SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended October 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ____________ to _____________
Commission file number 0-314
PULASKI FURNITURE CORPORATION
(Exact name of registrant as specified in its charter)
Virginia 54-0594965
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
P. O. Box 1371 24301
Pulaski, Virginia (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (540) 980-7330
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock
Preferred Stock Purchase Rights*
(Title of Class)
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 twelve months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes __X__ No _____
<PAGE>
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ______
Aggregate market value of the Common Stock held by non-affiliates of the
registrant as of December 17, 1999: $29,359,001.**
Number of shares of Common Stock outstanding as of December 17, 1999: 2,895,625
* On December 3, 1987 the Board of Directors of the registrant approved a Rights
Agreement pursuant to which a special dividend consisting of Preferred Stock
Purchase Rights (the "Original Rights") was distributed to the holders of record
of the registrant as of December 15, 1987. The Original Rights expired on
December 14, 1997. On December 12, 1997, the Board of Directors of the
registrant approved a Rights Agreement pursuant to which a special dividend
consisting of Preferred Stock Purchase Rights was distributed to the holders of
record of the registrant as of December 19, 1997.
** In determining this figure, the registrant has assumed that all of its
officers, directors and persons known to the registrant to be the beneficial
owners of more than five percent of the registrant's Common Stock are
affiliates. Such assumption shall not be deemed to be conclusive for any other
purpose. The aggregate market value has been computed based on the last sale
price for December 17, 1999, as reported by Nasdaq Amex Online.
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of Pulaski Furniture Corporation's 1999 Annual Report to
Security Holders are incorporated by reference into Parts II and IV of
this Form 10-K.
2. Portions of Pulaski Furniture Corporation's definitive Proxy Statement
for its 2000 Annual Meeting of Shareholders (filed with the Securities
and Exchange Commission pursuant to Regulation 14A under the Securities
Exchange Act of 1934) are incorporated by reference into Part III of
this Form 10-K.
2
<PAGE>
PART I
Item 1. Business
General
- -------
Since its organization in 1955, Pulaski Furniture Corporation (the
"Company") has engaged exclusively in the production and sale of furniture
products. The Company presently manufactures medium-priced wooden bedroom,
dining room and occasional furniture (in plants located in Pulaski, Dublin and
Martinsville, Virginia), and grandfather, mantel and wall clocks (in its plant
in Ridgeway, Virginia). The Company's furniture is predominately in the
traditional style. Furniture and clock styles are periodically updated, revised
or discontinued by the Company in anticipation of the April and October markets
in High Point, North Carolina. Also, the Company imports some specialized
furniture items and furniture parts. The Company currently anticipates that its
demand for these imports will increase in the future as some of the Company's
product lines utilizing these imports mature.
Over the course of the past several years the Company has increased
substantially its production capacity, which has permitted increased sales when
market conditions are favorable. This has resulted in a significant increase in
the overall size of the Company. In 1973, the Company began operating its plant
in Dublin and completed a renovation of the Pulaski plant. In 1975, the Company
completed an expansion and renovation of the Martinsville plant. The Company
acquired substantially all of the assets of Coleman Furniture Corporation in
1983. In 1985, the Company completed the renovation of a portion of the former
Coleman plant and the construction of a new facility connecting the former
Coleman plant to the existing Pulaski facility. Also, in 1985, the Company
acquired Gravely Furniture Company, Incorporated (currently, Ridgeway Clock
Company) of Ridgeway, Virginia. Ridgeway Clock Company manufactures grandfather,
mantel and wall clocks. In 1988, the Company completed construction of a new
finishing plant located at its Pulaski facilities. Also in 1988, the Company
acquired Craftique, Inc. with manufacturing facilities located in Mebane and
Durham, North Carolina. In 1994, the Company completed an expansion of its
Pulaski operations by construction of a new manufacturing facility. The new
facility houses highly-automated production lines, which provides the Company
with access to lower price points in the market. In 1999, Dawson Furniture
Company Inc., a Virginia corporation and wholly owned subsidiary of Pulaski
Furniture Corporation, acquired substantially all of the assets of Dawson
Heritage Furniture Company Inc., with manufacturing facilities located in Webb
City and Carls Junction, Missouri.
See Item 2 - Properties.
As part of a plan to improve operating efficiencies, the Company sold
its Craftique, Inc. subsidiary in 1997. Craftique, Inc. was engaged in the
production and sale of higher-priced furniture products made of mahogany and
cherry. The sale of this subsidiary will allow the Company to focus on its
primary business of producing and selling medium-priced furniture products.
3
<PAGE>
Materials
- ---------
Lumber constitutes the principal material used by the Company in the
manufacturing of its furniture products. The Company also uses lumber in its
manufacturing of clock cases. The Company purchases lumber from sawmill
operators and lumber dealers. Clock components are purchased from various
domestic and foreign sources. Other materials essential to the Company's
manufacturing include veneers, finishing materials, chipcore, sandpaper, lumber
squares, fabric, glue, mirrors, hardware, glass, carvings, packing materials,
wooden frames for use in its upholstery business and other product supplies. The
Company believes that all required materials can be obtained from suppliers as
needed.
Marketing and Promotion
- -----------------------
Through a sales force of approximately 100 independent contractors,
including 55 regular commission salesmen, the Company serves approximately
11,000 retail customers. These customers are located in all fifty states of the
United States, the District of Columbia, Puerto Rico, Canada, Mexico, several
South American Countries, Australia, New Zealand, the European Common Market,
several Middle East Countries and parts of the Far East. The substantial
majority of the Company's sales are within the United States and its
territories. However, the Company has experienced growth in its international
sales over the course of the last few years. During the Company's fiscal years
ended in 1999, 1998 and 1997, export sales by the Company aggregated
approximately $11,636,575, $11,218,938, and $8,614,955, respectively.
The sales force for the Company's products is responsible to two
national sales managers organized by product lines. One national sales manager
is responsible for the Company's sales for the Pulaski division, and the other
national sales manager is responsible for the Company's sales for the Ridgeway
division. Both national sales managers report to the Senior Vice
President-Sales. In addition, most of the Company's foreign export sales are
made through foreign representatives and distributors, who report to the
Company's respective national sales manager.
The Company currently utilizes a small number of trademarks and
tradenames in connection with certain lines of the Company's products and a few
patents in connection with certain of its products. All trademarks, tradenames
and patents utilized by the Company either are owned by the Company or one of
its subsidiaries. From time to time, the Company may apply for the registration
of additional trademarks or the issuance of additional patents in connection
with its products.
The Company permits its sales personnel to spend part of their time
selling home furnishings (such as lines of accessories and lamps) manufactured
by other companies. These secondary products are considered complementary to,
and not competitive with, the Company's products. The Company's products are
distributed to customers by truck, ocean freight and rail.
4
<PAGE>
For the display of its products, the Company maintains permanent
showrooms at the International Home Furnishings Market in High Point, North
Carolina, the Tupelo Furniture Market in Tupelo, Mississippi and the San
Francisco Mart in San Francisco, California. The annual rentals for these
display facilities total approximately $555,489.
As of October 31, 1999, the Company's unfilled customers' orders for
furniture and clocks totaled approximately $40.3 million (compared with
approximately $31.3 million as of November 1, 1998). The backlog of unfilled
orders is valued at prices prevailing at the time the orders were taken. The
Company expects to fill all of the unfilled customer orders for the 1999 fiscal
year during the 2000 fiscal year.
Demand for the Company's furniture products generally is highest in the
period from September through January and lowest in June and August. Demand for
the Company's clock products is generally highest in the period from August
through December.
Competition
- -----------
The business in which the Company is engaged is highly competitive with
several manufacturers competing for product acceptability in the retail market.
Competition within the markets for medium-priced wooden bedroom, dining room and
occasional furniture and for clocks occurs principally in the areas of style,
quality and price. The Company has recently been successful in introducing new
lines that were favorably received by the market. Although it is difficult to
compare manufacturers by size, the Company estimates that, based on its 1999 net
sales, the Company ranks among the 25 largest furniture manufacturers in the
United States.
Employees
- ---------
The Company employs approximately 2,150 persons on a full-time basis,
approximately 7% of whom are salaried and none of whom is represented by a labor
union. The Company considers its employee relations to be good.
Item 2. Properties
General
- -------
The Company owns all of its manufacturing and warehouse facilities,
except warehouse space in Pulaski, Radford and Martinsville, Virginia and in
Webb City, Missouri (each of which is rented on a monthly basis). The Company's
operating plants are well-maintained and include many items of equipment and
machinery of recent design. The Company believes that its present operating
plant capacity is sufficient to meet current and projected future demand for its
products.
Insurance is maintained against certain risks, including fire and
business interruption, and in such amounts as the Company deems desirable.
5
<PAGE>
Pulaski Facilities
- ------------------
Pulaski, Virginia is the site of the Company's general offices and of
two of its principal furniture manufacturing plants. The Company's buildings
located in Pulaski are constructed primarily of brick and cinder block and were
erected and have been renovated at various times from 1926 to the present.
In 1983, the Company acquired real estate, improvements and equipment
from Coleman Furniture Corporation, including land and building space adjoining
the Company's original Pulaski plant. In 1985, the Company completed the
renovation of a portion of the former Coleman plant adjoining the Company's
original Pulaski plant and the integration of that portion of the plant with the
original Pulaski facility. The cost of the renovation (including capitalized
interest expense) was approximately $8,000,000. The remaining portion of the
former Coleman property is being used for warehouse and office space or
otherwise is being held for renovation and future expansion. In 1988, a new
finishing plant was brought on line at a total project cost of $3,955,000. The
plant includes updated equipment providing improved finishing techniques and
greater safety for employees.
In 1994, the Company completed an expansion of its Pulaski facilities
by the construction of a new 75,000 square foot manufacturing facility. The
total cost of the expansion was approximately $13.6 million. The new
manufacturing facility is designed to utilize newer equipment and to provide for
more efficient manufacturing of certain lines of the Company's furniture
products.
The complete Pulaski facility now contains approximately 980,000 square
feet of production, warehouse and office space and approximately 120,000 square
feet of additional building space available for future expansion at renovation
costs. The facility is located on approximately twenty-nine acres. During the
last year the Pulaski facility primarily produced occasional furniture
(including curios, consoles, tables, chairs and other accent pieces) and served
as a dimension plant (producing rough-cut materials) for the Company's other
facilities.
Dublin Plant
- ------------
The Dublin plant, which began operations in 1973, consists of
approximately 570,000 square feet of factory and warehouse space located on a
153.5-acre parcel owned by the Company (including 106.5 acres acquired in 1983
from Coleman Furniture Corporation). The plant produces bedroom, dining room and
occasional furniture (including curios, collectors cabinets, consoles and other
accent pieces). This parcel fronts on State Route #100, close to Interstate
Highway 81 and is served by the Norfolk & Southern Railroad.
The Dublin plant also produces veneer in a 36,000 square foot brick and
cinder block building constructed in 1964. During 1996 construction of a 4,400
square foot addition was completed, increasing the total square footage of the
Dublin plant to 40,400 square feet.
Martinsville Plant
- ------------------
The Martinsville plant manufactures occasional furniture, including
curios, desks, consoles and other accent pieces. A major renovation and
expansion program for the Martinsville plant was completed in fiscal 1975. The
plant contains approximately 190,000 square feet of manufacturing, warehouse and
office space and is located on a tract of about eight acres in the City of
Martinsville, Virginia.
6
<PAGE>
Ridgeway Clock Company Plant
- ----------------------------
In 1985, the Company acquired Gravely Furniture Company, Incorporated,
located in Ridgeway, Virginia. Gravely Furniture Company, Incorporated was
renamed Ridgeway Clock Company. Ridgeway Clock Company manufactures grandfather,
mantel and wall clocks. Ridgeway Clock Company purchases clock parts from
foreign and domestic sources and assembles the parts into manufactured wooden
clock cases. The Ridgeway Clock Company plant contains approximately 326,000
square feet of production, warehouse and office space located on approximately
79.5 acres.
Dawson Furniture Company Inc.
- -----------------------------
In 1999, Dawson Furniture Company Inc., ("Dawson"), a Virginia
corporation and wholly owned subsidiary of Pulaski Furniture Corporation,
acquired substantially all of the assets of Dawson Heritage Furniture Company
Inc., with manufacturing facilities located in Webb City and Carls Junction,
Missouri. Dawson manufactures medium to low priced solid pine and oak bedroom
and occasional furniture. Dawson contains approximately 210,000 square feet of
manufacturing, warehouse and office space located on approximately 28 acres in
Webb City, Missouri, and contains approximately 70,000 square feet of
manufacturing space located on approximately 5 acres in Carls Junction,
Missouri.
Item 3. Legal Proceedings
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item *. Executive Officers of the Registrant
The Company's executive officers are as follows:
<TABLE>
<CAPTION>
Year
First
Name Age Elected Office
---- --- ------- ------
<S> <C> <C> <C>
John G. Wampler 41 1988 President and Chief Executive
Officer
Randolph V. Chrisley 51 1983 Senior Vice President - Sales
7
<PAGE>
Ira S. Crawford 62 1978 Senior Vice President-
Administration, Secretary
Carl W. Hoffman 35 1999 Treasurer
James H. Kelly 57 1971 Senior Vice President-Product
Development
Paul T. Purcell 52 1998 Vice President-Credit
Administration
James W. Stout 54 1996 Vice President-Manufacturing
Raymond E. Winters, Jr. 41 1998 Vice President-Operations
</TABLE>
John G. Wampler is the son of Bernard C. Wampler. Each of the executive
officers, other than Messrs. Hoffman, Purcell, Stout and Winters has been an
officer of the Company for the last five years. Mr. Hoffman has been with the
Corporation since 1990, starting as a staff accountant. In 1996, he was promoted
to the position of Controller, and held that position until being named
Treasurer in 1999. Mr. Purcell has been with the Corporation since 1993, as
Director of Credit until being named Vice President of Credit Administration in
1998. Mr. Stout has been with the Corporation since 1972, starting as a trainee.
In 1975, he was promoted to the position of Plant Manager of our Pulaski Plant
and held that position until being named Vice President of Manufacturing in
1996. Raymond E. Winters Jr., was previously the Director of Manufacturing and
Quality Assurance with Rowe Furniture. He has been with the Corporation since
1995, as Director of Continuous Improvement until being named Vice President of
Operations in 1998. The Company's executive officers are elected by and serve at
the pleasure of the Company's Board of Directors.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
The information contained on page 2 of the Company's 1999 Annual Report
to Security Holders is incorporated herein by reference.
Item 6. Selected Financial Data
The information contained on page 3 of the Company's 1999 Annual Report
to Security Holders is incorporated herein by reference.
8
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The information contained on pages 4 and 5 of the Company's 1999 Annual
Report to Security Holders is incorporated herein by reference.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
The information contained in the Management's Discussion and Analysis
of Financial Condition and Results of Operations on page 4 of the Company's 1999
Annual Report to Security Holders is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
The financial statements contained on pages 6 through 15 of the
Company's 1999 Annual Report to Security Holders are incorporated herein by
reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The Company's 2000 Proxy Statement contains information on pages 1
through 3 concerning directors, persons nominated to become directors, and
executive officers of the Company. Such information is incorporated herein by
reference. See "Executive Officers of the Registrant" and "Certain Directors of
the Registrant" at the end of Part I hereof, for further information.
Item 11. Executive Compensation
The Company's 2000 Proxy Statement contains information on pages 6
through 8 concerning executive compensation. Such information is incorporated
herein by reference.
9
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management
The Company's 2000 Proxy Statement contains information on pages 4 and
5 concerning security ownership of certain beneficial owners and management and
is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
The Company's 2000 Proxy Statement contains information on page 8
concerning certain relationships and related transactions and is incorporated
herein by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a)(1) The following financial statements of the registrant, included
in the 1999 Annual Report to Security Holders, are incorporated herein by
reference in Item 8:
Consolidated balance sheets - October 31, 1999 and November 1, 1998
Consolidated statements of income and retained earnings -- Years ended
October 31, 1999, November 1, 1998, and November 2, 1997
Consolidated statements of cash flows -- Years ended October 31, 1999,
November 1, 1998, and November 2, 1997
Notes to consolidated financial statements
(a)(2) The following financial statement schedules of Pulaski Furniture
Corporation are included in Item 14(d):
10
<PAGE>
<TABLE>
Schedule II -- Valuation and Qualifying Accounts
<CAPTION>
- -------------------------------------- ---------------- ---------------------------------- ------------------ ----------------
COL. A COL. B COL. C COL. D COL. E
- ------------------------------------------------------------------------------------------ ------------------ ----------------
ADDITIONS
------------------ -----------------
DESCRIPTION Balances at (1) (2) Deductions - Balance at End
Beginning of Charged to Costs Charged to Other Describe of Period
Period and Expenses Accounts -
Describe
- ------------------------------------------------------------------------ ----------------- ------------------ ---------------
<S> <C> <C> <C> <C>
Year Ended October 31, 1999:
Deducted from asset accounts
Allowance for doubtful accounts $950,000 $294,100 $ 88,100 (1) $1,156,000
----------- ------------ --------- ------------
Year Ended November 1, 1998:
Deducted from asset accounts
Allowance for doubtful accounts $950,000 $632,467 $632,467 (1) $ 950,000
----------- ------------ ---------- ------------
Year Ended November 2, 1997:
Deducted from asset accounts
Allowance for doubtful accounts $900,000 $474,325 $425,325 (1) $ 950,000
----------- ------------ ---------- ------------
</TABLE>
(1) Uncollectible accounts written off, net of recoveries
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and therefore have been omitted.
(a)(3) Exhibits
The following documents are filed as exhibits to this Form 10-K pursuant
to Item 601 of Regulation S-K:
2.1 Asset Purchase Agreement, dated as of February 24, 1999, by
and among Dawson Furniture Company Inc., a Virginia
corporation and a wholly owned Subsidiary of Pulaski
Furniture Corporation, and Dawson Heritage Furniture
Company, Inc., James S. Dawson, and Jack E. Dawson. (1)
3.1 Restated Articles of Incorporation of Pulaski Furniture
Corporation, effective January 14, 1998, filed herewith
3.2 Bylaws of Pulaski Furniture Corporation, as amended December
8, 1999, filed herewith.
4.1 Term Loan Agreement between Pulaski Furniture Corporation,
Dawson Furniture Company, Inc., and Bank of America, N.A.,
in the principal amount of $17,000,000, dated February 26,
1999., filed herewith.
4.2 Term Loan Note in the principal amount $17,000,000 between
Pulaski Furniture Corporation, Dawson Furniture Company,
Inc., and Bank of America, N.A., dated February 26,1999,
filed herewith.
4.3 Rights Agreement between Pulaski Furniture Corporation and
First Union National Bank, dated as of December 15, 1997.
(8)
10.1 Deferred Compensation Agreement between the Company and
Bernard C. Wampler dated December 2, 1977. (2) (7)
11
<PAGE>
10.2 Retirement and Consulting Agreement between Pulaski
Furniture Corporation and Bernard C. Wampler dated March 2,
1999, filed herewith.
10.3 The Company's Stock Option Plan. (5) (7)
10.4 The Company's Executive Life Insurance Plan. (4) (7)
10.5 The Company's Production and Administrative Incentive Plans.
(4) (7)
10.6 Conversion Agreement between Pulaski Furniture Corporation
and Sovran Bank, N.A., dated as of March 3, 1986. (4) (7)
10.7 The Company's 1996 Salaried Employees Stock Purchase Plan.
(7)(9)
11 Computation of Earnings Per Share, filed herewith.
13 Pulaski Furniture Corporation's 1999 Annual Report to
Security Holders, filed herewith. (3)
20 Pulaski Furniture Corporation's Proxy Statement for the
Annual Meeting of Stockholders to be held February 11, 2000
(10).
21 Subsidiaries of Registrant, filed herewith
23 Consent of Ernst & Young LLP, filed herewith.
27 Financial Data Schedule. (6)
Footnotes:
(1) Incorporated herein by reference to the Company's Form 8-K filed March
1, 1999.
(2) Incorporated herein by reference to the Company's Annual Report on
Form 10-K for the fiscal year ended October 30, 1977.
(3) With the exception of the information incorporated herein by reference
to the Company's Annual Report for the fiscal year ended October 31,
1999, the Annual Report shall not be deemed "filed" as part of this
report on Form 10-K.
(4) Incorporated herein by reference to the Company's Annual Report on
Form 10-K for the fiscal year ended October 26, 1986.
12
<PAGE>
(5) Incorporated herein by reference to the Company's Annual Report on
Form 10-K for the fiscal year ended October 29, 1989.
(6) The Financial Data Schedule is submitted with the electronic filing
of the Company's Annual Report on Form 10-K but shall not be deemed to
be "filed" as part of this report.
(7) These items are compensatory plans or arrangements required to be
filed as an exhibit to this form pursuant to Item 14(c) of this Form
10-K.
(8) Incorporated herein by reference to the Company's Annual Report on
Form 10-K for the fiscal year ended November 2, 1997.
(9) Incorporated herein by reference to the Company's Registration
Statement on Form S-8, filed as of November 25, 1998 (SEC File
Number 333-67941).
(10) Incorporated herein by reference to the Company's Definitive 14(a)
filed as of January 19, 2000.
(b) Reports on Form 8-K
None.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
and Exchange Act of 1934, the Company has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
PULASKI FURNITURE CORPORATION
(Registrant)
Date: January 25, 2000 By /s/ John G. Wampler
----------------------------------
John G. Wampler,
President, Chief
Executive Officer and
Principal Financial Officer
14
<PAGE>
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
Company and in the capacities and on the dates indicated.
Date: January 25, 2000 By: /s/ Harry H. Warner
----------------------------------------
Harry H. Warner,
Director and Chairman
of the Board
Date: January 25, 2000 By: /s/ Harry J.G. van Beek
----------------------------------------
Harry J.G. van Beek,
Director
Date: January 25, 2000 By: /s/ Robert C. Greening, Jr.
----------------------------------------
Robert C. Greening, Jr.,
Director
Date: January 25, 2000 By: /s/ John G. Wampler
----------------------------------------
John G. Wampler,
Director
(Principal Financial Officer)
Date: January 25, 2000 By: /s/ Hugh V. White, Jr.
----------------------------------------
Hugh V. White, Jr.,
Director
Date: January 25, 2000 By: /s/ Carl W. Hoffman
----------------------------------------
Carl W. Hoffman,
Treasurer
15
<PAGE>
EXHIBITS
SECURITIES AND EXCHANGE COMMISSION
FORM 10-K
ANNUAL REPORT
PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
PULASKI FURNITURE CORPORATION
Exhibit Index
2.1 Asset Purchase Agreement, dated as of February 24, 1999, by and
among Dawson Furniture Company Inc., a Virginia corporation and a
wholly owned Subsidiary of Pulaski Furniture Corporation, and Dawson
Heritage Furniture Company, Inc., James S. Dawson, and Jack E.
Dawson.
3.1 Restated Articles of Incorporation of Pulaski Furniture Corporation*
3.2 Bylaws of Pulaski Furniture Corporation, as amended December 8,
1999.*
4.1 Term Loan Agreement between Pulaski Furniture Corporation, Dawson
Furniture Company, Inc., and Bank of America, N.A., in the principal
amount of $17,000,000, dated February 26, 1999 *
4.2 Term Loan Note in the principal amount $17,000,000 between 78
Pulaski Furniture Corporation, Dawson Furniture Company, Inc., and
Bank of America, N.A., dated February 26, 1999 *
4.3 Rights Agreement between Pulaski Furniture Corporation and First
Union National Bank, dated as of December 15, 1997
The Company agrees to furnish supplementally to the Securities and
Exchange Commission, upon request, those agreements defining the
rights of holders of long term debt of the Company that are not
filed pursuant to Item 601(b)(4)(iii) of Regulation S-K.
10.1 Deferred Compensation Agreement between the Company and Bernard C.
Wampler, dated December 2, 1997
10.2 Retirement and Consulting Agreement between Pulaski Furniture
Corporation and Bernard C. Wampler entered into March 2, 1999 *
10.3 The Company's Stock Option Plan
<PAGE>
10.4 The Company's Executive Life Insurance Plan
10.5 The Company's Production and Administrative Incentive Plans
10.6 Conversion Agreement between Pulaski Furniture Corporation and
Sovran Bank, N.A., dated as of March 3, 1986
10.7 Company's 1996 Salaried Employees Stock Purchase Plan
11 Computation of Earnings Per Share*
13 Pulaski Furniture Corporation's 1999 Annual Report to Security
Holders.*
20 Pulaski Furniture Corporation's Proxy Statement for the Annual
Meeting of Stockholders to be held February 11, 2000.
21 Subsidiaries of Registrant*
23 Consent of Ernst & Young LLP*
27 Financial Data Schedule
- --------
*Filed with this Report on Form 10-K; all other exhibits
are herein incorporated by reference
Exhibit 3.1
ARTICLES OF AMENDMENT
of
ARTICLES OF INCORPORATION
of
PULASKI FURNITURE CORPORATION
1. The name of the Corporation is Pulaski Furniture Corporation.
2. The amendment adopted is to replace the first four lines of the third
paragraph of Article III, Part A, of the Corporation's Articles of
Incorporation with the following:
"A series of Preferred Stock is hereby designated "Series A
Cumulative Preferred Stock", which series is hereinafter referred to as
"Series A", shall consist of 500,000 shares of Preferred Stock, and
shall have the following description and terms:"
3. No shares of the series referenced in the amendment have been issued.
4. Such amendment was duly adopted by the Board of Directors of the
Corporation on December 12, 1997 pursuant to Section 13.1-639 of the
Virginia Stock Corporation Act.
Shareholder action was not required.
Dated: December 31, 1997
PULASKI FURNITURE CORPORATION
By: /s/ Ira S. Crawford
-----------------------
Ira S. Crawford
Vice President and Secretary
<PAGE>
EXHIBIT A
As Amended and Restatedand Restated
Through December 31, 1997
RESTATED ARTICLES OF INCORPORATION
of
PULASKI FURNITURE CORPORATION
ARTICLE I
The name of the Corporation is
PULASKI FURNITURE CORPORATION
ARTICLE II
The purposes of the Corporation are to manufacture, buy, sell and
deal in furniture of all kinds and, without limitation by reason of the
foregoing, to engage in any business not required to be stated in the articles
of incorporation.
The Corporation shall have the power to enter into partnership
agreements with other corporations, whether organized under the law of the State
of Virginia or otherwise, or with any individual or individuals.
ARTICLE III
The Corporation shall have authority to issue 10,000,000 shares of
Common Stock and 1,000,000 shares of Preferred Stock (which may be issued in
various classes and series as hereinafter provided).
The description of the Preferred Stock and the Common Stock, and
the designations, preferences and voting powers of such classes of stock or
restrictions or qualifications thereof, and the terms on which such stock is to
be issued (together with certain related provisions for the regulation of the
business and for the conduct of the affairs of the Corporation) shall be as
hereinafter set forth, or determined as hereinafter set forth, in Parts A, B and
C of this Article III.
PART A. PREFERRED STOCK
The Board of Directors may determine the preferences, limitations
and relative rights, to the extent permitted by the Virginia Stock Corporation
Act, of any class of shares of Preferred Stock before the issuance of any shares
of that class, or of one or more series within a class before the issuance of
any shares of that series. Each class or series shall be appropriately
designated by a distinguishing designation prior to the issuance of any shares
thereof. The Preferred Stock of all series shall have preferences, limitations
and relative rights identical with those of other shares of the same series and,
except to the extent otherwise provided in the description of the series, with
those of other series of the same class.
Prior to the issuance of any shares of a class or series of
Preferred Stock, (i) the Board of Directors shall establish such class or series
by adopting a resolution, and by filing with the State Corporation Commission of
Virginia articles of amendment setting forth the designation and number of
shares of the class or series and the relative rights and preferences thereof,
and (ii) the State Corporation Commission of Virginia shall have issued a
certificate of amendment thereof.
A series of Preferred Stock is hereby designated "Series A
Cumulative Preferred Stock", which series is hereinafter referred to as "Series
A", shall consist of 500,000 shares of Preferred Stock, and shall have the
following description and terms:
1. Dividends and Distributions.
(a) The holders of shares of Series A shall be entitled to receive, when
and as declared by the Board of Directors out of funds legally available
therefor, dividends payable quarterly on the first day of each January,
April, July and October (each such date being referred to herein as a
"Quarterly Dividend Payment Date"), commencing on the first Quarterly
Dividend Payment Date after the first issuance of a share or fraction of
a share of Series A, in an amount per share (rounded to the nearest
cent) equal to the greater of (i) $11.00 or (ii) subject to the
provision for adjustment hereinafter set forth, 100 times the aggregate
per share amount of all cash dividends, and 100 times the aggregate per
share amount (payable in kind) of all non-cash dividends or other
distributions other than a dividend payable in shares of Common Stock or
a subdivision of the outstanding shares of Common Stock (by
reclassification or otherwise), declared on the Common Stock of the
Corporation (the "Common Stock") since the immediately preceding
Quarterly Dividend Payment Date. In the event the Corporation shall at
any time after December 15, 1967 (the "Rights Declaration Date") (i)
declare any dividend on Common Stock payable in shares of Common Stock,
(ii) subdivide the outstanding Common Stock, or (iii) combine the
outstanding Common Stock into a smaller number of shares, then in each
such case the amount to which holders of shares of Series A were
entitled immediately prior to such event under clause (ii) of the
preceding sentence shall be adjusted by multiplying such amount by a
fraction the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is
the number of shares of Common Stock that were outstanding immediately
prior to such event.
(b) The Corporation shall declare a dividend or distribution on the
Series A as provided in paragraph (a) above immediately after it
declares a dividend or distribution on the Common Stock (other than a
dividend payable in shares of Common Stock); provided that, in the event
no dividend or distribution shall have been declared on the Common Stock
during the period between any Quarterly Dividend Payment Date and the
next subsequent Quarterly Dividend Payment Date, a dividend of $10.00
per share on the Series A shall nevertheless be payable on such
subsequent Quarterly Dividend Payment Date.
(c) Dividends shall begin to accrue and be cumulative on outstanding
shares of Series A from the Quarterly Dividend Payment Date next
preceding the date of issue of such shares of Series A, unless the date
of issue of such shares is prior to the record date for the first
Quarterly Dividend Payment, in which case dividends on such shares shall
begin to accrue from the date of issue of such shares, or unless the
date of issue is a Quarterly Dividend Payment Date or is a date after
the record date for the determination of holders of shares of Series A
entitled to receive a quarterly dividend and before such Quarterly
Dividend Payment Date, in either of which events such dividends shall
begin to accrue and be cumulative from such Quarterly Dividend Payment
Date. Accrued but unpaid dividends shall not bear interest. Dividends
paid on the shares of Series A in an amount less than the total amount
of such dividends at the time accrued and payable on such shares shall
be allocated pro rata on a share-by-share basis among all such shares at
the time outstanding. The Board of Directors may fix a record date for
the determination of holders of shares of Series A entitled to receive
payment of a dividend or distribution declared thereon, which record
date shall be no more than 70 days prior to the date fixed for the
payment thereof.
(d) Dividends in full shall not be declared or paid or set apart for
payment on the Series A for a dividend period terminating on the
Quarterly Dividend Payment Date unless dividends in full have been
declared or paid or set apart for payment on the Preferred Stock of all
series (other than series with respect to which dividends are not
cumulative from a date prior to such dividend date) for the respective
dividend periods terminating on such dividend date.
2. Voting Rights. The holders of shares of Series A shall have the
following voting rights:
(a) Subject to the provision for adjustment hereinafter set forth, each
share of Series A shall entitle the holder thereof to 100 votes on all
matters submitted to a vote of the shareholders of the Corporation. In
the event the Corporation shall at any time after the Rights
Declaration Date (1) declare any dividend on Common Stock payable in
shares of Common Stock, (ii) subdivide the outstanding Common Stock, or
(iii) combine the outstanding Common Stock into a smaller number of
shares, then in each such case the number of votes per share to which
holders of shares of Series A were entitled immediately prior to such
event shall be adjusted by multiplying such number by a fraction the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number
of shares of Common Stock that were outstanding immediately prior to
such event.
(b) Except as otherwise provided herein, the Restated Articles of
Incorporation or Bylaws, the holders of shares of Series A, and the
holders of shares of Corn-'non Stock shall vote together as one voting
group on all matters submitted to a vote of stockholders of the
Corporation.
(c) In addition, in the event that at any time or from time to time
while any shares of the Series A are outstanding, six or more quarterly
dividends, whether consecutive or not, on any shares of the Series A
shall be in arrears and unpaid, whether or not earned or declared, then
the holders of all of the outstanding shares of the Series A together
with any other series of Preferred Stock then entitled to such a vote
under the terms of the Restated Articles of Incorporation of the
Corporation, voting as a single class, shall be entitled to elect two
members of the Board of Directors of the Corporation. Immediately after
the occurrence of such event, the Corporation shall cause the number of
directors of the Corporation to be increased by two and (unless a
regular meeting of stockholders of the Corporation is to be held within
sixty (60) days for the purpose of electing directors) shall give
prompt notice to the holders of all of the outstanding shares of
Preferred Stock then so entitled to such a vote of a special meeting of
such holders to take place within sixty (60) days after the occurrence
of such event. If such meeting shall not have been called as so
provided, such meeting may be called at the expense of the Corporation
by the holders of not less than five percent (5%) of. such Preferred
Stock at the time outstanding, on written notice specifying the time
and place of the meeting given by mail not less than ten (10) days or
more than thirty (30) days before the date of such meeting specified in
such notice. At such meeting the holders of all of such Preferred Stock
at the time outstanding, voting as a single class, shall have the right
to elect two (2) members of the Board of Directors of the Corporation.
If a regular meeting of the stockholders of the Corporation for the
purpose of electing directors is to be held within sixty (60) days
after the occurrence of such event then at such meeting, and, in any
event, at each subsequent meeting of the stockholders of the
Corporation called for the purpose of electing directors, the holders
of such Preferred Stock at the time outstanding, voting as a single
class, shall have the right to elect two (2) members of the Board of
Directors on the same conditions as stated above.
At any special or regular meeting provided for in the next two
preceding paragraphs, each outstanding share of such Preferred Stock
shall be entitled to one vote for the election of the directors
provided for herein; the holders of a majority of the shares of such
Preferred Stock at the time outstanding shall constitute a quorum; and
a plurality vote of such quorum shall govern.
The directors elected by the holders of such Preferred Stock shall hold
office until their successors shall be elected; provided that their
term of office shall automatically expire at such time as all dividends
on all outstanding shares of such Preferred Stock in arrears shall have
been paid in full.
(d) Except as set forth herein or as otherwise provided in the Restated
Articles of Incorporation, holders of Series A shall have no special
voting rights and their consent shall not be required (except to the
extent they are entitled to vote with holders of Common Stock as set
forth herein) for taking any corporate action
3. Certain Restrictions.
(a) Whenever quarterly dividends or other dividends or
distributions payable on the Series A as provided in Section
1 are in arrears, thereafter and until all accrued and
unpaid dividends and distributions, whether or not declared,
on shares of Series A outstanding shall have been paid in
full, the Corporation shall not
(i) declare or pay or set apart for payment any dividends
(other than dividends payable in shares of any class or
classes of stock of the Corporation ranking junior to the
Series A) or make any other distributions on, any class of
stock of the Corporation ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to
the Series A and shall not redeem, purchase or otherwise,
acquire, directly or indirectly, whether voluntarily, for a
sinking fund, or otherwise any shares of any class of stock
of the Corporation ranking junior (either as to dividends
or. upon liquidation, dissolution or winding up) to the
Series A, provided that, notwithstanding the foregoing, the
Corporation may at any time redeem, purchase or otherwise
acquire shares of stock of any such junior class in exchange
for, or out of the net cash proceeds from the concurrent
sale of other shares of stock of any such junior class;
(ii) declare or pay dividends on or make any other
distributions on any shares of stock ranking on a parity
(either as to dividends or upon liquidation, dissolution or
winding up) with the Series A, except dividends paid ratably
on the Series A and all such parity stock on which dividends
are payable or in arrears in proportion to the total amounts
to which the holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for
consideration shares of any stock ranking on a parity
(either as to dividends or upon liquidation, dissolution or
winding up) with the Series A, provided that the Corporation
may at any time redeem, purchase or otherwise acquire shares
of any such parity stock in exchange for shares of any stock
of the Corporation ranking junior (either as to dividends or
upon dissolution, liquidation or winding up) to the Series
A;
(iv) purchase or otherwise acquire for consideration any
shares of Series A, or any shares of stock ranking on a
parity with the Series A, except in accordance with a
purchase offer made in writing or by publication (as
determined by the Board of Directors) to all holders of such
shares upon such terms as the Board of Directors, after
consideration of the respective annual dividend rates and
other relative rights and preferences of the respective
series and classes, shall determine in good faith will
result in fair and equitable treatment among the respective
series or classes.
(b) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any
shares of stock of the Corporation unless the Corporation could,
under paragraph (a) of this Section (3), purchase or otherwise
acquire such shares at such time and in such manner.
4. Reacquired shares. Any shares of Series A purchased or otherwise acquired by
the Corporation in any manner whatsoever shall be retired and cancelled promptly
after the acquisition thereof. All such shares shall upon their cancellation
become authorized but unissued shares of Preferred Stock and may be reissued as
part of a new series of Preferred Stock to be created by resolution or
resolutions of the Board of Directors, subject to the conditions and
restrictions on issuance set forth herein.
5. Liquidation, Dissolution or Winding Up.
(a) Upon any voluntary or involuntary liquidation, dissolution or
winding up of the Corporation, no distribution shall be made to the
holders of shares of stock ranking junior (either as to dividends or
upon liquidation, dissolution or winding up) to the Series A unless,
prior thereto, the holders of shares of Series A shall have received
$200.00 per share, plus an amount equal to accrued and unpaid dividends
and distributions thereon, whether or not declared, to the date of such
payment (the "Series A Liquidation Preference"). Following the payment
of the full amount of the Series A Liquidation Preference, no
additional distributions shall be made to the holders of shares of
Series A unless, prior thereto, the holders of shares of Common Stock
shall have received an amount per share (the "Common Adjustment") equal
to the quotient obtained by dividing (i) the Series A Liquidation
Preference by (ii) 100 (as appropriately adjusted as set forth in
subparagraph c below to reflect such events as stock splits, stock
dividends and recapitalizations with respect to the Common Stocky (such
number in clause (ii) being hereinafter referred to as the "Adjustment
Number"). Following the payment of the full amount of the Series A
Liquidation Preference and the Common Adjustment in respect of all
outstanding shares of Series A and Common Stock, respectively, holders
of Series A and holders of shares of Common Stock shall receive their
ratable and proportionate share of the remaining assets to be
distributed in the ratio of the Adjustment Number to 1 with respect to
such Preferred Stock and Common Stock, on a per share basis,
respectively.
(b) In the event, however, that there are not sufficient assets
available to permit payment in full of the Series A Liquidation
Preference and the liquidation preferences of all other series of
Preferred Stock, if any, that rank on a parity with the Series A, then
such remaining assets shall be distributed ratably to the holders of
such parity shares in proportion to their respective liquidation
preferences. In the event, however, that there are not sufficient assets
available to permit payment in full of the Common Adjustment, then such
remaining assets shall be distributed ratably to the holders of Common
Stock.
(c) In the event the Corporation shall at any time after the Rights
Declaration Date (i) declare any dividend on Common Stock payable in
shares of Common Stock, (ii) subdivide the outstanding Common Stock, or
(iii) combine the outstanding Common Stock into a smaller number of
shares, then in each such case the Adjustment Number in effect
immediately prior to such event shall be adjusted by multiplying such
Adjustment Number by a fraction the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
6 Consolidation, Merger, etc. In case the Corporation shall enter into any
consolidation, merger, combination or other transaction in which the shares of
Common Stock are exchanged for or changed into other stock or securities, cash
and/or any other property, then in oany such case the shares of Series A shall
at the same time be similarly exchanged or changed in an amount per share
(subject to the provision for adjustment hereinafter set forth) equal to 100
times the aggregate amount of stock, securities, cash and/or any other property
(payable in kind), as the case may be1 into which or for which each share of
Common Stock is changed or exchanged. In the event the Corporation shall at any
time after the Rights Declaration Date (1) declare any dividend on Common Stock
payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock,
or (iii) combine the outstanding Common Stock into a smaller number of shares,
then in each such case the amount set forth in the preceding sentence with
respect to the exchange or change of shares of Series A shall be adjusted by
multiplying such amount by a fraction the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
7. Redemption. The outstanding shares of Series A may be redeemed at the option
of the Board of Directors as a whole, but not in part, at any time, at which no
person beneficially owns more than 10% of the outstanding Common Stock of the
Corporation at a cash price per share equal to (i) 100% of the product of the
Adjustment Number times the Average Market Value (as such term is hereinafter
defined) of the Common Stock, plus (ii) all dividends which on the redemption
date have accrued on the shares to be redeemed and have not been paid or
declared and a sum sufficient for the payment thereof set apart, without
interest; provided, however, that if and whenever any quarterly dividend shall
have accrued on the Series A that has not been paid or declared and a sum
sufficient for the payment thereof set apart, the Corporation may not purchase
or otherwise acquire any shares of Series A unless all shares of such stock at
the time outstanding are so purchased or otherwise acquired. The "Average Market
Value" is the average of the closing sale prices of a share of the Common Stock
during the 30 day period immediately preceding the date before the redemption
date on the Composite Tape for New York Stock Exchange Listed Stocks, or, if
such stock is not quoted on the Composite Tape, on the New York Stock Exchange,
or1 if such stock is not listed on such Exchange, on the principal United States
securities exchange registered under the Securities Exchange Act of 1934, as
amended, on which such stock is listed, or, if such stock is not listed on any
such exchange the average of the closing bid quotations with respect to a share
of Common Stock during such 30-day period on the National Association of
Securities Dealers, Inc. Automated Quotations System or any system then in use,
or if no such quotations are available, the fair market value of a share of the
Common Stock as determined by the Board of Directors in good faith.
8. Ranking. The Series A shall rank junior to all other series of the
Corporation's Preferred Stock as to the payment of dividends and the
distribution of assets, unless the terms of any such series shall provide
otherwise.
9. Amendment. The Corporation shall not create any other class or classes of
stock ranking prior to the Series A either as to dividends or liquidation, or
increase the authorized number of shares of any such other class of stock, or
amend, alter, or repeal any of the provisions of the Restated Articles of
Incorporation or the resolution or resolutions adopted by the Board of Directors
authorizing the Series A so as to adversely affect the preferences, rights or
powers of the Series A without the affirmative vote of the holders of more than
two-thirds of the outstanding shares of the Series A, voting separately as one
voting group.
10. Fractional Shares. Series A may be issued in fractions of a share which
shall entitle the holder, in proportion to such holder's fractional shares, to
exercise voting rights, receive dividends, participate in distributions and to
have the benefit of all other rights of holders of Series A.
PART B. COMMON STOCK
1. Voting Rights. The holders of the Common Stock shall, to the exclusion of the
holders of any other class of stock of the Corporation, have the sole and full
power to vote for the ejection of directors and for all other purposes without
limitation except only (a) as otherwise provided in the articles of amendment to
these Articles for a particular series of Preferred Stock filed pursuant to Part
A of this Article III and (b) as otherwise expressly provided by the then
existing statutes of the Commonwealth of Virginia. The holders of the Common
Stock shall have one (1) vote for each share of Common Stock held by them.
2. Dividends. Subject to the provisions hereinabove set forth with respect to
Preferred Stock, the holders of shares of Common Stock shall be entitled to
receive dividends if, when and as declared by the Board of Directors out of
funds legally avail-able therefor.
PART C. MISCELLANEOUS
1. Pre-emptive Rights. No holder of (a) stock of any class of the Corporation,
whether now or hereafter authorized, or (b) any warrants, rights or options to
purchase any stock, or (c) any obligations convertible into any such stock or
into any warrants, rights or options to purchase any such stock (the interests
referred to in clause (a), (b) and (C) of this Section 1 being hereinafter
referred to as Equity Interests) shall have (i) any pre-emptive or preferential
right to purchase or subscribe to any Equity Interests that may hereafter be
created, issued or sold or (ii) any right of subscription to any Equity
Interests. The Board of Directors is hereby authorized, in its discretion,
without any action by the stockholders in connection with the issuance of any
obligations or stock of the Corporation (but without hereby limiting the powers
of the Board in other cases) to grant rights or options to purchase or receive
Equity Interests, upon such terms and during such periods of time as the Board
of Directors shall determine and to cause such rights or options to be evidenced
by such warrants or other instruments as the Board of Directors may deem
advisable.
ARTICLE IV
1. Number, Election & Term of Directors. The number of directors shall be set
forth in the fly-laws, but, in the absence of such a provision in the By-laws,
the number of directors of the Corporation shall be seven; provided that the
number of directors set forth by the By-laws cannot be increased by more than
two during any twelve-month period except by the affirmative vote of at least
90% of the outstanding shares of Common Stock. Commencing with the 1987 annual
meeting of stockholders, the Board of Directors shall be divided into three
classes, Class I, Class II and Class III, as nearly equal in number as possible.
At the 1987 annual meeting of stockholders, directors of the first class (Class
I) shall be elected to hold office for a term expiring at the 1968 annual
meeting of stockholders; directors of the second class (Class II) shall be
elected to hold office for a term expiring at the 1989 annual meeting of
stockholders; and directors of the third class (Class III) shall be elected to
hold office for a term expiring at the 1990 annual meeting of stockholders. At
each annual meeting of stockholders after 1987, the Successors to the class of
directors whose terms shall then expire shall be identified as being of the same
class as the directors they succeed and elected to hold office for a term
expiring at the third succeeding annual meeting of stockholders. When the number
of directors is changed, any newly-created directorships or any decrease in
directorships shall be so apportioned among the classes by the Board of
Directors as to make all classes as nearly equal in number as possible.
2. Newly-created Directorships and Vacancies. Subject to the rights of the
holders of any series of Preferred Stock then outstanding, any vacancy occurring
in the Board of Directors, including a vacancy resulting from an increase by not
more than two in the number of directors, may be filled by the affirmative vote
of a majority of the remaining directors though less than a quorum of the Board
of Directors, and directors so chosen shall hold office for a term expiring at
the next meeting of stockholders at which directors are elected. No decrease in
the number of directors constituting the Board of Directors shall shorten the
term of any incumbent director.
3. Removal of Directors. Subject to the rights of the holders of any class or
series of Preferred Stock then outstanding, any director may be removed, with or
without cause, only by the affirmative vote of the holders of at least 80% of
the out-standing shares of Common Stock.
4. Amendment or Repeal. The provisions of this Article shall not be amended or
repealed, nor shall any provision of these Articles of Incorporation be adopted
that is inconsistent with this Article, unless such action shall have been
approved by the affirmative vote of either:
(a) the holders of at least 60% of the outstanding shares of Common
Stock; or
(b) a majority of those directors who are Continuing Directors and the
holders of the requisite number of shares specified under applicable
Virginia law for the amendment of articles of incorporation.
5. Certain Definitions. For purposes of this Article:
(a) "Continuing Director" means any member of the Board of Directors
who:
(i) was elected to the Board of Directors of the Corporation
at the 1987 annual meeting of stockholders; or
(ii) was recommended for election by, or was elected to fill a
vacancy and received the affirmative vote of, a majority of
the Continuing Directors then on the Board.
{b) "Common Stock" shall mean the class of common stock of the
Corporation outstanding on February 13, 1967, and any other class of
stock of the Corporation into which all outstanding shares of such
class of common stock are converted or for which all such shares are
exchanged.
ARTICLE V
Except as expressly otherwise provided in these Articles of
Incorporation, an amendment or restatement of these Articles that requires
approval of the stockholders of the Corporation, other than an amendment or
restatement that amends or affects the shareholder vote required by the Virginia
Stock Corporation Act to approve a merger, statutory share exchange, sale of all
or substantially all of the Corporation's assets or the dissolution of the
Corporation or amends or affects Article IV of these Articles, shall be approved
by a majority of the votes entitled to be cast by each voting group that is
entitled to vote on the matter.
Exhibit 3.2
PULASKI FURNITURE CORPORATION
BYLAWS
(As Adopted December 8, 1999)
ARTICLE I
Meeting of Shareholders
Section 1. Places of Meetings. All meetings of the shareholders shall
be held at the principal office of the Corporation in Pulaski, Virginia, or at
such other place or places within or without the State of Virginia, as may, from
time to time, be fixed by the Board of Directors.
Section 2. Annual Meetings. Subject to the Board's ability to postpone
a meeting under Virginia law, the annual meeting and all other meetings of
shareholders shall be held on such date and at such time and place as may be
fixed by the Board and stated in the notice of the meeting. The annual meeting
shall be held for the purpose of electing directors and for the transaction of
only such other business as is properly brought before the meeting in accordance
with these Bylaws. To be properly brought before an annual meeting, business
must be (i) specified in the notice of annual meeting (or any supplement
thereto) given by or at the direction of the Board, (ii) otherwise properly
brought before the annual meeting by or at the direction of the Board, or (iii)
otherwise properly brought before the annual meeting by a shareholder. In
addition to any other applicable requirements for business to be properly
brought before an annual meeting by a shareholder, the shareholder must have
given timely notice thereof in writing to the Secretary of the corporation. To
be timely, a shareholder's notice must be delivered or mailed to and received at
the principal executive offices of the Corporation not less than sixty (60) days
before the meeting. A shareholder's notice to the Secretary shall set forth as
to each matter the shareholder proposes to bring before the annual meeting: (i)
a brief description of the business desired to be brought before the annual
meeting and the reasons for conducting such business at the annual meeting, (ii)
the name and record address of the shareholder proposing such business, (iii)
the class, series and number of shares of the Corporation's stock that are
beneficially owned by the shareholder proposing such business, and (iv) any
material interest of the shareholder in such business. Notwithstanding anything
in the Bylaws to the contrary, no business shall be conducted at the annual
meeting except in accordance with the procedures set forth in this Section;
provided, however, that nothing in this Section shall be deemed to preclude
discussion by any shareholder of any business properly brought before the annual
meeting. In the event that a shareholder attempts to bring business before an
annual meeting without complying with the provisions of this Section, the
Chairman of the meeting shall declare to the shareholders present at the meeting
that the business was not properly brought before the meeting in accordance with
the foregoing procedures, and such business shall not be transacted.
Section 3. Special Meetings. Special meetings of the shareholders for
any purpose or purposes may be called at any time by the President, the Chairman
of the Board, or the Board of Directors. At a special meeting no business shall
be transacted and no corporate action shall be taken other than that stated in
the notice of the meeting.
Section 4. Notice of Meetings. Notice of the time and place of every
meeting of the shareholders shall be mailed not less than ten (10) nor more than
sixty (60) days before the date of the meeting to each shareholder of record
entitled to vote at such meeting, who shall have furnished a written address to
the Secretary of the Corporation. In any event, such notice shall be given as
may be required by law.
Section 5. Quorum. Any number of shareholders together holding at least
a majority of the capital stock of the Corporation issued and outstanding and
entitled to vote in respect to the business to be transacted, who shall be
present in person or represented by proxy at any meeting duly called, shall
constitute a quorum for the transaction of business. If less than a quorum shall
be in attendance at the time for which a meeting shall have been called, the
meeting may be adjourned from time to time by a majority of the shareholders
present or represented by proxy without notice other than by announcement at the
meeting.
Section 6. Voting. Unless otherwise provided in the Articles of
Incorporation or the Virginia Stock Corporation Act, each shareholder shall have
one vote at any meeting of the shareholders, on each matter submitted to a vote
at any meeting of the shareholders, in person or by proxy, for each share of
capital stock standing in his, hers or its name on the books of the Corporation
on the record date for such meeting.
Unless a greater vote is required pursuant to the Articles of
Incorporation or the Virginia Stock Corporation Act, if a quorum exists, action
on a matter (other than the election of directors) by shareholders is approved
if the votes cast favoring the action exceed the votes cast opposing the action.
Unless otherwise provided in the Articles of Incorporation, directors shall be
elected by a plurality of votes cast by shares entitled to vote in the election
at a meeting at which a quorum is present.
ARTICLE II
Directors
Section 1. General Powers. The property, affairs and business of the
Corporation shall be managed by the Board of Directors, and, except as otherwise
expressly provided by law or by the Articles of Incorporation, or by these
Bylaws, all of the powers of the Corporation shall be vested in said Board.
Section 2. Number Election and Removal of Directors. The Board of
Directors shall consist of five (5) members. The Board of Directors shall be
divided into three classes, Class I, Class II and Class III, as nearly equal in
number as possible. Directors of each class shall be elected by the shareholders
to serve for the terms specified in the Articles of Incorporation and, unless
sooner removed in accordance with the Articles of Incorporation and applicable
law, shall serve until their respective successors are duly elected and
qualified.
Subject to the rights of the holders of any class or series of
preferred stock then outstanding, any director may be removed from office only
by a vote of at least 80 percent of the outstanding shares of Common Stock.
vacancies in the Board of Directors may be filled by a majority vote of the
remaining directors (even if less than a quorum), provided the shareholders have
not elected additional directors to fill such vacancies. Any director chosen to
fill a vacancy by the remaining directors shall hold office until the next
meeting of the shareholders at which directors are elected. At such meeting of
the shareholders, the shareholders shall elect a director to fill the vacancy,
and the newly-elected director shall hold office for a term expiring at the
annual meeting of the shareholders at which the term of the class to which he
has been elected expires.
Except as hereinafter provided, no person shall be elected or
re-elected to the Board of Directors if at the time of any proposed election or
re-election that person shall have attained the age of 70 years, provided,
however, that the foregoing provision shall not apply to persons who were
members of the Board on June 1, 1972.
Section 3. Quorum. A majority of the directors fixed by these Bylaws
shall constitute a quorum for the transaction of business. The act of a majority
of the directors present at a meeting at which a quorum is present shall be the
act of the Board of Directors.
Section 4. Place and Notice of Directors' Meetings. Meetings of the
Board of Directors, regular or special, may be held either within or without the
State of Virginia. Regular meetings of the Board of Directors may be held
without notice at such time and place as shall be determined by resolution of
the Board of Directors and the annual organizational meeting of the Board of
Directors shall be held immediately following adjournment of the annual meeting
of shareholders and at the same place, without the requirement of any notice
other than this provision of the Bylaws. Special meetings of the Board of
Directors shall be held upon notice given by telegram, written telecommunication
(e.g. telecopy) or telephone (at least one day before such meeting) or by letter
(sent by U~S. Mail or private courier at least five days before such meeting) to
all of the directors stating the time and place of such meetings. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the Board of Directors need be specified in the notice or waiver of notice of
such meeting. Meetings may be held at any time without notice if all of the
directors are present, or if those not present waive notice in writing either
before or after the meeting.
In addition, members of the Board of Directors or any committee
designated thereby pursuant to Article III hereof may participate in a meeting
of the Board or such committee by means of a conference telephone or similar
communications equipment whereby all persons participating in the meeting can
hear each other, and participation by such means shall constitute presence in
person for such meeting.
Section 5. Compensation. By resolution of the Board, directors may be
allowed a fee and expenses for attendance at meetings. Nothing herein shall
preclude directors from serving the Corporation in other capacities and
receiving compensation for such other services.
ARTICLE III
Committees
Section 1. Executive Committee. The Board of Directors, whenever it
sees fit, by a majority vote of the whole Board, may designate an Executive
Committee which shall consist of at least three directors, and shall include the
President if the President is a Director when the Board of Directors is not in
session, the Executive Committee shall have all power vested in the Board of
Directors by law, by the Articles of Incorporation, or by these By-laws,
provided that the Executive Committee shall not have power to (a) approve or
recommend to shareholders action that the Virginia State Corporation Act
required to be approved by shareholders; (b) fill vacancies on the Board or on
any of its committees; (c) amend the Articles of incorporation pursuant to 5
13.1-706 of the Virginia Code; (d) adopt, amend, or repeal the Bylaws; (e)
approve a plan of merger not requiring shareholder approval; (f) authorize or
approve a distribution, except according to a general formula or method
prescribed by the Board of Directors; or (g) authorize or approve the issuance
or sale or contract for sale of shares, or determine the designation and
relative rights, preferences, and limitations of a class or series of shares,
except that the Board of Directors may authorize a committee, or a senior
executive officer of the Corporation, to do so within limits specifically
prescribed by the Board of Directors. The Executive Committee shall report at
the next regular or special meeting of the Board of Directors all action which
the Executive Committee may have taken on behalf of the Board since the last
regular or special meeting of the Board of Directors. The members of the
Executive Committee shall serve until their successors are designated by the
Board of Directors or until removed or until the Executive Committee is
dissolved by the Board of Directors. All vacancies which may occur in the
Executive Committee shall be filled by the Board of Directors.
Section 2. Actions without Meeting. Any action that may be taken at a
meeting of a committee may be taken without a meeting if a consent in writing,
setting forth the action so to be taken, shall be signed before or after such
action by all of the members of the committee. Such consent shall have the same
force and effect as a unanimous vote.
Section 3. Meetings of the Executive Committee. Meetings of the
Executive Committee shall be held at such places and at such times fixed by
resolution of the Committee, or upon call of the Chairman. Due notice shall be
given by letter, telegraph, written telecommunication or telephone of all
meetings of the Executive Committee, provided that notice need not be given of
regular meetings held at times and places fixed by resolution of the Committee
and that meetings may be held at any time without notice if all the members of
the Committee are present or if those not present waive notice either before or
after the meeting. A majority of the members of the Executive Committee shall
constitute a quorum for the transaction of business. The act of a majority of
the members of the Executive Committee at a meeting at which a quorum is present
shall constitute the act of the Executive Committee.
Section 4. Other Committees. Other committees, consisting of two or
more directors, may be designated by a resolution adopted by a majority of the
directors present at a meeting at which a quorum is present. The members, terms
and authority of such committee shall be set forth in the resolutions
establishing the same. Regular and special meetings of any committee established
under this Section may be called and held subject to the same requirements with
respect to time, place and notice as are specified in section 3 of this Article
for meetings of the Executive Committee.
Section 5. Quorum and Manner of Acting. A majority of the members of
any Committee serving at the time of any meeting thereof shall constitute a
quorum for the transaction of business at such meeting. The act of a majority of
those members present at a Committee meeting at which a quorum is present shall
constitute the act of the Committee.
Section 6. Term of Office. Members of any Committee shall be designated
as above provided and shall hold office until their successors are designated by
the Board of Directors or until such Committee is dissolved by the Board of
Directors.
Section 7. Resignation and Removal. Any member of a Committee may
resign at any time by giving written notice of his or her intention to do so to
the President or the Secretary of the Corporation, or may be removed, with or
without cause, at any time by a majority of the Board of Directors.
Section 8. Vacancies. Any vacancy occurring in a Committee resulting
from any cause whatever may be filled by the vote of a majority of the Board of
Directors.
ARTICLE IV
Officers
Section 1. Election. The officers of the Corporation shall consist of
such of the following as are elected by the Board of Directors: a Chairman of
the Board, a President, an Executive Vice-President, a Secretary, a Treasurer,
and such other officers as may be elected as provided in Section 3 of this
Article. All officers shall be elected at the regular annual meeting of the
Board of Directors held as soon as practicable after the shareholders' annual
meeting, and shall hold office until the next regular annual meeting of the
Board of Directors or until their successors are elected and quality. The
Chairman of the Board shall be chosen from among the directors. Any two offices
may be combined in the same person.
Section 2. Removal of Officers. Any officer of the Corporation may be
removed with or without cause, at any time, by the Board of Directors. Vacancies
may be filled at any meeting of the Board of Directors.
Section 3. Other Officers. Other officers, including one or more Senior
Vice Presidents, one or more Vice Presidents and one or more Assistant
Secretaries and Assistant Treasurers, may from time to time be elected by the
Board of Directors, and shall hold office for such term as may be designated by
the Board of Directors. The President may appoint one or more officers or
assistant officers.
Section 4. Duties. The officers of the Corporation shall have such
duties as generally pertain to their offices, respectively, as well as such
powers and duties as are hereinafter provided and as from time to time shall be
conferred by the Board of Directors. The Board of Directors may require an
officer to give such bond for the faithful performance of his duties as the
Board of Directors may see fit.
Section 5. Duties of the Chairman of the Board. The Chairman of the
Board, if any shall have been elected, shall preside at all meetings of the
Board of Directors and shall perform all duties which customarily pertain to the
office of Chairman of the Board and such other duties as from time to time may
be assigned to him by the Board of Directors.
Section 6. Duties of the President. The President shall be the chief
executive officer of the Corporation to whom all other officers of the
Corporation, except the Chairman of the Board, 'shall report. The President
shall have direct supervision over the business of the Corporation, and shall
perform all duties which customarily pertain to the office of the chief
executive of a corporation and such other duties as from time to time may be
assigned to him by the Board of Directors and, in the absence of the Chairman of
the Board, shall perform the functions of the Chairman.
Section 7. Duties of the Vice-President. One of the Vice-Presidents
shall be designated by the Board of Directors as Executive Vice-President, who,
in the absence of the President, shall perform the duties of the President. The
Vice-Presidents, including the Executive Vice-President, shall have such powers
and duties as may from time to time be conferred and imposed upon them by the
Board of Directors, the President or the Executive Vice-President when acting in
the place of the President.
Section 8. Duties of the Secretary. The Secretary shall give notices of
meetings of shareholders, of the Board of Directors, of the Executive Committee,
if there be one, and of any other committee as required by law and these Bylaws,
shall record the proceedings at such meetings (except that any such committee
may designate another person as acting secretary to record the committee's
proceedings), shall keep or supervise the keeping of records of the ownership of
shares of capital stock, have custody of the corporate seal and all deeds,
leases and contracts to which the Corporation is a party, and, on behalf of the
Corporation, shall make such reports as from time to time are required by law
except tax returns.
Section 9. Duties of the Treasurer. The Treasurer shall be the chief
financial officer and shall be responsible for the custody of all securities
held by the Corporation and of all funds which may come into the Treasurer's
hands. The Treasurer shall keep, or supervise the keeping of, appropriate
records and accounts of all moneys of the Corporation received or disbursed and
shall deposit all moneys and securities in the name of and to the credit of the
Corporation in such banks and depositories as the directors shall from time to
time designate. The Treasurer shall also file or supervise the filing of all tax
returns required by law.
Section 10. Other Duties of Officers. In addition to the duties
prescribed herein and by law, any officer shall have such other duties as from
time to time shall be prescribed by the Board of Directors, the President, or
the Executive Vice President when acting in the place of the President.
Section 11. Compensation. The Board of Directors shall have authority
to fix the compensation of all officers of the Corporation.
ARTICLE V
Capital Stock
Section 1. Certificates. Certificates of Capital Stock shall be in such
form as prescribed by the Board of Directors and executed in any manner
permitted by law and stating thereon the information required by law.
One or more transfer agents for the capital stock of the Corporation
may be appointed by the Board of Directors and may be required to countersign
certificates representing such stock. when certificates are countersigned by a
Transfer Agent, the signatures of the officers of the Corporation affixed to
such certificates may be facsimiles.
In the event that any officer whose signature or facsimile thereof
shall have been used on a stock certificate shall for any reason cease to be an
officer of the Corporation and such certificate shall not then have been
delivered by the Corporation, the Board of Directors may nevertheless adopt such
certificate and it may then be issued and delivered as though such person had
not ceased to be an officer of the Corporation.
Section 2. Lost. Destroyed and Mutilated Certificates. Holders of the
stock of the Corporation shall immediately notify the Corporation of any loss,
destruction or mutilation of the certificate therefore, and the Board of
Directors may in its discretion cause one or more new certificates for the same
number of shares in the aggregate to be issued to such shareholder upon the
surrender of the mutilated certificate or upon satisfactory proof of such loss
or destruction, and the deposit of a bond in such form and amount and with
surety as the Board of Directors may require.
Section 3. Transfer of Stock. The stock of the Corporation shall be
transferable or assignable only on the books of the Corporation by the holders
in person or by attorney on surrender of the certificate for such shares duly
endorsed and, if sought to be transferred by attorney, accompanied by a written
power of attorney to have the same transferred on the books of the Corporation.
The Corporation will recognize, however, the exclusive right of the person
registered on its books as the owner of shares to receive dividends and to vote
as such owner.
Section 4. Fixing Record Date. For the purpose of determining
shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment thereof, or entitled to receive payment of any dividend, or in
order to make a determination of shareholders for any other proper purpose, the
Board of Directors may fix in advance a date as the record date for any such
determination of shareholders, such date in any case to be not more than seventy
(70) days prior to the date on which the particular action, requiring such
determination of shareholders, is to be taken. If no record date is fixed for
the determination of shareholders entitled to notice of or to vote at a meeting
of shareholders, or shareholders entitled to receive payment of a dividend, the
date on which notice of the meeting is mailed or the date on which the
resolution of the Board of Directors declaring such dividend is adopted, as the
case may be, shall be the record date for such determination of shareholders.
when a determination of shareholders entitled to vote at any meeting of
shareholders has been made as provided in this section, such determination shall
apply to any adjournment thereof.
ARTICLE VI
Miscellaneous Provisions
Section 1. Seal. The seal of the Corporation shall consist of a
circular design, of which there may be any number of counterparts, with the
words: "Pulaski Furniture Corporation" around the margin thereof, and the words
"Seal" arid "Pulaski, Virginia" in the center thereof, as shown in the
impression on the margin hereof, and the same is hereby adopted.
Section 2. Fiscal Year. The fiscal year shall be on a 52-53 week basis
and end on a Sunday near the end of October.
Section 3. Checks. Notes and Drafts. Checks, notes, drafts and other
orders for the payment of money shall be signed by such persons as the Board of
Directors from time to time may authorize. when the Board of Directors so
authorizes, the signature of any such person may be a facsimile.
Section 4. Amendment of Bylaws. These Bylaws may be amended or altered
by the Board of Directors. The Common Shareholders, however, shall have the
power to rescind, alter, amend or repeal any Bylaws and to enact Bylaws which,
if expressly so provided, may not be amended, altered or repealed by the Board
of Directors.
Section 5. Voting of Stock Held. Unless otherwise provided by
resolution of the Board of Directors or of the Executive Committee, if any, the
President may from time to time appoint an attorney or attorneys or agent or
agents of this Corporation, to cast the votes which this Corporation may be
entitled to cast as a shareholder or otherwise in any other corporation, any of
whose stock or securities may be held by this Corporation, at meetings of the
holders of the stock or other securities of such other corporation, or to
consent in writing to any action by any such other corporation, and may instruct
the person or persons so appointed as to the manner of casting such votes or
giving such consent, and may execute or cause to be executed on behalf of this
Corporation, such written proxies, consents, waivers, or other instruments as
may be necessary or proper in the premises; or the President may himself attend
any meeting of the holders of stock or other securities of any such other
corporation and there vote or exercise any or all other powers of this
Corporation as the holders of such stock or other securities of such other
corporation.
Section 6. Restriction on Transfer. To the extent that any provision of
the Rights Agreement between the Corporation and Sovran Bank, N.A., as Rights
Agent, dated December 3, 1987, is deemed to constitute a restriction on the
transfer of any securities of the Corporation, including, without limitation,
the Rights, as defined therein, such restriction is hereby authorized by these
Bylaws.
ARTICLE VII
Limit on Liability: Indemnification
Section 1. Definitions. In this Article:
"Applicant" means the person seeking indemnification pursuant to this
Article; "Expenses" includes counsel fees; "Liability" means the obligation to
pay a judgment, settlement, penalty, fine, including any excise tax assessed
with respect to an employee benefit plan, or reasonable expenses incurred with
respect to a proceeding;
"Party" includes an individual who was, is or is threatened to be made
a named defendant or respondent in a proceeding; and
"Proceeding" means any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative and whether
formal or informal.
Section 2. Limitation on Liability. To the fullest extent that the
Virginia Stock Corporation Act, as it exists on the date hereof or may
hereinafter be amended, permits the limitation or elimination of the liability
of directors and officers, no Director or officer of the Corporation shall be
liable to the Corporation or its shareholders for monetary damages with respect
to any transaction, occurrence or course of conduct, whether prior or subsequent
to the effective date of this Article. Section 3. Indemnification. The
Corporation shall indemnify (a) any person who was or is a party to any
proceeding, including a proceeding brought by or in the right of the
Corporation, by reason of the fact that he is or was a Director or officer of
the Corporation, or (b) any Director or officer of the Corporation who is or was
serving at the request of the Corporation as a director, trustee, partner or
officer of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise, against any liability incurred by him in
connection with such proceeding unless he engaged in willful misconduct or a
knowing violation of the criminal law. A person is considered to be serving an
employee benefit plan at the Corporation's request if his duties to the
Corporation also impose duties on, or otherwise involve services by, him to the
plan or to participants in or beneficiaries of the plan. The Board of Directors
is hereby empowered, by a majority vote of a quorum of disinterested Directors,
to enter into a contract to indemnify any Director or officer in respect of any
proceeding arising from any act or omission, whether occurring before or after
the execution of such contract.
Section 4. Application: Amendment. The provisions of this Article shall
be applicable to all proceedings commenced after the adoption hereof by the
shareholders of the Corporation, arising from any act or omission, whether
occurring before or after such adoption. No amendment or repeal of this Article
shall have any effect on the rights provided under this Article with respect to
any act or omission occurring prior to such amendment or repeal. The Corporation
shall promptly take all such actions, and make all such determinations, as shall
be necessary or appropriate to comply with its obligation to make any indemnity
under this Article and shall promptly pay or reimburse all reasonable expenses1
including attorneys' fees, incurred by any Director or officer in connection
with such actions and determinations or proceedings of any kind arising
therefrom.
Section 5. Termination of Proceeding. The termination of any proceeding
by judgment, order, settlement, conviction or upon a plea of nolo contendere or
its equivalent, shall not of itself create a presumption that the applicant
engaged in willful-misconduct or a knowing violation of the criminal law.
Section 6. Determination of Availability. Any indemnification under
Section 3 of this Article (unless ordered by a court) shall be made by the
Corporation only as authorized in the specific case upon a determination that
indemnification of the applicant is proper in the circumstances because the
applicant did not engage in willful misconduct or a knowing violation of the
criminal law.
The determination shall be made:
(a) By the Board of Directors by a majority vote of a quorum consisting
of Directors not at the time parties to the proceeding;
(b) If a quorum cannot be obtained under subsection (a) of this
section, by majority vote of a committee duly designated by the Board of
Directors (in which designation Directors who are parties may participate),
consisting solely of two or more Directors not at the time parties to the
proceeding;
(c) By special legal counsel:
(i) selected by the Board of Directors or its committee in the
manner prescribed in subsection (a) or (b) of this section; or
(ii) if a quorum of the Board of Directors cannot be obtained
under subsection (a) of this section and a committee cannot be designated under
subsection (b) of this section, selected by majority vote of the full Board of
Directors, in which selection Directors who are parties may participate; or
(d) By the shareholders, but shares owned by or voted under the control
of Directors who are at the time parties to the proceeding may not be voted on
the determination.
Any evaluation as to the reasonableness of expenses shall be made in
the same manner as the determination that indemnification is permissible, except
that if the determination is made by special legal counsel, such evaluation as
to reasonableness of expenses shall be made by those entitled under subsection
(c) of this section to select counsel.
Notwithstanding the foregoing, in the event there has been a change in
the composition of a majority of the Board of Directors after the date of the
alleged act or omission with respect to which indemnification is claimed, any
determination as to indemnification and advancement of expenses with respect to
any claim for indemnification made pursuant to this Article shall be made by
special legal counsel agreed upon by the Board of Directors and the applicant.
If the Board of Directors and the applicant are unable to agree upon such
special legal counsel the Board of Directors and the applicant each shall select
a nominee, and the nominees shall select such special legal counsel.
Section 7. Advances. (a) The Corporation may pay for or reimburse the
reasonable expenses incurred by any applicant who is a party to a proceeding in
advance of final disposition of the proceeding or the making of any
determination under Section 6 if:
(i) the applicant furnishes the Corporation a written
statement of his good faith belief that he has met the standard of conduct
described in Section 3; and
(ii) the applicant furnishes the Corporation a written
undertaking, executed personally or on his behalf, to repay the advance if it is
ultimately determined that he did not meet such standard of conduct.
(b) The undertaking required by paragraph (ii) of subsection (a) of
this section shall be an unlimited general obligation of the applicant but need
not be secured and may be accepted without reference to financial ability to
make repayment.
(c) Authorizations of payments under this section shall be made in the
manner specified in Section 6.
Section 8. Indemnification of Others. The Board of Directors is hereby
empowered, by majority vote of a quorum of disinterested Directors, to cause the
Corporation to indemnify or contract to indemnify any person not specified in
Section 3 of this Article who was, is or may become a party to any proceeding,
by reason of the fact that he is or was an employee or agent of the Corporation,
or is or was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise, to the same extent as if such person
were specified as one to whom indemnification is granted in Section 3. The
provisions of Sections 4 through 7 of this Article shall be applicable to any
indemnification provided hereafter pursuant to this Section 8.
Section 9. Insurance. The Corporation may purchase and maintain
insurance to indemnify it against the whole or any portion of the liability
assumed by it in accordance with this Article and may also procure insurance, in
such amounts as the Board of Directors may determine, on behalf of any person
who is or was a Director, officer, employee or agent of the Corporation, or is
or was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise, against any liability asserted
against or incurred by him in any such capacity or arising from his status as
such, whether or not the Corporation would have power to indemnify him against
such liability under the provisions of this Article.
Section 10. Further Indemnity. Every reference herein to Directors,
officers, employees or agents shall include former Directors, officers,
employees and agents and their respective heirs, executors and administrators.
The indemnification hereby provided and. provided hereafter pursuant to the
power hereby conferred on the Board of Directors shall not be exclusive of any
other rights to which any person may be entitled, including any right under
policies of insurance that may be purchased and maintained by the Corporation or
others, with respect to claims, issues or matters in relation to which the
Corporation would not have the power to indemnify such person under the
provisions of this Article. Such rights shall not prevent or restrict the power
of the Corporation to make or provide for any further indemnity, or provisions
for determining entitlement to indemnity, pursuant to one or more
indemnification agreements, bylaws, or other arrangements (including, without
limitation, creation of trust funds or security interests funded by letters of
credit or other means) approved by the Board of Directors (whether or not any of
the Directors of the Corporation shall be a party to or beneficiary of any such
agreements, bylaws or arrangements); provided, however, that any provision of
such agreements, bylaws or other arrangements shall not be effective if and to
the extent that it is determined to be contrary to this Article or applicable
laws of the Commonwealth of Virginia.
Section 11. Further Board Action. Any other provision of this Article
notwithstanding, the Board of Directors shall be empowered to amend this Article
from time to time, to the extent permitted by then applicable law, to limit,
eliminate or extend the rights provided hereunder, provided that no such
amendment shall limit or reduce the rights provided under this Article with
respect to any act or omission occurring prior to such amendment.
Section 12. Severability. Each provision of this Article shall be
severable, and an adverse determination as to any such provision shall in no way
affect the validity of any other provision.
ARTICLE VIII
Emergency Bylaws
The Emergency Bylaws provided in this Article VII shall be operative
during any emergency, notwithstanding any different provision in the preceding
Articles of these Bylaws or in the Articles of Incorporation of the Corporation
or in the Virginia Stock Corporation Act (other than those provisions relating
to emergency bylaws). An emergency exists if a quorum of the Corporation's Board
of Directors cannot readily be assembled because of some catastrophic event. To
the extent not inconsistent with these Emergency Bylaws, the Bylaws provided in
the preceding Articles shall remain in effect during such emergency and upon the
termination of such emergency the Emergency Bylaws shall cease to be operative
unless and until another such emergency shall occur. During any such emergency:
(a) Any meeting of the Board of Directors may be called by any officer
of the Corporation or by a director. The notice thereof shall specify the time
and place of the meeting. To the extent feasible, notice shall be given in
accord with Section 4 of Article II above, but notice may be given only to such
ot the Directors as it may be feasible to reach at the time, by such means as
may be feasible at the time, including publication or radio, and at a time less
than twenty-four hours before the meeting if deemed necessary by the person
giving notice. Notice shall be similarly given, to the extent feasible, to the
other persons referred to in (b) below.
(b) At any meeting of the Board of Directors, a quorum shall consist of
a majority of the number of directors fixed at the time by Article II of the
Bylaws. If the directors present at any particular meeting shall be fewer than
the number required for such quorum, other persons present as referred to below,
to the number necessary to make up such quorum, shall be deemed directors for
such particular meeting as determined by the following provisions and in the
following order of priority:
(i) Vice-Presidents not already serving as directors, in the
order of their seniority of first election to such offices, or if two or more
shall have been first elected to such offices on the same day, in the order of
their seniority in age;
(ii) All other officers of the Corporation in the order of
their seniority of first election to such offices, or if two or more shall have
been first elected to such offices on the same day, in the order of their
seniority in age; and
(iii) Any other persons that are designated on a list that
shall have been approved by the Board of Directors before the emergency, such
persons to be taken in such order of priority and subject to such conditions as
may be provided in the resolution approving the list.
(c) The Board of Directors, during as well as before any such
emergency, may provide, and from time to time modify, lines of succession in the
event that during such an emergency any or all officers or agents of the
Corporation shall for any reason be rendered incapable of discharging their
duties.
(d) The Board of Directors, during as well as before any such
emergency, may, effective in the emergency, change the principal office, or
designate several alternative offices, or authorize the officers so to do.
No officer, director or employee shall be liable for action taken in
good faith in accordance with these Emergency Bylaws.
These Emergency Bylaws shall be subject to repeal or change by further
action of the Board of Directors or by action of the shareholders, except that
no such repeal or change shall modify the provisions of the next preceding
paragraph with regard to action or inaction prior to the time of such repeal or
change. Any such amendment of these Emergency Bylaws may make any further or
different provision that may be practical and necessary for the circumstances of
the emergency.
Exhibit 4.1
TERM LOAN AGREEMENT
among
PULASKI FURNITURE CORPORATION and
DAWSON FURNITURE COMPANY, INC.,
as the Borrowers
and
NATIONSBANK, N.A., as the Bank
<PAGE>
TABLE OF CONTENTS
TABLE OF CONTENTS.............................................................i
ARTICLE I - DEFINITIONS.......................................................1
ARTICLE II - THE TERM LOAN AND TERM LOAN NOTE................................10
2.1 Term Loan.......................................................10
2.2 Note............................................................10
2.3 Disbursement of Loan............................................11
ARTICLE III - INTEREST, NOTICES OF INTEREST PERIODS AND PAYMENTS.............11
3.1 Selection of Interest Period; Borrowing.........................11
3.2 Payments........................................................14
3.3 Payment on Days Other Than Business Days........................14
3.4 LIBOR Provisions................................................14
ARTICLE IV - PREPAYMENTS.....................................................16
4.1 Optional Prepayments............................................16
4.2 Calculation of Loss or Out-of-Pocket Expense....................16
4.3 Application of Prepayments......................................17
4.4 No Reborrowing..................................................17
ARTICLE V - REPRESENTATIONS..................................................17
5.1 Subsidiaries....................................................17
5.2 Incorporation; Good Standing....................................17
5.3 Corporate Authority.............................................18
5.4 Binding Agreements..............................................18
5.5 Litigation......................................................18
5.6 No Conflicting Agreements.......................................18
5.7 Financial Condition.............................................19
5.8 Employee Benefit Pension Plans..................................19
5.9 Environmental Law Compliance....................................20
5.10 Year 2000 Compliance...........................................20
ARTICLE VI - CONDITIONS OF LOAN..............................................21
6.1 Approval of Bank's Counsel......................................21
6.2 Evidence of Corporate Action....................................21
6.3 Opinion of Borrower's Counsel...................................21
i
<PAGE>
6.4 Acquisition of Seller...........................................22
6.5 Compliance......................................................22
ARTICLE VII - AFFIRMATIVE COVENANTS..........................................22
7.1 Financial Statements............................................22
7.2 Taxes...........................................................23
7.3 Insurance.......................................................24
7.4 Corporate Existence.............................................24
7.5 Properties......................................................24
7.6 Employee Benefit Pension Plans..................................24
7.7 Compliance With Laws............................................25
7.8 Notice of Environmental Matters.................................25
7.9 Deposit Account.................................................26
7.10 Repayment of Loans.............................................26
7.11 Year 2000 Compliance...........................................26
ARTICLE VIII - NEGATIVE COVENANTS............................................26
8.1 Borrowing.......................................................26
8.2 Mortgages and Pledges...........................................27
8.3 Merger, Acquisition or Sale of Assets...........................28
8.4 Contingent Liabilities..........................................28
8.5 Investments.....................................................29
8.6 Capital Expenditures............................................29
8.7 Sale and Leaseback..............................................29
8.8 Loans...........................................................29
8.9 Environmental Law Compliance....................................30
8.10 Use of Proceeds................................................30
8.11 Business.......................................................31
8.12 Accounting.....................................................31
8.13 Subsidiaries...................................................31
ARTICLE IX - FINANCIAL COVENANTS.............................................31
9.1 Funded Debt to EBITDA...........................................31
9.2 Funded Debt to Capitalization...................................33
9.3 Fixed Charge Coverage Ratio.....................................32
ARTICLE X - EVENTS OF DEFAULT................................................32
ARTICLE XI - MISCELLANEOUS PROVISIONS........................................36
11.1 Costs and Expenses.............................................36
11.2 Setoffs........................................................36
11.3 Cumulative Rights and No Waiver................................36
ii
<PAGE>
11.4 Indemnification of the Bank....................................36
11.5 Mandatory Arbitration..........................................38
11.6 Joint and Several Obligations..................................39
11.7 Notices........................................................40
11.8 Accounting Terms...............................................41
11.9 Entire Agreement...............................................41
11.10 Applicable Law................................................41
11.11 Amendments, Etc...............................................41
11.12 Survivorship..................................................42
11.13 Headings......................................................42
11.14 Execution in Counterparts.....................................42
Exhibit A - Promissory Note
Exhibit B - Notice of Borrowing
Exhibit C - Notice of Conversion/Continuation
Exhibit D - Opinion of Borrowers' Counsel
Exhibit E - Form of Compliance Certificate
iii
<PAGE>
TERM LOAN AGREEMENT
THIS TERM LOAN AGREEMENT is made as of February 26, 1999, by and among
PULASKI FURNITURE CORPORATION ("Pulaski"), a Virginia corporation, and DAWSON
FURNITURE COMPANY, INC. ("Dawson"), a Virginia corporation, both of whose
principal offices are located at One Pulaski Square, Pulaski, Virginia 24301,
and NATIONSBANK, N.A. (the "Bank"), a national banking association with an
office located at 302 South Jefferson Street, Roanoke, Virginia 24011-2010.
Pulaski and Dawson (each, a "Borrower" and collectively, the
"Borrowers") have applied to the Bank for a term loan in the amount of Seventeen
Million Dollars ($17,000,000), the proceeds of which will be used to acquire the
assets of Dawson Heritage Furniture Company, Inc., a Missouri corporation (the
"Seller"), for working capital and for other corporate purposes. The Bank is
willing to make the term loan to the Borrowers upon the terms and conditions
hereinafter set forth.
ACCORDINGLY, each Borrower and the Bank agree as follows:
ARTICLE I
DEFINITIONS
As used herein the following terms shall have the meanings herein
specified and shall include in the singular number the plural and in the plural
number the singular:
"Affiliate" means as to any person, each other person that directly or
indirectly (through one or more intermediaries or otherwise) controls, is
controlled by or is under common control with such person.
"Agreement" shall mean this agreement as it may be amended from time to
time.
<PAGE>
"Applicable Margin" means 0.65% through February 28, 2000. Thereafter,
Applicable Margin for any date means the margin amount expressed as a percentage
shown by the following table using for the purposes hereof the Ratio of Funded
Debt to EBITDA determined as of the last day of the preceding fiscal quarter for
the four (4) fiscal quarters ending on such date.
Funded Debt/EBITDA Ratio Applicable Margin
------------------------ -----------------
2.0 to 1 or less 0.40%
2.01 - 2.50 to 1 0.60%
2.51 - 2.75 to 1 0.70%
2.76 - 3.00 to 1 0.80%
3.01 to 1 or greater 0.90%
Any change in the Applicable Margin shall become effective upon the
delivery to the Bank of the certificate with respect to the financial statements
to be delivered pursuant to Section 7.1 for the fiscal quarter or fiscal year
most recently ended, as the case may be, and shall apply to a LIBOR Loan
outstanding on and after such delivery date. Notwithstanding the foregoing, at
any time during which the Borrowers have failed to deliver to the Bank the
certificate referred to above with respect to a fiscal quarter or fiscal year
following the date that delivery of financial statements relating to such fiscal
quarter or fiscal year are required to be delivered under Section 7.1, the
Funded Debt/EBITDA Ratio shall be deemed, solely for the purposes of calculating
the Applicable Margin, to be 3.01 to 1 or greater until such time as the
Borrowers shall have delivered such certificate and financial statements to the
Bank. Upon the occurrence and during the continuance of an Event of Default, the
Applicable Margin shall automatically and without any prior notice be increased
by two percent (2%) per annum.
"Bank" means NationsBank, N.A., a national banking association.
"Borrowers" shall mean Pulaski Furniture Corporation, a Virginia
corporation, and Dawson Furniture Company, Inc., a Virginia corporation.
2
<PAGE>
"Business Day" shall mean any day other than Saturday, Sunday or other
day on which commercial banks in Roanoke, Virginia are authorized or required to
close under applicable laws and, with respect to any LIBOR Loan, a day on which
dealings are carried on in the London interbank market.
"Consolidated Net Worth" means as of any date the sum of capital stock,
additional paid in capital and retained earnings of Pulaski and its Subsidiaries
on a consolidated basis determined in accordance with GAAP.
"Current Maturities of Long-Term Debt" means for any period the current
maturities for such period determined in accordance with GAAP of any long-term
debt of Pulaski and its Subsidiaries, on a consolidated basis.
"Dawson" shall mean Dawson Furniture Company, Inc., a Virginia
corporation.
"Default" shall mean any event, act or condition which with the giving
of notice or lapse of time or both would constitute an Event of Default.
"EBITDA," for any period, means the following, without duplication,
each calculated for such period: Net Income; plus, to the extent paid or accrued
and deducted in determining Net Income, income taxes, interest expense,
amortization and depreciation of Pulaski and its Subsidiaries on a consolidated
basis determined in accordance with GAAP. For purposes of calculating EBITDA for
Pulaski and its Subsidiaries for the four (4) fiscal quarters ending on April
30, 1999, July 31, 1999, October 31, 1999 and January 31, 2000 in order to
account for the historical impact of Seller after its acquisition by Dawson,
EBITDA shall be determined by adding the amount set forth below to the actual
results of the EBITDA calculation for Pulaski and its Subsidiaries:
3
<PAGE>
April 30, 1999 - $2,500,000
July 31, 1999 - $1,875,000
October 31, 1999 - $1,250,000
January 31, 2000 - $625,000
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended from time to time.
"Event of Default" shall have the meaning set forth in Section 10.
"Fixed Charge Coverage Ratio" means as of the end of any fiscal
quarter, for Pulaski and its Subsidiaries on a consolidated basis, the ratio of
(i) the sum of Net Income plus, to the extent paid or accrued and deducted in
determining Net Income, interest expense (including, without duplication, the
interest portion of any capital lease payments), depreciation, amortization, and
rents under operating leases less dividends paid for the four (4) fiscal
quarters ending on such date to (ii) the sum of interest expense (including,
without duplication, the interest portion of any capital lease payments),
Current Maturities of Long-Term Debt due in each such quarter, rents under
operating leases, and the principal portion of capital lease payments, all for
the four (4) fiscal quarters ending on such date. For purposes of calculating
the Fixed Charge Coverage Ratio for Pulaski and its Subsidiaries for the four
(4) fiscal quarters ending on April 30, 1999, July 31, 1999, October 31, 1999
and January 31, 2000 in order to account for the historical impact of Seller
after its acquisition by Dawson, the amount determined pursuant to clause (i)
above shall be increased by the following amounts:
4
<PAGE>
April 30, 1999 - $1,647,390
July 31, 1999 - $1,235,543
October 31, 1999 - $ 823,695
January 31, 2000 - $ 411,848
"Funded Debt" means the principal amount of indebtedness for borrowed
money and capitalized lease obligations of Pulaski and its Subsidiaries, on a
consolidated basis determined in accordance with GAAP.
"GAAP" means generally accepted accounting principles as promulgated by
opinions of the Accounting Principles Board of the American Institute of
Certified Public Accountants and statements of the Financial Accounting
Standards Board, consistently applied.
"Governmental Authority" means the United States of America, any state
or other political subdivision thereof and any court, agency, department,
commission, board, bureau or instrumentality of any of the foregoing.
"Hazardous Materials" shall mean all materials defined as hazardous
wastes or substances under any local, state or federal environmental laws, rules
or regulations and petroleum, petroleum products, oil and asbestos.
"Interest Period" means the period commencing on the date the Loan or
any portion thereof begins to bear interest at a rate based on LIBOR, which
shall be the last day of the preceding Interest Period except on the day the
Loan is funded, and ending on, but not including, the last day of such period as
selected by the Borrowers pursuant to the provisions set forth below. The
duration of each Interest Period shall be 1, 3, 6, 9 or 12 months, subject in
any case to availability and as the Borrowers may, upon notice received by the
Bank, select; provided, however, that whenever the last day of an Interest
Period would otherwise occur on a day other than a Business Day, the last day of
such Interest Period shall be extended to occur on the next succeeding Business
5
<PAGE>
Day, provided, that if such extension would cause the last day of such Interest
Period to occur in the next following calendar month, the last day of such
Interest Period shall occur on the next preceding Business Day, and provided
further that any Interest Period which begins on a day for which there is no
numerically corresponding day in the calendar month during which such Interest
Period is to end shall end on, but not include, the last Business Day of such
calendar month. In no event shall an Interest Period extend beyond October 31,
2005.
"LIBOR" means that rate per annum (rounded upward to the nearest 1/100
of 1%) determined by the Bank to be equal to the quotient of (i) the LIBOR Base
for the Loan or a portion thereof for such Interest Period divided by (ii) one
minus the LIBOR Reserve Percentage for the Loan or such portion thereof for the
Interest Period. The definition of LIBOR is illustrated by the following
formula:
LIBOR = LIBOR Base
----------------------------------------
1 - LIBOR Reserve Percentage
"LIBOR Base" means, for any LIBOR Loan for any Interest Period
therefor, the rate per annum (rounded upwards, if necessary, to the nearest
1/100 of 1%) appearing on Telerate Page 3750 (or any successor page) as the
London interbank offered rate for deposits in Dollars at approximately 11:00
a.m. (London time) two Business Days prior to the first day of such Interest
Period for a term comparable to such Interest Period. If for any reason such
rate is not available, the term "Eurodollar Rate" shall mean, for any Eurodollar
Loan for any Interest Period therefor, the rate per annum (rounded upwards, if
necessary, to the nearest 1/100 of 1%) appearing on Reuters Screen LIBO Page as
the London interbank offered rate for deposits in Dollars at approximately 11:00
6
<PAGE>
a.m. (London time) two Business Days prior to the first day of such Interest
Period for a term comparable to such Interest Period; provided, however, if more
than one rate is specified on Reuters Screen LIBO Page, the applicable rate
shall be the arithmetic mean of all such rates (rounded upwards, if necessary,
to the nearest 1/100 of 1%).
"LIBOR Loan" means all or a portion of the Loan when it bears interest
based on LIBOR.
"LIBOR Reserve Percentage" means for any Interest Period the reserve
percentage (expressed as a decimal) applicable during such Interest Period under
regulations issued from time to time by the Board of Governors of the Federal
Reserve System (or any successor) (or if more than one such percentage is so
applicable, the daily average of such percentages for those days in such
Interest Period during which any such percentage shall be so applicable) for
determining the maximum reserve requirement (including, without limitation, any
marginal reserve requirement) for the Bank in respect of liabilities or assets
consisting of or including Eurocurrency Liabilities (as defined in Regulation D)
having a term equal to such Interest Period.
"Loan" shall have the meaning set forth in Section 2.1.
"Material Adverse Effect" means a material adverse effect on (i) the
condition (financial or otherwise), operations, business, assets, or liabilities
of Pulaski and its Subsidiaries (taken as a whole), (ii) the ability of the
Borrowers to perform any material obligation under this Agreement or the Note,
or (iii) the material rights and remedies of the Bank under this Agreement or
the Note.
7
<PAGE>
"Net Income" means the consolidated net income of Pulaski and its
Subsidiaries after the deduction of any income taxes Pulaski is required to pay,
determined in accordance with GAAP consistently with the method used by its
accountants in the preparation of its annual financial statements.
"Note" shall have the meaning set forth in Section 2.2.
"PBGC" shall mean the Pension Benefit Guaranty Corporation as created
under ERISA, or any successor thereto under ERISA.
"Prime Rate" shall mean the rate which the Bank establishes from time
to time as its prime rate; any change of interest resulting from a change in the
Prime Rate shall be effective on the effective date of each change therein. The
Borrowers acknowledge and agree that the Prime Rate is a reference used in
determining interest rates on certain loans by the Bank and is not intended to
be the lowest rate of interest charged on any extension of credit to any
customer.
"Prime Rate Loan" means the Loan or any portion thereof bearing
interest based on the Prime Rate.
"Pulaski" means Pulaski Furniture Corporation, a Virginia corporation.
"Pulaski Sales" means Pulaski Foreign Sales Corporation, Inc., a
corporation organized under the laws of the U.S. Virgin Islands.
"Ratio of Funded Debt to Capitalization" means the Ratio of Funded Debt
to the sum of Funded Debt and Consolidated Net Worth of Pulaski and its
Subsidiaries.
"Ratio of Funded Debt to EBITDA" means as of the end of any fiscal
quarter the ratio of Funded Debt as of such date to EBITDA for the four (4)
fiscal quarters ending on such date.
8
<PAGE>
"Regulation D" means Regulation D of the Board of Governors of the
Federal Reserve System, as it may be amended from time to time.
"Restricted Subsidiary" means a Subsidiary (i) the total revenues of
which equal or exceed 10% of the total revenues of Pulaski and its Subsidiaries
(taken as a whole) or (ii) with total assets in excess of $5,000,000.
"Seller" shall mean Dawson Heritage Furniture Company, Inc.
"Subsidiary" shall mean as to any person, any corporation, partnership,
limited liability company or other entity of which more than fifty percent (50%)
of the outstanding capital stock or other ownership interests having ordinary
voting power to elect a majority of the board of directors or other managers of
such corporation, partnership, limited liability company or other entity is at
the time, directly or indirectly, owned by such person (irrespective of whether,
at the time, capital stock or other ownership interests of any other class or
classes of such corporation, partnership, limited liability company or other
entity shall have or might have voting power by reason of the happening of any
contingency). Unless otherwise qualified, references to "Subsidiary" or
"Subsidiaries" herein shall refer to those of Pulaski.
"Tranche" means any portion of the Loan when it bears interest at an
interest rate based on LIBOR for a specified Interest Period and any portion of
the Loan when it bears interest at an interest rate based on the Prime Rate.
"Type" shall mean either a LIBOR Loan or a Prime Rate Loan.
"UCC" means the Uniform Commercial Code as adopted and in effect from
time to time in the Commonwealth of Virginia.
"Written" or "in writing" shall mean any form of written communication
or a communication by means of telex, telecopier device, telegraph or cable.
9
<PAGE>
ARTICLE II
THE TERM LOAN AND TERM LOAN NOTE
2.1 Term Loan. The Bank agrees, subject to the terms and conditions
contained herein, to make a term loan (the "Loan") to the Borrowers on or before
February 28, 1999, in the amount of Seventeen Million Dollars ($17,000,000).
2.2 Note. The obligation of the Borrowers to repay the Loan shall be
evidenced by the Borrowers' promissory note (the "Note") payable to the order of
the Bank at its office at 302 South Jefferson Street, Roanoke, Virginia
24011-2010, or such other place as the Bank may from time to time designate,
substantially in the form of Exhibit A attached hereto with the blanks therein
appropriately completed, dated as of the date of the Loan in the original
principal amount of Seventeen Million Dollars ($17,000,000) and payable in
installments as herein provided. A principal installment of Three Hundred
Seventy-Five Thousand Dollars ($375,000) will be due and payable on the Note on
April 30, 1999, and on each July 31, October 31, January 31 and April 30
thereafter to and including January 31, 2002. A principal installment of Seven
Hundred Fifty Thousand Dollars ($750,000) will be due and payable on the Note on
April 30, 2002, July 31, 2002, October 31, 2002, and January 31, 2003. A
principal installment of Eight Hundred Seventy-Five Thousand Dollars ($875,000)
will be due and payable on April 30, 2003 and on each July 31, October 31,
January 31 and April 30 thereafter to and including July 31, 2005. A principal
installment of Seven Hundred Fifty Thousand Dollars ($750,000) will be due and
payable on October 31, 2005, on which date the entire unpaid principal balance
of the Loan and all interest accrued thereon will be due and payable in full.
The Note shall bear interest at the rates and interest shall be payable as set
forth in Section 3.
10
<PAGE>
2.3 Disbursement of Loan. The Bank shall disburse the proceeds of the
Loan to wire transfer instructions initiated by Pulaski.
ARTICLE III
INTEREST, NOTICES OF INTEREST
PERIODS, AND PAYMENTS
3.1 Selection of Interest Period; Borrowing.
(a) Initial Interest Period. The Borrowers shall give the Bank (i) at
least three (3) Business Days' notice of the Loan (which notice may be in
writing or by telecopy, telex or telegraph, or by telephone, if immediately
confirmed in writing, substantially in the form attached hereto as Exhibit B)
(the "Notice of Borrowing") prior to the proposed funding date, of the intention
of the Borrowers to borrow hereunder at a rate based on LIBOR and the initial
Interest Period or Interest Periods, and in the case of more than one Interest
Period, the amount of the Loan to which each is to apply, and (ii) notice on or
before the proposed funding date of the intention to borrow based on the Prime
Rate. If the Notice of Borrowing is given to the Bank after 12:00 noon (Eastern
Time), it shall be deemed to have been given on the following Business Day. If
the Borrowers fail to borrow all or any portion of the Loan after giving a
Notice of a Borrowing of all or any portion of the Loan as a LIBOR Loan, it will
reimburse the Bank for any loss or out-of-pocket expense incurred by the Bank in
connection with such failure to borrow the LIBOR Loan as if such failure to
borrow were a prepayment of such LIBOR Loan, computed in accordance with the
provisions of Section 4.2.
(b) Conversions and Continuations.
(i) Subject to the provisions of Sections 3.4(b) and (c)
hereof, the Borrowers shall have the option on any Business Day to convert all
of the Loan or any Tranche from one Type to another Type or, upon the expiration
11
<PAGE>
of any Interest Period, to continue all of the Loan or any Tranche as the same
Type with the succeeding Interest Period of such continued Loan or Tranche to
commence on the last day of the Interest Period of the Loan or Tranche to be
continued; provided, that (A) a LIBOR Loan may be converted into a different or
the same Type only on the last day of an Interest Period applicable thereto, (B)
no partial conversion of a LIBOR Loan or continuation of a LIBOR Loan, as
permitted under this Section 3.1(b), shall reduce the outstanding principal
amount of any such Loan or Tranche to less than $1,000,000, (C) no conversion to
a LIBOR Loan or continuation of a LIBOR Loan as permitted under this Section
3.1(b) may be made if a Default or Event of Default is then in existence, and
(D) conversions to a LIBOR Loan shall be in amounts equal to at least
$1,000,000, or if greater, in integral multiples of $500,000.
(ii) Each such conversion or continuation shall be effected by
the Borrowers delivering to the Bank a Notice of Conversion/Continuation
(substantially in the form of Exhibit C) on or before the date of the proposed
conversion to or continuation of a Prime Rate Loan or at least three Business
Days before the date of the proposed conversion to or continuation of a LIBOR
Rate Loan, each such notice to be given prior to 12:00 P.M. (Roanoke, Virginia
time) on the date specified.
(iii) In lieu of delivering a Notice of
Conversion/Continuation, the Borrowers may give the Bank telephonic notice of
the proposed conversion or continuation by the dates and times applicable to the
Type; provided, that such notice shall be promptly confirmed in writing by
delivery to the Bank of a Notice of Conversion/Continuation. The Bank shall
incur no liability to either Borrower in acting upon any telephonic notice
referred to above which the Bank believes, in good faith, to have been given by
a duly authorized officer of a Borrower or for otherwise acting in good faith
under this Section 3.1(b).
12
<PAGE>
(iv) Each Notice of Conversion/Continuation (or telephonic
notice in lieu thereof) shall be irrevocable, and shall specify the amount of
the Loan or Tranche to be so converted into or continued as and, if to be
converted to or continued as a LIBOR Loan, the Interest Period to be applicable
thereto. Notwithstanding the foregoing or the provisions of Section 3.4 hereof,
if an Event of Default is in existence or would result from any proposed
continuation of or conversion to a LIBOR Loan, such Loan may not be continued as
or converted to a LIBOR Loan but instead shall be automatically converted on the
last day of such Interest Period into a Prime Rate Loan.
(c) Absence of Notice. If, upon the expiration of any Interest Period
for a LIBOR Loan, the Borrowers have failed to elect a new Interest Period to be
applicable to a LIBOR Loan, the Borrowers shall be deemed to have elected to
convert such LIBOR Loan into a LIBOR Loan with an Interest Period of one month
effective as of the expiration date of such current Interest Period.
(d) Interest Basis; Interest Payment Dates.
Borrowers agree to pay interest in respect of the unpaid
principal amount of the Loan from the date of the Loan until the Loan is paid in
full, at the following rates per annum:
(i) during such period that all or a portion of the Loan is a
Prime Rate Loan, the Prime Rate;
(ii) during such period that all or a portion of the Loan is a
LIBOR Loan, LIBOR for the related Interest Period plus the Applicable Margin.
13
<PAGE>
(e) Interest Payment Dates. Interest on any LIBOR Loan or Prime Rate
Loan shall be computed on the basis of the actual number of days elapsed over a
year of 365 days and shall be payable in arrears on each January 31, April 30,
July 31 and October 31.
3.2 Payments. The disbursement of the Loan and each payment of the
principal of and interest on the Note shall be made in federal or other
immediately available funds. For purposes of this provision, collected funds on
deposit with the Bank are immediately available funds.
3.3 Payment on Days Other Than Business Days. Whenever any payment to
be made hereunder or under the Note shall be stated to be due on a day other
than a Business Day, except as provided in the definition of Interest Period
with respect to a LIBOR Loan, such payment may be made on the next succeeding
Business Day, and such extension of time shall in such case be included in the
computation of interest to be paid on such date.
3.4 LIBOR Provisions.
(a) Increased Costs. If either (i) the introduction of or any change by
any central bank or other Governmental Authority (whether or not having the
force of law) (including, without limitation, any change by way of imposition or
increase of reserve requirements other than those included in the computation of
LIBOR but excluding any income tax on the overall income of the Bank) in or in
the interpretation of any law or regulation by any central bank or other
Governmental Authority (whether or not having the force of law), or (ii) the
compliance by the Bank with any guideline or directive from any central bank or
other Governmental Authority (whether or not having the force of law), shall
result in any actual increase in the cost to the Bank of maintaining a LIBOR
Loan or reduce the amount receivable by the Bank on the Loan or any portion
thereof, the Borrowers shall from time to time, upon demand by the Bank, pay to
the Bank additional amounts sufficient to indemnify the Bank against such
increased cost actually incurred or reduction in amount actually received. A
certificate in reasonable detail as to the amount of such increased cost or
reduction in amount received and method of calculation shall be submitted to the
Borrowers by the Bank and shall be conclusive (absent manifest error).
14
<PAGE>
(b) LIBOR Deposits Unavailable. If before the beginning of any Interest
Period, by reason of circumstances affecting the London interbank market
generally, deposits in dollars are not being offered to the Bank, the Bank shall
forthwith give notice thereof to the Borrowers, whereupon (unless the Borrowers
and the Bank shall have agreed on an alternative method of determining the
interest rate for the Loan) at the expiration of any applicable Interest Period
any LIBOR Loan shall become a Prime Rate Loan.
(c) Changes in Law Rendering a LIBOR Loan Unlawful. If, after the date
of this Agreement, the introduction of, or any change in, any applicable law,
rule or regulation or in the interpretation or administration thereof by any
Governmental Authority charged with the interpretation or administration
thereof, or compliance by the Bank with any guideline or directive (whether or
not having the force of law) of any such Governmental Authority, shall make it
unlawful or impossible for the Bank to maintain a LIBOR Loan, the Bank shall
promptly notify the Borrowers, and the obligation of the Bank to have the Loan,
or any portion thereof bear interest at a rate based on LIBOR shall forthwith be
suspended for the duration of such illegality or impossibility. Upon such notice
(i) if the Bank may lawfully continue to maintain a LIBOR Loan to such day or
days, on the last day of each then current Interest Period, unless otherwise
agreed to by the Borrowers and the Bank, each LIBOR Loan shall become a Prime
Rate Loan, and (ii) immediately if the Bank may not lawfully continue to
maintain a LIBOR Loan to such day or days, the Loan shall immediately become a
Prime Rate Loan.
15
<PAGE>
(d) Certificate. The Bank shall furnish to the Borrowers upon request a
certificate outlining in reasonable detail the computation of any amounts
claimed by it under this Section 3.4 giving rise to a change in LIBOR and the
assumptions underlying such computations.
ARTICLE IV
PREPAYMENTS
4.1 Optional Prepayments. On the last day of any Interest Period, the
Borrowers shall have the right without premium or penalty to prepay any LIBOR
Loan. At any time and from time to time the Borrowers shall have the right
without premium or penalty to prepay all or any portion of a Prime Rate Loan.
The Borrowers may prepay all or any part of a LIBOR Loan which bears interest at
a rate based on LIBOR at any time and from time to time other than the last day
of the Interest Period used in determining such interest rate provided that at
the time of such prepayment the Borrowers reimburse the Bank for any loss or
out-of-pocket expense incurred by the Bank in connection with such prepayment,
computed in accordance with the provisions of Section 4.2.
4.2 Calculation of Loss or Out-of-Pocket Expense. The loss or
out-of-pocket expense resulting from a prepayment of a LIBOR Loan on a day other
than the last day of an Interest Period which is applicable to the amount of
such prepayment shall be an amount equal to the excess of (i) the interest that
would have been received from the Borrowers on the amount prepaid during the
remaining portion of the Interest Period in question had the Borrowers not
prepaid the Loan or such portion without giving effect to the Applicable Margin
or to the provisions of Section 3.4 over (ii) the amount of interest which would
have accrued on such funds if the Bank had placed such funds on deposit with a
prime bank in the London interbank market from the date of such prepayment until
the end of such Interest Period, determined as of the time of such prepayment
using an assumed Interest Period which commences on the date of prepayment and
ends on the last day of the originally scheduled Interest Period, discounted in
16
<PAGE>
each case to the present value using the interest rate then existing on U.S.
Treasury obligations maturing as of the end of such Interest Period, as
reasonably determined by the Bank. A certificate in reasonable detail setting
forth the calculation of such loss or expense, including the amount and method
of calculation, shall be submitted to the Borrowers by the Bank and, in the
absence of manifest error, shall be conclusive.
4.3 Application of Prepayments. Each partial prepayment of the Note
shall be applied to the installments of principal payable on the Note in the
inverse order of their maturity.
4.4 No Reborrowing. Amounts prepaid on the Loan may not be reborrowed.
ARTICLE V
REPRESENTATIONS
The Borrowers jointly and severally represent and warrant to the Bank
that:
5.1 Subsidiaries. Pulaski has the following Subsidiaries and none
others:
Pulaski Foreign Sales Corporation, Inc.
Dawson Furniture Company, Inc.
5.2 Incorporation; Good Standing. Pulaski is a corporation duly
organized and existing in good standing under the laws of the Commonwealth of
Virginia and has the corporate power to own its property and to carry on its
business activities as now being conducted and is duly qualified to do business
and is in good standing in each jurisdiction in which the character of the
properties owned by it therein or in which the transaction of its business makes
such qualification necessary and in which the failure so to qualify would have a
Material Adverse Effect. Dawson is a corporation duly organized and existing in
good standing under the laws of the Commonwealth of Virginia and has the
corporate power to own its property and to carry on its business activities as
now being conducted and is duly qualified to do business and is in good standing
in each jurisdiction in which the character of the properties owned by it
therein or in which the transaction of its business makes such qualification
necessary and in which the failure so to qualify would have a Material Adverse
17
<PAGE>
Effect. Pulaski Sales is a corporation duly organized and existing in good
standing under the laws of the U. S. Virgin Islands and has the corporate power
to own its property and to carry on its business activities as now being
conducted and is duly qualified to do business and is in good standing in each
jurisdiction in which the character of the properties owned by it therein or in
which the transaction of its business makes such qualification necessary and in
which the failure so to qualify would have a Material Adverse Effect.
5.3 Corporate Authority. Each of Pulaski and its Subsidiaries have full
corporate power and authority to enter into this Agreement, to make the
borrowings hereunder, to execute and deliver the Note and to incur the
obligations provided for herein and therein, all of which have been duly
authorized by all necessary corporate action. No consent or approval of
shareholders or consent or approval of, notice to or filing with any public
authority is required as a condition to the validity of this Agreement or the
Note.
5.4 Binding Agreements. This Agreement constitutes, and the Note, when
issued and delivered pursuant hereto for value received, will constitute, the
valid and legally binding joint and several obligations of the Borrowers
enforceable in accordance with their terms except to the extent such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization and moratorium laws and similar laws relating generally to the
enforcement of creditors' rights.
5.5 Litigation. There are no proceedings pending or, so far as the
officers of the Borrowers know, threatened before any court or administrative
agency that, in the opinion of the officers of the Borrowers, is likely to have
a Material Adverse Effect.
5.6 No Conflicting Agreements. There is no charter, bylaw or preference
stock provision of Pulaski or any of its Subsidiaries and no provision of any
existing mortgage, indenture, contract or agreement binding on Pulaski or any of
18
<PAGE>
its Subsidiaries or affecting their property that would conflict with or in any
way prevent the execution, delivery or carrying out of the terms of this
Agreement or the Note.
5.7 Financial Condition. The consolidated balance sheet of Pulaski and
its Subsidiaries as of November 1, 1998, and the related consolidated statements
of income and retained earnings and of cash flows for the period then ended,
certified by Ernst & Young LLP, heretofore delivered to the Bank, fairly present
the financial condition of Pulaski and its Subsidiaries and the results of their
operations and their cash flows as of the dates and for the periods referred to
therein and have been prepared in accordance with GAAP. There are no material
liabilities, direct or indirect, fixed or contingent, of Pulaski and its
Subsidiaries as of the dates of such balance sheets that are not reflected
therein or in the notes thereto. There has been no material adverse change in
the financial condition or operations of Pulaski and its Subsidiaries since the
dates of said balance sheets. The balance sheet of the Seller as of December 31,
1998, and the related statements of income, stockholders' equity and cash flows
for the period then ended, certified by Myers, Baker, Rife and Denham,
heretofore delivered to the Bank, fairly present the financial condition of the
Seller and the results of its operations and its cash flows as of the date and
for the period referred to therein and have been prepared in accordance with
GAAP applied on a consistent basis. There are no material liabilities, direct or
indirect, fixed or contingent, of the Seller as of the date of such balance
sheet that are not reflected therein or in the notes thereto. There has been no
material adverse change in the financial condition or operations of the Seller
since the date of said balance sheet.
5.8 Employee Benefit Pension Plans. No fact, including, but not limited
to, any Reportable Event as defined in Section 4043 of ERISA exists in
connection with any employee benefit plan of Pulaski or any of its Subsidiaries
covered by ERISA (including any plan of any member of a controlled group of
19
<PAGE>
corporations and all trades and businesses (whether or not incorporated) under
common control which, together with Pulaski or any of its Subsidiaries, are
treated as a single employer, under Section 414 of the Internal Revenue Code of
1986, as amended), which could constitute grounds for the termination of any
such plan by the PBGC or for the appointment of any trustee to administer such
plan by the appropriate United States District Court.
5.9 Environmental Law Compliance. The conduct of Pulaski's business
operations and those of any Subsidiary and the conduct of the proposed business
operations of Pulaski and its Subsidiaries following the acquisition of the
assets of the Seller by Dawson does not and will not violate any federal laws,
rules or ordinances for environmental protection, including, but not limited to,
the following: Clean Air Act, 42 U.S.C. ss. 7401, et seq.; Federal Water
Pollution Control Act, 33 U.S.C. ss. 1251, et seq.; Solid Waste Disposal Act, 42
U.S.C. ss. 6901, et seq.; Comprehensive Environmental Response, Compensation and
Liability Act ("CERCLA" or "SUPERFUND"), 42 U.S.C. ss. 9601, et seq.; National
Environmental Policy Act, 42 U.S.C. ss. 4321, et seq.; regulations of the
Environmental Protection Agency and any applicable local or state law, rule,
regulation or rule of common law and any judicial interpretation thereof
relating primarily to the environment or Hazardous Materials other than any such
violation or violations which will not cause or result in and might not
reasonably be expected to cause or result in a Material Adverse Effect.
5.10 Year 2000 Compliance.
(a) Pulaski has (i) begun analyzing the operations of Pulaski and its
Subsidiaries and Affiliates that could be adversely affected by failure to
become Year 2000 compliant (that is, that computer applications, imbedded
microchips and other systems will be able to perform date-sensitive functions
prior to and after December 31, 1999) and (ii) developed a plan for becoming
20
<PAGE>
Year 2000 compliant in a timely manner, the implementation of which is on
schedule in all material respects. Pulaski reasonably believes that it will
become Year 2000 compliant for its operations and those of its Subsidiaries and
Affiliates on a timely basis except to the extent that a failure to do so could
not reasonably be expected to have a Material Adverse Effect.
(b) Pulaski reasonably believes any suppliers and vendors that are
material to the operations of Pulaski and its Subsidiaries and Affiliates (taken
as a whole) will be Year 2000 compliant for their own computer applications
except to the extent that a failure to do so could not reasonably be expected to
have a Material Adverse Effect.
ARTICLE VI
CONDITIONS OF LOAN
The obligation of the Bank to make the Loan is subject to each of the
following conditions precedent:
6.1 Approval of Bank's Counsel. All legal matters incident to the Loan,
including all documents and opinions, shall be reasonably satisfactory to
counsel for the Bank.
6.2 Evidence of Corporate Action. The Bank shall have received (i)
certified copies of papers evidencing all corporate action taken by the
Borrowers to authorize this Agreement, the Note and the borrowing hereunder, and
(ii) such other papers as the Bank shall reasonably require.
6.3 Opinion of Borrowers' Counsel. The Bank shall have received a
favorable written opinion of counsel for the Borrowers, dated as of the date of
the making of the Loan, substantially in the form of Exhibit D attached hereto
and otherwise satisfactory in form and substance to the Bank and its counsel.
21
<PAGE>
6.4 Acquisition of Seller. Dawson shall have acquired the assets of the
Seller in accordance with the Asset Purchase Agreement by and among Dawson, the
Seller, James S. Dawson and Jack E. Dawson previously delivered to and approved
by the Bank.
6.5 Compliance. At the time of the making of the Loan (i) the Borrowers
shall have complied and shall then be in compliance in each case in all material
respects with all the terms, covenants and conditions of this Agreement that are
applicable to it, (ii) there shall exist no Event of Default and no Default
shall have occurred and be continuing, and (iii) the representations and
warranties contained in Article V hereof shall, except to the extent that they
relate solely to an earlier date, be true in all material respects with the same
effect as though such representations and warranties had been made at the time
of the making of the Loan
ARTICLE VII
AFFIRMATIVE COVENANTS
Until payment in full of the Note and performance of all other monetary
obligations of Borrowers hereunder, except those set forth in Section 11.4,
Pulaski will:
7.1 Financial Statements. Furnish to the Bank (i) as soon as available
but in no event more than forty-five (45) days after the end of each fiscal
quarter, a consolidated balance sheet of Pulaski and its Subsidiaries as of the
end of such quarter and a consolidated income statement and a consolidated
statement of cash flows for such quarter and for that portion of the fiscal year
ending on the last day of such quarter, accompanied by a schedule setting forth
the calculations to show compliance with the financial covenants contained
herein, certified by the chief executive officer or the chief financial officer
of Pulaski, together with a certificate of that officer stating whether any
event has occurred or condition exists that constitutes an Event of Default or a
Default hereunder, and, if so, stating the facts with respect thereto; (ii) as
soon as available, but in no event more than one hundred twenty (120) days after
the close of each of Pulaski's fiscal years, a copy of the annual audit report
22
<PAGE>
of Pulaski in reasonable detail, prepared in accordance with generally accepted
accounting principles applied on a basis consistent with that of the preceding
year and certified by independent certified public accountants satisfactory to
the Bank, which report shall include a consolidated balance sheet of Pulaski and
its Subsidiaries of the end of such fiscal year, a consolidated income statement
of Pulaski and its Subsidiaries for such fiscal year, and consolidated
statements of stockholders' equity and of cash flows of Pulaski and its
Subsidiaries for such fiscal year, accompanied by a certificate of said
accountants stating that in the course of making their audit they did not
discover any condition existing as of the end of such fiscal year that
constituted an Event of Default or a Default hereunder, or, if they did, stating
the facts with respect thereto; (iii) promptly upon their receipt, copies of all
management letters received by Pulaski from its accountants; and (iv) such
additional information, reports or statements as the Bank may from time to time
reasonably request. Pulaski will also upon request, and will cause its
Subsidiaries to permit the Bank and its agents to inspect its books and records
and those of its Subsidiaries during normal business hours and discuss their
affairs with their officers and employees and the officers and employees of its
Subsidiaries.
7.2 Taxes. Pay and discharge all taxes, assessments and governmental
charges upon it, its income and its properties prior to the date on which
penalties are attached thereto, and cause its Subsidiaries to do so, unless and
to the extent only that such taxes, assessments and governmental charges shall
be contested by them in good faith and by appropriate proceedings, and Pulaski
shall have set aside on its books adequate reserves with respect to any such
tax, assessment or charge so contested.
23
<PAGE>
7.3 Insurance. Maintain and cause its Subsidiaries to maintain adequate
insurance with responsible companies reasonably satisfactory to the Bank in such
amounts and against such risks as is customarily carried by owners of similar
businesses and property.
7.4 Corporate Existence. Maintain and cause its Restricted Subsidiaries
to maintain its and their corporate existence in good standing.
7.5 Properties. Maintain, preserve and protect and cause its Restricted
Subsidiaries to maintain, preserve and protect all franchises and trade names
and preserve all the remainder of their property used or useful in the conduct
of their business and keep the same in good repair, working order and condition,
and from time to time make or cause to be made all needful and proper repairs,
renewals, replacements, betterments and improvements thereto (subject to the
limitations of Section 8.6 hereof) so that the business carried on in connection
therewith may be properly and efficiently conducted at all times, and permit the
Bank and its agents to enter upon and inspect such properties during normal
business hours, provided that nothing contained herein shall require Pulaski or
any of its Restricted Subsidiaries to repair, maintain or replace any property
which is not of substantial use in the business of Pulaski or any such
Restricted Subsidiary and nothing contained herein shall prevent Pulaski or any
Restricted Subsidiary from selling or otherwise disposing of any such property
if such property is no longer of substantial use in the business of Pulaski or
such Restricted Subsidiary.
7.6 Employee Benefit Pension Plans. During each year within the time
required by law, pay contributions that in the judgment of the chief executive
and chief financial officers of Pulaski after reasonable inquiry are believed
adequate to meet at least all applicable minimum funding standards set forth in
Sections 302 through 305 of ERISA, with respect to each employee benefit plan of
Pulaski and any of its Subsidiaries covered by ERISA (including any plan of any
24
<PAGE>
member of a controlled group of corporations and all trades and businesses
(whether or not incorporated) under common control which, together with Pulaski
or any of its Subsidiaries, are treated as a single employer, under Section 414
of the Internal Revenue Code of 1986, as amended), and file or cause to be filed
each annual report required to be filed pursuant to Section 103 of ERISA in
connection with each such plan for each year and notify the Bank within ten (10)
days of the occurrence of a Reportable Event (as defined in Section 4043 of
ERISA) that could reasonably be expected to constitute grounds for termination
of any such plan by PBGC or for the appointment by the appropriate United States
District Court of a trustee to administer any such plan, provided that nothing
contained herein shall prohibit Pulaski or any of its Subsidiaries from
terminating any such plan if it has theretofore complied with the provisions of
this Section.
7.7 Compliance With Laws. Comply and cause each of its Subsidiaries to
comply in all material respects with all applicable laws, rules, regulations and
orders of any governmental authority having jurisdiction over them, including,
without limitation, the Americans with Disabilities Act of 1990 and those laws,
rules, regulations and orders relating to the environment.
7.8 Notice of Environmental Matters. Immediately advise the Bank in
writing of (i) any and all enforcement, cleanup, remedial, removal, or other
governmental or regulatory actions instituted, completed or, to the knowledge of
either Borrower, threatened pursuant to any applicable federal, state, or local
laws, ordinances or regulations relating to any Hazardous Materials affecting
the business operations of Pulaski or any of its Subsidiaries, and (ii) all
claims made or, to the knowledge of either Borrower, threatened by any third
party against Pulaski or any of its Subsidiaries relating to damages,
contribution, cost recovery compensation, loss or injury resulting from any
Hazardous Materials and immediately notify the Bank of any remedial action taken
by either Borrower in response to any such action or claim or threatened action
or claim with respect to the business operations of Pulaski or any of its
Subsidiaries.
25
<PAGE>
7.9 Deposit Account. Maintain the principal depository account of
Pulaski with the Bank.
7.10 Repayment of Loans. Repay not less than Three Million Five Hundred
Thousand Dollars ($3,500,000) of term loans (including the Loan) of Pulaski in
each of its fiscal years.
7.11 Year 2000 Compliance. Promptly notify the Bank in the event either
Borrower determines that any computer application which is material to the
operations of Pulaski or any of its Subsidiaries or any of their material
vendors or suppliers will not be fully Year 2000 compliant on a timely basis,
except to the extent that such failure could not reasonably be expected to have
a Material Adverse Effect.
ARTICLE VIII
NEGATIVE COVENANTS
Until payment in full of the Note and performance of all other
obligations of the Borrowers hereunder other than those set forth in Section
11.4, without the written consent of the Bank, Pulaski will not:
8.1 Borrowing. Create, incur, assume or suffer to exist any liability
for borrowed money or the deferred payment for goods and services or permit any
of its Restricted Subsidiaries to create, incur, assume or suffer to exist any
liability for borrowed money or the deferred payment for goods and services,
except (i) liabilities under this Agreement, (ii) liabilities in existence as of
the date of this Agreement which are described on Schedule 1 attached hereto,
(iii) accrued expenses and trade accounts payable arising in the ordinary course
of business and payable on customary terms, (iv) purchase money obligations
26
<PAGE>
(including capitalized lease obligations), provided no such obligations in
excess of Five Hundred Thousand Dollars ($500,000) are incurred in any fiscal
year, and (v) liabilities under any interest rate protection agreement relating
to the Loan or any other indebtedness permitted hereby.
8.2 Mortgages and Pledges. Create, incur, assume or suffer to exist any
mortgage, pledge, lien or other encumbrance of any kind upon, or any security
interest in, any of its property or assets, whether now owned or hereafter
acquired, or permit any of its Restricted Subsidiaries to do so, except (i)
liens for taxes not yet delinquent or being contested in good faith and by
appropriate proceedings; (ii) liens in connection with workers' compensation,
unemployment insurance, or other social security obligations; (iii) deposits or
pledges to secure bids, tenders, contracts (other than contracts for the payment
of money), leases, statutory obligations, surety or appeal bonds, and other
obligations of like nature arising in the ordinary course of business; (iv)
mechanic's, workman's, materialman's, landlord's, carrier's, or other like liens
arising in the ordinary course of business with respect to obligations that are
not due or that are being contested in good faith; (v) mortgages, pledges, liens
and encumbrances in favor of the Bank; (vi) zoning restrictions, easements,
licenses, restrictions on the use of real property or minor irregularities in
the title thereto, which do not, in the opinion of Pulaski, materially impair
the use of such property in the operation of the business of Pulaski or any of
its Subsidiaries or the value of such property for the purposes of such
business; (vii) any mortgage, encumbrance or other lien upon, or security
interest in, any property hereafter acquired by Pulaski or any of its
Subsidiaries created contemporaneously with such acquisition to secure or
provide for the payment or financing of any part of the purchase price thereof,
or the assumption of any mortgage, encumbrance or lien upon, or security
interest in, any such property hereafter acquired existing at the time of such
acquisition, or the acquisition of any such property subject to any mortgage,
27
<PAGE>
encumbrance or other lien or security interest without the assumption thereof to
the extent they are not prohibited under Section 8.6, provided that each such
mortgage, encumbrance, lien or security interest shall attach only to the
property so acquired and fixed improvements thereon; (viii) liens existing on
the date of this Agreement which are described on Schedule 2 attached hereto;
and (ix) liens for judgments which do not otherwise constitute an Event of
Default. Nothing contained in this Section 8.2 shall prohibit either Borrower or
any of its Restricted Subsidiaries from entering into any lease required to be
capitalized by GAAP in accordance with the Financial Accounting Standards Board
Statement No. 13 (Accounting for Leases) in effect on June 1, 1992, provided
such lease is not otherwise prohibited by the terms of this Agreement.
8.3 Merger, Acquisition or Sale of Assets. Enter into any merger or
consolidation with, or acquire all or substantially all of the assets of, any
person, firm, joint venture or corporation (except for investments not exceeding
$5,000,000 in the aggregate), or sell, lease or otherwise dispose of all or
substantially all of its assets except in the ordinary course of its business,
or permit any of its Restricted Subsidiaries to do so.
8.4 Contingent Liabilities. Assume, guarantee, endorse or otherwise
become surety for or upon the obligation of any other person, firm, joint
venture or corporation, or permit any of its Restricted Subsidiaries to do so,
except by the endorsement of negotiable instruments for deposit or collection in
the ordinary course of business.
8.5 Investments. Purchase or acquire the obligations or stock of, or
any other interest in, any other person, firm, joint venture, corporation or
other enterprise whatsoever, or permit any Restricted Subsidiary to do so,
except (i) accounts receivable arising in the ordinary course of its business
and other receivables arising out of the sale of equipment which is not
prohibited by Section 8.3; (ii) certificates of deposit issued by banks that are
members of the Federal Reserve System and have total assets of not less than One
Billion Dollars ($1,000,000,000); (iii) direct obligations of the United States
of America; (iv) obligations of agencies of the United States Government if the
28
<PAGE>
payment of all principal and interest thereof is guaranteed by the United States
of America; (v) commercial paper issued by corporations domiciled in the United
States of America and maturing within nine (9) months or less from the date of
investment and given the highest rating by Moody's Investors Service, Inc. or by
Standard and Poor's Ratings Group, a division of The McGraw Hill Companies,
Inc.; (vi) repurchase agreements having maturities not more than one (1) year
from the date of acquisition which are entered into with banking institutions
described in clause (ii) above; and (vii) money market funds or mutual funds
which invest solely in obligations described in clauses (i), (ii), (iii) and
(iv) of this Section 8.5 and (viii) any such investments which do not exceed
$5,000,000 in the aggregate for Pulaski and its Subsidiaries.
8.6 Capital Expenditures. Make any capital expenditures exceeding Seven
Million Five Hundred Thousand Dollars ($7,500,000) in the aggregate for Pulaski
and its Subsidiaries in fiscal year 1999 or in any fiscal year thereafter, or
permit any of its Subsidiaries to do so.
8.7 Sale and Leaseback. Directly or indirectly enter into, or cause any
of its Restricted Subsidiaries to enter into, any arrangement whereby either
Pulaski or any such Restricted Subsidiary shall sell or transfer any of the
fixed assets then owned by either of them and shall thereupon or within one year
thereafter rent or lease the assets so sold or transferred.
8.8 Loans. Make or permit any of its Restricted Subsidiaries to make
loans or advances to any person, firm, joint venture or corporation, except in
the normal course of business and except that Pulaski or any of its Subsidiaries
may make loans to its employees, provided the aggregate amount of all such loans
to employees (other than advances in the ordinary course of business for travel
and other expenses, which shall not be limited by this section) does not exceed
One Million Dollars ($1,000,000) at any time outstanding.
29
<PAGE>
8.9 Environmental Law Compliance. Use or permit any other party to use
any Hazardous Materials at any of the places of business of Pulaski or any of
its Subsidiaries except such materials as are incidental to their normal course
of business, maintenance and repair, and are in strict accordance with
applicable laws, unless such use will not cause or result in and might not
reasonably be expected to cause or result in a Material Adverse Effect. If the
Bank has reasonable cause to believe that this covenant has or will be violated,
Pulaski agrees to permit the Bank, its agents, contractors and employees to
enter and inspect any of the places of business of Pulaski, and agrees to cause
any of its Subsidiaries to permit such entry and inspection as to any place of
business of such Subsidiary, at any reasonable times upon three (3) days' prior
notice for the purposes of conducting an environmental investigation and audit
(including taking physical samples) to insure that Pulaski is complying with
this covenant and to pay the reasonable costs for such inspections if the Bank
has reasonable cause to believe a violation of this Section has occurred.
Pulaski shall provide the Bank, its agents, contractors, employees and
representatives with access to and copies of any and all data and documents
relating to or dealing with any Hazardous Materials used, generated,
manufactured, stored or disposed of by business operations of Pulaski or any of
its Subsidiaries within five (5) days of the request therefor.
8.10 Use of Proceeds. Use or permit any Subsidiary to use, all or any
part of the proceeds of any of the Loan for the purpose of purchasing or
carrying any margin stock, as that term is defined in Regulation U of the Board
of Governors of the Federal Reserve System, or otherwise in violation of
Regulations G, T, U or X of the Board of Governors of the Federal Reserve
System.
30
<PAGE>
8.11 Business. Engage in any business other than the business in which
Pulaski and its Subsidiaries are presently engaged and any business of
substantially the same type.
8.12 Accounting. Change the fiscal year or method of accounting of
Pulaski.
8.13 Subsidiaries. Organize, acquire or own any Restricted Subsidiary
(other than a Borrower), unless such restricted Subsidiary unconditionally
guarantees the Loan pursuant to a guaranty in form and substance satisfactory to
the Bank and its counsel.
ARTICLE IX
FINANCIAL COVENANTS
Until payment in full of the Note and performance of all other
obligations of the Borrowers hereunder other than those set forth in Section
11.4, without the written consent of the Bank, of the Borrowers will not:
9.1 Funded Debt to EBITDA. Permit the Ratio of Funded Debt to EBITDA of
Pulaski and its Subsidiaries to exceed 3.25 to 1 as of the end of the fiscal
quarters ending on or about April 30, 1999, on or about July 31, 1999, and on or
about October 31, 1999; or to exceed 3.0 to 1 as of the end of the fiscal
quarter ending on or about January 31, 2000, or as of the end of any fiscal
quarter thereafter.
9.2 Funded Debt to Capitalization. Permit the Ratio of Funded Debt to
Capitalization of Pulaski and its Subsidiaries to exceed 0.50 to 1 as of the end
of the fiscal quarter ending on or about April 30, 1999, or as of the end of any
fiscal quarter thereafter.
9.3 Fixed Charge Coverage Ratio. Permit the Fixed Charge Coverage Ratio
of Pulaski and its Subsidiaries to be less than 1.50 to 1 as of the end of the
fiscal quarter ending on or about April 30, 1999, or as of the end of any fiscal
quarter thereafter.
31
<PAGE>
ARTICLE X
EVENTS OF DEFAULT
If one or more of the following events of default (each an "Event of
Default") shall occur:
10.1 Default shall be made by the Borrowers in the payment of any
interest upon the Note when such interest is due and payable, and such default
shall continue for a period of five (5) days; or
10.2 Default shall be made in the payment of any principal of the Note,
when and as the same becomes due and payable, whether at the stated maturity
thereof or by acceleration or otherwise; or
10.3 Default shall be made in the due observance or performance of any
term, covenant, or agreement contained in Article VIII or Article IX of this
Agreement and such default shall continue unremedied for a period of thirty (30)
days, or default shall be made in the due observance or performance of any other
term, covenant or agreement contained in this Agreement and such default shall
continue unremedied for a period of thirty (30) days after written notice
thereof from the Bank to the Borrowers; or
10.4 Default shall be made in the payment of any installment of
principal or interest on any indebtedness of Pulaski or any of its Subsidiaries
to the Bank other than the Loan, when and as the same becomes due and payable,
whether at the stated maturity thereof or by acceleration or otherwise; or
32
<PAGE>
10.5 A custodian, other than a trustee, receiver or agent appointed or
authorized to take charge of less than substantially all of the property of
Pulaski or any of its Restricted Subsidiaries for the purpose of enforcing a
lien against such property, is appointed for, or takes possession of any
material property or assets of, Pulaski or any of its Restricted Subsidiaries;
or
10.6 Any representation or warranty made by either Borrower herein or
any statement or representation made in any certificate, report or opinion
delivered pursuant hereto shall prove to have been incorrect in any material
respect when made; or
10.7 Either Pulaski or any of its Restricted Subsidiaries shall be
generally not paying its debts as such debts become due, shall become insolvent
or unable to meet its obligations as they mature, shall make an assignment for
the benefit of creditors, shall consent to the appointment of a trustee or a
receiver, or shall admit in writing its inability to pay its debts as they
mature; or
10.8 A trustee or receiver (other than a custodian described in Section
10.5) shall be appointed for Pulaski or any of its Restricted Subsidiaries or
for a substantial part of the properties of any of them without the consent of
either Borrower, as the case may be, and not be discharged within thirty (30)
days; or
10.9 Any case in bankruptcy shall be commenced, or any reorganization,
arrangement, insolvency or liquidation proceedings shall be instituted, by or
against Pulaski or any of its Restricted Subsidiaries, and, if commenced or
instituted against either, be consented to by any of them, as the case may be,
or remain undismissed for a period of forty-five (45) days; or
10.10 Any default shall be made in the performance of any other
obligation or obligations incurred in connection with any indebtedness for
borrowed money of Pulaski or any of its Subsidiaries aggregating One Million
Dollars ($1,000,000) or more, if such default causes the holder of such notes or
indebtedness (or a trustee on behalf of such holder) to cause them or it to
become due prior to their or its stated maturity, or any such note or
indebtedness becomes due prior to its stated maturity or shall not be paid when
due; or
33
<PAGE>
10.11 One or more final judgments for the payment of money aggregating
in excess of One Million Dollars ($1,000,000) which is or are not adequately
insured or indemnified against shall be rendered at any time against Pulaski or
any of its Subsidiaries (and not satisfied or otherwise discharged) and the same
shall remain undischarged for a period of thirty (30) days during which time
execution shall not be effectively stayed; or
10.12 Either Pulaski or any of its Restricted Subsidiaries shall be in
default under the terms of any interest rate protection agreement to which
either Pulaski or any of its Restricted Subsidiaries is a party and such default
shall continue after any applicable grace period or if there is no grace period,
for a period of thirty (30) days, or as a result of any default any other party
to such agreement shall have the right to exercise any remedy thereunder; or
10.13 Any substantial part of the properties of Pulaski or any of its
Restricted Subsidiaries shall be sequestered or attached and shall not have been
returned to the possession of Pulaski or any of its Restricted Subsidiaries or
released from such attachment within thirty (30) days; or
10.14 The occurrence of a Reportable Event as defined in Section 4043
of ERISA which could constitute grounds for termination of any employee benefit
plan of Pulaski or any of its Subsidiaries covered by ERISA by the PBGC or
grounds for the appointment by the appropriate United States District Court of a
trustee to administer any such plan, then, (A) upon the occurrence of an Event
of Default described in Section 10.9 hereof, (i) the entire outstanding
principal balance of the Note and all accrued interest thereon and all other
amounts payable by the Borrowers to the Bank shall automatically and immediately
become due and payable without presentment, demand, protest or any notice of any
kind, or any other action by or on behalf of the Bank, all of which are hereby
waived, anything contained herein or in the Note to the contrary
notwithstanding, and (ii) the Bank may proceed to enforce payment of the Note
and to exercise any and all of its rights hereunder, under the Note, or
otherwise available to the Bank, and (B) upon the occurrence of any Event of
Default other than an Event of Default described in Section 10.9 hereof, the
Bank may, by written notice to Pulaski, declare the Note to be forthwith due and
payable, whereupon the Note shall be forthwith due and payable, both as to
principal and interest, without presentment, demand, protest or any other notice
34
<PAGE>
of any kind, all of which are hereby expressly waived, anything contained herein
or in the Note to the contrary notwithstanding, and the Bank may proceed to
enforce payment of the Note and exercise any and all of their rights hereunder,
under the Note or otherwise available to the Bank. In the event the Bank demands
payment under the provisions of this Section 10 during any unexpired Interest
Period, the Borrowers will pay, in addition to principal and interest, all
reasonable losses, expenses and liabilities which Bank may sustain as the result
of such acceleration (including, without limitation, breakage costs and funding
losses, determined as provided in Section 4.2).
35
<PAGE>
ARTICLE XI
MISCELLANEOUS PROVISIONS
11.1 Costs and Expenses. The Borrowers will pay all reasonable
out-of-pocket expenses incurred by the Bank in connection with the negotiation
and preparation of this Agreement and the Note (whether or not the transactions
hereby contemplated shall be consummated), the making of the Loan hereunder, any
waiver of any provision hereof, or any amendment or amendment and restatement
hereof, the enforcement of the rights of the Bank in connection with this
Agreement or with the Loan or the Note, including, but not limited to, the
reasonable fees and disbursements of counsel for the Bank, provided the fees of
counsel for the negotiation and preparation of this Agreement and the Note do
not exceed Fifteen Thousand Dollars ($15,000).
11.2 Setoffs. If an Event of Default shall have occurred and be
continuing, the Bank shall have the right to setoff against all property of
either Borrower now or at any time hereafter in the Bank's possession in any
capacity whatever (including, without limitation, any balance or share of any
deposit, trust or agency account) as security for all liabilities of the
Borrowers to the Bank.
11.3 Cumulative Rights and No Waiver. Each and every right granted to
the Bank hereunder or under any other document delivered hereunder or in
connection herewith, or allowed it by law or equity, shall be cumulative and may
be exercised from time to time. No failure on the part of the Bank to exercise,
and no delay in exercising, any right shall operate as a waiver thereof, nor
shall any single or partial exercise by the Bank of any right preclude any other
or future exercise thereof or the exercise of any other right.
11.4 Indemnification of the Bank
(a) Each Borrower shall indemnify, defend and hold the Bank and its
respective successors and assigns harmless from and against any and all claims,
demands, suits, losses, damages, assessments, fines, penalties, reasonable costs
36
<PAGE>
or other expenses (including reasonable attorneys' fees and court costs) arising
from or in any way related to actual or threatened damage to the environment,
agency costs of investigation, personal injury or death, or property damage, due
to a release or alleged release of Hazardous Materials, arising from the
business operations of Pulaski or any of its Subsidiaries or in the surface or
ground water arising from the business operations of Pulaski or any of its
Subsidiaries or gaseous emissions arising from the business operations of
Pulaski or any of its Subsidiaries or any other condition existing or arising
from the business operations of Pulaski or any of its Subsidiaries resulting
from the use or existence of Hazardous Materials, whether such claim proves to
be true or false. The term "property damage" as used in this paragraph includes,
but is not limited to, damage to any real or personal property of Pulaski or any
of its Subsidiaries, the Bank or any third parties. The obligations of the
Borrowers under this paragraph shall survive the repayment of the Loan.
(b) From and at all times after the date of this Agreement, and in
addition to all of the Bank's other rights and remedies against the Borrowers,
each Borrower agrees to hold the Bank harmless from, and to indemnify the Bank
against all losses, damages, reasonable costs and expenses (including, but not
limited to, reasonable attorneys' fees, costs and expenses) incurred by the Bank
from and after the date hereof, whether direct, indirect or consequential, as a
result of or arising from or relating to any suit, action or proceeding by any
person other than one of the Borrowers, whether threatened or initiated,
asserting a claim for any legal or equitable remedy against any person under any
statute or regulation, including, but not limited to, any federal or state
securities laws, or under any common law or equitable cause or otherwise,
arising from or in connection with the negotiation, preparation, execution or
performance of, or the financing transactions contemplated by, this Agreement,
the Note and any other documents relating to the Loan, or the furnishing of
37
<PAGE>
funds to either Borrower by the Bank, pursuant to this Agreement; provided,
however, that the foregoing indemnification shall not protect the Bank from
loss, damage, cost or expense directly attributable to its willful misconduct or
gross negligence. All of the foregoing losses, damages, reasonable costs and
expenses of the Bank shall be payable by the Borrowers within five (5) days
after demand by the Bank.
(c) The undertakings contained in this Section 11.4 are in addition to
any contained in any security agreement, deed of trust or other collateral
document now or hereafter delivered to or for the benefit of the Bank.
11.5 Mandatory Arbitration. Any controversy or claim between or among
the parties hereto, including, but not limited to, those arising out of or
relating to this Agreement, the Note or any other related agreements or
instruments, including any claim based on or arising from an alleged tort, shall
be determined by binding arbitration in accordance with the Federal Arbitration
Act (or if not applicable, the applicable state law), the Rules of Practice and
Procedure for the Arbitration of Commercial Disputes of J.A.M.S./Endispute or
any successor thereof ("J.A.M.S.") and the "Special Rules" set forth below. In
the event of any inconsistency, the Special Rules shall control. Judgment upon
any arbitration award may be entered in any court having jurisdiction. Any party
to this Agreement may bring an action, including a summary or expedited
proceeding, to compel arbitration of any controversy or claim to which this
Agreement applies in any court having jurisdiction over such action.
(a) Special Rules. The arbitration shall be conducted in Roanoke,
Virginia, and administered by J.A.M.S. who will appoint an arbitrator; if
J.A.M.S. is unable or legally precluded from administering the arbitration, then
38
<PAGE>
the American Arbitration Association will serve. All arbitration hearings will
be commenced within ninety (90) days of the demand for arbitration; further, the
arbitrator shall, upon a showing of cause, be permitted to extend the
commencement of such hearing only for up to an additional sixty (60) days.
(b) Reservations of Rights. Nothing in this Agreement shall be deemed
to (i) limit the applicability of any otherwise applicable statutes of
limitation or repose and any waivers contained in this Agreement; (ii) be a
waiver by the Bank of the protection afforded to it by 12 U.S.C. ss. 91 or any
substantially equivalent state law; (iii) limit the right of the Bank (A) to
exercise self-help remedies such as (but not limited to) setoff, or (B) to
foreclose against any real or personal property collateral, or (C) to obtain
from a court provisional or ancillary remedies such as (but not limited to)
injunctive relief, writ of possession or the appointment of a receiver or the
right of Pulaski or Dawson to contest any such action; or (iv) limit the right
of any party to initiate a proceeding under the United States Bankruptcy Code.
The Bank may exercise such self-help rights, foreclose upon such property, sell
or otherwise dispose of collateral after default or obtain such provisional or
ancillary remedies before, during or after the pendency of any arbitration
proceeding brought pursuant to this Agreement. Neither the exercise of self-help
remedies nor the institution or maintenance of an action for foreclosure or for
provisional or ancillary remedies shall constitute a waiver of the right of any
party, including the claimant in any such action, to arbitrate the merits of the
controversy or claim occasioning resort to such remedies. No provision in this
Agreement regarding submission to jurisdiction and/or venue in any court is
intended or shall be construed to be in derogation of the provisions in this
Agreement for arbitration of any controversy or claim.
11.6 Joint and Several Obligations. The obligations of the Borrowers
under this Agreement and the Note shall be joint and several.
39
<PAGE>
11.7 Notices. Any notice shall be conclusively deemed to have been
received by a party hereto and be effective on the day on which delivered to
such party at the addresses set forth below (or at such other address as such
party shall specify to the other party in writing) or if sent by registered or
certified mail, on the third business day after the day on which mailed,
addressed to such party at said address:
If to the Borrowers:
Pulaski Furniture Corporation
One Pulaski Square
Post Office Box 1371
Pulaski, Virginia 24301
Attn: Carl Hoffman
Chief Financial Officer
If to the Bank:
NationsBank, N.A.
302 South Jefferson Street (Zip 24011)
Post Office Box 14111
Roanoke, Virginia 24038-4111
Attn: James D. Cockey
Senior Vice President
11.8 Accounting Terms. Except as otherwise expressly provided herein,
all accounting terms used herein shall be interpreted, and all financial
statements and certificates and reports as to financial matters required to be
delivered to the Bank hereunder shall be prepared, in accordance with GAAP
except that interim financial statements shall be subject to year-end
adjustments and the omission of footnotes.
40
<PAGE>
11.9 Entire Agreement. This Agreement (including the Note and other
agreements and documents referred to herein) constitutes the entire agreement
between the parties and supersedes all prior agreements and understandings, oral
and written, between the parties with respect to the subject matter hereof.
11.10 Applicable Law. This Agreement and the Note shall be construed in
accordance with and governed by the laws of the Commonwealth of Virginia.
11.11 Amendments, Etc. No amendment of any provision of this Agreement
or the Note shall be effective unless it is in writing and signed by the
Borrowers and the Bank, and no waiver of any provision of this Agreement or the
Note, nor consent to any departure by either Borrower therefrom, shall be
effective unless it is in writing and signed by the Bank. Any waiver or consent
shall be effective only in the specific instance and for the specific purpose
for which it is given.
11.12 Survivorship. All covenants, agreements, representations and
warranties made herein and in the certificates delivered pursuant hereto shall
survive the making of the Loan herein contemplated and the execution and
delivery of the Note and shall continue in full force and effect so long as the
Note is outstanding and unpaid. Whenever in this Agreement any of the parties
hereto is referred to, such reference shall be deemed to include the successors
and assigns of such party; and all covenants, promises and agreements by or on
behalf of either Borrower which are contained in this Agreement shall bind and
inure to the benefit of the successors and assigns of the Bank.
11.13 Headings. Section and Section headings in this Agreement are
included herein for convenience of reference only and shall not constitute a
part of this Agreement for any other purpose.
41
<PAGE>
11.14 Execution in Counterparts. This Agreement may be executed in any
number of counterparts, each of which when so executed and delivered shall be
deemed to be an original and all of which taken together shall constitute but
one and the same instrument.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
42
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed by their duly authorized officers, all as of the day and year first
above written.
PULASKI FURNITURE CORPORATION
By
---------------------------------
Its
--------------------------------
DAWSON FURNITURE COMPANY, INC.
By
---------------------------------
Its
--------------------------------
NATIONSBANK, N.A.
By
---------------------------------
Its
--------------------------------
Exhibit 4.2
TERM LOAN NOTE
Due October 31, 2005
$17,000,000 February 26, 1999
Roanoke, Virginia
FOR VALUE RECEIVED, PULASKI FURNITURE CORPORATION ("Pulaski"), a
Virginia corporation, and DAWSON FURNITURE COMPANY, INC. ("Dawson"), a Virginia
corporation, jointly and severally promise to pay to the order of NATIONSBANK,
N.A. (the "Bank") at its office at 302 South Jefferson Street, Roanoke, Virginia
24011-2010, or at such other place as the Bank may from time to time designate
in writing, the principal sum of Seventeen Million and 00/100 Dollars
($17,000,000) in twenty-seven (27) principal installments with the first
installment due on April 30, 1999, and with subsequent installments due on each
July 31, October 31, January 31 and April 30 thereafter to and including October
31, 2005 (each an "Installment Payment Date"), on which date the entire unpaid
principal balance and all accrued and unpaid interest will be due and payable.
Each of the first twelve (12) installments shall be in the principal amount of
Three Hundred Seventy-Five Thousand Dollars ($375,000). Each of the thirteenth
through the sixteenth installments which shall be due and payable on April 30,
2002, July 31, 2002, October 31, 2002 and January 31, 2003 shall be in the
principal amount of Seven Hundred Fifty Thousand Dollars ($750,000). Each of the
seventeenth through the twenty-sixth installments which shall be due on the
Installment Payment Dates commencing on April 30, 2003 and continuing on each
Installment Payment Date thereafter through July 31, 2005 shall be in the
principal amount of Eight Hundred Seventy-Five Thousand Dollars ($875,000). The
twenty-seventh installment, which shall be due on October 31, 2005 shall be in
the principal amount of Seven Hundred Fifty Thousand Dollars ($750,000). Pulaski
and Dawson also jointly and severally promise to pay interest on the unpaid
principal balance of such sum from the date hereof at the rates and on the dates
set forth in the Loan Agreement (as hereinafter defined) until the same shall be
paid in full. In any event, the entire unpaid principal balance of this Note and
all accrued and unpaid interest will be due and payable on October 31, 2005.
If any installment of interest is not paid within ten (10) days of its
due date, Pulaski and Dawson jointly and severally agree to pay the holder of
this Note on demand a late charge of two percent (2%) of the amount of the
installment.
This Note evidences a borrowing under, and is subject to, the terms of
a Term Loan Agreement dated February 26, 1999 (the "Loan Agreement") by and
among Pulaski, Dawson and the Bank.
Pulaski and Dawson shall have the right to make prepayments as provided
in the Loan Agreement.
The events of default (the "Events of Default") hereunder are described
in the Credit Agreement and are incorporated herein by reference. The entire
unpaid amount of the principal of this Note and all accrued interest will
automatically become due upon the Event of Default described in Section 10.9 of
the Loan Agreement. In the event of any or all of the other Events of Default,
the entire unpaid principal amount of this Note and all accrued interest thereon
may be declared due and payable in the manner and with the effect provided in
the Loan Agreement.
Presentment, protest and notice of dishonor are hereby waived by
Pulaski and Dawson and all endorsers hereon. Pulaski and Dawson jointly and
severally agree to pay all costs of collection, including reasonable attorneys'
fees, if after an Event of Default this Note be placed in the hands of an
attorney for collection, or if after an Event of Default the holder finds it
necessary or desirable to secure the services or advice of an attorney with
regard to collection.
IN WITNESS WHEREOF, PULASKI FURNITURE CORPORATION and DAWSON FURNITURE
COMPANY, INC. have caused their names to be signed by their duly authorized
officers this date first above written.
PULASKI FURNITURE CORPORATION
By
---------------------------------
Its
--------------------------------
DAWSON FURNITURE COMPANY, INC.
By
---------------------------------
Its
--------------------------------
Exhibit 10.7
March 2, 1999
Mr. Bernard C. Wampler
Pulaski, Virginia 24301
Dear Bernard:
This will confirm the agreement pursuant to which you will retire as a
member of the Board of Directors of Pulaski Furniture Corporation, and remain as
a consultant to the Company for the three-year period beginning today.
1. Pulaski agrees to repurchase the 68,641 shares of common stock of Pulaski
Furniture Corporation owned by you (including 9,200 shares issuable to you
under the Stock Incentive Plan) for a price of $21.70 a share, this being
the average closing market price for PFC stock for the four-week period
ended Friday, February 19, 1999. Pulaski Furniture Corporation's check in
the amount of $1,489,510 will be delivered to you by Spencer Rygas on March
15, 1999, at a time and place upon which you and he agree.
2. Pulaski agrees to pay you a consulting fee in the amount of $325,855 in
twelve equal quarterly installments with the first such payment being paid
on March 15, 1999, in the amount of $27,154.58. In the event you are to
pass away during the consulting period, the remaining payments will be paid
on the same schedule to the Bernard C. Wampler Family Limited Partnership.
3. The SERP and the Deferred Compensation Agreement of December 2, 1997 will
continue in effect in accordance with their terms. For example, when the
deferred compensation payments terminate in approximately 20 years, the
SERP payments will be calculated based on the SERP plan without the offset
previously required when deferred compensation payments were also received.
4. Pulaski Furniture Corporation will maintain your current level of medical
insurance benefits using Medicare and a supplement.
5. The Company will continue to pay the premiums on the life insurance policy
on your life issued by Ohio National Insurance Company, in the principal
amount of $250,000 between ages 65 and 70; $200,000 between 70 and 75; and
$100,000 after age 75.
6. You will vacate your office at Pulaski Furniture Corporation headquarters
by March 31, 1999, and you will take with you the three bachelor chests on
the wall that are full of your materials, as well as the pine bookcase. The
other furniture will remain.
7. You will change your mailing address, but it is understood that you
probably will continue to receive mail at Pulaski Furniture Corporation
headquarters for some time. Janice Cheverton will see that mail addressed
to you is put in the blue pouch with your name and that this is put in the
mail slot so that you can pick it up at your convenience.
8. We have agreed that there should be an internal statement regarding your
retirement and this will be reviewed with you as soon as possible.
9. As stated above, the shares being purchased from you by the Corporation
include 9,200 shares issuable under the Stock Incentive Plan. Pulaski
agrees that it is to pay 25% of the issue value of these shares, as
provided under the Plan, which is intended to pay all or part of the state
and federal withholding taxes on these 9,200 shares.
10. We have discussed having a retirement dinner and that matter is left with
the Board of Directors for resolution.
11. You agree that you will consult with the President and the Board of
Directors of the Corporation from time to time over the next three years on
a basis that is not burdensome to you, and at times that are reasonable in
accordance with your schedule. Pulaski will, of course, pay reasonable
out-of-pocket expenses in connection with any such consultation. You also
agree that you will not compete with the Corporation, directly or
indirectly, during the term of this agreement and within a reasonable range
of any of the Corporation's operations, you will preserve in confidence all
nonpublic information about the Corporation that you have or may acquire in
the future, and you agree not to make adverse statements about the
Corporation or its officers or employees; and you will protect the trade
secrets of the Corporation.
I have signed this letter agreement in the space provided below after
approval by the Board of Directors, and if this letter agreement is agreeable to
you, please sign and return one of the duplicate originals to me.
Sincerely,
/s/ John G. Wampler
-------------------------------------
John G. Wampler
President and Chief Executive Officer
/s/ Bernard C. Wampler
- ------------------------------
Bernard C. Wampler
<TABLE>
Exhibit 11
PULASKI FURNITURE CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
<CAPTION>
October 31, November 1, November 2
1999 1998 1997
--------------- --------------- ----------------
<S> <C> <C> <C>
Numerator:
Net income (loss) $ 7,932,171 $ 6,397,397 $ (2,422,844)
Numerator for dilutive earnings
per share-income available to
common shareholders after
assumed conversions $ 7,932,171 $ 6,397,397 $ (2,422,844)
=============== =============== ================
Denominator:
Denominator for basic earnings per
share-weighted average shares 2,850,281 2,819,838 2,789,628
Effect of dilutive securities:
Employee stock options 4,238 7,890 0
Stock purchase plan 18,430 12,348 0
--------------- --------------- ----------------
Denominator for dilutive earnings
per share-adjusted weighted
average shares after assumed
conversions 2,872,949 2,840,076 2,789,628
=============== =============== ================
Basic earnings (loss) per share $2.78 $2.27 $(0.87)
=============== =============== ================
Dilutive earnings (loss) per share $2.76 $2.25 $(0.87)
=============== =============== ================
</TABLE>
Exhibit 13
PULASKI FURNITURE CORPORATION
[Photographs of furniture items]
1999 ANNUAL REPORT
<PAGE>
CONTENTS
Message to Shareholders ....................................1
General Information ........................................2
Selected Financial Data ....................................3
Management's Discussion and Analysis .......................4
Consolidated Balance Sheets ................................6
Consolidated Statements of Operations
and Retained Earnings .............................8
Consolidated Statements of Cash Flows ......................9
Notes to Consolidated Financial Statements ................10
Report of Independent Auditors ............................16
[Photographs of furniture items]
Pulaski's apothecary chest offers hand painted drawer labels, felt-lined
drawers, and attractive glass doors for storage. This charming piece blends time
and functionality together and becomes a centerpiece in a bath or powder room
that creates a nostalgic atmosphere.
<PAGE>
[Photograph of Directors Appears Here]
DIRECTORS OF PULASKI FURNITURE CORPORATION; HARRY H. WARNER, ROBERT C. GREENING,
JR., JOHN G. WAMPLER, HARRY J.G. VAN BEEK, HUGH V. WHITE, JR.
1999 MESSAGE TO SHAREHOLDERS
1999 was another year of improvement at Pulaski Furniture. Marketing
initiatives paid off during the year and resulted in record sales of
$198,231,000, which was a fifteen percent increase over revenues in 1998.
Earnings reached record levels as net income grew twenty-four percent to
$7,932,000, or $2.76 per share. The fourth quarter of 1999 marked the eighth
consecutive quarter of improved earnings for the Corporation.
As we enter the new millennium and your Corporation prepares to
celebrate its forty-fifth anniversary, we continue to witness significant
changes in three areas of the furniture industry. The retail base in North
America is consolidating with strong regional players grabbing a larger share of
the market. The proliferation of goods from offshore has accelerated and will
forever transform our industry. We also see technology playing a bigger role in
the furniture industry with the emergence of the Internet as a key medium for
business-to-business commerce and eventually as an integral component of our
retail partners' marketing plans. Pulaski Furniture is well prepared to prosper
in the new furniture industry that is being shaped by these three influences.
Our business will grow as we see more consolidation among retailers
since we are fortunate to count the strongest retailers as our customers. Our
customers are increasing their market share. They are sophisticated buyers who
are supported by efficient systems and advanced logistics. They demand world
class value and immediate delivery. We feel strongly that the days of the
mediocre generalist as a supplier are gone in our industry. Our customers will
buy the best of every category from a range of suppliers. Therein lies a large
challenge for Pulaski Furniture in that we have been recognized as the premier
supplier only in our key niches of collectors' cabinets, grandfather clocks, and
imported accent pieces at medium price points. We have to develop new niches in
order to achieve our long-term goal of sales growth at two to three times the
rate of our industry.
We have a clear vision to support our growth plans. We must not only
maintain and grow our current niches, but must also become a key supplier of
fashion forward bedroom and dining room furniture with superior quality at
medium price points that we will manufacture in Asia. We introduced the first
groups of this new niche at the April and October High Point markets this year.
They were well received and will be our main source of growth in 2000.
As we see more furniture from offshore, primarily from Asia, many
domestic manufacturers are scrambling to establish resources overseas. Your
Corporation has been sourcing in Asia for over twelve years and is well
established. We have the staff and systems in place with our suppliers in Asia
to seize the opportunity for growth.
It was fortuitous that we transitioned from an environment of mid-range
computers and proprietary centralized programming to a client server network in
1996. Our systems lend themselves to using the Internet as we already manage our
import division with Windows based applications on the Internet. Unlike products
that can be sent via UPS, our furniture requires a strong infrastructure for
delivery and service. As a result, the Internet has yet to emerge as a major
force for the retail of furniture. We are confident that our customers
understand the challenges and possess the financial resources to figure it out,
thereby ensuring that Pulaski Furniture will capture its share of e-commerce
with consumers in the future.
We were able to successfully complete the acquisition of Dawson
Furniture this year, and they are now fully integrated in the Pulaski Furniture
family. It is a pleasure to work with Jim Dawson, the president of Dawson, and
his management team. They made a significant contribution to our bottom line
this year and are poised for another good year.
Jason Gibbs, our Chief Financial Officer, retired in 1999 after
twenty-nine years of service. His professionalism and dedication to the
integrity of our financial systems and reports helped build a strong company. We
wish him the best in retirement.
In closing, we must reiterate that your management team is far from
satisfied with our results. We must continue to grow sales and profits, as well
as continue to adapt to the changing market place and more efficiently utilize
capital. We appreciate the support and patience of our shareholders. In a year
that we grew the value of the company, it has been frustrating to see our stock
price decline as Pulaski Furniture was caught up in the malaise of the
undervalued small market capitalization stocks. Our shareholders can rest
assured that management will continue to endeavor with all its energy to drive
the operations of the Corporation to new levels and to enhance shareholder
value.
We appreciate the dedication and hard work of our employees and sales
representatives in making this a record year. We also want to thank our Board of
Directors for their support and wise counsel.
Sincerely,
/s/ John G. Wampler
John G. Wampler
President and Chief Executive Officer
1999 Annual Report 1
<PAGE>
GENERAL INFORMATION
Organized in Virginia in 1955, the Corporation manufactures and sells
medium-priced wooden bedroom, dining room and occasional furniture produced in
its manufacturing plants located in Pulaski, Dublin, and Martinsville, Virginia
as well as Webb City, Missouri. The Corporation also has a veneer plant located
in Dublin, Virginia, which produces veneer used at all Virginia manufacturing
plants. The Corporation's Ridgeway division manufactures grandfather, mantel and
wall clocks and is located in Ridgeway, Virginia. The Corporation also has an
import division that supplements its' product mix with furniture and components
parts.
At October 31, 1999, the end of the Corporation's 1999 fiscal year,
2,862,131 shares of the Corporation's 10 million authorized shares of common
stock were outstanding. In addition, the Corporation has authorized one million
shares of Cumulative Preferred stock of which no shares were outstanding.
MARKET AND DIVIDEND INFORMATION
Pulaski Furniture Corporation's stock is listed on the NASDAQ National
Market System, which is the most active listing of over-the-counter quotations.
During the fiscal year 1999, the Corporation believes that Wheat First
Securities, Inc., of Richmond, Virginia, was the most active market maker for
the stock. The Corporation has approximately 700 stockholders of record as of
October 31, 1999. The range of closing sales prices as reported by NASDAQ and
cash dividends for the last two fiscal years are listed in the following chart.
The market quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commissions and may not necessarily represent actual transactions.
SALES PRICES OF COMMON STOCK
Fiscal 1999 Dividends
Quarter High Low Declared 1999
- -------------------------------------------------------------
First........ $26.00 $19.50 $0.17
Second....... 23.063 18.625 $0.17
Third........ 22.00 19.00 $0.17
Fourth....... 21.50 14.00 $0.17
Fiscal 1998 Dividends
Quarter High Low Declared 1998
- --------------------------------------------------------------
First........ $19.75 $17.75 $0.17
Second....... 26.00 18.75 $0.17
Third........ 27.00 24.00 $0.17
Fourth....... 25.50 19.50 $0.17
[Photo appears here]
MONACO'S EXQUISITE MULE CHEST HAS UNDENIABLE PRESENCE IN ANY SETTING. THIS PIECE
IS A TESTAMENT TO THE STRENGTHS OF THE DESIGN ELEMENTS OF THIS GROUP, WHICH
INCLUDE THE INCORPORATION OF OLD WORLD ELEGANCE AND TIMELESS CLASSIC DESIGN.
2 Pulaski Furniture Corporation
<PAGE>
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Years Ended
------------------------------------------------------------------------------------------
October 31, November 1, November 2, November 3, October 29,
1999 1998 1997 1996 1995
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Sales $ 198,230,681 $ 172,359,659 $ 158,942,459 $ 166,646,062 $ 172,842,105
Net Income 7,932,171 6,397,397 (2,422,844) 4,308,067 4,475,171
Earnings Per Share 2.76 2.25 (.87) 1.51 1.56
Total Assets 152,866,400 117,627,771 110,879,450 124,335,635 118,675,813
Long-Term Debt 36,379,227 23,764,884 25,774,173 27,851,222 29,354,804
Cash Dividends Per Share 0.68 0.68 0.68 0.64 0.60
Book Value Per Share 22.34 20.46 19.10 20.72 19.78
Net Working Capital 60,457,667 51,504,949 48,984,594 52,771,424 51,787,988
Current Ratio 2.7 2.8 2.9 2.6 2.9
</TABLE>
QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a tabulation of the unaudited quarterly results of
operations for the fiscal years ended October 31, 1999 and November 1, 1998
(dollars in thousands, except earnings per share).
<TABLE>
<CAPTION>
First Quarter Second Quarter Third Quarter Fourth Quarter Total
(12 Weeks in (12 Weeks in (12 Weeks in (16 Weeks in (52 Weeks in
1999 and 1998) 1999 and 1998) 1999 and 1998) 1999 and 1998) 1999 and 1998)
--------------------------------------------------------------------------------
October 31, 1999
<S> <C> <C> <C> <C> <C>
Net Sales $ 40,942 $ 43,701 $ 39,872 $ 73,716 $198,231
Gross Profit 7,945 8,266 8,151 18,266 42,628
Net Income 1,291 1,505 800 4,336 7,932
Basic earnings per share 0.45 0.52 0.28 1.53 2.78
Diluted earnings per Share 0.45 0.52 0.28 1.51 2.76
November 1, 1998
Net Sales $ 36,310 $ 39,268 $ 32,687 $ 64,095 $172,360
Gross Profit 7,095 7,763 6,809 15,351 37,018
Net Income 1,000 1,158 533 3,706 6,397
Basic earnings per share 0.36 0.41 0.19 1.31 2.27
Diluted earnings per share 0.35 0.41 0.19 1.30 2.25
</TABLE>
FORWARD LOOKING STATEMENTS
Some of the information presented in the following report, particularly
in the Year 2000 Update of the Management Discussion and Analysis and in the
Capital Resources and Liquidity Section, constitutes forward-looking comments
within the meaning of the Private Securities Litigation Reform Act of 1995.
Although the Corporation believes its expectations are based on reasonable
assumptions within the bounds of its knowledge of its businesses and operations,
there can be no assurance that actual results will not differ materially from
its expectations. Factors which could cause actual results to differ from
expectations include, without limitation, the timing of orders received from
customers, the gain or loss of significant customers, competition from other
manufacturers, changes in the demand for the Corporation's products, increases
in the cost of the product, changes in the market in general, fluctuations in
currencies, and possible problems incurred in the Year 2000 Strategic Plan.
1999 Annual Report 3
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
1999 COMPARED TO 1998
The fiscal 1999 net income was $7,932,171, or $2.76 per share, as
compared to $6,397,397, or $2.25 per share for fiscal 1998. The acquisition of
Dawson Heritage Furniture Company, completed on February 28, 1999, impacted most
categories in the year-to-year comparison of operations.
Net sales increased by approximately $25.8 million, which includes
$15.2 million added by the Dawson operation since February 28, 1999. It should
be noted that a substantial portion, approximately 30%, of the Dawson sales
contribution resulted from the reallocation of Pulaski product to Dawson
facilities in order to optimize our production capacity. Excluding acquisition
related sales, the increase was driven primarily by successful introductions in
the bedroom casegoods segment and a strong retail environment during the fiscal
year. Export sales increased slightly, but due to the addition of Dawson sales
in the consolidated total, the export percentage of net sales dropped to 6% in
1999 versus 7% in 1998.
Cost of goods sold for fiscal 1999 was 78.50% versus 78.52% for fiscal
1998. Selling, general and administrative expenses as a percentage of net sales
was 14.59% for fiscal 1999 as compared to 14.65% for fiscal 1998.
The Corporation's average amount of outstanding indebtedness was
approximately $48,690,000 in fiscal 1999 versus approximately $31,420,000 in
1998. The increase was due primarily to the additional financing associated with
the Dawson acquisition and to higher levels of short-term borrowing during the
year. The weighted average borrowing rates for the fiscal years of 1999, 1998
and 1997 were 5.41%, 5.40% and 5.65%, respectively. Net interest expense, as a
percentage of net sales, rose from 1.01% in 1998 to 1.28% in 1999 due primarily
to the higher level of outstanding debt.
Miscellaneous other income for fiscal 1999 included $484,183 for
marketing related services provided to Dawson Heritage Furniture Company prior
to the acquisition and $436,565 in income from marketable securities received as
a result of the demutualization of a life insurance company.
1998 COMPARED TO 1997
The fiscal 1998 net income was $6,397,397, or $2.25 per share compared
to net loss of $2,422,844, or $0.87 per share for fiscal 1997. The 1997 net loss
included non-recurring, non-cash after tax write-down of certain assets and
inventories amounting to $5,923,702, or $2.10 per share.
The Corporation shipped 15% more units in fiscal 1998 at a higher
average unit price of approximately 2%. The increase in sales was due,
primarily, to the development of marketing programs that capitalized on the
improvement in the retail furniture environment during fiscal 1998. The
Corporation is not certain how long this improvement in the retail furniture
environment will last into the future. Export sales for fiscal 1998 were
approximately 7% of net sales compared to approximately 5% in 1997.
Cost of product sold for fiscal 1997 included an inventory write-down
of $9,047,698. Excluding the write-down, cost of products sold for fiscal 1997
was 78.81% versus 78.52% for fiscal 1998.
Selling, general and administrative expenses as a percentage of net
sales were 14.65% for fiscal 1998 and 16.15% for fiscal 1997. The decrease in
the percentage is due to the increased sales without increases in expenses.
The Corporation's average amount of outstanding indebtedness for
borrowed money was $40,802,594 in fiscal 1997 and $31,419,610 in fiscal 1998.
The weighted average borrowing rates for the three fiscal years of 1996, 1997
and 1998 were 5.68%, 5.65% and 5.40%, respectively. The lower interest expense
for fiscal 1998 was due to the lower average outstanding indebtedness and the
lower interest rates.
Miscellaneous other deductions for fiscal 1997 included a loss on
disposal of the Craftique division and the domestic seating line.
INTEREST RISK DISCLOSURES
Because the Corporation's obligations under the bank credit agreements
bear interest at variable rates, the Corporation is sensitive to changes in
prevailing interest rates. To mitigate this exposure, the Corporation entered
into an interest rate swap agreement which effectively fixes the rate on
approximately $15 million of its debt. A 10% fluctuation in market interest
rates would not have a material impact on earnings during the 2000 fiscal year.
YEAR 2000 UPDATE
The Corporation realizes that the year 2000 presents many challenges
for information systems and the overall exchange of business related
information. To address this event, management has embarked on a strategic plan
to ensure that the needs of the Year 2000 are met and that the costs are
understood. Based on the assessments made pursuant to the strategic plan, the
Corporation determined that it would be required to modify or replace
significant portions of its software so that its computer systems would properly
reflect dates beyond December 31, 1999. The Corporation realizes that if such
modifications were not made, or in the event they are not completed in a timely
manner, the Year 2000 issue could have a material impact on the operations of
the Corporation. The Corporation's Year 2000 remediation efforts progressed
through the selection phase into a testing phase in the beginning of the fourth
fiscal quarter of 1998, where both internal and external resources were employed
to modify and test new enterprise software. These efforts culminated in the
installation, as of the 1998 fiscal year end, of the necessary equipment and
software to assure that the computer
Pulaski Furniture Corporation 4
<PAGE>
Pulaski Furniture Corporation and Subsidiaries
systems are Year 2000 compliant. Additionally, the Corporation has undertaken to
identify critical areas outside of the information systems where the Year 2000
issue could have an adverse impact on the Corporation.
The principal cost associated with the Year 2000 issue has been the
purchase of compliant enterprise software and the requisite hardware over which
it operates. Additional support applications have been purchased or developed
in-house as needed, and the total software costs to date have not exceeded, nor
are expected to exceed, $700,000. Compliant hardware was put into service over
the past four years in conjunction with the Corporation's migration to a
client-server network, which was a planned upgrade unrelated to the Year 2000
issue. Additional hardware was purchased in 1998 relating specifically to the
Year 2000 enterprise software at a cost not exceeding $100,000. No further
hardware requirements have been identified with the Year 2000 issue. User
education and training costs to date have amounted to less than $100,000 and are
not expected to exceed that amount in total. At the present time, the
Corporation believes there are no other material costs which relate to the Year
2000 issue. Funding for the Year 2000 project has been provided by cash
generated from operations. The project expenditures are being capitalized or
expensed as appropriate, and are not expected to have a material effect on the
results of operations.
The Corporation cannot fully assess the risks of the Year 2000 problem
due to the numerous uncertainties surrounding the issue. Management believes
that the primary risks are external to the Corporation and relate solely to the
Year 2000 readiness of the Corporation's business partners. Formal
communications with all significant suppliers, customers and financial service
organizations of the Corporation have taken place to determine the extent to
which the Corporation might be made vulnerable by those third parties' failure
to remediate their own Year 2000 issue. The Corporation has determined that it
has no exposure to contingencies related to the Year 2000 issue for products
already sold.
The failure to correct a material Year 2000 problem could result in an
interruption, or a failure of certain normal business activities or operations,
which could materially and adversely affect the Corporation's results of
operations, liquidity and financial condition. Due to the general uncertainty
inherent in the Year 2000 problem, resulting in part from the uncertainty of the
Year 2000 readiness of third-party suppliers and customers, the Corporation is
unable to determine at this time whether the consequences of Year 2000 problems
will have a material impact on the Corporation's results of operations,
liquidity or financial condition.
CAPITAL RESOURCES & LIQUIDITY
Net cash used in operating activities for the year totaled
approximately $5,144,000. Trade receivables increased approximately $7,710,000,
net of the acquired accounts receivable. Inventories increased by approximately
$14,250,000, net of the acquired inventories. The accounts receivable growth was
due to a combination of overall sales growth and the addition of Dawson
balances. The growth in inventories was driven by a strong order backlog and the
addition of Dawson balances. The inventory growth accounts for a majority of the
increase in short-term borrowings and management is actively pursuing strategies
which will increase the inventory turnover and decrease the average inventory
balances carried by the Corporation in fiscal 2000.
The Corporation has short-term lines of credit totaling $25,000,000
with interest not to exceed prime rates. Additionally, the Corporation has a
$30,000,000 letter of credit facility for purchases of inventory from foreign
suppliers. As of October 31, 1999, the Corporation had approximately $23,000,000
outstanding under short-term borrowings and an additional $18,000,000
outstanding under letters of credit.
Because of the available credit lines, strong working capital position,
and its ability to generate cash through operations, the Corporation believes it
has adequate liquidity to meet its short-term and long-term debt obligations,
cover its capital expenditures, pay dividends and continue controlled growth
indefinitely. The Corporation has no plans to borrow any additional long-term
debt or to sell additional equity securities.
DISCUSSION-FOURTH QUARTER
The increase in net sales is due primarily to the strong retail demand
for the Corporation's products and the additional volume from the operations of
Dawson Furniture Company, Inc. Dawson Furniture Company, a wholly-owned
subsidiary of Pulaski Furniture Corporation, was acquired in February 1999 and
contributed approximately $6.4 million and $15.2 million in net sales for the
fourth quarter and year to date, respectively.
The increase in net income is due mainly to the additional sales
volume and to improved operating efficiencies. The Board also declared a
dividend of 17 cents per common share payable on January 5, 2000 to shareholders
of record on December 17, 1999, and authorized the purchase, by the Corporation,
of up to 200,000 shares of its common stock presently outstanding.
1999 Annual Report 5
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
October 31, 1999 November 1, 1998
---------------- ----------------
Assets
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 1,181,998 $ 1,452,166
Marketable securities 431,644 0
Trade receivables, less allowance of $1,156,000 in 1999
and $950,000 in 1998 47,606,680 38,411,214
Inventories:
Finished furniture 26,903,812 19,944,327
Furniture in process 7,380,031 5,839,888
Raw materials 21,444,684 13,205,339
------------ ------------
55,728,527 38,989,554
Prepaid expenses 1,325,454 802,637
Deferred income taxes 318,208 687,212
------------ ------------
Total current assets 106,592,511 80,342,783
Property, plant and equipment:
Land 571,954 426,710
Buildings 36,576,514 32,771,313
Machinery and equipment 59,660,966 55,327,271
Furniture, fixtures and office equipment 5,763,396 5,618,291
Vehicles 549,267 604,068
------------ ------------
103,122,097 94,747,653
Less allowances for depreciation 64,361,108 59,522,800
------------ ------------
38,760,989 35,224,853
Other assets:
Cash surrender value of life insurance, less loans
of $1,486,440 in 1999 and $220,468 in 1998 895,185 2,049,120
Excess purchase price over fair value of assets acquired, net 6,606,700 0
Other 11,015 11,015
------------ ------------
7,512,900 2,060,135
------------ ------------
$152,866,400 $117,627,771
============ ============
</TABLE>
Pulaski Furniture Corporation 6
<PAGE>
Pulaski Furniture Corporation and Subsidiaries
<TABLE>
<CAPTION>
October 31, 1999 November 1, 1998
---------------- ----------------
Liabilities and Stockholders' Equity
Current liabilities:
<S> <C> <C>
Accounts payable $ 11,053,104 $ 7,684,327
Wages and commissions 4,087,727 3,948,283
Payroll taxes and taxes withheld from employees 401,312 355,056
Other accrued expenses 2,661,887 2,096,035
------------- -------------
18,204,030 14,083,701
Notes payable 22,953,000 12,000,000
Current portion of long-term debt 3,500,000 2,000,000
Federal and state income taxes 1,477,814 754,133
------------- -------------
Total current liabilities 46,134,844 28,837,834
Deferred compensation 3,063,168 2,875,084
Deferred income taxes 3,331,787 3,532,191
Long-term debt 36,379,227 23,764,884
Stockholders' equity:
Common stock (authorized 10,000,000 shares, issued
shares, 2,862,131 in 1999 and 2,864,939 in 1998) 6,022,027 6,328,363
Retained earnings 58,941,156 52,955,435
Unamortized restricted stock (1,005,809) (666,020)
------------- -------------
Total stockholders' equity 63,957,374 58,617,778
------------- -------------
$ 152,866,400 $ 117,627,771
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
1999 Annual Report 7
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
AND RETAINED EARNINGS
Years Ended
-----------------------------------------------------------
October 31, November 1, November 2,
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Net sales $ 198,230,681 $ 172,359,659 $ 158,942,459
Cost of products sold 155,602,646 135,341,805 134,318,909
----------- ----------- -----------
42,628,035 37,017,854 24,623,550
Selling, general and administrative expenses 28,926,727 25,244,182 25,676,853
----------- ----------- -----------
13,701,308 11,773,672 (1,053,303)
Other income:
Interest 118,536 56,423 21,887
Miscellaneous 1,122,536 13,146 38,485
----------- ----------- -----------
1,241,072 69,569 60,372
----------- ----------- -----------
14,942,380 11,843,241 (992,931)
Other deductions:
Interest expense 2,661,604 1,804,694 2,346,434
Miscellaneous 269,081 148,050 427,669
----------- ----------- -----------
2,930,685 1,952,744 2,774,103
----------- ----------- -----------
Income (loss) before income taxes 12,011,695 9,890,497 (3,767,034)
Income taxes 4,079,524 3,493,100 (1,344,190)
----------- ----------- -----------
Net income (loss) 7,932,171 6,397,397 (2,422,844)
Retained earnings at beginning of year 52,955,435 48,479,127 52,804,294
Cash dividends (per share: 1999 - $.68;
1998 - $.68; 1997 - $.68) (1,946,450) (1,921,089) (1,902,323)
Retained earnings at end of year $ 58,941,156 $ 52,955,435 $ 48,479,127
----------- ----------- -----------
BASIC EARNINGS (LOSS) PER SHARE $ 2.78 $ 2.27 $ (0.87)
----------- ----------- -----------
DILUTED EARNINGS (LOSS) PER SHARE $ 2.76 $ 2.25 $ (0.87)
----------- ----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
Pulaski Furniture Corporation 8
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended
------------------------------------------------
October 31, November 1, November 2,
1999 1998 1997
------------ ------------ ------------
Operating activities
<S> <C> <C> <C>
Net income (loss) $ 7,932,171 $ 6,397,397 $ (2,422,844)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Provision for depreciation and amortization 6,057,806 5,481,109 5,418,042
Provision for deferred income taxes 168,600 379,308 (1,079,326)
Provision for deferred compensation 188,084 194,398 162,107
Miscellaneous income on trading securities (431,644) -- --
Loss (gain) on sale of property, plant and equipment 11,618 (6,769) 274,165
Changes in operating assets and liabilities:
Trade receivables (7,709,514) (1,684,894) 2,746,718
Inventories (14,252,827) (7,645,805) 10,434,695
Accounts payable and
accrued expenses 2,758,960 2,671,029 (1,381,213)
Federal income taxes payable 723,681 2,227,710 (2,822,262)
Other (591,200) (171,945) (397,877)
------------ ------------ ------------
Net cash provided by (used in) operating activities (5,144,265) 7,841,538 10,932,205
Investing activities
Purchases of property, plant and equipment (4,041,620) (5,026,913) (2,950,835)
Proceeds from sale of property, plant and equipment 33,833 3,044 701,098
Purchase price of assets acquired (14,495,641) -- --
------------ ------------ ------------
Net cash used in investing activities (18,503,428) (5,023,869) (2,249,737)
Financing activities
Issuance of common stock 523,824 540,591 486,220
Repurchase of common stock (1,489,510) (96,250) (920,000)
Payment of dividends (1,946,450) (1,921,089) (1,902,323)
Proceeds from long-term debt 17,000,000 -- --
Payments on long-term debt (2,885,657) (2,009,289) (2,077,049)
Increase (decrease) in notes payable 10,953,000 -- (4,000,000)
(Payment) proceeds on life insurance loans 1,222,318 (581,805) 36,173
------------ ------------ ------------
Net cash provided by (used in) financing activities 23,377,525 (4,067,842) (8,376,979)
------------ ------------ ------------
Increase (decrease) in cash and cash equivalents (270,168) (1,250,173) 305,489
Cash and cash equivalents at beginning of year 1,452,166 2,702,339 2,396,850
------------ ------------ ------------
Cash and cash equivalents at end of year $ 1,181,998 $ 1,452,166 $ 2,702,339
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
1999 Annual Report 9
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1.
- --------------------------------------------------------------------------------
Significant Accounting Policies
Business and Credit Risk: Pulaski Furniture Corporation manufactures
medium-priced bedroom, dining room and occasional furniture for a variety of
customers in the retail furniture industry. Ridgeway Clock manufactures
grandfather, mantel and wall clocks. Substantially all of the Corporation's
accounts receivable are due from companies in the retail furniture industry.
Management periodically performs credit evaluations of its customers and
generally does not require collateral.
Fiscal Year: The Corporation uses a 52-53 week year. All fiscal years presented
include 52 weeks.
Principles of Consolidation: The consolidated financial statements include the
accounts of the Corporation and its wholly-owned subsidiaries. Significant
intercompany accounts and transactions have been eliminated.
Cash Equivalents: The Corporation considers all highly liquid investments with a
maturity of three months or less when purchased to be cash equivalents.
Inventories: Substantially all inventory is stated at the lower of LIFO
(last-in, first-out) cost or market.
Property, Plant and Equipment: Property, plant and equipment are stated at cost.
Depreciation has been computed on a straight-line basis over the estimated
useful lives of the related assets.
Fair Value of Financial Instruments: At October 31, 1999, the carrying amounts
of the Corporation's financial instruments, including cash and cash equivalents,
trade receivables and accounts payable, approximated their fair values.
Management believes that the estimated fair value of the Corporation's long-term
debt approximated its carrying value at October 31, 1999. Fair value is
determined based on expected future cash flows, discounted at market interest
rates, and other appropriate valuation methodologies.
Derivative Financial Instruments: The Corporation uses an interest rate swap
agreement to limit exposure to rising interest rates. Interest rate
differentials to be paid or received as a result of the swap agreement are
accrued and recognized as an adjustment of interest expense related to the
associated debt. The fair value of the interest rate swap agreement is not
recognized in the financial statements.
Long-Lived Assets: The Corporation periodically assesses the realizability of
its long-lived assets and evaluates such assets for impairment whenever events
or changes in circumstances indicate the carrying amount of an asset may not be
recoverable. For assets to be held, impairment is determined to exist if
estimated future cash flows, undiscounted and without interest charges, are less
than the carrying amount. For assets to be disposed of, impairment is determined
to exist if the estimated net realizable value is less than the carrying amount.
Stock Based Compensation: The Corporation accounts for stock options and grants
under Accounting Principals Board Opinion No. 25, "Accounting for Stock Issued
to Employees." Accordingly, compensation expense for stock options is measured
as the excess, if any, of the quoted market price of the Corporation's stock at
the date of grant over the exercise price. In October 1995, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 123 (SFAS No. 123) "Accounting for Stock-Based Compensation." SFAS No. 123
encourages, but does not require, adoption of a fair value method of accounting
for employee stock-based compensation plans. SFAS No. 123 does not have a
material impact on the Corporation's financial position or results of
operations.
Use of Estimates: The preparation of financial statements, in conformity with
generally accepted accounting principles, requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Advertising Costs: The Corporation expenses advertising costs when the
liabilities arise. Advertising expense for 1999, 1998 and 1997 was $1,130,000,
$1,549,000 and $1,552,000, respectively.
Goodwill: Excess purchase price over fair value of assets acquired related to
the asset purchase of Dawson Heritage Furniture Company amounted to
approximately $6,894,000 and this amount is being amortized over a 15 year
period. Accumulated amortization at October 31, 1999 was approximately $287,000.
Other: In 1998, the Financial Accounting Standards Board (FASB) issued SFAS No.
133 "Accounting for Derivative Instruments and Hedging Activities," which
establishes accounting and reporting standard for derivative instruments and
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the balance sheet and measure those instruments
at fair value. In 1999, the FASB issued SFAS 137, which defers the effective
date of SFAS 133 to fiscal 2001. Management is evaluating SFAS 133 and does not
believe that adoption of the Statement will have a material impact on its
financial statements.
Marketable Securities: The Corporation's marketable securities are classified as
trading securities and are reported at fair value, which has been estimated
based
Pulaski Furniture Corporation 10
<PAGE>
upon quoted market prices. These securities were received on September 24, 1999
from the demutualization of a life insurance company, and had a fair market
value of $436,565, which was recorded in miscellaneous other income. At
October 31, 1999, the fair market value of the marketable securities was
$431,644. Realized and unrealized gains and losses are reported as miscellaneous
other income or expense.
Reclassification: Certain reclassifications were made in prior year financial
statements to conform to the 1999 presentation.
NOTE 2.
- --------------------------------------------------------------------------------
INVENTORIES
Current cost of the LIFO inventories exceeded the carrying amount by
approximately $16,743,000 and $16,112,000 at October 31, 1999 and November 1,
1998, respectively.
NOTE 3.
- --------------------------------------------------------------------------------
FINANCING ARRANGEMENTS AND COMMITMENTS
Long-term debt consists of the following:
October 31, November 1,
1999 1998
-------------------------
Industrial Development
Revenue Notes, due 2019 $10,000,000 $10,000,000
Non-amortizing term loan,
due December 9, 2003 9,000,000 9,000,000
Term loan agreement, due in
quarterly installments of
$428,572 through July, 2002 4,642,857 6,357,142
Term loan agreement, due in
quarterly installments
through October, 2005 15,875,000 --
Note payable at 3% interest
to the Town of Pulaski,
Virginia, due in monthly
installments of $4,831 through
October, 2006, collateralized by
deed of trust 361,370 407,742
-------------------------
39,879,227 25,764,884
Less current maturities 3,500,000 2,000,000
-------------------------
$36,379,227 $23,764,884
=========================
Future maturities of long-term debt at October 31, 1999 are as follows:
2000 $ 3,500,000
2001 3,500,000
2002 3,500,000
2003 3,500,000
2004 12,553,731
2005 and thereafter 13,325,496
------------
$39,879,227
The Industrial Development Revenue Notes, which may be called prior to
maturity, bear interest at tax-exempt market rates. Interest cost (including
related letter of credit and servicing fees) averaged 3.72% during 1999. At the
option of the Corporation, or if called prior to maturity, the notes may be
redeemed under a letter of credit arrangement. In this event, the notes would
bear interest at LIBOR plus 0.65%.
The Corporation converted a $9,000,000 note payable under a revolving
credit facility to a non-amortizing term loan agreement. The note bears interest
at a variable rate not to exceed LIBOR plus 0.9% (averaged 5.85% in 1999).
The Corporation has a term loan agreement with a bank that had an
outstanding amount of $4,642,857 at October 31, 1999. The note bears interest at
a variable rate not to exceed LIBOR plus 0.5% (averaged 5.94% in 1999). The
agreement requires annual commitment fees of one eighth of one percent of the
unused commitment.
In 1999, the Corporation entered into a term loan agreement with a bank
to provide acquisition financing. The note under this agreement had an
outstanding amount of $15,875,000 at October 31, 1999, and bears interest at a
variable rate not to exceed LIBOR plus 0.9% (averaged 5.68% in 1999).
The agreements contain various conditions which provide, among other
things, restrictions relating to the maintenance of working capital, payment of
dividends and additional indebtedness. At October 31, 1999, retained earnings
available for payment of dividends amounted to approximately $20,439,000.
The Corporation entered into an interest rate swap agreement with a
bank to manage its interest rate exposure under the term loan used for
acquisition financing. Under this agreement, the Corporation receives a fixed
interest rate of 5.41% and pays a variable rate which is determined quarterly
(averaged 5.10% in 1999). The outstanding notional principal under this
agreement was $15,000,000 at October 31, 1999, and this balance will amortize in
direct correlation to the term loan amortization at levels below this amount.
Under a short term line of credit arrangement, the Corporation may
borrow up to $15 million which would bear interest at rates not to exceed the
prime rate. At October 31, 1999, the Corporation had $12 million outstanding
under these arrangements. Additionally, the Corporation has a revolving credit
agreement which provides for $10 million in short-term borrowing. Outstanding
balances against the facility bear interest at LIBOR plus 0.4%. At October 31,
1999, the Corporation had $9,953,000 outstanding under the revolving credit
agreement.
In connection with the purchase of inventory from foreign suppliers,
the Corporation has available letters of credit and a line of credit totaling
$30 million, with approximately $18 million of letters of credit and $1 million
of short-term notes outstanding at October 31, 1999.
1999 Annual Report 11
<PAGE>
Notes to Consolidated Financial Statements
Interest paid in 1999, 1998, and 1997 was $2,666,740, $1,708,460, and
$2,299,277, respectively. Interest paid in 1999 in conjunction with the interest
rate swap agreement was $29,805.
NOTE 4.
- --------------------------------------------------------------------------------
COMMON STOCK
Changes in common stock for the two years in the period ended 1999 were
as follows:
<TABLE>
<CAPTION>
Common Stock
Shares Amount
------------------------
<S> <C> <C>
Balance at November 2, 1997 2,789,527 $ 4,989,622
Shares issued under Salaried
Employee Stock Purchase Plan 27,087 514,924
Common Stock acquired and
retired (5,000) (96,250)
Shares issued under Stock
Option Plan 10,525 167
Restricted shares issued under
Stock Incentive Plan 41,600 894,400
Shares issued under Stock
Incentive Plan for
Non-Employee Directors 1,200 25,500
------------------------
Balance at November 1, 1998 2,864,939 $ 6,328,363
Shares issued under Salaried
Employee Stock Purchase Plan 23,158 495,952
Common Stock acquired and
retired from former Chairman
and CEO (68,641) (1,489,510)
Shares issued under Stock
Option Plan 2,500 200
Restricted shares issued under
Stock Incentive Plan 38,975 659,350
Shares issued under Stock
Incentive Plan for
Non-Employee Directors 1,200 27,672
------------------------
Balance at October 31, 1999 2,862,131 $ 6,022,027
========================
</TABLE>
In 1998, as part of a shareholder rights plan, the Board of Directors
declared a dividend distribution of one preferred share purchase right for each
outstanding share of common stock. Each right entitles its holder to buy one
one-hundredth of a share of the Corporation's Series A Cumulative Preferred
Stock at an exercise price currently in excess of market value. The rights will
become exercisable only if a person or group acquires or obtains the right to
acquire, 15% or more of the Corporation's common stock (an "Acquiring Person")
or commences a tender offer that would result in the offeror owning 15% or more
of the Corporation's outstanding common stock ("Triggering Events"). If an
Acquiring Person acquires 15% or more of the Corporation's common stock or
engages in certain other transactions with the Corporation, each right will
entitle the holder, other than an Acquiring Person, to acquire the Corporation's
Series A Preferred Stock or, at the option of the Corporation, other securities
or property, having a value equal to twice the right's exercise price. Likewise,
if the Corporation is acquired in a merger or other business combination, or the
Corporation sells more than 50% of its earnings power or assets, each right will
entitle the holder, other that an Acquiring Person, to purchase securities of
the acquiring entity with a market value equal to twice the right's exercise
price. The rights expire December 15, 2007, and are subject to redemption at the
discretion of the Corporation's Board of Directors at a price of $0.01 per right
within 10 days following the occurrence of a Triggering Event, subject to
extension of the period by the Board of Directors. The Corporation has
authorized one million shares of cumulative preferred stock, of which 500,000
shares have been designated as Series A Cumulative Preferred Stock reserved for
issuance upon exercise of such rights.
NOTE 5.
- --------------------------------------------------------------------------------
STOCK PURCHASE AND INCENTIVE PLANS
The Salaried Employees Stock Purchase Plan provides for the sale of
common stock annually based on payroll deductions of up to 8% of employee
compensation at a price equal to 70.7% of market price on the date of purchase.
Compensation expense recognized in 1999, 1998, and 1997 related to the Plan was
$228,850, $210,015, and $218,081, respectively. At October 31, 1999, 33,494
shares are to be issued pursuant to the Plan's provisions, after which there
will remain 22,954 shares available for purchase in the future.
Under the 1982 Stock Option Plan, as amended in 1989, key employees
were granted options to purchase common stock at a price determined by a
committee appointed by the Board of Directors or determined pursuant to a
formula approved by the committee. The committee was also able to grant stock
appreciation rights (SARs) in relation to the grants of stock options. The stock
options and SARs expire ten years after the date of grant.
At October 31, 1999, outstanding options and SARs under the Stock
Option Plan were as follows:
Number Option Price
of Shares Per Share
------------------------------
Outstanding at November 2, 1997 52,500 $14.75 - $18.75
Exercised (22,500) $14.75 - $18.75
- ----------------------------------------------------------
Outstanding at November 1, 1998 30,000 $14.75 - $18.75
Exercised (5,000) $14.75 - $16.125
- ----------------------------------------------------------
Outstanding at October 31, 1999 25,000 $14.75 - $18.75
==========================================================
All shares under option at October 31, 1999 are exercisable. All shares
issued upon exercise of options during the three years ended October 31, 1999
related to options granted between December 1989 and December 1991.
12 Pulaski Furniture Corporation
<PAGE>
Pulaski Furniture Corporation and Subsidiaries
The 1982 Stock Option Plan was amended and restated in 1991 as the
Stock Incentive Plan. The Stock Incentive Plan permits a committee of the Board
of Directors to make awards of the Corporation's common stock upon such terms
and conditions as may be established by the committee. Restrictions on shares
issued under the plan lapse at the rate of 20% of the stock per year. Upon
issuance of restricted stock under the plan, unearned compensation equivalent to
the market value at the date of grant is charged to stockholders' equity and
amortized over the vesting period. Amortization of $319,561, $427,647 and
$344,003 was recorded in fiscal 1999, 1998 and 1997, respectively. At October
31, 1999, there are 36,525 shares available for future issuance.
NOTE 6.
- --------------------------------------------------------------------------------
PENSION PLAN
The Corporation has a defined benefit pension plan covering
substantially all of its employees. The benefits are based on years of service
and the employee's highest five year average compensation. The Corporation's
funding policy is to contribute annually the amount required to fund current
service cost plus an amortization of prior service cost and actuarial gains and
losses over approximately 30 years to the extent such amounts are currently
deductible for federal income tax purposes. Contributions are intended to
provide not only for benefits attributed to service to date but also for those
expected to be earned in the future.
The following provides a reconciliation of benefit obligations, plan
assets, and funded status of the plan as of consolidated balance sheet:
<TABLE>
<CAPTION>
October 31, November 1,
1999 1998
--------------------------------
<S> <C> <C>
Change in benefit obligation:
Projected benefit obligation
at the beginning of year $ 14,959,643 $ 3,458,480
Service cost 626,877 608,698
Interest cost 990,073 989,730
Actuarial (gain) / loss (1,200,668) 501,869
Benefits paid (538,878) (599,134)
--------------------------------
Projected benefit obligation
at the end of year $ 14,837,047 $ 14,959,643
================================
Change in plan assets:
Fair value of plan assets at
the beginning of year $ 16,542,696 $ 15,468,996
Actual return on plan assets 1,968,281 1,357,324
Employer contributions 0 315,510
Benefits paid (538,878) (599,134)
--------------------------------
Fair value of plan assets
at the end of year $ 17,972,099 $ 16,542,696
================================
Accrued benefit cost:
Funded status $ 3,135,052 $ 1,583,053
Unrecognized transition
(asset)/obligation (150,275) (200,366)
Unrecognized actuarial gain (4,245,631) (2,242,223)
--------------------------------
Accrued benefit cost $ (1,260,854) $ (859,536)
================================
Weighted-average assumptions:
Discount rate 7.50% 6.75%
Expected long-term rate of
return on plan assets 8.00% 8.00%
</TABLE>
Net pension cost included the following components:
<TABLE>
<CAPTION>
1999 1998 1997
----------------------------------------------------
<S> <C> <C> <C>
Service cost $ 626,877 $ 608,698 $ 578,102
Interest cost 990,073 989,730 918,759
Estimated return on
plan assets (1,165,541) (1,059,340) (990,541)
Amortization of
unrecognized
transition asset (50,091) (50,091) (50,091)
------------ ------------ ------------
Total pension expense $ 401,318 $ 488,997 $ 456,229
============ ============ ============
</TABLE>
Substantially all of the plan's assets at October 31, 1999 are invested
in listed stocks and bonds.
The Corporation also sponsors an unfunded Supplemental Executive
Retirement Program (SERP), which is a nonqualified plan that provides additional
retirement benefits to certain key employees. Pension expense recognized in
1999, 1998 and 1997 related to the SERP was $305,001, $290,754 and $267,486,
respectively. At October 31, 1999, the projected benefit obligation for this
plan totaled $2,887,414, of which an unrecognized net obligation of $74,467 and
unamortized prior service cost of $181,930 are subject to later amortization.
The remaining $2,725,663 is an additional pension liability recognized in the
balance sheet at October 31, 1999.
[Photograph of furniture items]
MONACO'S PANEL BED, AND DRESSER AND MIRROR OFFERS A STRIKING COMBINATION FOR A
DRAMATIC BEDROOM RETREAT. THIS GROUP SHOWS YET ANOTHER CLASSIC EXAMPLE OF
PULASKI'S EXPERTISE AND TALENT IN TARGETING DESIGN AND FUNCTIONALITY FOR HOMES
IN THE NEW CENTURY.
13 1999 Annual Report
<PAGE>
Notes to Consolidated Financial Statements
NOTE 7.
- --------------------------------------------------------------------------------
INCOME TAXES
The provision for income taxes consisted of the following:
<TABLE>
<CAPTION>
1999 1998 1997
--------------------------------------------
Current:
<S> <C> <C> <C>
Federal $ 3,480,004 $ 2,761,427 $ (274,172)
State 508,863 352,365 9,308
--------------------------------------------
3,988,867 3,113,792 (264,864)
Deferred:
Federal 79,769 289,573 (979,251)
State 10,888 89,735 (100,075)
--------------------------------------------
90,657 379,308 (1,079,326)
--------------------------------------------
Total income tax provision $ 4,079,524 $ 3,493,100 $(1,344,190)
============================================
</TABLE>
The total provision for income taxes varied from the U.S. federal statutory rate
for the following reasons:
<TABLE>
<CAPTION>
1999 1998 1997
----------------------------------------
<S> <C> <C> <C>
Statutory federal
income tax rate 34.0% 34.0% 34.0%
State income tax, net of
federal tax benefit 2.8% 2.9% 1.6%
Foreign sales corporation (3.6%) (1.7%) 0.0%
Other 0.8% 0.1% 0.1%
----------------------------------------
Effective tax rate 34.0% 35.3% 35.7%
========================================
</TABLE>
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Significant
components of the deferred tax liabilities and assets are as follows:
<TABLE>
<CAPTION>
October 31, November 1, November 2,
1999 1998 1997
------------------------------------------------
Deferred tax liabilities:
<S> <C> <C> <C>
Depreciation $(4,631,441) $(4,597,007) $(4,729,947)
Mutual policy to
stock conversion (164,284) 0 0
Inventory valuation (401,001) (84,515) 0
-----------------------------------------------
Total deferred
tax liabilities (5,196,726) (4,681,522) (4,729,947)
Deferred tax assets:
Deferred compensation 1,338,250 1,064,816 987,510
Receivable allowance 439,976 351,842 349,961
Inventory valuation 0 0 627,928
Other 404,921 419,885 298,877
-----------------------------------------------
Total deferred tax assets 2,183,147 1,836,543 2,264,276
-----------------------------------------------
Net deferred liabilities $(3,013,579) $(2,844,979) $(2,465,671)
===============================================
Non-current deferred tax liability $(3,331,787) $(3,532,191) $(3,742,437)
Current deferred tax asset 318,208 687,212 1,276,766
-----------------------------------------------
Net deferred tax liability $(3,013,579) $(2,844,979) $(2,465,671)
===============================================
</TABLE>
The Corporation made income tax payments of $3,429,000, $1,886,000 and
$1,630,000, in 1999, 1998 and 1997, respectively.
NOTE 8.
- --------------------------------------------------------------------------------
EARNINGS (LOSS) PER COMMON SHARE
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
October 31, November 1, November 2,
1999 1998 1997
---------------------------------------------
Numerator:
<S> <C> <C>
Net income (loss) $ 7,932,171 $ 6,397,397 $(2,422,844)
Numerator for
dilutive earnings per
share-income
available to common
stockholders after
assumed conversions $ 7,932,171 $ 6,397,397 $(2,422,844)
=============================================
Denominator:
Denominator for
basic earnings per
share-weighted
average shares 2,850,281 2,819,838 2,789,628
Effect or dilutive
securities:
Employee stock
options 4,238 7,890 0
Stock purchase plan 18,430 12,348 0
Denominator for
dilutive earnings
per share- adjusted
weighted average
shares after assumed
conversions 2,872,949 2,840,076 2,789,628
============================================
Basic earnings
(loss) per share $ 2.78 $ 2.27 $ (0.87)
============================================
Dilutive earnings
(loss) per share $ 2.76 $ 2.25 $ (0.87)
============================================
</TABLE>
NOTE 9.
- --------------------------------------------------------------------------------
SPECIAL CHARGES
In 1997, the Corporation recorded pre-tax charges totaling
approximately $9.2 million ($5.9 million after taxes, or $2.10 per share). These
charges relate to the elimination of the Corporation's domestic seating line and
related inventories, the divestiture of Craftique, Inc. and the discontinuance
of certain other product lines. Of the charges, approximately $9.0 million was
included in cost of sales for inventory write-downs, with the remaining charges
related to assets no longer being used included in miscellaneous expense.
14 Pulaski Furniture Corporation
<PAGE>
Pulaski Furniture Corporation and Subsidiaries
NOTE 10.
- --------------------------------------------------------------------------------
ACQUISITION
On February 28, 1999, Dawson Furniture Company, Inc. ("Dawson"), a
newly formed and wholly owned subsidiary of the Corporation, acquired
substantially all of the assets and assumed certain liabilities of Dawson
Heritage Furniture Company, Inc. ("DHFC"). Dawson borrowed approximately $16
million to finance the acquisition (Note 3), which was accounted for as an asset
purchase transaction. In connection with the purchase, Dawson acquired assets
with a fair value of approximately $9.0 million and assumed liabilities of
approximately $1.4 million. All preliminary allocations of the purchase price
have been made and Dawson has recorded goodwill of approximately $6.9 million
for the excess purchase price (including assumed liabilities) over the fair
value of assets acquired.
The consolidated financial statements reflect the operations of the
acquired business from the date of acquisition. The purchase price was allocated
to the assets acquired and liabilities assumed based on their fair values at the
date of acquisition as follows:
(in thousands)
------------
Accounts receivable $ 1,486
Inventories 2,486
Property, plant, and equipment 4,992
Goodwill 6,894
Accounts payable (1,246)
Other current liabilities (116)
------------
Cash paid $ 14,496
============
The following unaudited pro forma results of operations assume the
acquisition of DHFC had occurred at the beginning of fiscal 1998. These pro
forma results contain certain adjustments resulting from the acquisition and the
related financing. The pro forma results have been prepared for comparative
results only and do not purport to indicate the results that would have actually
occurred had the acquisition been in effect on the dates indicated or which may
occur in the future.
Years Ended
October 31, November 1,
1999 1998
----------- -----------
(thousands, except per share)
Net sales $206,118 $191,616
Net income 8,230 6,983
Earnings per share $ 2.86 $ 2.44
Prior to the completion of the acquisition, the Corporation had entered
into a short-term agreement with Dawson Heritage Furniture Company, Inc., which
compensated the Corporation for marketing related services. Under the terms of
this agreement, the Corporation has recognized miscellaneous other income in the
amount of $484,183 in the current fiscal year.
NOTE 11.
- --------------------------------------------------------------------------------
CONTINGENCIES
The Corporation is involved in various legal proceedings and claims
that have arisen in the ordinary course of its business that have not been
finally adjudicated. These actions, when finally concluded and determined will
not, in the opinion of management, have a material adverse effect upon the
financial position of the Corporation.
[Photograph of furniture items]
THIS TRADITIONAL SATIN BROWN CURIO IS THE PERFECT COMPLEMENT FOR ANY HOME
COLLECTION. FEATURING V-GROOVED FRONT GLASS, PULASKI'S SIGNATURE MIRRORED BACK
AND LIGHTED INTERIOR COMPLETE THE FEATURES THAT WILL SHOWCASE A HOMEOWNER'S
TREASURES.
1999 Annual Report 15
<PAGE>
REPORT OF INDEPENDENT AUDITORS
BOARD OF DIRECTORS AND SHAREHOLDERS
PULASKI FURNITURE CORPORATION
We have audited the accompanying consolidated balance sheets of Pulaski
Furniture Corporation and Subsidiaries as of October 31, 1999 and November 1,
1998, and the related consolidated statements of operations and retained
earnings and cash flows for each of the three years in the period ended October
31, 1999. These financial statements are the responsibility of the
Corporation's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Pulaski
Furniture Corporation and Subsidiaries at October 31, 1999 and November 1, 1998,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended October 31, 1999 in conformity with
generally accepted accounting principles.
/s/ Ernst & young LLP
Winston-Salem, North Carolina
December 2, 1999
[Photograph of furniture items]
THIS DEMI-LUNE CHEST FROM THE MONACO COLLECTION EXHIBITS THE BEAUTIFUL DETAILS
THAT HAVE MADE THIS COLLECTION SO POPULAR. IT FEATURES A RUBBED NANTUCKET FINISH
WITH MARBLE TOP AND IS PUNCTUATED BY CARVED MOLDINGS AND ELABORATE BRASS PULLS.
[Photograph of furniture items]
THIS STUNNING MIDNIGHT CORAL BRASS BAKER'S RACK FROM PULASKI'S CASUAL DINING
GROUP FEATURES A LAMINATED MARBLE MID-SHELF. THIS HAND FORGED SCROLL PIECE IS
CASUAL ENOUGH TO RELATE TO A KITCHEN SETTING YET FORMAL ENOUGH TO FLOW INTO A
DINING ROOM.
16 Pulaski Furniture Corporation
<PAGE>
<TABLE>
<CAPTION>
OFFICERS DIRECTORS CORPORATE DATA
- ------------------------------ --------------------------------- ---------------------------------------
<S> <C> <C>
JOHN G. WAMPLER HARRY H. WARNER CORPORATE OFFICES
President and Chief Chairman of the Board Pulaski Furniture Corporation
Executive Officer Financial Consultant, One Pulaski Square
Lexington, Va. P.O. Box 1371
RANDOLPH V. CHRISLEY Pulaski, VA 24301
Senior Vice President-Sales HARRY J.G. van BEEK* (540) 980-7330
President, Klsckner Capital
IRA S. CRAWFORD Corporation, Gordonsville, Va. STOCK TRANSFER AGENT AND
Senior Vice President- DIVIDEND DISBURSING AGENT
Administration & Investor ROBERT C. GREENING, JR.* First Union National Bank of North
Relations; Secretary Vice President and Carolina-Shareholders Services
General Manager, 1525 West W.T. Harris Blvd 3C3
CARL W. HOFFMAN Neiman Marcus, Northbrook, Il. Charlotte, NC 28288-1153
Treasurer and Chief (800) 829-8432
Financial Officer JOHN G. WAMPLER
President and Chief Executive STOCK LISTING
JAMES H. KELLY Officer of Pulaski Furniture Traded Over-The-Counter
Senior Vice President- Corporation, Pulaski, Va. NASDAQ Symbol-PLFC
Product Development
HUGH V. WHITE, JR.* LEGAL COUNSEL
PAUL T. PURCELL Retired, Former Partner of Hunton & Williams
Vice President- Hunton & Williams, Attorneys, Richmond, Virginia
Credit Administration Richmond, Va.
ANNUAL MEETING
JAMES W. STOUT The Annual Meeting of
Vice President-Manufacturing Shareholders of Pulaski Furniture
*Member of Audit Committee Corporation will be
RAYMOND E. WINTERS, JR held on Friday, February 11,
Vice President-Operations 2000 at 10 a.m. at the Wyndham
Roanoke Airport, Roanoke, Va.
ADDITIONAL INFORMATION
A copy of Form 10-K, the Annual
Report filed with the Securities
and Exchange Commission, is
available without charge to
shareholders upon written request
directed to the Corporation,
attention Secretary
</TABLE>
[Photograph of furniture items]
SOMERSET SQUARE'S SOPHISTICATED DESIGN AND LILAC CREAM FINISH OFFER A STATUS
SYMBOL APPEAL AND PORTRAY A RELAXED FORMALITY TO HOME DECORS. THE PANEL BED,
CHEST AND MIRROR AND NIGHTSTAND ARE A PERFECT STAPLE FOR ANY INTERIOR AND
SUGGEST THAT IT COULD HAVE BEEN PULLED STRAIGHT FROM AN ASPIRING MOVIE STARLET'S
HOME.
<PAGE>
[Photographs of furniture items]
PULASKI
FURNITURE
CORPORATION
Exhibit 21
Subsidiaries of Registrant
Jurisdiction
Name of Incorporation
---- ----------------
1. Pulaski Foreign Sales Corporation, Inc. U.S. Virgin Islands
2. Dawson Furniture Company, Inc. Commonwealth of Virginia, U.S.A.
Exhibit 23
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 333-67941) pertaining to the Pulaski Furniture Corporation 1996 Salaried
Employees' Stock Purchase Plan of our report dated December 2, 1999, with
respect to the consolidated financial statements and schedule of Pulaski
Furniture Corporation included in the Annual Report (Form 10-K) for the year
ended October 31, 1999.
/s/ Ernst & Young LLP
Ernst & Young LLP
Winston-Salem, North Carolina
January 25, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-END> OCT-31-1999
<CASH> 1,182
<SECURITIES> 432
<RECEIVABLES> 47,607
<ALLOWANCES> 0
<INVENTORY> 55,729
<CURRENT-ASSETS> 106,593
<PP&E> 103,122
<DEPRECIATION> 64,361
<TOTAL-ASSETS> 152,866
<CURRENT-LIABILITIES> 46,135
<BONDS> 36,379
6,022
0
<COMMON> 0
<OTHER-SE> 57,935
<TOTAL-LIABILITY-AND-EQUITY> 152,866
<SALES> 198,231
<TOTAL-REVENUES> 198,231
<CGS> 155,603
<TOTAL-COSTS> 184,529
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 361
<INTEREST-EXPENSE> 2,662
<INCOME-PRETAX> 12,012
<INCOME-TAX> 4,080
<INCOME-CONTINUING> 7,932
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,932
<EPS-BASIC> 2.78
<EPS-DILUTED> 2.76
</TABLE>
