<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended: June 30, 1996
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number: 33-96794
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DECORATIVE HOME ACCENTS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S><C>
Delaware 57-0998387
- -------------------------------------------------------------- ------------------------------------
(State or other jurisdiction of incorporation or organization) (IRS Employer Identification Number)
</TABLE>
Industrial Park Drive, Abbeville, South Carolina 29620
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (864) 446-2123
Indicate by check mark whether the registrant 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).
Yes /X/ No / /
Indicate by check mark whether the registrant has been subject to such
filing requirements for the past 90 days.
Yes /X/ No / /
As of August 12, 1996, there were 1,074,838 shares outstanding of the
Registrant's Class A Common Stock ($0.01 par value), 1,756,126 shares
outstanding of the Registrant's Class B Non-Voting Common Stock ($0.01 par
value), 386,040 shares outstanding of the Registrant's Class C Common Stock
($0.01 par value), 808,333 shares outstanding of the Registrant's Class D Common
Stock ($0.01 par value), 125,000 shares outstanding of the Registrant's Class F
Common Stock and 53,820 outstanding shares of the Registrant's 14% Cumulative
Redeemable Preferred Stock ($0.01 par value).
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DECORATIVE HOME ACCENTS, INC.
QUARTER ENDED JUNE 30, 1996
INDEX
<TABLE>
<CAPTION>
Page
No.
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
<S> <C> <C>
Condensed Consolidated Balance Sheets as of June 30, 1996 and
December 31, 1995 ........................................................ 3
Condensed Consolidated Statements of Operations for the three
months ended June 30, 1996 and 1995 ...................................... 4
Condensed Consolidated Statements of Operations for the six
months ended June 30, 1996 and 1995......... ............................. 5
Condensed Consolidated Statement of Stockholders' Equity (Deficiency)
for the three months ended June 30, 1996 ................................. 6
Condensed Consolidated Statements of Cash Flows for the six months
ended June 30, 1996 and 1995.............................................. 7
Notes to Condensed Consolidated Financial Statements ........................... 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ............................................ 10
PART II OTHER INFORMATION
Signature Page ................................................................. 16
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2
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PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DECORATIVE HOME ACCENTS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
____________________________________________________________________________
<TABLE>
<CAPTION>
June 30,
1996 December 31,
(Unaudited) 1995 (1)
---------- ---------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ - $ 169
Investment securities 1,000 1,000
Accounts receivable - net of allowance for doubtful accounts of
$2,112 at June 30, 1996 and $2,506 at December 31, 1995 26,535 28,982
Income taxes receivable 3,045 2,714
Inventories 45,407 43,713
Deferred income taxes 2,734 4,282
Other current assets 2,530 598
-------- --------
Total current assets 81,251 81,458
PROPERTY, PLANT AND EQUIPMENT, NET 31,712 30,667
OTHER ASSETS 9,987 8,790
INTANGIBLE ASSETS, NET 94,345 94,938
-------- --------
TOTAL ASSETS $217,295 $215,853
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Accounts payable 12,684 14,452
Accrued liabilities 7,316 9,775
Accrued interest 8,165 7,583
-------- --------
Total current liabilities 28,165 31,810
-------- --------
LONG-TERM DEBT 146,291 131,452
DEFERRED INCOME TAXES - 3,348
REDEEMABLE PREFERRED STOCK 45,188 41,059
REDEEMABLE COMMON STOCK 2,015 1,639
STOCKHOLDERS' EQUITY (DEFICIENCY):
Common stocks 9 9
Additional paid-in capital 11,602 16,107
Reduction of certain equity interest to predecessor basis (6,209) (6,209)
Accumulated deficit (9,766) (3,362)
-------- --------
Total stockholders' equity (deficiency) (4,364) 6,545
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY) $217,295 $215,853
======== ========
</TABLE>
(1) Derived from December 31, 1995 audited consolidated financial statements.
See notes to condensed consolidated financial statements (unaudited).
3
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DECORATIVE HOME ACCENTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS)
(UNAUDITED)
________________________________________________________________________________
<TABLE>
<CAPTION> Three Months Ended
------------------
June 30, 1996 June 30, 1995
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<S> <C> <C>
SALES $ 44,495 $10,849
COST OF GOODS SOLD 31,740 5,406
GROSS PROFIT 12,755 5,443
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 11,919 4,126
------- ------
INCOME FROM OPERATIONS 836 1,317
------- ------
INTEREST INCOME (EXPENSE)
Interest expense (4,925) (1,819)
Interest income 8 106
Interest income (expense), net (4,917) (1,713)
------- ------
LOSS BEFORE PROVISION FOR INCOME TAXES (4,081) (396)
INCOME TAX BENEFIT (1,347) (151)
------- -----
NET LOSS $(2,734) $(245)
======= =====
</TABLE>
See notes to condensed consolidated financial statements (unaudited).
4
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DECORATIVE HOME ACCENTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS)
(UNAUDITED)
________________________________________________________________________________
<TABLE>
<CAPTION>
Six Months Ended
-----------------
June 30, 1996 June 30, 1995
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<S> <C> <C>
SALES $ 84,281 $22,125
COST OF GOODS SOLD 60,542 11,225
-------- -------
GROSS PROFIT 23,739 10,900
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 23,770 8,387
-------- -------
INCOME (LOSS) FROM OPERATIONS (31) 2,513
-------- -------
INTEREST INCOME (EXPENSE)
Interest expense (9,540) (3,631)
Interest income 18 238
-------- -------
Interest income (expense), net (9,522) (3,393)
-------- -------
LOSS BEFORE PROVISION FOR INCOME TAXES (9,553) (880)
INCOME TAX BENEFIT (3,149) (335)
-------- -------
NET LOSS $ (6,404) $ (545)
======== =======
</TABLE>
See notes to condensed consolidated financial statements (unaudited).
5
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DECORATIVE HOME ACCENTS , INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY)
FOR THE SIX MONTHS ENDED JUNE 30, 1996 (IN THOUSANDS)
(UNAUDITED)
________________________________________________________________________________
<TABLE>
<CAPTION>
Reduction of
Certain Equity
Interest to Total
Common Additional Predecessor Accumulated Stockholders'
Stocks Paid-in Capital Basis Deficit Equity (Deficiency)
------ --------------- -------- ------- -------------------
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1995 $ 9 $16,107 $(6,209) $(3,362) $6,545
Accretion of redeemable common stock for the
six months ended June 30, 1996 (358) (358)
Accretion of redeemable preferred stock for the
six months ended June 30, 1996 (397) (397)
Preferred stock dividend accrual for the six
months ended June 30, 1996 (3,750) (3,750)
Net loss for the six months ended June 30, 1996 (6,404) (6,404)
--- ------- -------- ------- -------
Balances at June 30, 1996 $ 9 $11,602 $(6,209) $(9,766) $(4,364)
=== ======= ======= ======= =======
</TABLE>
See notes to condensed consolidated financial statements (unaudited).
6
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DECORATIVE HOME ACCENTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
(UNAUDITED)
________________________________________________________________________________
<TABLE>
<CAPTION>
Six months ended
June 30
1996 1995
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(6,404) $ (546)
Adjustment to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 4,905 1,993
Deferred tax (benefit) provision (3,149) (463)
Changes in operating assets and liabilities:
Accounts receivable 2,447 867
Inventories (1,694) (2,682)
Income tax receivable (331) (833)
Other current assets (1,932) 148
Accounts payable (1,768) 804
Accrued liabilities (709) (1,464)
Accrued interest 582 275
Income taxes payable - (567)
------- -------
Net cash used in operating activities (8,053) (2,468)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (1,938) (728)
Other long term assets (2,118) (110)
------- -------
Net cash used in investing activities (4,056) (838)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under revolving line of credit 13,690 -
Redeemable preferred stock dividends paid (1,750) -
-------
Net cash provided by financing activities 11,940 -
------- -------
DECREASE IN CASH AND CASH EQUIVALENTS (169) (3,306)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 169 8,355
------- -------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD $ - $ 5,049
------- -------
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid $10,418 $ -
------- -------
Income taxes paid $ - $ -
======= =======
</TABLE>
See notes to condensed consolidated financial statements (unaudited)
7
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DECORATIVE HOME ACCENTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED)
JUNE 30, 1996 AND 1995
________________________________________________________________________________
1. BASIS OF INTERIM PRESENTATION
The accompanying interim unaudited condensed consolidated financial
statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and the instructions
of Regulation S-X. Accordingly, they do not include all the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting of normal recurring adjustments) considered necessary for a fair
presentation have been included in the interim financial information.
For interim reporting, the Company's subsidiary, Home Innovations. Inc.
("HII") uses an estimated gross profit based on information provided by its
accounting and financial systems. At year-end, inventories of the Company
are stated at the lower of cost, determined using the first-in, first-out
(FIFO) method, or market.
The Company's business is seasonal in nature, with its highest sales levels
historically occurring in the third and fourth fiscal quarters, which
include the holiday selling season. Therefore, the results of operations
for the interim periods are not necessarily indicative of the operating
results of the full year.
2. ORGANIZATION
The accompanying interim consolidated financial statements as of June 30,
1996, include the accounts of Decorative Home Accents, Inc. ("DHA" or the
"Company") and its wholly-owned subsidiaries, The Rug Barn, Inc. and Home
Innovations, Inc. (purchased on July 13, 1995).
All significant intercompany transactions and accounts have been eliminated.
3. BALANCE SHEET COMPONENTS
Inventories are summarized as follows (in $000's):
<TABLE>
<CAPTION>
June 30, 1996 December 31, 1995
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<S> <C> <C>
Raw materials $21,076 $24,464
Work-in-process 2,257 973
Finished goods 22,074 18,276
------- -------
$45,407 $43,713
======= =======
</TABLE>
8
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DECORATIVE HOME ACCENTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED)
JUNE 30, 1996 AND 1995 (CONTINUED)
________________________________________________________________________________
Property, plant and equipment is summarized as follows (in $000's):
<TABLE>
<CAPTION>
June 30, 1996 December 31, 1995
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<S> <C> <C>
Land $ 863 $ 863
Buildings and improvements 15,491 15,384
Furniture and fixtures 4,747 3,184
Machinery and equipment 16,028 14,101
------- -------
37,129 33,532
Accumulated depreciation (5,417) (3,375)
------- -------
31,712 30,157
Construction in progress - 510
------- -------
$31,712 $30,667
======= =======
</TABLE>
9
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
INTRODUCTION
The following discussion provides management's assessment of the
results of operations and liquidity and capital resources of DHA and
should be read in conjunction with the respective financial statements
of DHA and the notes thereto included elsewhere in this Form 10-Q. The
following table includes unaudited proforma financial information as if
the July 1995 purchase of Home Innovations, Inc. ("HII") occurred as of
January 1, 1995. Such adjustments to the proforma financial
information consist principally of the following: net adjustments to
cost of goods sold and SG&A expenses related to adjusting depreciation
expense for the new basis of accounting resulting from the HII
acquisition; increases in SG&A expenses to account for the amortization
of goodwill and the identifiable intangible assets resulting from the
HII acquisition; increases in SG&A expenses to account for compensation
expense resulting from granting stock options at less than fair market
value; net adjustments to interest expense resulting from issuance of
13% Senior Notes due 2002 and extinguishment of prior debt,
amortization of debt issuance costs and accretion of discount on the
Senior Notes.
Management's discussion and analysis of the results of operations
should be read using the proforma financial information presented below:
<TABLE>
<CAPTION>
ACTUAL PROFORMA
Three Months Ended
------------------
June 30, June 30,
1996 1995
-------- --------
<S> <C> <C>
Sales $44,495 $47,568
Cost of goods sold 31,740 35,400
------- -------
Gross profit 12,755 12,168
Selling, general and administrative
expenses 11,919 13,919
------- -------
Income (loss) from operations 836 (1,751)
Interest expense, net (4,917) (4,594)
Gain on sale of equipment 0 175
Loss before income taxes $(4,081) $(6,170)
======= =======
<CAPTION>
ACTUAL PROFORMA
Six Months Ended
-----------------
June 30, June 30,
1996 1995
-------- --------
<S> <C> <C>
Sales $84,281 $100,280
Cost of goods sold 60,542 72,931
------- --------
Gross profit 23,739 27,349
Selling, general and administrative
expenses 23,770 25,379
------- --------
Income (loss) from operations (31) 1,970
Interest expense, net (9,522) (8,816)
Gain on sale of equipment 0 175
Loss before income taxes $(9,553) $ (6,671)
======= ========
</TABLE>
10
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IMPACT OF THE PURCHASE OF HOME INNOVATIONS, INC.
On July 13, 1995, DHA acquired HII, a leading manufacturer of niche oriented
home accessories with the following product categories: bath furnishings, window
and specialty products, bedding products and the Calvin Klein Home Collection,
a new line of designer home products launched in September 1995 under the Calvin
Klein trademark. The cash purchase price of HII was approximately $95.1
million, after a $6.7 million reduction to the purchase price, including
acquisition related costs of approximately $1.8 million and the assumption of
approximately $32.8 million in liabilities consisting of trade payables and
accruals and $2.3 million of junior subordinated notes. The $6.7 million
adjustment to the purchase price was determined as a result of the level of net
assets acquired as of the closing date and certain indemnifications from the
sellers. The $6.7 million was received from the sellers in December, 1995.
RESULTS OF OPERATIONS
As described above, the results of operations for the three months ended June
30, 1995 reflect proforma adjustments related to the merger agreement
discussed above.
Comparison of Results of Operations for the Three Months Ended June 30,
1996 (Actual) with the Proforma Results of Operations for the Three Months
Ended June 30, 1995 (with proforma adjustments as discussed above).
NET SALES
Net sales for three months ended June 30, 1996 decreased by $3.1 million, or
6.5% from $47.6 million of proforma net sales for the three months ended June
30, 1995 to $44.5 million for the three months ended June 30, 1996. Weak
consumer demand and conservative inventory management by retailers served by the
Company continued to negatively impact the June 30, 1996 quarter. While the
Company experienced some improvement in retail conditions compared to the fourth
quarter of 1995 and the first quarter of 1996, sales declined for the 1996
quarter compared to the same period in 1995. Additionally, 1996 second quarter
sales were negatively impacted by furniture cover sales. The Company is
significantly reducing its commitment to the furniture cover business because of
substantial return problems generally experienced by the industry. Sales of
Calvin Klein Home products positively impacted the quarter-to-quarter
comparison. Sales of Calvin Klein Home products commenced in the third quarter
of 1995.
GROSS PROFIT
The gross profit margin increased from a proforma of 25.6% for the three months
ended June 30, 1995 to 28.7% for the three months ended June 30 , 1996. The 1995
margin was negatively impacted by substantial write-downs of slow moving,
close-out and obsolete inventory. Plant operating strategies were changed in
1996 to help reduce the Company's exposure to inventory writedowns, particularly
in the cut-and-sew and print plants. The new operating strategy also contributed
to higher efficiencies in those plants. Gains from the plant operations and
inventory control were offset somewhat by a slight decline in giftware margins
resulting from a change in product mix. As the Company continues to broaden its
giftware product offerings to maximize its distribution strength, the margins
realized on certain products sourced through outside manufacturers will
continue to put some downward pressure on margins.
SELLING, GENERAL & ADMINISTRATIVE EXPENSES
SG&A expenses decreased $2.0 million or 14.4% from a proforma of $13.9 million
for the three months ended June 30, 1995 to $11.9 million for the three months
ended June 30, 1996. As a percentage of sales, SG&A expenses decreased from a
proforma of 29.3% for the three months ended June 30, 1995 to 26.8% for the
same period of 1996. The 1995 amount was negatively impacted by significant
charges recorded related to customer chargebacks and claims. Positively
impacting the 1996 results were the ongoing cost and headcount reduction
programs resulting from the July 1995 merger. Duplicate functions are being
eliminated and cost reductions achieved from consolidating certain functions and
services. Management of the Company expects
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the cost reduction programs to continue to favorably impact the second half of
1996 compared to 1995 expense levels. Negatively impacting the amounts of SG&A
expenses for 1995 and 1996 were the costs associated with Calvin Klein Home.
Advertising and overhead expenses associated with Calvin Klein Home, as a
percentage of sales, exceeded the level of the Company's mature businesses. This
investment in the growth of the Calvin Klein Home Line is part of the Company's
long-term plan and management of the Company expects that SG&A expenses as a
percentage of sales will continue to exceed its other mature businesses for the
next 12-24 months.
INTEREST EXPENSE, NET
Interest expense, net increased from a proforma of $4.6 million for the three
months ended June 30, 1995 to $4.9 million for the three months ended June 30,
1996. This increase was principally due to increased borrowings under the
Company's revolving line of credit during the second quarter of 1996.
RESULTS OF OPERATIONS
As described above, the results of operations for the six months ended June 30,
1995 reflect proforma adjustments related to the merger agreement
discussed above.
Comparison of Results of Operations for the Six Months Ended June 30, 1996
(Actual) with the Proforma Results of Operations for the Six Months
Ended June 30, 1995 (with proforma adjustments as discussed above).
NET SALES
Net sales for six months ended June 30, 1996 decreased by $16.0 million, or
16.0% from $100.3 million of proforma net sales for the six months ended June
30, 1995 to $84.3 million for the six months ended June 30, 1996. A soft retail
climate continued to negatively impact sales. While the most significant
decline was in furniture cover sales, all product lines and distribution
channels served by the Company were impacted. A modest improvement in retail
conditions was experienced by the Company in the second quarter ended June 30,
1996 compared to the fourth quarter of 1995 and the first quarter of 1996.
However, the improvement did not completely offset the negative impact of the
weak retail environment on 1996 sales. The decrease in furniture cover sales
was offset by sales of Calvin Klein Home products. Currently, management of
the Company expects full year sales for 1996 to be below 1995 levels as a result
of the difficult retail climate.
GROSS PROFIT
The gross profit margin increased from a proforma of 27.3% for the six months
ended June 30, 1995 to 28.2% for the six months ended June 30 , 1996. The
improvement in the 1996 period is attributable primarily to higher plant
efficiencies and stronger controls over inventory. The 1995 proforma gross
profit margin reflects the effect of substantial efficiency losses in the
Company's cut-and- sew and print plants. Additionally, the Company recorded
substantial inventory writedowns in the 1995 period. Gross margins for the six
months ended June 30, 1996 were negatively impacted by some declines in the
giftware trade margins. As the Company continues to broaden its giftware product
offerings to maximize its distribution strength, the margins realized on certain
products sourced through outside manufacturers will continue to put some
downward pressure on margins.
SELLING, GENERAL & ADMINISTRATIVE EXPENSES
SG&A expenses decreased $1.6 million or 6.3% from a proforma of $25.4 million
for the six months ended June 30, 1995 to $23.8 million for the six months
ended June 30, 1996. As a percentage of sales, SG&A expenses increased to 28.2%
for the six months ended June 30, 1996 from a proforma of 25.3% for the same
period of 1995. The increase in SG&A expenses, as a
12
<PAGE> 13
percentage of sales, resulted from the fixed nature of many of the Company's
SG&A costs, particularly salaries and benefits and the reduced sales for six
months ending June 30, 1996. From an absolute dollar standpoint, the 1995
results were negatively impacted by uncollectible accounts charges resulting
from customer chargebacks and claims. Additionally, substantial expenditures
related to the September, 1995 launch of the Calvin Klein Home Line negatively
impacted SG&A expenses for the first half of 1995. The negative impact on SG&A
expenses continued, to a lesser extent, as advertising and overhead expenses
related to the new Calvin Klein Home Line continued in 1996. As a percentage of
sales, the SG&A expenses associated with the Calvin Klein Home Line exceeded
those of the Company's mature businesses. This investment in the growth of the
Calvin Klein Home is part of the Company's long-term plan and management of the
Company expects that SG&A expense as a percentage of sales will continue to
exceed its other mature businesses for the next 12-24 months. Favorably
impacting the 1996 results was the on-going cost and headcount reduction
programs resulting from the July, 1995 acquisition of Home Innovations.
Integration of certain overhead functions as well as the elimination of
duplicative headcount began to positively impact the Company's result for the
second quarter of 1996. Management of the Company expects that SG&A expenses
will continue to be favorably impacted from these programs for the balance of
1996.
INTEREST EXPENSE, NET
Interest expense, net increased from a proforma of $8.8 million for the three
months ended June 30, 1995 to $9.6 million for the three months ended June 30,
1996. This increase was principally due to increased borrowings under the
Company's revolving line of credit during the first six months of 1996.
INCOME TAXES
The Company has recognized an income tax benefit arising from the
year-to-date loss. The Company has not provided a valuation allowance on the
related deferred tax asset. Management of the Company currently believes that
the deferred tax asset reported in the June 30, 1996 Balance Sheet will be
fully realized in the foreseeable future.
SEASONALITY
The Company's business is seasonal in nature with its highest sales levels
historically occurring during the third and fourth fiscal quarters, which
includes the holiday selling season.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity for operations and expansion have
historically been funds generated internally and borrowings under the
Company's $50.0 million revolving credit facility. Available borrowings under
the credit facility are based on specified levels of underlying collateral. As
of June 30, 1996, the Company had approximately $10.9 million available under
the revolving credit facility described above (net of $18.7 million of
outstanding borrowings and $2.6 million in outstanding letters of credit). The
Company intends to utilize borrowings under the revolving credit facility to
meet seasonal fluctuations in the Company's working capital requirements,
typically peaking in early October, and to fund the anticipated build up of
inventory relating to the continuing rollout of the Calvin Klein Home line of
products. Management believes the Calvin Klein Home line of products have
increased the Company's working capital needs in 1996 by approximately $8 to
$12 million from 1995 levels. Management believes that the working capital
requirements related to Calvin Klein in 1996 peaked in April 1996. Management
believes that the Company's cash flow from operations and borrowing under the
revolving credit facility will be sufficient to fund the Calvin Klein Home
requirements. The obligations under the revolving credit facility are secured
by a first lien on the inventory and receivables of The Rug Barn, Inc. and Home
Innovations, Inc. and its subsidiaries. The revolving credit facility contains
certain financial and other covenants with which the Company must comply,
including, but not limited to a requirement to maintain certain financial
ratios and limitations on the ability of Rug Barn and Home Innovations to incur
additional indebtedness and pay dividends. The Company was in compliance with
the loan covenants, as amended, at June 30, 1996.
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<PAGE> 14
Cash flows used in operating activities were approximately $8.1 million for the
six months ended June 30, 1996. In addition to the Company's net loss, cash
used for the six month period ended June 30, 1996 was driven by an additional
investment of $1.7 million in inventory as well as reductions in trade payables
and accruals totaling $4.2 million. Additionally, other current assets
increased by approximately $2.0 million primarily as a result of prepaid
catalog costs associated with new product roll-outs. The incremental inventory
investment related almost entirely to the new Calvin Klein Home Line. Excluding
investment made in Calvin Klein inventory, the Company's inventory investment
decreased by approximately $6 million or 14%, from December 31, 1995 amounts.
The Company's cash from operations for the six months ended June 30, 1996 was
positively impacted by a $2.4 million reduction in receivables resulting from
increased emphasis on collections.
Capital expenditures for the six month period ended June 30, 1996
approximated $1.9 million. The Company currently has no material commitments
for capital expenditures.
Borrowings under the Company's line of credit increased by approximately
$13.7 million during the six months ended June 30, 1996. Additionally, the
Company paid dividends totaling $1.75 million on its redeemable preferred stock
in January, 1996. During the balance of 1996, the Company expects that
dividends will be paid in kind rather than in cash.
Management expects that the Company's cash flow from operations and borrowings
under the revolving credit facility, as required, will be adequate to finance
anticipated operation needs, planned capital expenditures and to meet
its debt service obligations in 1996.
INFLATION
Although the operations of the Company are generally influenced by economic
conditions, the Company does not believe that inflation had a material effect
on the results of operations during the six months ended June 30, 1996 and
1995. The Company has been historically able to mitigate the impact of the
increases in the spot market prices of cotton through fixed price purchase
contracts.
EFFECT OF COMPLIANCE WITH ENVIRONMENTAL PROTECTION PROVISIONS
Compliance with Federal, State and local provisions that have been enacted or
adopted regulating the discharge of materials in the environment, or otherwise
relating to protection of the environment, has not had, and is not expected to
have, a material adverse effect on the capital expenditures, net income or
competitive position of the Company.
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The statements contained in this Item 2 (Management's Discussion and Analysis
of Financial Condition and Results of Operations) that are not historical facts
are forward-looking statements subject to the safe harbor created by the
Private Securities Litigation Reform Act of 1995. The Company cautions readers
of this Quarterly Report on Form 10-Q that a number of important factors could
cause the Company's actual results in 1996 and beyond to differ materially from
those expressed in any such forward-looking statements. These factors include,
without limitation, the general economic and business conditions affecting the
retail industry, the Company's ability to meet its debt service obligations,
contractual restrictions on HII's and the Rug Barn's ability to pay dividends
to the Company, competition from a variety of firms ranging from small
manufacturers to large textile mills, the seasonality of the Company's sales,
the volatility of the Company's raw material cost, the Company's dependence on
key personnel and the risk of loss of a material customer or a significant
license. These and other factors are more fully described in the Company's
previous filings with the Securities and Exchange Commission including, without
limitation, the Company's Prospectus dated November 10, 1995.
14
<PAGE> 15
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is involved in various routine legal proceedings incidental to the
conduct of its business. Management believes that none of these legal
proceedings will have a material adverse impact on the financial condition or
results of operations of the Company.
ITEM 2. CHANGES IN SECURITIES None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None
ITEM 5. OTHER INFORMATION None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
SEE EXHIBIT INDEX.
(b) REPORTS ON FORM 8-K
NONE
15
<PAGE> 16
SIGNATURES
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.
Decorative Home Accents, Inc.
---------------------------------
(Registrant)
Date: August 12, 1996
---------------------------------
Jay N. Baker*
Chief Financial Officer
*Duly authorized to sign on behalf of the Registrant.
16
<PAGE> 17
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
4.6 Form of Fourth Amendment to the Amended and Restated
Credit Agreement, dated as of July 13, 1995, by among
LaSalle National Bank, as co-agent and lender, General
Electric Capital Corporation, as co- agent and lender,
the Rug Barn, Inc., Home Innovations, Inc., Home
Curtain Corp., Calvin Klein Home, Inc., Draymore Mfg.
Corp. and R.A. Briggs and Company, as amended by the
First Amendment, dated as of November 17, 1995, by the
Second Amendment, dated as of December 31, 1995 and by
the Third Amendment dated as of March 31, 1996 .
27 Financial data schedule
17
<PAGE> 1
EXHIBIT 4.6
FOURTH AMENDMENT TO
AMENDED AND RESTATED CREDIT AGREEMENT
This FOURTH AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT (this
"AMENDMENT") is dated as of August __, 1996 by and among The Rug Barn, Inc., a
South Carolina corporation ("RUG BARN"), Home Innovations, Inc., a Delaware
corporation ("HII"), Calvin Klein Home, Inc., a Delaware corporation ("CALVIN
KLEIN"), Draymore Mfg. Corp., a North Carolina corporation ("DRAYMORE"), R.A.
Briggs and Company, an Illinois corporation ("R.A. BRIGGS") (each of Rug Barn,
HII, Calvin Klein, Draymore and R.A. Briggs a "BORROWER" and collectively the
"BORROWERS"), LaSalle National Bank, as Agent and Lender, and General Electric
Capital Corporation, as Co-Agent and Lender. All capitalized terms used but
not otherwise defined herein shall have the meanings ascribed thereto in the
Credit Agreement (as hereinafter defined).
WITNESSETH
WHEREAS, Rug Barn, Home Innovations, Inc., a Delaware corporation, Home
Curtain Corp., a New York corporation, Calvin Klein, Draymore and R.A. Briggs,
the Agent, the Co-Agent and the Lenders have entered into that certain Amended
and Restated Credit Agreement dated as of July 13, 1995, as amended by the
First Amendment to Amended and Restated Credit Agreement dated as of November
17, 1995, by the Second Amendment to Amended and Restated Credit Agreement
dated as of December 31, 1995 (the "Second Amendment") and by the Third
Amendment to Amended and Restated Credit Agreement dated as of March 31, 1996
(the "Third Amendment") (as the same may hereafter be further amended,
supplemented or otherwise modified, the "CREDIT AGREEMENT"); and
WHEREAS, the Lenders are willing to amend the Credit Agreement as herein
set forth, to, among other things, modify the financial covenants, all on the
terms and conditions set forth herein;
NOW THEREFORE, in consideration of the premises herein and other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the Borrowers hereby agree with the Agent, the Co-Agent and the
Lenders as follows:
Section 1. Amendments to the Credit Agreement. The parties hereto agree
that the Credit Agreement is amended as follows:
A. Exhibit B to the Credit Agreement is hereby amended and replaced
in its entirety with the form attached to this Amendment as Exhibit 1.
B. Section 1.5(a) of the Credit Agreement is hereby amended and
replaced in its entirety with the following:
" (a) Effective as of July __, 1996, Borrowers shall pay
interest to Agent, for the ratable benefit of Lenders in
accordance with the
<PAGE> 2
various Loans being made by each Lender, in arrears on each
applicable Interest Payment Date, at a per annum rate equal
to the Index Rate plus one-half percent (0.5%), based on the
amounts outstanding from time to time under the Revolving
Credit Loan."
C. Subsection (i) of Section 1.8(b) of the Credit Agreement is
hereby amended and replaced in its entirety with the following:
" (i) in arrears, on the first Business Day of each
quarter prior to the Commitment Termination Date and on
the Commitment Termination Date, a fee for Borrowers'
non-use of available funds (the "Non-use Fee") in an
amount equal to one-quarter of one percent (0.25%) per
annum (calculated on the basis of a 360 day year for
actual days elapsed) of the difference between (i)
$50,000,000 and (ii) the respective daily averages of
the amount of the Revolving Credit Loan outstanding
during the period for which the Non-use Fee is due,
and"
D. Subsection (a) of Schedule I to the Credit Agreement is hereby
amended and replaced in its entirety with the following:
" (a) Maximum Total Liabilities Coverage Ratio. Holdings and
each of its Subsidiaries on a consolidated basis shall have
at the end of each Fiscal Quarter after the Closing Date, a
Total Liabilities Coverage Ratio for the 12-month period then
ended (or with the Fiscal Quarters ending on or before June
30, 1996, the period from the Closing Date to the last day of
such Fiscal Quarter) of not greater than 6.5 to 1.0 for the
Fiscal Quarters ending before (but not including the Fiscal
Quarter ending on) December 31, 1995 or after (but not
including the Fiscal Quarter ending on) June 30, 1996;
provided, however, that for each Fiscal Quarter ending on or
before June 30, 1996, the calculation of EBITDA of Holdings
used in determining the Total Liabilities Coverage Ratio for
the period from the Closing Date through such Fiscal Quarter
end shall be made by taking the actual amount of EBITDA
("ACTUAL EBITDA") that would otherwise be calculated for such
period in accordance with the Agreement and (i) dividing such
Actual EBITDA by the number of days in the period then being
tested and then (ii) multiplying such product in clause (i)
by 365."
E. The first sentence of subsection (b) of Schedule I to the Credit
Agreement is hereby amended and replaced in its entirety with the
following sentence:
"Holdings and its Subsidiaries shall have on a consolidated
basis at the end of each Fiscal Quarter beginning with June
30, 1995, a Debt Service Coverage Ratio for the 12-month
period then ended of not less
-2-
<PAGE> 3
than 1.15 to 1.0 for the Fiscal Quarters ending before
September 30, 1995, 1.05 to 1.0 for the Fiscal Quarter ending
on September 30, 1995, 1.0 to 1.0 for the Fiscal Quarter
ending on December 31, 1995 and 1.25 to 1.0 for the Fiscal
Quarters ending after (but not including the Fiscal Quarter
ending on) June 30, 1996; provided, however, that
notwithstanding anything to the contrary herein, this
paragraph (b) shall not directly or indirectly prohibit
Holdings from paying in cash the interest due on the Senior
Notes and the dividends due on the Preferred Stock in
January, 1996, if the Debt Service Coverage Ratio for the
trailing 12 month period ending on September 30, 1995 is not
less than 1.15 to 1.0; provided, further, that for Fiscal
Quarters ending on or before June 30, 1996 the Debt Service
Coverage Ratio shall be calculated using historical EBITDA
before the Closing Date of Holdings and Borrowers (on a
consolidated basis) to the extent necessary to complete a
twelve month period, and Debt Service shall be calculated
assuming (i) for all periods prior to the Closing Date, the
Senior Notes, Preferred Stock, Subordinated Notes and
Revolving Credit Facility (with debt service calculated as
described in the next sentence) were the only Indebtedness
and Preferred Stock outstanding during such periods (ii) that
the Subordinated Debt and Senior Notes accrued interest in
accordance with their terms during such periods; (iii) that
cash dividends on the Preferred Stock were paid in full
during each Fiscal Quarter of such period, and (iv) that no
Revolving Credit Loans were outstanding on June 30, 1995, and
for each Fiscal Quarter end thereafter for purposes of
calculating Debt Service on the Revolving Credit Facility,
Interest Expenses actually incurred by Borrowers subsequent
to the Closing Date shall be annualized as if such Interest
Expenses had been incurred during such period."
F. Subsection 6.14(b)(iii) of the Credit Agreement is hereby amended
and replaced in its entirety as follows:
" (iii) to pay equal monthly installments in advance of the
management fee ("Management Fee") then due under the
Management Agreement in a per annum amount not in excess of
$375,000; provided, however, that all amounts due under such
Management Agreement may continue to accrue for any part of
the Management Fee which is not otherwise paid; provided
further, that if Borrowers are prohibited from paying all or
any portion of such $375,000 of the Management Fee due to the
existence of a Default or Event of Default, the Borrowers
may pay any accrued portion of such $375,000 of the
Management Fee at such time in the future as no Default or
Event of Default then exists and is continuing or would
result from such payment;"
G. Subsection (c) of Schedule I to the Credit Agreement is hereby
deleted.
-3-
<PAGE> 4
H. Subsection (a) of Schedule J to the Credit Agreement is hereby
amended and replaced in its entirety with the following:
" (a) If to Agent or LaSalle, at
LaSalle National Bank
135 South LaSalle Street
Chicago, Illinois 60603
Attention: Charles E. Schroeder, Jr.
Telecopier No.: (312) 904-4364
Telephone No.: (312) 904-5415
with a copy to:
Goldberg, Kohn, Bell, Black,
Rosenbloom & Moritz, Ltd.
55 East Monroe Street, Suite 3700
Chicago, Illinois 60603
Attention: Douglas P. Taber
Telecopier No.: (312) 332-2196
Telephone No.: (312) 201-3930"
I. Subsection (b) of Schedule J to the Credit Agreement is hereby
amended and replaced in its entirety with the following:
" (b) If to Lender (copies should also be sent
in accordance with paragraph (a) above)
General Electric Capital Corporation
105 West Madison Street - Suite 1600
Chicago, Illinois 60602
Attention: Decorative Home Accents Account
Manager
Telecopier No.: (312) 419-5992
Telephone No.: (312) 419-0985
with a copy to:
General Electric Capital Corporation
201 High Ridge Road
Stamford, Connecticut 06927
Attention: Corporate Counsel
Telecopier No.: (203) 316-7889
Telephone No.: (203) 316-7500"
-4-
<PAGE> 5
Section 2. Covenant Modification Fee. In order to induce the Agent,
the Co-Agent and the Lenders to enter into this Amendment and to amend the
Credit Agreement in the manner set forth in subsections E AND F of Section 1 of
this Amendment, the Borrowers shall pay to Agent, on behalf of Lenders, a
covenant modification fee of $25,000.
Section 3. Borrowers' Representations and Warranties. In order to induce
the Agent, the Co-Agent and the Lenders to enter into this Amendment and to
amend the Credit Agreement in the manner provided herein, the Borrowers
represent and warrant to the Agent, the Co-Agent and the Lenders that the
following statements are true, correct and complete:
A. Corporate Power and Authority. The Borrowers have all requisite
corporate power and authority to enter into this Amendment, and to carry
out the transactions contemplated by, and to perform their obligations
under, the Credit Agreement as amended by this Amendment (the "AMENDED
AGREEMENT").
B. Authorization of Agreements. The execution, delivery and
performance of this Amendment, and the performance of the Amended
Agreement have been duly authorized by all necessary corporate action by
the Borrowers.
C. No Conflict. The execution, delivery and performance by the
Borrowers of this Amendment, and the performance by the Borrowers of the
Amended Agreement do not and will not (i) violate any provision of any
law, rule or regulation applicable to the Borrowers or Holdings, the
Certificate or Articles of Incorporation or Bylaws of the Borrowers or
Holdings or any order, judgment or decree of any court or other agency or
government binding on any Borrower or Holdings, (ii) conflict with,
result in a breach of or constitute (with due notice or lapse of time or
both) a default under any contract, agreement, mortgage or obligation of
any Borrower or Holdings except where the Borrowers or Holdings, as the
case may be, shall have obtained waivers or consents from the other
parties to such agreements and disclosed the same to the Agent, (iii)
result in or require the creation or imposition of any lien upon any of
the Borrowers' or Holdings' properties or assets (other than Permitted
Encumbrances) or (iv) require any approval of stockholders or any
approval or consent of any Person under any contract, agreement, mortgage
or obligation to which any Borrower or Holdings is a party (or by which
its assets or properties are bound) except for the approvals or consents
which will be obtained on or before the date hereof and disclosed in
writing to the Agent.
D. Governmental Consents. The execution, delivery and performance
by the Borrowers of this Amendment, and the performance by the Borrowers
of the Amended Agreement do not and will not require any registration
with, consent or approval of, or notice to, or other action to, with or
by, any Federal, state or other governmental authority or regulatory body
or other governmental Person.
E. Binding Obligation. This Amendment and the Amended Agreement are
legally valid and binding obligations of the Borrowers, enforceable
against the
-5-
<PAGE> 6
Borrowers in accordance with their respective terms except as enforcement
may be limited by bankruptcy, insolvency, reorganization, moratorium or
similar laws now or hereafter in effect relating to or limiting
creditors' rights generally or general principles of equity, whether such
enforceability is considered in a proceeding in equity or at law, and
subject to the discretion of the court before which any proceeding
therefor may be brought.
F. Incorporation of Representations and Warranties From Credit
Agreement. The representations and warranties contained in Section 3 of
the Amended Agreement are and will be true, correct and complete in all
material respects on and as of the effective date of this Amendment to
the same extent as though made on and as of that date, except to the
extent that such representations and warranties specifically relate to an
earlier date, in which case they are true, correct and complete in all
material respects as of such earlier date.
G. Absence of Default. No event has occurred and is continuing or
will result after giving effect to the consummation of the transactions
contemplated by this Amendment which would constitute a Default or an
Event of Default.
H. Accuracy of Information. All factual information heretofore or
contemporaneously furnished by or on behalf of Borrowers to the Agent,
the Co-Agent or any Lender for purposes of or in connection with this
Amendment or any transaction contemplated hereby is true, complete and
accurate in every material respect on the date as of which such
information is dated or certified and as of the date of execution and
delivery of this Amendment by the Agent and the Lenders and such
information is not incomplete by omitting to state any material fact
necessary to make such information not misleading.
I. Material Adverse Change. Except as disclosed in the financial
statements that have heretofore been delivered to Agent, the Co-Agent and
the Lenders, there has been no material adverse change in the business,
assets, operations, operating properties, prospects or financial or other
condition of the Borrowers since the Closing Date.
Section 4. Borrowing Base Amendment. The parties hereto agree that the
results and recommendations of the certain field audit completed on March 7,
1996 indicate the need and desirability of an additional field audit to assist
Agent and Co-Agent in determining whether any revisions are necessary with
respect to the method of calculation of the Borrowing Base, including but not
limited to revisions with respect to: (a) the definition of "BORROWING BASE"
set forth in Schedule A to the Credit Agreement, (b) the definition of
"ELIGIBLE ACCOUNT" set forth in Schedule C to the Credit Agreement, (c) the
definition of "ELIGIBLE INVENTORY" set forth in Schedule D to the Credit
Agreement and (d) Exhibit B to the Credit Agreement. Borrowers hereby agree
that Agent and Co-Agent's determination to establish a reserve of $2,000,000
against the Borrowing Base pending completion of an
-6-
<PAGE> 7
additional field audit is a reasonable and appropriate exercise of Agent and
Co-Agent's rights under Section 9.10(g) of the Credit Agreement.
Notwithstanding the determination of Agent and Co-Agent not to make further
revisions with respect to the method of calculation of Borrowing Base at the
present time as a result of the March 7, 1996 field audit, Agent and Co-Agent
shall retain all of their respective rights at any time hereafter to make
determinations with respect to the calculation of the Borrowing Base and any
reserves applicable thereto, as well as their respective rights to make
determinations as to which Accounts and Inventory should be included as
Eligible Accounts and Eligible Inventory, in accordance with the terms and
provisions of the Credit Agreement. Notwithstanding any prior failure of all
parties to this Agreement to either execute an amendment to the Credit
Agreement setting forth revisions to the method of calculation of the Borrowing
Base or to acknowledge in writing that no revisions were necessary with respect
to the method of calculation of the Borrowing Base, the Second Amendment and
Third Amendment have been and will remain in full force and effect, except to
the extent specifically amended by this Amendment or hereafter specifically
amended.
Section 5. Conditions to Effectiveness. This Amendment shall become
effective only upon the satisfaction of all of the following conditions
precedent on the date hereof:
A. Amendment. Fully executed copies of this Amendment signed by the
Borrowers, each Lender, the Agent and the Co-Agent shall have been
delivered to the Agent.
B. Payment of Covenant Modification Fee. Payment by Borrowers to
Agent, on behalf of Lenders, of the covenant modification fee specified
in Section 2 of this Amendment shall have been made.
C. Opinion of Borrowers' Counsel. The Agent shall have received an
opinion of the Borrowers' counsel in form and substance satisfactory to
the Agent and its counsel covering, without limitations, (i) the due
incorporation, valid existence, good standing and corporate power and
authority to conduct business of Holdings, (ii) each Borrower's due
incorporation, valid existence and good standing, corporate power and
authority to conduct business, due authorization, execution and delivery
of this Amendment, (iii) enforceability of this Amendment and (iv) no
conflicts with laws generally or Holding's or each Borrower's certificate
or articles of incorporation, by-laws and other material contracts.
D. Other Documents. The Agent shall have received copies of such
other documents as the Agent may reasonably request.
Section 6. Miscellaneous.
A. Effect upon the Credit Agreement. Except as specifically amended
hereunder, the Loan Documents shall remain in full force and effect and
are hereby ratified and confirmed. The execution, delivery and
effectiveness of this Amendment
-7-
<PAGE> 8
shall not operate as a waiver of any right, power or remedy of the Agent
or any Lender under any Loan Document, nor constitute a waiver of any
provision of any Loan Document or any Default or Event of Default.
B. Section Headings. All section headings are inserted for
convenience of reference only and shall not affect any construction or
interpretation of this Amendment or the Amended Agreement.
C. Execution in Counterparts. This Amendment may be executed in any
number of counterparts and by different parties in separate counterparts,
each of which when so executed and delivered shall be deemed to be an
original, but all of which taken together shall constitute one and the
same agreement.
D. GOVERNING LAW. THIS AMENDMENT SHALL BE CONSTRUED IN ACCORDANCE
WITH AND GOVERNED BY THE INTERNAL LAWS, AS OPPOSED TO THE CONFLICT OF
LAWS PROVISIONS, AND DECISIONS OF THE STATE OF ILLINOIS. This Amendment
and the other Loan Documents constitute the entire understanding among
the parties hereto with respect to the subject matter hereof and
supersede any prior agreements, written or oral, with respect thereto.
E. Severability. Whenever possible, each provision of this
Amendment shall be interpreted in such a manner as to be effective and
valid under applicable law, but if any provision of this Amendment shall
be prohibited by or invalid under applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of such provisions or the remaining provisions
of this Amendment or the Amended Agreement.
F. Binding Agreement. This Amendment shall be binding upon the
Borrowers, the Agent, the Co-Agent and the Lenders and their respective
successors and assigns, and shall inure to the benefit of the Borrowers,
the Agent, the Co-Agent and each Lender and the successors and assigns of
the Borrowers, the Agent, the Co-Agent and the Lenders.
G. JURY TRIAL WAIVER. THE BORROWERS, THE AGENT, THE CO-AGENT AND
THE LENDERS HEREBY WAIVE ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR
PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS AMENDMENT, THE LOAN
DOCUMENTS OR UNDER ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT
DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH
OR ARISING FROM ANY LENDING RELATIONSHIP EXISTING IN CONNECTION WITH THIS
AMENDMENT OR ANY LOAN DOCUMENT, AND AGREE THAT ANY SUCH ACTION OR
PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.
-8-
<PAGE> 9
H. Costs, Expenses and Taxes. As provided in Section 11.3 of the
Credit Agreement, the Borrowers agree to pay on demand all fees, costs
and expenses incurred by the Agent, the Co-Agent and the Lenders in
connection with the preparation, execution and delivery of this Amendment
(including, without limitation, all attorneys fees). In addition, the
Borrowers shall pay any and all stamp and other taxes and fees payable or
determined to be payable in connection with the execution and delivery of
this Amendment and agree to hold the Agent and the Lenders harmless from
and against any and all liabilities with respect to or resulting from any
delay in paying or omission to pay such taxes or fees.
I. Reaffirmation of Guaranty. Each of the Borrowers as a guarantor
under Section 12 of the Credit Agreement hereby (i) acknowledges and
reaffirms all of its obligations and undertakings under the guaranty
under Section 12 of the Credit Agreement, and (ii) acknowledges and
agrees that subsequent to, and taking into account this Amendment, the
guaranty under Section 12 of the Credit Agreement is and shall remain in
full force and effect in accordance with the terms thereof.
J. Releases. In further consideration of the execution of this
Amendment by the Agent, the Co-Agent and the Lenders, the Borrowers and
Holdings hereby release the Agent, the Co-Agent and the Lenders and all
current and future holders of assignments of or participations in the
Obligations and their respective affiliates, officers, employees,
directors, agents and attorneys (collectively, the "RELEASEES") from any
and all claims, demands, liabilities, responsibilities, disputes, causes
of action (whether at law or in equity) and obligations of every nature
whatsoever, whether liquidated or unliquidated, known or unknown, matured
or unmatured, fixed or contingent (collectively, "CLAIMS") that any
Borrower or Holdings may have against the Releasees which arise from or
relate to any actions which the Releasees may have taken or omitted to
take on or prior to the date hereof with respect to the Obligations, any
Collateral, the Credit Agreement, any other Loan Document and any third
parties liable in whole or in part for the Obligations. For purposes of
the release contained in this paragraph, the term "BORROWERS" and
"HOLDINGS" shall mean and include the Borrowers, Holdings and their
successors and assigns, including, without limitation, any trustees
acting on behalf of such parties and any debtor-in-possession in respect
of any such party.
[SIGNATURE PAGES FOLLOW]
-9-
<PAGE> 10
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered by their duly authorized officers on the date first
above written.
BORROWERS: HOME INNOVATIONS, INC.
By
-------------------------------------
Title
----------------------------------
THE RUG BARN, INC.
By
-------------------------------------
Title
----------------------------------
DRAYMORE MFG. CORP.
By
-------------------------------------
Title
----------------------------------
CALVIN KLEIN HOME, INC.
By
-------------------------------------
Title
----------------------------------
R.A. BRIGGS AND COMPANY
By
-------------------------------------
Title
----------------------------------
LENDERS: LASALLE NATIONAL BANK,
as Agent and Lender
By
-------------------------------------
Title
----------------------------------
GENERAL ELECTRIC CAPITAL
CORPORATION, as Co-Agent and Lender
By
-------------------------------------
Title
----------------------------------
ACKNOWLEDGED AND AGREED TO
DECORATIVE HOME ACCENTS, INC.
By
-------------------------------------
Title
----------------------------------
<PAGE> 11
EXHIBIT 1
(FORM OF BORROWING BASE CERTIFICATE)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF DECORATIVE HOME ACCENTS, INC. FOR THE THREE MONTHS
ENDED JUNE 30, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> MAR-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 0
<SECURITIES> 1,000
<RECEIVABLES> 26,535
<ALLOWANCES> 2,112
<INVENTORY> 45,407
<CURRENT-ASSETS> 81,251
<PP&E> 31,712
<DEPRECIATION> (5,417)
<TOTAL-ASSETS> 217,295
<CURRENT-LIABILITIES> 28,165
<BONDS> 0
45,188
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 217,295
<SALES> 44,495
<TOTAL-REVENUES> 44,495
<CGS> 31,740
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (4,917)
<INCOME-PRETAX> (4,081)
<INCOME-TAX> (1,347)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,734)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
