FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: MARCH 31, 2007
COMMISSION FILE NUMBER: 1-5555
WELLCO ENTERPRISES, INC.
--------------------------------------
(Exact name of registrant as specified in charter)
NORTH CAROLINA 56-0769274
- ------------------- ----------------------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
150 Westwood Circle, P.O. Box 188, Waynesville, NC 28786
(Address of Principal Executive Office)
Registrant's telephone number, including area code 828-456-3545
------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No .
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Act). Yes __No X . ------ -----
Indicate by check mark whether the Registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer (as defined in Exchange Act Rule
12b-2 of the Act).
___Large accelerated filer __Accelerated filer _X_Non-accelerated filer
1,300,746 common shares (all voting) were outstanding as of May 15, 2007.
PART I. FINANCIAL INFORMATION
-----------------------------
Item 1. Financial Statements
----------------------------
WELLCO ENTERPRISES, INC.
------------------------
CONSOLIDATED FINANCIAL STATEMENTS FILED WITH FORM 10-Q
FOR THE FISCAL QUARTER ENDED MARCH 31, 2007
------------------------------------------------------
The attached unaudited financial statements reflect all adjustments, which are
in the opinion of management necessary to reflect a fair statement of the
financial position, results of operations, and cash flows for the interim
periods presented. All significant adjustments are of a normal recurring nature.
2
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2007 AND JULY 1, 2006
(in thousands)
ASSETS
(unaudited) *
MARCH 31, JULY 1,
2007 2006
--------------------------
CURRENT ASSETS:
Cash and cash equivalents ................. $ 82 $ 44
Receivables, net .......................... 3,853 3,559
Inventories-
Finished goods ...................... 4,101 4,470
Work in process ..................... 2,486 1,509
Raw materials ....................... 4,780 3,432
-------- --------
Total ............................... 11,367 9,411
Deferred taxes ........................... 689 184
Prepaid expenses .......................... 542 455
-------- --------
Total ..................................... 16,533 13,653
-------- --------
MACHINERY LEASED TO LICENSEES,
Net of accumulated depreciation ........... 62 5
PROPERTY, PLANT AND EQUIPMENT:
Land ...................................... 107 107
Buildings ................................. 1,439 1,439
Machinery and equipment ................... 11,848 11,239
Office equipment .......................... 1,013 886
Automobiles ............................... 214 235
Leasehold improvements .................... 1,068 823
-------- --------
Total cost ................................ 15,689 14,729
Less accumulated depreciation and
amortization ........................... (11,211) (10,243)
-------- --------
Net Property Plant and Equipment .......... 4,478 4,486
-------- --------
INTANGIBLE ASSETS:
Intangible pension asset .................. 6 6
-------- --------
TOTAL ............................................ $ 21,079 $ 18,150
======== ========
* Derived from audited financial statements
(continued on next page)
3
WELLCO ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2007 AND JULY 1, 2006
(in thousands except share data)
LIABILITIES AND STOCKHOLDERS' EQUITY
(unaudited) *
MARCH 31, JULY 1,
2007 2006
-------------------------
CURRENT LIABILITIES:
Short-term borrowing from bank .............. $ 2,700 $ 625
Accounts payable ............................ 3,846 1,716
Accrued compensation ........................ 638 769
Accrued income taxes ........................ 671 407
Other liabilities ........................... 416 366
-------- --------
Total ....................................... 8,271 3,883
-------- --------
LONG-TERM LIABILITIES:
Pension obligation .......................... 1,013 1,013
Notes payable ............................... 249 241
Other accrued liabilities ................... 331 363
Deferred taxes ............................. 172 172
Deferred grant income ....................... 206 206
Deferred revenues ........................... 51 59
STOCKHOLDERS' EQUITY:
Common stock, $1.00 par value ............... 1,271 1,271
Additional paid-in capital .................. 1,319 1,319
Retained earnings ........................... 9,203 10,630
Accumulated other comprehensive loss ........ (1,007) (1,007)
-------- --------
Total ....................................... 10,786 12,213
-------- --------
TOTAL .............................................. $ 21,079 $ 18,150
======== ========
See Notes to Consolidated Financial Statements.
* Derived from audited financial statements
4
WELLCO ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE FISCAL NINE MONTHS ENDED
MARCH 31, 2007 AND APRIL 1, 2006
(in thousands except per share and number of shares)
(unaudited)
MARCH 31, APRIL 1,
2007 2006
-------------------------
REVENUES ....................................... $ 18,971 $ 32,754
----------- -----------
COSTS AND EXPENSES:
Cost of sales and services .............. 17,944 30,918
General and administrative expenses ..... 2,010 1,908
----------- -----------
Total ................................... 19,954 32,826
----------- -----------
GRANT INCOME ................................... -- 108
MERGER COSTS ................................... 585 --
----------- -----------
OPERATING INCOME (LOSS) ........................ (1,568) 36
NET INTEREST EXPENSE ........................... (110) (207)
----------- -----------
LOSS BEFORE INCOME TAXES ...................... (1,678) (171)
PROVISION (BENEFIT) FOR INCOME TAXES ........... (505) 88
----------- -----------
NET LOSS ....................................... $ (1,173) $ (259)
=========== ===========
BASIC LOSS PER SHARE
Based on weighted average number of
shares outstanding ...................... $ (0.92) $ (0.20)
=========== ===========
Shares used in computing basic
loss per share .......................... 1,270,746 1,270,746
=========== ===========
DILUTED LOSS PER SHARE
Based on weighted average number of
shares outstanding and dilutive
stock options ........................... $ (0.92) $ (0.20)
=========== ===========
Shares used in computing diluted
loss per share .......................... 1,270,746 1,270,746
=========== ===========
DIVIDENDS DECLARED PER SHARE ................... $ 0.20 $ 0.45
=========== ===========
See Notes to Consolidated Financial Statements.
5
WELLCO ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE FISCAL THREE MONTHS ENDED
MARCH 31, 2007 AND APRIL 1, 2006
(in thousands except per share and number of shares)
(unaudited)
MARCH 31, APRIL 1,
2007 2006
-------------------------
REVENUES ....................................... $ 7,387 $ 13,395
----------- -----------
COSTS AND EXPENSES:
Cost of sales and services .............. 7,050 12,389
General and administrative expenses ..... 637 663
----------- -----------
Total ................................... 7,687 13,052
----------- -----------
GRANT INCOME ................................... -- 23
MERGER COSTS ................................... 450 --
----------- -----------
OPERATING INCOME (LOSS) ........................ (750) 366
NET INTEREST EXPENSE ........................... (70) (98)
----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES .............. (820) 268
PROVISION (BENEFIT) FOR INCOME TAXES ........... (274) 106
----------- -----------
NET INCOME (LOSS) .............................. $ (546) $ 162
=========== ===========
BASIC EARNINGS PER SHARE (Notes 4 and 5)
based on weighted average number of
shares outstanding ...................... $ (0.43) $ 0.13
=========== ===========
Shares used in computing basic
earnings per share ...................... 1,270,746 1,270,746
=========== ===========
DILUTED EARNINGS PER SHARE (Notes 4 and 5)
based on weighted average number of
shares outstanding and dilutive stock
options ................................. $ (0.43) $ 0.13
=========== ===========
Shares used in computing diluted
earnings per share ...................... 1,270,746 1,286,035
=========== ===========
DIVIDENDS DECLARED PER SHARE ................... -- $ 0.15
=========== ===========
See Notes to Consolidated Financial Statements.
6
WELLCO ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE FISCAL NINE MONTHS ENDED
MARCH 31, 2007 AND APRIL 1, 2006
(in thousands)
(unaudited)
MARCH 31, APRIL 1,
2007 2006
--------------------
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss ........................................ $(1,173) $ (259)
------- -------
Adjustments to reconcile net loss
to net cash provided (used) by
operating activities:
Depreciation and amortization ............ 968 1,059
Non-cash reduction in deferred revenue ... (8) (7)
Non-cash interest expense ................ 8 7
Non-cash reduction in deferred taxes ..... (505) --
(Increase) decrease in-
Receivables ....................... (294) 290
Inventories ....................... (1,956) (587)
Prepaid expenses .................. (83) (308)
Increase (decrease) in-
Accounts payable .................. 2,130 (961)
Accrued compensation .............. (131) (226)
Accrued income taxes .............. 264 (98)
Other liabilities ................ 17 188
------- -------
Total adjustments ............................... 410 (643)
------- -------
NET CASH USED BY
OPERATING ACTIVITIES ............................ (763) (902)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of plant and equipment ................ (1,020) (436)
------- -------
CASH USED BY INVESTING ACTIVITIES ...................... (1,020) (436)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net advances of line of credit borrowings ....... 2,075 1,930
Cash dividends paid ............................. (254) (572)
------- -------
NET CASH PROVIDED BY
FINANCING ACTIVITIES ............................ 1,821 1,358
------- -------
NET INCREASE IN CASH
AND CASH EQUIVALENTS ............................ 38 20
CASH AND CASH EQUIVALENTS
AT THE BEGINNING OF THE PERIOD .................. 44 34
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ............. $ 82 $ 54
======= =======
(continued on next page)
7
WELLCO ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE FISCAL NINE MONTHS ENDED
MARCH 31, 2007 AND APRIL 1, 2006
(in thousands)
(unaudited)
MARCH 31, APRIL 1,
2007 2006
--------------------
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash paid for-
Interest ................................ $ 105 $ 201
Income taxes paid (refund) .............. $(264) $ 120
===== =====
See Notes to Consolidated Financial Statements.
8
WELLCO ENTERPRISES, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE FISCAL NINE MONTHS ENDED
MARCH 31, 2007
(in thousands except number of shares and per share amounts)
(unaudited)
Common Stock Additional
Par Paid-In Retained
Shares Value Capital Earnings
------------------------------------------------
BALANCE AT JULY 1, 2006 1,270,746 $ 1,271 $ 1,319 $ 10,630
Net loss for the fiscal nine
months ended March 31, 2007 (1,173)
Cash dividend ($.20 per share) (254)
------------------------------------------------
BALANCE AT MARCH 31, 2007 1,270,746 $ 1,271 $ 1,319 $ 9,203
================================================
Accumulated
Other
Comprehensive
Loss
-------------
ADDITIONAL PENSION LIABILITY,
NET OF TAX, BALANCE
AT JULY 1, 2006 $ (1,007)
Change for the fiscal nine
months ended March 31, 2007 -
-------------
BALANCE AT MARCH 31, 2007 $ (1,007)
=============
See Notes to Consolidated Financial Statements.
9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE FISCAL NINE MONTHS ENDED MARCH 31, 2007
-----------------------------------------------------
1. BUSINESS:
Substantially all of the Company's operating activity is from the sale of
military and other rugged footwear, the sale of specialized machinery and
materials for the manufacture of this type of footwear and the rendering of
technical assistance and other services to licensees for the manufacture of
this type of footwear. The majority of revenues were from sales to the U.S.
government, primarily the Defense Supply Center Philadelphia (DSCP), under
contracts for the supply of boots used by the United States Armed Forces.
The loss of this customer would have a material adverse effect on the
Company.
Bidding on DSCP boot solicitations is open to any qualified U. S.
manufacturer. Bidding on contracts is very competitive. U. S. footwear
manufacturers have been adversely affected by sales of footwear made in low
labor cost countries. This has significantly affected the competition for
contracts to supply boots to U. S. Armed Forces, which by law must be made
in the United States.
Most boot contracts are for multi-year periods. Therefore, a bidder not
receiving an award from a significant solicitation could be adversely
affected for several years. In addition, current boot contracts contain
options for additional pairs that are exercisable at the government's
discretion. The Company cannot predict with certainty its success in
receiving a contract from any solicitation.
2. RECENT FINANCIAL ACCOUNTING STANDARDS:
In July 2006, the FASB issued FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes--an interpretation of FASB Statement No. 109
('FIN 48"), which clarifies the accounting for uncertainty in tax
positions. This Interpretation requires that we recognize in our financial
statements, the impact of a tax position, if that position is more likely
than not of being sustained on audit, based on the technical merits of the
position. The provisions of FIN 48 are effective as of the beginning of our
2007 fiscal year, with the cumulative effect of the change in accounting
principle recorded as an adjustment to opening retained earnings. The
Company will begin to evaluate whether FIN 48 has any impact on the
Company's financial statements prior to its effective date.
In June 2006, the FASB ratified the Emerging Issues Task Force ("EITF")
position EITF 06-3, How Taxes Collected from Customers and Remitted to
Governmental Authorities Should Be Presented in the Income Statement (That
is Gross versus Net Presentation), that addresses disclosure requirements
for taxes assessed by a governmental authority that is both imposed on and
concurrent with a specific revenue-producing transaction between a seller
and a customer, and may include, but is not limited to, sales, use, value
added, and some excise taxes. EITF 06-3 requires disclosure of the method
of accounting for the applicable assessed taxes, and the amount of assessed
taxes that are included in revenues if they are accounted for under the
gross method. The provisions of EITF 06-3 are effective for interim and
annual reporting periods beginning after December 15, 2006 with earlier
application permitted. The adoption of EITF 06-3 is not expected to have a
material impact on the Company's consolidated financial statements.
In September 2006, the FASB issued SFAS No. 158, Employers' Accounting for
Defined Benefit Pension and Other Postretirement Plans -- An Amendment of
FASB Statements No. 87, 88, 106, and 132R requires an employer to: (a)
recognize in its statement of financial position an asset for a plan's
overfunded status or a liability for a plan's underfunded status; (b)
measure a plan's assets and its obligations that determine its funded
status as of the end of the employer's fiscal year (with limited
exceptions); and (c) recognize changes in the funded status of a defined
10
benefit postretirement plan in the year in which the changes occur. Those
changes will be reported in comprehensive income. The requirement to
recognize the funded status of a benefit plan and the disclosure
requirements are effective as of the end of the fiscal year ending after
December 15, 2006. The requirement to measure plan assets and benefit
obligations as of the date of the employer's fiscal year-end statement of
financial position is effective for fiscal years ending after December 15,
2008. The Company is in the process of evaluating the impact of SFAS 158.
3. LINE OF CREDIT:
The Company maintains a $7,500,000 bank line of credit. The Company's line
of credit was scheduled to renew on March 31, 2007. However, the line of
credit was extended until June 30, 2007. On June 30, 2007, the line of
credit can be renewed until December 31, 2007 at the bank's discretion.
This line of credit is secured by a blanket lien on all machinery and
equipment and all accounts receivable and inventory. At March 31, 2007,
borrowings on this line of credit were $2,700,000 with $4,800,000 available
in additional borrowings. The bank credit agreement contains, among other
provisions, defined levels of net worth and current ratio requirements. The
Company was in compliance with the loan covenants as of March 31, 2007.
4. EARNINGS (LOSS) PER SHARE:
The Company computes its basic and diluted earnings (loss) per share
amounts in accordance with Statement of Financial Accounting Standards No.
128 (SFAS 128), "Earnings per Share." Basic earnings (loss) per share is
computed by dividing net earnings (loss) by the weighted average number of
common shares outstanding during the period. Diluted earnings (loss) per
share is computed by dividing net earnings (loss) by the weighted average
number of common shares outstanding during the period plus the dilutive
potential common shares that would have been outstanding upon the assumed
exercise of dilutive stock options.
The following is the reconciliation of the numerators and denominators of
the basic and diluted earnings per share computations.
For the Nine Months Ended 03/31/07
----------------------------------
Net Loss Shares Per-Share
(Numerator) (Denominator) Amount
------------------------------------------------------------------------
Basic EPS Available to
Shareholders $ (1,173,000) 1,270,746 $ (0.92)
------------------------------------------------------------------------
Effect of Dilutive
Stock-based Compensation
Arrangements (Note: N/A -
Anti-dilutive)
------------------------------------------------------------------------
Diluted EPS Available to
Shareholders $ (1,173,000) 1,270,746 $ (0.92)
------------------------------------------------------------------------
For the Nine Months Ended 04/01/06
----------------------------------
Net Loss Shares Per-Share
(Numerator) (Denominator) Amount
------------------------------------------------------------------------
Basic EPS Available to
Shareholders $ (259,000) 1,270,746 $ (0.20)
------------------------------------------------------------------------
Effect of Dilutive
Stock-based Compensation
Arrangements (Note: N/A -
Anti-dilutive)
------------------------------------------------------------------------
Diluted EPS Available to
Shareholders $ (259,000) 1,270,746 $ (0.20)
------------------------------------------------------------------------
11
For the Three Months Ended 3/31/07
----------------------------------
Net Loss Shares Per-Share
(Numerator) (Denominator) Amount
------------------------------------------------------------------------
Basic EPS Available to
Shareholders $ (546,000) 1,270,746 $ (0.43)
------------------------------------------------------------------------
Effect of Dilutive Stock-based
Compensation Arrangements
(Note: N/A - Anti-dilutive)
------------------------------------------------------------------------
Diluted EPS Available to
Shareholders $ (546,000) 1,270,746 $ (0.43)
------------------------------------------------------------------------
For the Three Months Ended 4/01/06
----------------------------------
Net Income Shares Per-Share
(Numerator) (Denominator) Amount
------------------------------------------------------------------------
Basic EPS Available to
Shareholders $ 162,000 1,270,746 $ 0.13
-----------------------------------------------------------------------
Effect of Dilutive Stock-based
Compensation Arrangements 15,289
------------------------------------------------------------------------
Diluted EPS Available to
Shareholders $ 162,000 1,286,035 $ 0.13
------------------------------------------------------------------------
5. STOCK-BASED COMPENSATION:
Effective July 3, 2005, the Company adopted Statement of Financial
Accounting Standards No. 123R (revised 2004), "Share-Based Payment,"
("SFAS No. 123R") which was issued by the FASB in December 2004. SFAS No.
123R revises SFAS No. 123 "Accounting for Stock Based Compensation,"
and supersedes APB No. 25, "Accounting for Stock Issued to
Employees," (APB No. 25) and its related interpretations. SFAS No.123R
requires recognition of the cost of employee services received in
exchange for an award of equity instruments in the financial statements
over the period the employee is required to perform the services in
exchange for the award (presumptively the vesting period). SFAS No. 123R
also requires measurement of the cost of employee services received in
exchange for an award based on the grant-date fair value of the award.
SFAS No. 123R also amends SFAS No. 95 "Statement of Cash Flows," to
require that excess tax benefits be reported as financing cash inflows,
rather than as a reduction of taxes paid, which is included within
operating cash flows.
The Company adopted SFAS No. 123R using the modified prospective
application as permitted under SFAS No. 123R. Accordingly, prior period
amounts have not been restated. Under this application, the Company is
required to record compensation expense for all awards granted after the
date of adoption and for the unvested portion of previously granted awards
that remain outstanding at the date of adoption. As of the date of
adoption, the Company had no unvested previously granted awards and has not
granted any awards after July 1, 2006. There have been no options exercised
during the interim periods ended March 31, 2007 and April 1, 2006.
Therefore, the new standard has had no impact on the consolidated
statements of operations and cash flows, or earnings per share of the
Company during the current reporting periods.
As of March 31, 2007, the Company had 52,500 options outstanding and
exercisable at a weighted average exercise price of $ 10.65 per share.
12
The Company currently has two share-based compensation plans in effect at
March 31, 2007 and information about them is contained in the notes to the
consolidated financial statements filed as part of the Company's 2006
annual report on Form 10-K. This quarterly report should be read in
conjunction with such annual report.
6. PENSION PLANS:
The Company has two non-contributory, defined benefit plans. The components
of pension expense, included in Cost of Sales and Services in the
Consolidated Statements of Operations are as follows:
For the Nine Months Ended
--------------------------------------------------------------------------
March 31, 2007 April 1, 2006
--------------------------------------------------------------------------
Benefits Earned for Service in the
Current Period $114,900 $139,500
--------------------------------------------------------------------------
Interest on the Projected Benefit
Obligation 247,800 237,000
--------------------------------------------------------------------------
Expected Return on Plan Assets (256,800) (243,300)
--------------------------------------------------------------------------
Amortization of: Unrecognized Net
Pension Obligation at July 1, 1987;
Cost of Benefit Changes Since That Date;
and Gains and Losses Against Actuarial
Assumptions 26,100 70,800
--------------------------------------------------------------------------
Pension Expense $132,000 $204,000
--------------------------------------------------------------------------
For the Three Months Ended
--------------------------------------------------------------------------
March 31, 2007 April 1, 2006
--------------------------------------------------------------------------
Benefits Earned for Service in the
Current Period
$38,300 $46,500
--------------------------------------------------------------------------
Interest on the Projected Benefit
Obligation 82,600 79,000
--------------------------------------------------------------------------
Expected Return on Plan Assets (85,600) (81,100)
--------------------------------------------------------------------------
Amortization of: Unrecognized Net Pension
Obligation at July 1, 1987; Cost of Benefit
Changes Since That Date; and Gains and
Losses Against Actuarial Assumptions 8,700 23,600
--------------------------------------------------------------------------
Pension Expense $44,000 $68,000
--------------------------------------------------------------------------
13
7. PUERTO RICAN GOVERNMENT REFUND:
The majority of the Company's boot manufacturing operations occur at the
factory of a wholly-owned subsidiary located in Puerto Rico. The Company
is participating in a Puerto Rican government program to assist
manufacturers in the training of new or expanded work force under which
the Company is reimbursed for part of the compensation paid to certain
employees. The Consolidated Statements of Operations for the nine months
and three months ended March 31, 2007 include $361,000 and $21,000,
respectively, as revenues. The Consolidated Statements of Operations for
the nine months and three months ended April 1, 2006 include $405,000 and
$24,000, respectively, as revenues.
The Company has an outstanding uncollected reimbursement claim for
$504,000 for compensation paid employees and expensed through March 31,
2007. The Company's policy is to recognize reimbursements as revenue in
the period that they are received.
8. GRANT MONEY RECEIVED:
The Company has received to date approximately $442,000 from the
government of Puerto Rico under a Special Incentives Contract related to
creating new job opportunities in its boot manufacturing operations in
Puerto Rico. The grant is for a five-year period (fiscal years 2004
through 2008) and requires the Company to maintain a certain level of
employment in Puerto Rico over the grant period. If this requirement is
not met, the Company may be required to refund a pro-rata portion of the
total grant monies it has received. The grant is for a maximum of $526,000
and monies are disbursed based upon certain expenditures made by the
Company. The Company's policy is to recognize grant monies pro-rata over
the five-year grant period, with grant income first recognized in the
period in which it is received. The Company did not recognize any grant
income for the nine months or three months ended March 31, 2007 due to the
level of employment being below the required level in the grant document.
As of March 31, 2007, the Company has approximately $206,000 of deferred
grant income reported in its consolidated balance sheet. Until a
determination of whether any potential refunds will be required, the
Company will not recognize any remaining portion of this deferred grant
income. The Consolidated Statements of Operations for the nine-month
period ended April 1, 2006 recognized $108,000 as grant income including
$41,000 that was received and related to grant periods prior to fiscal
year 2006. The Consolidated Statements of Operations for the three-month
period ended April 1, 2006 recognized $23,000 as grant income.
9. GOVERNMENT BOOT CONTRACT REVENUES:
From time to time, the Company records estimates of revenues or costs
associated with certain contract actions before the amount of such actions
are settled with the DSCP. Any differences between these estimates and the
actual amounts agreed to are included in the period of settlement.
10. PROPOSED MERGER AGREEMENT AND ASSOCIATED MERGER COSTS:
On February 7, 2007, the Company announced a definitive merger agreement
to be acquired in an all-cash transaction (the "Merger Agreement"). Upon
consummation of the proposed merger, holders of the Company's common stock
14
would be entitled to receive $14.00 per share in cash. In addition, the
Merger Agreement provides that each holder of an outstanding option to
purchase shares of the Company common stock issued under the Company stock
option plans will be entitled to receive cash in an amount per share equal
to the difference between $14.00 and the exercise price of the option,
contingent upon the holder entering into an acknowledgement canceling the
options upon consummation of the proposed merger. The Merger Agreement
prohibits the Company from paying any further dividends on its common
stock.
On May 9, 2007, the Company's shareholders approved the merger
contemplated by the Merger Agreement.
The Consolidated Statements of Operations for the nine month and three
month period ended March 31, 2007 include $585,000 and $450,000,
respectively in costs directly related to the proposed merger as a
component of operating loss.
15
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
RESULTS OF OPERATIONS
=====================
Critical Accounting Policies:
- -----------------------------
The Consolidated Financial Statements have been prepared in accordance with
generally accepted accounting principles, which require the Company to make
estimates, and assumptions that affect the reported amounts of assets and
liabilities at the date of the Consolidated Financial Statements, and revenues
and expenses during the periods reported. Actual results could differ from those
estimates. The Company believes the following are the critical accounting
policies, which could have the most significant effect on the Company's reported
results and require the most difficult, subjective or complex judgments by
management.
Impairment of Long-Lived Assets:
-------------------------------
The Company reviews its long-lived assets for impairment whenever events or
circumstances indicate that the carrying amount of an asset may not be
recoverable. If the sum of the expected cash flows, undiscounted and
without interest, is less than the carrying amount of the asset, an
impairment loss is recognized as the amount by which the carrying amount of
the asset exceeds its fair value. The Company makes estimates of its future
cash flows related to assets subject to impairment review. One of the most
critical estimates is future demand, primarily through U. S. Department of
Defense contracts, for the Company's products. Changes to this and other
estimates could result in an impairment charge in future periods.
Inventory Valuation:
-------------------
Raw materials and supplies are valued at the lower of first-in, first-out
cost or market. Finished goods and work in process are valued at the lower
of actual cost, determined on a specific identification basis, or market.
The Company estimates which materials may be obsolete and which products in
work in process or finished goods may be sold at less than cost, and
adjusts its inventory value accordingly. Future periods could include
either income or expense items if estimates change and for differences
between the estimated and actual amount realized from the sale of
inventory.
Recognition of Contract Adjustments:
-----------------------------------
From time to time, contract price adjustments will occur which require the
Company to compute and present to the Defense Department for audit its
calculation of such adjustments. If the adjustment is one of a recurring
nature, the Company will record its calculation in the period the change
occurred. For other adjustments, the adjustment is not recorded until the
period in which the Company and the government agree on the amount of
adjustment.
Income Taxes:
------------
The Company records a liability for potential tax assessments based on its
estimate of the potential exposure. Due to the subjectivity and complex
nature of the underlying issues, actual payments or assessments may differ
16
from estimates. Income tax expense in future periods could be adjusted for
the difference between actual payments and the Company's recorded liability
based on its assessments and estimates.
The Company has recorded a valuation allowance equal to a part of its
deferred tax assets. The valuation allowance is based on an evaluation of
the uncertainty of future taxable income from certain jurisdictions. An
adjustment could be required if circumstances and events cause the Company
to change these estimates.
Since July 1, 2006, the end of the 2006 fiscal year, there have been no changes
in the nature of the estimates and assumptions related to these critical
accounting policies.
Comparing the Nine Months Ended March 31, 2007 and April 1, 2006:
- ----------------------------------------------------------------
OVERVIEW
--------
The most significant events occurring in the nine months ended March 31, 2007
(current period) compared to the nine months ended April 1, 2006 (prior
period) are:
1. 53% decrease in total pairs of boots sold under contracts with the U.
S. Department of Defense (DOD).
2. The Company incurred $585,000 in merger related costs.
Comparative results for these two periods is as follows:
------------------------------------------------------------------------------
Current Period Prior Period
Nine Months Nine Months
Ended March 31, Ended April 1,
(Amounts in thousands) 2007 2006 Change % of Change
------------------------------------------------------------------------------
Revenues $18,971 $32,754 $(13,783) (42)%
------------------------------------------------------------------------------
Cost of Sales 17,944 30,918 (12,974) (41)%
------------------------------------------------------------------------------
Gross Profit 1,027 1,836 (809) (44)%
------------------------------------------------------------------------------
Administrative Expenses 2,010 1,908 102 5%
------------------------------------------------------------------------------
Grant Income - 108 (108) (100)%
------------------------------------------------------------------------------
Merger Costs 585 - 585 100%
------------------------------------------------------------------------------
Operating Profit (Loss) (1,568) 36 (1,604) (4,455)%
------------------------------------------------------------------------------
Interest Expense, Net 110 207 (97) (46)%
------------------------------------------------------------------------------
Benefit (Expense) from
Income Taxes 505 (88) 593 673%
------------------------------------------------------------------------------
Net Loss $(1,173) $(259) $(914) (352)%
------------------------------------------------------------------------------
For the current period, Wellco had a net loss of $1,173,000 from revenues of
$18,971,000 compared to a net loss of $259,000 from revenues of $32,754,000 in
the prior period.
17
In the current period, the Company shipped 179,000 pairs of boots under contract
with the U.S. Department of Defense as compared to 377,000 pairs in the prior
period, a decrease of 198,000 pairs.
The Company's primary customer is the Defense Supply Center Philadelphia (DSCP),
the DOD agency with which the Company contracts for the manufacture of boots
used by U. S. Armed Forces personnel. Revenues decreased by $13,783,000. The
primary reason for the decrease was a 53% reduction of total pairs of boots
shipped to the U.S. government.
Revenues from technical assistance fees and equipment rentals from licensees,
which vary with their shipments, decreased $148,000 because the Company's boot
manufacturing licensees were also affected by the DOD's reduction in boot
purchases.
The majority of the Company's boot manufacturing operations occur at the factory
of a wholly-owned subsidiary located in Puerto Rico. The Company is
participating in a Puerto Rican government program to assist manufacturers in
the training of new and expanded work force under which the Company is
reimbursed for part of the compensation paid to certain employees. During the
current period, the Company received $361,000 of reimbursement under this
program, which is included in revenues. In the prior period, the Company
received $405,000 of reimbursement. The Company's policy is to recognize the
reimbursements as revenue in the period in which it is received, and not when
the related compensation is paid.
Gross profit for the nine months ended March 31, 2007 was $1,027,000 on much
lower sales volume as compared to a gross profit of $1,836,000 for the prior
period. During the current period, the gross profit margin was 5.4% of revenues
due to an extremely low level of production and sales volume. Fixed costs (such
as depreciation, insurance and rent) and semi-variable costs did not decrease
proportionately to the decrease in the production and sales volume. The Company
retained critical operating personnel assuming the low level of production would
be temporary. In addition to a low level of production, during February and
March 2007, the Company had inefficiencies due to starting three new products at
the same time. (See three-month section below.)
During the prior nine-month period, the gross profit was 5.6% of revenues with
much higher sales. In early August 2005, the only U.S. supplier of a DOD
required component had a significant quality problem. Fortunately, the Company's
quality system found this problem when it first occurred. In order to assure
that defective product did not get into boots, the Company had to perform
additional quality checks and time consuming repairs. The rate of boot
production was reduced due to the limited supply of this component. After this
supplier solved its quality problem, the rate of production continued to be
impaired, as it took that supplier several weeks to reestablish full production.
The supplier agreed to reimburse certain excess manufacturing costs and this
reimbursement has been reflected in the Cost of Sales and Services for the nine
months ending April 1, 2006. However, some of the excess costs could not be
recouped from the supplier.
During the current period, the $102,000 increase in general and administrative
expenses was primarily caused by increase in administrative salaries,
professional fees and health care costs. The Company's employee group health
insurance costs vary with actual health care costs incurred because the Company
is self-funded.
18
The amount of grant income recognized in the current period under the Puerto
Rico Special Incentives Contract was $0 as compared to $108,000 during the prior
period. The grant is for a five-year period (fiscal years 2004 through 2008) and
requires the Company to maintain a certain level of employment in Puerto Rico
over the grant period. If this requirement is not met, the Company may be
required to refund a pro-rata portion of the total grant. During the current
period, the Company's level of employment was below the level of employment
required in the grant document. Thus, for the current period, the Company did
not recognize grant revenues. Until the level of employment surpasses the level
required in the grant document or until the Puerto Rican Government indicates
that a refund will not be requested, the Company will not recognize any further
portion of its deferred grant income. As of March 31, 2007, the Company has
approximately $206,000 of deferred grant income reported in its consolidated
balance sheet.
As a result of the planned Merger, the Consolidated Statements of Operations for
the nine-month period ended March 31, 2007 include $585,000 in costs directly
related to the Merger as a component of operating loss. The costs include
professional fees for investment advisors, attorneys and environmental studies.
Interest expense decreased $97,000 because of less borrowing on the bank line of
credit.
For the current period, the Company reflected income tax benefit of $505,000 on
a pretax loss of $1,678,000 at an effective benefit rate of 30%. For fiscal year
2007, the Company will file a consolidated federal income tax return that will
include its subsidiary in Puerto Rico. Fiscal year 2006 was the last year that
the Company received a federal tax credit for income earned at its subsidiary in
Puerto Rico which was able to file a separate federal income tax return. For the
prior period, even though the Company had a consolidated net loss, the U.S.
jurisdictions had net income and the net income was taxed at 31%. For the prior
period, operations in Puerto Rico had a loss and the loss was substantially
exempt from U.S. income tax and no tax benefit was derived.
Comparing the Three Months Ended March 31, 2007 and April 1, 2006:
- -----------------------------------------------------------------
OVERVIEW
--------
The most significant events occurring in the three months ended March 31, 2007
(current period) compared to the three months ended April 1, 2006 (prior period)
are:
1. 63% decrease in total pairs of boots sold under contracts with the
U.S. Department Defense (DOD).
2. The Company incurred an additional $450,000 in merger related costs.
19
Comparative results for these two periods is as follows:
-----------------------------------------------------------------------------
Current Period Prior Period
Three Months Three Months
Ended March 31, Ended April 1,
(Amounts in thousands) 2007 2006 Change % of Change
------------------------------------------------------------------------------
Revenues $7,387 $13,395 $(6,008) (45)%
------------------------------------------------------------------------------
Cost of Sales 7,050 12,389 (5,339) (43)%
------------------------------------------------------------------------------
Gross Profit 337 1,006 (669) (67)%
------------------------------------------------------------------------------
Administrative Expenses 637 663 (26) (3)%
------------------------------------------------------------------------------
Grant Income - 23 (23) (100)%
------------------------------------------------------------------------------
Merger Costs 450 - 450 100%
-----------------------------------------------------------------------------
Operating Income (Loss) (750) 366 (1,116) (304)%
------------------------------------------------------------------------------
Interest Expense, Net 70 98 (28) (28)%
------------------------------------------------------------------------------
Income Taxes (Benefit) (274) 106 380 358%
------------------------------------------------------------------------------
Net Income (Loss) $(546) $162 $(708) (437)%
------------------------------------------------------------------------------
For the current period, Wellco had a net loss of $546,000 from revenues of
$7,387,000 compared to a net income of $162,000 from revenues of $13,395,000 in
the prior period.
Revenues in the current period decreased by $6,008,000. The primary reason for
the decrease was a 63% reduction of total pairs of boots shipped to the U.S.
government. In the current period the Company shipped 61,000 pairs of boots
under contract with the U.S. Department of Defense as compared to 166,000 pairs
in the prior period, a decrease of 105,000 pairs.
For the current period, the Company shipped 30,000 pairs of boots to commercial
customers compared to 8,000 pairs for the prior period.
The majority of the Company's boot manufacturing operations occur at the factory
of its wholly-owned subsidiary located in Puerto Rico. The Company is
participating in a Puerto Rican government program to assist manufacturers in
the training of new and expanded work force under which the Company is
reimbursed for part of the compensation paid to certain employees. During the
current period, the Company received $21,000 of reimbursement under this
program, which is included in revenues. In the prior period, the Company
received $24,000 of reimbursement. The Company's policy is to recognize the
reimbursements as revenue in the period in which it is received, and not when
the related compensation is paid.
Gross profit for the three months ended March 31, 2007 was $337,000 as compared
to gross profit of $1,006,000 for the prior period. During the current period,
the gross profit margin was only 4.6% of revenues due to an extremely low level
of production in the beginning of the quarter. For the prior period, the gross
profit margin was 7.5% of revenues.
20
During the second half of the quarter, the Company had start-up inefficiencies
due to starting three new products at the same time. On February 2, 2007, the
Company received a Natick Contracting Division of DOD contract to produce up to
65,000 pairs of the Hot Weather Flame Resistant boot. On February 23, 2007, the
Company received a contract for the Safety Flight Deck boot and the first
delivery order was for 38,000 pairs. On February 25, 2007, the Company received
a commercial contract to ship 12,500 pairs of the Intermediate Cold Weather
boot. During the current period, the Company incurred significant costs (new
employee training costs, materials for production trials, boot testing, plant
infrastructure costs, etc.) to integrate the productions of these three new
boots into the Company's factories.
The amount of grant income recognized in the current period under the Puerto
Rico Special Incentives Contract was $0 as compared to $23,000 during the prior
period. The grant is for a five-year period (fiscal years 2004 through 2008) and
requires the Company to maintain a certain level of employment in Puerto Rico
over the grant period. If this requirement is not met, the Company may be
required to refund a pro-rata portion of the total grant. During the current
period, the Company's level of employment was below the level of employment
required in the grant document. Thus, for the current period, the Company did
not recognize grant revenues. Until the level of employment surpasses the level
required in the grant document or until the Puerto Rican Government indicates
that a refund will not be requested, the Company will not recognize any further
portion of its deferred grant income.
As a result of the planned Merger, the Consolidated Statements of Operations for
the three-month period ended March 31, 2007 include $450,000 in costs directly
related to the Merger as a component of operating loss. The costs include
professional fees for investment advisors, attorneys and environmental studies.
For the current period, the Company reflected income tax benefit of $274,000 on
a pretax loss of $820,000 at an effective benefit rate of 33%. For fiscal year
2007, the Company will file a consolidated federal income tax return that will
include its subsidiary in Puerto Rico. Fiscal year 2006 was the last year that
the Company received a federal tax credit for income earned at its subsidiary in
Puerto Rico which was able to file a separate federal income tax return. For the
prior period, even though the Company had a consolidated net loss, the U.S.
jurisdictions had net income. For the prior period, operations on Puerto Rico
had a loss and the loss was substantially exempt from U.S. income tax and no tax
benefit was derived.
Forward Looking Information:
- ---------------------------
On September 23, 2005, the Defense Department exercised the second and final
option year under the Company's Hot Weather boot contract. In late September
2006, DOD extended the Hot Weather contract period until September 29, 2006 so
they could place one more delivery order under the contract before it expired.
During the quarter ended March 31, 2007, the Company shipped the final 15,000
pairs of Hot Weather Boots under this Hot Weather contract. On August 2, 2006,
the Company submitted a proposal for the new Hot Weather boot solicitation (see
below).
21
Due to the expiration of the Hot Weather contract and reduced ordering from the
government on the Temperate Weather contract, the Company expects to ship
approximately 75,000 pairs during the fourth fiscal quarter of 2007 compared to
127,000 pairs shipped during the fourth quarter of 2006. For the fourth fiscal
quarter of 2007, the reduction in boot shipments will have a negative effect on
margins when compared to the fourth fiscal quarter of 2006.
Below is a summary of the Company's current boot contracts with the Defense
Department. The Company's Defense Department boot contracts are indefinite
quantity contracts. This means that each contract specifies a minimum number of
pairs that must be ordered from a contractor and a maximum number of pairs that
may be ordered.
On February 2, 2007, the Natick Contracting Division of DOD awarded the
Company a one-year contract to supply the Hot Weather Flame Resistant
boot with a minimum 20,000 pairs and a maximum 65,000 pairs to be
ordered. The first two delivery orders have been issued totaling 50,000
pairs. The Hot Weather Flame Resistant contract is a new product for
the Company. The Company expects to ship 30,000 pairs of this boot
during the fourth fiscal quarter of 2007.
On February 23, 2007, the Company was awarded a Department of Defense
contract to supply the U.S. Navy with Safety Flight Deck boots. This
contract is for a one year period, with four one year options which are
exercisable at the government's discretion, The contract calls for
minimum 37,000 pairs with maximum potential of 88,000 pairs in the base
year. The first delivery order has been issued for 38,000 pairs and the
Company expects to ship 15,000 pairs during the fourth fiscal quarter
of 2007. This is also a new product for Wellco to supply. On July 7,
2006, the Defense Department exercised the third option year under the
Company's Temperate Weather boot contract. For the third option year,
the minimum pairs are 10,000 and the maximum are 227,000. Pairs ordered
to date under the third option year are 93,000. This contract has one
more option year outstanding. The exercise of any contract option is
the unilateral decision of the Defense Department.
On April 13, 2006, the Company received a Department of Defense
contract to supply the U.S. Army with Extreme Cold Weather boots. This
contract is for a one-year period, with four one-year options, which
are exercisable at the government's discretion. DOD exercised the first
option year but has not placed any orders yet. The first option year is
for a minimum of 5,000 pairs and a maximum of 29,000 pairs.
On August 2, 2006, the Company submitted a proposal for the new Hot Weather boot
solicitation, which will replace the Hot Weather contract that expired on
September 29, 2006. The solicitation is for an indefinite quantity contract with
a base year and four one-year option periods. DSCP was to award the contract
within 180 days. However, DSCP recently requested that we extend our bid
proposal until July 17, 2007 to allow them more time to award the contract and
we granted the extension. DSCP intends to make five awards, of which three will
be restricted to contractors who meet the criteria for being a small business,
and two contracts will be awarded without the small business restriction. The
Company is not a small business. Bidding on government solicitations is very
22
competitive, and the Company cannot assure that it will receive a contract award
from any solicitation. If the Company does not receive a contract from this
solicitation, future operating results and liquidity will likely be materially
adversely affected.
The Company also submitted a bid for a new solicitation for a boot known as the
Intermediate Cold Weather Boot. This particular boot will have a minimum 29,000
pairs with a maximum of 90,000 pairs per base year and four option years
available. In late December, the Company submitted a proposal to supply the
Safety Hot Weather Boot. The contract will have a minimum 24,000 pairs with a
maximum of 69,000 pairs per base year and four option years. Both solicitations
are for new products and the Company cannot predict its success in receiving a
contract award from these solicitations.
The majority of the Company's boot manufacturing operations occur at the factory
of a wholly owned subsidiary located in Puerto Rico. The Company is
participating in a Puerto Rican government program under which it is reimbursed
for part of the compensation paid to certain employees in training. As of March
31, 2007, $504,000 has been filed for, but has not been received or recorded as
revenues, or reimbursement under this program. The government of Puerto Rico
recently suspended new contracts for this program. The Company understands that
this suspension will not affect its collection of the $504,000. In the past four
fiscal years, the Company has received and recorded as revenues a total of
$2,666,000 under this program.In December 2005, the Company was one of two
contract awardees for the development of the US Army Modular Boot System. This
award was the result of the Company's response to the Modular Boot System
solicitation that required submission of data and product demonstration models
illustrating the Company's concept of the modular boot system. This contract
provides the development of a Modular Boot System for the U. S. military.
Presently, the Department of Defense buys four different boot styles to meet the
varied climatic conditions encountered by military personnel. The contract's
goal is to develop a functional boot system to provide comfort in a temperature
range of -60(0)F to 120(0)F. If successful, the new Modular Boot System would
replace many of the current boot styles.
The Department of Defense placed its first order under this contract for 580
pairs of the Modular Boot System and the boots were shipped in March 2006.
Recent feedback from the Natick Contracting Division of the U.S. Army was very
positive on the testing of the first order of boots. Recently, DOD exercised the
second option to supply the development of the Modular Boot System and issued an
order for 450 pairs of the MBS. The Company recently shipped the 450 pairs for
expanded testing. If the Wellco Modular Boot System is successful through all
phases of development and testing, the contract provides for Wellco to
manufacture 160,000 pairs of this boot for issuance to military personnel. As
with any contract, there is no assurance that Wellco will be successful in
receiving the contract to manufacture the 160,000 pairs.
The Company is actively bidding on solicitations for footwear contracts with the
U.S. military for new products. At the same time, we are very focused on
building our commercial wholesale and retail business.
Income earned by the Company's Puerto Rico subsidiary has for many years been
fully exempt from U. S. income taxes. Fiscal year 2006 was the last year in
which this subsidiary has any exemption from U. S. income taxes. For fiscal year
2007 and forward, the Company and all its subsidiaries including Puerto Rico
will be taxed at the regular U.S. federal tax rates and as a result, any Company
profits will be impacted by higher effective tax rates than in the past.
23
On February 7, 2007, the Company announced a definitive merger agreement to be
acquired in an all-cash transaction (the "Merger Agreement"). Upon consummation
of the proposed merger, holders of the Company's common stock would be entitled
to receive $14.00 per share in cash. In addition, the Merger Agreement provides
that each holder of an outstanding option to purchase shares of the Company
common stock issued under the Company stock option plans will be entitled to
receive cash in an amount per share equal to the difference between $14.00 and
the exercise price of the option, contingent upon the holder entering into an
acknowledgement canceling the options upon consummation of the proposed merger.
On May 9, 2007, the Company's shareholders approved the merger contemplated by
the Merger Agreement.
The requirements of Section 404 of the Sarbanes-Oxley Act of 2002 are currently
scheduled to apply to the Company's 2008 fiscal year. Section 404 requires the
Company to document, test, and issue an opinion as to the adequacy of their
internal controls over financial reporting. In addition, Section 404 requires
the Company's Independent Accountants to review the Company's internal control
documentation and testing results, and to issue its opinion as to the
correctness of the Company's opinion as to the adequacy of their internal
controls over financial reporting, which the requirement is currently scheduled
to be applicable for the Company's 2009 fiscal year. The Company has received
quotations from outside firms specializing in the review, documentation and
testing of internal controls. Based on these quotations and on reported
information about the costs other companies are incurring, the Company estimates
that the cost of the internal control review and audit will be between $200,000
and $500,000.
The Company relies heavily on boot contracts from the DOD for most of its
operations. The business of providing boots to the U. S. Defense Department is
very competitive.
LIQUIDITY AND CAPITAL RESOURCES
===============================
Wellco uses cash from operations and a bank line of credit to supply most of its
liquidity needs.
The following table summarizes, at the end of the most recent nine-month period
and the last fiscal year, the amounts of cash and unused line of credit:
(in thousands)
March 31, 2007 July 1, 2006
---------------------------------------------------------------
Cash and Cash Equivalents $82 $44
---------------------------------------------------------------
Unused Line of Credit 4,800 6,875
---------------------------------------------------------------
Total $4,882 $6,919
---------------------------------------------------------------
The following table summarizes the cash flow activities for the nine-month
period ended March 31, 2007:
24
Cash provided by (used in): (in thousands)
-------------------------------------------------------
Operating activities $(763)
-------------------------------------------------------
Investing activities (1,020)
-------------------------------------------------------
Financing activities 1,821
-------------------------------------------------------
Net change in cash and
cash equivalents $38
-------------------------------------------------------
Operating Activities: In the nine months ended March 31, 2007, cash used by
operations was $763,000. Depreciation of $968,000 and increases of $2,130,000 in
account payables, $264,000 in accrued income taxes, and $17,000 in other
liabilities were the main operating sources of cash. The main uses of operating
cash were the net loss of $1,173,000, increases of $294,000 in accounts
receivables, $1,956,000 in inventories, $83,000 in prepaid expenses and a
decrease of $131,000 in accrued compensation and $505,000 in deferred taxes.
Investing Activities: In the nine months ended March 31, 2007, purchases of
machinery, equipment and leasehold improvements was $1,020,000.
Financing Activities: In the nine months ended March 31, 2007, the Company's net
cash provided by financing activities totaled $1,821,000. Cash was provided
through additional borrowings of $2,075,000 from the line of credit. $254,000
was used to pay dividend payments to stockholders.
The following table shows aggregated information about contractual obligations
as of March 31, 2007:
Payments Due by Period
Less Than
Total 1 Year 1-3 Years 4-5 Years After 5 Years
- --------------------------------------------------------------------------------
Notes Payable $300,000 - - $300,000 -
- --------------------------------------------------------------------------------
Building Lease 638,000 $278,000 $360,000 -
- --------------------------------------------------------------------------------
Total $938,000 $278,000 $360,000 $300,000 -
- --------------------------------------------------------------------------------
In addition, during the nine month period ended March 31, 2007, the Company paid
$105,000 in interest expense and $198,000 in contributions to its pension plans.
The Company received a tax refund of $270,000 and paid out taxes of $6,000
during the nine-month period ended March 31, 2007.
On February 7, 2007, the Company announced a definitive merger agreement to be
acquired in an all-cash transaction valued at $14.00 per share by Golden Gate
Capital. As a result of the Merger, each holder of the Company's common stock
will be entitled to receive $14.00 per share in cash. Also, part of the merger
agreement is a restriction prohibiting the Company from paying any further
dividends on its common stock.
25
The proposed merger agreement has received unanimous approval from a committee
of independent directors of the Company and its Board of Directors. Soles Brower
Smith & Co. advised the independent committee and provided it and the Board of
Directors with a fairness opinion.
The Company mailed a proxy statement to all shareholders in connection with the
proposed merger agreement and related transactions. On May 9, 2007, the Company
had a special shareholder meeting and at the meeting the shareholders approved
the proposed merger between Wellco and a corporation organized by Golden Gate
Capital and Integrity Brands. The merger remains subject to other customary
closing conditions.
As a result of the planned Merger, the Consolidated Statements of Operations for
the nine month and three month period ended March 31, 2007 include $585,000 and
$450,000, respectively in costs directly related to the Merger as a component of
operating loss. During the remaining three months of fiscal year 2007,
additional merger costs are estimated to be between $150,000 to $250,000 for
professional fees and other direct merger costs. In addition, according to the
definitive agreement, after closing there will be stay bonuses paid to certain
executives for approximately $1,700,000.
The Company maintains a $7,500,000 bank line of credit. Borrowings under the
line of credit at March 31, 2007 were $2,700,000.
The bank line of credit will expire and be subject to renewal on June 30, 2007.
Historically, the bank has always renewed the line of credit. Under conditions
of substantial reduction in operations, and in the event there is little basis
for projecting a reversal of such reduction, it is possible that the bank could
terminate or cancel the line of credit. Events that would cause a substantial
reduction in operations include cancellation of existing government contracts,
not receiving future contracts and receiving government contracts that do not
provide enough revenues to provide adequate liquidity. The Company expects
continued need of this line of credit after June 30, 2007, and would be
adversely affected if the line were not renewed.
Loan agreements related to the line of credit contain covenants requiring the
Company to maintain at the end of each fiscal quarter a certain level of working
capital and tangible net worth. The Company met these requirements at March 31,
2007.
The Promissory Note, Loan Agreement and Security Agreement documenting the bank
line of credit provide that:
o All amounts borrowed shall become due and immediately payable upon
demand of the bank.
o The bank's obligation to make advances under the note shall terminate:
if the bank makes a demand for payment; if a default under any loan
document occurs; or, in any event, on June 30, 2007, unless the Note is
extended by the bank under terms satisfactory to the bank.
o All amounts borrowed shall become immediately payable if Wellco
commences or has commenced against it a bankruptcy or insolvency
proceeding, or in the event of default.
Events of default include:
o Having a current ratio less than that prescribed by the bank.
26
o Having tangible net worth less than that prescribed by the bank.
o Any failure to meet requirements under the Note, Loan Agreement or
Security Agreement.
Other than the above, Wellco does not know of any other demands, commitments,
uncertainties, or trends that will result in or that are reasonablely likely to
result in its liquidity increasing or decreasing in any material way.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION
Statements throughout this report that are not historical facts are
forward-looking statements. These statements are based on current expectations
and beliefs, and involve numerous risks and uncertainties. Many factors could
affect the Company's actual results, causing results to differ materially from
those expressed in any such forward-looking information.
These factors include, but are not limited to, the receipt of contracts from the
U. S. government and the performance thereunder; the ability to control costs
under fixed price contracts; the cancellation of contracts; and other risks
detailed from time to time in the Company's Securities and Exchange Commission
filings, including Form 10-K for the year ended July 1, 2006. Those statements
include, but may not be limited to, all statements regarding intent, beliefs,
expectations, projections, forecasts, and plans of the Company and its
management. Actual results may differ materially from management expectations.
The Company assumes no obligation to update any forward-looking statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
We are exposed to interest rate changes primarily as a result of our line of
credit, which we use to maintain liquidity and to fund capital expenditures and
expansion. Our market risk exposure with respect to this debt is to changes in
LIBOR. Our line of credit provides for interest on outstanding borrowings at
rates tied to LIBOR. We do not enter into derivative or interest rate
transactions for speculative purposes.
In the normal course of business and consistent with established policies and
procedures we use the necessary financial instruments to manage the fluctuations
in interest rates. The Company does not have any foreign currency risk.
Item 4. Controls and Procedures.
(a) Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are controls and other procedures that are
designed to ensure that information required to be disclosed in the reports that
are filed or submitted under the Exchange Act is recorded, processed, summarized
and reported, within the time periods specified in the Securities and Exchange
Commission's rules and forms. Disclosure controls and procedures include,
without limitation, controls and procedures designed to ensure that information
required to be disclosed in the reports that are filed under the Exchange Act is
accumulated and communicated to management, including the chief executive
27
officer and chief financial officer, as appropriate to allow timely decisions
regarding required disclosure. Under the supervision of and with the
participation of management, including the chief executive officer and chief
financial officer, the Company has evaluated the effectiveness of the design and
operation of its disclosure controls and procedures as of March 31, 2007 and
based on its evaluation, our chief executive officer and chief financial officer
have concluded that these controls and procedures are effective.
(b) Changes in Internal Controls
There have been no changes in internal controls during the last fiscal quarter
that materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting.
28
PART II. OTHER INFORMATION
--------------------------
Item 1. Legal Proceedings. N/A
Item 1(A). Risk Factors. There have been no material changes to our risk
factors as disclosed in Item 1A. "Risk Factors" in our Annual
Report on Form 10-K for the year ended July 1, 2006.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. N/A
Item 3. Defaults Upon Senior Securities. N/A
Item 4. Submission of Matters to a Vote of Security Holders. N/A
Item 5. Other Information.
A) N/A
B) N/A
Item 6. Exhibits.
(2) Agreement and Plan of Merger by and among Wellco Enterprises,
Inc., Wasatch Boot Holdings, Inc. and Wasatch Merger Sub,
Inc. dated as February 6, 2007, incorporated by reference to
Exhibit 2.1 to the Company's Current Report on Form 8-K dated
February 7, 2007
(3) Amended Articles of Incorporation, filed herewith.
(10.1) Stay Bonus Agreement between Wellco Enterprises, Inc. and Lee
Ferguson dated as of February 6, 2007, incorporated by
reference to Exhibit 10.1 to the Company's Current Report on
Form 8-K dated February 7, 2007
(10.2) Stay Bonus Agreement between Wellco Enterprises, Inc. and
Tammy Francis dated as of February 6, 2007 incorporated by
reference to Exhibit 10.2 to the Company's Current Report on
Form 8-K dated February 7, 2007
(10.3) Stay Bonus Agreement between Wellco Enterprises, Inc. and
Neil Streeter dated as of February 6, 2007, incorporated by
reference to Exhibit 10.3 to the Company's Current Report on
Form 8-K dated February 7, 2007
(10.4) Stay Bonus Agreement between Wellco Enterprises, Inc. and
Fred Webb dated as of February 6, 2007, incorporated by
reference to Exhibit 10.4 to the Company's Current Report on
Form 8-K dated February 7, 2007
29
(10.5) Option Cancellation Acknowledgement between Wellco
Enterprises, Inc. and Tammy Francis dated as of February 6,
2007, incorporated by reference to Exhibit 10.5 to the
Company's Current Report on Form 8-K dated February 7, 2007
(10.6) Option Cancellation Acknowledgement between Wellco
Enterprises, Inc. and Fred Webb dated as of February 6, 2007,
incorporated by reference to Exhibit 10.6 to the Company's
Current Report on Form 8-K dated February 7, 2007
(31) Certifications of the Chief Executive Officer and Chief
Financial Officer under Section 302 of the Sarbanes-Oxley Ac
of 2002, filed herewith.
(32) Certifications of the Chief Executive Officer and Chief
Financial Officer under Section 906 of the Sarbanes-Oxley Act
of 2002, filed herewith.
30
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Wellco Enterprises, Inc., Registrant
\s\ \s\
- ----------------------------------- ------------------------------------------
Lee Ferguson, Chief Executive Tammy Francis, Vice President of Finance
Officer and President (Principal and Treasurer (Chief Financial Officer)
Executive Officer)
- --------------------------------------------------------------------------------
May 20, 2007
31
EXHIBIT 3
---------
CERTIFICATE OF INCORPORATION
OF
WELLCO SHOE CORPORATION
THIS IS TO CERTIFY, that we, the undersigned, do hereby associate
ourselves into a corporation under and by virtue of the laws of the State of
North Carolina, as contained in Chapter 22 of the Consolidated Statutes,
entitled "Corporations" and the several amendments thereto, and do severally
agree to take the number of shares of capital stock in the said corporation set
opposite our respective names, and to that and do hereby set forth:
1. The name of this corporation is WELLCO SHOE CORPORATION.
2. The location of the principal office of the corporation in this
State is at 58 North Main Street in the City of Waynesville, County of Haywood;
but it may have one or more branch offices and places of business out of the
State of North Carolina, as well as in said State.
3. The objects for which this corporation is formed are as follows:
To manufacture, buy, sell, import, export and otherwise deal in shoes,
slippers, rubbers and boots for men, women and children, hats, gloves, mittens,
raincoats, and other goods made of rubber or leather for hand or footwear,
including any and all accessories in connection therewith; to acquire, maintain
and operate tanneries, textile plants, and otherwise manufacture and deal in all
types of textiles; to acquire, maintain and operate plants for the manufacture
of raw rubber into rubber goods of every kind and description; to acquire and
hold such store or stores as may be necessary to the proper conduct of the
business and to do and perform every other act that may be legally performed by
a corporation engaged in such business.
And in order properly to prosecute the objects and purposes above set
forth the corporation shall have full power and authority to purchase, lease and
otherwise acquire, hold, mortgage, convey and otherwise dispose of all kinds of
property, both real and personal, both within North Carolina and in all other
states, territories and dependencies of the United States; to purchase the
business, good will and all other property of any individual, firm or
corporation as a going concern and to assume all its debts, contracts and
obligations, provided said business is authorized by the powers contained
herein; to construct, equip and maintain buildings, works, factories and plants;
to install, maintain and operate all kinds of machinery and appliances; to
operate same by steam, water, electricity or other motive power, and generally
to perform all acts which may be deemed necessary or expedient for the proper
and successful prosecution of the objects and purposes for which the corporation
is created.
To acquire, hold, use, sell, assign, lease, grant licenses in respect
of, mortgage or otherwise dispose of letters patent of the United States or any
foreign country, patent rights, licenses and privileges, inventions,
improvements and processes, copyrights, trade-marks and trade names, relating to
or useful in connection with any business of the corporation.
To purchase, hold, sell, assign, transfer, mortgage, pledge or
otherwise dispose of shares of the capital stock of, or any bonds, securities or
evidences of indebtedness created by any other corporation or corporations
organized under the laws of this state or any other state, country, nation or
32
government, and while the owner thereof to exercise all the rights, powers and
privileges of ownership, including the right to vote thereon.
To borrow or raise moneys for any of the purposes of the corporation
and from time to time without limit as to amount to draw, make, accept, endorse,
execute and issue promissory notes, drafts, bills of exchange, warrants, bonds,
debentures and other negotiable or non-negotiable instruments and evidence of
indebtedness and to secure the payment of any thereof and of the interest
thereon by mortgage upon or pledge, conveyance or assignment in trust of the
whole or any part of the property of the corporation, whether at the time owned
or thereafter acquired and to sell, pledge or otherwise dispose of such bonds or
other obligations of the corporation for its corporate purposes.
To purchase, hold, sell and transfer the shares of its own capital
stock, provided it shall not use its funds or property for the purchase of its
own shares of capital stock when such use would cause any impairment of its
capital; and provided further that shares of its own capital stock belonging to
it shall not be voted upon directly or indirectly.
4. The total authorized capital stock of this corporation is One
Thousand (1,000) Shares of preferred stock of the par value of One Hundred
($100.00) Dollars per share amounting in the aggregate to One Hundred Thousand
($100,000.00) Dollars, and One Hundred (100) Shares of common stock without
nominal or par value.
5. The respective designations, preferences, privileges and voting
powers or restrictions or qualifications of each class of stock, are to be as
follows:
(a) The holders of the preferred stock shall be entitled to cumulative
dividends thereon at the rate of Five ($5.00) Dollars per share per
annum and no more, payable out of any and all surplus or net profits of
the corporation, quarterly, half-yearly or yearly, as and when declared
by the Board of Directors, before any dividends shall be declared set
apart for or paid upon the common shares of the corporation. Said
dividends on the preferred stock shall be cumulative from the date of
issue so that if the corporation shall fail in any year to pay such
dividends on all of the issued and outstanding preferred stock, such
deficiency in the dividends shall be fully paid, but without interest,
before any dividends shall be paid or set apart on the common stock.
Subject to the foregoing provisions, said preferred stock shall not be
entitled to participate in any other or additional surplus or net
profits of the corporation.
(b) In the event of the dissolution of liquidation of the corporation,
or a sale of all its assets, whether voluntary or involuntary, or in
event of its insolvency or upon any distribution of its capital, there
shall be paid to the holders of the preferred stock the par value
thereof, to wit, One Hundred ($100.00) Dollars per share and the amount
of all unpaid accrued dividends thereon, before any sum shall be paid
or any assets distributed among the holders of the common shares; and
after the payment to the holders of the preferred stock of its par
value and the unpaid accrued dividends thereon, the remaining assets
and funds of the corporation shall be divided among and paid to the
holders of all the common stock in proportion to their respective
holdings of such shares.
33
(c) The Board of Directors, in their discretion, may declare and pay
dividends on the common shares concurrently with dividends on the
preferred stock, for any dividend period of any fiscal year when such
dividends are applicable to the common shares; provided, that all
accumulated dividends on the preferred stock for all previous fiscal
year and all dividends on the preferred stock for the previous dividend
periods for the fiscal year shall have been paid in full. The holders
of the common stock shall be entitled to share in any dividends
declared upon the common stock of the corporation.
(d) The common stock shall be the sole voting stock to be issued by the
corporation, and except as made mandatory by law, the preferred stock
shall have no voting rights whatsoever.
(e) No holder of either the preferred or common stock shall be entitled
as of right to purchase or subscribe for any part of any unissued stock
of either class, or any additional preferred or common stock to be
issued by reason of any increase of the authorized capital stock of the
corporation of either common or preferred stock, or bonds, certificates
of indebtedness, debentures or other securities convertible into stock
of the corporation, but any such unissued stock or such additional
authorized issue of new stock or of other securities convertible into
stock may be issued and disposed of pursuant to resolution of the Board
of Directors to such persons, firms, corporations or associations and
upon such terms as may be deemed advisable by the Board of Directors in
the exercise of their discretion.
(f) Said common stock without nominal or par value may be issued by the
corporation from time to time for such cash, property, services or
expenses as may be determined from time to time by the Board of
Directors thereof.
6. The names and post office addresses of the subscribers for stock and
the number of shares subscribed for by each, the aggregate of which being the
amount of capital stock with which the corporation will commence business, are
as follows:
NAME POST OFFICE ADDRESS NO. OF SHARES COMMON
---- ------------------- --------------------
BERTHA SIMINOW 285 Madison Avenue, N.Y.C. One (1)
ELIZABETH PEYSER 285 Madison Avenue, N.Y.C. One (1)
J. H. WOODY Waynesville, N.C. One (1)
7. The period of existence of this corporation is sixty (60) years from
the filing of this certificate in the office of the Secretary of State.
8. In furtherance, and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized;
To make, alter, amend and rescind the by-laws of this corporation
without the assent or vote of the stockholders;
To fix the amount to be reserved as working capital over and above its
capital stock paid in;
34
To authorize and cause to be executed mortgages and liens upon the real
and personal property of this corporation;
If the by-laws so provide, to designate two or more of its number to
constitute an executive committee, which committee shall for the time being, as
provided in said resolution or in the by-laws of this corporation, have and
exercise any and all of the powers of the Board of Directors in the management
of the business and affairs of this corporation, and have power to authorize the
seal of this corporation to be affixed to all papers which may require it.
To sell, transfer and convey all of the corporate property when
approved by the affirmative vote of the holders of two-thirds of the issued and
outstanding stock entitled to vote at a stockholders' meeting, notice of which
contains notice of the proposed sale.
To sell, transfer and convey any part of the corporate, real or
personal property.
This corporation may in its by-laws confer powers upon its directors in
addition to the foregoing, and in addition to the powers and authorities
expressly conferred upon them by statute.
9. Directors shall have power, if the by-laws so provide, to hold their
meetings, and to keep the books of the corporation (except the stock and
transfer books), outside of the State of North Carolina at such places as may be
from time to time designated by the Board of Directors.
10. This corporation reserves the right to amend, alter, change or
repeal any provision contained in this certificate of incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
IN TESTIMONY WHEREOF, we have hereunto set our hands and affixed our
seals, this the 12th day of March, 1941.
/s/BERTHA SIMINOW (SEAL)
-----------------
/s/ELIABETH PEYSER (SEAL)
------------------
/s/J H WOODY (SEAL)
------------
AGREEMENT OF MERGER made this 29th day of June, 1946, between WELLCO
SHOE CORPORATION, a corporation organized under the laws of the State of North
Carolina (the constituent corporation which will survive), and WELLCO SALES
COMPANY, INC., a corporation organized under the laws of the State of New York
(the other constituent corporation).
W I T N E S S T H:
WHEREAS, Wellco Shoe Corporation (hereinafter called "Wellco Shoe",
"the corporation", or "the surviving corporation"), is a corporation duly
35
organized and existing under the laws of the State of North Carolina, having
been incorporated under the laws of the State of North Carolina as contained in
Chapter 22 of the Consolidated Statutes entitled "Corporations", and the several
amendments thereto, on the 19th day of March, 1941, and
WHEREAS, Wellco Sales Company, Inc. (hereinafter called "Wellco
Sales"), is a corporation duly organized and existing under the laws of the
state of New York, having been incorporated pursuant to Article Two of the Stock
Corporation Law of the State of New York, on the 2nd day of March, 1944, and
WHEREAS, Wellco Shoe has an authorized capital stock of one thousand
(1,000) shares of Preferred Stock of the par value of One Hundred ($100.00)
Dollars per share, and one hundred (100) shares of Common Stock, without nominal
or par value, all of which are presently outstanding, and
WHEREAS, Wellco Sales has an authorized capital stock of six hundred
(600) shares, of which one hundred (100) shares having a par value of One
Hundred ($100.00) Dollars each are Preferred Stock, and five hundred (500)
shares are Common Stock without par value, of which three hundred (300) shares
of Common Stock without par value are presently outstanding (fifty (50) shares
of Preferred Stock previously outstanding having been redeemed by said Wellco
Sales), and
WHEREAS, Wellco Shoe and Wellco Sales desire to merge under and
pursuant to the provisions of Chapter 55 of the General Statutes of North
Carolina of 1943 entitled "Corporations" and other related provisions of the
laws of the State of North Carolina, and Section 91 of the Stock Corporation Law
of the State of New York;
NOW, THEREFORE, in consideration of the premises and the mutual
agreement, covenants and provisions herein contained, it is hereby agreed by and
between said parties hereto, and in accordance with Chapter 55 of the General
Statutes of North Carolina of 1943 entitled "Corporations" and other related
provisions of the laws of North Carolina, and Section 91 of the Stock
Corporation Law of the State of New York, that Wellco Sales shall be and it
hereby is merged into the constituent corporation, Wellco Shoe, and Wellco Shoe,
as the surviving corporation, shall continue to exist under and by virtue of the
laws of the State of North Carolina. Wellco Sales shall, pursuant to this
agreement, and a resolution of its stockholders, be completely liquidated, and
all of its properties and assets shall be transferred and distributed to Wellco
Shoe in complete cancellation of all of the stock of Wellco Sales; and the
stockholders of Wellco Sales shall, in exchange for their stock of Wellco Sales,
receive shares of stock of Wellco Shoe as hereinafter provided.
The terms and conditions of said merger and the mode of carrying it
into effect, shall be as set forth in the following Articles "First" to
"Thirteenth", inclusive.
Article First: The name of the corporation shall continue to be WELLCO
SHOE CORPORATION.
Article Second: The location of the principal office of the corporation
in the State of North Carolina is in the city of Waynesville, County of Haywood;
but it may have one or more branch offices and places of business out of the
State of North Carolina, as well as in said State.
36
Article Third: The objects for which the surviving corporation is
formed are as follows:
To manufacture, buy, sell, import, export and otherwise deal in shoes,
slippers, rubbers and boots for men, women and children, hats, gloves, mittens,
raincoats, and other goods made of rubber or leather for hand or footwear,
including any and all accessories in connection therewith; to acquire, maintain
and operate tanneries, textile plants, and otherwise manufacture and deal in all
types of textiles; to acquire, maintain and operate plants for the manufacture
of raw rubber into rubber goods of every kind and description; to acquire and
hold such store or stores as may be necessary to the proper conduct of the
business and to do and perform every other act that may be legally performed by
a corporation engaged in such business.
And in order properly to prosecute the objects and purposes above set
forth the corporation shall have full power and authority to purchase, lease and
otherwise acquire, hold, mortgage, convey and otherwise dispose of all kinds of
property, both real and personal, both within North Carolina and in all other
states, territories and dependencies of the United States; to purchase the
business, good will and all other property of any individual, firm or
corporation as a going concern and to assume all its debts, contracts and
obligations, provided said business is authorized by the powers contained
herein; to construct, equip and maintain buildings, works, factories and plants;
to install, maintain and operate all kinds of machinery and appliances; to
operate same by steam, water, electricity or other motive power, and generally
to perform all acts which may be deemed necessary or expedient for the proper
and successful prosecution of the objects and purposes for which the corporation
is created.
To acquire, hold, use, sell, assign, lease, grant licenses in respect
of, mortgage or otherwise dispose of letters patent of the United States or any
foreign country, patent rights, licenses and privileges, inventions,
improvements and processes, copyrights, trade marks and trade names, relating to
or useful in connection with any business of the corporation.
To purchase, hold, sell, assign, transfer, mortgage, pledge or
otherwise dispose of shares of the capital stock of, or any bonds, securities or
evidences of indebtedness created by any other corporation or corporations
organized under the laws of this state or any other state, country, nation or
government, and while the owner thereof to exercise all the rights, powers and
privileges of ownership, including the right to vote thereon.
To borrow or raise moneys for any of the purposes of the corporation
and from time to time without limit as to amount, to draw, make, accept,
endorse, execute and issue promissory notes, drafts, bills of exchange,
warrants, bonds, debentures and other negotiable or non-negotiable instruments
and evidences of indebtedness and to secure the payment of any thereof and of
the interest thereon by mortgage upon or pledge, conveyance or assignment in
trust of the whole or any part of the property of the corporation, whether at
the time owned or thereafter acquired and to sell, pledge or otherwise dispose
of such bonds or other obligations of the corporation for its corporate
purposes.
To purchase, hold, sell and transfer the shares of its own capital
stock, provided it shall not use its funds or property for the purchase of its
own shares of capital stock when such use would cause any impairment of its
capital; and provided further that shares of its own capital stock belonging to
it shall not be voted upon directly or indirectly.
37
Article Fourth: The total authorized capital stock of the corporation
shall be one thousand (1,000) shares of Preferred Stock of the par value of One
Hundred ($100.00) Dollars per share, amounting in the aggregate to One Hundred
Thousand ($100,000.00) Dollars, and two hundred (200) shares of Class A Common
Stock without nominal or par value, and three hundred (300) shares of Class B
Common Stock without nominal or par value.
Article Fifth: The respective designations, preferences, privileges and
voting powers or restrictions or qualifications of each class of stock, are to
be as follows:
(a) The holders of the Preferred Stock shall be entitled to cumulative
dividends thereon at the rate of Five ($5.00) Dollars per share per
annum and no more, payable out of any and all surplus or net profits of
the corporation, quarterly, half-yearly, or yearly, as and when
declared by the Board of Directors, before any dividends shall be
declared set apart for or paid upon the Common Shares of the
corporation. Said dividends on the Preferred Stock shall be cumulative
from the date of issue so that if the corporation shall fail in any
year to pay such dividends on all of the issued and outstanding
Preferred Stock, such deficiency in the dividends shall be fully paid,
but without interest, before any dividends shall be paid or set apart
on the common stock. Subject to the foregoing provisions, said
Preferred Stock shall not be entitled to participate in any other or
additional surplus or net profits of the corporation.
(b) In the event of the dissolution or liquidation of the corporation,
or a sale of all its assets, whether voluntary or involuntary, or in
event of its insolvency or upon any distribution of its capital, there
shall be paid to the holders of the Preferred Stock the par value
thereof, to wit, One Hundred ($100.00) Dollars per share and the amount
of all unpaid accrued dividends thereon, before any sum shall be paid
or any assets distributed among the holders of the Common shares; and
after the payment to the holders of the Preferred Stock of its par
value and the unpaid accrued dividends thereon, the remaining assets
and funds of the corporation shall be divided among and paid to the
holders of all the Common shares in proportion to their respective
holdings of such shares, irrespective of the class to which such shares
belong.
(c) The Board of Directors, in their discretion, may declare and pay
dividends on the Common shares concurrently with dividends on the
Preferred Stock, for any dividend period of any fiscal year when such
dividends are applicable to the Common shares; provided, that all
accumulated dividends on the Preferred Stock for all previous fiscal
years and all dividends on the Preferred Stock for the previous
dividend periods for the fiscal year shall have been paid in full. The
holders of the Common Stock shall be entitled to share in any dividends
declared upon the Common Stock of the corporation.
(d) The Class A Common Stock shall be the sole voting stock to be
issued by the corporation, and except as made mandatory by law, the
Preferred Stock and the Class B Common Stock shall have no voting
rights whatsoever.
(e) No holder of either the Preferred or Common stock shall be entitled
as of right to purchase or subscribe for any part of any unissued stock
38
of either class, or any additional Preferred or Common Stock to be
issued by reason of any increase of the authorized capital stock of the
corporation of either Common or Preferred Stock, or bonds, certificates
of indebtedness, debentures or other securities convertible into stock
of the corporation, but any such unissued stock or such additional
authorized issue of new stock or of other securities convertible into
stock may be issued and disposed of pursuant to resolution of the Board
of Directors to such persons, firms, corporations or associations and
upon such terms as may be deemed advisable by the Board of Directors in
the exercise of their discretion.
(f) Said Common Stock without nominal or par value may be issued by the
corporation from time to time for such cash, property, services or
expenses as may be determined from time to time by the Board of
Directors hereof.
(g) Except with respect to the voting rights as hereinbefore provided
in subdivision "(d)" hereof, there shall be no distinction between the
Class A and Class B Common Stock of the corporation, and the rights of
the respective holders of said classes of stock shall at all times be
the same.
Article Sixth: The period of existence of this corporation is sixty
(60) years from the filing of this certificate in the office of the Secretary of
State.
Article Seventh: In furtherance, and not in limitation of the powers
conferred by statute, the Board of Directors is expressly authorized:
To make, alter, amend and rescind the by-laws of this corporation
without the assent or vote of the stockholders;
To fix the amount to be reserved as working capital over and above
its capital stock paid in;
To authorize and cause to be executed mortgages and liens upon the real
and personal property of this corporation;
If the by-laws so provide, to designate two or more of its number to
constitute an executive committee, which committee shall for the time being, as
provided in said resolution or in the by-laws of this corporation, have and
exercise any and all of the powers of the Board of Directors in the management
of the business and affairs of this corporation, and have power to authorize the
seal of this corporation to be affixed to all papers which may require it.
To sell, transfer and convey all of the corporate property when
approved by the affirmative vote of the holders of two-thirds of the issued and
outstanding stock entitled to vote at a stockholder meeting, notice of which
contains notice of the proposed sale.
To sell, transfer and convey any part of the corporate, real or
personal property.
This corporation may in its by-laws confer powers upon its directors in
addition to the foregoing, and in addition to the powers and authorities
expressly conferred upon them by statute.
39
Article Eighth: Directors shall have power, if the by-laws so provide,
to hold their meetings, and to keep the books of this corporation (except the
stock and transfer books), outside of the State of North Carolina at such places
as may be from time to time designated by the Board of Directors.
Article Ninth: The initial Board of Directors of the corporation who
shall hold their offices until their successors be chosen, according to the
by-laws of the corporation, shall consist of five members who shall be the
following persons, whose places of residence are set opposite their respective
names:
LEO WEILL - Waynesville, N. C.
OTTO FEISTMANN - Jackson Bldg., Asheville, N. C.
HEINZ ROLLMAN - Waynesville, N. C.
J. H. WOODY - Waynesville, N. C.
GEORGE M. JAFFIN - 285 Madison Ave., New York City
Article Tenth: This corporation reserves the right to amend, alter,
change or repeal any provision contained in this agreement of merger, in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
Article Eleventh: The manner of converting shares of the constituent
corporations into shares of the surviving corporation, shall be as follows:
(a) Each of the outstanding shares of the Preferred Stock of Wellco
Shoe shall continue to remain outstanding shares of Preferred Stock without
change.
(b) Each of the outstanding shares of the Common Stock of Wellco Shoe
held by any person, shall forthwith upon the filing and recording of this
agreement as required by law, be converted into two (2) shares of the Class A
Common Stock of the surviving corporation, and each holder of a certificate or
certificates of such Common Stock of Wellco Shoe, upon surrender of his
certificate or certificates therefor to the surviving corporation for
cancellation, shall be entitled to receive certificates for the number of shares
of Class A Common Stock of the surviving corporation to which he may be
entitled.
(c) Each of the outstanding shares of the Common Stock of Wellco Sales
held by any person shall, forthwith upon the filing and recording of this
agreement as required by law, be converted into one (1) share of the Class B
Common Stock of the surviving corporation, and each holder of a certificate or
certificates of such Common Stock of Wellco Sales, upon surrender of his
certificate or certificates therefor to the surviving corporation for
cancellation, shall be entitled to receive certificates for the number of shares
of Class B Common Stock of the surviving corporation to which he may be
entitled.
(d) The fifty (50) shares of Preferred Stock of Wellco Sales heretofore
redeemed by Wellco Sales, shall be canceled and no new stock shall be issued by
the surviving corporation therefor.
(e) Until surrender for new stock certificates of the surviving
corporation in accordance with the provisions of this Article Eleventh, the
outstanding certificates of stock of Wellco Shoe and Wellco Sales to be
converted into such stock of the surviving corporation as provided in this
40
agreement of merger, may be treated by the surviving corporation for all
corporate purposes as evidencing respectively the ownership of the number of
shares of stock of the surviving corporation to which the respective holders
thereof shall be entitled upon surrender thereof in exchange for stock of the
surviving corporation.
Article Twelfth: It shall be a condition precedent to the effectuation
of the merger provided for herein that the holders of all of the outstanding
Common Stock of Wellco Sales and all of the Preferred Stock and Common Stock of
Wellco Shoe, shall either vote in favor of or otherwise irrevocably assent to
this agreement of merger. Upon the failure of the foregoing conditions, this
agreement of merger shall be deemed to be terminated.
Article Thirteenth: When this agreement shall have been signed,
acknowledged, filed and recorded as required by Chapter 55 of the General
Statutes of North Carolina of 1943 "Corporations" and other related provisions
of the laws of the State of North Carolina, and Section 91 of the Stock
Corporation Law of the State of New York, Wellco Sales shall be merged into
Wellco Shoe and it thereupon shall be liquidated and cease to exist, and Wellco
Shoe, as the surviving corporation, shall continue in existence and shall
possess all the rights, privileges, powers and franchises and all and singular
the rights, privileges, powers and franchises of each of the constituent
corporations, and all property, real, personal and mixed, and all debts due to
each of them on whatever account, as well for stock subscriptions as of other
things in action or belonging in each of them, shall be vested in Wellco Shoe as
the surviving corporation, and all property, rights, privileges, powers and
franchises, and all and every other interest shall be thereafter as effectually
the property of the surviving corporation as they were of the constituent
corporations, and title to any real estate, whether by deed or otherwise, under
the laws of the States of North Carolina and New York vested in Wellco Shoe or
Wellco Sales, shall not revert or be in any way impaired by reason of this
merger; provided that all rights of creditors and all liens upon the property of
either of the constituent corporations shall be preserved unimpaired, and all
debts, liabilities and duties of the constituent corporations shall thenceforth
attach to the surviving corporation and may be enforced against it to the same
extent as if such debts, liabilities and duties had been incurred or contracted
by it.
IN WITNESS WHEREOF, this agreement of merger has been executed by each
of the constituent corporations, and the corporate seal of each of the
constituent corporations has hereunto been affixed and attested as of the day
and year first above written.
WELLCO SHOE CORPORATION
ATTEST:
BY: /s/LEO WEILL
/s/RUDOLF HOLLAUS PresidentSecretary
(Corporate seal)
41
WELLCO SALES COMPANY, INC.
ATTEST:
BY:/s/ OTTO FEISTMANN
/s/HARRY SCHNEIDER PresidentSecretary
(Corporate seal)
ARTICLES OF AMENDMENT TO THE CHARTER
OF
WELLCO SHOE CORPORATION
The undersigned corporation, for the purpose of amending its Articles
of Incorporation and pursuant to the provisions of Chapter 55 of the General
Statutes of North Carolina, known as the Business Corporation Act, and
particularly pursuant to Section 55-103 thereof, hereby executes the following
Articles of Amendment.
1. The name of the corporation at the date of execution of these
Articles of Amendment is Wellco Shoe Corporation, but one of the changes
effected by these Articles of Amendment is to change the name of the corporation
to Wellco Ro-Search Industries, Inc.
2. The amendment adopted by action of the Board of Directors and the
Shareholders is that the Charter of Wellco Shoe Corporation be amended by
striking out all of the Articles thereof numbered First, Second, Fourth and
Fifth, as set forth in the Charter of Wellco Shoe Corporation as the same has
been heretofore amended and filed in the Office of the Secretary of State of the
State of North Carolina, and be inserting in lieu thereof the Articles numbered
First, Second, Fourth and Fifth set forth in Exhibit "A" attached hereto.
3. The date of the adoption of this amendment by the Shareholders was
October 31, 1961.
4. The number of shares of the corporation outstanding at the time of
the adoption of said amendment was 1,544 shares of 5% Cumulative Preferred
Stock, 12,507 shares of Class A Common Stock, and 23,277 shares of Class B
Common Stock, all of which shares were entitled to vote thereon. The 1,544
shares of 5% Cumulative Preferred Stock were entitled to vote thereon as a
class. The 35,734 shares of Common Stock, consisting of 12,507 shares of Class A
Common Stock and 23,277 shares of Class B Common Stock, were entitled to vote
thereon as a class.
5. The number of shares voted for such amendment was 1,412 shares of 5%
Cumulative Preferred Stock and 35,669 shares of Common Stock (both Class A and
Class B Common Stock voting together as a class and being in this paragraph
referred to as "Common Stock"), and the number of shares voted against such
amendment was 8 shares of 5% Cumulative Preferred Stock. Voting within each
class entitled to vote as a class was as follows:
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Class Number of Shares Voted
----- ----------------------
For Against
--- -------
5% Cumulative Preferred Stock 1,412 8
Common Stock 35,669 None
6. Any exchange, reclassification or cancellation of issued shares will
be effected in the following manner: Each share of 5% Cumulative Preferred Stock
heretofore issued and presently outstanding shall be reclassified and exchanged
on a share-for-share basis into one share of 5% Cumulative Convertible Preferred
Stock authorized by the amendment effected hereby, and the Class B Common Stock
shall be exchanged and reclassified and the Class A Common Stock shall be
convertible in the manner set forth in the amendment.
7. Such amendment does not effect a change in the amount of stated
capital of the corporation.
8. The amendment hereby effected does not give rise to dissenter's
rights under G. S. 55-101(b) for the reason that the amendment does not change
the corporation into a non-profit corporation or cooperative organization, nor
does the amendment effect any changes as described in paragraphs (1), (2), (3),
(4) and (5) of Subsection (a) of G. S. 55-101 in the 5% Cumulative Preferred
Stock heretofore authorized, issued and outstanding, nor would the amendment to
the prejudice of any holder of such shares create or increase any priority,
dividend preference, cumulative dividend right, redemption price or liquidation
preference of any other then issued shares; nor would the amendment authorize
the corporation to issue shares of any new class having preferences as to
dividends or liquidation prior to such shares.
IN WITNESS WHEREOF, said corporation has caused these Articles of
Amendment to be executed in its corporate name by its President and Secretary
and its corporate seal to be hereunto affixed, this the 12th day of December,
1961.
WELLCO SHOE CORPORATION
(Name Changed Hereby To
WELLCO RO-SEARCH INDUSTRIES,INC.)
BY: /s/HEINZ ROLLMAN
----------------
President
ATTEST:
/s/ERNEST ROLLMAN
- -----------------
Secretary
STATE OF NORTH CAROLINA
COUNTY OF HAYWOOD
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HEINZ W. ROLLMAN, being the President, and ERNEST E. ROLLMAN, being the
Secretary of the above named corporation, each being duly sworn, deposes and
says that the facts stated in the foregoing "Articles of Amendment" are true and
correct.
/s/HEINZ ROLLMAN
----------------
/s/ERNEST ROLLMAN
-----------------
Sworn to and subscribed before me this 12th day of December, 1961.
/s/MARGUERITE W. SHOOK
----------------------
Notary Public
My commission expires:
October 5, 1962
- ---------------
EXHIBIT A
AMENDMENTS TO THE CHARTER OF WELLCO SHOE CORPORATION
AS ADOPTED BY VOTE OF STOCKHOLDERS
AT SPECIAL STOCKHOLDERS' MEETING OCTOBER 31, 1961
ARTICLE FIRST: The name of the corporation shall be Wellco Ro-Search
Industries, Inc.
ARTICLE SECOND: The location of the principal office of the corporation
in the State of North Carolina is at Georgia and Pine Streets in the Town of
Hazelwood, County of Haywood, North Carolina; but it may have one or more branch
offices and places of business out of the State of North Carolina, as well as in
said State.
ARTICLE FOURTH: The total authorized capital stock of the corporation
shall be three thousand (3,000) shares of five per cent. (5%) Cumulative
Convertible Preferred Stock, of the par value of ONE HUNDRED AND NO/100 DOLLARS
($100.00) per share, amounting in the aggregate to THREE HUNDRED THOUSAND AND
NO/100 DOLLARS ($300,000.00), and fifteen thousand (15,000) shares of Class A
Common Stock without nominal or par value, and five hundred thousand (500,000)
shares of Class B Common Stock of the par value of ONE AND NO/100 DOLLARS
($1.00) per share. Each share of the heretofore authorized and presently issued
and outstanding shares of Class B Common Stock without nominal or par value is
hereby changed and converted into ten (10) shares of the hereby authorized Class
B Common Stock of the par value of ONE AND NO/100 DOLLARS ($1.00) per share.
Each share of Class A Common Stock shall be convertible at the option of the
respective holders thereof into ten (10) shares of Class B Common Stock, and
after the conversion of all of the outstanding shares of Class A Common Stock
into Class B Common Stock, the authorized Class A Common Stock shall thereby be
eliminated, and all authorized Class B Common Stock of the par value of ONE AND
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NO/100 DOLLARS ($1.00) per share (including all amounts thereof then
outstanding) shall thereafter be designated as the Common Stock of the
Corporation.
ARTICLE FIFTH: The designations, preferences, privileges, limitations,
voting powers and relative rights of the shares of each class of stock and the
restrictions or limitations thereof shall be as follows:
(a) The 5% Cumulative Convertible Preferred Stock shall be entitled, in
preference to the Common Stock, when and as declared by the Board of Directors
from funds legally available therefor, to dividends at the rate of five per cent
(5%) of the par value thereof per annum, payable quarterly on January 1, April
1, July 1, and October 1, of each year, or otherwise as the Board of Directors
may determine (the periods between such dates, commencing on such dates, being
herein referred to as "dividend periods"). Such dividends of the 5% Cumulative
Convertible Preferred Stock shall be cumulative from the date of issuance
thereof. If, at the time of the issuance of any shares of 5% Cumulative
Convertible Preferred Stock, dividends upon the shares of 5% Cumulative
Convertible Preferred Stock at the time outstanding shall not then have been
paid or declared and set apart for payment, at the full rate to which said
shares are entitled, to the beginning of the then current dividend period, no
dividends shall be declared or paid on the shares of the 5% Cumulative
Convertible Preferred Stock issued at such time until all such dividends in
arrears shall have been paid or declared and set apart for payment as aforesaid,
and none of the provisions hereof shall be deemed to prevent the declaration and
payment of such dividends in arrears without a declaration or payment of
dividends on additional shares so issued. No dividends shall be paid or set
apart for payment on the Common Stock at any time unless the total amount of
dividends theretofore paid or declared and set apart for payment on then
outstanding 5% Cumulative Convertible Preferred Stock shall be equal to Five
Dollars ($5.00) per annum for each share of such 5% Cumulative Convertible
Preferred Stock from the date when it became cumulative to the end of the
current dividend period.
Whenever full cumulative dividends, as aforesaid, on all shares of 5%
Cumulative Convertible Preferred Stock then outstanding for all past dividend
periods and for the current dividend period shall have been paid or declared and
set apart for payment, dividends may be declared and paid or set apart for
payment on the Common Stock, when and to the extent that the Board of Directors
shall determine, and no holder of any shares of 5% Cumulative Convertible
Preferred Stock as such shall be entitled to share therein.
(b) In the event of any liquidation, dissolution or winding up of the
affairs of the Corporation, whether voluntary or involuntary, or any proceedings
resulting in any distribution of all its assets to its stockholders, before any
distribution shall be made to the holders of the Common Stock, each holder of
shares of 5% Cumulative Convertible Preferred Stock shall be entitled to be paid
on each share of such stock held by him the sum of One Hundred Dollars
($100.00), plus an amount equal to accrued dividends. After such payment to the
holders of the 5% Cumulative Convertible Preferred Stock of the full
preferential amounts hereinbefore provided for, the holders of the 5% Cumulative
Convertible Preferred Stock as such shall have no right or claim to the
remaining assets and funds shall (subject to the rights, if any, of others
therein) be divided and distributed among the holders of the Common Stock of the
Corporation according to their respective interests. The Board of Directors, by
vote of a majority of the members thereof, may distribute in kind to the holders
of the Common Stock such remaining assets of the Corporation to which such
45
holders may be entitled at such valuations as it in its sole discretion shall
determine. The sale of all the property of the Corporation to, or the merger or
consolidation of the Corporation into or with any other corporation shall not be
deemed to be a distribution of assets or a dissolution, liquidation or winding
up or proceeding resulting in a distribution of all its assets to its
stockholders for the purpose of this subdivision.
(c) At the option of the Board of Directors of the Corporation, the 5%
Cumulative Convertible Preferred Stock may be redeemed in whole or in part, at
any time and from time to time after the issuance thereof, at One Hundred
Dollars ($100.00) per share and accrued dividends to the date of redemption. If
less than all the shares of the 5% Cumulative Convertible Preferred Stock are to
be redeemed, the shares to be redeemed shall be selected by lot or in such other
equitable manner as the Board of Directors shall determine.
Notice of the intention of the Corporation to redeem shares of the 5%
Cumulative Convertible Preferred Stock or any part thereof, and of the date and
place of redemption, shall be mailed not less than thirty nor more than sixty
days previous to the date of redemption to each holder of record of the shares
to be redeemed at his last known post office address as shown by the records of
the Corporation. Such notice shall also contain notification of the right of
each holder of record of the shares to be redeemed to convert any or all of such
shares into shares of Common Stock as hereinafter set forth, provided such
conversion right is exercised on or before, but not after, the close of business
on the seventh calendar day preceding the redemption date specified in such
notice. The holders of any shares of 5% Cumulative Convertible Preferred Stock
so called for redemption shall, as to any of such shares as to which they shall
not have theretofore exercised the right of conversion into shares of Common
Stock as hereinafter provided, on the redemption date specified in such notice,
provided the redemption price is then made available to them, cease to be
stockholders of the Corporation with respect to such shares, and all rights with
respect to said shares so called for redemption shall, on such redemption date,
cease and terminate, except only the rights of the holders thereof to receive
the redemption price therefor without interest.
At any time after the close of business on the seventh calendar day
preceding the redemption date specified in such notice, the Corporation may
deposit the aggregate redemption price (or the portion thereof not already paid
in the redemption of shares so to be redeemed) with any bank or trust company in
the City of New York, State of New York, or in the City of Asheville, State of
North Carolina, having a capital and surplus of not less than One Million
Dollars ($1,000,000.00), named in a notice mailed to the holders of the shares
called for redemption and represented by certificates not theretofore
surrendered, payable in the amounts aforesaid to the respective orders of the
record holders of such shares to be redeemed, on endorsement, if required, and
surrender of their certificates for said shares, and from and after the making
of any such deposit, said holders shall have not interest in or claim against or
rights as a stockholder of the Corporation with respect to said shares but shall
be entitled only to receive said moneys from said bank or trust company without
interest, on endorsement, if required, and surrender of their certificates as
aforesaid. The Corporation shall be entitled to receive from any such bank or
trust company on any moneys deposited as in this subdivision provided, and the
holders of any shares so redeemed shall have no claim to any such interest. Any
moneys so deposited and remaining unclaimed at the end of six years from the
date fixed for redemption shall, if thereafter requested by resolution of the
Board of Directors, be repaid to the Corporation, and in the event of such
repayment to the Corporation such holders of record of the shares so redeemed,
as shall not have made claim against such moneys prior to such repayment to the
Corporation, shall be deemed to be unsecured creditors of the Corporation, but
46
only for a period of two years from the date of such repayment (after which all
rights of the holders of said shares, as unsecured creditors or otherwise, shall
cease) for an amount equivalent to the amount deposited as above states for the
redemption of such shares and so repaid to the Corporation but shall in no event
be entitled to any interest.
(d) Subject to and upon compliance with the provisions of this
paragraph (d), each share of 5% Cumulative Convertible Preferred Stock may, at
the option of the holder thereof and at any time so long as the conversion right
shall continue in effect as herein provided, be converted into as many fully
paid and non-assessable whole shares of Common Stock of the Corporation as
result from dividing the par value of the 5% Cumulative Convertible Preferred
Stock so being converted by the conversion price, which shall be Eight Dollars
($8.00) per share unless such price has been adjusted as provided in
subdivisions A or B of this paragraph (d), in which case such adjusted price
shall be the conversion price. The conversion right herein provided shall, as to
any share of 5% Cumulative Convertible Preferred Stock, continue in effect
unless (and until such share shall be called for redemption, and in such case,
shall continue in effect until) and including, but not after, the close of
business on the seventh calendar day preceding the redemption date which may be
specified in the notice of redemption issued with respect to such share.
In order to exercise the conversion privilege, any holder of a share or
shares shall continue in effect as hereinabove provided, surrender the
certificate for such share or shares of the 5% Cumulative Convertible Preferred
Stock so to be converted, duly endorsed for transfer, to the Corporation at its
home office or any place or places where the Corporation shall maintain a
transfer agency, together with written notice that the holder elects to convert
the shares represented by such certificate. As promptly as practicable
thereafter, the Corporation shall issue and deliver to such holder a certificate
or certificates for the number of whole shares of Common Stock issuable upon
such conversion, together with payment of accrued dividends to the date of
conversion. The Corporation shall not be required to issue fractions of shares
of Common Stock upon conversion of the 5% Cumulative Convertible Preferred
Stock, but if any fractional interest in a share of Common Stock shall be
deliverable upon such conversion, the Corporation shall purchase such fractional
interest for an amount in cash equal to the product obtained by multiplying the
conversion price by such fraction. The conversion shall be deemed to have been
effected on the date on which the certificate for 5% Cumulative Convertible
Preferred Stock shall have been surrendered and written notice of the election
to convert shall have been received by the Corporation as aforesaid and the
person or persons in whose name or names any certificate or certificates shall
be deemed to have become, at such time, a holder or holders of record of the
shares represented thereby.
A. In case the Corporation shall at any time or from time to time
hereafter issue or sell any shares of its Common Stock (except as
provided in clause (6) of this subdivision A) for a consideration per
share less than any conversion price in effect immediately prior to the
time of such issue or sale, then forthwith upon such issue or sale,
said conversion price shall (until another such issue or sale) be
reduced to a price determined by dividing:
(i) an amount equal to the sum of (a) the number of shares of Common
Stock outstanding immediately prior to such issue or sale, multiplied
by the then existing conversion price, and (b) the consideration, if
any, received by the Corporation upon such issue or sale, by
47
(ii) the total number of shares of Common Stock outstanding immediately
after such issue or sale;
provided, however, that no adjustment shall be made if the amount of such
adjustment shall be less than 10 cents per share.
For the purposes of any computation to be made in accordance with the
provisions of this subdivision A, the following provisions shall be applicable:
(1) In case of the issuance of additional shares of Common Stock for
cash, the consideration received by the Corporation therefor shall be deemed to
be the amount of cash received by the Corporation for such shares, after
deducting any all commissions and other expenses paid or incurred by the
Corporation for any underwriting of, or otherwise in connection with, the
issuance of such shares.
(2) In case of the issuance (otherwise than upon conversion or exchange
of obligations or shares of stock of the Corporation) of additional shares of
Common Stock for a consideration other than cash or a consideration a part of
which shall be other than cash, the amount of the consideration other than cash
received by the Corporation for such shares shall be deemed to be the value of
such consideration as determined in good faith by the Board of Directors of the
Corporation.
(3) In the case of the issuance of any rights to subscribe for or to
purchase, or of any options for the purchase of, additional shares of Common
Stock at a price per share for the additional shares of Common Stock issuable
upon the exercise of such rights or options less than the current conversion
price in effect immediately prior to the issuance of such rights or options,
then the issuance of such rights or options shall be deemed to be an issuance
(as of the date of issuance of such rights or options) of the total maximum
number of shares of Common Stock issuable upon the exercise of all such rights
or options. In such case, any amount received or receivable by the Corporation
in consideration of the issuance of such rights or options (plus the minimum
aggregate amount of premium or additional consideration payable to the
Corporation upon the exercise of such rights or options) after deducting
therefrom any commissions or other expenses paid or incurred by the Corporation
for any underwriting of, or otherwise in connection with, the issuance of such
rights or options, shall be deemed to be the consideration actually received (as
of the date of issuance of such rights or options) for the issuance of such
additional shares of Common Stock.
(4) In case of the issuance of any obligations or of any shares of
stock of the Corporation that shall be convertible into or exchangeable for
shares of Common Stock, then the issuance of such obligations or shares shall be
deemed to be an issuance (as of the date of issuance of such obligations or
shares) of the total maximum number of additional shares of Common Stock
issuable upon the conversion or exchange of all such obligations or shares. In
such case, any amount received or receivable by the Corporation in consideration
of the issuance of such obligations or shares convertible into or exchangeable
for shares of Common Stock (plus the minimum aggregate amount of premium or
additional consideration payable to the Corporation upon the conversion or
exchange of such obligations or shares) after deducting therefrom any
commissions or other expenses paid or incurred by the Corporation for any
underwriting of, or otherwise in connection with, the issuance of such
obligations or shares, shall be deemed to be the consideration actually received
(as of the date of issuance of such additional shares of Common Stock.
48
(5) In case of the issuance of additional shares of Common Stock as a
dividend, the aggregate number of shares of Common Stock issued in payment of
such dividend shall be deemed to have been issued and to be outstanding on the
day next succeeding the record date for the determination of stockholders
entitled to such dividend and shall be deemed to have been issued without
consideration.
(6) The number of shares of Common Stock at any time outstanding shall
include any shares of Common Stock then owned or held by or for the account of
the Company.
(7) No adjustment of the conversion price shall be made in connection
with the issuance of shares of 5% Cumulative Convertible Preferred Stock or in
connection with the issuance of shares of Common Stock upon conversion of any
shares of 5% Cumulative Convertible Preferred Stock.
B. In case the Corporation shall at any time subdivide or combine the
outstanding shares of Common Stock, each conversion price shall be
proportionately decreased in the case of subdivision or increased in the case of
combination, effective at the close of business on the date of such subdivision
or combination.
In case of any reclassification or change of outstanding shares of
Common Stock (other than a change in par value, or from par value to no par
value, or from no par value to par value, or as a result of a subdivision or
combination), or in case of any consolidation of the Corporation with, or merger
of the Corporation into, another corporation (other than a consolidation with a
subsidiary in which consolidation the Corporation is the continuing corporation
and which does not result in any reclassification or change of outstanding
shares of the Common Stock), or in case of any sale or conveyance to another
corporation of the property of the Corporation as an entirety or substantially
as an entirety, the holders of the 5% Cumulative Convertible Preferred Stock
shall have the right to convert the 5% Cumulative Convertible Preferred Stock
into the kind and amount of shares of stock and other securities and property
receivable upon such reclassification, change, consolidation, merger, sale or
conveyance by a holder of the number of shares of Common Stock into which the 5%
Cumulative Convertible Preferred Stock might have been converted immediately
prior to such reclassification, change, consolidation, merger, sale or
conveyance.
If, in any case, the terms and conditions set forth in subparagraphs A
or B of this paragraph (d) of ARTICLE FIFTH are for any reason not specifically
applicable to any state of facts which shall in fact arise, the conversion price
shall be adjusted by the Board of Directors in its discretion so as to carry out
as nearly as practicable the purposes and objectives of the provisions as herein
set forth and any such determination by the Board of Directors shall be binding
for the purposes hereof on all persons claiming rights as holders of shares of
Preferred Stock.
Whenever a conversion price is adjusted as herein provided, the
Corporation shall mail to the holders of the 5% Cumulative Convertible Preferred
Stock a certificate signed by or bearing the facsimile signature of an officer
of the Corporation showing the new conversion price and the computation thereof.
49
(e) The Corporation may purchase to the extent permitted by law, in the
open market, or otherwise, for such consideration as its Board of Directors may
deem adequate, any shares of its 5% Cumulative Convertible Preferred Stock or
any shares of its Common Stock.
(f) Each holder of record of Common Stock shall be entitled to one vote
for each share of stock standing in his name on the books of the Corporation.
Except as hereinafter stated, or as may be otherwise provided by law, the
holders of the 5% Cumulative Convertible Preferred Stock shall not be entitled
to vote at any meeting of stockholders or election of the Corporation or
otherwise to participate in any action taken by the Corporation or the
stockholders thereof. In any instance where the holders of 5% Cumulative
Convertible Preferred Stock shall be entitled to vote as hereinafter stated,
each holder of record of 5% Cumulative Convertible Preferred Stock shall be
entitled to one vote for each share of stock standing in his name on the books
of the Corporation.
(g) Upon the vote of a majority of all the Directors of the Corporation
and of the holders of a majority of the total number of shares then issued and
outstanding and entitled to vote, the Corporation may from time to time increase
or decrease the amount of the authorized 5% Cumulative Convertible Preferred
Stock or Common Stock or both; provided, however, that the authorized number of
shares of 5% Cumulative Convertible Preferred Stock shall not be increased,
unless the stockholders voting therefor shall include the holders of not less
than two-thirds of the total number of shares of 5% Cumulative Convertible
Preferred Stock then issued and outstanding.
Upon the vote of a majority of all the Directors of the Corporation and
of the holders of a majority of the total number of shares then issued and
outstanding and entitled to vote, the Corporation may from time to time create
or authorize one or more other classes of stock, any or all of which classes may
be stock with par value or stock without par value with such voting powers, full
or limited, or without voting powers, and with such designations, preferences
and relative, participating, optional or other special rights and
qualifications, limitations or restrictions as shall be determined by said vote
which may be the same or different from the voting powers, designation,
preferences and relative, participating, optional or other special rights and
qualifications, limitations or restrictions of the classes of stock of the
Corporation then authorized, provided, however, that no new class of stock shall
hereafter be created which is entitled to dividends or shares in distribution of
assets on a parity with or in priority to the 5% Cumulative Convertible
Preferred Stock unless either (1) the stockholders voting for the creation of
such new class of stock shall include the holders of not less than two-thirds of
the number of shares of the 5% Cumulative Convertible Preferred Stock then
outstanding, or (2) the holders of not less than two-thirds of the number of
shares of 5% Cumulative Convertible Preferred Stock then outstanding shall
consent thereto in writing.
Neither the amounts which the holders of the 5% Cumulative Convertible Preferred
Stock are entitled to receive as dividends or in distribution of assets in
preference to the holders of the Common Stock, nor the price at which the 5%
Cumulative Convertible Preferred Stock may be redeemed shall be decreased nor
may the conversion privileges of the holder of the 5% Cumulative Convertible
Preferred Stock be adversely modified, unless the holders of at least 90% of the
number of shares of 5% Cumulative Convertible Preferred Stock then outstanding
consent in writing to or vote for such decrease.
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(h) The term "accrued dividends" shall be deemed to mean in respect of
any share of the 5% Cumulative Convertible Preferred Stock, as of any given
date, the amount, if any, by which the product of the rate of the full dividend
per annum multiplied by the number of years and any fractional part of a year
which shall have elapsed from the date after which dividends on such stock
became cumulative to such given date, exceeds the sum of the total dividends
actually paid on such stock and dividends declared and set apart for payment.
Accumulations of dividends shall not bear interest.
(i) No holder of any stock of the Corporation shall be entitled as of
right to purchase or subscribe for any part of any stock of the Corporation
previously authorized by this certificate or of any additional stock of any
class to be issued by reason of any increase of the authorized stock of the
Corporation or of any bonds, certificates of indebtedness, debentures or other
securities convertible into stock of the Corporation, but any stock previously
authorized or authorized by this certificate, or any such additional authorized
issue of new stock or of securities convertible into stock may be issued and
disposed of by the Board of Directors to such persons, firms, corporations or
associations for such consideration and upon such terms and in such manner as
the Board of Directors may in its discretion determine without offering any
thereof on the same terms or on any terms to the stockholders then of record or
to any class of stockholders.
ARTICLES OF AMENDMENT TO THE CHARTER
OF
WELLCO RO-SEARCH INDUSTRIES, INC.
The undersigned corporation, for the purpose of amending its Articles
of Incorporation and pursuant to the provisions of Chapter 55 of the General
Statutes of North Carolina, known as the Business Corporation Act, and
particularly pursuant to Section 55-103 thereof, hereby executes the following
Articles of Amendment:
1. The name of the corporation at the date of execution of these
Articles of Amendment is Wellco Ro-Search Industries, Inc., but the change to be
effected by these Articles of Amendment is to change the name of the corporation
to Wellco Enterprises, Inc.
2. The amendment adopted by action of the Board of Directors and the
Shareholders is that the charter of Wellco Ro-Search Industries, Inc. be amended
by striking out all of Article First as set forth in the charter of Wellco
Ro-Search, Inc. as the same has been heretofore amended and filed in the Office
of the Secretary of State of North Carolina and by inserting in lieu thereof the
following:
"ARTICLE FIRST: The name of the corporation shall be Wellco Enterprises
, Inc."
3. The date of the adoption of this amendment by the Shareholders was
November 21, 1967.
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4. The number of shares of the corporation outstanding at the time of
the adoption of this amendment was 395,027 shares of Common Stock, all of which
shares were entitled to vote thereon. There were no shares of Preferred Stock
outstanding.
5. The number of shares voted for such amendment was 229,452 shares of
said Common Stock and the number of shares voted against such amendment was none
shares of said Common Stock.
6. The amendment hereby effected does not give rise to dissenter's
rights to payment for the reason that the only effect of such amendment is to
change the name of the corporation.
IN WITNESS WHEREOF, said corporation has caused these Articles of
Amendment to be executed in its corporate name by its President and Secretary
and its corporate seal to be hereunto affixed, this the 21st day of November,
1967.
WELLCO RO-SEARCH INDUSTRIES, INC.
(Name Changed Hereby To
WELLCO ENTERPRISES, INC.
BY: /s/HEINZ ROLLMAN
----------------
President
ATTEST: /s/ERNEST ROLLMAN
-----------------
Secretary
ARTICLES OF AMENDMENT TO CHARTER
WELLCO ENTERPRISES, INC.
The undersigned corporation, for the purpose of amending its Articles
of Incorporation and pursuant to the provisions of Chapter 55 of the General
Statutes of North Carolina, and particularly pursuant to the provisions of
Section 55-103 thereof, hereby executes the following Articles of Amendment to
its Charter heretofore filed in the Office of the Secretary of State of North
Carolina:
1. The name of the corporation is WELLCO ENTERPRISES, INC.
2. The following amendment to the charter of the corporation was
adopted by its stockholders at the annual stockholders meeting held on the 19th
day of November, 1968, in the manner prescribed by law:
RESOLVED, that the present 'Article Fourth' of the Charter of Wellco
Enterprises, Inc., be deleted in its entirety and an new 'Article
Fourth' be substituted in lieu thereof, said new 'Article Fourth'
providing as follows:
ARTICLE FOURTH: The total authorized capital stock of the corporation
shall be three thousand (3,000) shares of five per cent (5%) Cumulative
Convertible Preferred Stock, of the par value of ONE HUNDRED AND NO/100
52
DOLLARS ($100.00) per share, amounting in the aggregate to THREE
HUNDRED THOUSAND ($300,000.00) DOLLARS and two million (2,000,000)
shares of common stock of the par value of ONE AND NO/100 DOLLAR
($1.00) per share.
3. The number of shares of the corporation outstanding at the time of
such adoption was 420,027; and the number of shares entitled to vote thereon was
420,027.
4. The number of shares represented at the meeting at which said
amendment was approved was 274,066; the number of shares voted for such
amendment was 267,955; the number of shares voted against such amendment was
3,513.
5. The amendment herein effected does not result in any change in the
stated capital of the corporation.
6. The amendment herein effected does not give rise to dissenter's
rights to payment for the reason that the only effect of such amendment is to
increase the amount of authorized common stock of the corporation.
IN WITNESS WHEREOF, these articles are signed by the President and
Secretary of the corporation this 19th day of November, 1968.
WELLCO ENTERPRISES, INC.
By: /s/ROLF KAUFMAN
---------------
President
ATTEST: /s/ERNEST ROLLMAN
-----------------
Secretary
STATE OF NORTH CAROLINA
COUNTY OF HAYWOOD
I, GRACE B. ROGERS, a Notary Public, hereby certify that on this 19th
day of November, 1968, personally appeared before me ROLF KAUFMAN and ERNEST
ROLLMAN, each of whom being by me first duly sworn, declared that he signed the
foregoing document in the capacity indicated, and that the statements contained
therein are true.
/s/GRACE B. ROGERS
------------------
Notary Public
My Commission Expires:
March 26, 1970
53
ARTICLES OF AMENDMENT TO CHARTER
OF
WELLCO ENTERPRISES, INC.
------------------------
The undersigned corporation, for the purpose of amending its Articles
of Incorporation (as stated in June 29, 1946 Agreement of Merger with Wellco
Sales Company, Inc.) and pursuant to the provisions of Chapter 55 of the General
Statutes of North Carolina, and particularly pursuant to the provisions of
Section 55-103 thereof, hereby executes the following Articles of Amendment to
its Charter heretofore filed in the Office of the Secretary of State of North
Carolina.
1. The name of the corporation is WELLCO ENTERPRISES, INC.
2. The following amendments to the charter of the corporation were
adopted by its stockholders at the annual stockholders meeting of said
corporation held on the 16th day of November, 1976, in the manner prescribed by
law:
RESOLVED, that the present Article Ninth of the Charter of Wellco
Enterprises, Inc., be deleted in its entirety and a new Article Ninth
provided as follows:
Article Ninth: The property and business of this corporation shall be
managed by its Board of Directors. The number of Directors which shall
constitute the whole Board shall be nine, divided and classified into
three Classes, to be designated, respectively, Class I, Class II and
Class III, each Class to consist of three Directors. At the 1976 annual
meeting of stockholders, all of the Directors shall be elected; Class I
for a term to expire at the 1977 annual meeting of stockholders; Class
II for a term to expire at the 1978 annual meeting of stockholders;
Class III for a new term to expire at the 1979 annual meeting of
stockholders; and in the case of each Class, until their respective
successors are duly elected and qualified, or until their resignation,
death, or removal by stockholders for cause. At each annual meeting of
stockholders commencing in 1977, directors shall be elected to fill any
vacancies then existing and to succeed those whose terms have expired,
and the directors so elected shall be identified as being of the same
class as the directors they succeed and shall be elected to hold office
for the term of the class to which each is elected, and until their
respective successors are duly elected and qualified, or until their
resignation, death, or removal by stockholders for cause. If any
vacancy shall occur in the Board of Directors by reason of the death,
resignation, or disqualification as by law provided, the directors then
in office, although less than a quorum, may by majority vote fill any
such vacancy, and any director so chosen shall hold office until the
next annual meeting of the stockholders and until his successor shall
be duly elected and qualified; provided, however, that if in the event
of any such vacancy, the directors remaining in office shall be unable,
by majority vote, to fill such vacancy within thirty (30) days after
the occurrence thereof, the President or the Secretary may call a
special meeting of the stockholders at which such vacancy shall be
filled. Any Director elected by stockholders may be removed from office
as a Director at any time, but only for cause, by the affirmative vote
of stockholders of record holding a majority of the outstanding shares
54
of stock of the corporation entitled to vote in elections of Directors
given at a meeting of stockholders duly called for that purpose.
AND FURTHER RESOLVED, that the present 'Article Tenth' of the Charter
of Wellco Enterprises, Inc., be deleted in its entirety and a new
'Article Tenth' be substituted in lieu thereof, said new 'Article
Tenth' providing as follows:
Article Tenth: This corporation reserves the right to amend, alter,
change, or repeal any provision contained in this corporation's
Articles of Incorporation in effect from time to time, in the manner
new or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation; provided,
however, that the foregoing Article Ninth may be amended only by the
affirmative vote of stockholders of record holding two-thirds of the
outstanding shares of stock of this corporation entitled to vote upon
such amendment given at a meeting of stockholders duly called for that
purpose and no amendment to this Article Tenth modifying such
requirement may be adopted except upon the same affirmative vote."
3. The number of shares of the corporation outstanding as of the
October 1, 1976 record date for said meeting was 418,903, all of which were
entitled to vote upon said amendments.
4. The number of shares represented at the meeting at which said
amendments were approved was 338,201; the number of shares voted for said
amendments was 274,782; the number of shares voted against said amendments was
46,210; the number of shares withholding vote with reference to said amendments
was 17,209.
5. The amendments herein effected do not result in any change in the
stated capital of the corporation.
6. The amendments herein effected do not give rise to dissenter's
rights to payment for the reason that the only effect of such amendments is to
increase the composition of the Board of Directors and related matters.
IN WITNESS WHEREOF, these articles are signed by the President and
Secretary of the corporation this 16th day of November, 1976.
WELLCO ENTERPRISES, INC.
(CORPORATE SEAL)
By/s/ ROLF KAUFMAN
------------------
Rolf Kaufman, President
ATTEST:
/s/ERNEST ROLLMAN
- -----------------
Ernest Rollman, Secretary
STATE OF NORTH CAROLINA
COUNTY OF HAYWOOD
55
I, Donna M. Overman, a Notary Public, hereby certify that on this 16th
day of November, 1976, personally appeared before me ROLF KAUFMAN and ERNEST
ROLLMAN, each of whom being by me first duly sworn, declared that he signed the
foregoing document in the capacity indicated, and that the statements contained
herein are true.
/s/DONNA M. OVERMAN
-------------------
Notary Public
ARTICLES OF AMENDMENT
TO THE CHARTER OF
WELLCO ENTERPRISES, INC.
------------------------
The undersigned corporation, for the purpose of amending its Articles
of Incorporation (as stated in June 29, 1946 Agreement of Merger withl Wellco
Sales Company, Inc.) and pursuant to the provisions of Chapter 55 of the General
Statutes of North Carolina, particularly the provisions of Section 55-103
thereof, hereby executes the following Articles of Amendment to its Charter
heretofore filed in the Office of the Secretary of State of North Carolina:
1. The name of the Corporation is WELLCO ENTERPRISES, INC.
2. The following Amendment to the Charter of the Corporation was
adopted by its stockholders at the annual stockholders meeting of said
corporation held on the 17th day of November, 1987, in the manner prescribed by
law:
RESOLVED, that the Charter of Wellco Enterprises, Inc. be amended by
adding a new Article Fourteenth thereof, said new Article Fourteenth
providing as follows:
ARTICLE FOURTEENTH: No director of the Corporation shall be personally
liable arising out of an action whether by or in the right of the
Corporation or otherwise, for monetary damages for breach of his duties
as a director; provided, however, that this Article Fourteenth shall
not be effective with respect to (i) acts or omissions not made in good
faith that the director at the time of such breach knew or believed
were in conflict with the best interests of the Corporation, (ii) any
liability under Section 55-32 of the General Statutes of North
Carolina, (iii) any transaction from which the director derived an
improper personal benefit, or (iv) acts or omissions occurring prior to
the effective date of this charter amendment. As used herein, the term
'improper personal benefit' does not include a director's compensation
or other incidental benefits for or on account of his services as a
director, officer, employee, independent contractor, attorney or
consultant of the Corporation.
3. The number of shares of the Corporation's common stock outstanding
as of the September 30, 1987 record date for said meeting was 875,706, all of
which were entitled to vote upon said Amendment.
56
4. The number of shares represented at the meeting at which said
Amendment were approved was 768,636; the number of shares voted for said
Amendment was 750,541; the number of shares voted against said Amendment was
14,688; the number of shares withholding vote with reference to said Amendment
was 3,407.
5. The Amendment herein effected do not result in any change in the
stated capital of the Corporation.
6. The Amendment herein effected does not give rise to dissenter's
rights to payment for the reason that the only effect of said Amendment is to
limit certain liabilities of members of the Board of Directors and does not
relate to those matters enumerated in N.C.G.S. Sec. 55-101(b).
IN WITNESS WHEREOF, these Articles are signed by the President and
Secretary of the Corporation, this 17th day of November, 1987.
WELLCO ENTERPRISES, INC.
(CORPORATE SEAL)
By:/s/ROLF KAUFMAN
---------------
Rolf Kaufman, President
Attest:
/s/DAVID LUTZ
- -------------
David Lutz, Secretary
STATE OF NORTH CAROLINA
COUNTY OF HAYWOOD
I, DONNA M. CHAMBERS, a Notary Public of said State and County, hereby
certify that ROLF KAUFMAN and DAVID LUTZ personally appeared before me this day
and, each of whom being by me first duly sworn, declared that he signed the
foregoing Articles of Amendment to the Charter of Wellco Enterprises, Inc. in
the capacity above indicated and that the statements contained therein are true.
WITNESS my hand and Notarial Seal, this 17th day of November, 1987.
/s/DONNA M. CHAMBERS
--------------------
Notary Public
My commission expires:
March 9, 1991
57
ARTICLES OF AMENDMENT
TO THE CHARTER OF
WELLCO ENTERPRISES, INC.
------------------------
The undersigned corporation, for the purpose of amending its Articles
of Incorporation (as stated in June 29, 1946 Agreement of Merger withWellco
Sales Company, Inc.) and pursuant to the provisions of Chapter 55 of the General
Statutes of North Carolina, particularly the provisions of Section 55-103
thereof, hereby executes the following Articles of Amendment to its Charter
heretofore filed in the Office of the Secretary of State of North Carolina:
1. The name of the Corporation is WELLCO ENTERPRISES, INC.
2. The following Amendment to the Articles of Incorporation was adopted
by its stockholders on the 15th day of November, 1994, in the manner prescribed
by law:
ARTICLE NINTH: The property and business of this corporation
shall be managed by its Boards of Directors. The number of
Directors which shall constitute the whole Board shall be
nine, divided and classified into three classes of three
directors each, to be designated, respectively, Class I, Class
II, and Class III. The terms of each Class shall continue
until their respective successors are duly elected and
qaulified, or until their resignation, death or removal by
stockholders for cause. The terms of the Class II Directors
shall expire at the 1996 annual meeting of the stockholders.
The terms of the Class I Directors shall expire at the 1995
annual meeting of the stockholders. The terms of the Class III
Directors shall expire at the 1997 annual meeting of the
stockholders. At each annual meeting of stockholders
commencing in 1995 and thereafter, directors shall be elected
to fill any vacancies then existing and to succeed those whose
terms have expired, and the directors so elected shall be
identified as being of the same class as the directors they
succeed and shall be elected to hold office for the term of
the class to which each is elected. If any vacancy shall occur
in the Board of Directors by reason of the death, resignation,
or disqualification as by law provided, the Directors then in
office, although less thana quorum, may by majority vote fill
any such vacancy, and any Director so chosen shall hold office
until the next annual meeting of the stockholders and until
his successor shall be duly elected and qualified; provided,
however, that if in the event of any such vacancy, the
Directors remaining in office shall be unable, by majority
vote, to fill such vacancy within thirty (30) days after the
occurrence thereof, the President or the Secretary may call a
special meeting of the stockholders at which such vacancy
shall be filled. Any Director elected by stockholders may be
removed from office as a Director at any time, but only for
cause, by the affirmative vote of stockholders of record
holding a majority of the outstanding shares of stock of the
corporation entitled to vote in elections of Directors given
at a meeting of stockholders duly called for that purpose.
3. Said Amendment was adopted as required by Chapter 55 of the General
Statutes of North Carolina.
58
4. Said Amendment does not provide for any exchange, reclassification
or cancellation of the Corporation's issued common stock.
5. These Articles shall become effective upon filing of the same with
the North Carolina Secretary of State.
This the 16th day of November, 1994.
WELLCO ENTERPRISES, INC.
By:/s/David Lutz
-------------
Secretary-Treasurer
ARTICLES OF AMENDMENT
TO THE CHARTER OF
WELLCO ENTERPRISES, INC.
------------------------
The undersigned corporation, for the purpose of amending its Articles
of Incorporation (as stated in June 29, 1946 Agreement of Merger with Wellco
Sales Company, Inc.) and pursuant to the provisions of Chapter 55-10-06 of the
General Statutes of North Carolina, particularly the provisions of Section
55-103 thereof, hereby executes the following Articles of Amendment to its
Charter heretofore filed in the Office of the Secretary of State of North
Carolina:
1. The name of the Corporation is WELLCO ENTERPRISES, INC.
2. The following Amendment to the Articles of Incorporation was adopted
by its stockholders on the 18th day of November, 2003, in the manner prescribed
by law:
Article Ninth: The property and business of the corporation shall be managed by
its Board of Directors. The Board of Directors of the corporation who shall hold
their offices until their successors be chosen according to the by-laws of the
corporation, shall consist of nine members. Effective with the Annual
Stockholders Meeting of the corporation in the year 2003 and subsequent years,
Directors whose terms have then expired shall be elected annually, with the
result that by the corporation's Annual Stockholders Meeting in 2005 all Classes
of the Board of Directors shall have been eliminated and all Directors of the
corporation shall be elected annually at said 2005 Annual Stockholders Meeting
and all future Annual Stockholders Meetings.
If any vacancy shall occur in the Board of Directors by reason of the death,
resignation, or disqualification as by law provided, the directors then in
office, although less than a quorum, may by majority vote to fill any such
vacancy, and any director so chosen shall hold office until the next annual
meeting of the stockholders and until his successor shall be duly elected and
qualified; provided, however, that if in the event of any such vacancy, the
directors remaining in office shall be unable, by majority vote, to fill such
vacancy within thirty (30) days after the occurrence thereof, the President or
the Secretary may call a special meeting of the stockholders at which such
vacancy shall be filled. Any Director elected by stockholders may be removed
59
from office as a Director at any time, but only for cause, by the affirmative
vote of stockholders of record holding a majority of the outstanding shares of
stock of the corporation entitled to vote in elections of Directors given at a
meeting of stockholders duly called for that purpose.
Article Tenth: This corporation reserves the right to amend, alter, change, or
repeal any provision contained in this corporation's Articles of Incorporation
in effect from time to time, in the manner now or hereafter prescribed by
statute, and all rights conferred upon stockholders herein are granted subject
to this reservation.
3. Said Amendment was adopted as required by Chapter 55 of the General Statutes
of North Carolina.
4. Said Amendment does not provide for any exchange, reclassification or
cancellation of the Corporation's issued common stock.5. These Articles shall
become effective upon filing of the same with the North Carolina Secretary of
State.
This the 18th day of November, 2003.
WELLCO ENTERPRISES, INC.
By: /s/David Lutz
-------------
Secretary-Treasurer
60
ARTICLES OF AMENDMENT
OF
WELLCO ENTERPRISES, INC.
The undersigned corporation, organized under Chapter 55 of the North
Carolina General Statutes, hereby submits these Articles of Amendment for the
purpose of amending its Articles of Incorporation:
1. The name of the corporation is Wellco Enterprises, Inc.
2. The following amendment to the Articles of Incorporation of the
corporation was adopted by its shareholders on the 9th day of May, 2007.
Article Sixth of the Articles of Incorporation is amended to
read as follows:
"Article Sixth: The corporation shall have perpetual duration."
3. Shareholder approval of the foregoing amendment was obtained as
required by Chapter 55 of the North Carolina General Statutes.
4. These Articles of Amendment will become effective upon filing with
the North Carolina Secretary of State. This the 9th day of May, 2007.
WELLCO ENTERPRISES, INC.
By: s/ V. Lee Ferguson
------------------
V. Lee Ferguson, President
61
Exhibit 31
----------
WELLCO ENTERPRISES, INC.
FORM 10-Q FOR THE NINE MONTHS ENDED MARCH 31, 2007
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, Lee Ferguson, certify that:
1. I have reviewed this report on Form 10-Q of Wellco Enterprises, Inc.
(the registrant);
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
registrant and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
(c) Disclosed in this report any change in the registrant's internal
controls over financial reporting that occurred during the registrant's
current fiscal quarter that has materially affected, or is reasonably
likely to materially affect, the registrant's internal control over
financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the equivalent
functions):
(a) All significant deficiencies and material weaknesses in
the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the
registrant's ability to record, process, summarize and report
financial information; and
62
(b) Any fraud, whether or not material, that involves
management or other employees who have a significant role in
the registrant's internal control over financial reporting.
Date: May 20, 2007
/s/ Lee Ferguson
- ----------------
By: Lee Ferguson, Chief Executive Officer and President
(Chief Executive Officer)
63
WELLCO ENTERPRISES, INC.
FORM 10-Q FOR THE NINE MONTHS ENDED MARCH 31, 2007
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, Tammy Francis, certify that:
1. I have reviewed this report on Form 10-Q of Wellco Enterprises,
Inc.(the registrant);
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present in
all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the
periods presented in this report;
4. The registrant's other certifying officer and I are responsible
for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15
(e)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to
the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly
during the period in which this report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by
this report based on such evaluation; and
(c) Disclosed in this report any change in the registrant's
internal controls over financial reporting that occurred
during the registrant's current fiscal quarter that has
materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial
reporting; and
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation of internal control over
financial reporting, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons
performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant's
ability to record, process, summarize and report financial
information; and
64
(b) Any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal control over financial reporting.
Date: May 20, 2007
------------
/s/ Tammy Francis
- -----------------
By: Tammy Francis, Vice President of Finance and Treasurer
(Chief Financial Officer)
65
Exhibit 32
----------
WELLCO ENTERPRISES, INC.
FORM 10-Q FOR THE NINE MONTHS ENDED MARCH 31, 2007
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002
I, Lee Ferguson, certify that:
1. I am the chief executive officer of Wellco Enterprises, Inc.
2. Attached to this certification is Form 10-Q for the nine months ended
March 31, 2007, a periodic report (the "periodic report") filed by the
issuer with the Securities Exchange Commission pursuant to Section
13(a) or 15(d) of the Securities Exchange Act of 1934 (the "Exchange
Act:), which contains financial statements.
3. I hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the
periodic report containing the financial statements fully complies with
the requirements of Section 13(a) or 15(d) of the Exchange Act, and the
information in the periodic report fairly presents, in all material
respects, the financial condition and results of operations of the
issuer for the periods presented.
Date: May 20, 2007
/s/ Lee Ferguson
- ----------------
By: Lee Ferguson, Chief Executive Officer and President
(Chief Executive Officer)
A signed original of this written statement required by Section 906 has been
provided to the Company and will be retained by Wellco Enterprises Inc. and
furnished to the Securities and Exchange Commission or its staff upon request.
This certification will not be deemed "filed" for purposes of Section 18 of the
Securities Exchange Act of 1934, or otherwise subject to the liability of that
section. This certification will not be deemed to be incorporated by reference
into any filing under the Securities Act of 1933 or the Securities Exchange Act
of 1934 even if the document with which it is submitted to the Securities and
Exchange Commission is so incorporated by reference.
66
WELLCO ENTERPRISES, INC.
FORM 10-Q FOR THE NINE MONTHS ENDED MARCH 31, 2007
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002
I, Tammy Francis, certify that:
1. I am the chief financial officer of Wellco Enterprises, Inc.
2. Attached to this certification is Form 10-Q for the nine months ended
March 31, 2007, a periodic report (the "periodic report") filed by the
issuer with the Securities Exchange Commission pursuant to Section
13(a) or 15(d) of the Securities Exchange Act of 1934 (the "Exchange
Act:), which contains financial statements.
3. I hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the
periodic report containing the financial statements fully complies with
the requirements of Section 13(a) or 15(d) of the Exchange Act, and the
information in the periodic report fairly presents, in all material
respects, the financial condition and results of operations of the
issuer for the periods presented.
Date: May 20, 2007
/s/ Tammy Francis
- -----------------
By: Tammy Francis, Vice President of Finance and Treasurer
(Chief Financial Officer)
A signed original of this written statement required by Section 906 has been
provided to the Company and will be retained by Wellco Enterprises Inc. and
furnished to the Securities and Exchange Commission or its staff upon request.
This certification will not be deemed "filed" for purposes of Section 18 of the
Securities Exchange Act of 1934, or otherwise subject to the liability of that
section. This certification will not be deemed to be incorporated by reference
into any filing under the Securities Act of 1933 or the Securities Exchange Act
of 1934 even if the document with which it is submitted to the Securities and
Exchange Commission is so incorporated by reference.
67