FORM 10-KSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
(X) ANNUAL REPORT UNDER SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF
1934 (FEE REQUIRED)
For the fiscal year ended April 30, 1999
or
( ) TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934 (NO FEE REQUIRED)
For the transition period from
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Commission File Number 0 3928
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WELLINGTON HALL, LIMITED
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(Name of small business issuer in its charter)
NORTH CAROLINA 56-0815012
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(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
425 JOHN WARD ROAD 27295
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: 336-249-4931
Securities registered under section 12 (b) of the Exchange Act: NONE
Securities registered under Section 12(g) of the Exchange Act:
COMMON STOCK (NO PAR VALUE)
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Check if there is no disclosure of delinquent filers in response to item
405 of regulation 5-b contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment. (X)
State issuer's revenues for its most recent fiscal year: $ 5,721,206
State the aggregate market value of the voting stock held by
non-affiliates, computed by reference to the price as which the stock was sold,
or the average bid and asked prices of such stock, as of a specified date within
the past 60 days. (See definition of affiliate in Rule 12b-2 of the Exchange
Act): Approximately $206,949 as of July 28, 1999.
State the number of shares outstanding of each of the issuer's classes of
common equity as of the latest practicable dated: 3,723,220 shares of Common
Stock (No Par) as of July 28, 1999.
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of the Company's Annual Report to Shareholders for the fiscal
year ended April 30, 1999, are incorporated by reference into Part II.
2. Portions of the Company's Proxy Statement for the 1999 Annual Meeting of
Shareholders are incorporated by reference into Part III
Transitional Small Business Disclosure Form (Check One)
Yes ( ) No ( X )
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PART I
Item 1. Description of Business
General
The Company manufactures and imports 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 developed and adopted a marketing plan that includes
strategic measures such as (i) augmenting the Company's traditional product line
with new categories of home furnishing products even as mirrors and Chinese
antiques, (ii) augmenting the Company's traditional product line with lower
priced products produced by foreign manufactures (other than and in addition to
the Company's Honduran produced goods), and (iii) updating and upgrading
catalogs and other sales aids in all distribution channels. See
"Business--Markets."
In pursuit of this strategy the Company has developed approximately thirty
designs that are being produced exclusively for the Company by a foreign
manufacture. The Company begin marketing these items in February of 1998,
formally introduced the products at the High Point International Furniture
Market held in April 1999. The first shipments of the good is expected in the
second quarter of fiscal year 1999. ( See Backlogs) The Company does not have a
contractual relationship with the primary manufacturer of these products.
In March of 1999, the Company and Furniture Classics Limited (FCL) entered
into a verbal agreement whereby FCL would supply the Company a line of mirrors,
chinese antiques, and other products from their foreign sources which the
Company will market exclusively. Under this agreement R. Douglas Ricks, the FCL
president will become a shareholder by investing $27,000 for 100,000 shares of
the Company's common stack, would be nominated as a Director, and will assist
management in developing additional products to further exploit these new
sources. As part of the agreement and to enhance Company sales and possibly
finance the growth of these sales, FCL received certain incentives in the form
of warrants. At the High Point International Furniture Market held in April 1999
the Company displayed these products and initial shipment of a portion of the
resulting orders will be reflected in the Company's sales during the fiscal
first quarter ending on July 31, 1999. The balance of the products will
initially ship during the second quarter ending October 31, 1999. Subsequent to
the fiscal year ended April 30, 1999 the Company and FCL executed a contractual
agreement on May 4, 1999 and on May 21, 1999 the Company received $27,000 for
the Company's common stock (see Managements Discussion and Analysis and the
Proxy Statement).
In addition to the foregoing, the Company 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 is responsible for
directing and overseeing all aspects of the Company's sales and marketing
activities with the goal of assuring continuing growth in profitable sales. Mr.
Bingham also represents the Company exclusively in the states of North Carolina,
South Carolina and Virginia. Mr. Bingham's employment arrangement provides for
several incentives for him to assist the Company in increasing sales revenues.
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 has pursued a number of strategies to
improve its financial condition by raising equity capital, reducing indebtedness
and increasing working capital. Certain elements of management's plan were
implemented or developed in fiscal year 1997.
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. On February 12, 1997, Mr. Bingham purchased 600,000 shares of Common
Stock at a price of $.50 per share, which purchase price was paid by
cancellation of the foregoing loan and for an additional investment of $14,306.
The Company used the funds provided by Mr. Bingham to reduce its indebtedness
and provide working capital. The Company also granted stock options to Mr.
Bingham and to Mr. Ralph Eskelsen, manager of the Honduran Facilities, as
incentives to these key employees. Mr. Eskelsens options expire without
execution.
The Company successfully negotiated with its lenders to amend its loan
agreements therewith to provide more favorable terms. On January 16, 1997, the
Company obtained an additional $250,000 line of credit from Lexington State
Bank. In addition, on March 10, 1997, the Company entered into an agreement with
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 effect of the restructured loan was 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 contributed significantly
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to the Company's working capital and cash flow for these years. The restructured
OPIC loan also reduced the interest rate from 12% to 10% per annum. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
On February 21,1997, the Company filed a registration statement with the
Securities and Exchange Commission for the offer and sale of 1,689,887 shares of
its common stock. The shares were to be offered first to the holders of record
of its outstanding common stock as of a date at or about the time that the
registration statement was to becomes effective, who would have had the right
for thirty days to purchase one additional share for each share then held at a
price of $.50 per share. Each Wellington Hall shareholder as of that date could
also have subscribed within that thirty day period for additional shares, and
any available shares would have been sold to shareholders who have subscribed
therefor on a pro rata basis. Any shares still remaining after the expiration of
the offering to Wellington Hall shareholders could have been sold to persons who
were not directors, officers or shareholders of Wellington Hall.
Primarily because of the operating losses experience in fiscal 1997 and
beyond, the aforementioned stock offering was canceled and there are no plans to
pursued the matter further. The legal and related costs associate with the
offering were expensed during fiscal 1998.
On April 23, 1999, Ernst B. Kemm, upon the Board of Directors approval
purchase 1,333,333 shares of the Company's common stock for $400,000 or $.30 per
share. The purpose of the funds was to reduce trade payable with certain vendors
and sales representatives, finance new sales aids, finance the purchase of raw
materials for the Company's Honduran facility and to finance the purchase of
furniture from off shore manufacturers.
On April 19, 1999, Hoyt M. Hackney, the Company President, with the
majority of the Board of Directors approval , agreed to alter the "Deferred
Compensation Agreement" between Mr. Hackney and the Company. The agreement
allows that upon retirement, at age 62 or older, or upon his death he or his
estate would received $50,000 per year for a period of ten years (see Proxy
Statement). The Company has accrued the expensed of this obligation over the
last twelve years and is scheduled to continue that expense until the sum of
$300,000 has been accrued. At April. 30, 1999 the Company's Balance Sheet stated
a $288,000 long term liability as a result of this accrual.
The revisions to the "Deferred Compensation Agreement", not yet finalized,
are expected to reduce the compensation to $20,000 per year but, in any even,
not before May 1, 2005. In exchange and if the, Mr. Hackney would receiving
restricted stock, 1,000,000 shares of common stock at $.30, which could not be
sold until after retirement or death and then only in increments of 1/10 of the
shares per year for a period of 10 years. This action, if finalized, could
capitalize the $300,000 liability and thus remove the long term liability from
the Company's balance sheet when the transaction is executed.
The primary purpose of the revisions to the "Deferred Compensation
Agreement" is an incentive to the Company's lenders to restructure the
outstanding loan whereby the potential outlay of $50,000 per year is removed or
delayed to potentially enhance the Company's ability to repay its debt.
Subsequent to the end of fiscal year ended April 30, 1999 and on June 16,
1999, Lexington State Bank (LSB) the company's primary domestic lender
restructured the company's debt (See Management Discussion and Financial
Analysis) whereby three demand notes with an aggregate total of $1,550,000 and
one long term note of approximately $255,000 were replaced by a long term note
of $1,529,784 with repayment amortized over a period of ten years and short term
$300,000 (a revolving line of credit) On June 16, 1999 the Company owed $20,000
against the demand note. The demand notes retired carried interest rates ranging
between prime plus 1% and 1 1/2%. The long term note retired had an interest
rate of prime plus 1.5%. The new long term and demand notes have interest rates
of prime plus 3/4%.
The effect of the restructured LSB debt reduced the Company's "Current
Liabilities" by approximately $1,530,000 and depending on the level the Demand
Notes utilized over time, hold the Company's interest and principal to almost
the level of those requirements prior to the restructuring of the debt thus
minimizing the effect on the Company's working capital.
On July 22, 1998, WHCC requested the Overseas Private Investment
Corporation (OPIC) waiver the principal payments due on the company's
outstanding debt (See "Management Discussion and Analysis") on July 31 and on
October 31, 1998. The Company has not received an official reply to that request
but only paid the interest due on those dates. Thereafter, and on January 31,
1999 and on April 30, 1999 the company paid interest due and a reduced principal
payment of approximately $21,000 versus approximately $62,000 required by the
terms of the loan agreement. This left the company with a past due balance on
April 30, 1999 of approximately $207,000.
After a number of discussions between the Company and OPIC, the Company
entered a new request on April 23, 1999 to amend the terms of the loan whereby
OPIC would received $225,000 in preferred stock and with the balance of the loan
to be repaid over a period of six years with a one year being a grace period on
the repayment of principal.
The effect on this request, if granted, would effectively reduce the loan
balance from approximately $821,000 at April 30, 1999 to approximately 600,000;
reduce interest expense by approximately $22,550 annually, and enhance the
company's effort to restore its sales and profit by allowing a period to
increase working capital. Since the total debt outstanding with the OPIC is due
on October 31, 1999, the Company's Balance Sheet reflects the debt as a "Current
Liability" under "Current maturities on Long Term Debt". If OPIC grants the
Company's request, approximately $225,000 will become equity and the balance
will be reflected on the Balance Sheet as a Long Term Debt.
On May 21, 1999, FCL invested $27,000 by the before mentioned agreement for
100,000 shares of the company's common stock. The funds from the investment were
utilized to purchase inventory specifically for showroom samples of new product
introduced at the April 1999 International Furniture Market held in High Point,
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North Carolina and to support the shipment of orders received for mirrors.
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 (336)
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, etc.), console
tables, mirrors, coffee tables, commodes 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. As
described herein below, WHCC, the Company's North American subsidiary,
distributes the products manufactured at the Honduran Facilities, and during
fiscal 1998, such products accounted for approximately 44% of the Company's
consolidated sales (net of intercompany sales), while products produced
domestically by the Company accounted for about 56% of its consolidated sales.
Unfinished furniture imported from the Honduran Facilities accounted for about
25% of the Company's domestically-produced sales, and the number of imports for
finishing from elsewhere was negligible. In addition, WHCC furnished the
Company's domestic operations with approximately 50% of certain forms of wood
utilized in domestic production. The balance of the raw materials utilized by
the Company's domestic operations, including plywood, brass decorating hardware,
finishing material and packing material, are purchased from domestic sources.
WHCC 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, Pine and San Juan Areno.
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 Honduran - produced group.
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 is harvested from segments of 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, the internet 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 per account versus the
cost of sales aids necessary to service the account, the requirement that it
grant credit to accounts with limited assets and with a limited credit
histories, and the inadequate means the designer normally has available to
receive delivery and service his customer. Since decorators do not generally
stock or display a significant amount of 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 both the
Company's and WHCC's products.
As part of the Company's strategy to increase its sales, the Company is
giving a high priority to maintaining quality sales materials. During fiscal
1999, the Company's financial position prohibited the publication of new sales
catalogs and some new products were neither photographed or cataloged. With
additional funds received late in the fiscal year, a new bedroom and occasional
furniture catalogs have been produced and issued including products produced at
the Company's Honduras facility and marketed by WHCC.
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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. The Company does not, however, have
contractual relationships with such retail stores. The Company and a particular
retail store may have an informal understanding at the time that the Company
sells its products to such a store, which understanding may relate to such
things as amount of the Company's products to be displayed on the store's floor
space, pricing and dating for payment purposes. The Company's use of this outlet
has declined over several years for various reasons, including but not limited
to the fact that many dealers within the industry have gone out of business. In
addition, the Company has been unable to compete effectively with the invoice
dating policy (e.g. "buy now, pay nothing until later") employed by larger
manufacturers because such a policy increases receivables and drains available
cash. The Company believes that its inability to compete with such a policy has
induced many dealers not to consider the Company's products when assigning
available floor space and when assigning resources for warehouse stock.
Accordingly and in the absence of a display or stock, a growing percentage of
the Company's orders received from retail stores are for items which the dealer
can only sale by utilizing the Company's catalogs, a circumstance that further
necessitates the creation and/or improvement and maintenance of the Company's
sales aids. See--"Designer Trade."
Internet
Early in 1996 the company added its own home page to the internet and with
limited expense had essentially the entire product line added by Design On Line
(wellngtonhallltd.com) Design on Lines sales access to it file of designers. The
Home Page and the Design On Line site only provides (hits) inquiries which can
be passed on to dealers. In late spring of 1999, a furniture internet retailer,
Furniture.Com. began selling the Company's WHCC product. The results to date
indicate that significant sales may be realized. The Company is evaluating
adding to its products to other internet retailers.
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 a limited
number of trade showrooms, that are accessible only to the professional designer
and not generally open to the public, in some 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 have been
an important outlet for the Company in past years. 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,
offering substantial discounts to induce designers to purchase from them. It is
the opinion of the Company that trade showrooms sales have diminished to such a
low level that they are no longer of significant to the Company's marketing
efforts.
Consumer Catalogs
Consumer catalogs are a means of distribution that has not been available
to or utilized by the Company prior to late 1996. Since the October 1996
Furniture Market held in High Point N.C., the Company has had a limited portion
of its product lines included from time to time in the catalogs of a major
catalog company. The Company does not have a contractual relationship with the
aforementioned catalog company though the Company does expects certain of its
products to be similarly included in future editions. The catalog in which the
Company's products appeared included different types of furniture, wooden and
otherwise, in addition to that sold by the Company, as well as those products
that the catalog company markets in addition to furniture like, clothing or
electronics. Sales from theses catalog represent only a small portion of the
Company's total annual sales.
OEM Sales
Following the acquisition and expansion of the Honduran Facilities in 1990,
the Company aggressively sought to sell to other manufacturers ("OEM sales")
dimension stock, wood components (carvings and turnings), and unfinished
assemblies with significant success. However, 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 al of the
capacity of the Honduran Facilities for the production of the Company's products
to the exclusion of its OEM business. During such time, the Company expected to
direct available resources to reducing indebtedness as opposed to continuing to
expand its OEM business. However, very late in 1994 the market for the Company's
products became soft and, without the OEM sales, it became necessary about
mid-1995 and through much of calendar 1996 to curtail production to avoid
additional increases in inventory. For all of fiscal year 1998, the Company's
directed its efforts with some success toward establishing a distribution for
its proprietary line and, at the same time, toward
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rebuilding a dealer base for OEM sales. During fiscal year 1999, OEM sales
decreased and these sale were negligible relative to the Company's consolidated
sales.
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
Executive Vice Presidents devotes substantial time to the design and development
of new products. Though, because of the nature of the Company's designs, many of
its products may remain marketable for a significant period of time, the
competition in and the fashion orientation of the home furnishings market
require that the Company's product line be continually updated by the
introduction of new products. The development of such new products involves
producing samples of the new items for display and for the production of sales
aids with respect to such new products. The samples are constructed utilizing
production labor and facilities and from raw materials that are purchased in
very small quantities. The Company does not account the associated cost of these
samples separately, instead absorbing the expenses as production costs. The
labor costs, lost production volume and overhead absorption, and the premium
prices charged on the small quantities of raw materials that such samples
require can, in the aggregate, have a significant impact on operation results.
The Company's does not otherwise spend a material amount on research and
development.
Sales
The Company's sales function is led by Arthur F. Bingham, its Senior
Executive Vice President of Sales and Marketing. The Company employs 12
independent, commissioned sales representatives who generally sell to retail
stores and service trade showrooms in the United States, Japan and Canada. The
Company generally sells its products on a net 30-day basis.
WHCC employs one independent, commissioned sales representative for
products sold to U.S. furniture manufacturers other than the Company, the
Company's OEM business, and that commissioned sales representative covers the
two eastern states in which the majority of the U.S. furniture industry is
located. In addition to this sales representative, the Company's president
devotes a substantial amount of time to marketing certain categories of the
Company's products to customers not specifically covered by the sales
representative. WHCC utilizes the Company's 12 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 April 30, 1999 was $2,342,513 about
the same as its backlog of $2,382,421 on April 30, 1998. The April 30, 1999
backlog included $1,191,649 of domestically-manufactured products, as opposed to
$1,327,111 included in the 1998 backlog. The backlog for WHCC and
Honduran-produced products, less intercompany orders, was $1,055,321 on April
30, 1999 versus $598,070 on April 30, 1998. This decrease mostly reflects an
orders for about $450,000 from a new off shore account received late in fiscal
1998 which tended to hype the backlog reported on April 30,1998. The Company had
a backlog of orders for new imported products $552,794 at April 30,1999. No
orders for these products were included in the backlog reported for fiscal 1998.
Sources and Availability of Raw Materials
The Company's principal raw material is wood, and the Company utilizes
several different species including Mahogany, Laurel, Pine, San Juan Areno,
Walnut, Poplar, Cherry, Oak, Maple and Cedar. Wood is purchased in the form of
dimension stock (rough parts), components (turnings and carvings) and plywood.
The Company uses all of these forms of wood in the manufacturing of its
products. For example, in the production of a table, turnings and carvings may
be used for table legs and specialty designs, plywood may be used for the
tabletop and dimension stock (large pieces of wood that the Company is able to
process into the required dimensions) may be used for other parts of the table.
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.
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. The
Company's belief is based on the fact that the Honduran government has always
made available to the Company as much mahogany as it has requested and has never
indicated that such supply may be in future jeopardy. In addition to mahogany,
the Company currently utilizes the other species of wood referenced above and
continually researches
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whether other species of wood are available for manufacturing in commercial
quantities 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 program
requires that a physical inventory be taken by representatives of the government
to determine the number of suitable trees of a given variety in a particular
portion of the forest. From the inventory data, the Honduran government
calculates how quickly that particular variety of tree in that particular area
will regenerate and, then, how much can be harvested annually such the supply of
such variety can be sustained. Wood cannot be harvested or transported without a
permit that the Honduran government issues with a termination date, that
specifies the species to be harvested, the amount of wood to be harvested, and
the particular portion of forest is to be harvested and the delivery point for
the harvested wood. is to be delivered.
With respect to the Company, sustainable management works as follows: the
Honduran government solicits the Honduran wood-working industry (users), of
which the Company is a part, to determine the need for various types -of wood.
The Honduran government then issues permits to various entities (suppliers) to
harvest their assigned areas of forest until the aggregate amount of permitted
harvesting satisfies the users' requested needs. Once the permits are issued
specifying the Company as the exclusive recipient; price, delivery and payment
terms can be negotiated with the supplier. Once the permits are issued,
harvesting can not commence until a stumpage tax is paid by the supplier. Most
often the supplier does not have the resources to pay the tax and the Company
effectively prepays the tax.
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).
Employees
As of April 30, 1999 the Company had approximately 335 employees, including
approximately 300 people currently employed at the Honduran Facilities.
Approximately 205 of the Company's employees are full-time employees.
Description of Property
The Company owns and operates one plant that houses its United States
production facilities and general offices and is located on 17 acres of land in
Lexington, North Carolina. The 82,500 square foot facility is of brick,
-7-
<PAGE>
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, including inventory, machinery and equipment, 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, boilers
and related processing equipment, two buildings for dry lumber storage and a
6,408 square-foot building for "green" lumber storage. In July 1990, 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, they are adequately
covered by insurance.
The Honduran Facilities, including both real and personal property such as
plant and equipment but not including inventory or receivables, 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 4,400 square-foot showroom located in High Point,
North Carolina utilized to display the Company's products, particularly new
product introductions, during the semiannual International Furniture Markets.
The Company believes the showroom is in good condition and suitable for its
intended use.
Item 3. 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.
Item 4. Submission of Matters to Vote of Security Holders.
None
PART II
Item 5. Market for Common Equity and Related Stockholder Matters.
The information required by Item 5 of Form 10-KSB appears under the caption
" Market Prices, Dividends and Related shareholder Matters" in the Company's
Annual Report to Shareholders for fiscal year ended April 30, 1999, reference to
which is hereby made and the information there is incorporated herein by
reference.
Item 6. Management's Discussion and Analysis or Plan of Operation
The information required by Item 6 of Form 10-KSB appears under the heading
"Management's Discussion and Analysis" in the Company's Annual Report to
Shareholders for fiscal year ended April 30, 1999, reference to which is hereby
made and the information there is incorporated herein by reference.
Item 7. Financial Statements
The information required by Item 7 of Form 10-KSB appears in the Company's
Annual Report to Shareholders for the year ended April 30, 1999, at page 31
through 47, reference to which is hereby made and the information therein
incorporated herein by reference.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act.
The information required by Item 9 of Form 10-KSB appears in the Company's
Proxy Statement for the 1999 Annual Meeting of Shareholders under the caption
"Election of Directors", reference to which is hereby made and the information
there is incorporated herein by reference.
-8-
<PAGE>
Item 10. Executive Compensation
The information required by Item 10 of Form 10-KSB appears in the Company's
Proxy Statement for the 1999 Annual Meeting of Shareholders under the caption
"Executive Compensation", reference to which is hereby made and the information
there is incorporated herein by reference.
Item 11. Security Ownership of certain Beneficial Owners and Management
The information required by Item 11 of Form 10-KSB appears in the Company's
Proxy Statement for the 1999 Annual Meeting of Shareholders under the caption
"Voting Securities and Principal Shareholders" and "Election of Directors",
reference to which is hereby made and the information there is incorporated
herein by reference.
Item 12. Certain Relationships and Related Transactions
The information required by Item 12 of Form 10-KSB appears in the company's
Proxy Statement for the 1999 Annual Meeting of Shareholders under the caption
"Certain Transactions", reference to which is hereby made and the information
there is incorporated herein by reference.
Item 13. Exhibits, Lists and Reports on Form 8-K
(a) The following Financial Statements, Financial Statement Schedules and
Exhibits are filed as part of this report:
(1) Financial Statements:
The following consolidated financial statements of the Company, included in
the Annual Report to Shareholders for the year ended April 30, 1999, are
incorporated herein by reference to the pages indicated:
Consolidated Balance Sheets - April 30, 1999, and 1998 (page 31)
Consolidated Stockholders' Equity - Years ended April 30, 1999 and
1998 (page 34)
Consolidated Statements of Income - Years Ended April 30, 1999 and
1998 (page 33-34)
Consolidated Statements of Cash Flows - Years Ended April 30, 1999 and
1998 (page 35)
Notes to Consolidated Financial Statements (Pages 36-47)
Independent Auditors' Report (page 12-13)
All other schedule for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions, are inapplicable or the required information is given in
the financial statements including the notes thereto, and therefore, have been
omitted.
(3) EXHIBITS FILED
10.28 Commercial Security Agreement, dated June 16, 1999, between the
Company and Lexington State Bank
10.29 Promissory Note, dated June 16, 1999, between the Company and
Lexington State Bank
10.30 Commercial Pledge Agreement, dated June 16, 1999, between the
Company and Lexington State Bank
10.31 Business Loan Agreement, dated June 16, 1999, between the
Company and Lexington State Bank
10.32 Promissory Note, dated June 16, 1999, between the Company and
Lexington State Bank
10.33 Lease Agreement, dated April 26, 1999, between the Company and
Phillips Interests 3, Inc.
10.34 Marketing Agreement, dated May 4, 1999, between the Company and
Furniture Classics, Limited.
-9-
<PAGE>
10.35 Warrants, dated July 22, 1999, issued by the Company to R.
Douglas Ricks
10.36 Note Modification Agreement, dated June 27, 1999, Between
between the Company and Lexington State Bank
(a) A list of exhibits is included in the accompanying index to
exhibits
(b) Reports on Form 8-K: No reports on Form 8-K were filed during the
fourth quarter of fiscal year ended April 30, 1998.
-10-
<PAGE>
REPORT AND CONSENT OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders
Wellington Hall, Limited and Subsidiaries
Lexington, North Carolina
We hereby consent to the incorporation, by reference, of our report dated July
12, 1999, which appears on page of the annual report to stockholders for the
year ended April 30, 1999, in this annual report on Form 10-K of Wellington
Hall, Limited and Subsidiaries for the year ended April 30, 1999.
The audit referred to in the above mentioned report also included the related
consolidated financial statements for the two years ended April 30, 1999 listed
in the accompanying index. In our opinion, such financial schedules present
fairly the information required to be set forth therein.
July 12, 1999
-11-
<PAGE>
TURLINGTON AND COMPANY, L.L.P.
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, 1999 and 1998, and the related
consolidated statements of income, comprehensive income, stockholders' equity,
and cash flows for the years then ended. These consolidated financial statements
are the responsibility of Wellington Hall, Limited and Subsidiaries' 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 $1,325,651 and $1,522,535, respectively, as of April 30,
1999 and 1998, and total revenues of $2,071,637 and $1,870,046, respectively,
for the years ended April 30, 1999 and 1998. 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 financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, 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, 1999 and 1998, and the results of their operations,
and their cash flows for the years then ended in conformity with generally
accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that Wellington Hall, Limited and Subsidiaries will continue as a going concern.
As discussed in Note 20 to the consolidated financial statements, under existing
circumstances, there is substantial doubt about the ability of Wellington Hall,
Limited and Subsidiaries to continue as a going concern. Management's plans in
regard to that matter also are described in Note 20. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
July 12, 1999
-12-
<PAGE>
KPMG PEAT MARWICK ASESORES, S. de R.L.
Auditoria, Consultoria e Impuestos
Apartado 3398, Tequcigalpa Apartado 257, San Pedro Sula
Honduras, C.A. Honduras, C.A.
Telefono:232-2806, 232-5907 Telefono:553-3545, 553-0146
Telefax: 232-5925 Telefax: 552-2223
E-Mail: [email protected] E-Mail: [email protected]
INDEPENDENT AUDITOR'S REPORT
----------------------------
Board of Directors
MUEBLES WELLINGTON HALL, S.A. DE C.V.:
We have audited the accompanying balance sheets of Muebles Wellington Hall, S.A.
de C.V., San Pedro Sula, Honduras, as of April 30, 1999 and 1998 and the related
statements of earnings (loss), retained earnings and cash flows for the years
then ended. Such financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits
We conducted our audits in accordance with generally accepted auditing standards
in Honduras. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, in a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Muebles Wellington Hall, S.A.,
de C.V., as of April 30, 1999 and 1998 and the results of its operations and its
cash flows for the years then ended, in conformity with generally accepted
accounting principles in Honduras.
/s/ KPMG
June 28, 1999
-13-
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
WELLINGTON HALL, LIMITED
Date: June 28, 1999 By:
------------------------------
Hoyt M. Hackney, Jr.
President, (Principal Executive
Officer, Principal Accounting
Officer)
In accordance with the Exchange Act, this report has been signed by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated:
Name and Signature Position Date
- ------------------ -------- ----
_______________________ President (Chief June 28, 1999
Hoyt M. Hackney, Jr. Executive Officer
and Chief Financial
Officer), Treasurer
_______________________ Executive Vice June 28, 1999
Ernst B. Kemm President and Director
_______________________ Chairman of the Board June 28, 1999
Donald W.Leonard
_______________________ Secretary and Director June 28, 1999
William W. Woodruff
_______________________ Senior Executive Vice June 28, 1999
Arthur F. Bingham President and Director
-14-
<PAGE>
EXHIBIT INDEX
TO
ANNUAL REPORT ON FORM 10-KSB
OF
WELLINGTON HALL, LIMITED
FOR
YEAR ENDED APRIL 30, 1999
Exhibit No. Description
3.1 Amended and Restated Charter of Wellington Hall Limited. *
3.2 Bylaws of Wellington Hall, Limited, as amended. *
10.1 Wellington Hall Executive Stock Plan. **
10.2 Employment Agreement and Executive Deferred Compensation
Agreement between the Company and Hoyt M. Hackney Jr., effective
January 1, 1987 and May 8, 1987, respectively. *
10.3 Note - Security Agreement, dated April 23, 1986, between the
Company and Lexington State Bank is incorporated herein by
reference to Exhibit 4.2 to the Company's Annual Report on Form
10-K for the fiscal year ended April 30, 1987.
10.4 Loan Agreement, dated April 15, 1987, between the Company and
Lexington State Bank is incorporated herein by reference to
Exhibit 4.2 to the Company's Annual Report on Form 10-K for the
fiscal year ended April 30, 1987.
10.5 Note - Security and Note Modification Agreements, dated April 26,
1988, between the Company and Lexington State Bank is
incorporated herein by reference to Exhibit 4.3 to the Company's
Annual Report on Form 10-K for fiscal year ended April 30, 1988.
10.6 Loan Agreement between Wellington Hall Caribbean Corporation and
the Overseas Private Investment Corporation, dated December 22,
1989, as amended on September 1, 1990. ***
10.7 Subordination Agreement, dated September 1, 1994, between
Wellington Hall, Limited, Wellington Hall Caribbean Corporation,
Muebles Wellington Hall, S.A. and the Overseas Private Investment
Corporation. ***
10.9 Amendment to Loan Agreement, dated February 1, 1991, between the
company and Lexington State Bank is incorporated herein by
reference to Exhibit 10.14 to the Company's Annual Report on Form
10-K for the fiscal year ended April 30, 1991.
10.10 Loan Agreement, dated August 20, 1991, between Muebles Wellington
Hall, S.A. and Banco de Honduras, S.A. is incorporated herein by
reference to Exhibit A to the Company's Form 10-Q for the quarter
ended July 31, 1991.
10.11 Amendment to Loan Agreement, dated April 10, 1992 between the
Company and Lexington State Bank. ****
10.12 Promissory note, dated January 23, 1992 between the Company and
Hoyt M. Hackney, Jr. ****
10.13 Amendment to Executive Deferred Compensation Agreement , dated
January 23, 1992, between the Company and Hoyt M. Hackney Jr.
****
10.14 Loan Agreement, dated June 28, 1993, between the Company and
Lexington State Bank. *****
-15-
<PAGE>
10.15 Lease Agreement dated November 1, 1993 by and between North
Hamilton Corporation and the Company, is incorporated herein by
reference to the Company's Annual Report on Form 10-K for the
fiscal year ended April 30, 1994.
10.16 Amendment to the Loan Agreement, dated September 1, 1994 between
Wellington Hall Caribbean Corporation and the Overseas Private
Investment Corporation.******
10.17 Employment and Stock Purchase Agreement dated September 1, 1996
between the Company and Arthur F. Bingham, filed as Exhibit (a)
to the Company's Quarterly Report on Form 10-QSB for the
quarterly period ended July 31, 1996
10.18 Amended Loan Agreement dated March 10, 1997 with the Overseas
Private Investment Corporation, filed as Exhibit (a) to the
Company's Quarterly Report on Form 10-QSB for the quarterly
period ended January 31, 1997
10.19 Promissory Note dated January 16, 1997 between the Company and
Lexington State Bank filed as exhibit 10 (q) in Part II to the
Registration Statement filed February 20, 1997
10.20 Employment Agreement dated December 1, 1997 between the Company
and Ralph L. Eskelsen filed as exhibit 10 (t) in Part II to the
Registration Statement filed February 20, 1997
10.21 Addenda to Employment and Stock Purchase Agreement dated
September 1, 1996 between the Company and Arthur F. Bingham dated
February 10, 1997 filed as exhibit 10 (u) in Part II to the
Registration Statement filed February 20, 1997
10.22 1997 Stock Option and Restricted Stock Plan filed as exhibit 10
(v) in Part II to the Registration Statement filed February 20,
1997
10.23 Nonqualified Stock Option Agreement dated as of February 10, 1997
between the Company and Arthur F. Bingham filed as exhibit 10 (w)
in Part II to the Registration Statement filed February 20, 1997
10.24 Incentive Stock Option Agreement dated as of February 10, 1997
between the Company and Arthur F. Bingham filed as exhibit 10 (x)
in Part II to the Registration Statement filed February 20, 1997
10.25 Incentive Stock Option Agreement dated as of February 10, 1997
between the Company and Ralph L. Eskelsen filed as exhibit 10 (y)
in Part II to the Registration Statement filed February 20, 1997
10.26 Note Modification Agreement dated January 16, 1998 between the
company and Lexington State Bank is incorporated herein by
reference to Exhibit 10.26 to the Company's Quarterly Report on
Form 10-QSB for the fiscal quarter ended January 31, 1998.
10.27 Amendment to Lease Agreement dated March 1, 1998 by and between
Phillips Interest 3, Inc. and the Company, is incorporated herein
by reference to Exhibit 10.27 to the Company's Quarterly Report
on Form 10-QSB for the fiscal quarter ended January 31, 1998.
10.28 Commercial Security Agreement, dated June 16, 1999, between the
Company and Lexington State Bank is incorporated herein by
reference to Exhibit 10.28 to the Company's Annual Report on Form
10-KSB for the fiscal year ended April 30, 1999.
10.29 Promissory Note, dated June 16, 1999, between the Company and
Lexington State Bank is incorporated herein by reference to
Exhibit 10.29 to the Company's Annual Report on Form 10-KSB for
the fiscal year ended April 30, 1999.
-16-
<PAGE>
10.30 Commercial Pledge Agreement, dated June 16, 1999, between the
Company and Lexington State Bank is incorporated herein by
reference to Exhibit 10.30 to the Company's Annual Report on Form
10-KSB for the fiscal year ended April 30, 1999.
10.31 Business Loan Agreement, dated June 16, 1999, between the Company
and Lexington State Bank is incorporated herein by reference to
Exhibit 10.31 to the Company's Annual Report on Form 10-KSB for
the fiscal year ended April 30, 1999.
10.32 Promissory Note, dated June 16, 1999, between the Company and
Lexington State Bank is incorporated herein by reference to
Exhibit 10.32 to the Company's Annual Report on Form 10-KSB for
the fiscal year ended April 30, 1999.
10.33 Lease Agreement, dated April 26, 1999, between the Company and
Phillips Interests 3, Inc. is incorporated herein by reference to
Exhibit 10.33 to the Company's Annual Report on Form 10-KSB for
the fiscal year ended April 30, 1999.
10.34 Marketing Agreement, dated May 4, 1999, between the Company and
Furniture Classics, Limited. is incorporated herein by reference
to Exhibit 10.34 to the Company's Annual Report on Form 10-KSB
for the fiscal year ended April 30, 1999.
10.35 Warrants, dated July 22, 1999, issued by the Company to R.
Douglas Ricks is incorporated herein by reference to Exhibit
10.35 to the Company's Annual Report on Form 10-KSB for the
fiscal year ended April 30, 1999.
10.36 Note Modification Agreement, dated July 27, 1999, Between between
the Company and Lexington State Bank is incorporated herein by
reference to Exhibit 10.36 to the Company's Annual Report on Form
10-KSB for the fiscal year ended April 30, 1999.
11 Earnings Per Share Computation
13 Annual Report to Shareholders of Wellington Hall, Limited for the
year ended April 30, 1998, portions of which are incorporated by
reference into this report.
22 Subsidiaries of the Company
27 Financial Data Schedule (For SEC Use Only)
* Incorporated herein by reference to the identically-numbered exhibits to
the Company's Annual Report on Form 10-K for the fiscal year ended April
30, 1987.
** Incorporated herein by reference to the identically-numbered exhibits to
the Company's Annual Report on Form 10-K for the fiscal year ended April
30, 1986.
*** Incorporated herein by reference to the identically-numbered exhibits to
the Company's Annual Report on Form 10-K for the fiscal year ended April
30, 1990.
**** Incorporated herein by reference to the identically-numbered exhibits to
the Company's Annual Report on Form 10-K for the fiscal year ended April
30, 1992.
***** Incorporated herein by reference to the identically-numbered exhibits to
the Company's Annual Report on Form 10-KSB for the year ended April 30,
1993.
******Incorporated herein by reference to the identically-numbered exhibits to
the Company's Annual Report on Form 10-KSB for the year ended April 30,
1995
-17-
WELLINGTON HALL, LIMITED AND SUBSIDIARIES
EXHIBIT 11 - EARNINGS PER SHARE COMPUTATION
<TABLE>
<CAPTION>
Years ended April 30
1999 1998 1997
---------------- ---------------- ----------------
Basic
<S> <C> <C> <C>
Weighted Average Shares Outstanding 2,315,458.00 2,289,887.00 1,839,887.00
================ ================ ================
Net Loss $ (573,387.00) $ (1,013,225.00) $ (507,212.00)
================ ================ ================
Per share amount $ (0.25) $ (0.45) $ (0.28)
================ ================ ================
Diluted
Weighted Average Shares Outstanding 2,311,805.00 2,289,887.00 1,839,887.00
================ ================ ================
Diluted potential common shares
outstanding during the years 0 0 0
Total Shares 2,311,805.00 2,289,887.00 1,839,887.00
================ ================ ================
Net Loss $ (573,387.00) $ (1,013,225.00) $ (507,212.00)
================ ================ ================
Per Share Amount $ (0.25) $ (0.45) $ (0.28)
================ ================ ================
-18-
</TABLE>
EXHIBIT
13
1999
ANNUAL REPORT
WELLINGTON HALL, LIMITED
Lexington, North Carolina
-19-
<PAGE>
TO THE SHAREHOLDERS OF WELLINGTON HALL LIMITED
Sales for the year were $5,721,206 up about $59,000 over the previous year
and, though relatively small, the increase is a reversal of a trend the Company
has experienced over the last three years. This level of sales remains well
below the level of sales necessary for the company to be profitable even after
significant cost reduction have been executed at both the Honduran and domestic
facilities. Net profits for the year were a loss of $573,793 versus a loss in
fiscal 1998 of $1,013,125 and though this is a significant improvement, there
remains a substantial task to returning the Company to profitable operations
next year.
A positive factor in the fiscal 1999 results were the increase in the sales
of the Honduran products and the improvement in the margins and operating
profits as a result of those sales. Those sales, net of inter Company sales,
increased by about $94,000 or 4.5 percent and the operating profits for Muebles
Wellington Hall, the Honduran operation, and for Wellington Hall Caribbean Corp.
(WHCC), the marketing and distribution Company for the Honduran production, were
$485,495, 16.7% of all sales versus $59,523 or 2.4% the previous year. Net
income for these two entities were $227,195, 2.4 % of all sales, including inter
Company versus a loss in fiscal 1998 of $200,590. This improvement is mostly the
results of price increases and labor reductions at the Honduran facility.
Management will attempt to build on this improvement in fiscal year 2000 by
taking the following action. First, management believed that relative to its
competition for solid mahogany furniture, the primary product produced in
Honduras, a price increase could be taken without diminishing sales and so on
April 15, 1999 the prices were increased approximately 6%. Secondly and in an
effort to keep the Honduran facility operating on a full schedule without
building higher inventories, new products will be added to the WHCC product line
and certain products previously marketed as part of the domestically produced
line will be switched to the WHCC line. The new product will utilize pine and be
introduced at the October 1999 International Market held in High Point N.C. An
English bedroom and a limited number of occasion furniture items previous
marketed and priced as domestically produced goods have been switched to the
WHCC line. Marketing of the English bedroom began this spring and at the April
furniture market at lower prices but at expected higher margins and will begin
shipping during the second quarter ending October 31, 1999. Thirdly, the Company
is up grading it catalogs for the WHCC products. In June 1999 a new catalog for
the mahogany bedroom was distributed to the Company's customer base and in July
a new catalog was issued for the mahogany occasional furniture, including those
items switched from the domestic line.
The operation of the domestic facility and the continue sale of inventory
at highly discounted prices have contributed most materially to the losses the
Company has experience. The sale of the inventory has been necessary to both to
generate operating funds and to dispose of slow moving, distressed, and/or
discontinue products. These sale of the inventories will continue throughout the
next year to generate a portion of necessary operating fund and, though this
action will likely diminish profits, these sales have allowed the Company to
produce positive cash contribution from operating activities over the last two
fiscal years. The plan for the domestic facility is to further scale down it
production and basically use the facility to receive, deluxe, package and
distribute the Honduran products and new products which have been developed and
marketed as Wellington Hall Imports (WHI). These products are further discussed
below. There has been a significant effort to date to reducing expense at the
domestic facility and management will continue to scrutinize it domestic labor
and overhead to reduce the expenses to a level whereby the more limited domestic
production, WHCC sales, and WHI sales can absorb at a profitable level.
To expand the Company sales, management concluded that it must have high
quality, well design products at lower prices to offer the current furniture
market. To accomplish this, efforts were initialed early in calendar year 1998
to find foreign manufactures whereby the Company could develop a relationship
and have new design produced at lower cost for marketing and distribution by the
Company. At the April 1999 International Market held in High Point N.C. the
Company, having establish a source, formally introduced approximately thirty new
designs and in combination with a premarketing effort realized encouraging
success. In addition, in March of 1999, the Company and Furniture Classics
Limited (FCL), a Norfolk Virginia imported, agreed that the Company would
distribute certain products exclusively from FCL established source. The FCL
agreement allowed the Company, again at the before mentioned April market, to
introduce a mirror line, about thirty items, and a line of Chinese antiques,
about twenty items, both categories are new to the Company marketing effort. The
quantity of orders received for both of these categories has been encouraging
and will begin contributing to the Company's sales during the first quarter of
fiscal 2000 ending July 31, 1999. The Company is marketing these products from
the source developed by management and those from FCL source under the name
Wellington Hall Imports.
The company's financial situation in general, particularly it indebtedness,
has received significant attention and the following actions have been taken.
Briefly:
First, an equity investment of $400,000 was made in the Company at the end
of fiscal year 1999.
Second, subsequent to the end of the fiscal year, Lexington State Bank,
restructured the Company's outstanding loans by converting most of the Company's
debt with LSB to long term loans and thus significantly changing the Company's
balance sheet, particularly it's ratio of current assets to current liabilities.
Thirdly, and subsequent to the end of the fiscal year, a contractual
agreement between the Company and Furniture Classics Limited (FCL) was executed
and FCL made an equity investment of $27,000 in the Company.
Fourth, there is an agreement relative the Deferred Compensation Plan (see
proxy statement) that if completed could possibly remove approximately $300,000
from long term liability and increase equity.
-20-
<PAGE>
Fifth, the Company has made certain request of the Overseas Private
Investment Corporation to restructure the outstanding loan with the Company's
subsidiary, Wellington Hall Caribbean Corp. which if granted will convert
approximately $225,000 of the debt to equity, reschedule the repayment of the
principal over the nest six years including a one year grace period without any
principal payments.
Management believes that if all of the marketing and financial efforts
described above and discussed in more detail in the Management Discussion and
Analysis section of this report are satisfactory executed that the results for
fiscal year 2000 could be positive. Management will continue to pursue the
before mentioned and possibly other solutions to its marketing and to it's debt
or financial condition as situations might develop.
Sincerely,
Hoyt Hackney, Jr.
President
Upon written request directed to the Secretary of the Company at P.O. Box 1354,
Lexington, North Carolina 27293-1354, Shareholders will be furnished a copy of
the Company's Annual Report on form 10-KSB without charge.
-21-
<PAGE>
MARKET PRICES, DIVIDENDS 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 of
fiscal 1998 and the high low trades that occurred closest to each quarter ended
date during the current fiscal year is as follows:
Quarter Ending High Low Quarter Ending High Low
- -------------- ---- --- -------------- ---- ---
July 1997 0.25 0.25 July 1998 5/32 5/32
October 1997 0.25 0.25 October 1998 0.15 0.15
January 1998 0.22 0.19 January 1999 1/8 1/8
April 1998 0.25 0.22 April 1999 0.07 0.07
These market quotations represent inter-dealer prices, without retail
mark-up, mark-down or commission, and do not necessarily represent actual
transactions.
As of July 28, 1999, there were approximately 562 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."
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Liquidity and Capital Resources
The Company's principal long-term capital resources are shareholders'
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
April 30, 1999, total stockholders' equity was approximately $1,022,582 and the
outstanding principal amounts of the Lexington State Bank loan and the OPIC loan
were $284,617 and $826,479 respectively.
The Lexington State Bank loan bears interest at the prime rate plus 1.5%
and is payable in monthly installments of $7,000 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.
On March 10, 1997, WHCC and OPIC executed an amended loan agreement that,
among other things, lowered the interest rate to 10% per annum as of November 1,
1996 and waived principal payments from July 31, 1996 until July 31, 1997, at
which time the Company began making quarterly payments of approximately $31,000.
Principal payments were scheduled to increase to approximately $62,000 on July
31, 1998 with a balloon payment of approximately $557,438 due on October 31,
1999. Upon execution of the amended documents, WHCC paid OPIC a rescheduling fee
of 1% of the principal balance. The proceeds from the OPIC loan, together with
funds generated internally by Wellington Hall, were used to acquire and improve
the Honduran Facilities.
On July 22, 1998, WHCC requested OPIC to waiver principal due on July 30,
1998 and on October 31, 1998. As of this date, WHCC has not been notified as to
the final disposition of that request. However, no principal payments were made
on either July 30, 1998 nor on October 31, 1998. Only the required interest was
paid. On January 31, 1999 and on April 30, 1999 the terms of the loan required
principal payments of approximately $62,000 plus the interest due. The company
made principal payments on each of these dates of approximately $21,000 and paid
the interest that was due and on April 30, 1999 had a past due principal balance
of approximately $207,000.
After on going discussion from time to time throughout the fiscal year, The
Company requested on April 23, 1999 that OPIC amend the loan agreement whereby
(i) OPIC would accept $225,000 in preferred stock (ii) the payment of the
remaining loan balance would be scheduled over a period of six years, and (iii)
the company would received a grace period of one year, until July 31, 2000, to
make additional principal payments. The preferred stock will be structured to
assure OPIC that its stock would have an equal claim on the Company's assets as
does its loan balance. As of this date, OPIC has not responded to the request of
April 23, 1999.
The effect of this request, if granted, would reduce the loan balance from
approximately $826,000 at April 30, 1999 to approximately 600,000; reduce
interest expense by approximately $22,550 annually, and enhance the company's
effort to restore its sales and profit by allowing a period to increase working
capital. Since the total debt outstanding with the OPIC is due on October 31,
1999, the Company's Balance Sheet reflects the debt as a "Current Liability"
under "Current maturities on Long Term Debt". If OPIC grants the Company's
request, approximately $225,000 will become equity and the balance will be
reflected on the Balance Sheet as a Long Term Debt.
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
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. Wellington
Hall, WHCC an MWH are each in compliance with the requirements of the OPIC loan.
Under the OPIC loan arrangement, Wellington Hall is obligated to supply any
necessary funds to 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 three
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 April
30, 1999, the Company had $870,000 in borrowings under this line of credit. 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 credit. The line of credit is reviewed annually for renewal.
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
at April 30, 1999 was $100,000.
On January 16, 1997, Wellington Hall executed the loan documents that
increased its line of credit from Lexington State Bank in the amount of
$250,000. Outstanding borrowings under this facility will bear interest at the
rate of prime plus 1 1/2%, payable monthly, and the outstanding balance as of
April 30, 1999 was $250,000. The line of credit was reviewed on January 16, 1999
and renewed until July 16, 1999. In aggregate $330,000 was available
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from LSB for future borrowings at April 30, 1999. 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 and as of April 30, 1999,
an aggregate of about $434,000 had been borrowed under these lines. Borrowings
bear interest at a rate that ranges between 29% and 36% 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 $78,004 and $96,316 in fiscal 1999 and 1998,
respectively. The primary contributing factor to the positive cash flow was a
decline in inventories of approximately $423,000. If the Company is to meet its
liquidity needs in the future, it must continue to generate positive cash flows
and avoid any significant losses in the future.
As of April 30, 1999, accounts receivable had decreased by approximately
$102,508 since the beginning of the fiscal year, mostly as a result of lower
domestic sales in the fourth quarter. The receivables represented a turnover
rate of about forty-one days, a decrease of about ten days when compared to the
turnover rate reported at April 30, 1998. The company's normal terms of sale for
the payment of invoices is Net 30 days for domestically produced goods (DPG) and
3% 10; Net 30 for foreign produced goods (FPG). In the case of export sales, an
Irrevocable Letter-Of-Credit is required
Consolidated inventories decreased by about $413,000 during the fiscal year
primarily a result of a decrease of about $213,000 to the inventory of
domestically produced goods and about $287,000 in foreign produced goods at the
Company's Honduran facility. These decreases were off set by an increase of
about $34,000 in imported goods from new resources and about $43,000 of Honduran
produced goods located at the domestic facility. The inventory are expect to
continue to decline to both generate operating capital and to improve the turn
on the inventory value. Sales and backlogs are further discussed herein below.
Property and equipment is reported to have declined about $218,000
reflecting the removal of approximately $191,000 of full depreciate domestic
assets which also reduced depreciation. The balance of the decline reflects the
devaluation of the Honduran currency during the fiscal year. Actual capital
expenditures for the fiscal years were approximately $12,000. The value of the
Company's foreign fixed assets are revalued to reflect the fluctuation in the
value of the foreign currency. The decline in that value during the fiscal year
1999 was approximately $31.5000 and the devaluation of the Honduran currency
relative to the prior fiscal year end was about 6.1%. 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 fiscal year 2000
and expenditures are expected to 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, 1999 was approximately $12,000 used primarily for
various maintenance needs.
Current Maturities on Long Term Debt increased by about $613,175 and
reflects the balloon payment required by the terms of the OPIC loan agreement on
October 31, 1999. (See the discussion of the OPIC loan above). Long-term debt
less current maturities increased by approximately $181,623 as a results of
moving the OPIC balance to current maturities, repayment of approximately
$125,192 during the fiscal year and adding a new long term loan with Lexington
State Bank as a result of the Company's loans being restructured on June 16,
1999 (see subsequent events discussed below)
On April 23, 1999, Ernst B. Kemm, upon the Board of Directors approval,
purchase 1,333,333 shares of the Company's common stock for $400,000 or $.30 per
share. The purpose of the funds was to reduce trade payable with certain vendors
and sales representatives, finance new sales aids, finance the purchase of raw
materials for the Company's Honduran facility, and to finance the purchase of
furniture from off shore manufacturers. On April 30, 1999 most of this equity
was reflected in Note Payable which is down about $1,265,476 with Mr. Kemm's
investment accounting for approximately $344,366 of the total decrease and the
balance of the decrease, approximately $921,110, as a result of a restructuring
of the Company's loans with Lexington State Bank (see subsequent events
discussed below).
Other Current liabilities decreased by approximately $83,503 mostly as a
result of a decrease in the accrual of severance pay, a contingent liability, at
the Honduran facility. This reduction is not expected to reoccur.
The Company is subject to the risk that foreign currency fluctuation may
have an adverse impact on its operations, For example, if the Honduran currency
were to stabilize in the future or to increase in value against the dollar, the
Honduran subsidiary's cost might increase causing profit margins to erode. The
Company, however, does not engage in any hedging of the exchange rate
fluctuations. Since the acquisition of the Honduran subsidiary in 1989, the
lempira has continually devalued against the U.S. dollar, from 2.0 lempira to
the dollar in 1989 to 14.05 lempira to the dollar at April 30, 1999. Although
the devaluation of the lempira has resulted in reductions in the historical book
value of the assets and liabilities and a corresponding reduction to
shareholders' equity in the form of a $1.91 million cumulative translation
adjustment, the Company also benefits from lower product cost from the
subsidiary as the lempira devalues. In view of the long-term trend of the
devaluation, management believes that hedging of the exchange rate fluctuation
is unnecessary and could reduce or eliminate the benefits of lower product costs
resulting from any continued devaluation.
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<PAGE>
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. On February 12, 1997 and, during the Company's last fiscal quarter,
Mr. Bingham purchased 600,000 shares of common stock at a price of $.50 per
share, which purchase price was paid by cancellation of the foregoing loan and
for an additional investment of $14,306. Mr. Bingham has also been granted
options to purchase 300,000 additional shares at option prices ranging from $.80
to $1.30 per share, 150,000 of which are subject to certain performance
conditions.
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 executions that the Company has
marketed to more informal designs.
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 has been tight during all of previous four years. The sale of stock to
Mr. Bingham assisted the Company in meeting its working capital and other cash
needs during fiscal 1997. During fiscal years 1998 and 1999, the Company
depended on the sale of excessive inventories, much of which was highly
discounted, to support continued operations. The equity fund received as a
result of Mr. Kemm investment and subsequent events discussed below along with
the continue reduction of inventory will be required for operating funds,
hopefully will increased sales during fiscal year 2000.
The Company leases a 4,400 square-foot showroom located in High Point,
North Carolina which is utilized to display the Company's products, particularly
new product introductions, during the semiannual International Furniture
Markets.
SUBSEQUENT EVENTS
On April 19, 1999, Hoyt M. Hackney, the Company President, with the
majority of the Board of Directors approval , agreed to alter the "Deferred
Compensation Agreement" between Mr. Hackney and the Company. The agreement
allows that upon retirement, at age 62 or older, or upon his death he or his
estate would received $50,000 per year for a period of ten years (see Proxy
Statement). The Company has accrued the expensed of this obligation over the
last twelve years and is scheduled to continue that expense until the sum of
$300,000 has been accrued. At April. 30, 1999 the Company's Balance Sheet stated
a $288,000 long term liability as a result of this accrual.
The revisions to the "Deferred Compensation Agreement", not yet finalized,
are expected to reduce the compensation to $20,000 per year but not before May
1, 2005. In exchange, Mr. Hackney would receiving restricted stock, 1,000,000
shares of common stock at $.30, which can not be sold until after retirement or
death and then only in increments of 1/10 of the shares per year for a period of
10 years. This action could capitalize the $300,000 liability and thus remove
the long term liability from the Company's balance sheet when the transaction is
executed.
The primary purpose of the revisions to the "Deferred Compensation
Agreement" is an incentive to the Company's lenders to restructure the
outstanding Company loans whereby the potential outlay of $50,000 per year is
removed, reduced and/or delayed to enhance the Company's ability to repay its
debt over all or part of the period the restructured loan long agreement would
specify.
On June 16, 1999, Lexington State Bank (LSB) the company's primary domestic
lender restructured the company's debt whereby three lines of credit with an
aggregate total of $1,550,000 and one term loan with a balance of approximately
$278,00 were replaced by a long term loan of $1,529,784 with the repayment
amortized over a period of ten years and a line of credit of $300,000. On June
16, 1999 the Company owed $20,000 against this line of credit. The three lines
of credit retired carried interest rates ranging between prime plus 1% and 1
1/2%. The long term loan retired had an interest rate of prime plus 1.5%. The
new long term loan and line of credit bear interest rates of prime plus 3/4% and
are secured by substantially all of the Company's domestic assets. Principal
payments on the line of credit are is due on demand. The line of credit and long
term loan also contains restrictive covenants that prohibit Wellington Hall from
paying dividends and making other distributions with respect to its capital
stock. The line of credit is reviewed annually for renewal.
The effect of the restructured LSB debt reduced the Company's "Current
Liabilities" by approximately $1,530,000 and depending on the level the Demand
Notes utilized over time, hold the Company's interest and principal to almost
the level of those requirements prior to the restructuring of the debt thus
minimizing the effect on the Company's working capital.
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In March of 1999, the Company and Furniture Classics Limited (FCL) entered
into a verbal agreement whereby FCL would supply the Company a line of mirrors,
chinese antiques, and other products from their foreign sources which the
Company will market exclusively. Under this agreement R. Douglas Ricks, the FCL
president will became a shareholder by investing $27,000 for 100,000 shares of
the Company's common stack, will be nominated as a Director, and will assist
management in developing additional products to further exploit these new
sources. As part of the agreement and to enhance Company sales and possibly
finance the growth of these sales, FCL received certain incentives in the form
of warrants. At the High Point International Furniture Market held in April 1999
the Company displayed these products and initial shipment of a portion of the
resulting orders will be reflected in the Company's sales during the fiscal
first quarter ending on July 31, 1999. The balance of the products will
initially ship during the second quarter ending October 31, 1999. Subsequent to
the fiscal year ended April 30, 1999 the Company and FCL executed a contractual
agreement on May 4, 1999 and on June 22, 1999 the Company received $27,000 for
the Company's common stock (see the Proxy Statement). The warrants issued as
part of the FCL agreement are priced a can be exercised by the following:
100,000 shares at $0.30 per share exercisable until October 31, 1999
100,000 shares at $0.40 per share exercisable until July 31, 2000
100,000 shares at $0.40 per share exercisable until December 31, 2000
100,000 shares at $0.45 per share exercisable until December 31, 2001
100,000 shares at $0.45 per share exercisable until December 31, 2001
100,000 shares at $0.53 per share exercisable until December 31, 2001
Under the terms of the agreement the company can purchase the products involved
directly from the foreign source in container loads, purchases partial container
loads or from Furniture Classics Limited's inventory. FLC in any event is
responsible for providing letters of credit or satisfying other credit terms
with the foreign vendors. FCL receives a 10% brokers fee on all products
delivered to the Company. For orders placed as partial containers or from FCL
inventories, FCL received addition fee to cover handling, delivery, and
warehousing expense as applicable. Both parties have the right to terminate the
agreement with ninety day notice but must honor all outstanding orders at the
time of termination.
RESULTS OF OPERATIONS
Fiscal Year ended April 30, 1998 compared to Fiscal Year ended April 30, 1997
Consolidated revenues for the fourth quarter of fiscal year ended April 30,
1999 were approximately $1,436,746 up about $143,000 when compared to the
revenues of approximately $1,293,406 reported for the fourth quarter of fiscal
1998. For the fiscal year 1999, revenue were $5,721,205 and up about $59,896.
Sales of domestically produced furniture for the fourth quarter were
approximately $846,000 up about $9,000 from the fourth quarter the previous year
and these sales for the year were approximately $3,594,086 down about $38,000
when compared to the previous year. Sales for the fourth quarter of products
produced in the Honduran facility, net of intercompany sales, were approximately
$549,000 up about $148,000 (33.2%) versus the approximately $447,000 reported
last year. For the year, these sales were approximately $2,159,227 up about
$94,000 (4.5%) when compared with the approximately $2,065,500 reported the
previous year.
The decline in the sales of domestic products products is continuation of a
trend that the Company has experience over the last four years. The Company
experienced a significant drop in the rate of incoming orders for these products
in fiscal 1995 and has experienced a continuing downward trend since that time.
Management believe that several fundamental factors probably contribute to the
cause of this trend including a shrinking distribution base, more and more
retailers have gone out of business, changing consumer taste away from more
formal designs such as the Company's products, and the high cost of domestic
production which can not compete with imports which are possibly undercut the
value of domestically produced goods.
To possibly counter act this decline the Company has developed and adopted
a marketing plan that includes strategic measures such as (i) augmenting the
Company's traditional product line with new categories of home furnishing
products even as mirrors and Chinese antiques, (ii) augmenting the Company's
traditional product line with lower priced products produced by foreign
manufactures (other than and in addition to the Company's Honduran produced
goods), and (iii) updating and upgrading catalogs and other sales aids in all
distribution channels.
In pursuit of this strategy the Company has developed approximately thirty
designs that are being produced exclusively for the Company by a foreign
manufacture. The Company begin marketing these items in February of 1998,
formally introduced the products at the High Point International Furniture
Market held in April 1999. The first shipments of the good is expected in the
second quarter of fiscal year 1999. The Company does not have a contractual
relationship with the primary manufacturer of these products. In addition and in
March of 1999, the Company and Furniture Classics Limited (FCL) entered into a
verbal agreement whereby FCL would supply the Company a line of mirrors, chinese
antiques, and other products from their foreign sources which the Company will
market exclusively. See Subsequent events discussed above. At the High Point
International Furniture Market held in April 1999 the
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Company displayed these products and initial shipment of a limited portion of
the resulting orders will be reflected in the Company's sales during the fiscal
first quarter ending on July 31, 1999. The balance of the products will
initially ship during the second quarter ending October 31, 1999. See discussion
of backlogs that follows below. All the products from off shore sources now
being offered by the Company are being marketed under the name Wellington Hall
Imports. The sales for the products during the fiscal year end April 30, 1999
were negligible.
These sales of Honduran produced products are marketed under the name of
the Company's subsidiary, Wellington Hall Caribbean Corp. (WHCC products)
reportedly increased (see discussion of sales above) by about $94,000 (4.5%)
when compared with the the fiscal previous year. These sales include both the
finished products sold primarily through retailer (retailer sales) and to other
manufacturers (OEM sales). For the fiscal year the retailer sales increased by
about $457,000 or 29% while OEM sales declined by about $363,000 down from about
$488,000 the previous year. The increase in retailer sales can mostly be
attributed to a single order received from a foreign retailer late in fiscal
1998 which shipped during the first half of fiscal 1999. However, with
production and distribution of new catalogs on most of these products and,
possibly other contributing factors, the Company seems to be experiencing an
improved rate of incoming orders which could support continue increases to the
retailer sales excluding the sales to the before mention foreign retailer.
This foreign retailer is, however, expected to continue purchasing the
products and should be a significant contributor to sales during fiscal year
2000. Though this foreign retail accounted for almost 13% of the WHCC sale in
fiscal year ended April 30, 1999, no single account or entity accounted for 10%
or more of consolidated sales or revenues.
The decline in domestic sales has also negatively effected the Company's
foreign operations. The domestic operation was consuming a significant portion
of the foreign output as dimension stock, carved and/or turned components and
unfinished assemblies into domestic production. The decline has effectively cost
the foreign operation its best and largest customer. This situation, most
significantly, resulted in the Honduran facility operating under capacity and
unprofitably over the more recent past. To counteract this loss of inter Company
sales and to increase revenues and operations at the Honduran facility, effort
has been directed through WHCC at selling other manufactures and wood consumers
their products and production requirements; OEM sales. These sales, as stated
above declined from about $488,000 in fiscal 1998 to only about $124,000 even
though a number of manufacturer and a significant amount of product was quoted
and in many cases sampled. Management contribute this lack of success to
possibly two factors. First, and like the Company, most of the manufactures
pursued produce domestically higher priced products and the items quoted did not
sale. Secondly, the competition for OEM sales is more competitive and the
products are probably more readily available than in years past from sources
significantly less expensive than Honduras. Even though the Company enjoys a
significant advantage in production cost at its Honduran facility relative to
domestic cost, such countries, for example, as Indonesia or China seem to have
even greater advantages.
As another means of increasing WHCC sales, other than the efforts discussed
above, the Company will convert some products from it domestically produced
product line to the WHCC line and add new products. In October a bedroom and
dining room will be added which utilizes Pine and a minimal number will be added
that will be part the new import line, Wellington Hall Imports. An English
bedroom and a quantity of occasional furniture items, which in the past were
included in the domestic product line have been switch to Honduran production
and will begin shipping during the second quarter ending October 31, 1999.
Management believes these items can be sold a lower price and at higher margins
by making this switch.
This switch in product will accelerate the decline in the level of the
Company's domestic production activities which contributed most heavily to the
losses reported the last two years. The domestic facility is expected to become
primarily a facility to received, deluxe, package, wharehouse and distributed
products both from the Honduran facility and from other foreign sources
discussed above. Considerable effort is being made to bring the domestic
operating costs and overheads down to a level such that the remaining domestic
production, WHCC sales, and Wellington Hall Export sales will absorb these cost
and return the Company to profitability.
To reduce inventories and to generate operating funds, the Company has sold
inventories deemed to be slow moving, of unacceptable quality or discontinued
product at highly discounted prices. The consolidated sales included
approximately $98,000 for the fourth quarter and about $214,202 for the fiscal
year ended April 30, 1999 versus approximately $31,000 and about $592,000, for
the fourth quarter and fiscal year end April 30, 1998, respectively. These sales
were generated in fiscal year 1998 at a clearance center, for which the Company
paid, in addition to the cost of discounted prices, rent and other operating
cost, or at two "Tent" sales held at the Lexington N.C. facility in May and
October of 1997. In fiscal 1999, the sales were generated in an outlet created
in September of 1998 and open to the public at the domestic facility and at two
" tent" sales as was done in fiscal 1998. All of these sales contributed
significantly and materially to cost of goods sold and to the reported operating
losses.
The Company's firm backlog of orders on April 30, 1999 was approximately
$2,342,513 about the same as its backlog of $2,382,421 reported for April 30,
1998. The April 30, 1999 backlog included about $1,191,649 of
domestically-manufactured products, as opposed to about $1,327,111 included in
the 1998 backlog. The backlog for WHCC and Honduran-produced products, less
intercompany orders, was approximately $598,070 on April 30, 1999 versus about
$1,055,321 on April 30, 1998. This decrease mostly reflects an orders for about
$450,000 from a new off shore retail customer received late in fiscal 1998 which
tended to hype the backlog reported on April 30,1998. The Company had a backlog
of orders for new imported products of about $552,794 at April 30,1999. No
orders for these products were included in the backlog reported for fiscal 1998
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Cost of sales decreased approximately $196,439 to about $1,249,415 for the
fourth quarter and about $255,578 to about $4,577,499 for the fiscal year ended
April 30, 1999. For the quarter the Cost of Sales were 86.96% of sales down from
about 112% the previous year. For the fiscal year the Cost of Sales as a percent
of sales were about 80% down from about 86% for fiscal year 1998. The primary
reason for the decline in Cost of Sales were the decline in the sales of highly
discounted inventory during fiscal 1998 versus those sold the previous year as
discussed above. However, the cost of good sold for Honduran produced goods
dropped as as a percent of sales from about 79.5% in fiscal year
<PAGE>
1998 to 67.1% in fiscal 1999 while the cost of good sold for domestically
produced goods as a percent of sales remain about constant at about 88.4% in
fiscal year 1998 and about 87.4% in fiscal 1999.
Reported revenues and cost of goods sold as a percentage of sales have been
affected by changes in the Company's prices on those products distributed
through retailers. Those prices, both for domestically produced product and for
Honduran produced products were increased between four and five percent in
October 1997 ( fiscal year 1998). The prices for domestically produced product
were additionally increased, effective August 15, 1998, by an additional 5 to 6%
to improve margins on that portion of the company's product lines. Prices for
Honduran produced products were increased about 6% affective on April 15, 1999.
Selling, general and administrative expenses did not change materially
during the fourth quarter or for the fiscal year 1999. During the fourth quarter
these expense were down about $14,000 to about $308,000 and about 21.5 % percent
of sale and were down about $108,885 during the year to about $1,297,527 and
represent about 23.9% of sales.
Interest expenses of approximately $92,000 for the fiscal fourth quarter
represent a decrease of about $14,000 versus that paid during the previous year
fourth quarter. For the fiscal year 1998, interest expenses were about $403,159
versus about $448,510 in fiscal year 1998, down about $45,351 over the prior
year as a result of a slight decline in long term and short term debt and lower
interest rates..
For the the fiscal quarter ended April 30, 1998, operating income (earnings
before interest and taxes) was a loss of about ($43,467), (1.9) cents per share,
compared to a loss of approximately ($519,000), (14.3) cents per share for
quarter ended April 30, 1998. For the fiscal year ended April 30, 1999 the
operating income was a loss of ($153,821), ($.04) per share versus the previous
year's loss of about ($578, 180) or ($.157) per share. The net loss for the
fourth quarter was about ($122,397), (4.0) cents per share versus a loss of
about ($615,000) or (16.9) cents per share for the previous years fourth
quarter, while for the fiscal year there is a net loss of ($573,793) or ($.158)
per share, compared to a net loss of ($1,013,225) or ($.278) per share for the
prior year, fiscal 1998.
The net loss reported in the fourth quarter and fiscal year ended April 30,
1999 are a result generally of slow sales, the company's limited operating
capital and relatively high level of indebtedness. Because of the slow sales and
to avoid increasing inventories, it was necessary, during most of the year, to
reduce production volumes, primarily assembled production, in the Company's
domestic facility and foreign operations to levels below that required to manage
labor and overhead cost. In addition, the Company sold off inventories at
discounted prices to generate cash to cover the operating loss and to finance
continued operations.
Sales of foreign produced products and the level of production for the
upcoming year at the Honduran facility are expected to improve, and in
combination with higher prices, those gross profits contribution should be
greater next year. To return to a level of profit suitable to servicing the
Company's debt, and in addition to improving profits from the Honduran
operation, the operating expense at the domestic operation will be reduced
substantially and the level of sales of the Company's new import line will need
to meet or exceed expectations.
The Company believes that it computer software has been upgraded to cope
with the potential year 2000 computer problem. Though the Company has not taken
a formal survey of its vendors and service companies, management does not
anticipate any significant material problems as a result of the Y2K situation.
-28-
<PAGE>
TURLINGTON AND COMPANY, L.L.P.
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, 1999 and 1998, and the related
consolidated statements of income, comprehensive income, stockholders' equity,
and cash flows for the years then ended. These consolidated financial statements
are the responsibility of Wellington Hall, Limited and Subsidiaries' 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 $1,325,651 and $1,522,535, respectively, as of April 30,
1999 and 1998, and total revenues of $2,140,352 and $1,870,046, respectively,
for the years ended April 30, 1999 and 1998. 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 financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, 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, 1999 and 1998, and the results of their operations,
and their cash flows for the years then ended in conformity with generally
accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that Wellington Hall, Limited and Subsidiaries will continue as a going concern.
As discussed in Note 20 to the consolidated financial statements, under existing
circumstances, there is substantial doubt about the ability of Wellington Hall,
Limited and Subsidiaries to continue as a going concern. Management's plans in
regard to that matter also are described in Note 20. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
July 12, 1999
-29-
<PAGE>
KPMG PEAT MARWICK ASESORES, S. de R.L.
Auditoria, Consultoria e Impuestos
Apartado 3398, Tequcigalpa Apartado 257, San Pedro Sula
Honduras, C.A. Honduras, C.A.
Telefono:232-2806, 232-5907 Telefono:553-3545, 553-0146
Telefax: 232-5925 Telefax: 552-2223
E-Mail: [email protected] E-Mail: [email protected]
INDEPENDENT AUDITOR'S REPORT
Board of Directors
MUEBLES WELLINGTON HALL, S.A. DE C.V.:
We have audited the accompanying balance sheets of Muebles Wellington Hall, S.A.
de C.V., San Pedro Sula, Honduras, as of April 30, 1999 and 1998 and the related
statements of earnings (loss), retained earnings and cash flows for the years
then ended. Such financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits
We conducted our audits in accordance with generally accepted auditing standards
in Honduras. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, in a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Muebles Wellington Hall, S.A.,
de C.V., as of April 30, 1999 and 1998 and the results of its operations and its
cash flows for the years then ended, in conformity with generally accepted
accounting principles in Honduras.
/s/ KPMG
June 28, 1999
-30-
<PAGE>
WELLINGTON HALL, LIMITED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
---------------------------
<TABLE>
<CAPTION>
April 30
1999 1998
----------- -----------
ASSETS
Current assets:
<S> <C> <C>
Cash $ 49,938 $ 32,514
Accounts receivable:
Trade 617,191 726,612
Less, allowance for doubtful accounts (63,843) (66,947)
Note receivable - officer -- 12,605
Inventories 3,587,043 4,010,961
Prepaid expenses 47,224 79,568
Deferred income taxes 19,476 18,165
----------- -----------
4,257,029 4,813,478
----------- -----------
Property and equipment:
Cost 1,976,882 2,187,922
Less, accumulated depreciation 1,244,920 1,366,915
----------- -----------
731,962 821,007
----------- -----------
Other assets:
Deferred income taxes 101,329 107,686
Other 8,352 35,059
----------- -----------
109,681 142,745
----------- -----------
$ 5,098,672 $ 5,777,230
=========== ===========
LIABILITIES
Current liabilities:
Current maturities on long-term debt $ 969,438 $ 356,262
Notes payable - other 433,994 1,998,360
Accounts payable - trade 597,672 567,100
Customer deposits 91,828 64,177
Other current liabilities 308,500 382,813
----------- -----------
2,401,432 3,368,712
----------- -----------
Noncurrent liabilities:
Long-term debt, less current maturities 1,386,658 905,026
Deferred compensation accrual 288,000 264,000
----------- -----------
4,076,090 4,537,738
----------- -----------
STOCKHOLDERS' EQUITY
Common stock; authorized 6,000,000 shares; no par;
shares issued and outstanding for 1999 and 1998 -
3,623,220 and 2,289,887, respectively 3,754,531 3,354,531
Preferred stock; authorized 5,000,000 shares; $5
par; no shares issued and outstanding for 1999
and 1998 -0- -0-
Accumulated other comprehensive income (loss) (1,914,398) (1,870,875)
Retained earnings (deficit) (817,551) (244,164)
----------- -----------
1,022,582 1,239,492
----------- -----------
$ 5,098,672 $ 5,777,230
=========== ===========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements
-31-
<PAGE>
WELLINGTON HALL, LIMITED AND SUBSIDIARIES
CONSOLIDATED STOCKHOLDERS' EQUITY
---------------------------------
Years Ended April 30
1999 1998
----------- -----------
Common stock:
Authorized 6,000,000 shares; no par:
Balances, beginning of years $ 3,354,531 $ 3,354,531
Shares issued during the years 400,000 --
----------- -----------
Balances, end of years 3,754,531 3,354,531
----------- -----------
Preferred stock:
Authorized 5,000,000 shares; $5 par;
issued and outstanding beginning and
end of years -0- -0-
----------- -----------
Accumulated other comprehensive income (loss):
Balances, beginning of years (1,870,875) (1,856,648)
Changes during the years (43,523) (14,227)
----------- -----------
Balances, end of years (1,914,398) (1,870,875)
----------- -----------
Retained earnings (deficit):
Balances, beginning of years (244,164) 769,061
Net loss for the years (573,387) (1,013,225)
Balances, end of years (817,551) (244,164)
----------- -----------
$ 1,022,582 $ 1,239,492
=========== ===========
The accompanying notes are an integral part of the
consolidated financial statements
-32-
<PAGE>
WELLINGTON HALL, LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
Years Ended April 30
1999 1998
----------- -----------
Revenue:
Sale of furniture $ 5,721,206 $ 5,661,309
Other income 1,884 5,859
----------- -----------
5,723,090 5,667,168
----------- -----------
Costs and expenses:
Cost of goods sold 4,577,499 4,833,077
Selling, general, and
administrative expenses 1,297,527 1,406,412
Interest expense 403,159 448,510
----------- -----------
6,278,185 6,687,999
----------- -----------
Loss before income tax expense (benefit) (555,095) (1,020,831)
Income tax expense (benefit) 18,292 (7,606)
Net loss for the years ($ 573,387) ($1,013,225)
=========== ===========
Earnings (loss) per share of common stock:
Basic and diluted:
Net loss for the years ($ .25) ($ .45)
=========== ===========
The accompanying notes are an integral part of the
consolidated financial statements
-33-
<PAGE>
WELLINGTON HALL, LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
-----------------------------------------------
Years Ended April 30
1999 1998
----------- -----------
Net loss for the years ($ 573,387) ($1,013,225)
Other comprehensive income (loss) -
net of changes during the years:
Foreign currency translation adjustments (43,523) (14,227)
----------- -----------
Comprehensive loss for the years ($ 616,910) ($1,027,452)
=========== ===========
The accompanying notes are an integral part of the
consolidated financial statements
-34-
<PAGE>
WELLINGTON HALL, LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
<TABLE>
<CAPTION>
Years Ended April 30
1999 1998
----------- -----------
Cash flows from operating activities:
<S> <C> <C>
Net loss for the years ($ 573,387) ($1,013,225)
Adjustments to reconcile net loss to
net cash provided by operating activities:
Depreciation 82,697 88,694
Amortization 22,070 --
Adjustment for allowance for fringe benefits (46,039) --
Deferred compensation 24,000 24,000
Allowance for slow-moving inventory 75,613 (45,271)
Deferred income taxes 5,046 (7,606)
Changes in assets and liabilities:
Accounts receivable 102,508 262,034
Note receivable - officer 12,605 15,788
Inventories 296,317 381,037
Prepaid expenses 31,829 90,608
Other assets 3,339 (898)
Accounts payable, customer deposits,
and other current liabilities 41,406 301,155
----------- -----------
Net cash provided by operating activities 78,004 96,316
----------- -----------
Cash flows from investing activities:
Purchase of equipment (11,845) (46,566)
Cash flows from financing activities:
Short-term borrowings (payments) (316,179) 70,077
Payments on long-term debt (125,192) (140,446)
Proceeds from issuance of stock 400,000 --
----------- -----------
Net cash used for financing activities (41,371) (70,369)
----------- -----------
Effect of exchange rate changes on cash (7,364) (982)
----------- -----------
Net increase (decrease) in cash 17,424 (21,601)
Cash, beginning of years 32,514 54,115
----------- -----------
Cash, end of years $ 49,938 $ 32,514
=========== ===========
Cash paid during the years for:
Income taxes $ -0- $ -0-
=========== ===========
Interest $ 417,553 $ 425,831
=========== ===========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements
-35-
<PAGE>
WELLINGTON HALL, LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of and for the Years Ended April 30, 1999 and 1998
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.
Earnings (loss) per share is computed by dividing net income (loss) by the
weighted average shares outstanding and diluted share equivalents outstanding.
Revenue from sales is recognized when materials are shipped to the customers.
The consolidated financial statements include the accounts of Wellington Hall,
Limited and its wholly-owned subsidiaries, Wellington Hall Caribbean Corp.,
Muebles Wellington Hall, S. A., and Palmetto Furniture Galleries, Inc.
(hereinafter referred to collectively as the Company). All intercompany accounts
and transactions have been eliminated in consolidation. Muebles Wellington Hall,
S. A. was formed during the year ended April 30, 1990, and Palmetto Furniture
Galleries, Inc. was formed during the year ended April 30, 1998. Both of these
subsidiaries were accounted for as purchases.
The financial statements of foreign subsidiaries have been translated into U. S.
dollars in accordance with Statement of Financial Accounting Standards (SFAS)
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. Adjustments resulting
from the changes in exchange rates during the years are included in accumulated
other comprehensive income, a separate component of stockholders' equity.
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.
2. Nature of Operations and Concentration of Credit Risk:
Wellington Hall, Limited and its 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 50% of the Company's total sales. The remaining 50% of total sales
is split about evenly over the other three product lines. Wellington Hall
Caribbean Corp. is a sales organization located in Lexington, North Carolina
responsible for selling Muebles Wellington Hall, S. A.'s products to both the
general public and Wellington Hall, Limited. Palmetto Furniture Galleries, Inc.
is also a sales organization located in Lexington, North Carolina responsible
for selling second quality furniture of both manufacturing affiliates. The
Company grants credit to customers who are located primarily in the U. S.
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. At times during
the years, the Company's cash balances exceeded $100,000. Management believes
that this policy will not cause any adverse effect to the Company.
-36-
<PAGE>
WELLINGTON HALL, LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. 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 was 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. This
note was paid in full during the year ended April 30, 1999.
4. Inventories:
Inventories consisted of the following:
1999 1998
----------- -----------
Finished goods $ 2,098,895 $ 1,867,072
Work-in-process 1,180,069 1,482,191
Raw materials 450,079 730,144
----------- -----------
3,729,043 4,079,407
Less, allowance for slow-moving inventory (142,000) (68,446)
----------- -----------
$ 3,587,043 $ 4,010,961
=========== ===========
5. Property and Equipment:
The major classes are as follows:
1999 1998
---------- ----------
Land and buildings $1,114,568 $1,117,651
Machinery and equipment 716,292 889,574
Furniture, fixtures, and other equipment 146,022 180,697
---------- ----------
$1,976,882 $2,187,922
========== ==========
Depreciation expense for the years ended April 30, 1999 and 1998 amounted to
$82,697 and $88,694, respectively.
-37-
<PAGE>
WELLINGTON HALL, LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. Notes Payable - Other:
Notes payable - other consisted of the following
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Banco La Capitalizadora Hondurena, S. A
Interest rates from 29% to 36%, secured by
second mortgage on fixed assets and a lien on
inventories of Muebles Wellington Hall, S. A $ 321,737 $ 351,607
Banco de Honduras, S. A
Interest rates from 29% to 36%, secured by
inventories and a third mortgage on
certain machinery and equipment of
Muebles Wellington Hall, S. A 112,257 138,981
Lexington State Bank
Demand loan with weighted average interest
rate of 9.56%, unsecured -- 93,600
Lexington State Bank
Short-term line of credit, secured by a computed
percentage of the Company's accounts receivable,
inventories, and certain personal property assets,
interest rate prime plus 1% -- 1,168,172
Lexington State Bank
Short-term line of credit arrangement, secured by
substantially all of the Company's assets, interest
rate of prime plus 1.5% -- 246,000
---------- ----------
$ 433,994 $1,998,360
========== ==========
</TABLE>
On June 16, 1999, Wellington Hall, Limited refinanced certain of its short-term
notes payable to long-term. In accordance with SFAS No. 6, these short-term
loans have been classified as long-term on the Company's Consolidated Balance
Sheets and are more fully described in Note 7 below.
-38-
<PAGE>
WELLINGTON HALL, LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. Long-term Debt:
Long-term debt consisted of the following:
1999 1998
---------- ----------
E. Kemm
Interest payable monthly at 1% above prime $ 25,000 $ 25,000
Overseas Private Investment Corporation
Interest rate 10.00%, payable in quarterly
installments of $30,969 plus interest through
April 30, 1998. Beginning July 31, 1998,
quarterly installments increase to $61,937
plus interest with a balloon payment due
October 1999 826,479 898,092
Lexington State Bank
Interest rate 10.00%, payable in monthly
installments of $7,000 with interest at
1.5% above prime -- 338,196
Lexington State Bank
Interest rate prime plus .75% (8.50% at
June 16, 1999), payable in monthly
installments of $19,000 including interest 1,204,617 --
Lexington State Bank
Interest rate prime plus .75% (8.75% at
June 16, 1999), payable in full on
June 16, 2000 300,000 --
---------- ----------
2,356,096 1,261,288
Less, current maturities 969,438 356,262
---------- ----------
$1,386,658 $ 905,026
========== ==========
The weighted average interest rate paid E. Kemm amounted to 10.0% and 9.50%,
respectively, for the years ended April 30, 1999 and 1998.
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.
The Lexington State Bank loans are secured by a first lien on all assets of
Wellington Hall, Limited. The projected payments of long-term debt in each of
the years subsequent to April 30, 1999 reflecting the amounts refinanced are:
Year Ending April 30 Amount
-------------------- ------
2000 $ 969,438
2001 440,171
2002 946,487
-39-
<PAGE>
WELLINGTON HALL, LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. Stock Option Plan:
On February 10, 1997, the Board of Directors approved the Wellington Hall,
Limited 1997 Stock Option and Restricted Stock Plan (the Plan). The Plan has a
term of ten years, expiring on February 9, 2007. Under the Plan, the Company may
grant options or restricted stock awards to key employees, officers, or
directors for up to an aggregate of 1,200,000 shares of common stock, with no
individual receiving more than 600,000 shares. The price of the shares issued
under the Plan is to be determined at the time of the grant, not to be below
100% of the fair market value of the common stock at the time of the grant. The
Plan was approved by the stockholders of the Company at the October 1, 1997
annual stockholders' meeting. At April 30, 1999, no options or stock awards had
been granted.
9. Capital Stock and Capital Structure:
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.
All shares of capital stock represent voting shares.
In 1997, the Company filed a registration statement with the Securities and
Exchange Commission for the offer and sale of 1,689,887 shares of its common
stock at $.50 per share. During the fiscal year ended April 30, 1998, the
proposed stock offering was abandoned.
During the year ended April 30, 1999, the Company issued an additional 1,333,333
shares of common stock at $.30 per share to an existing officer/stockholder.
10. Income Taxes:
Wellington Hall, Limited and Subsidiaries have the following net operating
losses to offset future tax liabilities, if any, as follows:
Federal State
Year of Net Operating Net Operating
Origin Losses Losses
- ------ ---------- ----------
April 30, 1995 $ 24,281 --
April 30, 1996 -- $ 90,701
April 30, 1997 397,158 339,816
April 30, 1998 774,367 774,367
April 30, 1999 799,286 721,331
---------- ----------
$1,995,092 $1,926,215
---------- ----------
Generally, the federal losses may be carried forward for fifteen years and North
Carolina losses may be carried forward for five years. Effective for years
beginning January 1, 1999, North Carolina laws were amended to increase the
number of years a net operating loss may be carried forward to fifteen years.
The change applies to losses incurred in tax years beginning on or after January
1, 1993 and limits a loss that is more than fifteen years old to 15% of taxable
income before the remaining portion may be carried forward. For years beginning
January 1, 2002, the percentage limitation is repealed. Additionally, for losses
incurred in 1998 and after, federal net operating losses may be carried forward
for twenty years.
-40-
<PAGE>
WELLINGTON HALL, LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. Income Taxes (continued):
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:
1999 1998
--------- ---------
Deferred tax assets:
Book over tax depreciation $ 17,411 --
Book allowance for inventory 30,051 --
Book allowance for doubtful accounts 19,476 $ 19,596
Tax over book inventory 33,281 38,311
Deferred compensation 111,715 102,828
State net operating loss carryforward 129,838 74,475
Federal net operating loss carryforward 543,467 380,481
--------- ---------
885,239 615,691
--------- ---------
Valuation allowance for deferred tax assets (764,434) (488,284)
--------- ---------
120,805 127,407
Deferred tax liability:
Tax over book depreciation -- $ 1,556
Net deferred tax asset $ 120,805 $ 125,851
--------- ---------
Due to the certain conditions, the valuation allowance was increased by $276,150
during the year ended April 30, 1999.
Classification on the Company's Consolidated Balance Sheets is as follows:
1999 1998
-------- --------
Current asset $ 19,476 $ 18,165
Noncurrent asset 101,329 107,686
-------- --------
$120,805 $125,851
-------- --------
There follows a reconciliation of the income taxes per the income tax returns
with the income tax expense (benefit) per the Consolidated Statements of Income:
1999 1998
-------- --------
Amounts shown by returns (net) $ 13,246 $ -0-
Deferred income taxes 5,046 (7,606)
$ 18,292 ($ 7,606)
-------- --------
Effective income tax rates 3.3% (.7%)
-------- --------
-41-
<PAGE>
WELLINGTON HALL, LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. Income Taxes (continued):
No provision has been made for U. S. income taxes on unremitted earnings of the
foreign subsidiary (approximately $146,638 and $155,289, respectively) at April
30, 1999 and 1998, since it is the present intention of management to
indefinitely reinvest these earnings.
The components of income (loss) before income taxes are as follows:
1999 1998
----------- -----------
Domestic ($ 558,350) ($ 778,955)
Foreign 3,255 (241,876)
----------- -----------
($ 555,095) ($1,020,831)
----------- -----------
Federal, foreign, and state income tax expense (benefit) consisted of the
following:
1999 1998
-------- --------
Federal $ 3,317 ($ 5,800)
Foreign -0- -0-
State 14,975 (1,806)
-------- --------
$ 18,292 ($7,606)
-------- --------
The following schedule reconciles the differences between the U. S. federal
income tax rate and the effective tax rate:
1999 1998
----- -----
Tax computed at the U. S. federal rate 34.0% 34.0%
Deferred income taxes .6 (.7)
Nondeductible expenses and benefit of
domestic net operating loss (34.0) (34.0)
State income taxes, net 2.7 --
----- -----
3.3% (.7%)
----- -----
11. Leases:
The Company leases showroom space under a five-year operating lease expiring in
April 2004.
The Company also leases office equipment under noncancelable leases expiring in
2000 through 2004.
Net minimum lease payments on the foregoing leases are as follows:
2000 $ 68,003
2001 68,003
2002 66,308
2003 63,128
2004 61,318
Net lease expenses of the foregoing leases for the years are summarized as
follows:
1999 1998
-------- --------
Lease expenses $ 98,621 $ 97,634
Sublease income -- 46,214
-------- --------
Net lease expenses $ 98,621 $ 51,420
-------- --------
-42-
<PAGE>
WELLINGTON HALL, LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. Contingent Liabilities:
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, 1999 and 1998, the
estimated contingent liability aggregated approximately $325,352 and $153,030,
respectively.
On June 26, 1998, the Board of Directors of Wellington Hall Caribbean Corp.
voted to pursue the sale of its Honduran subsidiary, Muebles Wellington Hall, S.
A.
13. Earnings Per Share:
During the year ended April 30, 1998, Wellington Hall, Limited and Subsidiaries
adopted SFAS No. 128, "Earnings Per Share". SFAS No. 128 requires entities to
present basic earnings per share computed by dividing income available to common
stockholders by the weighted average number of common shares outstanding
(2,315,458 shares in 1999 and 2,289,887 shares in 1998). The Company has no
diluted share equivalents outstanding and, therefore, the computation of diluted
earnings per share results in the same earnings as basic earnings per share.
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, 1999 and
1998 were $24,000 each year.
At the April 19, 1999 meeting of the Board of Directors, the Board approved an
amendment to this Deferred Compensation Agreement.This amendment changes the
annual payment under the Agreement to $20,000 per year not to begin prior to May
1, 2000. In exchange for the $30,000 decrease in the annual payment, the
President is to receive 1,000,000 shares of the Company's stock. This amendment
is to take effect at such time as it is executed by the officers of the Company
and its President. At the date of the audit, the Agreement amendment had not yet
been executed.
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 contribution 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, 1999 and 1998 were
$7,572 and $2,714, respectively.
-43-
<PAGE>
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, 1999 and 1998:
Earnings (Loss)
Per Share of
Common Stock
<TABLE>
<CAPTION>
Quarter Net Sales Gross Profit (Loss) Net Income (Loss) (Basic and Diluted)
Ended 1999 1998 1999 1998 1999 1998 1999 1998
---------- ---------- ---------- --------- ----------- ----------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
July 31 $1,556,520 $1,572,819 $ 400,925 $ 222,228 ($ 62,717) ($ 289,389) ($0.02) ($0.13)
October 31 1,351,361 1,467,983 308,897 463,650 (183,809) 5,783 (0.08)
January 31 1,376,578 1,327,101 246,553 294,799 (204,464) (114,505) (0.09) (0.05)
April 30 1,436,747 1,293,406 187,332 (152,445) (122,397) (615,114) (0.06) (0.27)
---------- ---------- ---------- --------- ----------- ----------- ------ ------
$5,721,206 $5,661,309 $1,143,707 $ 828,232 ($ 573,387) ($1,013,225) (0.25) ($ .45)
========== ========== ========== ========= =========== =========== ====== ======
</TABLE>
18. Disclosures About Fair Value of Financial Instruments:
SFAS No. 107, "Disclosures 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.
Note receivable - officer:
The carrying amount approximates fair value.
Notes 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 are as follows:
1999 1998
------------------------ ------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
---------- ---------- ---------- ----------
Cash $ 49,938 $ 49,938 $ 32,514 $ 32,514
Note receivable - officer -- -- 12,605 12,605
Notes payable - other 433,994 433,994 1,998,360 1,998,360
Long-term debt 2,356,096 2,356,096 1,261,288 1,261,288
-44-
<PAGE>
WELLINGTON HALL, LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
19. Year 2000 Issue - Unaudited:
The year 2000 problem exists since certain computer programs and applications
were written using two digits instead of four to identify the year in the field
assigned to the date. These programs may recognize the year 2000 as the year
1900, which could produce incorrect data.
The Company's management believes that they are prepared for the year 2000 and
that they will not be significantly affected by internal applications.
Failure to achieve year 2000 compliance by the Company or a third party could
negatively affect the Company's ability to conduct business for an extended
period of time. There can be no assurance that all internal information
technology systems and components will be year 2000 compliant; in addition,
other companies on which Wellington Hall, Limited and Subsidiaries' operations
rely may or may not be compliant on a timely basis. Any such failure could have
materially adverse effects on the Company.
20. Going Concern Considerations:
As reflected in the accompanying consolidated financial statements, the Company
incurred a $573,387 loss in the year ended April 30, 1999 and a $1,013,225 loss
in the year ended April 30, 1998. The Company's gross profit percentage
increased from 15% in the year ended April 30, 1998 to 20% in the year ended
April 30, 1999. While this increase is encouraging, it is still less than the
23% that was achieved in the year ended April 30, 1997. The Company's lines of
credit and short-term borrowings were at near maximum levels at April 30, 1999
and 1998. A final balloon payment of the remaining principal on the Company's
loan with the Overseas Private Investment Corporation (OPIC) is due in October
1999.
Management is continuing to develop new product lines with a concentration in
higher volume items which should result in lower costs. Management also plans to
continue to cut costs at its domestic manufacturing facility and increase
production at its foreign manufacturing facility where costs are less.
Additionally, the Company's management is working toward converting a portion of
the debt with OPIC to capital.
21. Statutory Reserve:
According to the Commercial Code of the Republic of Honduras, the statutory
reserve must be constituted annually appropriating at least 5% of the periods
earnings until it reaches 20% of capital stock. The statutory reserve, which is
included in retained earnings, amounted to $23,558 at April 30, 1999 and 1998.
22. Segment Information:
The Company's reportable segments are strategic business units that offer
different services or are geographically integrated. They are managed in
different ways because each requires different marketing strategies or is in a
different geographical area.
Wholesale - Wellington Hall, Limited and Wellington Hall Caribbean Corp. engage
in the wholesale marketing and sales of fine furniture. Wellington Hall, Limited
manufactures much of the furniture that it sells, and Wellington Hall Caribbean
Corp. purchases the furniture that it sells from its wholly-owned subsidiary.
Retail - Palmetto Furniture Galleries, Inc. engages in the retail sales of any
second quality furniture manufactured by its affiliates.
Foreign - Muebles Wellington Hall, S. A., a company wholly-owned by Wellington
Hall Caribbean Corp., is engaged in the manufacturing of fine furniture and
components at its facilities in San Pedro Sula, Honduras. Recently, all of its
sales have been to its sole owner.
-45-
<PAGE>
WELLINGTON HALL, LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
22. Segment Information (continued):
<TABLE>
<CAPTION>
Wholesale Retail Foreign Eliminations Consolidated
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Sales revenues 1999 $ 5,506,934 $ 214,272 -- -- $ 5,721,206
1998 5,455,635 205,674 -- -- 5,661,309
Affiliated revenues 1999 1,271,812 -- $ 2,071,637 ($3,343,449) --
1998 675,312 -- 1,870,046 (2,545,358) --
Depreciation and 1999 49,071 -- 55,696 -- 104,767
amortization 1998 66,055 -- 22,639 -- 88,694
Interest income 1999 32,082 -- -- (31,554) 528
1998 5,718 -- -- (4,843) 875
Interest expense 1999 251,562 -- 183,151 (31,554) 403,159
and other 1998 274,167 -- 179,186 (4,843) 448,510
Income tax expense 1999 18,292 -- -- -- 18,292
1998 (7,606) -- -- -- (7,606)
Net income 1999 (328,182) (182,578) 5,767 (68,394) (573,387)
1998 (660,240) (111,109) (241,876) -- (1,013,225)
Total assets 1999 3,816,709 261,725 1,325,651 (305,413) 5,098,672
1998 4,305,277 -- 1,522,535 (50,586) 5,777,230
Capital expenditures 1999 -- -- 11,845 -- 11,845
1998 16,806 -- 29,760 -- 46,566
</TABLE>
-46-
<PAGE>
WELLINGTON HALL, LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
22. Segment Information (Continued):
Other Geographic Information - Sales to unaffiliated customers:
1999 1998
---- ----
United States $5,321,467 $5,661,309
Japan 393,053 --
Republic of Korea 6,686
$5,721,206 $5,661,309
-47-
<PAGE>
OFFICERS AND DIRECTORS
OFFICERS
Hoyt M. Hackney, Jr. Ralph L. Eskelson, Jr.
President and Treasurer General Manager
Muebles Wellington Hall, S.A.
Ernst B. Kemm William W. Woodruff
Executive Vice President Secretary
DIRECTORS
Donald W. Leonard William W. Woodruff
Chairman of the Board President of Woodruff
Shoe Store
Hoyt M. Hackney, Jr. Ernst B. Kemm
President and Treasurer Executive Vice
President
Arthur F. Bingham
Senior Executive Vice President
TRANSFER AGENT
Continental Stock Transfer and Trust Company
-48-
EXHIBIT 22
SUBSIDIARIES OF WELLINGTON HALL, LIMITED
Name of Subsidiary Jurisdiction of Incorporation
------------------ -----------------------------
1. Wellington Hall Caribbean Corporation North Carolina
2. Muebles Wellington Hall, S.A. Honduras, Central America
Both of the above-listed subsidiaries do business under their full corporate
names.
-49-
WELLINGTON HALL, LIMITED
425 John Ward Rd
Post Office Box 1354
Lexington, North Carolina 27293-1354
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS
September 15, 1999
The undersigned hereby appoints DONALD W. LEONARD, HOYT M. HACKNEY, JR. AND
WILLIAM W. WOODRUFF, and each of them, as Proxies, each with full power of
substitution, and hereby authorizes them to represent and to vote, as designated
below, all the shares of Common Stock of Wellington Hall, Limited held of record
by the undersigned on August 6, 1999 at the Annual Meeting of shareholders to be
held in Lexington, N.C. on September 15, 1999 or at any adjournments thereof.
The following proposals to be brought before the meeting are more specifically
described in the accompanying Proxy Statement.
(1) ELECTION OF DIRECTORS
FOR all nominees listed below WITHHOLD AUTHORITY to vote
(except as marked to contrary all nominees listed
below) below ( )
INSTRUCTIONS: To withhold authority to vote for any individual
nominees strike a line through the nominee's name in the list below.)
Hoyt M. Hackney Jr., Ernst B. Kemm, Donald W. Leonard,
William W. Woodruff, Arthur F. Bingham, R. Douglas Ricks
(2) To ratify the selection of Turlington and Company, independent public
accountants, as auditors of the Company for the fiscal year ending
April 30, 2000
VOTE FOR ( ) VOTE AGAINST ( ) ABSTAIN ( )
(3) In their discretion, the Proxies are authorized to vote upon such
other matters as may properly come before the meeting.
Continued and to be signed on Reverse side
-50-
<PAGE>
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
This proxy, when properly executed, will be voted in the manner directed herein
by the undersigned shareholder.
If no direction is made, this proxy will be voted FOR proposals 1,2, and 3.
Please date and sign exactly as name
appears hereon, Joint Owners should each ___________________________________
sign personally. Trustees, custodians, Signature
executors, and others signing in a
representative capacity should indicate
the capacity in which they sign. ___________________________________
Signature
PLEASE MARK, SIGN, DATE AND RETURN
THE PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE, WHETHER OR NOT
YOU PLAN TO BE PRESENT AT THE _______________________________1999
MEETING. IF YOU ATTEND THE DATE:
MEETING YOU CAN VOTE EITHER IN
PERSON OR BY YOUR PROXY.
-51-
<PAGE>
WELLINGTON HALL, LIMITED
425 John Ward Rd
Post Office Box 1354
Lexington, North Carolina 27293-1354
(336) 249-4931
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To be held on September 15, 1999
To the Shareholders of Wellington Hall, Limited:
Notice is hereby given that the Substitute Annual Meeting of Shareholders
of Wellington Hall, Limited ("the Company") will be held on September 15, 1999,
at 10:00 A.M. Eastern Time, at the offices of Turlington and Company, the
Company's independent auditors, located at 509 East Center Street, Lexington,
North Carolina for the following purposes:
1. To elect a Board of six directors to serve until the next Annual
Meeting of the Shareholders and until their successors are elected and
qualified.
2. To ratify the selection by the Board of Directors of Turlington and
Company as independent auditors of the Company for fiscal year ending
April 30, 2000.
3. To transact such other business as may properly come before the
meeting or any adjournment or adjournments thereof.
The Board of Directors has fixed the close of business on August 6, 1999,
as the record date for the determination of shareholders entitled to notice of,
and to vote at the meeting and any adjournment or adjournments thereof.
The Company's Proxy Statement is submitted herewith along with the Annual
Report for the year ended April 30, 1999.
Lexington, North Carolina
August 25, 1999
By Order of The Board of Directors
William W. Woodruff, Secretary
-52-
<PAGE>
WELLINGTON HALL, LIMITED
425 John Ward Rd
Post Office Box 1354
Lexington, North Carolina 27293-1354
PROXY STATEMENT
The enclosed proxy is solicited on behalf of the Board of Directors of
Wellington Hall, Limited (the "Company") and is to be used at the Substitute
Annual Meeting of Shareholders to be held at the offices of Turlington and
Company, the Company's independent auditors, located at 509 East Center Street,
Lexington, North Carolina on September 15, 1999 at 10:00 A.M. Eastern Time, and
at any adjournments thereof. Any shareholder submitting the accompanying proxy
may revoke it at any time before it is voted by: (a) giving written notice to
the Secretary of the Company before the Annual Meeting; (b) attending the Annual
Meeting and announcing at the meeting that he elects to revoke his proxy and to
vote in person; or (c) delivering a proxy bearing a later date to the Company
before the Annual Meeting.
Proxies will be solicited by mail. Proxies may also be solicited personally
or by telephone by employees of the Company who will not be additionally
compensated therefor, or by the Company's transfer agent. The cost of such
solicitation will be borne by the Company. The Company intends to mail copies of
the Proxy Statement and the accompanying proxy card to the shareholders on or
before August 25, 1999.
Only shareholders of record at the close of the business on August 6, 1999,
are entitled to notice of and to vote at the meeting. The shares represented by
all properly executed proxies which are received in time for the meeting will be
voted in accordance with the directions given thereon. If no directions are
given on a proxy, the shares represented by such proxy will be voted "FOR" the
five nominees for election as Directors named herein. Shareholders will be
entitled on vote each share of Common Stock held on the record date. As of
August 6, 1999, there were 3,723,220 shares of the Company's Common Stock, no
par value (the "Common Stock"), issued and outstanding, and each share is
entitled to one vote.
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 July 27, 1999:
Name and Address Amount and Nature Percent
of Beneficial of Beneficial of Class
Owner Ownership (1)
- --------------------------------------------------------------------------------
Hoyt M. Hackney, Jr. 226,958 (1) 9.9
409 Edgedale Drive
High Point, N.C. 27262
Ernst B. Kemm 1,630,613 (1) 43.79
1211 Lancaster Place
High Point, N.C. 27260
Donald W. Leonard 26,862 (1) 1.2
105 Westover Drive
Lexington, N.C. 27292
William W. Woodruff 16,000 (1) 0.7
320 Maegeo Drive
Lexington, N.C. 27292
Arthur F. Bingham 605,437 (2,3) 26.4
315 3rd Avenue N. W.
Hickory, N.C. 28601
-53-
<PAGE>
Ralph L. Eskelsen, Jr. -- (3) --
Tacao River
San Pedro Sula
Honduras, Central America
All executive officers 2,505,807 (3) 67.3
and Directors as a Group
(5 Persons)
-----------------------------
(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.
To the best of the Company's knowledge, all persons listed above have sole
voting and investment power over the shares which they own directly.
ELECTION OF DIRECTORS
The Company's Bylaws provides that a minimum of three and a maximum of nine
directors shall serve on the Board of Directors, with the exact number of
directors within such limitations to be fixed by resolution of the Board prior
to the annual meeting at which directors are to be elected. The Board of
Directors has fixed the number of directors to be elected at the Annual Meeting
of Shareholders at six. It is intended that Proxies received in response to this
solicitation will be voted to elect six directors to hold office until the next
Annual Meeting and until their successors are elected and qualified. The
enclosed Proxy can not be voted for more than six persons.
The requisite quorum for the Annual Meeting will be a majority of the
outstanding shares of Common Stock entitled to vote. The directors will be
elected by a plurality of the shares voted at the Annual Meeting. Abstentions
and broker non-votes will not be treated as a vote for or against any particular
nominee and will not effect the outcome of the election of directors.
Management knows of no reason why any of the six nominees will be unable or
unwilling for good cause to serve; but if that should occur, it is the intention
of those persons named in the Proxy to vote for such other person or persons as
the Board of Directors may recommend. Unless otherwise directed, the enclosed
Proxy will be voted in favor of the six nominees for election as Directors.
The following table sets forth certain information, as of August 6, 1999
concerning the six persons nominated by the Board to serve as Directors.
Position with the Company; Principal
Occupation During the Preceding
Name Age Five Years (if different)
- ---- --- ---------------------------------------
Hoyt M. Hackney, Jr. 61 President, Chief Executive
Officer, Chief Financial Officer
and Treasurer, Director since 1978
Donald W. Leonard (1) 80 Chairman of the Board of
Directors, Director since 1965;
Private Investor
Ernst B. Kemm 63 Executive Vice President, Director
since 1978
William W. Woodruff (1) 75 Secretary, Director since
1977; President and Owner of
Woodruff Shoe Store
Arthur F. Bingham 44 Senior Executive Vice President of
Sales and Marketing (1996-
present), Director since 1996;
Sales Representative for
Lexington Furniture Industries
(1978-1996)
-54-
R. Douglas Ricks 51 President, Furniture Classics
Limited (1990-Present)
(1) Mr. Woodruff is Mr. Leonard's brother-in-law.
The executive officers are elected by the Board of Directors to serve until
the next annual meeting of the Board and until their successors have been
elected and qualified.
The Board of Directors of the Company met two times during the year ended
April 30, 1999. The Board does not have standing audit, nominating or other
committees performing similar functions. All Directors attended at least 75% of
the total number of the meetings of the Board of Directors and committees on
which they served during fiscal 1999.
EXECUTIVE COMPENSATION
The following table sets forth information concerning compensation paid to
the Chief Executive Officer of the Company's during the last three fiscal years.
Fiscal Annual Compensation
All Other
Name/Position Year Salary($) Bonus($) Compensation (1)
- --------------------------------------------------------------------------------
Hoyt M. Hackney, Jr. 1999 106,210 0 25,738
President 1998 107,943 0 25,738
Treasurer 1997 130,183 0 25,738
Chief Executive Officer
Chief Financial Officer
(1) The amounts reported in this column consists 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. The
non-salaried directors were not compensated during fiscal year ended April 30,
1999.
Effective January 1, 1987. the Company entered into a 5-year employment
agreement with Mr. Hackney (the "Employment Agreement") that will automatically
be 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 his
"for cause" termination) 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 a 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
1999.
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 the
-55-
<PAGE>
is 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 (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 North Carolina territory from WHCC and 1% of the sales in
the North Carolina territory from the Company exceeds $30,000 for each fiscal
year beginning September 1, 1996 through August 31, 1997. No bonuses were paid
during fiscal year ending April 30, 1999..
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.
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
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.
-56-
<PAGE>
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. On July 28, 1999, the fair market value of the common stock was $ .17.
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 year 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 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.
Because the Plan is a discretionary plan, it is not possible to determine
what awards the Committee will grant thereunder.
FEDERAL INCOME TAX CONSEQUENCES OF STOCK OPTION AND RESTRICTED STOCK PLAN
ISOs granted under the Plan are intended to qualify as "incentive stock
options" under Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"). The grant of an ISO generally does not result in taxable income to the
participant at the time of grant or at the time of exercise. however, for any
year in which Common Stock is purchased upon exercise of an ISO, the difference
between the fair market value of the Common Stock at the time of exercise and
its adjusted basis to the participant will be treated as an item of adjustment
for purposes of computation of the employee's alternative minimum taxable income
under Section 55 of the Code. If the participant exercises and
-57-
<PAGE>
ISO and sells the Common Stock purchased thereunder at a gain, the excess of the
sales price of the Common Stock over its adjusted basis to the participant will
be taxable as a long-term capital gain if the sale is made more than two years
from the granting of the ISO and more than one year from the transfer of the
stock to the participant. If the sale is made within two years after the
granting of the option or within one year after the Common Stock is transferred
to the participant and if sales proceeds exceed the fair market value of the
Common Stock on the date of exercise, the participant generally will recognize
ordinary income, equal to the fair market value of the Common Stock on the date
of exercise less the option price, and capital gain (long-term or short-term as
the case may be), equal to the amount realized in excess of the fair market
value of the Common Stock on the date of exercise. No tax deduction will be
available to the Company as a result of the granting of ISOs, the exercise of
such options, or the sale by participants of the Common Stock purchased.
However, the Company will be entitled to a deduction in an amount equal to the
ordinary income, if any, realized by a participant on the sale of Common Stock
purchased pursuant to the exercise of an ISO.
Nonqualified stock options granted under the plant are not intended to
qualify as ISOs under the Code. The grant of a nonqualified stock option will
not result in taxable income to the participant or a deduction to the Company.
On the date any such option is exercised, a participant generally will be deemed
to receive ordinary income equal to the amount by which the fair market value of
the Common Stock on the exercise date exceeds the option price, and the Company
will generally receive a deduction in the same amount.
Participants will recognize taxable income at the time unrestricted stock
is received under the Plan equal to the fair market value of the shares
received. The Company will be entitled to a deduction equal to the amount
includable in the participant's income.
In general, there will be no federal income tax consequences to either the
Company or the participant upon the grant of restricted stock. At that time, the
participant will recognize taxable income equal to the then fair market value of
the Common Stock and the Company will generally receive a corresponding
deduction. However, participants may elect, within 30 days after the date of
grant, to recognize ordinary income equal to the fair market value of the
restricted stock on the date of grant and the Company will be entitled to a
corresponding deduction at that time.
Any discussion herein pertaining to a deduction for the Company is
qualified by application of Section 162(m) of the Code and the regulations
thereunder. Section 162(m) limits to $1,000,000 per year the allowable deduction
for compensation paid to or accrued by the chief executive officer and the four
most highly compensated officers (other than the chief executive officer)
("Covered Employees"), except that such limit does not include "performace-based
compensation," as that term is defined therein. If the Plan is approved by
shareholders in the manner prescribed by applicable regulations, compensation
realized upon the exercise of options will be "performance-based" if the
exercise price is at least equal to the fair market value of the underlying
stock on the date of grant. The Plan is intended to meet the provisions of
Section 162(m) such that any deductions realized from stock option transactions
thereunder will not be limited. Compensation derived from other awards that may
be granted under the Plan may be deemed "performance-based" if they are
designated as such by the Committee and if the grant thereof is subject tot he
attainment of certain performance goals. Except as permitted by Section 162(m)
and the regulations promulgated thereunder, compensation derived by Covered
Employees from awards that are not "performance-based" will not be deductible by
the Company.
CERTAIN TRANSACTIONS
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 in
October 1996 of $285,694 for a term of up to two years and bearing interest at
the applicable federal rate under Section 1274(d) of the Internal Revenue Code
of 1986, as amended. On February 12, 1997, Mr. Bingham purchased 600,000 shares
of Common Stock of the Company at a purchase price of $.50 per share, which
purchase price was paid by cancellation of the foregoing loan and for an
additional investment of $14,306. The Company paid to Mr. Bingham interest on
the loan in the amount of $6,368. Like those transactions, all future material
affiliated transactions and loans will be made or entered into under terms that
are no less favorable to the Company than those that can be obtained from
unaffiliated third parties. In addition, all future material affiliated
transactions and loans, and any forgiveness of loans, must be approved by a
majority of the independent outside members of the Company's Board of Directors
who do not have an interest in the transactions.
On May 4 1999, the Company and Furniture Classics Limited (FCL), an
importer of home furnishings, entered into an agreement whereby FCL would supply
the Company a line of mirrors, chinese antiques, and other products from their
foreign sources which the Company will market exclusively. Under this agreement
R. Douglas Ricks, the FCL president would became a shareholder by investing
$27,000 for 100,000 shares of the Company's common stack, would be nominated as
a Director, and would assist management in, among other things, developing
additional products to further exploit these new sources and would received
incentives in the form of warrants. The warrants issued as part of the FCL
agreement are priced a can be exercised by the following:
100,000 shares at $0.30 per share exercisable until October 31, 1999
100,000 shares at $0.40 per share exercisable until July 31, 2000
100,000 shares at $0.40 per share exercisable until December 31, 2000
100,000 shares at $0.45 per share exercisable until December 31, 2001
100,000 shares at $0.45 per share exercisable until December 31, 2001
100,000 shares at $0.53 per share exercisable until December 31, 2001
Under the terms of the agreement the company can purchase the products
involved directly from the foreign source in container loads, purchases partial
container loads or from Furniture Classics Limited's inventory. FLC in any event
is responsible for providing letters of credit or satisfying other credit terms
with the foreign vendors. FCL receives a 10% brokers fee on all products
delivered to the Company. For orders placed as partial containers or from FCL
inventories, FCL received addition fee to cover handling, delivery, and
warehousing expense as applicable. Both parties have the right to terminate the
agreement with ninety day notice but must honor all outstanding orders at the
time of termination.
-58-
<PAGE>
SELECTION OF INDEPENDENT AUDITORS
Subject to ratification by the shareholders, the Board of Directors has
selected Turlington and Company, an independent public accounting firm, to audit
the accounts of the Company for the fiscal year ending April 30, 1999.
Turlington and Company has acted as auditors for the Company since 1978. A
representative of Turlington and Company is expected to be present at the Annual
Meeting, will have the opportunity to make a statement and will be available to
respond to appropriate questions.
The Board of Directors recommends a vote FOR ratifying the selection of
Turlington and Company as auditors for the Company for fiscal year ending April
30, 2000.
SHAREHOLDERS PROPOSALS
Any shareholder desiring to present a proposal for action at the next
annual meeting of shareholders must submit his proposal in writing to the
Secretary of the Company in Lexington, North Carolina by May 8, 2000, if a
description of such proposal is to be included in the Proxy Statement issued by
the Company.
OTHER MATTERS
No business other than that set forth herein is expected to come before the
meeting, but should any other matters requiring a vote of the shareholders
arise, including a question of adjourning the meeting, the persons names in the
accompanying Proxy will vote thereon according to their best judgment in the
interests of the Company.
Where a choice is specified on any Proxy as to the vote on any matter to
come before the meeting, the Proxy will be voted in accordance with such
specifications. If no specification is made by the Proxy is properly signed, the
shares represented thereby will be voted in favor of each proposal set forth
herein.
Order of the Board of Directors
William W. Woodruff
Secretary
August 25, 1999
WHETHER OR NOT YOU PLAN TO BE PRESENT AT THE MEETING, YOU ARE URGED TO SIGN,
DATE AND MAIL THE ENCLOSED PROXY PROMPTLY. IF YOU ATTEND THE MEETING, YOU CAN
VOTE EITHER IN PERSON OR BY YOUR PROXY.
-59-
Exhibit 10:28
COMMERCIAL SECURITY AGREEMENT
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Principal Loan Date Maturity Loan No Call Collateral Account Officer Initials
<S> <C> <C> <C> <C> <C>
$1,529,784.00 06-16-1999 06-16-2000 *** 3200548-9002 076
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
References in the shaded area are for Lender's use only and do not limit
the applicability of this document to any particular loan or item. Any
item above containing *** has been omitted due to text length limitations.
- --------------------------------------------------------------------------------
GRANTOR: WELLINGTON HALL, LIMITED LENDER: LEXINGTON STATE BANK
425 JOHN WARD ROAD ONE LSB PLAZA
LEXINGTON, NC 27292 PO BOX 867
LEXINGTON, NC 27292
================================================================================
THIS COMMERCIAL SECURITY AGREEMENT dated June 16, 1999, is made and executed
between Wellington Hall, Limited ("Grantor") and Lexington State Bank
("Lender").
GRANT OF SECURITY INTEREST. For valuable consideration, Grantor grants to Lender
a security interest in the Collateral to secure the Indebtedness and agrees that
Lender shall have the rights state in this Agreement with respect to the
Collateral, in addition to all other rights which Lender may have by law.
COLLATERAL DESCRIPTION. The word "Collateral" as used in this Agreement means
the following described property, whether now owned or hereafter acquired,
whether now existing or hereafter arising, and wherever located, in which
Grantor is giving to Lender a security interest for the payment of the
indebtedness and performance of all other obligations under the Note and this
Agreement:
All Inventory, Accounts Receivable, Equipment, Machinery, Furniture and
Fixtures now owned or hereafter acquired.
In addition, the word " Collateral" also includes all the following, whether now
owned or hereafter acquired, whether now existing or hereafter arising, and
wherever located:
(A) All accessions, attachments, accessories, replacements and additions to
any of the collateral described herein, whether added now or later.
(B) All products and produce of any of the property described in this
Collateral section.
(C) All accounts, general intangibles, instruments, rents, monies,
payments, and all other rights, arising out of a sale, lease, or other
disposition of any of the property described in this Collateral section.
(D) All proceeds (including insurance proceeds) from the sale, destruction,
loss or other disposition of any of the property described in this
collateral section, and sums due from a third party who has damaged or
destroyed the Collateral or from that party's insurer, whether due to
judgment, settlement or other process.
(E) All records and date relating to any of the property described in this
collateral section, whether in the form of a writing, photograph,
microfilm,microfiche, or electronic media, together with all of Grantor's
right, title and interest in and to all computer software required to
utilize, create, maintain, and process any such record or data on
electronic media.
Despite any other provision of this Agreement, Lender is not granted, and will
not have, a non purchase money security interest in household goods, to the
extent such a security interest would be prohibited by applicable la. In
addition, if because of the type of any Property, Lender is required to give a
notice of the right to cancel under "Truth in Lending for the Indebtedness, then
Lender will not have a security interest in such Property unless and until such
a notice is given.
RIGHT OF SETOFF. Grant grants to Lender a contractual security interest in, and
hereby assigns, conveys, delivers, pledges and transfers to Lender, all
Grantor's right, title and interest in and to all Grantor's accounts with Lender
(whether checking, savings, or some other account). This includes all accounts
Grantor may open in the future. However, this does not include any IRA or Keogh
accounts, or any trust accounts for which the grant of a security interest would
be prohibited by law. Grantor authorizes Lender, to the extent permitted by
applicable law, to charge or setoff all sums owing on the Indebtedness against
any and all such accounts.
GRANTOR'S REPRESENTATIONS AND WARRANTIES WITH RESPECT TO THE COLLATERAL. With
respect to the Collateral, Grantor represents and warrants to Lender that:
PERFECTION OF SECURITY INTEREST. Grantor agrees to execute financing
statements and to take whatever other actions are requested by Lender to
perfect and continue Lender's security interest in the Collateral. Upon
request of Lender, Grantor will deliver to Lender and and all of the
documents evidencing or constituting the Collateral, and Grantor will note
Lender's interest upon any and all chattel paper if not delivered to Lender
for possession by Lender. This is a continuing Security Agreement and will
continue in effect even though all or any part of the Indebtedness is paid
in full and even though for a period of time the Grantor may not be
indebted to Lender.
NOTICE TO LENDER. Grantor will notify Lender in writing at Lender's address
shown above (or such other addresses as Lender may designate from time to
time) prior to (1) change in Grantor's name, (2) change in Grantor's
assumed business name(s), (3) change in the management of Grantor, (4)
change in the authorized signer(s), (5) change in Grantor's principal
office address, (6) conversion of Grantor to a new or different type of
business entity, or (7) change in any other aspect of Grantor that directly
or indirectly relates to any agreements between Grantor and Lender. No
change in Grantor's name will take effect until after Lender has been
notified.
NO VIOLATION. The execution and delivery of this Agreement will not violate
any law or Agreement governing Grantor or to which Grantor is a party, and
its certificate or article of Incorporation and bylaws do not prohibit any
term or condition of this Agreement.
ENFORCEABILITY OF COLLATERAL. To the extent the Collateral consists of
accounts, chattel paper, or general intangibles, as defined by the Uniform
Commercial Code, the collateral is enforceable in accordance with its
terms, is genuine, and fully complies with all applicable laws and
regulations concerning form, content and manner of preparation and
execution, and all persons appearing to be obligated on the Collateral have
authority and capacity to contract and are in fact obligated as they appear
to be on the Collateral. There shall be no setoffs or counterclaims against
any of the Collateral, and no agreement shall have been made under which
any deductions or discounts may be claimed concerning the Collateral except
those disclosed to Lender in writing.
LOCATION OF COLLATERAL. Except in the ordinary course of Grantor's
business, Grantor agrees to keep the Collateral at Grantor's address shown
above or at such other locations as are acceptable to Lender. Upon Lender's
request, Grantor will delivery to Lender in form satisfactory to Lender a
schedule of real properties and Collateral locations relating to Grantor's
operations, including without limitation the following: (1) all real
property Grantor owns or is purchasing: (2) all real property Grantor is
renting or leasing: (3) all storage facilities Grantor owns, rents, leases,
or uses; and (4) all other properties where Collateral is or may be
located.
REMOVAL OF THE COLLATERAL. Except in the ordinary course of Grantor's
business, Grantor shall not remove the Collateral from its existing
location without Lender's prior written consent. Grantor shall, whenever
requested, advise Lender of the exact location of the collateral.
TRANSACTIONS INVOLVING COLLATERAL. Except for inventory sold or accounts
collected in the ordinary course of Grantor's business, Grantor shall not
sell, offer to sell, or otherwise transfer or dispose of the collateral.
Grantor shall not pledge, mortgage, encumber or otherwise permit the
Collateral to be subject to any lien, security interest, encumbrance, or
charge, other than the security interest provided for in this Agreement,
without the prior written consent of Lender. This includes security
interests even if junior in right to the security interest granted under
this Agreement. Unless waived by Lender, all proceeds from any disposition
of the collateral (for whatever reason) shall be held in trust for Lender
and shall not be commingled with any other funds; provided however, this
requirement shall not constitute consent by Lender to any sale or other
disposition. Upon receipt, Grantor shall immediately deliver any such
proceeds to Lender.
TITLE. Grantor represents and warrants to Lender that Grantor holds goods
and marketable title to the Collateral, free and clear of all liens and
encumbrances except for the lien of this Agreement. No financing statement
covering any of the Collateral is on file in any public office other than
those which reflect the security interest created by this Agreement or to
which Lender has specifically consented. Grantor shall defend Lender's
rights in the Collateral against the claims and demands of all other
persons.
REPAIRS AND MAINTENANCE. Grantor agrees to keep and maintain, and to cause
others to keep and maintain the Collateral in good order, repair and
condition at all times while this Agreement remains in effect. Grantor
further agrees to pay when due all claims for work done on, or services
rendered or material furnished in connection with the Collateral so that no
lien or encumbrance may ever attach to or be filled against the collateral.
INSPECTION OF COLLATERAL. Lender and Lender's designated representatives
and agents shall have the right at all reasonable times to examine and
inspect the collateral wherever located.
TAXES, ASSESSMENTS AND LIENS. Grantor will pay when due all taxes,
assessments and liens upon the Collateral, it use or operation, upon this
Agreement, upon any promissory note or notes evidencing the Indebtedness,
or upon any of the other Related Documents. Grantor may withhold any such
payment or may elect to contest any lien if Grantor is in good faith
conducting an appropriate proceeding to contest the obligation to pay and
so long as Lender's interest in he Collateral is not jeopardized in
Lender's sole opinion. If the Collateral is subjected to a lien which is
not discharged with fifteen (15) days, Grantor shall deposit with Lender
ash, a sufficient corporate surety bond or other security satisfactory to
<PAGE>
Page 2
COMMERCIAL SECURITY AGREEMENT
(Continued)
================================================================================
Lender in an amount adequate to provide for the discharge of the lien plus
any interest, costs attorneys' fees or other charges that could accrue as a
result of foreclosure or sale of collateral. In any contest Grantor shall
defend itself and Lender and shall satisfy any final adverse judgment
before enforcement against the collateral. Grantor shall name Lender as an
additional obligee under any surety bond furnished in the contest
proceedings. Grantor further agrees to furnish Lender with evidence that
such taxes, assessments, and governmental and other charges have been paid
in full and in a timely manner.
COMPLIANCE WITH GOVERNMENTAL REQUIREMENTS. Grantor shall comply promptly
with all laws, ordinances, rules and regulations of all governmental
authorities, now or hereafter in effect, applicable to the ownership,
production, disposition, or use of the Collateral. Grantor may contest in
good faith any such law, ordinance or regulation and withhold compliance
during any proceeding, including appropriate appeals, so long as Lender's
interest in the Collateral, in Lender's opinion, is not jeopardized.
HAZARDOUS SUBSTANCES. Grantor represents and warrants that the collateral
never has been, and never will be so long as this Agreement remains a lien
on the Collateral, used in violation of any Environmental Laws or for the
generation, manufacture, storage, transportation, treatment, disposal,
release or threatened release of any Hazardous Substance. The
representations and warranties contained herein are based on Grantor's due
diligence in investigating the Collateral for Hazardous Substances. Grantor
hereby (1) releases and waives any future claims against Lender for
indemnity or contribution in the event Grantor becomes liable to cleanup or
other costs under any Environmental Laws, and (2) agrees to indemnify and
hold harmless Lender against any and all claims and losses resulting from a
breach of this provision of this Agreement. This obligation to indemnify
shall survive the payment of the Indebtedness and the satisfaction of this
Agreement.
MAINTENANCE OF CASUALTY INSURANCE. Grantor shall procure and maintain all
risks insurance, including without limitation fire, theft and liability
coverage together with such other insurance as Lender may require with
respect to the Collateral, in form, amounts, coverages and basis reasonably
acceptable to Lender and issued by a company or companies reasonably
acceptable to Lender. Grantor, upon request of LEnder will delivery to
Lender form time to time the policies or certificates of Insurance in form
satisfactory to Lender, including stipulations that covers will not be
canceled or diminished without at least ten (1) ) days' prior written
notice to Lender and not including any disclaimer of the insurer's
liability for failure to give such a notice. Each insurance policy also
shall include an endorsement providing that coverage in favor of Lender
will not bee impaired in any way by an act, omission or default of Grantor
or any other person. In connection with all policies covering assets in
which Lender holds or is offered a security interest, Grantor will provide
Lender with such loss payable or other endorsements as Lender may require.
If Grantor at any time fails to obtain or maintain any insurance as
required under this Agreement, Lender may (but shall not be obligated to)
obtain such insurance as Lender deems appropriate, including if Lender so
chooses "single interest insurance," which will cover only Lender's
interest in the Collateral.
APPLICATION OF INSURANCE PROCEEDS. Grantor shall promptly notify Lender of
any loss or damage to the Collateral. Lender may make proof of loss if
Grantor fails to do so within fifteen (15) days of the casualty. All
proceeds of any insurance on the Collateral, including accrued proceeds
thereon, shall be held by Lender as part of the Collateral. If Lendor
consents to repair or replacement of the damaged or destroyed Collateral,
Lender shall, upon satisfactory proof of expenditure, pay or reimburse
Grantor from the Proceeds for the reasonable cost of repair or restoration.
If Lender does not consent to repair or replacement of the Collateral,
Lender shall retain a sufficient amount of the proceeds to pay all of the
Indebtedness, and shall pay the balance to Grantor. Any proceeds which have
not been disbursed within six (6) months after their receipt and which
Grantor has not committed to the repair or restoration of the Collateral
shall be used to prepay the Indebtedness.
INSURANCE RESERVES. Lender may require Grantor to maintain with Lender
reserves for payment of insurance premiums, which reserves shall be created
by monthly payments from Grantor of a sum estimated by Lender to be
sufficient to produce, at least fifteen (15) days before the premium due
date, amounts at least equal to the insurance premiums to be paid. If
fifteen (15) days before payment is due, the reserve funs are insufficient,
Grantor shall upon demand pay any deficiency to Lender. The reserve funds
shall be held by Lender as a general deposit and shall constitute a
non-interest-bearing account which Lender may satisfy by payment of the
insurance premiums required to be paid by Grantor as they become due.
Lender does not hold the reserve funds in trust for Grantor, and lender is
not the agent of Grantor for payment of the insurance premiums required to
be paid by Grantor. The responsibility for the payment of premiums shall
remain Grantor's sole responsibility.
INSURANCE REPORTS. Grantor, upon request of Lender, shall furnish to Lender
reports on each existing policy of insurance showing such information as
Lender may reasonable request including the following: (1) the name of the
insurer; (2) the risks insured; (3) the amount of the Policy; (4) the
property insured; (5) the then current value on the basis of which
insurance has been obtained and the manner of determining that value; and
(6) the expiration date of the policy. In addition, Grantor shall upon
request by Lender (however not more often than annually) have an
independent appraiser satisfactory to Lender determine, as applicable, the
cash value or replacement cost of the Collateral.
GRANTOR' S RIGHT TO POSSESSION. Until default, Grantor may have possession of
the tangible personal property and beneficial use of all the Collateral and may
use it in any lawful manner no inconsistent with this Agreement or the Related
Documents, provided that Grantor's right to possession and beneficial use shall
not apply o any Collateral where possession of the Collateral by Lender is
required by law to perfect Lender's security interest in such collateral. If
Lender at any time has possession of any Collateral, whether before or after an
Event of Default, Lender shall be deemed to have exercised reasonable care in
the custody and preservation of the Collateral if Lender takes such action for
that purpose as Grantor shall request or as Lender, in Lender's sole discretion,
shall deem appropriate under the circumstance, but failure to honor any request
by Grantor shall not of itself be deemed to be a failure to exercise reasonable
care. Lender shall not be required to take steps necessary to preserve any
rights in the Collateral against prior parties, nor to protect, preserve or
maintain any security interest given to secure the Indebtedness.
LENDER'S EXPENDITURES. If any action or proceeding is commenced that would
materially affect Lender's interest in the Collateral or if Grantor fails to
comply with any provision of this Agreement or any Related Documents, including
but not limited to Grantor's failure to discharge or pay when due any amounts
Grantor is required to discharge or pay under this Agreement or any Related
Documents, Lender on Grantor's behalf may (but shall not be obligated to) take
any action that Lender deems appropriate, including but not limited to
discharging or paying all taxes, liens, security interest, encumbrances and
other claims, at any time levied or placed on the Collateral and paying all
costs for insuring, maintaining and preserving the Collateral all such
expenditures incurred or paid by Lender for such purposes will then bear
interest at the rate charged under the Note form the date incurred or paid by
Lender to the date of repayment by Grantor. All such expenses will become a part
of the Indebtedness and, at Lender's option, will (A) be payable on demand, (B)
be added to the balance of the Note and be apportioned among and be payable with
any installment payments to become due during either (1) the term of any
applicable insurance policy, (2) the remaining term of the Note, or (3) be
treated as a balloon payment which will be due and payable at the Note's
maturity. The Collateral also will secure payment of these amounts. Such right
shall be in addition to all other right san remedies to which Lender may be
entitled upon Default.
DEFAULT. Each of the following shall constitute an Event of Default under this
Agreement:
PAYMENT DEFAULT. Grantor fails to make any payment when due under the
indebtedness.
OTHER DEFAULTS. Grantor fails to comply with or to perform any other term,
obligation, covenant or condition contained in this agreement or in any of
the Related Documents or to comply with or to perform any term, obligation,
covenant or condition contained in any other agreement between Lender and
Grantor.
FALSE STATEMENTS. Any warranty, representation or statement made or
furnished to Lender by Grantor or on Grantor's behalf under this Agreement,
the Note, or the Related Documents is false or misleading in any material
respect, either now or at the time made or furnished or becomes false or
misleading at any time thereafter.
DEFECTIVE COLLATERALIZATION. This Agreement or any of the Related Documents
ceases to be in full force and effect (including failure of any collateral
document to crate a valid and perfected security interest or lien) at any
time and for any reason.
INSOLVENCY. The dissolution or termination of Grantor's existence as a
going business, the insolvency of Grantor, the appointment of a received
for any part of Grantor's property, any assignment for the benefit of
creditors, any type of creditor workout, or the commencement of any
proceeding under any bankruptcy or insolvency laws by or against Grantor.
CREDITOR OR FORFEITURE PROCEEDINGS. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help,
repossession or any other method, by any creditor of Grantor or by any
government agency against any collateral securing the Indebtedness. This
includes a garnishment of any of Grantor's accounts, including deposit
accounts, with Lender. However, this Event of Default shall not apply if
there is a good faith dispute by Grantor as to the validity or
reasonableness of the claim which is the basis of the creditor or
forfeiture proceeding and if Grantor gives Lender written notice of the
creditor or forfeiture proceeding and deposits with Lender monies or a
surety bond for the creditor or forfeiture proceeding, in an amount
determined by Lender, in its sole discretion, as being an adequate reserve
or bond for the dispute.
EVENTS AFFECTING GUARANTOR. Any of the preceding events occurs with respect
to guarantor, endorser, surety or accommodation party of any of the
Indebtedness or guarantor, endorser, surety, or accommodation party dies or
becomes incompetent.
ADVERSE CHANGE. A material adverse change occurs in Grantor's financial
condition, or Lender believes the prospect of payment or performance of the
Indebtedness is impaired.
INSECURITY. Lender in good faith believes itself insecure.
CURE PROVISIONS. If any default, other than a default in payment, is
curable and if Grantor has not been given a notice of a breach of the same
provision of this Agreement within the preceding twelve (12) months, it may
be cured (and no event of default will have occurred) if Grantor, after
receiving written notice from Lender demanding cure of such default: (a)
cure the default with 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
<PAGE>
Page 3
COMMERCIAL SECURITY AGREEMENT
(Continued)
================================================================================
continue and complete all reasonable and necessary steps sufficient to
produce compliance as soon as reasonable practical.
RIGHTS AND REMEDIES ON DEFAULT. If an Event of Default occurs under this
Agreement, at any time thereafter, Lender may exercise any one or more of
the following rights and remedies:
ACCELERATE INDEBTEDNESS. Declare all Indebtedness, including any prepayment
penalty which Grantor would be required to pay, immediately due and
payable, without notice of any kind to Grantor.
ASSEMBLE COLLATERAL. Lender may require Grantor to deliver to Lender all or
any portion of the Collateral and any and all certificates of title and
other documents relating to the Collateral. Lender may require Grantors
assemble the Collateral and make available to Lender at a place to be
designated by Lender. Lender also shall have full power to enter upon the
property of Grantor to take possession of and remove the Collateral. If the
collateral contains other goods not covered by this Agreement at the time
of repossession, grantor agrees Lender may take such other goods provided
that Lender makes reasonable efforts to return them to Grantor after
repossession.
SELL THE COLLATERAL. Lender shall have full power to sell, lease, transfer,
or otherwise deal with the Collateral or proceeds thereof in Lender's own
name or that of Grantor. Lender may sell the Collateral at public auction
or private sale. Unless the Collateral threatens to decline speedily in
value or is of a type customarily sold on a recognized market, Lender will
give Grantor reasonable notice of the time after which any private sale or
any other intended disposition of the Collateral is to be made. The
requirements of reasonable notice shall be met if such notice is given at
least ten (10) days before the time of the sale or disposition. All
expenses relating to the disposition of the Collateral, including without
limitation the expenses of retaking, holding, insuring, preparing for sale
and selling the collateral, shall become a part of the Indebtedness secured
by this Agreement and shall be payable on demand, with interest at the Note
rate from date of expenditure until repaid.
APPOINT RECEIVER. Lender shall have the right to have a received appointed
to take possession of all or any part of the Collateral, with the power to
protect and preserve the collateral, to operate the Collateral preceding
foreclosure or sale, and to collect the Rents from the Collateral and apply
the proceeds, over and above the cost of the receivership, against the
indebtedness. The received may serve without bond if permitted by law.
Lender's right to the appointment of a receiver shall exist whether or not
the apparent value of the Collateral exceeds the Indebtedness by a
substantial amount. Employment by Lender shall not disqualify a person from
serving as a received.
COLLECT REVENUES, APPLY ACCOUNTS. Lender, either itself or through a
receiver, may collect the payments, rents, income, and revenues from the
Collateral. Lender may at any time in Lender's discretion transfer any
Collateral into Lender's own name or that of Lender's nominee and received
the payments, rents, income, and revenues therefrom and hold the same as
security for the Indebtedness or apply it to payment of the indebtedness in
such order of preference as Lender may determine. Insofar as the Collateral
consists of accounts, general intangibles, insurance policies, instruments,
chattel paper, chooses in action, or similar property, Lender may demand,
collect, receipt for, settle, compromise, adjust, sue for, foreclose, or
realize on the Collateral as Lender may determine whether or not
indebtedness or Collateral is then due. For these purposes, Lender may, on
behalf of and in he name of Grantor, receive, open and dispose of mail
addressed to Grantor; change any address to which mail and payments are to
be sent; and endorse notes, checks, drafts, money orders, documents of
title, instruments and items pertaining to payment, shipment, or storage of
any Collateral. To facilitate collection, Lender may notify account debtors
and obligors on any Collateral to make payments directly to Lender.
OBTAIN DEFICIENCY. If Lender chooses to sell any or all of the Collateral,
Lender may obtain a judgment against Grantor for any deficiency remaining
on the indebtedness due to Lender after application of all amounts received
form the exercise of the rights provided in this Agreement. Grantor shall
be liable for a deficiency even if the transaction described in this
subsection is a sale of accounts or chattel paper.
OTHER RIGHTS AND REMEDIES. Lenders shall have all the rights and remedies
of a secured creditor under the provision of the Uniform Commercial Code,
as may be amended from time to time. In addition, Lender shall have and may
exercise any or all other rights and remedies it may have available at law,
inequity, or otherwise
ELECTION OF REMEDIES. Except as may be prohibited by applicable law, all of
Lender's rights and remedies, whether evidence by this Agreement, the
Related Documents, or by any other writing, shall be cumulative and may be
exercised singularly or concurrently. Election by Lender to pursue any
remedy will not bar any other remedy, and an election to make expenditures
or to take action to perform an obligation of Grantor under this Agreement,
after Grantor's failure to perform, shall not affect Lender's right to
declare a default and exercise its remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provision are a part of
this Agreement:
AMENDMENTS. This Agreement, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as to the
matters set forth in this Agreement. No alteration of or amendment to this
Agreement shall be effective unless given in writing and signed by the
party or parties sought to be charged or bound by the alteration or
amendment.
ATTORNEYS' FEES: EXPENSES. Grantor agrees to pay upon demand all of
Lender's costs and expenses, including Lender's attorneys' fees and
Lender's legal expenses, incurred in connection with the enforcement of
this Agreement. Lender may hire or pay someone else to help enforce this
Agreement, and Grantor shall pay the costs and expenses of such
enforcement. Costs and expenses include Lender's attorneys' fees and legal
expenses whether or not there is a lawsuit, including attorneys' fees and
legal expenses for bankruptcy proceedings (including efforts to modify or
vacate any automatic stay or injunction), appeals, and any anticipated
post-judgement collection services. Grantor also shall pay all court cost
and such additional fees as may be directed by the court.
CAPTION HEADINGS. Caption headings in this Agreement are for convenience
purposes only and are not to be used to interpret or define the provisions
of this Agreement.
GOVERNING LAW. This Agreement will be governed by, construed and enforced in
accordance with federal law and the laws of the State of North Carolina. This
agreement has been accepted by Lender in the State of North Carolina.
NO WAIVER BY LENDER. Lender shall not be deemed to have waived any rights
under this Agreement unless such waiver is given in writing and signed by
Lender. No delay or omission on the part of Lender in exercising any right
shall operate as a waiver of such right or any other right. A waiver by
Lender of a provision of this Agreement shall not prejudice or constitute a
waiver of Lender's right otherwise to demand strict compliance with that
provision or any other provision of this Agreement. No prior waiver by
Lender, nor any course of dealing between Lender and grantor, shall
constitute a waiver of any of Lender's rights or of any of Grantor's
obligations as to any future transactions. Whenever the consent of Lender
is required under this Agreement, the granting of such consent by Lender in
any instance shall not constitute continuing consent to subsequent
instances where such consent is required and in all cases such consent may
be granted or withheld in sole discretion of Lender.
NOTICES. Any notice required to be given under this Agreement shall be
given in writing, and shall be effective when actually delivered, when
actually received by telefacsimile (unless otherwise required by law), when
deposited with a nationally recognized overnight courier, or, if mailed,
when deposited in the United States mail, as first class certified or
registered mail postage prepaid, directed to the addresses shown near the
beginning of this Agreement. Any party may change its address for notices
under this Agreement by giving formal written notice to the other parties,
specifying that the purpose of the notice is to change the party's address.
For notice purposes, Grantor agrees to keep Lender informed at all times of
Grantor's current address. Unless otherwise provided or required by law, if
there is more than one Grantor, any notice g given by Lender to any Grantor
is deemed to be notice given to all Grantors
POWER OF ATTORNEY. Grantor hereby appoints Lender as Grantor's irrevocable
attorney-in-fact for the purpose of executing any documents necessary to
perfect or to continue the security interest granted in this Agreement.
Lender may at any time, and without further authorization from Grantor,
file a carbon, photographic or other reproduction of any financing
statement or of this Agreement for use as financing statement. Grantor will
reimburse Lender for all expenses for the perfection and the continuation
of the perfection of Lender's security interest in the collateral.
SEVERABILITY. If a court of competent jurisdiction finds any provision of
this Agreement to be illegal, invalid, or unenforceable as to any
circumstance, that finding shall not make the offending provision illegal,
invalid, or unenforceable as to any other circumstance. If feasible, the
offending provision shall be considered modified so that it becomes legal,
valid and enforceable. If the offending provision cannot be so modified, it
shall be considered deleted from this AGreement. Unless otherwise required
by law, the illegality, invalidity, or unenforceability of any provision of
this Agreement shall not affect the legality, validity or enforceability of
any other provision of this Agreement.
SUCCESSORS AND ASSIGNS. Abject to any limitations stated in his agreement
on transfer of Grantor's interest, this Agreement shall be binding upon and
inure to the benefit of the parties, their successors and assigns. If
ownership of the Collateral becomes vested in a person other than Grantor,
Lender, without notice to Grantor, may deal with Grantor's successors with
reference to this Agreement and the indebtedness by way o forbearance or
extension without releasing Grantor from the obligations of this Agreement
or liability under the Indebtedness.
SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations,
warranties, and agreements made by Grantor in this Agreement shall survive
the execution and delivery of this AGreement, shall be continuing in
nature, and shall remain in full force and effect until such time as
Grantor's indebtedness shall be paid in full.
TIME IS OF THE ESSENCE. Time is of the essence in the performance of this
Agreement.
DEFINITIONS. The following capitalized words and terms shall have the following
meanings when used in this Agreement. Unless specifically stated to the
contrary, all references to dollar amounts shall mean amounts in lawful money of
the United States of America. Words and terms used in the
<PAGE>
Page 4
COMMERCIAL SECURITY AGREEMENT
(Continued)
================================================================================
singular shall include the plural, and the plural shall include the singular, as
the context may require. Words and terms not otherwise defined in this Agreement
shall have the meanings attributed to such terms in the Uniform Commercial Code:
AGREEMENT. The word " Agreement" means this Commercial Pledge Agreement, as
this Commercial Pledge Agreement may be amended or modified from time to
time, together with all exhibits and schedules attached to this Commercial
Pledge Agreement from time to time.
BORROWER. The word " Borrower" means Wellington Hall, Limited, and all
other persons and entities signing the Note in whatever capacity.
COLLATERAL. The word "Collateral: means all of Grantor's right, title and
interest in and to all the Collateral as described in the Collateral
Description section of this Agreement.
DEFAULT. The word "Default" means the Default set forth in this Agreement
in the section titled "Default".
ENVIRONMENTAL LAWS. The words " Environmental Laws' mean any and all state
and federal and local statutes, regulations and ordinances relating to the
protection of human health or the environment, including without limitation
the Comprehensive Environmental Response, Compensation, and Liability Act
of 1980, as amended, 42 U.S.C. Section 9601, et seq. ("CERCLA"), the
Superfund Amendments and Reauthorization Act of 1986, Pub. L No. 99-499
("SARA"), the Hazardous Materials Transportation Act, 49 U.S.C. Section
1801, et seq., the Resource Conservation and REcover Act, 42 U.S.C..
Section 6901, et seq., or other applicable state or federal laws, rules or
regulations adopted pursuant thereto.
EVENT OF DEFAULT. The words "Event of Default" mean any of the events of
default set forth in this Agreement in the Default section of this
Agreement. GRANTOR. The word "Grantor" means Wellington Hall, Limited.
HAZARDOUS SUBSTANCES. The words' Hazardous Substances' mean materials that,
because of their quantity, concentration or physical chemical or infectious
characteristics, may cause or pose a present or potential hazard to human
health or the environment when improperly used, treated, stored, disposed
of, generated, manufactured, transported or otherwise handled. The words
"Hazardous Substances" are used in their very broadest sense and include
without limitation any and all hazardous or toxic substances, materials or
waste as defined by or listed under the Environmental Laws. The term
"hazardous Substances" also includes, without limitation, petroleum and
petroleum by-products or any fraction thereof and asbestos.
INDEBTEDNESS. The word "indebtedness" means the indebtedness evidenced by
the Note or Related Documents, including all principal and interest
together with all other indebtedness and costs and expenses for which
Grantor irresponsible under this Agreement or under any of the Related
Documents.
LENDER. the word "Lender" means Lexington State Bank, its successors and
assigns.
NOTE. The word "Note" means the Note executed by Grantor in the principal
amount of $1,529,784.00 dated June 16, 1999, together with all renewals of,
extensions of, modifications of, re financing of consolidations of, and
substitutions of the note or credit agreement.
OBLIGOR. The word "Obligor" means without limitation any and all persons
obligated to pay money or to perform some other act under the Collateral.
RELATED DOCUMENTS. The words "Related Documents" mean all promissory notes,
credit agreements, loan agreements, environmental agreements, guaranties,
security agreements, mortgages, deeds of trust, security deeds, collateral
mortgages, and all other instruments, agreements and documents, whether now
or hereafter existing, executed connection with the Indebtedness.
GRANTOR HAS READ AND UNDERSTOOD ALL THE PROVISIONS OF THIS COMMERCIAL PLEDGE
AGREEMENT AND AGREES TO ITS TERMS. THIS AGREEMENT IS DATED JUNE 16, 1999. THIS
AGREEMENT IS GIVEN UNDER SEAL AND IT IS INTENDED THAT THIS AGREEMENT IS AND
SHALL CONSTITUTE AND HAVE THE EFFECT OF A SEALED INSTRUMENT ACCORDING TO LAW.
GRANTOR: (CORPORATE SEAL)
ATTEST: /s/ WILLIAM W. WOODRUFF
-----------------------------
WELLINGTON HALL, LIMITED WILLIAM W. WOODRUFF, SECRETARY
BY: /s/ HOYT M. HACKNEY, JR. (SEAL) BY: /s/ WILLIAM W. WOODRUFF
-------------------------- ---------------------------------
HOYT M. HACKNEY, JR. PRESIDENT OF WILLIAM W. WOODRUFF, SECRETARY OF
WELLINGTON HALL, LIMITED WELLINGTON HALL, LIMITED
================================================================================
EXHIBIT 10:29
PROMISSORY NOTE
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Principal Loan Date Maturity Loan No. Call Collateral Account Officer Initials
<S> <C> <C> <C> <C> <C>
$1,529,784.00 06-16-1999 06-16-2000 *** 3200548-9002 076
- ---------------------------------------------------------------------------------------------------------
</TABLE>
References in shaded area are for Lender's use only and do not
limit the applicability of this document to an
particular loan or item. Any item above containing *** has been
omitted due to text length limitations.
- --------------------------------------------------------------------------------
BORROWER: Wellington Hall, Limited LENDER: Lexington State Bank
425 John Ward Road One LSB Plaza
Lexington, NC 27292 PO Box 867
Lexington, NC 27292
================================================================================
Principal Amount: $1,529,784.00 Initial Rate: 8.500%
Date of Note: June 16, 1999
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 One Million Five Hundred Twenty Nine
Thousand Seven Hundred Eighty Four & 00/100 Dollars ($1,529,784.00), together
with Interest on the unpaid principal balance from June 16, 1999, until paid in
full.
PAYMENT. Subject to any payment changes resulting from changes in the Index,
Borrower will pay this loan in 11 regular payments of $19,000.00 each and one
Irregular last payment estimated at $1,449,100.26. Borrower's first payment is
due July 16, 1999, and all subsequent payments are due on the same day of each
month after that. Borrower's final payment will be due on June 16, 2000, and
will be for all principal and accrued interest not yet paid. Payments include
principal and interest. 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. The
annual interest rate for this Note is computed on a 365/360 basis; that is, by
applying the ratio of the annual interest rate over a year of 360 days,
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.
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. The interest rate
change will not occur more often than each day. Borrower understands that Lender
may make loans based on other rates as well. The Index currently is 7.750% per
annum. The interest rate to be applied to the unpaid principal balance of this
Note will be at a rate of 0.750 percentage points over the Index, resulting in
an initial rate of 8.500% per annum. NOTICE: Under no circumstances will the
interest rate on this Note be more than the maximum rate allowed by applicable
law. Whenever increases occur in the Interest rate, Lender, at its option, may
do one or more of the following: (A) Increase Borrower's payments to ensure
Borrower's loan will pay off by its original final maturity date, (B) Increase
Borrower's payments to cover accruing Interest. (C) Increase the number of
Borrower's payments, and (D) continue Borrower's payments at the same amount and
increase Borrower's final payment.
PREPAYMENT. 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 inters. Rather, early payment will reduce the principal
balance due and may result in Borrower's making fewer payments.
LATE CHARGE. If a payment is 15 days or more late Borrower will be charged
4.000% of the unpaid portion of the regularly scheduled payment. This late
charge shall be paid to Lender by Borrower to compensate Lender for Lender's
extra costs and expenses caused by the late payment.
INTEREST AFTER DEFAULT. Upon default, including failure to pay upon final
maturity, the total sum due under this Note will bear interest from the date of
acceleration or maturity at the variable interest rate on this Note. The
Interest rate will not exceed the maximum rate permitted by applicable law.
DEFAULT. Each of the following shall constitute an event of default ("Event of
Default") under this Note:
Payment Default. Borrower fails to make any payment when due under this
Note.
Other Defaults. Borrower fails to comply with or to perform any other term,
obligation, covenant or condition contained in this Note or in any of the
related document or to comply with or to perform any term, obligation,
covenant or condition contained in any other agreement between Lender and
borrower.
False Statements. Any warranty, representation or statement made or
furnished to Lender by Borrower or on Borrower's behalf under this Note or
the related documents is false or misleading in any material respect,
either now or at the time made or furnished or becomes false or misleading
at any time thereafter.
Insolvency. The dissolution or termination of Borrower's existence as a
going business, the insolvency of Borrower, the appointment of a received
for any part of Borrower's property, any assignment for the benefit of
creditors, any type of creditor workout, or the commencement of any
proceeding under any bankruptcy or insolvency laws by or against Borrower.
Creditor or Forfeiture Proceedings. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help,
repossession or any other method, by any creditor or Borrower or by any
governmental agency against any collateral securing the loan. This includes
a garnishment of any of Borrower's accounts including deposit accounts,
with Lender. However, this Event of Default shall not apply if there is a
good faith dispute by Borrower as to the validity or reasonableness of the
claim which is the basis of the creditor or forfeiture proceeding and if
Borrower gives Lender written notice of the creditor or forfeiture
proceeding and deposits with Lender monies or a surety bond for the
creditor or forfeiture proceeding, in an amount determine by Lender, in its
sole discretion, as being inadequate reserve or bond
Events Affecting Guarantor. Any of the preceding events occurs with respect
to any guarantor, endorser, surety, or accommodation party of any of the
indebtedness or any guarantor, endorser, surety, or accommodation party
dies or becomes incompetent, or revokes or disputes the validity of, or
liability under, any guaranty of the indebtedness. In the event of death,
Lender, at its option, may, but shall not be required to, permit the
guarantor's estate to assume unconditionally the obligations arising under
the guaranty in a manner satisfactory to Lender, and, in doing so, cure any
Event of Default.
Change In Ownership. Any change in ownership of twenty-five (25%) or more
of the common stock of Borrower.
Adverse Change. A material adverse change occurs in Borrower's financial
condition, or Lender believes the prospect of payment or performance of
this Note is impaired.
Insecurity. Lender in good faith believes itself secure.
Cure Provisions. 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)
cure 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 continue and complete 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, and then
Borrower will pay that amount.
ATTORNEYS' FEES; EXPENSES. Lender may hire or pay someone else to help collect
the loan if Borrower does not pay. Borrower also will pay Lender that amount.
This includes, subject to any limits under applicable law, Lenders's attorneys'
fees and Lender's legal expenses, whether or not there is a lawsuit, including
attorneys' fees, expenses for bankruptcy proceedings (including efforts to
modify or vacate any automatic stay or injunction), and appeals. If not
prohibited by applicable law, Borrower also will pay any court costs, in
addition to all other sums provided by law.
GOVERNING LAW. This Note will be governed by, construed and enforced in
accordance with federal law and the laws of the State of North Carolina. This
Note has been accepted by Lender in the State of North Carolina.
DISHONORED ITEM FEE. Borrower will pay a fee to Lender of $20.00 if Borrower
makes a 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 security interest in,
and hereby assigns, conveys, delivers, pledges and transfers to Lender, all
Borrower's right, title and interest in an to all Borrowers accounts with Lender
(whether checking, savings, or some other account). This includes all accounts
Borrower may open in the future. However, this does not include any IRA or Keogh
accounts, or any 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 the Indebtedness against
any and all such accounts.
COLLATERAL. Borrower acknowledges this Note is secured by a Deed of Trust in the
amount of $1,829,784.00 dated June 16, 1999, Trustee Services, Inc., Trustee.
Borrower acknowledges this Note is also secured by other collateral as described
in Addendum A dated June 16, 1999, executed by Wellington Hall, Limited.
<PAGE>
Page 2
PROMISSORY NOTE
(Continued)
================================================================================
YEAR 2000. Borrower warrants and represents that all software utilized in the
conduct of its business will have appropriate capabilities and compatibility for
operation to handle calendar dates falling on or after January 1, 2000, and all
information pertaining to such calendar dates, in the same manner and with the
same functionality as the software does respecting calendar dates falling on or
before December 31, 1999. Further the Borrower warrants and represents that the
data-related user interface functions, data-fields, and data-related program
instructions and functions of the Software include the indication of the
century.
GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its rights or
remedies under this Note without losing them. Borrower any any other person who
signs, guarantees or endorses this Note, to the extent allowed by law, waive
presentment, demand for payment, 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 release 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. The obligation
under this Note are joint and several.
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.
BORROWER ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THIS PROMISSORY NOTE.
THIS NOTE IS GIVEN UNDER SEAL AND IT IS INTENDED THAT THIS NOTE IS AND SHALL
CONSTITUTE AND HAVE THE EFFECT OF A SEALED INSTRUMENT ACCORDING TO LAW.
GRANTOR: (CORPORATE SEAL)
ATTEST: /s/ WILLIAM W. WOODRUFF
-----------------------------
WELLINGTON HALL, LIMITED WILLIAM W. WOODRUFF, SECRETARY
BY: /s/ HOYT M. HACKNEY, JR. (SEAL) BY: /s/ WILLIAM W. WOODRUFF
-------------------------- ---------------------------------
HOYT M. HACKNEY, JR. PRESIDENT OF WILLIAM W. WOODRUFF, SECRETARY OF
WELLINGTON HALL, LIMITED WELLINGTON HALL, LIMITED
================================================================================
<PAGE>
ADDENDUM A
REGARDING LEXINGTON STATE BANKS' (LENDER) PROMISSORY NOTES, DATED JUNE 16, 1999
EXECUTED BY WELLINGTON HALL, LIMITED (BORROWER) IN THE RESPECTIVE AMOUNTS OF
$1,529,784.00 AND $300,000.00
The above-referenced Promissory Notes are secured by the following collateral.
The documents below have been executed by Wellington Hall, Limited:
* Deed of Trust in the amount of $1,829,784.00 dated June 16, 1999, Trustee
Services, Inc., Trustee
* Deed of Trust in the amount of $650,000.000 dated April 15, 1987, Joe H.
Leonard, Trustee
* Deed of Trust in the amount of $420,000.00 dated February 17, 1984, Joe H.
Leonard, Trust
* Commercial Pledge Agreement dated June 16, 1999 covering Assignments of
Life Insurance Policies:
1. Policy Nos. 3058458 and 3069359 by General American Life Insurance
company on the life of Hoyt Milton Hackney, Jr.
2. Policy No. VIYW004826 by CNA/Valley Forge Life Insurance Company on
the life of Arthur F. Bingham.
* Commercial Security Agreement dated June 16, 1999 covering all Accounts
Receivable, Equipment, Machinery, Furniture and Fixtures now owned or
hereafter acquired.
* Business Loan Agreement dated June 16, 1999.
Acknowledge and agreed this 16th day of June, 1999, this Addendum shall continue
in full force and effect until such time as all of Borrower's loans in favor of
Lender have been paid in full, in principal, interest, costs, expenses,
attorneys' fees, and other fees and charges, or until such time as the parties
may agree in writing to terminate this Agreement.
WELLINGTON HALL, LIMITED
By: /s/ Hoyt M. Hackney, Jr. ATTEST: /s/ William W. Woodruff
---------------------------- --------------------------------
Hoyt M. Hackney, Jr. William W. Woodruff
BY: /s/ William W. Woodruff
----------------------------
William W. Woodruff (CORPORATE SEAL)
Exhibit 10:30
COMMERCIAL PLEDGE AGREEMENT
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Principal Loan Date Maturity Loan No Call Collateral Account Officer Initials
<S> <C> <C> <C> <C> <C>
$1,529,784.00 06-16-1999 06-16-2000 *** 3200548-9002 076
- --------------------------------------------------------------------------------------------------------------
</TABLE>
References in the shaded area are for Lender's use only and do not limit
the applicability of this document to any particular loan or item. Any
item above containing *** has been omitted due to text length limitations.
- --------------------------------------------------------------------------------
GRANTOR: WELLINGTON HALL, LIMITED LENDER: LEXINGTON STATE BANK
425 JOHN WARD ROAD ONE LSB PLAZA
LEXINGTON, NC 27292 PO BOX 867
LEXINGTON, NC 27292
================================================================================
THIS COMMERCIAL PLEDGE AGREEMENT dated June 16, 1999, is made and executed
between Wellington Hall, Limited ("Grantor") and Lexington State Bank
("Lender").
GRANT OF SECURITY INTEREST. For valuable consideration, Grantor grants to Lender
a security interest in the Collateral to secure the Indebtedness and agrees that
Lender shall have the rights state in this Agreement with respect to the
Collateral, in addition to all other rights which Lender may have by law.
COLLATERAL DESCRIPTION. The word "Collateral" as used in this Agreement means
Grantor's present and future rights, title and interest in and to, together with
any and all present and future additions thereto, substitutions therefore, and
replacements thereof, and further together with all Income and Proceeds as
described herein:
Assignment of Life Insurance Policies No. 3058458 & No. 3069359 by General
American Life Insurance Company on the life of Hoyt Milton Hackney, Jr.
Assignment of Life Insurance Policy No. VIYW004826 by CNA/Valley Forge Life
Insurance Company on the life of Arthur F. Bingham.
RIGHT OF SETOFF. Grant grants to Lender a contractual security interest in, and
hereby assigns, conveys, delivers, pledges and transfers to Lender, all
Grantor's right, title and interest in and to all Grantor's accounts with Lender
(whether checking, savings, or some other account). This includes all accounts
Grantor may open in the future. However, this does not include any IRA or Keogh
accounts, or any trust accounts for which the grant of a security interest would
be prohibited by law. Grantor authorizes Lender, to the extent permitted by
applicable law, to charge or setoff all sums owing on the Indebtedness against
any and all such accounts.
REPRESENTATIONS AND WARRANTIES WITH RESPECT TO THE COLLATERAL. Grantor
represents and warrants to lender that:
Ownership. Grantor is the lawful owner of the Collateral free and clear of
all security interest, liens, encumbrances and claims of others except as
disclosed to and accepted by Lender in writing prior to execution of this
Agreement.
Right to Pledge. Grantor has the full right, power and authority to enter
into this Agreement and to pledge the Collateral.
Authority; Binding Effect. Grantor has the full right, power and authority
to enter into this Agreement and to grant a security interest in the
Collateral to lender. This Agreement is binding upon Grantor as well as
Grantor's successors and assigns, and is legally enforceable in accordance
with its terms. The foregoing representations and warranties, and all other
representations and warranties contained in this Agreement are and shall be
continuing in nature and shall remain in full force and effect until such
time as this Agreement is terminated or canceled as provided herein.
No Further Assignment. Grantor has not, and shall not, sell, assign,
transfer, encumber or otherwise dispose of any of Grantor's rights in the
collateral except as provided in this Agreement.
No Defaults. There are no defaults existing under the Collateral, and there
are no offsets or counterclaims to the same. Grantor will strictly and
promptly perform each of the terms, conditions, covenants and agreements,
if any, contained in the collateral which are to be performed by Grantor.
No Violation. The execution and delivery of this Agreement will not violate
any law or agreement governing Grantor or to which Grantor is a party and
its certificate or articles of incorporation and bylaws do not prohibit any
term or condition of this Agreement.
LENDER'S RIGHTS AND OBLIGATIONS WITH RESPECT TO THE COLLATERAL. Lender may hold
the Collateral until all indebtedness has been paid and satisfied. Thereafter
Lender may deliver the Collateral to grantor or to any other owner of the
collateral. Lender shall have the following rights in addition to all other
rights Lender may have by law:
Maintenance and Protection of Collateral. Lender may, but shall not be
obligated to, take such steps as it deems necessary or desirable to
protect, maintain, insure, store or care for the Collateral, including
paying of any liens or claims against the Collateral. This may include such
things a hiring other people, such as attorneys, appraisers or other
experts. Lender may charge Grantor for any cost incurred in so going. When
applicable law provides more than one method of perfection of Lender's
security interest, Lender may choose the method(s) to be used.
Income and Proceeds from the Collateral. Lender may receive all Income and
Proceeds and add it to the Collateral. grantor agrees to delivery to Lender
immediately upon receipt, in the exact form received and without
commingling with other property, all Income and Proceeds from the
collateral which may be received by, Paid, or delivered to Grantor or for
Grantor's account, whether as an addition to, in discharge of, in
substitution of, or in exchange for any of the collateral.
Application of Cash. At Lender's option, Lender may apply any cash, whether
included in the Collateral or received as Income and Proceeds or through
liquidation, sale, or retirement, of the Collateral, to the satisfaction of
the Indebtedness or such portion thereof as Lender shall choose, whether or
not mature.
Transactions with Others. Lender may (1) extend time for payment or other
performance, (2) grant a renewal or change in terms or conditions, or (3)
compromise, compound or release any obligation, with an one or more
Obligors, endorsers, or Guarantors of the Indebtedness as Lender deems
advisable, without obtaining the prior written consent of Grantor, and no
such act or failure to act shall affect Lender's rights against Grantor or
the Collateral.
All Collateral Secures Indebtedness. All Collateral shall be security for
the indebtedness, whether the Collateral is located at one or more offices
or branches of Lender. This will be the case whether or not the office or
branch where Grantor obtained Grantor's loan knows about the collateral or
relies upon the collateral as security.
Collection of Collateral. Lender at Lender's option may, but need not,
collect the Income directly from the Obligors. Grantor authorizes and
directs the Obligors, if Lender decides to collect the income, to pay and
deliver to Lender all income from the Collateral and to accept Lender's
receipt of payments.
Power of Attorney. Grantor irrevocably appoints Lender as Grantor's
attorney-in-fact, with full power of substitution, (a) to demand, collect,
receive, receipt for, sue and recover all Income and Proceeds and other
sums of money and other property which may now or hereafter become due,
owing or payable from the Obligors in accordance with the terms of the
Collateral; (b) to execute, sign and endorse any and all instruments,
receipts, checks, drafts and warrants issued in payment for the collateral:
(c) to settle or compromise any and all claims arising under the
Collateral, and in the place and stead of Grantor, execute and deliver
Grantor's release and acquittance for Grantor; (d) to file any claim or
claims or to take any action or institute or take part in any proceedings,
either in Lender's own name or in the name of Grantor, or otherwise, which
in the discretion of Lender may seem to be necessary or advisable; and (e)
to execute in Grantor's name and to deliver to the Obligors on Grantor's
behalf, at the time and in the manner specified by the collateral, any
necessary instruments or documents.
PERFECTION OF SECURITY INTEREST. Upon Lender's request, Grantor will
delivery to Lender any and all of the documents evidencing or constituting
the Collateral, When applicable law provides more than one method of
perfection of Lender's security interest, Lender may choose the method(s)
to be used. Upon Lender's request, Grantor will sign and deliver any
writings necessary to perfect or to continue the security interest granted
in this Agreement. This is a continuing Security Agreement and will
continue in effect even though all or any part of the Indebtedness is paid
in full and even though for a period of time Grantor may not be indebted to
Lender.
LENDER'S EXPENDITURES. If any action or proceeding is commenced that would
materially affect Lender's interest in the Collateral or if Grantor fails to
comply with any provision of this Agreement or any Related Documents, including
but not limited to Grantor's failure to discharge or pay when due any amounts
Grantor is required to discharge or pay under this Agreement or any Related
Documents, Lender on Grantor's behalf may (but shall not be obligated to) take
any action that Lender deems appropriate, including but not limited to
discharging or paying all taxes, liens, security interest, encumbrances and
other claims, at any time levied or placed on the Collateral and paying all
costs for insuring, maintaining and preserving the Collateral all such
expenditures incurred or paid by Lender for such purposes will then bear
interest at the rate charged under the Note form the date incurred or paid by
Lender to the date of repayment by Grantor. All such expenses will become a part
of the Indebtedness and, at Lender's option, will (A) be payable on demand, (B)
be added to the balance of the Note and be apportioned among and be payable with
any installment payments to become due during either (1) the term of any
applicable insurance policy, (2) the remaining term of the Note, or (3) be
treated as a balloon payment
<PAGE>
Page 2
COMMERCIAL PLEDGE AGREEMENT
(Continued)
================================================================================
which will be due and payable at the Note's maturity. The Collateral also will
secure payment of these amounts. Such right shall be in addition to all other
right san remedies to which Lender may be entitled upon Default.
LIMITATIONS ON OBLIGATIONS OF LENDER. Lender shall use ordinary reasonable care
in he physical preservation and custody of the Collateral in Lender's
possession, but shall have no other obligation to protect the Collateral or its
value. In particular, but without limitation, Lender shall have no
responsibility for (A) any depreciation in value of the Collateral or for the
collection or protection of any Income and Proceeds from the Collateral, (B)
preservation of rights against parties to the Collateral or against their
persons, (C) ascertaining any maturities, calls, conversions, exchanges, offers,
tenders, or similar matters relating to any of the collateral, or (c) informing
Grantor about any of the above, whether or not Lender has or is deemed to have
knowledge of such matters. Except a provided above, Lender shall have no
liability for depreciation or deterioration of the Collateral.
DEFAULT. Each of the following shall constitute an Event of Default under this
Agreement:
Payment Default. Grantor fails to make any payment when due under the
indebtedness.
Other Defaults. Grantor fails to comply with or to perform any other term,
obligation, covenant or condition contained in this agreement or in any of
the Related Documents or to comply with or to perform any term, obligation,
covenant or condition contained in any other agreement between Lender and
Grantor.
False Statements. Any warranty, representation or statement made or
furnished to Lender by Grantor or on Grantor's behalf under this Agreement,
the Note, or the Related Documents is false or misleading in any material
respect, either now or at the time made or furnished or becomes false or
misleading at any time thereafter.
Defective Collateralization. This Agreement or any of the Related Documents
ceases to be in full force and effect (including failure of any collateral
document to crate a valid and perfected security interest or lien) at any
time and for any reason.
Insolvency. The dissolution or termination of Grantor's existence as a
going business, the insolvency of Grantor, the appointment of a received
for any part of Grantor's property, any assignment for the benefit of
creditors, any type of creditor workout, or the commencement of any
proceeding under any bankruptcy or insolvency laws by or against Grantor.
Creditor or Forfeiture Proceedings. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help,
repossession or any other method, by any creditor of Grantor or by any
government agency against any collateral securing the Indebtedness. This
includes a garnishment of any of Grantor's accounts, including deposit
accounts, with Lender. However, this Event of Default shall not apply if
there is a good faith dispute by Grantor as to the validity or
reasonableness of the claim which is the basis of the creditor or
forfeiture proceeding and if Grantor gives Lender written notice of the
creditor or forfeiture proceeding and deposits with Lender monies or a
surety bond for the creditor or forfeiture proceeding, in an amount
determined by Lender, in its sole discretion, as being an adequate reserve
or bond for the dispute.
Events Affecting Guarantor. Any of the preceding events occurs with respect
to guarantor, endorser, surety or accommodation party of any of the
Indebtedness or guarantor, endorser, surety, or accommodation party dies or
becomes incompetent.
Adverse Change. A material adverse change occurs in Grantor's financial
condition, or Lender believes the prospect of payment or performance of the
Indebtedness is impaired.
Insecurity. Lender in good faith believes itself insecure.
CURE PROVISIONS. If any default, other than a default in payment, is
curable and if Grantor has not been given a notice of a breach of the same
provision of this Agreement within the preceding twelve (12) months, it may
be cured (and no event of default will have occurred) if Grantor, after
receiving written notice from Lender demanding cure of such default: (a)
cure the default with 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 continue and complete all reasonable and necessary steps
sufficient to produce compliance as soon as reasonable practical.
RIGHTS AND REMEDIES ON DEFAULT. If an Event of Default occurs under this
Agreement, at any time thereafter, Lender may exercise any one or more of the
following rights and remedies:
Accelerate e Indebtedness. Declare all Indebtedness, including any
prepayment penalty which Grantor would be required to pay, immediately due
and payable, without notice of any kind to Grantor.
Collection the Collateral. Collect any of the Collateral and, at Lender's
option and to the extend permitted by applicable law, retain possession of
the collateral while suing on the Indebtedness.
Sell the Collateral. Sell the Collateral, at Lender's discretion, as a unit
or in parcels, at one or more public or private sales. Unless the
Collateral is perishable or threatens to decline speedily in value or is of
a type customarily sold on a recognized market, Lender shall give or mail
to Grantor, or any of them, notice at least ten (10) days in advance of the
time and place of any public sale, or of the date after which any private
sale may be made. Grantor agrees that any requirement of reasonable notice
is satisfied if Lender mails notice by ordinary mail addressed to Grantor,
or any of them, at the last address Grantor has given Lender in writing. If
public sale is held, there shall be sufficient compliance with all
requirements of notice to the public by a single publication in any
newspaper of general circulation in the county where the Collateral is
located, setting forth the time and place of sale and a brief description
of the property to be sold. Lender may be a purchaser at any public sale.
Register Securities. Register any securities included in the Collateral in
Lender's name and exercise any rights normally incident to the ownership of
securities.
SELL SECURITIES. Sell any securities included in the Collateral in a manner
consistent with applicable federal and state securities laws. If, because
of restrictions under such laws, Lender is unable, or believes Lender is
unable, to sell the securities in an open market transaction, Grantor
agrees that Lender will have no obligation to delay sale until the
securities can be registered. Then Lender may make a private sale to one or
more persons or to a restricted group of persons, even though such sale may
result in a price that is less favorable than might be obtained in an open
market transaction. Such a sale will be considered commercially reasonable.
If any securities held as Collateral are "restricted securities" as defined
in the Rules of the Securities and Exchange commission (such as Regulation
D or Rule 144) or the rules of state securities departments under state
"Blue Sky" laws, or if Grantor or any other owner of the Collateral is an
affiliate of the issuer of the securities, Grantor agrees that neither
Grantor, nor any member of Grantor's family, nor any other person signing
this Agreement will sell or dispose of any securities of such issuer
without obtaining Lender's prior written consent.
Foreclosure. Maintain a judicial suit for foreclosure and sale of the
Collateral.
Transfer Title. Effect transfer of title upon sale of all or part of the
Collateral. For this purpose, Grantor irrevocably appoints Lender as
Grantor's attorney-in-fact to execute endorsements, assignments and
instruments in the name of Grantor and each of them (if more than one) as
shall be necessary or reasonable.
Other Rights and Remedies. Have and exercise any or all of the rights and
remedies of a secured creditor under the provisions of the Uniform
Commercial Code, at law, in equity, or otherwise.
Application of Proceeds. Apply any cash which is part of the Collateral, or
which is received from the collection or sale of the Collateral, to
reimbursement of any expenses, including any costs for registration of
securities, commissions incurred in connection with a sale, attorneys' fees
and court costs, whether or not there is a lawsuit and including any fees
on appeal, incurred by Lender in connection with the collection and sale of
such Collateral and to the payment of the Indebtedness of Grantor to
Lender, with any excess funds to be paid to Grantor as the interest of
Grantor may appear. Grantor agrees, to the extend permitted by law, to pay
any deficiency after application of the proceeds of the Collateral to the
Indebtedness.
Election of Remedies. Except as may be prohibited by applicable law, all of
Lender's rights and remedies, whether evidence by this Agreement, the
Related Documents, or by any other writing, shall be cumulative and may be
exercised singularly or concurrently. Election by Lender to pursue any
remedy will not bar any other remedy, and an election to make expenditures
or to take action to perform an obligation of Grantor under this Agreement,
after Grantor's failure to perform, shall not affect Lender's right to
declare a default and exercise its remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provision are a part of
this Agreement:
Amendments. This Agreement, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as to the
matters set forth in this Agreement. No alteration of or amendment to this
Agreement shall be effective unless given in writing and signed by the
party or parties sought to be charged or bound by the alteration or
amendment.
Attorneys' Fees: Expenses. Grantor agrees to pay upon demand all of
Lender's costs and expenses, including Lender's attorneys' fees and
Lender's legal expenses, incurred in connection with the enforcement of
this Agreement. Lender may hire or pay someone else to help enforce this
Agreement, and Grantor shall pay the costs and expenses of such
enforcement. Costs and expenses include Lender's attorneys' fees and legal
expenses whether or not there is a lawsuit, including attorneys' fees and
legal expenses for bankruptcy proceedings (including efforts to modify or
vacate any automatic stay or injunction), appeals, and any anticipated
post-judgement collection services. Grantor also shall pay all court
<PAGE>
Page 3
COMMERCIAL PLEDGE AGREEMENT
(Continued)
================================================================================
cost and such additional fees as may be directed by the court.
Caption Headings. Caption headings in this Agreement are for convenience
purposes only and are not to be used to interpret or define the provisions
of this Agreement.
Governing Law. This Agreement will be governed by, construed and enforced
in accordance with federal law and the laws of the State of North Carolina.
This agreement has been accepted by Lender in the State of North Carolina.
No waiver by Lender. Lender shall not be deemed to have waived any rights
under this Agreement unless such waiver is given in writing and signed by
Lender. No delay or omission on the part of Lender in exercising any right
shall operate as a waiver of such right or any other right. A waiver by
Lender of a provision of this Agreement shall not prejudice or constitute a
waiver of Lender's right otherwise to demand strict compliance with that
provision or any other provision of this Agreement. No prior waiver by
Lender, nor any course of dealing between Lender and grantor, shall
constitute a waiver of any of Lender's rights or of any of Grantor's
obligations as to any future transactions. Whenever the consent of Lender
is required under this Agreement, the granting of such consent by Lender in
any instance shall not constitute continuing consent to subsequent
instances where such consent is required and in all cases such consent may
be granted or withheld in sole discretion of Lender.
Notices. Any notice required to be given under this Agreement shall be
given in writing, and shall be effective when actually delivered, when
actually received by telefacsimile (unless otherwise required by law), when
deposited with a nationally recognized overnight courier, or, if mailed,
when deposited in the United States mail, as first class certified or
registered mail postage prepaid, directed to the addresses shown near the
beginning of this Agreement. Any party may change its address for notices
under this Agreement by giving formal written notice to the other parties,
specifying that the purpose of the notice is to change the party's address.
For notice purposes, Grantor agrees to keep Lender informed at all times of
Grantor's current address. Unless otherwise provided or required by law, if
there is more than one Grantor, any notice g given by Lender to any Grantor
is deemed to be notice given to all Grantors.
Severability. If a court of competent jurisdiction finds any provision of
this Agreement to be illegal, invalid, or unenforceable as to any
circumstance, that finding shall not make the offending provision illegal,
invalid, or unenforceable as to any other circumstance. If feasible, the
offending provision shall be considered modified so that it becomes legal,
valid and enforceable. If the offending provision cannot be so modified, it
shall be considered deleted from this AGreement. Unless otherwise required
by law, the illegality, invalidity, or unenforceability of any provision of
this Agreement shall not affect the legality, validity or enforceability of
any other provision of this Agreement.
Successors and Assigns. Abject to any limitations stated in his agreement
on transfer of Grantor's interest, this Agreement shall be binding upon and
inure to the benefit of the parties, their successors and assigns. If
ownership of the Collateral becomes vested in a person other than Grantor,
Lender, without notice to Grantor, may deal with Grantor's successors with
reference to this Agreement and the indebtedness by way of forbearance or
extension without releasing Grantor from the obligations of this Agreement
or liability under the Indebtedness.
Time is of the Essence. Time is of the essence in the performance of this
Agreement.
DEFINITIONS. The following capitalized words and terms shall have the following
meanings when used in this Agreement. Unless specifically stated to the
contrary, all references to dollar amounts shall mean amounts in lawful money of
the United States of America. Words and terms used in he singular shall include
the plural, and the plural shall include the singular, as the context may
require. Words and terms not otherwise defined in this Agreement shall have the
meanings attributed to such terms in the Uniform Commercial Code:
Agreement. The word " aGreement" means this Commercial Pledge Agreement, as
this Commercial Pledge Agreement may be amended or modified from time to
time, together with all exhibits and schedules attached to this Commercial
Pledge Agreement from time to time.
Borrower. The word " Borrower" means Wellington Hall, Limited, and all
other persons and entities signing the Note in whatever capacity.
Collateral. The word "Collateral: means all of Grantor's right, title and
interest in and to all the Collateral as described in the Collateral
Description section of this Agreement.
Default. The word "Default" means the Default set forth in this Agreement
in the section titled "Default".
EVENT OF DEFAULT. The words "Event of Default" mean any of the events of
default set forth in this Agreement in the Default section of this
Agreement.
Grantor. The word "Grantor" means Wellington Hall, Limited.
Income and Proceeds. The words "Income and Proceeds' mean all present and
future income, proceeds, earnings, increases, and substitutions from or for
the Collateral of every kind and nature, including without limitation all
payments, interest, profits, distributions, benefits, rights, options,
warrants, dividends, stock dividends, stock splits, stock rights,
regulatory dividend, distributions, subscriptions, monies, claims for money
due and to become due, proceeds of any insurance on the Collateral, shares
of stock of different part value or no par value issued in substitution or
exchange of share included in the Collateral, and all other property
Grantor is entitle to received on account of such Collateral, including
accounts, documents, instruments, chattel paper, and general intangibles.
Indebtedness. The word "indebtedness" means the indebtedness evidenced by
the Note or Related Documents, including all principal and interest
together with all other indebtedness and costs and expenses for which
Grantor irresponsible under this Agreement or under any of the Related
Documents.
Lender. the word "Lender" means Lexington State Bank, its successors and
assigns.
Note. The word "Note" means the Note executed by Grantor in the principal
amount of $1,529,784.00 dated June 16, 1999, together with all renewals of,
extensions of, modifications of, refinancing of consolidations of, and
substitutions of the note or credit agreement.
Obligor. The word "Obligor" means without limitation any and all persons
obligated to pay money or to perform some other act under the Collateral.
Related Documents. The words "Related Documents" mean all promissory notes,
credit agreements, loan agreements, environmental agreements, guaranties,
security agreements, mortgages, deeds of trust, security d deeds,
collateral mortgages, and all other instruments, agreements and documents,
whether now or hereafter existing, executed connection with the
Indebtedness.
GRANTOR HAS READ AND UNDERSTOOD ALL THE PROVISIONS OF THIS COMMERCIAL PLEDGE
AGREEMENT AND AGREES TO ITS TERMS. THIS AGREEMENT IS DATED JUNE 16, 1999. THIS
AGREEMENT IS GIVEN UNDER SEAL AND IT IS INTENDED THAT THIS AGREEMENT IS AND
SHALL CONSTITUTE AND HAVE THE EFFECT OF A SEALED INSTRUMENT ACCORDING TO LAW.
GRANTOR: (CORPORATE SEAL)
ATTEST: /s/ WILLIAM W. WOODRUFF
-----------------------------
WELLINGTON HALL, LIMITED WILLIAM W. WOODRUFF, SECRETARY
BY: /s/ HOYT M. HACKNEY, JR. (SEAL) BY: /s/ WILLIAM W. WOODRUFF
-------------------------- ---------------------------------
HOYT M. HACKNEY, JR. PRESIDENT OF WILLIAM W. WOODRUFF, SECRETARY OF
WELLINGTON HALL, LIMITED WELLINGTON HALL, LIMITED
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EXHIBIT 10:31
BUSINESS LOAN AGREEMENT
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Principal Loan Date Maturity Loan No Call Collatera Account Officer Initials
<S> <C> <C> <C> <C> <C>
$300,000.00 06-16-99 06-16-2000 *** 3200548-0401 076
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References in the shaded area are for Lender's use only and do not limit
the applicability of this document to any
particular loan or item. Any item above containing *** has been
omitted due to text length limitations.
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BORROWER: Wellington Hall, Limited LENDER: Lexington State Bank
425 John Ward Rd One LSB Plaza
Lexington, NC 27292 PO Box 867
Lexington, NC 27292
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THIS BUSINESS LOAN AGREEMENT dated June 16m 1999, is made and executed between
Wellington Hall, Limited ("Borrower") and Lexington State Bank ("Lender") on the
following terms and conditions. Borrower has received prior commercial loans
from Lender or has applied to Lender for a commercial loan or loans or other
financial accommodations, including those which may be described on any exhibit
or schedule attached to this Agreement ("Loan"). Borrower understands and agrees
that: (A) In granting, renewing, or extending any Loan, Lender is relying upon
Borrower's representations, warranties, and agreements as set forth in this
Agreement, and (B) all such Loan shall be and remain subject to the terms and
conditions of this Agreement.
TERM. This Agreement shall be effective as of 06-16-1999, and shall continue in
full force and effect until such time as all of Borrower's Loans in favor of
Lender have been paid in full, in principal, interest, costs, expenses,
attorneys' fees, and other fees and charges, or until such time as the parties
may agree in writing to terminate this Agreement.
COLLATERAL RECORDS. Borrower does not, and at all times therafter shall,
keep correct and accurate records of the Collateral, all of which records
shall be available to Lender or Lender's representative upon demand for
inspection and copying at any reasonable time. The above is an accurate and
complete list of all locations at which Borrower keeps or maintains
business records concerning Borrower's collateral.
COLLATERAL SCHEDULES. Concurrently with the execution and delivery of this
Agreement, Borrower shall execute and deliver to Lender schedules of in
form and substance satisfactory to the Lender. Thereafter supplemental
schedules shall be delivered according to the following schedule:
CONDITIONS PRECEDENT TO EACH ADVANCE. Lender's obligation to make the initial
Advance and each subsequent Advance under this Agreement shall be subject to the
fulfillment to Lender's satisfaction of all of the conditions set forth in this
Agreement and this he Related Documents.
LOAN DOCUMENTS. Borrower shall provide to Lender the following documents
for the Loan: (1) the Note' (2) Security Agreements granting to Lender
security interests in the Collateral; (3) financing statement perfecting
Lender's Security Interests' (4) evidence of insurance as required below;
(5) together with all such Related Documents as Lender may require for the
Loan; all in form and substance satisfactory to Lender and Lender's
counsel.
BORROWER'S AUTHORIZATION. Borrower shall have provided in form and
substance satisfactory to Lender properly certified resolutions, duly
authorizing the execution and delivery of this Agreement, the Note and the
Related Documents. In addition, Borrower shall have provided such other
resolutions, authorizations, documents and instruments as Lender or its
counsel, may require.
PAYMENT OF FEES AND EXPENSES. Borrower shall have paid to Lender all fees,
charges, and other expenses which are then due and payable as specified in
this Agreement or any Related Document.
REPRESENTATIONS AND WARRANTIES. The representations and warranties set
forth in this Agreement, in the Related Documents, and in any document or
certificate delivery to Lender under this Agreement are true and correct.
NO EVENT OF DEFAULT. There shall not exist at the time of any Advance a
condition which would constitute an Event of Default under this Agreement
or under any Related Document.
REPRESENTATIONS AND WARRANTIES. Borrower represents AND warrants to Lender, as
of the date of this Agreement, as of the date of each disbursement of loan
proceeds, as of the date of any renewal, extension or modification of any Loan,
and at all times any Indebtedness exists:
ORGANIZATION. Borrower is a corporation for profit which is, and at all
times shall be duly organized, validly existing, and in good standing under
and by virtue of the laws of the State of North Carolina. Borrower is duly
authorized to transact business in all other sates in which Borrower is
doing business, having obtained all necessary filings, governmental
licenses and approvals for each state in which Borrower is doing business.
Specifically, Borrower is, and at all times shall be , duly qualified as a
foreign corporation in all states in which the failure to so qualify would
have a material adverse effect on its business or financial condition.
Borrower has the full power and authority to own its properties and to
transact the business in which it is presently engaged or presently
proposes to engage. Borrower maintains its principal office at 425 John
Ward Road, Lexington, NC 27292. Unless Borrower has designated otherwise in
writing, this is the office at which Borrower keeps its books and records
including its records concerning the Collateral. Borrower will notify
Lender of any change in the location of Borrower's principal office.
Borrower shall do all things necessary to preserve and to keep in full
force and effect its existence, rights and privileges, and shall comply
with all regulations, rules, ordinances, statutes, orders and decrees of
any governmental or quasi-governmental authority or court applicable to
Borrower and Borrower's business activities.
ASSUMED BUSINESS NAMES. Borrower has filed or recorded all documents or
filings required by law relating to all assumed business names used by
Borrower. Excluding the name of Borrower, the following is a complete list
of all assumed business names under which Borrower does business: None.
AUTHORIZATION. Borrower's execution, delivery, and performance of this
Agreement and all the Related Documents have been duly authorized by all
necessary action by Borrower AND do not conflict with, result in a
violation of, or constitute a default under (1) any provision of Borrower's
articles of incorporation or organization, or bylaws, or any agreement or
other instrument binding upon Borrower or (2) any law, governmental
regulation, court decree or order applicable to Borrower or to Borrower's
properties.
FINANCIAL INFORMATION. Each of Borrower's financial statements supplied to
Lender truly and completely disclosed Borrower's financial condition as of
the date of the statement and there has been no material adverse change in
Borrower's financial condition subsequent to the date of the most recent
financial statement supplied to Lender. Borrower has no material contingent
obligations except as disclosed in such financial statements.
LEGAL EFFECT. This Agreement constitutes, AND any instrument or agreement
Borrower is required to give under this Agreement when delivered will
constitute, legal, valid, and binding obligations of Borrower enforceable
against Borrower in accordance with respective terms.
HAZARDOUS SUBSTANCES. Except as disclosed to and acknowledged by Lender in
writing, Borrower represents and warrants that: (1) During the period of
Borrower's ownership of Borrower's Collateral, there has been no use,
generation, manufacture, storage, treatment, disposal, release or
threatened release of any Hazardous Substance by any person on, under,
about or from any of he Collateral. (2) Borrower has no knowledge of or
reason to believe that there has been (a) any breach or violation of any
Environmental Laws; (b) any use, generation, anufacture, storage,
treatment, disposal, release, or threatened release of any hazardous
Substance on, under, about or from the Collateral by any prior owners or
occupants of any of the Collateral; or (c) any actual or threatened
litigation or claims of any kind by any person relating to such matters.
(3) Neither Borrower nor any tenant, contractor, agent or other authorized
user of any of the Collateral; and any such activity shall be e conducted
in compliance with all applicable federal, state, and local laws,
regulations, and ordinances, including without limitation all Environments
Laws. Borrower authorized Lender and its agents to enter upon the
Collateral to make such inspections and tests as Lender may deem
appropriate to determine compliance of the Collateral with this section of
the Agreement. Any inspections or tests made by Lender shall be at
Borrower's expense and for Lender's purposes only and shall not be
construed to create any responsibility or liability on the part of Lender
to Borrower or to any other person. The representations and warranties
contained herein are based on Borrower's due diligence in investigating the
Collateral for hazardous waste and hazardous substances. Borrower hereby
(1) releases and waives any future claims against Lender for indemnity or
contribution in the event Borrower becomes liable for cleanup or other
costs under any such laws, and (2) agrees to indemnify and hole harmless
Lender against any and all claims, losses, liabilities, damages, penalties,
and expenses which Lender may directly or indirectly sustain or suffer
resulting from a breach of this section of the Agreement or as a
consequence of any use, generation, manufacture, storage, disposal, release
or threatened release of a hazardous waste or substance on the properties.
The provision of this section of the Agreement, including the obligation to
indemnify, shall survive the payment of the indebtedness and the
termination, expiration or satisfaction of this Agreement and shall not be
affected by Lender's acquisition of any interest in any of the collateral,
whether by foreclosure or otherwise.
LITIGATION AND CLAIMS. No litigation, claim, investigation, administrative
proceeding or similar action (including those for unpaid taxes 0 against
Borrower is pending or threatened, and no other event has occurred which
may materially adversely affect Borrower's financial condition or
properties, other than litigation, claims, or other events, if any, that
have been disclosed to and acknowledged by Lender in writing.
TAXES. To the best of Borrower's knowledge, all of Borrower's tax returns
and reports that are or were required to be filed, have been filed, and all
taxes, assessments and other governmental charges have been paid in full,
except those presently being or to be contested by Borrower in good faith
in the ordinary course of business and for which adequate reserves have
been provided.
INFORMATION. All information heretofore or contemporaneous herewith
furnished by Borrower to Lender for the purposes of or in connection with
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BUSINESS LOAN AGREEMENT
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this Agreement or any transaction contemplated hereby is, and all
information hereafter furnished by or on behalf of Borrower to Lender will
be, true and accurate in every material respect on the date as of which
such information is dated or certified; and none of such information is or
will be incomplete by omitting to state any material fact necessary to make
such information not misleading.
LIEN PRIORITY. Unless otherwise previously disclosed to Lender in writing,
Borrower has not entered into or granted any Security Agreements, or
permitted the filing or attachment of any Security interests on or
affecting any of the Collateral directly or indirectly securing repayment
of Borrower's Loan and Note, that would be prior or that may in any way be
superior to Lender's Security interests and rights in and to such
Collateral.
BINDING EFFECT. this Agreement, the Note all Security Agreements (if any),
and all Related Documents are binding upon the signers thereof, as well as
upon their successors, representatives and assigns, and are legally
enforceable in accordance with their respective terms.
AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that,
so long as this Agreement remains in effect, Borrower will:
NOTICES OF CLAIMS AND LITIGATION. Promptly inform Lender in writing of (1)
all material adverse change sin Borrower's financial condition, and (2) all
existing and all threatened litigation, claims, investigations,
administrative proceedings or similar actions affecting Borrower or any
Guarantor which could materially affect the financial condition of Borrower
of financial condition or any Guarantor.
FINANCIAL RECORDS. Maintain its books and records in accordance with GAAP,
applied on a consistent basis, and permit Lender to examine and audit
Borrower's books and records at all reasonable times.
FINANCIAL STATEMENTS. Furnish Lender with the following:
(1) ANNUAL STATEMENTS. As soon as available, but in no event later
than ninety (90) days after the end of each fiscal year. Borrower's
balance sheet and income statement for the year ended, audited by a
certified public accountant satisfactory to Lender.
(2) INTERIM STATEMENTS. As soon as available, but in no event later
than ninety (90) days after the end of each fiscal quarter, Borrower's
balance sheet and profit and loss statement for the period ended,
audited by a certified public accountant satisfactory to Lender.
All Financial reports required to be provided under this Agreement shall be
prepared in accordance with GAAP, applied on a consistent basis, and
certified by Borrower as being true and correct.
ADDITION INFORMATION. Furnish such additional information and statements,
as Lender ,may request from time to time.
INSURANCE. Maintain fire and other risk insurance, public liability
insurance, and such other insurance as Lender may required with respect to
Borrower's properties and operations, in form, amounts, coverages and with
insurance companies acceptable to Lender. Borrower, upon request of Lender,
will delivery to Lender from time to time the policies or certificates of
insurance in form satisfactory to Lender, including stipulations that
coverages will not be canceled or diminished without at least ten (10) days
prior written notice to Lender. Each insurance policy also shall include an
endorsement providing that coverage in favor of Lender will not be impaired
in any way by any act, omission or default of Borrower or any other person.
In connection with all policies covering assets in which Lender holds or is
offered a security interest for the Loans, Borrower will provide Lender
with such lender's loss payable or other endorsements as Lender may
require.
INSURANCE REPORTS. Furnish o Lender, upon request of Lender, reports on
each existing insurance policy showing such information as Lender may
reasonably request, including without limitation the following: (1) the
name of the insurer; (2) the risks insured; (3) the amount of the policy;
(4) the properties insured; (5) the then current property values on the
basis of which insurance has been obtained, and the manner of determining
those values and (6) the expiration date of the policy. In addition, upon
reuqest of Lender (however not more often than annually), Borrower will
have an independent appraiser satisfactory to Lender determine, as
applicable, the actual cash value or replacement cost of any Collateral.
The cost of such appraisal shall be paid by Borrower.
OTHER AGREEMENTS. Comply with all terms and conditions of all other
agreements, whether now or hereafter existing, between Borrower and any
other party and notify Lender immediately in writing of any default in
connection with any other such agreements.
LOAN PROCEEDS. Use all Loan proceeds solely for Borrower's business
operations, unless specifically consented to the contrary by Lender in
writing.
TAXES, CHARGES AND LIENS. Pay and discharge when due all of its
indebtedness and obligations, including without limitation all assessments,
taxes, governmental charges, levies and liens, of every kind and nature,
imposed upon Borrower or its properties, income, or profits, prior to the
date on which penalties would attach, and all lawful claims that, if
unpaid, might become a lien or charge upon any of Borrower's properties,
income, or profits.
PERFORMANCE. Perform and comply, in a timely manner, with all terms,
conditions, and provisions set forth in this Agreement, in the Related
Documents, and in all other instruments and agreements between Borrower and
Lender. Borrower shall notify Lender Immediately in writing of any default
in connection with any agreement.
OPERATIONS. Maintain executive and management personnel with substantially
the same qualifications and experience as the present executive and
management personnel; provide written notice to Lender of any change in
executive and management personnel; conduct its business affairs in a
reasonable and prudent manner.
COMPLIANCE WITH GOVERNMENTAL REQUIREMENTS. Comply with all laws,
ordinances, and regulations, now or hereafter in effect, of all
governmental authorities applicable to the conduct of Borrower's
properties, business, and operations, and to be the use or occupancy of the
Collateral, including without limitation, the Americans with Disabilities
Act. Borrower may contest in good faith any such law, ordinance, or
regulation and withhold compliance during any proceeding, including
appropriate appeals, so long as Borrower has notified Lender in writing
prior to doing so and so long as, in Lender's sole opinion, Lender's
interest in the Collateral are not jeopardized. Lender may require Borrower
to post adequate security or surety bond, reasonable satisfactory to
Lender, to protect Lender's interest.
INSPECTION. Permit employees or agents of Lender at any reasonable time to
inspect any and all Collateral for the Loan or Loans and Borrower's other
properties and to examine or audit Borrower's books, accounts, and records
and to make copies and memoranda of Borrower's books, accounts and records.
If Borrower now or at any time hereafter maintains any recourse (including
without limitation computer generated records and computer software
programs for the generation of such records) in the possession of a third
party, Borrower upon request of Lender, shall notify such party to permit
Lender free access to such records at all reasonable times and to provide
Lender with copies of any records it may request, all at Borrower's
expense.
COMPLIANCE CERTIFICATES. Unless waived in writing by Lender, provide Lender
at least annually and at the time of each disbursement of Loan proceeds,
with a certificate executed by Borrower's chief financial officer, or other
officer or person acceptable to Lender, certifying that the representations
and warranties set forth in this Agreement are true and correct at of the
date of the certificate and further certifying that, as of the date of the
certificate, no Event of Default exists under this Agreement.
ENVIRONMENTAL COMPLIANCE AND REPORTS. Borrower shall comply in all respects
with any and all Environmental Laws; not cause or permit to exist, as a
result of an intentional or unintentional action or omission on Borrower's
part or on the part of any third party, on property owned and/or occupied
by Borrower, any environmental activity where damage may result to the
environment, unless such environmental activity is pursuant to and in
compliance with the conditions of a permit issued by the appropriate
federal, state or local governmental authorities; shall furnish to Borrower
promptly and in any event within thirty (30) days after receipt thereof a
copy of any notice, summons, lien, citation, directive, letter or other
communication from any governmental agency or instrumentality concerning
any intentional or unintentional action or omission on Borrower's part in
connection with any environmental activity whether or not here is damage to
the environment and/or other natural resources.
ADDITIONAL ASSURANCES. Make, execute and deliver to Lender such promissory
notes, mortgages, deeds of trust, security agreements, assignments,
financing statements, instruments, documents and other agreements as Lender
or its attorneys may reasonably request to evidence and secure the lOans
and to perfect all security interest.
LENDER'S EXPENDITURES. If any action or proceeding is commenced that would
materially affect Lender's interest in the Collateral or if Grantor fails to
comply with any provision of this Agreement or any Related Documents, including
but not limited to Grantor's failure to discharge or pay when due any amounts
Grantor is required to discharge or pay under this Agreement or any Related
Documents, Lender on Grantor's behalf may (but shall not be obligated to) take
any action that Lender deems appropriate, including but not limited to
discharging or paying all taxes, liens, security interest, encumbrances and
other claims, at any time levied or placed on the Collateral and paying all
costs for insuring, maintaining and preserving the Collateral all such
expenditures incurred or paid by Lender for such purposes will then bear
interest at the rate charged under the Note form the date incurred or paid by
Lender to the date of repayment by Grantor. All such expenses will become a part
of the Indebtedness and, at Lender's option, will (A) be payable on demand, (B)
be added to the balance of the Note and be apportioned among and be payable with
any installment payments to become due during either (1) the term of any
applicable insurance policy, (2) the remaining term of the Note, or (3) be
treated as a balloon payment which will be due and payable at the Note's
maturity. The Collateral also will secure payment of these amounts. Such right
shall be in addition to all other right san remedies to which Lender may be
entitled upon Default
NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that while this
Agreement is in effect, Borrower shall not, without the prior written consent of
Lender:
INDEBTEDNESS AND LIENS. (1) Except for trade debt incurred in the normal
course of business and indebtedness to Lender contemplated by this
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BUSINESS LOAN AGREEMENT
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Agreement, create, incur or assume indebtedness for borrowed money,
including capital leases, (2) sell, transfer, mortgage, assign, pledge,
lease, grant a security interest in, or encumber any of Borrower's assets
(except as allowed as Permitted Liens), or (3) sell with recourse any of
Borrower's accounts, except to Lender.
TRANSFER AND LIENS. Fail to continue to own all of Borrower's assets,
except for routine transfers, use or depletion in the ordinary course of
Borrower's business. Borrower agrees not to create or grant to any person,
except Lender, any lien, security interest, encumbrance, cloud on title,
mortgage, ledge or similar interest in any of Borrower's property, even in
the ordinary course of Borrower's business. Borrower agrees not to sell,
convey, grant, lease, give, contribute, assign, or otherwise transfer any
of Borrower's assets except for sales of inventory or lease of goods in the
ordinary course of Borrower's business.
CONTINUITY OF OPERATIONS. (1) Engage in any business activities
substantially different than those in which Borrower is present engaged,
(2) cease operations, liquidate, merge, transfer, acquire or consolidate
with any other entity, change its name, dissolve or transfer or sell
Collateral out of the ordinary course of business, or (3) pay any dividends
on Borrower's stock (other than dividends payable in its stock), provided,
however that notwithstanding the foregoing, but only so long as no Event of
Default has occurred and is continuing or would result form the payment of
dividends, if Borrower is a "Subchapter S Corporation" (as defined in the
Internal Revenue Code of 1986, as amended), Borrower may pay cash dividends
on its stock to its shareholders form time to time in amounts necessary to
enable the shareholders to pay income taxes and make estimated income tax
payments to satisfy their liabilities under federal and state law which
arise solely from their status as Shareholders of a Subchapter S
Corporation because of their ownership of share of Borrower's stock , or
purchase or retire any of Borrower's outstanding share or alter or amend
Borrower's capital structure.
LOANS, ACQUISITIONS AND GUARANTIES. (1) Loan, invest in or advance money or
assets, (2) purchase, create or acquire any interest in any other
enterprise or entity, or (3) incur any obligation as surety or guarantor
other than in the ordinary course of business.
CESSATION OF ADVANCES. If Lender has made any commitment to make any Loan
to Borrower, whether under this Agreement or under any other agreement,
Lender shall have no obligation to make Loan advances or to disburse Loan
Advances or to disburse Loan proceeds if: (1) Borrower or any guarantor is
in default under the terms of this Agreement or any of the Related
Documents or any other agreement that Borrower or any Guarantor has with
Lender; (2) Borrower or any Guarantor dies, becomes incompetent or becomes
insolvent, files a petition in bankruptcy or similar proceedings, or is
adjudged a bankrupt; (3) there occurs a material adverse change in
Borrower's financial condition, in the financial condition of any
Guarantor, or in the value of any Collateral securing any Loan; or (4) any
Guarantor seeks, claims or otherwise attempts to limit, modify or revoke
such Guarantor's guaranty of the Loan or any other loan with Lender; or (5)
Lender in good faith deems itself insecure, even though no Event of Default
shall have occurred.
RIGHT OF SETOFF. Borrower grants to Lender a contractual security interest in,
and hereby assigns, conveys, delivers, pledges and transfers to Lender, all
Borrower's right, title and interest in and to all Borrower's accounts with
Lender (whether checking, savings, or some other account). This includes all
accounts Borrower may open in the future. However, this does not include any IRA
or Keogh accounts, or any trust accounts for which the grant of 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 the
indebtedness against any and all such accounts.
DEFAULT. Each of the following shall constitute an event of default under
this Agreement.
PAYMENT DEFAULT. Borrower fails to make any payment when due under this
Loan.
OTHER DEFAULTS. Borrower fails to comply with or to perform any other term,
obligation, covenant or condition contained in this Agreement or in any of
the Related Documents or to comply with to perform any term, obligation,
covenant or condition contained in any other agreement between Lender and
Borrower.
FALSE STATEMENTS. Any warranty, representation or statement made or
furnished to Lender by Borrower or on Borrower's behalf under this
Agreement, the Note or the Related Documents is false or misleading in any
material respect, either now or at the time made or furnished or becomes
false or misleading at any time thereafter.
INSOLVENCY. The dissolution or termination of Borrower's existence as a
going business, the insolvency of Borrower, the appointment of a received
for any part of Borrower's property, any assignment for the benefit of
creditors, any type of creditor workout, or the commencement of any
proceeding under any bankruptcy or insolvency laws by or against Borrower.
DEFECTIVE COLLATERALIZATION. This Agreement or any of the Related Documents
ceases to be in full force and effect including failure of any collateral
document to create a valid and perfected security interest or lien) at any
time and for any reason.
CREDITOR OR FORFEITURE PROCEEDINGS. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help,
repossession or any other method, by any creditor or Borrower or by any
governmental agency against any collateral securing the loan. This includes
a garnishment of any of Borrower's accounts including deposit accounts,
with Lender. However, this Event of Default shall not apply if there is a
good faith dispute by Borrower as to the validity or reasonableness of the
claim which is the basis of the creditor or forfeiture proceeding and if
Borrower gives Lender written notice of the creditor or forfeiture
proceeding and deposits with Lender monies or a surety bond for the
creditor or forfeiture proceeding, in an amount determine by Lender, in its
sole discretion, as being inadequate reserve or bond
EVENTS AFFECTING GUARANTOR. Any of the preceding events occurs with respect
to any guarantor of any of the indebtedness or any Guarantor dies or
becomes incompetent, or revokes or disputes the validity of, or liability
under, any guaranty of the indebtedness. In the event of death, Lender, at
its option, may, but shall not be required to, permit the guarantor's
estate to assume unconditionally the obligations arising under the guaranty
in a manner satisfactory to Lender, and, in doing so, cure any Event of
Default.
CHANGE IN OWNERSHIP. Any change in ownership of twenty-five (25%) or more
of the common stock of Borrower.
ADVERSE CHANGE. A material adverse change occurs in Borrower's financial
condition, or Lender believes the prospect of payment or performance of
this Loan is impaired.
INSECURITY. Lender in good faith believes itself secure.
RIGHT TO CURE. If any default, other than a default in indebtedness, is
curable and if Borrower or Grantor, as the case may be, has not been given
of a similar default within the preceding twelve (12) months, it may be
cured (and no Event of Default will have occurred) if Borrower or Grantor,
as the case may be after receiving written notice from Lender demanding
cure of such default: (1) cure the default within fifteen (15) days; or (2)
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 continue and complete all reasonable and
necessary steps sufficient to produce compliance as soon as reasonably
practical.
EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, except where
otherwise provided in this Agreement or the Related Documents, all commitments
and obligations of Lender under this Agreement or the Related Documents or any
other agreement immediately will terminate (including any obligation to make
further Loan Advances or disbursements), and at Lender's option, all
indebtedness immediately will become due and payable, all without notice of any
kind to Borrower, except that in the case of an Event of Default of the type
described in the "insolvency"" subsection above, such acceleration shall be
automatic and not optional. In addition, Borrower shall have all the rights and
remedies provided in the Related Documents or available at law, in equity, or
otherwise. Except as may be prohibited by applicable law, all of Lender's rights
and remedies shall be cumulative and may be exercised singularly or
concurrently. Election by Lender to pursue any remedy shall not exclude pursuit
of any other remedy, and an election to make expenditures or to take action to
perform an obligation of Borrower's or of any Grantor shall not affect Lender's
right to declare a default and to exercise its rights and remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provision are a part of
this Agreement:
AMENDMENTS. This Agreement, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as to the
matters set forth in this Agreement. No alteration of or amendment to this
Agreement shall be effective unless given in writing and signed by the
party or parties sought to be charged or bound by the alteration or
amendment.
ATTORNEYS' FEES: EXPENSES. Borrower agrees to pay upon demand all of
Lender's costs and expenses, including Lender's attorneys' fees and
Lender's legal expenses, incurred in connection with the enforcement of
this Agreement. Lender may hire or pay someone else to help enforce this
Agreement, and Borrower shall pay the costs and expenses of such
enforcement. Costs and expenses include Lender's attorneys' fees and legal
expenses whether or not there is a lawsuit, including attorneys' fees and
legal expenses for bankruptcy proceedings (including efforts to modify or
vacate any automatic stay or injunction), appeals, and any anticipated
post-judgement collection services. Grantor also shall pay all court cost
and such additional fees as may be directed by the court.
CAPTION HEADINGS. Caption headings in this Agreement are for convenience
purposes only and are not to be used to interpret or define the provisions
of this Agreement.
CONSENT TO LOAN PARTICIPATION. Borrower agrees and consents to Lender's
sale or transfer, whether now or later, of one or more participation
interest in the Loan to one or more purchasers, whether related or
unrelated o Lender. Lender may provide, without any limitation whosoever,
to any one or more purchasers, or potential purchasers, any information or
knowledge Lender may have about Borrower or about any other matter relating
to the Loan and Borrower hereby waives any rights to privacy Borrower may
have with respect to such matters. Borrower additionally waives any and all
notices of sale of participation interests, as well as all notice so any
repurchase of such interest and
<PAGE>
Page 4
BUSINESS LOAN AGREEMENT
(Continued)
================================================================================
agrees that the purchasers of any such participation interest will be
considered as the absolute owner of such interest in the Loan and will have
all the rights granted under the participation agreement or agreements
governing the sale of such participation interests. Borrower further waives
all rights of offset or counterclaim that it may have now or late against
Lender or against any purchaser of such a participation interest and
unconditionally agrees that either Lender or such purchase may enforce
Borrower's obligation under the Loan irrespective of the failure or
insolvency of any holder of any interest in the Loan. Borrower further
agrees that the purchase of any such participation interests may enforce
its interest irrespective of any personal claims or defenses that Borrower
may have against Lender.
GOVERNING LAW. THIS AGREEMENT WILL BE GOVERNED BY, CONSTRUED AND ENFORCED
IN ACCORDANCE WITH FEDERAL LAW AND THE LAWS OF THE STATE OF NORTH CAROLINA.
THIS AGREEMENT HAS BEEN ACCEPTED BY LENDER IN THE STATE OF NORTH CAROLINA.
NO WAIVER BY LENDER. Lender shall not be deemed to have waived any rights
under this AGreement unless such waiver is given in writing and signed by
Lender. No delay or omission on the part of Lender in exercising any right
shall operate as a waiver of such right or any other right. A waiver by
Lender of a provision of this Agreement shall not prejudice or constitute a
waiver of Lender's right otherwise to demand strict compliance with that
provision or any other provision of this Agreement. No prior waiver by
Lender, nor any course of dealing between Lender and Borrower, or between
Lender and any Grantor, shall constitute a waiver of any of Lender's rights
or of any of Borrower's or any Grantor's obligations as to any future
transactions. Whenever the consent of Lender is required under this
agreement, the granting of such consent by Lender in any instance shall not
constitute continuing consent to subsequent instances where such consent is
required and in all cases such consent may be granted or withheld in the
sole discretion of Lender.
NOTICES. Any notice required to be given under this Agreement shall be
given in writing, and shall be effective when actually delivered, when
actually received by telefacsimile (unless otherwise required by law), when
deposited with a nationally recognized overnight courier, or, if mailed,
when deposited in the United States mail, as first class certified or
registered mail postage prepaid, directed to the addresses shown near the
beginning of this Agreement. Any party may change its address for notices
under this Agreement by giving formal written notice to the other parties,
specifying that the purpose of the notice is to change the party's address.
For notice purposes, Borrower agrees to keep Lender informed at all times
of Borrower's current address. Unless otherwise provided or required by
law, if there is more than one Borrower, any notice g given by Lender to
any Borrower is deemed to be notice given to all Borrower.
SEVERABILITY. If a court of competent jurisdiction finds any provision of
this Agreement to be illegal, invalid, or unenforceable as to any
circumstance, that finding shall not make the offending provision illegal,
invalid, or unenforceable as to any other circumstance. If feasible, the
offending provision shall be considered modified so that it becomes legal,
valid and enforceable. If the offending provision cannot be so modified, it
shall be considered deleted from this AGreement. Unless otherwise required
by law, the illegality, invalidity, or unenforceability of any provision of
this Agreement shall not affect the legality,validity or enforceability of
any other provision of this Agreement.
SUBSIDIARIES AND AFFILIATES OF BORROWER. To the extent the contest of any
provisions of this Agreement makes it appropriate, including without
limitation any representation, warranty or covenant, the word "Borrower" as
used in this Agreement shall include all of Borrower's subsidiaries and
affiliates. Notwithstanding the foregoing however, under no circumstances
shall this Agreement be construed to require Lender to make any Loan or
other financial accommodation to any of Borrower's subsidiaries or
affiliates.
SUCCESSORS AND ASSIGNS. All covenants and agreements contained by or on
behalf of Borrower shall inure Borrower's successors and assigns and shall
inure to the benefit of Lender, its successors and assigns. Borrower shall
not however, , have the right to assign Borrower's rights under this
Agreement or any interest therein, without he prior written consent of
Lender.
SURVIVAL OF REPRESENTATION AND WARRANTIES. Borrower understand and agrees
that in extending Loan Advances, Lender is relying on all representations,
warranties, and covenants made by Borrower in this Agreement or in any
certificate or other instrument delivered by Borrower to Lender under this
Agreement or the Related Documents. Borrower further agrees that regardless
of any investigation made by Lender, all such representations, warranties
and covenants will survive the extension of Loan Advances and delivery to
Lender of the Related Documents, shall be e continuing in nature, shall be
deemed made and redated by Borrower at the time each Loan Advance is made,
and shall remain in full force and effect until such time as Borrower's
indebtedness shall be paid in full, or until this Agreement shall be
terminate in the manner provided above, whichever is the last to occur.
TIME IS OF THE ESSENCE. Time is of the essence in the performance of this
Agreement.
DEFINITIONS. The following capitalized words and terms shall have the following
meanings when used in this Agreement. Unless specifically stated to the
contrary, all references to dollar amounts shall mean amounts in lawful money of
the United States of America. Words and terms used in he singular shall include
the plural, and the plural shall include the singular, as the context may
require. Words and terms not otherwise defined in this Agreement shall have the
meanings attributed to such terms in the Uniform Commercial Code. Accounting
words and terms not otherwise defined in this Agreement shall have the meanings
assigned to them in accordance with generally accepted account principles as in
effect on the date of this Agreement:
ADVANCE. The word "Advance" means a disbursement of Loan funds made, or to
be made, to Borrower or on Borrower's behalf on a line of credit or
multiple advance basis under the terms and conditions of this Agreement.
AGREEMENT. The word " Agreement" means this Business Loan Agreement, as
this Business Loan Agreement may be amended or modified from time to time,
together with all exhibits and schedules attached to this Business Loan
Agreement from time to time.
BORROWER. The word " Borrower" means Wellington Hall, Limited, and all
other persons and entities signing the Note in whatever capacity.
COLLATERAL. The word "Collateral: means all property and assets granted as
collateral security for a Loan, whether real or personal property, whether
granted directly or indirectly, whether granted now or in the future, and
whether granted in the form of a security interest, mortgage, collateral
mortgage, deed of trust, assignment, pledge, chattel mortgage, crop pledge,
chattel mortgage, collateral chattel mortgage, chattel trust, factor's
lien, equipment trust, conditional sale, trust receipt, lien, charge, lien
or title retention contract lease or consignment intended as as a security
device, or any other security or lien interest whatsoever, whether created
by law, contract, or otherwise..
DEFAULT. The word "Default" means the Default set forth in this Agreement
in the section titled "Default".
ENVIRONMENTAL LAWS. The words " Environmental Laws' mean any and all state
and federal and local statutes, regulations and ordinances relating to the
protection of human health or the environment, including without limitation
the Comprehensive Environmental Response, Compensation, and Liability Act
of 1980, as amended, 42 U.S.C. Section 9601, et seq. ("CERCLA"), the
Superfund Amendments and Reauthorization Act of 1986, Pub. L No. 99-499
("SARA"), the Hazardous Materials Transportation Act, 49 U.S.C. Section
1801, et seq., the Resource Conservation and REcover Act, 42 U.S.C..
Section 6901, et seq., or other applicable state or federal laws, rules or
regulations adopted pursuant thereto.
EVENT OF DEFAULT. The words "Event of Default" mean any of the events of
default set forth in this Agreement in the Default section of this
Agreement.
GAAP. The word "GAAP" means generally accepted accounting principles.
GRANTOR. The word "Grantor" means each and all of the persons or entities
granting a Security Interest in any Collateral for the Loan, including
without limitation all Borrowers granting such a security Interest.
GUARANTOR. The word "Guarantor" means any guarantor, surety, or
accommodation party of any or all of the Loan.
GUARANTY. The word "Guaranty" means the guaranty for Guarantor to Lender,
including without limitation a guaranty of all or part of the Note.
INDEBTEDNESS. The word "indebtedness" means the indebtedness evidenced by
the Note or Related Documents, including all principal and interest
together with all other indebtedness and costs and expenses for which
Grantor irresponsible under this Agreement or under any of the Related
Documents.In addition, and without limitation, the term "Indebtedness"
includes all amounts identified in the Revolving Line of Credit and Future
Advances paragraphs as contained in one or more of the Related Documents.
LENDER. the word "Lender" means Lexington State Bank, its successors and
assigns.
LOAN. The word "Loan" means any and all loans and financial accommodations
from lender to Borrower whether now or hereafter existing, and however
evidenced, including without limitation those loans and financial
accommodations described herein or described on any exhibit or schedule
attached to this Agreement from time to time.
NOTE. The word "Note" means the Note executed by Borrower in the principal
amount of $300,000.00 dated June 16, 1999, together with all renewals of,
extensions of, modifications of, re financings of, consolidations of, and
substitutions for the note or credit agreement.
PERMITTED LIENS. The words "Permitted Liens' Mean (1) liens and security
interests securing indebtedness owed by Borrower to Lender; (2) liens for
taxes, assessments, or similar charges either not yet due or being
contested in good faith; (3) lines of materialmen, mechanics, warehousemen,
or carriers, or other like liens arising in the ordinary course of business
and securing obligations which are not yet delinquent; (4) purchase money
liens or purchase money security interest upon or in any property acquired
or held by Borrower in the ordinary course of business top secure
indebtedness outstanding on the date of this Agreement or permitted to be
incurred under the paragraph of this Agreement titled "Indebtedness and
Liens", (5) liens and security interests which, as of the date of this
Agreement, have been disclosed to and approved by the Lender in writing;
and (6) those liens and security interests which in the aggregate
constitute an immaterial and insignificant monetary amount with respect to
the new value of Borrower's assets.
<PAGE>
Page 5
BUSINESS LOAN AGREEMENT
(Continued)
================================================================================
RELATED DOCUMENTS. The words "Related Documents" mean all promissory notes,
credit agreements, loan agreements, environmental agreements, guaranties,
security agreements, mortgages, deeds of trust, security d deeds,
collateral mortgages, and all other instruments, agreements and documents,
whether now or hereafter existing, executed connection with the Loan.
SECURITY AGREEMENT. The words "Security Agreement' mean and include without
limitation any agreements, promises, covenants, arrangements,
understandings or other agreements, whether created by law, contract or
otherwise, evidencing, governing, representing, or creating a Security
Interest.
SECURITY INTEREST. The words "Security Interest" means, without limitation,
any and all types of collateral security, present and future whether in the
form of a lien, charge, encumbrance, mortgage, deed of trust, security
deed, assignment, pledge, crop pledge, chattel mortgage, collateral chattel
mortgage, chattel trust, factor's lien, equipment trust, conditional sale,
trust receipt, lien or title retention contract, lease or consignment
intended as a security device or any other security or lien interest
whatsoever whether created by law, contract or otherwise.
BORROWER HAS READ AND UNDERSTOOD ALL THE PROVISIONS OF THIS BUSINESS LOAN
AGREEMENT AND AGREES TO ITS TERMS. THIS AGREEMENT IS DATED JUNE 16, 1999. THIS
AGREEMENT IS GIVEN UNDER SEAL AND IT IS INTENDED THAT THIS AGREEMENT IS AND
SHALL CONSTITUTE AND HAVE THE EFFECT OF A SEALED INSTRUMENT ACCORDING TO LAW.
BORROWER: ATTEST: /s/ William W. Woodruff
--------------------------------
William W. Woodruff, Secretary
WELLINGTON HALL, LIMITED (CORPORATE SEAL)
By: /s/ Hoyt M. Hackney, Jr. (Seal) By: /s/ William W. Woodruff (Seal)
-------------------------- ------------------------------
Hoyt M. Hackney, Jr. President of William W. Woodruff, Secretary of
Wellington Hall, Limited Wellington Hall, Limited
LENDER:
LEXINGTON STATE BANK
X /s/ [Corporate Seal]
----------------------------
Authorized Signer
================================================================================
EXHIBIT 10:32
PROMISSORY NOTE
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Principal Loan Date Maturity Loan No. Call Collateral Account Officer Initials
<S> <C> <C> <C> <C> <C>
$300,000 06-16-1999 06-16-2000 *** 3200548-0401 076
- -----------------------------------------------------------------------------------------------------------
</TABLE>
References in shaded area are for Lender's use only and do not
limit the applicability of this document to an
particular loan or item. Any item above containing *** has been
omitted due to text length limitations.
- --------------------------------------------------------------------------------
BORROWER: Wellington Hall, Limited Lender: Lexington State Bank
425 John Ward Road One LSB Plaza
Lexington, NC 27292 PO Box 867
Lexington, NC 27292
================================================================================
Principal Amount: $300,000.00 Initial Rate: 8.500%
Date of Note: June 16, 1999
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 Three Hundred Thousand & 00/100 Dollars
($300,000.00) or so much as may be outstanding, together with interest on the
unpaid outstanding principal balance of each advance. Interest shall be
calculated form the date of each advance until repayment of each advance.
PAYMENT. Borrower will pay this loan in one payment of all outstanding principal
plus all accrued unpaid interest on June 16, 2000. In addition, Borrower will
pay regular monthly payment of all accrued unpaid interest due as of each
payment date, beginning July 16, 1999, with all subsequent Interest payments to
be due on the same day of each month after that. 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. The annual interest rate for this Note is computed on a
365/360 basis; that is, by applying the ratio of the annual interest rate over a
year of 360 days, 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.
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. The interest rate
change will not occur more often than each day. Borrower understands that Lender
may make loans based on other rates as well. The Index currently is 7.750% per
annum. The interest rate to be applied to the unpaid principal balance of this
Note will be at a rate of 0.750 percentage points over the Index, resulting in
an initial rate of 8.500% per annum. NOTICE: Under no circumstances will the
interest rate on this Note be more than the maximum rate allowed by applicable
law.
PREPAYMENT. 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 inters. Rather, early payment will reduce the principal
balance due
LATE CHARGE. If a payment is 15 days or more late Borrower will be charged
4.000% of the unpaid portion of the regularly scheduled payment. This late
charge shall be paid to Lender by Borrower to compensate Lender for Lender's
extra costs and expenses caused by the late payment.
INTEREST AFTER DEFAULT. Upon default, including failure to pay upon final
maturity, the total sum due under this Note will bear interest from the date of
acceleration or maturity at the variable interest rate on this Note. The
Interest rate will not exceed the maximum rate permitted by applicable law.
DEFAULT. Each of the following shall constitute an event of default ("Event of
Default") under this Note:
Payment Default. Borrower fails to make any payment when due under this
Note.
Other Defaults. Borrower fails to comply with or to perform any other term,
obligation, covenant or condition contained in this Note or in any of the
related documents is false or misleading in any material respect, either
now or at the time made or furnished or becomes false or misleading at any
time thereafter.
False Statements. Any warranty, representation or statement made or
furnished to Lender by Borrower or on Borrower's behalf under this Note or
the related documents is false or misleading in any material respect,
either now or at the time made or furnished or becomes false or misleading
at any time thereafter.
Insolvency. The dissolution or termination of Borrower's existence as a
going business, the insolvency of Borrower, the appointment of a received
for any part of Borrower's property, any assignment for the benefit of
creditors, any type of creditor workout, or the commencement of any
proceeding under any bankruptcy or insolvency laws by or against Borrower.
Creditor or Forfeiture Proceedings. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help,
repossession or any other method, by any creditor or Borrower or by any
governmental agency against any collateral securing the loan. This includes
a garnishment of any of Borrower's accounts including deposit accounts,
with Lender. However, this Event of Default shall not apply if there is a
good faith dispute by Borrower as to the validity or reasonableness of the
claim which is the basis of the creditor or forfeiture proceeding and if
Borrower gives Lender written notice of the creditor or forfeiture
proceeding and deposits with Lender monies or a surety bond for the
creditor or forfeiture proceeding, in an amount determine by Lender, in its
sole discretion, as being inadequate reserve or bond
Events Affecting Guarantor. Any of the preceding events occurs with respect
to any guarantor, endorser, surety, or accommodation party of any of the
indebtedness or any guarantor, endorser, surety, or accommodation party
dies or becomes incompetent, or revokes or disputes the validity of, or
liability under, any guaranty of the indebtedness. In the event of death,
Lender, at its option, may, but shall not be required to, permit the
guarantor's estate to assume unconditionally the obligations arising under
the guaranty in a manner satisfactory to Lender, and, in doing so, cure any
Event of Default.
Change In Ownership. Any change in ownership of twenty-five (25%) or more
of the common stock of Borrower.
Adverse Change. A material adverse change occurs in Borrower's financial
condition, or Lender believes the prospect of payment or performance of
this Note is impaired.
Insecurity. Lender in good faith believes itself secure.
Cure Provisions. 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)
cure 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 continue and complete 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, and then
Borrower will pay that amount.
ATTORNEYS' FEES; EXPENSES. Lender may hire or pay someone else to help collect
the loan if Borrower does not pay. Borrower also will pay Lender that amount.
This includes, subject to any limits under applicable law, Lenders's attorneys'
fees and Lender's legal expenses, whether or not there is a lawsuit, including
attorneys' fees, expenses for bankruptcy proceedings (including efforts to
modify or vacate any automatic stay or injunction), and appeals. If not
prohibited by applicable law, Borrower also will pay any court costs, in
addition to all other sums provided by law.
GOVERNING LAW. This Note will be governed by, construed and enforced in
accordance with federal law and the laws of the State of North Carolina. This
Note has been accepted by Lender in the State of North Carolina.
DISHONORED ITEM FEE. Borrower will pay a fee to Lender of $20.00 if Borrower
makes a 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 security interest in,
and hereby assigns, conveys, delivers, pledges and transfers to Lender, all
Borrower's right, title and interest in an to all Borrowers accounts with Lender
(whether checking, savings, or some other account). This includes all accounts
Borrower may open in the future. However, this does not include any IRA or Keogh
accounts, or any 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 the Indebtedness against
any and all such accounts.
COLLATERAL. Borrower acknowledges this Note is secured by a Deed of Trust in the
amount of $1,829,784.00 dated June 16, 1999, Trustee Services, Inc., Trustee.
Borrower acknowledges this Note is also secured by other collateral as described
in Addendum A dated June 16, 1999, executed by Wellington Hall, Limited.
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 by an authorized person. Lender
may, but need not, require that all oral requests be confirmed in writing.
Borrower agrees to be liable for all sums either: (A) advanced in accordance
with the instructions of an authorized person or (B)
<PAGE>
Page 2
PROMISSORY NOTE
(Continued)
================================================================================
credited to any of Borrower's accounts with Lender. The unpaid principal balance
owing on this Note at any time may be evidence 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 believes itself insecure.
ADVANCES UNDER LINE OF CREDIT. Unless otherwise instructed in writing by the
Borrower, funds advanced under this Note shall be credited to Borrowers'
Lexington State Bank Checking account NO. 0001-28103.
The following party is 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 his authority: Hoyt M. Hackney, Jr.
YEAR 2000. Borrower warrants and represents that all software utilized in the
conduct of its business will have appropriate capabilities and compatibility for
operation to handle calendar dates falling on or after January 1, 2000, and all
information pertaining to such calendar dates, in the same manner and with the
same functionality as the software does respecting calendar dates falling on or
before December 31, 1999. Further the Borrower warrants and represents that the
data-related user interface functions, data-fields, and data-related program
instructions and functions of the Software include the indication of the
century.
GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its rights or
remedies under this Note without losing them. Borrower any any other person who
signs, guarantees or endorses this Note, to the extent allowed by law, waive
presentment, demand for payment, 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 release 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. The obligation
under this Note are joint and several.
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.
BORROWER ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THIS PROMISSORY NOTE.
THIS NOTE IS GIVEN UNDER SEAL AND IT IS INTENDED THAT THIS NOTE IS AND SHALL
CONSTITUTE AND HAVE THE EFFECT OF A SEALED INSTRUMENT ACCORDING TO LAW.
BORROWER: ATTEST: /s/ William W. Woodruff
--------------------------------
William W. Woodruff, Secretary
WELLINGTON HALL, LIMITED (CORPORATE SEAL)
By: /s/ Hoyt M. Hackney, Jr. (Seal) By: /s/ William W. Woodruff (Seal)
-------------------------- ------------------------------
Hoyt M. Hackney, Jr. President of William W. Woodruff, Secretary of
Wellington Hall, Limited Wellington Hall, Limited
<PAGE>
ADDENDUM A
REGARDING LEXINGTON STATE BANKS' (LENDER) PROMISSORY NOTES, DATED
JUNE 16, 1999 EXECUTED BY WELLINGTON HALL, LIMITED (BORROWER) IN THE
RESPECTIVE AMOUNTS OF $1,529,784.00 AND $300,000.00
The above-referenced Promissory Notes are secured by the following collateral.
The documents below have been executed by Wellington Hall, Limited:
* Deed of Trust in the amount of $1,829,784.00 dated June 16, 1999, Trustee
Services, Inc., Trustee
* Deed of Trust in the amount of $650,000.000 dated April 15, 1987, Joe H.
Leonard, Trustee
* Deed of Trust in the amount of $420,000.00 dated February 17, 1984, Joe H.
Leonard, Trust
* Commercial Pledge Agreement dated June 16, 1999 covering Assignments of
Life Insurance Policies:
1. Policy Nos. 3058458 and 3069359 by General American Life Insurance
company on the life of Hoyt Milton Hackney, Jr.
2. Policy No. VIYW004826 by CNA/Valley Forge Life Insurance Company on
the life of Arthur F. Bingham.
* Commercial Security Agreement dated June 16, 1999 covering all Accounts
Receivable, Equipment, Machinery, Furniture and Fixtures now owned or
hereafter acquired.
* Business Loan Agreement dated June 16, 1999.
Acknowledge and agreed this 16th day of June, 1999, this Addendum shall continue
in full force and effect until such time as all of Borrower's loans in favor of
Lender have been paid in full, in principal, interest, costs, expenses,
attorneys' fees, and other fees and charges, or until such time as the parties
may agree in writing to terminate this Agreement.
WELLINGTON HALL, LIMITED
By: /s/ Hoyt M. Hackney, Jr. ATTEST: /s/ William W. Woodruff
---------------------------- --------------------------------
Hoyt M. Hackney, Jr. William W. Woodruff
BY: /s/ William W. Woodruff
----------------------------
William W. Woodruff (CORPORATE SEAL)
EXHITBIT 10.33
STATE OF NORTH CAROLINA
COUNTY OF GUILFORD
LEASE AGREEMENT
THIS LEASE AGREEMENT is made and entered into this the 26th day of April, 1999.
by and between the following parties:
PHILLIPS INTERESTS 3, INC. ("Landlord")
Post Office Box 1470
High Point, North Carolina 27261
Attention: Mr. Earl N. Phillips, Jr.
and
Wellington Hall Limited, Inc.
P.O. Box 1354
Lexington, North Carolina 27293
Attention: Mr. Hoyt Hackney, Jr.
A. FUNDAMENTAL LEASE PROVISIONS
Certain fundamental lease provisions are set forth in this section and
represent the agreement of the Landlord and Tenant, subject to further
elaboration and definition elsewhere in thisLease Agreement.
1. Showroom: The furniture showroom facilities located at 330 North
Hamilton Street in High Point, North Carolina. A copy of the Showroom plan is on
file in the office of Landlord.
2. The Premises: That certain showroom unit shown on the second floor plans
of the Showroom and containing approximately 5,040 square feet of rentable area.
(4,200 net square feet plus 20% common area allocation of 840 square feet). The
suite number of the Premises is 201.
3. COMMON AREAS: Those portions of the Showroom designated for the general
use, in common, of all the tenants of the Showroom. Common Areas shall include,
but are not limited to, entranceways, walkways, hallways, stairways, elevators,
bathrooms, closets, located outside rented spaces, open spaces, parking and
exterior ground in and around the Showroom.
<PAGE>
4. Lease Term: A period of five (5) years. beginning May 1, 1999 and ending
at midnight on April 30, 2004.
5. Base Year: The initial calendar year of the lease term 1999.
6. BASE RENT:
For that portion of the Premises located at 330 North Hamilton, Suite 201,
annual rent of Twelve dollars ($12.00) per square foot of rentable area with
semi-annual payments of $30,240.00 due May 1st and November 1st of each year of
the Lease Term.
7. Additional Rent:
(A) Tenant's pro rata share of real estate taxes in an amount by which
the annual ad valorem real property taxes attributable to the Premises in each
calendar year following the Base Year exceeds the amount of such taxes for the
Base Year, as provided in paragraph B.5(b);
(b) Tenant's pro rata share of insurance premiums payable in an amount
by which the total casualty insurance premiums paid by the landlord attributable
to the Premises in each calendar year following the Base Year exceeds the amount
of such premiums in the Base Year, and additional premiums, if any, as provided
in paragraph B.6(b);
(c) Tenant's pro rata share of utility services metered in common with
other tenants, if applicable.
Each reference in the Lease agreement to any of the Fundamental Lease Provisions
and shall be construed to incorporate all of the terms described above; but, if
there is a conflict between any Fundamental Lease Provision and any Provision in
the remainder of this Lease Agreement (including exhibits, riders, and
amendments) the Fundamental Lease Provision shall be preempted by such
provision.
B. STATEMENT OF GRANT AND AGREEMENT
Landlord and Tenant agree as follows:
1. CERTAIN PROPERTY RIGHTS:
(a) LEASE: Landlord leases to Tenant the Premises described in
Paragraph A.2 of this Lease Agreement. Use of such property is governed by the
provisions of this Lease Agreement, including paragraph B.7.
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(b) Common Areas: Tenant shall have the nonexclusive right to use all
Common Areas, subject to uniform rules and regulations as may be prescribed by
Landlord, and subject to the provisions of paragraph B.12 of this Lease
Agreement.
(c) Locks and Keys: Landlord has the right to install additional locks
at its expense on the interior (including doors to the Premises) and exterior
doors to the Showroom.
The Landlord has the right to keep those doors locked at all times, except that
during sessions of the International Home Furnishings Market, the Landlord has
the right to keep the external and interior doors locked during non-business
hours.
Landlord agrees not to unreasonably deny access to Tenant and shall provide an
adequate number of keys to Tenant.
Tenant agrees to safeguard security measures and agrees to require recipients of
keys to sign for them.
2. LEASE TERM: Set out in paragraph A.4 of this Lease Agreement.
3. BASE RENT: Calculated as provided in Paragraph A.6 of this Lease Agreement.
Base Rent shall be paid in semi-annual installments, without demand or
set off to Hamilton Properties, Post Office Box 1470, HIgh Point, North
Carolina, 27261-1470, or to such other payee(s), at such other place(s), or in
such other manner as the Landlord may designate in writing in accordance with
the notice provisions of this Lease Agreement.
Payments shall be made on or before the first day of the designated
month of the Lease Term. Payments shall be made deemed paid when received by the
Landlord.
In the event Tenant fails to pay when due any Base Rent, Additional
Rent, or other amount provided in this Lease Agreement, the unpaid amounts shall
bear interest at the rate of 18% per annum, such interest to accrue from the
date payment was due until the debt is paid in full; provided that in no event
shall such interest exceed the maximum, allowed by law or be assessed prior to
the date permitted by law.
4. TRANSFER AND PREPARATION OF PREMISES:
(a) DELIVERY OF THE PREMISES: Landlord shall deliver the Premises of
Tenant prior to the commencement date of the Lease Term. Delivery shall be
deemed sufficient when Tenant is permitted to enter upon the Premises for the
purpose of preparing the Premises for use. (See [paragraph B.7 for permitted
uses).
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(b) Inspection/No Warranties: Tenant acknowledges that Tenant has
inspected the Premises and that Landlord makes no warranty with respect to the
condition of the Premises.
Tenant acknowledges that Tenant accepts the Premises "AS IS", and that Landlord
has no obligation to make any improvements to or modifications of the Premises.
(c) Keys: At the time of delivery of the Premises, Landlord shall
deliver to Tenant one complete set of keys to the Premises, to the exterior
doors to the Showroom, and to appropriate Common Areas (to be determined by
Landlord).
Landlord shall provide Tenat copies of keys to additional locks installed by
Landlord to the Premises as provided in paragraph B.l, within a reasonable time
after installation of such locks.
All keys shall be returned to the Landlord upon the expiration or early
termination of the Lease Term.
(d) Preparation of Premises as Showroom: upon delivery of the
Premises, Tenant shall with due diligence proceed to prepare the Premises for
use as a furniture showroom, including installing stock, fixtures, and
equipment. However, Tenant shall have no right to perform any work relating to
the maintenance of or upfitting of the Premises, including but not limited to
carpentry and unpacking or assembly of showroom items unless the Tenant first
obtains express written consent from the Landlord.
All such work shall be performed in accordance with plans and
specifications prepared by Tenant's architect or designer and submitted to
Landlord for Landlord's prior written approval, as provided in paragraph B.17 of
this Lease Agreement.
Tenant shall cause its contractors, subcontractors, employees, and
agents to comply with such rules and regulations as may be imposed by Landlord.
Tenant shall keep under control and place in appropriate receptacles
all trash, cartons, and construction debris generated by Tenant or its
contractors. Tenant shall remove or cause to be removed all such materials at
its own expense at such times as necessary for sanitary and cosmetic purposed
and at such times as Landlord my reasonably request that Tenant do so.
5. TAXES:
(a) REAL PROPERTY TAXES ON SHOWROOM: Landlord shall pay all real
property ad valorem taxes that are imposed or assessed upon the Showroom
(including the Premises).
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(b) Real Property Taxes Attributable to Premises: Tenant shall pay to
the Landlord (as Additional Rent) the amount by which the annual ad valorem real
property taxes attributable to the Premises in each calendar year following the
Base Year exceeds the amount of such taxes for the Base Year.
For the purpose of this provision, the term "ad valorem real property
taxes attributable to the Premises" shall mean a pro rata portion of the total
taxes on the rentable square footage of the Showroom, as compared to the total
number of rentable square footage in the Premises.
Landlord shall compute and notify Tenant of the amount of such taxes
annually. Upon notification, Tenant shall pay such amount as Additional Rent
with Tenant's next rent payment, as provided in paragraph B.3.
The amount payable by Tenant as Additional Rent under this paragraph
B.5(b) shall be prorated on a daily basis for any portion of a calendar year
during the Lease Term.
(c) Personal Property Taxes on Premises: Tenant promptly shall pay any
personal property ad valorem taxes imposed or assessed upon property installed
or placed in the Premises.
6. INSURANCE AND WAIVER:
(a) COVERAGE FOR THE SHOWROOM: Landlord will procure, maintain, and
pay all premiums for casualty insurance, with extended coverage, on the
Showroom. Landlord will insure the Showroom. Landlord will insure the Showroom
to its full replacement value.
(b) Increase in Showroom Coverage Cost: Tenant shall pay to the
Landlord, as Additional Rent, the amount by which the total casualty insurance
premiums paid by Landlord attributable to the Premises in each calendar year
after the Base Year exceeds the amount of such premiums in the Base Year. For
purposes of this provision, the term "premiums attributable to the Premises"
shall mean a proprata portion of the total insurance premiums for the rentable
square footage of the Showroom, as compared to the total number of rentable
square footage in the Premises.
If Tenant uses the Premises for any purpose or in any manner that
causes an increase in the rate of any insurance maintained by the Landlord over
the rate chargeable with respect to the use of the Premises as a furniture
showroom, Tenant shall pay to Landlord, as Additional Rent, the additional
premium resulting therefrom. This provision shall not be construed to be a
consent or authorization to any use not permitted under the terms of paragraph
B.7.
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(c) Other Coverage: Tenant shall procure, maintain, and pay all
premiums for a policy of casualty insurance, with extended coverage, insuring
Tenant's trade fixtures, equipment, furniture, inventory, and other personal
property located within the Premises. Such policy shall insure those items to
the extent of at least 90% of their replacement value. Tenant shall furnish a
copy of such policy or a certificate evidencing such policy to the Landlord upon
delivery of the Premises.
(d) Waivers: If the Premises or its contents are damaged or destroyed,
to the extent the loss is insured, the rights if any, of either party against
the other with respect to such damage or destruction, are waived. All policies
of fire and extended insurance required hereunder shall provide for waivers of
subrogation.
Landlord shall compute and notify Tenant of the amount due under this paragraph
B.6 on a semi-annual basis and Tenant shall pay such amount as Additional Rent
with its next rent Payment, as provided in paragraph B.3.
The amount payable by Tenant under this paragraph B.6 shall be prorated on a
daily basis for any portion of a calendar year during the Lease Term.
7. USE OF THE PREMISES:
(a) Use as Wholesale Showroom: Tenant shall use the Premises only as a
wholesale showroom for home furniture. Landlord agrees that each lease of space
in the Showroom shall contain a similar use restriction, so long as this Lease
is in effect.
It is the intent of Landlord and Tenant that the Premises are to be
used primarily for wholesale transactions with home furnishings distributors;
however nothing contained in paragraph B.7 shall prohibit retailing activities
of Tenant, such as the retail disposition of sample items or discontinued
merchandise, upon the giving of written notice to Landlord.
(b) Legal Compliance: Tenant shall, in placing fixtures and performing
alterations within the Premises, comply with all laws, ordinances, orders, and
regulations of any lawful authority having jurisdiction over the Premises. If
any structural alteration to the Showroom or to the Premises shall be required
to comply with any law, ordinance order, or regulation of any lawful authority
having jurisdiction over the Premises, Landlord shall make the alteration at its
own expense.
(c) Disruptive Behavior: Tenant shall not, nor shall Tenant allow its
employees, agents, licensees, invitees, guests, or assigns to do any act or
follow any practice in or about the Premises that constitutes nuisance or safety
hazard; is disruptive to business to customers, or to other tenants; or damages
the reputation of the Showroom. If Tenant engages in such behavior and fails to
cease such behavior after demand from Landlord, Landlord shall have the right to
terminate this lease and eject Tenant from the Premises immediately, without the
right to cure under paragraph B.26 of this Lease Agreement, and without refund
of rent or any other amounts paid to the Landlord.
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(d) Entertainment of Customers: Tenant shall be permitted to make use
of the Premises for entertaining customers at social functions, so long as such
use does not disturb other tenants of the Showroom.
(e) Condition of Premises: Tenant shall keep the front interior
portion of the Premises, including the display window, furnished and orderly at
all times. Tenant shall at all times keep the entire Premises in a neat and
orderly condition, clean and free from rubbish and dirt. Tenant shall make such
arrangements for the storage and disposition of all garbage and refuse as
necessary for sanitary and cosmetic purposes or as reasonably required by
Landlord. Landlord shall make available to Tenant suitable areas and/or
receptacles for disposition of trash and refuse, located at a place reasonably
convenient to the Showroom. Tenant shall not cause any noxious or offensive
odors, nor shall tenant cause any smoke, dust, steam, or vapors, or any
disturbing noise or vibrations to originate in or be emitted rom the Premises.
(f) Use During Market: Tenant's agents or employees shall not reside
in the Premises during sessions of the International Home Furnishings Market.
Bathroom facilities, including showers, shall be for the use of all tenants
during normal business hours and shall not be used by Tenant, its agents,
employees, or assigns as a substitute for appropriate living accommodations
during sessions of the International Home Furnishings Market.
8. SIGNS, ADVERTISING, AND SELLING ACTIVITIES:
Landlord shall provide a directory sign for the use of all tenants of the
Showroom and Tenant shall have the right, at its expense, to place an
identification panel on the common directory sign. Prior to each session of the
International Home Furnishings Market, Landlord may post additional directory
listings within the Showroom, and Tenant may be included in such directory
listings upon payment of a charge to Landlord based on the number of listings
desired by Tenant. Except for its identification panels on the common directory
sign, Tenant shall not have the right to install any signs in the Showroom
outside of the Premises. Landlord agrees to promptly deliver all mail or parcels
addressed to Tenant by placing said mail and parcels within the Premises. Tenant
shall, at its own expense, install and maintain in good condition all signs in
the Premises. Tenant shall not install any signs in the Premises that are
visible from the exterior of the Premises without the prior written consent of
Landlord. At the expiration of the Lease Term, Tenant shall promptly remove all
signs installed by it in the Premises or the Showroom and shall repair any
damage to the Premises or the Showroom caused by such removal. Tenant shall not
maintain or display any merchandise or property of any nature whatsoever in any
common facilities of the Showroom or on the outside of the Premises; or permit,
allow or cause to be used in or about the Showroom any phonographs, radios,
public address systems, sound production or reproduction devices, mechanical or
moving display devices, motion picture or television devices, excessively bright
lights, changing, flashing, flickering or moving lights or lighting devices, or
any similar advertising media or devices, the effect of which shall be visible
or audible from the exterior of the Premises.
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9. UTILITIES:
During the Lease Term, Landlord shall provide and maintain necessary mains,
ducts, conduits, cables and lines in order to bring heating and air
conditioning, water, electricity and sewer to the Premises.
The installation of telephone service and of all means of distribution of other
utilities within the Premises, shall be performed at Tenant's expense.
If any utility service is separately metered, Tenant shall pay the utility
company directly for the cost of such service to the Premises, including minimum
service charges, whether or not the Premises are in use by Tenant at the time of
the furnishing of such service. If any utility service is metered in common with
other tenants, Landlord shall pay directly for the cost of the utility services,
Tenant shall reimburse Landlord for its pro rata share of such costs (based on
the rentable area of the Premises and the rentable area of the other showrooms
using the common utility services during the period being invoiced), as
Additional Rent, within twenty (20) days after written demand therefor by
Landlord, accompanied by appropriate invoices from the utility company.
Tenant shall comply with all instructions received from Landlord concerning the
use of the utility systems. Landlord shall not be liable to Tenant for any
damages resulting from interruption or termination of utility service by reason
of necessary repairs or improvements or for any cause beyond the reasonable
control of Landlord; nor shall any such interruption or termination relieve
Tenant from the performance of its obligations under this Lease Agreement.
Landlord agrees, however, that if Tenant suffers any loss or damage as a result
of a loss of utilities, Landlord will make reasonable efforts to assign and
transfer to Tenant (at Tenant's expense): (1) any right or claim which Landlord
has against a third party for such loss or damage; and (2) any insurance
proceeds received by Landlord on account of such or any related loss or damage,
but only to the extent that such claim(s) or insurance proceeds remain after and
exceed full payment of any loss or damage suffered by Landlord.
10. LANDLORD'S COVENANT TO MAINTAIN:
Landlord will maintain and keep the exterior and principal structural portions
of the Showroom in good order and repair. Landlord will maintain and keep in
good order and repair all plumbing, wiring, electrical systems except those
inside the Premises. Landlord will maintain and keep in good order and repair
all heating, air conditioning, cooling, and other systems.
<PAGE>
Landlord will not be responsible for and Tenant shall be responsible for any
repairs occasioned or necessitated by: (a) any alterations or improvements to
the Premises constructed by Tenant; (b) the failure of Tenant to comply with
Landlord's instructions concerning the operation of utility systems in the
Premises; or (c) the negligence or willful acts of Tenant, its agents,
employees, guests, licensees or invitees, or assigns.
Landlord shall not be liable for any damages resulting from its failure to make
repairs unless it fails to make such repairs within a reasonable time after
receipt of notice of the necessity for such repairs.
11. TENANT'S COVENANT TO MAINTAIN:
Tenant will, at its own expense, keep and maintain in good order and repair all
parts of the Premises not mentioned in the above paragraph B.10, including
without limitation the entire interior of the Premises, all window glass, plate
glass, doors and locks, plumbing, wiring and electrical systems contained in the
Premises.
Tenant will, at the end of the Lease Term, deliver the Premises to Landlord in
the same condition as when received by the Tenant, excepting only normal wear
and tear, repairs required to be made by Landlord, and damage due to insured
casualty or condemnation.
12. COMMON AREAS:
(a) Landlord's Obligations: Landlord will at all times during the
Lease Term maintain in good condition and repair all Common Areas in and around
the Showroom.
(b) TENANT'S OBLIGATION: Tenant shall use reasonable care in the use
of such common areas. Tenant shall not store personal property in the Common
Areas without prior express permission of the Landlord.
(c) Landlord's Rights: All such Common Areas and facilities therein
shall at all times be subject to the exclusive control and management of
Landlord. Landlord shall have the right to change the area, location and
arrangement of the Common Areas and facilities therein, and to make all
reasonable rules and regulations as in Landlord's discretion may be necessary.
In particular, Tenant acknowledges and agrees that certain Common Areas, such as
exterior doors, elevators, bathrooms, may be kept locked between sessions of the
International Home Furnishings Market, as provided in paragraph B.i(c), and
Tenant shall be responsible for keeping those Common 6 Areas locked after using
them.
<PAGE>
(d) Maintenance of Common Areas: During the three (3) weeks prior to
each session of the International Home Furnishings Market, and during each
session of the International Home Furnishings Market, janitorial, trash removal
and other cleaning services will be provided daily. Between sessions of the
International Home Furnishings Market, all services will be provided less
frequently, and Landlord may elect to provide janitorial services to fewer than
all the bathrooms located in the Showroom, and may close the other bathrooms. If
Tenant requires additional janitorial, trash removal or other cleaning services,
or requires those services at more frequent intervals than they would otherwise
provided, or requires any maintenance services within the Premises, Landlord may
elect to furnish those services at the sole expense of Tenant, notwithstanding
the other provisions of the paragraph B.12, and Tenant shall pay to Landlord, as
Additional Rent, the charges for such services within twenty (20) days after
billing.
Routine HVAC maintenance on the Premises shall be borne by Landlord.
13. DAMAGE OR DESTRUCTION
(a) Notice: If the Showroom or the Premises is damaged or destroyed
during the Lease Term by fire or other casualty, Tenant shall give written
notice thereof to Landlord Immediately after Tenant becomes aware of such damage
or destruction. Should Landlord become aware of any damage to the Premises,
Landlord shall notify Tenant as soon as possible of the existence of such
damage.
(b) Reconstruction/Restoration: Landlord will reconstruct or restore
the Showroom, including the Premises, or repair such damage as promptly as
practicable, and Tenant shall meanwhile be entitled to an abatement of rental to
the extent of the loss of use of the Premises suffered by it; provided, however,
that if either the Showroom or the Premises is damaged or destroyed by casualty
to the extent of thirty percent (30%) or more of its replacement value, or if
such destruction or damage is not covered by the property insurance policy
required to maintained by Landlord, Landlord shall have the right in its sole
discretion to terminate this Lease.
Landlord shall notify Tenant in writing of its intent to repair or
restore such damage or to terminate this Lease within thirty (30) days after the
date of the casualty. The effective date of such termination by Landlord shall
be thirty (30) days from the date of the notice of termination, provided,
however, that Tenant's obligation to pay rent shall cease at the time of the
casualty.
If Landlord elects to repair or restore, such repair or restoration
shall be accomplished as promptly as practicable, and in any event within one
hundred eight (180) days after the date of the casualty. If this Lease is not
terminated and Landlord has not substantially completed rebuilding or restoring
the Premises to the condition existing prior to the casualty within one hundred
eighty (180) days after the date of the casualty, Tenant shall have the right,
for a period of thirty (30) days after the expiration of the one hundred eighty
(180) day period, to terminate this Lease by delivery of written notice to
Landlord.
(c) TENANT'S LOSS OF USE: For purposes of calculating the extent of
Tenant's loss of use of the Premises, the parties shall take into account the
disproportionate value and usefulness of the Premises during sessions of the
International Home Furnishings Market, it being understood if Landlord is able
to complete its restoration obligations within such time as to permit Tenant
(with the exercise of reasonable diligence in redecorating) to use the Premises
as a showroom at the next session of the International Home Furnishings Market
following the casualty, then there shall be no abatement of rent.
(d) Tenant's Negligence: Notwithstanding anything contained in
paragraph B.13 to the contrary, if Tenant's loss of the use of the Premises is
caused by the negligence of Tenant, its agents, employees, or invitees, and to
the extent the loss of rental is not covered by rental interruption insurance,
there shall be no abatement of rent.
14. INDEMNITY BY TENANT:
Tenant covenants and agrees that it will defend, indemnify and protect Landlord,
and hold Landlord harmless from, any and all claims of all persons arising from
or out of the use or occupancy of the Premises by Tenant or Tenant's agents,
employees, guests, licensees or invitees, or assigns.
Tenant shall procure and maintain, or cause to be maintained, a policy of
comprehensive public liability insurance covering the Premises, and any and all
claims arising from or out of the use or occupancy of the Premises by Tenant,
its agents, employees, guests, licensees or invitees, or assigns, with a limit
of at least One Million Dollars ($1,000,000.00) per occurrence, and an annual
aggregate limit of at least One Million Dollars ($1,000,000.00). Tenant's
liability insurance policy shall name Landlord as an insured or additional
insured, shall contain a contractual liability endorsement, shall be in
companies approved by Landlord and shall contain an undertaking by the insurer
that the policy shall not be modified adversely to the interests of Landlord,
canceled or nonrenewable without at least ten (10) days written notice to
Landlord. A copy of the policy shall be deposited with Landlord prior to the
commencement of the term of this Lease, and thereafter at least thirty (30) days
prior to the expiration of any such policy; provided, however, that in lieu of a
copy of the policy, Tenant may deposit with Landlord a certificate of insurance
evidencing that the insurance required is in force and effect.
15. INDEMNITY BY LANDLORD:
Landlord covenants and agrees that it will defend, indemnify and protect Tenant,
and hold Tenant harmless from, any and all claims arising from or out of any
occurrence, upon, at or from the Common Areas and facilities therein, when not a
result of any act or omission of Tenant, its agents, servants and employees,
licensees, invitees or assigns. Landlord shall procure and maintain, or cause to
be maintained, a policy of comprehensive public liability insurance for the
Showroom, with a limit of at least One Million Dollars ($1,000,000.00) per
occurrence, with an annual aggregate limit of at least One Million Dollars
($1,000,000.00). Upon request, Landlord shall provide Tenant with a certificate
of the insurer confirming that the liability insurance required is in full force
and effect.
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16. LOSS OR DAMAGE TO PERSONAL PROPERTY OF TENANT:
Any and all personal property of any kind whatsoever, including fixtures and
furnishings, brought or placed in or upon any part of the Premises or the
Showroom by Tenant, its agents, employees, guest, licensees or invitees, or
assigns shall be so brought or placed at its own risk, or of the person owning
such personal property, no matter how caused. Tenant hereby releases Landlord
from anyand all claims, demands, responsibilities and obligations arising from,
out of or in respect of, any such damage to the personal property if Tenant, its
agents, employees, guests, licensees or invitees, or assigns.
17. ALTERATIONS AND REMODELING BY TENANT:
Tenant may, at its own expense, make such alterations, improvements, additions
and changes to the Premises as Tenant may deem necessary or expedient in the
use, occupancy or operation of the Premises as a wholesale or retail furniture
showroom; provided, however, that Landlord shall approve in advance all plans
and specifications for any such work, which approval shall not be unreasonably
withheld. If modifications to the Premises' HVAC system are necessitated by
remodeling or alterations performed by Tenant, Tenant agrees to be responsible
for the cost of adding, removing, or relocating HVAC vents and/or duct work.
Tenant shall provide Landlord with the plans and specification for its work at
least fifteen (15) days prior to the commencement of any construction, Tenant
shall not make any change or alteration which will: (a) require or entail any
structural change in the roof or exterior wall of the Showroom, (b) violate the
terms of any mortgage or deed of trust then a lien upon the Showroom, or (c)
violate the terms of any policy of insurance in force with respect to the
Showroom or the Premises.
Tenant, by entering into this Lease Agreement, accepts any reasonable
requirement or restriction contained in such policies or insurance, mortgage, or
deeds of trust; and Landlord covenants that it will use its best efforts to
ensure that such instruments conform as closely as possible to standard
furniture showroom facilities.
<PAGE>
Tenant shall comply with all applicable laws and regulations in performing its
construction, including without limitation all applicable building codes, and
shall obtain all necessary permits and approvals for its construction from the
appropriate governmental authorities.
Tenant shall not be entitled to use the Common Areas for the storage of
construction materials without the prior written consent of Landlord.
Tenant shall defend, indemnify and protect Landlord, and hold Landlord harmless
from any and all claims and damages (including reasonable attorney's fees)
arising from or related to the performance of Tenant's construction work
If Tenant is in default at the end of the Lease Term, any alteration, addition,
architectural or design changes, or improvements made by Tenant, shall at
Landlord's option become the property of Landlord; provided, however, that
Landlord shall have the right to require Tenant to remove any such alterations
addition, change, or improvement at Tenant's cost. If Tenant is not in default
at the end of the Lease Term, Tenant may, at its expense, remove any such
alteration, addition, architectural or design change, or improvement, provided
Tenant promptly repairs any damage caused by such removal, and provided that
Tenant notifies Landlord of the items it intends to remove prior to said
removal. Notwithstanding the foregoing, Tenant shall not have the right to
remove a portion of any installation without removing the entire installation,
and Tenant shall not have the right to remove any interior track lighting or
canisters, doors, sinks, or cabinets.
18. MECHANIC'S LIENS:
Tenant covenants and agrees to do all things necessary to prevent the filing of
any mechanics' or other liens against the Premises or the Showroom by reason of
work, labor, services or materials supplied or claimed to have been supplied to
Tenant, or anyone holding the Premises or any part thereof, through or under
Tenant. If any such lien shall at any time be filed, Tenant shall either cause
the same to be discharged or record within twenty (20) days after the date of
filing, or, if Tenant, in Tenant's discretion and good faith, determines that
such lien should be contested, shall furnish such security as may be necessary
or required to prevent any foreclosure proceedings against Tenant's interest in
the Premises or the Showroom during the pendency of each contest.
If Tenant fails to discharge such lien or furnish such security within such
period then, in addition to any other right or remedy of Landlord resulting from
Tenant's default, Landlord may, but shall not be obligated to, discharge the
same either by paying the amount claimed to be due or in such other manner as
may be prescribed by law, and Tenant shall reimburse Landlord upon demand for
any expenses incurred by Landlord. Nothing contained in this paragraph 18 shall
imply any consent or agreement in the part of Landlord to subject Landlord's
estate to any mechanic's or other liens.
<PAGE>
19. ALTERATIONS AND RENOVATIONS BY LANDLORD:
Tenant acknowledges that Landlord may renovate or expand the Showroom during the
Lease Term. Landlord shall perform, or cause to be performed, such work in a
manner calculated to minimize any disturbance of Tenant's use of the Premises.
Landlord agrees to give Tenant reasonable notice of construction work that might
affect Tenant's use of the Premises, and further agrees that no work on
renovation or expansion that interferes with Tenant's use of the Premises will
be allowed during the International Home Furnishings Market.
Tenant agrees to cooperate with Landlord to facilitate the performance of such
work, such as by removing its personal property from the Premises and storing it
elsewhere at Landlord's expense, if so requested by Landlord. Tenant
acknowledges that although the performance of such work may inconvenience Tenant
or disturb Tenant's use of the Premises during the Lease Term, Tenant shall not
be entitled to an abatement of Base Rent or to other charges payable under this
Lease Agreement as a result of construction work undertaken by Landlord between
sessions of the International Home Furnishings Market.
20. RELOCATION OF TENANT:
(a) LANDLORD'S RIGHT TO RELOCATE TENANT: If Landlord shall determine,
in its sole judgment and discretion, that it is in the best interest of the
Showroom in the conduct of the business of Landlord to relocate Tenant, Landlord
is hereby given and granted the right to relocate and assign other premises and
space to Tenant, Provided such new location and space is equal to or greater
than the Premises leases herein.
In the event Landlord relocates Tenant, rental or the new premises and
space shall be at the same rate as provided for the Premises leased herein. In
such event, Landlord shall, at its option, either pay to Tenant or credit
Tenant's rental; payments with an amount or allowance for reasonable
depreciation of installations and improvements by Tenant in the Premises which
are not movable and usable by Tenant in the new premises and space. The cost and
expense of such move required by Landlord shall be paid by Landlord, except that
Landlord shall not be required to pay any cost(s) of publishing new address.
(b) Tenant's Right to Request Relocation: Tenant may, in writing,
request of Landlord a relocation to a new space; and if Landlord, in its sole
judgment and discretion, shall determine that Tenant's request for relocation is
feasible and proper, and such space is available, Tenant shall be allowed to
relocate. In such event, Tenant shall pay all costs and expenses of relocation;
and Tenant shall also restore the Premises to good order and condition, and
render same suitable and available for leasing by Landlord. The rental for the
entire relocated premises and space shall be chargeable at the then-prevailing
rental rates for such new space and area, whether greater or less than the
Premises.
<PAGE>
(c) Terms for Lease of New Space: In the event of any relocation of
Tenant as provided in paragraph B.20, Tenant and new relocated premises and area
shall be subject to all terms and provisions of this Lease Agreement, the same
as if originally leased hereby, except that rental rate shall be as set forth
above in paragraph B.20(a).
21. PERSONAL PROPERTY:
Any inventory, merchandise, office furniture, equipment or other unattached
movable personal property placed in the Premises by or at the expense of Tenant
shall remain the property of Tenant, and Tenant shall have the right at any
time, provided it is not then in default under this Lease, to remove any and all
of such property; provided, however, that Tenant shall promptly repair any
damage caused by such installation or removal. All such property not removed by
Tenant within thirty (30) days after the expiration or earlier termination of
the Lease Term shall be conclusively presumed to have been abandoned by Tenant.
Title to such abandoned property shall pass to Landlord without any payment or
credit, and Landlord may, at its option and at Tenant's expense, store or
dispose of such property as it sees fit.
22. LANDLORD'S ENTRY:
Landlord shall have the right to enter upon the Premises at all reasonable times
during the Lease Term for the purpose of inspection, maintenance, repair and
alteration and to show the Premises to prospective tenants or purchasers. If
Tenant installs a burglar alarm system or other security device in the Premises,
Tenant shall notify Landlord in writing of the security code.
23. ASSIGNMENT AND SUBLEASE BY TENANT:
Tenant may not assign this Lease or sublease the Premises or any portion thereof
without the prior written consent of Landlord, which consent shall not be
unreasonably withheld. No assignment or subleasing of the Premises shall relieve
Tenant of its primary liability for the performance of its obligations under
this Lease Agreement. The receipt by Landlord of rent from any party other than
Tenant shall not be deemed to be a consent to any assignment or sublease, or to
operate as a waiver of Landlord's rights under this paragraph B.23. The consent
by Landlord to any assignment or sublease shall not be deemed a consent to any
subsequent assignments or subleases.
If Tenant desires to assign this Lease or sublease all or part of the Premises,
it shall submit to Landlord, at least ninety (90) days prior to the effective
date of the proposed assignment or sublease, written notice of its intent, which
notice shall: (a) state the name of the proposed assignee or subtenant, (b)
state the term, rental rate and other particulars of the
<PAGE>
proposed assignment and sublease, including, without limitation, evidence
satisfactory to Landlord that the proposed assignee or subtenant is financially
responsible, and (c) be accompanied by a copy of the proposed assignment or
sublease documents. Upon receipt of the notice, Landlord shall have the right
either to approve or disapprove the proposed assignment or sublease, or to
terminate this Lease as of the proposed effective date of the assignment or
sublease. Landlord shall deliver to Tenant written notice of its intent within
ninety (90) days after the date of Tenant's notice to Landlord.
24. TRANSFER OF LANDLORD'S INTEREST:
In the event of the sale, assignment or transfer by Landlord of its interest in
the Showroom or in this Lease (other than a collateral assignment to secure a
debt of Landlord) to a successor in interest who expressly assumes the
obligations of Landlord hereunder, Landlord shall thereupon be released or
discharged from all of its covenants and obligations under this Lease Agreement,
except such obligations as have accrued prior to any such sale, assignment or
transfer; and Tenant agrees to look solely to such successor in interest of
Landlord for performance of such obligations hereunder. Tenant shall thereafter
attorn and look to such assignee as Landlord, provided Tenant has first received
written notice of such assignment of Landlord's interest.
25. EMINENT DOMAIN:
If the Premises, or any part thereof, or more than thirty percent (30%) of the
Showroom, is taken under the power of eminent domain (including any conveyance
made in lieu thereof), and if such taking makes the operation of Tenant's
business in the Premises impractical, then either party shall have the right to
terminate this Lease by delivery of written notice to the other party within
sixty (60) days after title vests in the condemning authority. The effective
date of such termination shall be thirty (30) days after the date of the notice
of termination; provided, however, that Tenant's obligation to pay rent shall
cease at the time Tenant is dispossessed of the Premises as a result of such
taking. If neither party elects to terminate this Lease, Landlord shall apply
the proceeds of condemnation to restore the Premises and the Showroom to a
tenantable condition as soon as practical, in which event the rental paid by
Tenant under this Lease shall be proportionately and equitably reduced.
Notwithstanding anything in this paragraph B.25 to the contrary, Landlord shall
not be required to pay, but may at its option choose to pay, for such
restoration or repair any amount in excess of the condemnation award (or the
proceeds of private sale in lieu thereof) received by Landlord as the result of
such taking.
If less than thirty percent (30%) of the Showroom, none of which is the
Premises, is taken under the power of eminent domain, than Landlord shall
restore the Showroom on the same terms and conditions as if Landlord had elected
to restore under the preceding paragraph; provided, however, that Landlord shall
not be obligated to pay for such restoration or repair any amount in excess of
the condemnation amount (or the proceeds of private sale in lieu thereof)
received by Landlord as the result of such taking.
<PAGE>
All compensation awarded for any taking (or the proceeds of private sale in lieu
thereof), whether for the whole or a part of the Premises, shall be the property
of Landlord, whether such award is compensation for damages to Landlord's or
Tenant's interest in the Premises, and Tenant hereby assigns all of its interest
in any such award to Landlord; provided, however, Landlord shall have no
interest in any award made to Tenant for relocation expenses or for the taking
of Tenant's trade fixtures and other property within the Premises (that Tenant
is authorized to remove at termination pursuant to paragraphs B.17 and B.21) if
a separate award of such items is made to Tenant.
26. Default by Tenant:
In the event (a) Tenant fails to pay any Base Rent, Additional Rent or other sum
of money due under this Lease Agreement when due; or (b) Tenant defaults in the
performance of any other covenant of this Lease Agreement and fails to cure such
default within ten (10) days after written notice to Tenant, or if such default
cannot reasonably be cured in ten (10) days, Tenant does not within such ten
(10) day period commence such act or acts necessary to cure such default and
complete such act or acts promptly, or (c) Tenant becomes insolvent or is
adjudicated bankrupt, or files in any court a petition in bankruptcy or other
debtor proceedings, or files or has filed against it a petition in bankruptcy or
other debtor proceedings, or files or has filed against it a petition for the
appointment of a receiver or trustee for all or substantially all of the assets
of Tenant, or an attachment proceeding ancillary to an underlying debt is
initiated by a creditor so that the Tenant's personal property within the
Premises is seized, and such appointment or attachment is not vacated or set
aside within twenty (20) days from the date of such appointment or attachment,
or Tenant makes an assignment for the benefit of creditors, or petitions for or
enters into such an arrangement; or (d) Tenant abandons the Premises or any
substantial part thereof, or suffers this Lease to be taken or encumbered under
any legal process and such taking or encumbrance is not dissolved within twenty
(20) days; or (e) Tenant disposes of or agrees to dispose all or substantially
all of its assets, then in any such event, at the option of Landlord and without
any further notice or action by Landlord, Landlord shall have the immediate
right of reentry to remove all persons and property from the Premises and
dispose of or store such property as it sees fit, all without resort to legal
process and without being deemed guilty of trespass.
If Landlord should elect to reenter as provided in this paragraph B.26 or should
take possession pursuant to legal proceedings, Landlord may either terminate
this Lease, or Landlord may, without terminating this Lease, make such
alterations and repairs as may be necessary in order to relet the Premises, and
may at its option relet the Premises for such term and at such rentals and upon
such other terms and conditions as Landlord may deem advisable. No such reentry
or taking possession of the Premises by Landlord shall be construed as an
election to terminate this Lease unless a written notice of such intention is
given by Landlord to Tenant at the time of such reentry; but, notwithstanding
any such reentry and reletting without termination, Landlord may at any time
thereafter elect to terminate this Lease for such previous breach.
<PAGE>
If Landlord elects to terminate this Lease, Landlord may recover from Tenant all
damages incurred by reason of such breach, including the cost of recovering the
Premises and enforcing this Lease (including reasonable attorney's fees) and the
difference in value between the Base Rent and other amounts which would be
payable by Tenant hereunder for the remainder of the Lease Term and the
reasonable rental value (net of all expenses of reletting including the expense
of repairs, alteration, upfitting and renovation) of the Premises for the
remainder of the Lease Term. If Landlord elects to reenter without terminating
this Lease, Landlord may recover from Tenant all damages incurred by reason of
such breach, including the cost of recovering the Premises and enforcing this
Lease (including reasonable attorneys' fees), and the costs of repairing,
altering, upfitting and renovating the Premises for the purpose of reletting the
Premises.
If Landlord does not terminate this Lease, then unless and until Landlord does
relet the Premises, Tenant shall pay Landlord monthly during the period that
Tenant's right of possession is terminated, a sum equal to all Base Rent and
other amounts due under this Lease Agreement. If and when the Premises are relet
and a sufficient sum is not realized from such reletting after payment of all
Landlord's expenses of reletting (including repairs, alterations, improvement,
additions, decorations, legal fees and brokerage commissions) to satisfy the
payment of Base Rent and all other amounts due under this Lease Agreement for
any monthly period, Tenant shall pay Landlord any such deficiency monthly upon
demand.
Tenant agrees that Landlord may file suit to recover any sums due to Landlord
under this paragraph B.26 and that any such suit or recovery of any amount due
Landlord shall not be any defense to any subsequent action brought for any
amount not previously reduced to judgment in favor of Landlord. If Landlord
elects to terminate Tenant's right to possession only without terminating this
Lease, Landlord may, at its option, enter into the Premises remove Tenant's
signs and other evidences of tenancy, and take and hold possession thereof,
provided, however, that such entry and possession shall not terminate this Lease
or release Tenant, in whole or in part, from Tenant's obligation to pay rent or
from any other obligation of Tenant for the remainder of the term of this Lease.
27. HOLDING OVER:
If Tenant remains in possession of the Premises or any part thereof after the
expiration of the Lease Term with Landlords' acquiescence and without any
written agreement of the parties, Tenant shall be only a tenant at will, and
there shall be no renewal of its Lease or exercise of any option by operation of
law.
28. SUBORDINATION
This Lease is subject and subordinate to any and all mortgages and deeds of
trust now existing or hereafter placed on the property of which the Premises is
a part; provided however, that any such mortgage or beneficiary of any such
<PAGE>
deed of trust shall agree in writing that Tenant will not be disturbed in the
use or enjoyment of the Premises so long as it is not in default hereunder.
Tenant agrees that this Lease shall remain in full force and effect
notwithstanding any default or foreclosure under any such mortgage or deed of
trust and that it will attorn to the mortgagee, trustee or beneficiary of such
mortgage or deed of trust, and their successors or assigns, and to the purchaser
or assignee under any such foreclosure. Tenant will, upon request by Landlord,
execute and deliver to Landlord, or to any other Person designated by Landlord,
any instrument or instruments, required to give effect to the provisions of this
paragraph.
29. WARRANTY:
Landlord covenants that it has full right and authority to lease the Premises
upon the terms and conditions of this Lease Agreement, and that Tenant shall
peacefully and quietly hold and enjoy the Premises for the full Lease Term so
long as Tenant does not default in the performance of any of its covenants
hereunder.
30. ESTOPPED CERTIFICATE:
Within ten (10) days after request therefor by Landlord, Tenant shall deliver in
recordable form, to Landlord or any party designated by Landlord, a statement
certifying any facts that are then true with respect to the Lease, including
without limitation (if such be the case) that this Lease is in full force and
effect, that Tenant is in possession, that Tenant has commenced the payment of
rent and that there are no defenses or offsets to the Lease claimed by Tenant.
31. NOTICES:
Any and all notices, demands, requests or designations required or permitted
under this Lease Agreement shall be in writing and shall be deemed given when
delivered personally or sent by prepaid registered or certified mail, return
receipt requested, to the parties at the addresses set forth on page 1 of this
Lease. Either party may, from time to time, by notice as provided above,
designate a different address to which notice to it shall be sent.
32. FORCE MAJEURE:
If Landlord or Tenant is delayed, hindered or prevented from the performance of
any act required under this Lease Agreement, by reason of governmental
restrictions, scarcity of labor or materials, strikes, fire or any other reasons
beyond its control, the performance of such act shall be excused for the period
of delay, and the period for the performance of any such act shall be extended
for the period necessary to complete performance after the end of the period of
such delay. Notwithstanding the foregoing, the provisions of this paragraph
shall not be applicable to (a) relieve Landlord of is obligation to deliver
possession of the Premises to Tenant prior to the commencement date of the Lease
Term, or (b) relieve Tenant of its obligations to pay Base Rent or any other
sums, monies, costs, charges or expenses required to be paid by Tenant under
this Lease Agreement.
33. SECURITY DEPOSIT:
This section intentionally deleted.
34. BROKERS:
Landlord and Tenant warrant that they have dealt with no brokers or finders in
connection with this Lease. If any broker or finder claims a commission in
connection with this Lease, the party whose conduct or agreement gave rise to
such claim will hold the other harmless from any liability therefor and from any
costs or expenses (including reasonable attorneys' fees) associated therewith.
35. NATURE AND EXTENT OF AGREEMENT:
This Lease Agreement contains the complete agreement of the parties regarding
the terms and conditions of the lease of the Premises, and there are no oral or
written conditions, terms and understandings or other agreements pertaining
thereto that have not been incorporated herein.
This Lease Agreement creates only the relationship of landlord and tenant
between the parties as to the Premises; and nothing in this Lease Agreement
shall in any way be construed to impose upon either party any obligation or
restriction not expressly set forth in this Lease Agreement.
36. BINDING EFFECT:
This Lease Agreement shall be binding upon and shall inure to the benefit of the
parties and their respective successors and assigns.
37. GOVERNING LAW:
This Lease Agreement shall be governed by and construed according to the laws of
the State of North Carolina.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Lease Agreement under
seal as of the day and year first above written.
LANDLORD:
PHILLIPS INTERESTS 3, INC.
(CORPORATE SEAL)
By: /s/ Earl N. Phillips, Jr.
----------------------------
Mr. Earl N. Phillips, Jr.
President
ATTEST:
/s/ Lakita Carden
- -----------------------------
Secretary
TENANT:
Wellington Hall Limited, Inc.
(CORPORATE SEAL)
By: /s/ Hoyt Hackney, Jr.
---------------------------
Mr. Hoyt Hackney, Jr.
President
ATTEST:
/s/ W.W. Woodruff
- -------------------
Secretary
<PAGE>
STATE OF NORTH CAROLINA
COUNTY OF GUILFORD
This 10th day of May, 1999, Earl N. Phillips, Jr., personally came
before me who, being by me duly sworn, says that he is the President of PHILLIPS
INTEREST 3, INC., a North Carolina corporation, and that the seal affixed to the
foregoing instrument in writing is the corporate seal of the company, and that
the said writing was signed and sealed by him, in behalf of said corporation, by
its authority duly given. And the said President acknowledged the said writing
to be the act and deed of said corporation.
/s/
----------------------------
Notary Public
My Commission Expires:
----------------------------
(NOTARIAL SEAL)
STATE OF NORTH CAROLINA
COUNTY OF DAVIDSON
This 23rd day of April, 1999, Hoyt Hackney, Jr., personally came
before me who, being by me duly sworn, says that he is the President of
Wellington Hall Limited, Inc., a Lexington, NC corporation, and that the seal
affixed to the foregoing instrument in writing is the corporate seal of the the
company, and that the said writing was signed and sealed by him, in behalf of
said corporation, by its authority duly given. And the said President
acknowledged the said writing to be the act and deed of said corporation.
----------------------------
Notary Public
My Commission Expires:
----------------------------
(NOTARIAL SEAL)
Exhibit 10.34
MARKETING AGREEMENT BETWEEN-
FURNITURE CLASSICS, LTD.
2314 COLONIAL AND 23RD STREET
NORFOLK, VA 23517
AND
WELLINGTON HALL, LTD.
425 JOHN WARD RD.
LEXINGTON, NC 27293
This agreement, entered into this 4th Day of May, 1999, by and between Furniture
Classics, Ltd. of Norfolk, Virginia, hereinafter referred to as the PRODUCER,
and Wellington Hall, Ltd., of Lexington, North Carolina, hereinafter referred to
as the DISTRIBUTOR, shall be subject to the following terms and conditions.
GRANTS OF RIGHTS:
The Producer hereby grants to the Distributor the exclusive rights to offer,
promote, market and distribute to the National and International markets the
Mirrors and Furniture as listed in the Addendum attached to this Agreement. The
Producer will not market the same products which the producer supplies to the
Distributor.
The Producer hereby guarantees that all mirrors, provided the Distributor to
satisfy its orders, except for those otherwise specified, will be executed in a
true gold leaf finish.
The Producer hereby assures that all mirrors provided the Distributor to satisfy
its orders will be packaged in an enclosed crate of such construction to allow
reshipment by the Distributor.
The Producer hereby warrants that all mirrors, furniture and other items
provided the Distributor to satisfy its orders will be in such quality as
represented by samples provided and that the Producer will be responsible for
all mirrors, furniture and other items returned from the Distributor's dealer(s)
as a result of the quality falling below the established standard.
The Distributor may return all products received back from its dealer(s) because
of quality, finish, or packaging that falls below the standard of execution as
established by this agreement and will receive a credit from the Producer equal
to all charges for the items returned.
The Producer hereby guarantees his best effort that all mirrors, furniture and
other items ordered to satisfy Distributors sales would be delivered in ten
weeks.
In reference to the aforementioned warrants and guarantees the producer conveys
to the distributor all warrants, guarantees, and right of remuneration and
recourse against the manufacturer and freight carriers that the producer
possesses in the execution of the business of this marketing agreement.
The Producer guarantees that the FOB Indonesian or other prices provided on the
Addendum and prices subsequently charged the Distributor are/will be the same as
the Producer is being charged by the Producer's supplier and the Producer will
submit copies of the suppliers invoices to the Distributor on request.
The Producer hereby agrees to consign all items listed on the Addendum to the
Distributors showroom for the duration of the High Point International Furniture
Market to be held in April 1999.
This Distributor shall be responsible for providing adequate wall space at its
High Point, North Carolina showroom at the Furniture Market for no less than one
each of all the mirrors listed on the Addendum and supplied by the Producer.
-1-
<PAGE>
This Distributor shall be responsible for providing adequate floor space at its
High Point, North Carolina showroom at the Furniture Market for no less than one
of each furniture item listed on the Addendum and supplied by the Producer.
The attached Addendum is the list of mirrors, furniture and other items with the
Producer's suppliers price which has been mutually agreed to by the Producer and
the Distributor as items that are marketable and consistent in styling and
quality with the Distributors overall effort. These items have not been
challenged as a copyright violation as of the execution of this agreement. The
Producer will promptly and immediately notify the Distributor of any subsequent
copyright questions or challenges.
DELIVERY and COMPENSATION:
The Distributor will submit orders, for items on the Addendum, to the Producer
for product, to satisfy the Distributors orders, and the Producer will satisfy
those orders by:
I. If the Distributor's orders and delivery requirements, in the sole discretion
of the Distributor, allows the use of the Producers inventory that exists at the
time of the execution of this agreement, then the Producer will then deliver the
items ordered to the Distributor and:
The Producer will receive the Indonesian cost or supplier cost (SC) listed
on the addendum or the SC then in effect at the time the Distributor
submits the order for each item delivered. The Producer be paid COD (cash
on delivery) at the time of delivery to the Distributor's facility, unless
satisfied through alternative means as described in this agreement.
The Producer will receive compensation for each item delivered to the
Distributor for ocean freight, and related expenses (freight Cost), to land
a container at the Producer's warehouse. These charges will be determined
as per Exhibit One attached.
The Producer will receive compensation of 20% of SC for each item delivered
to the Distributor.
Ten percent (10%) of the before mentioned 20% is for Management Fees
and the other 10% of the total is for handling which include, among
other things, LOC expense, warehousing, unloading and loading, and
delivery to the Distributor's facility (handling cost).
The Producer will receive special compensation equal to 15% of the SC for
shipping and warehousing of current, in-stock items.
All Management Fees, freight costs, special compensation, and handling
costs will be paid COD (cash on delivery) at the time of delivery to the
Distributor's facility, unless satisfied through alternative means as
described in this agreement.
II. If the Distributor's orders and delivery requirements, in the sole
discretion of the Distributor, constitute less than a twenty foot container
load, then the Producer will have the items shipped to Norfolk and included on a
container delivering other Furniture Classic goods and:
The Producer will receive the Indonesian cost or supplier cost (SC) listed
on the addendum or the SC then in effect at the time the Distributor
submits the order for each item delivered. The Distributor will pay 25% of
the purchase price on receipt of an acknowledgment of the order from the
Producer when the order is placed and the balance upon arrival at port
unless satisfied through alternative means as described in this agreement.
The Producer will receive compensation for each item delivered to the
Distributor for ocean freight, and related expenses (freight Cost), to land
a container at the Producer's warehouse. These charges will be determined
as per Exhibit One attached.
The Producer will receive compensation of 20% of SC for each item delivered
to the Distributor.
Ten percent (10%) of the before mentioned 20% is for Management Fees
and the other 10% of the
-2-
<PAGE>
total is for handling which include, among other things, LOC expense,
warehousing, unloading and loading, and delivery to the Distributor's
facility (handling cost).
All Management fees, freight costs, and handling costs will be paid COD
(cash on delivery) at the time of delivery to the Distributor's facility,
unless satisfied through alternative means as described in this agreement.
III. If the distributor's orders and delivery requirements constitute a full
container load as determined by the Distributor, then the Producer will instruct
its supplier to ship the container directly to the Distributor's facility and:
The Producer will receive the Indonesian cost or supplier cost (SC) listed
on the addendum or the SC then in effect at the time the Distributor
submits the order for each item delivered. The Distributor will pay 25% of
the purchase price on receipt of an acknowledgment of the order from the
Producer when the order is placed and the balance upon arrival at port
unless satisfied through alternative means as described in this agreement..
The Producer will receive a management fee equal to 10% of the SC for each
item delivered.
The Distributor will pay all ocean freight and related costs to land the
container at the Distributors facility unless satisfied through alternative
means as described in this agreement..
All Management fees will be paid COD (cash on delivery), unless satisfied
through alternative means as described in this agreement.
TERMINATION:
The terms of this agreement shall be from March 15, 1999 through December 31,
1999, subject to earlier termination as hereafter provided.
The Producer may terminate the agreement by giving the Distributor 90 (ninety)
days notice. In the event the Producer terminates the agreement, the Producer
will deliver the Distributor's outstanding orders by the terms of this
agreement.
The Distributor may terminate the agreement by giving the Producer ninety days
notice. In the event the Distributor terminates the agreement, the Producer will
receive all the Distributor's open orders for items on the addendum at the time
of the effective date of the termination.
The terms of this agreement will be automatically extended for a period of six
months on each expiration date unless one of the two parties has given notice of
termination in which case the agreement will end at the end of the ninety day
period.
STOCK PURCHASE AND WARRANTS:
Wellington Hall will sell Furniture Classic 100,000 shares of common stock at a
price of $.27 per share. The purchase price of twenty seven thousand dollars may
be satisfied by inventory supplied to the Distributor which it orders, sales
aids acceptable to the Distributors needs, management fees, freight cost
compensation, handling cost compensation, special compensation, and/or cash. At
the time of the execution of this agreement, Furniture Classics will pay to the
Distributor cash in the amount of $27,000, or issue to the Distributor a credit
in the amount of $27,000 against which invoices and other items owed Furniture
Classics by the Distributor before December 31, 1999 and as established by the
terms of this agreement will be applied and the stock will be issued. The
Distributor guarantees his best effort to satisfy the twenty-seven thousand
dollar credit by May 1, 1999, via existing inventory of the producer. On
December 31, 1999, the amount of the remaining open credit would be satisfied in
cash. In addition to the stock, Furniture Classics will be issued at the time of
the execution of this agreement 600,000 warrants for the purpose of financing
the Distributors growth in sales as a result of this agreement., The warrants
will have a conversion price as follows and a terminating conversion date
determined by the earlier date of the termination of this agreement by the
Producer or by the Distributor for Cause or by the date that follows. At the
time of termination of this agreement, any options to purchase stock provided in
the warrants which have not been exercised prior to termination will
automatically become null and void.
-3-
<PAGE>
100,000 shares at $.30 per share exercisable until October 31, 1999
100,000 shares at $.40 per share exercisable until July 31, 2000
100,000 shares at $.40 per share exercisable until December 31, 2000
100,000 shares at $.45 per share exercisable until December 31, 2001
100,000 shares at $.45 per share exercisable until December 31, 2001
100,000 shares at $.53 per share exercisable until December 31, 2001
Future stock offerings will be offered pro-rata, with right of first refusal, to
current shareholders.
APPOINTMENT OF DIRECTORS:
With respect to this agreement Wellington Hall Ltd. will appoint one
representative of Furniture Classics, R. Douglas Ricks, to the Board of
Directors to a term of no less than this agreement.
With respect to the aforementioned appointment, the board of directors will
make no additional nomination, nor support the election of, that will be
included on the Distributor's proxy for the next scheduled meeting of the
shareholders.
WAIVER, INDEMNIFICATION, AND LIABILITY:
Should the Producer or Distributor choose to waive any of the provisions of this
Agreement, that shall not void any of the other provisions or rights outlined in
this Agreement.
Subject to the terms and conditions of this Agreement, each party agrees to
indemnify, reimburse, defend, and hold the other harmless from any claim,
demand, or judgment made, asserted or obtained against it, including reasonable
attorney's fees and all costs, disbursements and expenses incurred by the party
in connection with any claim of unfair competition or alleged unethical business
behavior due to the activities of the offending party in offer and sale of
Distributor's Mirrors and Furniture.
Producer does hereby agree to indemnify and hold harmless distributor from any
and all losses due to any claims or judgments made or asserted against it,
including reasonable attorney fees, cost and expenses incurred due to any
copyright or patent violation by the Producer.
REPRESENTATIONS AND WARRANTIES:
a) The Producer warrants that it has the right to enter into this Agreement and
is under no disability, restriction or prohibition with respect to its right to
execute this Agreement and perform under it. The right granted to the
Distributor thereunder does not conflict with or infringe upon any right
whatsoever of any other part. All commission payments that may be owed to such
persons shall be made by the Producer.
b) The Distributor warrants that it has the right to enter this Agreement and
perform according to its terms. The Distributor warrants that it shall not allow
any lien or other encumbrance or form of attachment to occur against or to the
Producer's Mirrors and Furniture samples and at all times shall remain the sole
property of the Producer. The Distributor shall at all times maintain adequate
insurance to protect Producer against any risk of loss to the Mirrors and
Furniture. Notice may be provided by either party to the other at the address
first provided above on this Agreement.
-4-
<PAGE>
ACKNOWLEDGMENT:
Both parties acknowledge that this agreement was accepted by both the
Distributor and the Producer and that the agreement and all policies and
procedures shall be, in the case of the Producer, interpreted consistently with
the laws of the Commonwealth of Virginia and that any dispute relating thereto
shall be communicated to both parties and originated in the Federal or State
courts of the City of Norfolk, Virginia. In the case of the Distributor, the
agreement and all policies and procedures shall be interpreted consistently with
the laws of the State of North Carolina and that any dispute relating thereto
shall be communicated to both parties and originated in the Federal or State
courts of the City of Lexington North Carolina. This Agreement contains the
entire agreement of the parties relating to the subject matter and may not be
modified or changed except in a written signed by both parties.
PRODUCER: DISTRIBUTOR:
Furniture Classics, Ltd. Wellington Hall, Ltd.
By: By:
---------------------------- ------------------------------
Title: Title:
------------------------- ---------------------------
-5-
Exhibit 10.35
THIS WARRANT AND THE SHARES OF COMMON STOCK PURCHASABLE HEREUNDER HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") OR UNDER THE
SECURITIES LAWS OF ANY STATE. THE SHARES MAY NOT BE TRANSFERRED BY SALE, GIFT,
PLEDGE OR OTHERWISE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE ACT AND SUCH REGISTRATION OR QUALIFI-CATION AS MAY BE NECESSARY UNDER THE
SECURITIES LAWS OF ANY STATE OR, AN OPINION OF COUNSEL AND OTHER ASSURANCES
SATISFACTORY TO THE CORPORATION THAT REGISTRATION AND QUALIFICATION ARE NOT
REQUIRED.
Dated July 22 ,1999
--------------------
WARRANT
To Purchase share of Common Stock
100,000 shares at $0.30 per share exercisable until October 31, 1999
100,000 shares at $0.40 per share exercisable until July 31, 2000
100,000 shares at $0.40 per share exercisable until December 31, 2000
100,000 shares at $0.45 per share exercisable until December 31, 2001
100,000 shares at $0.45 per share exercisable until December 31, 2001
100,000 shares at $0.53 per share exercisable until December 31, 2001
THIS IS TO CERTIFY THAT, for value received, R. DOUGLAS RICKS, or
registered assigns is entitled to purchase from WELLINGTON HALL, LTD., a North
Carolina corporation (the "Corporation"), at any time and from time to time
prior to 5:00 p.m., Lexington, North Carolina time, on the dates stated above,
at the principal office of the Corporation which is currently 425 John Ward
Road, Post Office Box 1354, Lexington, North Carolina 27293 (or such other
address as the Corporation shall specify by notice to all Warrant Holders), at
the Exercise Price set forth above, the number of shares of
<PAGE>
Common Stock, $0.001 par value (the "Common Stock"), of the Corporation set
forth above, all subject to adjustment and upon the terms conditions as
hereinafter provided, and is entitled also to exercise the other appurtenant
rights, powers and privileges hereinafter described. This Warrant and all rights
granted herein shall terminate prior to the dates set forth above upon
termination of the Marketing Agreement dated May 4, 1999 between the Corporation
and Furniture Classics Ltd. by voluntary action of Furniture Classics Ltd., by
the Corporation for Cause of failure of said parties to renew the term thereof.
Certain terms used in this Warrant are defined in Article VI hereof.
ARTICLE I
EXERCISE OF WARRANT
1.1 METHOD OF EXERCISE AND PAYMENT.
(a) METHOD OF EXERCISE. To exercise this Warrant in whole or in part,
the Holder shall deliver to the Corporation, at the principal office of the
Corporation, (a) this Warrant, (b) a written notice, in substantially the
form of the Subscription Notice attached hereto, of such Holder's election
to exercise this Warrant, which notice shall specify the number of shares
of Common Stock to be purchased, the denominations of the share certificate
or certificates desired and the name or names in which such certificates
are to be registered, and (c) payment to the Corporation of the amount
equal to the product of the Exercise Price multiplied by the number of
shares of Common Stock then being purchased pursuant to one of the payment
-2-
<PAGE>
methods permitted under Section 1.1(b) below.
(b) METHOD OF PAYMENT. Payment shall be made either (1) by cash, money
order, certified or bank cashier's check, (2) by wire transfer, or (3) by
any combination of the foregoing at the option of the Holder.
(c) MECHANICS. The Corporation shall, as promptly as practicable after
delivery of a Subscription Notice as described above, execute and deliver
or cause to be executed and delivered, in accordance with such Subscription
Notice, a certificate or certificates representing the aggregate number of
shares of Common Stock specified in said Subscription Notice. The share
certificate or certificates so delivered shall be in such denominations as
may be specified in such Subscription Notice or, if such Subscription
Notice shall not specify denominations, in denominations of one hundred
thousand (100,000) shares each, and shall be issued in the name of the
Holder or such other name or names as shall be designated in such
Subscription Notice. Such certificate or certificates shall be deemed to
have been issued (and this Warrant or the portion thereof specified in the
Subscription Notice shall be deemed to have been exercised), and such
Holder or any other person so designated to be named therein shall be
deemed for all purposes to have become a Holder of record of such shares,
as of the date the aforementioned Subscription Notice is received by the
Corporation (the "Exercise Date"). If this Warrant shall have been
exercised only in part, the Corporation shall, at the the time of delivery
of the certificate or certificates, deliver to the Holder a new Warrant
evidencing the rights to purchase the remaining shares of Common Stock
called for by this Warrant, which new Warrant shall in all
- 3 -
<PAGE>
other respects be identical with this Warrant, or, at the request of the
Holder, appropriate notation may be made on this Warrant which shall then
be returned to the Holder.
1.2 SHARES TO BE FULLY PAID AND NONASSESSABLE. All shares of Common Stock
issued upon the exercise of this Warrant shall be validly issued, fully
paid and nonassessable.
1.3 NO FRACTIONAL SHARE TO BE ISSUED. The Corporation shall not be required to
issue fractions of shares of Common Stock, upon exercise of this Warrant.
If any fraction of a share would, but for this Section, be issuable upon
any exercise of this Warrant, in lieu of such fractional share the
Corporation may pay to the Holder in cash, an amount equal to such fraction
of the fair market value (as determined in good faith by the Board) per
share of outstanding Common Stock of the Corporation in the Business Day
immediately prior to the date of such exercise.
1.4 SHARE LEGENDS. Each certificate for shares of Common Stock issued upon
exercise of this Warrant, unless at the time of exercise such shares are
registered under the Securities Act, shall bear the following legend:
THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT") OR UNDER THE SECURITIES LAWS OF ANY STATE. THE SHARES MAY NOT
BE TRANSFERRED BY SALE, GIFT, PLEDGE OR OTHERWISE IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE
- 4 -
<PAGE>
ACT AND SUCH REGISTRATION OR QUALIFICATION AS MAY BE NECESSARY UNDER
THE SECURITIES LAWS OF ANY STATE OR , AN OPINION OF COUNSEL AND OTHER
ASSURANCES SATISFACTORY TO THE CORPORATION THAT REGISTRATION AND
QUALIFICATION ARE NOT REQUIRED.
Any certificate issued at any time in exchange or substitution for any
certificate bearing such legend shall also bear such legend unless, in the
opinion of counsel selected by the Holder of such cerfificate and
reasonably acceptable to the Corporation, the securities represented
thereby need no longer be subject to restrictions on resale under the
Securities Act.
1.5 RESERVATION: AUTHORIZATION. The corporation has reserved and will keep
available for issuance upon exercise of the Warrant the total number of
shares of Common Stock deliverable upon exercise of all Warrants from time
to time outstanding.
1.6 RESULT OF EXERCISE. On the Exercise Date, the rights of the Holder of such
Warrant as such Holder will cease and the Person or Persons in whose name
or names any certificate or certificates for shares of Common Stock are to
be issued upon such exercise will be deemed to have become the Holder or
Holders of record of the shares of Common Stock represented thereby.
1.7 BOOKS NOT CLOSED UNTIL EXERCISE. The Corporation will not close its books
against the transfer of this Warrant or shares of Common Stock issued or
issuable upon exercise of this Warrant in any manner which interferes with
the timely exercise of this Warrant.
- 5 -
<PAGE>
ARTICLE II
TRANSFER, EXCHANGE AND REPLACEMENT OF WARRANTS
2.1 OWNERSHIP OF WARRANT. The Corporation may deem and treat the Person in
whose name this Warrant is registered as the Holder and owner hereof for
all purposes and shall not be affected by any notice to the contrary, until
this Warrant is presented for registration of transfer as provided in this
Article II.
2.2 TRANSFER OF WARRANT. The Corporation agrees to maintain books for the
registration of transfers of the Warrant, and any transfer, in whole or in
part, of this Warrant and all rights hereunder shall be registered on such
books, upon surrender of this Warrant at the principal office of the
Corporation together with a written assignment of this Warrant duly
executed by the Holder or his, her or its duly authorized agent or attorney
and funds sufficient to pay any transfer taxes payable upon such transfer.
Upon surrender the Corporation shall execute and deliver a new Warrant or
Warrants in the name of the assignee or assignees and in the denominations
specified in the instrument of assignment, and this Warrant shall promptly
be canceled. Notwithstanding the foregoing, a Warrant may be exercised by a
new Holder without having a new Warrant issued. This Warrant may not be
transferred in whole or in part, and the Corporation shall not be required
to register any transfers unless the Corporation has received an opinion of
counsel selected by the transferor and reasonably satisfactory to the
Corporation that such transfer is exempt from the registration requirements
of the Securities Act and the securities laws of any applicable State.
- 6 -
<PAGE>
2.3 DIVISION OR COMBINATION OF WARRANTS. This Warrant may be divided or
combined with other Warrants upon surrender hereof and of any Warrant or
Warrants with which this Warrant is to be combined at the Corporation,
together with a written notice specifying the names and denominations in
which the new Warrant or Warrants are to be issued, signed by the Holders
hereof and thereof or their respective duly authorized agents or attorneys.
Subject to compliance with Section 2.2 as to any transfer which may be
involved in the division or combination, the Corporation shall execute and
deliver a new Warrant or Warrants in exchange for the Warrant or Warrants
to be divided or combined in accordance with such notice.
2.4 LOSS, THEFT, DESTRUCTION OF WARRANT CERTIFICATES. Upon receipt of evidence
reasonably satisfactory to the Corporation of the loss, theft, destruction
or mutilation of any Warrant and, in the case of any such loss, theft or
destruction, upon receipt of indemnity or security reasonably satisfactory
to the Corporation or, in the case of any such mutilation, upon surrender
and cancellation of such Warrant, the Corporation will make and deliver, in
lieu of such lost, stolen, destroyed or mutilated Warrant, a new Warrant of
like tenor and representing the right to purchase the same aggregate number
of shares of Common Stock.
ARTICLE III
CAPITAL ADJUSTMENTS AFFECTING COMMON STOCK
3.1 ADJUSTMENTS. If the outstanding shares of the Common Stock of the
Corporation are increased, decreased, changed into or exchanged for a
different number or kind
- 7 -
<PAGE>
of shares or securities of the Corporation or shares of a different par
value through reorganization, recapitalization, reclassification, stock
dividend, stock split, amendment to the Corporation's Articles of
Incorporation, reverse stock split, merger or consolidation, an appropriate
adjustment shall be made in the number and/or kind of securities allocated
to the Warrant without change in the aggregate purchase price applicable to
the unexercised portion of the outstanding Warrant but with a corresponding
adjustment in the price of each share or other unit of any security covered
by the Warrant.
ARTICLE IV
LIQUIDATION, DISSOLUTION, DISTRIBUTIONS OR DIVIDENDS
4.1 LIQUIDATION OR DISSOLUTION. In case the Corporation at any time while this
Warrant shall remain unexpired and unexercised, shall dissolve, liquidate,
or wind up its affairs, the Holder shall have the right to exercise this
Warrant for a period of sixty (60) days after the later of (i) such event
having occurred and (ii) receipt by the Holder of a notice from the Company
indicating the kind and amount of securities or assets issuable or
distributable to Holders of shares of Common Stock with respect to such
event, and upon exercise of this Warrant during such period, the Holder
shall have the right to receive in lieu of each share of the Warrant Stock,
the same kind and amount of any securities or assets as may be issuable,
distributable, or payable upon any such dissolution, liquidation, or
winding up with respect to each of the shares of the Common Stock.
- 8 -
<PAGE>
ARTICLE V
DEFINITIONS
The following terms as used in this Warrant have the following respective
meanings:
"BOARD" means the Corporation's Board of Directors
"COMMISSION" means the Securities and Exchange Commission
"EXERCISE PRICE" means the price per share of Common Stock set forth above
subject to adjustments as set forth in Article III hereof.
"HOLDER" means the Person in whose name this Warrant is registered on the
books of the Corporation maintained for such purpose.
"PERSON" means an individual, a partnership, corporation, limited liability
company, association, joint stock company, trust, joint venture, unincorporated
organization and a governmental entity or any department, agency or political
subdivision thereof.
"SECURITIES ACT" means the Federal Securities Act of 1933, as amended.
"WARRANT HOLDER" means a Holder of a Warrant.
ARTICLE VI
MISCELLANEOUS
6.1 NOTICES. Notices and other communications provided for herein shall be in
writing and shall be given by hand delivery, overnight courier, telecopy or
first class mail. In the case of the Holder, such notices and
communications shall be addressed to his, her or its address as shown on
the books maintained by the Corporation, unless the Holder shall notify the
Corporation that notices and communication should be sent
- 9 -
<PAGE>
to a different address (or telecopy number), in which case such notices and
communications shall be sent to the address (or telecopy number) specified
by the Holder. In the case of the Corporation, all notices shall be
addressed to the following, subject to change by proper notice:
Corporation: WELLINGTON HALL, LTD
425 John Ward Road
Post Office Box 1354
Lexington, NC 27293
6.2 WAIVER; AMENDMENTS. No failure or delay of the Holder in exercising any
power or right hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise of any such right or power, or any abandonment
or discontinuance of steps to enforce such a right or power, preclude any
other or future exercise thereof or the exercise of any other right or
power. The rights and remedies of the Holder are cumulative and not
exclusive of any rights or remedies which it would otherwise have. The
provisions of this Warrant may be amended, modified or waived with (and
only with) the written consent of the Corporation and the Warrant Holders
voting as a single class, entitling such Warrant Holders to purchase a
majority of the Common Stock subject to purchase upon exercise of such
Warrants at the time outstanding (exclusive of Warrants then owned by the
Corporation or any Subsidiary thereof); provided, HOWEVER, that no such
amendment, modification or waiver shall, without the written consent of
each Holder of Warrants whose interest might be adversely affected by such
amendment, modification or waiver which would, (a) change the number of
shares of Common Stock subject to purchase upon exercise of this
- 10 -
<PAGE>
Warrant, the Exercise price or provisions for payment thereof or (b) amend,
modify or waive the provision of this Section or Article III or IV hereof.
Any such amendment, modification or waiver effected pursuant to this
Section shall be binding upon the Holders of all Warrants and Warrant
Stock, upon each future Holder thereof and upon the Corporation. In the
event of any such amendment, modification or waiver, the Corporation shall
give prompt notice thereof to all Warrant Holders and, if appropriate,
notation thereof shall be made on all Warrants thereafter surrendered for
registration of transfer or exchange.
6.3 GOVERNING LAW. This Warrant shall be construed in accordance with and
governed by the laws of the State of North Carolina, without regard to
principles of conflicts of laws.
6.4 COVENANTS TO BIND SUCCESSOR AND ASSIGNS. All covenants, stipulations,
promises and agreements in this Warrant contained by or on behalf of the
Corporation shall bind its successors and assigns, whether so expressed or
not.
6.5 SECTION HEADINGS. The section headings used herein are for convenience of
reference only, are not part of this Warrant and are not to affect the
construction of or be taken into consideration interpreting this Warrant.
6.6 NO RIGHTS AS STOCKHOLDER. This Warrant shall not entitle the Warrant Holder
to any rights as a stockholder of the Corporation.
IN WITNESS WHEREOF, the Corporation has caused this Warrant to be executed
in its corporate name by one of its officers thereunto duly authorized, and its
corporate seal
- 11 -
<PAGE>
to be hereunto affixed, attested by its Secretary or an Assistant Secretary, all
as of the day and year first above written
WELLINGTON HALL LTD.,
a North Carolina corporation
By: /s/ Hoyt Hackney, Jr.
--------------------------
Officer
ATTEST:
/s/ W.W. Woodruff
- --------------------
Secretary
( CORPORATE SEAL )
- 12 -
<PAGE>
SUBSCRIPTION NOTICE
(To be executed upon exercise of Warrant)
TO: WELLINGTON HALL LTD.
425 John Ward Road
Post Office Box 1354
Lexington, NC 27293
THE UNDERSIGNED hereby irrevocably elects to exercise the right of purchase
represented by the attached Warrant for , and to purchase thereunder,
_______________ shares of Common Stock, as provided for therein, and tenders
herewith payment of the Exercise Price in full in the form of certified or bank
cashier's check or wire transfer.
Please issue a certificate or certificates for such shares of Common Stock
in the following name or names and denomination:
-------------------------------------------
-------------------------------------------
Social Security No.:
----------------------
If said number of shares shall not be all the shares issuable upon exercise
of the attached Warrant, a new Warrant is to be issued in the name of the
undersigned for the balance remaining of such shares less any fraction of a
share paid in cash.
Dated:____________
-----------------------------------
NOTE: The above signature should
correspond exactly with the name on the
face of the attached Warrant or with the
name of the assignee appearing in the
assignment form below.
- 13 -
<PAGE>
ASSIGNMENT
(To be Executed upon assignment of Warrant)
For value received, _____________________ hereby sells, assigns and
transfers unto ______________________ the attached Warrant, together with all
right, title and interest therin, and does hereby irrevocably constitute and
appoint ____________________ attorney to transfer said Warrant on the books of
WELLINGTON HALL LTD., with full power of substitution in the premises.
Dated:__________________________
__________________________________(SEAL)
NOTE: The above signature should
correspond exactly with the name on the
face of the attached Warrant.
- 14 -
Exhibit 10:36
NOTE MODIFICATION AGREEMENT
This Note Modification Agreement is made the 27th day of July, 1999, by and
between the undersigned parties with regard to the obligation described below,
which obligation shall hereinafter be referred to as the "Note".
Date of Note: 6/16/99 Original Amount of Note $1,529,784.00
----------- --------------------
Interest Rate: LSB Prime variable plus .75% (8.50%)
-----------------------------------------------------------
Payable: 11 payments of $19,000 beginning 7/16/99 with final payment
-----------------------------------------------------------
of unpaid principal plus accrued interest due June 16,
-----------------------------------------------------------
2000.
-----------------------------------------------------------
Security: See attached Addendum A dated June 16, 1999
-----------------------------------------------------------
Principal Balance $1,521,779.32 Interest Paid To: 7/16/99
--------------- -----------------
The maker of the Note and Lexington State Bank, the payee thereof, mutually
desire to modify and amend the provisions of the Note in the manner hereinafter
set forth, it being specifically understood that except as herein modified and
amended, the terms and provisions of the Note and any Security Agreement and/or
Deed of Trust granted as security thereto shall remain unchanged and continue in
full force and effect as therein written.
Now therefore, for good and valuable consideration, the receipt of which is
hereby acknowledged, the undersigned agreed that the Note is hereby modified and
amended to provide as follows:
Extend amortization schedule at $19,000 monthly through May 16, 2001 with
---------------------------------------------------------------------------
unpaid principal, plus accrued interest due June 16, 2001
---------------------------------------------------------------------------
---------------------------------------------------------------------------
---------------------------------------------------------------------------
It is mutually agreed by and between the parties hereto that nothing herein
contained shall impair the security now held for the Note, nor shall waive,
annul, vary or affect any provision, condition, covenant, or agreement contained
in the Note or any Security Agreement of Deed of Trust securing same.
Furthermore, all rights and remedies as to all parties secondarily liable for
repayment of the indebtedness evidenced by the Note are hereby reserved.
In witness whereof, this instrument has been executed by the parties hereto and
delivered on the day and year first above written.
Wellington Hall, Limited
By: /s/ Hoyt M. Hackney, Jr. (Seal)
------------------------------
Hoyt M. Hackney, Jr. President
LEXINGTON STATE BANK
By: /s/ William W. Woodruff (Seal)
------------------------------
William W. Woodruff, Secretary
Attest: /s/ William W. Woodruff (Seal)
------------------------------
William W. Woodruff, Secretary
By: /s/ E. Warren MacKinstry
---------------------------
E. Warren MacKinstry Corporate Seal
Its: Vice President
------------------------- Account/Note Number:
Old
-----------------------------
New 3200548-9002
-----------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> APR-30-1999
<PERIOD-START> MAY-01-1998
<PERIOD-END> APR-30-1999
<CASH> 49,938
<SECURITIES> 0
<RECEIVABLES> 617,191
<ALLOWANCES> (63,843)
<INVENTORY> 3,587,043
<CURRENT-ASSETS> 4,257,029
<PP&E> 1,976,882
<DEPRECIATION> 1,244,920
<TOTAL-ASSETS> 5,098,672
<CURRENT-LIABILITIES> 2,401,432
<BONDS> 0
0
0
<COMMON> 3,754,531
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 5,098,672
<SALES> 5,721,206
<TOTAL-REVENUES> 5,723,090
<CGS> 4,577,499
<TOTAL-COSTS> 5,875,026
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 403,159
<INCOME-PRETAX> (555,095)
<INCOME-TAX> 18,292
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (573,387)
<EPS-BASIC> 0.25
<EPS-DILUTED> 0.25
</TABLE>
