UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File
For Quarter Ended September 30, 1999 Number 0-9209
------------------------ -------
RIVERSIDE GROUP, INC.
(Exact name of registrant as specified in its charter)
Florida 59-1144172
- ------------------------------- ---------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7800 Belfort Parkway, Jacksonville, Florida 32256
- ------------------------------------------- ------
(Address of principal executive Offices) (Zip Code)
Registrant's telephone number, including area code number
904-281-2200
------------
Indicate by a 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, and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----
On November 10, 1999, there were 4,767,123 shares of the Registrant's common
stock outstanding.
<PAGE>
RIVERSIDE GROUP, INC.
INDEX
<TABLE>
<CAPTION>
Page
PART I. FINANCIAL INFORMATION Number
------
<S> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
September 30, 1999 (Unaudited)
And December 31, 1998 3
Condensed Consolidated Statements
of Operations
Three and Nine months ended
September 30, 1999 and 1998 (Unaudited) 4
Condensed Consolidated Statement
of Common Stockholders' Equity
Nine months ended
September 30, 1999 (Unaudited) 5
Condensed Consolidated Statements of
Cash Flows
Nine months ended
September 30, 1999 and 1998 (Unaudited) 6
Notes to Condensed Consolidated
Financial Statements (Unaudited) 7
Item 2. Management's Discussion and Analysis 16
of Financial Condition and Results of
Operations
PART II.
Item 2. Changes in Securities 31
Item 5. Other Information 31
Item 6. Exhibits and Reports on Form 8-K 31
</TABLE>
2
<PAGE>
Riverside Group, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(unaudited)
(in thousands except per share amounts)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
--------------- ---------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,040 $ 509
Accounts receivable, less allowance for doubtful
accounts of $462 at 1999 and $337 at 1998 253 246
Notes receivable 30 197
Inventory 124 1
Prepaid expenses 91 46
---------- -----------
Total current assets 1,538 999
Investment in Wickes Inc. 15,502 14,995
Investment in real estate 9,591 9,667
Property, plant and equipment, net 509 402
Other assets (net of accumulated amortization of
$906 at 1999 and $796 at 1998) 368 339
---------- ----------
Total assets $ 27,508 $ 26,402
========== ==========
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Current debt and current maturities of long-term debt $ 15,505 $ 10,356
Accounts payable 928 223
Accrued liabilities 2,447 1,377
Deferred revenue 36 112
---------- ----------
Total current liabilities 18,916 12,068
Long-term debt 201 415
Mortgage debt 11,345 11,345
Net liabilities of discontinued operations 21 22
Other long-term liabilities 84 184
---------- ----------
Total liabilities 30,567 24,034
Commitments and contingencies (Note 3 )
Common stockholders' equity :
Common stock, $.10 par value; 20,000,000 shares authorized; 529 529
5,287,123 issued and outstanding in 1999 and 1998
Additional paid in capital 16,838 16,838
Retained earnings (deficit) (20,426) (14,999)
---------- ----------
Total common stockholders' equity (3,059) 2,368
---------- ----------
Total liabilities and common stockholders' equity $ 27,508 $ 26,402
========== ==========
See Accompanying Notes to Condensed Consolidated Financial Statements.
3
</TABLE>
<PAGE>
Riverside Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(unaudited)
(in thousands except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Sept 30, Nine Months Ended Sept 30,
--------------------------- ---------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues:
Sales and service revenues $ 518 $ 261,389 $ 1,269 $ 667,558
Net investment income (loss) 17 (36) (19) (87)
Net realized investment gains (losses) 18 (1,560) 18 (1,123)
Other operating income (5) 1,285 44 5,463
---------- ---------- ---------- ----------
548 261,078 1,312 671,811
---------- ---------- ---------- ----------
Costs and expenses:
Cost of sales 236 200,128 454 509,191
Provision for doubtful accounts 120 538 124 1,740
Depreciation, goodwill and trademark amortization 145 1,453 299 4,324
Restructuring and unusual items -- 501 -- 5,932
Selling, general and administrative expenses 2,245 50,257 5,561 139,093
Interest expense 691 6,338 1,994 18,598
---------- ---------- ---------- ----------
3,437 259,215 8,432 678,878
---------- ---------- ---------- ----------
Earnings (loss) before income taxes, equity in earnings of
related parties, and minority interest: (2,889) 1,863 (7,120) (7,067)
Income tax expense -- 2,051 -- 421
Equity in earnings of Wickes, Inc. (1,840) -- (1,693) --
Minority interest, net of income taxes -- 1,386 -- (542)
---------- ---------- ----------- ----------
Net loss $ (1,049) $ (1,574) $ (5,427) $ (6,946)
========== ========== =========== ==========
Basic and diluted loss per common share:
Loss from continuing operations $ (0.20) $ (0.30) $ (1.04) $ (1.33)
Weighted average number of common shares
used in computing earnings per share 5,213,186 5,227,571 5,213,186 5,227,571
See Accompanying Notes to Condensed Consolidated Financial Statements.
4
</TABLE>
<PAGE>
Riverside Group, Inc. and Subsidiaries
Condensed Consolidated Statement of Common Stockholder's Equity
(unaudited)
(in thousands)
<TABLE>
<CAPTION>
Total
Additional Retained Common
Common Paid-In Earnings Stockholders'
Stock Capital (Deficit) Equity
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Balance, December 31, 1998 $ 529 $ 16,838 $ (14,999) $ 2,368
Net loss, nine months ended September 30, 1999 -- -- (5,427) (5,427)
---------- ---------- ----------- -----------
Balance, September 30, 1999 $ 529 $ 16,838 $ (20,426) $ (3,059)
========== ========== =========== ===========
</TABLE>
See Accompanying Notes to Condensed Consolidated Financial Statements.
5
<PAGE>
Riverside Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(unaudited)
(in thousands)
<TABLE>
<CAPTION>
Nine Months Ended Sept 30
-------------------------
Cash Flow from Operating Activities 1999 1998
<S> <C> <C>
---------- ----------
Net loss $ (5,427) $ (6,946)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation expense 196 3,597
Amortization expense 363 1,854
Amortization of bond discount 173 149
Provision for doubtful accounts 124 1,780
Gain on sale of fixed assets --- (1,574)
Net realized investment (gains) losses (17) 1,123
Benefit for deferred income taxes --- (305)
Equity in earnings of unconsolidated subsidiaries (1,953) ---
Minority interest --- (542)
Change in other assets and liabilities:
Increase in accounts receivable (131) (25,258)
Decrease in notes receivable 167 1,874
Increase in inventory (123) (10,421)
(Increase)decrease in other assets (177) 8,069
Increase(decrease) in accounts payable and accrued liabilities 1,775 (1,218)
Net liabilities of discontinued operations, other liabilities
and current income taxes (177) (31)
--------- ---------
Net Cash Used In Operating Activities (5,207) (27,849)
--------- ---------
Investing Activities
Purchase of investments:
Property, plant and equipment (291) (3,562)
Sale of investments:
Property, plant and equipment 2 3,629
Investment in real estate 79 3,808
Securities of Wickes Inc. 1,186 ---
--------- ---------
Net Cash Provided By Investing Activities 976 3,875
--------- ---------
Cash Flows from Financing Activities
Net borrowings under the revolving line of credit --- 24,481
Repayment of debt (420) (4,077)
Increase in borrowings 5,182 972
Net proceeds from sale of Wickes Inc. --- 229
--------- ---------
Net Cash Provided By Financing Activities 4,762 21,605
Net Increase(Decrease)in Cash and Equivalents 531 (2,369)
Cash and equivalents at beginning of period 509 3,154
Less: Wickes Inc. cash balance --- (645)
--------- ---------
Cash and equivalents at end of period $ 1,040 $ 140
========= ==========
</TABLE>
See Accompanying Notes to Condensed Consolidated Financial Statements.
6
<PAGE>
RIVERSIDE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Financial Statement Presentation
The condensed consolidated financial statements present the financial
position, results of operations, and cash flows of Riverside Group, Inc. and its
wholly-owned and majority-owned subsidiaries (the "Company"). The Company no
longer owns a majority interest in Wickes Inc. ("Wickes") and at September 30,
1998, the Company began to report its investment in Wickes on the equity method.
Accordingly, the Company's consolidated balance sheet at December 31, 1998 does
not include the accounts of Wickes. The Company's condensed consolidated
statements of operations and cash flows for the period ending September 30,
1998, include Wickes on a consolidated basis.
The condensed consolidated balance sheets as of September 30, 1999, the
condensed consolidated statements of operations for the nine months ended
September 30, 1999 and 1998, the condensed consolidated statement of common
stockholders' equity for the nine months ended September 30, 1999 and the
condensed consolidated statements of cash flows for the nine months ended
September 30, 1999 and 1998, have been prepared by the Company without audit. In
the opinion of management, all adjustments (which include only normal recurring
adjustments) necessary to present fairly the financial position, results of
operations and cash flows at September 30, 1999, and for all periods presented
have been made. The results for the three month period ended September 30, 1999
is not necessarily indicative of the results to be expected for the full year or
for any interim period.
Certain information and footnote disclosures normally included in
consolidated financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. It is suggested that these
condensed consolidated financial statements be read in conjunction with the
consolidated financial statements, the related Auditor's report, and notes
thereto included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1998 filed with the Securities and Exchange Commission.
Earnings Per Share
Basic and diluted earnings per common share is calculated in accordance
with Statement of Financial Accounting Standards No. 128, "Earnings Per Share".
Earnings per share are based on the weighted average number of shares of common
stock outstanding during each period (5,213,186 shares in 1999 and 1998). Since
the Company had a net loss, the options had an anti-dilutive effect, and
therefore, are excluded from the calculation of diluted loss per share.
7
<PAGE>
2. INVESTMENT IN WICKES
For information concerning the Company's accounting for its investment
in Wickes, see Note 1 - Summary of Significant Accounting Policies - Basis of
Financial Statement Presentation.
Summary financial information of Wickes for the third quarter of 1999 and
the year ending December 26, 1998 follows (in thousands):
<TABLE>
<CAPTION>
(unaudited)
Sept. 26, 1999 Dec. 26, 1998
-------------- -------------
<S> <C> <C>
Balance Sheet Data
Current assets $ 278,371 $ 209,467
Total assets 368,752 292,183
Current liabilities 92,244 74,122
Long term debt and other long-term liabilities 247,953 194,913
Common stockholders' equity 28,555 23,148
</TABLE>
3. COMMITMENTS AND CONTINGENCIES
WICKES INC.
At September 25, 1999, Wickes had accrued approximately $132,000 (included in
accrued liabilities at September 25, 1999) for remediation of certain
environmental and product liability matters, principally underground storage
tank removal.
Many of the sales and distribution facilities presently and formerly
operated by Wickes contained underground petroleum storage tanks. All such tanks
known to Wickes located on facilities owned or operated by Wickes have been
filled or removed in accordance with applicable environmental laws in effect at
the time. As a result of reviews made in connection with the sale or possible
sale of certain facilities, Wickes has found petroleum contamination of soil and
ground water on several of these sites and has taken, and expects to take,
remedial actions with respect thereto. In addition, it is possible that similar
contamination may exist on properties no longer owned or operated by Wickes the
remediation of which Wickes could under certain circumstances be held
responsible. Since 1988, Wickes has incurred approximately $2.0 million of
costs, net of insurance and regulatory recoveries, with respect to the filling
or removing of underground storage tanks and related investigatory and remedial
actions. Insignificant amounts of contamination have been found on excess
properties sold over the past four years. Wickes has currently reserved $42,500
for estimated clean-up costs at 11 of its locations.
Wickes has been identified as having used two landfills which are now
Superfund clean-up sites, for which it has been requested to reimburse a portion
of the clean-up costs. Based on the amounts claimed and Wickes' prior
experience, Wickes has established a reserve of $28,000 for these matters.
8
<PAGE>
Wickes is one of many defendants in two class action suits filed in
August of 1996 by approximately 200 claimants for unspecified damages as a
result of health problems claimed to have been caused by inhalation of silica
dust, a byproduct of concrete and mortar mix, allegedly generated by a cement
plant with which Wickes has no connection other than as a customer. Wickes has
entered into a cost sharing agreement with its insurers, and any liability is
expected to be minimal.
Wickes is one of many defendants in approximately 132 actions, each of
which seeks unspecified damages, in various Michigan state courts against
manufacturers and building material retailers by individuals who claim to have
suffered injuries from products containing asbestos. Each of the plaintiffs in
these actions is represented by one of two law firms. Wickes is aggressively
defending these actions and does not believe that these actions will have a
material adverse effect on Wickes. Since 1993, Wickes has settled 23 similar
actions for insignificant amounts, and another 188 of these actions have been
dismissed. As of October 31, 1999 none of these suits have made it to trial.
Losses in excess of the $132,000 reserved as of September 25, 1999 are
possible but an estimate of these amounts cannot be made.
THE PARENT GROUP AND WICKES
The Company and Wickes are involved in various other legal proceedings
which are incidental to the conduct of their businesses. The Company does not
believe that any of these proceedings will have a material adverse effect on the
Company.
In connection with the sale of Dependable, the Company agreed to
indemnify the purchaser for certain losses on various categories of liabilities.
Terms of the indemnities provided by the Company vary with regards to time
limits and maximum amounts. American Financial Acquisition Corporation
subordinated debentures in the amount of $2.1 million are pledged as collateral
on these indemnities. Although future loss development will occur over a number
of years, the Company believes, based on all information presently available,
that these indemnities will not have a material adverse effect on the Company's
financial position or results of operations.
On December 1, 1997, the Company completed the sale of its mortgage
lending operation to an unrelated third party. The Company did not realize any
gain or loss from the transaction, but agrees to indemnify the purchaser against
losses on the construction loan portfolio that was transferred. The Company
currently has 62,500 shares of its Wickes' common stock pledged as collateral
for this indemnification obligation. As the construction loan portfolio
decreases, the shares held as collateral will be released. The Company believes
that these indemnities will not have a material adverse effect on the Company's
financial position or results of operations.
9
<PAGE>
PARENT COMPANY LIQUIDITY AND MANAGEMENT'S PLANS
The accompanying condensed consolidated financial statements have been
prepared assuming the Company will continue as a going concern. In light of the
Company's current projected earnings and cash flow, management believes the
Company does not have the financial resources to maintain its current level of
operations through the fourth quarter of 1999. Therefore, the Company will need
to obtain significant additional funds through asset sales or additional
borrowings or other financing for such purposes and may need to reduce the level
of its operations. As described below, the principal sources of funds for these
purposes in the past, and for the payment of interest on the Company's
indebtedness, have been borrowings and sales of shares of Wickes common stock.
The Company is currently working on additional options as discussed below.
The principal user of the Company's cash has been Buildscape, Inc.
("Buildscape"). On October 21, 1999, Imagine Investments, Inc. ("Imagine"),
acquired a majority voting interest in Buildscape and provided Buildscape with
independent funding. For additional information concerning this transaction, see
Note 7 to the Condensed Consolidated Financial Statements included elsewhere
herein. As a result of this transaction, Buildscape will, in the future, operate
independently of the Company and its operations.
On August 25, 1999, the Company and the holders of the 13% Subordinated
Notes ("the 13% Notes") completed an agreement whereby the Company's 13% Notes
that were scheduled to mature in September 1999, were replaced with new
subordinated promissory notes due September 30,2000 bearing 11% interest ("the
11% Notes"). For information regarding the collateral on the 11% Notes, see Note
4 to the Condensed Consolidated Financial Statements included elsewhere herein.
At November 11, 1999, the Company estimates that it will have approximately
$461,000 of accounts payable and other current liabilities, approximately
$230,000 of which are past due. In addition, $77,322 of these current
liabilities are principal and interest payments due to Wickes that were due
November 15, 1999 but which were deferred until February 15, 2000 by Wickes. On
August 27, 1999, the Company entered into a short-term loan agreement with
Imagine pursuant to which the Company borrowed $711,055 in August 1999 and
$1,088,945 in September 1999. The Company used these borrowings to fund its
operations including (1) interest of approximately $631,507 on the 11% Notes,
(2) delinquent principal and interest of approximately $349,924 on the Wickes
debt (3) expenses of approximately $104,000 in connection with the replacement
of the Company's 13% Notes and (4) delinquent payables of approximately
$417,196. The loan is due August 31, 2000. The loan bears interest at an annual
rate of 12.75% is guaranteed by Riverside and is secured by a pledge of 921,845
shares of Wickes common stock and 100% of the Cybermax, Inc. ("Cybermax") stock.
This stock shall be released to the Borrower in one or more stages in increments
of 81,000 shares. The shares released are required to be sold for the sole
purpose of covering interest payments on this debt, interest on the 11% Notes
and/or principal and interest on its debt payments due to Wickes. In addition,
the Company's shares of Wickes common stock are subject to securities law
restrictions on resale. The Company has granted to Imagine, a right of first
refusal with respect to all the shares of Wickes beneficially owned by it.
10
<PAGE>
The Company's subsidiary, Cybermax, is generating sales and the Company
projects that in the future, Cybermax will cover its operations. There can be no
assurance of this, however.
The Company is also seeking to sell shares of Greenleaf common stock.
Effective September 30, 1998, the Company exchanged all of the outstanding
shares of its wholly-owned subsidiary, GameVerse, Inc. for approximately 40% of
the outstanding securities of Greenleaf. The Company's ownersip in Greenleaf has
been diluted to 20% by the issue of additional Greenleaf shares in 1999.
Although these securities may be sold in the open market in limited quantities
pursuant to Rule 144, the Company anticipates that its ability to sell
significant amounts of these securities will be limited. Greenleaf and the
Company have, as a result of Greenleaf's dissatisfaction with the transaction,
had discussions regarding possible adjustments to the merger consideration that
would reduce the Company's percentage of ownership in Greenleaf. Initially,
these discussions led to a proposal whereby a portion of the Company's shares of
Greenleaf was to have been sold to a third party investor identified by
Greenleaf with proceeds of the sale to be split between Greenleaf and the
Company. This proposal was not implemented. However, in August, Greenleaf and
the Company re-established discussions in an effort to reach an amicable
resolution in lieu of litigation. Discussions are continuing between the Company
and Greenleaf. Because of these discussions, to date, the Company has not been
successful in effecting any sales of Greenleaf stock.
In order to obtain funds for the continuation of Buildscape's
operations, during 1999 Buildscape entered into a series of short-term loan
arrangements with Imagine pursuant to which Buildscape borrowed an aggregate of
$3,500,000. These borrowings were cancelled by Imagine in connection with its
acquisition of a majority interest in Buildscape. See Note 7.
The Company's $11.3 million of real estate indebtedness is secured by
the Company's real estate and 2,016,168 shares of Wickes common stock. The
amount of required collateral for this indebtedness is adjusted quarterly.
Additional collateral would be required in the event there is any collateral
deficit, at any quarterly valuation date, which would depend upon factors
including the market value of Wickes' common stock and the timing and amount of
real estate sales.
The Company currently has approximately 145 acres of its investment in
real estate under contract to sell. The entire sales proceeds, estimated at
$16.4 million will be used to pay off the current mortgage debt of $11.3 million
plus accrued interest. The Company estimates the closings to occur between now
and June of 2000.
The Company's assessment of the matters described in this note and
other forward-looking statements ("Forward-Looking Statements") in these notes
are made pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995 and are inherently subject to uncertainty. The
outcome of certain matters described in this note may differ from the Company's
assessment of these matters as a result of a number of factors including but not
limited to: matters unknown to the Company at the present time, development of
losses materially different from the Company's experience, Wickes' ability to
11
<PAGE>
prevail against its insurers with respect to coverage issues to date, the
financial ability of those insurers and other persons from whom Wickes may be
entitled to indemnity, and the unpredictability of matters in litigation.
In addition, the discussion above of the Company's future operations,
liquidity needs and sufficiency constitutes Forward-Looking Information and is
inherently subject to uncertainty as a result of a number of risk factors
including, among other things: (i) the success of and level of negative cash
flow generated by Cybermax, (ii) the Company's ability to achieve the level of
real estate sales required to meet scheduled real estate debt principal and
interest payments and to avoid the requirement that the Company provide
additional collateral for this debt, (iii) the Company's ability to borrow,
which may depend upon, among other things, the trading price of Wickes common
stock, the value and liquidity of the Company's Greenleaf securities, and the
success of Cybermax and Buildscape, (iv) the ability of the Company to raise
funds through sales of Wickes common stock and Greenleaf securities, (v) the
outcome of the Company's discussions with Greenleaf, and (vi) uncertainty
concerning the possible existence of indemnification claims resulting from the
Company's discontinued operations. Future real estate sales depend upon a number
of factors, including interest rates, general economic conditions, and
conditions in the commercial real estate markets in Atlanta, Georgia and
Jacksonville, Florida. In addition to the factors described above, the Company's
ability to sell Wickes common stock or Greenleaf securities would depend upon,
among other things, the trading prices for these securities, and, in light of
the relatively low trading volume for these securities, possibly the Company's
ability to find a buyer or buyers for these securities in a private transaction
or otherwise.
4. LONG TERM AND MORTGAGE DEBT
Consolidated long-term and mortgage debt is comprised of the following
at September 30, 1999 (in thousands):
<TABLE>
<CAPTION>
<S> <C>
LONG-TERM DEBT
Secured promissory notes $ 10,000
Other 5,706
Less: current maturities (15,505)
-----------
Total Company long-term debt less current maturities 201
-----------
MORTGAGE DEBT
Mortgage debt, non-recourse 11,345
Total long-term and mortgage debt ---------
less current maturities $ 11,546
=========
</TABLE>
SUBORDINATED NOTES ("THE 13% NOTES")/SECURED PROMISSORY NOTES ("THE 11% NOTES")
On August 25, 1999, the Company and the 13% Note Holders executed the
agreement, whereby the Company's 13% Notes that were scheduled to mature in
12
<PAGE>
September 1999, were replaced with new unsubordinated promissory notes due
September 30, 2000 bearing 11% interest. The 11% Notes are secured by a junior
lien on the collateral securing the Company's real estate indebtedness and 10
million shares of Greenleaf common stock.
WICKES PROMISSORY NOTE
In February of 1998, Riverside completed the acquisition of e-commerce and
advertising operations formerly owned by Wickes. The disposition of these
operations by Wickes was part of the determination made by Wickes to discontinue
or sell non-core operations. For these operations, Riverside paid consideration
of approximately $872,000 in the form of a 3-year unsecured promissory note. The
terms of the promissory note include interest based on the prime lending rate
plus two percentage points due monthly and principal due in thirteen equal
quarterly installments, beginning May 15, 1998 and ending May 15, 2001. In
addition, Riverside agreed to pay ten percent of future net income of these
operations, subject to a maximum of $429,249 plus interest. At August 10, 1999,
the Company had made payments of $195,752 under the Wickes promissory note but
was delinquent with respect to required payments of approximately $239,518 of
principal and interest. Wickes had deferred these payments and interest thereon
until September 30, 1999. On September 3, 1999 the Company made a payment of
approximately $349,924 of principal and interest, which brought this debt
current.
The Company has received an extension from Wickes deferring approximately
$77,332 of principal and interest originally due November 15, 1999 until
February 15, 2000. During this extension, the interest rate, on the amount
deferred will be based on the prime lending rate plus four percentage points.
5. INCOME TAXES
The Company's effective tax rate was 0% for the nine months ended September
30, 1999 and 1998. For the nine months ended September 30, 1998, Wickes results
of operations were consolidated with the Company's for financial reporting
purposes (see Note 1. "Summary of Significant Accounting Policies) and included
a tax benefit of $3.9 million. An effective tax rate of 39% was used to
calculate the federal income taxes for the third quarter of 1998. In addition to
the effective federal rate used for that period, state income and franchise
taxes were calculated on a separate basis and included in the provision
reported.
The Company has established a reserve for the full amount of deferred tax
assets. In management's opinion, it is unlikely the deferred tax assets will be
utilized in the near future.
6. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities," standardizes the accounting for
13
<PAGE>
derivative instruments by requiring that all derivatives be recognized as assets
and liabilities and measured at fair value. The statement is effective for
fiscal years beginning after June 15, 2000. The Company believes adoption of the
statement will not have a material effect on its financial statements.
7. SUBSEQUENT EVENTS
On October 21, 1999, Imagine, acquired a majority voting interest in
Buildscape and provided Buildscape with significant working capital.
In this transaction, Imagine acquired from the Company 1,880,933 of
Buildscape's 5,000,000 outstanding shares of common stock in exchange for (i)
the cancellation of $3 million of indebtedness assumed by the Company from
Buildscape and (ii) 520,000 shares of Riverside's common stock held by Imagine.
As a result of this transaction, the Company anticipates that it will record a
net $3.9 million gain. The Company retained the remaining 3,119,067 outstanding
shares of Buildscape's common stock but granted Imagine voting rights to these
shares for a two year period pursuant to the agreement dated October 15, 1999
among Imagine, Riverside, Cybermax, Cybermax Tech, Inc. and Buildscape. In
addition, Buildscape issued to Imagine in exchange for $5,000,000, ($4,500,000
in cash and cancellation of the remaining $500,000 balance of Buildscape's debt
to Imagine), 1,666,667 shares of Buildscape's voting Series A Cumulative
Convertible Preferred Stock with a $5 million aggregate liquidation preference.
As a result of this transaction, the outstanding shares of the Company have been
reduced from 5.3 million to 4.8 million and the Company owns 47% of Buildscape
on a fully converted basis. Imagine owns 38% of the common and 100% of the
preferred shares of Buildscape, or 53% on a fully converted basis.
The Company is continuing in discussions with other potential investors for
the sale of additional shares of Buildscape preferred stock.
The transactions were approved by the Company's Board of Directors based in
part upon the opinion of its financial advisor that the transaction is fair to
the Company's shareholders from a financial point of view.
The Company no longer owns a majority voting interest in Buildscape and at
October 21, 1999, the Company began to report its investment in Buildscape on
the equity method. Accordingly, the following proforma consolidated balance
sheet at September 30, 1999, giving effect to the above-described transactions
does not include the accounts of Buildscape.
14
<PAGE>
<TABLE>
<CAPTION>
Sept 30, 1999
(unaudited)
(in thousands)
<S> <C>
ASSETS:
CURRENT ASSETS:
Cash and cash equivalents $ 992
Accounts receivable 199
Notes receivable 30
Inventory 1
Prepaid expenses 21
----------
Total current assets 1,243
Investment in Wickes Inc. 15,502
Investment in Buildscape, Inc. (947)
Investment in real estate 9,591
Property, plant and equipment, net 340
Other assets 306
----------
Total assets $ 26,035
===========
LIABILITIES & STOCKHOLDERS' EQUITY:
CURRENT LIABILITIES:
Current maturities of long-term debt $ 12,155
Accounts payable 284
Accrued liabilities 1,779
Deferred revenue 5
----------
Total current liabilities 14,223
Long-Term debt 201
Mortgage debt 11,345
Net liabilities of discontinued operations 21
Other long-term liabilities 84
----------
Total liabilities 25,874
COMMON STOCKHOLDERS' EQUITY:
Common stock, $.10 par value; 20,000,000 shares 524
authorized; 4,767,123 issued and outstanding in 1999
and 5,287,123 in 1998
Additional paid in capital 16,421
Retained earnings (deficit) (16,784)
---------
Total common stockholders' equity 161
---------
Total liabilities and common stockholders' equity $ 26,035
=========
</TABLE>
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Condensed
Consolidated Financial Statements and Notes thereto contained elsewhere herein
and in conjunction with the Consolidated Financial Statements and Notes thereto
and Management's Discussion and analysis of Financial Condition and Results of
Operations contained in the Company's Annual report on Form 10-K for the year
ended December 31, 1998.
RESULTS OF OPERATIONS
GENERAL
The Company reported results of operations for the three and nine months
ended September 30, 1999 and 1998, as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
(unaudited) (unaudited)
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Earnings(loss) before income taxes,
equity in related parties, and
minority interest(1)(2) $ (2,889) $ 1,863 $ (7,120) $ (7,067)
Income tax expense -- 2,051 -- 421
Equity in earnings
of Wickes Inc.(3) (1,840) -- (1,693) --
Minority interest, net of income taxes(3) -- 1,386 -- (542)
--------- -------- -------- --------
Net loss $ (1,049) $ (1,574) $ (5,427) $ (6,946)
========== ========= ========= =========
</TABLE>
(1) Includes realized investment gains(losses) of $18,000 and $(1,560,000)
for the three months ended September 30, 1999 and 1998, and $18,000 and
$(1,123,000) for the first nine months ended September 30, 1999 and 1998,
respectively. Included in realized gains (losses) for the three months
ended September 30, 1998, is a reserve for losses on the sale of Wickes
stock in November of approximately $1,535,000.
(2) Included restructuring charges from Wickes of $.5 million in the third
quarter of 1998 and $5.9 million for the nine months ended September 30,
1998.
(3) The Company accounted for its investment in Wickes' under the equity
method for the three and nine months ending September 30, 1999. During
the three and nine months ending September 30, 1998 the Company
consolidated Wickes' operations with those of the Company and its
subsidiaries.
16
<PAGE>
LINES OF BUSINES
The following table sets forth certain financial data for the three months
and nine months ending September 30, 1999 and 1998, respectively, for the
following segments: e-commerce and advertising, web design and internet
connectivity, building materials, and other segments. The Company accounted for
its investment in Wickes' under the equity method for the three and nine months
ending September 30, 1999. Wickes' operations are consolidated with those of the
Company and its subsidiaries for the three and nine months ending September 30,
1998. "Other" includes real estate, parent company, financial services, and
discontinued operations and all eliminating entries for inter-company
transactions.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
1999 1998 1999 1998
---- ---- ---- ----
(in thousands) (in thousands)
<S> <C> <C> <C> <C>
SALES:
E-Commerce & Advertising $ 207 $ -- $ 386 $ --
Web Design & Internet Access 306 202 849 379
Building Materials(1) -- 261,137 -- 667,024
Other 5 50 34 155
---------- ----------- ---------- -----------
Total $ 518 $ 261,389 $ 1,269 $ 667,558
========== ========== ========== ===========
COST OF SALES
E-Commerce & Advertising $ 191 $ -- $ 314 $ -
Web Design & Internet Access 45 26 136 166
Building Materials(1) -- 200,081 -- 508,896
Other -- 21 4 129
---------- ----------- ----------- ----------
Total $ 236 $ 200,128 $ 454 $ 509,191
=========== =========== =========== ==========
OTHER OPERATING INCOME:
E-Commerce & Advertising $ -- $ -- $ -- $ --
Web Design & Internet Access -- -- 1 --
Building Materials(1) -- 1,281 -- 5,045
Other (5) 4 43 418
------------ ---------- ---------- ----------
Total $ (5) $ 1,285 $ 44 $ 5,463
============ =========== ========= =========
INVESTMENT INCOME AND REALIZED
GAINS/(LOSSES):
E-Commerce & Advertising $ -- $ -- $ -- $ --
Web Design & Internet Access -- -- -- --
Building Materials(1) -- (1,560) -- (1,560)
Other 35 (36) (1) 350
----------- ---------- ---------- ---------
Total $ 35 $ (1,596) $ (1) $ (1,210)
=========== ========== ========== =========
17
<PAGE>
Three Months Ended Nine Months Ended
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
1999 1998 1999 1998
---- ---- ---- ----
(in thousands) (in thousands)
EXPENSES:
E-Commerce & Advertising $ 1,725 $ 48 $ 4,142 $ 138
Web Design & Internet Access 583 349 1,581 994
Building Materials(1) -- 51,462 -- 141,744
Other 202 389 261 2,281
---------- ----------- ---------- ----------
Total $ 2,510 $ 52,248 $ 5,984 $ 145,157
========== ======== ========== =========
RESTRUCTURING AND UNUSUAL ITEMS:
E-Commerce & Advertising $ -- $ -- $ -- $ --
Web Design & Internet Access -- -- -- --
Building Materials(1) -- 501 -- 5,932
Other -- -- -- --
--------- --------- ---------- ----------
Total $ -- $ 501 $ -- $ 5,932
========= ======== ========== =========
INTEREST EXPENSE:
E-Commerce & Advertising $ 79 $ 22 $ 162 $ 63
Web Design & Internet Access 1 2 3 5
Building Materials(1)(2) 368 6,030 1,131 17,606
Other 243 284 698 924
----------- ---------- --------- ---------
Total $ 691 $ 6,338 $ 1,994 $ 18,598
=========== ========== ========= =========
EARNINGS(LOSS) BEFORE INCOME TAXES,
EQUITY IN RELATED PARTIES AND MINORITY
INTEREST:
E-Commerce & Advertising $ (1,788) $ (70) $ (4,232) $ (201)
Web Design & Internet Access (323) (175) (870) (786)
Building Materials(1) (368) 2,784 (1,131) (3,669)
Other (410) (676) (887) (2,411)
------------ ----------- ----------- ----------
Total $ (2,889) $ 1,863 $ ( 7,120) $ (7,067)
=========== =========== ========== ==========
IDENTIFIABLE ASSETS:
E-Commerce & Advertising $ 526 $ 40 $ 526 $ 40
Web Design & Internet Access 585 395 585 395
Building Materials(1) 15,502 319,453 15,502 319,453
Other 10,895 15,975 10,895 15,975
---------- ---------- ---------- ---------
Total $ 27,508 $ 335,863 $ 27,508 $ 335,863
========== ========= ========== =========
</TABLE>
18
<PAGE>
(1) During the first nine months of 1999, the Company accounted for its
investment in Wickes on the equity method. During the same period in 1998, the
Company consolidated Wickes operations with those of the Company.
(2) Includes an interest allocation from Riverside on its 13% and 11% notes of
$368,000 and $376,000 for the three months ended September 30, 1999 and 1998,
respectively, and $1,132,000 and $1,124,000 for the first nine months ended
September 30, 1999 and 1998, respectively.
E-COMMERCE AND ADVERTISING
The following table sets forth information concerning the results of
Buildscape for 1999 and 1998, respectively: (in thousands)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
(unaudited) (unaudited)
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales $ 207 $ -- $ 386 $ --
Cost of sales 191 -- 314 --
------ -------- -------- ----------
Net profit 16 -- 72 --
Selling, general and administrative 1,648 46 4,013 134
Depreciation and amortization 77 2 129 4
Interest expense 79 22 162 63
-------- --------- --------- ---------
Total expenses 1,804 70 4,304 201
-------- --------- --------- ---------
Net loss $(1,788) $ (70) $ (4,232) $ (201)
======== ========== ========= =========
</TABLE>
On October 21, 1999, the Company sold to Imagine 38% of the common
and 100% of the preferred shares of Buildscape. As a result, the Company will
account for its investment on the equity method. For a more detailed discussion
regarding the sale, see Note 7. "Subsequent Events."
Comparisons between periods are not meaningful, since Buildscape
operations did not start until after the first quarter of 1998. Buildscape
launched its website, Buildscape.com, and began sales in the fourth quarter of
1998. In March 1999, Buildscapeauction.com was introduced. Although these
websites are conducting sales, development costs continue as the site content is
expanded and the functionality of the sites is enhanced and improved. Selling,
General and Administrative Expense ("SG&A") includes personnel and technology
costs relevant to developing the technology for the websites and the marketing
and sales plan for the Company.
19
<PAGE>
WEB DESIGN AND INTERNET ACCESS
The following table sets forth information concerning the results of Cybermax,
Inc. ("Cybermax") for 1999 and 1998, respectively: (in thousands)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
(unaudited) (unaudited)
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales $ 306 $ 202 $ 849 $ 379
Cost of sales 45 26 136 166
--------- -------- -------- -------
Net profit 261 176 713 213
Selling, general and administrative 530 329 1,474 949
Depreciation and amortization 53 20 106 45
Interest expense 1 2 3 5
---------- ---------- ---------- --------
Total expenses 584 351 1,583 999
-------- ---------- ------- ------
Net loss $ (323) $ (175) $ (870) $(786)
======== ========= ======= ======
</TABLE>
The Company purchased the assets of Cybermax on January 31,
1998. During 1998, the Company incurred various start-up costs, which makes
comparisons between periods not meaningful.
WICKES INC.
The Company estimates that the Company's results of operations for the
third quarter of 1999 include profits of $1,472,000 attributable to Wickes,
compared to profits of $949,000 for the same period in 1998. The Company
estimates that its results of operations include profits of $821,000
attributable to Wickes, for the first nine months ended September 30, 1999
compared to losses of $1,987,000 for the same period in 1998.
The following discussion was obtained from the Wickes' Quarterly Report
on Form 10-Q for the third quarter of 1999.
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Condensed
Consolidated Financial Statements and Notes thereto contained elsewhere herein
and in conjunction with the Consolidated Financial Statements and Notes thereto
and Management's Discussion and Analysis of Financial Condition and Results of
Operations contained in Wickes' Annual Report on Form 10-K for the year ended
December 26, 1998.
20
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage
relationship to net sales of certain expense and income items. This information
includes the results from all sales and distribution and component manufacturing
facilities operated by Wickes, including those closed or sold during the period.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
Sept. 25, Sept. 26, Sept. 25, Sept. 26,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Gross profit 22.7% 23.1% 23.1% 23.6%
Selling, general and administrative
expense 18.0% 19.0% 19.6% 20.4%
Depreciation, goodwill and
trademark amortization 0.5% 0.5% 0.6% 0.6%
Provision for doubtful accounts 0.2% 0.2% 0.1% 0.3%
Restructuring and unusual items -- 0.2% -- 0.9%
Other operating income (0.4)% (0.5)% (0.5)% (0.8)%
Income from operations 4.4% 3.7% 3.3% 2.2%
Net Earnings
</TABLE>
Weather conditions during the first nine months of 1999 were relatively
close to seasonal averages. In the first quarter of 1998 Wickes' largest region,
the Midwest, experienced a very mild winter, which allowed for favorable
building conditions, which was partially offset by increased precipitation in
the Northeast and South. The third quarter of 1998 and first nine months of 1999
had favorable economic conditions for the building materials supply industry.
Single family housing starts in 1999 were 1.6% and 6.1% higher during the third
quarter and first nine months of 1999, respectively, than during the comparable
periods of 1998.
Net income for the three months ended September 25, 1999 was $5.0 million
compared with a net income of $2.3 million for the three months ended September
26, 1998. The increase in net income for the three-month period is primarily the
result of increased sales, gross profit, and other operating income as well as a
decrease in restructuring charges and the provision for doubtful accounts. The
positive impact of these changes was partially offset by increases in SG&A,
depreciation and interest expenses.
Net income for the first nine months of 1999 was $5.4 million compared
with a loss of $1.7 million for the first nine months of 1998. The increase in
net income for the nine-month period is primarily the result of increased sales
and gross profit, and reductions in restructuring charges and the provision for
doubtful accounts. The positive impact of these changes was partially offset by
21
<PAGE>
increases in SG&A, depreciation and interest expenses as well as a reduction in
other operating income.
THREE MONTHS ENDED SEPTEMBER 25, 1999 COMPARED
WITH THE THREE MONTHS ENDED SEPTEMBER 26, 1998
Net Sales
- ---------
Net sales for the third quarter of 1999 increased 24.6% to $325.4 million
from $261.1 million for the third quarter of 1998. Same store sales increased
23.0% compared with the same period last year. Same store sales to Wickes'
primary customers, building professionals, also increased 27.8% when compared
with the third quarter of 1998. Consumer same store sales increased by 0.9% for
the quarter. As of September 25, 1999 Wickes operated 101 sales and distribution
facilities, the same number it operated at the end of the third quarter of 1998.
Wickes estimates that inflation in lumber prices increased total sales
for the quarter by approximately $23.9 million, compared with the 1998
comparable period.
Wickes believes that the sales increase results primarily from its recent
investments in its target major markets, re-merchandised conventional market
sales and distribution facilities, recent acquisitions of component
manufacturing facilities as well as favorable economic conditions. Sales
increased 40.3% in Wickes' nine target major markets, while sales increased
26.7% in the 13 conventional market building centers Wickes has remerchandised
since 1997. Component manufacturing facilities acquired since the third quarter
of 1998 account for $3.2 million of the third quarter 1999 sales increase.
Single family housing starts were 1.6% higher, nationally, in the third quarter
of 1999 than in the comparable period of 1998. In Wickes' primary geographical
market, the Midwest, single family housing starts were 8.7% higher during this
same period.
Gross Profit
- ------------
1999 third quarter gross profit increased to $73.8 million from $60.2
million for the third quarter of 1998, a 22.6% increase. Gross profit as a
percentage of sales decreased to 22.7% for the third quarter of 1999 from 23.1%
in 1998. The decrease in gross profit as a percentage of sales is primarily
attributable to an increased percentage of sales to building professionals, an
increased percentage of sales attributable to lumber products combined with
lumber price volatility, and the expansion of Wickes' installed sales programs,
partially offset by increased sales and gross profit margins on internally
manufactured products.
Wickes believes that inflation in lumber prices increased gross profit by
approximately $3.7 million in the quarter. Sales to building professionals as a
percentage of sales increased to 89.0% in the third quarter of 1999 compared
with 86.5% in 1998. Lumber and related products accounted for 57.9% of sales in
the third quarter of 1999, compared with 54.2% for the third quarter of 1998.
22
<PAGE>
Selling, General and Administrative Expense
- -------------------------------------------
SG&A expense decreased to 18.0% of net sales in the third quarter of 1999
compared with 19.0% of net sales in the third quarter of 1998. Much of the
decrease is attributable to operating leverage achieved through increased sales
volume.
Wickes experienced decreases, as a percentage of sales, in salaries,
wages and benefits, equipment rental, marketing expenses, professional fees and
maintenance expenses. Salaries, wages and employee benefits decreased as a
percentage of sales by 0.2%. As of September 25, 1999, Wickes had 4,565 full
time and part time employees, an increase of 15.6% from September 26, 1998.
Depreciation, Goodwill and Trademark Amortization
- -------------------------------------------------
Depreciation, goodwill and trademark amortization increased to $1.6
million for the third quarter of 1999 compared with $1.3 million for the same
period in 1998. This increase is primarily due to depreciation on three
component manufacturing facilities acquired since the second quarter of 1998 and
capital additions as a result of Wickes' expansion of its internal manufacturing
operations and other strategic initiatives.
Restructuring and Unusual Items
- -------------------------------
In February of 1998, Wickes announced a restructuring plan, the "1998
Plan", which included the closing or consolidation of eight sales and
distribution facilities and two component manufacturing facilities in February,
the sale of two additional sales and distribution facilities in March, and
further reductions in headquarters staffing. Wickes recorded a restructuring
charge of $5.4 million, which included $3.7 million in anticipated losses on the
disposition of closed center assets and liabilities, $2.0 million in severance
and post employment benefits related to the 1998 Plan, and a benefit of $300,000
for adjustments to prior years' restructuring accruals.
In the third quarter of 1998, Wickes recorded additional restructuring
expense as a result of certain facility carrying costs and severance costs,
unknown at the time the plan was announced, but incurred as a result of the
Plan.
No restructuring or unusual items were recorded in the third quarter of
1999.
Provision for Doubtful Accounts
- -------------------------------
The provision for doubtful accounts for the third quarter of 1999 was
slightly lower than the expense recorded in the third quarter of 1998. In the
third quarter, Wickes recorded a $467,000 provision for doubtful accounts,
compared with $551,000 in the third quarter of 1998.
Other Operating Income
Other operating income for the third quarter of 1999 was $1.3 million
compared with $1.2
23
<PAGE>
million for the third quarter of 1998. During the third quarters of 1999 and
1998 there were no significant sales of excess real estate.
Interest Expense
- ----------------
In the third quarter of 1999 interest expense increased to $5.9 million
from $5.6 million during the third quarter of 1998, resulting primarily from an
increase in average total long-term debt of approximately $33.9 million. This
was partially offset by a decrease in the effective borrowing rate on total
long-term debt of approximately 95 basis points. The decrease in the effective
borrowing rate is primarily due to a reduction in interest rate on Wickes's
revolving line of credit as a result of decreases in the average prime and LIBOR
rates as well as a 25 basis point reduction in Wickes's borrowing spreads,
effective with Wickes's new revolving credit agreement in February of 1999.
Approximately 98% of Wickes' third quarter average borrowings on its revolving
credit facility were LIBOR-based.
Provision for Income Taxes
- --------------------------
Wickes recorded income tax expense of $3.5 million for the third quarter
of 1999 compared with expense of $1.7 million in the third quarter of 1998. An
effective federal and state income tax rate of 38.7% was used to calculate
income taxes for the third quarter of 1999, compared with an effective rate of
39.0% for the third quarter of 1998. In addition to the effective income tax
rate, state franchise taxes were calculated separately and are included in the
provision reported for both years.
Wickes continues to review future earnings projections to determine that
there is sufficient support for its deferred tax assets and valuation allowance.
In spite of the losses incurred during 1995, 1997, and 1998, management believes
that it is more likely than not that Wickes will receive full benefit of its
deferred tax asset and that the valuation allowance is properly stated. This
assessment constitutes Forward-Looking Information made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995 and is
inherently subject to uncertainty and dependent upon Wickes' future
profitability, which in turn depends upon a number of important risk factors
including but not limited to: the effectiveness of Wickes's operational efforts,
cyclicality and seasonality of Wickes' business, the effects of Wickes'
substantial leverage and competition.
NINE MONTHS ENDED SEPTEMBER 25, 1999 COMPARED
WITH THE NINE MONTHS ENDED SEPTEMBER 26, 1998
Net Sales
- ---------
Net sales for the first nine months of 1999 increased 20.7% to $805.2
million from $667.0 million for the first nine months of 1998. Same store sales
increased 20.0% compared with the same period last year. Same store sales to
24
<PAGE>
Wickes' primary customers, building professionals, increased 23.0% when compared
with the first nine months of 1998. Consumer same store sales increased 1.7% for
the same period. As of September 25, 1999 Wickes operated 101 sales and
distribution facilities, the same number it operated at the end of the first
nine months of 1998. Sales of approximately $4.0 million were recorded, in the
first quarter of 1998, for the 10 sales and distribution facilities that were
sold or closed during that quarter.
Wickes estimates that inflation in lumber prices increased total sales
for the first nine months by approximately $31.5 million, compared with the 1998
comparable period.
Wickes believes that the sales increase results primarily from its recent
investments in its target major market, re-merchandised conventional market
sales and distribution facilities, recent acquisitions of component
manufacturing facilities as well as favorable economic conditions. Sales
increased 29.2% in Wickes's nine target major markets, while sales increased
23.9% in the 13 conventional market building centers Wickes has remerchandised
since 1997. Component manufacturing facilities acquired since the second quarter
of 1998 account for $8.5 million of the nine month 1999 sales increase. Single
family housing starts were 6.1% higher, nationally, in the first nine months of
1999 than in the comparable period of 1998. In Wickes' primary geographical
market, the Midwest, single family housing starts were 9.0% higher.
Gross Profit
- ------------
Gross profit for the first nine months of 1999 increased to $186.0
million from $157.3 million for the first nine months of 1998, a 18.3% increase.
Gross profit as a percentage of sales decreased to 23.1% for the first nine
months of 1999 from 23.6% in 1998. The decrease in gross profit as a percentage
of sales is primarily attributable to rising lumber prices, increased percentage
of sales to building professionals, an increased percentage of sales
attributable to lumber products combined with lumber price volatility, and the
expansion of Wickes' installed sales programs, partially offset by increased
sales and gross profit margins on internally manufactured products.
Wickes believes that while inflation in lumber prices did increase gross
profit by approximately $4.7 million in the first nine months of 1999, gross
profit as a percent of sales decreased due to significant and rapid cost
increases, primarily during the second quarter, which could not be passed on to
customers as quickly. Lumber and related products accounted for 56.5% of sales
in the first nine months of 1999, compared with 54.3% for the same period in
1998. Sales to building professionals as a percentage of sales increased to
89.7% in the first nine months of 1999 compared with 87.8% in 1998.
Selling, General and Administrative Expense
- -------------------------------------------
SG&A expense decreased to 19.6% of net sales in the first nine months of
1999 compared with 20.4% of net sales in the first nine months of 1998. Much of
the decrease is attributable to operating leverage achieved through increased
sales volume, expense reductions achieved as a result of the 1998 first quarter
restructuring and reduced spending on major market expansion programs in 1999.
25
<PAGE>
Wickes experienced decreases, as a percentage of sales, in salaries,
wages and benefits, equipment rental, employee relocation, and headquarters
administrative expense. Salaries, wages and employee benefits decreased as a
percentage of sales by 0.5%.
Depreciation, Goodwill and Trademark Amortization
- -------------------------------------------------
Depreciation, goodwill and trademark amortization increased to $4.7
million for the first nine months of 1999 compared with $3.8 million for the
same period in 1998. This increase is primarily due to depreciation on three
component manufacturing facilities acquired since the third quarter of 1998 as
well as capital additions as a result of Wickes's major market program and
expansion of Wickes's manufacturing operations.
Provision for Doubtful Accounts
- -------------------------------
The provision for doubtful accounts decreased to $0.9 million for the
first nine months of 1999 from $1.8 million in the first nine months of 1998.
The primary reasons for the decrease are improved delinquency on 1999
outstanding accounts and increased expense in the first quarter of 1998 as a
result of the delinquency of a major account.
Restructuring and Unusual Items
- -------------------------------
In February of 1998, Wickes announced and completed a plan for additional
restructuring activities, which included the closing or consolidation of eight
building centers and two component manufacturing facilities in February, the
sale of two additional building centers in March, and further reductions in
headquarters staffing. Wickes recorded a restructuring charge of $5.4 million,
which included $3.7 million in anticipated losses on the disposition of closed
center assets and liabilities, $2.0 million in severance and post employment
benefits related to the 1998 Plan, and a benefit of $300,000 for adjustments to
prior years' restructuring accruals. In the third quarter of 1998, Wickes
recorded $501,000 in additional restructuring expense as a result of certain
facility carrying costs and severance costs, unknown at the time the plan was
announced, but incurred as a result of the Plan.
No restructuring or unusual items were recorded in the first nine months
of 1999.
Other Operating Income
- ----------------------
Other operating income for the first nine months of 1999 was $4.4 million
compared with $5.0 million for the first nine months of 1998. In the first nine
months of 1999 Wickes recorded gains of approximately $1.7 million on the sale
of excess real estate and equipment compared with $1.8 million in 1998. In 1999,
Wickes recorded costs of $339,000 for carrying costs of closed operations and
$471,000 for casualty losses, including a fire at one of its component
manufacturing facilities. In 1998 Wickes recorded no closed operation carrying
costs and recorded a gain of $35,000 for casualty losses. The gain on casualty
26
<PAGE>
losses was a result of a $180,000 gain on the difference between insured
replacement cost and book value of inventory, as a result of a fire at one of
its sales and distribution facilities.
Interest Expense
- ----------------
In the first nine months of 1999 interest expense increased to $17.1
million from $16.5 million during the first nine months of 1998, resulting
primarily from an increase in average total long-term debt of approximately
$21.5 million. This was partially offset by a decrease in the effective
borrowing rate on total long-term debt of approximately 53 basis points. The
decrease in the effective borrowing rate is primarily due to a reduction in
interest rate on Wickes's revolving line of credit as a result of decreases in
the average prime and LIBOR rates as well as a 25 basis point reduction in
Wickes's borrowing spreads, effective with Wickes's new revolving credit
agreement in February of 1999. Approximately 93% of Wickes' average borrowings
on its revolving credit facility, during the first nine months of 1999, were
LIBOR-based.
Provision for Income Taxes
- --------------------------
Wickes recorded income tax expense of $4.4 million for the first nine
months of 1999 compared with $91,000 in the first nine months of 1998. An
effective federal and state income tax rate of 38.8% was used to calculate
income taxes for the first nine months of 1999, compared with an effective rate
of 39.0% for the first nine months of 1998. In addition to the effective income
tax rate, state franchise taxes were calculated separately and are included in
the provision reported for both years.
For a discussion of Wickes' deferred tax assets and valuation allowance,
see "Provision for Income Tax Benefit" in the discussion above of the
comparative results for the three months.
PARENT COMPANY AND OTHER SUBSIDIARIES
The following discussion relates to the operations of the Parent Company
and its subsidiaries, other than Buildscape, Cybermax and Wickes (the "Parent
Group").
Non-interest operating expenses for the three months ended September 30,
1999 decreased to $202,000 from $389,000 for the same period in 1998. The 1999
expenses include approximately $104,000 of expenses incurred in connection with
the replacement of the Company's 13% Notes that were scheduled to mature in
1999. The 1998 expenses include approximately $207,000 from operations the
Company discontinued in the fourth quarter of 1998. Also, included is
approximately $254,000 of expenses that the Parent Company incurred on behalf of
its subsidiaries, which was not allocated to these subsidiaries during the third
quarter of 1998.
The Parent Group's non-interest operating expenses for the first nine
months of 1999 and 1998 were $261,000 and $2,281,000, respectively. The 1998
expenses include approximately $814,000 from operations the Company discontinued
in the fourth quarter of 1998.Also included is losses was a result of a $180,000
27
<PAGE>
gain on the difference between approximately $1,034,000 of expenses that the
Parent Company incurred on behalf of its subsidiaries, which was not allocated
to these subsidiaries during the first nine months of 1998.
Revenues of the Parent Group (excluding investment income) for the nine
months ended September 30, 1999 and 1998 were $77,000 and $573,000,
respectively. Included in 1998 was $415,000 received in settlement of a lawsuit.
Interest expense (excluding an interest allocation to Wickes for the
Parent Company's 13% subordinated notes and 11% secured notes of $368,000 in
1999 and $376,000 in 1998) for the three months ending September 30, 1999 and
1998, were $243,000 and $284,000, respectively. In 1999 interest consisted of
$14,000 on the Parent Company's other bank debt and $229,000 on the Parent
Company's real estate mortgage debt. In 1998, interest consisted of $284,000 on
the Parent Company's real estate mortgage debt.
Interest expense (excluding an interest allocation to Wickes for the
Parent Company's 13% subordinated notes and 11% secured notes of $1,132,000 in
1999 and $1,124,000 in 1998) for the nine months ending September 30, 1999 and
1998 were $698,000 and $924,000, respectively. In 1999, interest consisted of
$17,000 on the Parent Company's other bank debt and $681,000 on the Parent
Company's real estate mortgage debt. In 1998, interest consisted of $13,000 on
the Parent Company' other bank debt and $924,000 on the Parent Company's real
estate mortgage debt.
The Parent Company's real estate debt will continue to decrease as a
result of real estate sales. The Company did not have any material real estate
sales during the third quarter of 1999 or the third quarter of 1998.
REAL ESTATE INVESTMENTS
The Company's real estate investments consist of $7,339,000 in Georgia
properties, $2,244,000 in Florida properties and $8,000 in other states.
INCOME TAXES
The Company's effective tax rate was 0% for the nine months ended September
30, 1999 and 1998.
LIQUIDITY AND CAPITAL RESOURCES
THE PARENT GROUP
The Parent Company's general liquidity requirements consist primarily of
funds for payment of debt and related interest and for operating expenses and
overhead.
Operations (exclusive of Wickes, which is prohibited from paying
dividends under its debt instruments) consist primarily of real estate sales and
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the Parent Company's Internet, e-commerce and advertising operations. The Parent
Company's e-commerce and advertising operations are in the start-up phase and
are expected to be net users of cash at least through 1999. Also, real estate
sales proceeds are required to be applied to real estate debt reduction and are
not available to the Parent Company for other purposes.
For a detailed discussion of the Parent Company's liquidity and
management's plans related thereto, see Note 3. "Commitments and Contingencies".
On July 7, 1999, the Company no longer met the quantitative maintenance
requirements for continued listing on the NASDAQ SmallCap Market. As of July 8,
1999, The Company's quotations for the Company's Common Stock are available on
the OTC-Bulletin Board under the symbol RSGI-OB.
During the first nine months of 1999, stockholders' equity decreased by a
net of $5.4 million. The Company's startup costs incurred for the Buildscape
operations accounted for approximately 78% of the decrease. Losses attributable
to the Parent Company and Cybermax Operations accounted for approximately 32% of
the decrease. These losses were offset by profit from Wickes which accounted for
10%.
YEAR 2000
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The Year 2000 relates to the inability of certain computer programs and
computer hardware to properly handle dates after December 31, 1999. As a result,
businesses may be at risk for system failures, miscalculations, the inability to
process transactions, send invoices, or process similar business activities.
The Company is currently assessing the Year 2000 issue. The Company has
focused its assessment into three major categories: (1) internal financial
software system (2) internal non-financial software and (3) technology software.
In August of 1998, the Company purchased an accounting system from Clarus Inc.
This system is Year 2000 compliant and runs on NT 4.0 and SQL Server version
6.5. The total cost for the system and implementation was approximately
$306,000. The Company completed the implementation process during the fourth
quarter of 1998 and is currently processing the 1999 financial information on
the new system.
The Company is currently assessing the potential effect of, and costs of
remediating the Year 2000 problem on its office and facilities equipment, such
as fax machines, photocopiers, telephone equipment, and other common devices
that may be affected by the Year 2000 problem.
In addition, the Company is in the process of identifying problems the Year
2000 may have on its Technology Department. In February of 1999, the Company
hired a Chief Technical Officer. The Technology Department is currently
evaluating all of the equipment and software that are used in The Company's
operations. The Company expects to complete any required remediation during the
fourth quarter of 1999 and the Company estimates the total cost of completing
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any required modifications, upgrades, or replacements of its software or
equipment will not have a material adverse effect on the Company's business or
results of operations.
30
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PART II
OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
On August 27, 1999, the Company obtained a $1.8 million short term
loan agreement from Imagine Investments Inc. The $1.8 million short
term loan agreement, among other things, prohibits the Company from
paying dividends to its stockholders. For a description of the
collateral and other restrictions on the note, see "Note 3.
Commitment and Contingencies" of Notes to Condensed Consolidated
Financial Statements included elsewhere herein.
ITEM 5. OTHER INFORMATION
On September 7, 1999, Harry T. Carneal resigned from the Company's
Board of Directors. The Company plans on filling this vacancy in the
near future.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
4.1 (a) Loan Agreement dated August 27, 1999 between the registrant, and
Imagine Investments, Inc.
(b) Demand Promissory Note dated August 27, 1999.
(c) Stock Pledge Agreements dated August 27, 1999 between the registrant
and Imagine Investments, Inc.
27.1 Financial Data Schedule (SEC Use Only)
(b) Reports on Form 8-K
The Company filed a Current Report on Form 8-K dated as of
October 21, 1999 reporting under Item 5.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
RIVERSIDE GROUP, INC.
By /s/ J. Steven Wilson
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J. Steven Wilson
Chairman of the Board,
President and
Chief Executive Officer
By /s/ Catherine J. Gray
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Catherine J. Gray
Senior Vice President and
Chief Financial Officer
Date: November 15, 1999
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LOAN AGREEMENT
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August 27, 1999
33
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<TABLE>
<CAPTION>
TABLE OF CONTENTS
SECTION PAGE
<S> <C> <C>
1. The Loan ...............................................................................................1
1.1 Amount, Purpose and Interest....................................................................1
1.2 Disbursements ......................................................................1
1.3 Prepayment ......................................................................2
1.4 Due upon Demand; Maturity Date..................................................................2
2. Security for the Indebtedness..............................................................................2
2.1 Stock Pledge Agreement Pertaining to Cybermax, Inc..............................................3
2.2 Stock Pledge Agreement Pertaining to Wickes, Inc................................................3
2.3 Other Security ......................................................................3
3. Conditions Precedent ..............................................................................3
3.1 Resolutions and Approvals ......................................................................3
3.2 Legal Opinion ......................................................................3
3.3 Loan Documents ......................................................................3
3.4 Representations, Warranties and Covenants.......................................................3
3.5 Consents of Third Parties ......................................................................4
3.6 Corporate Matters ......................................................................4
3.7 No Event of Default ......................................................................4
4. Affirmative Covenants ..............................................................................4
4.1 Money Obligations ......................................................................4
4.2 Financial Statements ......................................................................4
4.3 Financial Records ......................................................................5
4.4 Existence and Licenses ......................................................................6
4.5 Notice ......................................................................6
4.6 Agreements ......................................................................6
4.7 Stock ......................................................................6
4.8 Compliance with Laws and Agreements.............................................................7
4.9 Payment of Demand Note and Other Indebtedness...................................................7
5. Negative Covenants ..............................................................................7
5.1 Material Adverse Changes ......................................................................7
5.2 Minimum Tangible Net Worth......................................................................7
5.3 Advances, Repayment of Debts and Dividends......................................................8
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TABLE OF CONTENTS
SECTION PAGE
5.4 Repurchase of Stock ......................................................................8
5.5 Mergers, Sales and Transfers....................................................................8
5.6 Compensation ......................................................................8
5.7 Subsidiaries ......................................................................9
5.8 New Business ......................................................................9
5.9 Capital Contributions ......................................................................9
5.10 Prepayment of Other Debts ......................................................................9
5.11 Indebtedness ......................................................................9
5.12 Loans ......................................................................9
6. Additional Agreements Regarding Stock.....................................................................10
7. Events of Default .............................................................................10
7.1 Payments .....................................................................10
7.2 Defaults Under Loan Documents..................................................................10
7.3 Covenants and Agreements .....................................................................10
7.4 Failure to Pay Other Indebtedness..............................................................10
7.5 Accuracy of Statements .....................................................................10
7.6 Accuracy of Supplements, Requests for Disbursements and Requests for Release
and Reassignment of Stock...................................................................10
7.7 Cross Defaults .....................................................................11
7.8 Other Defaults .....................................................................11
7.9 Solvency and Other Matters.....................................................................11
8. Remedies Upon Default .............................................................................12
8.1 Optional Acceleration .....................................................................12
8.2 Automatic Acceleration .....................................................................12
8.3 Offsets .....................................................................12
8.4 Rights Under Security Instruments..............................................................13
8.5 Rights Cumulative .....................................................................13
9. Notices .............................................................................13
9.1 Giving of Notices .....................................................................13
9.2 Time Notices Deemed Given .....................................................................14
10. Fees and Expenses .............................................................................14
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<PAGE>
TABLE OF CONTENTS
SECTION
<TABLE>
<CAPTION>
Page
<S> <C> <C> <C>
11. Miscellaneous Provisions .............................................................................14
11.1 Construction .....................................................................14
11.2 Counterparts .....................................................................15
11.3 Entire Agreement .....................................................................15
11.4 Further Assurances .....................................................................15
11.5 Governing Law .....................................................................15
11.6 Headings .....................................................................15
11.7 Invalidity of Provisions; Severability.........................................................15
11.8 Limitation on Interest .....................................................................15
11.9 Binding Effect .....................................................................16
11.10 Modifications .....................................................................16
11.11 Time of Essence .....................................................................16
11.12 Waiver .....................................................................16
11.13 Interpretation .....................................................................16
11.14 Assignment .....................................................................17
11.15 Survival of Covenants, Agreements, Warranties and Representations..............................17
12. Jury Trial Waiver .............................................................................17
</TABLE>
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LOAN AGREEMENT
THIS LOAN AGREEMENT is entered into and effective as of the 27 day of
August, 1999, by and between: (i) IMAGINE INVESTMENTS, INC., a Delaware
corporation with a principal place of business in Dallas, Texas ("Lender"), and
(ii) RIVERSIDE GROUP, INC., a Florida corporation with a principal place of
business in Jacksonville, Florida ("Borrower").
RECITALS:
A. Borrower desires to obtain a loan from Lender in the amount of One
Million Eight Hundred Thousand Dollars ($1,800,000.00).
B. In order to induce Lender to enter into this Loan Agreement and to
extend the loan hereunder, without which inducement Lender would be unwilling to
take such actions, and in consideration of the benefits Borrower will receive
therefrom, Borrower is willing and desires to make the agreements as set forth
herein.
AGREEMENT:
NOW, THEREFORE, the parties hereby agree as follows:
1. THE LOAN. Subject to the terms and conditions contained herein, Lender hereby
agrees to make the Loan to Borrower, in accordance with the following
provisions:
1.1 AMOUNT, PURPOSE AND INTEREST. Borrower has executed a note in favor
of Lender on even date herewith in the amount of One Million Eight Hundred
Thousand Dollars ($1,800,000.00) (the "Note"); however, upon execution of this
Loan Agreement and related documents, and at any time thereafter, Lender shall
only be obligated to fund and disburse One Million Five Hundred Thousand Dollars
($1,500,000.00) under the Note (the "Loan"). At anytime hereafter, Lender, in
its sole discretion and if it so chooses, may fund and disburse the remaining
Three Hundred Thousand Dollars ($300,000.00) under the Note. The Loan is
evidenced by and shall be payable and otherwise be made on the terms set forth
in the note made by Borrower to Lender of even date herewith (the " Note") and
on the terms established in this Loan Agreement. All payments on the Note shall
be made in immediately available funds at the principal office of Lender as
specified in the Note or this Loan Agreement. The outstanding principal balance
of the Note shall bear interest from the date hereof at the rate of twelve and
three-quarters percent (12.75%) per annum.
1.2 DISBURSEMENTS. The proceeds of the Loan shall be distributed to
Borrower or on Borrower's behalf in no less than three (3) separate
disbursements. Lender shall make the first disbursement of a portion of the Loan
proceeds to Borrower or on Borrower's behalf contemporaneously with the
execution of this Loan Agreement by wire transfer, in the amount and for the
purposes set forth on Exhibit A, attached hereto and made a part hereof by
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reference (the"First Disbursement"). In accordance with Section 10 of this
Agreement, Lender's legal fees in the amount of $10,000.00 incurred in
connection with the preparation and documentation of this Loan shall be paid
from the First Disbursement to Greenebaum Doll & McDonald, PLLC.
Lender shall make additional disbursements of principal of the Loan as
hereinafter requested by Borrower provided Lender approves the proposed uses of
the proceeds. To request a disbursement, Borrower shall submit Lender a written
request for disbursement (the "Request"), signed by either Cathe Gray, Chief
Financial Officer, or J. Steven Wilson, President, in which Borrower (a) sets
forth the total amount of the Loan to be disbursed and the requested
disbursement date, (b) represents, in detail, the purposes for which the
disbursement proceeds shall be used by Borrower, (c) restates that all of the
representations and warranties set forth in this Agreement are true and correct
in all material respects as if made on, and as of, the day the Request is made
by Borrower. Provided no Event of Default exists hereunder at the time Borrower
submits its Request to Lender and provided that Lender approves the purposes for
which the Loan proceeds will be used by Borrower, Lender shall make the
disbursement to Borrower or on Borrower's behalf within seven (7) days of
Lender's receipt of the Request. Borrower hereby agrees to have paid out of all
subsequent disbursements of the Loan Lender's legal fees associated with each
Request and subsequent disbursement. Each Request hereafter submitted by
Borrower and signed by Lender shall become a supplement to this Agreement, and
shall be made a part hereof and incorporated herein by reference. Therefore, all
representations made in each Request made by Borrower shall be subject to the
terms of Section 7.5 and 7.6 and shall be sent in the manner and to the
addresses set forth in Section 9 herein.
BORROWER UNDERSTANDS AND HEREBY ACKNOWLEDGES THAT LENDER IS NOT OBLIGATED
OR REQUIRED TO FUND, DISBURSE OR LOAN ANY PORTION OF THE LOAN AT ANY TIME
HEREAFTER IN EXCESS OF ONE MILLION FIVE HUNDRED FIVE THOUSAND DOLLARS
($1,500,000.00) IN THE AGGREGATE; HOWEVER, IF LENDER SO CHOOSES TO FUND AND
DISBURSE THE ADDITIONAL AMOUNT OF $300,000.00 AS EVIDENCED BY THE NOTE, THAT
INDEBTEDNESS OF $300,000.00 SHALL ALSO BE SUBJECT TO THE TERMS AND CONDITIONS OF
THE LOAN DOCUMENTS (AS HEREINAFTER DEFINED).
The Loan is not a revolving loan, and amounts borrowed and repaid under
the Note may not be reborrowed in whole or in part.
1.3 PREPAYMENT. Any portion of the principal balance of the Note, or any
accrued interest thereon, may be prepaid at any time, in whole or in part,
without the written consent of Lender.
1.4 DUE UPON DEMAND; MATURITY DATE. The Borrower acknowledges that the
Lender may demand payment of the entire outstanding principal balance and all
accrued but unpaid interest on the Note at any time on or after August 26, 2000,
at which time, this Note will become due and payable in full.
2. SECURITY FOR THE INDEBTEDNESS. The Note, the Loan Agreement and all sums and
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obligations owed thereunder (collectively, the "Indebtedness"), are and shall be
secured by a pledge of certain stock, all as evidenced by the following: (all of
the following are sometimes hereinafter collectively referred to as the
"Security Instruments"; the Security Instruments, this Loan Agreement and the
Note are sometimes hereinafter collectively referred to as the "Loan
Documents"):
2.1 STOCK PLEDGE AGREEMENT PERTAINING TO CYBERMAX, INC. That certain
Stock Pledge Agreement between Borrower and Lender of even date herewith,
pursuant to which Borrower pledges 100% of the issued and outstanding capital
stock of Cybermax, Inc. (the "Cybermax Stock") and delivers to Lender the
original certificates of the Cybermax Stock, together with the appropriate blank
stock powers.
2.2 STOCK PLEDGE AGREEMENT PERTAINING TO WICKES, INC. That certain Stock
Pledge Agreement between Borrower and Lender of even date herewith, pursuant to
which Borrower pledges 921,845 shares of the common capital stock of Wickes,
Inc.("Wickes Stock") as represented by those certificates listed on Exhibit B
attached hereto and incorporated herein by reference which Borrower owns and
delivers to Lender the original certificates of the Wickes Stock, together with
the appropriate blank stock powers (the "Wickes Stock Pledge Agreement").
2.3 OTHER SECURITY. Other security and instruments, if any, granted by
Borrower to Lender, whether of even date herewith or hereafter or heretofore
granted, to secure the Note and/or any other Indebtedness.
3. CONDITIONS PRECEDENT. Lender's obligations under this Loan Agreement shall be
subject to the fulfillment to Lender's satisfaction of each of the following
conditions precedent, unless such condition or conditions shall be waived by
Lender in writing, in the sole discretion of Lender:
3.1 RESOLUTIONS AND APPROVALS. Borrower shall furnish certified copies of
all consents, resolutions and approvals as may be required by Lender, evidencing
approval of the execution of the Loan Documents, all in form and substance
acceptable to Lender.
3.2 LEGAL OPINION. Lender shall have received a favorable written opinion
of counsel for Borrower (i.e. Holland & Knight), dated and effective as of the
date on which the Loan Documents are executed and delivered, addressed to Lender
and satisfactory in form and substance to Lender, with only such modifications,
exceptions, assumptions and qualifications as shall be acceptable to Lender and
its counsel.
3.3 LOAN DOCUMENTS. All the Loan Documents, and such other documents or
instruments as Lender may reasonably require, all in form and substance
acceptable to Lender, shall have been duly executed and delivered to Lender,
and, where appropriate, duly recorded in the proper public offices, and all of
the Loan Documents shall be in full force and effect.
3.4 REPRESENTATIONS, WARRANTIES AND COVENANTS. All representations and
warranties of Borrower contained herein and in the other Loan Documents shall be
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<PAGE>
true and correct on, and as of, the execution of this Agreement, Borrower shall
be in compliance with all covenants contained in the Loan Documents.
3.5 CONSENTS OF THIRD PARTIES. Such third party consents, estoppels or
agreements as Lender may require, all of which shall be in form and content
satisfactory to Lender in its sole discretion.
3.6 CORPORATE MATTERS. Lender shall have been provided with true and
correct copies of all articles of incorporation, by-laws and corporate minutes
of Borrower and shall have been provided such further information as shall have
been requested by Lender with regard to the business, properties, finances and
operations of Borrower.
3.7 NO EVENT OF DEFAULT. No "Event of Default" and no event which would
constitute an Event of Default with the giving of notice, passage of time, or
both (a "Possible Default") shall have occurred or shall occur after giving
effect to the Loan.
4. AFFIRMATIVE COVENANTS. Borrower agrees that until the principal of and all
interest accrued on the Note and all the other Indebtedness shall have been paid
in full and this Loan Agreement terminated, Borrower shall perform and observe
all of the following terms and provisions:
4.1 MONEY OBLIGATIONS. Borrower shall pay in full:
(A) Prior in each case to the date when penalties would attach,
all taxes, assessments and governmental charges and levies hereafter due by
Borrower (except only those so long as and to the extent that the same shall be
contested in good faith by appropriate and timely legal proceedings and for
which a bond staying execution or enforcement thereof shall have been posted to
the satisfaction of the Lender); and
(B) All its debts, obligations and liabilities whether now
existing or incurred after the date hereof, on or prior to their due dates, for
which it may be or become liable or to which any or all its properties may be or
become subject.
4.2 FINANCIAL STATEMENTS.
(A) Borrower shall furnish to Lender, within forty-five (45) days
after the end of each calendar month and quarter, an income statement of
Borrower for that respective month or quarter and for the period from the
beginning of the applicable fiscal year of the Borrower to the end of such month
or quarter and a balance sheet of Borrower as of the end of each such respective
month or quarter, certified by the President or Chief Financial Officer of
Borrower to be true, correct and accurate.
(B) Borrower shall furnish to the Lender, within ninety (90) days
after the end of each fiscal year of Borrower, (i) a complete financial report,
consisting of balance sheet, statement of profit and loss, application of funds,
change in financial position
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and the like, prepared or reviewed by a firm of independent public accountants
of recognized standing acceptable to Lender, accompanied by the annual audit
report of Borrower, together with the opinion of the accounting firm that
prepared such audit report that said report presents fairly the financial
position of Borrower as of the date of the audit and the results of Borrower's
operations and its cash flows for the year without qualification.
(C) Borrower shall furnish to Lender, immediately upon Lender's
written request, such other information about the financial condition,
properties and operations of Borrower as Lender may from time to time reasonably
request.
(D) All financial statements specified in Section 4.2(a), (b),
and (c) above shall be furnished to Lender with comparative figures for the
corresponding period in the preceding fiscal year; and all financial statements
referred to in Section 4.2(a), (b), and (c) above shall be prepared on the
accrual basis of accounting, in accordance with GAAP applied on a basis
consistent with prior years of Borrower, on a consolidated (and consolidating)
basis and shall be accompanied by a certificate of the president of Borrower:
(1) stating that there exists no Event of Default
or Possible Default hereunder; or
(2) describing with particularity any Event of Default or
Possible Default, stating the nature thereof, the period of existence
thereof and what action Borrower OR its subsidiaries have taken or
propose to take with respect thereto.
(E) Borrower shall furnish to Lender, prompt written notice of
any condition or event which has resulted in or might result in:
(1) a material adverse change in the consolidated
condition (financial or otherwise) or operations of Borrower; or
(2) a breach of or noncompliance with any term, condition
or covenant contained herein or in any document delivered pursuant
hereto; or
(3) a material breach of, or noncompliance with, any
term, condition or covenant of any material contract to which Borrower
and/or any of its subsidiaries are a party or by which they or their
property may be bound.
(F) Borrower shall furnish to Lender prompt written notice of any
claims, proceedings or disputes (whether or not purportedly on behalf of
Borrower) against, or to the knowledge of Borrower, threatened or affecting
Borrower which, if adversely determined, would have a material adverse effect on
the business, properties or condition (financial or otherwise) of Borrower or
any subsidiaries or any labor controversy resulting in or threatening to result
in a strike against Borrower, or of any proposal by any public authority to
acquire any of the material assets or business of Borrower.
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4.3 FINANCIAL RECORDS. Borrower shall:
(A) At all times keep true and complete financial records in
accordance with GAAP consistently applied;
(B) At all reasonable times, permit Lender to examine any or all
of their financial and other records and to make excerpts therefrom and
transcripts thereof;
(C) Maintain its books and records at its current principal
office which is the same address listed for the Borrower in Section 9.1 hereof;
and
(D) Maintain its current fiscal year.
4.4 EXISTENCE AND LICENSES. Borrower shall preserve its corporate
existence in good standing and will be and remain qualified to do business in
good standing in all states in which it is required to be so qualified, and will
maintain all permits, licenses and other similar matters necessary or
appropriate for its business.
4.5 NOTICE. Borrower shall notify Lender in writing, within no more than
twenty-four (24) hours (and without the benefit of any grace period afforded in
any provision of this Loan Agreement or any Security Instrument) after Borrower
or any of Borrower's officers or directors learns of any of the following:
(A) the existence or occurrence of any Event of Default or
Possible Default under this Loan Agreement, or any default under the Note or any
of the Security Instruments;
(B) any representation or warranty made herein, or in any related
writing, not being or ceasing to be, for any reason, in any material respect,
true and complete and not misleading; or
(C) the institution of, or adverse determination in, any
litigation, arbitration or governmental proceeding (including but not limited to
an audit or examination by the Internal Revenue Service) which could have a
material and adverse effect upon Borrower, which notification shall describe the
nature thereof, what happened with respect thereto and what steps are being
taken by Borrower, as the case may be, with respect thereto.
4.6 AGREEMENTS. Borrower shall comply timely with all its agreements and
valid obligations to and with all parties, and shall not commit or permit to be
committed any default thereunder.
4.7 STOCK. Until such time as those transactions contemplated in that
certain Letter of Understanding from Lender to Borrower dated July 30, 1999
("Letter of Understanding") are completed or abandoned, Borrower shall instruct
its Secretary and stock transfer agent not to issue any additional capital
stock, warrants, options or rights with respect thereto or instruments
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convertible into its capital stock, and Borrower shall not issue any additional
capital stock, warrants, options or rights with respect thereto, or instruments
convertible into its capital stock.
4.8 COMPLIANCE WITH LAWS AND AGREEMENTS. Borrower shall comply with the
applicable statutes, regulations, ordinances and other laws applicable to their
operations and activities.
4.9 PAYMENT OF DEMAND NOTE AND OTHER INDEBTEDNESS. Borrower shall timely
pay the Note and all the other Indebtedness in accordance with their respective
terms. All payments on the Note and the other Indebtedness shall be made to
Lender in immediately available funds at Lender's principal office on the date
due by no later than 2:00 p.m. Lender's local time. Funds received by Lender
after that time shall be deemed to be received by Lender on the following
business day.
5. NEGATIVE COVENANTS. Borrower agrees that, until the principal of and all
interest on the Note and all the other Indebtedness shall have been paid in full
and this Loan Agreement terminated, Borrower shall observe and comply with each
of the following provisions:
5.1 MATERIAL ADVERSE CHANGES. Borrower shall not permit a "material
adverse change" (as hereinafter defined) to occur. A "material adverse change"
shall be deemed to have occurred upon any of the following:
(A) Any real estate of Borrower is sold for less than 90% of the
amount shown on Borrower's Collateral Analysis Schedule, a copy of which has
already been provided to Lender and shall be updated quarterly (the "Collateral
Analysis Schedule"); or in the event there are no sales, future values (as
reflected on any future Collateral Analysis Schedule of such real estate
diminish more than 15% in the aggregate from their present value reflected on
the initial Collateral Analysis Schedule.
(B) The operating revenues and cash flows from Borrower and
Cybermax, Inc. ("Cybermax") at the end of any fiscal quarter in 1999 (on a
cumulative basis) are less than 90% of those recorded for the same period in
1998 or if the negative cash flow from Borrower and Cybermax is more than
$1,000,000 at any time during 1999-2000.
(C) Borrower's investment in Greenleaf, Inc. results in a
material negative cash effect on Borrower. Examples of a negative effect
associated with this investment would be if Borrower incurs any substantial
negative cash flow or is involved in material litigation in connection with
Greenleaf Technologies Corp.
5.2 MINIMUM TANGIBLE NET WORTH. Borrower shall maintain the following
standards:
At no time will the calculated net realizable value of the
assets of Borrower be less than $10,000,000 in excess of Borrower's liabilities.
The calculated net realizable value of the assets will be computed at the end of
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each calendar quarter. The calculated net realizable valueof the assets will be
based upon the market price of the Wickes, Inc. and Greenleaf Technologies Corp.
shares owned by Borrower (which shall be the average closing price of the
Wickes, Inc. stock over the last 20 trading days of the calendar quarter), the
net realizable value of any real estate (determined as set forth below), the
value of Borrower's ownership interest in Buildscape, Inc., at the lesser of
$3.00 per share or the value per share estimated by Lender from time to time,
plus the net current assets and less all liabilities (adjusted for any amounts
included in the calculations above) of Borrower. For purposes of this Section
5.2, the net realizable value of the real estate shall be as reflected on the
Collateral Analysis Schedule prepared by the Borrower's real estate manager
using comparable sales figures and updated for past sales. The Lender reserves
the right, at its sole discretion, to request a third party appraisal no more
than once in a calendar quarter. If the Lender exercises this right, then the
minimum net realizable value of any given piece of real estate for the twelve
months following receipt of the appraisal shall not be greater than the amount
shown on the appraisal.
As used herein, the term GAAP refers to generally accepted accounting
principals in effect in the United States of America from time to time and
applied in a manner consistent with past practices.
5.3 ADVANCES, REPAYMENT OF DEBTS AND DIVIDENDS. With the exception of
settling accounts receivable and accounts payable between Borrower and its
subsidiaries and except as permitted in Section 5.7 of this Loan Agreement,
without the prior written consent of Lender, Borrower shall not make any
advances or make any payment of principal or interest on any debt owed to its
subsidiaries, and shall not pay any actual or constructive dividends in cash,
stock or other property, and shall not make any other distributions whatsoever
with respect to any of its capital stock, or set aside any funds for any of such
purposes.
5.4 REPURCHASE OF STOCK. With the exception of the 520,000 common capital
shares of Borrower which Lender intends to exchange with Borrower for a certain
number of shares of the common capital stock of Buildscape, Inc., without the
prior written consent of Lender, neither Borrower nor any of its subsidiaries
shall purchase, acquire, redeem or retire any of Borrower's capital stock or
rights with respect thereto, nor shall Borrower liquidate or dissolve or take
any action with a view towards same.
5.5 MERGERS, SALES AND TRANSFERS. Without the prior written consent of
Lender, Borrower or Borrower's subsidiaries shall not:
(A) Be or become a party to any consolidation,reorganiza-
tion or merger;
(B) Sell all or substantially all of its assets;
(C) Purchase all or a substantial part of the assets of any other
corporation, partnership, limited liability company or other business
enterprise; or
(D) Effect any change in its capital structure, or amend
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its Articles of Incorporation, except to consummate those transactions
contemplated in the Letter of Understanding.
5.6 COMPENSATION. The aggregate amount of compensation and fees payable
to J. Steven Wilson by Borrower and its subsidiaries and affiliates, exclusive
of Wickes, Inc. and its subsidiaries, shall not be increased above that level
paid to J. Steven Wilson during Borrower's 1998 fiscal year prior to the
repayment in full of the Indebtedness and termination of the Security Documents.
5.7 SUBSIDIARIES. Except to consummate those transactions contemplated in
the Letter of Understanding, without the prior written consent of Lender,
neither Borrower nor any of Borrower's subsidiaries shall create any new
subsidiaries or acquire any capital stock or other securities or interests in
another corporation, limited liability company, entity, partnership, joint
venture or business. Borrower shall not transfer, assign or lend any money or
other property to any subsidiary or affiliate, except when necessary in order
for Borrower's subsidiaries to pay reasonable operating expenses or outstanding
accounts payables.
5.8 NEW BUSINESS. Borrower and its subsidiaries shall not change
materially the nature of their respective businesses in any manner or engage in
any business not engaged in on the date hereof.
5.9 CAPITAL CONTRIBUTIONS. Except as permitted in Section 5.7 of this
Loan Agreement and to consummate the transactions contemplated in the Letter of
Understanding, without the prior written consent of Lender, neither Borrower nor
any of its subsidiaries shall make any capital contribution to, or investment
in, any subsidiary or purchase or commit to purchase any additional stock or
securities of any kind from any subsidiary.
5.10 PREPAYMENT OF OTHER DEBTS. Neither Borrower nor any of its
Subsidiaries shall prepay prior to their respective presently existing
maturities any debts or liabilities.
5.11 INDEBTEDNESS. Without the prior written consent of Lender, neither
Borrower nor any of its subsidiaries shall incur any indebtedness for borrowed
money whatsoever or guaranty or become directly or contingently liable on any
note or other evidence of indebtedness, letter of credit or contract of any
kind, or enter any contract or agreement requiring it to make payments
regardless of the performance by the other party or that has the effect of
constituting a guaranty (and Borrower shall not make any guaranty for any
affiliate), except only for trade payables incurred by Borrower in the ordinary
course of business, and capital leases and equipment purchases of $100,000 or
less in the aggregate per annum. Notwithstanding the foregoing, Borrower may
incur indebtedness for borrowered money, which is secured by any of the
unencumbered assets owned by Borrower (the "Unencumbered Assets"), provided (a)
Borrower nor any of its subsidiaries shall be directly or contingently liable on
the note or other evidence of indebtedness, or, in connection therewith,
directly or contingently liable on a letter of credit, guaranty, contract of any
kind or contract for purchase or option to purchase any of the Unencumbered
Asset, and (b) Lender's only recourse for Borrower's default on the loan would
be against the Unencumbered Assets.
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5.12 LOANS. Except as permitted in Section 5.7 of this Loan Agreement,
neither Borrower nor any of its subsidiaries shall make any loans other than the
creation of accounts receivable in the ordinary course of business, or advance
any funds whatsoever, except in the ordinary course of business to employees of
Borrower or its subsidiaries for travel, entertainment, relocation and similar
expenses not to exceed $40,000 in the aggregate outstanding at any one time,
without the prior written consent of Lender.
6. ADDITIONAL AGREEMENTS REGARDING STOCK. As additional security for the Loan,
Borrower hereby assigns to Lender all of the respective rights, titles and
interests of Borrower under any and all registration rights and similar
agreements with respect to the stock Cybermax and Wickes Inc., to the extent
Lender has from time to time foreclosed upon or otherwise acquired or thereafter
does foreclose or otherwise acquire any of the stock of Cybermax or Wickes, Inc.
owned by Borrower.
7. EVENTS OF DEFAULT. The occurrence of any or all of the following events
constitute an "Event of Default" under this Loan Agreement:
7.1 PAYMENTS. If any installment of principal or interest on any of the
Indebtedness, including, but not limited to the Note, shall not be paid in full
punctually when due and payable.
7.2 DEFAULTS UNDER LOAN DOCUMENTS. If any default or Event of Default
occurs under any Loan Document.
7.3 COVENANTS AND AGREEMENTS. If Borrower or any of its Subsidiaries
shall violate or fail to perform or observe any covenant, agreement, condition,
representation, warranty, or other provision (other than Section 7.1 or 7.2
hereof) contained in any of the Loan Documents and such failure or omission
shall not have been fully corrected to the complete satisfaction of Lender
within 10 days (or such shorter grace period as may be provided in the
particular Loan Document for the particular default) after Lender has given
written notice thereof to Borrower.
7.4 FAILURE TO PAY OTHER INDEBTEDNESS. If Borrower or any of its
subsidiaries shall fail to pay or perform any other obligation it may have or be
subject to with respect to any party without consideration of any applicable
grace period.
7.5 ACCURACY OF STATEMENTS. If any representation or warranty or other
statement of fact contained herein or in any of the Security Instruments or in
any writing, certificate, report or statement at any time furnished by or for
Borrower to Lender pursuant to or in connection with this Loan Agreement or
otherwise in connection with the transactions contemplated hereby shall be false
or misleading in any material respect or shall omit to state a material fact
required to be stated therein in order to make the statements contained therein,
in light of the circumstances under which made, not misleading, on the date as
of which made, whether or not made with knowledge of same.
7.6 ACCURACY OF SUPPLEMENTS, REQUESTS FOR DISBURSEMENTS AND
REQUESTS FOR RELEASE AND REASSIGNMENT OF WICKES STOCK. If Borrower shall make
any representation, warranty or statement, including, but not limited to,
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representations made by Borrower as to how the Loan proceeds shall be used or as
to how the proceeds from that portion of Stock sold pursuant to Section 8.2 of
the Wickes Stock Pledge Agreement shall be used, in a supplement to or in
connection with this Loan Agreement, Request or request for release and
reassignment sent to Lender pursuant to Section 8.2 of the Wickes Stock Pledge
Agreement, which is materially false or misleading or which fails to state a
material fact required to be stated therein in order to make the statements
contained therein not misleading, in light of the circumstances under which
made, on the date as of which made, whether or not made with knowledge of the
same.
7.7 CROSS DEFAULTS. If an event of default occurs under any other loan
document between Borrower or any of Borrower's subsidiaries and Lender pursuant
to which Lender has loaned certain amounts to Borrower or any of Borrower's
subsidiaries. Likewise, any Event of Default under this Loan Agreement or the
Note shall be deemed an event of default under all other loan documents between
Borrower or any of Borrower's subsidiaries and Lender, and all sums due
thereunder shall be immediately accelerated and shall become immediately due and
payable to Lender.
7.8 OTHER DEFAULTS. If any of the following shall occur:
(A) Any lien, garnishment, levy, attachment or encumbrance of any
kind is placed against any property which serves as collateral for the Note or
any other property of Borrower or any of its subsidiaries;
(B) The issuance of any tax lien or levy against Borrower or any
of its subsidiaries or against any of Borrower's or any of its subsidiaries'
property, or Borrower's or any of its subsidiaries' failure to pay, withhold,
collect or remit any tax when assessed or due;
(C) There shall hereafter occur any material and adverse change
in the business operations and condition, financial or otherwise, of Borrower or
any of its subsidiaries or in the value of the collateral securing payment of
the Note; and
(D) If a final judgment or judgments for the payment of money in
the aggregate in excess of $10,000.00 shall be rendered against Borrower or any
of its subsidiaries and such judgment(s) shall remain unsatisfied or unstayed
for a period of thirty (30) days.
7.9 SOLVENCY AND OTHER MATTERS. If Borrower or any of its subsidiaries
shall:
(A) discontinue business; or
(B) make a general assignment for the benefit of creditors;
or
(C) apply for or consent to the appointment of a custodian,
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receiver, trustee or liquidator of all or a substantial part of its or their
assets; or
(D) be adjudicated a bankrupt or insolvent; or
(E) file a voluntary petition in bankruptcy or file a petition or
an answer seeking a composition, reorganization or an arrangement with creditors
or seeking to take advantage of any other law (whether federal or state)
relating to relief for debtors, or admit (by answer, default or otherwise) the
material allegations of any petition filed against them in any bankruptcy,
reorganization, composition, insolvency or other proceeding (whether federal or
state) relating to relief for debtors; or
(F) suffer or permit to continue unstayed and in effect for
thirty (30) consecutive days any judgment, decree or order entered by a court or
governmental agency of competent jurisdiction, which assumes control of Borrower
or approves a petition seeking a reorganization, composition or arrangement of
Borrower or any other judicial modification of the rights of any of its
creditors, or appoints a custodian, receiver, trustee or liquidator for Borrower
or for all or a substantial part of any of its business or assets; or
(G) not be paying their respective debts as they become due
or
(H) be enjoined or restrained from conducting all or a material
part of any of their respective businesses as now conducted and the same is not
dismissed and dissolved within thirty (30) days after the entry thereof.
8. REMEDIES UPON DEFAULT. Notwithstanding any contrary provision or inference
herein or elsewhere Lender shall have the following rights and remedies:
8.1 OPTIONAL ACCELERATION. If any Event of Default referred to in
Sections 7.1 through 7.8 hereof shall occur, Lender, in its absolute discretion,
without further notice to the Borrower, may declare all or any of the
Indebtedness, including, but not limited to, the Note, to be, whereupon the same
shall be, accelerated and immediately due and payable in full, all without any
presentment, demand, protest or notice of any kind, all of which are hereby
expressly waived by Borrower.
8.2 AUTOMATIC ACCELERATION. If any Event of Default referred to in
Sections 7.9 hereof shall occur, all of the Indebtedness, including the Note,
shall thereupon become accelerated and be immediately due and payable in full,
all without presentment, demand, protest or notice of any kind, all of which are
hereby expressly waived by Borrower.
8.3 OFFSETS. If any Event of Default or Possible Default shall occur or
begin to exist, Lender shall have the right then, or at any time thereafter, to
set off against, and to appropriate and apply toward the payment of the
Indebtedness (in such order as Lender may select in its sole discretion),
including but not limited to the indebtedness evidenced by the Note, whether or
not such indebtedness shall then have matured or be due and payable and whether
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or not Lender has declared the Note and/or other Indebtedness to be in default
and immediately due, any and all deposit balances and other sums and
indebtedness and other property then held or owed by the Lender to or for the
credit or account of Borrower, and in and on all of which Borrower hereby grants
Lender a first security interest and lien to secure all the Indebtedness, all
without notice to or demand upon Borrower all such notices and demands being
hereby expressly waived.
8.4 RIGHTS UNDER SECURITY INSTRUMENTS. If any Event of Default shall
occur, Lender shall also have all rights and remedies granted it under any and
all of the Security Instruments or other Loan Documents securing or intended to
secure the Indebtedness.
8.5 RIGHTS CUMULATIVE. All of the rights and remedies of Lender upon
occurrence of an Event of Default or Possible Default hereunder shall be
cumulative to the greatest extent permitted by law and shall be in addition to
all those rights and remedies afforded Lender at law or equity.
9. NOTICES.
9.1 GIVING OF NOTICES. All notices, requests, consents, approvals,
waivers, demands and other communications hereunder (collectively, "Notices")
shall be deemed to have been given if in writing and (1) personally delivered
against a written receipt, or (2) sent by confirmed telephonic facsimile, or (3)
delivered to a reputable express messenger service (such as Federal Express, DHL
Courier and United Parcel Service) for overnight delivery, addressed as follows
(or to such other address as a party shall have given Notice to the other):
If to Lender:
Imagine Investments, Inc.
8150 North Central Expressway
Suite 1901
Dallas, Texas 75206
Attn: Gary Goltz, General Counsel
Telephone: (214) 365-1905
Fax: (214) 365-6905
cc: Michael M. Fleishman, Esq.
Greenebaum Doll & McDonald PLLC
3300 National City Tower
Louisville, Kentucky 40202
Telephone: (502) 587-3530
Fax: (502) 540-2131
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<PAGE>
If to Borrower:
Riverside Group, Inc.
7800 Belfort Parkway, Suite 100
Jacksonville, Florida 32256
Attn: Cathe Gray
(904) 281-2200
Fax (904) 296-0584
cc: Malcolm Graham, Esq.
Holland & Knight, LLP
50 North Laura Street
Post Office Box 52687
Jacksonville, Florida 32201
(32202 street address)
Telephone: (904) 353-2000
Fax: (904) 358-2199
9.2 TIME NOTICES DEEMED GIVEN. All Notices shall be effective upon being
properly personally delivered, or upon confirmation of a telephonic facsimile,
or upon the delivery to a reputable express messenger service. The period in
which a response to any such notice must be given shall commence to run from the
date on the receipt of a personally delivered notice, or the date of
confirmation of a telephonic facsimile or one day following the proper delivery
of the Notice to a reputable express messenger service, as the case may be.
10. FEES AND EXPENSES. Borrower agrees that they shall be responsible for and
shall pay Lender's expenses incurred in negotiating and effecting this Loan and
the Loan Documents, including Lender's attorneys' fees in the amount of
$10,000.00 which, Borrower hereby agrees to have paid out of the initial
disbursement of the Loan proceeds made on even date herewith and wired to
Lender's counsel, Greenebaum, Doll & McDonald, PLLC, but shall nevertheless be
deemed disbursed directly to Borrower and evidenced by the Note.
Further, in the event of any default under this Loan
Agreement, the Note or any of the Security Instruments or any related
instruments, Borrower shall pay to Lender, to the extent allowable by applicable
law, such further amounts as shall be sufficient to reimburse fully the Lender
for all of its costs and expenses of enforcing its rights and remedies under
this Loan Agreement, the Note and the Security Instruments, and in protecting or
preserving any security for the Indebtedness, including without limitation,
Lender's reasonable attorneys', appraisers' and accountants' fees, court costs,
security costs and maintenance costs, and the same shall be deemed evidenced by
the Note and secured by all the Security Instruments. All obligations provided
for in this Section shall survive termination or cancellation of this Loan
Agreement for any reason whatsoever.
11. MISCELLANEOUS PROVISIONS. This Loan Agreement shall be subject to the
following miscellaneous provisions:
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11.1 CONSTRUCTION. The parties have participated jointly in the
negotiation and drafting of this Loan Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Loan Agreement shall be
construed as if drafted jointly by the parties and no presumption of burden of
proof shall arise favoring or disfavoring any party by virtue of the authorship
of any of the provisions of this Loan Agreement. Unless the context clearly
states otherwise, the use of the singular or plural in this Loan Agreement shall
include the other and the use of any gender shall include all others. All
references to "Section" or "Sections" refer to the corresponding Section or
Sections of this Loan Agreement. Unless otherwise expressly provided, the word
"including" does not limit the preceding words or terms.
11.2 COUNTERPARTS. This Loan Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original copy of this Loan
Agreement and all of which, when taken together, shall be deemed to constitute
one and the same agreement.
11.3 ENTIRE AGREEMENT. This Loan Agreement embodies the entire agreement
and understanding of the parties hereto with respect to the subject matter
herein contained, and supersedes all prior agreements, correspondence,
arrangements and understandings relating to the subject matter hereof.
11.4 FURTHER ASSURANCES. Borrower agrees (a) to furnish upon Lender's
request such further information, (b) to execute and deliver such other
documents, and (c) to do such other acts and things, all as Lender may
reasonably request for the purpose of carrying out the intent of this Loan
Agreement and the documents referred to in this Loan Agreement.
11.5 GOVERNING LAW. This Loan Agreement and all other Loan Documents are
executed and delivered in, and shall be governed by the laws of, the
Commonwealth of Kentucky, without giving effect to any conflict of law rule or
principle that might require the application of the laws of another
jurisdiction.
11.6 HEADINGS. The headings in this Loan Agreement are included for
purposes of convenience only and shall not be considered a part of this Loan
Agreement in construing or interpreting any provision hereof.
11.7 INVALIDITY OF PROVISIONS; SEVERABILITY. If any provision of this
Loan Agreement or the application thereof to any person or circumstance shall to
any extent be held in any proceeding to be invalid, illegal or unenforceable,
the remainder of this Loan Agreement, or the application of such provision to
persons or circumstances other than those to which it was held to be invalid,
illegal or unenforceable, shall not be affected thereby, and shall be valid,
legal and enforceable to the fullest extent permitted by law, but only if and to
the extent such enforcement would not materially and adversely frustrate the
parties' essential objectives as expressed herein. Notwithstanding the
foregoing, each party hereto agrees that it has reviewed the provisions of this
Loan Agreement, and that the same, taken as a whole, are fair and reasonable.
11.8 LIMITATION ON INTEREST. It is the intention of the parties hereto to
conform strictly to applicable usury laws. Accordingly, all agreements between
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Borrower and Lender withrespect to the Note and the Loan Documents are hereby
expressly limited so that in no event, whether by reason of acceleration of
maturity or otherwise, shall the amount paid or agreed to be paid to Lender or
charged by Lender for the use, forbearance or detention of the money to be lent
hereunder or otherwise, exceed the maximum amount allowed by law. If the Loan
would be usurious under applicable law, then, notwithstanding anything to the
contrary in the Note or in the Loan Documents: (a) the aggregate of all
consideration which constitutes interest under applicable law that is contracted
for, taken, reserved, charged or received under the Note or the Loan Documents
shall under no circumstances exceed the maximum amount of interest allowed by
applicable law, and any excess shall be credited on the Note by the holder
thereof or, at Lender's option, refunded to Borrower; and (b) if maturity is
accelerated by reason of an election by Lender, or in the event of an
prepayment, then any consideration which constitutes interest may never include
more than the maximum amount allowed by applicable law. In such case, interest
in excess of the maximum allowed by applicable law, if any provided for in the
Note, the Loan Documents or otherwise, to the extent permitted by applicable
law, shall be amortized, prorated, allocated and spread from the date of advance
until payment in full so that the actual rate of interest is uniform through the
term hereof. If such amortization, proration, allocation and spreading is not
permitted under applicable law, then such interest in excess of the maximum
allowed by applicable law, shall be canceled automatically as of the date of
such acceleration or prepayment and, if theretofore paid, shall be credited on
the Note or, at Lender's option, refunded to Borrower. The terms and provisions
of this Section shall control and supersede every other provision of the Note
and Loan Documents. The Note is a contract made under and shall be construed in
accordance with and governed by the laws of the Commonwealth of Kentucky, except
that if at any time the laws of the United States America permit Lender to
contract for, take, reserve, charge or receive a higher rate of interest than is
allowed by the laws of the Commonwealth of Kentucky (whether such federal laws
directly so provide or refer to the law of any state), then such federal laws
shall to such extent govern as to the rate of interest which Lender may contract
for, take, reserve, charge or receive under the Note.
11.9 BINDING EFFECT. The provisions of this Loan Agreement shall bind and
benefit Borrower and Lender and their respective successors and assigns,
including each subsequent holder, if any, of the Note or any other Indebtedness.
11.10 MODIFICATIONS. This Loan Agreement may be modified only in writing
executed by Lender and Borrower.
11.11 TIME OF ESSENCE. Time is of the essence in the performance by
Borrower of all the obligations set forth in this Loan Agreement and in all of
the other Loan Documents.
11.12 WAIVER. The rights and remedies of Lender hereunder are cumulative
and not alternative. Neither the failure nor any delay by Lender in exercising
any right, power, or privilege under this Loan Agreement or the documents
referred to in this Loan Agreement will operate as a waiver of such right,
power, or privilege, and no single or partial exercise of any such right, power,
or privilege will preclude any other or further exercise of such right, power,
or privilege or the exercise of any other right, power, or privilege. Each such
right, power, remedy or privilege may be exercised by Lender, either
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independently or concurrently with others, and as often and in such order as
Lender may deem expedient. To the maximum extent permitted by applicable law, no
waiver that may be given by a party will be applicable except in the specific
instance for which it is given. No waiver or consent granted by Lender with
respect to this Loan Agreement, the Indebtedness or any Security Instrument or
related writing shall be binding upon Lender, unless specifically granted in
writing by a duly authorized officer of Lender, which writing shall be strictly
construed.
11.13 INTERPRETATION. The parties hereto hereby agree that this Loan
Agreement shall be so interpreted to give effect and validity to all the
provisions hereof to the fullest extent permitted by law.
11.14 ASSIGNMENT. Borrower shall not assign any of its rights under the
Loan Agreement or any of the Loan Documents to any other party. Lender may
assign its rights and obligations under this Loan Agreement and the other Loan
Documents, in whole or in part, without the need for consent from Borrower and
such assignee shall be entitled to the benefits of Lender's rights hereunder.
11.15 SURVIVAL OF COVENANTS, AGREEMENTS, WARRANTIES AND REPRESENTATIONS.
All covenants, agreements, warranties and representations made by Borrower
herein shall survive the making of the Loan and delivery of the Note, this Loan
Agreement and any and all Security Instruments for the Note and other
Indebtedness, and shall be deemed to be continuing covenants, agreements,
representations and warranties at all times while any portion of the
Indebtedness, including the Note, remains unpaid.
12. JURY TRIAL WAIVER. BORROWER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY
WAIVES THE RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION OR
ANY OTHER PROCEEDING BASED ON, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH
THIS LOAN AGREEMENT OR ANY OTHER LOAN DOCUMENT OR OUT OF ANY COURSE OF CONDUCT,
COURSE OF DEALING, STATEMENTS (WHETHER WRITTEN OR ORAL) OR ACTIONS OF THE
BORROWER OR LENDER.
[SIGNATURES ON FOLLOWING PAGE]
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IN WITNESS WHEREOF, the parties have entered into this Loan Agreement as
of the date first written above.
IMAGINE INVESTMENTS, INC.
By:_________________________________
Title:
("Lender")
RIVERSIDE GROUP, INC.
By:_________________________________
Title:
("Borrower")
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DEMAND PROMISSORY NOTE
$1,800,000.00 LOUISVILLE, KENTUCKY
AUGUST 27, 1999
FOR VALUE RECEIVED, the undersigned, RIVERSIDE GROUP, INC., a Florida
corporation with a principal office and place of business in Jacksonville,
Florida ("Maker"), hereby promises and agrees to pay to the order of IMAGINE
INVESTMENTS, INC., a Delaware corporation, or to any holder of this Note
("Payee"), the principal sum of ONE MILLION EIGHT HUNDRED THOUSAND DOLLARS
($1,800,000.00), or the aggregate principal amount advanced and which shall be
outstanding under this Note, together with interest upon such principal balance
at the rate provided below, in legal tender of the United States of America. The
unpaid principal balance of, and all accrued interest on, this Note shall be due
and payable in full on demand, but no earlier than August 26, 2000. All payments
under this Note shall be paid to Payee at 8150 North Central Expressway, Suite
1901, Dallas, Texas 75206, or to such other person or at such other place as may
be designated in writing by Payee or any subsequent holder of this Note.
(1) INTEREST RATE AND PAYMENT OF INTEREST. The principal balance of this
Note shall bear interest at the rate of twelve and three-quarters percent
(12.75%) per annum. Maker shall make payments of interest on this Note
quarterly, commencing on October 1, 1999, and continuing on the first (1st) day
of every third (3rd) month thereafter until Maker pays in full all sums due
under this Note. All interest on the principal balance of this Note shall be
computed on the basis of the actual number of days elapsed over an assumed year
of 360 days. All parties hereto hereby specifically agree that the laws of the
Commonwealth of Kentucky shall govern this Note.
(2) REPAYMENT OF PRINCIPAL AND INTEREST. The Maker acknowledges that the
Payee may demand payment of the entire outstanding balance and all accrued, but
unpaid interest on this Note at any time on or after August 26, 2000, at which
time, this Note will become due and payable in full. This Note may be prepaid in
whole or in part at any time and from time to time without penalty.
(3) APPLICATION OF PAYMENTS. Payments made under this Note shall be
applied, at the holder's sole option, first to any expenses or sums advanced by
Payee or other amounts (other than principal and interest) payable to Payee in
respect of and in accordance with the terms of this Note, the Loan Agreement or
under the terms of any document or instrument securing the repayment of this
Note; second, to accrued but unpaid interest upon the principal balance of this
Note and then to the principal balance of this Note.
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(4) OVERDUE PAYMENTS; DEFAULT RATE. All overdue payments of principal or
interest on this Note shall bear additional interest until paid in full at the
rate per annum (calculated on the basis of an assumed year of 360 days as
aforesaid) of five percent (5%) in excess of the rate otherwise payable under
the terms of this Note or the highest rate allowed by applicable law, whichever
is lower, and shall be due and payable on demand of the holder hereof. The
collection of default rate interest shall not be deemed a waiver of an Event of
Default.
(5) SECURITY. This Note is secured by a pledge of the following: (i)
1,000 shares of the capital stock of Cybermax, Inc., a Florida corporation,
pursuant to that certain Stock Pledge Agreement, dated as of even date herewith,
between Maker and Payee, and (ii) 921,845 shares of the capital stock of Wickes,
Inc., a Delaware corporation, pursuant to that certain Stock Pledge Agreement,
dated as of even date herewith between Maker and Payee herewith. This Note has
been issued pursuant to the Loan Agreement among Maker and Payee, dated on even
date herewith (the "Loan Agreement") (such Loan Agreement and the foregoing
Stock Pledge Agreements, as amended, are hereinafter collectively referred to as
the "Security Documents"), and is subject to all terms and conditions of the
Loan Agreement and is entitled to all the benefits of the Security Documents.
(6) EVENTS OF DEFAULT. Each of the following events shall constitute an
event of default under this Note, the occurrence of any of which shall entitle
the holder hereof to declare the entire principal balance of this Note, together
with all accrued interest and all other liabilities, indebtedness and
obligations of Maker to Payee, whether now existing or hereafter created, to be
immediately due and payable, and to take any and all action allowed Payee, under
this Note, under the Security Documents, and under any other agreements between
Maker and Payee or as allowed by applicable law or equity:
(a) The failure of Maker to make any payment of principal or
interest provided for in this Note on the date upon which it
is due;
(b) The occurrence of an Event of Default under any Security
Document; or
(c) The occurrence of an event of default under any loan document between
Maker or any of Maker's subsidiaries and Payee pursuant to which Payee has
loaned certain amounts to Maker or any of Maker's subsidiaries.
(7) CROSS DEFAULT; ACCELERATION. If Maker fails to make any payment of
principal or interest provided for in this Note on the date upon which it is due
or otherwise defaults under this Note or related loan documents, all sums and
amounts due under all other loan documents between Maker or any of Maker's
subsidiaries and Payee shall be immediately accelerated and shall be immediately
due and payable to Payee.
(8) NO WAIVER, CUMULATIVE REMEDIES. The failure of Payee to exercise any
of its rights and remedies shall not constitute a waiver of the right to
exercise them at that or any other time. All rights and remedies of Payee in the
event of a default shall be cumulative to the greatest extent permitted by law.
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<PAGE>
(9) EXPENSES. If there is any default under this Note or any Security
Document and this Note is placed in the hands of any attorney for collection or
is collected through any court including any bankruptcy court, Maker promises
and agrees to pay to Payee its attorneys' fees, court costs, and all other
expenses incurred in collecting or attempting to collect or securing or
attempting to secure this Note as provided by the laws of the Commonwealth of
Kentucky, or any other state where the collateral or any part of it is situated.
This section shall be deemed supplemental to, and not to be in substitution for,
that section of any Security Document dealing with the reimbursement of
expenses. Further, Maker agrees to pay all of Payee's legal fees and expenses in
connection with the making and documentation of the loan evidenced by this Note.
(10)WAIVERS. Maker waives (a) presentment, demand, notice of dishonor,
protest, notice of protest and non-payment, and (b) all exemptions to which
Maker may now or hereafter be entitled under the laws of the Commonwealth of
Kentucky, of any other state, or of the United States, and agrees that Payee
shall have the right (i) to grant Maker or any guarantor of this Note any
extension of time for payment of this Note or any other indulgence or
forbearance whatso ever, and (ii) to release any security for or guarantor of
payment of this Note, without in any way affecting the liability of Maker under
this Note under the Security Documents, and without waiving any rights Payee may
have under this Note or by virtue of the laws of the Commonwealth of Kentucky,
or any other state of the United States.
(11) TIME OF ESSENCE. Time is of the essence in the payment and
performance of all of Maker's obligations under this Note, the Security
Documents and all documents securing this Note or relating hereto.
(12) VENUE AND JURISDICTION.Maker further agrees that in the event of any
litigation for collection of or relating to this Note, jurisdiction and venue
shall be proper and appropriate in any court sitting in Louisville or Jefferson
County Kentucky, and Maker hereby consents to such jurisdiction and venue.
(13) WAIVER OF JURY TRIAL. MAKER VOLUNTARILY AND INTENTIONALLY WAIVES AND
SHALL NOT ASSERT ANY RIGHT THAT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY
LITIGATION ARISING FROM OR CONNECTED WITH THIS NOTE, THE SECURITY DOCUMENTS OR
ANY AGREEMENT MADE OR CONTEMPLATED TO BE MADE IN CONNECTION THEREWITH, OR ANY
COURSE OF DEALING, COURSE OF CONDUCT, STATEMENT OR ACTIONS OF ANY PARTY IN
CONNECTION WITH THIS NOTE.
(14) LIMITATION ON INTEREST. It is the intention of the parties hereto to
conform strictly to all applicable usury laws. Accordingly, all agreements
between Maker and Payee with respect to this Note and the Loan Documents, as
defined in the Loan Agreement, are hereby expressly limited so that in no event,
whether by reason of acceleration of maturity or otherwise, shall the amount
paid or agreed to be paid to Payee or charged by Payee for the use, forbearance
or detention of the money to be lent hereunder or otherwise, exceed the maximum
amount allowed by law. If this loan would be usurious under applicable law,
then, notwithstanding anything to the contrary in this Note or in the Loan
Documents: (a) the aggregate of all consideration which
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constitutes interest under applicable law that is contracted for, taken,
reserved, charged or received under this Note or the Loan Documents shall under
no circumstances exceed the maximum amount of interest allowed by applicable
law, and any excess shall be credited on this Note by the holder thereof, or, at
Payee's option, refunded to Maker; and (b) if maturity is accelerated by reason
of an election by Payee, or in the event of an prepayment, then any
consideration which constitutes interest may never include more than the maximum
amount allowed by applicable law. In such case, interest in excess of the
maximum allowed by applicable law, if any provided for in this Note, the Loan
Documents or otherwise, to the extent permitted by applicable law, shall be
amortized, prorated, allocated and spread from the date of advance of principal
hereunder until payment in full so that the actual rate of interest is uniform
through the terms hereof. If such amortization, proration, allocation and
spreading is not permitted under applicable law, then such interest in excess of
the maximum allowed by applicable law shall be canceled automatically as of the
date of such acceleration or prepayment and, if theretofore paid, shall be
credited on this Note, or, at Payee's option, refunded to Maker. The terms and
provisions of this Section shall control and supersede every other provision of
this Note and the Loan Documents. This Note shall be construed in accordance
with and governed by the laws of the Commonwealth of Kentucky, except that if at
any time the laws of the United States America permit Payee to contract for,
take, reserve, charge or receive a higher rate of interest than is allowed by
the laws of Kentucky (whether such federal laws directly so provide or refer to
the law of any state), then such federal laws shall to such extent govern as to
the rate of interest which Payee may contract for, take, reserve, charge or
receive under this Note.
(15) PARTIAL INVALIDITY. If any one or more of the provisions of this
Note, or the applicability of any such provision to a specific situation, shall
be held invalid or unenforceable, such provision shall be modified to the
minimum extent necessary to make it or its application valid and enforceable,
and the validity and enforceability of all other provisions of this Note and all
other applications of any such provision shall not be affected thereby. In the
event such provision(s) cannot be modified to make it or them enforceable, the
invalidity or unenforceability of any such provision(s) of this Note shall not
impair the validity or enforceability of any other provision of this Note.
(16) BINDING EFFECT. This Note shall bind the successors and assigns of
Maker and shall inure to the benefit of Payee and its successors and assigns.
Maker shall not assign or allow the assumption of its rights and obligations
hereunder without Payee's prior written consent.
[SIGNATURE ON FOLLOWING PAGE]
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<PAGE>
IN WITNESS WHEREOF, the undersigned Maker has executed this Note as of
the date first above written.
RIVERSIDE GROUP, INC.
By:______________________________
Title:___________________________
("Maker")
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STOCK PLEDGE AGREEMENT
THIS STOCK PLEDGE AGREEMENT is entered into and effective as of August
27, 1999 (the "Effective Date"), by and between: (i) RIVERSIDE GROUP, INC., a
Florida corporation having its principal office in Jacksonville, Florida
("Borrower"), and (ii) IMAGINE INVESTMENTS, INC., a Delaware corporation having
its principal office in Dallas, Texas ("Lender"). All capitalized terms defined
in that certain Loan Agreement dated as of the Effective Date between Borrower
and Lender (as amended, restated, modified or supplemented from time to time,
the "Loan Agreement") and not otherwise defined herein shall have the same
meaning herein as in the Loan Agreement.
RECITALS:
A. Pursuant to the terms of the Loan Agreement and the Note executed by
Borrower in favor of Lender in the face principal amount of One Million Eight
Hundred Thousand Dollars ($1,800,000.00), Lender has agreed to extend a loan to
Borrower in the amount of One Million Five Hundred Thousand Dollars
($1,500,000.00) (the "Loan").
B. To induce Lender to make the Loan to Borrower, without which
inducement Lender would be unwilling to do so, Borrower has agreed to pledge and
grant a security interest in certain shares of the common capital stock of
Wickes, Inc. ("Wickes"), a Delaware corporation, standing in Borrower's name
(the "Stock") to secure the payment of the Loan and all other obligations of
Borrower in connection with the Loan, pursuant to the terms and conditions of
this Stock Pledge Agreement.
AGREEMENT:
NOW, THEREFORE, the parties hereby agree as follows:
1. PLEDGE AND DEPOSIT OF SHARES.
1.1 PLEDGE AND ASSIGNMENT.
(A) THE STOCK. Borrower hereby pledges and assigns to Lender,
and grants a security interest to Lender in, 921,845 shares of the common
capital stock of Wickes, now standing in Borrower's name (the "Stock"), as
represented by those stock certificates listed on Exhibit A attached hereto and
made a part hereof by reference, which such certificates have been delivered
herewith by Borrower to Lender, together with a duly executed blank stock power
attached thereto, all as collateral security for the full and punctual payment
and due performance by Borrower of all its obligations under the Loan Documents
(the "Secured Obligations").
1.2 CERTIFICATES. The certificates or other instruments evidencing all
new shares of capital stock and all other securities, rights, warrants, options
and the like hereafter created in respect of the Stock, whether by stocksplit,
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stock dividend, merger, consolidation or otherwise, shall be delivered by
Borrower to, and shall be held by, Lender under the terms and conditions of this
Stock Pledge Agreement and subject to the lien and security interest herein
granted, and the term Stock as used herein shall be deemed to include all such
new shares, securities, rights, warrants, options and the like. In addition, any
and all shares of stock of Wickes which may be owned or acquired by Borrower now
or hereafter, whether created or acquired, shall be deemed pledged to Lender as
security pursuant to this Stock Pledge Agreement, and all certificates
representing said shares shall be immediately delivered, properly endorsed to
Lender, upon issuance to or receipt by Borrower. Furthermore, Borrower agrees
that it shall pledge to Lender, immediately upon creation or purchase, any
interest which it may create or acquire in any partnership, corporation or other
entity whose purpose includes the holding or operation of properties in
connection with or related to the business operations of Wickes.
2. COVENANTS. During the period the Stock is being held as security hereunder,
Borrower shall not, without the prior written consent of Lender, vote in favor
of allowing Wickes to (i) issue any additional capital stock or other equity
securities of any kind or options, subscription rights, warrants or other
instruments with respect thereto or any other instruments convertible into
shares of its capital stock, or sell or issue any treasury stock, (ii) merge
into or with or consolidate with any other corporation or business or otherwise
participate in any reorganization or sell or lease to others all or
substantially all of its assets, (iii) amend its Articles of Incorporation or
ByLaws in any manner that would have a material adverse effect on Lender's
rights with respect to the Stock, or liquidate or dissolve or take any steps to
effect same, or (iv) effect a recapitalization or alter its capital structure.
3. VOTING RIGHTS; DIVIDENDS, ETC.
3.1 VOTING OF STOCK. So long as no Event of Default shall have
occurred, Borrower shall be entitled to exercise any and all voting and/or
consensual rights and powers relating or pertaining to the Stock or any part
thereof for any purpose not inconsistent with the terms of this Stock Pledge
Agreement.
3.2 PAYMENT OF DIVIDENDS AND DISTRIBUTIONS. All dividends and
distributions, regardless whether in cash, stock, rights, options or other
property, and all stock splits, stock dividends and the like and the proceeds of
all redemptions and liquidations that are made, paid or declared with respect to
the Stock, shall be paid directly to Lender, and those dividends and
distributions that are paid in cash, at Lender's sole election, shall be either
applied as a payment on the Secured Obligations or held by Lender as additional
security for the Secured Obligations and those dividends and distributions that
are paid other than in cash shall be held by Lender as additional security for
the Secured Obligations (and Borrower shall execute all instruments in
connection therewith as are requested by Lender and hereby appoints Lender as
its attorney-in-fact to execute such instruments in connection therewith).
Borrower represents and warrants to Lender that it is the only duly authorized
transfer agent authorized to distribute all such dividends and distributions. If
at any time a different transfer agent is authorized to distribute any dividend
or distribution, Borrower shall (i) immediately notify Lender thereof and (ii)
instruct such transfer agent to send all dividends and distributions with
respect to the Stock to Lender, payable directly
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<PAGE>
to Lender. Borrower agrees that any such transfer agent may rely conclusively
upon a copy of this Stock Pledge Agreement for authorization to make and send
such distributions and dividends directly to Lender without the need for further
authorization from, or notification to, Borrower.
4. STATUS OF THE STOCK. Borrower hereby represents and warrants to Lender that
(a) the Stock is validly issued and outstanding, fully paid and non-assessable,
and constitutes ____% of the issued and outstanding capital stock of Wickes; (b)
Borrower is the registered and absolute beneficial owner of the Stock; (c) all
the Stock is free and clear of liens, charges and encum brances in favor of
persons other than Lender; (d) Borrower has the full power and authority to
pledge the Stock to Lender pursuant to this Stock Pledge Agreement; (e) the
Stock is freely pledgeable under this Stock Pledge Agreement without the
necessity of prior registrations or filings with any state securities department
of the Securities and Exchange Commission; and (g) Wickes is a corporation
validly existing under the law of the State of Delaware. No part of the Stock
shall be sold, transferred or further assigned by Borrower without the prior
written consent of Lender, which consent may be arbitrarily withheld so long as
this Stock Pledge Agreement is in effect.
5. MAINTENANCE OF PRIORITY OF PLEDGE. Borrower shall be liable for and shall
from time to time pay and discharge all taxes, assessments and governmental
charges imposed upon the Stock by any federal, state or local authority, the
liens of which would or might be held prior to the right of Lender in and to the
Stock or which are imposed on the holders and/or registered owners of the Stock.
Borrower shall not, at any time while this Stock Pledge Agreement is in effect,
do or suffer any act or thing whereby the rights of Lender in the Stock would or
might be materially impaired or diminished. Borrower shall execute and deliver
such further documents and take such further actions as may be required to
confirm the rights of Lender in and to the Stock or otherwise to effectuate the
intention of this Stock Pledge Agreement.
6. EVENTS OF DEFAULT. Each of the following shall be deemed an "Event of
Default" hereunder:
6.1 CROSS DEFAULT. The occurrence of any Event of Default under the
Loan Agreement, the Note or any other Loan Document, or under any other related
instrument or agreement;
6.2 DEFAULT HEREUNDER. The occurrence of any default of any kind
whatsoever under the terms, covenants and conditions of this Stock Pledge
Agreement which is not fully corrected to the complete satisfaction of Lender
within 5 days after Lender has given Borrower notice thereof.
7. REMEDIES UPON DEFAULT. Upon the occurrence of any Event of Default referred
to in Section 6 above, Lender shall have all rights and remedies in and against
the Stock and otherwise of a secured party under the Uniform Commercial Code as
enacted in the Commonwealth of Kentucky (the "UCC") and all other applicable
laws, and shall also have all of the rights provided herein, in the Note and in
all other Loan Documents, all of which rights and remedies shall be cumulative
to the fullest extent permitted by law. In connection with the foregoing, Lender
shall have the right:
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<PAGE>
7.1 VOTING RIGHTS. To exercise all voting rights and privileges
whatsoever with respect to the Stock, and to that end Borrower hereby
constitutes Lender as its proxy and attorney-in-fact for all purposes of voting
the Stock, and this appointment shall be deemed coupled with an interest and is
and shall be irrevocable until the Secured Obligations have been fully paid and
this Stock Pledge Agreement terminated, and all persons whatsoever shall be
conclusively entitled to rely upon Lender's verbal or written certification that
it is entitled to vote the Stock hereunder. Borrower shall execute and deliver
to Lender any and all additional proxies and powers of attorney that Lender may
desire in order to vote more effectively the Stock in its own name.
7.2 RIGHT OF SALE. To declare the Note and the other Secured
Obligations immediately due and payable in full, and to sell the Stock in one or
more lots, and from time to time, upon 10 business days' prior written notice to
Borrower of the time and place of sale (which notice Borrower hereby
conclusively agrees is commercially reasonable), for cash or upon credit or for
future delivery, Borrower hereby waiving all rights, if any, of marshaling the
Stock and any other security for the payment of the Note and other Secured
Obligations, and at the option and in the sole discretion of Lender, to either:
(I) Sell the Stock at a public sale or sales, including a
sale at or on any broker's board or stock exchange; or
(II) Sell the Stock at a private sale or sales.
Lender may bid for and acquire the Stock or any portion thereof at any
public sale, free from any redemption rights of Borrower, and in lieu of paying
cash therefor, may make settlement for the selling price of the Stock or any
part thereof by crediting the net selling price of the Stock against the Note
and other Secured Obligations, after deducting all of Lender's costs and
expenses of every kind and nature therefrom, including Lender's attorneys' fees
incurred in connection with realizing upon the Stock and enforcing the Loan
Documents and the Note, provided the same is not prohibited by the laws of the
Commonwealth of Kentucky.
From time to time Lender may, but shall not be obligated to, postpone
the time of any proposed sale of any of the Stock which has been the subject of
a notice as provided above, and also, upon 10 days' prior written notice to
Borrower (which notice Borrower conclusively agrees is commercially reasonable),
may change the time and/or place of such sale.
In the case of any sale by Lender of the Stock or any portion thereof
on credit or for future delivery, which may be elected at the option and in the
sole discretion of Lender, the Stock so sold may, at the sole option of Lender,
either be delivered to the purchaser or retained by Lender until the selling
price is paid by the purchaser, but in either event Lender shall incur no
liability, to Borrower or otherwise, in case of failure of the purchaser to take
up and pay for the Stock so sold. In case of any such failure, such Stock may be
sold again by Lender in the manner provided in this Section 7.
Borrower covenants and agrees that, during any period of sale or
liquidation of the Stock by Lender, Borrower shall not sell any other stock of
the Wickes if such sale would restrict or limit
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<PAGE>
Lender's sale of the Stock under Rule 144 or other Rule of the Securities and
Exchange Commission or if such sale by Borrower would cause or contribute to a
decline in the share price of the Stock. Borrower further agrees in the event of
any such sale or liquidation by Lender, to execute any and all forms, including,
but not limited to, Forms 144 and customary broker's and seller's representation
letters, to enable Lender to effect the sale of the Stock. Borrower shall
further take and shall cause Wickes to take all necessary actions to remove any
restrictive legend affecting the Stock, and to assist in the effectuation of the
sale of the Stock including, at Borrower's expense, the supplying of opinions of
counsel customarily required to effect such sales.
7.3 COSTS AND EXPENSES. After deducting all of Lender's costs and
expenses of every kind, including, but not limited to, legal fees and
registration (Securities and Exchange Commission and other) fees and expenses,
if any, incurred in connection with the sale of the Stock, Lender shall apply
the residue of the proceeds of any sale or sales of the Stock against the Note
and the other Secured Obligations, in the order of priority elected by Lender.
Lender shall not incur any liability to Borrower or otherwise as a result of the
sale of the Stock at any private sale or sales, and Borrower hereby waives any
claim arising by reason of (i) the fact that the price or prices for which the
Stock or any portion thereof is sold at such private sale or sales is less than
the price which would have been obtained at a public sale or sales or is less
than the amount due under the Note and other obligations secured hereby, even if
Lender accepts the first offer received and does not offer the Stock or any
portion thereof to more than one offeree, (ii) any delay by Lender in selling
the Stock following an Event of Default hereunder, even if the price of the
Stock thereafter declines, or (iii) the immediate sale of the Stock upon the
occurrence of an Event of Default hereunder, even if the price of the Stock
should thereafter increase. Borrower shall remain liable for any deficiency
remaining due under the Note, this Stock Pledge Agreement, any of the other Loan
Documents or any related documents or instruments.
8. REASSIGNMENT OF SHARES PRIOR TO REPAYMENT. Subject to the terms and
conditions of this Section 8, Lender hereby agrees to release and reassign
certain portions of the Stock to Borrower, prior to the Note and all other
Secured Obligations being paid in full for certain purposes as hereinafter set
forth.
8.1 REASSIGNMENT OF FIRST 81,000 SHARES OF STOCK . In one or more
stages, Lender, upon Borrower's request, shall release and reassign to Borrower,
in the aggregate, 81,000 shares of the Stock held by Lender as collateral
security for the payment of the Secured Obligations (the "First Tier Shares"),
provided, and only if, the proceeds from the sale of these shares shall be used
for the following purposes, in order of priority as listed below:
(A) Full payment of any past due interest on this Loan;
(B) Full payment of the upcoming quarterly interest payment on
this Loan;
(C) Full payment of any past due interest on Borrower's Secured
Promissory Notes (the "11% Debt");
(D) Full payment of the interest accrued through the date the
First Tier Shares are released by Lender on the semi-annual interest payment on
Borrower's 11% Debt, but only up to interest due through March 31, 2000;
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(E) Full payment of any past due principal or interest on the
Wickes Plus loan; and
(F) Full payment of the upcoming quarterly interest and principal
payments on the Wickes Plus loan.
To the extent proceeds from the sale of the First Tier Shares exceed
the amounts required to satisfy items (a)-(f) listed above (the "First Tier
Shares Excess Proceeds"), notwithstanding any other provisions of the Loan
Documents, none of the use restrictions contained in this Section 8.1 shall
apply to Borrower's use of the First Tier Shares Excess Proceeds.
8.2 REASSIGNMENT OF AN ADDITIONAL 81,000 SHARES OF STOCK. After the
First Tier Shares have been released and reassigned to Borrower as set forth
above in Section 8.1, in one or more stages, Lender, upon Borrower's request,
shall release and reassign to Borrower, in the aggregate, an additional 81,000
shares of the Stock held by Lender as collateral security for the payment of the
Secured Obligations (the "Second Tier Shares"), provided, and only if, the
proceeds from the sale of the Second Tier Shares are used for the following
purposes, in order of priority as listed below.
(A) Full payment of any past due interest on this Loan;
(B) Twenty percent (20%) of the proceeds from the sale of each of
the Second Tier Shares shall be used to reduce the outstanding principal balance
of the Loan ;
(C) Full payment of the upcoming quarterly interest payment on
this Loan;
(D) Full payment of any past due interest on Borrower's 11% Debt;
(E) Full payment of the interest accrued through the date the
Second Tier Shares are released by Lender on the semi-annual interest payment of
Borrower's 11% Debt, but only up to interest due through March 31, 2000;
(F) Full payment of any past due principal or interest on the
Wickes Plus loan; and
(G) Full payment of the upcoming quarterly interest and principal
payments on the Wickes Plus loan.
To the extent proceeds from the sale of the Second Tier Shares exceed the
amounts required to satisfy items (a)-(g) listed above (the "Second Tier Shares
Excess Proceeds"), notwithstanding the other provisions included in the Loan
Documents, none of the use restrictions contained in this Section 8.2 shall
apply to Borrower's use of the Second Tier Shares Excess Proceeds.
8.3 REASSIGNMENT OF AN ADDITIONAL 162,000 SHARES OF STOCK. After the First
and Second Tier Shares have been released and reassigned to Borrower as set
forth above in Section 8.1 and 8.2, in one or more stages, Lender, upon
Borrower's request, shall release and reassign to Borrower, in the aggregate, an
additional 162,000 shares of the Stock held by Lender as collateral security for
the payment of the Secured Obligations (the "Third Tier Shares"), provided, and
only
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if, the proceeds from the sale of the Third Tier Shares are used for the
following purposes, in order of priority as listed below.
(A) Full payment of any past due interest on this Loan;
(B) Thirty percent (30%) of the proceeds from the sale of each of
the Third Tier Shares shall be used to reduce the outstanding principal balance
of the Loan ;
(C) Full payment of the upcoming quarterly interest payment on
this Loan;
(D) Full payment of any past due interest on Borrower's 11% Debt;
(E) Full payment of the interest accrued through the date the
Second Tier Shares are released by Lender on the semi-annual interest payment on
Borrower's 11% Debt, but only up to interest due through March 31, 2000;
(F) Full payment of any past due principal or interest on the
Wickes Plus loan; and
(G) Full payment of the upcoming quarterly interest and principal
payments on the Wickes Plus loan.
To the extent proceeds from the sale of the Second Tier Shares exceed the
amounts required to satisfy items (a)-(g) listed above (the "Third Tier Shares
Excess Proceeds"), notwithstanding the other provisions included in the Loan
Documents, none of the use restrictions contained in this Section 8.2 shall
apply to Borrower's use of the Third Tier Shares Excess Proceeds.
8.4 REASSIGNMENT OF THE REMAINING SHARES OF STOCK. After the First, Second
and Third Tier Shares have been released and reassigned as set forth above in
Sections 8.1, 8.2 and 8.3, in one or more stages, Lender, upon Borrower's
request, shall release and reassign to Borrower, in the aggregate, the remaining
shares of the Stock held by Lender as collateral security for the payment of the
Secured Obligations (the "Remaining Shares"), provided, and only if, the
proceeds from the sale of the Remaining Shares are used for the following
purposes, in order of priority as listed below:
(A) Full payment of any past due interest on this Loan;
(B) Full payment of all the principal balance of the Loan,
together with all accrued, unpaid interest on the Loan;
(C) Full payment of any past due interest on Borrower's 11% Debt;
(D) Full payment of the interest accrued through the date the
Remaining Shares are released by Lender on the semi-annual interest payment on
Borrower's 11% Debt, but only up to interest due through March 31, 2000;
(E) Full payment of any past due principal or interest on the
Wickes Plus loan; and
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(F) Full payment of the upcoming quarterly interest and principal
payments on the Wickes Plus loan.
To the extent proceeds from the sale of the Second Shares exceed the
amounts required to satisfy items (a)-(f) listed above (the "Remaining Shares
Excess Proceeds"), notwithstanding the other provisions included in the Loan
Documents, none of the use restrictions contained in this Section 8.3 shall
apply to Borrower's use of the Remaining Shares Excess Proceeds.
8.5 ADDITIONAL RESTRICTIONS ON SALE OF STOCK.
(A) Notwithstanding anything contained in this Section 8, except
to pay principal and interest on the Loan, Lender shall not be obligated to
release or reassign any of the First Tier Shares, Second Tier Shares, Third Tier
Shares or Remaining Shares prior to the full repayment and satisfaction of the
Note and Secured Obligations if the Collateral Value (as defined below) of the
shares of Stock remaining after the proposed release would be less than 200% of
the outstanding principal balance of the Loan.
The "Collateral Value" shall be determined by multiplying the number of
shares of the Stock which would remain after the proposed release by the lower
of (i) $4.00 per share or (ii) the average closing price per share of the Stock
over the last 20 trading days immediately preceding the day the proposed release
of the First Tier Shares, Second Tier Shares, Third Tier Shares or Remaining
Shares, whichever is applicable, is to occur.
(B) Lender shall not be obligated to release more shares of the
Stock than can be sold by Borrower in accordance with Rule 144 of the rules
promulgated under the Securities Act of 1933 ("Rule 144"), unless Borrower has
arranged for a private sale of any portion of the Stock which is not subject to
Rule 144. Any shares of the Stock reassigned by Lender to Borrower and sold
pursuant to a private sale shall be subject to the terms and conditions of
Section 8 of this Stock Pledge Agreement and thus the proceeds from the sale
shall be applied as set forth in Section 8.
(C) The proceeds from the sale of the First Tier Shares, Second
Tier Shares, Third Tier Shares and Remaining Shares shall be deposited directly
into a restricted account with a bank or agent, satisfactory to Lender, and may
only be disbursed and wired to each appropriate payee upon Lender approving the
disbursement in writing as evidenced by the signature of Harry Carneal or any
other authorized representative of Lender.
8.6 REQUEST FOR RELEASE AND REASSIGNMENT. When Borrower desires to have any
of the First Tier Shares, Second Tier Shares, Third Tier Shares or Remaining
Shares reassigned to Borrower, Borrower shall submit a written request, signed
by either Cathe Gray, Chief Financial Officer, or J. Steven Wilson, President,
stating the number of shares which should be reassigned to Borrower and
representing how the proceeds from the sale of the reassigned shares shall be
used ("Request for Release"). Statements made by Borrower in each of its
Requests for Release shall constitute representations made by Borrower which are
subject to Sections 7.5 and 7.6 of the Loan Agreement.
9. TERMINATION. This Pledge Agreement shall terminate when the Note and all the
other Secured Obligations have been paid in full, at which time Lender shall
reassign and redeliver,
31
<PAGE>
without recourse upon or warranty by Lender and at the expense of Borrower (or
cause to be so reassigned and redelivered to Borrower, to such person or persons
as Borrower shall designate or to such persons as may be legally entitled),
against receipt, such of the Stock (if any) as shall not have been sold or
otherwise applied by Lender pursuant to the terms hereof and shall still be held
by it hereunder, together with appropriate instruments of reassignment and
release.
10. NOTICES. All notices and other communications hereunder shall be in writing
and shall be deemed to have been duly given (i) upon being delivered personally
(or by confirmed telefax or other electronic delivery method); or (ii) four days
after being mailed by certified mail, return receipt requested, postage prepaid,
or (iii) one day after being sent by Federal Express or other reputable
overnight delivery service providing delivery confirmation, for next day
delivery, in each case to the parties at the following address (or at such other
address for a party as shall be specified by like notice):
If to Borrower: Riverside Group, Inc.
7800 Belfort Parkway, Suite 100
Jacksonville, Florida 32256
Attention: Cathe Gray
If to Lender, to: Imagine Investments, Inc.
8150 No. Central Expressway
Suite 1901
Dallas, Texas 75206
Attention: Gary Goltz, General Counsel
With a copy to: Michael M. Fleishman, Esq.
Greenebaum Doll & McDonald PLLC
3300 National City Tower
Louisville, Kentucky 40202
11. MISCELLANEOUS.
11.1 DEFINED TERMS. All capitalized terms not defined herein shall have the
meanings ascribed to them in the Loan Agreement executed by Borrower and Lender
on even date herewith in connection with the Loan.
11.2 FUTURE ADVANCES. This Stock Pledge Agreement also secures all
additional loans and/or future advances that may be made hereafter at any time
by Lender to Borrower.
11.3 GOVERNING LAW. The laws of the Commonwealth of Kentucky shall govern
the construction of this Stock Pledge Agreement and the rights, remedies and
duties of the parties hereunder.
11.4 SEVERABILITY. In the event that any one or more of the provisions
contained herein shall for any reason be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision hereof, and this Stock Pledge Agreement
shall be construed as if such invalid, illegal or unenforceable provision had
never been contained herein.
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<PAGE>
11.5 SUCCESSORS AND ASSIGNS. This Stock Pledge Agreement shall bind
Borrower and its successors and assigns, and shall inure to the benefit of
Lender and its successors and assigns.
11.6 TIME OF ESSENCE. Time shall be of the essence in the performance of
Borrower's obligations hereunder.
11.7 CAPTIONS. The several captions, headings, sections and subsections of
this Stock Pledge Agreement are inserted for convenience only and shall be
ignored in interpreting the provisions of this Stock Pledge Agreement.
11.8 COUNTERPARTS. This Stock Pledge Agreement may be executed in several
counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same instrument.
11.9 WAIVER. The failure of Lender to insist upon strict performance of any
of the terms, covenants, or conditions hereof shall not be deemed a waiver of
any of its rights or remedies and shall not be deemed a waiver of any subsequent
breach or default in any of such terms, covenants, or conditions.
11.10 MODIFICATIONS. This Stock Pledge Agreement may be modified or amended
only by written agreement executed by all of the parties hereto.
11.11 CONSENT TO JURISDICTION. Borrower agrees that in the event of any
litigation for collection of or relating to this Security Agreement,
jurisdiction and venue shall be proper and appropriate in any court sitting in
Louisville or Jefferson County, Kentucky, and Borrower hereby consents to such
jurisdiction and venue.
11.12 WAIVER OF JURY TRIAL. BORROWER HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVES ANY RIGHT BORROWER MAY HAVE TO A TRIAL BY JURY IN RESPECT
OF ANY LITIGATION BASED HEREON OR ARISING OUT OF, UNDER OR IN CONNECTION WITH
THE LOAN OR ANY RELATED LOAN OR LENDING TRANSACTION OR ANY AGREEMENT
CONTEMPLATED TO BE EXECUTED IN CONJUNCTION THEREWITH, OR ANY COURSE OF CONDUCT,
COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN), OR ACTIONS OF ANY
PARTY. THIS PROVISION IS A MATERIAL INDUCEMENT FOR LENDER MAKING THE LOAN.
[SIGNATURES ON FOLLOWING PAGE]
33
<PAGE>
IN WITNESS WHEREOF, the parties have entered into this Stock Pledge
Agreement as of the date first written above.
RIVERSIDE GROUP, INC.
By:_______________________________
Title:____________________________
("Borrower")
IMAGINE INVESTMENTS, INC.
By:______________________________
Title:_____________________________
("Lender")
<PAGE>
STOCK PLEDGE AGREEMENT
THIS STOCK PLEDGE AGREEMENT is entered into and effective as of August
27, 1999 (the "Effective Date"), by and between: (i) RIVERSIDE GROUP, INC., a
Florida corporation having its principal office in Jacksonville, Florida
("Borrower") and (ii) IMAGINE INVESTMENTS, INC., a Delaware corporation having
its principal office in Dallas, Texas ("Lender"). All capitalized terms defined
in that certain Loan Agreement dated as of the Effective Date between Borrower
and Lender (as amended, restated, modified or supplemented from time to time,
the "Loan Agreement") and not otherwise defined herein shall have the same
meaning herein as in the Loan Agreement.
RECITALS:
A. Pursuant to the terms of the Loan Agreement and the Note executed by
Borrower in favor of Lender in the face principal amount of One Million Five
Hundred Thousand Dollars ($1,500,000.00), Lender has agreed to extend a loan to
Borrower in the amount of One Million Five Hundred Thousand Dollars
($1,500,000.00) (the "Loan").
B. To induce Lender to make the Loan to Borrower, without which
inducement Lender would be unwilling to do so, Borrower has agreed to pledge all
of the shares of the issued and outstanding capital stock of Cybermax, Inc.
("Cybermax"), a Florida corporation, to Lender to secure the payment of the Loan
and all other obligations of Borrower in connection with the Loan, pursuant to
the terms and conditions of this Stock Pledge Agreement.
AGREEMENT:
NOW, THEREFORE, the parties hereby agree as follows:
1. PLEDGE AND DEPOSIT OF SHARES.
1.1 PLEDGE AND ASSIGNMENT. Borrower hereby pledges and assigns to Lender
and grants a security interest to Lender in 1,000 shares of the stock of
Cybermax (the "Stock"), as represented by Certificate Number 1, now standing in
Borrower's name and constituting 100% of the issued and outstanding capital
stock of Cybermax, which certificate was delivered by Borrower to Lender,
together with a duly executed blank stock power attached thereto, in connection
with the loan made by Lender to Buildscape, Inc. on March 12, 1999, and is
hereby redelivered to Lender, all as collateral security for the full and
punctual payment and due performance by Borrower of all its obligations under
the Loan Documents (the "Secured Obligations").
1.2 CERTIFICATES. The certificates or other instruments evidencing all
new shares of capital stock and all other securities, rights, warrants, options
and the like hereafter created in respect of the Stock, whether by stock split,
stock dividend, merger, consolidation or otherwise,
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<PAGE>
shall be delivered by Borrower to, and shall be held by, Lender under the terms
and conditions of this Stock Pledge Agreement and subject to the lien and
security interest herein granted, and the term Stock as used herein shall be
deemed to include all such new shares, securities, rights, warrants, options and
the like. In addition, any and all shares of stock of Cybermax which may be
owned or acquired by Borrower now or hereafter, whether created or acquired,
shall be deemed pledged to Lender as security pursuant to this Stock Pledge
Agreement, and all certificates representing said shares shall be immediately
delivered, properly endorsed to Lender, upon issuance to or receipt by Borrower.
Furthermore, Borrower agrees that it shall pledge to Lender, immediately upon
creation or purchase, any interest which it may create or acquire in any
partnership, corporation or other entity whose purpose includes the holding or
operation of properties in connection with or related to the business operations
of Cybermax.
2. COVENANTS. During the period the Stock is being held as security hereunder,
Borrower shall not, without the prior written consent of Lender, allow Cybermax
to (i) issue any additional capital stock or other equity securities of any kind
or options, subscription rights, warrants or other instruments with respect
thereto or any other instruments convertible into shares of its capital stock,
or sell or issue any treasury stock, (ii) merge into or with or consolidate with
any other corporation or business or otherwise participate in any reorganization
or sell or lease to others all or substantially all of its assets, (iii) amend
its Articles of Incorporation or By-Laws in any manner that would have a
material adverse effect on Lender's rights with respect to the Stock, or
liquidate or dissolve or take any steps to effect same, or (iv) effect a
recapitalization or alter its capital structure.
3. VOTING RIGHTS; DIVIDENDS, ETC.
3.1 VOTING OF STOCK. So long as no Event of Default shall have occurred,
Borrower shall be entitled to exercise any and all voting and/or consensual
rights and powers relating or pertaining to the Stock or any part thereof for
any purpose not inconsistent with the terms of this Stock Pledge Agreement.
3.2 PAYMENT OF DIVIDENDS AND DISTRIBUTIONS. All dividends and
distributions, regardless whether in cash, stock, rights, options or other
property, and all stock splits, stock dividends and the like and the proceeds of
all redemptions and liquidations that are made, paid or declared with respect to
the Stock shall be paid directly to Lender, and those dividends and
distributions that are paid in cash, shall, at Lender's sole election, either be
applied as a payment on the Secured Obligations or held by Lender as additional
security for the Secured Obligations, and those dividends and distributions that
are paid other than in cash shall be held by Lender as additional security for
the Secured Obligations (and Borrower shall execute all instruments in
connection therewith as are requested by Lender and hereby appoints Lender as
its attorney-in-fact to execute such instruments). Borrower represents and
warrants to Lender that it is the only duly authorized transfer agent authorized
to distribute all such dividends and distributions. If at any time a different
transfer agent is authorized to distribute any dividend or distribution,
Borrower shall (i) immediately notify Lender thereof and (ii) instruct such
transfer agent to send all dividends and distributions with respect to the Stock
to Lender, payable directly to Lender. Borrower agrees that any such transfer
agent may rely conclusively upon a copy of this Stock
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<PAGE>
Pledge Agreement for authorization to make and send such distributions and
dividends directly to Lender without the need for further authorization from, or
notification to, Borrower.
4. STATUS OF THE STOCK. Borrower hereby represents and warrants to Lender that
(a) the Stock is validly issued and outstanding, fully paid and non-assessable,
and constitutes 100% of the issued and outstanding capital stock of Cybermax;
(b) Borrower is the registered and absolute beneficial owner of the Stock; (c)
all the Stock is free and clear of liens, charges and encumbrances in favor of
persons other than Lender; (d) Borrower has the full power and authority to
pledge the Stock to Lender pursuant to this Stock Pledge Agreement; (e) the
Stock is freely pledgeable under this Stock Pledge Agreement without the
necessity of prior registrations or filings with any state securities department
of the Securities and Exchange Commission; and (f) Cybermax is a corporation
validly existing under the law of the State of Florida. No part of the Stock
shall be sold, transferred or further assigned by Borrower without the prior
written consent of Lender, which consent may be arbitrarily withheld so long as
this Stock Pledge Agreement is in effect.
5. MAINTENANCE OF PRIORITY OF PLEDGE. Borrower shall be liable for and shall
from time to time pay and discharge all taxes, assessments and governmental
charges imposed upon the Stock by any federal, state or local authority, the
liens of which would or might be held prior to the right of Lender in and to the
Stock or which are imposed on the holders and/or registered owners of the Stock.
Borrower shall not, at any time while this Stock Pledge Agreement is in effect,
do or suffer any act or thing whereby the rights of Lender in the Stock would or
might be materially impaired or diminished. Borrower shall execute and deliver
such further documents and take such further actions as may be required to
confirm the rights of Lender in and to the Stock or otherwise to effectuate the
intention of this Stock Pledge Agreement.
6. EVENTS OF DEFAULT. Each of the following shall be deemed an "Event of
Default" hereunder:
6.1 CROSS DEFAULT. The occurrence of any Event of Default under the
Loan Agreement, the Note or any other Loan Document, or under any other related
instrument or agreement;
6.2 DEFAULT HEREUNDER. The occurrence of any default of any kind
whatsoever under the terms, covenants and conditions of this Stock Pledge
Agreement which is not fully corrected to the complete satisfaction of Lender
within 5 days after Lender has given Borrower notice thereof.
7. REMEDIES UPON DEFAULT. Upon the occurrence of any Event of Default referred
to in Section 6 above, Lender shall have all rights and remedies in and against
the Stock and otherwise of a secured party under the Uniform Commercial Code as
enacted in the Commonwealth of Kentucky (the "UCC") and all other applicable
laws, and shall also have all of the rights provided herein, in the Note and in
all other Loan Documents, all of which rights and remedies shall be cumulative
to the fullest extent permitted by law. In connection with the foregoing, Lender
shall have the right:
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<PAGE>
7.1 VOTING RIGHTS. To exercise all voting rights and privileges
whatsoever with respect to the Stock, and to that end Borrower hereby
constitutes Lender as its proxy and attorney-in-fact for all purposes of voting
the Stock, and this appointment shall be deemed coupled with an interest and is
and shall be irrevocable until the Secured Obligations have been fully paid and
this Stock Pledge Agreement terminated, and all persons whatsoever shall be
conclusively entitled to rely upon Lender's verbal or written certification that
it is entitled to vote the Stock hereunder. Borrower shall execute and deliver
to Lender any and all additional proxies and powers of attorney that Lender may
desire in order to vote more effectively the Stock in its own name. Upon any
Event of Default hereunder, Lender may vote the Stock to remove the directors
and officers of Cybermax and to elect new such officers and directors who shall
thereafter manage the affairs of Cybermax, operate any of its properties, carry
on any business, and otherwise take any action with respect thereto as they
shall deem necessary and appropriate, and may also liquidate Cybermax and its
business, and may authorize the borrowing of money in the name of Cybermax and
the pledge of its assets to secure such borrowing.
7.2 RIGHT OF SALE. To declare the Note and the other Secured Obligations
immediately due and payable in full, and to sell the Stock in one or more lots,
and from time to time, upon 10 business days' prior written notice to Borrower
of the time and place of sale (which notice Borrower hereby conclusively agrees
is commercially reasonable), for cash or upon credit or for future delivery,
Borrower hereby waiving all rights, if any, of marshaling the Stock and any
other security for the payment of the Note and other Secured Obligations, and at
the option and in the sole discretion of Lender, to either:
(i) Sell the Stock at a public sale or sales, including a sale at or
on any broker's board or stock exchange; or
(ii) Sell the Stock at a private sale or sales.
Lender may bid for and acquire the Stock or any portion thereof at any
public sale, free from any redemption rights of Borrower, and in lieu of paying
cash therefor, may make settlement for the selling price of the Stock or any
part thereof by crediting the net selling price of the Stock against the Note
and other Secured Obligations, after deducting all of Lender's costs and
expenses of every kind and nature therefrom, including Lender's attorneys' fees
incurred in connection with realizing upon the Stock and enforcing the Loan
Documents and the Note, provided the same is not prohibited by the laws of the
Commonwealth of Kentucky.
From time to time Lender may, but shall not be obligated to, postpone the
time of any proposed sale of any of the Stock which has been the subject of a
notice as provided above, and also, upon 10 days' prior written notice to
Borrower (which notice Borrower conclusively agrees is commercially reasonable),
may change the time and/or place of such sale.
In the case of any sale by Lender of the Stock or any portion thereof on
credit or for future delivery, which may be elected at the option and in the
sole discretion of Lender, the Stock so sold may, at the sole option of Lender,
either be delivered to the purchaser or retained by Lender until the selling
price is paid by the purchaser, but in either event Lender shall incur no
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<PAGE>
liability, toBorrower or otherwise, in case of failure of the purchaser to take
up and pay for the Stock so sold. In case of any such failure, such Stock may be
sold again by Lender in the manner provided in this Section 7.
Borrower covenants and agrees that, during any period of sale or
liquidation of the Stock by Lender, Borrower shall not sell any other stock of
the Cybermax if such sale would restrict or limit Lender's sale of the Stock
under Rule 144 or other Rule of the Securities and Exchange Commission or if
such sale by Borrower would cause or contribute to a decline in the share price
of the Stock. Borrower further agrees in the event of any such sale or
liquidation by Lender, to execute any and all forms, including, but not limited
to, Forms 144 and customary broker's and seller's representation letters, to
enable Lender to effect the sale of the Stock. Borrower shall further take and
shall cause Cybermax to take all necessary actions to remove any restrictive
legend affecting the Stock, and to assist in the effectuation of the sale of the
Stock including, at Borrower's expense, the supplying of opinions of counsel
customarily required to effect such sales.
7.3 COSTS AND EXPENSES. After deducting all of Lender's costs and
expenses of every kind, including, but not limited to, legal fees and
registration (Securities and Exchange Commission and other) fees and expenses,
if any, incurred in connection with the sale of the Stock, Lender shall apply
the residue of the proceeds of any sale or sales of the Stock against the Note
and the other Secured Obligations, in the order of priority elected by Lender.
Lender shall not incur any liability to Borrower or otherwise as a result of the
sale of the Stock at any private sale or sales, and Borrower hereby waives any
claim arising by reason of (i) the fact that the price or prices for which the
Stock or any portion thereof is sold at such private sale or sales is less than
the price which would have been obtained at a public sale or sales or is less
than the amount due under the Note and other obligations secured hereby, even if
Lender accepts the first offer received and does not offer the Stock or any
portion thereof to more than one offeree, (ii) any delay by Lender in selling
the Stock following an Event of Default hereunder, even if the price of the
Stock thereafter declines, or (iii) the immediate sale of the Stock upon the
occurrence of an Event of Default hereunder, even if the price of the Stock
should thereafter increase. Borrower shall remain liable for any deficiency
remaining due under the Note, this Stock Pledge Agreement, any of the other Loan
Documents or any related documents or instruments.
8. NOTICES. All notices and other communications hereunder shall be in writing
and shall be deemed to have been duly given (i) upon being delivered personally
(or by confirmed telefax or other electronic delivery method); or (ii) four days
after being mailed by certified mail, return receipt requested, postage prepaid,
or (iii) one day after being sent by Federal Express or other reputable
overnight delivery service providing delivery confirmation, for next day
delivery, in each case to the parties at the following address (or at such other
address for a party as shall be specified by like notice):
If to Borrower:
Riverside Group, Inc.
7800 Belfort Parkway, Suite 100
Jacksonville, Florida 32256
Attention: Cathe Gray
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<PAGE>
If to Lender, to:
Imagine Investments, Inc.
8150 No. Central Expressway
Suite 1901
Dallas, Texas 75206
Attention: Gary Goltz, General Counsel
With a copy to:
Michael M. Fleishman, Esq.
Greenebaum Doll & McDonald PLLC
3300 National City Tower
Louisville, Kentucky 40202
9. MISCELLANEOUS.
9.1 FUTURE ADVANCES. This Stock Pledge Agreement also secures all
additional loans and/or future advances that may be made hereafter at any time
by Lender to Borrower.
9.2 GOVERNING LAW. The laws of the Commonwealth of Kentucky shall govern
the construction of this Stock Pledge Agreement and the rights, remedies and
duties of the parties hereunder.
9.3 SEVERABILITY. In the event that any one or more of the provisions
contained herein shall for any reason be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision hereof, and this Stock Pledge Agreement
shall be construed as if such invalid, illegal or unenforceable provision had
never been contained herein.
9.4 SUCCESSORS AND ASSIGNS. This Stock Pledge Agreement shall bind
Borrower and its successors and assigns, and shall inure to the benefit of
Lender and its successors and assigns.
9.5 TIME OF ESSENCE. Time shall be of the essence in the performance of
Borrower's obligations hereunder.
9.6 CAPTIONS. The several captions, headings, sections and subsections of
this Stock Pledge Agreement are inserted for convenience only and shall be
ignored in interpreting the provisions of this Stock Pledge Agreement.
9.7 COUNTERPARTS. This Stock Pledge Agreement may be executed in
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<PAGE>
several counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same instrument.
9.8 WAIVER. The failure of Lender to insist upon strict performance of
any of the terms, covenants, or conditions hereof shall not be deemed a waiver
of any of its rights or remedies and shall not be deemed a waiver of any
subsequent breach or default in any of such terms, covenants, or conditions.
9.9 MODIFICATIONS. This Stock Pledge Agreement may be modified or amended
only by written agreement executed by all of the parties hereto.
9.10 CONSENT TO JURISDICTION. Borrower agrees that in the event of any
litigation for collection of or relating to this Security Agreement,
jurisdiction and venue shall be proper and appropriate in any court sitting in
Louisville or Jefferson County, Kentucky, and Borrower hereby consents to such
jurisdiction and venue.
9.11 WAIVER OF JURY TRIAL. BORROWER HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVES ANY RIGHT BORROWER MAY HAVE TO A TRIAL BY JURY IN RESPECT
OF ANY LITIGATION BASED HEREON OR ARISING OUT OF, UNDER OR IN CONNECTION WITH
THE LOAN OR ANY RELATED LOAN OR LENDING TRANSACTION OR ANY AGREEMENT
CONTEMPLATED TO BE EXECUTED IN CONJUNCTION THEREWITH, OR ANY COURSE OF CONDUCT,
COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN), OR ACTIONS OF ANY
PARTY. THIS PROVISION IS A MATERIAL INDUCEMENT FOR LENDER MAKING THE LOAN.
10. TERMINATION. This Pledge Agreement shall terminate when the Note and all the
other Secured Obligations have been paid in full, at which time Lender shall
reassign and redeliver, without recourse upon or warranty by Lender and at the
expense of Borrower (or cause to be so reassigned and redelivered to Borrower,
to such person or persons as Borrower shall designate, or to such person as may
be legally entitled), against receipt, such of the Stock (if any) as shall not
have been sold or otherwise applied by Lender pursuant to the terms hereof and
shall still be held by it hereunder, together with appropriate instruments of
reassignment and release.
[SIGNATURES ON FOLLOWING PAGE]
-41-
<PAGE>
IN WITNESS WHEREOF, the parties have entered into this Stock Pledge
Agreement as of the date first written above.
RIVERSIDE GROUP, INC.
By:_______________________________
Title:____________________________
("Borrower")
IMAGINE INVESTMENTS, INC.
By:________________________________
Title:_____________________________
("Lender")
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<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Riverside Group, Inc. and Subsidiaries condensed consolidated balance sheet and
condensed consolidated statement of operations and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-START> Jan-01-1999
<PERIOD-END> Sep-30-1999
<EXCHANGE-RATE> 1
<CASH> 1,040
<SECURITIES> 0
<RECEIVABLES> 253
<ALLOWANCES> 462
<INVENTORY> 124
<CURRENT-ASSETS> 1,538
<PP&E> 1,167
<DEPRECIATION> 657
<TOTAL-ASSETS> 27,508
<CURRENT-LIABILITIES> 18,916
<BONDS> 0
0
0
<COMMON> 529
<OTHER-SE> (3,558)
<TOTAL-LIABILITY-AND-EQUITY> 27,508
<SALES> 1,269
<TOTAL-REVENUES> 1,312
<CGS> 454
<TOTAL-COSTS> 424
<OTHER-EXPENSES> 5,860
<LOSS-PROVISION> 124
<INTEREST-EXPENSE> 1,994
<INCOME-PRETAX> (5,427)
<INCOME-TAX> (5,427)
<INCOME-CONTINUING> (5,427)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,427)
<EPS-BASIC> (1.04)
<EPS-DILUTED> (1.04)
</TABLE>
