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EXHIBIT 10(h)
LOAN AGREEMENT
This agreement, made this 24th day of July, 1990, between Wellington
Hall Limited, a North Carolina corporation of Highway 29-70 North, Lexington,
North Carolina, hereinafter referred to as the Borrower, and Lexington State
Bank, Lexington, North Carolina, hereinafter referred to as the Bank:
W I T N E S S E T H :
The Borrower has requested financing in the amount of $200,000 for
improvements to the air quality system of its manufacturing facility. Borrower
has also requested that the Bank increase Borrower's line of credit for its
anticipated working capital requirements.
The Bank has consented to provide Borrower with a loan for its
proposed capital improvements and is willing to increase Borrower's $800,000
line of credit to $900,000 upon the terms and conditions herein set forth.
Now, therefore, in consideration of the mutual covenants contained
herein, the Borrower and the Bank agree as follows:
SECTION 1. WARRANTIES AND REPRESENTATIONS.
The Borrower represents and warrants to the Bank as follows:
1.1 The Borrower is a corporation duly organized and existing in good
standing under the laws of the jurisdiction of its incorporation, and
is duly qualified and in good standing under the laws of each
jurisdiction in which the ownership of its properties or the
transaction of its business make such qualification necessary.
1.2 The Borrower has full corporate power to enter into this Agreement and
to do all things required of it hereunder and the execution and
performance of this Agreement have been duly authorized by appropriate
corporate action and will not violate the provisions of its Articles
of Incorporation or By-Laws or any other agreement or instrument to
which it is a party, nor require the approval of its stockholders or
of any public authority or of any third party.
1.3 The Borrower is the owner of 100% of the capital stock of Wellington
Hall Caribbean Corporation, a North Carolina corporation, and said
subsidiary corporation is the owner of 99% of the capital stock of
Muebles Wellington Hall, S.A., a Honduran corporation. All of the
capital stock of each subsidiary has been validly issued, is fully
paid and non-assessable, and is free of liens or other encumbrance.
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1.4 The Borrower has no unpaid taxes or assessments which have become due
and payable on or before the date of this Agreement.
1.5 The Borrower has no proceedings pending or, to the knowledge of its
officers, threatened before any court or administrative agency, or
governmental body, the outcome of which would materially affect its
financial condition adversely.
1.6 The financial information submitted to the Bank by the Borrower is
correct and does accurately reflect its financial condition.
1.7 The Borrower is the lawful owner of all of its assets which shall be
free of all liens and encumbrances except to the Bank as provided for
herein and as otherwise set forth in its financial statements.
SECTION 2. INTERIM FINANCING.
2.1 The Bank agrees to provide Borrower with interim financing in the
amount of $200,000 for Borrower's proposed air quality improvements.
The term of the interim financing shall be approximately six months.
2.2 Upon substantial completion of the proposed capital improvements, the
Bank and the Borrower shall negotiate the terms of permanent
financing.
SECTION 3. LINE OF CREDIT.
3.1 The Bank agrees to extend to the Borrower in the form of a Line of
Credit the lesser of:
a) $900,000, or
b) The sum of:
i) 70% of the Borrower's accounts receivable less than 60
days old, and
ii) 50% of the Borrower's inventories of finished goods, to
be valued at cost or market, whichever is less.
iii) 10% of the Borrower's work in process and raw materials
inventories.
3.2 In order to facilitate the borrowings under this Line of Credit, the
Borrower shall execute and deliver to the Bank its $900,000.00 demand
Promissory Note against which the Bank shall advance funds at the
Borrower's request. The principal balances under said note shall be
permitted to increase and decrease as advances and repayments are made
without the necessity of executing new notes.
3.3 The rate of interest chargeable on loan balances under this Line of
Credit shall be 1%
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per annum above the prime rate published by Lexington State Bank. The
said prime rate in effect as of the 1st day of each month shall be the
basis for the computation of interest chargeable for that month.
3.4 In the event that the principal balances outstanding under the
Borrower's promissory notes shall at any time exceed the limitations
set forth in Section 3.1 above, the Borrower shall promptly reduce the
aggregate of said principal balances by an amount sufficient to
eliminate such excess.
SECTION 4. SECURITY.
4.1 To secure the repayment of the loans provided for herein and all other
present and future obligations of the Borrower to the Bank, whether
direct or indirect absolute or contingent, the Borrower hereby grants
unto the Bank, its successors or assigns, a first lien security
interest in all of its presently owned or hereafter acquired property
of the following types and kinds:
a) Accounts receivable, notes receivable, other receivables
however evidenced, contract rights and general intangibles
(which term shall include refunds of any type and other
entitlements to money or goods);
b) Inventories of raw materials, supplies, work-in-process and
finished goods;
c) Machinery, equipment, furniture and fixtures, tools, dies,
jigs (all personal property fixed assets and expendables);
d) All cash and non-cash proceeds of the foregoing, including
proceeds of insurance thereon.
4.2 Borrower agrees that it will, at Bank's request, execute and deliver
such security agreements, financing statements, or other documents
deemed necessary by the Bank for the granting, perfection or
continuation of perfection of the security interest above described.
4.3 Borrower also agrees with Bank that those certain deeds of trust
described below shall serve as additional security to the loans
provided for herein:
a) $420,000.00 Deed of Trust dated February 17, 1984, Joe H.
Leonard, Trustee, Filed in Book 619, Page 17, Davidson County
Register of Deeds.
b) $650,000.00 Deed of Trust dated April 15, 1987, Joe H.
Leonard, Trustee, Filed in Book 665, Page 668, Davidson County
Register of Deeds.
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SECTION 5. AFFIRMATIVE COVENANTS.
From the date hereof and until all sums advanced hereunder and all
interest thereon are fully paid, the Borrower agrees that it will:
5.1 Furnish to the Bank within 90 days after the end of each of its fiscal
years, beginning with its fiscal year next ending after the date of
this Agreement, an audited financial report prepared in accordance
with generally accepted accounting principles by its independent
certified public accountants, containing its Balance Sheet as of the
end of such fiscal year, its Profit and Loss Statement showing the
results of its operations for such year, the reconcilement of its
surplus account, such other comments and financial details as are
customarily included in reports of like character and the unqualified
opinion of the certified public accountants as to the contents
thereof.
5.2 Furnish to the Bank within 45 days after the end of each quarter
beginning with that report period first succeeding the date of this
Agreement, a financial report prepared on the same accounting basis as
the annual statement prepared by its independent certified public
accountants, containing its Balance Sheet as of the end of such period
and its Profit and Loss Statement showing the results of its
operations for the portion of its fiscal year then elapsed.
5.3 Provide the Bank with consolidating financial statements for each of
its annual and quarterly report periods, which statements shall
reflect the independent balance sheet and operating information of
Borrower and each other member of the consolidated group contained in
Borrower's annual report.
5.4 Promptly inform the Bank of any occurrence which materially affects
its financial condition adversely or its ability to comply with its
obligations under this Agreement; grant to the Bank or its
representatives the right to examine its books and records at any
reasonable time or times; and furnish to the Bank any information
which it may reasonably request concerning the Borrower's financial
affairs within 15 days after receipt of a request thereof.
5.5 Maintain insurance against the risk of loss or damage to the assets
pledged as security to the Bank in amounts at least equal to the
balance of the Borrower's indebtedness to the Bank with loss payable
to the Bank to the extent of its interest. Said policies of insurance
shall contain a provision that the coverages afforded thereunder will
not be canceled without 10 days prior written notice to the Bank. The
Borrower shall cause said policies of insurance to be delivered to the
Bank. The Bank shall have the right, but not the obligation, to
acquire insurance for the protection of the collateral upon the
Borrower's failure to do so and the cost thereof shall be paid to the
Bank upon demand. Action by the Bank in acquiring such insurance
shall not constitute a waiver of the default created by the Borrower's
failure to do so.
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5.6 Pay and discharge, as often as the same may become due and payable,
all taxes and assessments of whatever nature which may be levied or
assessed against it or any of its properties, unless and to the extent
only that such taxes or assessments shall be contested in good faith
by appropriate proceedings by the Borrower.
5.7 Maintain its corporate existence in good standing and its
qualification and good standing in each jurisdiction wherein such
qualification is necessary.
5.8 Maintain a ratio of net current assets to current liabilities of not
less than 2.00 to 1.00. For the purposes of this Agreement, the ratio
of net current assets to current liabilities shall be computed in
accordance with generally accepted accounting principles.
5.9 Maintain a ratio of total liabilities to net worth of not more than
1.50 to 1.00.
5.10 Maintain its present management or other management satisfactory to
the Bank.
5.11 Maintain its primary depository relationship with the Bank, it being
understood that the credit being provided hereunder and the pricing
thereof is directly related to the depository relationship.
SECTION 6. NEGATIVE COVENANTS.
From the date hereof and until all sums advanced hereunder and all
interest thereon are fully paid, the Borrower agrees that it will not, without
the prior written consent of the Bank:
6.1 Mortgage, pledge or further encumber any of its assets to any party
other than the Bank.
6.2 Sell, lease or otherwise. dispose of any of its assets except in the
normal course of business.
6.3 Borrow money from any source other than the Bank except upon life
insurance policies owned by the Borrower, directly from the carrier
thereof.
6.4 Make loans or advances to any person, firm or corporation except to
employees in the normal course of business.
6.5 Guarantee, endorse, assume or otherwise become liable for the
obligations of any other person, firm or corporation except as herein
provided and except by the endorsement of negotiable instruments for
deposit or collection in the ordinary course
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of business.
6.6 Enter into any merger or consolidation or acquire all or substantially
all of the assets, or purchase or otherwise acquire the obligations or
the stock or any other interest, of any other person, firm or
corporation.
6.7 Pay any dividends, or purchase, redeem, or otherwise retire capital
stock, or make other distribution of its assets resulting in reduction
of capital.
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6.8 Make or incur, subsequent to the capital expenditures herein
contemplated, any obligation to make any expenditures for the
acquisition of or improvement of addition to any real property,
machinery, equipment, furniture or fixtures, whether by purchase,
lease, lease with option or otherwise in an aggregate annual amount in
excess of $100,000.
SECTION 7. ENVIRONMENTAL CERTIFICATION.
7.1 Borrower certifies that the real property pledged as security for the
herein described credit does not contain materials or substances that
are regulated or prohibited by federal, state, or local laws, or that
are known to pose a hazard to the environment or to human health,
except as identified on the attached Schedule A.
7.2 Borrower also certifies that the subject property and operations at
the property are in compliance with all applicable Federal, State, and
local statutes, laws, and regulations. Borrower further certifies
that no notices claiming a violation of regulations or statutes, nor
notices requiring compliance with regulations or statutes, nor notices
demanding payment or contribution for injury to the environment or
human health have been served on Borrower, or to the best of
Borrower's knowledge, to any former owner/operator of the property, by
any government agency, individual, or other entity except those
notices as may be identified on the attached Schedule A. Borrower
agrees to forward a copy of any such notices which are hereafter
received within three (3) days of their receipt. Borrower
acknowledges that Bank shall not be obligated to make any
disbursements if condemnation proceedings are commenced or threatened
against any part of the property.
7.3 Borrower further certifies that any hazardous or potentially hazardous
materials used in Borrower's operation or generated as a product or
by-product are now and will continue to be stored, used, and
maintained in accordance with applicable Federal, State, and local
laws and regulations and that all hazardous wastes will be disposed of
by duly licensed contractors in accordance with all governing
regulations.
7.4 Borrower hereby indemnifies and holds Bank harmless against any and
all costs or damages arising from claims for environmental
contamination of Borrower's property.
SECTION 8. EVENTS OF DEFAULT.
8.1 If any payment of principal or interest hereunder shall not be paid
when the same has become due and payable, or if the Borrower shall
fail to perform any of its other obligations hereunder, or under the
provisions of the Security Agreement given in connection herewith, or
shall fail to comply with any of the other terms and conditions
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of this Agreement.
8.2 If any warranty or representations made herein, or any statement or
representation made in any certificate or report delivered pursuant
hereto, shall prove to be false or inaccurate in any material respect
when made.
8.3 If the Borrower shall voluntarily suspend transaction of its business;
or shall be adjudicated a bankrupt or insolvent; or shall file a
voluntary petition in bankruptcy or for a reorganization; or shall
attempt to effect a plan or other arrangement with creditors; or shall
commit an act of bankruptcy; or shall file an answer to a creditors
petition against it for an adjudication in bankruptcy or for a
reorganization admitting the material allegations contained therein;
or shall apply for or permit the appointment of a receiver or trustee
for it or for any substantial portion of its assets, or if bankruptcy,
reorganization or liquidation proceedings are instituted against it
and remain undismissed for 30 days.
8.4 Upon occurrence of any default defined in Section 8.1 above which is
not cured by the Borrower within 15 days, or upon occurrence of any
default defined in Section 8 2 and 8.3 above, all indebtedness
hereunder shall be immediately due and payable in full at the option
of the Bank, without presentation, demand or notice of any kind, all
of which are hereby expressly waived.
SECTION 9. MISCELLANEOUS.
9.1 The Borrower agrees to pay all out-of-pocket expenses of the Bank in
connection with the preparation of documents relating hereto, filing
and recording fees, and cost of the enforcement of any provision of
this Agreement, and the collection of any indebtedness hereunder,
including reasonable fees and expenses of counsel.
9.2 Each and every right granted to the Bank hereunder or under any other
document delivered in connection herewith, or allowed it by law or
equity, shall be cumulative and may be exercised from time to time.
No failure on the part of the Bank to exercise and no delay in
exercising any right shall operate as a waiver thereof or the exercise
of any other right.
9.3 Any and all notices required by the terms of this Agreement shall be
in writing and shall be served either personally or by United States
mail with postage thereon fully prepaid addressed to the Borrower as:
Wellington Hall Limited
Route 12
P.O. Box 1354
Lexington, North Carolina 27293-1354
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and to the Bank as:
Lexington State Bank
Commercial Loan Department
P.O. Box 867
Lexington, North Carolina 27293-0867
or such other place or places as either the Bank or the Borrower shall
designate by written notice served upon the other party.
9.4 This Agreement and the rights and obligations of the parties hereto
shall be governed by and interpreted in accordance with the laws of
the State of North Carolina, and the United States of America.
9.5 This Agreement shall be binding upon and shall inure to the benefit of
the Borrower and the Bank and their successors and assigns.
In Witness Whereof , the parties have caused this Agreement to be
executed by their duly authorized officers the day and year first written
above.
WELLINGTON HALL, LIMITED
a North Carolina corporation
By: /s/ Hoyt Hackney
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Hoyt Hackney, President
Attest:
/s/ W.W. Woodruff
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Secretary
LEXINGTON STATE BANK
By: /s/ R.J. Meadley
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Ronald J. Meadley
Senior Vice President
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