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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended August 3, 1996
Commission file number 1-8578
McRAE INDUSTRIES, INC.
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(Exact name of Registrant as specified in its charter)
Delaware 56-0706710
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(State of Incorporation) (I.R.S.Employer Identification No.)
402 North Main Street, Mount Gilead, North Carolina 27306
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(Address of Principal Executive Offices) (Zip code)
Registrant's telephone number, including area code: (910)439-6147
-----------------------------
Securities Registered Pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Class A Common Stock, $1 Par Value American Stock Exchange
Class B Common Stock, $1 Par Value American Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period 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
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this form 10-K or any amendment of
this Form 10-K. [ ]
The aggregate market value of shares of the Registrant's $1 par value Class A
and Class B Common Stock held by non-affiliates as of October 25, 1996 was
approximately $6,800,000 and $1,800,000 respectively. On October 25, 1996,
1,788,464 Class A shares and 951,035 Class B shares of the Registrant's Common
Stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the proxy statement for the annual shareholders meeting to be held
on December 19, 1996 are incorporated by reference into Part III.
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Part I
ITEM I. BUSINESS
The Registrant is a Delaware corporation organized in 1983 and is the successor
to a North Carolina corporation organized in 1959. The Company's principal
lines of business are: manufacturing and selling bar code reading and printing
devices, manufacturing and selling military combat boots, western and work
boots, selling, leasing, and servicing office equipment, and commercial
printing. On April 30, 1996, the Registrant acquired American West Trading
Company (American West) which manufactures western and work boots.
Bar Code Operations
The bar code segment, manufactures and sells bar code reading and printing
devices and other items related to optical data collection, including licensing
and selling computer software through Compsee, Inc. (Compsee), a 92% owned
subsidiary. At August 3, 1996, Compsee had sales centers located throughout
the United States and also sells its products in Central and South America,
Europe, Australia, the Middle East, and the Pacific Rim countries through
foreign distributors. Compsee's export sales were 1%, 1% and 2% of the
Registrant's consolidated gross revenues in fiscal 1996, 1995 and 1994,
respectively.
Compsee designs and manufacturers QuickReader and QuickLink bar code readers.
Principal materials used in Compsee's assembly operations consist of various
electrical and electronic components that are readily available from a number
of sources. During fiscal 1996, Compsee introduced APEX II, a new portable bar
code scanner.
The markets in which this business segment operates are generally highly
competitive. The Registrant is not aware of any reliable statistics that would
enable the Registrant to determine the relative position of Compsee or its
products within the industry. Competition in the industry is principally based
on product features, customer service and price. The major participants in the
industry include Percon, Unitech and UBI.
Revenues derived from this segment in fiscal 1996, 1995, and 1994 were 33%,
43%, and 33% of the Registrant's total revenues, respectively. QuickReaders
and QuickLink bar code readers developed and marketed by Compsee accounted for
18%, 16%, and 29% of Compsee's sales and for 6%, 7%, and 10% respectively, of
the Registrant's total revenues during fiscal 1996, 1995, and 1994. There was
no significant backlog of firm orders for this segment at August 3, 1996.
Footwear Manufacturing
The Registrant's footwear manufacturing operations include the manufacture and
sale of military combat boots, western boots and work boots. The Registrant has
manufactured Direct Molded Sole military combat boots for the United States
Government (the Government) since 1966. On April 30, 1996, the Registrant
acquired American West which manufactures western and work boots.
The Registrant manufactures Direct Molded Sole combat boots for the United
States Government (the Government). Whenever the Government determines a need
for producing combat boots because of the number of new recruits entering the
services, and the need to replenish its inventory to replace worn out boots,
the Government solicits contracts from several U.S. boot manufacturers. The
solicitation process typically includes the evaluation of written technical
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and cost proposals. The Government awards contracts on negotiated per pair
contract prices based on estimated allowable costs as projected for the
subsequent fiscal year plus a reasonable profit margin. This profit margin is
subject to the Government's determination that the prices are "fair" and
"reasonable." All recent Government contracts for military boots have been
awarded to four manufacturers, of which the Registrant is one. No one company
dominates the Government military boot industry. Price, quality,
manufacturing efficiency, and delivery are the areas emphasized by the
Registrant to strengthen its competitive position. The Registrant also sells
boots to civilian and other military customers including other countries.
Military boot sales to the U.S. Government were $12.8 million, $8.8 million and
$13.8 million, for fiscal 1996, 1995 and 1994, respectively.
The Registrant's contracts with the Government are subject to partial or
complete termination under certain specified circumstances. The Government has
the authority to partially or completely terminate a contract for the
convenience of the Government. The Government may negotiate a settlement with
the Registrant in such event to cover costs already incurred. The Government
may exercise broad discretion in deciding whether to terminate a contract on
grounds of convenience, including termination due to lack of funding. The
Government also has the authority to partially or completely terminate a
contract because of the Registrant's actual or anticipated failure to perform
its contractual obligations. The Registrant has never had a contract either
partially or completely terminated.
Leather and synthetic rubber, which have been and currently are generally
available from several sources, are the principal material components used in
the boot manufacturing process. Pursuant to Government contracts for military
combat boots, all materials used in manufacturing these boots must be and are
produced in the United States and must be certified as conforming to military
specifications.
The Registrant has a technical assistance agreement with Ro-Search, Inc., a
subsidiary of Wellco, Inc., a competitor to which the Registrant pays a fee for
each pair of Direct Molded Sole boots it produces.
American West designs, manufactures, sells and distributes western and work
boots for men, women and children who wear boots for work and everyday
activities, including casual wear. American West markets and sells its boots
nationwide to major retail discount stores, regional specialty chain stores and
major western boot distributors. The boots are marketed primarily under the
retailer's private label with a smaller proportion of sales under the "American
West Trading Company" brand.
American West has two manufacturing facilities located in Dresden and Waverly,
Tennessee. The "upper" parts are constructed from leather and/or synthetic
material and the sole and heels consist of either leather, rubber and
rubber-plastic blended material. All raw materials necessary for manufacturing
the boots are readily available from several suppliers, both domestic and
abroad. American West utilizes three construction methods: Goodyear welt,
injection molding and cement process.
The western/work boot markets are highly competitive and dominated by
approximately six to eight major companies. Justin Industries, Inc. and ACME
Boot Company are the market leaders of the western and work boot market. The
Registrant is not aware of any reliable statistics that would enable it to
determine its relevant position within the industry; however, it believes it
has established a solid position in the market for lower and middle range
priced boots where competition is principally based on price and product
quality.
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American West coordinates its manufacturing and inventory according to the
seasonality of its business which tends to have higher sales occurring
generally in the fall and winter months. Sales by American West in fiscal 1996,
since its acquisition by the Registrant, were $4.2 million or 9% of the
Registrant's consolidated gross revenues. Prior to its acquisition, American
West had sales of $18.7 million for each of its fiscal years ending December
31, 1995 and 1994. For the twelve month period ending December 31, 1995, sales
by American West to Walmart were $6.2 million.
The Registrant's backlog of firm orders for military combat boots at August 3,
1996 and July 29, 1995 totaled approximately $8,400,000 (all of which is
expected to be filled during the current year) and $8,000,000, respectively.
The backlog of firm orders for western and work boots at August 3, 1996 totaled
approximately $800,000.
Revenues derived from this segment in fiscal 1996, 1995, and 1994 were 36%, 22%
and 35%, respectively, of the Registrant's total revenues.
Office Products and Printing Business
McRae Graphics, Inc. (Graphics), a wholly owned subsidiary, is a non-exclusive
distributor of Toshiba photocopier and facsimile machines in North Carolina.
Graphics operates nine district sales offices throughout the state of North
Carolina. Graphics is also the sole distributor in North Carolina of RISO
digital duplicators. Machines, components and certain supplies which were sold
by Graphics during fiscal 1996 were generally available only from Toshiba and
RISO.
The Registrant also competes in the printing and packaging market through a
wholly owned subsidiary, Rae-Print Packaging, Inc. (Rae-Print). Rae-Print
prints packaging material principally for the textile industry as well as for
commercial and industrial customers. The principal materials used in
Rae-Print's operations are paperboard and related products, which were readily
available from a number of sources during the year.
The office products and printing industries are generally highly competitive,
with price and service being the dominant factors. The Registrant is not aware
of any reliable statistics that would indicate its relative position within
these industries in the geographical area in which it competes.
Revenues derived from this segment during fiscal 1996, 1995, and 1994 were 30%,
33% and 30%, respectively, of the Registrant's total revenues. There was no
significant backlog of firm orders for this segment at August 3, 1996.
Other Businesses
The Registrant's Financing and Leasing Division manages the Registrant's short
term investments and marketable securities. This division is also engaged in
equipment leasing and the financing of receivables for other businesses and
individuals.
The Registrant is also engaged in the food and lodging industry. It owns and
operates a 24 room motel and an adjacent 200 seat family style restaurant in
Troy, North Carolina. Competition from similar businesses in the immediate
vicinity is moderate.
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Other Investment Interests
The Registrant has an investment in the outstanding Common Stock of American
Mortgage and Investment Company (AMIC). AMIC is located in Charleston, South
Carolina and is engaged in real estate development and sales, primarily lots
for single family dwellings, in the coastal region of South Carolina. B.J.
McRae, President of the Registrant, is President of AMIC. The Registrant also
owns 100% of the outstanding 20% cumulative convertible preferred stock of
AMIC. The investment in this preferred stock was written down to zero by the
Registrant during fiscal 1990. Write downs in subsequent periods totaling
approximately $273,000 have been made on the Registrant's books to reduce notes
and accounts receivable due from AMIC in order to reflect the Registrant's
equity in AMIC.
Employment
As of August 3, 1996 The Registrant employed approximately 850 persons in all
divisions and subsidiaries. None of the Company's employees are represented by
collective bargaining or a labor union. The Company considers its relationship
with its employees to be good.
Financial Information About Industry Segments
Financial information for the past three fiscal years with respect to the
Registrant's industry segments are incorporated herein by reference to note 16
to the consolidated financial statements included in this Report.
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ITEM 2. PROPERTIES
The following table describes the location, principal use and approximate size
of all the principal facilities of the Registrant and its subsidiaries, all of
which are owned by the Registrant and/or its subsidiaries.
<TABLE>
<CAPTION>
Location Principal Use Size
- -------- ------------- ----
<S> <C> <C>
402 North Main Street Corporate headquarters, 71,000 square
Mt. Gilead, N.C. manufacturing, and sales feet
Highway 109 North Footwear manufacturing 57,600 square
Mt. Gilead, N.C. feet
2500 Port Malabar Blvd International Sales 5,250 square
Palm Bay, Florida Office feet
Highway 109 North Warehouse 3,500 square
Mt. Gilead, N.C. feet
Highway 109 Warehouse 11,200 square
Richmond County, N.C. feet
Highway 24-27 Manufacturing and 35,000 square
Troy, N.C. warehousing feet
Highway 109 North Leased space 4,800 square
Mt. Gilead, N.C. feet
111 Main Street Printing Operation 11,520 square
Mt. Gilead, N.C. feet
Highway 24-27 Motel and restaurant 24 room motel
Troy, N.C. 6,625 square
foot restaurant
Highway 24-27 Warehouse leased 11,760 square
Troy, N.C. to automobile feet
dealership owned by
B.J. McRae
Highway 24-27 Warehouse leased 4,800 square
Troy, N.C. to automobile feet
dealership owned by
B.J. McRae
601 E. Railroad Street Manufacturing 71,520 square
Waverly, TN feet
Hillcrest Street Manufacturing and 76,720 square
Dresden, TN Warehouse feet
</TABLE>
In addition to these principal locations, the Registrant and its subsidiaries
lease other offices throughout the United States. The Registrant also owned
approximately 500 acres of undeveloped land at August 3, 1996 that is being
held for investment purposes.
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ITEM 3. LEGAL PROCEEDINGS
The Registrant, a subsidiary and certain affiliates of the Registrant,
including AMIC, are parties to certain litigation incidental to their
businesses. See Note 13 to the Consolidated Financial Statements. Management
does not believe that the resolution of such litigation is likely to have a
material adverse effect on the Registrant's consolidated financial position or
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Each of the Registrant's classes of Common Stock are traded on the American
Stock Exchange (ticker symbol MRI-A and MRI-B). As of October 25, 1996, there
were approximately 510 record holders of the Registrant's Class A Common Stock
and approximately 430 record holders of the Class B Common Stock. High and low
stock prices and dividends declared per share for the last two fiscal years
were:
<TABLE>
<CAPTION>
CLASS A COMMON STOCK:
Fiscal 1996 Fiscal 1995
-------------------------- ------------------------
Cash Cash
Sales Price Dividends Sales Price Dividends
Quarter High Low Declared High Low Declared
- ------- ---- --- -------- ---- --- --------
<S> <C> <C> <C> <C> <C> <C>
First $7.94 $6.38 $.0875 $9.25 $6.75 $.0875
Second 8.44 6.31 .0875 7.75 6.88 .0875
Third 7.94 6.50 .0875 7.13 5.88 .0875
Fourth 8.63 7.06 .0875 7.25 5.81 .0875
<CAPTION>
CLASS B COMMON STOCK
Fiscal 1996 Fiscal 1995
Sales Price Sales Price
----------- -----------
Quarter High Low High Low
- ------- ---- --- ---- ---
<S> <C> <C> <C> <C>
First $7.50 $6.38 $8.38 $6.75
Second 8.00 6.69 7.38 6.63
Third 7.50 6.75 7.00 5.88
Fourth 8.50 7.38 7.00 5.88
</TABLE>
The Registrant has no policy with respect to payment of dividends, but expects
to continue paying regular cash dividends on its Class A Common Stock. Any
dividends paid on Class B Common Stock, if any, must also be paid on Class A
Common Stock in an equal amount. No dividends were paid on Class B Common Stock
during the prior two fiscal years. There is no assurance as to future dividends
on either class of Common Stock as the payment of any dividends is dependent on
future actions of the Board of Directors, earnings, capital requirements and
financial condition of the Company.
ITEM 6. SELECTED FINANCIAL DATA
The following Selected Consolidated Financial Data of the Company presented
below for each of the five years in the period indicated has been derived from
the Company's audited consolidated financial statements. The Company acquired
American West Trading Company (American West) on April 30, 1996 from its
shareholders. The results of the
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Company include the results of American West since April 30, 1996, the day of
its acquisition by the Company. The Selected Consolidated Financial Data
should be read in conjunction with the Consolidated Financial Statements and
Notes thereto, "Management's Discussion and Analysis of Financial Conditions and
Results of Operations," and the other financial data included elsewhere herein.
<TABLE>
<CAPTION>
Fiscal Year Ended 8-3-96 7-29-95 7-30-94 7-31-93 8-2-92
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Net revenues $48,724,000 $40,624,000 $39,454,000 33,541,000 31,653,000
Net earnings 2,282,000 2,184,000 2,633,000 2,210,000 2,177,000
Net earnings,
per common share: 0.84 0.80 0.97 0.81 0.80
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Balance Sheet Data:
Total assets $39,561,000 $29,583,000 $28,136,000 $25,880,000 $23,465,000
Long-term liabilities 6,285,000 -0- -0- 294,000 239,000
Working Capital 16,953,000 12,306,000 12,639,000 12,288,000 11,235,000
Shareholders' equity 24,364,000 22,669,000 21,101,000 19,061,000 17,430,000
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Weighted average number
of Common Shares
Outstanding (a) 2,731,334 2,731,210 2,729,710 2,729,210 2,721,810
Cash dividends declared
per Common Share (b) $ .35 $ .35 $ .345 $ 0.34 $ 0.32
- ----------------------------------------------------------------------------------------
</TABLE>
(a) Includes both Class A and Class B Common Stock
(b) Dividends were paid only on Class A Common Stock.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Company reported revenues of $48.7 million for the 1996 fiscal year
compared to $40.6 million for the same period in 1995 and $39.5 million in
1994. Consolidated revenues reached record levels for the fourth consecutive
year. The footwear unit's revenue increased 94%, approximately 47% or $4.2
million of the increase, resulted from the acquisition of American West Trading
Company (American West) on April 30, 1996 in a transaction accounted for as a
purchase. The operating results of American West, which manufactures and sells
western and work boots, are included in the Company's results of operations
since the date of its acquisition. The Registrant expects that the inclusion of
the operating results of American West, for a complete-fiscal year in 1997, to
increase its revenues from the footwear segment. Increased U.S. Government
requirements and sales of military combat boots to foreign governments
contributed to the remaining $4.3 million increase in revenues in the footwear
division in fiscal 1996. The bar code and office products unit sales declined
from a combined 73% of consolidated revenues in fiscal 1995 to a combined 59% of
consolidated revenues in fiscal 1996. Consolidated operating profits declined
slightly from the fiscal 1995 level as a result of a 4% reduction in the gross
profit percent.
The following chart sets forth the net revenues, gross profits, selling,
general and administrative expenses, and operating profits of the major
business units for the fiscal years 1994 through 1996.
<TABLE>
<CAPTION>
Fiscal Year Fiscal Year
1996 1995 1994 1996 1995 1994
Net Revenues Dollars (In thousands) Percent of Total Revenues
------------------------ -------------------------
<S> <C> <C> <C> <C> <C> <C>
Bar Code $15,994 $17,315 $13,205 33 43 33
Office Products 12,802 11,919 9,872 26 29 25
Footwear 17,490 9,004 13,777 36 22 35
Printing 1,814 1,702 1,782 4 4 5
Eliminations and other 624 684 818 1 2 2
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Consolidated $48,724 $40,624 $39,454 100 100 100
<CAPTION>
Gross Profit Gross Profit Percentage
-----------------------
<S> <C> <C> <C> <C> <C> <C>
Bar Code $ 6,383 $ 7,246 $ 6,077 40 42 46
Office Products 4,232 4,189 3,750 33 35 38
Footwear 3,744 1,576 2,985 21 18 22
Printing 186 272 286 10 16 16
Eliminations and other (291) (48) (61)
- ------------------------------------------------------------------------------------------------
Consolidated $14,254 $13,235 $13,037 29 33 33
<CAPTION>
Selling, General and Administrative Expenses Percentage of Sales
-------------------
<S> <C> <C> <C> <C> <C> <C>
Bar Code $ 5,436 $ 5,237 4,567 34 30 35
Office Products 4,637 4,198 3,535 36 35 36
Footwear 1,109 455 475 6 5 3
Printing 209 185 251 12 11 14
Eliminations and other (346) (145) 143
- ------------------------------------------------------------------------------------------------
Consolidated $11,045 9,930 8,971 23 25 23
<CAPTION>
Operating Profit Percent of Sales
----------------
<S> <C> <C> <C> <C> <C> <C>
Bar Code $ 947 $ 2,109 $1,510 6 12 11
Office Products (405) (9) 215 (3) 0 2
Footwear 2,635 1,121 2,510 15 12 18
Printing (23) 87 35 (1) 5 2
Eliminations and other 55 (3) (204)
- ------------------------------------------------------------------------------------------------
Consolidated $ 3,209 3,305 4,066 7 8 10
</TABLE>
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The results reported in the chart reveal several different trends in the
Company's revenue mix. The office products unit posted another year of record
revenues with an increase of 7% over fiscal 1995. At the same time, the bar
code unit experienced a 7% decline in revenues from the prior year. The major
contributor to the Company's record consolidated revenue level was the footwear
unit which increased revenue by 94% as a result of increased U.S. Government
requirements, sales of combat boots to foreign governments and the acquisition
of American West.
Gross profit margins fell 4% on a consolidated basis for fiscal 1996 compared
to fiscal 1995 and were flat from fiscal 1995 to 1994. The bar code and office
products units continued to experience downward trends in gross margins, and
the footwear unit posted a 3% increase to 21% over fiscal 1995 and nearly
matched the 22% level recorded in fiscal 1994. The bar code unit continued to
yield margin to competitive pricing pressure in 1996 as several major product
lines experienced reductions in selling price levels. The office products'
margins have continued to decrease as a result of increased service costs and
higher costs associated with sales-type leases and cost per copy rental
programs. Gross margins for the footwear unit increased as a result of fixed
overhead being spread over a larger production of military combat boots which
was slightly offset by lower margins on the western and work boot product line.
Consolidated selling, general and administrative (SG&A)expenses as a percentage
of sales decreased 2% in fiscal 1996 from fiscal 1995 levels and matched the
1994 level. The bar code unit experienced a sizable increase in SG & A as a
percentage of sales as a result of increased health insurance costs, research
and development expenditures and professional fees. The footwear unit
experienced a 144% increase in SG&A over fiscal 1995 caused primarily by the
acquisition of the western boot product line.
Total operating profit for fiscal 1996 as a percentage of total revenue dropped
to 7% from 8% in fiscal 1995 and 10% in fiscal 1994. The decline in bar code
revenue and the reduction in gross margins on a consolidated unit basis were
the major causal factors of the decrease in consolidated operating profit in
fiscal 1996.
BUSINESS SEGMENTS
The Company has three primary business units: the bar code unit operates under
the name of Compsee, the office products unit operates under the name of McRae
Graphics, and the footwear manufacturing unit operates under the names of McRae
Footwear and American West Trading Company. The Company also operates several
other smaller businesses that are included in the other category in the above
chart.
BAR CODE OPERATIONS
Compsee manufactures and distributes bar code reading and printing devices and
other items related to optical data collection. Compsee continues to
concentrate its efforts to expand into new markets throughout the United States
and other parts of the world, and currently has sales agents in the United
States, Central and South America, Europe, Australia, the Middle East, and some
Pacific Rim countries.
Total revenues for fiscal 1996 were 7% lower than those reported in fiscal 1995
which were 31% higher than 1994 revenues. Several product lines were affected
by significant competitive pressures on pricing during the year which
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resulted in lower revenues and gross margins for the business unit. In addition,
selling, general and administrative expenses increased 4% over fiscal 1995 from
higher health insurance costs, research and development expenditures and
professional fees. All of these factors were responsible for the 6% decline in
operating profits from fiscal 1995.
OFFICE PRODUCTS
McRae Graphics sells and services certain office equipment of two major lines
of photocopier, facsimile, and digital printing equipment through nine offices
in North Carolina.
Total revenues for fiscal 1996 were 7% higher than in fiscal 1995 which was 21%
higher than the fiscal 1994 revenues. Revenues have continued to grow for five
consecutive years. McRae Graphics sells various equipment and supplies and
services the equipment it sells. Gross margins decreased approximately two
percentage points during fiscal 1996. This was primarily attributed to a
decline in service margins. Selling, general and administrative expenses
increased to 36% of revenues for fiscal 1996 because of higher administrative
salaries, health care costs and depreciation expense on rental machines. The
higher cost of sales and selling and general and administrative expenses out
paced the increase in revenues and resulted in a net operating loss for fiscal
1996.
FOOTWEAR
McRae Footwear manufactures military combat, western and work boots. Military
combat boots are manufactured primarily for the United States Government
(Government). In an effort to offset losses of production caused by the
Defense Department's overall reduction of combat boot orders in recent years,
the Company began producing boots for other markets in fiscal 1995. This
segment is currently operating under the third and final year of a three year
contract with the Government. A new contract covering a five year period is
currently being negotiated. The Company believes that it is well positioned to
successfully negotiate a new contract with the Government; however, there can
be no assurances that the terms of any such contract will be favorable to the
Company or that any such contract will be awarded.
In addition to producing combat boots for other markets, the Company purchased
American West Trading Company (American West), a high quality, low cost
producer of men's, women's and children's western and work boots, in April
1996. Total revenues for the footwear segment increased to $17.5 million, up
94% over fiscal 1995 which had declined 35% from fiscal 1994. Combat boots
accounted for 76% of the revenues for the footwear segment while the western
and work boot product line contributed 24% in fiscal 1996. Higher production
levels of military combat boots, slightly offset by lower gross margins in the
western and work boot product line, resulted in a positive 3% increase in gross
margin as a percentage of sales as fixed overhead was spread over an increased
production level of military combat boots. Selling, general and administrative
expenses increased 144% over fiscal 1995 which was flat compared to fiscal
1994. The increase was largely attributable to the acquisition of the western
and work boot operation.
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OTHER OPERATIONS AND INFLATION
The printing unit's performance in fiscal 1996 was adversely affected by rising
paper prices and scrap costs. The primary cause of the large change in
operating profit in the other category during fiscal 1995 was the recovery of a
bad debt of approximately $85,000 in our financing and leasing unit.
Inflation, in the opinion of management, has not been a significant factor in
the Company's operations for the last three fiscal years.
FINANCIAL CONDITION
The Company continues to have a strong balance sheet with a current ratio of
over 3:1. Total assets grew approximately 34% during fiscal 1996, while
stockholders' equity grew over 7% during the same period.
The expansion in operations for the footwear unit as a result of increased
sales activity and the acquisition of American West contributed to the
substantial increase in accounts receivable and inventory levels as compared to
fiscal 1995. The 81% increase in receivables is directly related to higher
military combat boot sales coupled with a delay in collection of Government
receivables and timing of purchases by customers of the western and work boot
product line. The 74% increase in inventory over last year is largely
attributed to the buildup of western and work boot inventory to fill greater
seasonal demands occurring during the fall and winter months of the year.
Higher sales activity also prompted a slight upward adjustment in the allowance
for bad debts. Accrued employee benefits used cash of $455,000 as a result of
higher payments during fiscal 1996.
Investing activities resulted in net cash provided of $583,000 including
$614,000 to purchase the western boot manufacturing company. Short term
investments were liquidated resulting in a source of cash amounting to almost
$3.4 million. The Company used these funds to restructure acquisition debt
assumed and to finance operations. Fixed assets increased by capital
expenditures of approximately $1.5 million as the Company continued to add to
and update its manufacturing machinery and equipment as well as its computer
and support programs.
Net cash provided by financing activities amounted to $337,000. New bank loans
approximating $6 million were negotiated to replace the debt assumed by the
Company in the purchase of American West. The Company paid dividends during the
fiscal year which totaled $624,000.
At August 3, 1996, the Company had lines of credit with several banks totalling
$3.75 million, of which $3.35 million was available to the Company. The Company
will continue to have cash requirements to support working and capital needs as
well as debt payment and servicing. To meet these cash requirements, the
Company intends to use internally generated funds and to borrow under its lines
of credit, if necessary. Management believes that the cash generated from these
sources will be adequate to meet the Company's cash requirements during the
next fiscal year.
12
<PAGE> 13
ENVIRONMENTAL MATTERS
The Company is subject to various laws and regulations concerning environmental
matters and employee safety and health in the United States. The Company has
been able to comply with such laws and regulations without any material adverse
effect on its business. In the opinion of management, the Company is not in
violation of any environmental laws or regulations that would have a material
adverse effect on the financial condition of the Company.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following documents are filed as part of this report:
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Independent auditor's report 15
2. McRae Industries, Inc. and Subsidiaries consolidated financial
statements:
Consolidated Balance Sheets as of August 3, 1996 and July 29, 1995 16
Consolidated Statements of Operations for the Years Ended August 3,
1996, July 29, 1995, and July 30, 1994 17
Consolidated Statements of Cash Flow for the Years Ended August 3,
1996, July 29, 1995, and July 30, 1994 18
Consolidated Statements of Shareholders' Equity for the Years Ended
August 3, 1996, July 29, 1995, and July 30, 1994 19
Notes to Consolidated Financial Statements 20-32
3. Financial Statement Schedules:
Schedule II 35
</TABLE>
Schedules other than those listed above have been omitted because they are not
applicable or the required information is shown in the financial statements or
the notes thereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING FINANCIAL
DISCLOSURE
None.
13
<PAGE> 14
PART III
Items 10 through 13 are incorporated herein by reference to the sections
captioned Principal Shareholder and Holdings of Management, Election of
Directors, Director Compensation, Executive Officers, Audit and Incentive Stock
Option Committee Interlocks and Insider Participation, Certain Relationships
and Related Transactions, Executive Compensation, Pension Plan and Section
16(a) Beneficial Ownership Reporting Compliance in the Registrant's Proxy
Statement for the Annual Meeting of Shareholders to be held December 19, 1996.
14
<PAGE> 15
GLEIBERMAN SPEARS SHEPHERD & MENAKER, P.A.
Independent Auditors' Report
To the Board of Directors
and Shareholders of
McRae Industries, Inc.
Mount Gilead, North Carolina
We have audited the accompanying consolidated balance sheets of McRae
Industries, Inc. and subsidiaries as of August 3, 1996 and July 29, 1995, and
the related consolidated statements of income, shareholders' equity and cash
flows for each of the three years in the period ended August 3, 1996 and the
financial statement schedule listed under Item 8. These financial statements
and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and schedule
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements and schedule. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of McRae Industries,
Inc. and subsidiaries as of August 3, 1996, and July 29, 1995, and the results
of their operations and their cash flows for each of the three years in the
period ended August 3, 1996, in conformity with generally accepted accounting
principles. Further, in our opinion, the financial statement schedule referred
to above presents fairly, in all material respects, the information stated
therein, when considered in relation to the financial statements taken as a
whole.
/s/ Gleiberman Spears Shepherd & Menaker, P.A.
October 11, 1996
NationsBank Suite 3500 Charlotte, North Carolina 28280
Telephone 704-377-0220 Telefax 704--377-7612
Certified Public Accountants and Business Advisors
15
<PAGE> 16
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
McRae Industries, Inc. and Subsidiaries August 3, July 29,
1996 1995
- -----------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 581,000 $ 628,000
Marketable securities (Note 3) 65,000 3,244,000
Accounts and notes receivable, less allowances
for doubtful accounts of $301,000 and $80,000
respectively (Note 7) 10,606,000 5,860,000
Inventories (Notes 4 and 7) 12,640,000 7,273,000
Net investment in capitalized leases (Note 5) 966,000 944,000
Prepaid expenses and other current assets 210,000 352,000
- -----------------------------------------------------------------------------------------
Total Current Assets 25,068,000 18,301,000
Property, Plant and Equipment, net (Notes 6 and 7) 7,172,000 4,541,000
Other Assets:
Notes and accounts receivable, related
entities (Notes 5, 12 and 13) 2,359,000 2,287,000
Net investment in capitalized leases (Note 5) 1,798,000 1,690,000
Notes receivable 952,000 903,000
Real estate held for investment 478,000 426,000
Goodwill (Note 2) 674,000 708,000
Other 1,060,000 727,000
- -----------------------------------------------------------------------------------------
7,321,000 6,741,000
- -----------------------------------------------------------------------------------------
$39,561,000 $29,583,000
- -----------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable to banks (Note 7) $ 789,000
Accounts payable 2,897,000 $ 1,897,000
Accrued employee benefits (Note 8) 846,000 1,301,000
Deferred revenues 1,454,000 1,335,000
Accrued payroll and payroll taxes 790,000 595,000
Due to related parties - 55,000
Income taxes (Note 9 ) 759,000 353,000
Other 580,000 459,000
- -----------------------------------------------------------------------------------------
Total Current Liabilities 8,115,000 5,995,000
Notes Payable to Banks, net of current portion (Note 7) 6,285,000
Minority Interest (Note 10) 797,000 919,000
Commitments and Contingencies (Note 10 and 13)
Shareholders' Equity: (Note 11)
Common Stock:
Class "A", $1 par value; authorized 5,000,000 shares;
issued and outstanding, 1,788,286 and 1,778,573
shares respectively 1,788,000 1,778,000
Class"B", $1 par value; authorized 2,500,000 shares;
issued and outstanding, 951,213 and 952,637
shares, respectively 951,000 953,000
Additional Paid-In Capital 705,000 676,000
Retained Earnings 20,920,000 19,262,000
- -----------------------------------------------------------------------------------------
24,364,000 22,669,000
- -----------------------------------------------------------------------------------------
$39,561,000 $29,583,000
- -----------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements
16
<PAGE> 17
CONSOLIDATED STATEMENTS OF OPERATIONS
McRae Industries, Inc. and Subsidiaries
<TABLE>
<CAPTION>
For the Years Ended August 3, July 29, July 30,
1996 1995 1994
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net revenue $48,724,000 $40,624,000 $39,454,000
Cost of revenues 34,470,000 27,389,000 26,417,000
Gross profit 14,254,000 13,235,000 13,037,000
Selling, general and administrative 11,045,000 9,930,000 8,971,000
Earnings from operations 3,209,000 3,305,000 4,066,000
Other income, net 503,000 429,000 292,000
Earnings before income
taxes and minority interest 3,712,000 3,734,000 4,358,000
Provision for income taxes (Note 9) 1,369,000 1,403,000 1,599,000
Minority shareholder's interest
in earnings of subsidiary (Note 10) 61,000 147,000 126,000
- ------------------------------------------------------------------------------------
Net earnings $ 2,282,000 $ 2,184,000 $ 2,633,000
- ------------------------------------------------------------------------------------
Net earnings per Common Share $ 0.84 $ 0.80 $ 0.97
Weighted average number of
Common Shares outstanding 2,731,334 2,731,210 2,729,710
- ------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
17
<PAGE> 18
CONSOLIDATED STATEMENTS OF CASH FLOWS
McRae Industries, Inc. and Subsidiaries
<TABLE>
<CAPTION>
For the Years Ended August 3, July 29, July 30,
1996 1995 1994
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net earnings $2,282,000 $2,184,000 $2,633,000
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 1,072,000 807,000 610,000
Equity in net (income) loss of
investee 16,000 (25,000) 34,000
Minority shareholder's interest in
earnings of subsidiary 61,000 147,000 126,000
Gain on sale of assets (171,000)
Changes in operating assets and liabilities,
net of effects from purchase of subsidiaries:
Accounts and notes receivable (3,389,000) (965,000) (467,000)
Inventories (950,000) (1,593,000) 360,000
Net investment in capitalized leases (131,000) (554,000) (261,000)
Prepaid expenses and other current
assets 146,000 (94,000) (50,000)
Accounts payable (134,000) 235,000 (481,000)
Accrued employee benefits (455,000) 11,000 237,000
Deferred revenues 119,000 208,000 149,000
Accrued payroll and payroll taxes 40,000 119,000 3,000
Income taxes 406,000 (186,000) 423,000
Other 121,000 (305,000) 33,000
- ------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities (967,000) (11,000) 3,349,000
- ------------------------------------------------------------------------------------------
Cash Flows from Investing Activities:
Purchase of subsidiaries, net of cash
acquired (614,000) (646,000)
Disposal of property 9,000 27,000
Purchases of short term investments (71,000) (2,373,000) (21,000)
Proceeds from sale of short term investments 3,414,000
Purchase of other assets (340,000)
Purchase of minority interest (184,000)
Capital expenditures (1,487,000) (956,000) (1,668,000)
Net advances to related parties (144,000) (207,000) (121,000)
Net (advances) collections on notes
receivable 2,000 (182,000)
- ------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities 583,000 (4,180,000) (1,965,000)
- ------------------------------------------------------------------------------------------
Cash Flows from Financing Activities:
Borrowing of long-term debt and notes
payable 5,789,000 400,000
Principal repayments of long-term debt
and notes payable (4,865,000) (1,107,000) (747,000)
Proceeds from exercise of stock options 4,000
Issuance of common stock 37,000
Dividends paid (624,000) (616,000) (597,000)
- ------------------------------------------------------------------------------------------
Net Cash Used in Financing Activities 337,000 (1,723,000) (940,000)
- ------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash
Equivalents (47,000) (5,914,000) 444,000
Cash, Cash Equivalents at Beginning of Year 628,000 6,542,000 6,098,000
Cash, Cash Equivalents at End of Year $ 581,000 $ 628,000 $6,542,000
- ------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
18
<PAGE> 19
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
McRae Industries, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Common Stock, $1 par value
--------------------------
Class "A" Class "B"
-------------------------------------------- Additional Retained
Shares Amount Shares Amount Paid-in Capital Earnings
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, August 1, 1993 1,731,323 $1,731,000 997,887 $998,000 $674,000 $15,658,000
Conversion of Class "B" to
Class "A" stock 3,040 3,000 (3,040) (3,000)
Cash dividend ($.34 per Class "A"
common share) (597,000)
Exercise of Stock Options 1,000 1,000 1,000 1,000 2,000
Net earnings 2,633,000
- ------------------------------------------------------------------------------------------------------------------
Balance, July 31, 1994 1,735,363 1,735,000 995,847 996,000 676,000 17,694,000
Conversion of Class "B" to
Class "A" stock 43,210 43,000 (43,210) (43,000)
Cash dividend ($.35 per Class "A"
common share) (616,000)
Net Earnings 2,184,000
- ------------------------------------------------------------------------------------------------------------------
Balance, July 29, 1995 1,778,573 1,778,000 952,637 953,000 676,000 19,262,000
Shares issued 8,289 8,000 29,000
Conversion of Class "B" to
Class "A" stock 1,424 2,000 (1,424) (2,000)
Cash dividend ($.35 per Class "A"
common share) (624,000)
Net earnings 2,282,000
- ------------------------------------------------------------------------------------------------------------------
Balance August 3, 1996 1,788,286 $1,788,000 951,213 $951,000 $705,000 $20,920,000
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
19
<PAGE> 20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
McRae Industries, Inc. and Subsidiaries
For the Years Ended August 3, 1996, July 29, 1995 and July 30, 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its subsidiaries. Minority interest represents the minority shareholder's
proportionate share of the equity of a majority-owned subsidiary. The
investment in an investee is accounted for on the equity method. Significant
intercompany transactions and balances have been eliminated in consolidation.
Use of Estimates
The timely preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures. Actual
results could differ from those estimates.
Cash and Cash Equivalents
Cash equivalents consist of highly liquid debt instruments such as certificates
of deposit and commercial paper purchased with an original maturity date of
three months or less.
Marketable Securities
Marketable Securities consist of certificates of deposit with an original
maturity date of more than three months and debt and equity securities.
Certificates of deposit are stated at cost and the securities are stated at
approximate fair values based on quoted market prices.
Investments in marketable equity and debt securities have been classified as
available for sale and as a result are stated at fair value based on quoted
market prices. Unrealized holding gains and losses, if applicable, are
included as a separate component of shareholders' equity until realized. The
effect of this change in accounting principle was not material to the financial
statements.
Inventories
Inventories are stated at the lower of cost or market using the last-in,
first-out (LIFO) method for the military boots and photocopier inventories and
using the first-in, first-out (FIFO) method for all other inventories.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation and amortization
are provided on a straight-line method for financial reporting purposes and by
accelerated methods for income tax purposes.
Service Revenue Recognition
Service maintenance agreements are sold for certain products. When such
revenues are recorded prior to providing repair and maintenance service, the
revenues are deferred and recognized over the term of the related agreements.
Government Contract Revenue Recognition
Sales under long-term government contracts are recognized as revenues when the
deliveries are made. In addition, the Company has recorded receivables of
$370,000 at August 3, 1996, under the government contract's economic price
adjustment clause for increases in leather prices.
20
<PAGE> 21
Goodwill
Goodwill is amortized by the straight-line method over periods ranging up to 20
years. On a periodic basis, the Company estimates the future undiscounted cash
flow of the businesses to which goodwill relates to assess that the carrying
value of such goodwill has not been impaired.
Income Taxes
The Company records provision for income taxes using the liability method of
accounting for income taxes under SFAS No. 109 Accounting for Income Taxes. A
deferred tax asset or liability is recorded for all temporary differences
between financial and tax reporting using enacted tax rates. Deferred tax
expense (benefit) results from the change during the year of the deferred tax
assets and liabilities. Valuation allowances are established when necessary to
reduce deferred tax assets to the amount expected to be realized.
Earnings Per Share
Earnings per share are based on the weighted average number of shares of common
stock outstanding during the year.
Reclassifications
Certain reclassifications have been made to the prior years' financial
statements and notes thereto to conform with the current year presentation.
2. ACQUISITIONS
All acquisitions have been accounted for as purchases; operations of the
companies acquired have been included in the accompanying consolidated
financial statements from their respective dates of acquisition. The excesses
of the purchase prices over fair value of the net assets acquired are included
in goodwill. Supplemental information, combining the acquired companies on a
pro forma basis as though they were acquired at the beginning of the fiscal
years, has not been presented for the DataScan Corporation and Systems
Integrators, Inc. acquisitions because it would have an immaterial effect on
the net revenues and income for the periods presented.
In September 1994, the Company acquired DataScan Corporation, a reseller of bar
code products located in South Carolina, for approximately $523,000. The
excess of the purchase price over the fair value of the net assets acquired of
approximately $600,000 was recorded as goodwill and is being amortized by the
straight-line method over twenty years.
In June 1995, the Company acquired Systems Integrators, Inc., a consulting
firm primarily engaged in programming bar code related products, for
approximately $315,000. The excess of the purchase price over the fair value
of the net assets acquired of approximately $138,000 was recorded as goodwill
and is being amortized by the straight-line method over fifteen years.
On April 30, 1996, the Company purchased all of the outstanding common stock
of American West Trading Company (American West) from its shareholders.
American West is a manufacturer and distributor of western and work boots with
manufacturing facilities located in Dresden and Waverly, Tennessee. American
West sells it's boots nationwide to major retail and speciality chain stores.
The Company purchased 4,000,000 shares of American West Common Stock for
$490,000 in cash and notes and $60,000 of the Company's Class A Common Stock.
The purchase price approximated the fair values of the net assets acquired. In
addition, a deferred earn-out amount will be paid subject to certain conditions
being met over a sixty month period.
21
<PAGE> 22
The unaudited proforma financial information which follows assumes the
acquisition of American West occurred at the beginning of the respective year
presented after giving effect to certain adjustments. The proforma financial
information does not purport to be indicative of the results of operations that
would have occurred had the transaction taken place at the beginning of the
period presented or of future results of operations.
<TABLE>
<CAPTION>
(Unaudited)
Proforma Results of Operations
Years Ended
August 3, 1996 July 29, 1995
----------------------------------
<S> <C> <C>
Net Revenues $ 61,421,000 $ 58,542,000
Net Earnings $ 2,291,000 $ 1,785,000
Net Earnings per Share $ 0.84 $ 0.65
</TABLE>
3. MARKETABLE SECURITIES
The following is a summary of the estimated fair market value of available for
sale securities:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Certificates of Deposit $2,332,000
Mutual Funds 551,000
Municipal Bonds $55,000 354,000
Common Stocks 10,000 7,000
------- ----------
$65,000 $3,244,000
</TABLE>
At July 29, 1995 all certificates of deposit had contractual maturities of one
year or less. Expected maturities may differ from contractual maturities of the
municipal bonds because the issuers of the securities may have the right to
prepay obligations without prepayment penalties. Unrealized gains and losses
were not material at August 3, 1996 or July 29, 1995.
4. INVENTORIES
Current costs exceed the LIFO value of inventories by approximately $877,000
and $847,000 at August 3, 1996 and July 29, 1995, respectively. Year-end
inventories valued under the LIFO method were approximately $5,150,000 at
August 3, 1996 and approximately $4,500,000 at July 29, 1995. The components
of inventory at each year end are as follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Raw materials $ 2,288,000 $1,093,000
Work-in-process 1,142,000 444,000
Finished goods 9,210,000 5,736,000
- -----------------------------------------------------------------------------
$12,640,000 $7,273,000
- -----------------------------------------------------------------------------
</TABLE>
22
<PAGE> 23
5. LEASES
The Company leases certain photocopier products under sales-type leases. The
Company's net investment in these leases is as follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Minimum lease payments receivable $3,070,000 $2,913,000
Estimated unguaranteed residual values 267,000 242,000
Unearned income (489,000) (471,000)
Allowance for credit losses (83,000) (50,000)
- -------------------------------------------------------------------------------
Net investment $2,765,000 $2,634,000
- -------------------------------------------------------------------------------
</TABLE>
The scheduled maturities for the above minimum lease payments receivable at
August 3, 1996 are as follows:
<TABLE>
<S> <C>
Fiscal Year Ending
1997 $1,238,000
1998 903,000
1999 552,000
2000 288,000
2001 and thereafter 89,000
- ----------------------------------------------------------------
Total minimum lease payments receivable $3,070,000
- ----------------------------------------------------------------
</TABLE>
6. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Land and improvements $ 769,000 $ 626,000
Buildings 4,262,000 3,324,000
Machinery and equipment 6,943,000 3,470,000
Furniture and fixtures 2,521,000 2,291,000
- -------------------------------------------------------------------------------
14,495,000 9,711,000
Less: Accumulated depreciation 7,323,000 5,170,000
- -------------------------------------------------------------------------------
7,172,000 $4,541,000
- -------------------------------------------------------------------------------
</TABLE>
23
<PAGE> 24
7. NOTES PAYABLE:
<TABLE>
<CAPTION>
1996
----
<S> <C>
Note payable, Bank, due in monthly
installments of $56,477 including
interest at the prime rate less 0.5%
through July, 2011. All of the inventory,
accounts receivable and property, plant
and equipment, which cost $8,991,000, of one
of the Company's subsidiaries, American West,
are pledged as collateral. $6,000,000
Line of Credit due August 1, 1997. Interest
is payable monthly at the prime rate less
.5%. All of the inventory, accounts
receivable and property, plant and
equipment, which cost $8,991,000,
of one of the Company's subsidiaries,
American West, are pledged as collateral. 400,000
Note payable, State of Tennessee, due
March , 2013. Note is payable in 60 monthly
installments of $1,930 including interest at
1.5%, then 60 monthly installments of $2,073
including interest at 2.5% and then 120 monthly
installments of $2,175 including interest at 3.5%.
Land, buildings and building improvements, which
cost $847,000, of one of the Company's subsidiaries,
American West, are pledged as collateral. 340,000
Note payable, State of Tennessee, due in March, 2000.
Note is payable in 60 monthly installments of
$4,015 including interest at 1.5% and then in 24
monthly installments of $4,057 including interest at 2.5%.
Certain equipment, which cost $320,000, of one of the
Company's subsidiaries, American West, is pledged
as collateral. 160,000
Note payable, due in monthly installments of
$5,000 without interest through April 1998. 105,000
Note payable, due in monthly installments of
$1,875 including interest at 6% through
April 1998. 40,000
Note payable, due in monthly installments of
$1,915 including interest at 5% through
December 1997. 29,000
----------
7,074,000
Less current portion 789,000
----------
$6,285,000
==========
</TABLE>
24
<PAGE> 25
Annual maturities of long-term debt are as follows:
<TABLE>
<S> <C>
Fiscal year ending:
1997 $ 789,000
1998 375,000
1999 322,000
2000 316,000
2001 319,000
thereafter 4,953,000
----------
$7,074,000
==========
</TABLE>
Interest expense payments during fiscal years 1996, 1995 and 1994 were
approximately $133,000, $48,000 and $82,000, respectively.
8. EMPLOYEE BENEFIT PLANS
The Company's employee benefit program consists of a defined benefit pension
plan, an employee stock ownership plan, a cash bonus program, incentive awards
and other specified employee benefits as approved by the Board of Directors.
At its sole discretion, the Board of Directors determines the amount and the
timing of payment for benefits under these plans.
The Company's noncontributory defined benefit pension plan and employee stock
ownership plan cover substantially all employees. On September 30, 1992 the
Board of Directors decided to terminate the defined benefit pension plan. The
plan's actuary determined the amount owed to the pension plan as a result of
the plan's termination was $173,000. This amount has been recorded as a
liability in accrued employee benefits as of August 3, 1996. The defined
benefit pension plan provided for benefits based on length of service from date
of employment and the employee's average compensation. Plan assets are
invested principally in collective funds consisting of short-term cash,
fixed-income and equity investments.
The weighted average discount rate used in determining the actuarial present
value of the projected benefit obligation was 8% for 1992. The expected
long-term rate of return on assets is 8%.
25
<PAGE> 26
The following table sets forth the defined benefit pension plan's funding
status at the end of each year indicated.
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested
benefits of $891,000, $873,000 and $836,000,
respectively ($891,000) ($873,000) ($836,000)
- -----------------------------------------------------------------------------------------------
Projected benefit obligation for service
rendered to date (891,000) ($875,000) ($836,000)
Plan assets at fair market value (801,000) (753,000) (768,000)
- -----------------------------------------------------------------------------------------------
Projected benefit obligation in excess of
plan assets (90,000) (122,000) (68,000)
Unrecognized net (gain) loss 173,000 92,000 41,000
Additional liability recognized for unfunded
accumulated benefit obligation (173,000) (90,000) (41,000)
- -----------------------------------------------------------------------------------------------
Net pension liability (90,000) (120,000) (68,000)
Net periodic pension costs:
Interest cost on projected benefit
obligation 67,000 67,000 67,000
Actual return on plan assets (18,000) (35,000) (17,000)
Net asset gain less (loss) during
the period (38,000) (25,000) (47,000)
- -----------------------------------------------------------------------------------------------
Net periodic pension costs $ 11,000 $ 7,000 $ 3,000
- -----------------------------------------------------------------------------------------------
</TABLE>
The employee stock ownership plan's (ESOP) principal investments include shares
of Class "A" and "B" common stock of the Company and collective funds
consisting of short-term cash, fixed-income and equity investments.
Employee benefit program expense amounted to $525,000, $725,000 and $850,000 in
1996, 1995 and 1994, respectively. To the extent the amount of these benefits
are not disbursed, the Board may, at its sole discretion, reduce any remaining
accruals.
26
<PAGE> 27
9.INCOME TAXES
Significant components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Current:
Federal $1,062,000 $1,010,000 $1,324,000
State 276,000 238,000 285,000
- -------------------------------------------------------------------------------
Total Current 1,338,000 1,248,000 1,609,000
- -------------------------------------------------------------------------------
Deferred:
Federal 27,000 133,000 (9,000)
State 4,000 22,000 (1,000)
- -------------------------------------------------------------------------------
Total deferred 31,000 155,000 (10,000)
- -------------------------------------------------------------------------------
$1,369,000 $1,403,000 $1,599,000
- -------------------------------------------------------------------------------
</TABLE>
The components of the provision for deferred income taxes are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Depreciation $119,000 $ 21,000 $ 16,000
Leasing activities 48,000 111,000 62,000
Employee benefit accrual 207,000 (6,000) (75,000)
Bad debt allowances (95,000) (10,000) (18,000)
Inventory (123,000) (5,000) (11,000)
Other (125,000 44,000 16,000
- -------------------------------------------------------------------------------
Provision for deferred income taxes $ 31,000 $155,000 ($10,000)
- -------------------------------------------------------------------------------
</TABLE>
Deferred tax liabilities and assets at each year end are as follows:
<TABLE>
<CAPTION>
Deferred tax liabilities: 1996 1995
<S> <C> <C>
Tax over book depreciation $387,000 $268,000
Leasing activities 580,000 522,000
- -------------------------------------------------------------------------------
Total deferred tax liabilities 967,000 790,000
- -------------------------------------------------------------------------------
Deferred tax assets:
Employee benefit accrual 167,000 373,000
Bad debt allowances 151,000 56,000
Inventory 165,000 42,000
Other reserves 95,000 (39,000)
- -------------------------------------------------------------------------------
Total deferred tax assets 578,000 432,000
- -------------------------------------------------------------------------------
Net deferred tax liability $389,000 $358,000
- -------------------------------------------------------------------------------
</TABLE>
27
<PAGE> 28
The reconciliation of income tax computed at the U. S. federal statutory tax
rate to actual income tax expense are (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Tax at U. S. statutory rate $1,262 34.0% $1,269 34.0% $1,482 34.0%
State income taxes, net of federal
tax benefit 154 6.3 157 6.3 188 6.3
Other - net (47) (3.4) (23) (2.3) (71) ( 1.6)
- -----------------------------------------------------------------------------------------
$1,369 36.9% $1,403 38.0% $1,599 36.7%
- -----------------------------------------------------------------------------------------
</TABLE>
Total income tax payments during fiscal years 1996, 1995 and 1994 were
approximately $958,000, $1,647,000 and $1,100,000, respectively.
10. COMMITMENTS AND CONTINGENCIES
Minority Interest
The Company has entered into a restrictive stock agreement with the minority
shareholder of its majority owned subsidiary. Under the terms of the agreement,
the Company has the right of first refusal to purchase at any time any shares
representing the minority interest in the subsidiary at a defined book value of
said shares. The minority shareholder has the right to sell twenty percent of
his shares per year to the Company in November 1994 and each year thereafter,
at the defined book value of such shares, provided the minority shareholder
remains employed by the subsidiary.
Credit Facilities
The Company has loan agreements with several banks pursuant to which the banks
have agreed to provide lines of credit up to $3,750,000 subject to certain
restrictions at the banks' prime interest rate.
Concentrations Of Credit Risk
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash investments,
receivables, and capitalized leases. The Company maintains substantially all
of its cash and certificates of deposits with various financial institutions
in amounts which are in excess of the Federally insured limits. Management of
the Company performs periodic evaluations of the relative credit standing of
those financial institutions.
Concentrations of credit risk with respect to receivables and capitalized
leases are limited due to the large number of entities comprising the Company's
customer base and their dispersion across many different industries. The
Company does not require collateral on trade account receivables.
Other
Under the terms of sale to the U.S. Government, the negotiated contract prices
of combat boots are subject to renegotiation if certain conditions are present.
Management is of the opinion that renegotiation, if any, will have no material
adverse effect on the Company's consolidated financial position or results of
operations.
28
<PAGE> 29
11. SHAREHOLDERS' EQUITY
Common Stock
Each share of Class "A" Common Stock is entitled to one-tenth vote and each
share of Class "B" Common Stock is entitled to one full vote at meetings of
shareholders, except that Class "A" shareholders are entitled to elect 25 % and
Class "B" shareholders are entitled to elect 75 % of the directors. Each share
of Class "B" Common Stock can be converted to Class "A" Common Stock on a share
for share basis. All dividends paid on Class "B" Common Stock must also be paid
on Class "A" Common Stock in an equal amount.
The Company has a nonqualified stock option plan. Under the terms of the stock
option plan, stock options to purchase Common Stock may be granted to selected
key employees. The Company has reserved 120,000 shares of Class A and 120,000
shares of Class B Common Stock for the nonqualified stock option plan.
Transactions involving the plan are summarized as follows:
<TABLE>
<CAPTION>
Nonqualified Stock Option Plan 1996 1995 1994
Class Class Class
A B A B A B
--- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C>
Outstanding and exercisable at
beginning of year 14,690 14,500 14,690 14,500 15,690 15,500
Exercised ($2.125 per share - Class A, $1.875
per share - Class B) (190) -0- -0- -0- (1000) (1000)
- -------------------------------------------------------------------------------------------------------
Outstanding and exercisable at end of year ($2.125
per share - Class A, $1.875 per
share - Class B) 14,500 14,500 14,690 14,500 14,690 14,500
- -------------------------------------------------------------------------------------------------------
</TABLE>
At August 3, 1996, 143,000 shares of Class A and 143,000 shares of Class B
common stock were available for future grants under the nonqualified stock
option plan.
12. RELATED PARTY TRANSACTIONS
Notes and accounts receivable from related entities that are included in the
balance sheet are as follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Investments in and advances to investee (see Note 13) $ 631,000 $ 600,000
McRae Chevrolet Buick, guaranteed by the
President of the Company, with interest
at federal funds rate plus 2% 1,111,000 1,071,000
Notes receivable, other, guaranteed
by the President of the Company 275,000 275,000
Notes receivable from the President of
the Company, unsecured, with interest
at federal funds rate plus 2% 342,000 341,000
- -------------------------------------------------------------------------------
$2,359,000 $2,287,000
- -------------------------------------------------------------------------------
</TABLE>
As of August 3, 1996, and July 29, 1995, there were approximately $674,000 and
$695,000, respectively, of receivables due from employees included in notes and
accounts receivable.
29
<PAGE> 30
13. INVESTMENT IN INVESTEE
The Company has an investment in a real estate development company. The
investee has been operating under Chapter X of the United States Bankruptcy Act
since 1974, and the court has imposed certain restrictions under a Plan of
Reorganization. The Company adjusts its investment in and advances to the
investee by the equity method. Summarized financial data of the investee is as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Balance Sheet
Assets $1,474,000 $1,451,000 $1,277,000
Liabilities 1,772,000 1,733,000 1,584,000
Shareholders' deficiency (298,000) (282,000) (307,000)
Results of Operations
Revenues $ 195,000 $ 215,000 $ 184,000
Net income (loss) (16,000) 25,000 (34,000)
</TABLE>
The following table summarizes the activity of the Company's investment in
investee:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Beginning investment $ 600,000 $ 447,000 $400,000
Equity in income (loss) (16,000) 25,000 (34,000)
Additional investments 47,000 128,000 81,000
- ------------------------------------------------------------------------------------
Ending investment $ 631,000 $ 600,000 $447,000
- ------------------------------------------------------------------------------------
</TABLE>
The Company, a subsidiary and investee have been named co-defendants in a civil
lawsuit involving one residential real estate lot in a subdivision partially
developed by the investee. The investee has been named a defendant in a second
lawsuit also involving a residential real estate lot in the same subdivision.
The lawsuits allege various torts related to quiet title, adverse possession,
tortious interference and others. The first suit seeks unspecified
compensatory and punitive damages. The second suit seeks compensatory damages
of $15,000 and unspecified punitive damages. The Company's counsel in
connection with these lawsuits has represented that it is unable to evaluate
the probability of a favorable or unfavorable outcome nor to estimate the range
of loss, if any, in these cases. Accordingly, no provision for any liability
that may result has been made in the accompanying consolidated financial
statements.
14. FINANCIAL INSTRUMENTS
All financial instruments are held or issued for other than trading purposes.
Management used the following methods and assumptions to estimate the fair
value of financial instruments:
Cash and cash equivalents: Because of the close proximity to maturity, the
carrying value of cash and cash equivalents approximates fair value.
Marketable Securities: The fair values of marketable debt and equity
securities are based on quoted market prices.
Notes Receivable: For notes receivable, fair value is estimated by
discounting future cash flow using the current rates at which similar loans
would be made to borrowers with similar credit ratings and for the same
remaining maturities.
Other Assets: Other assets primarily represent officer's life insurance
policies recorded at its cash surrender value which approximates its fair
value.
Deferred revenues: The carrying value approximates fair value because of the
short maturity of the deferred maintenance contracts.
Long and short term debt: The carrying amounts of the borrowings under
short-term revolving credit agreements approximates its fair value. The fair
value of long term debt was estimated using discounted cash flow analyses,
based on the company's current incremental borrowing rates for similar types
of borrowing arrangements.
30
<PAGE> 31
<TABLE>
<CAPTION>
Carrying Fair
Assets Amount Value
------ -----
<S> <C> <C>
Cash and cash equivalents $ 581,000 $ 581,000
Short Term investments 65,000 65,000
Notes receivable, related entities 2,359,000 see (a)below
Notes receivable 951,000 1,003,000
Other assets 1,060,000 1,060,000
Liabilities
Deferred revenues 1,456,000 1,456,000
Long and short term debt 7,074,000 7,074,000
</TABLE>
a) It is not practicable to estimate the fair value of the Notes due from
related parties to the corporation because of the inability to estimate fair
value without incurring excessive costs. See Note 11-Related Party
Transactions.
15. SELECTED QUARTERLY FINANCIAL DATA (Unaudited)
The following table sets forth unaudited quarterly financial information for
the years ended August 3, 1996 and July 29, 1995:
<TABLE>
<CAPTION>
First Second Third Fourth
<S> <C> <C> <C> <C>
August 3, 1996
Net revenues $10,412,000 $10,142,000 $11,069,000 $17,101,000
Gross profit 3,069,000 3,207,000 3,239,000 4,739,000
Net earnings 344,000 449,000 384,000 1,105,000
Net earnings per common share .13 .16 .14 .41
July 29, 1995
Net revenues $ 9,776,000 $10,041,000 $10,451,000 $10,356,000
Gross profit 3,106,000 3,287,000 3,371,000 3,471,000
Net earnings 467,000 533,000 525,000 659,000
Net earnings per common share .17 .20 .19 .24
</TABLE>
The fourth quarter of 1996 includes an adjustment to decrease the Company's
LIFO Reserve which increased net earnings by $222,000 or $.08 per common share.
16. INDUSTRY SEGMENT INFORMATION
The Company's principal operations have been classified into three business
segments: bar code operations, office products and printing and footwear
manufacturing. The bar code segment manufactures and sells bar code reading
and printing devices and other items related to optical data collection. The
office products and printing segment sells, provides maintenance and leases
photocopiers, facsimile and digital duplicators and operates a commercial
printing company. The footwear segment manufactures combat boots, principally
for the U.S. Government, and western and work boots. Total consolidated
revenues related to sales to the U.S. Government were 26% in 1996, 22% in 1995,
and 35% in 1994. There were no significant intersegment sales or transfers
during 1996, 1995 and 1994. Operating profits by business segment exclude
allocated corporate interest income, income taxes, minority interest and equity
in net loss of investee. Corporate assets consist principally of cash, short
term investments, certain receivables, and real estate held for investment.
31
<PAGE> 32
<TABLE>
<CAPTION>
Office
Products Corporate
and and
(In Thousands) Footwear Bar Code Printing Other Consolidated
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
For the Year Ended August 3, 1996
Net Revenues $17,490 $15,994 $14,616 $ 624 $48,724
Earnings(loss)from
operations 2,635 947 (428) 55 3,209
Identifiable assets 14,095 6,300 9,823 9,343 39,561
Capital expenditures 37 347 884 219 1,487
Depreciation expense
and amortization 254 154 256 408 1,072
- -------------------------------------------------------------------------------------------
For the Year Ended July 29, 1995
Net Revenues $ 9,004 $17,315 $13,621 $ 684 $40,624
Earnings(loss)from
operations 1,121 2,109 78 (3) 3,305
Identifiable Assets 2,435 9,474 10,500 7,174 29,583
Capital expenditures 17 205 487 247 956
Depreciation expense
and amortization 138 146 260 263 807
- -------------------------------------------------------------------------------------------
For the Year Ended July 30,1994
Net Revenues $13,777 $13,205 $11,654 $ 818 $39,454
Earnings(loss)from
operations 2,510 1,510 250 (204) 4,066
Identifiable assets 2,166 9,447 8,640 7,883 28,136
Capital expenditures 113 717 377 461 1,668
Depreciation expense
and amortization 145 75 188 202 610
</TABLE>
32
<PAGE> 33
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON 8-K
(a) (1) Independent auditor's report
McRae Industries, Inc. and Subsidiaries consolidated financial
statements:
Consolidated Balance Sheets as of August 3, 1996 and July 29,
1995
Consolidated Statements of Operations for the Years Ended
August 3, 1996, July 29, 1995, and July 30, 1994.
Consolidated Statements of Cash Flow for the Years
Ended August 3, 1996, July 29, 1995 and July 30, 1994
Consolidated Statements of Shareholders' Equity for the Years
Ended August 3, 1996, July 29, 1995 and July 30, 1994
(2) Financial Statement Schedules:
Schedule II
(b) Reports on Form 8-K
The Registrant filed a Form 8-K dated May 10, 1996 and a Form 8-K/A
dated June 29, 1996 in connection with its acquisition of American West
Trading Company. The Form 8-K/A dated June 29, 1996 includes financial
statements of American West Trading Company for the years ended December
31, 1995 and 1994 and pro forma financial information for the nine
months ended April 27, 1996 and the twelve months ended July 29,
1995.
(c) Exhibits
<TABLE>
<S> <C>
3.1 Certificate of Incorporation. (Incorporated by reference to Exhibit 3.1
to the Registrant's Form S-14, Registration N. 2-85908)
3.2 Amendment to the Certificate of Incorporation. (Incorporated by reference
to Exhibit 3 to the Registrant's Form 10-K for the fiscal year ended
August 1, 1987)
3.3 Amendment to the Bylaws of the Registrant effective September 10, 1993.
(Incorporated by reference to Exhibit 3.3 to the Registrant's Form 10-K
for the fiscal year ended July 31,1993)
3.4 Restated Bylaws of the Registrant. (Incorporated by reference to Exhibit
3.4 to the Registrant's Form 10-K for the fiscal year ended July 31,
1993)
10.1 1985 McRae Industries, Inc. Non-Qualified Stock Option Plan.
(Incorporated by reference to Exhibit 10 to the Registrant's Form 10-K
for fiscal year ended August 3, 1985)*
</TABLE>
33
<PAGE> 34
<TABLE>
<S> <C>
10.2 Technical Assistance Agreement dated September 13, 1984 between the
Registrant and Ro-Search, Incorporated. (Incorporated by reference to
Exhibit 10.4 to the Registrant's Form 10-K for the fiscal year ended July
28, 1984)
10.3 Award/Contract between Defense Personnel Support Center and McRae
Industries, Inc. dated August 6, 1993. (Incorporated by reference to
Exhibit 10.3 to the Registrant's Form 10-K for the fiscal year ended
July 31, 1993)
10.4 Stock Purchase Agreement as of April 7, 1996 among Walter A. Dupuis,
Kenneth O. Moore, William Glover and McRae Industries was filed as
Exhibit 2 to the Registrant's current report on Form 8-K filed May 11,
1996 and is incorporated herein by reference.
10.5 Promissory Note, Security Agreement and Guaranty Agreement dated July 25,
1996 among American West Trading Company, as borrower, The Fidelity Bank,
as lender, and the Registrant, as Guarantor (Filed herein).
10.6 Deed of Trust between American West Trading Company and The Fidelity
Bank, July 25, 1996 (Filed herein).
10.7 Security Agreement pertaining to inventory, accounts receivable and
equipment between American West Trading Company and The Fidelity Bank,
July 25, 1996 (Filed herein).
21 Subsidiaries of the Registrant (Filed herein)
23 Consent of Independent Auditors (Filed herein)
27 Financial Data Schedule (Filed in electronic format only. Pursuant to
Rule 402 of Regulation S-T, this schedule shall not be deemed filed for
purpose of Section 11 of the Securities Act of 1933 or Section 18 of the
Securities Exchange Act of 1934.)
</TABLE>
----------------------------------------
*Denotes a management contract or compensatory plan or arrangement.
34
<PAGE> 35
SCHEDULE II.. VALUATION AND QUALIFYING ACCOUNTS
McRae Industries, Inc. and Subsidiaries.
<TABLE>
<CAPTION>
Col. A Col. B Col. C Col. D Col.E
ADDITIONS
Description Balance at (1) (2) Deductions Balance at
Beginning of Charged to Charged to Describe End of
Period Cost and Other Period
Expenses Accounts
Describe
<S> <C> <C> <C> <C>
Year ended August 3, 1996:
Deductions from assets
accounts:
Allowance for doubtful
accounts $ 130,000 $ (56,000) $ 310,000 (1) $ 384,000
Employee benefit accrual 1,301,000 425,000 (880,000)(2) 846,000
Health insurance accrual 146,000 (40,000) 86,000 (2) 192,000
Year ended July 29,1995:
Deducted from assets
accounts:
Allowance for doubtful
accounts: $ 116,000 $ 47,000 $ 61,000 (1) $ 130,000
Employee benefit accrual 1,290,000 725,000 (714,000)(2) 1,301,000
Health insurance accrual 195,000 753,000 (802,000)(2) 146,000
Year ended July 30, 1994
Deducted from assets
accounts:
Allowance for doubtful
accounts $ 70,000 $ 90,000 $ (44,000)(1) $ 116,000
Employee benefit accrual 1,053,000 850,000 (613,000)(2) 1,290,000
Health insurance accrual 125,000 935,000 (865,000)(2) 195,000
</TABLE>
(1) Uncollectible accounts written off
(2) Payments and/or expenses charged to operations
35
<PAGE> 36
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
McRAE INDUSTRIES, INC.
Dated: October 31, 1996 By: /s/ B. J. McRae
---------------------
B.J McRae
President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
Signature Date
- --------- -----
/s/ B. J. McRae October 31, 1996
- ---------------
President and Director
(Principal Executive Officer)
/s/ George M. Bruton
- --------------------
George M. Bruton October 31, 1996
Director
/s/ Hilton Cochran
- -----------------
Hilton Cochran October 31, 1996
Director
/s/ James W. McRae
- ------------------
James W. McRae October 31, 1996
Vice President, Secretary and Director
/s/ Victor A. Karam
- ------------------
Victor A. Karam October 31, 1996
Vice President of Footwear and Director
/s/ D. Gary McRae
- -----------------
D. Gary McRae October 31, 1996
First Vice President, Treasurer and Director
/s/ Harold W. Smith
- -------------------
Harold Smith October 31, 1996
Vice President of McRae Graphics and Director
/s/ Marvin G. Kiser, Sr.
- ------------------------
Marvin G. Kiser October 31, 1996
Controller
(Principal Financial and Accounting Officer)
36
<PAGE> 37
Exhibit Index
<TABLE>
<S> <C>
3.1 Certificates of Incorporation. (Incorporated by reference to Exhibit 3.1
to the Registrant's Form S-14, Registration N. 2-85908).
3.2 Amendment to the Certificate of Incorporation. (Incorporated by reference
to Exhibit 3 to the Registrant's Form 10-K for the fiscal year ended August
1, 1987).
3.3 Amendment to the Bylaws of the Registrant effective September 10, 1993.
(Incorporated by reference to Exhibit 3.3 to the Registrant's Form 10-K
for the fiscal year ended July 31, 1993).
3.4 Restated Bylaws of the Registrant. (Incorporated by reference to Exhibit
3.4 to the Registrant's Form 10-K for the fiscal year ended July 31, 1993).
10.1 1985 McRae Industries, Inc. Non-Qualified Stock Option Plan.
(Incorporated by reference to Exhibit 10 to the Registrant's
Form 10-K for the fiscal year ended August 3, 1985).
10.2 Technical Assistance Agreement dated September 13, 1984 between the
Registrant and Ro-Search, Incorporated. (Incorporated by reference to
Exhibit 10.4 to the Registrant's Form 10-K for the fiscal year ended
July 28, 1984).
10.3 Award/Contract between Defense Personnel Support Center and McRae
Industries, Inc. dated August 6, 1993. (Incorporated by reference to
Exhibit 10.3 to the Registrant's Form 10-K for the fiscal year ended
July 31, 1993).
10.4 Stock Purchase Agreement and Guaranty Agreement as of April 7, 1996 among
Walter A. Dupuis, Kenneth O. Moore, William Glover and McRae Industries
was filed as Exhibit 2 to the Registrant's current report on Form 8-K
filed May 11, 1996 and is incorporated herein by reference.
10.5 Promissory Note, Security Agreement and Guaranty Agreement dated
July 25, 1996 among American West Trading Company, as borrower,
The Fidelity Bank, as lender and the Registrant, as Guarantor
(Filed herein).
10.6 Deed of Trust between American West Trading Company and The Fidelity
Bank, July 25, 1996 (Filed herein).
10.7 Security Agreement pertaining to inventory, accounts receivable and
equipment between American West Trading Company and The Fidelity Bank,
July 25, 1996 (Filed herein).
21 Subsidiaries of the Registrant (Filed herein).
23 Consent of Independent Auditors (Filed herein).
27 Financial Data Schedule (Filed in electronic format only. Pursuant
to Rule 402 of Regulation S-T, this schedule shall not be deemed
filed for the purpose of Section 11 of the Securities Act of 1993 or
Section 18 of the Securities Exchange Act of 1934).
</TABLE>
37
<PAGE> 1
EXHIBIT 10.5
AMERICAN WEST TRADING COMPANY THE FIDELITY LOAN NUMBER 91965
P.O. BOX 140 BANK NOTE DATE July 25, 1996
DRESDEN, TENNESSEE 38225 AMOUNT OF NOTE $6,000,000
FOR VALUE RECEIVED, the undersigned maker(s), jointly and severally promise(s)
to pay to the order of The Fidelity Bank at its office in Mt. Gilead, North
Carolina, or at such other place as the holder hereof may from time to time
designate in writing the sum of Six Million and 00/100 Dollars in collected
funds or U.S. legal tender, together with interest accrued from the date hereof
on the unpaid balance at the interest rate or rates per annum specified below,
until paid in full; and the undersigned maker(s) also promise(s) to pay late
charges, loan fees and the Credit Life or Credit Life and Accident & Health
Insurance premium charges, if any, as specified herein, all payments to be made
as specified herein, and to be applied first to late charges due, if any,
Credit Life or Credit Life and Accident & Health Insurance premium charges, if
any, then to interest, both accrued to date payment made or date payment due,
at Bank's discretion, and thereafter to the unpaid principal balance, interest
to be accrued and principal, interest and insurance premiums are to be paid as
follows:
INTEREST RATE (One of the following must be selected. Terms not checked are
__________.
[ ] At the rate of _________ percent per annum.
[x] At the rate of 0.50 percent per annum below the Prime Rate
(hereinafter referred to as "index) established by The Fidelity Bank,
as said index fluctuates from time to time, which is currently 8.25
percent per annum, not to exceed a maximum total rate of N/A percent
per annum nor fall below a minimum total rate of N/A percent per
annum, and
[x] increases or decreases in the total rate due to changes in the
index shall be effective on the calendar day such change in
the index takes place.
[ ] increases or decreases in the total rate due to changes in the
index shall be effective on the first day of the month
following the month in which such change of the index takes
place. In the event of multiple changes in the index during
any one calendar month period, the index established by the
change next preceding the first of the day of the month
following such change shall be applicable.
[ ] At the rate of _________ percent per annum until ___________________
and after such date The Fidelity Bank has the right upon thirty days'
notice to establish the interest rate in its discretion.
PRINCIPAL PAYMENT TERMS (One of the following must be selected. Payment terms
not checked are deleted)
[ ] Payable on demand, or on __________________________ (hereinafter
referred to as "Maturity"), provided demand is not sooner made.
[ ] Payable in one single payment on _______________________________
(hereinafter referred to as "Maturity").
[x] Payable in 180 equal consecutive monthly payments of $56,476.55 each
commencing on August 25, 1996 and on the same day of each such
calendar period thereafter and one final payment of
$_____________________ on _________________________.
[ ] Payable on the _______ day of each of the months listed below and on
the same basis each year thereafter until paid in full.
<TABLE>
<S> <C> <C>
$________ due _______________ $________ due _______________ $________ due _______________
$________ due _______________ $________ due _______________ $________ due _______________
</TABLE>
INTEREST PAYMENT TERMS AND INSURANCE PREMIUM PAYMENT TERMS, IF APPLICABLE (One
of the following must be selected. Payment terms not checked are deleted.) In
addition to the following interest and insurance premiums, if applicable, shall
be due at such times as principal is due in accordance with the above schedule
of "PRINCIPAL PAYMENT TERMS."
<PAGE> 2
[ ] Payable in full at maturity.
[x] Payable monthly beginning August 25, 1996 and consecutively on the
same calendar day of each such calendar period thereafter.
IF EITHER OF THE PRINCIPAL PAYMENT TERMS ADJACENT TO A "t" IS SELECTED
ABOVE, ONE OF THE FOLLOWING MUST ALSO BE SELECTED.
[ ] The payment amount selected above under "PRINCIPAL PAYMENT
TERMS" IS to include interest and insurance premium due, if
applicable; and is subject to change if loan has a variable
rate.
[ ] The payment amount selected above under "PRINCIPAL PAYMENT
TERMS" IS NOT to include interest and insurance premium due,
if applicable
[ ] The payment amount selected above under "PRINCIPAL PAYMENT
TERMS" IS NOT to include interest or insurance premium due, if
applicable.
FUTURE ADVANCES (Only applicable if checked)
[ ] This is a future advance loan subject to the terms and conditions set
forth in a Loan Agreement dated ____________________ between the
makers hereof and the Bank, which terms and conditions are
incorporated by reference.
LATE CHARGE: Unless the principal and interest are repayable in one single
payment, there shall be a charge of 4% of the unpaid balance of any payment
past due for 15 days or more.
VARIABLE RATE: NOTWITHSTANDING ANY OTHER PROVISION HEREIN, IF THE INTEREST RATE
INCREASES DURING THE TERM OF THE LOAN, BANK MAY (1) INCREASE THE AMOUNT OF THE
PERIODIC PAYMENT TO HAVE THE LOAN AMORTIZED AT THE ORIGINAL MATURITY, (2)
EXTEND THE MATURITY, OR (3) REQUIRE THE RESULTING INCREASE TO BE PAID AT THE
ORIGINAL MATURITY, OR ANY COMBINATION OF THE FOREGOING, ALL IN BANK'S
DISCRETION AS DETERMINED FROM TIME TO TIME BY BANK. (Except that if this loan
is subject to Section 226.19(b) of Federal Reserve Regulation Z, the foregoing
shall not be enforced in conflict with the disclosures given pursuant thereto.)
SECURITY AGREEMENT: As collateral for this loan, undersigned hereby grants to
Bank a security interest in the following described property and all proceeds
thereof, including insurance proceeds:
Deed of Trust on real property located at Dresden and Waverly, Tennessee and
all inventory, accounts receivable and equipment now and hereafter acquired.
[ ] If checked here, the collateral is listed and described on attached
SCHEDULE A, incorporated herein by reference. This security interest
is subject to the terms set forth on the reverse side hereof.
<TABLE>
<S> <C>
INSURANCE DISCLOSURES
Credit life and/or credit life and accident & health I/we want the insurance shown, I have written my age
("A&H") insurance are not required to obtain credit, and beside my signature,
will not be provided unless you sign and agree to pay
the additional cost:
_________ ____________________________________
Age Debtor/Person to be insured
Type Premium
N/A $_________________ _________ ____________________________________
____________________ Age Debtor/Person to be insured
If property insurance is required for this loan, you may furnish it through existing policies owned by you or you
may obtain it through any insurer authorized to transact insurance business in this State. Any insurance offered or
required in connection with this loan is not required to be purchased from Bank or any subsidiary or affiliate of
Bank.
</TABLE>
If this note is signed by more than one person, this note shall be the joint
and several obligation of all signers and each provision of the note shall
apply to each and all of the signers and to the property and liability of each
and all of them. Bank's "Prime Rate" is a rate of interest index and is not a
representation
2
<PAGE> 3
that such rate is the lowest or most favorable rate of interest offered by the
Bank. The Maker(s) recognize and agree that all of the terms and conditions
appearing on the reverse side of this note are hereby incorporated by reference
and are a material part of this note.
IN TESTIMONY WHEREOF, the corporate Maker has caused this instrument
to be executed in its corporate name by its ___ President, attested
by its _____ Secretary, and its corporate seal to be hereto affixed,
by order of its Board of Directors first duly give, this the day and
year first above written.
AMERICAN WEST TRADING COMPANY
- ---------------------------------------------------
(Corporate Name)
By: /s/ D. Garry McRae , President
-----------------------------------------------
Attest: /s/ James W. McRae , Secretary
-------------------------------------------
IN TESTIMONY WHEREOF, The Fidelity Bank has caused this instrument to be
executed in its corporate name by the undersigned officer.
THE FIDELITY BANK N.C.
-------------------------------------------
By: /s/ Dana C. Maness
--------------------------------------------------------
SILL [ ] COMM [X]
ADDITIONAL PROVISIONS OF SECURITY AGREEMENT
This Security Agreement secures the Note on the reverse side and any
and all other indebtedness and/or obligations of Debtor to Secured Party
(except (i) indebtedness incurred under a credit card agreement, overdealt
protection agreement or any other open and of ______ plan governed by North
Carolina General Status 24-1 under which there is charged a monthly periodic
rate greater than 1-1/4th%, (ii) indebtedness with respect to which no
disclosure was made that collateral securing other indebtedness may secure such
indebtedness, is such disclosure as required by applicable law and (iii) any
other indebtedness which may not, under applicable law, be secured by any
collateral other than what is specifically given as collateral in connection
with such indebtedness). Notwithstanding the preceding sentence, if this
Security Agreement covers collateral which constitutes debtor's personal
residence, such collateral shall not secure any indebtedness other than the
Note contained in this document. The collateral given to secure this credit
transaction secures any extension of renewal hereof and secures all obligations
of Debtor under this document, including but not limited to any collection
expenses, costs of repossession, storage, holding and transportation costs and
the cost of any bonds required to be posted, and any other costs incurred by
Secured Party in protecting its interest in the collateral securing the Note.
Debtor also grants to Secured Party a security interest in accessions to the
collateral and any after acquired similar property. The term "Secured Party"
means "Bank" or its assignee for purposes of this Security Agreement, the term
"Debtor" includes each party signing as "Borrower". If this loan is subject to
Regulation AA promulgated by the Federal Reserve Board then, notwithstanding
any other provision herein, Bank hereby waives any security interest, other
than a purchase money security interest in household goods. For purposes of the
preceding sentence, the term "household goods" means that term as it is defined
in Section 227-11 of Regulation AA promulgated by the Federal Reserve Board.
Debtor hereby warrants and covenants that:
(a) Except for the security interest granted hereby Debtor is the
owner of the collateral free from any adverse lien, security interest or
encumbrance, and Debtor will defend the collateral against all claims and
demands of all persons at any time claiming the same or any interest therein;
(b) No Financing Statement covering any collateral or any proceeds
thereof is on file in any public office, and, at the request of Bank, Debtor
will join with Bank in executing one or more Financing Statements pursuant to
the Uniform Commercial Code in form satisfactory to Bank and Debtor will pay
the cost of filing the same or filing or recording this agreement in all public
offices wherever filing or recording is deemed by Bank to be necessary of
desirable.
(c) Debtor will not sell or offer to sell or otherwise transfer
the collateral or any interest therein without the written consent of the Bank.
(d) Debtor will have and maintain insurance at all times with
respect to all collateral against risks of fire (including so-called extended
coverage), theft and such other risks as Bank may require, and in the case of
motor vehicles, collision, containing such terms, in such form, for such
periods and written by such companies as may be satisfactory to Bank, such
insurance to be payable to Bank and Debtor as their interests may appear, all
policies of insurance shall provide for ten days written information
cancellation notice to Bank. Debtor shall furnish bank with certificates or
other evidence satisfactory to Bank of compliance with the foregoing insurance
provisions; and Bank may act as attorney for the Debtor in attaining,
adjusting, settling and canceling such insurance and endorsing any drafts.
3
<PAGE> 4
(e) Debtor hereby assigns to Bank the Proceeds of all such
insurance to the extent of any balance due hereunder, and directs any insurer
to make payments directly to Bank, holder hereof. Debtor, further, hereby
grants in Bank his Power of Attorney, which shall be irrevocable for so long as
any amount is unpaid thereunder. Said Power of Attorney gives Bank the sole
right to file proof of loss and/or any other forms required to collect from any
insurer any amount due from loss, damage or destruction of the vehicle, to
agree to and bind the Debtor as to the amount of said recover; to designate
Payee(s) of such recovery; to grant release to payor-insurers for their
liability; to grant subrogation rights to any such payor-insurer to endorse any
settlement check or draft. Debtor further agrees not to exercise any of the
foregoing Powers granted to Bank, without the latter's written consent. In
event of any Default hereunder, Bank is authorized to cancel any insurance and
credit any premium refund against said unpaid balance.
(f) Debtor will keep the collateral free from any adverse, lien,
security interest or encumbrance and in good order and repair and will not
waste or destroy the collateral or any part hereof. Debtor will not use the
collateral in violation of any statute or ordinance, and Bank may examine and
inspect the collateral and any time wherever located.
(g) Debtor will pay promptly when due all taxes and assessments
upon the collateral or for its use or operation or upon this agreement or upon
any note or notes evidencing the obligations.
(h) The Collateral will be principally garaged at Debtor's
residence if a motor vehicle as herein before stated and shall not be removed
from the State of Debtor's residence as herein before stated without the
express content of Seller, that collateral, if not a motor vehicle will be kept
or maintained at the address indicated on the front hereof.
At this option, Secured Party may discharge taxes, liens or security
interest or other encumbrances of any time levied or placed on the collateral,
may pay for insurance on the collateral and may pay for the maintenance and
preservation of the collateral. Any sums expended by Secured Party for such
purposes shall be charged as principal money and added to the indebtedness
secured by the Security Agreement and shall bear interest at the same rate as
the principal indebtedness secured hereby, payable upon demand or otherwise as
Secured Party my determine, including spreading same over the remaining
installments unpaid. Debtor promises to pay to the order of Secured Party the
indebtedness, so increased, according to new payment schedule established by
Secured Party. Secured Party shall not be held to have waived any rights by the
payment of such expenses, and particularly its right to declare the Note and
Security Agreement in default by season of Debtor's failure to pay such
expenses.
Debtor is in default under this Security Agreement upon default in the
payment or performance of any obligation, covenant or liability contained, or
referred to, herein, or any note evidencing the same as upon loss, theft,
substantial damage, destruction, sale or encumbrance to, or of, any of its
collateral, or the making of any levy, seizure or attachment thereof or
thereon.
Upon any of the foregoing events of default, and at any time
thereafter, Secured Party, at its option, may declare all of the obligations
secured hereby immediately to be due and payable and shall have all of the
rights and remedies of a secured party under the Uniform Commercial Code, as
enacted in North Carolina, including the right to take immediate possession of
the collateral without notice or resort to legal process and for such purpose
to enter upon any premises on which the collateral may be located and remove
the same therefrom.
ADDITIONAL PROVISIONS OF NOTE
Bank shall apply payments to the indebtedness evidenced by this note
when the Bank receives collected funds or U.S. Legal tender, U.S. legal tender
shall be deemed received on the business day when received and collateral funds
shall be deemed received on Bank's business day when cleared or otherwise
irrevocably available to Bank. Bank's business day shall mean the business day
for Bank's transactions between the applicable cut-off times on consecutive
banking days. Any item delivered to Bank as payment hereunder which is returned
or charged back to Bank shall be considered as not having been received by
Bank.
All payments will be applied first to late charges due, then to credit
life insurance or credit life and accident & health insurance premium charges,
if any, then to interest, both accrued to date payment made or date payment
due, at Bank's discretion, and thereafter to the unpaid principal balance. If
an installment payment is not paid when due, then in accordance with the
foregoing order, subsequent payments received shall first be applied to the
past due balance (in the order in which the installments were due) and if all
past due installments have not been paid, Bank may impose a separate late
payment charge for each installment that becomes due until the default is cured
in accordance with North Carolina General Statute 24-10.1, as amended from time
to time. Each consecutive payment is due on the same day of the calendar period
specified unless otherwise indicated. Notwithstanding any other provision in
this document, the Bank shall not charge a rate of interest higher than that
permitted by law. Any credit life insurance, or credit life and accident &
health insurance charges are due at the same time interest is due. In the event
payments are not made according to the terms shown on the reverse hereof,
interest and credit life or credit life and accident & health insurance premium
charges, if any, will continue to accrue on the unpaid balance and this shall
constitute a default and this note shall become due and payable in full,
without demand or notice at the option of the holder. Failure to exercise such
option shall not constitute a waiver or the right to exercise such option if
the Debtor is in default hereunder. Acceptance by the holder of this note of a
payment of less than the entire unpaid balance after default and acceleration
of the debt shall not waive the acceleration and holder shall be entitled to
proceed with its rights and remedies as holder (and as secured party, if
applicable). If this is a variable rate transaction as indicated on the reverse
side, (1) the contract interest rate for this transaction will change (increase
or decrease, as applicable) from time to time as and when the Index selected
changes; and (2) any change in the contract rate of interest will equal the
change in the Index, but will not exceed the maximum rate permitted by
applicable law. If the interest rate is subject to change monthly, any change
in the interest rate will take effect on the first day of each calendar month
following the calendar month in which the index changes, and the new interest
rate will be based on the index in effect on the last day of the previous
calendar month.
4
<PAGE> 5
This note is made upon the express condition that if default be made
in the payment of any note of any party to this note, whether as maker,
guarantor, surety, or endorser, and whether such note be now or hereafter made,
or if default be made in any obligation securing any such note, then the whole
of the principal sum of this note remaining unpaid, together with interest
thereon, shall, at the option of the Fidelity Bank or the legal holder of this
note, become due and payable immediately, without notice or demand, and The
Fidelity Bank, or the legal holder of this note shall be entitled to exercise
immediately all of its rights and remedies. Any default under this Note shall
constitute a default under all obligations, agreements, and instruments of
Debtor to Bank, whether as maker, guarantor, endorser or otherwise and whether
now existing or hereafter incurred or executed. If this note is signed by more
than one maker, this note shall be the joint and several obligation of each
maker and each provision of this note shall apply to each and all makers and to
the property and liability of each and all of them.
Power is given to The Fidelity Bank to call for additional
satisfactory collateral if at any time it shall deem this note insufficiently
secured, and failure to provide such additional satisfactory collateral
immediately on demand shall render this note forthright due and payable
irrespective of the maturity herein expressed. In the event Bank in good faith
believes that the prospect of timely payment or other performance is impaired
or otherwise deems itself or its collateral insecure, then it may declare this
note immediately due and payable in full.
All parties to this note, whether maker, guarantor, surety or
endorser, hereby waive presentment for payment, demand, protest, notice of
protest, nonpayment, and dishonor, and agree that any extension of time for the
payment of this note shall not affect the liability of such parties, and hereby
waive all notice of such extension, and further agree that upon nonpayment of
principal, interest or insurance premiums, if applicable, when due or upon
default in the performance of any of the agreements or conditions of this note
or any security instruments or guaranty agreements securing this note, then the
whole of said principal sum remaining unpaid, together with interest and
insurance premiums due thereon shall become due and payable immediately,
without notice or demand, at the option of the payee or legal holder hereof. It
is further agreed that in the event the holder or this note initiates any legal
proceedings or incurs any legal expense or attorney's fees in the exercising of
any of its rights or remedies upon default, such expense and reasonable
attorney fees pursuant to N.C.G.S. Section 6-21.2 may be added to the principal
balance due and the maker or makers shall be liable for the payment of same as
an additional obligation under this instrument.
In addition to the other events of default specified herein, maker(s)
shall be in default under this note upon the happening of any of the following
events, circumstances or conditions (a) any representation or statement made or
furnished to Bank by or on behalf of maker(s) in connection with the note
proving to have been false in any material respect when made or furnished; or
(b) death, dissolution, termination of existence, insolvency, business failure,
appointment of a receiver of any part of this property of assignment for the
benefit of creditors by, or the commencement of any proceedings under any state
or federal bankruptcy or insolvency laws by or against maker(s), or (c) failure
of a corporate maker to maintain its corporate existence in good standing; or
(d) the assertion or making of any seizure, or intervention by or under
authority of any government by which the management of maker(s) is displaced or
their authority in the conduct of their business or their business is curtained
or (e) upon the entry of any monetary judgment of the assessment and/or filing
of any tax liens against maker(s) or upon the issuance of any writ of
garnishment or attachment against any property of debts due or rights of maker
to specifically include the commencement of any action or proceeding to seize
monies of maker on deposit in any bank account with Bank.
This note is secured by the collateral described on the front of said
note, which collateral is transferred, pledged and deposited with Bank and it
is agreed that the agreements and conditions of any security instrument, deed
of trust, pledge arrangement of otherwise, where applicable, given to secure
this note are incorporated hereto by reference and made a part of this
instrument and a security interest in such collateral is granted to Bank,
together with any and all additions and substitutions thereto. In addition to
such rights and remedies as are provided a secured party under the North
Carolina General Statutes, if default be made in the payment of this note in
accordance with the terms hereof or if default be made in any other obligation
of any security instrument, power is granted to Bank or the legal holder of
this note to sell, assign, and deliver, at any time or times hereafter, the
whole or any part of said collateral given to secure this note, and any
additions thereto or substitutions therefor or hereafter acquired like property
of maker, at public or private sale of the option of Bank or legal holder of
this note, and after deducting costs of preparation for sale, advertising,
attorney's fees, sale, collection, storage and delivery and all other
authorized expenses, to apply the proceeds to the payment of this note and/or
other obligations set forth in the said note or the security instruments,
returning the surplus, if any, to the maker(s) or as provided by law and the
maker(s); guarantors, endorses, and sureties shall be and remain liable for any
deficiency. At such sale, Bank or the legal holder of this note may purchase
all or any part of said collateral free and discharged of any right or equity
of redemption.
This note and any guaranty, endorsement or other security given with
regard to said note shall be binding upon maker(s) and the heirs, executors,
administrators, successors and assigns of said maker and likewise to all
guarantors, sureties or endorsers and shall inure to the benefit of and be
enforceable by Bank, its successors, transferees and assigns. Further, the said
note, guaranties and endorsements shall be deemed to have been made under and
shall be governed by the law of the State of North Carolina in all respects,
including matters of construction, validity and performance.
No waiver by Bank of any default(s) by maker, guarantor, endorser, or
surety shall operate as a waiver of any other default or of the same default on
a future occasion.
This loan cannot be assumed. Any Truth in Lending Disclosure furnished
to maker regarding assumptions is designed merely to comply with the Trust in
Lending Act and no inference may be drawn therefrom to mean this loan is
assumable.
All parties to this Note agree that the interest rate provided for
herein shall apply, to the extent allowed by applicable law, to any
indebtedness due following the obtainment of a judgment relating to the
collection of this Note.
5
<PAGE> 6
Maker promises to pay the cost of all fees paid or to be paid public
officials for recording, perfecting, maintaining, cancelling and releasing a
security interest in any collateral securing this Note.
Acceptance by the holder of a payment or of less than the entire
unpaid balance after default and acceleration of the debt shall not waive the
acceleration and holder shall be entitled to proceed with its rights and
remedies as holder and Secured Party. Maker promises to pay to Bank all of
Bank's collection expenses, including but not limited to the costs of trading
and attempting location of maker, attempting collection of the Note in whole or
in part and, where applicable, reinstatement of the loan, the costs of
repossession of the collateral, including but not limited to the costs of
tracing, locating and recovering the collateral, storage, holding and
transportation costs related to the collateral and its protection and the cost
of any bonds required to be posted and all of the costs incurred by Bank in
protecting its interest in the collateral, including but not limited to court
cost and reasonable attorneys' fees. Such expenses and costs shall be due and
payable to Bank, immediately upon its payment of same and may be added to the
principal balance due and maker shall be liable for the payment of same as an
additional obligation under this Note which shall be secured by all collateral
securing this Note.
Bank has the right of set-off as provided by law against the accounts
and monies of maker held by Bank.
Bank shall have no duty whatsoever to monitor or verify maker's use of
the proceeds of this loan or to ensure or verify that any loan proceeds are
used for the purpose described in any credit application or other document and
each maker, guarantor, endorser and surety of this note hereby waives and
agrees not to assert against Bank any claim or defense whatsoever based on (i)
the actual use of loan proceeds, (ii) the failure of any loan proceeds to be
used for any purpose described in any credit application, loan agreement or any
other document, and/or (iii) Bank's knowledge that loan proceeds were not used
for the purpose described in any credit application, loan agreement or any
other document.
UNCONDITIONAL GUARANTY AND ENDORSEMENT
In order to induce the Fidelity Bank to make the loan and extend
credit to the maker(s) of the rate on the reverse side hereof, the undersigned
GUARANTOR(S), (hereinafter collectively deemed "GUARANTOR"), in consideration
of the premises and other good and valuable consideration, and in addition to
all warranties and obligations imposed by unqualified endorsement, do hereby
unconditionally endorse and guaranty to the holder of this said note, which
guaranty and endorsement is JOINT and SEVERAL if more than one guarantor, the
due and punctual payment of all liabilities and obligations of maker(s) under
said note and under the security instruments given pursuant thereto as and when
the same shall become due whether by acceleration, extension, or modification
or otherwise and waive all notice, presentment for payment, demand protest,
notice of protest, nonpayment and dishonor and any requirement that any action
be brought against the maker(s) or any other person(s) or to require that
resort be had to any security or to any balance(s) or any deposit or other
accounts(s) or debit(s) or credit(s) on the books of Bank or holder in favor of
maker or any other person(s) before enforcing this endorsement and guaranty.
Guarantor further agrees that all endorsers and guarantors shall be jointly and
severally bound and that the release of any one or more of said guarantors,
sureties or endorsers or the securing or release of any other guarantors,
sureties or endorsers or the taking or release of any other collateral as
security for this instrument or the extension, modification or amendment of any
term of said note shall not release or affect the liability of the said
guarantors in any manner whatsoever and said endorsers and guarantors waive
notice of acceptance of this guaranty and any such extension, modification or
amendment. Further, the said guarantor(s) agree that in the event the holder of
this Instrument shall institute or initiate any legal proceedings or incur any
legal expense or attorneys' fees in exercising any of the holder's rights or
remedies upon default, such expense and reasonable attorneys fees pursuant to
N.C.G.S. Section 6-21.2 may be added to the balance due and the undersigned
shall be liable for the payment thereof as an additional obligation under this
guaranty.
Additional Provisions of Unconditional Guaranty and Endorsement
1. If any process is issued or ordered to be served upon the Bank seeking
to seize maker's or guarantor's rights and/or interest in any bank
account maintained with Bank, the balance(s) in any such account(s)
shall immediately be deemed to have been and shall be SET OFF against
any and all amounts due by maker and any and all obligations and
liabilities of guarantor hereunder, as of the time of the issuance of
any such writ or process whether or not maker, guarantor and/or Bank
shall then have been served therewith.
2. All monies available to and/or received by Bank or holder hereof for
application forward payment of or reduction the amount due by maker(s)
may be applied by Bank to such individual debt in such manner and
apportioned in such a manner and at such times as Bank, at its sole
discretion, may deem suitable or desirable.
3. Guarantor specifically recognizes and agrees that Bank has a security
interest in any and all property of guarantors which Bank may hold,owe
or have in its possession whether by account or by reason of any
certificate of deposit, bond, note or otherwise and that all such
funds are subject to Bank's right to SET OFF.
4. Guarantor shall be in default under this guaranty agreement if any of
the events of default described above under Additional Provisions of
Security Agreement or Additional Provisions of Note occur with respect
to maker or guarantor.
5. Upon the occurrence of any of the forgoing events, circumstances or
conditions of default, and all of the obligations evidenced herein and
secured or guaranteed hereby shall immediately be due and payable
without notice.
6. To the end that this guaranty shall be carried out in full and without
limiting the generality of the foregoing, guarantors herewith
expressly waive any rights any one or more of said guarantors
otherwise might have had under provisions of NCGS Section 26-7. et
seq. and/or other North
6
<PAGE> 7
Carolina laws to require Bank to attempt to recover against maker
and/or to realize upon any securities or collateral security which
Bank holds or the obligations evidenced or secured hereby.
================================================================================
NOTICE TO COSIGNER/GUARANTOR
You are being asked to guarantee this debt. Think carefully before
you do. If the borrower doesn't pay the debt, you will have to. Be
sure you can afford to pay if you have to, and that you want to
accept this responsibility. You may have to pay up to the full
amount of the debt if the borrower does not pay. You may also have
to pay late fees and collection costs which increase this amount.
The bank can collect this debt from you without first trying to
collect from the borrower. The bank can use the same collection
methods against you that can be used against the borrower, such as
suing you, etc. If this debt is ever in default, the fact may become
a part of your credit record.
This notice is not the contract that makes you liable for the debt.
================================================================================
ALL OF THE TERMS AND CONDITIONS OF THE NOTE AND SECURITY AGREEMENT ARE HEREBY
INCORPORATED HEREIN BY REFERENCE
TESTIMONY WHEREOF, the corporate Guarantor has caused this instrument to be
executed in its corporate name by its _________ President attested by its
________ Secretary and its corporate seal to be hereto affixed by order
Directors first given, this the day and year first above written. McRae
Industries, Inc.
By: /s/ D. Gary McRae , Vice President
-------------------------------
/s/ James W. McRae , Secretary
- ----------------------------------
(CORPORATE SEAL)
NOTE ADDENDUM
In consideration for the lender granting loan to borrower, the borrower
acknowledges that these conditions are given as additional consideration, the
adequacy being acknowledged, and that failure to comply in full with these
conditions shall be deemed to be default on the promissory note.
1) Borrower and parent company will continue to use The Fidelity Bank as
their primary depositing institution. The accounts will be expected to be
maintained in the same manner which they have been in the past.
2) Borrower and guarantor agree that in the event American West Trading
Company is sold or ownership of the company changes, this loan immediately due
and payable in full, as the loan is non-assumable nor non-assignable.
3) Inventories and Accounts Receivable for American West will not fall
below a combined total of $4,000,000.00 In the event the company's Inventory
and Accounts Receivable do fall below the required levels, the note will need
to be reduced by a sufficient amount as to not adversely effect our collateral
position, or have written permission from the creditor authorizing the change.
Borrower will certify monthly as to validity of the inventory and accounts
receivable as per attached Certification Report.
McRae Industries, Inc. The Fidelity Bank
By: /s/ D. Garry McRae By: /s/ David E. Royal
-------------------------------- ----------------------------
(President) Sr (Vice President)
By: /s/ James W. McRae
--------------------------------
(Secretary)
7
<PAGE> 1
EXHIBIT 10.6
Maximum Principal Indebtedness
for Tennessee recording tax purposes
is $6,000,000.00
This Indenture made and entered into this 25th day of July, 1996, by
and between American West Trading Company, hereinafter referred to as
"Borrower", in favor of Haywood A. Lane, Jr., Trustee of Wake County, North
Carolina, hereinafter referred to as "Trustee" for the use and benefit of The
Fidelity Bank, hereinafter referred to as "Lenders";
W I T N E S S E T H
In consideration of the funds loaned to the Borrower by the Lenders
and other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, and in order to secure the indebtedness described below
and other obligations of the Borrower hereinafter set forth. Borrower does
hereby grant, bargain, sell, convey, assign, transfer, pledge and set over unto
the Trustee, and the successors and assigns of the Trustee all of the following
described land and interest in land, estates, easements, rights, improvements,
fixtures, appliances and appurtenances (hereinafter referred to collectively as
the "Premises"):
(a) All that certain tract, piece or parcel of land more
particularly described on EXHIBIT A attached hereto and by this reference made
a part hereof (hereinafter referred to as the "Land").
(b) All buildings, structures and improvements of every
nature whatsoever now or hereafter situated on the Land, and all gas and
electric fixtures, radiators, heaters, boilers, elevators and motors, plumbing
and heating fixtures, carpeting and other floor coverings, water heaters, air
conditioning apparatus, and appurtenances, window screens, awnings and storm
sashes, which are or shall be attached to said buildings, structures or
improvements, all of which are hereby declared and shall be deemed to be
fixtures and accessions to the Land and a part of the Premises as between the
parties hereto and all persons claiming by, through or under them, and which
shall be deemed to be a portion of the security for the indebtedness herein
described and to be secured by this Deed of Trust (hereinafter referred to as
the "Deed of Trust").
(c) All easements, rights-of-way, strips and gores of
land, vaults, streets, ways, alleys, passages, sewer rights, water rights and
powers, minerals, shrubs, trees, timber and other emblements now or hereafter
located on the Land or under or above the same or any part or parcel thereof,
and all estates, rights, titles, interests, privileges, liberties, tenements,
hereditaments, and appurtenances.
<PAGE> 2
TO HAVE AND TO HOLD the Premises and all parts, rights, members and
appurtenances thereof, to the use and benefit of Trustee and the
successors-in-title and assigns of Trustee, forever; and Borrower covenants
that Borrower is lawfully seized and possessed of the Premises as set out in
the deraignment as to each tract and has a good right to convey the same, that
the same are unencumbered except for those matters expressly set forth in
EXHIBIT B attached hereto and by this reference made a part hereto, and
Borrower does warrant and will forever defend the title thereto against the
claims of all persons whomsoever, except as to those matters set forth in said
EXHIBIT B attached hereto.
But this conveyance is made IN TRUST for the following uses and
trusts, and for no other purposes, to-wit:
(a) To secure the payment of an indebtedness for borrowed money in
the principal amount of Six Million Dollars ($6,000,000.00) due from Borrower,
to Lenders, which Lenders have advanced, evidenced by a promissory note of even
date herewith in the principal sum of Six Million Dollars ($6,000,000.00),
together with interest thereon, and any extensions, modifications and/or
renewals thereof and any notes given in payment of any such principal and/or
interest (all of which are herein sometimes referred to as the "Note"),
(b) To secure the payment of all court costs, expenses and costs
of whatever kind incident to the collection of any indebtedness secured hereby
and the enforcement or protection of the lien of this conveyance, including
reasonable attorney's fees.
Should the indebtedness secured by this Deed of Trust (hereinafter
referred to collectively as the "Secured Indebtedness") be paid according to
the tenor and effect thereof when the same shall become due and payable, and
should Borrowers perform all covenants herein contained in a timely manner,
then this Deed of Trust shall be canceled and released.
BORROWER HEREBY FURTHER COVENANTS AND AGREES WITH TRUSTEE AND LENDERS
AS FOLLOWS:
ARTICLE I
1.01 Taxes, Liens and Other Charges.
(a) Borrower shall pay, on or before the due date thereof, all
levies, license fees, permit fees and all other charges of every character
whatsoever (including all penalties and interest thereon) now or hereafter
levied, assessed, confirmed or imposed on, or in respect of, or which may be a
lien upon the Premises, or any part thereof, or any estate, rights or interest
therein, or upon the rents, issues, income or profits thereof, and shall submit
to Lenders such evidence of the due and punctual payment of all such taxes,
assessments and other fees and charges as Lender may require.
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b. Borrower shall pay, on or before the due date thereof, all
taxes, assessments, charges, expenses, costs and fees which may now or
hereafter be levied upon, or assessed or charged against, or incurred in
connection with, the Note, the Secured Indebtedness, this Deed of Trust or any
other instrument now or hereafter evidencing, securing or otherwise relating to
the Secured Indebtedness.
c. Borrower shall pay, on or before the due date thereof, (i) all
premiums on policies of insurance covering, affecting or relating to the
Premises, as required pursuant to paragraph 1.03, below; (ii) all premiums on
collaterally assigned life insurance policies, if any; (iii) all premiums for
mortgage insurance, if this Deed of Trust and the Note are so insured; and (iv)
all ground rentals, other lease rentals and other sums, if any, owing by
Borrower and becoming due under any lease or rental contract affecting the
Premises. Borrower shall submit to Lenders such evidence of the due and
punctual payment of all such premiums, rentals and other sums as the Lender may
require.
(d) In the event of the passage of any state, federal, municipal
or other governmental law, order, rule or regulation, subsequent to the date
hereof, in any manner changing or modifying the laws now in force governing the
taxation of deeds of trust or security agreements, or debts secured thereby or
the manner of collecting such taxes so as to adversely affect the Lenders;
Borrower will pay any such taxes on or before the date thereof, If Borrower
fails to make such prompt payment or if, in the opinion of Lenders, any such
state, federal, municipal, or other governmental law, rule, order or regulation
prohibits Borrower from making such payment or would penalize Borrower if
Borrower makes such payment,, or if,, in the opinion of Lenders, the making of
such payment might result in the imposition of interest beyond the maximum
amount permitted by applicable law, then the entire balance of the Secured
Indebtedness and all interest accrued thereon shall, at the option of Lenders,
become immediately due and payable.
(e) Borrower shall not suffer any mechanic's, materialmen's,
laborer's, statutory or other lien to be created or remain outstanding against
the Premises.
1.02 Insurance.
(a) Upon the request of Lenders, Borrower shall procure for,
deliver to, and maintain for the benefit of Lenders during the term of this
Deed of Trust, original paid-up insurance policies of such insurance companies,
in such amounts, in form and substance, and with such expiration dates as are
acceptable to Lenders and containing non-contributory standard mortgagee
clauses, their equivalent, or a satisfactory mortgagee loss payable endorsement
in favor of Lenders, providing the following types of insurance covering the
Premises and the interest and liabilities incident to the ownership, possession
and operation thereof:
(i) Insurance against loss or damage by fire, lightning,
windstorm, hail, explosion, riot, riot attending a strike, civil commotion,
aircraft, vehicles, smoke, vandalism
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and malicious mischief and against such other hazards as, under good insurance
practices, from time to time are insured against for properties or similar
character and location, the amount of which insurance shall not be less than
the greater of (a) the Secured Indebtedness and (b) one hundred percent (100%)
of the full replacement cost of the Premises without deduction for
depreciation, and which policies of insurance shall contain satisfactory
replacement cost endorsements.
(b) Lenders are hereby authorized and empowered, at their option,
to adjust or compromise any loss under any insurance policies maintained
pursuant to this paragraph 1.03, and to collect and receive the proceeds from
any such policy or policies. Each insurance company is hereby authorized and
directed to make payment for all such losses directly to Lenders, instead of to
Borrower and Lenders jointly. In the event any insurance company fails to
disburse directly and solely to Lenders but disburses instead either solely to
Borrower or to Borrower and Lenders jointly, Borrower agrees immediately to
endorse and transfer such proceeds to Lenders. Upon the failure of Borrower to
endorse and transfer such proceeds as aforesaid, Lenders may execute such
endorsements or transfers for and in the name of Borrower, and Borrower hereby
irrevocably appoints Lenders as Borrower's agent and attorney-in-fact so to do,
After deducting from said insurance proceeds all of its expenses incurred in
the collection and administration of such sums,, including attorney's fees.
Lenders may apply the net proceeds or any part thereof, at their option, (i) to
the payment of the Secured Indebtedness, whether or not due and in whatever
order Lenders elect, (ii) to the repair and/or restoration of the Premises, or
(iii) for any other purposes or objects for which Lenders are entitled to
advance funds under this Deed of Trust, all without affecting the lien and
security interest created by this Deed of Trust and any balance of such moneys
then remaining shall be paid to Borrower or the person or entity lawfully
entitled thereto. Lenders shall not be held responsible for any failure to
collect any insurance proceeds due under the terms of any policy regardless of
the cause of such failure.
(c) At least fifteen (15) days prior to the expiration date of
each policy maintained pursuant to paragraph 1.03, a renewal or replacement
thereof satisfactory to Lenders shall be delivered to Lenders. Borrower shall
deliver to Lenders receipts evidencing the payment for all such insurance
policies and renewals or replacements. The delivery of any insurance policies
hereunder shall constitute an assignment of all unearned premiums as further
security hereunder. In the event of the foreclosure of this Deed of Trust of
any other transfer of title to the Premises in extinguishment or partial
extinguishment of the Secured Indebtedness, all right, title and interest of
Borrower in and to all insurance policies then in force shall pass to the
purchaser or Lenders, and Lenders are hereby irrevocably appointed by Borrower
to assign any such policy to said purchaser or to Lenders without accounting to
Borrower for any unearned premiums thereon.
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1.03 Care of Premises.
(a) Borrower will keep the buildings, parking areas, roads and
walkways, recreational facilities, landscaping, and all other improvements of
any kind now or hereafter erected on the Land or any part thereof in good
condition and repair, will not commit or suffer any waste and will not do or
suffer to be done anything which would or could increase the risk of fire or
other hazard to the Premises or any other part thereof or which would or could
result in the cancellation of any insurance policy carried with respect to the
Premises.
(b) Borrower will not remove, demolish or alter the structural
character of any improvement located on the Land without the written consent of
Lenders.
(c) If the Premises or any part thereof is damaged by fire or any
other cause, Borrower will give immediate written notice thereof to Lenders.
(d) Lenders or their representative are hereby authorized to enter
upon and inspect the Premises at any time during normal business hours,
(e) Borrower will promptly comply with all present and future
laws, ordinances, rules and regulations of any governmental authority affecting
the Premises or any part thereof.
(f) If all or any part of the Premises shall be damaged by fire or
other casualty,, Borrower will promptly restore the Premises to the equivalent
of its original condition; and if a part of the Premises shall be damaged
through condemnation, Borrower will promptly restore, repair or alter the
remaining portions of the Premises in a manner satisfactory to Lenders,
Notwithstanding the foregoing, Borrower shall not be obligated to restore
unless in each instance, Lenders agree to make available to Borrower (pursuant
to a procedure satisfactory to Lenders) any net insurance or condemnation
proceeds actually received by Lenders hereunder in connection with such
casualty loss or condemnation, to the extent such proceeds are required to
defray the expense of such restoration; provided, however, that the
insufficiency of any such insurance or condemnation proceeds to defray the
entire expense of restoration shall in no way relieve Borrower of its
obligation to restore. In the event all or any portion of the Premises shall be
damaged or destroyed by fire or other casualty or by condemnation, Borrower
shall promptly deposit with Lenders a sum equal to the amount by which the
estimated cost of the restoration of the Premises (as determined by Lenders in
their good faith judgment) exceeds the actual net insurance or condemnation
proceeds with respect to such damage or destruction.
1.04 Expenses. Borrower will pay or reimburse Lenders, upon demand
therefore, for all attorney's fees, costs and expenses incurred by Lenders in
any suit, action, legal proceeding or dispute of any kind in which Lenders are
made a party or appears as plaintiff or defendant, affecting the Secured
Indebtedness, this Deed of Trust or the interest created herein, or the
Premises, including, but not limited to, the exercise of the power of sale
contained in this
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Deed of Trust, any condemnation action involving the Premises or any action to
protect the security hereof, and any such amounts paid by Lenders shall be
added to the Secured Indebtedness and shall be secured by this Deed of Trust.
1.05 Subrogation. To the full extent of the Secured Indebtedness, Lenders
are hereby subrogated to the liens, claims and demands, and to the rights of
the owners and holders of each and every lien, claim, demand and other
encumbrances on the Premises which are paid or satisfied, in whole or in part,
out of the proceeds of the Secured Indebtedness, and the respective liens,
claims, demands and other encumbrances shall be, and each of them is hereby
preserved and shall pass to and be held by Lenders as additional collateral and
further security for the Secured Indebtedness, to the same extent they would
have been preserved and would have been passed to and held by Lenders had they
been duly and legally assigned, transferred, set over and delivered unto
Lenders by assignment, notwithstanding the fact that the same may be satisfied
and canceled of record.
1.06 Limit of Validity. If from any circumstances whatsoever, fulfillment
of any provision of this Deed of Trust or of the Note, at the time performance
of such provision shall be due, shall involve transcending the limit of
validity presently prescribed by any applicable usury statute or any other
applicable law, with regard to obligations of like character and amount, then,
ipso facto, the obligation to be fulfilled shall be reduced to the limit of
such validity, so that in no event shall any exaction be possible under this
Deed of Trust or under the Note that is in excess of the current limit of such
validity, but such obligation shall be fulfilled to the limit of such validity.
The provision of paragraph 1.07 shall control every other provision of this
Deed of Trust and of the Note.
1.07 Legal Actions. In the event that Lenders are made a party, either
voluntarily or involuntarily, in any action or proceeding affecting the
Premises, the Note, the Secured Indebtedness, or the validity or priority of
this Deed of Trust, then, Borrower shall immediately, upon demand, reimburse
Lenders for all costs, expenses and liabilities incurred by Lenders by reason
of any such action or proceeding, including reasonable attorneys fee, and any
such amounts paid by Lenders shall be added to the Secured Indebtedness and
shall be secured by this Deed of Trust.
ARTICLE II
2.01 Events of Default. The terms "default," "Event of Default" or "Events
of Default," wherever used in this Deed of Trust, shall mean any one or more of
the following events:
(a) Failure by Borrower to pay as and when due and payable any
portion of the Secured Indebtedness; or
(b) Failure by Borrower duly to observe or perform any other term,
covenant, condition or agreement of this Deed of Trust; or
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<PAGE> 7
(c) The occurrence of a default or event of default under any
agreement now or hereafter evidencing, securing or otherwise relating to the
Note or the Secured Indebtedness, including, without limiting the foregoing,
any Loan Agreement of even date herewith between Borrower and Lenders; or
(d) Any warranty of Borrower contained in this Deed of Trust or in
any other instrument,, document, transfer, conveyance, assignment or loan
agreement given by Borrower with respect to the Secured Indebtedness, proving
to be untrue or misleading in any material respect; or
(e) Any event occurs under any instrument, deed or agreement given
or made by Borrower to or with any third party, which would authorize the
acceleration of an indebtedness to such third party; or
(f) The Premises are subjected to actual or threatened waste, or
any part thereof is removed, demolished or altered without the prior written
consent of Lenders; or
(g) Any claim of priority to this Deed of Trust, by title, lien or
otherwise is asserted in any legal equitable proceeding.
2.02 Acceleration of Maturity. If an Event of Default shall have occurred
and be continuing, then the entire Secured Indebtedness shall at the option of
Lenders, immediately become due and payable upon written demand of the Lenders,
time being of the essence of this Deed of Trust, and no omission on the part of
Lenders to exercise such option when entitled to do so shall be construed as a
waiver of such right.
2.03 Right to Enter and Take Possession.
(a) If an Event of Default shall have occurred and be continuing,
Borrower, upon demand of Lenders, shall forthwith surrender to Lenders the
actual possession of the Premises and if, and to the extent permitted by law,
Lenders itself, or by such officers or agents as it may appoint, may enter and
take possession of all the Premises without the appointment of a receiver or an
application therefore, and may exclude Borrower and their agents and employees
wholly therefrom, and have joint access with Borrower to the books, papers and
accounts of Borrower.
(b) If Borrower shall for any reason fail to surrender or deliver
the Premises or any part thereof after such demand by Lenders, Lenders may
obtain a judgment or decree conferring upon Lenders the right of immediate
possession or requiring Borrower to deliver immediate possession of the
Premises to Lenders, and Borrower hereby specifically consents to the entry of
such judgment or decree. Borrower will pay to Lenders, upon demand, all
expenses of obtaining such judgment or decree, including reasonable
compensation shall, until paid, become part of the Secured Indebtedness and
shall be secured by this Deed of Trust;
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(c) Upon every such entering upon or taking of possession, Lenders
may hold, store, use, operate, manage and control the Premises and conduct the
business thereof, and, from time to time (i) make all necessary and proper
maintenance, repairs, renewals, replacements, additions, betterments and
improvements thereto and thereon and purchase or otherwise acquire additional
fixtures, personalty and other property; (ii) insure or keep the Premises
insured; (iii) manage and operate the Premises and exercise all of the rights
and powers of Borrower to the same extent as Borrower could in its own name or
otherwise act with respect to the same; and (iv) enter into any and all
agreements with the respect to the exercise by Lenders of any of the powers
herein granted to Lenders, as Lenders from time to time may determine to be in
its best interest, Lenders may collect and receive all the rents, issues,
profits and revenues from the Premises, including those past due as well as
those accruing thereafter, and, after deducting (aa) all expenses of taking,
holding, managing and operating the Premises (including compensation for the
services of all persons employed for such purposes); (bb) the cost of all such
maintenance, repairs, renewals, replacements, additions, betterments,
improvements, purchases and acquisitions; (cc) the cost of such insurance; (dd)
such taxes, assessments and other similar charges as Lenders may at its option
pay; (ee) other proper charges upon the Premises or any part thereof; and (ff)
the reasonable compensation, expenses and disbursements of the attorneys and
agents of Lenders, Lenders shall apply the remainder of the moneys and proceeds
so received by Lenders; first,, to the payment of accrued interest; second, to
other sums required to be paid hereunder; and third, to the payment of overdue
installments of principal. Anything in this paragraph 2.03 to the contrary
notwithstanding Lenders shall not be obligated to discharge or perform the
duties of a landlord to any tenant or incur any liability as a result of any
exercise by Lenders of their rights under this Deed of Trust, and Lenders shall
be liable to accounting only for the rents, incomes, issues and profits
actually received by Lenders;
(d) Whenever all such interest, deposits and principal
installments and other sums due under any of the terms, covenants, conditions
and agreements of this Deed of Trust, shall have been paid and all Events of
Default shall have been cured, Lenders shall surrender possession of the
Premises to Borrower, its successors or assigns. The same right of taking
possession, however, shall exist if any subsequent Event of Default shall occur
and be continuing.
2.04 Performance by Lenders. If Borrower shall default in the payment,
performance or observance of any term, covenant or condition of this Deed of
Trust, Lenders may, at their option, pay, perform or observe the same, and all
payments made or costs or expenses incurred by Lenders in connection therewith,
shall be secured hereby and shall be, without demand, immediately repaid by
Borrower to Lenders with interest thereon at the default rate provided in the
Note. Lenders shall be the sole judge of the necessity for any such actions and
of the amounts to be paid. Lenders are hereby empowered to enter and to
authorize others to enter upon the Premises or any part thereof for the purpose
of performing or observing any such defaulted term, covenant or condition
without thereby becoming liable to Borrower or any person in possession holding
under Borrower.
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2.05 Enforcement.
(a) If an Event of Default shall have occurred and be continuing,
Trustee, or his agent or successor at the request of Lenders, shall sell the
Premises or any part of the Premises at one or more public sale or sales before
the door of the courthouse of the county in which the Land or any part of the
Land is situated, to the highest bidder for cash, and in bar of the right and
equity of redemption, including statutory right of redemption, homestead,
dower, and all other rights and exemptions of every kind, all of which are
hereby waived, in order to pay the Secured Indebtedness, and all proceedings in
connection therewith, including reasonable attorney's fees, after advertising
the time, place and terms of sale at lease three (3) different times in some
newspaper published in the county in which the Land is located, the first of
which publications shall be at least twenty (20) days previous to said sale. At
any such public sale, Trustee may execute and deliver to the purchaser a
conveyance of the Premises or any part of the Premises in fee simple. In the
event of any sale under this Deed of Trust by virtue of the exercise of the
powers herein granted, or pursuant to any order in any judicial proceedings or
otherwise, the Premises may be sold as an entirety or in separate parcels and
in such manner or order as Lenders in its sole discretion may elect, and one or
more exercises of the powers herein granted shall not extinguish or exhaust
such powers, until the entire Premises are sold or the Secured Indebtedness is
paid in full. If the Secured Indebtedness is now or hereafter further secured
by any chattel mortgages, pledges, contracts of guaranty, assignments of lease
or other security instruments, Lenders may at their option exhaust the remedies
granted under any of said security instruments either concurrently or
independently, and in such order as Lenders may determine.
(b) If an Event of Default shall have occurred and be continuing,
Lenders may, in addition to and not in abrogation of the rights covered under
subparagraph (a) of this paragraph 2.05, either with or without entry or taking
possession as herein provided or otherwise, proceed by a suit or suits in law
or in equity or by any other appropriate proceeding or remedy (i) to enforce
payment of the Note or the performance of any term, covenant, condition or
agreement of this Deed of Trust or any other right, and (ii) to pursue any
other remedy available to it, all as Lenders in their sole discretion shall
elect.
2.06 Purchase by Lenders. Upon any foreclosure sale or sale of all or any
portion of the Premises under the power herein granted, Lenders may bid for and
purchase the Premises and shall be entitled to apply all or any part of the
Secured Indebtedness as a credit to the purchase price.
2.07 Application of Proceeds of Sale. In the event of a foreclosure or a
sale of all or any portion of the Premises, the proceeds of said sale shall be
applied, first, to the expenses of such sale and of all proceedings in
connection therewith, including attorney's fees, then to insurance premiums,
liens, assessments, taxes and charges including utility charges advanced by
Lenders, then to payment of the outstanding principal balance of the Secured
Indebted-
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ness, then to the accrued interest on all of the foregoing, and finally the
remainder, if any, shall be paid to Borrower, or to the person or entity
lawfully entitled thereto,
2.08 Borrower as Tenant Holding Over. In the event of any such foreclosure
sale or sale under the power herein granted, Borrower (if Borrower shall remain
in possession) shall be deemed a tenant holding over and shall forthwith
deliver possession to the purchasers at such sale or be summarily dispossessed
according to provisions of law applicable to tenants holding over.
2.09 Waiver of Appraisement, Valuation, Etc. Borrower agrees, to the full
extent permitted by law, that in case of a default on the part of Borrower
hereunder, neither Borrower nor anyone claiming through or under Borrower will
set up, claim or seek to take advantage of any appraisement, valuation, stay,
extension, homestead, exemption or redemption laws now or hereafter in force,
in order to prevent or hinder the enforcement or foreclosure of this Deed of
Trust, or the absolute sale of the Premises, or the delivery of possession
thereof immediately after such sale to the purchaser at such sale, and
Borrower, for itself and all who may at any time claim through or under it,
hereby waives to the full extent that it may lawfully so do, the benefit of all
such laws, and any and all right to have the assets subject to the security
interest of this Deed of Trust marshaled upon any foreclosure or sale under the
power herein granted.
2.10 Waiver of Right of Redemption and Homestead. Borrower hereby waives
and renounces all rights of redemption, including statutory right of
redemption, homestead and exemption rights provided for by the Constitution and
the laws of the United States and of any State, in and to the Premises as
against the enforcement of Lenders' rights hereunder or against the collection
of the Secured Indebtedness, or any part thereof.
2.11 Leases. Lenders, at their option, are authorized to foreclose this
Deed of Trust subject to the rights of any tenants of Premises, and the failure
to make any such tenants parties to any such foreclosure proceedings and to
foreclose their rights will not be, nor be asserted to be by Borrower, as a
defense to any proceeding instituted by Lenders to collect the sums secured
hereby.
2.12 Discontinuance of Proceedings. In case Lenders shall have proceeded to
enforce any right, power or remedy under this Deed of Trust by foreclosure,
entry or otherwise, and such proceedings shall have been discontinued or
abandoned for any reason, or shall have been determined adversely to Lenders,
then in every case, Borrower, Trustee, and Lenders shall be restored to their
former positions and rights hereunder, and all rights, powers and remedies of
Lenders shall continue as if no such proceedings had occurred.
2.13 Remedies Cumulative. No right, power or remedy conferred upon or
reserved to Lenders by this Deed of Trust is intended to be exclusive of any
other right, power or remedy, but each and every such right, power and remedy
shall be cumulative and concur-
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rent and shall be in addition to any other right, power and remedy given
hereunder or now or hereafter existing at law, in equity or by statute.
2.14 Waiver.
(a) No delay or omission by Borrower or by the holder of the Note
to exercise any right, power or remedy accruing upon any default shall exhaust
or impair any such right, power or remedy or shall be construed to be a waiver
of any such default,, or acquiescence therein, and every right, power and
remedy given by this Deed of Trust to Lenders may be exercised from time to
time and as often as may be deemed expedient by Lenders. No consent or waiver,
expressed or implied, by Lenders to or of any breach or default by Borrower in
the performance of the obligations of Borrower hereunder shall be deemed or
construed to be a consent or waiver to or of any other breach or default in the
Performance of the same or any other obligations of Borrower hereunder. Failure
on the part of Lenders to complain of any act or failure to act, or failure to
declare an Event of Default, irrespective of how long such failure continues,
shall not constitute a waiver by Lenders of their rights hereunder or impair
any rights, powers or remedies of Lenders hereunder.
(b) No act or omission by Lenders shall release, discharge,
modify, change or otherwise affect the original liability under the Note, this
Deed of Trust or any other obligation of Borrower or any subsequent purchaser
of the Premises or any part thereof, or any maker, cosigner, endorser, surety
or guarantor, nor preclude Lenders from exercising any right, power or
privilege herein granted or intended to be granted in the event of any default
then made or of any subsequent default, nor alter the lien of this Deed of
Trust except as expressly provided in an instrument or instruments executed by
Lenders. Without limiting the generality of the foregoing, Lenders may (i)
grant forbearance or an extension of time for the payment of all or any portion
of the Secured Indebtedness; (ii) take other or additional security for the
payment of any of the Secured Indebtedness; (iii) waive or fail to exercise any
right granted herein or in the Note; (iv) release any part of the Premises from
the security interest or lien of this Deed of Trust or otherwise change any of
the terms, covenants, conditions or agreements of the Note of this Deed of
Trust; (v) consent to the filing of any map, plat or replat affecting the
Premises; (vi) consent to the granting of any easement or other right affecting
the Premises; (vii) make or consent to any agreement subordinating the security
title or lien thereof, or (viii) take or omit to take any action whatsoever
with respect to the Note, this Deed of Trust, the Premises, or any document or
instrument evidencing, securing or in any way related to the Secured
Indebtedness, all without releasing, discharging, modifying, changing or
affecting any such liability, or precluding Borrower from exercising any such
right, power or privilege or affecting the lien of this Deed of Trust.
2.15 Suits to Protect the Premises. Lenders shall have power to institute
and maintain such suits and proceedings as it may deem expedient (a) to prevent
any impairment of the Premises by any acts which may be unlawful or constitute
a default under this Deed of Trust; (b) to preserve or protect their interest
in the Premises and in the rents, issues, profits and
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<PAGE> 12
revenues arising therefrom; and (c) to restrain the enforcement of or
compliance with any legislation or other governmental enactment, rule or order
that may be unconstitutional or otherwise invalid, if the enforcement of or
compliance with such enactment, rule or order would impair the security
hereunder or be prejudicial to the interest of Lenders.
2.16 Proofs of Claim. In the case of any receivership, insolvency,
bankruptcy, reorganization, arrangement, adjustment, composition or other
proceedings affecting Borrower, its creditors or its property, Lenders, to the
extent permitted by law, shall be entitled to file such proofs of claim and
other documents as may be necessary or advisable in order to have the claims of
Lenders allowed in such proceedings for the entire amount due and payable by
Borrower under this Deed of Trust at the date of the institution of such
proceedings and for any additional amount which may become due and payable by
Borrower hereunder after such date.
ARTICLE III
3.01 Successors and Assigns. This Deed of Trust shall inure to the benefit
of and be binding upon Trustee and Lenders and their respective heirs,
executors, legal representatives, successors, successors-in-title, and assigns.
Whenever a reference is made in this Deed of Trust to "Trustee" or "Lenders",
such reference shall be deemed to include a reference to the heirs, executors,
legal representatives, successors, successors-in-title, and assigns of Trustee
or Lenders, as the case may be.
3.02 Terminology. All personal pronouns used in this Deed of Trust, whether
used in the masculine, feminine or neuter gender, shall include all other
genders; the singular shall include the plural and vice versa. Titles and
Articles are for convenience only and neither limit nor amplify the provisions
of this Deed of Trust unless specific reference is made to Articles, paragraphs
or subparagraphs of another document or instrument,
3.03 Joint and Several Liability. If Borrower is more than one party, such
term as used herein shall refer always to such parties jointly and severally.
3.04 Severability. If any provisions of this Deed of Trust or the
application thereof to any person or circumstance shall be invalid or
unenforceable to any extent, the remainder of this Deed of Trust and the
application of such provisions to other persons or circumstances shall not be
affected thereby and shall be enforced to the greatest extent permitted by law.
3.05 Applicable Law. This Deed of Trust shall be interpreted, construed and
enforced according to the laws of the State of Tennessee.
3.06 Notices. Any and all notices, elections or demand and other
communication hereunder shall be in writing and shall be deemed to have been
duly given to a party hereto if mailed by certified mail, prepaid, to the
Lenders and to the Borrower at the address set
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<PAGE> 13
forth in the Loan Agreement executed in connection with this Deed of Trust or
at such other address as any party may have designated in writing to any other
party hereto.
3.07 Time of the Essence. Time is of the essence with respect to each and
every covenant, agreement and obligation of Borrower under this Deed of Trust,
the Note and any and all other instruments now or hereafter evidencing,
securing or otherwise relating to the Secured Indebtedness.
3.08 Non Waiver. Neither the Trustee nor the Lenders by the acceptance of
this instrument waive any other security that it may now or hereafter have for
the payment of said indebtedness.
ARTICLE IV
4.01 Hazardous Materials. All federal, state or local laws, ordinances,
rules, regulations or policies governing the use, storage, treatment,
transportation, manufacture, refinement, handling, production, or disposal of
hazardous materials ("environmental laws") have been complied with. For
purposes of this instrument, hazardous materials shall mean any flammable
substances, explosives, radioactive materials, hazardous wastes, toxic
substances, pollutants, pollution, or related materials specified as such in,
or regulated under, any of the environmental laws, including without limitation
any "hazardous waste" as defined by the Resource Conservation and Recovery Act
of 1976, as amended from time to time, and regulations promulgated under that
Act and any "hazardous substance" as defined by the Comprehensive Environmental
Response, Compensation and Liability Act of 1980 and the Superfund Amendment
and Reauthorization Act of 1986, as amended from time to time, and regulations
promulgated under these Acts. Further, neither Borrower nor, to the best of
Borrower's knowledge, any prior owner or current or prior tenant, subtenant or
other occupant of all or any portion of the pledged premises has used hazardous
materials on, from or affecting the pledged premises in violation of
environmental laws and, to the best of Borrower's knowledge, no hazardous
materials have been disposed on the pledged premises.
4.02 Asbestos. The pledged premises does not contain any asbestos or
asbestos containing material in a friable form, and there is not a current or
potential airborne contamination of the pledged premises by asbestos fiber
including, without limitation, any potential contamination that would be caused
by maintenance or tenant finish activities in the improvements. Borrower shall
install, use or store or permit to be installed, used, or stored on the pledged
premises. Asbestos or any substance, material or equipment containing asbestos
and deemed hazardous by the federal, state or local laws, rules, regulations or
orders respecting such material ("applicable asbestos laws"), and shall
otherwise comply with or cause to be complied with such laws, rules,
regulations or orders.
4.03 Environmental Indemnification. Borrower shall comply with all laws,
governmental standards and regulations applicable to Borrower or to the pledged
premises in respect of occupational health and safety, hazardous waste and
substances and environmental matters.
13
<PAGE> 14
Borrower shall promptly notify Lender of its receipt of any notice of a
violation of any such law, standard or regulation. Borrower shall defend and
indemnify Lender and hold Lender harmless from and against all loss, liability,
damage and expense, including reasonable attorneys' fees, suffered or incurred
by Lender, whether as holder of this deed of trust, as Lender in possession, or
as successor-in-interest to Borrower by foreclosure deed or deed in lieu of
foreclosure or otherwise, under or on account of the environmental laws or any
similar laws or regulations, including the assertion of any lien, (i) with
respect to the presence of any hazardous materials or asbestos or the threat of
these matters affecting the pledged premises, whether or not the same
originates or emanates from the pledged premises or any contiguous real estate,
including any loss of value of the pledged premises from the appraised value of
the pledged premises as of the date of this deed of trust as a result of the
foregoing so long as no such loss, liability, damage and expense is
attributable to any hazard resulting from actions on the part of Lender; and
(ii) with respect to any other matter affecting the pledged premises within the
jurisdiction of the Environmental Protection Agency, any other federal agency,
or any state or local environmental agency. Borrower's obligations under this
section shall arise upon the discovery of the presence of any hazardous
materials or asbestos, whether or not the Environmental Protection Agency, any
other federal agency or any state or local environmental agency has taken or
threatened any action in connection with the presence of any such hazardous
substance.
Upon the occurrence of any event resulting in the presence of any
hazardous materials or asbestos or the threat of these matters affecting the
pledged premises, whether or not the same originates or emanates from the
pledged premises or any contiguous real estate, and/or if Borrower shall fail
to comply with any of the requirements of the environmental laws, including
applicable asbestos laws, Lender may (if Lender decides in its sole discretion
that Borrower's response is unsatisfactory with regard to such hazardous
materials or environmental laws) at its election, but without the obligation to
do so; (i) give such notices and/or cause such work to be performed at the
pledged premises; and/or (ii) take any and all other actions as Lender shall
deem necessary or advisable in order to abate the hazard, remove the hazardous
substance, and cure Borrower's non-compliance. Borrower shall give Lender and
its agents, employees and contractors access to the pledged premises and
specifically grants to Lender a license to remove the asbestos or take such
other remedial action necessary.
Any amounts so paid by Lender pursuant to this section, together with
interest at the rate of the promissory note rate from the date of payment by
Lender, shall be immediately due and payable by Borrower to Lender and until
paid shall be added to and become a part of the indebtedness secured by this
deed of trust. In addition, Borrower acknowledges that in the event asbestos is
caused to be removed from the pledged premises by Borrower or by Lender in
order to comply with the applicable asbestos laws, that the Environmental
Protection Agency number assigned to the asbestos so removed shall not be in
the name of Lender, and Borrower shall assume all of Lender's potential and
actual liability for such removed asbestos.
14
<PAGE> 15
The provisions of section 4.03 shall survive the repayment of the
indebtedness and the performance of Borrower's obligations deed of trust.
IN WITNESS WHEREOF, Borrower has executed this Deed of Trust as of the
day and year first above written.
American West Trading Company
By: /s/ D. Gary McRae, Treasurer
---------------------------------------
D. Gary McRae, Treasurer
By: /s/ James W. McRae
----------------------------------------
James W. McRae, Secretary
STATE OF NORTH CAROLINA )
)
COUNTY OF MONTGOMERY )
Before me, a Notary Public in and for said State and County,
personally appeared D. Gary McRae, with whom I am personally acquainted, and
who, upon oath, acknowledged himself to be the Treasurer of American West
Trading Company, the within named bargainer, a corporation, and that as such D.
Gary McRae, being authorized to do so, he executed the foregoing instrument for
the purposes therein contained, by signing the name of the corporation by
himself as Treasurer.
Witness my hand at my office, this 23rd day of July, 1996.
/s/ Priscilla E. Moness
-------------------------------------
Notary Public
My Commission Expires: 2/17/2000
------------
15
<PAGE> 16
EXHIBIT "A"
This being two certain parcels of land lying and being situated in the Seventh
Civil District of Weakley County, Tennessee, located in the City of Dresden,
Tennessee, on the west side of, and adjoining Jones Street, on the north side
of and adjoining Hillcrest Street, and on the east side of, and adjoining Broad
Street, and being more particularly described as follows:
PARCEL NO. 1: Beginning at a point at the intersection of the center-line of
Jones Street with the center-line of Hillcrest Street, said point of beginning
being located South 61 degrees 56 minutes 35 seconds East 34.60 ft. from the
corner of the curb and retaining wall at the Southwest intersection of Jones
Street and Hillcrest Street, and runs thence with the center-line of Hillcrest
Street North 89 degrees 03 minutes 11 seconds West 514.21 ft. to a point at the
Southeast corner to the Lenard West property; thence runs with the East
boundary to the West property North 02 degrees 16 minutes 05 seconds West,
passing a 1/2 inch diameter Re-bar pin found at the back edge of the curb, in
all 147.19 ft. to a metal post marked for a corner, found; thence runs with
the chain-link fence, and the North boundary to the Lenard West property North
88 degrees 37 minutes 11 seconds West, passing a 1/2 inch diameter Re-bar pin
found at the back edge of the curb, at 124.14 ft., continuing on in all 140.90
ft. to a point in the center of Broad Street, the Northwest corner to the
Lenard West property; thence runs with the center-line of Broad Street North 03
degrees 07 minutes 05 seconds West 399.18 feet to a point in the center-line of
Broad Street at the South right-of-way of the N.C. & St. L. Railroad; thence
runs with the South right-of-way of the N.C. & St. L. Railroad South 65 degrees
18 minutes 49 seconds East 646.36 feet to a concrete monument with aluminum cap
(RLS#69) set; thence runs with the South right-of-way of the N.C. & St. L.
Railroad South 60 degrees 00 minutes 49 seconds East 100.00 ft. to a "PK" nail
and brass marker, stamped "RLS-69", set in the center of Jones Street; thence
runs South 02 degrees 04 minutes 55 seconds East 237.78 feet to the point of
beginning, containing an area by computation of 5.49 acres. Survey made on
March 8th thru 29th, 1993 by Thomas C. White & Associates, Land Surveyors,
Waverly, Tennessee, Thomas C. White, Surveyor, Tennessee Registration No. 69.
All bearings are given in reference to Magnetic meridian in relation to the
bearing of record for the East boundary to the Lenard West property, as
described in the deed of record to the herein described parcel. This
description is subject to any rights-of-ways that may exist in favor of the
City of Dresden, Tennessee, for Jones Street, Hillcrest Street, and Broad
Street, all as shown on Thomas C. White & Associates Drawing No. 832-2393.
PARCEL NO. 2: Beginning at a "PK" nail and brass marker stamped "RLS-69", set
in the West right-of-way of Jones Street, at the Northeast corner to the City
of Dresden water tank property, said beginning point being located North 39
degrees 07 minutes 32 seconds East 53.26 ft. from a U.S. Coast & Geodetic
Survey monument No. "F-23" found at the Southeast leg of the City water tank;
thence runs with the North boundary to the City water
1
<PAGE> 17
tank property South 88 degrees 00 minutes 50 seconds West 80.00 ft. to a "PK"
Nail and brass marker stamped "RLS-69" set in the pavement, the Northwest
corner to the City water tank property; thence runs with the West boundary to
the City water tank property South 01 degree 59 minutes 10 seconds East 80.00
ft. to a "PK" Nail and brass marker stamped "RLS-69" set in the pavement, the
Southwest corner to the City of Dresden water tank property in the North
right-of-way of the N.C. & St. L. Railroad; thence runs with the said Railroad
right-of-way North 66 degrees 21 minutes 19 seconds West 266.82 ft. to a 1/2
inch diameter Re-bar pin found at a steel post, said point being the Southeast
corner to the Gary D. Inman property; thence runs with Inman's East boundary
line North 00 degrees 54 minutes 54 seconds East 64.00 ft. to a 1/2 diameter
Re-bar pin with cap (RLS#69) set at the Southwest corner to the Carline F.
Turner property; thence runs with Turner's South boundary North 84 degrees 54
minutes 31 seconds East 117.50 feet to a 1/2 inch diameter Re-bar pin with cap
(RLS#69) set; thence runs with the South boundary to the Donald R. Moubray
property and the South boundary to the Brian A. Arnold property North 88
degrees 00 minutes 51 seconds East 200.00 ft. to a 1/2 inch diameter Re-bar pin
with cap (RLS#69) set in the West right-of-way of Jones Street; thence runs
with the said West right-of-way of Jones Street South 01 degree 59 minutes 10
seconds East 105.70 ft. to the point of beginning, containing an area by
computation of 0.89 acre. Survey made on March 8th thru 29th, 1993 by Thomas C.
White & Associates, Land Surveyors, Waverly, Tennessee, Thomas C. White,
Surveyor, Tennessee Registration No. 69. All bearings are given in reference to
Magnetic meridian, all as shown on Thomas D. White & Associates Drawing No.
832-2393.
This being the same property that was conveyed to Stetson Boot & Shoe Company,
Inc. by deeds of record in Deed Book 297, Page 555 and Deed Book 299, Page 100,
in the Register's Office for Weakley County, Tennessee.
PARCEL NO. 3: This being a certain tract or parcel of land lying and being
situated in the Second Civil District of Humphreys County, Tennessee, located
on the North side of, and adjoining North Railroad Street and on the West side
of, and adjoining Golf Course Road, in the City of Waverly, Tennessee, and
being more particularly described as follows:
Beginning at a point in the North right-of-way of North Railroad Street, at the
Southeast corner to the Katie Catherine Durham property, said point also being
located 80.00 ft. North of, and perpendicular to the center-line of the C.S.X.
Railroad track, and also being on the West side of what is known as Pine Hill
Drive, said Pine Hill Drive being the access to the Jones Cemetery and other
properties; thence runs with the West side of Pine Hill Drive, and the East
boundary to the Katie Catherine Durham property North 06 degrees 09 minutes 30
seconds East and along an old fence line, passing a concrete monument reference
point with cap (RLS#69), set at 20.00 ft. continuing on in all 322,13 ft. to a
concrete monument found at the Southwest corner to the Jones Cemetery; thence
runs with the South boundary to the Cemetery South 87 degrees 00 minutes 00
seconds East, crossing Pine Hill Drive, in all 146.50 ft. to an iron pipe found
in the base of a large Pine tree, said iron pipe being the Southeast corner to
the Jones Cemetery; thence runs with the East boundary to the Jones
2
<PAGE> 18
Cemetery North 11 degrees 00 minutes 00 seconds East 180.00 feet to a concrete
monument found in the South boundary to the Waverly Recreational Corporation
property, said point also being the Northeast corner to the Jones Cemetery;
thence runs with the South boundary to the Waverly Recreational Corporation
property South 82 degrees 22 minutes 28 seconds East, passing to the Southeast
corner to the Waverly Recreational Corporation property and a corner to
property owned by the City of Waverly at 446.00 ft.; thence continuing with the
City of Waverly boundary South 82 degrees 22 minutes 28 seconds East, passing a
concrete monument reference point found at 780.00 ft., in all 840.00 ft. to a
point in the pavement of Golf Course Road, the Northeast corner to the herein
described property; thence runs with the West right-of-way of Golf Course Road
and the City of Waverly property boundary South 00 degrees 00 minutes 32
seconds East, passing a concrete monument reference point found at 60.00 ft.,
in all 415.00 ft. to a concrete monument found in the North right-of-way of
North Railroad Street, along a line 80.00 ft. North of, and perpendicular to
the center line of the C.S.X. Railroad track, chord bearings and distances as
follows: South 87 degrees 25 minutes 05 seconds West 183.58 ft.; North 89
degrees 53 minutes 17 seconds West 296.52 feet; North 87 degrees 33 minutes 55
seconds West 166.20 ft.; North 85 degrees 10 minutes 39 seconds West 295.00
ft.; North 83 degrees 07 minutes 44 seconds West 108.69 ft. to the point of
beginning, containing an area by computation of 10.62 acres. This description
is subject to Pine Hill Drive which is the access to the Jones Cemetery,
crossing the subject property from North Railroad Street to the Cemetery, along
the Western part of the property. Survey made on March 4th thru 23rd, 1993 by
Thomas C. White & Associates, Land Surveyors, Waverly, Tennessee, Thomas C.
White, Surveyor, Tennessee Registration No. 69, all as shown on Thomas C. White
& Associates Drawing No. 865-2293.
This being the same property that was conveyed to Stetson Boot & Shoe Company,
Inc. by deeds of record in Deed Book 160, Page 437 and Deed Book 160, Page 440,
in the Register's Office for Humphreys County, Tennessee.
3
<PAGE> 19
EXHIBIT B
ENCUMBRANCES
1. Subject to a Deed of Trust of record in Trust Book 135, Page 1228,
Register's Office for Humphreys County, Tennessee, in the original sum of
$400,000.00 in favor of Department of Economic and Community Development of
the State of Tennessee and Humphreys County, Tennessee, as relates to
Parcel 3 of the subject real estate.
2. Rights of the public to the use of Pine Hill Drive and Golf Course Road and
the rights of way thereof to the extent included within the description of
the properties and further subject to all legal roadways.
3. Parcel 3 is subject to the rights of the public to the use of Pine Hill
Drive for ingress and egress into Jones Cemetary.
4. Subject to the 1996 State, County and City Taxes, which are neither due nor
payable at this time, however, which Taxes constitute a lien on the subject
property.
<PAGE> 1
EXHIBIT 10.7
SECURITY AGREEMENT PERTAINING TO INVENTORY,
ACCOUNTS RECEIVABLE AND EQUIPMENT
Agreement made the 25th day of July, 1996, between American West
Trading Company, a corporation organized under the laws of Tennessee, with its
principal place of business at 100 Hillcrest, Dresden, Weakley County,
Tennessee, here referred to as Debtor, and The Fidelity Bank, a bank organized
under the laws of North Carolina, with its principal place of business at Post
Office Box 68, Mt. Gilead, North Carolina 27306, here referred to as Secured
Party.
RECITALS
Debtor has applied for and Secured Party has agreed to grant a loan on
the terms and conditions and the Loan Agreement, the Promissory Note, the
Security Agreement, and other associated documents, herein referred to as the
"Loan Documents."
In consideration of the mutual covenants and promises contained in the
Loan Documents and herein, Debtor and Secured Party agree:
SECTION ONE
LOANS TO DEBTOR
Secured Party shall lend to Debtor funds in accordance with the Loan
Documents.
SECTION TWO
INVENTORY AND ACCOUNTS RECEIVABLE AS COLLATERAL
As collateral security for any and all loans made under and pursuant
to the Loan Documents, and for any other indebtedness of Debtor to Secured
Party, whether direct or indirect, absolute or contingent, whenever and however
arising or evidenced, Debtor grants, transfers, conveys and assigns to Secured
Party all of Debtor's right, title and interest that Debtor now has or may in
the future acquire, in and to the following described property, intending to
create and grant to Secured Party a security interest in all such property:
(a) All inventory now owned or in the future acquired by Debtor,
together with all additions, attachments and accessions to that inventory,
including, without limiting the generality of the above, raw materials
inventory, and finished good inventories, and;
(b) All accounts receivable now existing and in the future arising,
and all proceeds of those accounts.
<PAGE> 2
(c) All equipment currently owned by Debtor and in Debtor's possession.
All of the property described in Paragraphs (a), (b), and (c) of this
section is collectively referred to in this agreement as the collateral.
SECTION THREE
LOANS TO DEBTOR
Within the limits of the Loan Documents, Secured Party will make a
loan to Debtor in an aggregate principal amount equal to Six Million Dollars
($6,000.000.00).
SECTION FOUR
MAINTENANCE OF INVENTORY
All inventory of Debtor shall be warehoused on Debtor's premises or
such other warehouse as may be mutually agreed on by the parties from time to
time.
No inventory shall be removed from any such warehouse, except on the
sale of that inventory and for purposes of delivery to a customer or other
purchaser.
SECTION FIVE
MAINTENANCE OF EQUIPMENT
All equipment owned by Debtor shall remain at Debtor's place of
businesses in the state of Tennessee and shall not be removed therefrom unless
by the expressed written consent of the Secured Party.
SECTION SIX
INSURANCE ON INVENTORY AND EQUIPMENT
At all times while this agreement is in effect, Debtor shall keep all
inventory and equipment insured for an amount at least equal to Debtor's cost
for such inventory and the current market value, at the discretion of the
lender, of said equipment with insurance companies satisfactory to Secured
Party and covering loss by fire and other casualty.
All the inventory and equipment shall be insured against theft with a
minimum coverage of at least Eight Million Dollars ($8,000,000.00) for loss
occasioned by any single occurrence and with a deductible clause not to exceed
Ten Thousand Dollars ($10,000.00).
2
<PAGE> 3
Debtor shall cause these insurance policies to be issued with loss
payable to Secured Party as Secured Party's interest may appear.
SECTION SEVEN
ASSIGNMENT OF ACCOUNTS RECEIVABLE
All accounts receivable of Debtor assigned to Secured Party including
current accounts receivable and all future accounts receivable.
Debtor will note the fact of all such assignments of accounts
receivable on its records and books of accounts, all of which books and records
shall be maintained by Debtor within the state of Tennessee while this
agreement is in effect.
On receipt, Debtor will negotiate and deliver to Secured Party any and
all checks, drafts, cash remittances and other proceeds that may be received by
Debtor in partial or full payment of any of the accounts. All such proceeds,
while in the hands of Debtor, shall be held on express trust for the benefit of
Secured Party.
All proceeds of accounts receivable received by Debtor or Secured
Party shall be deposited in a collateral account maintained by Secured Party in
the name of Debtor and shall be held by Secured Party as collateral security to
any and all indebtedness of Debtor to Secured Party.
Debtor will have no right to draw against funds on deposit in the
collateral account; provided, however, that unless one or more of the events
set forth in Section Ten of this agreement has occurred, Secured Party will at
Debtor's request, transfer to Debtor's general bank account all or any portion
of the balance of the collateral account not required to support loans then
outstanding under the borrowing base formula.
Secured Party may from time to time at its sole discretion apply any
part of the credit balance in the collateral account to the payment of any of
the indebtedness of Debtor to Secured Party whether or not such indebtedness be
then due.
SECTION EIGHT
REPRESENTATION AND WARRANTIES OF DEBTOR
Debtor expressly represents and warrants that:
(a) The names, sums and due dates of all accounts shall be correctly
stated on to books and records of Secured Party;
(b) The accounts represent the proceeds of the sale of Debtor's inventory;
3
<PAGE> 4
(c) The goods have been either delivered to the purchaser or, if
retained in Debtor's possession, such goods shall have been excluded from
inventory figures applied to Secured Party for inclusion in the borrowing base
under this agreement;
(d) There are no set-offs, defenses or counterclaims against the
accounts or their proceeds, except for Debtor's customary advertising or
promotional allowances;
(e) No assignment of accounts nor their proceeds have or will be made
while this agreement is in effect in favor of any person or entity other than
Secured Party;
(f) No lien, title retention device or security interest of any kind
exists or will be permitted to exist in favor of any other person or entity in
respect to the inventory or its proceeds while this agreement is in effect; and
(g) All financial statements furnished to Secured Party will be
prepared in accordance with generally accepted principals of accounting, and
will accurately reflect the financial condition of Debtor as of the dates of
the statements.
SECTION NINE
UNDERTAKINGS BY DEBTOR
Debtor expressly undertakes and agrees that:
(a) Debtor will execute and deliver to Secured Party concurrently with
this agreement, for filing under the provisions of the Uniform Commercial Code
as adopted by the State of Tennessee, such financing statements as Secured
Party may request and from time to time execute and deliver such additional
instruments or documents as Secured Party may reasonably request to the end
that this agreement have its intended effect.
(b) While Debtor is indebted to Secured Party, Debtor will permit
agents of Secured Party to examine and make extracts from the books and records
of Debtor, and at all reasonable times, permit such agents to have access to
any warehouse maintained by Debtor for the purpose of taking physical inventory
of goods located there and in the event of default by Debtor under this
agreement for the purpose of taking possession of those goods.
(c) If any Debtor owing any of the accounts refuses to pay the full
invoice price or shall return any of the items of merchandise, the sale of
which gave rise to such account, Debtor will immediately notify Secured Party
and such account shall be excluded from the collateral and the borrowing base
shall be recalculated.
(d) Secured Party shall be liable to account solely for such of the
proceeds of the accounts as shall actually be received by Secured Party.
4
<PAGE> 5
(e) Secured Party is expressly authorized and empowered to ask for,
demand, collect, institute and maintain suits for, receive, compound,
compromise and give acquittances for, any and all sums owing, which are now or
may in the future become due on the accounts or their proceeds and to enforce
the payment of those sums either in Secured Party's own name or the name of
Debtor, and to endorse the name of Debtor on checks and other instruments
tendered or received in payment of the counts or their proceeds. Debtor
unconditionally guarantees the due and prompt payment to Secured Party of the
accounts.
(f) Debtor will furnish from time to time such collateral reports,
financial statements, and audit reports prepared and certified by such persons
and in such form as Secured Party may reasonably request.
SECTION TEN
EVENTS OF DEFAULT
At the option of Secured Party, Secured Party's obligations under this
agreement shall immediately terminate and all indebtedness of Debtor shall
immediately become due and payable without demand or notice of any kind, which
are here expressly waived, on the occurrence of any one or more of the
following events:
(a) Any representation or warranty under this agreement shall be
materially false.
(b) Any indebtedness of Debtor shall not be paid when due.
(c) Debtor shall fail to perform any of its undertakings or agreements
under this agreement.
(d) Debtor shall fail to perform any of Debtor's obligation or fulfill
Debtor's agreements contained in a repurchase agreement by and between Secured
Party and Debtor of even date with this agreement.
(e) Any court of competent jurisdiction shall make an order
adjudicating the bankruptcy of Debtor or appointing a trustee or receiver of
Debtor or any substantial part of Debtor's property or approving a petition
for, or effecting an arrangement in bankruptcy, a reorganization pursuant to
bankruptcy laws or any other judicial modification or alteration of the rights
of Secured Party or of other creditors.
(f) Debtor shall file any petition or take or consent to any action,
seeking any such judicial order as outlined in previous paragraph (e) making
assignment for the benefit of Debtor's creditors, or have failed within twenty
(20) days to pay or otherwise discharge any one or more judgments or
attachments against Debtor, exceeding Fifty Thousand Dollars ($50,000.00) in
the aggregate, unless such judgment is in good faith being appealed.
5
<PAGE> 6
(g) Debtor shall fail to perform any of Debtor's obligation or fulfill
Debtor's agreements contained in any of the Loan Documents.
SECTION ELEVEN
EXERCISE OF RIGHTS BY SECURED PARTY
Secured Party shall have and may exercise all of the rights, powers,
privileges and remedies (all of which are collectively referred to as remedies)
contained in the Loan Documents or that may now or in the future be provided by
law for the holder of a security interest under the Uniform Commercial Code as
adopted by the state of Tennessee.
No delay or omission of Secured Party to exercise any such remedy
shall impair any remedy or be a waiver of any event of default under this
agreement.
Any single or partial exercise of any such remedies shall not preclude
other or further exercise of them.
No waiver of any remedy shall be valid unless in writing signed by
Secured Party and then only to the extent specifically set forth.
SECTION TWELVE
GOVERNING LAW; BINDING EFFECT OF AGREEMENT
This agreement shall be governed by the laws of Tennessee, where
applicable, otherwise state of North Carolina will have jurisdiction, and shall
be binding upon and shall inure to the benefit of the successors and assigns of
the parties.
Executed at Mt. Gilead, North Carolina, in duplicate on this the 22nd
day of July, 1996.
AMERICAN WEST TRADING COMPANY
By: /s/ D. Gary McRae, Treasurer
-----------------------------------
By: /s/ James W. McRae, Secretary
-----------------------------------
6
<PAGE> 1
Exhibit 21
----------
SUBSIDIARIES OF THE REGISTRANT
Name of Subsidiary State of Incorporation
- ------------------ ----------------------
McRae Graphics, Inc. North Carolina
Rae-Print Packaging, Inc. North Carolina
Compsee, Inc. (92% ownership) North Carolina
Hoke Development Company, Inc. North Carolina
McRae Boot, Inc. North Carolina
DataScan Corporation South Carolina
System Integrators Plus, Inc. North Carolina
American West Trading Company Tennessee
<PAGE> 1
Exhibit 23
----------
GLEIBERMAN SPEARS SHEPHERD & MENAKER, P.A.
----------------------------------------------------------------
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this Post Effective Amendment to
the Registration Statement of Form S-8 (No. 33-24648) of our report dated
October 11, 1996, the consolidated financial statements and financial
statement schedule of McRae Industries, Inc. and subsidiaries as listed under
Item 8 of the Annual Report on Form 10-K for the year ended August 3, 1996.
/s/Gleiberman Spears Shepherd & Menaker, P. A.
Charlotte, North Carolina
October 28, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF MCRAE INDUSTRIES, INC. FOR THE YEAR ENDED AUGUST 3,
1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-03-1996
<PERIOD-START> JUL-30-1995
<PERIOD-END> AUG-03-1996
<CASH> 581
<SECURITIES> 65
<RECEIVABLES> 10,606
<ALLOWANCES> 301
<INVENTORY> 12,640
<CURRENT-ASSETS> 25,068
<PP&E> 7,172
<DEPRECIATION> 7,323
<TOTAL-ASSETS> 39,561
<CURRENT-LIABILITIES> 8,115
<BONDS> 0
0
0
<COMMON> 2,739
<OTHER-SE> 705
<TOTAL-LIABILITY-AND-EQUITY> 39,561
<SALES> 48,724
<TOTAL-REVENUES> 48,724
<CGS> 34,470
<TOTAL-COSTS> 11,045
<OTHER-EXPENSES> (503)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 133
<INCOME-PRETAX> 3,712
<INCOME-TAX> 1,369
<INCOME-CONTINUING> 2,282
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
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