible only for limited periods of time,
mostly as a result of a sluggish furniture economy that has existed over much
of that time, a period that includes two recessions. The sluggish furniture
economy has also reduced the industry's distribution base, especially the base
of mid to small retailers more committed to using smaller manufacturers, such
as the Company, as a resource. Furthermore, management believes that the
consumer taste in home furnishings has swung away from the more formal designs
and execution that the Company has marketed to more informal designs and
execution.
Management believes that the resulting situation is that the Company
has too much debt service, given its sales volume most recently achieved, and
has inadequate funds for its plans to restoring and growing its sales to a
level where its operating profits can accommodate its needs. The Company's
cash position was tight during all of fiscal 1996, having experienced excessive
wood deliveries early in the year and then a slow economy and lower sales
during the balance of the year while the Company continued to service its high
level of indebtedness. The sale of stock to Mr. Bingham has assisted the
Company in meeting its working capital and other cash needs and management
believes that the net proceeds of the Offerings will further improve the
Company's liquidity. However, a significant portion of the Company's backlog
and orders expected to be received in the near future carry delayed payment
terms and/or will require reserved inventories. These terms will further
stretch the Company's cash resources until the payment for these sales becomes
due. Delayed payment terms have become expected within the industry and
therefore necessary for the Company to attract new distribution.
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Having initiated in early 1996 a marketing effort to achieve sales
growth, and having begun to see results from this effort, the Company
formulated a strategy that addresses means of securing the necessary funding
and solving its debt-equity problem in general. The plan consists primarily of
(i) the private placement of stock to Mr. Bingham and the grants of options to
Mr. Bingham and Mr. Eskelsen, (ii) the Offerings and (iii) the Company's debt
restructuring, all as discussed elsewhere in this Prospectus.
The success to date in the execution of this plan has removed some
immediate pressure on working capital, is making funds available to support
marketing requirements and slowed the effect of servicing the debt for the near
term. The balance of the plan is essentially aimed at reducing debt and the
corresponding costs thereof.
BUSINESS
GENERAL
The Company manufactures high quality wooden home furniture. The
manufacturing operation involves the machining, sanding, assembling and
finishing of components and other raw materials. The Company's products are
distributed nationally through full-service retail stores and unaffiliated
trade showrooms that service the professional designer.
The Company owns a lumber processing mill and furniture manufacturing
facility located in San Pedro Sula, Honduras, Central America (the "Honduran
Facilities"). Wellington Hall Caribbean Corporation ("WHCC"), a wholly-owned
subsidiary of the Company, serves as a sales and distribution company for the
Honduran Facilities. WHCC is a North Carolina corporation organized in
December, 1988 and is located in Lexington, North Carolina. Muebles Wellington
Hall, S.A. ("MWH"), the Honduran subsidiary of WHCC, located in San Pedro Sula,
manages and operates the Honduran Facilities.
The Company has recently adopted specific strategies designed to
improve its results of operations and financial condition. These strategies
involve a more aggressive program of product development, improving marketing
and strengthening management, as well as increasing capital and reducing
indebtedness.
The Company has developed and adopted a comprehensive marketing plan
that includes strategic measures such as (i) augmenting the Company's
traditional product lines with more casual designs of furniture that management
believes reflect trends in consumer tastes, (ii) exploring new opportunities
for its Honduran Facilities and other offshore resources with designs employing
materials such as leather, marble, metal, wicker, bamboo and rattan, (iii)
updating and upgrading catalogs and other sales aids in all distribution
channels and (iv) developing more targeted programs with selected retail
distributors that include promotions, stock reserves for quicker shipments and
sales contests. See "Business--Markets."
In addition to the foregoing, the Company has recruited an experienced
senior executive to lead its sales and marketing function. In September 1996,
the Company employed Arthur F. Bingham for the newly created position of Senior
Executive Vice President of Sales and Marketing. Mr. Bingham directs and
oversees all aspects of the Company's sales and marketing activities with the
goal of assuring continuing growth in profitable sales. Mr. Bingham's
employment arrangement provides for several incentives for him to assist the
Company in increasing sales revenues. See "Management."
Management believes that the highly leveraged position of the
Company has impeded its ability to pursue strategies designed to improve its
results of operations. In response, the Company also is pursuing a number of
strategies to improve its financial condition by raising equity capital,
reducing indebtedness and increasing working capital. The Offerings are the
primary means of accomplishing these goals. See "Use of Proceeds" and
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"Capitalization." In addition, Mr. Bingham purchased 600,000 shares of Common
Stock at $.50 per share, and the Company has used these funds to reduce its
indebtedness and provide working capital. The Company also has granted stock
options to Mr Bingham and to Mr. Ralph Eskelsen, manager of the Honduran
Facilities, that will provide incentives to these key employees and may result
in additional contributions to capital. Mr. Eskelsen has indicated that he is
likely to purchase between $135,000 and $150,000 of Common Stock during
calendar year 1997 through exercise of his options. Because this purchase is
at the option of Mr. Eskelsen, the proceeds therefrom have not been reflected
in the "Capitalization" section of this Prospectus.
The Company has been negotiating with its lenders to amend its loan
agreements to provide more favorable terms. On January 10, 1997, the Company
received a commitment letter from the Overseas Private Investment Corporation
("OPIC") to restructure its loan to reduce principal payments until July 1997
(with the deferred payments to be made in a larger balloon payment at the end
of the term of the loan in 1999) and to lower the interest rate. The OPIC
loan restructuring is subject to finalizing the corresponding loan documents to
reflect the revised terms and conditions. The effect of the restructured loan
is a reduction to the Company's cash requirements for scheduled principal
payments for fiscal 1997 and 1998 of $247,748 and $123,874, respectively, which
will contribute significantly to improving the Company's working capital and
cash flow for these years. The restructured OPIC loan also will reduce
scheduled interest expense by $9,910 in fiscal 1997 and $18,900 in fiscal 1998.
In addition, on January 16, 1997, the Company obtained an additional $250,000
line of credit from Lexington State Bank. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
The Offerings, if fully subscribed, would increase the Company's
equity capital by about $800,000 and reduce indebtedness by a corresponding
amount. Interest expense would have been reduced by $79,744 and $83,201 in
fiscal 1995 and 1996, respectively, and by $40,438 in the first half of fiscal
1997, on a pro forma basis, if the Offerings were fully subscribed and
consummated at the beginning of the period. In addition to achieving a
reduction in interest expenses, management believes that the increase in equity
and reduction of debt service requirements in 1997 and 1998 that the foregoing
strategies are designed to achieve would make working capital and other funds
available to pursue its marketing and sales strategies more aggressively with
the goal of increasing funds generated by operations to fund future growth and
debt service requirements.
The Company's business was founded in 1964, and the Company is
incorporated in North Carolina. The Company's principal office is located at
Route 1, U.S. Highway 29 and 70 North, Lexington, North Carolina 27292,
telephone (910) 249-4931.
PRODUCTS
The Company's products include occasional living room tables, dining
room, and bedroom furniture, modular wall systems, entertainment cabinets (for
storage of televisions, stereo equipment and video cassette recorders),
bar/server cabinets, console tables, mirrors, and other occasional and accent
pieces. The product line generally represents an eclectic collection of
reproductions or renderings of 18th century English and French styles. Most of
the Company's 18th century English and French reproductions and other designs
are offered exclusively by the Company.
The Company imports certain of its designs for finishing when the
domestic production costs for such designs are prohibitive. The Company's
imported line is assembled in the Honduran Facilities and finished in the
Company's Lexington, North Carolina facility and includes solid mahogany dining
chair frames, occasional items and poster beds. Sales of imported designs have
increased over time as a result of the Company's acquisition of the Honduran
Facilities. During fiscal year 1996, imported designs accounted for
approximately 45% of the Company's consolidated sales.
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WHCC, the Company's North American subsidiary, markets to the U.S.
furniture industry (including the Company) three categories of unfinished
products manufactured by the Honduran Facilities, including: (i) raw materials
in the form of wooden dimension stock (rough parts); (ii) unfinished assembled
items for furniture such as occasional tables and dining chair frames; and
(iii) components (turnings and carvings) utilized in domestic production (OEM
sales). The majority of sales utilize solid mahogany, but the Company also
uses laurel, primarily in the production of its French designs, pine and San
Juan Areno. In April of 1996, the Company successfully introduced items of
furniture which employ leather as part of their finish, such as inserts in desk
tops or fully wrapped chest, and the first pine occasional item for its
domestic production.
WHCC also markets directly to the retail trade a bedroom, dining room
and occasional table group fully produced and finished in the Honduran
Facilities. By assembling and finishing the group in Honduras, significantly
greater advantage of plentiful, less costly labor and lower overhead can be
realized which result in a lower retail purchase price for the group ( as well
as that of the other Honduran - produced products). This lower price, along
with the utilization of solid "Honduran Mahogany," recognized by the world
trade as one of the premier hardwoods, allows the Company to compete within its
market niche. All of the wood utilized by the Company's Honduran Facilities
comes from forests under sustainable management programs.
MARKETS
The Company utilizes several different avenues of distribution. The
Company distributes its finished products to the designer trade, retail stores,
trade showrooms, buyers' clubs and consumer catalogues. The following
discussion describes the views of the Company regarding each avenue of
distribution for its finished products.
Designer Trade
The Company believes that the designer trade has become one of the
more viable outlets for its primary product niche, traditional, high-end
furniture. From the Company's perspective, the advantage of this outlet is
that virtually all sales are "special order," negating the need for promotional
discounts, and the disadvantages are the relatively low sales volume, the
requirement that it grant credit and the inadequate means the designer normally
has available to receive delivery and service his customer. Since decorators do
not generally stock or display products, they are largely dependent on the
availability and quality of the Company's sales materials, and as such, it is
important for the Company to create and/or improve and maintain its sales aids,
including but not limited to photography and catalogs for the Company's dining
room pieces and occasional program and for WHCC's bedroom pieces.
As part of the Company's strategy to increase its sales, the Company
plans to produce a new product catalog by April 1997 for a portion of its
product line. New finish samples have been completed and furnished the
Company's wall unit dealers and finish samples for the balance of the line will
be ready in the early spring of 1997.
Retail Stores
Retail stores are a desirable outlet for the Company's products
because the potential volume of sales is relatively high and certain retail
stores do stock and display the Company's products. However, the Company's use
of this outlet has declined over several years for various reasons, including
but not limited to the fact that many of its dealers have gone out of business
and the fact that it has been unable to compete effectively with the invoice
dating policy employed by larger manufacturers. The Company believes that this
latter reason has induced many dealers not to consider the Company's products
when assigning available floor space. Accordingly, a growing percentage of the
Company's distribution to retail stores are special orders, necessitating the
creation and/or
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improvement and maintenance of the Company's sales aids. See--"Designer Trade."
The Company is having some success in expanding it retail distribution
though a program of "Target Accounts." The primary elements of the program is
a stock reserve program to assure the participating dealer of quicker delivery,
promotions, better in store training and service, and sales incentive contests
for the dealer's "floor" sales personnel. The stock reserve program consists
of maintaining a reserve stock between production runs for about one-third of
the products normally offered and in only one finish. The dealer is required to
purchase and display essential all of these products. The sales contest are for
resort, weekend or holiday trips given to retail sales persons who sell minimum
specified amounts of the Company's product within a set time frame.
Early in 1996 the Company added its own Home Page to the Internet
[firniture.com] and has experienced a much higher level of hits (site visits)
and resulting inquiries than was anticipated. These inquiries are forwarded to
the Company's appropriate area sales representative and to a local dealer when
possible. Priority for referral is given to the dealers participating in the
Company's "Target Account" program.
Trade Showrooms
The Company maintains a showroom in High Point, North Carolina to
display its product line during the semiannual International Furniture Market
held in that city in the fall and spring of each year and is affiliated with
trade showrooms that service the professional designer in all the major markets
and design centers around the country. Trade showrooms generally target the
affluent customer, which tends to be the Company's ultimate customer, and as
such, they are an important outlet for the Company. However, the Company
believes that this outlet has diminished in importance somewhat over the last
decade because of "Gallery Programs" sponsored by the larger manufacturers and
retailers under which retail stores act in large part as competing showrooms,
inducing decorators to stock their floors by offering greater discounts It is
the opinion of the Company, however, trade showrooms are still viable when
markups of wholesale prices can be held to 250%.
In April 1996, the Company received commitments from two major,
national showroom chains to display its products. One of the commitments
involved only the Company's modular wall units, while the others involved the
balance of the domestic product (regular line) lines. Most of the floor samples
purchased reached the showroom floors early in the fall of 1996, and management
believes such floor displays are having a favorable impact on sales.
Buyers Clubs
The Company became a vendor for the United Consumers Club ("UCC")
approximately two years ago. The UCC's members are required to pay an annual
fee, and the UCC distributes to them through its ninety catalog outlets (Clubs)
and its quarterly mailers. In order to succeed in this particular means of
distribution, it is imperative that the Company create and/or improve and
maintain high-quality photography in its mailers, as well as a large supply of
catalogs at the various clubs. See--"Designer Trade."
Similarly, consumer catalogs are a means of distribution that has not
been available to or utilized by the Company in the past. At the October 1996
Furniture Market held in High Point N.C., the Company received a commitment
from a major catalog company to include its products in its catalogs. The first
test will come in an April 1997 edition of the catalog and the Company expects
that other pieces selected from its products to be included in future editions.
OEM Sales
Following the acquisition and expansion of the Honduran Facilities in
1990, the Company aggressively sought to sell to other manufactures dimension
stock, wood components (carvings and turnings), and unfinished
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assemblies with significant success. In 1993 and early 1994, the Company's
sales of its proprietary products grew to such a level that it appeared that it
would be more profitable to use the majority, if not all, of the capacity of
the Honduran Facilities for the exclusive production of the Company's products.
However, very late in 1996 the market for the Company's products became soft
and, without the OEM sales, it became necessary about mid-1995 and through much
of calender 1996 to curtail production to avoid additional increases in
inventory. For all of 1996, the Company's has directed efforts of establishing
distribution for its proprietary line with some success but at the same time to
rebuild a dealer base for OEM sales. In the future, the Company will maintain a
presence in this area of distribution to assure its presence in a more
diversified market.
RESEARCH AND DEVELOPMENT
While neither the Company nor WHCC has a full-time employee or
facility devoted exclusively to research and development, the Company's
President and sales and marketing personnel, in consultation with design firms,
devote substantial time to the design and development of new products. The
competition in and the fashion orientation of the home furnishings market
requires that the Company's product line be continually updated by the
introduction of new products. Many of the Company's products may, however,
because of the nature of the Company's designs, remain marketable for a
significant period of time.
SALES
The Company's sales function is led by Arthur F. Bingham, its Senior
Executive Vice President of Sales and Marketing. The Company employs 16
independent, commissioned sales representatives who sell to retail stores and
service trade showrooms in the United States and Canada. The Company generally
sells its products on a net 30-day basis. The Company has advertised
nationally, to a limited extent, to improve its name recognition.
WHCC employs one independent, commissioned sales representative for
products sold to U.S. furniture manufacturers (other than the Company), and
that commissioned sales representative covers the two eastern states in which
the majority of the U.S. furniture industry is located. WHCC utilizes the
Company's independent representatives for products finished in the Honduran
Facilities and marketed directly to the retail trade.
BACKLOG
The Company's firm backlog of orders on October 31, 1996 was
1,997,000, a 6% increase from its backlog of $1,878,000 on October 31, 1995.
The October 31, 1996 backlog included $1,498,000 of domestically-manufactured
products, as opposed to $1,587,000 included in the 1995 backlog, which decrease
reflects the slow down in the economy in general and in the home furnishings
industry in particular. The backlog for WHCC and Honduran-produced products,
less inter company orders, was $499,000 on October 31, 1996 versus $291,000 on
October 31, 1995. While the backlog is always subject to cancellation, the
Company expects to ship substantially all of its backlog during fiscal year
1997.
SOURCES AND AVAILABILITY OF RAW MATERIALS
The Company's principal raw material is wood purchased in the form of
dimension stock (rough parts), components (turnings and carvings) and plywood.
Plywood is generally available in adequate supply from domestic resources.
Dimension stock and components are generally supplied to the Company by its
Honduran Facilities. These same raw materials are available from domestic
sources but generally at higher prices and lower quality. Accordingly, the
loss of the Honduran Facilities as the Company's primary source of wood and as
its sole supplier of the Company's proprietary line of assembled items of
furniture would have a significant adverse effect on the Company's operations,
financial condition, competitiveness and future prospects.
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Though the agency of the Honduran government responsible for forest
resources is not able to provide an accurate inventory of the supply of
mahogany or other species of wood available in Honduras and large quantities of
mahogany have previously been harvested from Honduras over the years, the
Company believes based upon all available information that an adequate supply
of mahogany is available and will be available for many years to come. In
addition to mahogany, the Company currently utilizes laurel, pine, San Juan
Areno and Spanish cedar and continually researches other species of wood
available in commercial quantities for manufacturing in order to expand its
resource base.
The Honduran government has established programs such that all timber
harvested is in areas of forest under sustainable management. The use of the
timber harvested is being designated primarily for consumption by the Honduran
wood-working industry, which includes the Company's Honduran Facilities.
SEASONALITY
As is typical in the furniture industry, the Company's greatest volume
of incoming orders is received in the spring and fall of each year. This is
due primarily to the International Furniture Market held each April and October
in High Point, North Carolina. Careful scheduling of production minimizes the
effects of such seasonality on the Company's production and shipments. Orders
are generally shipped within 30 to 90 days of receipt.
COMPETITION
The furniture industry is highly competitive, and no single company
dominates the industry. The Company, while unranked in any known comparative
study of the industry, competes with many nationally-recognized manufacturers
of quality furniture. Many furniture manufacturers have substantially larger
production capabilities, and distribution networks, as well as greater
financial resources than has the Company. The Company's principal method of
competing is by product design (including items or categories of items not
available from other manufacturers), product quality (including high-grade
hardwoods and other materials used in construction and quality-constructed
cabinetry and finish) and price. Most of the Company's designs are offered by
the Company exclusively. The Company believes its pricing structure, product
design and product quality to be competitive with those of its competitors.
The furniture industry is a segmented industry in which design,
quality and price place each manufacturer into a competitive market niche. The
Company competes in the medium-to-high price market, which normally requires a
larger number of items comprising the product line, smaller production lot
sizes and higher inventory requirements to maintain a competitive delivery
cycle. The Company estimates that there approximately 12 to 15 furniture
manufacturers directly competing with the Company in the medium-to-high price
market for case goods. The Company's limited financial resources restrict its
ability to compete effectively in its market niche.
ENVIRONMENTAL CONTROL FACILITIES
The Company's domestic operations must meet extensive federal, state
and local regulatory standards in the areas of safety, health and
environmental pollution controls. Historically, these standards have not had
any material adverse effect on the Company's sales or operations. The
furniture industry currently anticipates increased federal and state
environmental regulation, particularly with respect to emissions from paint and
finishing operations and wood dust levels in manufacturing operations. The
industry and its suppliers are attempting to develop water-based finishing
materials to replace commonly-used organic-based finishes which are a major
source of regulated emissions. The Company cannot at this time estimate the
impact of these new standards on the Company's operations or the cost of
compliance thereof (including future capital expenditure requirements).
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EMPLOYEES
As of February 10, 1997, the Company had approximately 375 employees,
including approximately 300 people currently employed at the Honduran
Facilities. Approximately 325 of the Company's employees are full-time
employees.
DESCRIPTION OF PROPERTY
The Company owns and operates one plant housing its United States
production facilities and general offices located on 17 acres of land in
Lexington, North Carolina. The 82,500 square foot facility is of brick, steel,
concrete and concrete block construction and is well-maintained and in adequate
condition. The Company's manufacturing facilities generally operate on a
40-hour week. Substantially all of the Company's physical properties located
in Lexington, North Carolina are pledged as collateral under the Company's loan
agreements with Lexington State Bank of North Carolina, the Company's primary
bank lender.
The Company's Honduran Facilities consist of seven and one-half acres
of land located in San Pedro Sula, Honduras, a 21,120 square-foot, equipped
dimension mill, a 7,840 square-foot wood resaw operation, two dry kilns and
boilers and related processing equipment, two buildings for dry lumber storage
and a 6,408 square-foot building for "green" lumber storage. In July 1996, the
Company completed construction of a 45,000 square-foot addition to the
manufacturing facility and a 2,600 square-foot office building.
The Company believes its properties are generally suitable and
adequate to meet its intended uses and, in the opinion of management, it is
adequately covered by insurance.
The Honduran Facilities are pledged to secure a loan from the OPIC.
The loan proceeds were used to finance completion of capital improvements to
the Honduran Facilities. In addition, Banchas, the Company's Honduran bank
lender, holds a second mortgage on the assets of the Honduran Facilities.
The lumber dimension mill, as well as the furniture manufacturing
operations of the Honduran Facilities, operate on a 44-hour work week (a
standard work week in Honduras). The Company believes that the mill and
furniture manufacturing facilities are in adequate condition and suitable for
its intended uses.
The Company leases a 8,800 square-foot showroom located in High Point,
North Carolina. The space is utilized to display the Company's products,
particularly new product introductions, during the semi-annual International
Furniture Markets. The Company believes the showroom is in good condition and
suitable for its intended use.
LEGAL PROCEEDINGS
There is no pending material litigation involving the Company or any
of its subsidiaries. To the best of management's knowledge, no legal
proceedings or proceedings by any governmental authorities are contemplated.
29
<PAGE> 31
MANAGEMENT
The following table sets forth information concerning each director
and executive officer of the Company:
<TABLE>
<CAPTION>
POSITION WITH THE COMPANY; PRINCIPAL OCCUPATION DURING
------------------------------------------------------
NAME AGE THE PRECEDING FIVE YEARS (IF DIFFERENT)
- ---- --- ---------------------------------------
<S> <C> <C>
Hoyt M. Hackney, Jr. 59 President, Chief Executive Officer, Chief Financial Officer and
Treasurer, Director since 1978
Donald W. Leonard (1) 77 Chairman of the Board of Directors, Director since 1965; Private
Investor
Ernst B. Kemm 60 Executive Vice President, Director since 1978
William W. Woodruff (1) 72 Secretary, Director since 1977; President and Owner of Woodruff Shoe
Store
Arthur F. Bingham 42 Senior Executive Vice President of Sales and Marketing, Director since
1996; Sales Representative for Lexington Furniture Industries (1978-1996)
Ralph L. Eskelsen, Jr. 50 General Manager and Director of Muebles Wellington Hall, S.A.
</TABLE>
- ----------------------------------------
(1) Messrs. Leonard and Woodruff are related by marriage.
30
<PAGE> 32
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding directors
and executive officers of the Company, as well as those persons known by the
Company to own beneficially more than 5% of the outstanding Common Stock of the
Company, as of February 10, 1997 and after the Offerings assuming all shares
offered hereby are sold:
<TABLE>
<CAPTION>
Before Offerings After Offerings
-------------------------------------------- ---------------------------------
Name and Address Amount and Nature Percent Amount and Nature Percent
of Beneficial of Beneficial of Class of Beneficial of Class
Owner Ownership (1) Ownership (1)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Hoyt M. Hackney, Jr. 226,958 (1) 9.9 302,958 7.6
409 Edgedale Drive
High Point, N.C. 27262
Ernst B. Kemm 297,280 (1) 13.0 298,280 7.5
1211 Lancaster Place
High Point, N.C. 27260
Donald W. Leonard 26,862 (1) 1.2 46,862 1.2
105 Westover Drive
Lexington, N.C. 27292
William W. Woodruff 16,000 (1) 0.7 24,000 0.06
320 Maegeo Drive
Lexington, N.C. 27292
Arthur F. Bingham 605,437 (2,3) 26.4 605,437 (2,3) 15.2
315 3rd Avenue N. W.
Hickory, N.C. 28601
Ralph L. Eskelsen, Jr. -- (3) -- -- (3) --
Tacao River
San Pedro Sula
Honduras, Central America
All executive officers 1,172,537 (3) 51.2 1,277,537 (3) 32.1
and Directors as a Group
(6 Persons)
</TABLE>
- -----------------------------
(1) To the best of the Company's knowledge, all persons listed above own the
shares listed directly and have sole voting and investment power with respect
thereto unless otherwise noted.
(2) Mr. Bingham's shares include 605,000 shares owned in a retirement plan of
which he is beneficiary.
(3) Excludes options to purchase shares that have been granted but are not
currently exercisable and do not become exercisable within 60 days.
31
<PAGE> 33
EXECUTIVE COMPENSATION
The following table sets forth information concerning compensation paid
to the Chief Executive Officer of the Company during the last three fiscal
years.
<TABLE>
<CAPTION>
Fiscal Annual Compensation All Other
------ ------------------- ---------
Name/Positions Year Salary($) Bonus($) Compensation (1)
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Hoyt M. Hackney, Jr. 1996 128,878 0 26,577
President 1995 166,918 37,728 27,203
Treasurer, 1994 160,285 36,712 25,104
Chief Executive Officer
Chief Financial Officer
</TABLE>
(1) The amounts reported in this column consist of the Company's matching
contribution under its 401(k) plan and deferred compensation plan.
Non-salaried directors are paid $100 for each meeting of the Board of
Directors they attend and a $1,000 annual directors' fee. The Company does not
pay Directors any additional amounts for committee participation.
Effective January 1, 1987, the Company entered into a 5-year employment
agreement with Mr. Hackney (the "Employment Agreement") that is automatically
extended for successive one-year terms unless and until either party to the
Employment Agreement gives written notice of' termination. Throughout the term
of the Employment Agreement, Mr. Hackney is to serve as President, Chief
Executive Officer and Chief Financial Officer of the Company, is to be
nominated for election as a Director of the Company and is to devote his full
time and attention to the Company's business affairs. If, for any reason other
than the termination of his employment "for cause," Mr. Hackney does not
continue in these positions, Mr. Hackney may elect to terminate the Employment
Agreement and receive as severance compensation an amount equal to one and
one-half times his then annual compensation. Under the Employment Agreement,
Mr. Hackney may be terminated only "for cause," which is defined to mean (1)
willful material breach of his obligations under the Employment Agreement; (2)
willful gross misconduct in the course of his employment that is substantially
injurious to the Company; or (3) conviction in any court of a felony which
results in incarceration for more than 90 consecutive days.
In conjunction with the execution of the Employment Agreement, the
Company and Mr. Hackney entered into an executive deferred compensation
agreement, effective May 8, 1987 (the "Deferred Compensation Agreement"), which
provides for the payment of $50,000 per year for a period of 10 years payable
in equal monthly installments, upon Mr. Hackney's retirement at age 62. The
monthly installment payments shall be paid to Mr. Hackney's beneficiary if he
dies prior to retirement or after retirement but prior to the expiration of the
ten-year payout period. $24,000 in deferred payments were accrued pursuant to
the Deferred Compensation Agreement for the benefit of Mr. Hackney during
fiscal 1996.
If the Company is (1) merged, liquidated, consolidated or otherwise
combined with any other company, or (2) if substantially all the assets or
shares of stock of the Company are acquired by any other person or entity (1
and 2 above hereinafter a "Change of Control Event"), the Employment Agreement
will, pursuant to its terms, automatically remain in full force and effect
until the end of the two-year period immediately following the date of the
Change of Control Event. If the Employment Agreement is extended beyond
December 31, 1991 due to the occurrence of a Change of Control Event, Mr.
Hackney is to be paid an annual salary of $155,000 throughout the term of
extension. Upon the occurrence of a Change of Control Event. the Company or
its successor in interest may terminate the Employment Agreement upon the
payment to Mr. Hackney of a cash amount equal to 1 1/2 times his then annual
compensation. The Company or its successor may terminate the Deferred
Compensation Agreement following the occurrence of a Change of Control event
upon the payment to Mr. Hackney of (a) $100,000 in cash or
32
<PAGE> 34
(b) a cash amount for each share of the Company stock then owned by Mr. Hackney
equal to or greater than the lesser of (i) four times the book value per share
of such stock or (ii) 15 times the net after tax profits per share of such
stock, computed as of the Company's most recent fiscal year end in accordance
with Generally Accepted Accounting Principles.
Effective September 1, 1996, the Company entered into a 10-year
employment agreement with Arthur F. Bingham ("the Employment Agreement") that
is automatically extended for successive one-year terms unless and until either
party to the Employment Agreement gives written notice of termination pursuant
to the terms therein. Throughout the term of the Employment Agreement, Mr.
Bingham is to serve as Senior Executive Vice President of Sales and Marketing
and as an exclusive sales representative of the Company and is to devote his
full time and attention to such positions. The Employment Agreement
contemplates that, for the term thereof, Mr. Bingham shall also serve as a
Director of the Company. If, for any reason other than the termination of his
employment "for cause," Mr. Bingham does not continue in these positions, Mr.
Bingham may elect to terminate the Employment Agreement and receive as
severance compensation an amount equal to one and one-half times his then
annual compensation. Under the Employment Agreement, Mr. Bingham may be
terminated only "for cause," which is defined to mean (1) willful material
breach of his obligations under the Employment Agreement, which breach is not
substantially cured by Mr. Bingham within ten business days after the Company
gives to him written notice of the specific alleged breach (it being understood
that Mr. Bingham's failure to perform or 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); (2) willful gross misconduct in the course of his employment that is
substantially injurious to the Company; or (3) conviction in any court of a
felony that results in incarceration for more than ninety consecutive days
(unless such conviction is reversed in any final appeal thereof).
Pursuant to the Employment Agreement, Mr. Bingham is to be compensated
in an amount equal to a commission of 5% of all sales of products of WHCC and
6% of all sales of products of the Company, both to exclude what is commonly
referred to as OEM sales, a commission of 5% on all orders considered "House"
orders, a commission of 5% on inventory sales used to raise capital and reduce
inventory, annual compensation of $30,000 and an annual bonus equal to the
amount that 2% of the sales in the territory from WHCC and 1% of the sales in
the territory from the Company exceeds $30,000 for each fiscal year beginning
September 1, 1996 through August 31, 1997.
If the Company is merged, liquidated, consolidated or otherwise combined
with any other company, or if substantially all 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, the Employment
Agreement shall remain in full force and effect or, at the option of the
Company, upon the occurrence of any such event described hereinabove, the
Company or its successor may terminate this Employment Agreement upon the
payment to Mr. Bingham of an amount equal to 1 1/2 times his earnings for the
last fiscal year prior to termination, such payment to be made within thirty
days after the date of termination. For purposes of determining Mr. Bingham's
earnings, there shall be included both the commissions paid under Mr. Bingham's
sales territory and the annual compensation paid for Mr. Bingham's service as
Senior Executive Vice President of Sales and Marketing.
STOCK OPTION AND RESTRICTED STOCK PLAN
On February 10, 1997, the Board of Directors of the Company adopted,
subject to shareholder approval, the 1997 Stock Option and Restricted Stock
Plan (the "Plan"). The Plan has a ten year term and, unless sooner terminated
as provided in the Plan, will terminate on February 9, 2007.
The Plan will be administered by an option committee (the "Committee")
appointed by the Board of Directors of the Company. The Committee must consist
of no fewer than two directors appointed by the Board, none of whom is a
current employee of the Company, a former employee that receives compensation
for prior
33
<PAGE> 35
services rendered during the taxable year, an individual receiving direct or
indirect remuneration from the Company in any capacity other than as a director
or a former or current officer of the Company, all with the intent of complying
Section 162(m) of the Internal Revenue Code of 1988, as amended (the "Code").
Under the Plan, the Company may grant incentive stock options ("ISOs"),
nonqualified stock options or restricted stock awards up to an aggregate of
1,200,000 shares of the Company's common stock, no par value (the "Common
Stock"). No individual may receive options or restricted stock under the Plan
aggregating more than 600,000 shares of Common Stock over the ten-year life of
the Plan. The number and class of shares available under the Plan will be
adjusted appropriately in the event of stock splits and combinations, share
dividends and similar changes in the capitalization of the Company. Any shares
of Common Stock that are subject to incentive stock options or nonqualified
stock options granted under the Plan and that are not issued, and any shares of
Common Stock that are issued pursuant to restricted stock awards under the Plan
and that are subsequently forfeited, may again be the subject of grants or
awards under the Plan.
Awards may be granted under the Plan only to key employees (including
statutory employees within the meaning of Section 3121(d)(3) of the Code),
officers or directors of the Company, whether or not employees. The Committee
will determine those persons who will receive ISOs, nonqualified stock options
and restricted stock awards under the Plan.
The Plan provides that the Board of Directors may terminate, amend or
revise the terms of the Plan at any time, except that no amendment or revision
shall (i) increase the maximum aggregate number of shares subject to the Plan,
except as permitted by the Plan in order to make appropriate adjustments for
stock splits, share dividends or similar changes in the Common Stock; (ii)
change the minimum purchase price for shares subject to options granted under
the Plan; (iii) extend the maximum duration of ten years established under the
Plan for any option or for a restricted stock award; or (iv) permit the
granting of an option or a restricted stock award to anyone other than eligible
recipients under the terms of the Plan.
With respect to nonqualified stock options or restricted stock awards,
the Committee is authorized under the terms of the Plan, in its discretion, to
make loans or payments to optionees or restricted stock award recipients for
the purpose of assisting such persons with payment of personal income taxes
incurred upon exercise of nonqualified stock options or the lapse of
restrictions to which restricted stock is subject.
If the Company becomes a party to any merger or consolidation in which
it is not the surviving entity or pursuant to which the shareholders of the
Company exchange their Common Stock, or if the Company dissolves or liquidates
or sells all or substantially all of its assets, the Committee may, in its
discretion, cause all ISOs and nonqualified stock options outstanding under the
Plan to become immediately exercisable and, to the extent not exercised, such
options will terminate on the effective date of such transaction. In addition,
the Committee may, in its discretion, cause all restricted stock awards that
are still subject to any restrictions or conditions to become fully vested, and
no longer subject to forfeiture, on such effective date, unless otherwise
provided in the applicable restricted stock agreement.
The price of shares subject to stock options granted under the Plan will
be determined by the Committee at the time of grant of the option, but may not
be less than 100% of the fair market value of the Common Stock at the time of
the grant. The Committee will determine at the time of grant the dates on
which stock options will become exercisable and may accelerate the scheduled
exercise date of an option if deemed appropriate. The Committee may, in its
discretion, make any ISO or nonqualified stock option subject to the
satisfaction of such corporate or individual performance or other vesting
standards as the Committee deems appropriate. No stock option may expire later
than ten years from the date of grant. ISOs granted under the Plan are subject
to the following additional conditions: (i) no ISO may be granted to a person
who owns, at the time of grant, stock representing more than 10% of the total
voting power of all classes of stock of the Company unless the option
34
<PAGE> 36
price for the shares subject to such ISO is at least 110% of the fair market
value on the date of grant and such ISO award is exercisable only within five
years after its date of grant; and (ii) the total fair market value of shares
subject to ISOs which are exercisable for the first time by an optionee in a
given calendar year may not exceed $100,000, valued as of the date of the ISO's
grant.
Restricted stock may be issued under the terms of the Plan to eligible
recipients who are selected from time to time by the Committee. Such
restricted stock will be subject to such restrictions and conditions as may be
determined by the Committee at the time of the award. These restrictions and
conditions may include (but are not required to include) restrictions on
transfer of the awarded shares of Common Stock, vesting conditions based on
continued employment with the Company for a specified period of time following
the award or satisfaction of individual or corporate performance criteria, or
satisfaction of other vesting standards. The lapse of restrictions and
conditions with respect to restricted stock may be accelerated at any time by
the Committee in its discretion. Restrictions and conditions imposed on shares
of restricted stock shall lapse, in whole or in part, as provided in the
applicable agreement evidencing the restricted stock award, but must lapse, if
at all, not later than ten years from the date of the award.
On February 10, 1997 the Company granted stock options to Ralph L.
Eskelsen and Arthur F. Bingham pursuant to the Plan. These options may not be
exercised prior to shareholder approval of the Plan. Eskelsen was granted an
ISO to purchase 300,000 shares of Common Stock at $0.50 per share. Eskelsen
may exercise the ISO to the extent of 200,000 on or after September 1, 1997 up
to and including February 1, 1998 and may exercise the ISO in full on or after
January 1, 1998 up to and including February 1, 1998. If not sooner
terminated, the ISO will terminate three months after Eskelsen's termination of
employment with the Company for any reason other than death or three months
after Eskelsen's death. In no event will the ISO be exercisable after it
expires by its terms. The option price may be paid in U.S. dollars or in
Honduran currency at the exchange rate on the date of exercise.
Bingham received the following ISOs to purchase shares of Common Stock:
Option A. Option to purchase 150,000 shares of Common Stock
at an exercise price of $0.50 per share. Option A becomes exercisable
on September 1, 1998 up to and including February 9, 2004, if
Commissioned Retail Sales in the Territory (both as defined in the
option agreement) from May 1, 1997 through April 30, 1998 equal or
exceed $2,500,000.
Option B. Option to purchase 150,000 shares of Common Stock
at an exercise price of $0.80 per share. Option B becomes exercisable
on September 1, 1999 up to and including February 9, 2004, if
Commissioned Retail Sales in the Territory from May 1, 1998 through
April 30, 1999 equal or exceed $2,700,000.
Option C. Option to purchase 150,000 shares of Common Stock
at an exercise price of $0.50 per share. Option C becomes exercisable
on September 1, 2000 up to and including February 9, 2004, if
Commissioned Retail Sales in the Territory from May 1, 1999 through
April 30, 2000 equal or exceed $3,000,000.
Bingham also received nonqualified options to purchase 150,000 shares of
Common Stock at an exercise price of $1.30 per share. The options may be
exercised at any time from the date of grant until February 9, 2004.
If not sooner terminated, the options will terminate three months after
Bingham's termination of employment with the Company for any reason other than
death or twelve months after Bingham's death. In no event will any option be
exercisable after such option expires by its terms.
35
<PAGE> 37
DESCRIPTION OF SECURITIES
The authorized capital stock of the Company consists of 6,000,000 shares
of Common Stock with no par value and 5,000,000 shares of $5.00 Par Preferred
Stock ("Preferred Stock"). There are issued and outstanding 2,289,887 shares
of common Stock. No shares of Preferred Stock are issued and outstanding.
COMMON STOCK
Subject to prior rights of the holders of any Preferred Stock then
outstanding, the holders of outstanding shares of Common Stock are entitled to
receive dividends, if any, as may be declared and paid from time to time by the
Board of Directors, in its discretion, from funds legally available therefor.
See "Market For Common Equity and Related Shareholder Matters." Upon
liquidation, dissolution or winding up of the Company, the holders of Common
Stock are entitled to receive pro rata all assets remaining available for
distribution to shareholders after satisfaction of creditors, subject to the
rights, if any, of the holders of any Preferred Stock then outstanding. There
are no conversion rights or redemption or sinking fund provisions applicable to
shares of Common Stock. Holders of Common Stock have no preemptive or other
subscription rights. All of the outstanding shares of Common Stock are fully
paid and nonassessable, and the shares of Common Stock to be outstanding upon
completion of this offering will be, when issued and delivered in the manner
contemplated hereby, fully paid and nonassessable.
Shareholders are entitled to one vote for each share of Common Stock
held of record on all matters submitted to a vote of shareholders.
Shareholders are not entitled to vote cumulatively in the election of
directors.
The Transfer Agent for the Common Stock is Wachovia Bank and Trust
Company, N.A., Winston-Salem, North Carolina.
PREFERRED STOCK
The Company's charter authorizes the Board of Directors to issue
Preferred Stock in one or more series from time to time, without action by the
shareholders. The terms of any such Preferred Stock may be fixed by the Board
of Directors and may be senior to the Common Stock with respect to dividends,
voting rights and redemption and liquidation preferences.
It is not possible to state the actual effect of the authorization of
Preferred Stock upon the rights of holders of the Common Stock unless and until
the Board of Directors determines the specific rights of the holders of a
series of the Preferred Stock. Such effects might include, however, (i)
restrictions on dividends on the Common Stock if dividends on Preferred Stock
have not been paid; (ii) dilution of the voting power of the Common Stock to
the extent that the Preferred Stock has voting rights; (iii) dilution of the
equity interest of the Common Stock unless the Preferred Stock is redeemed by
the Company; and (iv) the Common Stock not being entitled to share in the
Company's assets upon liquidation until satisfaction of any liquidation
preference granted the Preferred Stock. Issuance of Preferred Stock, while in
the judgment of the Company's Board of Directors desirable in order to provide
flexibility in connection with possible acquisitions and other corporate
purposes, could impede an attempt by a third party to acquire a majority of the
outstanding voting stock of the Company. The Board of Directors has no present
plans to authorize the issuance of any shares of Preferred Stock.
CERTAIN NORTH CAROLINA LEGISLATION
Article 9 of the North Carolina Business Corporation Act ("NCBCA") sets
forth the North Carolina Shareholder Protection Act (the "Shareholder
Protection Act"). The Shareholder Protection Act requires the
36
<PAGE> 38
affirmative vote of the holders of 95% of the voting shares of a corporation,
voting as one class, for the adoption or authorization of a business
combination with any other entity if, as of the record date for the
determination of shareholders entitled to vote on such business combination,
the other entity is the beneficial owner, directly or indirectly, of more than
20% of the voting shares of the corporation. This 95% voting requirement is
not applicable if certain "fair price" standards are met or certain other
provisions relating to the other entity's control of the corporation have been
satisfied.
The Shareholder Protection Act originally allowed a 90-day period after
the effective date of the statute, such 90-day period to expire on July 22,
1987, during which the directors of an affected corporation could adopt an
opt-out bylaw stating that the provisions of the Shareholder Protection Act
would not be applicable to the corporation. The Shareholder Protection Act
expressly provides that an opt-out bylaw adopted during such 90-day period
continues to be effective unless it was rescinded on or before September 30,
1990. On July 20, 1987, the Board of Directors of the Company adopted such an
opt-out bylaw for the Company, and such bylaw has not been rescinded.
Article 9A of the NCBCA sets forth the North Carolina Control Share
Acquisition Act (the "Control Share Acquisition Act"). The Control Share
Acquisition Act generally prohibits an acquiring person from voting control
shares (as described below) of a North Carolina corporation acquired pursuant
to a control share acquisition (as described below), unless voting rights for
such shares shall have been approved by the shareholders of the corporation by
the affirmative vote of at least a majority of all outstanding shares entitled
to vote for the election of directors (other than interested shares as
described below), or, among other exceptions, the corporation's articles or
bylaws are amended to permit the voting of such shares prior to the acquiring
person's acquisition thereof. If the acquiring person so requests, the
corporation is required to hold a special meeting of its shareholders to
consider the authorization of voting rights of control shares within 50 days
after demand is made by the acquiring person, provided that, among other
things, such acquiring person has delivered to the corporation a statement
representing that the acquiring person has the financial capacity to make the
proposed control share acquisition and undertaking to pay certain expenses of
the special meeting of shareholders.
"Control shares" generally means shares of a corporation that, when
added to all other shares of the corporation beneficially owned by a person,
would entitle that person to voting power in the election of directors that is
equal or greater than any of the following levels of voting power: (i)
one-fifth of all voting power, (ii) one-third of all voting power, or (iii) a
majority of all voting power. "Control share acquisition" generally means the
acquisition by any person of beneficial ownership of control shares.
"Interested shares" generally means shares of a corporation in respect of which
an acquiring person, an officer of the corporation or an employee of the
corporation who is also a director of the corporation is entitled to exercise
voting power.
The Control Share Acquisition Act originally allowed a 90-day period
after the effective date of the statute, such 90-day period to expire on
November 10, 1987, during which the directors of an affected corporation could
adopt an opt-out bylaw stating that the provisions of the Control Share
Acquisition Act would not be applicable to the corporation. On July 20, 1987,
the Board of Directors of the Company adopted such an opt-out bylaw for the
Company. On November 12, 1987, the Board of Directors deleted from said bylaw
any reference to the Control Share Acquisition Act and to opting-out thereof
with the intent of subjecting the Company to the provisions thereof.
37
<PAGE> 39
MARKET FOR COMMON EQUITY AND
RELATED SHAREHOLDER MATTERS
Until October 1995, the Common Stock of the Company traded in the NASDAQ
over-the-counter market system. Since that time, the Company's Common Stock
has traded on the NASD's over-the-counter bulletin board. According to the
information furnished by Anderson & Strudwick, a market maker in the Company's
Common Stock, the high and low bid quotations for each quarterly period within
the last two fiscal years and the current fiscal year to date is as follows:
<TABLE>
<CAPTION>
Quarter Ending High Low Quarter Ending High Low
- -------------- ---- --- -------------- ---- ---
<S> <C> <C> <C> <C> <C> <C>
January 1995 1.25 1.25 April 1996 0.50 0.25
April 1995 1.25 1.00 July 1996 0.344 0.25
July 1995 1.00 1.00 October 1996 0.50 0.281
October 1995 0.75 0.75 January 1997 0.375 0.187
January 1996 0.75 0.25 April 1997
(through February 12)0.437 0.281
</TABLE>
These market quotations represent inter-dealer prices, without retail
mark-up, mark-down or commission, and do not necessarily represent actual
transactions.
As of February 10, 1997, there were approximately 572 holders of record
of the Company's Common Stock.
The Company has not paid any dividends since its inception. Pursuant to
the terms of its line-of-credit and long-term loan agreements with Lexington
State Bank, the Company may not pay any dividends, purchase, redeem or
otherwise retire any of its capital stock or otherwise make any other
distribution of its assets resulting in the reduction of its capital without
the prior written consent of Lexington State Bank. See "Management's Discussion
and Analysis of Results of Operations and Financial Condition."
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
The Amended and Restated Bylaws of the Company provide that any person
who serves or has served as a director or officer of the Company or any
wholly-owned subsidiary (a "Claimant") shall have the right to be indemnified
and held harmless by the Company against all liabilities and litigation
expenses resulting from any claim, action, suit or proceeding, whether civil,
criminal, administrative or investigative, seeking to hold the Claimant liable
by reason of the fact that he is or was serving in such capacity, provided that
such indemnification shall not be effective with respect to any liabilities or
litigation expenses if the activities of the Claimant leading to such
liabilities or litigation expenses were at the time they were taken known or
believed by such Claimant to be clearly in conflict with the best interests of
the Company. This indemnification includes the right upon demand by the
Claimant to the advancement of litigation expenses, subject to receipt by the
Company of the Claimant's undertaking to repay such expenses if it is
ultimately determined that he was not entitled to indemnification.
The Amended and Restated Bylaws of the Company define (a) "liabilities"
to include without limitation, payments in satisfaction of any judgment, money
decree, excise tax, fine or penalty for which a Claimant had become liable in
any proceeding and (b) "litigation expenses" to include without limitation,
reasonable costs and expenses of attorneys' fees and expenses actually and
reasonably incurred by the Claimant in connection with any proceeding and
reasonable costs and expenses and attorneys' fees and expenses in connection
with the enforcement of rights to the indemnification granted hereby or by
applicable law, if such enforcement is successful in whole or in part.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the small business issuer pursuant to the foregoing provisions, or
otherwise, the Company has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable.
LEGAL OPINIONS
The validity of the Offerings will be passed upon for the Company by
Schell Bray Aycock Abel & Livingston P.L.L.C., Greensboro, North Carolina.
INDEPENDENT AUDITORS
The audited financial statements included in this Prospectus have been
audited by Turlington and Company, L.L.P., independent public accountants, as
indicated in their report with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in accounting and auditing
in giving said report.
38
<PAGE> 40
WELLINGTON HALL, LIMITED AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
INTERIM FINANCIAL STATEMENTS PAGE
----
<S> <C>
Consolidated Balance Sheet as of October 31, 1996 (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . F-2
Consolidated Statements of Operations for the six months ended October 31, 1996, 1995 (unaudited) . . . . . . . F-3
Consolidated Statements of Cash Flows for the six months ended October 31, 1996, 1995 (unaudited) . . . . . . . F-4
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-5
ANNUAL FINANCIAL STATEMENTS
Report of Independent Public Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-7
Consolidated Balance Sheets as of April 30, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . F-8
Consolidated Statements of Stockholders' Equity for the years ended April 30, 1996 and 1995 . . . . . . . . . . F-9
Consolidated Statements of Income for the years ended April 30, 1996 and 1995 . . . . . . . . . . . . . . . . F-10
Consolidated Statements of Cash Flows for the years ended April 30, 1996 and 1995 . . . . . . . . . . . . . . F-11
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-12-F-21
</TABLE>
F-1
<PAGE> 41
WELLINGTON HALL, LIMITED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
October 31,
ASSETS 1996
----------
<S> <C>
Current assets:
Cash:
Cash on hand $ 400
Cash in demand deposits 30,075
Accounts receivable:
Trade 881,715
Less, allowance for doubtful accounts (43,800)
Note receivable - officer 27,908
Inventories (Note 3) 4,710,467
Prepaid expenses 159,122
Deferred income taxes 14,327
----------
5,780,214
Property and equipment:
Cost 2,134,953
Less, accumulated depreciation (1,242,293)
892,660
Other assets:
Deferred income taxes 94,537
Other 27,184
----------
121,721
----------
$6,794,595
==========
LIABILITIES
Current liabilities:
Current maturities on long-term debt $ 130,776
Notes payable - other 1,447,809
Accounts payable - trade 454,768
Customer deposits 109,973
Other current liabilities 303,238
----------
2,446,565
Noncurrent liabilities:
Long-term debt, less current maturities 1,579,001
Deferred compensation accrual 228,000
----------
4,253,565
STOCKHOLDERS' EQUITY
Common stock; authorized 6,000,000 shares; no par;
shares issued and outstanding - 2,289,887 3,054,531
Preferred stock; authorized 5,000,000 shares; $5 par;
no shares issued and outstanding -0-
Cumulative translation adjustments (1,827,679)
Retained earnings 1,314,178
----------
2,541,030
$6,794,595
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements
F-2
<PAGE> 42
WELLINGTON HALL LIMITED, AND SUBSIDIARIES
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
October 31,
1996 1995
---- ----
<S> <C> <C>
Revenue:
Sale of furniture $2,833,407 $3,087,862
Other income 16,321 4,268
---------- ----------
2,849,728 3,092,130
---------- ----------
Costs and expenses:
Cost of furniture sold 1,917,072 2,077,217
Other operating, selling, general,
and administrative expenses 702,578 757,598
Interest expense 193,220 191,856
---------- ----------
2,812,870 3,026,671
--------- ----------
Income before income taxes (benefits) 36,858 65,459
Income taxes (benefits) 396 7,342
---------- ----------
Net income for the period $ 36,462 $ 58,117
========== ==========
Earnings per share of common stock:
Primary and assuming full dilution:
Net income for the years $ .02 $ .03
========== ==========
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements
F-3
<PAGE> 43
WELLINGTON HALL LIMITED, AND SUBSIDIARIES
STATEMENTS OF CASH FLOW
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended October 31,
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net income for the years $ 36,425 $ 58,565
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Depreciation 48,531 63,374
Deferred compensation 12,000 12,000
Deferred income taxes 0 0
Changes in assets and liabilities:
Accounts receivable (132,396) 31,175
Note receivable, officer 0 0
Inventories (284,396) (332,838)
Prepaid expenses (27,904) 36,248
Other assets (3,014) 2,960
Accounts payable, customer deposits,
and other current liabilities 44,843 101,112
Net cash provided by operating activities (305,909) (27,404)
Cash flows from investing activities:
Purchase of equipment (33,159) (7,097)
Cash flows from financing activities:
Short-term borrowings 58,016 97,229
Long-term borrowings (237,148) (82,171)
Proceeds from Equity Capital 300,000 0
Net cash used for financing activities 309,470 15,058
Effect of exchange rate changes on cash 20,093 9,908
Net increase (decrease) in cash (23,811) (9,535)
Cash, beginning of years 54,287 30,908
Cash, end of Period 30,475 21,375
Cash paid during the years for:
Income taxes $ 0 $ 7,342
Interest $ 193,220 $ 191,856
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements
F-4
<PAGE> 44
WELLINGTON HALL, LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments 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. Promotional costs are expensed as they are incurred.
3. 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.
4. 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 12.59 Lempiras to 1 U.S. Dollar. Income
statement amounts have been translated using the weighted average
exchange rate which for the period was 12.22 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.
5. Subsequent significant events and changes following the second quarter
ended October 31, 1996 have occurred:
The Company and the Overseas Private Investment Corporation ("OPIC") have
executed a commitment letter as to the terms and conditions of the
restructuring of the Loan Agreement between Wellington Hall Caribbean
Corporation and OPIC. The restructuring is expected to be completed by
March 31, 1997. The more significant elements of the restructuring are:
A. A grace period on principal payments for one year beginning on
July 31, 1996
B. Reducing the amount of quarterly principal payments from
$61,937 to 30,969 beginning with the payment due on July 31,
1997.
C. The interest rate on the loan will be changed from 12% per annum
to 10% effective November 1, 1996.
As a result of the foregoing, "Current Maturities on Long Term Debt"
was reduced by $309,666 and added to "Long-Term Debt Less Current
Maturities" as reflected on the October 31, 1996 balance sheet.
As of September 1, 1996, the Company and Mr. Arthur F. Bingham entered
into an agreement that was amended as of February 10, 1997.
Pursuant to the agreement which Mr. Bingham advanced $285,694 to the
Company in October 1996 to be repaid within two years. As of February
12, 1997, the Company issued to Mr. Bingham 600,000 shares of the
Company's common stock at a price of $.50 per share in repayment of the
loan and following an additional $14,306 investment by Mr. Bingham.
As a result of this transaction, "Long Term Debt, Less Current
Maturities" will be reduced $285,304, "Other Current Liabilities" will
be reduced $14.306 and paid in capital will be increased by $300,000,
all during the quarter ended January 31, 1997. The total shares of
common stock outstanding will be increased by 600,000 shares to a
total of 2,289,887 shares.
F-5
<PAGE> 45
On January 16, 1996, Wellington Hall executed the loan documents that
increased its line of credit from Lexington State Bank in the amount
of $250,000. No borrowings have been made to date. Outstanding
borrowings under this facility will bear interest at the rate of prime
plus 1 1/2%, payable monthly. Principal payments will be due on
demand. The facility is secured by all of the present and future
personal property assets of Wellington Hall.
On February 10, 1997, the Board of Directors of the Company adopted,
subject to shareholder approval, the 1997 Stock Option and Restricted
Stock Plan (the "Plan") that permits the Company to grant incentive
stock options ("ISO's"), nonqualified stock options or restricted
stock awards up to an aggregate of 1,200,000 shares of the Company's
common stock. The Plan has a ten-year term, and will be administered
by an option committee of nonemployee directors (the "Committee").
On February 10, 1997 the Company granted stock options to Ralph L.
Eskelsen and Arthur F. Bingham pursuant to the Plan. These options
may not be exercised prior to shareholder approval of the Plan.
Eskelsen was granted an ISO to purchase 300,000 shares of Common Stock
at $0.50 per share. Eskelsen may exercise the ISO to the extent of
200,000 on or after September 1, 1997 up to and including February 1,
1998 and may exercise the ISO in full on or after January 1, 1998 up
to and including February 1, 1998. If not sooner terminated, the ISO
will terminate three months after Eskelsen's termination of employment
with the Company for any reason other than death or three months after
Eskelsen's death. In no event will the ISO be exercisable after it
expires by its terms. The option price may be paid in U.S. dollars or
in Honduran currency at the exchange rate on the date of exercise.
Bingham received the following ISOs to purchase shares of Common
Stock:
Option A. Option to purchase 150,000 shares of Common Stock
at an exercise price of $0.50 per share. Option A becomes exercisable
on September 1, 1998 up to and including February 9, 2004, if
Commissioned Retail Sales in the Territory (both as defined in the
option agreement) from May 1, 1997 through April 30, 1998 equal or
exceed $2,500,000.
Option B. Option to purchase 150,000 shares of Common Stock
at an exercise price of $0.80 per share. Option B becomes exercisable
on September 1, 1999 up to and including February 9, 2004, if
Commissioned Retail Sales in the Territory from May 1, 1998 through
April 30, 1999 equal or exceed $2,700,000.
Option C. Option to purchase 150,000 shares of Common Stock
at an exercise price of $0.50 per share. Option C becomes exercisable
on September 1, 2000 up to and including February 9, 2004, if
Commissioned Retail Sales in the Territory from May 1, 1999 through
April 30, 2000 equal or exceed $3,000,000.
Bingham also received nonqualified options to purchase 150,000 shares
of Common Stock at an exercise price of $1.30 per share. The options
may be exercised at any time from the date of grant until February 9,
2004.
If not sooner terminated, the options will terminate three months
after Bingham's termination of employment with the Company for any
reason other than death or twelve months after Bingham's death. In no
event will any option be exercisable after such option expires by its
terms.
F-6
<PAGE> 46
INDEPENDENT AUDITORS' REPORT
To the Stockholders
Wellington Hall, Limited and Subsidiaries
Lexington, North Carolina
We have audited the accompanying consolidated balance sheets of Wellington
Hall, Limited and Subsidiaries as of April 30, 1996 and 1995, and the related
consolidated statements of income, stockholders' equity, and cash flows for the
years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We did not audit the financial statements of Muebles Wellington Hall, S.A., a
wholly-owned subsidiary, which statements reflect total assets of $1,693,959
and $1,852,435, respectively, as of April 30, 1996 and 1995, and total revenues
of $1,273,301 and $1,897,449, respectively, for the years ended April 30, 1996
and 1995. These statements were audited by other auditors whose report has
been furnished to us, and our opinion, insofar as it relates to the amounts
included for Muebles Wellington Hall, S.A., is based solely on the report of
the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the consolidated financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits and the report of other auditors provide a reasonable basis for our
opinion.
In our opinion, based on our audits and the report of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Wellington Hall, Limited and
Subsidiaries as of April 30, 1996 and 1995, and the results of their
operations, and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
TURLINGTON AND COMPANY, L.L.P.
July 12, 1996
F-7
<PAGE> 47
WELLINGTON HALL, LIMITED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
April 30
ASSETS 1996 1995
<S> <C> <C>
Current assets:
Cash:
Cash on hand $ 400 $ 400
Cash in demand deposits 55,356 30,892
Accounts receivable:
Trade 756,872 915,013
Less, allowance for doubtful accounts (43,800) (28,000)
Note receivable - officer (Note 2) 27,908 40,909
Inventories (Note 3) 4,571,015 4,718,867
Prepaid expenses 134,076 175,688
Deferred income taxes 14,327 10,967
------------ -----------
5,516,154 5,864,736
------------ -----------
Property and equipment:
Cost 2,173,110 2,258,950
Less, accumulated depreciation 1,218,540 1,142,886
------------ -----------
954,570 1,116,064
------------ -----------
Other assets:
Deferred income taxes 94,537 91,230
Other 36,053 36,197
------------ -----------
130,590 127,427
------------ -----------
$ 6,601,314 $ 7,108,227
============ ===========
LIABILITIES
Current liabilities:
Current maturities on long-term debt (Note 6) $ 347,755 $ 218,840
Notes payable - other (Note 5) 1,415,698 1,375,226
Accounts payable - trade 481,797 649,258
Customer deposits 74,139 104,370
Other current liabilities 276,159 310 ,822
------------ -----------
2,595,548 2,658,516
Noncurrent liabilities:
Long-term debt, less current maturities (Note 6) 1,128,907 1,419,606
Deferred compensation accrual 216,000 192,000
------------ -----------
3,940,455 4,270,122
------------ -----------
STOCKHOLDERS' EQUITY
Common stock; authorized 6,000,000 shares; no par;
shares issued and outstanding 1996 and 1995
- 1,689,887 3,054,531 3,054,531
Preferred stock; authorized 5,000,000 shares; $5 par;
no shares issued and outstanding for 1996 and 1995 -0- -0-
Cumulative translation adjustments (1,669,945) (1,419,125)
Retained earnings 1,276,273 1,202,699
------------ -----------
2,660,859 2,838,105
------------ -----------
$ 6,601,314 $ 7,108,227
============ ===========
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements
F-8
<PAGE> 48
WELLINGTON HALL, LIMITED AND SUBSIDIARIES
CONSOLIDATED STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Years Ended April 30
1996 1995
---- ----
<S> <C> <C>
Common stock:
Authorized 6,000,000 shares; no par;
Balances, beginning and end of years
with no change during the years $ 3,054,531 $ 3,054,531
------------ ------------
Preferred stock:
Authorized 5,000,000 shares; $5 par;
issued and outstanding beginning and
end of years -0- -0-
------------ ------------
Cumulative translation adjustments:
Balances, beginning of years (1,419,125) (1,231,705)
Translation of foreign currency statements (250,820) (187,420)
------------ ------------
Balances, end of years (1,669,945) (1,419,125)
------------ ------------
Retained earnings:
Balances, beginning of years 1,202,699 980,044
Net income for the years 73,574 222,655
------------ ------------
Balances, end of years 1,276,273 1,202,699
------------ ------------
$ 2,660,859 $ 2,838,105
============ ============
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements
F-9
<PAGE> 49
WELLINGTON HALL, LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years Ended April 30,
1996 1995
------ -----
<S> <C> <C>
Revenue:
Sale of furniture $ 5,989,959 $ 7,260,491
Other income 2,464 3,614
----------- -----------
5,992,423 7,264,105
----------- -----------
Costs and expenses:
Cost of goods sold 4,143,692 5,057,079
Other operating, selling, general,
and administrative expenses 1,390,392 1,629,387
Interest expense 388,829 335,951
----------- -----------
5,922,913 7,022,417
----------- -----------
Income before income taxes (benefits) 69,510 241,688
Income taxes (benefits) (4,064) 19,033
----------- -----------
Net income for the years $ 73,574 $ 222,655
=========== ===========
Earnings per share of common stock:
Primary and assuming full dilution:
Net income for the years $ .04 $ .13
=========== ===========
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements
F-10
<PAGE> 50
WELLINGTON HALL, LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended April 30,
1996 1995
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income for the years $ 73,574 $ 222,655
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Depreciation 111,149 120,568
Deferred compensation 24,000 24,000
Deferred income taxes (6,667) 9,491
Changes in assets and liabilities:
Accounts receivable 164,231 98,130
Note receivable, officer 13,001 21,047
Inventories (71,750) (289,599)
Prepaid expenses 37,297 (2,866)
Other assets (6,363) (16,033)
Accounts payable, customer deposits,
and other current liabilities (240,955) 107,896
---------- ----------
Net cash provided by operating activities 97,517 295,289
---------- ----------
Cash flows from investing activities:
Purchase of equipment (26,947) (73,705)
---------- ----------
Cash flows from financing activities:
Short-term borrowings 69,533 (80,771)
Payments on long-term debt (125,354) (157,622)
---------- ----------
Net cash used for financing activities (55,821) (238,393)
---------- ----------
Effect of exchange rate changes on cash 9,715 6,416
---------- ---------
Net increase (decrease) in cash 24,464 (10,393)
Cash, beginning of years 31,292 41,685
---------- ---------
Cash, end of years $ 55,756 $ 31,292
========== =========
Cash paid during the years for:
Income taxes $ 10,499 $ 16,443
========== =========
Interest $ 415,494 $ 334,689
========== =========
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements
F-11
<PAGE> 51
WELLINGTON HALL, LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of and for the Years Ended April 30, 1996 and 1995
1. Summary of Significant Accounting Policies:
These consolidated financial statements were prepared on the basis
of generally accepted accounting principles. The more significant
of these principles are described as follows:
Inventories are stated at the lower of cost or market with cost
computed by use of the first-in, first-out method. Provision has
been made for obsolete and slow moving inventory.
Property and equipment is carried at cost less accumulated
depreciation. New assets and expenditures which substantially
increase the useful lives of the existing assets are capitalized.
Maintenance and repairs are expensed as incurred. Depreciation is
computed by use of the straight-line method over the estimated
useful lives of the assets.
The weighted average number of shares of common stock outstanding
and "common stock equivalents" are totaled in determining both
primary and fully diluted earnings per share.
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries, Wellington Hall Caribbean
Corp. and Muebles Wellington Hall, S.A. All intercompany accounts
and transactions have been eliminated in consolidation. The Muebles
Wellington Hall, S.A. subsidiary was formed during the year ended
April 30, 1990 and accounted for as a purchase.
The financial statements of foreign subsidiaries have been
translated into U.S. dollars in accordance with Statement of
Financial Accounting Standards No. 52. All balance sheet accounts
have been translated using the current exchange rates at the balance
sheet date. Income statement amounts have been translated using the
average exchange rate for the year. The gains and losses resulting
from the change in exchange rates during the year have been reported
separately as a component of stockholders' equity entitled
"Cumulative Translation Adjustments". Net currency transaction
gains and (losses) which occur during the year are included in net
earnings and amounted to approximately $11,969 and ($690),
respectively, during the years ended April 30, 1996 and 1995.
The preparation of consolidated financial statements in conformity
with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the consolidated financial statements and
the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
F-12
<PAGE> 52
WELLINGTON HALL, LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. Note Receivable - Officer:
On January 30, 1992, Hoyt Hackney, President and Chief Executive
Officer, exercised options and awards for 180,000 shares of common
stock at the option price of $.80 per share resulting in a net
increase in common stock of $144,000. This increase was
accomplished by cash of $40,000 being paid over to the Company
along with the issuance of a demand note to the Company by Hoyt
Hackney of $104,000. The note receivable - officer is
collateralized by the assignment of the interest the officer has in
the Company's deferred compensation accrual account and bears
interest at the federal rate as issued from time to time.
The note balance at April 30, 1996 and 1995 was $27,908 and $40,909,
respectively.
3. Inventories:
Inventories consisted of the following:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Finished goods $1,642,115 $1,820,214
Work-in-process 2,057,076 1,734,905
Raw materials 871,824 1,163,748
---------- ----------
$4,571,015 $4,718,867
========== ==========
</TABLE>
4. Property and Equipment:
The major classes are as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Land and buildings $1,121,207 $1,145,345
Machinery and equipment 887,479 932,840
Furniture, fixtures and other equipment 164,424 180,765
---------- ----------
$2,173,110 $2,258,950
========== ==========
</TABLE>
Depreciation expense for the years ended April 30, 1996 and 1995
amounted to $111,149 and $120,568, respectively.
5. Short-term Loans:
The Company has a demand loan payable to Lexington State Bank for
$90,000 and $100,000, respectively, at April 30, 1996 and 1995.
The Company has a line of credit agreement for short-term debt with
Lexington State Bank. The bank agreed to extend to the Company in
the form of a line of credit the lesser of $1,200,000 or 70% of the
Company's accounts receivable less than 60 days old, 50% of the
finished goods inventory, and 10% of the work-in-process and raw
materials inventories which sum amounted to $973,964 at April 30,
1996 and $1,503,542 at April 30, 1995. The Company executed a
$1,200,000 demand promissory note against which the
F-13
<PAGE> 53
WELLINGTON HALL, LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. Short-term Loans (Continued):
bank shall advance funds at the Company's request. Interest is at
the rate of 1% above prime. This agreement is reviewed annually for
renewal.
At April 30, 1996 and 1995, $1,113,000 and $1,099,000, respectively,
was advanced under this agreement. This loan is secured by all
present and future personal property assets of the Company.
The Company had short-term loans with two Honduran banks with
interest rates of 25% in the amount of $212,698 and $176,226,
respectively, at April 30, 1996 and 1995. The banks have a second
mortgage on fixed assets as security for these loans.
6. Long-term Debt:
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
E. Kemm:
Interest payable monthly at 1%
above prime $ 25,000 $ 25,000
Overseas Private Investment Corporation:
Interest rate 12.00%, payable in
quarterly installments of $61,937
plus interest 1,021,968 1,145,844
Lexington State Bank:
Interest rate 9.75% and 8.25%,
payable in monthly installments
of $7,000 with interest at 1.5%
above prime 429,694 467,602
---------- ----------
1,476,662 1,638,446
Less, current maturities 347,755 218,840
---------- ----------
$1,128,907 $1,419,606
========== ==========
</TABLE>
The weighted average interest rate paid E. Kemm amounted to 9.61% and
9.00%, respectively, for the years ended April 30, 1996 and 1995.
E. Kemm is a stockholder and an officer of the Company.
The Overseas Private Investment Corporation loan is secured by a first
lien on all real estate and all current and future fixed assets of
Muebles Wellington Hall, S.A. and a security interest in the Sales
Agreement between Muebles Wellington Hall, S.A. and Wellington Hall
Caribbean Corp.
F-14
<PAGE> 54
WELLINGTON HALL, LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. Long-term Debt (Continued)
The Lexington State Bank loan is secured by a first lien on all assets
of Wellington Hall, Limited.
The projected payments of long-term debt in each of the five years
subsequent to April 30, 1996 are:
<TABLE>
<CAPTION>
Year Ending April 30 Amount
-------------------- ------
<S> <C>
1997 $347,755
1998 296,277
1999 301,226
2000 306,687
2001 64,941
</TABLE>
7. Stock Option Plan:
In 1981, the stockholders approved the Executive Stock Plan whereby
officers and key employees can be issued stock options ("options") and
restrictive stock purchase awards ("awards"). The Company reserved
200,000 shares of common stock for issuance under the Plan; however,
no more than 75,000 shares may be issued pursuant to awards. Options
and awards may be granted within fifteen years from the effective date
of the Plan. Stock options are granted at the fair market value of a
share of common stock at the date of grant exercisable for a period
determined by the Compensation Committee of the Board of Directors
(maximum 15 years) and may be exercised in whole at any time or in
part from time to time after the date of grant. The per share
purchase price of stock subject to an award shall be $0.80 and be paid
in full to the Company within 30 days after the date of award.
No award for any shares will be granted to the President of the
Company until after the expiration of a minimum of 61 days from the
date that such awards are requested by the President. Upon
termination of employment of the grantee for any reason other than
death, retirement, or permanent total disability, all shares acquired
by the grantee pursuant to an award will be repurchased by the Company
for $0.80 per share.
The following is a summary of changes in stock awards:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Available for awards at beginning of years $7,500 $7,500
Awards purchase -0- -0-
------ ------
Available for awards at end of years $7,500 $7,500
====== ======
</TABLE>
8. Capital Stock:
The Company, in accordance with its long-term loan agreement and line
of credit with Lexington State Bank, is restricted from paying
dividends on its capital stock without prior written consent of the
bank.
F-15
<PAGE> 55
WELLINGTON HALL, LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. Income Taxes:
At April 30, 1996, the Company had federal operating loss
carryforwards of $62,373 that expire in 2010 and 2011, and state net
operating loss carryforwards of $975,358 that expire in 1997, 1998,
2000, and 2001. For financial reporting purposes, a valuation
allowance of $116,734 has been recognized to offset the deferred tax
assets related to the carryovers and certain other deferred tax
assets.
At April 30, 1995, the Company had a federal operating loss
carryforward of $24,282 that expires in 2010, and state net
operating loss carryforwards of $884,657 that expire in 1997, 1998,
and 2000. For financial reporting purposes, a valuation allowance
of $45,737 has been recognized to offset the deferred tax assets
related to the state net operating loss carryforwards.
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for income tax
purposes. Significant components of the Company's deferred tax
assets and liabilities are as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Deferred tax assets:
Book over tax amortization $ 10,059 $ 16,024
Book allowance for doubtful accounts 14,327 10,967
Tax over book inventory 42,402
Deferred compensation 84,478 75,206
State net operating loss carryforward 49,938 45,737
Federal net operating loss carryforward 24,394
--------- --------
225,598 147,934
Valuation allowance for deferred
tax assets (116,734) (45,737)
--------- --------
Deferred tax assets $ 108,864 $102,197
========= ========
</TABLE>
Classification of the Company's Consolidated Balance Sheets is as
follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Current $ 14,327 $ 10,967
Noncurrent 94,537 91,230
-------- --------
$108,864 $102,197
======== ========
</TABLE>
There follows reconciliations of the income taxes per the income tax
returns with the income tax deductions per the Consolidated Statements of
Income:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Amounts shown by returns (net) $ 2,603 $ 9,542
Deferred income taxes (6,667) 9,491
-------- -------
(4,064) $19,033
======== =======
Effective income tax rates (5.8%) 7.8%
======== =======
</TABLE>
F-16
<PAGE> 56
WELLINGTON HALL, LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. Income Taxes (Continued):
No provision has been made for U. S. income taxes on unremitted
earnings of the foreign subsidiary (approximately $1,094,000 and
$1,072,000, respectively, at April 30, 1996 and 1995) since it is
the present intention of management to indefinitely reinvest these
earnings.
The components of income before income taxes are as follows:
<TABLE>
<CAPTION>
1996 1995
------- ---------
<S> <C> <C>
Domestic $47,499 $(134,286)
Foreign 22,011 375,974
------- ---------
$69,510 241,688
======= =========
</TABLE>
Federal, foreign, and state income taxes consisted of the
following:
<TABLE>
<CAPTION>
1996 1995
------- --------
<S> <C> <C>
Federal $(5,809) $ 9,491
Foreign 36 1,122
State 1,709 8,420
------- --------
$(4,064) $ 19,033
======= ========
</TABLE>
The following schedule reconciles the differences between the U. S.
federal income tax rate and the effective tax rate:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Tax computed at the U. S. federal rate 34.0% 34.0%
Increases (decreases) resulting from:
State income tax, net of federal benefit 2.4 2.3
Foreign income taxed at
different rates (10.7) (34.0)
Deferred income taxes (9.6) 4.0
Nondeductible expenses and benefit
of domestic net operating loss (17.4)
Other (4.5) 1.5
(5.8%) 7.8%
----- ------
</TABLE>
At April 30, 1994, the Company had the following carryovers subject
to certain restrictions of the tax laws and regulations. Generally,
jobs credits may be carried over for fifteen years subject to the
provisions in the Tax Reform Act of 1986:
<TABLE>
<CAPTION>
Year Ended Jobs
April 30 Credits
-------------- -------
<S> <C>
1985 $1,914
1986 2,754
1987 2,270
------
$6,938
======
</TABLE>
F-17
<PAGE> 57
WELLINGTON HALL, LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. Financial Information Relating to Foreign and Domestic Operations and
Export Sales:
<TABLE>
<CAPTION>
1996 1995
------------ --------------
<S> <C> <C>
Sales to unaffiliated customers:
United States $5,985,826 $7,226,030
Republic of Honduras 4,133 34,461
---------- ----------
Total sales $5,989,959 $7,260,491
========== ==========
Sales (export sales) or transfers between
geographic areas:
Sales from Republic of Honduras subsidiary
to United States parent company, at market
value (export sales) $1,269,168 $1,851,165
========== ==========
Transfers from United States parent
company to Republic of Honduras subsidiary
of materials and supplies, at cost $ 211,206 $ 316,244
========== ==========
1996 1995
---- ----
Operating profit:
United States $ 333,693 $ 129,033
Republic of Honduras 124,646 448,606
---------- ----------
Income before interest and
income taxes $ 458,339 $ 577,639
========== ==========
Identifiable assets:
United States $4,907,355 $5,255,792
Republic of Honduras 1,693,959 1,852,435
---------- ----------
Total assets $6,601,314 $7,108,227
========== ==========
</TABLE>
11. Leases:
The Company leases showroom space and office equipment under
noncancelable leases expiring April 14, 1999.
Net minimum annual lease payments on the foregoing leases amount to
$104,066 for 1997, $103,007 for 1998, and $34,218 for 1999.
Net lease expenses of the foregoing leases for the years are
summarized as follows:
<TABLE>
<CAPTION>
1996 1995
--------- ----------
<S> <C> <C>
Lease expense $ 86,478 $ 103,717
========= ==========
</TABLE>
F-18
<PAGE> 58
WELLINGTON HALL, LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. Contingent Liability:
In accordance with the Honduran Labor Code, the Company has the
obligation to pay severance compensation to its employees in the
event of dismissal under certain specific circumstances. It is the
policy of the Company to pay such severance payments in accordance
with the Law. At April 30, 1996 and 1995, the estimated contingent
liability aggregated approximately $133,488 and $74,242,
respectively.
13. Earnings Per Share:
Earnings per share of common stock are based on the average number
of shares of common stock outstanding during each period.
For the years ended April 30, 1996 and 1995, the equivalents were
dilutive and the primary earnings per share were computed based on
the average number of common shares and common share equivalents
outstanding. When dilutive, stock options are included as share
equivalents using the treasury stock method. The number of shares
used in computing primary earnings per share were 1,689,887. The
number of shares used in computing fully diluted earnings per share
were 1,689,887.
14. Incentive Plan:
The Company has an Incentive Plan covering certain officers and key
employees who have the greatest opportunities to contribute to
current earnings and the future success of the Company's operations.
The amount determined under the Incentive Plan is based upon profits
of the Company.
On January 1, 1987, the President of the Company executed a new
employment contract and forfeited his rights under the Incentive
Plan as one of the conditions of the new contract.
15. Deferred Compensation Agreement:
On May 8, 1987, the Company adopted a Deferred Compensation
Agreement with the President of the Company which will provide for
the payment of $50,000 per year for 10 years in monthly installments
when the President reaches age 62 and retires. The Agreement
provides that if he dies before he has received the total payments
or if he dies before retirement, then his beneficiary shall receive
the benefit balance thereof in monthly installments. In future
years, the deferred compensation will be accrued over the remaining
term of service by the President on a present value basis. The
accruals for the years ended April 30, 1996 and 1995 were $24,000.
16. Profit Sharing Plan:
During the year ended April 30, 1987, the Company adopted a combined
Profit Sharing and Salary Reduction Plan. The Company contributes
50% of the employee contributions with a 2% maximum Company
contributions on each employee's salary. The Plan also has a
feature whereby the Directors can set aside certain profits as
determined annually by the Directors. The Profit Sharing and Salary
Reduction Plans are tax exempt under applicable sections of the
Internal Revenue Code. The contributions by the Company for the
years ended April 30, 1996 and 1995 were $8,143 and $9,650,
respectively.
F-19
<PAGE> 59
WELLINGTON HALL, LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
17. Quarterly Financial Data (Unaudited):
The following is a summary of the quarterly results of operations
for the years ended April 30, 1996 and 1995:
<TABLE>
<CAPTION>
Fiscal 1996 Quarters
--------------------
First Second Third Fourth
----- ------ ----- ------
<S> <C> <C> <C> <C>
Net Sales $1,473,474 $1,614,388 $1,496,387 $1,405,710
Cost of goods sold 981,741 1,095,476 1,111,108 955,367
Net income (loss) 44,756 13,361 (31,015) 46,472
Net income (loss) per
common share (primary
and fully diluted) .03 .01 (.02) .03
Quarterly Financial Data (Unaudited):
</TABLE>
Fiscal 1995 Quarters
<TABLE>
<CAPTION>
First Second Third Fourth
----- ------ ----- ------
<S> <C> <C> <C> <C>
Net Sales $1,823,644 $1,848,345 $1,975,615 $1,612,887
Cost of goods sold 1,192,351 1,161,284 1,356,594 1,346,850
Net income (loss) 131,891 170,660 113,678 (193,574)
Net income (loss) per
common share (primary
and fully diluted) .08 .10 .07 (.12)
</TABLE>
18. Nature of Operations and Concentration of Credit Risk:
Wellington Hall, Limited and Subsidiary, Muebles Wellington Hall,
S.A., are manufacturers of wall systems, dining room, bedroom and
accent and occasional furniture, with plant facilities located in
Lexington, North Carolina and San Pedro Sula, Honduras. The accent
and occasional furniture accounts for approximately 40% of the
Company's total sales. The remaining 60% of total sales is split
about evenly over the other three product lines. Wellington Hall
Caribbean Corp., the other subsidiary, is a sales organization
located in Lexington, North Carolina that is responsible for selling
Muebles Wellington Hall, S.A.'s products to both the general public
and Wellington Hall, Limited. The Company grants credit to customers
who are located primarily in the United States.
The Company's policy is to maintain its cash balances in reputable
financial institutions insured by the Federal Deposit Insurance
Corporation which provides $100,000 of insurance coverage on each
customer's cash balances.
F-20
<PAGE> 60
WELLINGTON HALL, LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
19. Disclosures About Fair Value of Financial Instruments:
Statement of Financial Accounting Standards No. 107, "Disclosure
About Fair Value of Financial Instruments", requires that the
Company disclose estimated fair values for its financial
instruments. The following methods and assumptions were used to
estimate the fair value of each class of financial instruments for
which it is practicable to estimate that value:
Cash:
The carrying amount approximates fair value.
Notes receivable - officer:
The carrying amount approximates fair value.
Note payable - other:
Due to the fact that these are short-term notes payable within
one year, the carrying amount approximates fair value.
Long-term debt:
The fair value of long-term debt is estimated based on the
current rates the Company could obtain on debt of the same
remaining maturities.
The estimated fair values of the Company's financial instruments as
of April 30, 1996 are as follows:
<TABLE>
<CAPTION>
Carrying Fair
Amount Value
------ -----
<S> <C> <C>
Cash $ 55,756 $ 55,756
Note receivable - officer 27,908 27,908
Notes payable - other 1,415,698 1,415,698
Long-term debt 1,476,662 1,520,652
</TABLE>
F-21
<PAGE> 61
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article IX of the Company's Amended and Restated Bylaws provides:
ARTICLE IX
Indemnification of Officers and Directors
Section 1. Indemnification Provisions. Any person who at any time
serves or has served as a director or officer, employee or agent of the
corporation or of any wholly-owned subsidiary of the corporation, or in any
such capacity at the request of the corporation for any other corporation,
partnership, joint venture, trust or other enterprise, or as a trustee or
administrator under any employee benefit plan of the corporation or of any
wholly-owned subsidiary thereof (a "Claimant"), against whom a claim shall be
made after September 25, 1986, in any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative,
and whether or not brought by or on behalf of the corporation, including all
appeals therefrom (a "proceeding"), seeking to hold the Claimant liable by
reason of the fact that he is or was serving in such capacity (whether the
basis of such proceeding is alleged action in such official capacity or in any
other capacity while serving in such official capacity), shall have a right to
be indemnified and held harmless by the corporation against all liabilities and
litigation expenses (as hereinafter defined); provided that such
indemnification shall not be effective with respect to (a) that portion of any
liabilities or litigation expenses with respect to which the Claimant is
entitled to receive payment under any insurance policy other than a directors'
and officers' insurance policy maintained by the corporation or (b) any
liabilities or litigation expenses if the activities of the Claimant leading to
such liabilities or litigation expenses were at the time taken by such Claimant
known or believed by him to be clearly in conflict with the best interests of
the corporation.
Section 2. Definitions. As used in this Article, (a) "liabilities"
shall include, without limitation, (1) payments in satisfaction of any
judgment, money decree, excise tax, fine or penalty for which a Claimant had
become liable in any proceeding and (2) payments in settlement of any such
proceeding, subject, however, to Section 4 hereof; and (b) "litigation
expenses" shall include, without limitation, (1) reasonable costs and expenses
and attorneys' fees and expenses actually and necessarily incurred by the
Claimant in connection with any proceeding and (2) reasonable costs and
expenses and attorneys' fees and expenses in connection with the enforcement of
rights to the indemnification granted hereby or by applicable law, if such
enforcement is successful in whole or in part. The term "disinterested
directors," as used in this Article IX, shall mean directors who are not party
to the proceeding in question.
<PAGE> 62
Section 3. Litigation Expense Advances. (a) Any litigation expenses
shall be advanced to any Claimant within 15 days of receipt by the Secretary of
the corporation of his demand therefor, together with his undertaking to repay
to the corporation such amount unless it is ultimately determined that Claimant
is entitled to be indemnified by the corporation against such expenses. The
Secretary shall forward notice of such demand and undertaking immediately to
all directors of the corporation. Any disinterested director may then, if
desired, call a meeting of a committee which shall include all disinterested
directors. No such advance shall be made if a majority of the disinterested
directors shall have determined that the litigation expenses are or have been
incurred on account of activities which at the time taken by such Claimant were
known or believed by him to be clearly in conflict with the best interests of
the corporation.
(b) No such advance of any particular items of litigation expenses
shall be made if a majority of the disinterested directors affirmatively
determines that such particular items are unreasonable. In any such case, such
directors must determine the excessive amount by which such item or items of
expense were unreasonable and the corporation shall withhold advances of
expenses only in the excessive dollar amount so determined unreasonable.
Section 4. Settlements. The corporation shall not be liable to
indemnify the Claimant for any amounts paid in settlement of any proceeding
effected without the corporation's written consent. The corporation will not
unreasonably withhold its consent to any proposed settlement.
Section 5. Approval of Indemnification Payments. Except as may be
determined in an action brought pursuant to Section 6 below, indemnification
payments by the corporation for liabilities and litigation expenses (or a
termination of the undertaking required under Section 3 above with respect to
advanced expenses) may be made only following a determination that the
activities of the Claimant were not of the kind described in Section 1(b),
which determination shall be made (a) by a majority of the disinterested
directors (if there are at least two such directors), (b) if there are not two
such directors, or if a majority of the disinterested directors so directs, by
independent legal counsel in a written opinion, (c) by a majority of the
shareholders or (d) in accordance with any other reasonable procedures
prescribed by the Board of Directors prior to the assertion of the claim for
which indemnification is sought. The reasonableness of amounts of settlements
and litigation expenses may be approved by a majority of the Board of
Directors.
Section 6. Right of Claimant to Bring Suit. If a claim under Section
1 is not paid in full by the corporation within ninety days after a written
claim has been received by the corporation, or a demand for advances is not
paid within 15 days of receipt by the corporation thereof with an undertaking
as described in Section 3, the Claimant may at any time thereafter bring suit
against the corporation to recover the unpaid amount of the claim or demand.
It shall be a defense to any such action that the Claimant's liabilities or
litigation expenses were incurred on account of activities which were at the
time taken known or believed by him to be clearly in conflict with the best
interests of the corporation, or were unreasonable, but the burden of proving
such defense shall be on the corporation. Neither the failure of the
corporation (including its
<PAGE> 63
disinterested directors, independent legal counsel, or shareholders) to have
made a determination prior to the commencement of such action that
indemnification of the Claimant is proper in the circumstances nor an actual
determination by the corporation (including its disinterested directors,
independent legal counsel, or its shareholders) that the Claimant had not met
such applicable standard of conduct shall be a defense to the action or create
a presumption that Claimant has not met the applicable standard of conduct.
Section 7. Consideration; Personal Representatives and Other Remedies.
Any person who during such time as this Article IX of the Bylaws is in effect
serves or has served in any of the aforesaid capacities for or on behalf of the
corporation shall be deemed to be doing so or to have done so in reliance upon,
and as consideration for, the right of indemnification provided herein. The
right of indemnification provided herein shall inure to the benefit of the
legal representatives of any person who qualifies or would qualify as a
Claimant hereunder and such right shall not be exclusive of any other rights to
which such person or legal representative may be entitled apart from these
resolutions.
The North Carolina General Statutes contain provisions prescribing the
extent to which directors and officers shall or may be indemnified. These
statutory provisions are set forth below:
CH. 55 N.C. BUSINESS CORPORATION ACT
Part 5. Indemnification.
Section 55-8-50. Policy Statement and Definitions.
(a) It is the public policy of this State to enable corporations
organized under this Chapter to attract and maintain responsible, qualified
directors, officers, employees and agents, and, to that end, to permit
corporations organized under this Chapter to allocate the risk of personal
liability of directors, officers, employees and agents through indemnification
and insurance as authorized, in this Part.
(b) Definitions in this Part:
(1) "Corporation" includes any domestic or foreign
predecessor entity of a corporation in a merger or other transaction
in which the predecessor's existence ceased upon consummation of the
transaction.
(2) "Director"means an individual who is or was a director of
a corporation or an individual who, while a director of a corporation,
is or was serving at the corporation's request as a director, officer,
partner, trustee, employee, or agent of another foreign or domestic
corporation, partnership, joint venture, trust, employee benefit plan,
or other enterprise. A director is considered to be serving an
employee benefit plan at the
<PAGE> 64
corporation's request if his duties to the corporation also impose
duties on, or otherwise involve services by, him to the plan or to
participants in or beneficiaries of the plan. "Director" includes,
unless the context requires otherwise, the estate or personal
representative of a director.
(3) "Expenses" means expenses of every kind incurred in
defending a proceeding, including counsel fees.
(4) "Liability" means the obligation to pay a judgment,
settlement, penalty, fine (including an excise tax assessed with
respect to an employee benefit plan) or reasonable expenses incurred
with respect to a proceeding.
(5) "Official capacity" means: (i) when used with respect to
a director, the office of director in a corporation; and (ii) when
used with respect to an individual other than a director, as
contemplated in G.S. 55-8-56, the office in a corporation held by the
officer or the employment or agency relationship undertaken by the
employee or agent on behalf of the corporation. "Official capacity"
does not include service for another foreign or domestic corporation
or any partnership, joint venture, trust, employee benefit plan, or
other enterprise.
(6) "Party" includes an individual who was, is, or is
threatened to be made a named defendant or respondent in a proceeding.
(7) "Proceeding" means any threatened, pending, or completed
action, suit, or proceeding, whether civil, criminal, administrative,
or investigative and whether formal or informal.
Section 55-8-51. Authority to Indemnify.
(a) Except as provided in subsection (d), a corporation may
indemnify an individual made a party to a proceeding because he is or was a
director against liability incurred in the proceeding if:
(1) He conducted himself in good faith; and
(2) He reasonably believed (i) in the case of conduct in
his official capacity with the corporation, that his conduct was in
its best interests; and (ii) in all other cases, that his conduct was
at least not opposed to its best interests; and
(3) In the case of any criminal proceeding, he had no
reasonable cause to believe his conduct was unlawful.
(b) A director's conduct with respect to an employee benefit plan
for a purpose he
<PAGE> 65
reasonably believed to be in the interests of the participants in and
beneficiaries of the plan is conduct that satisfies the requirement of
subsection (a)(2)(ii).
(c) The termination of a proceeding by judgment, order,
settlement, conviction, or upon a plea of no contest or its equivalent is not,
of itself, determinative that the director did not meet the standard of conduct
described in this section.
(d) A corporation may not indemnify a director under this section:
(1) In connection with a proceeding by or in the right of the
corporation in which the director was adjudged liable to the
corporation; or
(2) In connection with any other proceeding charging improper
personal benefit to him, whether or not involving action in his
official capacity, in which he was adjudged liable on the basis that
personal benefit was improperly received by him.
(e) Indemnification permitted under this section in connection
with a proceeding by or in the right of the corporation that is concluded
without a final adjudication on the issue of liability is limited to reasonable
expenses incurred in connection with the proceeding.
(f) The authorization, approval or favorable recommendation by the
board of directors of a corporation of indemnification, as permitted by this
section, shall not be deemed an act or corporate transaction in which a
director has a conflict of interest, and no such indemnification shall be void
or voidable on such ground.
Section 55-8-52. Mandatory Indemnification.
Unless limited by its articles of incorporation, a corporation shall
indemnify a director who was wholly successful, on the merits or otherwise, in
the defense of any proceeding to which he was a party because he is or was a
director of the corporation against reasonable expenses incurred by him in
connection with the proceeding.
Section 55-8-53. Advance For Expenses.
Expenses incurred by a director in defending a proceeding may be paid
by the corporation in advance of the final disposition of such proceeding as
authorized by the board of directors in the specific case or as authorized or
required under any provision in the articles of incorporation or bylaws or by
any applicable resolution or contract upon receipt of an undertaking by or on
behalf of the director to repay such amount unless it shall ultimately be
determined that he is entitled to be indemnified by the corporation against
such expenses.
Section 55-8-54. Court-ordered indemnification.
<PAGE> 66
Unless a corporation's articles of incorporation provide otherwise, a
director of the corporation who is a party to a proceeding may apply for
indemnification to the court conducting the proceeding or to another court of
competent jurisdiction. On receipt of an application, the court after giving
any notice the court considers necessary may order indemnification if it
determines:
(1) The director is entitled to mandatory indemnification under G.S.
55-8-52, in which case the court shall also order the corporation to pay the
director's reasonable expenses incurred to obtain court-ordered
indemnification; or
(2) The director is fairly and reasonably entitled to indemnification
in view of all the relevant circumstances, whether or not he met the standard
of conduct set forth in G.S. 55-8-51 or was adjudged liable as described in
G.S. 55-8-51(d), but if he was adjudged so liable his indemnification is
limited to reasonable expenses incurred.
Section 55-8-55. Determination and Authorization of Indemnification.
(a) A corporation may not indemnify a director under G.S. 55-8-51
unless authorized in the specific case after a determination has been made that
indemnification of the director is permissible in the circumstances because he
has met the standard of conduct set forth in G.S. 55-8-51.
(b) The determination shall be made:
(1) By the board of directors by majority vote of a quorum consisting
of directors not at the time parties to the proceeding;
(2) If a quorum cannot be obtained under subdivision (1), by majority
vote of a committee duly designated by the board of directors (in
which designation directors who are parties may participate),
consisting solely of two or more directors not at the time parties to
the proceeding;
(3) By special legal counsel (i) selected by the board of directors
or its committee in the manner prescribed in subdivision (1) or (2);
or (ii) if a quorum of the board of directors cannot be obtained under
subdivision (1) and a committee cannot be designated under subdivision
(2), selected by majority vote of the full board of directors (in
which selection directors who are parties may participate); or
(4) By the shareholders, but shares owned by or voted under the
control of directors who are at the time parties to the proceeding may
not be voted on the determination.
(c) Authorization of indemnification and evaluation as to reasonableness
of expenses shall be
<PAGE> 67
made in the same manner as the determination that indemnification is
permissible, except that if the determination is made by special legal counsel,
authorization of indemnification and evaluation as to reasonableness of
expenses shall be made by those entitled under subsection (b)(3) to select
counsel.
Section 55-8-56. Indemnification Of Officers, Employees, and Agents.
Unless a corporation's articles of incorporation provide otherwise:
(1) An officer of the corporation is entitled to mandatory
indemnification under G.S. 55-8-52, and is entitled to apply for court-ordered
indemnification under G.S. 55-8-54, in each case to the same extent as a
director.
(2) The corporation may indemnify and advance expenses under this
Part to an officer, employee, or agent of the corporation to the same extent as
to a director; and
(3) A corporation may also indemnify and advance expenses to an
officer, employee, or agent who is not a director to the extent, consistent
with public policy, that may be provided by its articles of incorporation,
bylaws, general or specific action of its board of directors, or contract.
Section 55-8-57. Additional Indemnification and Insurance.
(a) In addition to and separate and apart from the indemnification
provided for in G.S. 55-8-51, 55-8-52, 55-8-54, 55-8-55 and 55-8-56, a
corporation may in its articles of incorporation or bylaws or by contract or
resolution indemnify or agree to indemnify any one or more of its directors,
officers, employees, or agents against liability and expenses in any proceeding
(including without limitation a proceeding brought by or on behalf of the
corporation itself) arising out of their status as such or their activities in
any of the foregoing capacities; provided, however, that a corporation may not
indemnify or agree to indemnify a person against liability or expenses he may
incur account of his activities which were at the time taken known or believed
by him to be clearly in conflict with the b interests of the corporation. A
corporation may likewise and to the same extent indemnify or agree to indemnify
a person who, at the request of the corporation, is or was serving as a
director, officer, partner, trustee, employee, agent of another foreign or
domestic corporation, partnership, joint venture, trust or other enterprise or
as a trust or administrator under an employee benefit plan. Any provision in
any articles of incorporation, bylaw, contract, resolution permitted under this
section may include provisions for recovery from the corporation of reasonable
costs, expenses, and attorneys' fees in connection with the enforcement of
rights to indemnification granted therein and may further include provisions
establishing reasonable procedures for determining and enforcing the rights
granted therein.
(b) The authorization, adoption, approval, or favorable
recommendation by the board of directors of a public corporation of any
provision in any articles of incorporation, bylaw, contract
<PAGE> 68
or resolution, as permitted in this section, shall not be deemed an act or
corporate transaction in which a director has a conflict of interest, and no
such articles of incorporation or bylaw provision or contract or resolution
shall be void or voidable on such grounds. The authorization, adoption,
approval, or favorable recommendation by the board of directors of a nonpublic
corporation of any provision in any articles of incorporation, bylaw, contract
or resolution, as permitted in this section which occurred prior to July 1,
1990, shall not be deemed an act or corporate transaction in which a director
has a conflict of interest, and no such articles of incorporation, bylaw
provision, contract or resolution shall be void voidable on such grounds.
Except as permitted in G.S. 55-8-31, no such bylaw, contract, or resolution not
adopted, authorized, approved or ratified by shareholders shall be effective as
to claims made or liabilities asserted again any director prior to its
adoption, authorization, or approval by the board of directors.
(c) A corporation may purchase and maintain insurance on behalf of an
individual who is or was a director, officer, employee or agent of the
corporation, or who, while a director, officer, employee, or agent of the
corporation, is or was serving at the request of the corporation as a director,
officer, partner, trustee, employee, or agent of another foreign or domestic
corporation, partnership, joint venture, trust, employee benefit plan, or other
enterprise, against liability asserted against or incurred by him in that
capacity or arising from his status as a direct officer, employee, or agent,
whether or not the corporation would have power to indemnify him against the
same liability under any provision of this Chapter.
Section 55-8-58. Application of Part.
(a) If articles of incorporation limit indemnification or advance for
expenses, indemnification and advance for expenses are valid only to the extent
consistent with the articles.
(b) This Part does not limit a corporation's power to pay or
reimburse expenses incurred by a director in connection with his appearance as
a witness in a proceeding at a time when he has not been made a name defendant
or respondent to the proceeding.
(c) This Part shall not affect rights or liabilities arising out of
acts or omissions occurring before July 1, 1990.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Other expenses of issuance and distribution are estimated as follows:
Registration Fees $292
*Subscription Agent Fees $
*Costs of Printing $
<PAGE> 69
*Legal Fees and Expenses $
*Accounting Fees and Expenses $
*Miscellaneous Expenses $
*Total Expenses $
-----------------------
*To be filed by amendment
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
In connection with the employment of Arthur F. Bingham as Senior
Executive Vice President of Sales and Marketing, Mr. Bingham made a loan to the
Company of $285,694 at terms included in an addendum to his Employment and
Stock Purchase Agreement with the Company. On February 12, 1997, the Company
issued to Mr. Bingham 600,000 shares of Common Stock as repayment of that loan
and for his additional investment of $14,306. Inasmuch as Mr. Bingham is an
executive officer of the Company and had access to all available information
about the Company, the Company relied on Section 4(2) of the Securities Act to
exempt said offer and sale from registration.
ITEM 27. EXHIBITS.
The following exhibits, listed in accordance with the number assigned
to each in the exhibit table of Item 601 of Regulation S-B, are included in
Part II of this Registration Statement. Exhibit numbers omitted are not
applicable.
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
- ----------- -------
<S> <C>
*3(a) Amended and Restated Charter of Wellington Hall, Limited, filed as Exhibit 3.1 to the Company's Annual
Report on Form 10-K for the fiscal year ended April 30, 1987
*3(b) Amended and Restated Bylaws of Wellington Hall, Limited, filed as Exhibit 3.2 to the Company's Annual
Report on Form 10-K for the fiscal year ended April 30, 1987
5 Form of Opinion of Schell Bray Aycock Abel & Livingston P.L.L.C.
*10(a) Wellington Hall Executive Stock Plan, filed as Exhibit 10.1 to the Company's Annual Report on Form 10-K
for the fiscal year ended April 30, 1986
</TABLE>
<PAGE> 70
<TABLE>
<S> <C>
*10(b) Employment and Executive Deferred Compensation Agreement between the Company and Hoyt M. Hackney Jr.,
effective January 1, 1987 and May 8, 1987, respectively, filed as Exhibit 10.2 to the Company's Annual
Report on Form 10-K for the fiscal year ended April 30, 1987
*10(c) Note - Security Agreement dated April 23, 1986 between the Company and Lexington State Bank, filed as
Exhibit 4.2 to the Company's Annual Report on Form 10-K for the fiscal year ended April 30, 1987
*10(d) Loan Agreement dated April 15, 1987 between the Company and Lexington State Bank, filed as Exhibit 4.2
to the Company's Annual Report on Form 10-K for the fiscal year ended April 30, 1987
*10(e) Note - Security and North Modification Agreements dated April 26, 1988 between the Company and
Lexington State Bank, filed as Exhibit 4.3 to the Company's Annual Report on Form 10-K for the fiscal
year ended April 30, 1988
*10(f) Loan Agreement dated December 22, 1989, as amended on July 19, 1990, between Wellington Hall Caribbean
Corporation and the Overseas Private Investment Corporation, filed as Exhibit 10.6 to the Company's
Annual Report on Form 10-K for the fiscal year ended April 30, 1990
*10(g) Subordination Agreement, dated December 22, 1989 between Wellington Hall Limited, Wellington Hall
Caribbean Corporation, Muebles Wellington Hall, S.A., and the Overseas Private Investment Corporation,
filed as Exhibit 10.7 to the Company's Annual Report on Form 10-K for the fiscal year ended April 30,
1990
10(h) Loan Agreement dated July 24, 1990 between the Company and Lexington State Bank
*10(i) Amendment to Loan Agreement dated February 1, 1991 between the Company and Lexington State Bank, filed
as Exhibit 10.14 to the Company's Annual Report on Form 10-K for the fiscal year ended April 30, 1991
*10(j) Loan Agreement dated August 20, 1991 between Muebles Wellington Hall, S.A. and Banco de Honduras, S.A.,
filed as Exhibit A to the Company's Annual Report on Form 10-K for the fiscal year ended April 30, 1991
*10(k) Amendment to Loan Agreement dated April 10, 1992 between the
</TABLE>
<PAGE> 71
<TABLE>
<S> <C>
Company and Lexington State Bank, filed as Exhibit 10.11 to the Company's Annual Report on Form 10-K for
the fiscal year ended April 30, 1992
*10(l) Promissory Note dated January 23, 1992 between the Company and Hoyt M. Hackney, Jr., filed as Exhibit
10.12 to the Company's Annual Report on Form 10-K for the fiscal year ended April 30, 1992
*10(m) Amendment to Executive Deferred Compensation Agreement dated January 23, 1992 between the Company and
Hoyt M. Hackney, Jr., filed as Exhibit 10.13 to the Company's Annual Report on Form 10-K for the fiscal
year ended April 30, 1992
*10(n) Loan Agreement, dated June 28, 1993, between the Company and Lexington State Bank, filed as Exhibit
10.14 to the Company's Annual Report on Form 10-KSB for the fiscal year ended April 30, 1993
*10(o) Lease Agreement dated November 1, 1993 by and between North Hamilton Corporation and the Company, filed
as Exhibit 10.14 to the Company's Annual Report on Form 10-K for the fiscal year ended April 30, 1994
*10(p) Amendment to the Loan Agreement dated September 1, 1994 between Wellington Hall Caribbean Corporation
and the Overseas Private Investment Corporation, filed as Exhibit 10.16 to the Company's Annual Report
on Form 10-KSB for the fiscal year ended April 30, 1995
10(q) Promissory Note dated January 16, 1997 between the Company and Lexington State Bank
10(r) Letter dated January 31, 1997 of the Overseas Private Investment Corporation to the Company
*10(s) Employment and Stock Purchase Agreement dated September 1, 1996 between the Company and Arthur F.
Bingham, filed as Exhibit 10.17 to the Company's Quarterly Report on Form 10-QSB for the quarterly
period ended July 31, 1996.
10(t) Employment Agreement dated December 1, 1997 between the Company and Ralph L. Eskelsen
10(u) Addenda to Employment and Stock Purchase Agreement dated September 1, 1996 between the Company and
Arthur F. Bingham dated February 10,
</TABLE>
<PAGE> 72
<TABLE>
<S> <C>
1997
10(v) 1997 Stock Option and Restricted Stock Plan
10(w) Nonqualified Stock Option Agreement dated as of February 10, 1997 between the Company and Arthur F.
Bingham
10(x) Incentive Stock Option Agreement dated as of February 10, 1997 between the Company and Arthur F.
Bingham
10(y) Incentive Stock Option Agreement dated as of February 10, 1997 between the Company and Ralph L.
Eskelsen
10(z) Form of Letter Agreement between the Company and Lexington State Bank
11 Statement re Computation of Per Share Earnings
*22 Subsidiaries of the Registrant, filed as Exhibit 22 to the Company's Annual Report on Form 10-KSB for
the fiscal year ended April 30, 1996
23(a) Consent of Schell Bray Aycock Abel & Livingston P.L.L.C. is contained in its opinion filed as Exhibit 5
23(b) Consent of Turlington & Company, L.L.P.
25 Power of Attorney (included on Signature Page)
99(a) Form of Stock Order Form
99(b) Form of Transmittal Letter to Shareholders
</TABLE>
- ----------------------------------
* Incorporated by reference to the statement or report indicated
ITEM 28. UNDERTAKINGS.
The undersigned registrant hereby undertakes: (1) To file, during any
period in which offers or sales are being made, a post-effective amendment to
this registration statement: (i) to include any prospectus required by section
10(a)(3) of the Securities Act of 1933, as amended; (ii) to reflect in the
prospectus any facts or events which, individually or together, represent a
fundamental change from the information included in this registration
statement; and (iii) to include any additional or changed material information
with respect to the plan of distribution from that which is included in this
registration statement. (2) That, for the purpose of
<PAGE> 73
determining liability under the Securities Act of 1933, as amended, each such
post-effective amendment shall be treated as a new registration statement
relating to the securities offered therein, and the offering of such securities
at such time shall be treated as the initial bona fide offering thereof. (3)
To remove from registration by means of a post-effective amendment any of the
securities being registered which remain unsold at the termination of the
offering.
The undersigned registrant undertakes to, before any unsubscribed for
shares of Common Stock are offered and sold to the public, supplement the
Prospectus to include the results of the subscription offer and the terms of
any later reoffering. If the registrant makes any public offering of the
securities on terms different from those on the cover page of the Prospectus,
the Registrant will file a post-effective amendment to state the terms of such
offering.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that claim for indemnification against such liabilities (other than the payment
by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by a controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
<PAGE> 74
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements of filing on Form SB-2 and authorizes this registration
statement to be signed on its behalf by the undersigned, in the City of
Lexington, State of North Carolina, on February 19, 1997.
WELLINGTON HALL, LIMITED
By: /s/ Hoyt M. Hackney
-------------------------------------
Hoyt M. Hackney, President, Chief
Executive Officer, Chief Financial
Officer, Treasurer and Director
POWER OF ATTORNEY
Each executive officer or director whose signature appears below
hereby appoints Hoyt M. Hackney as his true and lawful attorney-in-fact to sign
on his behalf, as an individual and in the capacity stated below, any amendment
or post-effective amendment to this Registration Statement which said
attorney-in-fact may deem appropriate or necessary.
<PAGE> 75
In accordance with the requirements of the Securities Act of 1933,
this registration statement was signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Hoyt M. Hackney President, Chief Executive February 19, 1997
------------------------------------- Officer, Chief Financial
Hoyt M. Hackney Officer, Treasurer and Director
/s/ Ernst B. Kemm Executive Vice President February 19, 1997
------------------------------------- and Director
Ernst B. Kemm
/s/ Donald W. Leonard Chairman of the Board February 19, 1997
------------------------------------- of Directors
Donald W. Leonard
/s/ William W. Woodruff Secretary and Director February 19, 1997
-------------------------------------
William W. Woodruff
/s/ Arthur F. Bingham Senior Executive Vice President February 19, 1997
------------------------------------- of Sales and Marketing and Director
Arthur F. Bingham
</TABLE>
<PAGE> 76
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
- ----------- -------
<S> <C>
*3(a) Amended and Restated Charter of Wellington Hall, Limited, filed as Exhibit 3.1 to the Company's Annual
Report on Form 10-K for the fiscal year ended April 30, 1987
*3(b) Amended and Restated Bylaws of Wellington Hall, Limited, filed as Exhibit 3.2 to the Company's Annual
Report on Form 10-K for the fiscal year ended April 30, 1987
5 Form of Opinion of Schell Bray Aycock Abel & Livingston P.L.L.C.
*10(a) Wellington Hall Executive Stock Plan, filed as Exhibit 10.1 to the Company's Annual Report on Form 10-K
for the fiscal year ended April 30, 1986
*10(b) Employment and Executive Deferred Compensation Agreement between the Company and Hoyt M. Hackney Jr.,
effective January 1, 1987 and May 8, 1987, respectively, filed as Exhibit 10.2 to the Company's Annual
Report on Form 10-K for the fiscal year ended April 30, 1987
*10(c) Note - Security Agreement dated April 23, 1986 between the Company and Lexington State Bank, filed as
Exhibit 4.2 to the Company's Annual Report on Form 10-K for the fiscal year ended April 30, 1987
*10(d) Loan Agreement dated April 15, 1987 between the Company and Lexington State Bank, filed as Exhibit 4.2
to the Company's Annual Report on Form 10-K for the fiscal year ended April 30, 1987
*10(e) Note - Security and North Modification Agreements dated April 26, 1988 between the Company and
Lexington State Bank, filed as Exhibit 4.3 to the Company's Annual Report on Form 10-K for the fiscal
year ended April 30, 1988
*10(f) Loan Agreement dated December 22, 1989, as amended on July 19, 1990, between Wellington Hall Caribbean
Corporation and the Overseas Private Investment Corporation, filed as Exhibit 10.6 to the Company's
Annual Report on Form 10-K for the fiscal year ended April 30, 1990
*10(g) Subordination Agreement, dated December 22, 1989 between Wellington Hall Limited, Wellington Hall
Caribbean Corporation, Muebles Wellington Hall, S.A., and the Overseas Private Investment Corporation,
filed as Exhibit 10.7 to the Company's Annual Report on Form 10-K for the fiscal year ended April 30,
1990
10(h) Loan Agreement dated July 24, 1990 between the Company and Lexington State Bank
*10(i) Amendment to Loan Agreement dated February 1, 1991 between the Company and Lexington State Bank, filed
as Exhibit 10.14 to the Company's Annual Report on Form 10-K for the fiscal year ended April 30, 1991
*10(j) Loan Agreement dated August 20, 1991 between Muebles Wellington Hall, S.A. and Banco de Honduras, S.A.,
filed as Exhibit A to the Company's Annual Report on Form 10-K for the fiscal year ended April 30, 1991
*10(k) Amendment to Loan Agreement dated April 10, 1992 between the Company and Lexington State Bank, filed
as Exhibit 10.11 to the Company's Annual Report on Form 10-K for the fiscal year ended April 30, 1992
*10(l) Promissory Note dated January 23, 1992 between the Company and Hoyt M. Hackney, Jr., filed as Exhibit
10.12 to the Company's Annual Report on Form 10-K for the fiscal year ended April 30, 1992
*10(m) Amendment to Executive Deferred Compensation Agreement dated January 23, 1992 between the Company and
Hoyt M. Hackney, Jr., filed as Exhibit 10.13 to the Company's Annual Report on Form 10-K for the fiscal
year ended April 30, 1992
*10(n) Loan Agreement, dated June 28, 1993, between the Company and Lexington State Bank, filed as Exhibit
10.14 to the Company's Annual Report on Form 10-KSB for the fiscal year ended April 30, 1993
*10(o) Lease Agreement dated November 1, 1993 by and between North Hamilton Corporation and the Company, filed
as Exhibit 10.14 to the Company's Annual Report on Form 10-K for the fiscal year ended April 30, 1994
*10(p) Amendment to the Loan Agreement dated September 1, 1994 between Wellington Hall Caribbean Corporation
and the Overseas Private Investment Corporation, filed as Exhibit 10.16 to the Company's Annual Report
on Form 10-KSB for the fiscal year ended April 30, 1995
10(q) Promissory Note dated January 16, 1997 between the Company and Lexington State Bank
10(r) Letter dated January 31, 1997 of the Overseas Private Investment Corporation to the Company
*10(s) Employment and Stock Purchase Agreement dated September 1, 1996 between the Company and Arthur F.
Bingham, filed as Exhibit 10.17 to the Company's Quarterly Report on Form 10-QSB for the quarterly
period ended July 31, 1996.
10(t) Employment Agreement dated December 1, 1997 between the Company and Ralph L. Eskelsen
10(u) Addenda to Employment and Stock Purchase Agreement dated September 1, 1996 between the Company and
Arthur F. Bingham dated February 10, 1997
10(v) 1997 Stock Option and Restricted Stock Plan
10(w) Nonqualified Stock Option Agreement dated as of February 10, 1997 between the Company and Arthur F.
Bingham
10(x) Incentive Stock Option Agreement dated as of February 10, 1997 between the Company and Arthur F.
Bingham
10(y) Incentive Stock Option Agreement dated as of February 10, 1997 between the Company and Ralph L.
Eskelsen
10(z) Form of Letter Agreement between the Company and Lexington State Bank
11 Statement re Computation of Per Share Earnings
*22 Subsidiaries of the Registrant, filed as Exhibit 22 to the Company's Annual Report on Form 10-KSB for
the fiscal year ended April 30, 1996
23(a) Consent of Schell Bray Aycock Abel & Livingston P.L.L.C. is contained in its opinion filed as Exhibit 5
23(b) Consent of Turlington & Company, L.L.P.
25 Power of Attorney (included on Signature Page)
99(a) Form of Stock Order Form
99(b) Form of Transmittal Letter to Shareholders
</TABLE>
- ----------------------------------
* Incorporated by reference to the statement or report indicated
<PAGE> 1
EXHIBIT 5
February __, 1997
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
Re: Wellington Hall, Limited
Registration Statement on Form SB-2
Gentlemen:
We have represented Wellington Hall, Limited, a North Carolina
corporation, (the "Company") in connection with the registration under the
Securities Act of 1933 of up to 1,689,887 shares of the Company's Common Stock,
no par value, to be offered and sold in accordance with the above-referenced
Registration Statement on Form SB-2.
We have examined the Corporation's Amended and Restated Charter, its
Amended and Restated Bylaws and such of its corporate records as we deemed
necessary for purposes of rendering this opinion, the Registration Statement
(Form SB-2) relating to the offerings referred to above and filed today with the
Securities and Exchange Commission (the "Commission"), including the Prospectus
therein (the "Prospectus") and the form of certificate of Common Stock. For
purposes of this opinion, we have assumed the genuineness of all signatures, the
authenticity of all documents submitted to us as originals, the conformity to
originals of all documents submitted to us as certified, photostatic or
conformed copies, and the authenticity of the originals of such documents.
Based upon our review, we are of the opinion that all necessary
corporate action has been taken to authorize the sale and issuance of the shares
of Common Stock to be sold by the Company, and such shares, if and when issued
and paid for as contemplated by the Registration Statement and Prospectus will
be validly issued, fully paid and nonassessable.
We hereby consent to the use of this opinion as Exhibit 5 of the
Registration Statement relating to the offering referred to above, as filed with
the Commission under the Securities Act of 1933 (the "Act"), and to any
reference to this opinion and to our firm name under the heading "Legal
Opinions" in the Prospectus. We do not, however, thereby admit that we are
within the category of persons whose consent is required under Section 7 of the
Act or the rules and regulations of the Commission promulgated thereunder.
Very truly yours,
SCHELL BRAY AYCOCK ABEL & LIVINGSTON P.L.L.C.
<PAGE> 1
EXHIBIT 10(h)
LOAN AGREEMENT
This agreement, made this 24th day of July, 1990, between Wellington
Hall Limited, a North Carolina corporation of Highway 29-70 North, Lexington,
North Carolina, hereinafter referred to as the Borrower, and Lexington State
Bank, Lexington, North Carolina, hereinafter referred to as the Bank:
W I T N E S S E T H :
The Borrower has requested financing in the amount of $200,000 for
improvements to the air quality system of its manufacturing facility. Borrower
has also requested that the Bank increase Borrower's line of credit for its
anticipated working capital requirements.
The Bank has consented to provide Borrower with a loan for its
proposed capital improvements and is willing to increase Borrower's $800,000
line of credit to $900,000 upon the terms and conditions herein set forth.
Now, therefore, in consideration of the mutual covenants contained
herein, the Borrower and the Bank agree as follows:
SECTION 1. WARRANTIES AND REPRESENTATIONS.
The Borrower represents and warrants to the Bank as follows:
1.1 The Borrower is a corporation duly organized and existing in good
standing under the laws of the jurisdiction of its incorporation, and
is duly qualified and in good standing under the laws of each
jurisdiction in which the ownership of its properties or the
transaction of its business make such qualification necessary.
1.2 The Borrower has full corporate power to enter into this Agreement and
to do all things required of it hereunder and the execution and
performance of this Agreement have been duly authorized by appropriate
corporate action and will not violate the provisions of its Articles
of Incorporation or By-Laws or any other agreement or instrument to
which it is a party, nor require the approval of its stockholders or
of any public authority or of any third party.
1.3 The Borrower is the owner of 100% of the capital stock of Wellington
Hall Caribbean Corporation, a North Carolina corporation, and said
subsidiary corporation is the owner of 99% of the capital stock of
Muebles Wellington Hall, S.A., a Honduran corporation. All of the
capital stock of each subsidiary has been validly issued, is fully
paid and non-assessable, and is free of liens or other encumbrance.
<PAGE> 2
1.4 The Borrower has no unpaid taxes or assessments which have become due
and payable on or before the date of this Agreement.
1.5 The Borrower has no proceedings pending or, to the knowledge of its
officers, threatened before any court or administrative agency, or
governmental body, the outcome of which would materially affect its
financial condition adversely.
1.6 The financial information submitted to the Bank by the Borrower is
correct and does accurately reflect its financial condition.
1.7 The Borrower is the lawful owner of all of its assets which shall be
free of all liens and encumbrances except to the Bank as provided for
herein and as otherwise set forth in its financial statements.
SECTION 2. INTERIM FINANCING.
2.1 The Bank agrees to provide Borrower with interim financing in the
amount of $200,000 for Borrower's proposed air quality improvements.
The term of the interim financing shall be approximately six months.
2.2 Upon substantial completion of the proposed capital improvements, the
Bank and the Borrower shall negotiate the terms of permanent
financing.
SECTION 3. LINE OF CREDIT.
3.1 The Bank agrees to extend to the Borrower in the form of a Line of
Credit the lesser of:
a) $900,000, or
b) The sum of:
i) 70% of the Borrower's accounts receivable less than 60
days old, and
ii) 50% of the Borrower's inventories of finished goods, to
be valued at cost or market, whichever is less.
iii) 10% of the Borrower's work in process and raw materials
inventories.
3.2 In order to facilitate the borrowings under this Line of Credit, the
Borrower shall execute and deliver to the Bank its $900,000.00 demand
Promissory Note against which the Bank shall advance funds at the
Borrower's request. The principal balances under said note shall be
permitted to increase and decrease as advances and repayments are made
without the necessity of executing new notes.
3.3 The rate of interest chargeable on loan balances under this Line of
Credit shall be 1%
2
<PAGE> 3
per annum above the prime rate published by Lexington State Bank. The
said prime rate in effect as of the 1st day of each month shall be the
basis for the computation of interest chargeable for that month.
3.4 In the event that the principal balances outstanding under the
Borrower's promissory notes shall at any time exceed the limitations
set forth in Section 3.1 above, the Borrower shall promptly reduce the
aggregate of said principal balances by an amount sufficient to
eliminate such excess.
SECTION 4. SECURITY.
4.1 To secure the repayment of the loans provided for herein and all other
present and future obligations of the Borrower to the Bank, whether
direct or indirect absolute or contingent, the Borrower hereby grants
unto the Bank, its successors or assigns, a first lien security
interest in all of its presently owned or hereafter acquired property
of the following types and kinds:
a) Accounts receivable, notes receivable, other receivables
however evidenced, contract rights and general intangibles
(which term shall include refunds of any type and other
entitlements to money or goods);
b) Inventories of raw materials, supplies, work-in-process and
finished goods;
c) Machinery, equipment, furniture and fixtures, tools, dies,
jigs (all personal property fixed assets and expendables);
d) All cash and non-cash proceeds of the foregoing, including
proceeds of insurance thereon.
4.2 Borrower agrees that it will, at Bank's request, execute and deliver
such security agreements, financing statements, or other documents
deemed necessary by the Bank for the granting, perfection or
continuation of perfection of the security interest above described.
4.3 Borrower also agrees with Bank that those certain deeds of trust
described below shall serve as additional security to the loans
provided for herein:
a) $420,000.00 Deed of Trust dated February 17, 1984, Joe H.
Leonard, Trustee, Filed in Book 619, Page 17, Davidson County
Register of Deeds.
b) $650,000.00 Deed of Trust dated April 15, 1987, Joe H.
Leonard, Trustee, Filed in Book 665, Page 668, Davidson County
Register of Deeds.
3
<PAGE> 4
SECTION 5. AFFIRMATIVE COVENANTS.
From the date hereof and until all sums advanced hereunder and all
interest thereon are fully paid, the Borrower agrees that it will:
5.1 Furnish to the Bank within 90 days after the end of each of its fiscal
years, beginning with its fiscal year next ending after the date of
this Agreement, an audited financial report prepared in accordance
with generally accepted accounting principles by its independent
certified public accountants, containing its Balance Sheet as of the
end of such fiscal year, its Profit and Loss Statement showing the
results of its operations for such year, the reconcilement of its
surplus account, such other comments and financial details as are
customarily included in reports of like character and the unqualified
opinion of the certified public accountants as to the contents
thereof.
5.2 Furnish to the Bank within 45 days after the end of each quarter
beginning with that report period first succeeding the date of this
Agreement, a financial report prepared on the same accounting basis as
the annual statement prepared by its independent certified public
accountants, containing its Balance Sheet as of the end of such period
and its Profit and Loss Statement showing the results of its
operations for the portion of its fiscal year then elapsed.
5.3 Provide the Bank with consolidating financial statements for each of
its annual and quarterly report periods, which statements shall
reflect the independent balance sheet and operating information of
Borrower and each other member of the consolidated group contained in
Borrower's annual report.
5.4 Promptly inform the Bank of any occurrence which materially affects
its financial condition adversely or its ability to comply with its
obligations under this Agreement; grant to the Bank or its
representatives the right to examine its books and records at any
reasonable time or times; and furnish to the Bank any information
which it may reasonably request concerning the Borrower's financial
affairs within 15 days after receipt of a request thereof.
5.5 Maintain insurance against the risk of loss or damage to the assets
pledged as security to the Bank in amounts at least equal to the
balance of the Borrower's indebtedness to the Bank with loss payable
to the Bank to the extent of its interest. Said policies of insurance
shall contain a provision that the coverages afforded thereunder will
not be canceled without 10 days prior written notice to the Bank. The
Borrower shall cause said policies of insurance to be delivered to the
Bank. The Bank shall have the right, but not the obligation, to
acquire insurance for the protection of the collateral upon the
Borrower's failure to do so and the cost thereof shall be paid to the
Bank upon demand. Action by the Bank in acquiring such insurance
shall not constitute a waiver of the default created by the Borrower's
failure to do so.
4
<PAGE> 5
5.6 Pay and discharge, as often as the same may become due and payable,
all taxes and assessments of whatever nature which may be levied or
assessed against it or any of its properties, unless and to the extent
only that such taxes or assessments shall be contested in good faith
by appropriate proceedings by the Borrower.
5.7 Maintain its corporate existence in good standing and its
qualification and good standing in each jurisdiction wherein such
qualification is necessary.
5.8 Maintain a ratio of net current assets to current liabilities of not
less than 2.00 to 1.00. For the purposes of this Agreement, the ratio
of net current assets to current liabilities shall be computed in
accordance with generally accepted accounting principles.
5.9 Maintain a ratio of total liabilities to net worth of not more than
1.50 to 1.00.
5.10 Maintain its present management or other management satisfactory to
the Bank.
5.11 Maintain its primary depository relationship with the Bank, it being
understood that the credit being provided hereunder and the pricing
thereof is directly related to the depository relationship.
SECTION 6. NEGATIVE COVENANTS.
From the date hereof and until all sums advanced hereunder and all
interest thereon are fully paid, the Borrower agrees that it will not, without
the prior written consent of the Bank:
6.1 Mortgage, pledge or further encumber any of its assets to any party
other than the Bank.
6.2 Sell, lease or otherwise. dispose of any of its assets except in the
normal course of business.
6.3 Borrow money from any source other than the Bank except upon life
insurance policies owned by the Borrower, directly from the carrier
thereof.
6.4 Make loans or advances to any person, firm or corporation except to
employees in the normal course of business.
6.5 Guarantee, endorse, assume or otherwise become liable for the
obligations of any other person, firm or corporation except as herein
provided and except by the endorsement of negotiable instruments for
deposit or collection in the ordinary course
5
<PAGE> 6
of business.
6.6 Enter into any merger or consolidation or acquire all or substantially
all of the assets, or purchase or otherwise acquire the obligations or
the stock or any other interest, of any other person, firm or
corporation.
6.7 Pay any dividends, or purchase, redeem, or otherwise retire capital
stock, or make other distribution of its assets resulting in reduction
of capital.
6
<PAGE> 7
6.8 Make or incur, subsequent to the capital expenditures herein
contemplated, any obligation to make any expenditures for the
acquisition of or improvement of addition to any real property,
machinery, equipment, furniture or fixtures, whether by purchase,
lease, lease with option or otherwise in an aggregate annual amount in
excess of $100,000.
SECTION 7. ENVIRONMENTAL CERTIFICATION.
7.1 Borrower certifies that the real property pledged as security for the
herein described credit does not contain materials or substances that
are regulated or prohibited by federal, state, or local laws, or that
are known to pose a hazard to the environment or to human health,
except as identified on the attached Schedule A.
7.2 Borrower also certifies that the subject property and operations at
the property are in compliance with all applicable Federal, State, and
local statutes, laws, and regulations. Borrower further certifies
that no notices claiming a violation of regulations or statutes, nor
notices requiring compliance with regulations or statutes, nor notices
demanding payment or contribution for injury to the environment or
human health have been served on Borrower, or to the best of
Borrower's knowledge, to any former owner/operator of the property, by
any government agency, individual, or other entity except those
notices as may be identified on the attached Schedule A. Borrower
agrees to forward a copy of any such notices which are hereafter
received within three (3) days of their receipt. Borrower
acknowledges that Bank shall not be obligated to make any
disbursements if condemnation proceedings are commenced or threatened
against any part of the property.
7.3 Borrower further certifies that any hazardous or potentially hazardous
materials used in Borrower's operation or generated as a product or
by-product are now and will continue to be stored, used, and
maintained in accordance with applicable Federal, State, and local
laws and regulations and that all hazardous wastes will be disposed of
by duly licensed contractors in accordance with all governing
regulations.
7.4 Borrower hereby indemnifies and holds Bank harmless against any and
all costs or damages arising from claims for environmental
contamination of Borrower's property.
SECTION 8. EVENTS OF DEFAULT.
8.1 If any payment of principal or interest hereunder shall not be paid
when the same has become due and payable, or if the Borrower shall
fail to perform any of its other obligations hereunder, or under the
provisions of the Security Agreement given in connection herewith, or
shall fail to comply with any of the other terms and conditions
7
<PAGE> 8
of this Agreement.
8.2 If any warranty or representations made herein, or any statement or
representation made in any certificate or report delivered pursuant
hereto, shall prove to be false or inaccurate in any material respect
when made.
8.3 If the Borrower shall voluntarily suspend transaction of its business;
or shall be adjudicated a bankrupt or insolvent; or shall file a
voluntary petition in bankruptcy or for a reorganization; or shall
attempt to effect a plan or other arrangement with creditors; or shall
commit an act of bankruptcy; or shall file an answer to a creditors
petition against it for an adjudication in bankruptcy or for a
reorganization admitting the material allegations contained therein;
or shall apply for or permit the appointment of a receiver or trustee
for it or for any substantial portion of its assets, or if bankruptcy,
reorganization or liquidation proceedings are instituted against it
and remain undismissed for 30 days.
8.4 Upon occurrence of any default defined in Section 8.1 above which is
not cured by the Borrower within 15 days, or upon occurrence of any
default defined in Section 8 2 and 8.3 above, all indebtedness
hereunder shall be immediately due and payable in full at the option
of the Bank, without presentation, demand or notice of any kind, all
of which are hereby expressly waived.
SECTION 9. MISCELLANEOUS.
9.1 The Borrower agrees to pay all out-of-pocket expenses of the Bank in
connection with the preparation of documents relating hereto, filing
and recording fees, and cost of the enforcement of any provision of
this Agreement, and the collection of any indebtedness hereunder,
including reasonable fees and expenses of counsel.
9.2 Each and every right granted to the Bank hereunder or under any other
document delivered in connection herewith, or allowed it by law or
equity, shall be cumulative and may be exercised from time to time.
No failure on the part of the Bank to exercise and no delay in
exercising any right shall operate as a waiver thereof or the exercise
of any other right.
9.3 Any and all notices required by the terms of this Agreement shall be
in writing and shall be served either personally or by United States
mail with postage thereon fully prepaid addressed to the Borrower as:
Wellington Hall Limited
Route 12
P.O. Box 1354
Lexington, North Carolina 27293-1354
8
<PAGE> 9
and to the Bank as:
Lexington State Bank
Commercial Loan Department
P.O. Box 867
Lexington, North Carolina 27293-0867
or such other place or places as either the Bank or the Borrower shall
designate by written notice served upon the other party.
9.4 This Agreement and the rights and obligations of the parties hereto
shall be governed by and interpreted in accordance with the laws of
the State of North Carolina, and the United States of America.
9.5 This Agreement shall be binding upon and shall inure to the benefit of
the Borrower and the Bank and their successors and assigns.
In Witness Whereof , the parties have caused this Agreement to be
executed by their duly authorized officers the day and year first written
above.
WELLINGTON HALL, LIMITED
a North Carolina corporation
By: /s/ Hoyt Hackney
-----------------------------(SEAL)
Hoyt Hackney, President
Attest:
/s/ W.W. Woodruff
- ------------------------(SEAL)
Secretary
LEXINGTON STATE BANK
By: /s/ R.J. Meadley
-----------------------------
Ronald J. Meadley
Senior Vice President
9
<PAGE> 1
EXHIBIT 10(q)
Promissory Note
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Principal Loan Date Maturity Loan No. Call Collateral Account Officer Initials
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$250,000.00 01-16-1997 01-16-1998 0123200548 76
- ------------------------------------------------------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit the applicability of this documents to any particular
loan or item.
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C> <C>
Borrower: Wellington Hall, Limited Lender: Lexington State Bank
Post Office Box 1354 Commercial Loan Department
Lexington, NC 27293-1354 One LSB Plaza
PO Box 867
Lexington, NC 27293-0867
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C> <C>
Principal Amount: $250,000.00 Initial Rate: 9.750% Date of Note: January 16, 1997
</TABLE>
PROMISE TO PAY. WELLINGTON HALL, LIMITED ("BORROWER") PROMISES TO PAY TO
LEXINGTON STATE BANK ("LENDER"), OR ORDER, IN LAWFUL MONEY OF THE UNITED STATES
OF AMERICA, THE PRINCIPAL AMOUNT OF TWO HUNDRED FIFTY THOUSAND & 00/100 DOLLARS
($250,000.00) OR SO MUCH AS MAY BE OUTSTANDING, TOGETHER WITH INTEREST ON THE
UNPAID OUTSTANDING PRINCIPAL BALANCE OF EACH ADVANCE. INTEREST SHALL BE
CALCULATED FROM THE DATE OF EACH ADVANCE UNTIL REPAYMENT OF EACH ADVANCE.
PAYMENT. BORROWER WILL PAY THIS LOAN ON DEMAND, OR IF NO DEMAND IS MADE, IN
ONE PAYMENT OF ALL OUTSTANDING PRINCIPAL PLUS ALL ACCRUED UNPAID INTEREST ON
JANUARY 16, 1998. IN ADDITION, BORROWER WILL PAY REGULAR MONTHLY PAYMENTS OF
ACCRUED UNPAID INTEREST BEGINNING FEBRUARY 16, 1997, AND ALL SUBSEQUENT
INTEREST PAYMENTS ARE DUE ON THE SAME DAY OR EACH MONTH AFTER THAT. Interest
on this Note is computed on a 365/365 simple interest basis; that is, by
applying the ratio of the annual interest rate over the number of days in a
year (366 during leap years), multiplied by the outstanding principal balance,
multiplied by the actual number of days the principal balance is outstanding.
Borrower will pay Lender at Lender's address shown above or at such other place
as Lender may designate in writing. Unless otherwise agreed or required by
applicable law, payments will be applied first to accrued unpaid interest, then
to principal, and any remaining amount to any unpaid collection costs and late
charges.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to change
from time to time based on changes in an index which is Lender's Prime Rate
(the "Index"). This is the rate Lender charges, or would charge, on 90-day
unsecured loans to the most creditworthy corporate customers. This rate may or
may not be the lowest rate available from Lender at any given time. Lender
will tell Borrower the current index rate upon Borrower's request. Borrower
understands that Lender may make loans based on other rates as well. The
interest rate change will not occur more often than each day. THE INDEX
CURRENTLY IS 8.250% PER ANNUM. THE INTEREST RATE TO BE APPLIED TO THE UNPAID
BALANCE OF THIS NOTE WILL BE AT A RATE OF 1.500 PERCENTAGE POINTS OVER THE
INDEX, RESULTING IN AN INITIAL RATE OF 9.750% PER ANNUM. NOTICE: Under no
circumstances will the interest rate of this Note be more than the maximum rate
allowed by applicable law.
PREPAYMENT: Borrower agrees that all loan fees and other prepaid finance
charges are earned fully as of the date of the loan and will not be subject to
refund upon early payment (whether voluntary or as a result of default), except
as otherwise required by law. Except for the foregoing, Borrower may pay
without penalty all or a portion of the amount owed earlier than it is due.
Early payments will not, unless agreed to by Lender in writing, relieve
Borrower of Borrower's obligation to continue to make payments of accrued
unpaid interest. Rather, they will reduce the principal balance due.
DEFAULT: Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment when due. (b) Borrower breaks any promise
Borrower has made to Lender, or Borrower fails to comply with or to perform
when due any other term, obligation, covenant, or condition contained in this
Note or any agreement related to this Note, or in any other agreement or loan
Borrower has with Lender. (c) Any representation or statement made or
furnished to Lender by Borrower or on Borrower's behalf is false or misleading
in any material respect either now or at the time made or furnished. (d)
Borrower becomes insolvent, a receiver is appointed for any part of Borrower's
property, Borrower makes an assignment for the benefit of creditors, or any
proceeding is commenced with by Borrower or against Borrower under any
bankruptcy or insolvency laws. (e) Any creditor tries to take any of
Borrower's property on or in which Lender has a lien or security interest.
This includes a garnishment of any of Borrower's accounts with Lender. (f) Any
guarantor dies or any of the other events described in this default section
occurs with respect to any guarantor of this Note. (g) A material adverse
change occurs in Borrower's financial condition, or Lender believes the
prospect of payment or performance of the Indebtedness is impaired. (h) Lender
in good faith deems itself insecure.
<PAGE> 2
If any default, other than a default in payment, is curable and if Borrower has
not been given a notice of a breach of the same provision of this Note within
the preceding twelve (12) months, it may be cured (and no event of default will
have occurred) if Borrower, after receiving written notice from Lender
demanding cure of such default: (a) cures the default within fifteen (15) days;
or (b) if the cure requires more than fifteen (15) days, immediately initiate
steps which Lender deems in Lender's sole discretion to be sufficient to cure
the default and thereafter continues and completes all reasonable and necessary
steps sufficient to produce compliance as soon as reasonably practical.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance on this Note and all accrued unpaid interest immediately due, without
notice, and then Borrower will pay that amount. Upon default, or if this Note
is not paid at final maturity, Lender, at its option, may add any unpaid
accrued interest to principal and such sum will bear interest therefrom until
paid, at the rate provided in this Note. Lender may hire or pay someone else
to help collect this Note if Borrower does not pay. Borrower also will pay
Lender that amount. This includes, subject to any limits under applicable law,
Lender's reasonable attorneys' fees and Lender's legal expenses whether or not
there is a lawsuit, including reasonable attorneys' fees and legal expenses of
bankruptcy proceedings (including efforts to modify or vacate any automatic
stay or injunction), appeals, and any anticipated post-judgment collection
services. If not prohibited by applicable law, Borrower also will pay any
court costs, in addition to all other sums provided by law. THIS NOTE HAS BEEN
DELIVERED TO LENDER AND ACCEPTED BY LENDER IN THE STATE OF NORTH CAROLINA. IF
THERE IS A LAWSUIT, BORROWER AGREES UPON LENDER'S REQUEST TO SUBMIT TO THE
JURISDICTION OF THE COURTS OF DAVIDSON COUNTY, THE STATE OF NORTH CAROLINA.
THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF NORTH CAROLINA.
DISHONORED ITEM FEE. Borrower will pay a fee to Lender of $20.00 if Borrower
makes payment on Borrower's loan and the check or preauthorized charge with
which Borrower pays is later dishonored.
RIGHT OF SETOFF. Borrower grants to Lender a contractual possessory security
interest in, and hereby assigns, conveys, delivers, pledges, and transfers to
Lender all Borrower's right, title and interest in and to, Borrower's accounts
with Lender (whether checking, savings, or some other account), including
without limitation all accounts Borrower may open in the future, excluding
however all IRA and Keogh accounts, and all trust accounts for which the grant
of a security interest would be prohibited by law. Borrower authorizes Lender,
to the extent permitted by applicable law, to charge or setoff all sums owing
on this Note against any and all such accounts.
COLLATERAL. This Note is secured by a Deed of Trust in the amount of
$650,000.00 dated April 15, 1987, Joe H. Leonard, Trustee.
This Note is secured by an Assignment of Life Insurance Policy No. VIYW004826
issued by the CNA/Valley Forge Life Insurance Company upon the life of Arthur
F. Bingham.
This Note is also secured by the Security Agreement provisions of Lexington
State Bank Loan Agreement dated July 27, 1990 covering accounts and notes
receivable, inventory, machinery and equipment, furniture and fixtures.
LINE OF CREDIT. This Note evidences a revolving line of credit. Advances
under this Note, as well as directions for payment from Borrower's accounts, may
be requested orally or in writing by Borrower or as provided in this paragraph.
Lender may, but need not, require that all oral requests be confirmed in
writing. The following party or parties are authorized to request advances
under the line of credit until Lender receives from Borrower, at Lender's
address shown above, written notice of revocation of their authority: HOYT M.
HACKNEY, JR. Borrower agrees to be liable for all sums either: (a) advanced in
accordance with the instructions of an authorized person or (b) credited to any
of Borrower's accounts with Lender. The unpaid principal balance owing on this
Note at any time may be evidenced by endorsements on this Note or by Lender's
internal records, including daily computer print-outs. Lender will have no
obligation to advance funds under this Note if: (a) Borrower or any guarantor is
in default under the terms of this Note or any agreement that Borrower or any
guarantor has with Lender, including any agreement made in connection with the
signing of this Note; (b) Borrower or any guarantor ceases doing business or is
insolvent; (c) any guarantor seeks, claims or otherwise attempts to limit,
modify or revoke such guarantor's guarantee of this Note or any other loan with
Lender; (d) Borrower has applied funds provided pursuant to this Note for
purposes other than those authorized by Lender; or (e) Lender in good faith
deems itself insecure under this Note or any other agreement between Lender and
Borrower.
ADVANCES UNDER LINE OF CREDIT. Unless otherwise instructed in writing by the
Borrower, funds advanced under this Note shall be credited to Borrower's
Lexington State Bank Checking Account No. 001-028103.
ADDITIONAL PROVISIONS. All terms and conditions of Lexington State Bank
Commitment Letter dated October 25, 1996 between Wellington Hall, Limited
(Borrower) and Lexington State Bank (Lender), and Addendum to same dated
November 8, 1996 shall remain in effect through the life of this loan and any
renewals or modifications to same.
GENERAL PROVISIONS. This Note is payable on demand. The inclusion of specific
default provisions or rights of Lender shall not preclude Lender's right to
declare payment of this Note on its demand. Lender may delay or forgo
enforcing any of its rights or remedies under this Note without losing them.
Borrower and any other person who signs, guarantees or endorses this Note, to
the extent allowed by law, waive presentment, demand for payment, protest and
notice of dishonor. Upon any change in the terms of this Note, and unless
otherwise expressly stated in writing, no party who signs this Note, whether
as maker, guarantor, accommodation maker or endorser, shall be released from
liability. All such parties agree that Lender may renew or extend (repeatedly
and for any length of time) this loan, or release any party or guarantor or
collateral; or impair, fail to realize upon or perfect Lender's security
interest in the collateral; and take any other action deemed necessary by
Lender without the consent of or notice to anyone. All such parties also
agree that Lender may modify this loan without the consent of or notice to
anyone other than the party with whom the modification is made.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO
THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THE NOTE.
<TABLE>
<S> <C>
BORROWER:
WELLINGTON HALL, LIMITED ATTEST: /s/WILLIAM W. WOODRUFF
--------------------------------------(CORPORATE SEAL)
WILLIAM W. WOODRUFF, SECRETARY
BY: /s/ HOYT M. HACKNEY, JR. BY: /s/ WILLIAM W. WOODRUFF
-----------------------------------(SEAL) ------------------------------------------(SEAL)
HOYT M. HACKNEY, JR., PRESIDENT/TREASURER WILLIAM W. WOODRUFF, SECRETARY
</TABLE>
<PAGE> 1
EXHIBIT 10(r)
[OPIC LETTERHEAD]
January 31, 1997
BY TELEFAX (910) 249-7798
Mr. Hoyt H. Hackney
President
Wellington Hall Caribbean Corporation
P.O. Box 1354
Lexington, North Carolina 27293-1354
Subject: Loan Agreement between Wellington Hall Caribbean Corporation (the
"Company") and OPIC, dated as of December 22, 1989, as amended
(the "Loan Agreement")
Dear Mr. Hackney:
OPIC has considered the Company's request to amend the referenced Loan
Agreement. OPIC is willing to amend, and, by its acceptance of this letter,
the Company confirms that it is willing to amend, the Loan Agreement on the
terms and conditions set forth herein. Capitalized terms used and not
otherwise defined herein shall have the meanings set forth for such terms in
the Loan Agreement.
1. Principal Amortization
A grace period on principal payments will be granted from the
quarterly payment date of July 31, 1996 through the quarterly payment
date of April 30, 1997. Amortization shall begin on July 31, 1997 in
the amount of $30,969, and this amount shall be due quarterly through
April 30, 1998. Beginning with the quarterly payment date of July 31,
1998, quarterly amortization payments shall increase to $61,937.
Quarterly payments in this amount shall continue through July 31,
1999, and all amounts then outstanding under the loan and the Loan
Documents shall be due in a balloon payment on October 31, 1999.
2. Interest Rate
The interest rate shall be lowered from 12% to 10% per annum effective
as of November 1, 1996, and continuing at the rate of 10% per annum
for the balance of the term. Payments of interest shall be made by
the Company to OPIC quarterly in arrears.
<PAGE> 2
3. Amendment of Other Agreements
The Project Completion Agreement shall be amended to provide that,
notwithstanding any other provision of such agreement, the "Completion
Date" shall occur no earlier than October 31, 1999. The Project
Completion Agreement, the Guaranty, and the other Financing Documents
(collectively, the "Loan Documents") shall be amended to provide for
such other amendments as OPIC may require.
4. Rescheduling Fee
Upon execution of the amendment to the Loan Agreement, the Company
shall pay to OPIC a one-time rescheduling fee in the amount of 1% of
the outstanding balance of the Loan.
5. Other Conditions
OPIC's agreement to amend the Loan Agreement is subject to: (i) the
execution of documentation acceptable to OPIC, which documentation
shall contain such other provisions as are customarily required by
OPIC, and (ii) there having occurred no material adverse change from
the date hereof with respect to the Sponsor's, the Guarantor's, or the
Company's financial condition or prospects, or the Company's, the
Sponsor's, or the Guarantor's ability to carry out the Project or to
perform their respective obligations under the Loan Documents. In
this regard, the Company, the Sponsor, and the Guarantor shall provide
to OPIC on an ongoing basis all information material to OPIC's
consideration of the Project, the Loan, and the amendment of the Loan
Agreement and the other Loan Documents.
6. Reimbursement of Expenses
The Company shall pay or reimburse OPIC, or such persons as OPIC may
direct, for all expenses incurred by OPIC in connection with the
negotiation, execution, and implementation of the amendment to the
Loan Agreement and the other Loan Documents, including fees and
expenses for outside legal counsel, costs of reproducing and binding
post-closing document transcripts, and other reasonable out-of-pocket
expenses incurred by OPIC, as well as any costs of collecting any
amount due under this paragraph or under any of the foregoing
documents. Such payment or reimbursement shall be due and payable on
demand by OPIC, from time to time.
7. Termination
If for any reason the amendment to the Loan Agreement is not executed
and delivered on or before March 31, 1997, OPIC's agreement hereunder
shall thereupon terminate. The parties shall use reasonable efforts
to complete negotiation of the amendments to
<PAGE> 3
the Loan Documents as soon as possible prior to such date. Extension
of the term of this letter shall be at OPIC's sole discretion and
subject to modification of the terms hereof.
8. Governing Law
The terms of this letter and the documentation to be executed in
connection with amendment of the Loan Agreement shall be governed by
the law of the District of Columbia.
9. Counterparts
This letter may be executed in separate counterparts, each of which
shall be an original, and all of which taken together shall constitute
one and the same agreement.
Nothing in this letter shall constitute or be construed as a waiver of
any existing or future default or a modification or limitation of any existing
rights or remedies available to OPIC against the Company, the Guarantor or the
Sponsor. Subject to the agreements set forth herein, OPIC specifically
reserves the right to insist on strict compliance with the terms of the Loan
Documents and the Company expressly acknowledges such reservation of rights.
Subject to the agreements set forth herein, the Company, the Guarantor
and the Sponsor each hereby reaffirms its obligations under the Loan Documents
with OPIC and confirms that such obligations remain in full force and effect.
No person, including without limitation, creditors of the Company
other than the undersigned may rely on this Agreement.
If the foregoing correctly sets forth our understanding and agreement,
please confirm your acceptance thereof by signing and returning to OPIC an
executed counterpart of this letter upon which this shall be an effective and
legally binding agreement as of the date hereof.
Very truly yours,
OVERSEAS PRIVATE INVESTMENT CORPORATION
By: /s/ Ralph Matthews
--------------------------------------
Title: Director, Project Management & SA
-----------------------------------
ACCEPTED AND AGREED TO
as of the date of this letter:
WELLINGTON HALL CARIBBEAN CORPORATION
By: /s/ Hoyt Hackney
----------------------------------
Title: President & CEO
------------------------------
WELLINGTON HALL, LIMITED
By: /s/ Hoyt Hackney
---------------------------------
Title: President
------------------------------
MUEBLES WELLINGTON HALL, S.A.
By: /s/ Hoyt Hackney
---------------------------------
Title: President
------------------------------
<PAGE> 1
EXHIBIT 10(t)
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement"), made effective December 1,
1996, by and between Wellington Hall, Limited, a North Carolina corporation
("Company"), Ralph L. Eskelsen, Jr. of San Pedro Sula, Honduras ("Eskelsen")
and Muebles Wellington Hall, S.A. ("Muebles");
WITNESSETH:
WHEREAS, the Company owns a business located North of Lexington, North
Carolina, on Interstate 85, and through its wholly owned subsidiary, Wellington
Hall Caribbean Corp, the Company is the owner of Muebles in San Pedro Sula,
Honduras; and
WHEREAS, Eskelsen is presently General Manager and Director of Muebles
(a subsidiary of the Company since July 1989); and
WHEREAS, Company, Eskelsen and Muebles desire to reduce Eskelsen's
Employment Agreement to writing; and
WHEREAS, the Company desires to continue the employment of Eskelsen as
General Manager and Director of Muebles; and
WHEREAS, the terms and conditions of this Agreement were duly
reviewed, approved and authorized by the 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:
1. EMPLOYMENT AND DUTIES. Muebles hereby employs Eskelsen and
Eskelsen accepts employment as General Manager and Director of Muebles to
perform he duties of the general management of the plant located in San Pedro
Sula and any other duties that may be reasonably assigned to him by the
President or Board of Directors of Muebles for the term of this Agreement.
2. PERFORMANCE. During the term of this Agreement, Eskelsen 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.
1
<PAGE> 2
3. TERM. The initial term of this Agreement will be for one (1)
year beginning December 1, 1996, and ending on November 30, 1997, unless
sooner terminated as provided herein. 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.
4. COMPENSATION. In consideration of services to be rendered by
Eskelsen hereunder (the "Services"), which Services are acknowledged by the
Muebles to be valuable, unique and in its best interest, the Muebles agrees to
pay to Eskelsen and he agrees to accept the following annual compensation
payable monthly:
(a) The sum of Fifty Thousand Dollars ($50,000.00) payable monthly
in either Dollars or Lempiras or partly in Dollars and partly
Lempiras as Eskelsen may direct. In the event Eskelsen
directs that all or part of the annual salary be payable in
Lempiras, then the conversion rate from Dollars to Lempiras
will be the official rate as of the date of payment as
determined by Bancasa's Offer to Purchase Dollars.
(b) In addition to compensation described in subparagraph (a)
above, Eskelsen shall be entitled to a bonus as prescribed by
the Board of Directors of the Company by official resolutions
dated the 28th day of June, 1990.
5. EXPENSES. The Muebles recognizes that in the course of performing
his services hereunder Eskelsen will necessarily incur expenses in connection
with those duties. The Muebles will reimburse Eskelsen for all reasonable
business expenses in connection with activities required pursuant to his duties
as General Manager of the plant in San Pedro Sula, Honduras. Reimbursement to
be made within thirty (30) days after filing the requisite request and
documentation of expenses so incurred.
6. OFFICE. In connection with his duties as General Manager of
Muebles, Eskelsen will be provided an office at the Muebles plant in San Pedro
Sula, Honduras, with the usual office appointments.
7. INSURANCE. Eskelsen shall be provided with any life or medical,
accident or health insurance heretofore provided to him.
8. DISABILITY. Eskelsen 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
2
<PAGE> 3
character as to prevent Eskelsen from materially performing his duties
hereunder for a period of six (6) consecutive months by giving Eskelsen at
least thirty (30) days written notice of the Company's intention to do so. If
Eskelsen 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.
9. GENERAL BENEFITS. This Agreement is not intended and shall not
be deemed to be in lieu of any rights, benefits and privileges to which Eskelsen
may be entitled as an employee of Muebles under any retirement, pension,
profit-sharing, vacation or other plan which may now be in effect or which may
hereinafter be adopted by Muebles.
10. TERMINATION FOR CAUSE. Muebles shall have the right to
terminate this Agreement only for cause. "For cause" for the purpose of this
Agreement shall be deemed to be only (a) willful material breach of Eskelsen's
obligations under this Agreement, which breach is not substantially cured by
Eskelsen within ten (10) business days after Muebles gives written notice of
the specific alleged breach to Eskelsen (it being understood that Eskelsen's
failure to perform and discharge his business 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 Eskelsen in the course of his employment that is substantially
injurious to the Company or Muebles.
11. 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 27292
With Copy To: Gaither S. Walser
Brinkley, Walser, McGirt,
Miller, Smith & Coles PLLC
Post Office Box 1657
Lexington, North Carolina 27293-1657
If to Eskelsen: Ralph L. Eskelsen, Jr.
APT624
San Pedro Sula, Honduras
3
<PAGE> 4
12. MISCELLANEOUS.
(a) This Agreement is deemed executed in the State of North Carolina and
shall be governed by and construed according to the laws of the
State of North Carolina and in the event either party desires to
litigate any matters involving this Agreement, the venue for such
litigation will be the Superior Court of Davidson County, North
Carolina.
(b) This Agreement shall inure 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
Eskelsen, his heirs, distributees and personal representatives.
(c) The failure of either the Company or Eskelsen to insist in any one or
more instances upon performance of any terms or conditions of this
Agreement shall not 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 Eskelsen 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 Eskelsen.
(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
Eskelsen's death; however, any deferred compensation arrangements
which may be payable to Eskelsen under this Agreement or any other
plan, along with any stock options which have been earned pursuant to
any Stock Option Agreement to be entered into by Company and Eskelsen
shall remain in full force and effect and be payable in accordance
with their terms.
(h) Death, illness, incapacity or disability of Eskelsen during the term
hereof shall not constitute a breach of this Agreement by Eskelsen.
4
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have hereunto signed their
names, and the Company and Muebles have caused their names to be signed hereto
by their respective Presidents and attested by their respective Secretaries and
their corporate seals 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.
COMPANY:
WELLINGTON HALL LIMITED
By: /s/ Hoyt Hackney
------------------------------
President
ATTEST:
/s/ W.W. Woodruff
- ------------------------------
Secretary
(Corporate Seal)
MUEBLES WELLINGTON HALL, S.A.
By: /s/ Hoyt Hackney
------------------------------
President
ATTEST:
/s/ Gaither Walser
- ------------------------------
Secretary
(Corporate Seal)
/s/ Ralph L. Eskelsen, Jr.
----------------------------------(SEAL)
Ralph L. Eskelsen, Jr
5
<PAGE> 1
EXHIBIT 10(u)
ADDENDA TO EMPLOYMENT AND STOCK PURCHASE AGREEMENT
BETWEEN WELLINGTON HALL LIMITED AND ARTHUR F. BINGHAM
DATED SEPTEMBER 1, 1996 (THE "AGREEMENT")
The parties to the Agreement do hereby amend the Agreement as
hereinafter set forth effective this 10th day of February, 1997:
Paragraph 13 shall be stricken in its entirety and in lieu thereof
substitute the following:
"13. Stock Purchase Agreement. Company intends to file a
registration statement pursuant to the Securities Act of 1933, as
amended, whereby Company would offer to shareholders the
nontransferable right to purchase one share of Common Stock of Company
at Fifty Cents (50c.) per share for each share held as of a record
date established by Company and offer any remaining shares first to
shareholders desiring to purchase more shares than their rights would
entitle them to purchase and then to the public. Prior to the filing
of such registration statement and subject to the grant of options
pursuant to paragraph 14 hereof and the execution and delivery by
Bingham of the letter in the form attached hereto as Attachment A,
Company agrees to sell and Bingham agrees to purchase six hundred
thousand (600,000) shares of common stock of Company at Fifty Cents
(50c.) per share. Bingham shall not be entitled to purchase any
shares in the registered offering to shareholders and the public.
On October 10, 1996, Bingham advanced to the Company $285,694.
Upon the purchase and sale of the 600,000 shares by Bingham, Bingham
shall deliver $14,306 in cash and the debt of the Company for the
amount previously advanced shall be extinguished in full payment of
the $300,000 purchase price for such shares. If the shares are not
purchased by November 30, 1998, the amount advanced shall be repaid in
full. Upon the purchase and sale of the 600,000 shares or repayment
of the amount advanced, the Company shall pay Bingham interest on the
amount advanced, at the applicable federal rate under Section 1274(d)
of the Internal Revenue Code of 1986, as amended, from the date of
such advance to the date of purchase and sale or the date of repayment
as the case may be."
In addition to the above, paragraph 14 of the Agreement shall be
stricken in its entirety and in lieu thereof substitute the following:
"14. Stock Options. Company has adopted a 1997 Stock
Option and Restricted Stock Plan (the "Plan") and the Stock
Compensation Committee that administers the Plan has agreed to grant
to Bingham, prior to the filing of the filing of the registration
statement and the purchase and sale of the 600,000 shares to Bingham
pursuant to Paragraph 13 hereof, the following options pursuant to the
Plan: (i) an option to purchase
<PAGE> 2
150,000 shares of Common Stock, which option shall not qualify as an
Incentive Stock Option as defined in the Plan and shall be on the
terms and conditions substantially as set forth in the form of
agreement attached hereto as Attachment B and (ii) options to purchase
an aggregate of 450,000 shares at the prices and subject to the other
terms and conditions substantially as set forth in the form of
agreement attached hereto as Attachment C, which options are intended
to qualify as Incentive Stock Options under the Plan."
Except as herein modified the Agreement and each and every part
thereof is hereby ratified and reaffirmed.
IN WITNESS WHEREOF, the parties hereto have hereunto 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 date
first written above.
WELLINGTON HALL LIMITED
Attested: By: /s/ Hoyt M. Hackney, Jr.
-----------------------------
Hoyt M. Hackney, Jr.,
/s/ W.W. Woodruff President
- ---------------------------
Secretary
(CORPORATE SEAL)
/s/ Arthur F. Bingham
---------------------------------(SEAL)
Arthur F. Bingham
<PAGE> 1
EXHIBIT 10(v)
WELLINGTON HALL LTD.
1997 STOCK OPTION AND RESTRICTED STOCK PLAN
ARTICLE I
GENERAL PROVISIONS
1. Purpose. This 1997 Stock Option and Restricted Stock Plan (the
"Plan") of Wellington Hall Ltd., a North Carolina corporation (the "Company"),
is intended to induce those persons who are in a position to contribute
materially to the success of the Company to remain with the Company, to offer
them rewards in recognition of their contributions to the Company and to offer
them incentives to continue to promote the Company's best interests.
2. Elements of the Plan. The Plan provides for the grant of stock
options pursuant to Article II of the Plan ("Options") and restricted stock
awards pursuant to Article III of the Plan ("Restricted Stock Awards"). Each
Option granted pursuant to the Plan shall be designated as provided in Article
II as either an Incentive Stock Option or a Nonqualified Stock Option.
Incentive Stock Options granted under the Plan are intended to qualify as such
under Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), and shall be construed and interpreted to comply with the requirements
of that section and any regulations promulgated thereunder.
3. Administration. The Plan shall be administered by an option
committee (the "Committee") appointed by the Board of Directors of the Company
(the "Board"). The Committee shall be comprised of at least two members of the
Board, none of whom shall be a current employee of the Company, a former
employee of the Company that receives compensation for prior services rendered
during the taxable year, or an individual receiving direct or indirect
remuneration from the Company in any capacity other than as a director. The
Board from time to time may appoint members of the Committee in substitution
for or in addition to members previously appointed, and may fill vacancies in
the Committee, however caused. Any action by the Committee shall be taken by
majority vote at a meeting thereof called in accordance with procedures adopted
thereby, or by unanimous written consent of the Committee. No member of the
Board of Directors of the Company or of the Committee shall be liable for any
action or determination made in good faith with respect to the Plan or any
Option or Restricted Stock Award granted thereunder. In addition, directors or
former directors of the Company, including members or former members of the
Committee, shall be entitled to indemnification by the Company to the extent
permitted by applicable law and by the Company's Article of Incorporation or
Bylaws with respect to any liability or expense arising out of such person's
participation in the administration of this Plan.
<PAGE> 2
4. Authority of Committee.
(a) Subject to the other provisions of this Plan, the
Committee shall have sole authority in its absolute discretion: to grant
Options and Restricted Stock Awards under the Plan; to determine the number of
shares subject to any Option or Restricted Stock Award under the Plan; to fix
the option price and the duration of each Option; to establish corporate or
individual performance or other vesting standards for Options or Restricted
Stock Awards; to establish any other terms and conditions of Options and
Restricted Stock Awards; and to accelerate the time at which any outstanding
Option may be exercised or the time when restrictions and conditions on
Restricted Stock Awards will lapse.
(b) Subject to the other provisions of this Plan, and with a
view to effecting its purpose, the Committee shall have sole authority in its
absolute discretion: to construe and interpret the Plan; to prescribe, amend,
and rescind rules and regulations relating to the Plan; to make any other
determinations relating to the Plan; and to do everything necessary or
advisable to administer the Plan.
(c) All decisions, determinations, and interpretations made
by the Committee shall be binding and conclusive on all optionees and holders
of Restricted Stock and on their legal representatives, heirs and
beneficiaries.
5. Shares Subject to the Plan; Reservation of Shares. The maximum
aggregate number of shares of common stock of the Company available pursuant to
the Plan for the grant of Options and for Restricted Stock Awards, subject to
adjustments as provided in Section 7 of this Article I, shall be 1,200,000
shares of the Company's common stock, no par value (the "Common Stock"). The
total number of shares that may be issued to any one Optionee pursuant to
options granted under the Plan shall not exceed an aggregate of 600,000 shares
of Common Stock. If any Option granted pursuant to the Plan expires or
terminates for any reason before it has been exercised in full, the unpurchased
shares subject to that Option shall again be available for the purposes of the
Plan. If any shares issued pursuant to a Restricted Stock Award are forfeited,
they shall again be available for the purposes of the Plan. The Company shall
at all times reserve and keep available such number of shares of its Common
Stock as shall be sufficient to satisfy the requirements of the Plan.
6. Eligibility. Options and Restricted Stock Awards may be granted
under the Plan to such key employees (including statutory employees within the
meaning of Section 3121(d)(3) of the Code), officers or directors of the
Company, whether or not employees, as the Committee shall select from time to
time in its discretion. Incentive Stock Options, however, may be granted under
the Plan only to key employees of the Company who qualify for the grant of an
Incentive Stock Option under Section 422 of the Code.
7. Adjustments. If the shares of Common Stock of the Company are
increased, decreased, changed into or exchanged for a different number or kind
of shares or securities
2
<PAGE> 3
through merger, consolidation, combination, exchange of shares, other
reorganization, recapitalization, reclassification, stock dividend, stock split
or reverse stock split in which the Company is the surviving entity, an
appropriate and proportionate adjustment shall be made in the maximum number
and kind of shares as to which Options and Restricted Stock Awards may be
granted under this Plan. A corresponding adjustment changing the number or
kind of shares allocated to unexercised Options or unvested Restricted Stock
Awards that shall have been granted prior to any such change shall likewise be
made. Any such adjustment in outstanding Options shall be made without change
in the aggregate purchase price applicable to the unexercised portion of any
such Option, but with a corresponding adjustment in the price for each share
covered by the Option, and shall be made in a manner as not to constitute a
modification, within the meaning of Section 424(h) of the Code, of outstanding
Incentive Stock Options. In making any adjustment pursuant to this Section 7,
any fractional shares shall be disregarded.
In the event of a change in the Common Stock of the Company as
presently constituted, which is limited to a change of all of its authorized
shares with par value into the same number of shares with a different par value
or without par value, the shares resulting from any such change shall be deemed
to be Common Stock within the meaning of the Plan.
The grant of an Option or a Restricted Stock Award under the Plan
shall not affect in any way the right or power of the Company to make
adjustments, reclassifications, reorganizations or changes in its capital or
business structure.
ARTICLE II
STOCK OPTIONS
Options granted pursuant to the Plan that are intended to qualify as
"incentive stock options" under Section 422 of the Code shall be designated as
such at the time of their grant and are referred to herein as Incentive Stock
Options. Options not intended to qualify as Incentive Stock Options are
referred to herein as Nonqualified Stock Options and shall be designated as
such in the applicable option agreement. Options granted hereunder shall be
subject to the terms, conditions and limitations set forth in Article I above
and to the following:
1. Terms and Conditions of Options. Options granted under the Plan
shall be evidenced by written agreements ("option agreements") in such form as
the Committee may from time to time approve. The terms and conditions of
Options granted under the Plan, including the satisfaction of corporate or
individual performance or other vesting standards, may differ one from another
as the Committee shall in its discretion determine, as long as all Options
granted under the Plan satisfy the following terms and conditions:
(a) Number of Shares; Designation. Each Option shall state
the number of shares of Common Stock to which it pertains and that it is either
an Incentive Stock Option or a Nonqualified Stock Option.
3
<PAGE> 4
(b) Option Price. Each Option shall state the option price,
which shall not be less than the fair market value (as hereinafter defined) per
share of the Common Stock at the time the option is granted (except that for
Incentive Stock Options granted to any employee who owns more than 10% of the
combined voting power of all classes of stock of the Company, the option price
shall not be less than 110% of fair market value). For the purpose of the Plan,
the "fair market value" per share of Common Stock on any date of reference
shall be the Closing Price of the Common Stock referred to in clauses (i), (ii)
or (iii) below, whichever appropriate, on the business day immediately
preceding such date. For this purpose, the Closing Price of the Common Stock
on any business day shall be: (i) if the Common Stock is listed or admitted for
trading on any United States national securities exchange, or if actual
transactions are otherwise reported on a consolidated transaction reporting
system, the last reported sale price of Common Stock on such exchange or
reporting system, as reported in any newspaper of general circulation; (ii) if
the Common Stock is quoted on the National Association of Securities Dealers
Automated Quotation System ("NASDAQ"), or any similar system of automated
dissemination of quotations of securities prices in common use, the mean
between the closing high bid and low asked quotations for the Common Stock on
such system for such day; or (iii) if neither clause (i) or (ii) is applicable,
the mean between the high bid and low asked quotations for the Common Stock as
reported by the National Quotation Bureau, Incorporated if at least two
securities dealers have inserted both bid and asked quotations for Common Stock
on at least five of the preceding ten days. If neither clause (i) nor clauses
(ii) or (iii) are applicable, "fair market value" per share of Common Stock
shall be such value as shall be determined by the Committee in its sole
discretion, unless the Committee shall identify a different method for
determining fair market value in a fair and uniform manner.
(c) Exercise of Options. Each Option shall be exercisable in
one or more installments during its term, as provided in the applicable Stock
Option agreement, and the right to exercise may be cumulative. No Option may
be exercised for a fraction of a share of Common Stock. Unless otherwise
provided in the option agreement, the purchase price of any shares purchased
shall be paid in full in cash or by certified or official bank check payable to
the order of the Company or, if permitted by the applicable option agreement,
by shares of Common Stock, or by a combination of cash, check, and (if
permitted) shares of Common Stock. If any portion of the purchase price is
paid in shares of Common Stock, those shares shall be valued at their fair
market value as of the day of delivery, as determined in accordance with
Section 1(b) of this Article II. No optionee, or optionee's executor,
administrator, legatee, or distributee, shall be deemed to be a holder of any
shares subject to an option unless and until a stock certificate or
certificates for such are issued to such person(s) under the terms of the Plan.
(d) Written Notice Required. An Option granted pursuant to
the terms of this Plan shall be exercised when written notice of that exercise,
stating the number of shares with respect to which the Option is being
exercised, has been given to the Company at its principal office, from the
person entitled to exercise the Option and full payment for the shares with
respect to which the Option is exercised has been received by the Company.
(e) Options Not Transferable. Options granted pursuant to
this Plan may not be sold, pledged, assigned or transferred in any manner other
than by will or the laws of descent or distribution and may be exercised during
the lifetime of an optionee only by that optionee.
4
<PAGE> 5
(f) Duration of Options. Each Option and all rights
thereunder granted pursuant to the terms of this Plan shall expire on the date
specified in the applicable option agreement, but in no event shall any Option
expire later than ten (10) years from the date on which the Option is granted;
provided, however, that any Option granted to an employee who owns more than
10% of the combined voting power of all classes of stock of the Company may not
be exercisable after the date five (5) years from the date the Option is
granted. In addition, each Option shall be subject to early termination as
provided in this Plan or the applicable option agreement.
(g) Termination of Employment, Disability or Death.
(i) If an optionee ceases to be employed by the
Company, or any parent or subsidiary corporation, for any reason other than
death or disability, any Option granted to such optionee that is unexercised
shall be terminated and forfeited; provided, however, that the applicable
option agreement may allow such Option to be exercised within a period not to
exceed three months after the date of termination of employment.
(ii) If an optionee becomes disabled within the
meaning of Section 22(e)(3) of the Code while employed by the Company, or any
parent or subsidiary corporation, the Option may be exercised at any time
within three months after the date of termination of employment due to
disability.
(iii) If an optionee dies while employed by the
Company, its parent or any subsidiary corporation, his Option shall expire one
year after the date of death, unless a longer or shorter period of exercise is
provided in the applicable option agreement. During this period, the Option
may be exercised, except as otherwise provided in the applicable option
agreement, by the person or persons to whom the optionee's rights under the
Option shall pass by will or by the laws of descent and distribution, but in no
event may the Option be exercisable more than ten years from the date of grant.
(iv) Unless otherwise provided in the applicable
option agreement, any Option that may be exercised for a period following
termination of the optionee's employment may be exercised only to the extent it
was exercisable immediately before such termination and in no event after the
Option would expire by its terms without regard to such termination.
(h) Reorganizations. If the Company shall be a party to any
merger or consolidation in which it is not the surviving entity or pursuant to
which the shareholders of the Company exchange their Common Stock, or if the
Company shall dissolve or liquidate or sell all or substantially all of its
assets, all Options outstanding under this Plan, unless otherwise provided in
the applicable option agreement, shall terminate on the effective date of such
merger, consolidation, dissolution, liquidation or sale; provided, however,
that prior to such effective date, the Committee may, in its discretion, make
any or all outstanding Options immediately exercisable, and may, with respect
to Options that are terminated as provided in this Section (h), (i) authorize a
payment to any optionee that approximates the economic benefit that he would
realize if his option were exercised immediately before such effective date,
(ii) authorize a
5
<PAGE> 6
payment in such other amount as it deems appropriate to compensate any optionee
for the termination of his Option, or (iii) arrange for the granting of a
substitute Option to any optionee.
2. Maximum Amount of Incentive Stock Options. The maximum aggregate
fair market value of Common Stock, determined as of the time the Incentive
Stock Option is granted, with respect to which Incentive Stock Options are
exercisable by an employee for the first time during any calendar year, under
this Plan and all other incentive stock option plans of the Company and any
parent, subsidiary, and predecessor corporations, shall not exceed $100,000.
ARTICLE III
RESTRICTED STOCK AWARDS
Restricted Stock Awards granted pursuant to this Article III shall be
subject to those terms, conditions and limitations set forth in Article I above
and to the following additional terms:
1. Grant of Restricted Shares. The Committee may cause the Company to
grant Restricted Stock Awards to eligible participants in such amounts as the
Committee, in its sole discretion, shall determine. Restricted Stock Awards
may be issued either alone or in addition to Options granted under the Plan.
2. Agreement. Each Restricted Stock Award shall be evidenced by a
written agreement in such form and containing such provisions not inconsistent
with the Plan as the Committee may from time to time approve. Each Restricted
Stock Award shall be effective as of the date so stated in the resolution of
the Committee making the award.
3. Restrictions and Conditions. Shares of Common Stock awarded under
this Article III shall be subject to such restrictions and conditions, if any,
as may be imposed by the Committee at the time of making the award. Such
restrictions and conditions may include, without limitation, the satisfaction
of specified performance criteria by the Company or by the grantee of the
Restricted Stock Award, or other vesting standards; provided, however, that no
award shall require any payment of cash consideration by the grantee.
Restrictions and conditions imposed on shares of Common Stock awarded under
this Article III may differ from one award to another as the Committee shall,
in its discretion, determine. Any restrictions and conditions shall lapse, in
whole or in part, as provided in the agreement evidencing the Restricted Stock
Award, but must lapse, if at all, not later than ten (10) years from the date
of the award.
Shares with respect to which no restrictions or conditions are imposed
and shares with respect to which the restrictions and conditions imposed
thereon have lapsed are hereinafter referred to as "Unrestricted Shares."
Shares with respect to which the restrictions and conditions imposed thereon
have not lapsed are hereinafter referred to as "Restricted Shares."
4. Rights as a Shareholder. A holder of Unrestricted Shares shall
have all of the rights of a shareholder of the Company with respect thereto and
shall be entitled to receive a stock
6
<PAGE> 7
certificate evidencing such Unrestricted Shares. Such certificate shall be
issued without legend, except to the extent that a legend may be necessary for
compliance with applicable securities laws.
A holder of Restricted Shares shall be the record owner thereof and
shall, subject to the restrictions and conditions, have all of the rights of a
shareholder with respect thereto, including, but not limited to, the right to
receive all dividends paid on the Common Stock (ordinary or extraordinary,
whether in cash, securities or other property) and the right to vote the
Restricted Shares; provided, however, that each stock certificate evidencing
Restricted Shares shall bear a conspicuous legend stating that the shares
evidenced thereby are subject to restrictions as to transferability as provided
in Section 6 of this Article III and to such other restrictions and conditions
as have been imposed by the Committee, and each such certificate shall be
deposited by the Holder with the Company or its designee together with a stock
power endorsed in blank.
5. Forfeiture. Unless otherwise provided in the applicable Restricted
Stock Award agreement, upon termination of the grantee's employment with the
Company or any of its subsidiaries for any reason whatsoever (voluntarily or
involuntarily, with or without cause), all Restricted Shares then owned by him
shall automatically and without any action on his part be forfeited and
transferred to the Company.
6. Transferability. Restricted Shares held by a grantee shall not be
subject to alienation, sale, transfer, assignment, pledge, attachment or
encumbrances of any kind, and any attempt to alienate, sell, transfer, assign,
pledge or otherwise encumber any Restricted Shares shall be void. In addition,
the Company may impose such restrictions on the transfer of Unrestricted Shares
as it deems necessary or desirable to assure compliance with all applicable
federal and state securities laws.
7. Adjustments. If there is a change in the Common Stock of the
Company as described in Article I, Section 7 of this Plan, any stock or other
securities or other property issued with respect to Restricted Shares shall be
subject to the same restrictions and conditions as are applicable to such
Restricted Shares, and the certificates or other evidence of such stock,
securities or other property, together with an appropriate stock power or power
of attorney, shall be delivered to the Company or its designee and held until
such time as the restrictions and conditions applicable thereto lapse or until
the stock, securities or other property is forfeited in accordance with the
provisions of this Article III.
If the Company shall be a party to any merger or consolidation in
which it is not the surviving company or pursuant to which the shareholders of
the Company exchange their Common Stock, or if the Company shall dissolve or
liquidate or sell all or substantially all of its assets, the Committee may, in
its discretion, cause all Restricted Stock Awards that are still subject to any
restrictions and conditions to become immediately vested in full on the
effective date of any such transaction, unless otherwise provided in the
applicable agreement evidencing such Restricted Stock Award.
7
<PAGE> 8
ARTICLE IV
MISCELLANEOUS PROVISIONS
1. Tax Reimbursement Payments or Loans. In view of the federal and
state income tax savings expected to be realized by the Company upon exercise
of a Nonqualified Stock Option or the lapse of restrictions and conditions
imposed upon Restricted Shares, the Committee may, in its discretion, provide
that the Company will make a cash payment or a loan or a combination thereof to
the grantee of a Nonqualified Stock Option or the recipient of a Restricted
Stock Award (or his personal representatives or heirs) for the purpose of
assisting such optionee or grantee in the payment of personal income taxes
arising from such exercise or lapse of restrictions and conditions. The basis
for determining the amount and conditions of such cash payment or loan or
combination thereof and the terms and conditions of any such loan shall be
specified in the agreement pursuant to which the grant or award is made or may
be subsequently determined by the Committee. The Committee, in its discretion,
may from time to time forgive any such loan in whole or in part.
2. Tax Withholding. No optionee shall be entitled to issuance of a
stock certificate representing shares purchased upon exercise of a Nonqualified
Stock Option, and no grantee of a Restricted Stock Award shall be entitled to
issuance of a stock certificate evidencing Unrestricted Shares, until such
optionee or grantee has paid, or made arrangements for payment, to the Company
of an amount equal to the income and other taxes that the Company is required
to withhold from such person as a result of his exercise of a Nonqualified
Stock Option or his receipt of Unrestricted Shares. In addition, such amounts
as the Company is required to withhold by reason of any tax reimbursement
payments made pursuant to Section 1 of this Article IV may be deducted from
such payments.
3. Employment. Nothing in the Plan or in any Option or Restricted
Stock Award shall confer upon any eligible employee any right to continued
employment by the Company, or limit in any way the right of the Company at any
time to terminate or alter the terms of that employment.
4. Effective Date of Plan. This Plan shall be effective February 10,
1997, the date of adoption of the Plan by the Board of Directors of the
Company, subject to approval of the Plan by the shareholders of the Company by
the vote of the holders of not less than a majority of the Company's Common
Stock present or represented at a meeting of shareholders duly called and held
within 12 months before or after the date of adoption of the Plan by the Board.
5. Termination and Amendment of Plan. The Plan may be terminated at
any time by the Board of Directors. Unless sooner terminated, the Plan shall
terminate February 9, 2007. No Option or Restricted Stock Award shall be
granted under the Plan after the Plan is terminated. Subject to the limitation
contained in Section 7 of this Article IV, the Board of Directors may at any
time amend or revise the terms of the Plan, provided, however, that no
amendment or revision shall (a) increase the maximum aggregate number of shares
subject to this Plan, except as permitted under Section 7 of Article I; (b)
change the minimum purchase price for shares
8
<PAGE> 9
subject to Options granted under the Plan; (c) extend the maximum duration
established under the Plan for any Option or for a Restricted Stock Award; or
(d) permit the granting of an Option or Restricted Stock Award to anyone other
than those individuals described in Section 6 of Article I hereof.
6. Prior Rights and Obligations. No amendment, suspension, or
termination of the Plan shall, without the consent of the person who has
received an Option or Restricted Stock Award, alter or impair any of that
person's rights or obligations under any Option or Restricted Stock Award
granted under the Plan prior to such amendment, suspension, or termination.
9
<PAGE> 1
EXHIBIT 10(w)
WELLINGTON HALL, LIMITED
1997 STOCK OPTION AND RESTRICTED STOCK PLAN
NONQUALIFIED STOCK OPTION AGREEMENT
THIS NONQUALIFIED STOCK OPTION AGREEMENT (the "Option Agreement") is
made and entered into as of February 10, 1997, by and between Wellington Hall,
Limited, a North Carolina corporation (the "Company"), and Arthur F. Bingham, a
key employee of the Company (the "Optionee"):
W I T N E S S E T H:
WHEREAS, the Company desires to provide the Optionee with an incentive
to remain in the employment of the Company and an opportunity to purchase
common stock of the Company, so that the Optionee may acquire or increase a
proprietary interest in the Company's success, and
WHEREAS, the Company desires to grant the Optionee a nonqualified
stock option under Article II of the Company's 1997 Stock Option and Restricted
Stock Plan (the "Plan"), and the Optionee desires to accept such option in
accordance with the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, and intending to be legally bound hereby, the
parties agree as follows:
1. Grant of Option. Subject to the terms and conditions of this
Agreement and the Plan, the Company hereby grants to the Optionee an option
(the "Option") to purchase all or any portion of One Hundred Fifty Thousand
(150,000) shares of the Company's common stock, par value $.01 per share (the
"Shares"), at an exercise price of One Dollar and 30/100 ($1.30) per Share (the
"Exercise Price"). The Optionee shall be entitled to exercise the Option for
a period of seven years from the date hereof. This Option is intended to be a
"Nonqualified Stock Option" within the meaning specified in the Plan and is
hereby designated as such pursuant to Article II, Section 1(a) of the Plan.
The grant of this Option has been duly authorized by the Committee that
administers the Plan, as established by the Board of Directors of the Company
pursuant to Article I, Section 3 of the Plan (the "Committee").
2. Transfer of Option. The Option may not be sold, pledged,
assigned or transferred in any manner other than by will or by the laws of
descent or distribution, unless otherwise agreed by the Committee.
<PAGE> 2
3. Adjustments. If the shares of common stock of the Company are
increased, decreased, changed into or exchanged for a different number or kind
of shares or securities through merger, consolidation, combination, exchange of
shares, other reorganization, recapitalization, reclassification, stock
dividend, stock split or reverse stock split in which the Company is the
surviving entity, the aggregate number of Shares subject to the Option and the
Option Exercise Price shall be appropriately and proportionately adjusted in
the manner provided in the Plan.
4. Termination of Option. The Option hereby granted shall
terminate and be of no force or effect upon the happening of the first to occur
of the following events:
(a) expiration of three months after the date of termination
of the Optionee's employment with the Company for any reason other than
the death of the Optionee;
(b) expiration of twelve months after the death of the
Optionee while employed by the Company;
(c) occurrence of any event described in paragraph 9 hereof
that causes a termination of the Option; or
(d) expiration of seven years from the date of this Agreement;
Any Option that may be exercised for a period following termination of
the Optionee's employment may be exercised only to the extent it was
exercisable immediately before such termination and in no event after the
Option would expire by its terms without regard to such termination.
5. Method of Exercise. The Option shall be exercised by tender of
payment of the Exercise Price and delivery to the Company at its principal
place of business of a written notice, at least three business days prior to
the proposed date of exercise, which notice shall:
(a) state the election to exercise the Option, the number of
Shares with respect to which the Option is being exercised, and the
name, address, and social security number of the person in whose name
the stock certificate or certificates for such Shares is to be
registered;
(b) contain any such representations and agreements as to
Optionee's investment intent with respect to such Shares as shall be
reasonably required by the Committee; and
- 2 -
<PAGE> 3
(c) be signed by the person entitled to exercise the Option,
and if the Option is being exercised by any person or persons other than
the Optionee, be accompanied by proof, satisfactory to the Committee, of
the right of such person or persons to exercise the Option.
Payment of the Exercise Price may be made in cash or by certified or
official bank check. Payment may also be made by surrendering shares of the
Company's common stock (including any Shares received upon a prior or
simultaneous exercise of the Option) at the then fair market value of such
Shares, as determined pursuant to Section 1(b) of Article II of the Plan.
Payment may also be made by combining cash or check and shares of such stock.
After receipt of such notice in a form satisfactory to the Committee and
the acceptance of payment, the Company shall deliver to the Optionee a
certificate or certificates representing the Shares purchased hereunder,
provided, that if any law or regulation requires the Company to take any action
with respect to the Shares specified in such notice before the issuance
thereof, the date of delivery of such Shares shall be extended for the period
necessary to take such action.
6. Rights of a Shareholder. The Optionee shall not be deemed for
any purpose to be a shareholder of the Company with respect to any Shares
covered by this Option unless this Option shall have been exercised and the
Exercise Price paid in the manner provided herein. No adjustment will be made
for dividends or other rights where the record date is prior to the date of
exercise and payment. Upon the exercise of the Option as provided herein and
the issuance of the certificate or certificates evidencing the Shares covered
thereby, the Optionee shall have all the rights of a shareholder of the
Company, including the right to receive all dividends or other distributions
paid or made with respect to such shares.
7. Compliance with Securities Laws. Shares issuable pursuant to
this Option are not presently registered under applicable federal and state
securities laws. The Company may in the future, but shall have no obligation
to, undertake such registrations or may, in lieu thereof, issue Shares
hereunder only pursuant to applicable exemptions from such registrations.
Before issuing Shares to Optionee hereunder, the Committee may require
appropriate representations from Optionee and take such other action as the
Committee may deem necessary, including but not limited to placing restrictive
legends on certificates evidencing such shares and place stop transfer
instructions in the Company's stock transfer records, or delivering such
instructions to the Company's transfer agent, in order to assure compliance
with any such exemptions.
8. Rule 144. The Optionee acknowledges that, notwithstanding any
future registration of the Option and the shares of Common Stock issuable upon
its exercise under the Securities Act of 1933 or under the securities laws of
any state, if, at the time of exercise of the Option, he is deemed to be an
"affiliate" of the Company as defined in Rule 144 of the Securities and
Exchange Commission, any shares purchased thereunder will nevertheless be
subject to sale only in compliance with Rule 144 (but without any holding
period), and that the Company shall take such
- 3 -
<PAGE> 4
action as it deems necessary or appropriate to assure such compliance,
including placing restrictive legends on certificates evidencing such shares
and delivering stop transfer instructions to the Company's transfer agent.
9. Reorganizations. If the Company shall be a party to any merger
or consolidation in which it is not the surviving entity or pursuant to which
the shareholders of the Company exchange their common stock, or if the Company
shall dissolve or liquidate or sell all or substantially all of its assets, the
Option granted hereunder shall terminate on the effective date of such merger,
consolidation, dissolution, liquidation or sale; provided, however, that prior
to such effective date, the Committee may, in its discretion, cause the Option
to become immediately exercisable, and may, to the extent the Option is
terminated as provided in this paragraph 9, authorize a payment to the Optionee
that approximates the economic benefit that he would realize if the Option were
exercised immediately before such effective date, or authorize a payment in
such other amount as it deems appropriate to compensate the Optionee for the
termination of the unexercised portion of the Option, or arrange for the
granting of a substitute option to the Optionee.
This Agreement shall not affect in any way the right or power of the
Company to make adjustments, reclassifications, reorganizations or changes of
its capital or business structure, or to merge or consolidate, or to dissolve,
liquidate, sell or transfer all or any part of its business or assets.
10. Tax Matters. The Optionee acknowledges that, upon exercise of
the Option, the Optionee will recognize taxable income generally in an amount
equal to the difference between the fair market value of the purchased Shares
and the Exercise Price paid therefor, and the Company will have certain
withholding obligations for income and other taxes. It shall be a condition to
the Optionee's receipt of a stock certificate covering Shares purchased
pursuant to the Option that the Optionee pay to the Company such amounts as it
is required to withhold or, with the consent of the Company, that the Optionee
otherwise provide for the discharge of the Company's withholding obligation.
If any such payment is not made by the Optionee, the Company may deduct the
amounts required to be withheld from payments of any kind to which the Employee
would otherwise be entitled from the Company.
11. No Right to Continued Employment. This Agreement does not
confer upon the Optionee any right to continued employment by the Company, nor
shall it interfere in any way with the right of the Company to terminate or
alter the terms of that employment.
12. Construction. This Agreement shall be construed so as to be
consistent with the Plan and the provisions of the Plan shall be deemed to be
controlling in the event that any provision hereof should be inconsistent
therewith. The Optionee hereby acknowledges receipt of
- 4 -
<PAGE> 5
a copy of the Plan from the Company and agrees to be bound by all of the terms
and provisions of the Plan.
Whenever the word "Optionee" is used in any provision of this Agreement
under circumstances where the provision should logically be construed to apply
to (i) the estate, personal representative, or beneficiary to whom this Option
may be transferred by will or by the laws of descent and distribution or (ii)
the guardian or legal representative of the Optionee acting pursuant to a valid
power of attorney or the decree of a court of competent jurisdiction, then the
term "Optionee" shall be construed to include such estate, personal
representative, beneficiary, guardian or legal representative.
13. Severability. The provisions of this Agreement shall be
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereto.
14. Successor and Assigns. The terms of this Agreement shall be
binding upon and shall enure to the benefit of any successors or assigns of the
Company and of the Optionee.
15. Notices. Notices under this Agreement shall be in writing and
shall be deemed to have been duly given (i) when personally delivered, (ii)
when forwarded by Federal Express, Airborne, or another private carrier which
maintains records showing delivery information, (iii) when sent via facsimile
but only if a written facsimile acknowledgment of receipt is received by the
sending party, or (iv) when placed in the United States Mail and forwarded by
registered or certified mail, return receipt requested, postage prepaid,
addressed to the party to whom such notice is being given or such other address
as furnished to the Company from time to time for this purpose.
16. Entire Agreement; Modification. This Agreement is the entire
agreement and understanding of the parties hereto with respect to the Option
granted herein and supersedes any and all prior and contemporaneous
negotiations, understandings and agreements with regard to the Option and the
matters set forth herein, whether oral or written. No representation,
inducement, agreement, promise or understanding altering, modifying, taking
from or adding to the terms and conditions hereof shall have any force or
effect unless the same is in writing and validly executed by the parties
hereto.
17. Shareholder Approval; Relinquishment of Other Rights.
Notwithstanding anything herein to the contrary, the Option granted hereunder
shall not be effective or exercisable unless the shareholders of the Company
shall have approved the Plan within 12 months before or after its adoption by
the Board of Directors. By his execution of this Agreement, the Optionee
relinquishes any and all rights and interests of the Optionee with respect to
any stock options
- 5 -
<PAGE> 6
granted or deemed to be granted pursuant to that Employment and Stock Purchase
Agreement dated September 1, 1996, by and between Optionee and the Company.
18. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of North Carolina.
IN WITNESS WHEREOF, the Optionee has executed this Agreement and the
Company has caused this Agreement to be executed by its duly authorized
officer, effective as of the day and year first above written.
WELLINGTON HALL, LIMITED
By: /s/ Hoyt M. Hackney, Jr. /s/ Arthur F. Bingham
------------------------------ ---------------------------------
Optionee
Title: President & CEO
---------------------------
- 6 -
<PAGE> 1
EXHIBIT 10(x)
WELLINGTON HALL, LIMITED
1997 STOCK OPTION AND RESTRICTED STOCK PLAN
INCENTIVE STOCK OPTION AGREEMENT
THIS INCENTIVE STOCK OPTION AGREEMENT (the "Option Agreement") is made
and entered into as of February 10, 1997, by and between Wellington Hall,
Limited, a North Carolina corporation (the "Company"), and Arthur F. Bingham, a
key employee of the Company (the "Optionee"):
W I T N E S S E T H:
WHEREAS, the Company desires to provide the Optionee with an incentive
to remain in the employment of the Company and an opportunity to purchase common
stock of the Company, so that the Optionee may acquire or increase a proprietary
interest in the Company's success, and
WHEREAS, the Company desires to grant the Optionee incentive stock
options under Article II of the Company's 1997 Stock Option and Restricted Stock
Plan (the "Plan"), and the Optionee desires to accept such options in accordance
with the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, and intending to be legally bound hereby, the
parties agree as follows:
1. Grant of Options; Exercise Price and Number of Shares; Expiration
Dates. The Company hereby grants to the Optionee the following options to
purchase shares of common stock of the Company upon the terms and conditions set
forth in this Agreement. Each of the following options is intended to be an
"Incentive Stock Option" within the meaning specified in the Plan and as defined
in Section 422 of the Internal Revenue Code of 1986, as amended (the "Code") and
is hereby designated as such pursuant to Article II, Section 1(a) of the Plan.
The grant of the options has been duly authorized by the Committee that
administers the Plan, as established by the Board of Directors of the Company
pursuant to Article I, Section 3 of the Plan (the "Committee").
(a) Series A Option. Subject to the terms and conditions of
this Agreement and the Plan, the Company hereby grants to the Optionee
an option (the "Series A Option") to purchase all or any portion of One
Hundred Fifty Thousand (150,000) shares of the Company's Common Stock
at an exercise price of Fifty Cents ($0.50) per
<PAGE> 2
Share (the "Series A Exercise Price"). The Optionee shall be
entitled to exercise the Series A Option beginning September 1, 1998 up
to and including February 9, 2004, if the Commissioned Retail Sales in
the Territory (as defined below) from May 1, 1997 through April 30,
1998 equal or exceed $2,500,000. For purposes of this Section 1,
"Commissioned Retail Sales in the Territory" means the combined amount
of shipments of retail sales of the Company and Wellington Hall
Caribbean Corp. ("WHCC") in the Territory for which the Company is
obligated to pay Optionee commissions pursuant to Paragraph 4(a) of
that certain Employment and Stock Purchase Agreement dated September 1,
1996 by and between the Company and Optionee, with "Territory" meaning
the area defined in Schedule B to such agreement.
(b) Series B Option. Subject to the terms and conditions of
this Agreement and the Plan, the Company hereby grants to the Optionee
an option (the "Series B Option") to purchase all or any portion of One
Hundred Fifty Thousand (150,000) shares of the Company's Common Stock
at an exercise price of Eighty Cents ($0.80) per Share (the "Series B
Exercise Price"). The Optionee shall be entitled to exercise the Series
B Option beginning September 1, 1999 up to and including February 9,
2004, if Commissioned Retail Sales in the Territory from May 1, 1998
through April 30, 1999 equal or exceed $2,700,000.
(c) Series C Option. Subject to the terms and conditions of
this Agreement and the Plan, the Company hereby grants to the Optionee
an option (the "Series C Option") to purchase all or any portion of One
Hundred Fifty Thousand (150,000) shares of the Company's Common Stock
at an exercise price of One Dollar and 30/100 ($1.30) per Share (the
"Series C Exercise Price"). The Optionee shall be entitled to exercise
the Series C Option beginning September 1, 2000 up to and including
February 9, 2004, if Commissioned Retail Sales in the Territory from
May 1, 1999 through April 30, 2000 equal or exceed $3,000,000.
The Series A, Series B and Series C Options are hereinafter
collectively referred to as the "Option" and the Series A, Series B and Series C
Exercise Prices are hereinafter collectively referred to as the "Exercise
Price."
2. Transfer of Option. The Option may not be sold, pledged, assigned or
transferred in any manner other than by will or by the laws of descent or
distribution, unless otherwise agreed by the Committee.
3. Adjustments. If the shares of Common Stock of the Company are
increased, decreased, changed into or exchanged for a different number or kind
of shares or securities through merger, consolidation, combination, exchange of
shares, other reorganization, recapitalization, reclassification, stock
dividend, stock split or reverse stock split in which the
2
<PAGE> 3
Company is the surviving entity, the aggregate number of Shares subject to the
Option and the Exercise Price shall be appropriately and proportionately
adjusted in the manner provided in the Plan.
4. Termination of Option. The Option hereby granted shall terminate and
be of no force or effect upon the happening of the first to occur of the
following events:
(a) expiration of three months after the date of termination of the
Optionee's employment with the Company for any reason other than the
death of the Optionee;
(b) expiration of twelve months after the death of the Optionee
while employed by the Company;
(c) occurrence of any event described in paragraph 9 hereof that
causes a termination of the Option; or
(d) expiration of the Option as provided in paragraph 1 above.
Any Option that may be exercised for a period following termination of
the Optionee's employment may be exercised only to the extent it was exercisable
immediately before such termination and in no event after the Option would
expire by its terms without regard to such termination.
5. Method of Exercise. The Option shall be exercised by tender of
payment of the Exercise Price and delivery to the Company at its principal place
of business of a written notice, at least three business days prior to the
proposed date of exercise, which notice shall:
(a) state the election to exercise the Option, the number of Shares
with respect to which the Option is being exercised, and the
name, address, and social security number of the person in whose name
the stock certificate or certificates for such Shares is to be
registered;
(b) contain any such representations and agreements as to
Optionee's investment intent with respect to such Shares as shall be
reasonably required by the Committee pursuant to paragraph 7; and
(c) be signed by the person entitled to exercise the Option, and if
the Option is being exercised by any person or persons other than the
Optionee, be accompanied by proof, satisfactory to the Committee, of
the right of such person or persons to exercise the Option.
3
<PAGE> 4
Payment of the Exercise Price may be made in cash or by certified or
official bank check. Payment may also be made by surrendering shares of the
Company's Common Stock (including any Shares received upon a prior or
simultaneous exercise of the Option) at the then fair market value of such
Shares, as determined pursuant to Section 1(b) of Article II of the Plan.
Payment may also be made by combining cash or check and shares of such stock.
After receipt of such notice in a form satisfactory to the Committee
and the acceptance of payment, the Company shall deliver to the Optionee a
certificate or certificates representing the Shares purchased hereunder,
provided, that if any law or regulation requires the Company to take any action
with respect to the Shares specified in such notice before the issuance thereof,
the date of delivery of such Shares shall be extended for the period necessary
to take such action.
6. Rights of a Shareholder. The Optionee shall not be deemed for any
purpose to be a shareholder of the Company with respect to any Shares covered by
the Option unless the Option shall have been exercised and the Exercise Price
paid in the manner provided herein. No adjustment will be made for dividends or
other rights where the record date is prior to the date of exercise and payment.
Upon the exercise of the Option as provided herein and the issuance of the
certificate or certificates evidencing the Shares covered thereby, the Optionee
shall have all the rights of a shareholder of the Company, including the right
to receive all dividends or other distributions paid or made with respect to
such shares.
7. Compliance with Securities Laws. Shares issuable pursuant to this
Option are not presently registered under applicable federal and state
securities laws. The Company may in the future, but shall have no obligation to,
undertake such registrations or may, in lieu thereof, issue Shares hereunder
only pursuant to applicable exemptions from such registrations. Before issuing
Shares to Optionee hereunder, the Committee may require appropriate
representations from Optionee and take such other action as the Committee may
deem necessary, including but not limited to placing restrictive legends on
certificates evidencing such shares and place stop transfer instructions in the
Company's stock transfer records, or delivering such instructions to the
Company's transfer agent, in order to assure compliance with any such
exemptions.
8. Rule 144. The Optionee acknowledges that, notwithstanding any future
registration of the Option and the shares of Common Stock issuable upon its
exercise under the Securities Act of 1933 or under the securities laws of any
state, if, at the time of exercise of the Option, he is deemed to be an
"affiliate" of the Company as defined in Rule 144 of the Securities and Exchange
Commission, any shares purchased thereunder will nevertheless be subject to sale
only in compliance with Rule 144 (but without any holding period), and that the
Company shall take such action as it deems necessary or appropriate to assure
such compliance, including placing restrictive legends on certificates
evidencing such shares and delivering stop transfer instructions to the
Company's transfer agent.
4
<PAGE> 5
9. Reorganizations. If the Company shall be a party to any merger or
consolidation in which it is not the surviving entity or pursuant to which the
shareholders of the Company exchange their common stock, or if the Company shall
dissolve or liquidate or sell all or substantially all of its assets, the Option
granted hereunder shall terminate on the effective date of such merger,
consolidation, dissolution, liquidation or sale; provided, however, that prior
to such effective date, the Committee may, in its discretion, cause the Option
to become immediately exercisable, and may, to the extent the Option is
terminated as provided in this paragraph 9, authorize a payment to the Optionee
that approximates the economic benefit that he would realize if the Option were
exercised immediately before such effective date, or authorize a payment in such
other amount as it deems appropriate to compensate the Optionee for the
termination of the unexercised portion of the Option, or arrange for the
granting of a substitute option to the Optionee.
This Agreement shall not affect in any way the right or power of the
Company to make adjustments, reclassifications, reorganizations or changes of
its capital or business structure, or to merge or consolidate, or to dissolve,
liquidate, sell or transfer all or any part of its business or assets.
10. No Right to Continued Employment. This Agreement does not confer
upon the Optionee any right to continued employment by the Company, nor shall it
interfere in any way with the right of the Company to terminate or alter the
terms of that employment.
11. Construction. This Agreement shall be construed so as to be
consistent with the Plan and the provisions of the Plan shall be deemed to be
controlling in the event that any provision hereof should be inconsistent
therewith. The Optionee hereby acknowledges receipt of a copy of the Plan from
the Company and agrees to be bound by all of the terms and provisions of the
Plan.
Whenever the word "Optionee" is used in any provision of this Agreement
under circumstances where the provision should logically be construed to apply
to (i) the estate, personal representative, or beneficiary to whom this Option
may be transferred by will or by the laws of descent and distribution or (ii)
the guardian or legal representative of the Optionee acting pursuant to a valid
power of attorney or the decree of a court of competent jurisdiction, then the
term "Optionee" shall be construed to include such estate, personal
representative, beneficiary, guardian or legal representative.
12. Severability. The provisions of this Agreement shall be severable
and the invalidity or unenforceability of any provision shall not affect the
validity or enforceability of the other provisions hereto.
5
<PAGE> 6
13. Successor and Assigns. The terms of this Agreement shall be binding
upon and shall enure to the benefit of any successors or assigns of the Company
and of the Optionee.
14. Notices. Notices under this Agreement shall be in writing and shall
be deemed to have been duly given (i) when personally delivered, (ii) when
forwarded by Federal Express, Airborne, or another private carrier which
maintains records showing delivery information, (iii) when sent via facsimile
but only if a written facsimile acknowledgment of receipt is received by the
sending party, or (iv) when placed in the United States Mail and forwarded by
registered or certified mail, return receipt requested, postage prepaid,
addressed to the party to whom such notice is being given or such other address
as furnished to the Company from time to time for this purpose.
15. Entire Agreement; Modification. This Agreement is the entire
agreement and understanding of the parties hereto with respect to the Option
granted herein and supersedes any and all prior and contemporaneous
negotiations, understandings and agreements with regard to the Option and the
matters set forth herein, whether oral or written. No representation,
inducement, agreement, promise or understanding altering, modifying, taking from
or adding to the terms and conditions hereof shall have any force or effect
unless the same is in writing and validly executed by the parties hereto.
16. Shareholder Approval; Relinquishment of Other Rights.
Notwithstanding anything herein to the contrary, the Option granted hereunder
shall not be effective or exercisable unless the shareholders of the Company
shall have approved the Plan within 12 months of its adoption by the Board of
Directors. By his execution of this Agreement, the Optionee relinquishes any and
all rights and interests of the Optionee with respect to any stock options
granted or deemed to be granted pursuant to that Employment and Stock Purchase
Agreement dated September 1, 1996, by and between Optionee and the Company.
17. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of North Carolina.
IN WITNESS WHEREOF, the Optionee has executed this Agreement and the
Company has caused this Agreement to be executed by its duly authorized officer,
effective as of the day and year first above written.
WELLINGTON HALL, LIMITED
By: /s/ Hoyt M. Hackney Jr. /s/ Arthur F. Bingham
----------------------- ----------------------------
Optionee
Title: President & CEO
---------------------
6
<PAGE> 1
Page 1
EXHIBIT 10(y)
WELLINGTON HALL, LIMITED
1997 STOCK OPTION AND RESTRICTED STOCK PLAN
INCENTIVE STOCK OPTION AGREEMENT
THIS INCENTIVE STOCK OPTION AGREEMENT (the "Option Agreement") is made
and entered into as of February 10, 1997, by and between Wellington Hall,
Limited, a North Carolina corporation (the "Company), and Ralph L. Eskelsen, a
key employee of the Company (the "Optionee"):
W I T N E S S E T H:
WHEREAS, the Company desires to provide the Optionee with an incentive
to remain in the employment of the Company and an opportunity to purchase common
stock of the Company, so that the Optionee may acquire or increase a proprietary
interest in the Company's success, and
WHEREAS, the Company desires to grant the Optionee incentive stock
options under Article II of the Company's 1997 Stock Option and Restricted Stock
Plan (the "Plan"), and the Optionee desires to accept such options in accordance
with the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, and intending to be legally bound hereby, the
parties agree as follows:
1. Grant of Option. Subject to the terms and conditions of this
Agreement and the Plan, the Company hereby grants to the Optionee an option (the
"Option") to purchase all or any portion of Three Hundred Thousand (300,000)
shares of the Company's common stock, no par value per share (the "Shares"), at
an exercise price of Fifty Cents ($0.50) per Share (the "Exercise Price"). This
Option is intended to be an "Incentive Stock Option" within the meaning
specified in the Plan and as defined in Section 422 of the Internal Revenue Code
of 1986, as amended (the "Code") and is hereby designated as such pursuant to
Article 11, Section 1(a) of the Plan. The grant of the Option has been duly
authorized by the Committee that administers the Plan, as established by the
Board of Directors of the Company pursuant to Article 1, Section 3 of the Plan
(the "Committee").
2. Term of Option. Subject to the further restrictions and provisions
of the Plan and this Agreement, the Option shall become exercisable in
installments, with the Optionee having the right to purchase from the Company
the following number of Shares subject to this Option, on and after the
following dates, in cumulative fashion:
(a) At any time after August 31, 1997 and prior to February 1,
1998, up to
<PAGE> 2
Page 2
200,000 of the Shares subject to this Option;
(b) At any time after December 31, 1997 and prior to February 1, 1998,
this Option shall be exercisable in full, to the extent it has not
previously been exercised.
No fractional shares of common stock shall be issued upon any exercise of this
Option.
3. Transfer of Option. The Option may not be sold, pledged, assigned or
transferred in any manner other than by will or by the laws of descent or
distribution, unless otherwise agreed by the Committee.
4. Adjustments. If the shares of Common Stock of the Company are
increased, decreased, changed into or exchanged for a different number or kind
of shares or securities through merger, consolidation, combination, exchange of
shares, other reorganization, recapitalization, reclassification, stock
dividend, stock split or reverse stock split in which the Company is the
surviving entity, the aggregate number of Shares subject to the Option and the
Exercise Price shall be appropriately and proportionately adjusted in the manner
provided in the Plan.
5. Termination of Option. The Option hereby granted shall terminate and
be of no force or effect upon the happening of the first to occur of the
following events:
(a) expiration of three months after the date of termination
of the Optionee's employment with the Company for any reason;
(b) expiration of three months after the death of the Optionee
while employed by the Company;
(c) occurrence of any event described in paragraph 10 hereof
that causes a termination of the Option; or
(d) expiration of the term of this Option as provided in
paragraph 2 above.
Any Option that may be exercised for a period following termination of
the Optionee's employment may be exercised only to the extent it was exercisable
immediately before such termination and in no event after the Option would
expire by its terms without regard to such termination.
6. Method of Exercise. The Option shall be exercised by tender of
payment of the Exercise Price and delivery to the Company at its principal place
of business of a written notice, at least three business days prior to the
proposed date of exercise, which notice shall:
<PAGE> 3
Page 3
(a) state the election to exercise the Option, the number of
Shares with respect to which the Option is being exercised, and the
name, address, and social security number of the person in whose name
the stock certificate or certificates for such Shares is to be
registered;
(b) contain any such representations and agreements as to
Optionee's investment intent with respect to such Shares as shall be
reasonably required by the Committee pursuant to paragraph 7; and
(c) be signed by the person entitled to exercise the Option,
and if the Option is being exercised by any person or persons other
than the Optionee, be accompanied by proof, satisfactory to the
Committee, of the right of such person or persons to exercise the
Option.
Payment of the Exercise Price may be made in cash or by certified or
official bank check in U.S. Dollars or in Lempiras by using the official rate of
Bancasa's Offer to Purchase Dollars as of the date of payment, not the date of
exercise. Payment may also be made by surrendering shares of the Company's
Common Stock (including any Shares received upon a prior or simultaneous
exercise of the Option) at the then fair market value of such Shares, as
determined pursuant to Section 1(b) of Article II of the Plan. Payment may also
be made by combining cash or check and shares of such stock.
After receipt of such notice in a form satisfactory to the Committee
and the acceptance of payment, the Company shall deliver to the Optionee a
certificate or certificates representing the Shares purchased hereunder,
provided, that if any law or regulation requires the Company to take any action
with respect to the Shares specified in such notice before the issuance thereof,
the date of delivery of such Shares shall be extended for the period necessary
to take such action.
7. Rights of a Shareholder. The Optionee shall not be deemed for any
purpose to be a shareholder of the Company with respect to any Shares covered by
the Option unless the Option shall have been exercised and the Exercise Price
paid in the manner provided herein. No adjustment will be made for dividends or
other rights where the record date is prior to the date of exercise and payment.
Upon the exercise of the Option as provided herein and the issuance of the
certificate or certificates evidencing the Shares covered thereby, the Optionee
shall have all the rights of a shareholder of the Company, including the right
to receive all dividends or other distributions paid or made with respect to
such shares.
8. Compliance with Securities Laws. Shares issuable pursuant to this
Option are not presently registered under applicable federal and state
securities laws. The Company may in the future, but shall have no obligation to,
undertake such registrations or may, in lieu thereof, issue Shares hereunder
only pursuant to applicable exemptions from such registrations. Before issuing
Shares to Optionee hereunder, the Committee may require appropriate
representations from Optionee and take such other action as the Committee may
deem necessary, including but not
<PAGE> 4
Page 4
limited to placing restrictive legends on certificates evidencing such shares
and place stop transfer instructions in the Company's stock transfer records, or
delivering such instructions to the Company's transfer agent, in order to assure
compliance with any such exemptions.
9. Rule 144. The Optionee acknowledges that, notwithstanding any future
registration of the Option and the shares of Common Stock issuable upon its
exercise under the Securities Act of 1933 or under the securities laws of any
state, if, at the time of exercise of the Option, he is deemed to be an
"affiliate" of the Company as defined in Rule 144 of the Securities and Exchange
Commission, any shares purchased thereunder will nevertheless be subject to sale
only in compliance with Rule 144 (but without any holding period), and that the
Company shall take such action as it deems necessary or appropriate to assure
such compliance, including placing restrictive legends on certificates
evidencing such shares and delivering stop transfer instructions to the
Company's transfer agent.
10. Reorganizations. If the Company shall be a party to any merger or
consolidation in which it is not the surviving entity or pursuant to which the
shareholders of the Company exchange their common stock, or if the Company shall
dissolve or liquidate or sell all or substantially all of its assets, the Option
granted hereunder shall terminate on the effective date of such merger,
consolidation, dissolution, liquidation or sale; provided, however, that prior
to such effective date, the Committee may, in its discretion, cause the Option
to become immediately exercisable, and may, to the extent the Option is
terminated as provided in this paragraph 10, authorize a payment to the
Optionee that approximates the economic benefit that he would realize if the
Option were exercised immediately before such effective date, or authorize a
payment in such other amount as it deems appropriate to compensate the Optionee
for the termination of the unexercised portion of the Option, or arrange for the
granting of a substitute option to the Optionee.
This Agreement shall not affect in any way the right or power of the
Company to make adjustments, reclassifications, reorganizations or changes of
its capital or business structure, or to merge or consolidate, or to dissolve,
liquidate, sell or transfer all or any part of its business or assets.
11. No Right to Continued Employment. This Agreement does not confer
upon the Optionee any right to continued employment by the Company, nor shall it
interfere in any way with the right of the Company to terminate or alter the
terms of that employment.
12. Construction. This Agreement shall be construed so as to be
consistent with the Plan and the provisions of the Plan shall be deemed to be
controlling in the event that any provision hereof should be inconsistent
therewith. The Optionee hereby acknowledges receipt of a copy of the Plan from
the Company and agrees to be bound by all of the terms and provisions of the
Plan.
<PAGE> 5
Page 5
Whenever the word "Optionee" is used in any provision of this Agreement
under circumstances where the provision should logically be construed to apply
to (i) the estate, personal representative, or beneficiary to whom this Option
may be transferred by will or by the laws of descent and distribution or (ii)
the guardian or legal representative of the Optionee acting pursuant to a valid
power of attorney or the decree of a court of competent jurisdiction, then the
term "Optionee" shall be construed to include such estate, personal
representative, beneficiary, guardian or legal representative.
13. Severability. The provisions of this Agreement shall be severable
and the invalidity or unenforceability of any provision shall not affect the
validity or enforceability of the other provisions hereto.
14. Successor and Assigns. The terms of this Agreement shall be binding
upon and shall enure to the benefit of any successors or assigns of the Company
and of the Optionee.
15. Notices. Notices under this Agreement shall be in writing and shall
be deemed to have been duly given (i) when personally delivered, (ii) when
forwarded by Federal Express, Airborne, or another private carrier which
maintains records showing delivery information, (iii) when sent via facsimile
but only if a written facsimile acknowledgment of receipt is received by the
sending party, or (iv) when placed in the United States Mail and forwarded by
registered or certified mail, return receipt requested, postage prepaid,
addressed to the party to whom such notice is being given or such other address
as furnished to the Company from time to time for this purpose.
16. Entire Agreement: Modification. This Agreement is the entire
agreement and understanding of the parties hereto with respect to the Option
granted herein and supersedes any and all prior and contemporaneous
negotiations, understandings and agreements with regard to the Option and the
matters set forth herein, whether oral or written. No representation,
inducement, agreement, promise or understanding altering, modifying, taking from
or adding to the terms and conditions hereof shall have any force or effect
unless the same is in writing and validly executed by the parties hereto.
17. Shareholder Approval; Relinquishment of Other Rights.
Notwithstanding anything herein to the contrary, the Option granted hereunder
shall not be effective or exercisable unless the shareholders of the Company
shall have approved the Plan within 12 months before or after adoption by the
Board of Directors of the Company. By his execution of this Agreement, the
Optionee relinquishes any and all rights and interests of the Optionee with
respect to any stock options granted or deemed to be granted pursuant to that
Employment and Stock Purchase Agreement dated December 1, 1996, by and between
Optionee and the Company.
18. Governing Law. This Agreement shall be governed by and construed in
<PAGE> 6
Page 6
accordance with the laws of the State of North Carolina.
IN WITNESS WHEREOF, the Optionee has executed this Agreement and the
Company has caused this Agreement to be executed by its duly authorized officer,
effective as of the day and year first above written.
WELLINGTON HALL, LIMITED
By: /s/ Hoyt M. Hackney /s/ Ralph Eskelsen
------------------- ------------------
Optionee
Title: President & CEO
----------------
<PAGE> 1
EXHIBIT 10(z)
February __, 1997
Lexington State Bank
Trust Department
Post Office Box 867
Lexington, North Carolina 27293-0867
Gentlemen:
In connection with your appointment as Subscription Agent in the
transactions described herein, Wellington Hall, Limited (the "Company"), a North
Carolina corporation, hereby confirms its arrangements with you as follows:
1. The Offerings. The Company is offering to holders of its common
stock, no par value (the "Common Stock") at the close of business on February
___, 1997 (the "Shareholders") the nontransferable right to subscribe for one
additional share of Common Stock for each share then owned (a "Right").
Shareholders desiring to participate in the Offerings must subscribe for a
minimum of 1,000 shares of Common Stock. Except as set forth under Paragraph 8
hereof, Rights shall cease to be exercisable, and the offering of Common Stock
pursuant thereto (the "Rights Offering") will terminate, at 5:00 P.M. Eastern
Standard Time on __________ __, 1997 or such later date until which the Company
notifies you in writing that it has extended the Rights Offering (the
"Expiration Time").
Prior to the Expiration Time, each Shareholder may subscribe for more
shares than his Rights entitle him to purchase (the "Subscription Offering"). If
the Shareholders in the aggregate do not subscribe for the maximum number of
shares to which they are entitled in the Rights Offering, such remaining shares
will be sold to Shareholders who have subscribed therefor prior to the
Expiration Time. To the extent more shares are subscribed for than are available
in the Subscription Offering, the available shares will be pro rated among the
subscribing Shareholders therefor based on the percentage that the amount of
shares that each Shareholder subscribed for over those which his Rights entitled
him to purchase in the Rights Offering bears to the total amount of shares that
all Shareholders in the aggregate subscribed for over those which their Rights
entitled them to purchase. Notwithstanding the foregoing, for purposes of
calculating the above-referenced percentage, all Shareholders who subscribed for
the minimum number of 1,000
<PAGE> 2
Lexington State Bank
February 14, 1997
Page 2
shares in the Offerings will be treated together as a single Shareholder, with
their excess subscriptions aggregated. Each such Shareholder will then be
allocated an equal portion of the percentage of available shares as calculated.
Any shares that are not sold in the Rights Offering or the Subscription
Offering may be sold to persons who are not directors, officers or Shareholders
of the Company (the "Public Offering"). A subscriber in the Public Offering must
subscribe for a minimum of 10,000 shares. The Public Offering will terminate
within 30 days of the Expiration Time, unless extended by the Company (the
"Public Offering Termination Time"). The Company will notify you in writing of
the Public Offering Termination Time.
Any subscription pursuant to the Offerings in excess of 100,000 shares
is subject to the approval of the Board of Directors of the Company, except to
the extent that a Shareholder is entitled to subscribe for such shares in the
Rights Offering.
The Offerings will be conducted in the manner and upon the terms set
forth in the Prospectus dated February ___, 1997 (the "Prospectus") and related
Stock Order Form (the "Stock Order Form"), which terms are incorporated by
reference herein and made a part hereof as if set forth in full.
2. Nominees. Banks, trust companies, securities dealers and brokers
that hold Common Stock as nominees ("Nominees") for more than one beneficial
owner shall be entitled to subscribe for Common Stock in the Rights Offering and
the Subscription Offering on the same basis as if the beneficial owners were
record owners, provided that such Nominees furnish evidence of the number of
shares of Common Stock owned by each beneficial owner.
3. Appointment of Subscription Agent; Establishment of Escrow Account.
You are hereby appointed as Subscription Agent to effect the Rights Offering,
Subscription Offering and Public Offering (collectively, the "Offerings").
Following execution of this letter by you, you shall establish a money market
account (the "Escrow Account") for the deposit of subscription funds from the
Offerings as described herein.
4. Delivery of Documents. Enclosed herewith are the following, the
receipt of which you acknowledge by your execution hereof:
(a) a copy of the Prospectus;
<PAGE> 3
Lexington State Bank
February 14, 1997
Page 3
(b) the form of letter from the Company to the
Shareholders informing them of the Rights Offering
and the Subscription Offering;
(c) the form of Stock Order Form;
(d) resolutions adopted by the Board of Directors of the
Company and certified by the Secretary or Assistant
Secretary of the Company approving the Offerings.
5. Subscription Procedure. Upon your receipt prior to the Expiration
Time (by mail, hand delivery, or otherwise) of (i) any Stock Order Form and (ii)
payment in full of the Offering Price set forth on the cover page of the
Prospectus (the "Offering Price") multiplied by the number of shares of Common
Stock subscribed for, you shall place such payment in the Escrow Account and,
within two business days, provide the Company with a copy of each such Stock
Order Form. If a Stock Order Form is not accompanied by full payment of the
Offering Price, you should place such partial payment in the Escrow Account and,
within one business day, provide the Company with a copy of the Stock Order Form
and advise the Company of the deficiency. The Company shall be responsible for
determining the adequacy and completeness of all Stock Order Forms.
Promptly following the Expiration Time, both you and the Company shall
calculate, in accordance with the terms and conditions of the Offerings, the
number of shares to be issued in the Rights Offering and the number of shares to
be issued to any Shareholder who has subscribed for shares in the Subscription
Offering in excess of those that he is entitled to purchase pursuant to the
exercise of his Rights. If the number of shares to be issued to any particular
Shareholder in the Subscription Offering is less than that for which he
subscribed, you shall refund promptly, without interest or reduction, that
portion of his payment attributable to such unavailable shares.
Promptly following the Expiration Time, both you and the Company also
shall calculate, in accordance with the terms and conditions of the Offerings,
the number of shares available for purchase in the Public Offering. If no shares
are available for purchase in the Public Offering, you shall refund promptly to
each subscriber in the Public Offering, without interest or reduction, his
entire subscription payment. If shares are available for purchase in the Public
Offering, then shares will become issuable to subscribers in the Public Offering
upon acceptance of subscriptions by the Company. At or from time to time prior
to the Public Offering Expiration Time, the Company will advise you in writing
that it has accepted or rejected such subscriptions. To the extent subscriptions
are rejected, you shall refund promptly to each such subscriber, without
interest or reduction, the entire payment attributable to the rejected
subscription.
<PAGE> 4
Lexington State Bank
February 14, 1997
Page 4
All subscription checks or money orders shall be made payable to the
order of you. All refunds to be paid to any subscriber in the Offerings shall be
paid by bank check sent to the address designated on the appropriate Stock Order
Form after the subscriber's funds have cleared normal banking channels and are
in the form of cash.
6. Delivery of Funds and Documents to the Company; Issuance of Shares.
Promptly following calculation of the number of shares to be issued in the
Rights Offering and the Subscription Offering pursuant to the foregoing
paragraph, you shall deliver to the Company (i) the proceeds of shares sold in
the Rights Offering and Subscription Offering, together with interest accrued
thereon, less any fees and expenses not previously paid and owed you pursuant to
this letter and (ii) the original Stock Order Forms with respect to such shares.
If shares are available for sale in the Public Offering and are subscribed for,
then, promptly following your receipt of written instruction from the Company
from time to time indicating that it has accepted subscriptions in the Public
Offering, you shall deliver (i) the proceeds of shares sold in the Public
Offering pursuant to such accepted subscriptions, together with interest accrued
thereon, less any fees and expenses not previously paid and owed you pursuant to
this letter and (ii) the original Stock Order Forms with respect to such shares.
No funds shall be disbursed to the Company until they have cleared normal
banking channels and are in the form of cash. The Company is responsible for
coordinating with its transfer agent the issuance and delivery of stock
certificates to subscribers for Common Stock sold in the Offerings.
7. Defective Subscription. The Company shall have the right either to
reject any defective subscriptions or to waive any defect in subscriptions other
than a failure to pay the full Offering Price.
8. Late Delivery. If prior to the Expiration Time you receive a written
or telegraphic guarantee from a commercial bank, a trust company having an
office in the United States, or a member firm of the New York Stock Exchange,
another registered national securities exchange or the National Association of
Securities Dealers, Inc., stating the name of the Shareholder, the number of
Rights to which such Shareholder is entitled and the number of shares of Common
Stock subscribed for and guaranteeing that the Stock Order Form and the Offering
Price will promptly be delivered to you, such subscription may be accepted
subject to the Company's withholding the stock certificates for such shares of
Common Stock until receipt of the duly completed and executed Stock Order Form
and payment of the Offering Price within five (5) business days after the
Expiration Time.
9. Reports. Within one business day of request by the Company, you
shall provide to the Company by telephone (Mr. Hoyt Hackney at (910) 249-4931 or
his designee) requested
<PAGE> 5
Lexington State Bank
February 14, 1997
Page 5
information about the names of Shareholders or other persons who have subscribed
for shares in the respective Offerings, the number of shares subscribed for by
each such Shareholder or other person, the total numbers of shares subscribed
for and any other pertinent information with respect to subscriptions. Upon the
Expiration Time and, if different, the Public Offering Expiration Time, you
shall provide the Company with such final reports as it shall reasonably
request.
10. Future Instructions. You may rely and act on any written
instruction signed by Hoyt Hackney with respect to all matters pertaining to
this letter and the transactions contemplated hereby.
11. Payment of Expenses. The Company will pay you compensation for
acting in your capacity as Subscription Agent hereunder in accordance with
Schedule I hereto and will reimburse you for all reasonable and necessary
expenses that you incur in so acting.
12. Indemnification. The Company covenants and agrees to indemnify and
hold you harmless against any costs, expenses (including reasonable fees for
legal counsel), losses or damages, which may be paid, incurred or suffered by or
to which you may become subject, arising from or out of, directly or indirectly,
any claim or liability resulting from your actions as Subscription Agent
pursuant hereto; provided that such covenant and agreement does not extend to
such costs, expenses, losses and damages incurred or suffered by you as a result
of, or arising out of, your own negligence, misconduct or bad faith or that of
any employees, agents or independent contractors used by you in connection with
performance of your duties as Subscription Agent hereunder.
13. Notices. Unless otherwise provided herein, all reports, notices and
other communications required or permitted to be given by you hereunder shall be
delivered by hand or mailed by first class mail, postage prepaid, as follows:
(a) If to The Company , to:
Wellington Hall, Limited
Route 1, U.S. Highway No. 29 and No. 70
Lexington, North Carolina 27292
Attention: Mr. Hoyt M. Hackney, President
<PAGE> 6
Lexington State Bank
February 14, 1997
Page 6
(b) If to you, to:
Lexington State Bank
Trust Department
Post Office Box 867
Lexington, North Carolina 27293-0867
Attention: Clark Dillon
If the foregoing is in accordance with your understanding of our
arrangements, please sign and return the enclosed duplicates of this letter.
Very truly yours,
WELLINGTON HALL, LIMITED
By:
---------------------------------------
Hoyt M. Hackney
President, Chief Executive Officer,
and Chief Financial Officer
The foregoing is in accordance with our understanding and is hereby
confirmed and accepted.
LEXINGTON STATE BANK
By:
---------------------------------------
Title
Dated: February ___, 1997
<PAGE> 7
SCHEDULE I
FEES AND EXPENSES OF
SUBSCRIPTION AGENT
Acceptance Fee $200.00
Account Maintenance $100.00
Receipt of Subscription Payments $1.00 per payment
Document Review $2.50 per form
Administration $600.00
Refunding Correspondence $20.00 per item
per recipient
(Company and/or
subscriber)
Calculation per Agreement $100.00 per calculation
Final Reports requested by Company $100.00 per report
MINIMUM FEE $2,500.00
<PAGE> 1
EXHIBIT 11
WELLINGTON HALL, LIMITED AND SUBSIDIARIES
EARNINGS PER SHARE COMPUTATION
<TABLE>
<CAPTION>
October 31, Years Ended April 30,
----------- ------------------------------------------
1996 1996 1995 1994
<S> <C> <C> <C> <C>
Primary
Average shares outstanding 1,689,887 1,689,887 1,689,887 1,689,887
Net effect of dilutive stock
options and stock purchase
awards, based on the treasury
stock method using average
market price
---------- ---------- ---------- -----------
Total Shares 1,689,887 1,689,887 1,689,887 1,689,887
---------- ---------- ---------- -----------
Net Income (loss) 36,859 73,574 222,655 384,398
---------- ---------- ---------- -----------
Per share amount $ .02 $ .04 $ .13 $ 23
---------- ---------- ---------- -----------
Fully diluted:
Average shares outstanding 1,689,887 1,689,887 1,689,887 1,689,887
Net effect of dilutive stock
options and stock purchase
awards, based on the treasure
stock method using the year-
end market price if higher
than average market price
---------- ---------- ---------- -----------
Total Shares 1,689,887 1,689,887 1,689,887 1,689,887
---------- ---------- ---------- -----------
Net Income (loss) 36,859 73,574 222,655 384,398
---------- ---------- ---------- -----------
Per share amount $ .02 $ .04 $ .13 $ .23
---------- ---------- ---------- -----------
</TABLE>
<PAGE> 1
EXHIBIT 23(b)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANT
As independent public accountants, we hereby consent to the use of our
report dated July 12, 1996 and to all references to our firm included in this
registration statement.
TURLINGTON & COMPANY, L.L.P.
Lexington, North Carolina
February 17, 1997
<PAGE> 1
EXHIBIT 99(a)
WELLINGTON HALL, LIMITED
STOCK ORDER FORM
Pursuant to the accompanying Prospectus dated __________________, 1997,
Wellington Hall, Limited (the "Company"), a corporation incorporated under the
laws of the State of North Carolina, is offering to the holders of its
outstanding Common Stock of record on __________, ___ 1997 (the "Shareholders")
the nontransferable right to subscribe (a "Right") for one additional share of
Common Stock, no par value, for each share of Common Stock held on the record
date at a price of $.50 per share. In addition, each Shareholder may subscribe
for shares in addition to those that his Rights entitle him to purchase, and if
the Shareholders in the aggregate do not subscribe for the maximum number of
shares to which they are entitled in the Rights Offering, such remaining shares
will be sold to Shareholders who have subscribed therefor (the "Subscription
Offering"), subject to proration if the offering is oversubscribed as explained
in the Prospectus. Any shares that are not sold in the Rights Offering and
Subscription Offering may be sold to persons who are not directors, officers or
Shareholders of the Company (the "Public Offering").
It is understood that this Stock Order Form is subject to the
provisions contained in the Prospectus and that Stock Order Forms will be
accepted, rejected or accepted for fewer than the number of shares ordered in
accordance with the terms of the Offerings set forth in the Prospectus. No Stock
Order Form will be accepted unless accompanied by full payment for all shares
ordered. To the extent any Stock Order Form is rejected or accepted for fewer
than the number of shares ordered, a refund of the payment attributable thereto
will be made without reduction or interest.
Unless extended by the Company, the Rights Offering and the
Subscription Offering end at 5:00 p.m. Eastern Standard Time on ___________ __,
1997 and the Public Offering ends at 5:00 p.m. Eastern Standard Time on
_________ __, 1997. Your Stock Order Form, properly executed and with correct
payment in United States dollars or check or money order payable to the order of
Lexington State Bank must be mailed or delivered in the manner indicated below
and received by Lexington State Bank, as subscription agent for the Company,
prior to the applicable deadline, or it will be considered void.
Lexington State Bank
By Mail: By Hand Delivery:
Trust Department Trust Department
Post Office Box 867 38 West First Avenue
Lexington, North Carolina 27293-0867 Lexington, North Carolina 27292
The undersigned acknowledges (i) receipt from the Company prior to the
completion of this Stock Order Form of a Prospectus dated February ___, 1997 and
of the terms therein and (ii) that after delivery to Lexington State Bank, this
order may not be modified or revoked, and certifies that (iii) that this stock
order is for the account of the undersigned only.
PLEASE COMPLETE AND SIGN THIS STOCK ORDER FORM
AND COMPLETE THE STOCK REGISTRATION INFORMATION FORM ON THE REVERSE SIDE.
The undersigned hereby orders and agrees to purchase the
number of shares of Common Stock of Wellington Hall, Limited shown
below at a price of $.50 per share:
No. of Shares Ordered
-------------
x $.50 Purchase Price per Share
-------------
$ Total Purchase Price Enclosed
=============
This is the ________ day of ____________________, 1997.
Signatures:
--------------------------------------
Purchaser
--------------------------------------
<PAGE> 2
Joint Owner (if any)
STOCK REGISTRATION INFORMATION FORM
The purpose of the following information is to ensure the accurate
registration of your stock ownership in Wellington Hall, Limited.
Please print the name(s) in which your stock is to be registered and
the mailing address for the stock certificate, understanding that Rights are not
transferrable. Please check one of the boxes below to show the legal form of
ownership. If purchased for a trust, include the date of the trust agreement and
the title of the trust.
(PLEASE PRINT)
------------------------------------------------------------
NAME
------------------------------------------------------------
SOCIAL SECURITY NO./TAXPAYER I.D. NO.
------------------------------------------------------------
ADDITIONAL NAME IF JOINT OWNER
------------------------------------------------------------
SOCIAL SECURITY NO./TAXPAYER I.D. NO. OF JOINT OWNER
------------------------------------------------------------
MAILING ADDRESS
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CITY STATE ZIP CODE
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DAYTIME PHONE
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EVENING PHONE
Number of shares to be registered in above name(s):__________________
Legal form of ownership:
/ / Individual / / Tenants in Common
/ / Joint Tenants with Right of Survivorship / / Other __________
FOR OFFICE USE ONLY
No. of Rights Exercised
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No. of Shares Requested in Subscription Offering
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No. of Shares Requested in Public Offering
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No. of Shares Accepted
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Paid with Order $
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Refund (if any) $
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EXHIBIT 99(b)
[WELLINGTON HALL, LIMITED LETTERHEAD]
February __, 1997
Dear Shareholders:
Wellington Hall, Limited (the "Company") is offering to its
shareholders of record on ______________ __, 1997 the nontransferable right (a
"Right") to subscribe for and purchase one additional share of the Company's
common stock, no par value, (the "Common Stock") for each share of Common Stock
then held at a price of $.50 per share, subject to certain limited exceptions
(the "Rights Offering"). You may also subscribe for more shares than you have
Rights, and such shares will be sold to the extent they are available to those
shareholders who have subscribed therefor (the "Subscription Offering") again
subject to certain limited exceptions,. The conditions and exceptions of both
the Rights Offering and the Subscription Offering are more fully described in
the enclosed Prospectus.
Enclosed with the Prospectus is a Stock Order Form upon which is
affixed the number of shares of the Common Stock of the Company that you owned
on the record date. You have Rights to purchase the number of shares shown. If
you elect to exercise your Rights, you must subscribe for a minimum of 1,000
shares. To subscribe for shares in either the Rights Offering or the
Subscription Offering, complete and sign the Stock Order Form and mail or
deliver it to Lexington State Bank, as Subscription Agent for the Company, prior
to 5:00 p.m. Eastern Standard Time on ___________ __, 1997 in the manner
indicated in the Prospectus with payment in full for all shares for which you
have subscribed. The enclosed return envelope has been provided for this
purpose. If the Subscription Agent has not received your completed Stock Order
Form and payment by the expiration date, your Rights will expire. The risk of
delivery of all documents and payments is on subscribers and not on the Company
or the Subscription Agent. If you use the mail, it is recommended that you use
insured registered mail and that you allow a sufficient number of days to ensure
delivery to the Subscription Agent before the expiration date.
Any questions that you may have with regard to any of enclosed
materials may be directed to the undersigned.
Very truly yours,
Hoyt M. Hackney, Jr.
President, Chief Executive Officer
Chief Financial Officer and Treasurer
Enclosures
